AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 11, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
7 WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
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FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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WEBSECURE, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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DELAWARE 7374 04-3296069
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
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1711 BROADWAY
SAUGUS, MASSACHUSETTS 01906
(617) 867-2300
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE
OFFICES AND PRINCIPAL PLACE OF BUSINESS AND NAME, ADDRESS AND TELEPHONE
NUMBER OF AGENT FOR SERVICE)
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COPIES TO:
PAUL D. BROUDE, ESQUIRE WILLIAM M. PRIFTI, ESQUIRE
ANDREW D. MYERS, ESQUIRE LYNNFIELD WOODS OFFICE PARK
O'CONNOR, BROUDE & ARONSON 220 BROADWAY, SUITE 204
950 WINTER STREET, SUITE 2300 LYNNFIELD, MASSACHUSETTS 01940
WALTHAM, MASSACHUSETTS 02154 TELEPHONE: (617) 593-4525
TELEPHONE: (617) 890-6600 FACSIMILE: (617) 598-5222
FACSIMILE: (617) 890-9261
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [x]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER UNIT OFFERING PRICE(1) FEE
---------- ---------- -------- ----------------- ---
<S> <C> <C> <C> <C>
Common stock, $.01 par
value per share
("Common Stock")(2) 1,150,000 $ 8.00 $ 9,200,000 $ 3,172.41
Redeemable Common
Stock Purchase
Warrants ("Redeemable
Warrants") 1,150,000 .20 230,000 79.31
Common Stock issuable
upon exercise of the
Redeemable
Warrants(3) 1,150,000 9.60 11,040,000 3,806.90
Representatives'
Warrant 1 100.00 100 .03
Redeemable Warrants
underlying the
Representatives'
Warrant 100,000 .26 26,000 8.97
Common Stock
underlying Redeemable
Warrants issuable upon
exercise of the
Representatives'
Warrant 100,000 10.66 1,248,000 430.34
Common Stock
underlying the
Representatives'
Warrant 100,000 10.40 1,040,000 358.62
Total Registration Fee $7,856.58
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes 150,000 shares of Common Stock subject to the Underwriters'
overallotment option.
(3) Includes 150,000 shares of Common Stock issuable upon exercise of Redeemable
Warrants subject to the Underwriters' overallotment option.
-------------
Pursuant to Rule 416, there are also being registered such additional shares
of Common Stock as may become issuable pursuant to antidilution provisions of
the Redeemable Warrants and the Representatives' Warrant.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
================================================================================
WEBSECURE, INC.
CROSS REFERENCE SHEET
Pursuant to Item 501 of Regulation S-B
<TABLE>
<CAPTION>
ITEM NUMBER OF FORM SB-2 LOCATION OR CAPTION IN PROSPECTUS
------------------------ ---------------------------------
<S> <C>
1. Front of the Registration Statement and Outside Front
Cover of Prospectus Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus Inside Front Cover Page; Outside Back Cover Page
3. Summary Information and Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page; Risk
Factors -- Absence of Public Market;
Underwriting
6. Dilution Dilution
7. Selling Security Holders Principal and Selling Stockholders
8. Plan of Distribution Outside Front Cover Page; Underwriting
9. Legal Proceedings Business -- Legal Proceedings
10. Directors, Executive Officers, Promoters and Control
Persons Management -- Directors and
Executive Officers
11. Security Ownership of Certain Beneficial Owners and
Management Principal and Selling Stockholders
12. Description of Securities Outside Front Cover Page; Description of
Securities
13. Interest of Named Experts and Counsel Not Applicable
14. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities Management -- Limitation on Officers' and
Directors' Liabilities
15. Organization Within Last Five Years Certain Transactions
16. Description of Business Business
17. Management's Discussion and Analysis or Plan of
Operation Plan of Operations
18. Description of Property Business -- Facilities
19. Certain Relationships and Related Transactions Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters Risk Factors -- Absence of Public
Market; Dividend Policy; Description of
Securities
21. Executive Compensation Management -- Executive Officers'
Compensation
22. Financial Statements Financial Statements
23. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure Not Applicable
</TABLE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED SEPTEMBER 11, 1996
PROSPECTUS
[LOGO]
WEBSECURE, INC.
1,000,000 SHARES OF COMMON STOCK AND
1,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
WebSecure, Inc., a Delaware corporation (the "Company"), hereby offers
1,000,000 shares (the "Shares") of common stock, $.01 par value per share (the
"Common Stock") and 1,000,000 redeemable common stock purchase warrants (the
"Redeemable Warrants"). The Common Stock and the Redeemable Warrants offered
hereby (sometimes hereinafter collectively referred to as the "Securities") may
be purchased separately in this offering (the "Offering"). Each Redeemable
Warrant entitles the holder to purchase one share of Common Stock at a price of
$9.60 per share commencing ninety (90) days from the date of this Prospectus
until _______, 1999. The Redeemable Warrants are redeemable by the Company at a
redemption price of $.20 per Redeemable Warrant at any time commencing 90 days
from the date of this Prospectus on 30 days' prior written notice, provided that
the average of the high and low sales prices of the Common Stock during 10
consecutive trading days ending within 20 days prior to the notice of redemption
equals or exceeds $12.00 per share. A certain stockholder of the Company (the
"Selling Stockholder") has granted the underwriters of the Offering (the
"Underwriters") an option, exercisable within 30 days after the date hereof, to
purchase up to an additional 150,000 shares of Common Stock to cover
overallotments, if any. See "DESCRIPTION OF SECURITIES."
Prior to this Offering, there has been no public market for the Common Stock
or the Redeemable Warrants and no assurance can be given that any such market
will develop or, if developed, that it will be sustained. It is currently
anticipated that the initial public offering prices will be between $7.00 and
$8.00 per share of Common Stock and $.20 per Redeemable Warrant. For the method
of determining the initial public offering price of the Common Stock and
Redeemable Warrants, see "RISK FACTORS" and "UNDERWRITING." The Company intends
to apply for listing of the shares of Common Stock and Redeemable Warrants
offered hereby on the American Stock Exchange ("AMEX") under the symbols "WBS"
and "WBS.WS", respectively.
__________________________
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE 6 AND "DILUTION."
__________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
------- ------------ ----------
<S> <C> <C> <C>
Per Share $ $ $
Per Redeemable Warrant $ $ $
------- ------------ ----------
Total(3) $ $ $
======= ============ ==========
</TABLE>
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(1) Does not reflect additional compensation to be received in the form of (a) a
3% non-accountable expense allowance and other compensation payable to
Coburn & Meredith, Inc. and Shamrock Partners, Ltd., the representatives of
the Underwriters (the "Representatives") and (b) a warrant (the
"Representatives' Warrant") to purchase up to 100,000 shares of Common Stock
at $10.40 price per share and/or up to 100,000 Redeemable Warrants at $.26
per Redeemable Warrant. In addition, the Company has agreed to indemnify the
Underwriters against certain civil liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act"). See
"UNDERWRITING."
(2) Before deducting additional expenses of the Offering payable by the Company,
estimated at $430,000, excluding the Representatives' non-accountable
expense allowance.
(3) The Selling Stockholder and the Company have granted the Underwriters an
option to purchase up to an additional 150,000 shares of Common Stock and up
to 150,000 Redeemable Warrants, respectively, on the same terms and
conditions set forth above, solely to cover overallotments, if any. If the
overallotment option is exercised in full, the total "Price to Public,"
"Underwriting Discount," "Proceeds to Company" and Proceeds to Selling
Stockholders will be $___ , $___ , $ and $___ , respectively. See
"UNDERWRITING."
________________________
The Shares and Redeemable Warrants are being offered on a "firm commitment
basis" by the Underwriters, when, as, and if delivered to and accepted by the
Underwriters and subject to prior sale, withdrawal or cancellation of the offer
without notice. It is expected that delivery of certificates representing the
Securities will be made at the clearing offices of Coburn & Meredith, Inc., New
York, New York, on or about
, 1996.
COBURN & MEREDITH, INC. SHAMROCK PARTNERS, LTD.
THE DATE OF THIS PROSPECTUS IS , 1996
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES OR THE
REDEEMABLE WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSCTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
Prior to this Offering, the Company has not been a reporting company under
the Securities Exchange Act of 1934, as amended (the"Exchange Act"). Subsequent
to this Offering, the Company intends to furnish to its stockholders annual
reports, which will include financial statements audited by independent
accountants, and such other periodic reports as it may determine to furnish or
as may be required by law.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus assumes an initial public offering price of $8.00 per share, no
exercise of the Underwriters' overallotment option, the Redeemable Warrants or
the Representatives' Warrant.
THE COMPANY
WebSecure, Inc. (the "Company"), a development stage company, is an Internet
service provider that offers Internet access and support services to businesses
for secure commercial transactions and communications over the Internet. The
Company plans to offer a broad range of marketing, sales and connectivity
solutions to businesses and, to a lesser extent, to individuals, including the
establishment of (i) commercial sites on the World Wide Web (the "Web"), (ii)
electronic store design, (iii) browsing and purchasing capabilities, and (iv)
transaction processing. The Company will also provide general Internet services,
such as connectivity to the Internet and electronic mail hosting services. By
offering turnkey solutions to commercial Internet needs, the Company plans to
become a "one-stop provider" of Internet products and services to businesses
seeking to establish a commercial presence over the Internet. In addition to the
Company's array of Internet services generally offered by providers, the Company
plans to offer customers the ability to engage in secure personal computer
("PC") to PC Internet commerce transactions, utilizing software applications for
business transactions that contain credit card or other confidential
information, and for confidential Internet communications purposes.
The Company has developed for marketing to the public comprehensive service
and support capabilities that include the following:
* Internet access and host services.
* Internet business development and marketing services.
* Internet secure commerce processing.
* Internet hardware and software.
* Internet training.
The range of customized service options include full Internet access
service, SLIP/PPP connection, Web browsing capability, electronic mail and
USENET News, among others.
The Company's Internet business development and marketing services also
provide commercial users with a back-end link from the user's Internet host site
to major accounting systems, including SBT, and business management support for
integrating secure Internet commerce into the user's existing accounting
financial systems. In addition, a turn-key arrangement is available to meet the
needs of individual users, along with sales and marketing consulting to
implement Internet commerce capability. The Company further offers support to
develop and maintain a Web host presence for businesses and to assist clients in
marketing and selling through the Internet. To assist businesses in utilizing
the Internet, the Company offers training classes in accessing and navigating
through the Internet, which classes are tailored to each user's environment,
including support for Windows, Windows 95, Windows NT and Macintosh client
access.
According to Input, a market research firm, it is estimated that worldwide
corporate spending on Internet technologies and services more than tripled
between 1994 and 1995, reaching approximately $12 billion in 1995. By the year
2000, Input projects total spending to reach $200 billion, reflecting the growth
in this industry. The Internet and the Web provide users with the potential for
a new commercial marketplace in which goods, services and information can be
marketed and sold, and over which other financial transactions can occur.
Although no assurances can be given, the Company believes that the use of the
Internet as a commercial medium will become more widespread with the continued
development and acceptance of systems providing secure execution of financial
transactions.
From the net proceeds of this Offering, the Company expects to devote
approximately 30% to increased marketing and sales activity and approximately
30% for programming research and service development.
The Company was incorporated under Delaware law on July 19, 1995. The
Company's executive offices are located at 1711 Broadway, Saugus, Massachusetts
01906 and its telephone number is (617) 867-2300.
3
THE OFFERING
Securities Offered by the
Company................. 1,000,000 shares of Common Stock and 1,000,000
Redeemable Warrants. Each Redeemable Warrant
entitles the holder to purchase one share of Common
Stock at a price of $9.60 per share commencing 90
days from the date of this Prospectus until ____ ,
1999. The Redeemable Warrants may be redeemed by the
Company if the average of the high and low sales
prices of the Common Stock equals or exceeds $12.00
per share during 10 consecutive trading days. See
"DESCRIPTION OF SECURITIES."
Shares of Common Stock to
be Outstanding
After Offering.......... 5,605,000 shares(1)(2)
Use of Proceeds........... The net proceeds of the Offering will be used for
selling and marketing; research and development;
purchase or lease of capital equipment and software;
repayment of indebtedness; and working capital and
general corporate purposes. See "USE OF PROCEEDS."
Proposed AMEX Symbols(3):
Common Stock .......... WBS
Redeemable Warrants ... WBS.WS
- ---------
(1) Excludes (a) 800,000 shares of Common Stock reserved for issuance upon
exercise of stock options which may be granted under the Company's 1996
Stock Option Plan, of which options to purchase 394,800 shares are
outstanding as of the date of this Prospectus and (b) 60,000 shares of
Common Stock reserved for issuance upon exercise of stock options which may
be granted under the Company's 1996 Formula Stock Option Plan, of which
options to purchase 5,000 shares are outstanding as of the date of this
Prospectus. See "RISK FACTORS -- Substantial Options and Warrants Reserved"
and "MANAGEMENT."
(2) Includes 2,500,000 shares of Common Stock issued upon the conversion of the
625,000 shares of Class B Common Stock outstanding as of the date of this
Prospectus.
(3) No assurance can be given that an active trading market will develop, or if
developed, will be sustained for the Common Stock or the Redeemable
Warrants. See "RISK FACTORS -- Absence of Public Market."
4
SUMMARY FINANCIAL INFORMATION
The following sets forth certain historical financial information of the
Company.
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM FROM
NINE MONTHS INCEPTION INCEPTION
ENDED (JULY 19, 1995) TO (JULY 19, 1995) TO
MAY 31, 1996 AUGUST 31, 1995 MAY 31, 1996
------------ ----------------- -----------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue $ 41,772 $ -- $ 41,772
Loss from operations (7,231,563) (33,626) (7,265,189)
Net loss (7,258,649) (33,626) (7,292,275)
Net loss per common and common equivalent share(1) (1.51) (0.01) (1.52)
Shares used in computing net loss per common and common
equivalent share(1) 4,804,900 4,804,900 4,804,900
</TABLE>
<TABLE>
<CAPTION>
MAY 31, 1996
----------------------------
ACTUAL AS ADJUSTED(2)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets $ 966,114 $ 7,670,114
Total assets 1,860,516 8,564,516
Working capital (deficiency) (8,095) 6,695,905
Total liabilities 1,302,066 1,302,066
Stockholders' equity 558,450 7,262,450
</TABLE>
- ---------
(1) Computed on the basis described in Note 2 of Notes to Financial Statements.
(2) Gives effect to the receipt by the Company of the estimated net proceeds of
approximately $6,704,000 from the sale of the Securities offered hereby. See
"RISK FACTORS -- Substantial Options and Warrants Reserved" and
"UNDERWRITING."
5
RISK FACTORS
An investment in the Company is speculative in nature and should not be
considered by investors who are not able to bear the risk of losing their entire
investment. The following risk factors should be considered carefully in
addition to the other information contained elsewhere in this Prospectus before
purchasing the Common Stock or Redeemable Warrants offered hereby.
Limited Operating History; Accumulated Deficit; No Assurance of Successful
Operations; Qualified Report of Independent Certified Public Accountants. The
Company is a development stage company founded in July 1995 and presently has
only a limited number of customers utilizing its services on a trial basis. The
Company does not intend to offer most of its planned services commercially until
the second half of 1996. Accordingly, the Company has only a limited operating
history upon which an evaluation of the Company and its prospects can be based.
The Company's prospects are subject to all of the risks encountered by a company
in an early stage of development, particularly in light of the uncertainties
relating to the new and evolving markets in which the Company intends to
operate. To address these risks, the Company must, among other things, further
develop and/or license supporting software from third parties; commercially
offer its services; successfully implement its marketing strategy; respond to
competitive developments; attract, retain and motivate qualified personnel; and
develop and upgrade its technology. No assurance can be given that the Company
will succeed in addressing any or all of these issues and the failure to do so
would have a material adverse effect on the Company's business, prospects,
financial condition and operating results. In addition, the report by the
Company's independent certified public accountants on the Company's financial
statements for the nine months ended May 31, 1996, the period from inception
(July 19, 1995) to August 31, 1995 and for the cumulative period from inception
(July 19, 1995) to May 31, 1996 states that the Company incurred a cumulative
net loss of $7,292,275 through May 31, 1996 which raises substantial doubt about
the Company's ability to continue as a going concern without the anticipated
proceeds from the Offering and increased revenues and earnings from operations.
The Company anticipates realizing only limited revenue during 1996, and the
Company's ability to generate meaningful revenue thereafter is subject to
substantial uncertainty. The Company anticipates that its operating expenses
will increase substantially in the foreseeable future as it further develops its
technology and offers its services, increases its sales and marketing
activities, creates and expands the distribution channels for its services and
broadens its customer support capabilities. Accordingly, the Company expects to
incur losses for the foreseeable future. No assurance can be given that the
Company's services will be rendered successfully or on a timely basis, or that
the Company will be successful in obtaining market acceptance of its services.
No assurance can be given that the Company will be able to achieve or sustain
operating profitability. See "PLAN OF OPERATIONS."
Early Stage of Market Development; Unproven Acceptance of the Company's
Proposed Products and Services. Most of the Company's services are designed as a
means of facilitating commerce over the Internet, which is a worldwide
communications system that allows users to transmit and receive messages and
information over telephone and other communications lines using terminals or
computers. The market for the Company's services is at a very early stage of
development, is evolving rapidly, and is characterized by an increasing number
of market entrants who have introduced or are developing competing products and
services. As is typical for a new and rapidly evolving industry, demand and
market acceptance for recently introduced products and services are subject to a
high level of uncertainty. The adoption of the Internet for commerce and as a
means of communication, particularly by those individuals and enterprises that
historically have relied upon traditional means of commerce and communication,
will require a broad acceptance of new methods of conducting business and
exchanging information. Enterprises that already have invested substantial
resources in other methods of conducting business may be reluctant or slow to
adopt a new strategy that may limit or compete with their existing business.
Individuals with established patterns of purchasing goods and services and
effecting payments may be reluctant to alter those patterns. Moreover, the
security and privacy concerns of existing and potential users of the Company's
services, as well as concerns related to confidentiality, may inhibit the growth
of Internet commerce and communication generally, and market acceptance of the
Company's services in particular.
6
The use of the Company's services is dependent in part upon the continued
development of an industry and infrastructure for providing Internet access and
carrying Internet traffic. The Internet may not prove to be a viable commercial
marketplace or communications network because of inadequate development of the
necessary infrastructure, such as adequate capacity, a reliable network,
acceptable levels of security or timely development of complementary products,
such as high speed modems. If the Company's market fails to develop or develops
more slowly than expected, or if the infrastructure for the Internet is not
adequately developed or the Company's services do not achieve market acceptance
by a significant number of individuals and businesses, the Company's business,
financial condition, prospects and operating results will be materially and
adversely affected.
Dependence on Third-Party Intellectual Property Rights. The Company
currently licenses certain proprietary and patented technology from third
parties. No assurance can be given that any patented technology licensed by the
Company will provide meaningful protection from competitors. Even if a
competitor's products were to infringe on patents licensed by the Company, it
would be costly for the Company to enforce its rights in an infringement action
and would divert funds and management resources from the Company's operations.
See "BUSINESS -- Proprietary Information."
All of the Company's planned services incorporating data encryption and
authentication is based on proprietary software of RSA Data Security ("RSA"),
which is licensed, on a non-exclusive basis, through SBT Corporation, a
nonaffiliated company ("SBT"). The Company has licensed the rights to another
encryption technology called Titan(tm) from a nonaffiliated company. No
assurance can be given as to when, or if, the Titan(tm) encryption technology
will be ready for commercial use by the Company. Until such technology may be
used by the Company, as to which no assurance can be given, the Company intends
to continue to use the RSA encryption software licensed through SBT. No
assurance can be given that the encryption software presently licensed by the
Company will continue to be available to the Company on commercially reasonable
terms, or at all. In the past, certain parties have claimed to have rights with
respect to the encryption software licensed by the Company. If such claims are
pursued successfully by such parties, the Company may be prevented from using
the software or, in the alternative, the Company may be forced to pay an
additional royalty to use such software.
The Company also licenses, on a non-exclusive basis, accounting and business
support software from SBT. No assurance can be given that the Company's third
party licenses will continue to be available to the Company on commercially
reasonable terms, or at all. The loss of or inability to maintain any of these
software licenses could result in delays in introduction of the Company's
services until equivalent software, if available, is identified, licensed and
integrated into the Company's planned services, which could have a material
adverse effect on the Company's business, financial condition, prospects and
operating results. See "BUSINESS -- Proprietary Information" and "BUSINESS --
Research and Development."
Competition. The market for Internet-based software and services is new and
rapidly evolving, resulting in a dynamic competitive environment. The Company
competes with many companies that have substantially greater financial,
marketing, technical and human resources than the Company. In addition, there
are many companies that may enter the market in the future with new
technologies, products and services that may be competitive with services
offered or to be offered by the Company. Because there are many potential
entrants to the field, it is extremely difficult to assess which companies are
likely to offer competitive products and services in the future, and in some
cases it is difficult to discern whether an existing product or service is
competitive with the Company's services. The Company expects competition to
persist and intensify in the future.
Competitive factors in the Internet-based software and services market
include core technology, breadth of product functionality and features, product
performance and quality, marketing and distribution resources, customer service
and support and price. Additional competition could come from other Internet
companies and software and hardware vendors that incorporate Internet payment
capabilities into their products or other Internet services companies that
provide hosting, connectivity, Internet training and domain registration
services. The payment mechanisms used by the Company in the provision of its
services utilize existing credit card verification procedures. Certain of the
Company's competitors and potential competitors have developed or are developing
new methods to transmit, verify and accept credit card payments over the
Internet. In this regard, MasterCard and Visa recently announced that they would
work together to establish a single industry standard for secure electronic
transactions. These and other potential new payment
7
mechanisms may be perceived to be superior to those employed by the Company and
could render the Company's services unmarketable. In addition, if an industry
standard is established, no assurance can be given that the technology upon
which such standard is based will be available to the Company on commercially
reasonable terms, or at all, which could have a material adverse effect on the
Company's business, financial condition, prospects and operating results.
Virtually all of the Company's current and potential competitors have longer
operating histories, greater name recognition, larger installed customer bases
and significantly greater financial, technical and marketing resources than the
Company. Such competitors may be able to undertake more extensive marketing
campaigns, adopt more aggressive pricing policies and make more attractive
offers to potential customers. In addition, many of the Company's current or
potential competitors, such as Netscape, Microsoft and AT&T have broad
distribution channels that may be used to bundle competing products directly to
end-users or purchasers. If such competitors were to bundle products that
compete with the Company for sale to their customers, the demand for the
Company's services may be substantially reduced, and the ability of the Company
to broaden the utilization of its services would be substantially diminished. No
assurance can be given that the Company will be able to compete effectively with
current or future competitors or that such competition will not have a material
adverse effect on the Company's business, financial condition, prospects and
operating results. See "BUSINESS -- Competition."
Potential Fluctuations in Quarterly Operating Results. As a result of the
Company's limited operating history, the Company has only limited historical
financial data for quarterly periods on which to base planned operating
expenses. The Company's planned expense levels are based in part on its
development and marketing requirements and anticipated competition, as well as
its expectations as to future revenue. However, the Company has recognized very
limited revenue to date, which makes future revenue levels difficult to
forecast. The Company may be unable to adjust its spending levels on a timely
basis to compensate for unexpected revenue shortfalls. In addition, the Company
anticipates that its operating expenses will increase substantially in the
future as the Company continues to develop and market its initial services,
seeks to increase its selling and marketing activities, attempts to create and
expand the distribution channels for its services, and broadens its customer
support capabilities. The inability of the Company to offer its services on a
timely basis or any material shortfall in demand for the Company's services in
relation to the Company's expectations would have a material adverse effect on
the Company's business, financial condition, prospects and operating results.
The Company expects to experience significant fluctuations in future
quarterly operating results that may be caused by many factors. These factors
include, among others, the timing of the introduction of, or enhancements to,
the Company's services; demand for the Company's services; the timing of
introduction of products or services by the Company's competitors; the mix of
the Company's services provided, market acceptance of Internet commerce, the
timing and rate at which the Company increases its expenses to support projected
growth; competitive conditions in the industry and general economic conditions.
The Company believes that period-to-period comparisons of its operating results
are not meaningful and should not be relied upon as any indication of future
performance. Due to the foregoing factors, among others, it is likely that the
Company's future quarterly operating results will not meet the expectations of
market analysts or investors from time to time or at all, which may have a
material adverse effect on the market price of the Company's Securities. See
"PLAN OF OPERATIONS."
Development of New Services, Industry Acceptance and Technological Change. A
substantial portion of the Company's anticipated revenue will be derived from
fees charged to businesses and individuals for transactions effected through the
Company. Accordingly, broad acceptance of the Company's services by these
businesses and individuals is critical to the Company's success, as is the
Company's ability to design, develop, test, introduce and support new services
and enhancements on a timely basis that meet changing customer needs and respond
to technological developments and emerging industry standards. The market for
the Company's proposed services is characterized by rapidly changing technology
and evolving industry standards. The Company's proposed services are designed
around certain technical standards with respect to data encryption and current
and future sales of the Company's services will be dependent on industry
acceptance of such standards. While the Company intends to provide compatibility
with the standards promulgated by leading industry
8
participants and groups, widespread adoption of a proprietary or closed standard
could preclude the Company from effectively doing so. Moreover, a number of
leading industry participants have announced their intention to enter into or
expand their position in the market for Internet payments through the
development of new technologies and standards. No assurance can be given that
the Company's services will achieve market acceptance; that the Company will be
successful in developing and introducing its proposed services or new services
that meet changing customer needs; that the Company will be able to respond to
technological changes or evolving industry standards in a timely manner, if at
all; or that the standards upon which the Company's services are or will be
based will be accepted by the industry. In addition, no assurance can be given
that services or technologies developed by others will not render the Company's
services noncompetitive or obsolete. The inability of the Company to respond to
changing market conditions, technological developments, evolving industry
standards or changing customer requirements, or the development of competing
technology or products that renders the Company's services noncompetitive or
obsolete, would have a material adverse effect on the Company's business,
financial condition, prospects and operating results. See "BUSINESS -- Marketing
and Sales."
Risks of Defects and Development Delays. The Company has not sold a material
amount of its services and proposed services, in part because these services
require additional software development. Services based on sophisticated
software and computing systems often encounter development delays and the
underlying software may contain undetected errors or failures when introduced or
when the volume of services provided increases. The Company may experience
delays in the development of the software and computing systems underlying the
Company's proposed services. In addition, there can be no assurance that,
despite testing by the Company and potential customers, errors will not be found
in the underlying software, or that the Company will not experience development
delays, which could result in delays in the market acceptance of its services
and could have a material adverse effect on the Company's business, financial
condition, prospects and operating results. See "BUSINESS -- Research and
Development."
Dependence on Key Personnel. The Company's performance is substantially
dependent on the performance of its executive officers and key employees, most
of whom have worked together for only a short period of time. The Company is
dependent on its ability to retain and motivate high quality personnel,
especially its management and development teams. The Company does not have "key
person" life insurance policies on any of its employees. The loss of the
services of any of its key employees could have a material adverse effect on the
Company's business, financial condition, prospects and operating results. The
Company's future success also depends on its continuing ability to identify,
hire, train and retain highly qualified technical and managerial personnel.
Competition for such personnel is intense. No assurance can be given that the
Company will be able to attract, assimilate or retain qualified technical and
managerial personnel in the future, and the failure of the Company to do so
would have a material adverse effect on the Company's business, financial
condition, prospects and operating results. See "BUSINESS -- Employees" and
"MANAGEMENT."
Limited Sales Force; Evolving Distribution Channels. The Company has few
sales and marketing employees and does not have established distribution
channels for its services. In order to generate substantial revenue, the Company
must achieve broad distribution of its services to businesses and individuals
and secure general adoption of its services and technology. No assurance can be
given as to the ability of the Company to generate sufficient demand for its
services and the inability of the Company to do so would have a material adverse
effect on the Company's business, financial condition, prospects and operating
results. See "BUSINESS -- Marketing and Distribution."
Dependence on Intellectual Property Rights; Risk of Infringement. The
Company's success and ability to compete are dependent in part upon its
proprietary technology relating to the encryption of credit card payment
information over the Internet. The Company has no patents and relies on
applicable copyright, trade secret and trademark laws to protect certain
proprietary information of the Company. To the extent proprietary technology is
involved, the Company relies on trade secrets that it seeks to protect, in part,
through confidentiality agreements with certain employees, consultants and other
parties. No assurance can be given that these agreements 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
9
known to, or independently developed by, existing or potential competitors of
the Company. The Company generally does not seek to protect its proprietary
information through patents or registered trademarks, although it may seek to do
so in the future. The Company may be involved from time to time in litigation to
determine the enforceability, scope and validity of its rights. In addition, no
assurance can be given that the Company's products will not infringe any patents
of others. Litigation in order to protect the Company's intellectual property
rights could result in substantial cost to the Company and diversion of effort
by the Company's management and technical personnel. See "BUSINESS --
Proprietary Information."
Risks Associated with Encryption Technology. A significant barrier to
Internet commerce is the secure exchange of financial information over public
networks. The Company relies on encryption and authentication technology
licensed from third parties to provide the security and authentication necessary
to effect the secure exchange of financial information over the Internet,
including public key cryptography technology licensed from RSA. No assurance can
be given that advances in computer capabilities, new discoveries in the field of
cryptography or other events or developments will not result in a compromise or
breach of the RSA or other algorithms used by the Company to protect customer
transaction data. In August and September 1995, certain RSA algorithms used by
Netscape were compromised. There can be no assurance that the Company's security
will not likewise be compromised. If any such compromise of the Company's
security were to occur, it could have a material adverse effect on the Company's
business, financial condition, prospects and operating results. In addition, no
assurance can be given that existing security systems of others will not be
penetrated or breached, which could have a material adverse effect on the market
acceptance of Internet security services. This could have a material and adverse
effect on the Company's business, financial condition, prospects and operating
results.
Government Regulation and Legal Uncertainties. The Company is not currently
subject to direct regulation by any government agency, other than regulations
applicable to businesses generally, and there are currently few laws or
regulations directly applicable to access to, or commerce on, the Internet.
However, due to the increasing popularity and use of the Internet, it is
possible that a number of laws and regulations may be adopted with respect to
the Internet, covering issues such as user privacy, pricing and characteristics
and quality of products and services. The recently enacted Telecommunications
Reform Act of 1996 imposes criminal penalties on anyone who distributes obscene,
lascivious or indecent communications on the Internet. The adoption of any laws
or regulations governing commerce on the Internet may result in decreased growth
of the Internet, which could have an adverse effect on the Company's business,
financial condition, prospects and operating results. Moreover, the
applicability to the Internet of existing laws governing issues such as property
ownership, libel and personal privacy is uncertain. Further, due to the
encryption technology contained in the Company's products, such products are
subject to U.S. export controls. No assurance can be given that such export
controls, either in their current form or as may be subsequently enacted, will
not delay the introduction of new products or limit the Company's ability to
distribute products outside the United States or electronically. While the
Company intends to take precautions against unlawful exportation, the global
nature of the Internet makes it virtually impossible to effectively control the
distribution of the Company's products. In addition, federal or state
legislation or regulation may further limit levels of encryption or
authentication technology. Further, various countries regulate the import of
certain encryption technology and have adopted laws relating to personal privacy
issues which could limit the Company's ability to distribute products in those
countries. Any such export or import restrictions, new legislation or regulation
or government enforcement of existing regulations could have a material adverse
impact on the Company's business, financial condition, prospects and operating
results.
Future Capital Needs; Uncertainty of Additional Financing. The Company
currently anticipates that its available cash resources combined with the net
proceeds of this Offering, as well as anticipated funds from operations, will be
sufficient to meet its presently anticipated working capital and capital
expenditure requirements for at least the next 12 months. Thereafter, the
Company may need to raise additional funds. The Company may need to raise
additional funds sooner in order to fund more rapid expansion, to develop new or
enhanced services, to respond to competitive pressures or to acquire
complementary businesses or technologies. If additional funds are raised through
the issuance of equity securities, the percentage ownership of the stockholders
of the Company will be reduced, stockholders
10
may experience additional dilution, or such equity securities may have rights,
preferences or privileges senior to those of the holders of the Company's Common
Stock. No assurance can be given that additional financing will be available
when needed on terms favorable to the Company or at all. If adequate funds are
not available or are not available on acceptable terms, the Company may be
unable to develop or enhance its services, take advantage of future
opportunities or respond to competitive pressures, which could have a material
adverse effect on the Company's business, financial condition, prospects and
operating results. See "DILUTION," "USE OF PROCEEDS" and "PLAN OF OPERATIONS --
Liquidity and Capital Resources."
Management of Growth. If there is market acceptance for the services to be
offered by the Company, the Company anticipates that it will be required to
expand its operations to address such market demand. In addition, the Company
anticipates significantly increasing the size of its research and development,
sales and marketing and customer support staff following the completion of this
Offering. There can be no assurance that such internal expansion will be
successfully completed, that such expansion will result in market acceptance of
the Company's services, that such expansion will generate sufficient revenues,
or that the Company will be able to compete successfully against the
significantly more extensive and well-funded sales and marketing and research
and development operations of the Company's competitors. In addition, a
substantial number of the Company's employees were only recently hired, thereby
subjecting the Company to increased risk of employee turnover. The Company's
rapid growth and the integration of operations is expected to place a
significant strain on the Company's managerial, operational and financial
resources. The inability of the Company to promptly address and respond to these
circumstances could have a material adverse effect on the Company's business,
financial condition, prospects or operating results.
Risk of Loss From Returned Transactions, Merchant Fraud or Erroneous
Transmissions. The Company intends to utilize two principal fund transfer
systems: the automated clearinghouse ("ACH") system for electronic fund
transfers and the national credit card systems (e.g., American Express,
Discover, MasterCard and Visa) for electronic credit card settlements. In its
use of these established payment systems, the Company may bear some of the
credit risks normally assumed by other users of these systems arising from
returned transactions caused by unauthorized use, disputes, theft or fraud. The
Company also may bear some risk of merchant fraud and transmission errors if it
is unable to have erroneously transmitted funds returned by an unintended
recipient. In addition, the agreement between the Company's users of its
services for allocation of these risks will be in electronic form, and while
digitally signed, will not be manually signed and hence may not be enforceable.
Finally, the Company may be subject to merchant fraud, including such actions as
inputting false sales transactions or false credits. Returned transactions,
merchant fraud or erroneous transmissions could have a material adverse effect
on the Company's business, financial condition, prospects or operating results.
See "BUSINESS -- Seamless Commerce(tm) over the World Wide Web."
System Interruption and Security Risks; Potential Liability and Lack of
Insurance. The Company's operations are dependent on its ability to protect its
computer system from interruption due to system malfunction or due to damage
from fire, earthquake, power loss, telecommunications failure, unauthorized
entry or other events, many of which are beyond the Company's control. Any
malfunction, damage, failure or other condition or event that causes
interruptions in the Company's operations could have a material adverse effect
on the Company's business, financial condition, prospects or operating results.
The Company has experienced disruption in its computer systems in the past due
to human error and it is possible that the Company may experience similar
disruptions in the future. Most of the Company's computer equipment, including
its processing equipment, is currently located at a single site. While the
Company believes that its existing and planned precautions of redundant systems,
regular data backups and other procedures are adequate to prevent any
significant system outage or data loss, no assurance can be given that such
procedures will be adequate to prevent or ameliorate any failure or loss.
Despite the implementation of security measures, the Company's data
infrastructure may also be vulnerable to computer viruses, hackers or similar
disruptive problems caused by its customers, other Internet users or otherwise,
which may result in significant liability to the Company and also may deter
potential customers from using the Company's services. Persistent problems
continue to affect public and private data networks. The Company intends to
11
limit its liability to customers, including liability arising from the failure
of the security features contained in the Company's system and services, through
contractual provisions. However, no assurance can be given that such limitations
will be enforceable. The Company currently does not have product liability
insurance to protect against these risks and no assurance can be given that such
insurance will be available to the Company on commercially reasonable terms or
at all.
Bank Failure; Limitation on Access to Funds. Certain of the Company's
services may involve holding funds of individuals in financial institutions.
These funds will be held in accounts by the Company as agent for these
individuals. The Company will use reasonable business judgment in selecting the
financial institutions in which funds are held, and will place funds only in
banks which are subject to state or federal regulation (or the non-U.S.
equivalent), are insured by the Federal Deposit Insurance Corporation and are
believed by the Company to be financially sound. Furthermore, the Company
believes that because the user funds would be held in a fiduciary or trust
capacity by the Company, they would not be subject to the claims of the
Company's creditors or a bankruptcy trustee. There can be no assurance, however,
that should there be a failure of a financial institution in which the Company
has placed user funds, or should a creditor or trustee of a user or of the
Company seek control over an agency account containing user funds, that the
Company would not be subject to litigation and possible liability to users. The
Company does not have insurance to protect against certain of these risks, and
there is no assurance that such insurance will become available, or if made
available, would be affordable to the Company.
No Prior Public Market; Possible Volatility of Stock Price. Prior to this
Offering, there has been no public market for the Company's Common Stock or
Redeemable Warrants, and there can be no assurance that an active public market
for the Common Stock or Redeemable Warrants will develop or be sustained after
the Offering. The initial offering price will be determined by negotiation
between the Company and the Underwriters based upon several factors. See
"UNDERWRITING." The market price of the Company's Common Stock and Redeemable
Warrants is likely to be highly volatile and could be subject to wide
fluctuations in response to quarterly variations in operating results,
announcements of technological innovations or new software or services by the
Company or its competitors, changes in financial estimates by securities
analysts, or other events or factors, many of which are beyond the Company's
control. In addition, the stock market has experienced significant price and
volume fluctuations that have particularly affected the market prices of equity
securities of many high technology companies and that often have been unrelated
to the operating performance of such companies. These broad market fluctuations
may adversely affect the market price of the Company's Common Stock and
Redeemable Warrants. In the past, following periods of volatility in the market
price for a company's securities, securities class action litigation has often
been instituted. Such litigation could result in substantial costs and a
diversion of management attention and resources, which could have a material
adverse effect on the Company's business, financial condition, prospects or
operating results.
Shares Eligible for Future Sale. Sales of substantial numbers of shares of
Common Stock in the public market following this Offering could adversely affect
the market price for the Common Stock. Upon completion of the Offering, the
Company will have outstanding an aggregate of 5,605,000 shares of Common Stock,
assuming no exercise of outstanding options and warrants. Of these shares, all
of the shares sold in this Offering will be freely tradeable without restriction
or further registration under the Securities Act of 1933, as amended (the
"Securities Act"), unless such shares are purchased by "affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act
("Affiliates"). The remaining 4,605,000 shares of Common Stock held by existing
stockholders are "restricted securities" as that term is defined in Rule 144
under the Securities Act (the "Restricted Shares"). Restricted Shares may be
sold in the public market only if registered or if they qualify for an exemption
from registration. Between December 1997 and April 1998 all of the 4,605,000
shares of Common Stock outstanding as of the date of this Prospectus will become
available for sale under Rule 144 promulgated under the Securities Act. All of
the Company's officers, directors and holders of 5% or more of the Common Stock
have agreed not to sell shares of Common Stock beneficially held by them for a
period of 13 months following the date of this Prospectus (except for shares of
Common Stock subject to the Underwriters' overallotment option) without the
Representatives' written consent. In addition, the Company has agreed that it
will not issue any shares of Common Stock for a period
12
of 13 months following the date of this Prospectus without the Representatives'
written consent, except for shares of Common Stock issuable upon exercise of
stock options that have been or may be granted under the Company's 1996 Stock
Option Plan (the "Plan") and 1996 Formula Stock Option Plan (the "Formula
Plan"). See "DESCRIPTION OF SECURITIES" and "SHARES ELIGIBLE FOR FUTURE SALE."
Dilution; Possible Right to Purchase Additional Shares. Investors
participating in this Offering will incur immediate and substantial dilution. To
the extent outstanding options or warrants to purchase the Company's Common
Stock are exercised, there will be further dilution. See "DILUTION."
Substantial Options and Warrants Reserved; Representatives' Warrant. Under
the Plan and the Formula Plan, the Company may issue options to purchase up to
an aggregate of 860,000 shares of Common Stock to employees, officers,
directors, and consultants. Options to purchase 399,800 shares are outstanding
under the Plan and Formula Plan as of the date of this Prospectus. In addition,
the Redeemable Warrants offered hereby are exercisable to purchase shares of
Common Stock at any time commencing 90 days from the date of this Prospectus
until ___ , 1999. The Company will also sell to the Representatives the
Representatives' Warrant to purchase up to 100,000 shares of Common Stock at a
price of $10.40 and up to 100,000 Redeemable Warrants at $0.26 per Redeemable
Warrant. The Redeemable Warrants underlying the Representatives' Warrant are
exercisable at $10.66 per share. The existence of the Redeemable Warrants, the
Representatives' Warrant and the options that may be issued under the Plans or
otherwise, may prove to be a hindrance to future financing efforts by the
Company. In addition, the exercise of any such options or warrants may further
dilute the net tangible book value of the Common Stock. Further, the holders of
such options and warrants may exercise them at a time when the Company would
otherwise be able to obtain additional equity capital on terms more favorable to
the Company. See "MANAGEMENT -- Stock Option Plans" and "UNDERWRITING."
The Company has agreed that, under certain circumstances, it will register
under federal and state securities laws the Representatives' Warrant and/or the
Securities issuable thereunder. In addition, if the Representatives should
exercise their registration rights to effect the distribution of the
Representatives' Warrant or Securities underlying the Representatives' Warrant,
the Representatives, prior to and during such distribution, will be unable to
make a market in the Company's securities. If the Representatives cease making a
market, the market and market prices for the Securities may be adversely
affected, and holders thereof may be unable to sell or otherwise dispose of the
Securities. See "UNDERWRITING."
Redeemable Warrant Solicitation. Upon the exercise of the Redeemable Warrants
more than one year after the date of this Prospectus, and to the extent not
inconsistent with the guidelines of the National Association of Securities
Dealers, Inc., and the Rules and Regulations of the Securities and Exchange
Commission (the "Commission"), the Company has agreed to pay the Representatives
a commission equal to five percent of the exercise price of the Redeemable
Warrants in connection with solicitations of exercises of Redeemable Warrants
made by the Representatives. However, no compensation will be paid to the
Representatives in connection with the exercise of the Redeemable Warrants if
(a) the market price of the underlying shares of Common Stock is lower than the
exercise price, (b) the Redeemable Warrants are exercised in an unsolicited
transaction, or (c) the Redeemable Warrants subject to the Representatives'
Warrant are exercised. In addition, in connection with any solicitation by the
Representatives after the date of this Prospectus of Redeemable Warrant
exercises, unless granted an exemption by the Commission from Rule 10b-6
promulgated under the Exchange Act, the Representatives and any other soliciting
broker-dealer will be prohibited from engaging in any market making activities
with respect to the Company's securities for the period commencing either two or
nine business days (depending on the market price of the Common Stock) prior to
any solicitation of the exercise of Redeemable Warrants until the later of (i)
the termination of such solicitation activity or (ii) the termination (by waiver
or otherwise) of any right which the Representatives or any other soliciting
broker-dealer may have to receive a fee for the exercise of Redeemable Warrants
following such solicitation. As a result, the Representatives or any other
soliciting broker-dealer may be unable to provide a market for the Company's
securities, should they desire to do so, during certain periods while the
Redeemable Warrants are exercisable. See "UNDERWRITING."
Requirement to Maintain Current Prospectus; Non-Registration in Certain
Jurisdictions of Shares Underlying the Redeemable Warrants; Possible Redemption
of Redeemable Warrants. Purchasers of the Redeemable Warrants will have the
right to exercise them to purchase shares of Common Stock only if
13
a current prospectus relating to such shares is then in effect and only if the
shares are qualified for sale under the securities laws of the state or states
in which the purchaser resides. Absent any material changes in the Company's
business which would cause this Prospectus to cease to be current at an earlier
date, this Prospectus will cease to be current nine months following the date of
this Prospectus. The Company has undertaken and intends to maintain a current
prospectus that will permit the purchase and sale of the Common Stock underlying
the Redeemable Warrants, but there can be no assurance that the Company will be
able to do so. The Company will not call the Redeemable Warrants for redemption
at any time that a current prospectus covering the Redeemable Warrants is not
effective. The Redeemable Warrants may be deprived of any value if a current
prospectus covering the shares is not, or cannot be, registered in the
applicable states. Commencing 90 days from the date of this Prospectus, the
Redeemable Warrants may be subject to redemption at $.20 per Redeemable Warrant
on 30 days' prior written notice, provided that the average of the high and low
sales prices of the Common Stock equals or exceeds $12.00 per share during the
10 consecutive trading days ending within 20 days prior to the notice of
redemption. In the event the Company exercises the right to redeem the
Redeemable Warrants, such Redeemable Warrants will be exercisable until the
close of business on the date fixed for redemption in such notice. If any
Redeemable Warrant called for redemption is not exercised by such time, it will
cease to be exercisable and the holder will be entitled only to the redemption
price. Therefore, upon the notice of redemption, holders of the Redeemable
Warrants may be forced to (i) exercise the Redeemable Warrants at a time when it
may be financially disadvantageous to do so, (ii) sell the Redeemable Warrants,
notwithstanding possible adverse market conditions, or (iii) accept the nominal
redemption price of $.20 per Redeemable Warrant. See "DESCRIPTION OF
SECURITIES."
Possible Anti-Takeover Effects of Certain Charter Provisions. The Company's
Certificate of Incorporation authorizes the Board of Directors to issue up to
1,000,000 shares of preferred stock, $.01 par value per share (the "Preferred
Stock"). No shares of Preferred Stock are currently outstanding, and the Company
has no present plans for the issuance thereof. The Preferred Stock may be issued
in one or more series, the terms of which may be determined at the time of
issuance by the Board of Directors, without further action by stockholders, and
may include voting rights (including the right to vote as a series on particular
matters), preferences as to dividends and liquidation, conversion and redemption
rights and sinking fund provisions. However, the issuance of any such shares of
Preferred Stock could adversely affect the rights of holders of Common Stock
and, therefore, could reduce the value of the Common Stock. In addition, the
ability of the Board of Directors to issue Preferred Stock could discourage,
delay, or prevent a takeover of the Company. See "DESCRIPTION OF SECURITIES."
In addition, the Company, as a Delaware corporation, is subject to the
General Corporation Law of the State of Delaware, including Section 203, an
anti-takeover law enacted in 1988. In general, the law restricts the ability of
a public Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder. As a result of
the application of Section 203 and certain provisions in the Company's
Certificate of Incorporation and Bylaws, potential acquirors of the Company may
find it more difficult or be discouraged from attempting to effect an
acquisition transaction with the Company, thereby possibly depriving holders of
the Company's securities of certain opportunities to sell or otherwise dispose
of such securities at above-market prices pursuant to such transactions.
Control by Existing Stockholders. Upon completion of this Offering, the
existing stockholders will control approximately 82% of the shares of Common
Stock eligible to vote and will therefore be able to elect all of the members of
the Board of Directors and control the outcome of any issues which may be
subject to a vote of the Company's stockholders. See "MANAGEMENT," "DILUTION"
and "PRINCIPAL AND SELLING STOCKHOLDERS."
Benefit to Affiliates. The Company intends to use a portion of the proceeds
from the Offering to repay up to $900,000 of indebtedness owed to Centennial
Technologies, Inc. ("Centennial"). Centennial owns approximately 23% of the
issued and outstanding shares of Common Stock of the Company prior to the
Offering. In addition, Centennial will sell up to 150,000 shares of Common Stock
if the Underwriters' over-allotment option is exercised. See "PRINCIPAL AND
SELLING STOCKHOLDERS" and "CERTAIN TRANSACTIONS."
14
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Shares and
Redeemable Warrants offered hereby, after deducting underwriting commissions and
other estimated expenses of the Offering, including the Representatives'
non-accountable expense allowance, are estimated to be approximately $6,704,000
($6,730,100 if the Underwriters' overallotment option is exercised in full). The
net proceeds are intended to be used approximately as follows:
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
Selling and Marketing $ 2,000,000
Research and Development 2,000,000
Purchase or Lease of Capital Equipment and Software 1,000,000
Repayment of Indebtedness 900,000
Working Capital and General Corporate Purposes 804,000
-----------
$ 6,704,000
===========
</TABLE>
SELLING AND MARKETING
The Company intends to use up to $2,000,000 of the net proceeds of the
Offering to increase selling and marketing activities, including hiring
additional salespeople. The Company also intends to increase the number of
on-site and off-site demonstrations, increase advertising in trade publications
and on radio and television, and attend trade shows. See "BUSINESS -- Selling
and Marketing."
RESEARCH AND DEVELOPMENT
The Company intends to use approximately $2,000,000 of the net proceeds from
the Offering for research and development activities. The Company intends to
hire up to twelve programmers, graphic artists, designers and network engineers
to develop and enhance the Company's software to build the Company's network
infrastructure and to provide ongoing systems support. The Company also intends
to refine and enhance its business and accounting software related to order
fulfillment and automated credit clearance. Software programmers may also
develop new products for the Company, including products developed from
technology licensed from third parties. The Company also intends to hire
additional graphic designers and Web site programmers to develop and refine
industry-specific Web site templates. See "BUSINESS -- Research and
Development."
PURCHASE OR LEASE OF CAPITAL EQUIPMENT AND SOFTWARE
The Company intends to use up to $1,000,000 of the net proceeds of the
Offering to purchase or lease additional equipment and software, including
workstations (approximately $200,000), computer servers (approximately
$200,000), communications equipment, such as telephone lines, routers and
switches (approximately $500,000) and software, including communications,
accounting, security and file management software (approximately $100,000).
REPAYMENT OF INDEBTEDNESS
The Company intends to use up to $900,000 of the proceeds from the Offering
to repay loans from Centennial Technologies Inc. ("Centennial"). Centennial has,
from time to time, made loans to the Company for general corporate purposes
pursuant to promissory notes that bear interest at the rate of 9.0% per annum
and are due on demand. As of September 9, 1996, the principal balance on these
notes was approximately $855,000. See "PRINCIPAL AND SELLING STOCKHOLDERS" and
"CERTAIN TRANSACTIONS."
WORKING CAPITAL AND GENERAL CORPORATE PURPOSES
Approximately $804,000 of the net proceeds from the Offering will be used
for general corporate purposes, including working capital. These amounts may
also be used, in part, to purchase additional capital equipment or to fund joint
ventures or acquisitions within the Company's principal market. The Company
presently has no commitments with respect to any joint venture or acquisition.
15
The allocation of the net proceeds of this Offering set forth above
represents the Company's best estimate based upon its present plans and certain
assumptions regarding general economic and industry conditions and the Company's
future revenues and expenditures. The Company reserves the right to reallocate
the proceeds within the above described categories or to other purposes in
response to, among other things, changes in its plans, industry conditions, and
the Company's future revenues and expenditures.
Based on the Company's operating plan, management believes that the proceeds
from this Offering and anticipated cash flow from operations will be sufficient
to meet the Company's anticipated cash needs and finance its plans for expansion
for at least 12 months from the date of this Prospectus. Thereafter, the Company
anticipates that it may require additional financing to meet its current or
future plans for expansion. No assurance can be given that the Company will be
successful in obtaining such financing on favorable terms, or at all. If the
Company is unable to obtain additional financing, its ability to meet its
current plans for expansion could be adversely affected. See "RISK FACTORS --
Future Capital Needs; Uncertainty of Additional Financing" and "PLAN OF
OPERATIONS."
Proceeds not immediately required for the purposes described above will be
invested principally in U.S. government securities, short-term certificates of
deposit, money market funds, or other high- grade, short-term, interest-bearing
investments.
16
DILUTION
At May 31, 1996, the net tangible book value of the Company was
approximately $334,000, or $.07 per share of Common Stock based on the 4,605,000
shares of Common Stock outstanding after giving retroactive effect to the
conversion of the Class B Common Stock into 2,500,000 shares of Common Stock.
Net tangible book value per share represents the amount of the Company's total
assets less the amount of its intangible assets and liabilities, divided by the
number of shares of Common Stock outstanding at May 31, 1996. After giving
effect to the receipt of the net proceeds (estimated to be approximately
$6,704,000) from the sale of the Securities offered hereby, the pro forma net
tangible book value of the Company at May 31, 1996, would have been
approximately $7,038,000 or $1.26 per share of Common Stock. This would result
in dilution to the public investors (i.e., the difference between the offering
price of a share of Common Stock and the net tangible book value thereof after
giving effect to this Offering) of $6.94 per share. The following table
illustrates the per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Public offering price per share of Common Stock(1) $ 8.20
Net tangible book value per share of Common Stock
at May 31, 1996 $ .07
Increase in net tangible book value per share of
Common Stock(1) 1.19
----
Pro forma net tangible book value per share of
Common Stock after Offering(2) $ 1.26
======
Dilution of net tangible book value per share
of Common Stock to new investors $ 6.94
======
</TABLE>
- ---------
(1) Including $.20 per Redeemable Warrant.
(2) The calculation of pro forma net tangible book value and the other
computations above does not include (a) 800,000 shares of Common Stock
reserved for issuance upon exercise of stock options which may be granted
under the Plan, of which options to purchase 394,800 shares are outstanding
as of the date of this Prospectus and (b) 60,000 shares of Common Stock
reserved for issuance upon exercise of stock options which may be granted
under the Formula Plan, of which options to purchase 5,000 shares are
outstanding as of the date of this Prospectus.
The following table sets forth, as of the date of this Prospectus, the
number of shares of Common Stock purchased, the percentage of Common Stock
purchased, the total consideration paid, the percentage of total consideration
paid, and the average price per share paid, by the existing stockholders of the
Company and the investors in this Offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------- -------------------
AVERAGE
PRICE PER
NUMBER PERCENTAGE AMOUNT PERCENTAGE SHARE
------ ---------- ------ ---------- -----
<S> <C> <C> <C> <C> <C>
New Investors 1,000,000 17.8% $ 8,000,000 50.0% $8.00
Existing Stockholders(1) 4,605,000 82.2% 7,850,725 50.0% $1.71
--------- ---- ----------- ----
TOTAL 5,605,000 100.0% $15,850,725 100.0%
========= ===== =========== =====
</TABLE>
- ---------
(1) After giving effect to the conversion of Class B Common Stock into 2,500,000
shares of Common Stock.
17
CAPITALIZATION
The following table sets forth the capitalization of the Company as of May
31, 1996, and as adjusted to reflect the sale and issuance of the Securities
offered hereby and the initial application of the estimated net proceeds thereof
as described in "USE OF PROCEEDS."
<TABLE>
<CAPTION>
MAY 31, 1996
------------
PRO FORMA
ACTUAL AS ADJUSTED
------ -----------
<S> <C> <C>
Capital lease obligations, net of current $ 327,857 $ 327,857
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred Stock -- $.01 par value, authorized -- 1,000,000
shares, issued -- none -- --
Common Stock -- $.01 par value, authorized -- 20,000,000
shares, issued -- 2,105,000 shares; 5,605,000 shares pro
forma, as adjusted(1)(2) 21,050 56,050
Class B Common Stock -- $.01 par value; authorized --
2,000,000 shares, issued -- 625,000 shares, zero shares
pro forma, as adjusted(2) 6,250 --
Additional paid-in capital 7,827,025 14,502,275
Subscription receivable (3,600) (3,600)
Accumulated deficit (7,292,275) (7,292,275)
------------ ------------
Total stockholders' equity 558,450 7,262,450
------------ ------------
TOTAL CAPITALIZATION $ 886,307 $ 7,590,307
============ ============
</TABLE>
- --------
(1) Does not include (a) 800,000 shares of Common Stock reserved for issuance
upon exercise of stock options which may be granted under the Plan, of which
options to purchase 394,800 shares are outstanding as of the date of this
Prospectus and (b) 60,000 shares of Common Stock reserved for issuance upon
exercise of stock options which may be granted under the Formula Plan, of
which options to purchase 5,000 shares are outstanding as of the date of
this Prospectus.
(2) Gives effect to the conversion of 625,000 shares of Class B Common Stock
into a total of 2,500,000 shares of Common Stock on the date of this
Prospectus.
DIVIDEND POLICY
The Company has not paid dividends on its Common Stock since its inception
and does not intend to pay any dividends to its stockholders in the foreseeable
future. The Company currently intends to reinvest earnings, if any, in the
development and expansion of its business. The declaration of dividends in the
future will be at the election of the Board of Directors and will depend upon
the earnings, capital requirements, and financial position of the Company,
general economic conditions, and other pertinent factors.
18
SELECTED FINANCIAL DATA
The statement of operations data for the period from inception (July 19,
1995) through May 31, 1996 and the balance sheet at May 31, 1996 are derived
from, and should be read in conjunction with, the audited Financial Statements
and Notes thereto included elsewhere in the Prospectus. The historical operating
results are not necessarily indicative of future operating results. The Selected
Financial Data should be read in conjunction with "PLAN OF OPERATIONS" and the
Financial Statements and the notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM CUMULATIVE
NINE MONTHS INCEPTION FROM INCEPTION
ENDED (JULY 19, 1995) TO (JULY 19, 1995) TO
MAY 31, 1996 AUGUST 31, 1995 MAY 31, 1996
------- ---- --------------- ------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product revenue $ 17,971 $ -- $ 17,971
Service revenue 23,801 -- 23,801
----------- ---------- -----------
Total revenue 41,772 -- 41,772
----------- ---------- -----------
Cost of revenue:
Product revenue 13,628 -- 13,628
Service revenue 58,193 -- 58,193
----------- ---------- -----------
Total cost of revenue 71,821 -- 71,821
----------- ---------- -----------
Gross margin (30,049) -- (30,049)
----------- ---------- -----------
Operating expenses:
Research and development 439,265 809 440,074
Selling and marketing 178,870 1,946 180,816
General and administrative 823,379 30,871 854,250
Charge for acquired research and development 5,760,000 -- 5,760,000
----------- ---------- -----------
Total operating expenses 7,201,514 33,626 7,235,140
----------- ---------- -----------
Loss from operations (7,231,563) (33,626) (7,265,189)
Interest expense, net (27,086) -- (27,086)
----------- ---------- -----------
Net loss $(7,258,649) $ (33,626) $(7,292,275)
=========== ========== ===========
Net loss per common and common equivalent
share(1) $ (1.51) $ (.01) $ (1.52)
=========== ========== ===========
Shares used in computing net loss per common
and common equivalent share(1) 4,804,900 4,804,900 4,804,900
=========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
MAY 31, 1996
------------
ACTUAL AS ADJUSTED(2)
------ ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets $ 966,114 $ 7,670,114
Total assets 1,860,516 8,564,516
Working capital (deficiency) (8,095) 6,695,905
Total liabilities 1,302,066 1,302,066
Stockholders' equity 558,450 7,262,450
</TABLE>
- ---------
(1) Computed on the basis described in Note 2 of the Notes to Financial
Statements.
(2) Gives effect to the receipt by the Company of the estimated net proceeds of
approximately $6,704,000 from the sale of the Securities offered hereby. See
"RISK FACTORS -- Substantial Options and Warrants Reserved" and
"UNDERWRITING."
19
PLAN OF OPERATIONS
OVERVIEW
The Company, a development stage company, offers Internet access and support
services for secure commercial transactions and communications over the
Internet. The Company plans to provide complete solutions for businesses seeking
to market and sell products and services over the Internet, including the
establishment of (i) commercial Web sites, (ii) electronic store design, (iii)
browsing and purchasing capabilities, and (iv) transaction processing. In
addition, the Company provides general Internet services, such as connectivity
and communications services. By offering turnkey solutions to commercial
Internet needs, the Company plans to become a "one-stop provider" of Internet
products and services to businesses seeking to establish a commercial presence
over the Internet.
The financial results for the period from inception (July 19, 1995) to May
31, 1996 relate to the Company's initial organization, establishment of
infrastructure and Internet training courses. The Company has incurred losses
since inception and has a working capital deficiency. As a result, the
independent certified public accountants' report contains an explanatory
paragraph regarding the Company's ability to continue as a going concern. The
Company does not believe that the operating results from this period will
provide meaningful comparisons to subsequent periods.
The Company's plan of operation for the next twelve months will principally
involve software development to enable the Company to offer certain of its
planned services on a commercial basis, the sale of connectivity and the
provision of Internet access services, Web page development, intranet systems,
and the receipt of transaction fees. After the Offering, the Company intends to
use a portion of the proceeds of the Offering to hire additional personnel,
including marketing, sales and customer service personnel, to meet the Company's
anticipated growth, as to which no assurance can be given.
The Company recently upgraded its Internet access to a "Tier I" level, which
provides the Company with a direct connection to the National Access Point
("NAP") in Chicago, Illinois. In addition, the Company has established
redundancy systems in Boston, Massachusetts with respect to its communication
links and computer servers to be used should its direct NAP link or computer
servers located at the Company's Saugus, Massachusetts facility experience
temporary difficulties. See "RISK FACTORS - System Interruption and Security
Risks; Potential Liability and Lack of Insurance."
Revenue. The Company has not recognized any meaningful revenue from its
inception through May 31, 1996 and the Company anticipates realizing only
limited revenue during 1996. The Company's ability to generate significant
revenue thereafter is uncertain. The Company's services are directed at
businesses that intend to engage in commerce and communications over the
Internet. The Company's business plan contemplates that its initial revenue will
be derived from providing general Internet services, such as connectivity,
hosting and e-mail services. In the future, the Company anticipates it will
derive revenue from transaction processing fees from third parties, Web page
development, connectivity charges, charges for hosting services, education and
intranet networking.
Operating Expenses. The Company's cost of revenue has exceeded the Company's
service revenue due to the development stage nature of the business. The
Company's operating expenses have increased each quarter since the Company's
inception. The Company believes that operating expenses will increase in the
future as the Company continues the development of its services and expands its
operations.
Research and Development. The Company's research and development efforts are
focused on developing Web site templates suitable to conduct commerce over the
Internet. The Company is also developing intranet models for intraorganization
communications that can be used by municipal governments and multi-site
organizations. The Company's engineers are also developing the Company's
communications infrastructure to allow for daily information transfer to the
Company for periodic back-up of customer files and disaster control purposes.
Selling and Marketing. Selling and marketing expenses are expected to
consist primarily of salaries, commissions, trade show expenses, and advertising
and marketing costs. The Company anticipates a substantial increase in its
selling and marketing expenses in the future. The Company intends to use a
direct selling force that will target certain industries and sell across
vertical markets, as well as independent sales agents.
20
General and Administrative. General and administrative expenses consist
primarily of compensation expenses and fees for professional services. General
and administrative expenses were approximately $855,000 for the period from
inception to May 31, 1996. Approximately $560,000 of these expenses were paid to
Employee Resource Inc. ("ERI"), an employee leasing company owned by the
Company's President and Chief Executive Officer, Robert Kuzara. ERI leases to
the Company all of its employees, including the officers of the Company. The
Company anticipates a substantial increase in its general and administrative
expenses in the future. See "CERTAIN TRANSACTIONS."
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its activities primarily from
notes payable to Centennial Technologies, Inc. ("Centennial") and the sale of
its Common Stock to private investors. Working capital deficiency at May 31,
1996 was approximately $(8,095). The Company has a capital lease agreement which
is secured by fixed assets and guaranteed by Centennial. The outstanding balance
as of May 31, 1996 was approximately $389,000, bears interest at the rate of
10.35% per annum and matures in December 2000. See "CERTAIN TRANSACTIONS."
Based on the Company's operating plan, management believes that the net
proceeds from this Offering and anticipated cash flow from operations will be
sufficient to meet the Company's anticipated cash needs and finance its plans
for expansion for at least 12 months from the date of the Prospectus.
Thereafter, the Company anticipates that it will require additional financing to
meet its current plans of expansion. No assurance can be given of the Company's
ability to obtain such financing on favorable terms, if at all. If the Company
is unable to obtain additional financing, its ability to meet its current plans
for expansion could be materially adversely affected.
IMPACT OF INFLATION
Although no assurance can be given, increases in the inflation rate are not
expected to materially adversely affect the Company's business.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
issued by the Financial Accounting Standards Board ("FASB"), is effective for
financial statements for fiscal years beginning after December 15, 1995. The new
standard establishes new guidelines regarding when impairment losses on
long-lived assets, which include plant and equipment and certain identifiable
intangible assets and goodwill, should be recognized and how impairment losses
should be measured. The Company does not expect the adoption of this standard to
have a material effect on its financial position or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company has determined that it will continue to account for
stock-based compensation for employees under Accounting Principles Board Opinion
No. 25 and elect the disclosure-only alternative under SFAS No. 123. The Company
will be required to disclose the pro forma net income or loss and per share
amounts in the notes to the financial statements using the fair-value-based
method beginning in the year ending August 31, 1997, with comparable disclosures
for the year ended August 31, 1996. The Company has not determined the impact of
these pro forma adjustments.
21
BUSINESS
The Company, a development stage company, offers Internet access and support
services for secure commercial transactions and communications over the
Internet. The Company plans to offer a broad range of marketing, sales and
connectivity solutions to businesses and, to a lesser extent, to individuals,
including the establishment of (i) commercial sites on the Web, (ii) electronic
store design, (iii) browsing and purchasing capabilities, and (iv) transaction
processing. The Company will also provide general Internet services, such as
connectivity to the Internet and electronic mail hosting services. By offering
turnkey solutions to commercial Internet needs, the Company plans to become a
"one-stop provider" of Internet products and services to businesses seeking to
establish a commercial presence over the Internet. In addition to the Company's
array of Internet services generally offered by providers, the Company plans to
offer customers the ability to engage in secure PC to PC Internet commerce
transactions, utilizing software applications for business transactions that
contain credit card or other confidential information, and for confidential
communications purposes.
The Company's comprehensive service and support capabilities include the
following:
* Internet access and host services.
* Internet business development and marketing services.
* Internet secure commerce processing.
* Internet hardware and software.
* Internet training.
The range of customized service options include full Internet access
service, SLIP/PPP connection, Web browsing capability, electronic mail and
USENET News, among others.
The Company's Internet business development and marketing services also provide
commercial users with a back-end link from the user's Internet host site to
major accounting systems, including SBT, and business management support for
integrating secure Internet commerce into the user's existing accounting
financial systems. In addition, a turn-key arrangement is available to meet the
needs of individual users, along with sales and marketing consulting to
implement Internet commerce capability. The Company further offers businesses
support in the development and maintenance of a Web host presence and assists
clients in marketing and selling through the Internet. The Company also offers
training classes for business users in accessing and navigating through the
Internet, which classes are tailored to each user's environment, including
support for Windows, Windows 95, Windows NT and Macintosh client access.
INDUSTRY BACKGROUND
THE INTERNET
The Internet is a rapidly growing global web of computer networks that
permits users to communicate throughout the world. Each Internet user has access
to every other user, as well as information contained on an increasing number of
"host" or "server" computers. Host computers are generally maintained by
Internet service providers ("ISPs"), such as the Company, that provide access to
the Internet.
According to Input, a market research firm, it is estimated that worldwide
corporate spending on Internet technologies and services more than tripled
between 1994 and 1995, reaching approximately $12 billion in 1995. By the year
2000, Input projects total spending to reach $200 billion. The Internet and the
Web provide users with the potential for a new commercial marketplace in which
goods, services and information can be marketed and sold, and over which other
financial transactions can occur. Although no assurances can be given, the
Company believes that the use of the Internet as a commercial medium will become
more widespread with the continued development and acceptance of systems
providing secure execution of financial transactions.
22
Until 1993, the Internet infrastructure was subsidized by the federal
government and commercial use was, for the most part, prohibited. The connection
of commercial Internet providers beginning in 1993 has lead to an increase in
the use of the Internet of nearly 20% per month compounded since December 1994.
Most of the growth in the number of commercial hosts is driven by the need of
businesses to enhance communications among workers, customers and suppliers
while cutting costs. The communications links of the Internet allow businesses
to make information and communications available to employees, customers and
suppliers with minimal human involvement. Industry data indicates that consumer
use of the Internet is also growing at a rapid rate. Consumer use of the
Internet is being driven by the growth of ISP's and on-line service providers,
such as America Online, CompuServe and Prodigy, which are expanding their
offerings to include Internet access. In addition, national and regional
telephone companies and cable television operators are expanding their services
to include Internet access.
ACCESS TO THE INTERNET
Unlike on-line services such as CompuServe, Prodigy and America Online, the
Internet is a loose confederation of millions of computers located worldwide.
When a user dials into an on-line service provider such as Prodigy, he or she
calls a modem connected to a central computer owned by Prodigy. The subject
areas and user interface that appear on the user's computer monitor are
determined by the service, which may also include Internet access as a component
of the overall service provided. Direct Internet access involves two steps,
accessing the Internet and connecting to one of the millions of machines
attached. AT&T and other telecommunications companies have begun to offer
Internet access and related services.
Once connected to the Internet, a computer has an address, much like a
telephone number, that makes it accessible to millions of other computers.
Unlike long-distance telephone calls, connections to services on the Internet
are not determined based on distance; instead, the connection cost is based on
the proximity of the user to its ISP, which in most cases is located close to
the user. Therefore, it often costs the same to access a computer on the other
side of the world as to access a computer across town. In addition, an Internet
user can move from communicating with one computer across the world to another
across town almost instantly.
The Internet is not controlled by any one country, corporation or other
entity. However, several major companies have become the major providers for the
communications that link the network together in the United States. The
companies that carry much of the commercial traffic on the Internet include AT&T
Corporation, Alternet, PSI, SprintLink, and ANS. The national providers act
primarily as wholesalers of their communications infrastructure to regional
ISPs. Regional providers establish satellite offices to provide local access
dial-up connections for their customers. These local dial-up connections connect
end users to a local point of presence (a "POP") established by the regional
provider to access the Internet. The end-user connects to the Internet through
the local POP.
THE WORLD WIDE WEB
The Web is a world wide collection of interlinked documents on the Internet
containing text, graphics, sound and video. The emergence of the Web has
fostered the recent rapid growth in Internet use by businesses and individuals.
International Data Corporation has estimated that the number of individuals
worldwide with access to the Internet will reach approximately 200 million by
the end of 1999, of which 125 million are expected to be accessing the Web. The
Web allows a broad range of users to easily access information on the Internet
and interact with individuals or organizations offering textual, graphic or
other information.
Utilizing the Web, merchants are able to provide full color graphic images
of their merchandise, up-to-the-minute pricing and inventory information,
automated order-taking and interactive customer support. Publishers and
information providers are using the Web to disseminate publications and
information to allow users to search and retrieve data. Consumers are
increasingly using browsers, such as Netscape Navigator(tm), to visit various
Web sites to access information and to purchase goods and services.
23
ELECTRONIC COMMERCE OVER THE INTERNET
The Internet provides businesses and individuals with a new economic environment
in which to conduct business. The availability of rapid, low-cost access to
millions of users offers several cost and marketing advantages to businesses.
For example, commercial Web sites enable a volume of visitors that would be
impossible through physical commerce. In addition, Internet merchants' need for
physical store premises, warehouses and distribution centers is greatly reduced
and in some cases eliminated by allowing shipment directly from the manufacturer
to the consumer. Internet communications may also reduce the cost of advertising
and marketing as access to electronic media spreads to compete with print and
traditional broadcast media. The overall costs to the consumer may be reduced in
the future by the marketing and distribution efficiencies made possible by
conducting commerce over the Internet. Although no assurance can be given, the
Company believes that commercial activity over the Internet will increase
substantially in the future.
SEAMLESS COMMERCE(tm) OVER THE WORLD WIDE WEB
The Company plans to provide complete Internet start-up and maintenance
services for businesses that wish to conduct commerce over the Internet. The
Company offers its services separately, so that customers may elect to use some
or all of the Company's capabilities to achieve "Seamless Commerce(tm)." The
Company's services can be categorized as follows:
INTERNET CONNECTIVITY
The Company provides access to the Internet by establishing a connection
from its customers to one of the Company's points of presence, or POPs, which
are strategically located communications centers that connect directly to the
Internet. The Company currently operates two POPs, one at its main office in
Saugus, Massachusetts, and one in Salem, Massachusetts. The Company plans to use
a portion of the proceeds from this Offering to establish several other POPs in
New England. Links from the Company's customers to the Company's POPs may be
made through regular or upgraded telephone lines or through other high-capacity
links that can accommodate heavier user traffic. For its connectivity service,
the Company anticipates it will charge customers a one time set up fee in
addition to a monthly fee that will vary depending on the type of connection
from the customer to the POP.
As part of its Internet access services, the Company establishes electronic
mail ("e-mail") addresses for its customers. E-mail allows Internet users to
communicate electronically with other Internet users around the world. The
Company has also established e-mail services that allow for communication within
an organization through the Company's host computer, without access to the
Internet. The Company provides "intranet" e-mail to businesses and other
organizations seeking to accommodate convenient intracompany communications at a
reduced cost.
CONSULTING AND DEVELOPMENT SERVICES
The Company plans to design, develop and manage Web sites for its business
customers. Web sites may contain graphic design, text, video and audio
components. The Web sites designed by the Company for its customers contain
order forms to receive orders for customers products and services. To date, the
Company has designed six Web sites, of which four were for related parties. See
"CERTAIN TRANSACTIONS."
As part of its consulting and development services, the Company may design
and install networks at customers' facilities to access and download information
from the Company's server to the customers' computers. This information may be
organized by the Company in accordance with customer specifications to include
information such as total visits, visits per hour, visits per geographic
location, links viewed, comments provided, total orders received and orders per
hour. For some customers, the Company may also provide complete back room
support services. These services would include inventory control and purchasing,
order and delivery tracking and other services.
24
COMMERCIAL HOST SERVICES
The Company's commercial host services are designed to allow businesses to
establish a reliable, high performance Web site without having to invest in the
technology and human components necessary to maintain an on-line presence. The
maintenance of a Web site by the Company includes the use of sufficient storage
capacity on the Company's server computer to accommodate visits, or "hits," by
Internet users to a customer's Web site. Web sites may vary in popularity and
complexity, requiring different degrees of storage capacity. Web sites allow for
user comments and order taking and may contain a number of links to other Web
sites either at the Company's server or at different locations. The Company can
identify and track the number of "hits" to a Web site, as well as, in most
cases, the e-mail address of the visitor. The Company may charge for the
maintenance and use of this information.
Commercial host services will also include the provision of technical
support and access management control, the latter of which allows for the
restriction of access to certain information. For example, by providing a
special access code to certain customers, companies can permit someone to review
information on the status of an order, proposed delivery dates, or price lists
over the Internet without human involvement. This can be an attractive feature
to customers of manufacturers, fulfillment houses and others.
ORDER PROCESSING
One of the services the Company plans to offer includes receiving and
processing orders for its customers with a minimum level of human involvement.
Processing orders over the Internet involves the following:
Automatically download order form. One of the links within a customer's
Web site will contain an order form. When a user visits the link containing
this form, software will automatically be downloaded to the user's personal
computer to accept an order and encrypt the credit card information of the
user. Once the user completes the requested information, the user will send
the order information to the Company's server through the press of a button
on the user's computer. The user may also elect to complete the order orally
over the telephone. See "RISK FACTORS -- Dependence on Third Party
Intellectual Property Rights; Risk of Infringement" and "RISK FACTORS --
System Interruption and Security Risks; Potential Liability and Lack of
Insurance."
Clear credit card information. The Company's computers will automatically
decrypt the user's credit card information from the order form. The credit
card information is then checked and cleared over traditional networks.
Fulfillment. Once credit is cleared, the order information will be
transmitted automatically to the customer or the customer's fulfillment
house. The order information may include (i) a "pick list," which contains a
list of the merchandise ordered, (ii) a manifest for shipping, (iii) a
shipping label, and (iv) an order identification tag.
Transfer of funds. The Company will electronically transfer funds it
receives from the credit card company to its customer.
Order tracking. Order tracking and delivery may be monitored through the
order identification tag transmitted to the customer or its fulfillment
house. In addition, most delivery services now also have their own tracking
systems, allowing for order tracking from the moment the order is received
by the Company through fulfillment to final delivery.
INTERNET TRAINING
The Company provides Internet training at its facility in Saugus,
Massachusetts to teach and promote use of the Internet. The Company's classes
are all hands-on, with students learning by actually using the Internet during
the session, which generally lasts for four hours.
25
SELLING AND MARKETING
The Company has conducted limited selling and marketing efforts to date. The
Company primarily markets its services through presentations to local business
organizations, advertising and, to a lesser degree, attendance at trade shows.
The Company plans to use a portion of the net proceeds from the Offering to
increase its selling and marketing activities by hiring an additional ten sales
people, purchasing additional demonstration equipment and attending additional
trade shows and advertising on radio and television. See "USE OF PROCEEDS."
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are presently focused on
programming off-the-shelf software to refine and enhance Web site templates. The
Company is developing Web site templates for distribution companies,
manufacturers and service providers. Templates will be customized by the Company
for individual customers. In addition, the Company plans to install, test and
enhance business development software licensed from third parties to automate
order processing and business support services for the Company's customers. The
Company intends to use a portion of the net proceeds from the Offering to hire
additional programmers to support its research and development activities. See
"USE OF PROCEEDS."
In March 1996, the Company acquired an exclusive worldwide license from
Manadarin Trading Company Limited ("MTCL") to develop and market three software
programs related to the management of data collection and processing from remote
sites. The Company presently intends to further develop these programs. In
connection with the license, the Company issued 625,000 shares of Class B Common
Stock to the licensor. See "DESCRIPTION OF SECURITIES."
In April 1996, the Company entered into an exclusive, ten year agreement
with International Software Development Limited ("ISDL") pursuant to which the
Company licensed the right to use and sublicense an encryption software program
called Titan(tm). In exchange for the license, the Company issued 802,500 shares
of Common Stock to ISDL. The Company intends to further test and develop
Titan(tm) to determine whether Titan(tm) would be able to withstand attempts to
violate its integrity. No assurance can be given as to whether Titan(tm) will be
commercially offered by the Company. See "RISK FACTORS -- Dependence on
Intellectual Property Rights; Risks of Infringement."
PROPRIETARY INFORMATION
The Company's success and ability to compete is dependent in part upon
proprietary technology relating to the encryption of credit card payment
information over the Internet. The Company has no patents and relies on
copyright, trade secret and trademark laws to protect certain proprietary
information of the Company. To the extent proprietary technology is involved,
the Company relies on trade secrets that it seeks to protect, in part, through
confidentiality agreements with certain personnel, consultants and other
parties. No assurance can be given that these agreements 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, existing or potential competitors of the Company. The Company
generally does not seek to protect its proprietary information through patents
or registered trademarks, although it may seek to do so in the future. The
Company may be involved from time to time in litigation to determine the
enforceability, scope and validity of its rights. In addition, no assurance can
be given that the Company's products will not infringe any patents of others.
Litigation to protect the Company's intellectual property rights could result in
substantial cost to the Company and diversion of effort by the Company's
management and technical personnel.
The Company currently licenses certain proprietary and patented technology
from third parties. No assurance can be given that any patented technology
licensed by the Company will provide meaningful protection from competitors.
Even if a competitor's products were to infringe on patented technology licensed
by the Company, it would be costly for the Company to enforce its rights in an
infringement action and would divert funds and management resources from the
Company's operations.
26
All of the Company's planned services incorporating data encryption and
authentication is based on proprietary software of RSA Data Security, which is
licensed, on a non-exclusive basis, through SBT Corporation. The Company has
licensed the rights to another encryption technology called Titan(tm). No
assurance can be given as to when, or if, the Titan(tm) encryption technology
will be ready for commercial use by the Company. Until such time as Titan(tm)
may be used by the Company, as to which no assurance can be given, the Company
intends to continue to use the RSA encryption software licensed through SBT. No
assurance can be given that the encryption software presently licensed by the
Company will continue to be available to the Company on commercially reasonable
terms, or at all. In the past, certain parties have claimed to have rights with
respect to the encryption software licensed by the Company. If such claims are
successfully pursued by such parties, such parties may prevent the Company from
using the software or, in the alternative, may force the Company to pay an
additional royalty to use such software.
The Company also licenses, on a non-exclusive basis, accounting and
business support software from SBT. No assurance can be given that the Company's
third party licenses will continue to be available to the Company on
commercially reasonable terms, or at all. The loss of or inability to maintain
any of these software licenses could result in delays in introduction of the
Company's services until equivalent software, if available, is identified,
licensed and integrated into the Company's planned services, which could have a
material adverse effect on the Company's business, financial condition,
prospects or operating results. See "RISK FACTORS -- Dependence on Intellectual
Property Rights; Risks of Infringement" and "RISK FACTORS -- Dependence on
Third-Party Intellectual Property Rights."
COMPETITION
The market for Internet-based software and services is new and rapidly
evolving, resulting in a dynamic competitive environment. The Company competes
with many companies that have substantially greater financial, marketing,
technical and human resources than the Company. In addition, there are many
companies that may enter the market in the future with new technologies,
products and services that may be competitive with services offered or to be
offered by the Company. Because there are many potential entrants to the field,
it is extremely difficult to assess which companies are likely to offer
competitive products and services in the future, and in some cases it is
difficult to discern whether an existing product or service is competitive with
the Company's services. The Company expects competition to persist and intensify
in the future.
Competitive factors in the Internet-based software and services market
include core technology, breadth of product functionality and features, product
performance and quality, marketing and distribution resources, customer service
and support and price. Additional competition could come from other Internet
companies and software and hardware vendors that incorporate Internet payment
capabilities into their products or other Internet services companies that
provide hosting, connectivity, Internet training and domain registration
services. The payment mechanisms used by the Company in the provision of its
services utilize existing credit card verification procedures. Certain of the
Company's competitors and potential competitors have developed or are developing
new methods to transmit, verify and accept credit card payments over the
Internet. In this regard, MasterCard and Visa recently announced that they would
work together to establish a single industry standard for secure electronic
transactions. These and other potential new payment mechanisms may be perceived
to be superior to those employed by the Company and could render the Company's
services unmarketable. In addition, if an industry standard is established, no
assurance can be given that the technology upon which such standard is based
will be available to the Company on commercially reasonable terms, or at all,
which could have a material adverse effect on the Company's business, financial
condition, prospects and operating results.
Virtually all of the Company's current and potential competitors have longer
operating histories, greater name recognition, larger installed customer bases
and significantly greater financial, technical and marketing resources than the
Company. Such competitors may be able to undertake more extensive marketing
campaigns, adopt more aggressive pricing policies and make more attractive
offers to
27
potential customers. In addition, many of the Company's current or potential
competitors, such as Netscape, Microsoft and AT&T have broad distribution
channels that may be used to bundle competing products directly to end-users or
purchasers. If such competitors were to bundle competing products for their
customers, the demand for the Company's services may be substantially reduced,
and the ability of the Company to broaden successfully the utilization of its
services would be substantially diminished. No assurance can be given that the
Company will be able to compete effectively with current or future competitors
or that such competition will not have a material adverse effect on the
Company's business, financial condition, prospects or operating results. See
"BUSINESS -- Competition."
PERSONNEL
As of May 31, 1996, the Company had 21 full-time personnel that were leased
from ERI, of which five were executive officers (three of which are also
involved with sales and marketing), two were involved with sales and marketing
functions, six were involved with research and product development, two were
involved with administration and one was involved with customer support.
None of the Company's personnel is represented by a labor union, and the
Company is not aware of any activities seeking such organization. The Company
considers its relationships with its personnel to be satisfactory.
FACILITIES
The Company's principal executive offices and manufacturing operations are
based in a facility located in Saugus, Massachusetts that consists of
approximately 20,000 square feet of space. The Company currently pays rent in
the amount of approximately $15,000 per month, $4,591 of which is paid pursuant
to a lease that expires in August 2000, and the balance is paid on a
month-to-month basis.
The Company believes that its facilities are adequate for its current needs
and that adequate facilities for expansion, if required, are available at
competitive rates.
LEGAL PROCEEDINGS
The Company is not a party to any material pending litigation.
28
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Directors and executive officers and key personnel of the Company, their
positions held with the Company and their ages are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John J. Shields 57 Chairman of the Board of Directors
Robert Kuzara 52 President, Chief Executive Officer, Secretary
and Director
Carole Ouellette 45 Chief Financial Officer, Treasurer and
Director
William Blocher 42 Chief Technology Officer
Paul MacDonald 58 Vice President of Operations
Michael Appe 44 Director
</TABLE>
Directors are elected each year for a period of one year at the Company's annual
meeting of stockholders and serve until their successors are duly elected by the
stockholders. Vacancies and newly created directorships resulting from any
increase in the number of authorized directors may be filled by a majority vote
of directors then in office. Officers are elected by, and serve at the pleasure
of, the Board of Directors. The Board of Directors intends to establish Audit
and Compensation Committees following the completion of this Offering.
The following is a brief summary of the background of each director and
executive officer of the Company:
JOHN J. SHIELDS has served as the Chairman of the Board of Directors of the
Company since April 1996. Since April 1993, Mr. Shields has served as the
President and Chief Executive Officer of Kings Point Holdings Incorporated, a
technical consulting and venture capital company that is also engaged in
cranberry cultivation. From January 1990 to April 1993, Mr. Shields served as
the President and Chief Executive Officer of Computervision Corporation, a
publicly traded provider of software for computer-aided design.
ROBERT KUZARA has served as President, Chief Executive Officer and a
Director of the Company since its inception in July 1995. From 1978 to the
present, Mr. Kuzara has also served as a principal of Kuzara Consultants, Inc.,
a financial consulting firm specializing in the rehabilitation of troubled
companies. Mr. Kuzara is also a principal of the Center for Business Planning
Limited, a provider of business support services for small businesses, Employee
Resources, Inc., an employee leasing company, and Cauldron Corporation, a
t-shirt screening and distribution company. From March 1994 through November
1995, Mr. Kuzara served on the Board of Directors of Centennial Technologies,
Inc., a publicly traded manufacturer of personal computer cards.
CAROLE OUELLETTE has served as the Company's Chief Financial Officer and
Treasurer since March 1996 and as a Director since May 1996. From March 1991
through February 1996, Ms. Ouellette served as the Controller at Centennial
Technologies, Inc., a publicly traded manufacturer of personal computer cards.
Ms. Ouellette holds a Masters of Business Administration from Suffolk University
School of Management.
WILLIAM K. BLOCHER, PH.D. has served as the Company's Chief Technology
Officer since January 1996. From 1990 to June 1995, Dr. Blocher served as the
President and Chief Technologist of BBC Computers, Inc. From July 1995 through
January 1996, Dr. Blocher also served as Chief Technologist of Presage
Corporation, a communications company. Dr. Blocher also serves on the teaching
staff of Boston University and Harvard University. Dr. Blocher has a Ph.D. in
computer science from Boston University and a Masters in Mathematics from Boston
University.
29
PAUL J. MACDONALD has served as the Company's Vice President of Operations
since February 1996. From September 1995 through February 1996, Mr. MacDonald
served as Vice President of Operations at Presage Corporation, a communications
company. From February 1991 through August 1995, Mr. MacDonald served as Vice
President of Operations at National Communications Corporation.
MICHAEL APPE has served as a Director of the Company since May 1996. Since
November 1994, Mr. Appe has been an independent marketing consultant. From July
1987 through November 1994, he served in various capacities at Microsoft, most
recently as Vice President of U.S. Sales. Mr. Appe earned a Bachelors of Science
in Mathematics from the University of Vermont.
EXECUTIVE OFFICERS' COMPENSATION
All of the Company's personnel are leased from ERI, an employee leasing
company. Under the Company's arrangement with ERI, the Company pays ERI a
service fee based on employee salary, state and federal taxes, and health
benefits offered. ERI administers the Company's payroll and benefit policies.
See "CERTAIN TRANSACTIONS."
The following table sets forth the compensation paid to Mr. Robert Kuzara,
the Company's President and Chief Executive Officer, through ERI, during the
period from inception through May 31, 1996. There were no executive officers of
the Company who earned total compensation in excess of $100,000 during this
period.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
NAME AND ALL OTHER
PRINCIPAL POSITION YEAR(1) SALARY BONUS COMPENSATION(2)
(A) (B) (C) (D) (I)
- ------------------------------------ ------ ------ ----- ---------------
<S> <C> <C> <C> <C>
Robert Kuzara, President and Chief
Executive Officer 1996 $87,500 $0 $7,500
- ----------
(1) For the period from inception (July 19, 1995) to May 31, 1996.
(2) Mr. Kuzara received a monthly car allowance of $1,000 per month
during this period.
</TABLE>
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
In April 1996, the Company entered into an employment and non-competition
agreement with Mr. Kuzara, the Company's President and Chief Executive Officer,
that expires on April 4, 1999 (the "Kuzara Employment Agreement"). The Kuzara
Employment Agreement provides for a salary of $150,000 per annum plus annual
bonuses following the Company's initial public offering based on increases in
the market price of the Company's Common Stock. Mr. Kuzara is also entitled to
receive benefits offered to the Company's personnel generally as well as
severance benefits equal to one year's salary plus the average bonus Mr. Kuzara
received during the three years prior to the termination of his employment,
payable in a lump sum if: (i) the Company or a substantial portion of the
Company is acquired without the Board of Directors' approval; (ii) his
employment is terminated without cause (as defined below); (iii) his salary is
reduced without his consent or (iv) there is a change in his principal place of
employment from the greater Boston, Massachusetts area without his consent. The
Kuzara Employment Agreement provides that "cause" includes (i) the failure of
Mr. Kuzara to substantially perform the services described in his employment
agreement; (ii) conviction of a felony; and (iii) fraud or embezzlement
involving the Company, its customers, suppliers or affiliates. The Kuzara
Employment Agreement contains a provision prohibiting Mr. Kuzara from competing
with the Company for a one-year period following termination of his employment.
Mr. Kuzara also received options to purchase 200,000 shares of Common Stock of
the Company at $4.00 per share in connection with his employment with the
Company.
30
In May 1996, the Company entered into an employment and non-competition
agreement with Ms. Ouellette, the Company's Chief Financial Officer, that
expires on May 1, 1999 (the "Ouellette Employment Agreement"). The Ouellette
Employment Agreement provides for an annual salary of $85,000 plus bonuses as
may be determined by the Company's Board of Directors. Ms. Ouellette is entitled
to receive benefits offered to other executive officers of the Company as well
as severance benefits equal to 150% of her monthly base salary then in effect
for a period of six months from the date of termination, if: (i) the Company or
a substantial portion of the Company is acquired without the Board of Directors'
approval; (ii) her employment is terminated without cause (as defined below);
(iii) her salary is reduced without her consent or (iv) there is a change in her
principal place of employment from the greater Boston, Massachusetts area
without her consent. The Ouellette Employment Agreement provides that "cause"
includes (i) the material and repetitive failure or refusal to perform the
services described in her employment agreement; (ii) conviction of a felony; and
(iii) fraud or embezzlement involving the Company, its customers, suppliers or
affiliates. The Ouellette Employment Agreement contains a provision prohibiting
Ms. Ouellette from competing with the Company for a one-year period following
termination of employment.
COMPENSATION OF DIRECTORS
The Directors of the Company received no compensation for their services as
Directors during 1995. Following this Offering, each of the non-management
Directors will receive a fee of $2,000 per year plus travel expenses.
Non-employee Directors also participate in the Company's Formula Plan.
LIMITATION ON OFFICERS' AND DIRECTORS' LIABILITIES
Pursuant to the Company's Certificate of Incorporation and under Delaware
law, Directors of the Company are not liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty, except for liability in
connection with a breach of loyalty, for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, or for
dividend payments or stock repurchases in violation of Delaware law or for any
transaction in which a Director has derived an improper personal benefit.
In addition, the Company's Bylaws include provisions to indemnify its
officers and Directors and other persons against expenses, judgments, fines and
amounts paid in settlement in connection with threatened, pending or completed
suits or proceedings against such persons by reason of serving or having served
as officers, Directors or in other capacities, except in relation to matters
with respect to which such persons shall be determined not to have acted in good
faith, lawfully or in the best interests of the Company. With respect to matters
to which the Company's officers, Directors, personnel, agents or other
representatives are determined to be liable for misconduct or negligence in the
performance of their duties, the Company's Bylaws provide for indemnification
only to the extent that the Company determines that such person acted in good
faith and in a manner not opposed to the best interests of the Company.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to Directors, officers, underwriters and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
STOCK OPTION PLANS
1996 STOCK OPTION PLAN
In February 1996, the Board of Directors and stockholders of the Company
adopted the Plan, which provides for the grant to employees, officers,
Directors, and consultants of options to purchase up to 800,000 shares of Common
Stock, consisting of both "incentive stock options" within the meaning of
Section 422 of the United States Internal Revenue Code of 1986, as amended (the
"Code"), and non-qualified options. Incentive stock options are issuable only to
employees of the Company, while non-qualified options may be issued to
non-employee Directors, consultants, and others, as well as to employees of the
Company.
31
The per share exercise price of the Common Stock subject to any incentive
stock option may not be less than the fair market value of the Common Stock on
the date the option is granted. The per share exercise price of the Common Stock
subject to a non-qualified option may be established by the Board of Directors.
The aggregate fair market value (determined as of the date the option is
granted) of the Common Stock that first becomes exercisable by any employee in
any one calendar year pursuant to the exercise of incentive stock options may
not exceed $100,000. No person who owns, directly or indirectly, at the time of
the granting of any incentive stock option to him or her, more than 10% of the
total combined voting power of all classes of stock of the Company (a "10%
Stockholder") shall be eligible to receive any incentive stock options under the
Plan unless the option price is at least 110% of the fair market value of the
Common Stock subject to the option, determined on the date of grant.
No stock option may be transferred by an optionee other than by will or the
laws of descent and distribution, and during the lifetime of an optionee, the
option will be exercisable only by him or her. In the event of termination of
employment other than by death or disability, the optionee will have three
months after such termination during which he or she can exercise the option.
Upon termination of employment of an optionee by reason of death or permanent
total disability, his or her options remain exercisable for one year thereafter
to the extent such options were exercisable on the date of such termination. No
similar limitation applies to non-qualified options.
Options under the Plan must be granted within 10 years from the effective
date of the Plan. The incentive stock options granted under the Plan cannot be
exercised more than 10 years from the date of grant except that incentive stock
options issued to a 10% Stockholder are limited to five year terms. All options
granted under the Plan provide for the payment of the exercise price in cash or
by delivery to the Company of shares of Common Stock already owned by the
optionee having a fair market value equal to the exercise price of the options
being exercised, or by a combination of such methods of payment. Therefore, an
optionee may be able to tender shares of Common Stock to purchase additional
shares of Common Stock and may theoretically exercise all of his or her stock
options with no additional investment other than his or her original shares.
Any unexercised options that expire or that terminate upon an employee
ceasing to be employed with the Company become available once again for
issuance. As of the date of this Prospectus, options to purchase 394,800 shares
of Common Stock have been granted under the Plan, including to the following
officers and Directors of the Company:
<TABLE>
<CAPTION>
EXERCISE
NUMBER OF PRICE EXPIRATION
NAME AND TITLE OPTIONS PER SHARE DATE
-------------- ------- --------- ----------
<S> <C> <C> <C>
John J. Shields 100,000 $4.00 4/30/01
Chairman of the Board
Robert Kuzara 200,000 $4.00 2/12/01
President and Chief Executive Officer
Carole Ouellette 17,500 $4.00 2/12/01
Chief Financial Officer
William Blocher 25,000 $4.00 2/12/01
Chief Technical Officer
Paul MacDonald 17,500 $4.00 2/12/01
Vice President of Operations
</TABLE>
1996 FORMULA STOCK OPTION PLAN
In February 1996, the Company's Board of Directors and stockholders adopted
the Formula Plan to incentivize non-employee Directors who will administer the
Company's discretionary stock option plans. Under the Formula Plan, options will
be granted pursuant to a formula that determines the timing, pricing and amount
of the option awards using only objective criteria, without discretion on the
part of the administrators of the Formula Plan. The Formula Plan provides that
its provisions may not be
32
amended more than once every six months, other than to comply with changes in
the Internal Revenue Code, the Employee Retirement Income Security Act, or the
rules thereunder. Also, any provision for forfeiture or termination of an option
award will be specific and objective, rather than general, subjective or
discretionary.
Options to purchase up to sixty thousand (60,000) shares of Common Stock may
be granted under the Formula Plan.
Beginning on June 1, 1996, and annually thereafter on the business day
immediately following the Company's annual meeting of stockholders, options
shall be granted under the Formula Plan, without approval or discretion on the
part of the Board, to non-employee Directors as follows: Each non-employee
Director who has not been a Director on such date for at least one year will
receive options to purchase five thousand (5,000) shares of common stock, which
will vest fully one year thereafter, subject to continued service as a Director
of the Company. Each non-employee Director who has been a Director of the
Company for at least one year as of such date will receive options to purchase
one thousand (1,000) shares of common stock, which will vest fully upon the date
of the grant.
The exercise price of such options will be the fair market value of the
shares of stock on the date of the grant, and said options will be exercisable
subject to the Directors' continued service as a Director of the Company on such
date.
No stock option may be transferred by an optionee other than by will or the
laws of descent and distribution, and during the lifetime of an optionee, the
option will be exercisable only by him or her. In the event that the optionee
ceases to be a Director for any reason other than death, the option will be
exercisable only to the extent of the purchase rights, if any, which have
accrued as of the date of such cessation; provided that upon any such cessation
of service, the remaining rights to purchase shall in any event terminate upon
the expiration of the original term of the option.
Upon termination of service as a Director by reason of death, the Director's
options remain exercisable until the expiration of the original term of the
options. However, any such exercise is limited to the purchase rights that have
accrued as of the date when the optionee ceased to be a Director whether by
death or otherwise.
Options under the Formula Plan must be granted within ten years from the
effective date of the Formula Plan. The options granted under the Formula Plan
cannot be exercised more than ten years from the date of grant.
Under the Formula Plan, the number of options that will be granted to the
eligible recipients (only non-employee Directors) can be determined; however,
the exercise price of such options cannot be determined, as the exercise price
will be that which is equal to the fair market value of the Company's Common
Stock on the date of each grant.
As of the date of this Prospectus, options to purchase up to 5,000 shares of
Common Stock have been granted under the Formula Plan to Mr.
Appe.
33
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus, the
ownership of the Common Stock by (i) each person who is known by the Company to
own of record or beneficially more than five percent (5%) of the Common Stock,
(ii) each of the Company's Directors and executive officers, and (iii) all
Directors and executive officers as a group. Except as otherwise indicated, the
stockholders listed in the table have sole voting and investment powers with
respect to the shares indicated.
<TABLE>
<CAPTION>
PERCENTAGE OF CLASS(1)
----------------------
NUMBER OF
SHARES
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(2) OWNED OFFERING OFFERING(3)
--------------------------------------- ------------ -------- -----------
<S> <C> <C> <C>
Centennial Technologies, Inc.(4) 488,750 10.6% 8.7%
Robert Kuzara(5) 180,000 3.9 3.2
Michael Appe(6) 60,000 1.3 1.1
John J. Shields(7) 0 0 0
Carole Ouellette(8) 0 * *
All Officers and Directors as a Group(1)(3)(5)(6)(7)(9) 240,000 5.2 4.3
- -----------
* Less than 1.0%.
(1) Pursuant to the rules of the Securities and Exchange Commission, shares of
Common Stock which an individual or group has a right to acquire within 60
days pursuant to the exercise of options or warrants are deemed to be
outstanding for the purpose of computing the percentage ownership of such
individual or group, but are not deemed to be outstanding for the purpose
of computing the percentage ownership of any other person shown in the
table. Percentage ownership listed also gives effect to the issuance of
2,500,000 shares of Common Stock as of the date of this Prospectus upon the
conversion of 625,000 shares of Class B Common Stock, which results in
4,605,000 and 5,605,000 shares of Common Stock outstanding before and after
the Offering, respectively.
(2) The address for all of these individuals except Centennial Technologies,
Inc. is WebSecure, Inc., 1711 Broadway, Saugus, Massachusetts 01906. The
address for Centennial Technologies, Inc. is 37 Manning Road, Billerica,
Massachusetts 01821.
(3) Unless specified otherwise in the notes below, excludes shares of Common
Stock issuable upon the exercise of: (i) the Redeemable Warrants; (ii) the
Representatives' Warrant; (iii) Redeemable Warrants subject to the
overallotment option and the Representatives' Warrant and (iv) up to
860,000 options which have been or may be granted under the Plan and the
Formula Plan. See "MANAGEMENT -- Stock Option Plans," and "UNDERWRITING."
(4) If the Underwriters' overallotment option is exercised in full, Centennial
Technologies, Inc. ("Centennial") will sell to the Underwriters 150,000
shares of Common Stock, in which event Centennial will beneficially own
approximately 5.9% after the Offering. John J. Shields, the Chairman of the
Board of Directors of the Company, has been a Director of Centennial since
April 1996. See "CERTAIN TRANSACTIONS."
(5) Does not include 200,000 shares of Common Stock issuable upon exercise of
stock options at an exercise price of $4.00 per share that vest beginning
in February 1997.
(6) Does not include 5,000 shares of Common Stock issuable to Mr. Appe upon
exercise of stock options that vest in May 1997 at an exercise price of
$4.00 per share.
(7) Does not include 100,000 shares of Common Stock issuable upon exercise of
stock options at an exercise price of $4.00 per share that vest beginning
in April 1997.
(8) Does not include 17,500 shares of Common Stock issuable upon exercise of
stock options at an exercise price of $4.00 per share that vest beginning
in February 1997.
(9) Does not include options to purchase 17,500 and 25,000 shares of Common
Stock at $4.00 per share issuable upon exercise of stock options held by
Mr. MacDonald and Mr. Blocher, respectively, that vest beginning in
February 1997.
</TABLE>
34
CERTAIN TRANSACTIONS
The Company has provided and continues to provide Internet access, Web site
development and management and other services to Centennial Technologies, Inc.
("Centennial") and three companies owned by Mr. Kuzara, the Company's President
and Chief Executive Officer and a member of the Board of Directors. These
services have been provided at no cost in exchange for such companies agreeing
to serve as test sites for the Company's services during its development stage.
Following the commercial offering of the Company's services, the Company will
charge these companies fees at the Company's standard rates then in effect.
Centennial purchased 350,000 shares of the Company's Common Stock in October
1995 in exchange for $10,000 and the guaranty of certain lease obligations of
the Company. In April 1996, Centennial purchased 138,750 shares of Common Stock
for $555,000 in connection with a private placement conducted by the Company, in
which it raised $2,000,000 from Centennial and unaffiliated investors.
Centennial has, from time to time, made loans to the Company for general
operations. The loans are evidenced by promissory notes that bear interest at
the rate of 9% per annum and are due on demand. As of September 8, 1996,
approximately $855,000 remained outstanding under these loans. The Company
intends to repay this amount with a portion of the proceeds from this Offering.
In addition, in September 1996, Centennial agreed to guaranty certain additional
lease obligations of the Company relating to the acquisition of capital
equipment.
Mr. Shields has been a Director of Centennial since April 1996. Mr. Kuzara
served as a Director of Centennial from April 1994 through November 1995. Prior
to this Offering and the conversion of the Class B Common Stock, Centennial owns
approximately 23.2% of the Company's outstanding Common Stock. If the
Underwriters' overallotment option is exercised in full, Centennial will sell
150,000 shares of its Common Stock in connection with this Offering. See "USE OF
PROCEEDS" and "PRINCIPAL STOCKHOLDERS."
All of the Company's employees are leased by ERI, an employee leasing
company that is owned by Mr. Kuzara. For the nine months ended May 31, 1996,
approximately $560,000 was billed by ERI to the Company. The Company owed ERI
approximately $237,000 and $17,000 as of May 31, 1996 and August 31, 1995,
respectively.
The Center for Business Planning ("CBP") is a back room support company
founded by Mr. Kuzara in May 1995. CBP provided services to the Company in
connection with the start-up of the Company. CBP charged the Company a
management fee for its services. For the nine months ended May 31, 1996,
approximately $74,000 was billed from CBP to the Company. The Company owed CBP
approximately $72,000 as of May 31, 1996. CBP ceased operations as of July 1,
1996, at which time two former CBP employees joined the Company.
Information Capture Corporation ("ICC"), a manufacturer of inventory control
devices, loaned the Company approximately $95,000 to purchase furniture, which
amount was repaid as of May 31, 1996. Mr. Kuzara owns twenty percent (20%) of
the outstanding Common Stock of ICC. The Company billed approximately $9,000 to
ICC for the sublet of office space and equipment rental, all of which was paid
as of May 31, 1996.
During the nine months ended May 31, 1996, the Company loaned Mediajet, Inc.
("Mediajet") approximately $125,000 pursuant to a note that bore interest at the
rate of 9% per annum and is due upon demand. The note was repaid in June 1996.
Mediajet is owned by a former officer of the Company.
The Company believes that the above arrangements were on terms at least as
favorable as could be obtained from unaffiliated parties.
Mr. Kuzara and Mr. Appe received 180,000 and 60,000 shares of Common Stock
of the Company for nominal consideration in connection with the founding of the
Company. See "PRINCIPAL STOCKHOLDERS."
35
DESCRIPTION OF SECURITIES
The following summary description of the Company's capital stock is
qualified in its entirety by reference to the Company's Certificate of
Incorporation, as amended.
COMMON STOCK
The Company is authorized to issue up to 20,000,000 shares of Common Stock,
$.01 par value per share. As of the date of this Prospectus, the Company had
_____ stockholders of record.
Holders of Common Stock are entitled to one vote for each share held of
record on each matter submitted to a vote of stockholders. There is no
cumulative voting for election of Directors. Subject to the prior rights of any
series of preferred stock which may from time to time be outstanding, if any,
holders of Common Stock are entitled to receive ratably dividends when, as, and
if declared by the Board of Directors out of funds legally available therefor
and, upon the liquidation, dissolution, or winding up of the Company, are
entitled to share ratably in all assets remaining after payment of liabilities
and payment of accrued dividends and liquidation preferences on the preferred
stock, if any. Holders of Common Stock have no preemptive rights and have no
rights to convert their Common Stock into any other securities. The outstanding
Common Stock is, and the Common Stock to be outstanding upon completion of this
Offering will be, validly authorized and issued, fully paid, and nonassessable.
Subsequent to the completion of this Offering, the current stockholders of
the Company will own approximately 82% of the outstanding Common Stock (77% if
the Underwriters' overallotment option is exercised in full). As a result, the
current stockholders will be able to elect all of the members of the Board of
Directors and control the policies and affairs of the Company.
CLASS B COMMON STOCK
The Company is authorized to issue up to 2,000,000 shares of Class B Common
Stock, $.01 par value per share. In April 1996, the Company issued 625,000
shares of Class B Common Stock to MTCL. See "BUSINESS -- Research and
Development."
Holders of Class B Common Stock are not entitled to vote on any actions to
be taken by the stockholders of the Company unless expressly required by law.
Holders of Class B Common Stock are entitled to receive dividends ratably with
holders of unclassified shares of Common Stock when, as, and if declared by the
Board of Directors out of funds legally available therefor and only after
holders of unclassified shares of Common Stock have received a dividend or
dividends equal to $10.00 per share. Upon the liquidation, dissolution, or
winding up of the Company, holders of Class B Common Stock are entitled to share
ratably in all assets of the Company up to a maximum of $1.00 per share of Class
B Common Stock after payment of liabilities and payment of accrued dividends and
liquidation preferences on the preferred stock, if any, and after the holders of
Common Stock have been paid an amount equal to $8.00 per share. Holders of
Common Stock have no preemptive rights. Each share of Class B Common Stock
converts automatically into four shares of Common Stock upon one of the
following events: (a) the effectiveness of a firm commitment underwriting of the
Company's securities for gross proceeds equal to or greater than $5,000,000, or
(b) the sale of all or substantially all of the Company's assets based on a
value of the Company equal to or greater than $30,000,000. The Company's 625,000
outstanding shares of Class B Common Stock will convert automatically into
2,500,000 shares of Common Stock as of the date of this Prospectus.
REDEEMABLE WARRANTS
The following is a brief summary of certain provisions of the Redeemable
Warrants, but such summary does not purport to be complete and is qualified in
all respects by reference to the actual text of the Warrant Agreement between
the Company and American Securities Transfer & Trust, Incorporated (the
"Transfer and Warrant Agent"). A copy of the Warrant Agreement has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part. See
"ADDITIONAL INFORMATION."
36
Exercise Price and Terms
Each Redeemable Warrant entitles the registered holder thereof to purchase
at any time commencing ___ , 1996 through ____, 1999, one share of Common Stock
at a price of $9.60 per share, subject to adjustment in accordance with the
anti-dilution and other provisions referred to below.
The holder of any Redeemable Warrant may exercise such Redeemable Warrant
by surrendering the certificate representing the Redeemable Warrant to the
Company's Transfer and Warrant Agent, with the subscription on the reverse side
of such certificate properly completed and executed, together with payment of
the exercise price. The Redeemable Warrants may be exercised at any time in
whole or in part at the applicable exercise price commencing 90 days from the
date of this Prospectus until expiration of the Redeemable Warrants on ___ ,
1999. No fractional shares will be issued upon the exercise of the Redeemable
Warrants.
REDEMPTION
Commencing 90 days from the date of this Prospectus, the Redeemable
Warrants are subject to redemption at $.20 per Redeemable Warrant on 30 days'
prior written notice, provided that the average high and low sales prices of the
Common Stock as reported in AMEX equals or exceeds $12.00 per share during the
10 consecutive trading days ending within 20 days prior to the notice of
redemption. In the event the Company exercises the right to redeem the
Redeemable Warrants, such Redeemable Warrants will be exercisable until the
close of business on the date fixed for redemption in such notice. If any
Redeemable Warrant called for redemption is not exercised by such time, it will
cease to be exercisable and the warrantholder will be entitled only to the
redemption price.
ADJUSTMENTS
The exercise price and the number of shares of Common Stock purchasable
upon the exercise of the Redeemable Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations or reclassifications on or of the Common Stock. Additionally, an
adjustment would be made in the case of a reclassification or exchange of Common
Stock, consolidation or merger of the Company with or into another corporation
or sale of all or substantially all of the assets of the Company in order to
enable holders of Redeemable Warrants to acquire the kind and the number of
shares of stock or other securities or property receivable in such event by a
holder of the number of shares that might otherwise have been purchased upon the
exercise of the Redeemable Warrants. No adjustments will be made unless such
adjustment would require an increase or decrease of at least $.10 or more in
such exercise price. No adjustment to the exercise price of the shares subject
to the Redeemable Warrants will be made for dividends (other than stock
dividends), if any, paid on the Common Stock or for securities issued pursuant
to exercise of the Redeemable Warrants, the Representative's Warrant, currently
outstanding options or options which may be granted under the Plan or shares
issued in connection with the acquisition of another business by the Company.
TRANSFER, EXCHANGE AND EXERCISE
The Redeemable Warrants are fully registered and may be presented to the
Transfer and Warrant Agent for transfer, exchange or exercise at any time
beginning 90 days after the date of this Prospectus until the close of business
on ___, 1999, at which time the Redeemable Warrants become wholly void and of no
value. If a market for the Redeemable Warrants develops, the holder may sell the
Redeemable Warrants instead of exercising them. There can be no assurance,
however, that a market for the Redeemable Warrants will develop or continue. If
the Company is unable to qualify for sale in particular states its Common Stock
underlying the Redeemable Warrants, holders of the Redeemable Warrants desiring
to exercise the Redeemable Warrants in those states will have no choice but to
either sell such Redeemable Warrants or let them expire. See "RISK FACTORS --
Requirement to Maintain Current Prospectus; Non-Registration in Certain
Jurisdictions of Shares Underlying the Redeemable Warrants; Possible Redemption
of Redeemable Warrants."
37
Warrantholder not a Stockholder
The Redeemable Warrants do not confer upon holders any voting or other
rights as stockholders of the Company.
PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of preferred
stock, $.01 par value per share (the "Preferred Stock"). The Preferred Stock may
be issued in one or more series, the terms of which may be determined at the
time of issuance by the Board of Directors, without further action by
stockholders, and may include voting rights (including the right to vote as a
series on particular matters), preferences as to dividends and liquidation,
conversion rights, redemption rights, and sinking fund provisions.
No shares of Preferred Stock will be outstanding as of the closing of this
Offering, and the Company has no present plans for the issuance thereof. The
issuance of any such Preferred Stock could adversely affect the rights of the
holders of Common Stock and, therefore, reduce the value of the Common Stock.
The ability of the Board of Directors to issue Preferred Stock could discourage,
delay, or prevent a takeover of the Company. See "RISK FACTORS -- Possible
Issuance of Preferred Stock."
TRANSFER AGENT
The Company has appointed American Securities Transfer & Trust,
Incorporated, Lakewood, Colorado, as Transfer and Warrant Agent for its Common
Stock and Redeemable Warrants.
38
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 5,605,000 shares of
Common Stock outstanding. Of these shares, the 1,000,000 Shares offered hereby
will be freely tradeable without further registration under the Securities Act.
Up to 150,000 additional shares of Common Stock may be purchased by the
Representative after the first anniversary date of this Prospectus through the
exercise of the Representatives' Warrant. Any and all shares of Common Stock
purchased upon exercise of the Representatives' Warrant may be freely tradeable,
provided that the Company satisfies certain securities registration and
qualification requirements in accordance with the terms of the Representatives'
Warrant. See "UNDERWRITING."
All of the presently outstanding 4,605,000 shares of Common Stock are
"restricted securities" within the meaning of Rule 144 of the Securities Act and
will not be eligible for sale in the public market in reliance upon, and in
accordance with, the provisions of Rule 144 until November 1997. See
"UNDERWRITING," "RISK FACTORS -- Shares Eligible For Future Sale" and "RISK
FACTORS -- Sales Pursuant to Rule 144."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including a person who may be deemed to be an
"affiliate" of the Company as that term is defined under the Securities Act,
will be entitled to sell within any three-month period a number of shares
beneficially owned for at least two years that does not exceed the greater of
(i) 1% of the then outstanding shares of Common Stock, or (ii) the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice, and the availability of current
public information about the Company. However, a person who is not deemed to
have been an affiliate of the Company during the 90 days preceding a sale by
such person, and who has beneficially owned shares of Common Stock for at least
three years, may sell such shares without regard to the volume, manner of sale,
or notice requirements of Rule 144.
Prior to this Offering, there has been no public market for the Company's
securities. Following this Offering, the Company cannot predict the effect, if
any, that sales of Common Stock pursuant to Rule 144 or otherwise, or the
availability of such shares for sale, will have on the market price prevailing
from time to time. Nevertheless, sales by the current stockholders of
substantial amounts of Common Stock in the public market could adversely affect
prevailing market prices for the Common Stock. In addition, the availability for
sale of a substantial amount of Common Stock acquired through the exercise of
the Redeemable Warrants or the Representatives' Warrant could adversely affect
prevailing market prices for the Common Stock. The Company's officers, Directors
and holders of 5% of the outstanding shares of Common Stock, in addition to
holders of shares of Common Stock issued upon conversion of the shares of Class
B Common Stock have agreed not to sell the shares beneficially owned by such
persons for a period of 13 months from the date of this Prospectus (except for
shares of Common Stock that are subject to the Underwriters' overallotment
option) without the Representatives' written consent. In addition, the Company
has agreed that it will not issue any shares of Common Stock for a period of 13
months following the date of this Prospectus without the Representatives'
written consent, except for shares of Common Stock issuable upon exercise of
stock options that have been or may be granted under the Plan and the Formula
Plan.
39
UNDERWRITING
The underwriters named below (the "Underwriters"), for whom Coburn &
Meredith, Inc. and Shamrock Partners, Ltd. are acting as Representatives, have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement (the form of which has been filed as an exhibit to the Registration
Statement), to purchase from the Company the respective numbers of Shares and
Redeemable Warrants set forth opposite their names in the table below. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters shall be
obligated to purchase all of the Shares and Redeemable Warrants, if any are
purchased.
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF REDEEMABLE
NAME SHARES WARRANTS
---- -------- ----------
<S> <C> <C>
Coburn & Meredith, Inc.
Shamrock Partners, Ltd. --------- ----------
1,000,000 1,000,000
========= ==========
</TABLE>
Through the Representatives, the several Underwriters have advised the
Company that they propose to offer the Shares and Redeemable Warrants to the
public at the public offering prices set forth on the cover of this Prospectus.
The Representatives have advised the Company that they may allow certain dealers
concessions of not in excess of $.__ per share of Common Stock and $__ per
Redeemable Warrant, of which a sum not in excess of $.__ per share of Common
Stock and $__ per Redeemable Warrant may in turn be reallowed by such dealers to
other dealers. After the issuance of the Shares and the Redeemable Warrants, the
public offering prices, the concessions and the reallowances may be changed. The
Representatives have further advised the Company that they do not expect sales
to discretionary accounts to exceed five percent of the total number of Shares
and Redeemable Warrants offered hereby.
The Selling Stockholder has granted an option to the Underwriters,
exercisable during the 30-day period following the effective date of the
Underwriting Agreement, to purchase up to 150,000 shares of Common Stock and up
to 150,000 Redeemable Warrants, respectively, at the offering price less
underwriting discounts and the non-accountable expense allowance. The
Underwriters may exercise such option only to satisfy overallotments in the sale
of the Shares and Redeemable Warrants.
In connection with this Offering, the Company has agreed to sell to the
Representatives, for nominal consideration, the Representatives' Warrant, which
confers the right to purchase up to 100,000 shares of Common Stock and up to
100,000 Redeemable Warrants. The Representatives' Warrant is initially
exercisable at the price (the "Exercise Price") of $10.40 per share of Common
Stock and $.26 per Redeemable Warrant for a period of four years commencing one
year from the effective date of this Prospectus. The shares of Common Stock and
Redeemable Warrants issuable upon exercise of the Representatives' Warrant are
identical to those offered hereby except that the Redeemable Warrants underlying
the Representatives' Warrant are exercisable at $10.66 per share and are not
redeemable by the Company. The Representatives' Warrant contains provisions
providing for adjustment of the Exercise Price and the number and type of
securities issuable upon the exercise thereof upon the occurrence of certain
events. The Representatives' Warrant grants to the holders thereof certain
rights of registration of the securities issuable upon the exercise thereof upon
the occurrence of certain events. Upon the exercise of the Redeemable Warrants
more than one year after the date of this Prospectus, and to the extent not
inconsistent with the guidelines of the National Association of Securities
Dealers, Inc., and the Rules and Regulations of the Commission, the Company has
agreed to pay the Representatives a commission equal to five percent of the
exercise price of the Redeemable Warrants in connection with solicitations of
exercises of Redeemable Warrants made by the Representatives. However, no
compensation will be paid to the Representatives in connection with the exercise
of the Redeemable Warrants if (a) the market price of the underlying shares of
Common Stock is lower than the exercise price, (b) the Redeemable Warrants are
exercised in an unsolicited transaction, or (c) the Redeemable Warrants subject
to the Representatives' Warrant are exercised.
40
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
the Registration Statement, including liabilities under the Securities Act. The
Company has agreed with the Representatives that it will not issue additional
shares of Common Stock for a period of 13 months from the date of this
Prospectus (except for shares issuable upon exercise of stock options) without
the Representatives' written consent.
The foregoing is a brief summary of certain provisions of the Underwriting
Agreement and does not purport to be a complete statement of its terms and
conditions. A copy of the Underwriting Agreement is on file with the Commission
as an exhibit to the Registration Statement of which this Prospectus is a part.
See "ADDITIONAL INFORMATION."
Prior to the Offering, there has been no public market for any of the
Company's securities. The initial public offering prices of the Shares and
Redeemable Warrants will be determined by negotiations between the Company and
the Representatives and are not necessarily related to the Company's assets,
earnings, or book value or any other established criteria of value. Factors
considered in determining the Offering price of the Shares included estimates of
business potential, historical earnings, future prospects, gross proceeds to be
raised, percentage of stock owned by officers and Directors on the date hereof,
the type of business in which the Company engages, and an assessment of the
Company's management. The foregoing factors were evaluated in light of the
existing state of the securities market.
LEGAL MATTERS
The validity of the Securities offered hereby and certain other legal
matters will be passed upon for the Company by O'Connor, Broude & Aronson, Bay
Colony Corporate Center, 950 Winter Street, Suite 2300, Waltham, Massachusetts
02154. William M. Prifti, Esquire, Lynnfield Woods Office Park, 220 Broadway,
Suite 204, Lynnfield, Massachusetts 01940, is acting as counsel for the
Representatives in connection with certain legal matters related to the
Offering.
EXPERTS
The financial statements of the Company as of May 31, 1996 and August 31,
1995 and for the nine months ended May 31, 1996 and for the periods from July
19, 1995 (inception) through August 31, 1995 and July 19, 1995 (inception)
through May 31, 1996 appearing in this Prospectus and Registration Statement
have been audited by BDO Seidman, LLP, independent certified public accountants,
as set forth in their report thereon appearing elsewhere herein and in the
Registration Statement and have been included herein in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, http://www.sec.gov., a Registration Statement on Form
SB-2 (the "Registration Statement") under the Act, with respect to the
Securities offered hereby. This Prospectus does not contain all the information
set forth in the Registration Statement and the exhibits thereto, as permitted
by the Rules and Regulations of the Commission. For further information,
reference is made to the Registration Statement and to the exhibits filed
therewith. Statements contained in this Prospectus as to the contents of any
contract or other document which has been filed as an exhibit to the
Registration Statement are qualified by reference to such exhibits for a
complete statement of their terms and conditions. The Registration Statement and
exhibits may be inspected without charge at the offices of the Commission and
copies of all or any part thereof may be obtained from the Commission's
principal office at 450 Fifth Street, N.W., Washington D.C., or at certain of
the regional offices of the Commission located at 7 World Trade Center, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661, upon payment of the fees prescribed by the Commission. In addition, the
Company has applied for inclusion on the American Stock Exchange. Reports and
other information concerning the Company may be inspected at the American Stock
Exchange, 86 Trinity Place, New York, New York 10006.
41
WEBSECURE, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants F-2
Financial Statements:
Balance Sheets as of May 31, 1996 and August 31, 1995 F-3
Statements of Operations for the nine months ended May 31, 1996,
for the period from inception (July 19, 1995) to August 31, 1995
and for the cumulative period from inception (July 19, 1995)
to May 31, 1996 F-4
Statements of Stockholders' Equity (Deficit) for the period from
inception (July 19, 1995) to May 31, 1996 F-5
Statements of Cash Flows for the nine months ended May 31, 1996,
for the period from inception (July 19, 1995) to August 31, 1995
and for the cumulative period from inception (July 19, 1995)
to May 31, 1996 F-6
Notes to Financial Statements F-7
</TABLE>
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
WEBSECURE, INC.
Saugus, Massachusetts
We have audited the accompanying balance sheets of WebSecure, Inc. (a
Development Stage Company), as of May 31, 1996 and August 31, 1995, and the
related statements of operations, stockholders' equity (deficit) and cash flows
for the nine months ended May 31, 1996, the period from inception (July 19,
1995) to August 31, 1995 and for the cumulative period from inception (July 19,
1995) to May 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WebSecure, Inc. (a
Development Stage Company) at May 31, 1996 and August 31, 1995 and the results
of its operations and its cash flows for the nine months ended May 31, 1996, the
period from inception (July 19, 1995) to August 31, 1995 and for the cumulative
period from inception (July 19, 1995) to May 31, 1996, in conformity with
generally accepted accounting principles.
The Company is in the development stage, and as such, success of future
operations is subject to a number of risks. The Company has incurred a
cumulative net loss of $7,292,275 through May 31, 1996 and has been primarily
engaged in product development. There is a substantial doubt about the Company's
ability to continue as a going concern. The Company's ability to continue as a
going concern is dependent upon the anticipated net proceeds from a proposed
Initial Public Offering. These matters are further discussed in Note 1. The
accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/S/ BDO SEIDMAN, LLP
Boston, Massachusetts
September 6, 1996
F-2
WEBSECURE, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current:
Accounts receivable $ 19,248 $ --
Inventories 10,295 --
Note receivable from related party (Note 3) 127,890 --
Due from related parties (Note 3) 789,661 3,866
Prepaid expenses and other current assets 19,020 10,000
-------- --------
Total current 966,114 13,866
-------- --------
Property and equipment:
Computer equipment 285,484 --
Office equipment 266,035 --
Furniture and fixtures 137,726 --
Leasehold improvements 74,790 --
Software 13,809 5,989
-------- --------
777,844 5,989
Less accumulated depreciation and amortization 138,008 --
-------- --------
Property and equipment, net 639,836 5,989
-------- --------
Deferred registration costs 224,060 --
Other assets 30,506 8,700
-------- --------
$ 1,860,516 $ 28,555
============ =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses (Note 4) $ 486,284 $ 9,838
Due to related parties (Note 3) 326,726 17,343
Note payable to related party (Note 3) 100,000 35,000
Current portion of capital lease obligation
(Note 5) 61,199 --
-------- --------
Total current liabilities 974,209 62,181
Capital lease obligation, less current maturities
(Note 5) 327,857 --
-------- --------
Total liabilities 1,302,066 62,181
-------- --------
Commitments and Contingencies (Notes 1, 5, 8 and 9)
Stockholders' equity (deficit) (Notes 6 and 8):
Preferred stock, $.01 par value; 1,000,000 shares
authorized; no shares issued and outstanding -- --
Common stock, $.01 par value; 20,000,000 shares
authorized; 2,105,000 shares issued and outstanding
at May 31, 1996 21,050 --
Class B common stock, $.01 par value; 2,000,000 shares
authorized; 625,000 shares issued and outstanding
at May 31, 1996 6,250 --
Additional paid-in capital 7,827,025 --
Stock subscription receivable (3,600) --
Deficit accumulated during the development stage (7,292,275) (33,626)
-------- --------
Total stockholders' equity (deficit) 558,450 (33,626)
-------- --------
$ 1,860,516 $ 28,555
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
WEBSECURE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM CUMULATIVE
NINE MONTHS INCEPTION FROM INCEPTION
ENDED (JULY 19, 1995) (JULY 19, 1995)
MAY 31, 1996 TO AUGUST 31, 1995 TO MAY 31, 1996
-------------- ---------------- ---------------
<S> <C> <C> <C>
Revenue:
Product revenue $ 17,971 $ -- $ 17,971
Service revenue 23,801 -- 23,801
------------ ------------ -----------
Total revenue 41,772 -- 41,772
------------ ------------ -----------
Cost of revenue:
Product revenue 13,628 -- 13,628
Service revenue 58,193 -- 58,193
------------ ------------ -----------
Total cost of revenue 71,821 -- 71,821
------------ ------------ -----------
Gross margin (30,049) -- (30,049)
------------ ------------ -----------
Operating expenses:
Research and development 439,265 809 440,074
Selling and marketing 178,870 1,946 180,816
General and administrative (Note 3) 823,379 30,871 854,250
Charge for acquired research and development
(Note 6) 5,760,000 -- 5,760,000
------------ ------------ -----------
Total operating expenses 7,201,514 33,626 7,235,140
------------ ------------ -----------
Loss from operations (7,231,563) (33,626) (7,265,189)
Interest expense, net of interest income of
$1,890 (27,086) -- (27,086)
------------ ------------ -----------
Net loss $ (7,258,649) $ (33,626) $ (7,292,275)
============== ============== ==============
Net loss per common and common equivalent
share $ (1.51) $ (.01) $ (1.52)
============== ============== ==============
Shares used in computing net loss per common
and common equivalent share 4,804,900 4,804,900 4,804,900
============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
F-4
WEBSECURE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK CLASS B COMMON STOCK
------------ ---------------------
DEFICIT
ACCUMULATED TOTAL
ADDITIONAL DURING THE STOCKHOLDERS'
NUMBER $.01 NUMBER $.01 PAID-IN STOCK DEVELOPMENT EQUITY
OF SHARES PAR VALUE OF SHARES PAR VALUE CAPITAL SUBSCRIPTIONS STAGE (DEFICIT)
--------- ------- ------- ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net loss from inception (July
19, 1995) to August 31, 1995 -- $ -- -- $ -- $ -- $ -- $ (33,626) $(33,626)
--------- ------- ------- ------ -------- -------- -------- --------
Balance, August 31, 1995 -- -- -- -- -- -- (33,626) (33,626)
Issuance of common stock:
Founders 782,500 7,825 -- -- 6,500 (3,600) -- 10,725
For professional services 20,000 200 -- -- 79,800 -- -- 80,000
Private offering 500,000 5,000 -- -- 1,995,000 -- -- 2,000,000
Issuance of Class B common
stock in connection with the
acquisition of research and
development (Note 6) -- -- 625,000 6,250 2,543,750 -- -- 2,550,000
Issuance of common stock in
connection with the
acquisition of research and
development (Note 6) 802,500 8,025 -- -- 3,201,975 -- -- 3,210,000
Net loss -- -- -- -- -- -- (7,258,649) (7,258,649)
--------- ------- ------- ------ -------- -------- -------- --------
Balance, May 31, 1996 2,105,000 $ 21,050 625,000 $ 6,250 $7,827,025 $ (3,600) $(7,292,275) $ 558,450
========= ======== ======= ======== ========== ========== ============ ==========
</TABLE>
See accompanying notes to financial statements.
F-5
WEBSECURE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM CUMULATIVE
NINE MONTHS INCEPTION FROM INCEPTION
ENDED (JULY 19, 1995) TO (JULY 19, 1995) TO
MAY 31, 1996 AUGUST 31, 1995 MAY 31, 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(7,258,649) $ (33,626) $(7,292,275)
Adjustments to reconcile net loss to net
cash used in operating activities:
Charge for acquired research and
development 5,760,000 -- 5,760,000
Issuance of common stock for
professional services 79,800 -- 79,800
Depreciation and amortization 138,008 -- 138,008
Changes in operating assets and
liabilities:
Accounts receivable (19,248) -- (19,248)
Inventories (10,295) -- (10,295)
Prepaid expenses and other current
assets (9,020) (10,000) (19,020)
Accounts payable and accrued
expenses 476,446 9,838 486,284
---------- ---------- ----------
Net cash used in operating
activities (842,958) (33,788) (876,746)
---------- ---------- ----------
Cash flows from investing activities:
Acquisition of property and equipment (771,855) (5,989) (777,844)
Deferred registration costs (224,060) -- (224,060)
Increase in other assets (21,806) (8,700) (30,506)
---------- ---------- ----------
Net cash used in investing
activities (1,017,721) (14,689) (1,032,410)
---------- ---------- ----------
Cash flows from financing activities:
Borrowings under capital lease 389,056 -- 389,056
Note receivable from related party (127,890) -- (127,890)
Due from related parties (785,795) (3,866) (789,661)
Due to related parties 309,383 17,343 326,726
Proceeds from issuance of common stock 2,010,925 -- 2,010,925
Proceeds from notes payable to related
party 760,000 35,000 795,000
Payments of notes payable to related party (695,000) -- (695,000)
---------- ---------- ----------
Net cash provided by financing
activities 1,860,679 48,477 1,909,156
---------- ---------- ----------
Net change in cash -- -- --
Cash, beginning of period -- -- --
---------- ---------- ----------
Cash, end of period $ -- $ -- $ --
=========== ============= ============
Supplemental disclosure of financing
information:
Cash paid for interest $ 20,840 $ 7,087 $ 27,927
Supplemental schedule of noncash investing
and financing activities:
Subscription receivable $ 3,600 $ -- $ 3,600
</TABLE>
See accompanying notes to financial statements.
F-6
WEBSECURE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION, BUSINESS AND PROPOSED INITIAL PUBLIC OFFERING
WebSecure, Inc. (the "Company"), which is in the development stage, was
originally incorporated as Netsafe Ltd. ("Netsafe") in Massachusetts on July 19,
1995. On September 12, 1995, Netsafe incorporated in Delaware. On December 21,
1995, Netsafe filed an amendment with the State of Delaware changing the name of
the Company to WebSecure, Inc.
The Company offers Internet access and support services for secure
commercial transactions and communications over the Internet. The Company plans
to provide complete solutions for businesses seeking to market and sell products
and services over the Internet, including establishing (1) a commercial Web site
domain, (2) electronic store design, (3) browsing and purchasing capabilities,
and (4) transaction processing. WebSecure also resells SBT, a prepackaged
accounting software program.
The Company is in the development stage, and as such, success of future
operations is subject to a number of risks similar to those of other companies
in the same stage of development. Principal among these risks are the Company's
limited operating history, history of operating losses, no assurance of
successful operations, early state of market development, competition from
substitute products or larger companies, rapid technological change, dependence
on key personnel and the uncertainty of availability of additional financing.
The Company has incurred a cumulative net loss of $7,292,275 through May 31,
1996 and has been primarily engaged in product development. The Company has
funded these losses through the private placement of equity securities
aggregating approximately $2.0 million, through a note payable to a related
party and financing through a capital lease. There is substantial doubt about
the Company's ability to continue as a going concern. The Company is dependent
upon the anticipated net proceeds (after deducting the underwriters' discount
and offering expenses, and assuming no exercise of the underwriters' over
allotment option) of approximately $6,704,000 from a proposed Initial Public
Offering ("IPO") to fund its operations for at least 12 months from the date of
the Offering. Thereafter, the Company's continued operations and funding of
research and development will depend upon cash flows from operations, if any,
and the Company's ability to raise additional funds through equity or debt
financings.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Deferred Registration Costs
As of May 31, 1996, the Company has incurred registration costs of $224,060
in connection with the proposed IPO. These costs have been deferred and upon
consummation of the proposed IPO, will be charged against the equity raised or
expensed if the Offering is not successful.
Inventories
Inventories consisting of purchased software are stated at the lower of cost
or market determined on the first-in, first-out method.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
WEBSECURE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Revenue Recognition
The Company recognizes product revenue related to prepackaged software when
shipped, as the Company has no subsequent obligations, and service revenue as
the related services are performed.
Cost of product revenue consists of costs to purchase the product, including
the cost of the media on which it is delivered. Cost of service revenue consists
primarily of consulting and support personnel salaries and related expenses.
Property and Equipment
Property and equipment is recorded at cost. Depreciation and amortization is
computed using the straight-line method over the estimated useful lives of the
related assets, as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
- ------------------ ----------
<S> <C>
Computer equipment 3 years
Office equipment 5 years
Furniture and fixtures 7 years
Leasehold improvements Lease term
Software 3 years
</TABLE>
Research and Development Expenses for Software Products
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
86, "Accounting for the Costs of Computer Software To Be Sold, Leased or
Otherwise Marketed," the Company will capitalize software development costs
incurred after technological feasibility of the software development projects is
established and the realizability of such capitalized costs through future
operations is expected if such costs become material. To date, all of the
Company's costs for research and development of software have been charged to
operations as incurred, as the amount of software development costs incurred
subsequent to the establishment of technological feasibility has been
immaterial.
Concentration of Credit Risk
SFAS No. 105, "Disclosure of Information About Financial Instruments
with Off-Balance-Sheet Risk and Financial Instruments with Concentrations
of Credit Risk," requires disclosure of any significant off-balance-sheet
and credit risk concentrations. The Company's accounts receivable balances
are all domestic. The Company has not written off any of its accounts
receivable to date. The Company had two significant customers in the nine
months ended May 31, 1996 that represented 26% and 15% of the Company's
total revenue, respectively. Both of these customers are related parties
(see Note 3).
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets or
liabilities are computed based on the differences between the financial
statement and income tax basis of assets and liabilities using the enacted
tax rates. Deferred income tax expenses or credits are based on changes in
the assets or liability from period to period.
F-8
WEBSECURE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Financial Instruments
The estimated fair value of the Company's financial instruments, which
include accounts receivable, accounts payable and related party accounts
approximate their carrying value.
Computation of Net Loss per Common and Common Equivalent
The net loss per common and common equivalent share is computed by dividing
the net loss by the weighted average number of shares outstanding during each
period presented, as adjusted for the effects of application of Securities and
Exchange Commission Staff Accounting Bulletin No. 83 ("SAB No. 83"). Pursuant to
SAB No. 83, all common stock and common stock equivalents issued within twelve
months prior to the initial filing of the registration statement relating to the
Company's anticipated IPO at a price less than the estimated IPO price have been
treated as outstanding for all reported periods using the treasury stock method.
The shares used in the computation also assumes that each share of outstanding
Class B Common Stock has been converted into four shares of Common Stock (see
Note 8).
New Accounting Standard
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
issued by the Financial Accounting Standards Board ("FASB"), is effective for
financial statements for fiscal years beginning after December 15, 1995. The new
standard establishes new guidelines regarding when impairment losses on
long-lived assets, which include plant and equipment and certain identifiable
intangible assets and goodwill, should be recognized and how impairment losses
should be measured. The Company does not expect the adoption of this standard to
have a material effect on its financial position or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company has determined that it will continue to account for
stock-based compensation for employees under Accounting Principles Board Opinion
No. 25 and elect the disclosure-only alternative under SFAS No. 123. The Company
will be required to disclose the pro forma net income or loss and per share
amounts in the notes to the financial statements using the fair-value-based
method beginning in the year ending August 31, 1997, with comparable disclosures
for the year ended August 31, 1996. The Company has not determined the impact of
these pro forma adjustments.
3. RELATED PARTIES TRANSACTIONS
Discussed below are various related parties and transactions that occurred
during the period from inception (July 19, 1995) through May 31, 1996. As of
September 6, 1996, the Company does not have formal agreements in place with
these related parties.
Employee Resources, Inc. ("ERI")
ERI is an employee leasing firm wholly owned by the Company's president. All
of the individuals who work at the Company are employed by ERI. For the nine
months ended May 31, 1996, approximately $560,000 was billed by ERI to the
Company and charged to operations. The Company owed ERI approximately $237,000
and $17,000 as of May 31, 1996 and August 31, 1995, respectively, which is
included in the amount due to related parties in the accompanying balance
sheets. The amounts due to related parties do not bear interest and are due upon
demand.
F-9
WEBSECURE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
3. RELATED PARTIES TRANSACTIONS -- (CONTINUED)
Center for Business Planning, Ltd. ("CBP")
CBP is a back room support company founded by the Company's president in May
1995. CBP provided research and development services to the Company in
connection with developing the Company's products. CBP charged the Company a
management fee for its services of approximately $74,000 for the nine months
ended May 31, 1996 which was charged to operations. The Company owed CBP
approximately $72,000 as of May 31, 1996, which is included in the amount due to
related parties in the accompanying balance sheets. As of May 31, 1996, CBP and
related entities held cash of approximately $790,000 on behalf of the Company,
which is recorded as due from related parties in the May 31, 1996 balance sheet.
Approximately $766,000 of this amount was paid by CBP to the Company in June
1996. The Company also charged CBP approximately $13,000 for subletting office
space and equipment rental which was charged to operations.
Centennial Technologies, Inc. ("Centennial")
Centennial is a manufacturer of PCMCIA cards. The Company's president is a
former director of Centennial, and the Company's CFO was also employed by
Centennial. Centennial owns approximately 23% of the Company. Centennial and the
Company have an informal agreement whereby Centennial will fund the Company
through short-term notes payable as funds are needed. Centennial has also
guaranteed the Company's obligation under a capital lease. For the nine months
ended May 31, 1996, Centennial, from time to time, made loans to the Company
totalling $795,000 for general operations, of which $695,000 was repaid. The
Company owed Centennial $100,000 as of May 31, 1996, which is shown as note
payable to related party in the accompanying May 31, 1996 balance sheet. The
note payable to Centennial bears interest at 9% per annum and is due upon
demand. Centennial interest expense for the nine months ended May 31, 1996
amounted to $11,500 of which $5,250 was unpaid and is included in amounts due to
related parties in the accompanying May 31, 1996 balance sheet.
Information Capture Corporation ("ICC")
ICC is developing a data acceptance device which is being built for ERI. The
Company's president is a 20% shareholder of ICC. ICC loaned the Company
approximately $95,000 to purchase furniture which was repaid at May 31, 1996.
For the nine months ended May 31, 1996, approximately $9,000 was billed from the
Company to ICC and charged to operations for the sublet of office space and
equipment rental, all of which was paid by May 31, 1996.
Mediajet, Inc. ("Mediajet")
Included in the accompanying balance sheet at May 31, 1996 is a note
receivable of $127,890, including interest of $1,890, from Mediajet. Mediajet is
owned by a former officer of the Company. The note bears interest at 9% per
annum and is due upon demand. The note was paid to the Company in June 1996.
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1996 1995
--------- ---------
<S> <C> <C>
Trade accounts payable $287,680 $3,052
Registration costs 170,000 --
Other accrued expenses 28,604 6,786
-------- ------
$486,284 $9,838
======== ======
</TABLE>
F-10
WEBSECURE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
5. OBLIGATION UNDER CAPITAL LEASE
The company has entered into a capital lease agreement for computer
and office equipment. Future minimum lease payments under this capital
lease are approximately as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- --------
<S> <C>
1996 $ 27,000
1997 107,000
1998 107,000
1999 107,000
2000 107,000
Thereafter 36,000
---------
Total minimum lease payments 491,000
Less amount representing interest 101,944
---------
Present value of future lease payments 389,056
Less current portion of capital lease
obligation 61,199
---------
Long-term portion $ 327,857
==========
</TABLE>
The related leased assets are included in property and equipment at a cost
of $389,056 less accumulated amortization of $73,056 at May 31, 1996.
6. ACQUIRED RESEARCH AND DEVELOPMENT
On March 29, 1996, the Company entered into a software license agreement
with Manadarin Trading Company Limited, an unrelated Irish corporation, in
exchange for 625,000 shares of the Company's Class B Common Stock. The value
assigned to this transaction ($2,550,000) represents the estimated fair value of
the stock issued based on its value in relation to other transactions occurring
during the period. To bring these software products to technological
feasibility, high-risk development and testing issues need to be resolved, which
will require substantial additional effort and testing. As such, the entire
value of the transaction was allocated to incomplete research and development
projects that had not yet reached technological feasibility and was charged to
expense at the date of the license agreement.
On April 1, 1996, the Company entered into a software license agreement with
International Software Development Limited, an unrelated British Virgin Islands
corporation, for certain technology in exchange for 802,500 shares of the
Company's Common Stock. The value assigned to this transaction ($3,210,000)
represents the estimated fair value of the Common Stock issued as determined by
recent sales of the Company's Common Stock to third parties. The Company expects
to utilize this technology in connection with its existing technology. However,
to bring this software product to technological feasibility and incorporate it
into the Company's existing product, high-risk development and testing issues
need to be resolved, which will require substantial additional effort and
testing. Accordingly, the entire value of the transaction was allocated to
incomplete research and development and was charged to expense at the date of
the license agreement.
F-11
WEBSECURE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
7. INCOME TAXES
The components of the Company's deferred tax asset (liability) are
approximately as follows:
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1996 1995
---------- ----------
<S> <C> <C>
Operating loss carryforwards $ 612,000 $ 12,000
Amortization of acquired research and development 1,313,000 --
Tax credit carryforwards 14,000 --
Depreciation (27,000) (1,000)
--------- ---------
1,912,000 11,000
Less valuation allowance 1,912,000 11,000
--------- ---------
$ -- $ --
========== =========
</TABLE>
The Company has incurred net losses since inception and expects to continue
to operate at a loss for the foreseeable future. Accordingly, the Company has
established a valuation allowance equal in amount to the deferred tax asset for
all periods presented, as there is significant doubt about the realizability of
the deferred tax assets.
At May 31, 1996, the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $1,519,000, which expire
through 2010. The Company also has certain tax credits available to offset
future federal and state income taxes, if any. Net operating loss carryforwards
and credits are subject to review and possible adjustment by the Internal
Revenue Service and may be limited in the event of certain cumulative changes in
the ownership interests of significant stockholders over a three year period in
excess of 50%. The Company may experience an additional change in ownership in
excess of 50% upon completion of the proposed IPO.
8. STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock
The Company is authorized to issue up to 1,000,000 shares of preferred
stock, $.01 par value per share (the Preferred Stock). The Preferred Stock may
be issued in one or more series, the terms of which may be determined at the
time of issuance by the Board of Directors, without further action by
stockholders, and may include voting rights (including the right to vote as a
series on particular matters), preferences as to dividends and liquidation,
conversion rights, redemption rights and sinking fund provisions.
Common Stock
As of May 31, 1996, the Company's authorized common stock consisted of
20,000,000 shares of Common Stock, $.01 par value per share; and 2,000,000
shares of Class B Common Stock, $.01 par value per share. During the nine months
ended May 31, 1996, the Company sold 500,000 shares of Common Stock to certain
investors for aggregate proceeds of $2,000,000 and issued 20,000 shares of
Common Stock in exchange for professional services rendered. In addition, on
April 1, 1996, the Company issued 802,500 shares of Common Stock to a British
software company in connection with the acquisition of certain technology (see
Note 6).
F-12
WEBSECURE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
8. STOCKHOLDERS' EQUITY (DEFICIT) -- (CONTINUED)
Class B Common Stock
The rights and privileges of the Class B Common Stock are as follows:
VOTING
Except as otherwise provided by law, the Class B Common Stockholders do not
have voting rights. For actions required by law to be subject to a vote, each
share of Class B Common Stock will entitle the holder to one vote.
DIVIDENDS
The Board of Directors may not declare or pay dividends to Class B Common
Stockholders until all of the holders of unclassified Common Stock have received
dividends equal to $10.00 per share in the aggregate, after which time the Class
B Common Stockholders are entitled to share ratably with the holders of
unclassified Common Stock in further declared and paid dividends, if any.
LIQUIDATION
In certain events, including liquidation, dissolution or winding up of the
Company, the Class B Common Stockholders share ratably with the holders of
shares of unclassified Common Stock in distributions up to a maximum of $1.00
per share, but only after holders of unclassified Common Stock have been paid an
amount equal to $8.00 per share in the aggregate.
CONVERSION
Each share of Class B Common Stock shall convert automatically into four
shares of the Company's Common Stock upon the occurrence of one of the following
events: (i) the declaration of effectiveness by the Securities and Exchange
Commission of a registration statement for a firm commitment underwriting of the
Company's securities for gross proceeds equal to or greater than $5,000,000; or
(ii) the sale of all or substantially all of the assets of the Company in a
transaction under which the value of the Company is reasonably determined to be
equal to or greater than $30,000,000. The conversion rate of the shares of Class
B Common Stock shall be proportionally adjusted in the event of stock splits,
stock dividends, recapitalization or stock reclassifications.
1996 Stock Option Plan
In February 1996, the Company's Board of Directors and stockholders approved
the 1996 Stock Option Plan (the Plan). The Plan allows for the issuance of up to
800,000 shares of Common Stock or options to purchase Common Stock under the
Plan, and the Company has reserved all shares of Common Stock necessary for
issuance under the Plan. Under the terms of the Plan, the Board of Directors may
grant incentive stock options or nonqualified stock options to purchase shares
of the Company's Common Stock. The exercise price of stock options granted under
the Plan will be not less than the fair value of the Common Stock on the date of
grant. The purchase price and vesting schedule applicable to each option grant
are determined by the Board of Directors. Options generally vest annually over a
four-year period and expire 10 years from the date of grant.
1996 Formula Stock Option Plan
In February 1996, the Company's Board of Directors and stockholders approved
the 1996 Formula Stock Option Plan (the Formula Plan). The Formula Plan allows
for the issuance of up to 60,000 shares of Common Stock or options to purchase
Common Stock. The Company has reserved all shares
F-13
WEBSECURE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
8. STOCKHOLDERS' EQUITY (DEFICIT) -- (CONTINUED)
necessary for issuance under the Formula Plan. Under the terms of the Formula
Plan, beginning on June 1, 1996, and annually thereafter on the business day
immediately following the Company's annual meeting of the stockholders, options
shall be granted without approval or discretion on the part of the Board, to
nonemployee directors. Each nonemployee director who has not been a director on
such date for at least one year will receive options to purchase 5,000 shares of
Common Stock, which vest fully one year from the date of grant. Each nonemployee
director who has been a director of the Company for at least one year as of such
date will receive options to purchase 1,000 shares of Common Stock, which will
vest fully on the date of grant. The exercise price of all options granted will
be the fair market value of the Company's Common Stock on the date of grant, and
the options will be exercisable subject to the individual's continued service as
a director of the Company on such date. Options must be granted within 10 years
from the effective date of the Formula Plan, and options granted cannot be
exercised more than 10 years from the date of grant.
The following is a summary of the stock option activity for all plans for
the period from inception (July 19, 1995) to May 31, 1996:
<TABLE>
<CAPTION>
1996 STOCK 1996 FORMULA STOCK
OPTION PLAN OPTION PLAN
---------- ----------------
NUMBER EXERCISE NUMBER EXERCISE PRICE
OF SHARES PRICE PER SHARE OF SHARES PER SHARE
------- ------- ------- ------
<S> <C> <C> <C> <C>
Outstanding, August 31, 1995 -- $ -- -- $ --
Granted 394,800 4.00 5,000 4.00
Terminated -- -- -- --
Exercised -- -- -- --
------- ----- ------- --------
Outstanding, May 31, 1996 394,800 $ 4.00 5,000 $ 4.00
======= ======= ======= =========
Exercisable, May 31, 1996 -- $ -- -- $ --
======= ======= ======= =========
</TABLE>
9. COMMITMENTS
Operating Leases
The Company leases its facilities under operating leases that expire
through August 2000. The future minimum lease commitments at May 31, 1996
are approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDING AUGUST 31, AMOUNT
- ---------------------- --------
<S> <C>
1996 $ 14,000
1997 58,000
1998 60,000
1999 63,000
2000 65,000
--------
$ 260,000
=========
</TABLE>
F-14
WEBSECURE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
9. COMMITMENTS -- (CONTINUED)
Rent expense included in the accompanying statements of operations was
approximately $28,000 for the nine months ended May 31, 1996 and for the
period from inception (July 19, 1995) to May 31, 1996.
Employment Agreements
The Company has entered into employment agreements with certain executive
officers which provide for bonus and severance benefits for a period of 12
months upon termination of employment under certain circumstances. The
agreements also provide for minimum base annual compensation aggregating
approximately $235,000 through April 1999.
F-15
================================================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATES AS OF WHICH SUCH INFORMATION IS FURNISHED.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary 3
Risk Factors 6
Use of Proceeds 15
Dilution 17
Capitalization 18
Dividend Policy 18
Selected Financial Data 19
Plan of Operations 20
Business 22
Management 29
Principal and Selling Stockholders 34
Certain Transactions 35
Description of Securities 36
Shares Eligible for Future Sale 39
Underwriting 40
Legal Matters 41
Experts 41
Additional Information 41
Financial Statements F-1
</TABLE>
UNTIL ___ , 1996 (25 DAYS AFTER THE LATER OF THE EFFECTIVE DATE OF THE
REGISTRATION STATEMENT OR THE FIRST DATE ON WHICH THE COMMON STOCK WAS OFFERED
TO THE PUBLIC) ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
[LOGO)
WEBSECURE, INC.
1,000,000 SHARES OF COMMON STOCK AND
1,000,000 REDEEMABLE COMMON STOCK
PURCHASE WARRANTS
-----------
PROSPECTUS
-----------
COBURN & MEREDITH, INC.
SHAMROCK PARTNERS, LTD.
, 1996
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all expenses (subject to future
contingencies) incurred or expected to be incurred by the Company in connection
with the issuance and distribution of the securities being offered hereby other
than underwriting discounts and commissions (items marked with an asterisk (*)
represent estimated expenses);
<TABLE>
<S> <C>
Registration Fee $ 7,713.14
NASD Filing Fee $ 2,778.41
AMEX Listing Fee* $ 15,000.00
Blue Sky Filing Fees and Expenses* $ 5,000.00
Printing and Engraving Cost* $ 50,000.00
Transfer Agent Fees* $ 1,000.00
Legal Fees* $
Accounting Fees* $ 50,000.00
Miscellaneous* $
------------
TOTAL* $ 430,000.00
============
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Delaware General Corporation Law, Section 102(b)(7), enables a corporation
in its original certificate of incorporation or an amendment thereto validly
approved by stockholders to eliminate or limit personal liability of members of
its Board of Directors for violations of a director's fiduciary duty of care.
However, the elimination or limitation shall not apply where there has been a
breach of the duty of loyalty, failure to act in good faith, engaging in
intentional misconduct or knowingly violating a law, paying a dividend or
approving a stock repurchase which is deemed illegal or obtaining an improper
personal benefit. The Company's Certificate of Incorporation includes the
following language:
"The personal liability of the Directors of the Corporation is hereby
eliminated to the fullest extent permitted by paragraph (7) of Subsection
(b) of Section 102 of the General Corporation Law of the State of Delaware
as the same may be amended and supplemented."
Delaware General Corporation Law, Section 145, permits a corporation
organized under Delaware law to indemnify directors and officers with respect to
any matter in which the director or officer acted in good faith and in a manner
he reasonably believed to be not opposed to the best interests of the Company,
and, with respect to any criminal action, had reasonable cause to believe his
conduct was lawful. The Bylaws of the Company include the following provision:
"Reference is made to Section 145 and any other relevant provisions of
the General Corporation Law of the State of Delaware. Particular reference
is made to the class of persons, hereinafter called "Indemnitees", who may
be indemnified by a Delaware corporation pursuant to the provisions of such
Section 145, namely, any person, or the heirs, executors, or administrators
of such person, who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative, by reason of the fact
that such person is or was a director, officer, employee, or agent of such
corporation or is or was serving at the request of such corporation as a
director, officer, employee, or agent of such corporation or is or was
serving at the request of such corporation as a director, officer, employee,
or agent of another corporation, partnership, joint venture, trust, or other
enterprise. The Corporation shall, and is hereby obligated to, indemnify the
II-1
Indemnitees, and each of them, in each and every situation where the
Corporation is obligated to make such indemnification pursuant to the
aforesaid statutory provisions. The Corporation shall indemnify the
Indemnitees, and each of them, in each and every situation where, under the
aforesaid statutory provisions, the Corporation is not obligated, but is
nevertheless permitted or empowered, to make such indemnification, it being
understood that, before making such indemnification with respect to any
situation covered under this sentence, (i) the Corporation shall promptly
make or cause to be made, by any of the methods referred to in Subsection
(d) of such Section 145, a determination as to whether each Indemnitee acted
in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Corporation, and, in the case of any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was unlawful, and (ii) that no such indemnification shall be made
unless it is determined that such Indemnitee acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and, in the case of any criminal action or
proceeding, had no reasonable cause to believe that his conduct was
unlawful."
Reference is made to "Underwriting" in the Prospectus for information
relating to certain indemnification of the directors and officers of the
Company by the Representative in connection with the Offering to which
this Registration Statement relates.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below in chronological order is information regarding the numbers
of shares of Common Stock sold by the Company since its inception, the
consideration received by the Company for such shares, options and debt
instruments 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. None of these
securities was registered under the Act. Except as otherwise indicated, no sales
of securities involved the use of an underwriter and no commissions were paid in
connection with the sale of any securities.
1. From December 1995 through April 1996 the Company sold 500,000 shares of
Common Stock to 27 investors at a price of $4.00 per share in a private
offering. All of the investors were unaffiliated with the Company except for
Centennial Technologies, Inc., which purchased 138,750 shares in the private
offering and was also a co-founding stockholder of the Company.
2. In April 1996, the Company issued 625,000 shares of Class B Common Stock
to MTCL in connection with the license of certain software programs.
3. In April 1996, the Company issued 802,500 shares of Common Stock to ISDL
in connection with the Company's license of certain software.
Each of the foregoing transactions was exempt from registration under the
Act by virtue of the provisions of Section 4(2) and/or Section 3(b) of the
Securities Act. Each purchaser of the securities described above has represented
or will represent prior to the purchase of the securities that he understands
that the securities acquired may not be sold or otherwise transferred absent
registration under the Securities Act or the availability of an exemption from
the registration requirements of the Securities Act, and each certificate
evidencing the securities owned by each purchaser bears or will bear upon
issuance a legend to that effect.
ITEM 16. EXHIBITS
(a) The following exhibits are filed herewith.
<TABLE>
<CAPTION>
EXHIBIT
NO. TITLE
- ----------- -----
<S> <C>
1a -- Agreement among Underwriters between the Company, Coburn & Meredith,
Inc. and Shamrock Partners, Ltd. (the "Representatives")
1b -- Form of Underwriting Agreement between the Company and the Representatives.
1c -- Form of Selected Dealers Agreement.
II-2
3a -- Certificate of Incorporation of the Company, dated September 1995 with
Amendments thereto dated September 1995, December 1995 and March 1996
and a Certificate of Correction dated June 1996.
3b -- Bylaws.
3c -- Agreement of Merger between the Company and WebSecure, Inc.
4a -- Included in Exhibits 3a and 3b.
*4b -- Specimen Common Stock Certificate.
4c -- Form of Representative's Warrant Agreement with Form of Representative's
Warrant attached thereto.
*4d -- Form of Warrant Agreement between the Company and American Securities
Transfer & Trust, Incorporated (includes Specimen Redeemable Warrant
Certificate).
5 -- Opinion Letter of O'Connor, Broude & Aronson as to legality of shares
being registered.
10a -- License Agreement with International Software Development Limited, dated
April 1, 1996.
10b -- License Agreement with Manadarin Trading Company Limited, dated March
29, 1996.
+10c -- 1996 Stock Option Plan.
+10d -- 1996 Formula Stock Option Plan.
+10e -- Employment Agreement with Robert Kuzara.
10f -- Form of Subscription Agreement dated November 27, 1995 between the Company
and several private investors.
11 -- Computation of shares used in the computation of pro forma net loss
per common and common equivalent share.
23a -- Consent of BDO Seidman, LLP.
23b -- Consent of O'Connor, Broude & Aronson (contained in Opinion filed as
Exhibit 5).
27 -- Financial Data Schedule
</TABLE>
- ----------
* To be filed by amendment.
+ Relates to Management Compensation.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) To include any additional or changed material information on
the plan of distribution.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be treated
as a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
II-3
(b) The undersigned Registrant hereby undertakes to provide to the
Representative at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Representative to permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer,
or controlling person of the small business issuer in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the small
business issuer will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(d) The small business issuer hereby undertakes that it will:
(1) For determining any liability under the Act, treat the information
omitted from the form of prospectus filed as part of a registration
statement in reliance upon Rule 430A and contained in the form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under
the Act as part of the registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Act, treat
each post-effective amendment that contains a form of prospectus as a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time as the initial bona fide offering
thereof.
II-4
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL
OF THE REQUIREMENTS FOR FILING ON FORM SB-2 AND HAS AUTHORIZED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE CITY OF SAUGUS,
COMMONWEALTH OF MASSACHUSETTS ON SEPTEMBER 10, 1996.
WEBSECURE, INC.
By: /s/ ROBERT KUZARA
------------------------------------
ROBERT KUZARA
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES STATED.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
<S> <C> <C>
/S/ JOHN J. SHIELDS Chairman of the Board of September 10, 1996
- ------------------------ Directors
JOHN J. SHIELDS
/s/ ROBERT KUZARA President, Chief Executive September 10, 1996
- ------------------------ Officer and Director
ROBERT KUZARA (principal executive
officer)
/s/ MICHAEL APPE Director September 10, 1996
- ------------------------
MICHAEL APPE
/s/ CAROLE OUELLETTE Chief Financial Officer, September 10, 1996
- ------------------------ Treasurer and Director
CAROLE OUELLETTE (principal financial and
accounting officer)
</TABLE>
II-5
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------- -----------------------
<S> <C>
1a -- Agreement among Underwriters between the Company, Coburn & Meredith,
Inc. and Shamrock Partners, Ltd. (the "Representatives")
1b -- Form of Underwriting Agreement between the Company and the Representatives.
1c -- Form of Selected Dealers Agreement
3a -- Certificate of Incorporation of the Company, dated September 1995 with
Amendments thereto dated September 1995, December 1995 and March 1996
and a Certificate of Correction dated June 1996
3b -- Bylaws
3c -- Agreement of Merger between the Company and WebSecure, Inc.
4a -- Included in Exhibits 3a and 3b
*4b -- Specimen Common Stock Certificate
4c -- Form of Representative's Warrant Agreement with Form of Representative's
Warrant attached thereto
*4d -- Form of Warrant Agreement between the Company and American Securities
Transfer & Trust, Incorporated (includes Specimen Redeemable Warrant
Certificate)
5 -- Opinion Letter of O'Connor, Broude & Aronson as to legality of shares
being registered
10a -- License Agreement with International Software Development Limited, dated
April 1, 1996
10b -- License Agreement with Manadarin Trading Company Limited, dated March
29, 1996
+10c -- 1996 Stock Option Plan
+10d -- 1996 Formula Stock Option Plan
+10e -- Employment Agreement with Robert Kuzara
10f -- Form of Subscription Agreement dated November 27, 1995 between the
Company and several private investors
11 -- Computation of shares used in the computation of pro forma net loss
per common and common equivalent share
23a -- Consent of BDO Seidman, LLP
23b -- Consent of O'Connor, Broude & Aronson (contained in Opinion filed as Exhibit 5)
27 -- Financial Data Schedule
</TABLE>
* To be filed by amendment.
+ Relates to Management Compensation.
WEBSECURE, INC.
1,000,000 SHARES
OF COMMON STOCK
AND
1,000,000 REDEEMABLE WARRANTS
AGREEMENT AMONG UNDERWRITERS
----------------------------
, 19
Coburn & Meredith, Inc.
150 Trumbull Street
Hartford, CT 06103
as Representative
GENTLEMEN:
We wish to confirm as follows the agreement among you, the undersigned and
the other members of the Underwriting Group named in Schedule I to the
Underwriting Agreement, as it is to be executed (all such parties being herein
called the "Underwriters"), with respect to the purchase by the Underwriters
severally from WebSecure, Inc. ("Company") of shares of Common Stock and
Redeemable Warrant ("Securities") set forth in Schedule I to the Underwriting
Agreement. The number of Securities to be purchased by each Underwriter from the
Company shall be determined in accordance with Section 2 of the Underwriting
Agreement. It is understood that changes may be made in those who are to be
Underwriters and in the respective numbers of Securities to be purchased by
them, but that the Underwriting Agreement will not be changed without our
consent, except as provided herein, and in the Underwriting Agreement. The
obligations of the Underwriters to purchase the number of Securities set
opposite their respective names in Schedule I to the Underwriting Agreement, are
herein called their "underwriting obligations." The number of Securities set
opposite our name in said Schedule I, are herein called "our Securities." For
purposes of this Agreement the following definitions shall be applicable:
(a) "Manager's Concession" shall be the compensation to you for acting as
Manager as provided in Paragraph 1 of not less than percent ( %) of the
underwriting discount. The Manager's Concession shall include the right to a
portion of the warrants to be issued pursuant to the Underwriting Agreement and,
the right to the nonaccountable expenses to be paid pursuant to the Underwriting
Agreement.
(b) "Underwriting Group Concession" shall mean compensation to members of
the Underwriting Group for assuming the underwriting risk and shall be not less
than percent ( %) of the underwriting discount.
(c) "Dealer's Concession" shall mean compensation to Dealers, who are
members of the Selling Group and shall, as to Dealers who have executed an
agreement with you, be not less than percent ( %) of the underwriting discount.
(d) "Dealer's Reallowance Concession" shall mean the compensation allowed
Dealers by Underwriters other than you and shall be one-half (1/2) of the
Dealer's Concession.
(e) It is contemplated that the underwriting discount will be ten percent
(10%) of the offering price. You, in your absolute discretion, shall determine,
within the foregoing limitations, the precise allocation of the underwriting
discount and shall notify us of same at least twenty-four (24) hours prior to
the execution of the Underwriting Agreement.
1. Authority and Compensation of Representative. We hereby authorize you, as our
Representative and on our behalf, (a) to enter into an agreement with the
Company substantially in the form attached hereto as Exhibit A ("Underwriting
Agreement"), but with such changes therein as in your judgment are not
materially adverse to the Underwriters, (b) to exercise all the authority and
discretion vested in the Underwriters and in you by the provisions of the
Underwriting Agreement, and (c) to take all such action as you, in your
discretion, may deem necessary or advisable in order to carry out the provisions
of the Underwriting Agreement and this Agreement and the sale and distribution
of the Securities, provided, however, that the time within which the
Registration Statement is required to become effective pursuant to the
Underwriting Agreement will not be extended more than forty-eight (48) hours
without the approval of a majority in interest of the Underwriters (including
you). We authorize you, in executing the Underwriting Agreement on our behalf,
to set forth in Schedule I of the Underwriting Agreement as our commitment to
purchase the number of Securities (which shall not be substantially in excess of
the number of Securities included in your invitation to participate unless we
have agreed otherwise) included in a wire, telex, or similar means of
communication transmitted by you to us at least twenty-four (24) hours prior to
the commencement of the offering as our finalized underwriting participation.
As our share of the compensation for your services hereunder, we will pay you,
and we authorize you to charge to our account, a sum equal to the Manager's
Concession.
2. Public Offering. A public offering of the Securities is to be made, as
herein provided, as soon after the Registration Statement relating thereto shall
become effective as in your judgment is advisable. The Securities shall be
initially offered to the public at the public offering price of $______ per
share and $______ per Redeemable Warrant. You will advise us by telegraph or
telephone when the Securities shall be released for offering. We authorize you
as Representative of the Underwriters, after the initial public offering, to
vary the public offering price, in your sole discretion, by reason of changes in
general market conditions or otherwise. The public offering price of the
Securities at any time in effect is herein called the "Offering Price."
We hereby agree to deliver all preliminary and final Prospectuses as
required for compliance with the provisions of Rule 15c2-8 under the Securities
Exchange Act of 1934 and Section 5(b) of the Securities Act of 1933. You have
heretofore delivered to us such preliminary Prospectuses as have been requested
by us, receipt of which is hereby acknowledged, and will deliver such final
Prospectuses as will be requested by us.
3. Offering to Dealers and Group Sales. We authorize you to reserve for
offering and sale, and on our behalf to sell, to institutions or other retail
purchasers (such sales being herein called "Group Sales") and to dealers
selected by you (such dealers being herein called the "Dealers") all or any part
of our Securities as you may determine. Such sales of Securities, if any, shall
be made (i) in the case of Group Sales, at the Offering Price, and (ii) in the
case of sales to Dealers, at -the Offering Price less the Dealer's Concession.
Any Group Sales shall be as nearly as practicable in proportion to the
underwriting obligations of the respective Underwriters. Any sales to Dealers
made for our account shall be as nearly as practicable in the ratio that the
Securities reserved for our account for offering to Dealers bears to the
aggregate of all Securities of all Underwriters, including you, so reserved. On
any Group Sales or sales to Dealers made by you on our behalf, we shall be
entitled to receive only the Underwriter's Concession.
You agree to notify us not less than twenty-four (24) hours prior to the
commencement of the public offering as to the number of Securities, if any,
which we may retain for direct sale. Prior to the termination of this Agreement,
you may reserve for offering and sale, as herein before provided, any Securities
remaining unsold theretofore retained by us and we may, with your consent,
retain any Securities remaining unsold theretofore reserved by you. Sales to
Dealers shall be made under a Selected Dealers Agreement, attached hereto as
Exhibit B and by this reference incorporated herein. We authorize you to
determine the form and manner of any communications with Dealers, and to make
such changes in the Selected Dealers Agreement, as you may deem appropriate. In
the event that there shall be any such agreements with Dealers, you are
authorized to act as managers thereunder, and we agree, in such event, to be
governed by the terms and conditions of such agreements. Each Underwriter agrees
that it will not offer any of the Securities for sale at a price below the
Offering Price or allow any concession therefrom,
2
except as herein otherwise provided. We, as to our Securities, may enter into
agreements with Dealers, but any Dealer's Reallowance Concession shall not
exceed half of the Dealer's Concession.
It is understood that any person to whom an offer may be made, as herein before
provided, shall be a member of the National Association of Securities Dealers,
Inc. ("NASD") or dealers or institutions with their principal place of business
located outside of the United States, its territories or possessions, and who
are not eligible for membership under Section 1 of the Bylaws of the NASD who
agree to make no sales within the United States, its territories or possessions,
or to persons who are nationals thereof, or residents therein, and, in making
sales, to comply with the NASD's Rules of Fair Practice.
We authorize you to determine the form and manner of any public
advertisement of the Securities.
Nothing in this Agreement contained shall be deemed to restrict our right,
subject to the provisions of this Section 3, to offer our Securities prior to
the effective date of the Registration Statement, provided, however, that any
such offer shall be made in compliance with any applicable requirements of the
Securities Act of 1933 and the Securities Exchange Act of 1934 and the rules and
regulations of the Securities and Exchange Commission thereunder and of any
applicable state securities laws.
4. Repurchases in the Open Market. Any Securities sold by us (otherwise than
through you) which, prior to the termination of this Agreement, or such earlier
date as you may determine, shall be contracted for or purchased in the open
market by you on behalf of any Underwriter or Underwriters, shall be repurchased
by us on demand at a price equal to the cost of such purchase plus commissions
and taxes, if any, on redelivery. Any Securities delivered on such repurchase
need not be the identical Securities originally sold by us. In lieu of delivery
of such Securities to us, you may (i) sell such Securities in any manner for our
account and charge us with the amount of any loss or expense, or credit us with
the amount of any profit, less any expense, resulting from such sale, or (ii)
charge our account . t with an amount not in excess of the concession to Dealers
on such Securities.
5. Delivery and Payment. We agree to deliver to you, at or before 9:00 A.M.,
New York, New York Time, on the Closing Date referred to in the Underwriting
Agreement, at your office, a certified or bank cashier's check payable to your
order for the offering price of the Securities less Dealer's Concession of the
Securities which we retained for direct sale by us, the proceeds of which check
shall be delivered to you, in the manner provided in the Underwriting Agreement,
to or for the account of the Company against delivery of certificates for such
Securities to you for our account. You are authorized to accept such delivery
and to give receipts therefor. You may advance funds for Securities which have
been sold or reserved for sale to retail purchasers or Dealers for our account.
If we fail (whether or not such failure shall constitute a default hereunder) to
deliver to you, or you fail to receive, our check and/or payment for sales made
by you for our account for the Securities which we have agreed to purchase, you,
individually and not as Representative of the Underwriters, are authorized (but
shall not be obligated) to make payment, in the manner provided in the
Underwriting Agreement, to or for the account of the Company for such Securities
for our account, but any such payment by you shall not relieve us of any of our
obligations under the Underwriting Agreement or under this Agreement and we
agree to repay you on demand the amount so advanced for our account.
We also agree on demand to take up and pay for or to deliver to you
funds sufficient to pay for at cost any Securities of the Company purchased by
you for our account pursuant to the provisions of Section 9 hereof, and to
deliver to you on demand any Securities sold by you for our account, pursuant to
any provision of this Agreement.
We authorize you to deliver our Securities, and any other Securities
purchased by you for our account pursuant to the provisions of Section 9 hereof,
against sales made by you for our account pursuant to any provision of this
Agreement.
Upon receipt by you of payment for the Securities sold by us and/or through
you for our account, you will remit to us promptly an amount equal to the
Underwriter's Concession on such Securities. You agree to cause to be delivered
to us, as soon as practicable after the Closing Date referred to in the
Underwriting Agreement, such part of our Securities purchased on such Closing
Date as shall not have been sold or reserved for sale by your for our account.
3
In case any Securities reserved for sale in Group Sales or to Dealers shall
not be purchased and paid for in due course as contemplated hereby, we agree to
accept delivery when tendered by you of any Securities so reserved for our
account and not so purchased and pay you the offering price less the Dealer's
and Underwriter's Concessions.
6. Authority to Borrow. We authorize you to advance your funds for our
account (charging current interest rates) and to arrange loans for our account
for the purpose of carrying out this Agreement, and in connection therewith to
execute and deliver any notes or other instruments, and to hold, or pledge as
security therefor, all or any part of our Securities of the Company purchased
hereunder for our account. Any lending bank is hereby authorized to accept your
instructions as Representative in all matters relating to such loans. Any part
of our Securities held by you, may be delivered to us for carrying purposes, and
if so delivered, will be redelivered to you upon demand.
7. Allocation of Expense and Liability. We authorize you to charge our
account with, and we agree to pay (a) all transfer taxes on sales made by you
for our account, except as herein otherwise provided, and (b) our proportionate
share (based on our underwriting obligations) of all expenses in excess of those
reimbursed by the Company incurred by you in connection with the purchase,
carrying and distribution, or proposed purchase and distribution, of the
Securities and all other expenses arising under the terms of the Underwriting
Agreement or this Agreement. Your determination of all such expenses and your
allocation thereof shall be final and conclusive. Funds for our account at any
time in your hands as our Representative may be held in your general funds
without accountability for interest. As soon as practicable after the
termination of this Agreement, the net credit or debit balance in our account,
after proper charge and credit for all interim payments and receipts, shall be
paid to or paid by us, provided, however, that you, in your discretion, may
reserve from distribution an amount to cover possible additional expenses
chargeable to the several Underwriters.
8. Liability for Future Claims. Neither any statement by you, as
Representative of the Underwriters, of any credit or debit balance in our
account nor any reservation from distribution to cover possible additional
expenses relating to the Securities shall constitute any representation by you
as to the existence or nonexistence of possible unforeseen expenses or
liabilities of or charges against the several Underwriters. Notwithstanding the
distribution of any net credit balance to us or the termination of this
Agreement, or both, we shall be and remain liable for, and will pay on demand,
(a) our proportionate share (based on our underwriting obligations) of all
expenses and liabilities which may be incurred by, or for the accounts of the
Underwriters, including any liability which may be incurred by the Underwriters
or any of them, and (b) any transfer taxes paid after such settlement on account
of any sale or transfer for our account.
9. Stabilization. We authorize you, until the termination of this Agreement,
(a) to make purchases and sales of the Securities, in the open market or
otherwise, for long or short account, and on such terms, and at such prices as
you in your discretion may deem desirable, (b) in arranging for sales of
Securities, to overallot, and (c) either before or after the termination of this
Agreement, to cover any short position incurred pursuant to this Section 9;
subject, however, to the applicable rules and regulations of the Securities and
Exchange Commission under the Securities Exchange Act of 1934. All such
purchases, sales and overallotments shall be made for the accounts of the
several Underwriters as nearly as practicable in proportion to their respective
underwriting obligations; provided, however, that our net position resulting
from such purchases and sales and overallotments shall not at any time exceed,
either for long or short account, fifteen percent (15%) of the number of
Securities agreed to be purchased by us.
If you engage in any stabilizing transactions as representative of the
underwriters, you shall promptly notify us of that fact and in like manner you
agree to promptly notify and file with us any stabilizing transaction in
accordance with the requirements of Rule 17a-2(d) under the Securities Exchange
Act of 1934.
We agree to advise you from time to time, upon request, until the settlement of
accounts hereunder, of the number of Securities at the time retained by us
unsold, and we will upon request sell to you, for the accounts of one or more of
the several Underwriters, such number of our unsold Securities as you may
designate, at the Offering Price less such amount, not in excess of the
concession to Dealers, as you may determine.
4
10. Open Market Transactions. We agree that, except with your consent and
except as herein provided upon advice from you, we will not make purchases or
sales on the open market or otherwise, or attempt to induce others to make
purchases or sales, either before or after the purchase of the Securities, and
prior to the completion (as defined in Rule 10b-6 of the Securities Exchange Act
of 1934) of our participation in the distribution, we will otherwise comply with
Rule 10b-6. Nothing in this Section 10 contained shall prohibit us from acting
as broker or agent in the execution of unsolicited orders of customers for the
purchase or sale of any securities of the Company.
11. Blue Sky. Prior to the initial offering by the Underwriters, you will
inform us as to the states under the respective securities or Blue Sky laws of
which it is believed that the Securities have been qualified or are exempt for
sale, but you do not assume any responsibility or obligation as to the accuracy
of such information or as to the right of any Underwriter or Dealer to sell the
Securities in any jurisdiction. We will not sell any Securities in any other
state or jurisdiction and we will not sell Securities in any state or
jurisdiction unless we are qualified or licensed to sell securities in such
state or jurisdiction. We authorize you, if you deem it unadvisable in arranging
sales of Securities for our account hereunder, to sell any of our Securities to
any particular Dealer, or other buyer, because of the securities or Blue Sky
laws of any jurisdiction, to sell our Securities to one or more other
Underwriters at the Offering Price less, in the case of a sale to any Dealer,
such amount, not in excess of the concession to Dealers thereon, as you may
determine. The transfer tax on any such sales among Underwriters shall be
treated as an expense and charged to the respective accounts of the several
Underwriters, in proportion to their respective underwriting obligations.
12. Default by Underwriters. Default by one or more Underwriters, in respect
to their obligations under the Underwriting Agreement shall not release us from
any of our obligations. In case of such default by one or more Underwriters, you
are authorized to increase, pro rata, with the other nondefaulting Underwriters,
the number of defaulted Securities which we shall be obligated to purchase from
the Company, provided, however, that the aggregate amount of all such increases
for all Underwriters shall not exceed ten percent (10%) of such Securities, and,
if the aggregate number of the Securities not taken up by such defaulting
Underwriters exceeds such ten percent (10%), you are further authorized, but
shall not be obligated, to arrange for the purchase by other persons, who may
include yourselves, of all or a portion of the Securities not taken up by such
Underwriters. In the event any such increases or arrangements are made, the
respective numbers of Securities to be purchased by the nondefaulting
Underwriters and by any such other person or persons shall be taken as the basis
for the underwriting obligations under this Agreement, but this shall not in any
way affect the liability of any defaulting Underwriters to the other
Underwriters for damages resulting from such default.
In the event of default by one or more Underwriters in respect of their
obligations under this Agreement to take up and pay for any Securities purchased
by your for their respective accounts, pursuant to Section 9 hereof, or to
deliver any such Securities sold or overallotted by you for their respective
accounts pursuant to any provisions of this Agreement, and to the extent that
arrangements shall not have been made by you for other persons to assume the
obligations of such defaulting Underwriter or Underwriters, each nondefaulting
Underwriter shall assume its proportionate share of the aforesaid obligations of
each such defaulting Underwriter without relieving any such Underwriter of its
liability therefor.
13. Termination of Agreement. Unless earlier terminated by you, the
provisions of Sections 2, 3, 4, 6, 9 and 10 of this Agreement shall, except as
otherwise provided therein, terminate thirty (30) full business days after the
effective date of the Registration Statement herein referred to, but may be
extended by you for an additional period or periods not exceeding thirty (30)
full business days in the aggregate. You may, however, terminate this Agreement,
or any provisions hereof, at any time by written or telegraphic notice to us.
14. General Position of the Representative. In taking action under this
Agreement, you shall act only as agent of the several Underwriters. Your
authority as Representative of the several Underwriters shall include the taking
of such action as you may deem advisable in respect of all matters pertaining to
any and all offers and sales of the Securities, including the right to make any
modifications which you consider necessary or desirable in the arrangements with
Dealers or others. You shall be under no liability for or in respect of the
value of the Securities or the validity or the form thereof, the Registration
Statement, the Prospectus, the Underwriting Agreement, or other instruments
executed by the Company or others of any agreement on its or their part; nor
shall you, as such
5
Representative or otherwise, be liable under any of the provisions hereof, or
for any matters connected herewith, except for want of good faith, and except
for any liability arising under the Securities Act of 1933; and no obligation
not expressly assumed by you as such Representative herein shall be implied from
this Agreement. In representing the Underwriters hereunder, you shall act as the
representative of each of them respectively. Nothing herein contained shall
constitute the several Underwriters partners with you or with each other, or
render any Underwriter liable for the commitments of any other Underwriter,
except as otherwise provided in Section 12 hereof. The commitments and
liabilities of each of the several Underwriters are several in accordance with
their respective underwriting obligations and are not joint.
15. Acknowledgment of Registration Statement, etc. We hereby confirm that we
have examined the Registration Statement (including all amendments thereto)
relating to the Securities as heretofore filed with the Securities and Exchange
Commission, that we are familiar with the amendment(s) to the Registration
Statement and the final form of Prospectus proposed to be filed, that we are
willing to accept the responsibilities of an underwriter thereunder, and that we
are willing to proceed as therein contemplated. We further confirm that the
statements made under the heading "Underwriting" in such proposed final form of
Prospectus are correct and we authorize you so to advise the Company on our
behalf. We understand that the aforementioned documents are subject to further
change and that we will be supplied with copies of any amendment or amendments
to the Registration Statement and of any amended Prospectus promptly, if and
when received by you, but the making of such changes and amendments shall not
release us or affect our obligations hereunder or under the Underwriting
Agreement.
16. Indemnification. Each Underwriter, including you, agrees to indemnify
and hold harmless each other Underwriter and each person who controls any other
Underwriter within the meaning of Section 15 of the Securities Act of 1933, as
amended, to the extent of their several commitments under the Underwriting
Agreement and upon the terms that such Underwriter agrees to indemnify and hold
harmless the Company as set forth in Section 7 of the Underwriting Agreement.
The Agreement contained in this Section 16 shall survive any termination of this
Agreement Among Underwriters.
17. Capital Requirements. We confirm that our ratio of aggregate
indebtedness to net capital is such that we may, in accordance with and pursuant
to Rule 156-1, promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, agree to purchase the number of Securities we
may be obligated to purchase under any provision of the Underwriting Agreement
or this Agreement.
18. Miscellaneous. We have transmitted herewith a completed Underwriters'
Questionnaire on the form thereof supplied by you. Any notice hereunder from you
to us or from us to you shall be deemed to have been duly give if sent by
registered mail, telegram, teletype, telex, telecopier, graphic scan, or other
written form of telecommunication to us at our address as set forth in the
Underwriting Agreement, or to you at the address set forth on the first page of
this Agreement.
You hereby confirm that you are registered as a broker-dealer with the
United States Securities and Exchange Commission and that you are a member of
the NASD and we confirm that we are either a member of the NASD or a foreign
broker-dealer not eligible for membership under Section I of the Bylaws of the
NASD, who agrees to make no sales within the United States, its territories or
possessions, or to persons who are nationals thereof or residents therein, and,
in making sales, to comply with the requirements of the NASD's Interpretation
with Respect to Free Riding and Withholding, and with Sections 8, 24, and 25 to
the extent applicable to foreign nonmember brokers or dealers, and Section 36 of
the NASD's Rules of Fair Practice.
We will comply with all applicable federal laws, the laws of the states or
other jurisdictions concerned and the Rules and Regulations of the NASD,
including, but not limited to, Section 24 of the Rules of Fair Practice.
6
This instrument may be signed by the Underwriters in various counterparts
which together shall constitute one and the same agreement among all the
Underwriters and shall become effective as between us at such time as you shall
have confirmed same by returning an executed copy to us, and thereafter, as to
us and the other Underwriters, upon execution by them of counterparts which are
confirmed by you. In no event, however, shall we have any liability under this
Agreement if the Underwriting Agreement is not executed.
Please confirm that the foregoing correctly states the understanding between
us by signing and returning to us a counterpart hereof.
Very truly yours,
------------------------------------------
Attorney-in-Fact
for the several Underwriters
named in Schedule I
to the Underwriting Agreement
Confirmed as of the date first above written.
COBURN & MEREDITH, INC.
As Representative
By
-----------------------------
President
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WEBSECURE, INC.
1,000,000 SHARES
OF COMMON STOCK
AND
1,000,000 REDEEMABLE WARRANTS
UNDERWRITING AGREEMENT
----------------------
, 1996
Coburn & Meredith, Inc.
150 Trumbull Street
Hartford, CT 06103
as Representative
DEAR SIRS:
WebSecure, Inc. a Delaware corporation (the "Company"), proposes to issue
and sell to the several Underwriters named in Schedule I hereto (the
"Underwriters"), one million shares of common stock of the Company and one
million redeemable warrant (the "Securities"). The Company hereby confirms the
agreement made by it with respect to the purchase of the Securities by the
Underwriter, which Securities are more fully described in the Registration
Statement referred to below. Coburn & Meredith, Inc. is referred to herein as
the "Underwriter" or the "Representative."
You have advised the Company that the Underwriters desire to act on a firm
commitment basis to publicly offer and sell the Securities for the Company and
that you are authorized to execute this Agreement. The Company confirms the
agreement made by it with respect to the relationship with the Underwriters as
follows:
1. Filing of Registration Statement with S.E.C. and Definitions. A Registration
Statement and Prospectus on Form SB-2 (File No.___) with respect to the
Securities has been carefully and accurately prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended (the
"Act"), and the published rules and regulations (the "Rules and Regulations")
thereunder or under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and has been filed with the Securities and Exchange Commission
(the "Commission") and such other states that the Underwriter deems necessary in
its discretion to so file to permit a public offering and trading thereunder.
Such registration statement, including the prospectus, Part II, and all
financial schedules and exhibits thereto, as amended at the time when it shall
become effective, is herein referred to as the "Registration Statement," and the
prospectus included as part of the Registration Statement on file with the
Commission that discloses all the information that was omitted from the
prospectus on the effective date pursuant to Rule 430 A of the Rules and
Regulations with any changes contained in any prospectus filed with the
Commission by the Company with the Underwriters consent after the effective date
of the Registration Statement, is herein referred to as the "Final Prospectus."
The prospectus included as part of the Registration Statement of the Company and
in any amendments thereto prior to the effective date of the Registration
Statement is referred to herein as a "Preliminary Prospectus."
2. Discount, Delivery, and Sale of the Securities
(a) Subject to the terms and conditions of this Agreement, and on the basis
of the representations, warranties, and agreements herein contained, the Company
agrees to sell to, and the Underwriters agree to buy from the Company at a
purchase price of $ per share and $ per Redeemable Warrant before any
underwriter expense allowances, an aggregate of 1,000,000 shares of Common
Stock, and 1,000,000 Redeemable Warrants on a firm commitment basis the "Initial
Securities"..
It is understood that the Underwriters propose to offer the Securities to be
purchased hereunder to the public upon the terms and conditions set forth in the
Registration Statement, after the Registration Statement becomes effective.
(b) Delivery of the Securities against payment of the purchase price
therefor by certified or official bank check or checks or wire transfer in
next-day funds, payable to the order of the Company shall take place at the
offices of the clearing broker for the Underwriter at New York City, within four
(4) business days after the Securities are first traded (or such other place as
may be designated by agreement between you and the Company) at 11:00 A.M., New
York time or such time and date as you and the Company may agree upon in
writing, such time and date of payment and delivery for the Securities being
herein called the "Initial Closing Date."
The Company will make the certificates for the shares of Common Stock and
Redeemable Warrants to be purchased by the Underwriters hereunder available to
the Underwriter for inspection and packaging at least two (2) full business days
prior to the Initial Closing Date. The certificates shall be in such names and
denominations as the Underwriter may request to the Company in writing at least
two (2) full business days prior to any Closing Date.
(c) In addition, subject to the terms and conditions of this Agreement and
on the basis of the representations, warranties and agreements herein contained,
the Company grants an option to the Underwriters to purchase up to an additional
150,000 shares of Common Stock and/or up to 150,000 additional Warrants as the
case may be ("Option Securities") at the same terms as the Underwriters shall
pay for the Initial Securities being sold by the Company pursuant to the
provisions of Section 2(a) hereof. This option may be exercised from time to
time, for the purpose of covering overallotments, within forty-five (45) days
after (i) the effective date of the Registration Statement if the Company has
elected not to rely on Rule 430A under the Rules and Regulations or (ii) the
date of this Agreement if the Company has elected to rely upon Rule 430A under
the Rules and Regulations, upon written notice by the Underwriter setting forth
the number of Option Securities as to which the Underwriter is exercising the
option and the time and date at which such certificates are to be delivered.
Such time and date shall be determined by the Underwriter but shall not be
earlier than four (4) nor later than ten (10) full business days after the date
of the exercise of said option. Nothing herein shall obligate the Underwriter to
make any overallotment.
At the option of the Company, the option Shares to be made available to
the Representative may be provided by Centennial Technologies, Inc. in an amount
not to exceed the amount available to the Representative from the Company. The
purchase price and terms of payment if the option shares are purchased from
Centennial Technologies, Inc. will be the same as described in the preceding
paragraph, i.e. on the same terms, as if the shares were being purchased from
the Company.
The selling stockholder (Centennial Technologies, Inc.) covenants to
pay all Federal and other taxes, if any, on the transfer and sale of the shares
of Common stock being sold by it to the Representative.
(d) Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriter hereunder will be delivered at the closing by the
Company to the Underwriters against payment of the purchase price by the
Underwriters by certified or bank cashier's checks or wire transfer in next day
funds payable to the order of the Company.
(e) The information set forth under "Underwriting" in any preliminary
prospectus and Prospectus relating to the Securities and the information set
forth in the last paragraph on the front cover page, under the last paragraph on
page 2 concerning stabilization and over-allotment by the Underwriters, and
(insofar as such information relates to the Underwriters) constitutes the only
information furnished by the Underwriter to the Company for inclusion therein,
and you represent and warrant to the Company that the statements made therein
are correct.
(f) On the Initial Closing Date, the Company shall issue and sell to the
Representative, warrants (the "Representative's Warrants") at a purchase price
of $.001 per Representative's Warrant, which shall entitle the holders thereof
to purchase an aggregate of 100,000 shares of Common Stock and 100,000
Redeemable Warrants. The shares of common stock and redeemable warrants issuable
upon the exercise of the Representative's Warrants are hereafter referred to as
the "Representative's Securities" or "Representative's Warrants." The shares of
common stock issuable upon exercise of the redeemable warrants are hereinafter
referred to collectively as the "Warrant
2
Shares". The Representative's Warrants shall be exercisable for a period of four
(4) years commencing one (1) year from the effective date of the Registration
Statement at a price equaling one hundred thirty percent (130%) of the initial
public offering price of the Securities. The form of Representative's Warrant
Certificate shall be substantially in the form filed as an Exhibit to the
Registration Statement. Payment for the Representative's Warrants shall be made
on the Initial Closing Date.
3. Representations and Warranties of the Company.
(a) The Company represents and warrants to you as follows:
(i) The Company has prepared and filed with the Commission a registration
statement, and an amendment or amendments thereto, on Form SB-2 (No.___),
including any related preliminary prospectus ("Preliminary Prospectus"), for the
registration of the Securities, the Representative's Warrant and the Warrant
Shares (sometimes referred to herein collectively as the "Registered
Securities"), under the Act, which registration statement and amendment or
amendments have been prepared by the Company in conformity with the requirements
of the Act, and the Rules and Regulations. The Company will promptly file a
further amendment to said registration statement in the form heretofore
delivered to the Underwriter and will not file any other amendment thereto to
which the Underwriter shall have objected verbally or in writing after having
been furnished with a copy thereof. Except as the context may otherwise require,
such registration statement, as amended, on file with the Commission at the time
the registration statement becomes effective (including the prospectus,
financial statements, any schedules, exhibits and all other documents filed as a
part thereof or that may be incorporated therein (including, but not limited to
those documents or information incorporated by reference therein) and all
information deemed to be a part thereof as of such time pursuant to paragraph
(b) of Rule 430(A) of the Rules and Regulations), is hereinafter called the
"Registration Statement," and the form of prospectus in the form first filed
with the Commission pursuant to Rule 424(b) of the Rules and Regulations, is
hereinafter called the "Prospectus."
(ii) Neither the Commission nor any state regulatory authority has issued
any order preventing or suspending the use of any Prospectus or the Registration
Statement and no proceeding for an order suspending the effectiveness of the
Registration Statement or any of the Company's securities has been instituted or
is pending or threatened. Each such Prospectus and/or any supplement thereto has
conformed in all material respects with the requirements of the Act and the
Rules and Regulations and on its date did not include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein not misleading, in light of the circumstances under which they were
made; and when the Prospectus becomes legally effective and for twenty-five (25)
days subsequent thereto (i) the Prospectus and/or any supplement thereto will
contain all statements which are required to be stated therein by the Act and
Rules and Regulations, and (ii) the Prospectus and/or any supplement thereto
will not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, in light of the circumstances under which they were
made; provided, however, that no representations, warranties or agreements are
made hereunder as to information contained in or omitted from the Prospectus in
reliance upon, and in conformity with, the written information furnished to the
Company by you as set forth in Section 2(e) above.
(iii) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the state of its incorporation,
with full power and authority (corporate and other) to own its properties and
conduct its businesses as described in the Prospectus and is duly qualified to
do business as a foreign corporation in good standing in all other jurisdictions
in which the nature of its business or the character or location of its
properties requires such qualification, except where the failure to so qualify
would not have a material adverse effect on the business, properties or
operations of the Company and the subsidiaries as a whole.
(iv) The Company has full legal right, power and authority to authorize,
issue, deliver and sell the Securities, the Option Securities and the
Representative's Securities and to enter into this Agreement, the
Representative's Warrant dated as of the initial closing date to be exercised
and delivered by the Company to the Representative (the "Representative's
Warrant Agreement"), and the Financial Advisory and Investment Banking Agreement
dated as of the Initial Closing Date between the Company and the Representative
(the "Consulting Agreement"), and to
3
consummate the transactions provided for in such agreements, and each of such
agreements has been duly and properly authorized, and on the Initial Closing
Date will be duly and properly executed and delivered by the Company. This
Agreement constitutes and on the Initial Closing Date each of the
Representative's Warrant Agreement and the Consulting Agreement will then
constitute valid and binding agreements, enforceable in accordance with their
respective terms (except as the enforceability thereof may be limited by
bankruptcy or other similar laws affecting the rights of creditors generally or
by general equitable principles and except as the enforcement of indemnification
provisions may be limited by federal or state securities laws).
(v) Except as disclosed in the Prospectus, the Company is not in
violation of its respective certificate or articles of incorporation or bylaws
or in default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any material bond, debenture, note
or other evidence of indebtedness or in any material contract, indenture,
mortgage, loan agreement, lease, joint venture, partnership or other agreement
or instrument to which the Company is a party or by which it may be bound or is
not in material violation of any law, order, rule, regulation, writ, injunction
or decree of any governmental instrumentality or court, domestic or foreign; and
the execution and delivery of this Agreement, the Representative's Warrant
Agreement and the Consulting Agreement, and the consummation of the transactions
contemplated therein and in the Prospectus and compliance with the terms of each
such agreement will not conflict with, or result in a material breach of any of
the terms, conditions or provisions of, or constitute a material default under,
or result in the imposition of any material lien, charge or encumbrance upon any
of the property or assets of the Company pursuant to, any material bond,
debenture, note or other evidence of indebtedness or any material contract,
indenture, mortgage, loan agreement, lease, joint venture, partnership or other
agreement or instrument to which the Company is a party nor will such action
result in the material violation by the Company of any of the provisions of its
respective certificate or articles of incorporation or bylaws or any law, order,
rule, regulation, writ, injunction, decree of any government, governmental
instrumentality or court, domestic or foreign, except where such violation will
not have a material adverse effect on the financial condition of the Company.
(vi) The authorized, issued and outstanding capital stock of the Company is
as set forth in the Prospectus and the Company will have the adjusted
capitalization set forth therein on the Initial Closing Date; all of the shares
of issued and outstanding capital stock of the Company set forth therein have
been duly authorized, validly issued and are fully paid and nonassessable; the
holders thereof do not have any rights of rescission with respect therefor and
are not subject to personal liability for any obligations of the Company by
reason of being stockholders under the laws of the State in which the Company is
incorporated; none of such outstanding capital stock is subject to or was issued
in violation of any preemptive or similar rights of any stockholder of the
Company; and such capital stock (including the Securities, the Option Securities
and the Representative's Securities) conforms in all material respects to all
statements relating thereto contained in the Prospectus.
(vii) The Company is not a party to or bound by any instrument, agreement or
other arrangement providing for it to issue any capital stock, rights, warrants,
options or other securities, except for this Agreement or as described in the
Prospectus. The Securities, the Option Securities and the Representative's
Securities are not and will not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized and, when issued, paid for
and delivered in accordance with the terms hereof, will be validly issued, fully
paid and non-assessable and will conform to the respective descriptions thereof
contained in the Prospectus; except for payment of the applicable purchase price
paid upon exercise of the options or warrants, as the case may be the holders
thereof will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and sale of
the Securities, the Option Securities and the Representative's Securities has
been duly and validly taken; and the certificates representing the Securities,
the Option Securities and the Representative's Securities will be in due and
proper form. Upon the issuance and delivery pursuant to the terms hereof of the
Securities, the Option Securities and the Representative's Securities to be sold
by the Company hereunder, the Underwriter will acquire good and marketable title
to such Securities, Option Securities and Representative's Securities free and
clear of any lien, charge, claim, encumbrance, pledge, security interest, defect
or other restriction of any kind whatsoever other than restrictions as may be
imposed under the securities laws.
(viii) The Company has good and marketable title to all properties and
assets described in the Prospectus as owned by it, free and clear of all liens,
charges, encumbrances or restrictions, except such as are described or
4
referred to in the Prospectus or which are not materially significant or
important in relation to its business or which have been incurred in the
ordinary course of business; except as described in the Prospectus all of the
leases and subleases under which the Company holds properties or assets as
lessee or sublessee as described in the Prospectus are in full force and effect,
and the Company is not in material default in respect of any of the terms or
provisions of any of such leases or subleases, and no claim has been asserted by
anyone adverse to the Company's rights as lessor, sublessor, lessee or sublessee
under any of the leases or subleases mentioned above or affecting or questioning
the Company's right to the continued possession of the leased or subleased
premises or assets under any such lease or sublease; and the Company owns or
leases all such properties as are necessary to its operations as now conducted
and as contemplated to be conducted, except as otherwise stated in the
Prospectus.
(ix) The financial statements, together with related notes, set forth
in the Prospectus fairly present the financial position and results of
operations of the Company at the respective dates and for the respective periods
to which they apply. Said statements and related notes have been prepared in
accordance with generally accepted accounting principles applied on a basis
which is consistent in all material respects during the periods involved but any
stub period has not been audited by an independent accounting firm. There has
been no material adverse change or material development involving a prospective
change in the condition, financial or otherwise, or in the prospects, value,
operation, properties, business or results of operations of the Company whether
or not arising in the ordinary course of business, since the date of the
financial statements included in the Registration Statement and the Prospectus.
(x) Subsequent to the respective dates as of which information is
given in the Prospectus as it may be amended or supplemented, and except as
described in the Prospectus, the Company has not, directly or indirectly,
incurred any liabilities or obligations, direct or contingent, not in the
ordinary course of business or entered into any transactions not in the ordinary
course of business, which are material to the business of the Company as a whole
and there has not been any change in the capital stock of, or any incurrence of
long term debts by, the Company or any issuance of options, warrants or rights
to purchase the capital stock of the Company or declaration or payment of any
dividend on the capital stock of the Company or any material adverse change in
the condition (financial or other), net worth or results of operations of the
Company as a whole and the Company has not become a party to, any material
litigation whether or not in the ordinary course of business.
(xi) To the knowledge of the Company, there is no pending or
threatened, action, suit or proceeding to which the Company is a party before or
by any court or governmental agency or body, which might result in any material
adverse change in the condition (financial or other), business or prospects of
the Company as a whole or might materially and adversely affect the properties
or assets of the Company as a whole nor are there any actions, suits or
proceedings against the Company related to environmental matters or related to
discrimination on the basis of age, sex, religion or race which might be
expected to materially and adversely affect the conduct of the business,
property, operations, financial condition or earnings of the Company as a whole;
and no labor disturbance by the employees of the Company individually exists or
is, to the knowledge of the Company, imminent which might be expected to
materially and adversely affect the conduct of the business, property,
operations, financial condition or earnings of the Company as a whole.
(xii) Except as may be disclosed in the Prospectus, the Company has
properly prepared and filed all necessary federal, state, local and foreign
income and franchise tax returns, has paid all taxes shown as due thereon, has
established adequate reserves for such taxes which are not yet due and payable,
and does not have any tax deficiency or claims outstanding, proposed or assessed
against it.
(xiii) The Company has sufficient licenses, permits, right to use trade
or service marks and other governmental authorizations currently required for
the conduct of its business as now being conducted and as contemplated to be
conducted and the Company is in all material respects complying therewith.
Except as set forth in the Prospectus, the expiration of any such licenses,
permits, or other governmental authorizations would not materially affect the
Company's operations. To its knowledge, none of the activities or businesses of
the Company are in material violation of, or cause the Company to materially
violate any law, rule, regulations, or order of the United States, any state,
county or locality, or of any agency or body of the United States or of any
state, county or locality.
5
(xiv) The Company has not at any time (i) made any contributions to any
candidate for political office in violation of law, or failed to disclose fully
any such contribution, or (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar public or
quasipublic duties, other than payments required or allowed by applicable law.
(xv) Except as set forth in the Prospectus the Company knows of no
outstanding claims for services either in the nature of a finder's fee,
brokerage fee or otherwise with respect to this financing for which the Company
or the Underwriters may be responsible, or which may affect the Underwriter's
compensation as determined by the National Association of Securities Dealers,
Inc. ("NASD") except as otherwise disclosed in the Prospectus or known by the
Underwriters.
(xvi) The Company has its property adequately insured against loss or
damage by fire and maintains such other insurance as is customarily maintained
by companies in the same or similar business.
(xvii) The Representative's Warrants herein described are duly and
validly authorized and upon delivery to the Representative in accordance
herewith will be duly issued and legal, valid and binding obligations of the
Company, except as the enforceability thereof may be limited by bankruptcy or
other similar laws affecting the rights of creditors generally or by equitable
principles, and except as the enforcement of indemnification provisions may be
limited by federal or state securities laws.
The Representative's Securities issuable upon exercise of any
of the Representative's Warrants have been duly authorized, and when issued upon
payment of the exercise price therefor, will be validly issued, fully paid and
nonassessable.
(xviii) Except as set forth in the Prospectus, no default exists in the
due performance and observance of any term, covenant or condition of any
material license, contract, indenture, mortgage, installment sale agreement,
lease, deed of trust, voting trust agreement, stockholders agreement, note, loan
or credit agreement, purchase order, or any other agreement or instrument
evidencing an obligation for borrowed money, or any other material agreement or
instrument to which the Company is a party or by which the Company may be bound
or to which the property or assets (tangible or intangible) of the Company is
subject or affected.
(xix) To the best of the Company's knowledge it has generally enjoyed a
satisfactory employer-employee relationship with its employees and, to the best
of its knowledge, is in substantial compliance in all material respects with all
federal, state, local, and foreign laws and regulations respecting employment
and employment practices, terms and conditions of employment and wages and
hours. To the best of the Company's knowledge, there are no pending
investigations involving the Company, by the U.S. Department of Labor, or any
other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. To the best of the Company's
knowledge, there is no unfair labor practice charge or complaint against the
Company pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or to its knowledge involving the Company, or any predecessor entity, and none
has ever occurred. To the best of the Company's knowledge, no representation
question is pending respecting the employees of the Company, and no collective
bargaining agreement or modification thereof is currently being negotiated by
the Company. To the best of the Company's knowledge, no grievance or arbitration
proceeding is pending or to its knowledge threatened under any expired or
existing collective bargaining agreements of the Company. No labor dispute with
the employees of the Company is pending, or, to its knowledge is imminent; and
the Company is not aware of any pending or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers or contractors which
may result in any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs, position, prospects, value,
operation, properties, business or results of operations of the Company.
(xx) Except as may be set forth in the Registration Statement, the
Company does not maintain, sponsor or contribute to any program or arrangement
that is an "employee pension benefit plan," an "employee welfare benefit plan,"
or a "multiemployer plan" as such terms are defined in Sections 3(2), 3(l) and
3(37), respectively, of
6
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
("ERISA Plans"). The Company does not maintain or contribute, now or at any time
previously, to a defined benefit plan, as defined in Section 3(35) of ERISA. No
ERISA Plan (or any trust created thereunder) has engaged in a "prohibited
transaction" within the meaning of Section 406 of ERISA or Section 4975 of the
Internal Revenue Code (the "Code"), which could subject the Company to any tax
penalty on prohibited transactions and which has not adequately been corrected.
Each ERISA Plan is in compliance with all material reporting, disclosure and
other requirements of the Code and ERISA as they relate to any such ERISA Plan.
Determination letters have been received from the Internal Revenue Service with
respect to each ERISA Plan which is intended to comply with Code Section 401
(a), stating that such ERISA Plan and the attendant trust are qualified
thereunder. The Company has never completely or partially withdrawn from a
"multiemployer plan."
(xxi) None of the Company, or any of its employees, directors,
stockholders, or affiliates (within the meaning of the Rules and Regulations)
has taken or will take, directly or indirectly, any action designed to or which
has constituted or which might be expected to cause or result in, under the
Exchange Act, or otherwise, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Securities,
Option Securities, Representative's Securities or otherwise.
(xxii) None of the patents, patent applications, trademarks, service
marks, trade names, copyrights, and licenses and rights to the foregoing
presently owned or held by the Company, are in dispute or, to the best knowledge
of the Company's management are in any conflict with the right of any other
person or entity. The Company (i) except as disclosed in the Prospectus owns or
has the right to use, all patents, trademarks, service marks, trade names and
copyrights, technology and licenses and rights with respect to the foregoing,
used in the conduct of its business as now conducted or proposed to be conducted
without infringing upon or otherwise acting adversely to the right or claimed
right of any person, corporation or other entity under or with respect to any of
the foregoing, and except as set forth in the Prospectus or otherwise disclosed
to the Underwriter in writing, to the best knowledge of the Company's management
is not obligated or under any liability whatsoever to make any material payments
by way of royalties, fees or otherwise to any owner or licensee of, or other
claimant to, any patent, trademark, service mark, trade name, copyright,
know-how, technology or other intangible asset, with respect to the use thereof
or in connection with the conduct of its business or otherwise.
(xxiii) Except as disclosed in the Prospectus the Company owns and has
adequate right to use to the best knowledge of the Company's management all
trade secrets, know-how (including all other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), inventions,
designs, processes, works of authorship, computer programs and technical data
and information (collectively herein "intellectual property") required for or
incident to the development, manufacture, operation and sale of all products and
services sold or proposed to be sold by the Company. The Company is not aware of
any such development of similar or identical trade secrets or technical
information by others. The Company has valid and binding confidentiality
agreements with all of its officers, covering its intellectual property (subject
to the equitable powers of any court), which agreements have remaining terms of
at least two years from the effective date of the Registration Statement except
where the failure to have such agreements would not materially and adversely
effect the Company's business taken as a whole. The Company has good and
marketable title to, or valid and enforceable leasehold estates in, all items of
real and personal property stated in the Prospectus, to be owned or leased by it
free and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects, or other restrictions or equities of any kind whatsoever,
other than those referred to in the Prospectus and liens for taxes not yet due
and payable.
(xxiv) BDO Seidman LLP, whose reports are filed with the Commission as
a part of the Registration Statement, are independent certified public
accountants as required by the Act and the Rules and Regulations.
(xxv) The Company has agreed to execute and has also caused to be duly
executed agreements pursuant to which each of the Company's officers and
directors and shareholders and any person or entity deemed to be an affiliate of
the Company pursuant to the Rules and Regulations has agreed not to, directly or
indirectly, sell, assign, transfer, or otherwise dispose of any shares of Common
Stock or securities convertible into, exercisable or exchangeable for or
evidencing any right to purchase or subscribe for any shares of Common Stock
(either pursuant
7
to Rule 144 of the Rules and Regulations or otherwise) for a period of not less
than thirteen (13) months following such effective date without the prior
written consent of the Underwriter. The Company will cause the Transfer Agent,
as defined below, to mark an appropriate legend on the face of stock
certificates representing all of such securities and to place "stop transfer"
orders on the Company's stock ledgers.
(xxvi) The Registered Securities have been approved for listing on
NASDAQ or an Exchange.
(xxvii) Except as set forth in the Prospectus or disclosed in writing
to the Underwriter (which writing specifically refers to this Section), no
officer or director of the Company, holder of 5% or more of securities of the
Company or any "affiliate" or "associate" (as these terms are defined in Rule
405 promulgated under the Rules and Regulations) of any of the foregoing persons
or entities has or has had, either directly or indirectly, (i) an interest in
any person or entity which (A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the Company, or (B)
purchases from or sells or furnishes to the Company any goods or services, or
(ii) a beneficiary interest in any contract or agreement to which the Company is
a party or by which it may be bound or affected. Except as set forth in the
Prospectus under "Certain Transactions" or disclosed in writing to the
Underwriter (which writing specifically refers to this Section) there are no
existing agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among the
Company, and any officer, director, principal stockholder of the Company, or any
partner, affiliate or associate of any of the foregoing persons or entities.
(xxviii) Any certificate signed by any officer of the Company, and delivered
to the Underwriter or to the Underwriter's counsel (as defined herein) shall be
deemed a representation and warranty by the Company to the Underwriter as to the
matters covered thereby.
(xxix) Each of the minute books of the Company has been made available to
the Underwriter and contains a complete summary of all meetings and actions of
the directors and stockholders of the Company, since the time of its
incorporation and reflect all transactions referred to in such minutes
accurately in all respects.
(xxx)As of the Initial Closing Date, the Company will enter into the
Consulting Agreement substantially in the form filed as an Exhibit to the
Registration Statement with respect to the rendering of consulting services by
the Representative to the Company.
(xxxi) Except and only to the extent described in the Prospectus or
disclosed in writing to the Underwriter (which writing specifically refers to
this Section), no holders of any securities of the Company or of any options,
warrants or other convertible or exchangeable securities of the Company have the
right to include any securities issued by the Company in the Registration
Statement or any registration statement to be filed by the Company or to require
the Company to file a registration statement under the Act and no person or
entity holds any anti-dilution rights with respect to any securities of the
Company. Except as disclosed in the Prospectus, all rights so described or
disclosed have been waived or have not been triggered with respect to the
transactions contemplated by this Agreement, the Consulting Agreement and the
Representative's Warrant Agreement (including the warrants issuable thereunder).
(xxxii) The Company has not entered into any employment agreements with its
executive officers, except as disclosed in the Prospectus.
(xxxiii) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Registered Securities pursuant to
the Prospectus and the Registration Statement, the issuance of the Underwriter's
Warrants, the performance of this Agreement, the Representative's Warrant
Agreement and the Consulting Agreement, and the transactions contemplated hereby
and thereby, including without limitation, any waiver of any preemptive, first
refusal or other rights that any entity or person may have for the issue and/or
sale of any of the Securities, the Option Securities and the Underwriter's
Securities, except such as have been or may be obtained under the Act, otherwise
or may be required under state securities or blue sky laws in connection with
the Underwriter's purchase and distribution of the Securities, the Option
Securities, the Representative's Securities and the Underwriter's Warrants to
8
be sold by the Company hereunder or may be required by the Rules of the National
Association of Securities Dealer, Inc. ("NASD").
(xxxiv) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which its assets, properties or businesses may be subject have been
duly and validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company, enforceable
against the Company, in accordance with their respective terms. The descriptions
in the Registration Statement of agreements, contracts and other documents are
accurate and fairly present the information required to be shown with respect
thereto by Form SB-2, and there are no contracts or other documents which are
required by the Act to be described in the Registration Statement or filed as
exhibits to the Registration Statement which are not described or filed as
required, and the exhibits which have been filed are complete and correct copies
of the documents of which they purport to be copies.
(xxxv) Within the past five (5) years, none of the Company's independent
public accountants has brought to the attention of the Company's management any
"material weakness" as defined in the Statement of Auditing Standard No. 60 in
any of the Company's internal controls.
4. Covenants of the Company. The Company covenants and agrees with you that:
(a) It will cooperate in all respects in making the Prospectus effective and
will not at any time, whether before or after the effective date, file any
amendment to or supplement to the Prospectus of which you shall not previously
have been advised and furnished with a copy or to which you or your counsel
shall have reasonably objected or which is not in material compliance with the
Act and the Rules and Regulations or applicable state law.
As soon as the Company is advised thereof, the Company will advise you, and
confirm the advice in writing, of the receipt of any comments of the Commission
or any state securities department, when the Registration Statement becomes
effective if the provisions of Rule 430A promulgated under the Act will be
relied upon, when the Prospectus has been filed in accordance with said Rule
430A, of the effectiveness of any posteffective amendment to the Registration
Statement or Prospectus, or the filing of any supplement to the Prospectus or
any amended Prospectus, of any request made by the Commission or any state
securities department for amendment of the Prospectus or for supplementing of
the Prospectus or for additional information with respect thereto, of the
issuance of any stop order suspending the effectiveness of the Prospectus or any
order preventing or suspending the use of any Prospectus or any order suspending
trading in the Common Stock of the Company, or of the suspension of the
qualification of the Securities, the Option Securities or the Representatives
Securities for offering in any jurisdiction, or of the institution of any
proceedings for any such purposes, and will use its best efforts to prevent the
issuance of any such order and, if issued, to obtain as soon as possible the
lifting or dismissal thereof.
The Company has caused to be delivered to you copies of such Prospectus, and the
Company has consented and hereby consents to the use of such copies for the
purposes permitted by law. The Company authorizes you and the dealers to use the
Prospectus and such copies of the Prospectus in connection with the sale of the
Securities, the Option Securities and the Representative's Securities for such
period as in the opinion of your counsel and our counsel the use thereof is
required to comply with the applicable provisions of the Act and the Rules and
Regulations. The Company will prepare and file with the states, promptly upon
your request, any such amendments or supplements to the Prospectus, and take any
other action, as, in the opinion of your counsel, may be necessary or advisable
in connection with the initial sale of the Securities, the Option Securities and
the Underwriter's Securities and will use its best efforts to cause the same to
become effective as promptly as possible.
9
The Company shall file the Prospectus (in form and substance satisfactory to
the Underwriter) or transmit the Prospectus by a means reasonably calculated to
result in filing with the Commission pursuant to rule 424(b)(1) or pursuant to
Rule 424(b)(3) not later than the Commission's close of business on the earlier
of (i) the second business day following the execution and delivery of this
Agreement, and (ii) the fifth business day after the effective date of the
Registration Statement.
In case of the happening, at any time within such period as a Prospectus is
required under the Act to be delivered in connection with the initial sale of
the Securities, the Option Securities and the Representative's Securities of any
event of which the Company has knowledge and which materially affects the
Company, or the securities thereof, and which should be set forth in an
amendment of or a supplement to the Prospectus in order to make the statements
therein not then misleading, in light of the circumstances existing at the time
the Prospectus is required under the Act to be delivered, or in case it shall be
necessary to amend or supplement the Prospectus to comply with the Act, the
Rules and Regulations or any other law, the Company will forthwith prepare and
furnish to you copies of such amended Prospectus or of such supplement to be
attached to the Prospectus, in such quantities as you may reasonably request, in
order that the Prospectus, as so amended or supplemented, will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances under which they are made. The preparation and
furnishing of any such amendment or supplement to the Prospectus or supplement
to be attached to the Prospectus shall be without expense to you.
The Company will to the best of its ability comply with the Act, the
Exchange Act and applicable state securities laws so as to permit the initial
offer and sales of the Securities, the Option Securities and the Representatives
Securities under the Act, the Rules and Regulations, and applicable state
securities laws.
(b) It will cooperate to qualify the Securities and the Option Securities
and the Representative's Securities for initial sale under the securities laws
of such jurisdictions as you may designate and will make such applications and
furnish such information as may be required for that purpose, provided the
Company shall not be required to qualify as a foreign corporation or a dealer in
securities. The Company will, from time to time, prepare and file such
statements and reports as are or may be required to continue such qualification
in effect for so long as the Underwriter may reasonably request.
(c) So long as any of the Securities, the Option Securities or the
Representative's Securities remain outstanding in the hands of the public, the
Company, at its expense, will annually furnish to its shareholders a report of
its operations to include financial statements audited by independent public
accountants, and will furnish to the Underwriter as soon as practicable after
the end of each fiscal year, a balance sheet of the Company as at the end of
such fiscal year, together with statements of operations, shareholders' equity,
and changes in cash flow of the Company for such fiscal year, all in reasonable
detail and accompanied by a copy of the certificate or report thereon of
independent public accountants.
(d) It will deliver to you at or before the Initial Closing Date three
signed copies of the Registration Statement including all financial statements
and exhibits filed therewith, whether or not incorporated by reference. The
Company will deliver to you, from time to time until the effective date of the
Prospectus, as many copies of the Prospectus as you may reasonably request. The
Company will deliver to you on the effective date of the Prospectus and
thereafter for so long as a Prospectus is required to be delivered under the Act
and the Rules and Regulations as many copies of the Prospectus, in final form,
or as thereafter amended or supplemented, as you may from time to time
reasonably request.
(e) The Company will apply the net proceeds from the sale of the Securities
and the Option Securities substantially in the manner set forth under "Use of
Proceeds" in the Prospectus. No portion of the proceeds shall be used, directly
or indirectly, to acquire any securities issued by the Company, without the
prior written consent of the Underwriter.
10
(f) As soon as it is practicable, but in any event not later than the first
(lst) day of the fifteenth (15th) full calendar month following the effective
date of the Registration Statement, the Company will make available to its
security holders and the Underwriter an earnings statement (which need not be
audited) covering a period of at least twelve (12) consecutive months beginning
after the effective date of the Registration Statement, which shall satisfy the
requirements of Section 11(a) of the Act and Rule 158(a) of the Rules and
Regulations.
(g) Non-Accountable Expense Allowance and other Costs and Expenses.
The Company shall pay to the Underwriter at each closing date, and to
be deducted from the purchase price for the Securities and the Option
Securities, an amount equal to three percent (3%) of the gross proceeds received
by the Company from the sale of the Securities and the Option Securities at such
closing date less in the case of the Initial Closing Date, the sum of $50,000
previously paid by the Company. If the sale of the Securities by the Underwriter
is not consummated for any reason not attributable to the Underwriter, or if (i)
the Company withdraws the Registration Statement from the Commission or does not
proceed with the public offering, or (ii) the representations in Section 3
hereof are not correct or the covenants cannot be complied with, or (iii) there
has been a materially adverse change in the condition, prospects or obligations
of the Company or a materially adverse change in stock market conditions from
current conditions, all as determined by the Underwriter, then the Company shall
reimburse the Underwriter for its out of pocket expenses including without
limitation, its legal fees and disbursements all on an accountable basis but not
to exceed $75,000 (less the $50,000 previously paid by the Company), and if any
excess remains from the advance previously paid, such excess will be returned to
the Company.
Costs and Expenses. Subject to the provisions above the Company will
pay all costs and expenses incident to the performance of this Agreement by the
Company including, but not limited to, the fees and expenses of counsel to the
Company and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the Registration
Statement and Prospectus (including the fee of the Commission, any securities
exchange and the NASD in connection with the filing required by the NASD
relating to the offering of the Securities contemplated hereby); all expenses,
including fees of counsel, which shall be due and payable on the Closing Date in
connection with the qualification of the Securities under the state securities
or blue sky laws; the cost of furnishing to you copies of the Prospectus, this
Agreement, the cost of printing the certificates representing the Securities and
of preparing and photocopying the Underwriting Agreement and related
Underwriting documents, the cost of three underwriter's bound volumes, any
advertising costs and expenses, including but not limited to the Company's
expenses on "road show" information meetings and presentations, prospectus
memorabilia, issue and transfer taxes, if any. The Company will also pay all
costs and expenses incident to the furnishing of any amended Prospectus of or
any supplement to be attached to the Prospectus.
(h) The Company shall not, without the Underwriter's prior written consent
which shall not be unreasonably withheld, sell or offer to sell any shares of
Common Stock for thirteen (13) months after the effective date including other
equity securities or warrants or options to purchase any shares of Common Stock
or equity securities except (i) in connection with acquisitions, (ii) pursuant
to warrants and options outstanding immediately prior to or as a result of the
Closing, or (iii) pursuant to options granted under Company's Stock Option Plan
as described in the Prospectus
(i) During a date five years after the date hereof, the Company will make
available to its shareholders, as soon as practicable, and deliver to the
Underwriter:
(1) as soon as they are available, copies of all reports (financial or
other) mailed to shareholders;
(2) as soon as they are available, copies of all reports and financial
statements furnished to or filed with the Commission, the NASD or any
securities exchange;
(3) every press release and every material news item or article of
interest to the financial community in respect of the Company or its
affairs which was prepared and released by or on behalf of the Company;
and
11
(4) any additional information of a public nature concerning the
Company (and any future subsidiaries) or its businesses which the
Underwriter may request.
During such five-year period, if the Company has active subsidiaries, the
foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(j) The Company will maintain a Transfer Agent and, if necessary under the
jurisdiction of incorporation of the Company, a Registrar (which may be the same
entity as the Transfer Agent) for its Common Stock.
(k) The Company will furnish to the Underwriter or on the Underwriter's
order, without charge, at such place as the Underwriter may designate, copies of
each Preliminary Prospectus, the Final Prospectus the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Underwriter may request.
(1) Neither the Company nor any of its officers, directors, stockholders or
any of its affiliates will take, directly or indirectly, any action designed to,
or which might in the future reasonably be expected to cause or result in
stabilization or manipulation of the price of any of the Company's securities.
(m) The Company shall timely file all such reports, forms or other documents
as may be required (including, but not limited to, a Form SR as may be required
pursuant to Rule 463 under the Act) from time to time, under the Act, the
Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents filed will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act, and the Rules and Regulations.
(n) The Company shall cause the Securities to be listed on the American
Stock Exchange for a period of five (5) years from the date hereof, use its best
efforts to maintain the listing of the Securities to the extent they are
outstanding.
(o) As soon as practicable, (i) before the effective date of the
Registration Statement, file a Form 8-A with the Commission providing for the
registration under the Exchange Act of the Securities and (ii) but in no event
more than 30 days from the effective date of the Registration Statement, take
all necessary and appropriate actions to be included in Standard and Poor's
Corporation Descriptions and/or Moody's OTC Manual and to continue such
inclusion for a period of not less than five years if the securities are not
listed on the AMEX.
(p) Until the completion of the distribution of the Securities, the Company
shall not without the prior written consent of the Underwriter and its counsel
which consent shall not be unreasonably withheld or delayed, issue, directly or
indirectly, any press release or other communication or hold any press
conference with respect to the Company or its activities or the offering
contemplated hereby, other than trade releases issued in 'the ordinary course of
the Company's business consistent with past practices with respect to the
Company's operations.
(q) Until the earlier of (i) five (5) years from the date hereof or (ii) the
sale to the public of the Warrant Shares, the Company will not take any action
or actions which may prevent or disqualify the Company's use of Form SB-2 (or
other appropriate form) for the registration under the Act of the Warrant Shares
and the Representative's Securities.
(r) Commencing one year from the effective date of the registration
statement, the Company agrees to pay the Underwriter a 5% solicitation fee for
the exercise of the publicly-held warrants such solicitation being subject to
applicable SEC and NASD Rules.
5. Conditions of the Underwriter's Obligations. The obligation of the
Underwriters to offer and sell the Securities and the Option Securities is
subject to the accuracy (as of the date hereof, and as of the Closing Dates) of
12
and compliance with the representations and warranties of the Company to the
performance by it of its agreement and obligations hereunder and to the
following additional conditions:
(a) The Registration Statement shall have become effective as and when
cleared by the Commission, and you shall have received notice thereof, on or
prior to any closing date no stop order suspending the effectiveness of the
Prospectus shall have been issued and no proceedings for that or similar purpose
shall have been instituted or shall be pending, or, to your knowledge or to the
knowledge of the Company, shall be contemplated by the Commission; any request
on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of counsel to the Underwriter; and
qualification, under the securities laws of such states as you may designate, of
the issue and sale of the Securities upon the terms and conditions herein set
forth or contemplated and containing no provision unacceptable to you shall have
been secured, and no stop order shall be in effect denying or suspending
effectiveness of such qualification nor shall any stop order proceedings with
respect thereto be instituted or pending or threatened under such law.
(b) On any closing date and, with respect to the letter referred to in
subparagraph (iii), as of the date hereof, you shall have received:
(i) the opinion, together with such number of signed or photostatic copies
of such opinion as you may reasonably request, addressed to you by O'Connor,
Broude & Aronson, Esqs., counsel for the Company, in form and substance
reasonably satisfactory to the Underwriter and William M. Prifti, Esq., counsel
to the Underwriter, dated each such closing date, to the effect that:
(A) The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the jurisdiction in which it is
incorporated and has all necessary corporate power and authority to carry on its
business as described in the Prospectus.
(B) The Company is qualified to do business in each jurisdiction in which
conducting its business requires such qualification, except where the failure to
be so qualified would not have a material adverse effect on the Company's
business or assets.
(C) The Company has the full corporate power and authority to enter into
this Agreement, the Representative's Warrant Agreement and the Consulting
Agreement and to consummate the transactions provided for therein and each such
Agreement has been duly and validly authorized, executed and delivered by the
Company. Each of this Agreement, the Consulting Agreement and the
Representative's Warrant Agreement, assuming due authorization, execution and
delivery by each other party thereto, constitutes a legal, valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms, subject to bankruptcy, insolvency or similar laws governing the rights of
creditors and to general equitable principles, and provided that no opinion need
be given as to the enforceability of any indemnification or contribution
provisions, and none of the Company's execution or delivery of this Agreement,
the Consulting Agreement or the Representative's Warrant Agreement, its
performance hereunder or thereunder, its consummation of the transactions
contemplated herein or therein, or the conduct of its business as described in
the Registration Statement, the Prospectus, and any amendments or supplements
thereto, conflicts with or will conflict with or results or will result in any
material breach or violation of any of the terms or provisions of, or
constitutes or will constitute a material default under, or result in the
creation or imposition of any material lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction of any kind whatsoever upon, any
property or assets (tangible or intangible) of the Company pursuant to the terms
of (A) the articles of incorporation or by-laws of the Company, (B) to the
knowledge of such counsel, any material license, contract, indenture, mortgage,
deed of trust, voting trust agreement, stockholders' agreement, note, loan or
credit agreement or any other agreement or instrument to which the Company is a
party or by which it is or may be bound, or (C) to the knowledge of such
counsel, any statute, judgment, decree, order, rule or regulation applicable to
the Company, whether domestic or foreign.
(D) The Company had authorized and outstanding capital stock as set forth in
the Prospectus under the heading "Capitalization" as of the date set forth
therein, and all of such issued and outstanding shares of capital stock have
13
been duly and validly authorized and issued, and to the knowledge of such
counsel are fully paid and nonassessable, and to the knowledge of such counsel
no stockholder of the Company is entitled to any preemptive rights to subscribe
for, or purchase shares of the capital stock and to the knowledge of such
counsel none of such securities were issued in violation of the preemptive
rights of any holders of any securities of the Company.
(E) To the knowledge of such counsel, the Company is not a party to or bound
by any instrument, agreement or other arrangement providing for it to issue any
capital stock, rights, warrants, options or other securities, except for this
Agreement, the Representative's Warrant Agreement, and except as described in
the Prospectus. The Common Stock, the Warrants and the Representative's Warrants
each conforms in all material respects to the respective descriptions thereof
contained in the Prospectus. The outstanding shares of Common Stock, the
Redeemable Warrant and the Warrant Stock and the Representative's Warrant Stock,
upon issuance and delivery and payment therefore in the manner described herein,
the Warrant Agreement and the Representative Agreement, as the case may be, will
be, duly authorized, validly issued, fully paid and nonassessable. There are no
preemptive or other rights to subscribe for or to purchase, or any restriction
upon the voting or transfer of, any shares of Common Stock pursuant to the
Company's articles of incorporation, by-laws, other governing documents or any
agreement or other instrument known to such counsel to which the Company is a
party or by which it is bound.
(F) The certificates representing the Securities comprising the Common Stock
and Redeemable Warrants are in due and proper form and each of the Warrant Stock
and the Representative's Warrant has been duly authorized and reserved for
issuance and when issued and delivered in accordance with the respective terms
of the Warrant Agreement and Representative's Warrant Agreement, respectively,
will duly and validly issued, fully paid and nonassessable.
(G) To the knowledge of such counsel, there are no claims, suits or other
legal proceedings pending or threatened against the Company in any court or
before or by any governmental body which might materially affect the business of
the Company or the financial condition of the Company as a whole, except as set
forth in or contemplated by the Prospectus.
(H) Based on oral and/or written advice from the staff of the Commission,
the Registration Statement has become effective and, to the knowledge of such
counsel, no stop order suspending the effectiveness of the Prospectus is in
effect and no proceedings for that purpose are pending before, or threatened by,
federal or by a state securities administrator.
(I) To the knowledge of such counsel, there are no legal or governmental
proceedings, actions, arbitrations, investigations, inquiries or the like
pending or threatened against the Company of a character required to be
disclosed in the Prospectus which have not been so disclosed, questions the
validity of the capital stock of the Company or this Agreement or the
Representative's Warrant Agreement or might adversely affect the condition,
financial or otherwise, or the prospects of the Company or which could adversely
affect the Company's ability to perform any of its obligations under this
Agreement, or the Representative's Warrant Agreement.
(J) To such counsel's knowledge, there are no material agreements, contracts
or other documents known to such counsel required by the Act to be described in
the Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the Registration Statement
and the Prospectus and filed as exhibits thereto, and to such counsel's
knowledge (A) the exhibits which have been filed are correct copies of the
documents of which they purport to be copies; (B) the descriptions in the
Registration Statement and the Prospectus and any supplement or amendment
thereto of contracts and other documents to which the Company is a party or by
which it is bound, including any document to which the Company is a party or by
which it is bound incorporated by reference into the Prospectus and any
supplement or amendment thereto, are accurate in all material respects and
fairly represent the information required to be shown by Form SB-2.
(K) No consent, approval, order or authorization from any regulatory board,
agency or instrumentality having jurisdiction over the Company, or its
properties (other than registration under the Act or qualification under state
or
14
foreign securities law or approval by the NASD) is required for the valid
authorization, issuance, sale and delivery of the Securities, the Option
Securities or the Representative's Warrant.
(L) The statements in the Prospectus under "Risk Factors-Control by Existing
Stockholders," "Management-Limitation of Liability" "Description of the
Securities," and "Shares Eligible For Future Sale" have been reviewed by such
counsel, and insofar as they refer to statements of law, descriptions of
statutes, licenses, rules or regulations or legal conclusions, are correct in
all material respects.
In addition, such counsel shall state that such counsel has participated in
conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not certified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the Closing Date and on any later date on which Option Shares are to
be purchased, the Registration Statement and any amendment or supplement, when
such documents became effective or were filed with the Commission (other than
the financial statements including the notes thereto and supporting schedules
and other financial and statistical information derived therefrom, as to which
such counsel need express no comment) contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or at the Closing
Date or any later date on which the Option Shares are to be purchased, as the
case may be, the Prospectus and any amendment or supplement thereto (other than
the financial statements including the notes thereto and other financial and
statistical information derived therefrom, as to which such counsel need express
no comment) contained any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
Such opinion shall also cover such other matters incident to the
transactions contemplated hereby and the offering Prospectus as you or counsel
to the Underwriter shall reasonably request. In rendering such opinion, to the
extent deemed reasonable by them, such counsel may rely upon certificates of any
officer of the Company or public officials as to matters of fact of which the
maker of such certificate has knowledge.
(ii) a certificate, signed by the Chief Executive Officer and the Principal
Financial or Accounting Officer of the Company dated the Closing Date, to the
effect that with regard to the Company, each of the conditions set forth in
Section 5(d) have been satisfied.
(iii) a letter, addressed to the Underwriter and in form and substance
satisfactory to the Underwriter in all respects (including the nonmaterial
nature of the changes or decreases, if any, referred to in clause (D) below),
BDO Seidman LLP, dated, respectively, as of the effective date of the
Registration Statement and as of the Closing Date, as the case may be:
(A) Confirming that they are independent public accountants with respect to
the Company and its consolidated subsidiaries, if any, within the meaning of the
Act and the applicable published Rules and Regulations.
(B) Stating that, in their opinion, the financial statements, related notes
and schedules of the Company and its consolidated subsidiaries, if any, included
in the Registration Statement examined by them comply as to form in all material
respects with the applicable accounting requirements of the Act and the
published Rules and Regulations thereunder.
(C) Stating that, with respect to the period from May 31, 1996, to a
specified date (the specified date") not earlier than five (5) business days
prior to the date of such letter, they have read the minutes of meetings of the
stockholders and board of directors (and various committees thereof) of the
Company and its consolidated subsidiaries, if any, for the period from May 31,
1996 through the specified date, and made inquiries of officers of the Company
and its consolidated subsidiaries, if any, responsible for financial and
accounting matters and,
15
especially as to whether there was any decrease in sales, income before
extraordinary items or net income as compared with the corresponding period in
the preceding year; or any change in the capital stock of the Company or any
change in the longterm debt or any increase in the short-term bank borrowings or
any decrease in net current assets or net assets of the Company or of any of its
consolidated subsidiaries, if any, and further stating that while such
procedures and inquiries do not constitute an examination made in accordance
with generally accepted auditing standards, nothing came to their attention
which caused them to believe that during the period from December 31, 1995,
through the specified date there were any decreases as compared with the
corresponding period in the preceding year in sales, income before extraordinary
items or net income; or any change in the capital stock of the Company or
consolidated subsidiary, if any, or any change in the longterm debt or any
increase in the short-term bank borrowings (other than any increase in
short-term bank borrowings in the ordinary course of business) of the Company or
any consolidated subsidiary, if any, or any decrease in the net current assets
or net assets of the Company or any consolidated subsidiary, if any; and
(D) Stating that they have carried out certain specified procedures
(specifically set forth in such letter or letters) as specified by the
Underwriter (after consultations with BDO Seidman LLP, relating to such
procedures), not constituting an audit, with respect to certain tables,
statistics and other financial data in the Prospectus specified by the
Underwriter and such financial data not included in the Prospectus but from
which information in the Prospectus is derived, and which have been obtained
from the general accounting records of the Company or consolidated subsidiaries,
if any, or from such accounting records by analysis or computation, and having
compared such financial data with the accounting records of the Company or the
consolidated subsidiaries, if any, stating that they have found such financial
data to agree with the accounting records of the Company.
(c) All corporate proceedings and other legal matters relating to this
Agreement, the Prospectus and other related matters shall be satisfactory to or
approved by counsel to the Underwriter and you shall have received from
O'Connor, Broude & Aronson, Esq., a law corporation, a signed opinion dated as
of each closing date, with respect to the incorporation of the Company, the
validity of the Securities, the form of the Prospectus, (other than the
financial statements together with related notes and other financial and
statistical data contained in the Prospectus or omitted therefrom, as to which
such counsel need express no opinion), the execution of this Agreement and other
related matters as you may reasonably require.
(d) At each closing date, (i) the representations and warranties of the
Company contained in this Agreement shall be true and correct in all material
respects with the same effect as if made on and as of such closing date; (ii)
the Prospectus and any amendments or supplements thereto shall contain all
statements which are required to be stated therein in accordance with the Act
and the Rules and Regulations and in all material respects conform to the
requirements thereof, and neither the Prospectus nor any amendment or supplement
thereto shall contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary, in light of the
circumstances under which they were made, in order to make the statements
therein not misleading; (iii) there shall have been since the respective dates
as of which information is given no material adverse change in the business,
properties or condition (financial or otherwise), results of operations, capital
stock, longterm debt or general affairs of the Company from that set forth in
the Prospectus, except changes which the Prospectus indicates might occur after
the effective date of the Prospectus, and the Company shall not have incurred
any material liabilities or material obligations, direct or contingent, or
entered into any material transaction, contract or agreement not in the ordinary
course of business other than as referred to in the Prospectus and which would
be required to be set forth in the Prospectus; and (iv) except as set forth in
the Prospectus, no action, suit or proceeding at law or in equity shall be
pending or threatened against the Company which would be required to be set
forth in the Prospectus, and no proceedings shall be pending or threatened
against the Company or any subsidiary before or by any commission, board or
administrative agency in the United States or elsewhere, wherein an unfavorable
decision, ruling or finding would materially and adversely affect the business,
property, condition (financial or otherwise), results of operations or general
affairs of the Company.
(e) On the Initial Closing Date, the Company shall have executed and
delivered to the Underwriter, (i) the Representatives' Warrant Agreement
substantially in the form filed as an Exhibit to the Registration Statement in
final form and substance satisfactory to the Underwriter, and (ii) the
Representative's Warrants in such denominations and to such designees as shall
have been provided to the Company.
16
(f) On or before the Initial Closing Date, the Securities shall have been
duly approved for listing on the American or any other Stock Exchange or on
NASDAQ. .
(g) On or before the Initial Closing Date, there shall have been delivered
to the Underwriter all of the Lock-up Agreements required to be delivered
pursuant to Section 3(a)(xxv) and 4(h), in form and substance satisfactory to
the Underwriter and Underwriter's counsel.
If any condition to the Underwriter's obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Underwriter may terminate this
Agreement or, if the Underwriter so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
6. Conditions of the Company's Obligations. The obligation of the Company to
sell and deliver the Securities is subject to the following:
(a) The provisions regarding the effective date, as described in Section
10.
(b) At the Initial Closing Date, no stop order suspending the
effectiveness of the Prospectus shall have been issued under the Act or any
proceedings therefor initiated or threatened by the Commission or by any state
securities department.
(c) Tender of payment by the Underwriter in accord with Section 2 hereof.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and its employees and each person, if any, who controls you within the meaning
of the Act, against any losses, claims, damages or liabilities, joint or several
(which shall, for any purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), to which
each Underwriter or such controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission made in the Prospectus, or such amendment or supplement to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, which is in reliance upon and in conformity
with written information furnished by the Company to you specifically for use in
the preparation thereof, and provided further that the indemnity agreement
contained in this subsection (a) shall not inure to the benefit of you with
respect to any person asserting any such loss, claim, damage or liability who
has purchased the Securities which are the subject thereof if you or any
participants failed to send or give a copy of the Prospectus to such person at
or prior to the written confirmation of the sale of such Securities to such
person and except that, with respect to any untrue statement or omission or any
alleged untrue statement or omission, made in any Pre-Effective Prospectus, the
indemnity agreement contained in this subsection (a) shall not inure to the
benefit of any Underwriter ( or to any person controlling any such underwriter)
from whom the person asserting any such loss, claim, damage or liability
purchased the securities concerned to the extent that such untrue statement or
omission, or alleged untrue statement or omission, has been corrected in a later
Pre-Effective Prospectus or in the Final Prospectus unless the Underwriter
circulated a later Pre-Effective Prospectus or the Final Prospectus to such
person
(b) Each Underwriter will indemnify and hold harmless the Company, each of
its directors, each of its officers, each person, if any, who controls the
Company within the meaning of the Act against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such director, officer or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Prospectus, or any amendment or supplement
thereto, or arise out of
17
or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission was made in the
Prospectus, or such amendment or supplement, in reliance upon and in conformity
with written information furnished to the Company by you specifically for use in
the preparation thereof. This indemnity will be in addition to any liability
which any Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party, similarly notified, to assume the
defense thereof, subject to the provisions herein stated, with counsel
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that, if the indemnified party is you or a person who controls you, the fees and
expenses of such counsel shall be at the expense of the indemnifying party if
(i) the employment of such counsel has been specifically authorized in writing
by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both you or such controlling person
and the indemnifying party and you or such controlling person shall have been
advised by such counsel that there is a conflict of interest which would prevent
counsel for the indemnifying party from representing the indemnifying party and
you or such controlling person (in which case the indemnifying party shall not
have the right to assume the defense of such action on behalf of you or such
controlling person, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction or which are consolidated
into the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for you and all such controlling persons, which firm
shall be designated in writing by you). No settlement of any action against an
indemnified party shall be made without the consent of the indemnified party,
which shall not be unreasonably withheld in light of all factors of importance
to such indemnified party.
8. Contribution. In order to provide for just and equitable contribution
tinder the Act in any case in which (i) the indemnifying party makes a claim for
indemnification pursuant to Section 7 hereof but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of the
Underwriters, then the Company and the Underwriters in the aggregate shall
contribute to the aggregate losses, claims, damages, or liabilities to which
they may be subject (which shall, for all purposes of this Agreement, include,
but not be limited to, all costs of defense and investigation and all attorneys'
fees) in either such case (after contribution from others) in such proportions
that the Underwriters are responsible in the aggregate for that portion of such
losses, claims, damages or liabilities determined by multiplying the total
amount of such losses, claims, damages or liabilities times the difference
between the public offering price and the commission to the Underwriter and
dividing the product thereof by the public offering price, and the Company, if
applicable, shall be responsible for that portion of such losses, claims,
damages or liabilities times the commission to the Underwriters and dividing the
product thereof by the public offering price; provided, however, that the
Underwriters shall not be required to so contribute any amount in excess of the
underwriting discount applicable to the Securities purchased by the Underwriters
hereunder if such allocation is not permitted by applicable law, then the
relative fault of the Company and the Underwriters in connection with the
statements or omissions which resulted in
18
such damages and other relevant equitable considerations shall also be
considered. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 12(2) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. The foregoing
contribution agreement shall in no way affect the contribution liabilities of
any person having liability under Section 12 of the Act other than the Company
and the Underwriter. As used in this paragraph, the term "Underwriters" includes
any person who controls the Underwriters within the meaning of Section 15 of the
Act. If the full amount of the contribution specified in this paragraph is not
permitted by law, then any Underwriter and each person who controls any
Underwriter shall be entitled to contribution from the Company, to the full
extent permitted by law.
9. Effective Date. This Agreement shall become effective at 10:00 a.m. New
York time on the next full business day following the effective date of the
Registration Statement, or at such other time after the effective date of the
Prospectus as you in your discretion shall first commence the public offering of
any of the Securities covered thereby, provided, however, that at all times the
provisions of Sections 7, 8, 9 and 11 shall be effective.
10. Termination.
(a) This Agreement, may be terminated at any time prior to the Closing
Date by you if in your judgment it is impracticable to offer for sale or to
enforce contracts made by you for the sale of the Securities agreed to be sold
hereunder by reason of (i) the Company as a whole having sustained a material
loss, whether or not insured, by reason of fire, earthquake, flood, accident or
other calamity, or from any labor dispute or court or government action, order
or decree, (ii) trading in securities of the Company having been suspended by a
state securities administrator or by the Commission, (iii) material governmental
restrictions having been imposed on trading in securities generally (not in
force and effect on the date hereof) or trading on the New York Stock Exchange,
American Stock Exchange, or in the over-the-counter market shall have been
suspended, (iv) a banking moratorium having been declared by federal or New York
State authorities, (v) an outbreak or escalation of hostilities or other
national or international calamity having occurred, (vi) the passage by the
Congress of the United States or by any state legislative body, of any act or
measure, or the adoption of any orders, rules or regulations by any governmental
body or any authoritative accounting institute or board, or any governmental
executive, which is believed likely by you to have a material impact on the
business, financial condition or financial statements of the Company; or (vii)
any material adverse change having occurred, since the respective dates as of
which information is given in the Prospectus, in the condition, financial or
otherwise, of the Company as a whole, whether or not arising in the ordinary
course of business, (viii) Robert Kuzara ceases to be employed by the Company in
his present capacity; (ix) the Securities are not listed the American Stock
Exchange or any other exchange or on NASDAQ.
(b) If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section 10 or in Section 9,
the Company shall be promptly notified by you, by telephone or telegram,
confirmed by letter.
11. Representations, Warrants and Agreements to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company (or its officers) and the Underwriter set forth in or
made pursuant to this Agreement will remain in full force and effect, regardless
of any investigation made by or on behalf of the Underwriter, the Company, or
any of their officers or directors and will survive delivery of and payment for
the Securities.
12. Notices. All communications hereunder will be in writing and, except as
otherwise expressly provided herein, if sent to you, will be mailed, delivered
or telephoned and confirmed to you at Coburn & Meredith, Inc., 150 Trumbull
Street, Hartford, CT 06103, Attn: Barry Coburn, President; to the Company at
1711 Broadway, Saugus, MA 01906, Attn: Robert Kuzara, President.
13. Parties in Interest. This Agreement is made solely for the benefit of
the Underwriter(s), and the Company, and their respective controlling persons,
directors and officers, and their respective successors, assigns, executors and
administrators. No other person shall acquire or have any right under or by
virtue of this Agreement.
19
14. Headings. The Section headings in this Agreement have been inserted as a
matter of convenience of reference and are not a part of this Agreement.
15. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut, without giving effect to
conflict of law principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which together shall constitute one and the same
instrument.
If the foregoing correctly sets forth the understanding between the Company
and you, as Representative of the several underwriters, please so indicate in
the space provided below for such purpose, whereupon this letter and your
acceptance shall constitute a binding agreement between us.
Very truly yours,
WebSecure, Inc.
By:
---------------------------------
(Authorized Officer)
Robert Kuzara, President
Accepted as of the date first above written:
Coburn & Meredith, Inc.
As Representative of the several Underwriters
By:
--------------------------------------------
(Authorized Officer)
Barry Coburn, President
20
EXHIBIT A
SCHEDULE I
UNDERWRITERS
Shares of
Underwriter Common Stock Redeemable Warrant
- ----------- ------------ ------------------
Coburn & Meredith, Inc.
Shamrock Partners, Ltd.
--------- ---------
TOTAL 1,000,000 1,000,000
- -----
21
EXHIBIT B
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. NO
OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE
CAN BE RECEIVED UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND ANY
SUCH OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY
KIND, AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE
DATE. YOUR EXECUTION HEREOF WELL INVOLVE NO OBLIGATION OR COMMITMENT OF ANY KIND
UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE.
WebSecure, Inc.
SELECTED DEALERS AGREEMENT
--------------------------
, 1996
Dear Sirs:
1. Coburn & Meredtih, Inc. named as the Underwriter ("Underwriter") in the
enclosed preliminary Prospectus, proposes to offer on a firm commitment basis,
subject to the terms and conditions and execution of the Underwriting Agreement,
1,000,000 Shares of Common Stock at $ per share and 1,000,000 Redeemable
Warrants at $.20 per Warrant ("Securities") of the above Company. The Securities
are more particularly described in the enclosed preliminary Prospectus,
additional copies of which will be supplied in reasonable quantities upon
request. Copies of the definitive Prospectus will be supplied after the
effective date of the Registration Statement.
2. The Underwriter is soliciting offers to buy, upon the terms and
conditions hereof, a part of the Securities from Selected Dealers, including you
who are to act as principal and who are (i) registered with the Securities and
Exchange Commission ("Commission") as broker-dealers under the Securities
Exchange Act of 1934, as amended ("1934 Act"), and members in good standing with
the National Association of Securities Dealers, Inc. ("NASD"), or (ii) dealers
or institutions with their principal place of business located outside the
United States, its territories and possessions who are not eligible for
membership in the NASD and who agree to make no sales within the United States,
its territories or possessions or to persons who are nationals thereof or
residents therein and, in making sales, to comply with the NASD's Interpretation
with Respect to FreeRiding and Withholding and with Sections 8, 24p 25, to the
extent applicable to foreign nonmember brokers or dealers, and Section 36 of the
NASD's Rules of Fair Practice. The Securities are to be offered at a public
price of $ per share of Common Stock and $0.20 per Redeemable Warrant. Selected
Dealers will be allowed a concession of not less than $ per share and $ per
Redeemable Warrant, except as provided below. You will be notified of the
precise amount of such concession prior to the effective date of the
Registration Statement. You may reallow not in excess of $ per share and $ per
Reedeemable Warrant to dealers who meet the requirements set forth in this
Section 2. This offer is solicited subject to the issuance and delivery of the
Securities and their acceptance by the Underwriter, to the approval of legal
matters by counsel and to the terms and conditions as herein set forth.
3. Your offer to purchase may be revoked in whole or in part without obligation
or commitment of any kind by you and any time prior to acceptance and no offer
may be accepted by us and no sale can be made until after the registration
statement covering the Securities has become effective with the Commission.
Subject to the foregoing, upon execution by you of the Offer to Purchase below
and the return of same to us, you shall be deemed to have offered to purchase
the number of Securities set forth in your offer on the basis set forth in
paragraph 2 above. Any oral notice by us of acceptance of your offer shall be
immediately followed by written or telegraphic confirmation
preceded or accompanied by a copy of the Prospectus. If a contractual commitment
arises hereunder, all the terms of this Selected Dealers Agreement shall be
applicable. We may also make available to you an allotment to purchase
Securities, but such allotment shall be subject to modification or termination
upon notice from us any time prior to an exchange of confirmations reflecting
completed transactions. All references hereafter in this Agreement to the
purchase and sale of Securities assume and are applicable only if contractual
commitments to purchase are completed in accordance with the foregoing..
4. You agree that in reoffering said Securities, if your offer is accepted
after the effective date, you will make a bona fide public distribution of same.
You will advise us upon request of Securities purchased by you remaining unsold
and we shall have the right to repurchase such Securities upon demand at the
public offering price without paying the concession with respect to any
Securities so repurchased. Any of the Securities purchased by you pursuant to
this Agreement are to be subject to the terms hereof. Securities shall not be
offered or sold by you below the public offering price before the termination of
this Agreement.
5. Payment for Securities which you purchase hereunder shall be made by you on
or before five (5) business days after the date of each confirmation by
certified or bank cashier's check payable to the Underwriter. Certificates for
the Securities shall be delivered as soon as practicable after delivery
instructions are received by the Underwriter.
6. A registration statement covering the offering has been filed with the
Securities and Exchange Commission in respect to the Securities. You will be
promptly advised when the registration statement becomes effective. Each
Selected Dealer in selling Securities pursuant hereto agrees (which agreement
shall also be for the benefit of the Company) that it will comply with the
applicable requirements of the Securities Act of 1933 and of the Securities
Exchange Act of 1934 and any applicable rules and regulations issued under said
Acts. No person is authorized by the Company or by the Underwriter to give any
information or to make any representations other than those contained in the
Prospectus in connection with the sale of the Securities. Nothing contained
herein shall render the Selected Dealers a member of the Underwriting Group or
partners with the Underwriter or with one another.
7. You will be informed by us as to the states in which we have been advised
by counsel the Securities have been qualified for sale or are exempt under the
respective securities or blue sky laws of such states, but we have not assumed
and will not assume any obligation or responsibility as to the right of any
Selected Dealer to sell Securities in any state. You agree not to sell
Securities in any other state or jurisdiction and to not sell Securities in any
state or jurisdiction unless you are qualified or licensed to sell securities in
such state or jurisdiction.
8. The Underwriter shall have full authority to take such action as it may
deem advisable in respect of all matters pertaining to the offering or arising
thereunder. The Underwriter shall not be under any liability to you, except such
as may be incurred under the Securities Act of 1933 and the rules and
regulations thereunder, except for lack of good faith and except for obligations
assumed by us in this Agreement, and no obligation on our part shall be implied
or inferred herefrom.
9. Selected Dealers will be governed by the conditions herein set forth
until this Agreement is terminated. This Agreement will terminate when the
offering is completed. Nothing herein contained shall be deemed a commitment on
our part to sell you any Securities; such contractual commitment can only be
made in accordance with the provisions of paragraph 3 hereof.
10. You represent that you are a member in good standing of the NASD and
registered as a broker-dealer with the Commission, or that you are a foreign
broker-dealer not eligible for membership under Section 1 of the Bylaws of the
NASD who agrees to make no sales within the United States, its territories or
possessions or to persons who are nationals thereof or residents therein and, in
making sales, to comply with the NASD's interpretation with Respect to
FreeRiding and Withholding and with Sections 8, 24, 25 to the extent applicable
to foreign nonmember brokers and dealers, and Section 36 of the NASD's Rules of
Fair Practice. Your attention is called to and you agree to comply with the
following: (a) Article III, Section 1 of the Rules of Fair Practice of the NASD
and the interpretations of said Section promulgated by the Board of Governors of
the NASD including Section 24 and the interpretation with respect to
"Free-Riding and Withholding;" (b) Section 10(b) of the 1934 Act and Rules
10b-6, 10b-10 of the general
2
rules and regulations promulgated under the 1934 Act; and (c) Rule 15c2-8 of the
general rules and regulations promulgated under the 1934 Act requiring the
distribution of a preliminary Prospectus to all persons reasonably expected to
be purchasers of the Securities from you at least 48 hours prior to the time you
expect to mail confirmations. You, as a member of the NASD, by signing this
Agreement, acknowledge that you are familiar with the cited laws and rules and
agree that you will not directly and/or indirectly violate any provisions of
applicable law in connection with your participation in the distribution of the
Securities.
11. In addition to compliance with the provisions of paragraph 10 hereof,
you will not, until advised by us in writing or by wire that the entire offering
has been distributed and closed, bid for or purchase Securities in the open
market or otherwise make a market in the Securities or otherwise attempt to
induce others to purchase the Securities in the open market. Nothing contained
in this paragraph 11 shall, however, preclude you from acting as agent in the
execution of unsolicited orders of customers in transactions effectuated for
them through a market maker.
12. You understand that the Underwriter may in connection with the offering
engage in stabilizing transactions. If the Underwriter contracts for or
purchases in the open market in connection with such stabilization any
Securities sold to you hereunder and not effectively placed by you, the
Underwriter may charge you the Selected Dealer's concession originally allowed
you on the Securities so purchased and you agree to pay such amount to us on
demand.
13. By submitting an Offer to Purchase you confirm that you may, in
accordance with Rule 156-1 adopted under the 1934 Act, agree to purchase the
number of Securities you may become obligated to purchase under the provisions
of this Agreement.
14. All communications from you should be directed to us at 150 Trumbull
Street, Hartford, CT 06103 Attn: Henry Tow, (1-800-825-2244) and fax
(860-522-4209). All communications from us to you shall be directed to the
address to which this letter is mailed.
Very truly yours,
Coburn & Meredith, Inc.
By
----------------------------------
(Authorized Officer)
3
OFFER TO PURCHASE
The undersigned does hereby offer to purchase (subject to the right to
revoke as set forth in paragraph 3) __________________* Securities in accordance
with the terms and conditions set forth above. We hereby acknowledge receipt of
the Prospectus referred to in the first paragraph thereof relating to such
Securities. We further state that in purchasing such Securities we have relied
upon such Prospectus and upon no other statement whatsoever, written or oral.
- ----------------------------------------
By
--------------------------------------
(Authorized Officer)
*If a number appears here which does not correspond with what you wish to offer
to purchase, you may change the number by crossing out the number, inserting a
different number and initializing the change.
4
CERTIFICATE OF INCORPORATION
OF
NETSAFE, INC.
FIRST: The name of the corporation is NetSafe, Inc.
SECOND: The registered office of the corporation in the State of
Delaware is located at 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801, and its registered agent is The Corporation Trust Company.
THIRD: The purpose of the corporation and the nature and objects of the
business to be transacted, promoted, and carried on are to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is one thousand shares of common stock with one cent
($0.01) par value. The number of authorized shares of any class or classes of
stock may be increased or decreased by a vote of the majority of stockholders.
FIFTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation, as the case may be, to basement in such a manner as the
said Court directs. If a majority in number representing three-fourths in value
of the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
SIXTH: To the fullest extent permitted by law, the corporation shall
have the power to indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative by reason
of the fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), liability, loss, judgment, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner reasonably believed to be
in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceedings, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, upon a plea of nolo contendere or equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Such indemnity shall inure to the benefit of the heirs, executors and
administrators of any such person so indemnified pursuant to this Article. The
right to indemnification under this Article shall be a contract right and shall
include, with respect to directors and officers, the right to be paid by the
corporation the expenses incurred in defending any such proceeding in advance of
its disposition; provided however, that, if the Delaware General Corporation Law
requires, the payment of such expenses incurred by a director or officer in
advance of the final disposition of a proceeding shall be made only upon
delivery to the corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined under this Article or otherwise. The corporation may, by action of
its board of directors, pay such expenses incurred by employees and agents of
the corporation upon such terms as the board of directors deems appropriate.
Indemnification of, and advancement of expenses to, such person shall be
mandatory to the extent that applicable law provides that the corporation may
authorize such indemnification and advancement of expenses. such indemnification
and advancement of expenses shall be in addition to any other rights to which
those seeking indemnification and advancement of expenses may be entitled under
any law, Bylaw, agreement, vote of stockholders, or otherwise.
The corporation may, to the fullest extent permitted by applicable law,
at any time without further stockholder approval, purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against such person and incurred by
such person in any such capacity, or arising out of such person's status as
such, whether or not the corporation would have the power to indemnify such
person against such liability under applicable law.
Any repeal or amendment of this Article by the stockholders of the
corporation or by changes in applicable law shall, to the extent permitted by
applicable law, be prospective only, and shall not adversely affect any right to
indemnification or advancement of expenses of a director or officer of the
corporation existing at the time of such repeal or amendment. In addition to the
foregoing, the right to indemnification and advancement of expenses shall be to
the fullest extent permitted by the General Corporation Law of the State of
Delaware or any other applicable law and all amendments to such laws as
hereafter enacted from time to time.
SEVENTH: No director of the corporation shall have any personal
liability to the corporation or to any of its stockholders for monetary damages
for breach of fiduciary duty as a
-2-
director; provided, however, that this provision eliminating such personal
liability of a director shall not eliminate or limit the liability of a director
(i) for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under ss.174 of the
General Corporation Law of Delaware, or (iv) for any transaction from which the
director derived an improper personal benefit. If the Delaware General
Corporation Law is amended to authorize corporate action further eliminating or
limited the personal liability of directors, then the liability of a director of
the corporation shall be eliminated or limited to the fullest extent permitted
by the Delaware General Corporation Law as so amended.
EIGHT: The name and address of the incorporator is Judith T. Kaiser,
1310 King Street, Wilmington, Delaware 19801.
NINTH: The Board of Directors shall have the power to make, add to,
delete from, alter, and repeal the By-Laws.
TENTH: The corporation reserves the right to amend, alter, change, or
repeal any provision contained in this certificate of incorporation in the
manner now or hereafter prescribed by law and all rights conferred on officers,
directors, and stockholders herein are granted subject to this reservation.
ELEVENTH: The election of directors need not be by written ballot.
TWELFTH: No holder of shares of the corporation of any class or series
shall have any preemptive right to subscribe for, purchase, or receive any
shares of the corporation of any class or series now or hereafter authorized, or
any options or warrants for such shares, or any securities convertible into or
exchangeable for such shares, which may at any time be issued, sold, or offered
for sale by the corporation. Cumulative voting by the stockholders of the
corporation at any election of directors of the corporation is hereby
prohibited.
THE UNDERSIGNED INCORPORATOR, for the purposes of forming a
corporation, in pursuance of an act of the legislature of the State of Delaware
entitled "An Act Providing a General Corporation Law" (approved March 10, 1899)
and any acts amendatory thereof and supplemental thereto, does make and file
this Certificate of Incorporation, hereby declaring and certifying that the
facts herein stated are true and accordingly has hereunto set her hand and seal
this __ day of September, 1995.
---------------------------------
INCORPORATOR
-3-
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
NETSAFE, INC.
Netsafe, Inc., (the "Corporation") a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware;
DOES HEREBY CERTIFY:
FIRST: That the Certificate of Incorporation of NetSafe, Inc. is
amended by amending Article First thereof to read in its entirety as follows:
"FIRST: The name of the corporation is Netsafe, Inc."
and by amending Article Fourth thereof to read in its entirety as follows:
"FOURTH: The total number of shares of stock which the corporation
shall have authority to issue is two million (2,000,000) shares of common stock
with one cent ($0.01) par value. The number of authorized shares of any class or
classes of stock may be increased or decreased by a vote of the majority of
stockholders."
SECOND: That prior to the issuance of stock said amendment was duly
adopted in accordance with the provisions of ss.241 of the General Corporation
Law of the State of Delaware.
THIRD: That the capital of the Corporation shall not be reduced under
or by any reason of said amendment.
IN WITNESS WHEREOF, said NetSafe, Inc. has caused this Certificate to
be signed by Judith T. Kaiser, its Incorporator this 18th day of September 1995.
NETSAFE, INC.
By:___________________________
Judith T. Kaiser
Incorporator
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
NETSAFE, INC.
(Pursuant to Section 242)
*******
NETSAFE, INC. (the "Corporation"), a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That by written consent dated December 15, 1995, all of the
directors and a majority of the stockholders of NETSAFE, INC., adopted the
following resolution amending the Certificate of Incorporation of the
Corporation:
RESOLVED: That Article 1 of the Certificate of Incorporation be, and
hereby is, deleted in its entirety and the following be, and hereby is, inserted
in place thereof:
"1. The name of the Corporation is WEBSECURE, INC."
IN WITNESS WHEREOF, the said NETSAFE, INC. has caused its corporate
seal to be hereunto affixed and this Certificate of Amendment to be signed by
Robert Kuzara, its President and Andrew D. Myers, its Assistant Secretary this
_____ day of December, 1995.
---------------------------
Robert Kuzara
President
- ------------------------------
Andrew D. Myers
Assistant Secretary
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
WEBSECURE, INC.
********
WEBSECURE, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That by a consent of a majority of the stockholders and the sole
director of WEBSECURE, INC.,dated March 22, 1996, the following
resolution amending the Certificate of Incorporation of said
corporation was adopted:
RESOLVED: That the Certificate of Incorporation of WebSecure, Inc. (the
"Corporation") be amended (the "Amendment") by change of the article
thereof numbered "4" so that, as amended, said Article 4 shall be, and
read, in its entirety, as follows:
"4. The total number of shares of stock which the
Corporation shall have authority to issue is twenty
three million (23,000,000), twenty million
(20,000,000) shares of which shall be Common Stock,
of the par value of $.01 per share, two million
(2,000,000) shares of which shall be Series B Common
Stock, of the par value of $.01 per share, and one
million (1,000,000) shares of which shall be
Preferred Stock, of the par value $.01 per share,
amounting in the aggregate to Two Hundred Thirty
Thousand and 00/100 Dollars ($230,000.00).
The rights and preferences of the Series B Common
Stock shall be as set forth in the form attached
hereto as Exhibit A.
Additional designations and powers, preferences and
rights and qualifications, limitations or
restrictions thereof of the Common Stock and
Preferred Stock shall be determined by the Board of
Directors of the Corporation from time to time."
SECOND: That said amendment was duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said WEBSECURE, INC., has caused this Certificate
of Amendment to be signed by Robert Kuzara, its President and Andrew D. Myers,
its Assistant Secretary this ______ day of March, 1996.
-----------------------------------
Robert Kuzara
President
- ---------------------------------
Andrew D. Myers
Assistant Secretary
CERTIFICATE OF CORRECTION FILED TO CORRECT
A CERTAIN CERTIFICATE OF AMENDMENT OF WEBSECURE, INC.
FILED IN THE OFFICE OF THE SECRETARY
OF STATE OF DELAWARE ON MARCH 29, 1996
WEBSECURE, INC.
[Pursuant to Section 103]
WEBSECURE, INC. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
1. The name of the corporation is WEBSECURE, INC.
2. That a Certificate of Amendment of Certificate of Incorporation was
filed by the Secretary of State of Delaware on March 29, 1996, and that said
Certificate requires correction as permitted by Section 103 of the General
Corporation Law of the State of Delaware.
3. The correction of said Certificate is the Article "FIRST" of the
Certificate of Amendment be, and hereby is, deleted in its entirety and the
following be, and hereby is, inserted in place thereof:
FIRST: That by a consent of a majority of the stockholders and the sole
director of WEBSECURE, INC., dated March 22, 1996, the following
resolution amending the Certificate of Incorporation of said
corporation was adopted:
RESOLVED: That the Certificate of Incorporation of WebSecure, Inc. (the
"Corporation") be amended (the "Amendment") by change of the article
thereof numbered "4" so that, as amended, said Article 4 shall be, and
read, in its entirety, as follows:
"4. The total number of shares of stock which the
Corporation shall have the authority to issue is
twenty three million (23,000,000) shares, twenty two
million (22,000,000) shares of which shall be Common
Stock, of the par value of $.01 per share, two
million (2,000,000) shares of which shall be
designated as Class B Common Stock, of the par value
of $.01 per share, and one million (1,000,000) shares
of which shall be Preferred Stock, of the par value
of $.01 per share, amounting in the aggregate to Two
Hundred Thirty Thousand and 00/100 Dollars
($230,000.00).
The rights and preferences of the Class B Common
Stock shall be as set forth in the form attached
hereto as Exhibit A.
Additional designations and powers, preferences and
rights and qualifications, limitations or
restrictions thereof of the Common Stock and
Preferred Stock shall be determined by the Board of
Directors of the Corporation from time to time."
IN WITNESS WHEREOF, the said WEBSECURE, INC. has caused its corporate
seal to be hereunto affixed and this Certificate of Correction to be signed by
Andrew D. Myers, its Assistant Secretary, this 14th day of June, 1996.
WEBSECURE, INC.
By: ________________________________
Andrew D. Myers
Assistant Secretary
BY-LAWS OF
WEBSECURE, INC.
Section 1. Annual Meeting. The annual meeting of the stockholders of
WebSecure, Inc. (the "Corporation") for the election of directors and for the
transaction of such other business as may come before the meeting shall be on
such date and at such time as shall be designated by the Board of Directors.
Section 2. Special Meetings. Special meetings of the stockholders,
unless otherwise prescribed by statute, may be called at any time by the Board
or the President and shall be called by the President or Secretary at the
request in writing of stockholders of record owning at least fifty percentum of
the shares of stock of the Corporation outstanding and entitled to vote.
Section 3. Notice of Meetings. Notice of the place, date and time of
the holding of each annual and special meeting of the stockholders and, in the
case of a special meeting, the purpose or purposes thereof, shall be given
personally or by mail in a postage prepaid envelope to each stockholder entitled
to vote at such meeting, not less than ten nor more than sixty days before the
date of such meeting, and, if mailed, shall be directed to such stockholder at
his address as it appears on the records of the Corporation, unless he shall
have filed with the Secretary of the Corporation a written request that notices
to him be mailed to some other address in which case it shall be directed to him
at such other address. Notice of any meeting of stockholders shall not be
required to be given to any stockholder who shall attend such meeting in person
or by proxy and shall not, at the beginning of such meeting, object to the
transaction of any business because the meeting is not lawfully called or
convened, or who shall, either before or after the meeting, submit a signed
waiver of notice, in person or by proxy. Unless the Board of Directors shall
fix, after the adjournment, a new record date for an adjourned meeting, notice
of such adjourned meeting need not be given if the time and place to which the
meeting shall be adjourned were announced at the meeting at which the
adjournment is taken. At the adjourned meeting, the Corporation may transact any
business which might have been transacted at the original meeting. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
Section 4. Place of Meetings. Meetings of the stockholders may be held
at such place, within or without the State of Delaware as the Board of Directors
or the officer calling the same shall specify in the notice of such meeting, or
in a duly executed waiver of notice thereof.
Section 5. Quorum. At all meetings of the stockholders the holders of a
majority of the votes of the shares of stock of the Corporation issued and
outstanding and entitled to vote shall be present in person or by proxy to
constitute a quorum for the transaction of any business, except when
stockholders are required to vote by class, in which event a majority of the
issued and outstanding shares of the appropriate class shall be present in
person or by proxy, or except as otherwise provided by statute or in the
Certificate of Incorporation. In the absence of a quorum, the holders of a
majority of the shares of stock present in person or by proxy and entitled to
vote, or if no stockholder
entitled to vote is present, then any officer of the Corporation may adjourn the
meeting from time to time. At any such adjourned meeting at which a quorum may
be present any business may be transacted which might have been transacted at
the meeting as originally called.
Section 6. Organization. At each meeting of the stockholders, the
President, or in his absence or inability to act, any person chosen by a
majority of those stockholders present, in person or by proxy and entitled to
vote, shall act as chairman of the meeting. The Secretary, or in his absence or
inability to act, any person appointed by the chairman of the meeting, shall act
as secretary of the meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.
Section 8. Voting. Except as otherwise provided by statute, by the
Certificate of Incorporation, or by any certificate duly filed in the State of
Delaware pursuant to Section 151 of the Delaware General Corporation Law, each
holder of record of shares of stock of the Corporation having voting power shall
be entitled at each meeting of the stockholders to one vote for every share of
such stock standing in his name on the record of stockholders of the Corporation
on the date fixed by the Board of Directors as the record date for the
determination of the stockholders who shall be entitled to notice of and to vote
at such meeting; or if such record date shall not have been so fixed, then at
the close of business on the day next preceding the date on which notice thereof
shall be given, or if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; or each stockholder entitled to
vote at any meeting of stockholders may authorize another person or persons to
act for him by a proxy signed by such stockholder or his attorney-in-fact. Any
such proxy shall be delivered to the secretary of such meeting at or prior to
the time designated in the order of business for so delivering such proxies. No
proxy shall be valid after the expiration of three years from the date thereof,
unless otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the stockholder executing it, except in those cases where an
irrevocable proxy is permitted by law. Except as otherwise provided by statute,
these By-Laws, or the Certificate of Incorporation, any corporate action to be
taken by vote of the stockholders shall be authorized by a majority of the total
votes, or when stockholders are required to vote by class by a majority of the
votes of the appropriate class, cast at a meeting of stockholders by the holders
of shares present in person or represented by proxy and entitled to vote on such
action. Unless required by statute, or determined by the chairman of the meeting
to be advisable, the vote on any question need not be by written ballot. On a
vote by written ballot, each ballot shall be signed by the stockholder voting,
or by his proxy, if there be such proxy, and shall state the number of shares
voted.
Section 9. List of Stockholders. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane
-2-
to the meeting, during ordinary business hours, for a period at least ten days
prior to the meeting either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 10. Inspectors. The Board of Directors may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If the inspectors shall not be so appointed or if
any of them fail to appear or act, the chairman of the meeting may, and on the
request of any stockholder entitled to vote thereat shall appoint inspectors.
Each inspector, before entering upon the discharge of his duties, shall take and
sign an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine, in number of shares represented at the meeting, the existence
of a quorum, the validity and effect of proxies, and shall receive votes,
ballots or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the chairman
of the meeting of any stockholder entitled to vote thereat, the inspectors shall
make a report in writing of any challenge, request or matter determined by them
and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as inspector of an election of
directors. Inspectors need not be stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting. Whenever the
vote of stockholder at a meeting thereof is required or permitted to be taken
for or in connection with any corporate action, the meeting and vote of
stockholders can be dispensed with: (1) if all of the stockholders who would
have been entitled to vote upon the action if such meeting were held shall
consent in writing to such corporate action being taken; or (2) unless the
Certificate of Incorporation provides otherwise, with the written consent of the
holders of not less than the minimum percentage of the total vote required by
statute for the proposed corporate action, and provided that prompt notice must
be given to all stockholders not signing such written consent of the taking of
corporate action without a meeting and by less than unanimous written consent.
ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the Corporation
shall be managed by the Board of Directors. The Board of Directors may exercise
all such authority and powers of the Corporation and do all such lawful acts and
things as are not by statute or the Certificate of Incorporation directed or
required to be exercised or done by the stockholders.
Section 2. Number, Qualifications, Election, and Term of Office. The
number of directors of the Corporation shall be four (4), but, by vote of a
majority of the entire Board or amendment of these By-Laws, the number thereof
may be increased or decreased as may be so provided, subject to the provisions
of Section 11 of this Article II. All of the directors shall be of full age.
Directors need not be stockholders. Except as otherwise provided by statute or
these By-Laws, the directors shall be elected at the annual meeting of the
stockholders for the election of
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directors at which a quorum is present, and the persons receiving a plurality of
the votes cast at such election shall be elected. Each director shall hold
office until the next annual meeting of the stockholders and until his successor
shall have been duly elected and qualified or until his death, or until he shall
have resigned, or have been removed, as hereinafter provided in these By-Laws,
or as otherwise provided by statute or the Certificate of Incorporation.
Section 3. Place of Meeting. Meetings of the Board of Directors may be
held at such place, within or without the State of Delaware, as the Board of
Directors may from time to time determine or shall be specified in the notice or
waiver of notice of such meeting.
Section 4. First Meeting. The Board of Directors shall meet for the
purpose of organization, the election of officers, and the transaction of other
business, as soon as practicable after each annual meeting of the stockholders,
on the same day and at the same place where such annual meeting shall be held.
Notice of such meeting need not be given. Such meeting may be held at any other
time or place (within or without the State of Delaware) which shall be specified
in a notice thereof given as hereinafter provided in Section 7 of this Article
II.
Section 5. Regular Meetings. Regular meetings of the Board of Directors
shall be held quarterly at such place as the Board of Directors may from time to
time determine. If any day fixed for a regular meeting shall be a legal holiday
at the place where the meeting is to be held, then the meeting which would
otherwise be held on that day shall be held at the same hour on the next
succeeding business day. Notice of regular meetings of the Board of Directors
need not be given except as otherwise required by statute or these By-Laws.
Section 6. Special Meetings. Special meetings of the Board of Directors
may be called by one or more directors of the Corporation or by the President.
Section 7. Notice of Meetings. Notice of each special meeting of the
Board of Directors (and of each regular meeting for which notice shall be
required) shall be given by the Secretary as hereinafter provided in this
Section 7, in which notice shall be stated the time and place of the meeting.
Notice of each such meeting shall be delivered to each director either
personally or by telephone, telegraph cable or wireless, at least twenty-four
hours before the time at which such meeting is to be held or by first-class
mail, postage prepaid, addressed to him at his residence, or usual place of
business, at least three days before the day on which such meeting is to be
held. Notice of any such meeting need not be given to any director who shall,
either before or after the meeting, submit a signed waiver of notice or who
shall attend such meeting without protesting, prior to or at its commencement,
the lack of notice to him. Except as otherwise specifically required by these
By-Laws, a notice or waiver of notice of any regular or special meeting need not
state the purpose of such meeting.
Section 8. Quorum and Manner of Acting. A majority of the entire Board
of Directors shall be present in person at any meeting of the Board of Directors
in order to constitute a quorum for the transaction of business at such meeting,
and, except as otherwise expressly required by statute or the Certificate of
Incorporation, the act of a majority of the directors present at any meeting at
which a quorum is present shall be the act of the Board of Directors. In the
absence of a quorum at any meeting of the Board of Directors, a majority of the
directors present thereat, or if no director
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be present, the Secretary, may adjourn such meeting to another time and place,
or such meeting, unless it be the first meeting of Board of Directors, need not
be held. At any adjourned meeting at which a quorum is present, any business may
be transacted which might have been transacted at the meeting as originally
called. Except as provided in Article III of these By-Laws, the directors shall
act only as a Board and the individual directors shall have no power as such.
Section 9. Organization. At each meeting of the Board of Directors, the
President, or, in his absence or inability to act, another director chosen by a
majority of the directors present shall act as chairman of the meeting and
preside thereat. The Secretary (or, in his absence or inability to act, any
person appointed by the chairman) shall act as secretary of the meeting and keep
the minutes thereof.
Section 10. Resignations. Any director of the Corporation may resign at
any time by giving written notice of his resignation to the Board of Directors
or the President or the Secretary. Any such resignation shall take effect at the
time specified therein or, if the time when it shall become effective shall not
be specified therein, immediately upon its receipt; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 11. Vacancies. Vacancies may be filled by a majority of the
directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are not directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole Board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or holders of at least ten percent of the votes
of the shares at the time outstanding having the right to vote for such
directors, summarily order an election to be held to fill any such vacancies or
newly created directorships, or to replace the directors chosen by the directors
then in office. Except as otherwise provided in these By-Laws, when one or more
directors shall resign from the Board of Directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have the power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
section in the filling of other vacancies.
Section 12. Removal of Directors. Except as otherwise provided in the
Certificate of Incorporation or in these By-Laws, any director my be removed,
either with or without cause, at any time, by the affirmative vote of a majority
of the votes of the issued and outstanding stock entitled to vote for the
election of directors of the Corporation given at a special meeting of the
stockholders called and held for the purpose; and the vacancy in the Board of
Directors caused by an such removal may be filled by such stockholders at such
meeting, or, if the stockholders shall fail to fill such vacancy, as in these
By-Laws provided.
Section 13. Compensation. The Board of Directors shall have authority
to fix the compensation, including fees and reimbursement of expenses, of
directors for services to the Corporation in any capacity, provided no such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
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Section 14. Action Without Meeting. Any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
ARTICLE III
OFFICERS
Section 1. Number and Qualifications. The officers of the Corporation
shall be the President, Secretary, and Treasurer. Any two or more offices may be
held by the same person. Such officers shall be elected from time to time by the
Board of Directors, each to hold office until the meeting of the Board of
Directors following the next annual meeting of the stockholders, or until his
successor shall have been duly elected and shall have qualified, or until his
death, or until he shall have resigned, or have been removed, as hereinafter
provided in these By-Laws. The Board of Directors may from time to time elect,
or the President may appoint, such other officers (including one or more
Assistant Vice Presidents, Assistant Secretaries, and Assistant Treasurers), and
such agents, as may be necessary or desirable for the business of the
Corporation. Such other officers and agents shall have such duties and shall
hold their offices for such terms as may be prescribed by the Board of Directors
or by the appointing authority.
Section 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of his resignation to the Board of Directors,
the President or the Secretary. Any such resignation shall take effect at the
time specified therein or, if the time when it shall become effective shall not
be specified therein, immediately upon its receipt; and unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 3. Removal. Any officer or agent of the Corporation may be
removed, either with or without cause, at any time, by the vote of the majority
of the entire Board of Directors at any meeting of the Board of Directors, or,
except in the case of an officer or agent elected or appointed by the Board of
Directors, by the President. Such removal shall be without prejudice to the
contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office, whether arising from
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment of such
office.
Section 5. Officers' Bonds or Other Security. If required by the Board
of Directors, any officer of the Corporation shall give a bond or other security
for the faithful performance of his duties, in such amount and with such surety
or sureties as the Board of Directors may require.
Section 6. Compensation. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to time
by the Board of Directors; provided, however, that the Board of Directors may
delegate to the President the power to fix the compensation of officers and
agents appointed by the President. An officer of the Corporation shall not be
-6-
prevented from receiving compensation by reason of the fact that he is also a
director of the Corporation.
Section 7. President. The President shall be the Chief Executive
Officer of the Corporation and shall have the general and active management of
the business of the Corporation and general and active supervision and direction
over the other officers, agents and employees and shall see that their duties
are properly performed. He shall, if present, preside at each meeting of the
stockholders and of the Board of Directors and shall be an ex-officio member of
all committees of the Board of Directors. He shall perform all duties incident
to the office of President and Chief Executive Officer and such other duties as
may from time to time be assigned to him by the Board of Directors.
Section 8. Secretary. The Secretary shall:
(a) Keep or cause to be kept in one or more books provided for
that purpose, the minutes of the meetings of the Board of Directors, the
committees of the Board of Directors and the stockholders;
(b) See that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) Be custodian of the records and the seal of the
Corporation and affix and attest the seal to all stock certificates of the
Corporation (unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all other
documents to be executed on behalf of the Corporation under its seal;
(d) See that the books, reports, statements, certificates and
other documents and records required by law to be kept and filed are properly
kept and filed; and
(e) In general, perform all the duties incident to the office
of Secretary and such other duties as from time to time may be assigned to him
by the Board of Directors or the President.
Section 9. Treasurer. The Treasurer shall be the chief financial
officer of the Corporation and shall exercise general supervision over the
receipt, custody, and disbursements of Corporate funds. He shall have such
further powers and duties as may be conferred upon him from time to time by the
President or the Board of Directors.
ARTICLE IV
INDEMNIFICATION
The Corporation, by action of the Board of Directors, may, to the
fullest extent permitted by the General Corporation Law of Delaware, indemnify
any and all persons who it shall have power to indemnify against any and all of
the expenses, liabilities or other matters.
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ARTICLE V
FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of
January of each year and end on the last day of December of each year.
ARTICLE VI
SEAL
The Board of Directors shall provide a corporate seal, which shall be
in the form of the name of the Corporation and the words and figures "Corporate
Seal 1995, Delaware".
These By-Laws may be amended or repealed, or new By-Laws may be
adopted, (1) at any annual or special meeting of the stockholders, by a majority
of the total votes of the stockholders, present or in person or represented by
proxy and entitled to vote on such action; provided, however, that the notice of
such meeting shall have been given as provided in these By-Laws, which notice
shall mention that amendment or repeal of these By-Laws, or the adoption of new
By-Laws, is one of the purposes of such meeting; (2) by written consent of the
stockholders pursuant to Section 11 of Article I; or (3) by action of the Board
of Directors.
I, the undersigned, Secretary of the Corporation, do hereby certify
that the foregoing is a true complete, and accurate copy of the By-Laws of
WebSecure, Inc., duly adopted by unanimous written consent of the Board of
Directors and I do further certify that these By-Laws have not since been
altered, amended, repealed, or rescinded and are now in full force and effect.
_______________________________
Harry G. Mitchell
Secretary
BY-LAWS OF
NETSAFE, INC.
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Annual Meeting. The annual meeting of the stockholders of
Netsafe, Inc. (the "Corporation") for the election of directors and for the
transaction of such other business as may come before the meeting shall be on
such date and at such time as shall be designated by the Board of Directors.
Section 2. Special Meetings. Special meetings of the stockholders, unless
otherwise prescribed by statute, may be called at any time by the Board or the
President and shall be called by the President or Secretary at the request in
writing of stockholders of record owning at least fifty percentum of the shares
of stock of the Corporation outstanding and entitled to vote.
Section 3. Notice of Meetings. Notice of the place, date and time of the
holding of each annual and special meeting of the stockholders and, in the case
of a special meeting, the purpose or purposes thereof, shall be given personally
or by mail in a postage prepaid envelope to each stockholder entitled to vote at
such meeting, not less than ten nor more than sixty days before the date of such
meeting, and, if mailed, shall be directed to such stockholder at his address as
it appears on the records of the Corporation, unless he shall have filed with
the Secretary of the Corporation a written request that notices to him be mailed
to some other address, in which case it shall be directed to him at such other
address. Notice of any meeting of stockholders shall not be required to be given
to any stockholder who shall attend such meeting in person or by proxy and shall
not, at the beginning of such meeting, object to the transaction of any business
because the meeting is not lawfully called or convened, or who shall, either
before or after the meeting, submit a signed waiver of notice, in person or by
proxy. Unless the Board of Directors shall fix, after the adjournment, a new
record date for an adjourned meeting, notice of such adjourned meeting need not
be given if the time and place to which the meeting shall be adjourned were
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the Corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
Section 4. Place of Meetings. Meetings of the stockholders may be held at
such place, within or without the State of Delaware,
1
as the Board of Directors or the officer calling the same shall specify in the
notice of such meeting, or in a duly executed waiver of notice thereof.
Section 5. Quorum. At all meetings of the stockholders the holders of a
majority of the votes of the shares of stock of the Corporation issued and
outstanding and entitled to vote shall be present in person or by proxy to
constitute a quorum for the transaction of any business, except when
stockholders are required to vote by class, in which event a majority of the
issued and outstanding shares of the appropriate class shall be present in
person or by proxy, or except as otherwise provided by statute or in the
Certificate of Incorporation. In the absence of a quorum, the holders of a
majority of the shares of stock present in person or by proxy and entitled to
vote, or if no stockholder entitled to vote is present, then any officer of the
Corporation may adjourn the meeting from time to time. At any such adjourned
meeting at which a quorum may be present any business may be transacted which
might have been transacted at the meeting as originally called.
Section 6. Organization. At each meeting of the stockholders, the
President, or in his absence or inability to act, any person chosen by a
majority of those stockholders present, in person or by proxy and entitled to
vote, shall act as chairman of the meeting. The Secretary, or in his absence or
inability to act, any person appointed by the chairman of the meeting, shall act
as secretary of the meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at all meetings of the
stockholders shall be as determined by the chairman of the meeting.
Section 8. Voting. Except as otherwise provided by statute, by the
Certificate of Incorporation, or by any certificate duly filed in the State of
Delaware pursuant to Section 151 of the Delaware General Corporation Law, each
holder of record of shares of stock of the Corporation having voting power shall
be entitled at each meeting of the stockholders to one vote for every share of
such stock standing in his name on the record of stockholders of the Corporation
on the date fixed by the Board of Directors as the record date for the
determination of the stockholders who shall be entitled to notice of and to vote
at such meeting; or if such record date shall not have been so fixed, then at
the close of business on the day next preceding the date on which notice thereof
shall be given, or if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; or each stockholder entitled to
vote at any meeting of stockholders may authorize another person or persons to
act for him by a proxy signed by such stockholder or his attorney-in-fact. Any
such proxy shall be delivered to the secretary of such meeting at or prior to
the time designated in the order of business for so delivering such proxies. No
proxy shall be valid after the expiration of three
2
years from the date thereof, unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the stockholder executing it, except in
those cases where an irrevocable proxy is permitted by law. Except as otherwise
provided by statute, these by-laws, or the Certificate of Incorporation, any
corporate action to be taken by vote of the stockholders shall be authorized by
a majority of the total votes, or when stockholders are required to vote by
class by a majority of the votes of the appropriate class, cast at a meeting of
stockholders by the holders of shares present in person or represented by proxy
and entitled to vote on such action. Unless required by statute, or determined
by the chairman of the meeting to be advisable, the vote on any question need
not be by written ballot. On a vote by written ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
Section 9. List of Stockholders. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 10. Inspectors. The Board of Directors may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If the inspectors shall not be so appointed or if
any of them fail to appear or act, the chairman of the meeting may, and on the
request of any stockholder entitled to vote thereat shall appoint inspectors.
Each inspector, before entering upon the discharge of his duties, shall take and
sign an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine, in number of shares represented at the meeting, the existence
of a quorum, the validity and effect of proxies, and shall receive votes,
ballots or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the chairman
of the meeting of any stockholder entitled to vote thereat, the inspectors shall
make a report in writing of any
3
challenge, request or matter determined by them and shall execute a certificate
of any fact found by them. No director or candidate for the office of director
shall act as inspector of an election of directors. Inspectors need not be
stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting. Whenever the vote
of stockholders at a meeting thereof is required or permitted to be taken for or
in connection with any corporate action, the meeting and vote of stockholders
can be dispensed with: (1) if all of the stockholders who would have been
entitled to vote upon the action if such meeting were held shall consent in
writing to such corporate action being taken; or (2) unless the Certificate of
Incorporation provides otherwise, with the written consent of the holders of not
less than the minimum percentage of the total vote required by statute for the
proposed corporate action, and provided that prompt notice must be given to all
stockholders not signing such written consent of the taking of corporate action
without a meeting and by less than unanimous written consent.
ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the Corporation
shall be managed by the Board of Directors. The Board of Directors may exercise
all such authority and powers of the Corporation and do all such lawful acts and
things as are not by statute or the Certificate of Incorporation directed or
required to be exercised or done by the stockholders.
Section 2. Number. Qualifications. Election and Term of Office. The number
of directors of the Corporation shall be four (4), but, by vote of a majority of
the entire Board or amendment of these By-Laws, the number thereof may be
increased or decreased as may be so provided, subject to the provisions of
Section 11 of this Article II. All of the directors shall be of full age.
Directors need not be stockholders. Except as otherwise provided by statute or
these By-Laws, the directors shall be elected at the annual meeting of the
stockholders for the election of directors at which a quorum is present, and the
persons receiving a plurality of the votes cast at such election shall be
elected. Each director shall hold office until the next annual meeting of the
stockholders and until his successor shall have been duly elected and qualified
or until his death, or until he shall have resigned, or have been removed, as
hereinafter provided in these By-Laws, or as otherwise provided by statute or
the Certificate of Incorporation.
Section 3. Place of Meeting. Meetings of the Board of Directors may be held
at such place, within or without the State of Delaware, as the Board of
Directors may from time to time determine or shall be specified in the notice or
waiver of notice of such meeting.
4
Section 4. First Meeting. The Board of Directors shall meet for the purpose
of organization, the election of officers, and the transaction of other
business, as soon as practicable after each annual meeting of the stockholders,
on the same day and at the same place where such annual meeting shall be held.
Notice of such meeting need not be given. Such meeting may be held at any other
time or place (within or without the State of Delaware) which shall be specified
in a notice thereof given as hereinafter provided in Section 7 of this Article
II.
Section 5. Regular Meetings. Regular meetings of the Board of Directors
shall be held quarterly at such place as the Board of Directors may from time to
time determine. If any day fixed for a regular meeting shall be a legal holiday
at the place where the meeting is to be held, then the meeting which would
otherwise be held on that day shall be held at the same hour on the next
succeeding business day. Notice of regular meetings of the Board of Directors
need not be given except as otherwise required by statute or these By-Laws.
Section 6. Special Meetings. Special meetings of the Board of Directors may
be called by one or more directors of the Corporation or by the President.
Section 7. Notice of Meetings. Notice of each special meeting of the Board
of Directors (and of each regular meeting for which notice shall be required)
shall be given by the Secretary as hereinafter provided in this Section 7, in
which notice shall be stated the time and place of the meeting. Notice of each
such meeting shall be delivered to each director either personally or by
telephone, telegraph cable or wireless, at least twenty-four hours before the
time at which such meeting is to be held or by first class mail, postage
prepaid, addressed to him at his residence, or usual place of business, at least
three days before the day on which such meeting is to be held. Notice of any
such meeting need not be given to any director who shall, either before or after
the meeting, submit a signed waiver of notice or who shall attend such meeting
without protesting, prior to or at its commencement, the lack of notice to him.
Except as otherwise specifically required by these By-Laws, a notice or waiver
of notice of any regular or special meeting need not state the purpose of such
meeting.
Section 8. Quorum and Manner of Acting. A majority of the entire Board of
Directors shall be present in person at any meeting of the Board of Directors in
order to constitute a quorum for the transaction of business at such meeting,
and, except as otherwise expressly required by statute or the Certificate of
Incorporation, the act of a majority of the directors present at any meeting at
which a quorum is present shall be the act of the Board of Directors. In the
absence of a quorum at any meeting of the Board of Directors, a majority of the
directors present thereat, or if no director be present, the Secretary, may
adjourn such meeting to
5
another time and place, or such meeting, unless it be the first meeting of the
Board of Directors, need not be held. At any adjourned meeting at which a quorum
is present, any business may be transacted which might have been transacted at
the meeting as originally called. Except as provided in Article III of these
ByLaws, the directors shall act only as a Board and the individual directors
shall have no power as such.
Section 9. Organization. At each meeting of the Board of Directors, the
President, or, in his absence or inability to act, another director chosen by a
majority of the directors present shall act as chairman of the meeting and
preside thereat. The Secretary (or, in his absence or inability to act, any
person appointed by the chairman) shall act as secretary of the meeting and keep
the minutes thereof.
Section 10. Resignations. Any director of the Corporation may resign at any
time by giving written notice of his resignation to the Board of Directors or
the President or the Secretary. Any such resignation shall take effect at the
time specified therein or, if the time when it shall become effective shall not
be specified therein, immediately upon its receipt; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 11. Vacancies. Vacancies may be filled by a majority of the
directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole Board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or holders of at least ten percent of the votes
of the shares at the time outstanding having the right to vote for such
directors, summarily order an election to be held to fill any such vacancies or
newly created directorships, or to replace the directors chosen by the directors
then in office. Except as otherwise provided in these By-Laws, when one or more
directors shall resign from the Board of Directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have the power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
section in the filling of other vacancies.
Section 12. Removal of Directors. Except as otherwise provided in the
Certificate of Incorporation or in these By-Laws,
6
any director may be removed, either with or without cause, at any time, by the
affirmative vote of a majority of the votes of the issued and outstanding stock
entitled to vote for the election of directors of the Corporation given at a
special meeting of the stockholders called and held for the purpose; and the
vacancy in the Board of Directors caused by any such removal may be filled by
such stockholders at such meeting, or, if the stockholders shall fail to fill
such vacancy, as in these By-Laws provided.
Section 13. Compensation. The Board of Directors shall have authority to
fix the compensation, including fees and reimbursement of expenses, of directors
for services to the Corporation in any capacity, provided no such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
Section 14. Action Without Meeting Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
ARTICLE III
OFFICERS
Section 1. Number and Qualifications. The officers of the Corporation shall
be the President, Secretary, and Treasurer. Any two or more offices may be held
by the same person. Such officers shall be elected from time to time by the
Board of Directors, each to hold office until the meeting of the Board of
Directors following the next annual meeting of the stockholders, or until his
successor shall have been duly elected and shall have qualified, or until his
death, or until he shall have resigned, or have been removed, as hereinafter
provided in these By-Laws. The Board of Directors may from time to time elect,
or the President may appoint, such other officers (including one or more
Assistant Vice Presidents, Assistant Secretaries, and Assistant Treasurers), and
such agents, as may be necessary or desirable for the business of the
Corporation. Such other officers and agents shall have such duties and shall
hold their offices for such terms as may be prescribed by the Board of Directors
or by the appointing authority.
Section 2. Resignations. Any officer of the Corporation may resign at any
time by giving written notice of his resignation to the Board of Directors, the
President or the Secretary. Any such resignation shall take effect at the time
specified therein or, if the time when it shall become effective shall not be
specified therein, immediately upon its receipt; and unless otherwise
7
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 3. Removal. Any officer or agent of the Corporation may be removed,
either with or without cause, at any time, by the vote of the majority of the
entire Board of Directors at any meeting of the Board of Directors, or, except
in the case of an officer or agent elected or appointed by the Board of
Directors, by the President. Such removal shall be without prejudice to the
contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office, whether arising from death,
resignation, removal or any other cause, may be filled for the unexpired portion
of the term of the office which shall be vacant, in the manner prescribed in
these By-Laws for the regular election or appointment of such office.
Section S. Officers' Bonds or Other Security. If required by the Board of
Directors, any officer of the Corporation shall give a bond or other security
for the faithful performance of his duties, in such amount and with such surety
or sureties as the Board of Directors may require.
Section 6. Compensation. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to time
by the Board of Directors; provided, however, that the Board of Directors may
delegate to the President the power to fix the compensation of officers and
agents appointed by the President. An officer of the Corporation shall not be
prevented from receiving compensation by reason of the fact that he is also a
director of the Corporation.
Section 7. President. The President shall be the Chief Executive Officer of
the Corporation and shall have the general and active management of the business
of the Corporation and general and active supervision and direction over the
other officers, agents and employees and shall see that their duties are
properly performed. He shall, if present, preside at each meeting of the
stockholders and of the Board of Directors and shall be an exofficio member of
all committees of the Board of Directors. He shall perform all duties incident
to the office of President and Chief Executive Officer and such other duties as
may from time to time be assigned to him by the Board of Directors.
Section 8. Secretary. The Secretary shall:
(a) Keep or cause to be kept in one or more books provided for that
purpose, the minutes of the meetings of the Board of Directors, the committees
of the Board of Directors and the stockholders;
8
(b) See that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) Be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation (unless
the seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal;
(d) See that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and
(e) In general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board of Directors or the President.
Section 9. Treasurer. The Treasurer shall be the chief financial officer of
the Corporation and shall exercise general supervision over the receipt,
custody, and disbursements of Corporate funds. He shall have such further powers
and duties as may be conferred upon him from time to time by the President or
the Board of Directors.
ARTICLE IV
INDEMNIFICATION
The Corporation, by action of the Board of Directors, may, to the fullest
extent permitted by the General Corporation Law of Delaware, indemnify any and
all persons who it shall have power to indemnify against any and all of the
expenses, liabilities or other matters.
ARTICLE V
FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of January
of each year and end on the last day of December of each year.
ARTICLE VI
SEAL
The Board of Directors shall provide a corporate seal, which shall be in
the form of the name of the Corporation and the words and figures "Corporate
Seal 1995, Delaware".
9
ARTICLE VII
AMENDMENTS
These By-Laws may be amended or repealed, or new By-Laws may be adopted,
(1) at any annual or special meeting of the stockholders, by a majority of the
total votes of the stockholders, present or in person or represented by proxy
and entitled to vote on such action; provided, however, that the notice of such
meeting shall have been given as provided in these By-Laws, which notice shall
mention that amendment or repeal of these By-Laws, or the adoption of new
By-Laws, is one of the purposes of such meeting; (2) by written consent of the
stockholders pursuant to Section 11 of Article I; or (3) by action of the Board
of Directors.
I, the undersigned, Secretary of the Corporation, do hereby certify that
the foregoing is a true, complete, and accurate copy of the By-laws of Netsafe,
Inc., duly adopted by unanimous written consent of the Board of Directors and I
do further certify that these By-laws have not since been altered, amended,
repealed, or rescinded, and are now in full force and effect.
/s/Harry G. Mitchell
------------------------
Harry G. Mitchell
Secretary
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER ("Merger Agreement"), dated as of June 14,
1996 is between WebSecure, Ltd., a Massachusetts corporation ("WebSecure of
Massachusetts") and WebSecure, Inc., Delaware corporation ("WebSecure of
Delaware"). WebSecure of Massachusetts and WebSecure of Delaware are hereafter
sometimes collectively referred to as the "Constituent Corporation."
WHEREAS, WebSecure of Massachusetts is a corporation duly organized and
existing under the laws of the Commonwealth of Massachusetts;
WHEREAS, WebSecure of Delaware is a corporation duly organized and
existing under the laws of the State of Delaware;
WHEREAS, on the date of this Merger Agreement, WebSecure of
Massachusetts has authority to issue two hundred thousand (200,000) shares of
Common Stock, $.01 par value per share, two hundred thousand (200,000) shares of
which are issued and outstanding;
WHEREAS, on the date of this Merger Agreement, WebSecure of Delaware
has authority to issue twenty two million (22,000,000) shares of Common Stock,
$.01 par value per share ("WebSecure of Delaware Common Stock"), of which
1,163,750 shares are issued and outstanding, and of which two million
(2,000,000) shares are Class B Common Stock, $.01 par value per share, of which
one million (1,000,000) shares are issued and outstanding, and one million
(1,000,000) shares of Preferred Stock, of which no shares are issued and
outstanding;
WHEREAS, the respective Boards of Directors of WebSecure of
Massachusetts and WebSecure of Delaware have determined that it is advisable and
in the best interests of each of such corporations to merge in a tax-free
reorganization with and into WebSecure of Delaware upon the terms and subject to
the conditions of this Merger Agreement; and
WHEREAS, the respective Boards of Directors of WebSecure of
Massachusetts and WebSecure of Delaware have, by resolutions duly adopted,
approved this Merger Agreement, and the shareholders of WebSecure of
Massachusetts have duly approved this Merger Agreement, by unanimous written
consent dated March 26, 1996 and the shareholders of WebSecure of Delaware have,
by majority consent dated March 26, 1996, duly approved this Merger Agreement;
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, WebSecure of Massachusetts and WebSecure of Delaware hereby
agree as follows:
1. Merger. WebSecure of Massachusetts will be merged with and into
WebSecure of Delaware (the "Merger"), and WebSecure of Delaware shall be the
surviving corporation (hereinafter sometimes referred to as the "Surviving
Corporation"). The merger shall become effective upon the time and date of
filing of such documents as may be required under applicable law ("Effective
Time").
2. Governing Documents. The Certificate of Incorporation and the Bylaws
of WebSecure of Delaware as in effect immediately prior to the Effective Time,
shall be the Certificate of Incorporation and the Bylaws of the Surviving
Corporation without change or amendment until thereafter amended in accordance
with the provisions thereof and applicable laws.
3. Succession. At the Effective Time, the separate corporate existence
of WebSecure of Massachusetts shall cease, and WebSecure of Delaware shall
possess all the rights, privileges, powers and franchises of a public and
private nature and be subject to all the restrictions, disabilities and duties
of WebSecure of Massachusetts; and all and singular, the rights, privileges,
powers and franchises of WebSecure of Massachusetts and all property, real,
personal and mixed, and all debts due to WebSecure of Massachusetts on whatever
account, as well as for share subscriptions and all other things in action or
belonging to WebSecure of Massachusetts shall be vested in the Surviving
Corporation; and all property, rights, privileges, powers and franchises, and
all and every other interest shall be thereafter as effectually the property of
the Surviving Corporation as they were of WebSecure of Massachusetts, and the
title to any real estate vested by deed or otherwise, under the laws of the
State of Delaware, in WebSecure of Massachusetts shall not revert or be in any
way impaired by reason of the General Corporation Law of the State of Delaware;
but all rights of creditors and all liens upon any property of WebSecure of
Massachusetts shall be preserved unimpaired; and all debts, liabilities and
duties of WebSecure of Massachusetts shall thenceforth attach to the Surviving
Corporation and may be enforced against it to the same extent as if such debts,
liabilities and duties had been incurred or contracted by it. All corporate
acts, plans, policies, agreements, arrangements, approvals and authorizations of
WebSecure of Massachusetts, its shareholders, Board of Directors and committees
thereof, officers and agents which were valid and effective immediately prior to
the Effective Time, shall be taken for all purposes as the acts, plans,
policies, agreements, arrangements, approvals and authorizations of WebSecure of
Delaware and shall be as effective and binding thereon as the same were with
respect to WebSecure of Massachusetts.
4. Further Assurances. From time to time, as and when required by
WebSecure of Delaware or by its successors and assigns, there shall be executed
and delivered on behalf of WebSecure of Massachusetts such deeds and other
instruments, and there shall be taken or caused to be taken by it all such
further and other action, as shall be appropriate or necessary in order to vest,
perfect or confirm, of record or otherwise, in WebSecure of Delaware the title
to and possession of all property, interest, assets, rights, privileges,
immunities, powers, franchises and authority of WebSecure of Massachusetts and
otherwise to carry out the purposes of this Merger Agreement, and the officers
and directors of WebSecure of Delaware are fully authorized in the name and on
behalf of WebSecure of Massachusetts to take any and all such action and to
execute and deliver any and all deeds and other instruments.
5. Conversion of Shares. At the Effective Time, by virtue of the Merger
and without any action on the part of the holder thereof:
(a) Each of the 200,000 shares of WebSecure of Massachusetts Common
Stock issued and outstanding immediately prior to the Effective Time
shall be cancelled;
-2-
-3-
(b) Each of the shares of WebSecure of Delaware Common Stock issued
and outstanding prior to the Merger shall remain issued and outstanding
as shares of WebSecure of Delaware.
6. Stock Certificates. At and after the Effective Time, all of the
outstanding certificates which immediately prior to the Effective Time
represented shares of WebSecure of Massachusetts Common Stock shall be presented
to WebSecure of Delaware to be cancelled. All certificates representing shares
of WebSecure of Delaware outstanding immediately prior to the Effective Time
shall remain issued and outstanding following the Effective Time and the
registered holders of WebSecure of Delaware for all purposes.
7. Employee Benefit Plans. As of the Effective Time, WebSecure of
Delaware hereby assumes all obligations of WebSecure of Massachusetts under all
employee benefit plans in effect, if any, as of the Effective Time or with
respect to which employee rights or accrued benefits are outstanding, if any, as
of the Effective Time.
8. Amendment. Subject to applicable law, this Merger Agreement may be
amended, modified or supplemented by written agreement of the parties hereto at
any time prior to the Effective Time with respect to any of the terms contained
herein.
9. Abandonment. At any time prior to the Effective Time, this Merger
Agreement may be terminated and the Merger may be abandoned by the Board of
Directors of either of WebSecure of Massachusetts or WebSecure of Delaware, or
either of them, notwithstanding approval of this Merger Agreement by the
stockholders of any of said corporations if circumstances arise which, in the
opinion of the Board of Directors of WebSecure of Massachusetts or WebSecure of
Delaware make the Merger inadvisable.
10. Counterparts. In order to facilitate the filing and recording of
this Merger Agreement, the same may be executed in two or more counterparts,
each of which shall be deemed to be an original and the same agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
-4-
IN WITNESS WHEREOF, WebSecure of Massachusetts and WebSecure of
Delaware have caused this Merger Agreement to be signed by their respective duly
authorized officers as of the date first above written.
WebSecure, Ltd.
a Massachusetts corporation
By:
-------------------------------
Robert Kuzara, President
WITNESS:
- -----------------------------------
Andrew D. Myers, Assistant Clerk
WebSecure, Inc.
a Delaware corporation
By:
---------------------------------
Robert Kuzara, President
WITNESS:
- ------------------------------------
Andrew D. Myers, Assistant Secretary
-5-
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION STATEMENT AS TO SUCH
SECURITIES FILED UNDER THE ACT, OR AN EXEMPTION FROM REGISTRATION, AND
COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS. THE ISSUER MAY REQUIRE AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER HEREOF THAT SUCH REGISTRATION IS
NOT REQUIRED AND THAT SUCH LAWS ARE COMPLIED WITH.
VOID AFTER 3:30 P.M., EASTERN TIME, ON , 2001.
REPRESENTATIVE'S
WARRANT TO PURCHASE
COMMON STOCK AND REDEEMABLE WARRANTS
WEBSECURE, INC.
This is to Certify That, FOR VALUE RECEIVED, Coburn & Meredith, Inc. (the
"Holder") is entitled to purchase, subject to the provisions of this Warrant,
from WebSecure, Inc. ("Company"), a Delaware corporation, at any time on or
after __________, 1997, and not later than 3:30 p.m., Eastern Time, on ________,
2001, _______ shares of Common Stock and _________ Redeemable Warrants of the
Company ("Securities") exercisable at a purchase price for the Securities which
is 130% of the public offering price and in the case of the shares of Common
Stock, at $_____ per share and, in the case of the Redeemable Warrants, at
$_____ per Redeemable Warrant .The number of Securities to be received upon the
exercise of this Warrant and the price to be paid for the Securities may be
adjusted from time to time as hereinafter set forth. The purchase price of a
Security in effect at any time and as adjusted from time to time is hereinafter
sometimes referred to as the "Exercise Price." This Warrant is or may be one of
a series of Warrants identical in form issued by the Company to purchase an
aggregate of 100,000 Shares of Common Stock and 100,000 Redeemable Warrants. The
Securities, as adjusted from time to time, underlying the Warrants are
hereinafter sometimes referred to as "Warrant Securities". The Securities
issuable upon the exercise hereof are in all respects identical to the
securities being purchased by the Underwriter for resale to the public pursuant
to the terms and conditions of the Underwriting Agreement entered into on this
date between the Company and Holder, except that the Exercise Price per share of
Common Stock to be acquired upon the exercise of the Redeemable Warrants
issuable to Holder pursuant hereto shall be $________ per share.
(a) Exercise of Warrant. Subject to the provisions of Section (g) hereof, this
Warrant may be exercised in whole or in part at anytime or from time to time on
or after __________, 1997, but not later than 3:30 p.m., Eastern Time on
_________, 2001, or if ________, 2001, is a day on which banking institutions
are authorized by law to close, then on the next succeeding day which shall not
be such a day, by presentation and surrender hereof to the Company or at the
office of its stock transfer agent, if any, with the Purchase Form annexed
hereto duly executed and accompanied by payment of the Exercise Price for the
number of shares of Common Stock or Redeemable Warrants, as the case may be as
specified in such Form, together with all federal and state taxes applicable
upon such exercise. The Company agrees to provide notice to the Holder that any
tender offer is being made for the Securities no later than the day the Company
becomes aware that any tender offer is being made for the Securities. If this
Warrant should be exercised in part only, the Company shall, upon surrender of
this Warrant for cancellation, execute and deliver a new Warrant evidencing the
right of the Holder to purchase the balance of the shares purchasable
hereunder along with any additional Redeemable Warrants not exercised. Upon
receipt by the Company of this Warrant at the office of the Company or at the
office of the Company's stock transfer agent, in proper form for exercise and
accompanied by the total Exercise Price, the Holder shall be deemed to be the
holder of record of the Securities issuable upon such exercise, notwithstanding
that the stock transfer books of the Company shall then be closed or that
certificates representing such Securities shall not then be actually delivered
to the Holder.
(b) Reservation of Securities. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of shares of Securities as shall be required for issuance or
delivery upon exercise of this Warrant. The Company covenants and agrees that,
upon exercise of the Warrants and payment of the Exercise Price therefor, all
Securities and other securities issuable upon such exercise shall be duly and
validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder. As long as the Warrants shall be outstanding, the
Company shall use its best efforts to cause all Securities issuable upon the
exercise of the Warrants to be listed (subject to official notice of issuance)
on all securities exchanges on which the Common Stock issued to the public in
connection herewith may then be listed and/or quoted on NASDAQ.
(c) Fractional Shares. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant. With respect to any
fraction of a share called for upon any exercise hereof, the Company shall pay
to the Holder an amount in cash equal to such fraction multiplied by the current
market value of such fractional share, determined as follows:
(1) If the Securities are listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange, the current value
shall be the last reported sale price of the Common Stock on such exchange on
the last business day prior to the date of exercise of this Warrant or if no
such sale is made on such day, the average of the closing bid and asked prices
for such day on such exchange; or
(2) If the Securities are not so listed or admitted to unlisted trading
privileges, the current value shall be the mean of the last reported bid and
asked prices reported by the National Association of Securities Dealers
Automated Quotation System (or, if not so quoted on NASDAQ or by the National
Quotation Bureau, Inc.) on the last business day prior to the date of the
exercise of this Warrant; or
(3) If the Securities are not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the current value shall
be an amount, not less than book value, determined in such reasonable manner as
may be prescribed by the Board of Directors of the Company, such determination
to be final and binding on the Holder.
(d) Exchange, Assignment or Loss of Warrant. This Warrant is exchangeable,
without expense, at the option of the Holder, upon presentation and surrender
hereof to the Company or at the office of its stock transfer agent, if any, for
other Warrants of different denominations entitling the Holder thereof to
purchase (under the same terms and conditions as provided by this Warrant) in
the aggregate the same number of Securities purchasable hereunder. This Warrant
may not be sold, transferred, assigned, or hypothecated until after one year
from the effective date of the registration statement except that it may be (i)
assigned in whole or in part to the officers of the "Underwriter(s)", and
(ii)transferred to any successor to the business of the "Underwriter(s)." Any
such assignment shall be made by surrender of this Warrant to the Company, or at
the office of its stock transfer agent, if any, with the Assignment Form annexed
hereto duly executed and with funds sufficient to pay any transfer tax;
whereupon the Company shall, without charge, execute and deliver a new Warrant
in the name of the assignee named in-such instrument of assignment, and this
Warrant shall promptly be canceled. This Warrant may be divided or combined with
other Warrants which carry the same rights upon presentation hereof at the
office of the Company or at the office of its stock transfer agent, if any,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued and signed by the Holder hereof. The term
"Warrant" as used herein includes any Warrants issued in substitution for or
replacement of this Warrant, or into which this Warrant may be divided or
exchanged. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and upon
2
surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date. Any such new Warrant
executed and delivered shall constitute an additional contractual obligation on
the part of the Company, whether or not the Warrant so lost, stolen, destroyed,
or mutilated shall be at any time enforceable by anyone.
(e) Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) Notices to Warrant Holders. So long as this Warrant shall be outstanding
and unexercised (i) if the Company shall pay any dividend exclusive of a cash
dividend, or make any distribution upon the Common Stock, or (ii) if the Company
shall offer to the holders of Common Stock for subscription or purchase by them
any shares of stock of any class or any other rights, or (iii) if any capital
reorganization of the Company, reclassification of the capital stock of the
Company, consolidation or merger of the Company with or into another
corporation, sale, lease or transfer of all or substantially all of the property
and assets of the Company to another corporation, or voluntary or involuntary
dissolution, liquidation or winding up of the Company shall be effected, then,
in any such case, the Company shall cause to be delivered to the Holder, at
least ten (10) days prior to the date specified in (x) or (y) below, as the case
may be, a notice containing a brief description of the proposed action and
stating the date on which (x) a record is to be taken for the purpose of such
dividend, distribution or rights, or (y) such reclassification, reorganization,
consolidation, merger, conveyance, lease, dissolution, liquidation or winding up
is to take place and the date, if any, is to be fixed, as of which the holders
of Common Stock of record shall be entitled to exchange their shares of Common
Stock for equivalent securities or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
(g) Adjustment of Exercise Price and Number of Shares of Common Stock
Deliverable.
(A)(i) Except as hereinafter provided, in the event the Company shall, at
any time or from time to time after the date hereof, issue any shares of Common
Stock as a stock dividend to the holders of Common Stock, or subdivide or
combine the outstanding shares of Common Stock into a greater or lesser number
of shares (any such issuance, subdivision or combination being herein call a
"Change of Shares"), then, and thereafter upon each further Change of Shares,
the Exercise Price of the Common Stock issuable upon the exercise of the Warrant
and the Redeemable Warrant in effect immediately prior to such Change of Shares
shall be changed to a price (including any applicable fraction of a cent to the
nearest cent) determined by dividing (i) the sum of (a) the total number of
shares of Common Stock outstanding immediately prior to such Change of Shares,
multiplied by the Exercise Price in effect immediately prior to such Change of
Shares, and (b) the consideration, if any, received by the Company upon such
issuance, subdivision or combination by (ii) the total number of shares of
Common Stock outstanding immediately after such Change of Shares; provided,
however, that in no event shall the Exercise Price be adjusted pursuant to this
computation to an amount in excess of the Exercise Price in effect immediately
prior to such computation, except in the case of a combination of outstanding
shares of Common Stock.
For the purposes of any adjustment to be made in accordance with this
Section (g) the following provisions shall be applicable:
(I) Shares of Common Stock issuable by way of dividend or other distribution
on any capital stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of shareholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(II) The number of shares of Common Stock at any one time outstanding shall
not be deemed to include the number of shares issuable (subject to readjustment
upon the actual issuance thereof) upon the exercise of options, rights or
warrants and upon the conversion or exchange of convertible or exchangeable
securities.
(ii) Upon each adjustment of the Exercise Price pursuant to this Section
(g), the number of shares of Common Stock and Redeemable Warrants purchasable
upon the exercise of each Warrant shall be the number derived by
3
multiplying the number of shares of Common Stock and Redeemable Warrants
purchasable immediately prior to such adjustment by the Exercise Price in effect
prior to such adjustment and dividing the product so obtained by the applicable
adjusted Exercise Price.
(B) In case of any reclassification or change of outstanding Securities
issuable upon exercise of the Warrants (other than a change in par value, or
from par value to no par value, or from no par value to par value or as a result
of a subdivision or combination), or in case of any consolidation or merger of
the Company with or into another corporation other than a merger with a
"Subsidiary" (which shall mean any corporation or corporations, as the case may
be, of which capital stock having ordinary power to elect a majority of the
Board of Directors of such corporation (regardless of whether or not at the time
capital stock of any other class or classes of such corporation shall have or
may have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned by the Company or by one or more Subsidiaries)
or by the Company and one or more Subsidiaries in which merger the Company is
the continuing corporation and which does not result in any reclassification or
change of the then outstanding shares of Common Stock or other capital stock
issuable upon exercise of the Warrants (other than a change in par value, or
from par value to no par value, or from no par value to par value or as a result
of subdivision or combination) or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, then, as a condition of such reclassification, change, consolidation,
merger, sale or conveyance, the Company, or such successor or purchasing
corporation, as the case may be, shall make lawful and adequate provision
whereby the Holder of each Warrant then outstanding shall have the right
thereafter to receive on exercise of such Warrant the kind and amount of
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of
securities issuable upon exercise of such Warrant immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance and shall
forthwith file at the principal office of the Company a statement signed by its
President or a Vice President and by its Treasurer or an Assistant Treasurer or
its Secretary or an Assistant Secretary evidencing such provision. Such
provisions shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in Section
(g)(A). The above provisions of this Section (g)(B) shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
(C) Irrespective of any adjustments or changes in the Exercise Price or the
number of Securities purchasable upon exercise of the Warrants, the Warrant
Certificates theretofore and thereafter issued shall, unless the Company shall
exercise its option to issue new Warrant Certificates pursuant hereto, continue
to express the Exercise Price per share and the number of shares purchasable
thereunder as the Exercise Price per share and the number of shares purchasable
thereunder as expressed in the Warrant Certificates when the same were
originally issued.
(D) After each adjustment of the Exercise Price pursuant to this Section
(g), the Company will promptly prepare a certificate signed by the Chairman or
President, and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, of the Company setting forth: (i) the Exercise Price as so
adjusted, (ii) the number of Securities purchasable upon exercise of each
Warrant, after such adjustment, and (iii' a brief statement of the facts
accounting for such adjustment. The Company will promptly file such certificate
in the Company's minute books and cause a brief summary thereof to be sent by
ordinary first class mail to each Holder at his last address as it shall appear
on the registry books of the Company. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity thereof
except as to the holder to whom the Company failed to mail such notice, or
except as to the holder whose notice was defective. The affidavit of an officer
or the Secretary or an Assistant Secretary of the Company that such notice has
been mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
(E) No adjustment of the Exercise Price shall be made as a result of or in
connection with the issuance or sale of Securities if the amount of said
adjustment shall be less than $.10, provided, however, that in such case, any
adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment that shall amount, together with any adjustment so carried
4
forward, to at least $.10. In addition, Holders shall not be entitled to cash
dividends paid by the Company prior to the exercise of any Warrant or Warrants
held by them.
(F) In the event that the Company shall at any time prior to the exercise of
all Warrants declare a dividend consisting solely of shares of Common Stock or
otherwise distribute to its stockholders any assets, property, rights, evidences
of indebtedness, the Holders of the unexercised Warrants shall thereafter be
entitled, in addition to the Securities or other securities and property
receivable upon the exercise thereof, to receive, upon the exercise of such
Warrants, the same property, assets, rights, evidences of indebtedness, that
they would have been entitled to receive at the time of such dividend or
distribution as if the Warrants had been exercised immediately prior to such
dividend or distribution. At the time of any such dividend or distribution, the
Company shall make appropriate reserves to ensure the timely performance of the
provisions of this Section (g).
(h) Piggyback Registration. If, at any time commencing one year from the
effective date of the registration statement and expiring four (4) years
thereafter, the Company proposes to register any of its securities under the
Securities Act of 1933, as amended (the "Act") (other than in connection with a
merger or pursuant to Form S-8, S-4 or other comparable registration statement)
it will give written notice by registered mail, at least thirty (30) days prior
to the filing of each such registration statement, to the Holders and to all
other Holders of the Warrants and/or the Warrant Securities of its intention to
do so. If the Holder or other Holders of the Warrants and/or Warrant Securities
notify the Company within twenty (20) days after receipt of any such notice of
its or their desire to include any such securities in such proposed registration
statement, the Company shall afford each of the Underwriter and such Holders of
the Warrants and/or Warrant Securities the opportunity to have any such Warrant
Securities registered under such registration statement.
Notwithstanding the provisions of this Section, the Company shall have the
right at any time after it shall have given written notice pursuant to this
Section (irrespective of whether a written request for inclusion of any such
securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
(i) Demand Registration.
(1) At any time commencing one year from the effective date of the registration
statement and expiring four (4) years thereafter, the Holders of the Warrants
and/or Warrant Securities representing a "Majority" (as hereinafter defined) of
such securities (assuming the exercise of all of the Warrants) shall have the
right (which right is in addition to the registration rights under Section (i)
hereof), exercisable by written notice to the Company, to have the Company
prepare and file with the Securities and Exchange Commission (the "Commission"),
on one occasion, a registration statement and such other documents, including a
prospectus, as may be necessary in the opinion of both counsel for the Company
and counsel for the Underwriter and Holders, in order to comply with the
provisions of the Act, so as to permit a public offering and sale of their
respective Warrant Securities for nine (9) consecutive months by such Holders
and any other holders of the Warrants and/or Warrant Securities who notify the
Company within ten (10) days after receiving notice from the Company of such
request.
(2) The Company covenants and agrees to give written notice of any
registration request under this Section (i) by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(3) In addition to the registration rights under this Section (i) at any
time commencing one year after the effective date of the registration statement
and expiring four (4) years thereafter, the Holders of Representative's Warrants
and/or Warrant Securities shall have the right, exercisable by written request
to the Company, to have the Company prepare and file, on one occasion, with the
Commission a registration statement so as to permit a public offering and sale
for nine (9) consecutive months by such Holders of its Warrant Securities;
provided, however, that
5
the provisions of Section (i)(2) hereof shall not apply to any such registration
request and registration and all costs incident thereto shall be at the expense
of the Holder or Holders making such request.
(j) Covenants of the Company With Respect to Registration. In connection with
any registration under Section (h) or (i) hereof, the Company covenants and
agrees as follows:
(i) The Company shall use its best efforts to file a registration statement
within sixty (60) days of receipt of any demand therefor, shall use its best
efforts to have any registration statement declared effective at the earliest
possible time, and shall furnish each Holder desiring to sell Warrant Securities
such number of prospectuses as shall reasonably be requested.
(ii) The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections (h), (i) and (j) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. If the
Company shall fail to comply with the provisions of Section (j)(i), the Company
shall, in addition to any other equitable or other relief available to the
Holder(s), extend the Exercise Period by such number of days as shall equal the
delay caused by the Company's failure.
(iii) The Company will take all necessary action which may be required in
qualifying or registering the Warrant Securities included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as are reasonably requested by the Holder(s), provided that the Company
shall not be obligated to execute or file any general consent to service of
process to qualify as a foreign corporation to do business under the laws of any
such jurisdiction.
(iv) The Company shall indemnify the Holder(s) of the Warrant Securities to
be sold pursuant to any registration statement and each person, if any, who
controls such Holders within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), from
and against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement but only to
the same extent and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify the Underwriter contained in Section 7 of the
Underwriting Agreement relating to the offering.
(v) The Holder(s) of the Warrant Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders, or their successors or assigns, for
specific inclusion in such registration statement to the same extent with the
same effect as the provisions contained in Section 7 of the Underwriting
Agreement pursuant to which the Underwriter has agreed to indemnify the Company.
(vi) The Holder(s) may exercise their Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
(vii)The Company shall not permit the inclusion of any securities other than
the Warrant Securities to be included in any registration statement filed
pursuant to Section (i) hereof, or permit any other registration statement to be
or remain effective during the effectiveness of a registration statement filed
pursuant to Section (i) hereof, other than a secondary offering of equity
securities of the Company, without the prior written consent of the Holders of
the
6
Warrants and Warrant Securities representing a Majority of such securities
(assuming an exercise of all the Warrants underlying the Warrants).
(viii) The Company shall furnish to each Holder participating in the offering
and to each underwriter, if any, a signed counterpart, addressed to such Holder
or underwriter, of (x) an opinion of counsel to the Company, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under the
underwriting agreement), and (y) a "cold comfort" letter dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing under the
underwriting agreement) signed by the independent public accountants who have
issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(ix) The Company shall as soon as practicable after the effective date of
the registration statement, and in any event within 15 months thereafter, make
"generally available to its security holders" (within the meaning of Rule 158
under the Act) an earnings statement (which need not be audited) complying with
Section 11(a) of the Act and covering a period of at least 12 consecutive months
beginning after the effective date of the registration statement.
(x) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described below and to the
managing underwriters, copies of all correspondence between the Commission and
the Company, its counsel or auditors and all memoranda relating to discussions
with the Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD") or an Exchange. Such investigation shall include access
to books, records and properties and opportunities to discuss the business of
the Company with its officers and independent auditors, all to such reasonable
extent and at such reasonable times and as often as any such Holder or
underwriter shall reasonably request.
(xi) The Company shall enter into an underwriting agreement with the
managing underwriters, which may be the Underwriter. Such agreement shall be
satisfactory in form and substance to the Company, and such managing
underwriters, and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter; provided however, that no Holder
shall be required to make any representations, warranties or covenants or grant
any indemnity to which it shall object in any such underwriting agreement. The
Holders shall be parties to any underwriting agreement relating to an
underwritten sale of their Warrant Securities and may, at their option, require
that any or all the representations, warranties and covenants of the Company to
or for the benefit of such underwriters shall also be made to and for the
benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(xii) For purposes of this Agreement, the term " Majority" in reference to
the Holders of Warrants or Warrant Securities, shall mean in excess of fifty
(50%) of the then outstanding Warrants and Warrant Securities that (i) are not
held by the Company, an affiliate, officer, creditor, employee or agent thereof
or any of their respective affiliates, members of their family, persons acting
as nominees or in conjunction therewith or (ii) have not been resold to the
public pursuant to a registration statement filed with the Commission under the
Act.
(k) Conditions of Company's Obligations. The Company's obligation under Section
j hereof shall be conditioned as to each such public offering, upon a timely
receipt by the Company in writing of:
7
(A) Information as to the terms of such public offering furnished by or on
behalf of the Holders making a public distribution of their Warrant Securities;
and
(B) Such other information as the Company may reasonably require from such
Holder, or any underwriter for any of them, for inclusion in such registration
statement or offering statement or post-effective amendment.
(C) An agreement by the Holder to sell his Warrants and Warrant Securities
on the basis provided in the Underwriting Agreement.
(1) Continuing Effect of Agreement. The Company's agreements with respect
to the Warrant Securities in this Warrant will continue in effect regardless of
the exercise or surrender of this Warrant.
(m) Notices. Any notices or certificates by the Company to the Holder and by
the Holder to the Company shall be deemed delivered if in writing and delivered
personally or sent by certified mail, to the Holder, addressed to him or sent
to, Coburn & Meredith, Inc. 150 Trumbull Street, Hartford, CT 06103, or, if the
Holder has designated, by notice in writing to the Company, any other address,
to such other address, and, if to the Company, addressed to it at 1711 Broadway,
Saugus, MA 01906. The Company may change its address by written notice to Coburn
& Meredith, Inc.
(n) Limited Transferability. This Warrant Certificate and the Warrant may
not be sold, transferred, assigned or hypothecated for a one-year period after
the effective date of the Registration Statement except to underwriters of the
Offering referred to in the Underwriting Agreement or to individuals who are
either partners or officers of such an underwriter or by will or by operation of
law. The Warrant may be divided or combined, upon request to the Company by the
Warrant holder, into a certificate or certificates evidencing the same aggregate
number of Warrants. The Warrant may not be offered, sold, transferred, pledged
or hypothecated in the absence of any effective registration statement as to
such Warrant filed under the Act, or an exemption from the requirement of such
registration, and compliance with the applicable federal and state securities
laws. The Company may require an opinion of counsel satisfactory to the Company
that such registration is not required and that such laws are complied with. The
Company may treat the registered holder of this Warrant as he or it appears on
the Company's book at any time as the Holder for all purposes. The Company shall
permit the Holder or his duly authorized attorney, upon written request during
ordinary business hours, to inspect and copy or make extracts from its books
showing the registered holders of Warrants.
(o) Transfer to Comply With the Securities Act of 1933. The Company may
cause the following legend, or one similar thereto, to be set forth on the
Warrants and on each certificate representing Warrant Securities, or any other
security issued or issuable upon exercise of this Warrant not theretofore
distributed to the public or sold to underwriters for distribution to the public
pursuant to Sections (h) or (i) hereof; unless counsel satisfactory to the
Company is of the opinion as to any such certificate that such legend, or one
similar thereto, is unnecessary:
"The warrants represented by this certificate are restricted securities and
may not be offered for sale, sold OR otherwise transferred unless an opinion of
counsel satisfactory to the Company is obtained stating that such offer , sale
or transfer is in compliance wrath state and federal securities law.
(p) Applicable Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Connecticut, without giving effect to
conflict of law principles.
(q) Assignability. This Warrant may not be amended except in a writing signed by
each Holder and the Company.
8
(r) Survival of Indemnification Provisions. The indemnification provisions of
this Warrant shall survive until __________, 2004.
WebSecure, Inc.
a Delaware corporation
By
-------------------------------
Robert Kuzara, President
Date:
--------------------------------
Attest:
- --------------------------------------
, Secretary
---------------------------------
Coburn & Meredith, Inc.
9
PURCHASE FORM
Dated____________________19___
The undersigned hereby irrevocably elects to exercise the Warrant to the
extent of purchasing ________ shares of Common Stock and Redeemable Warrants and
hereby makes payment of $_______ in payment of the actual exercise price
thereof. ________
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name
----------------------------------------------------------------------------
(please typewrite or print in block letters)
Address
-------------------------------------------------------------------------
Signature
-----------------------------------------------------------------------
ASSIGNMENT FORM
FOR VALUE RECEIVED,
-------------------------------------------------------------
hereby sells, assigns and transfers unto
Name
----------------------------------------------------------------------------
(please typewrite or print in block letters)
Address
-------------------------------------------------------------------------
the right to purchase ______ shares of Common Stock and ____ Redeemable Warrants
as represented by this Warrant to the extent of______ shares of Common Stock and
_____ Redeemable Warrants as to which such right is exercisable and does hereby
irrevocably constitute and appoint,
---------------------------------------------
attorney, to transfer the same on the books of the Company with full power of
substitution in the premises.
Signature
-----------------------------------------------------------------------
Dated:________ _____ 19
10
O'CONNOR, BROUDE & ARONSON
ATTORNEYS AT LAW
THE BAY COLONY CORPORATE CENTER
ROUTE 128 AND WINTER STREET
950 WINTER STREET, SUITE 2300
WALTHAM, MASSACHUSETTS 02154
FACSIMILE: 617-890-9261
-------
617-890-6600
September 10, 1996
Board of Directors of
WebSecure, Inc.
Re: WebSecure, Inc.
---------------
Gentlemen:
This firm has represented WebSecure, Inc., a Delaware corporation
(hereinafter called the "Corporation"), in connection with the proposed public
offering described below.
In our capacity as special counsel to the Corporation, we are familiar
with the Certificate of Incorporation, as amended, and the Bylaws of the
Corporation. We are also familiar with the corporate proceedings taken by the
Corporation in connection with the preparation and filing of a Registration
Statement on Form SB-2 and amendments thereto covering (1) a public offering of
(a) 1,000,000 shares of Common Stock, $.01 par value ("Common Stock"), and
1,000,000 redeemable common stock purchase warrants ("Redeemable Warrants") to
be sold by Underwriters (the "Underwriters") for whom Coburn & Meredith, Inc.
and Shamrock Partners, Ltd. are acting as the representatives (the
"Representatives") and (b) up to 150,000 shares of Common Stock and/or up to
150,000 Redeemable Warrants which may be sold by the Underwriters to cover
over-allotments; and (2) a five-year warrant to be sold to the Representatives
to purchase up to 100,000 shares of Common Stock and/or 100,000 Redeemable
Warrants (the "Representatives' Warrants").
Based upon the foregoing, we are of the opinion that:
1. The Corporation is duly organized and validly existing under the
laws of the State of Delaware.
2. (a) The 1,000,000 shares of Common Stock, the 1,000,000 Redeemable
Warrants, and the 150,000 shares of Common Stock and/or 150,000 Redeemable
Warrants which may be sold by the Underwriters to cover over-allotments, (b) the
Representatives' Warrants and (c) the Common Stock underlying the Redeemable
Warrants and the Representatives' Warrants have been duly
O'CONNOR, BROUDE & ARONSON
Board of Directors of
WebSecure, Inc.
September 10, 1996
Page 2
authorized, and upon the sale thereof as described in the Registration
Statement, such securities will be legally issued and the shares of Common Stock
sold by the Underwriters will be fully paid and non-assessable.
3. The shares of Common Stock issuable upon the exercise of the
Redeemable Warrants (including the Redeemable Warrants subject to the
Representatives' Warrants), when issued upon the exercise of the Redeemable
Warrants and the Representatives' Warrants will be fully paid and
non-assessable.
This opinion is provided solely for the benefit of the addressee hereof
and is not to be relied upon by any other person or party. Nevertheless, we
hereby consent to the use of this opinion and to all references to our firm in
or made part of the Registration Statement and any amendments thereto.
Very truly yours,
O'CONNOR, BROUDE & ARONSON
By: /s/Paul D. Broude
------------------------------------
Paul D. Broude
PDB:ADM:jac
c: John Shields, Chairman of the Board
INTERNATIONAL SOFTWARE DEVELOPMENT LIMITED
------------------------------------------
SOFTWARE LICENSE FOR ENCRYPTION SOFTWARE FOR TRANSACTIONS ON THE INTERNET
-------------------------------------------------------------------------
Date: April 1, 1996
1.0 PARTIES
1.1 LICENSOR: INTERNATIONAL SOFTWARE DEVELOPMENT LIMITED
whose principal place of business is at P.O.
Box 36, Westaway Chambers, Don Street, St.
Helier, Jersey, Channel Islands (Electronic
mail address: [email protected])
1.2. LICENSEE: WEBSECURE, INC. of 1711 Broadway, Corporate
Center North, Saugus, Massachusetts 01906
2.0 COMMERCIAL TERMS
The following terms shall have the following meanings respectively in
this License:
2.1 "COMMENCEMENT DATE" The 1st day of April, 1996.
2.2 "CONDITIONS" The conditions on the following pages
which are incorporated in this License
in their entirety.
2.3 "EXPIRATION DATE" The 1st day of April, 2006.
3.0 GRANT
In consideration of and subject to the agreements and obligations on
the part of the Licensee contained in the following Conditions, the Licensor
hereby grants to the Licensee an exclusive, transferable, royalty-free right and
license to market, use, sell, distribute, relicense or sublicense the
Intellectual Property, together with any enhancements, improvements, and/or
modifications in the whole of the continents of North America and South America.
The Licensee is hereby licensed to use all intellectual property rights
including trade names, patents, source codes, design rights, trademarks and
copyrights. The License granted herein is not revocable by the Licensor.
THE CONDITIONS
--------------
4.0 DEFINITIONS
The following further terms shall have the following meanings
respectively in this License:
4.1 "Business" Supplying the System to Suppliers
and to Customers.
4.2 "Codes" Encryption codes used as part of the
System.
4.3 "Customer" A person or entity who or which
makes an Order at any time during
the Term.
4.4 "Intellectual Property" All or any of the following:
4.4.1 "Trade Names" "NetSafe Titan", "Netitan", "ISD",
"Websafe", "Digisig", "Titan",
"Verisale" and/or any other name or
invented word or words used by the
Licensor to identify the Software
and/or the System from time to time.
4.4.2 "Copyright" All copyright in any such Trade
Names, the Software, the Codes and
the contents of any manual
instructions and/or written
descriptions of or user's guide to
any of the Intellectual Property
issued by the Licensor from time to
time.
4.4.3 "Design Rights" All design rights of any kind in
respect of any design or graphics in
the Software or used in or displayed
on or in association with any
written or other material issued by
the Licensor from time to time in
connection with any of the
Intellectual Property.
4.4.4 "Know-How" All know-how arising from devised
and developed for and associated
with the use of the Software and the
operation of the System.
4.4.5 "Mark" The Trade Names and/or any logo
colors or legend associated with the
same as amended by the Licensor from
time to time.
4.4.6 "Software" The software and computer programs
devised and developed by the
Licensor from time to time to
create,
-2-
maintain, extend and enhance the
System including the Codes.
4.5 "Internet" The network of communicating computers
around the world including (among
other designations) the World Wide
Web.
4.6 "Item" Any product and/or service made or to
be made available to any person or
entity by the Licensee or through its
services or agency and advertised or
promoted on the Internet.
4.7 "Order" Any order via the Internet from a
Customer to a Supplier for the supply
of any item.
4.8 "Supplier" A merchant who supplies or intends to
supply any item over the Internet.
4.9 "System" The system of transferring an Order
and payment and other details of a
Customer via the Internet in encrypted
form using the Software and the
Know-How.
4.10 "Term" Commencement Date through Expiration
Date.
4.11 "Territory" The whole of the continents of North
America and South America.
5.0 RECITALS
5.1 The Licensor has devised and developed the Know-How, the
Software and the System.
5.2 The System provides the means whereby a Customer may place an
Order via the Internet with a Supplier and may furnish to such
Supplier in encrypted form details of how the Supplier can
obtain payment from the Customer for the supply by or through
the Supplier of an Item to the Customer in response to that
Order.
5.3 The Software and the System have been devised and developed by
the Licensor to facilitate commercial transactions on the
Internet without the necessity for the Customer (as a matter
of prudence) to furnish payment details to a Supplier
separately off the Internet.
6.0 LICENSOR'S OBLIGATIONS
-3-
In consideration of payment by the Licensee as provided in a Stock
Purchase Agreement of even date herewith, the Licensor hereby agrees with the
Licensee as follows:
6.1 to supply, maintain and support the System to the Licensee
under the terms of this License.
6.2 to update the System whenever it is revised or improved by the
Licensor and to maintain all updated versions of the System so
that they are compatible with all prior versions.
6.3 to respond promptly to any request by the Licensee for
improvement of the System.
6.4 to investigate promptly any complaints concerning the
operation of the System or reports that it has been
compromised in any way.
6.5 to make substantial progress in identifying and correcting a
defect of the System within thirty (30) days of notification
by the Licensee and then by applying diligent efforts toward
such correction.
6.6 to notify promptly the Licensee of any breach of security
which comes to its knowledge and which in its opinion is
likely to compromise the System.
6.7 not to license any other person or entity to supply the System
to any Supplier which intends to use the System in North
America or South America.
6.8 not to reveal to any person or entity the confidential
operational methods in the Software, System, "Know-How" or any
Intellectual Property.
6.9 to use all necessary measures to maintain and protect the
confidentiality of the Software, System, Know-How and
Intellectual Property from infringement, disclosure or
compromise in any way.
6.10 to keep confidential all information concerning any
transaction using the System between any result of any
problems in the course of any such transaction.
6.11 to confer with the Licensee and use all reasonable endeavors
to agree on a common policy towards dangerous, pornographic or
offensive material offered by any Supplier over the Internet.
6.12 to indemnify the Licensee from any liability incurred to any
third party for any use by the Licensee of any of the
Intellectual Property in accordance with this License.
6.13 At the Licensee's sole option to:
-4-
6.13.A indemnify and hold harmless the Licensee and its
subsidiaries or affiliates under its control, and its
directors, officers, employees and agents, against
any and all losses, liabilities, judgments, awards
and costs (including legal fees and expenses) arising
out of or related to any claim that the Licensee's
use or possession of the Intellectual Property, or
the license granted hereunder, infringes or violates
the copyright, trade secret or other proprietary
right of any third party. The Licensor shall defend
and settle at its own expense all suits or
proceedings arising out of the foregoing; or
6.13.B recognize the hereby expressly acknowledged and
granted Licensee's right, but not obligation, to
initiate or defend any action arising out of or
related to any claim that the Licensee's use or
possession of the Intellectual Property, or the
license granted hereunder, infringes or violates the
copyright, trade secret or other proprietary right of
any third party. The Licensor shall provide for all
costs and expenses, including legal fees and
expenses, of all suits or proceedings arising out of
the foregoing as such costs and expenses are
incurred.
7.0 LICENSEE'S OBLIGATIONS
In consideration of the grant of this License by the Licensor and its
agreements set out above the Licensee hereby agrees with the Licensor as
follows:
7.1 to confer with the Licensor and use all reasonable endeavors
to agree on a common policy towards dangerous pornographic or
offensive material offered by any Supplier over the Internet.
7.2 to reasonably promote the Business and the availability of the
System to assist each Supplier to offer items for sale over
the Internet and each Customer to pay for each Order.
7.3 to use reasonable efforts not to cause or permit anything
which may damage or endanger the Intellectual Property in any
way or any other intellectual property of the Licensor or the
title of the Licensor to it or any of it.
7.4 to issue a standard form of user license to each Supplier and
to publish on the Internet the standard form of license to use
the System on the part of each Customer.
7.5 not to indicate or imply to Customers that the Licensor is
responsible for the supply or quality of any Item.
8.0 GENERAL
-5-
It is further agreed between the Parties as follows:
8.1 If at any time during the Term the Licensee discovers or
conceives any actual or potential improvements to or
development of the Know-How the Software and/or the System,
the property in any such improvement or development and the
right to apply for any relevant protection belongs to the
Licensee.
8.2 If any provision of this License is declared by any judicial
or other competent authority in any jurisdiction to be void,
voidable, illegal or otherwise unenforceable or indications of
the same are received by either of the Parties from any such
competent authority:
8.2.1 the Parties shall amend that provision in such
reasonable manner as achieves the intentions of
the Parties without illegality or other grounds
for unenforceability; or
8.2.2 sever the provision from this License in whole or
in part.
8.2.3 the remaining provisions of this License shall
remain in full force and effect unless the
Licensee decides that the result of any such
declaration is to defeat the original intention
of the Parties in which event the Licensee shall
be at liberty to terminate this License upon
written notice.
8.3 Any notice to be served by any of the Parties upon any other
shall be sent by:
8.3.1 pre-paid first-class registered air mail (return
receipt requested); or
8.3.2 by fax.
and shall be deemed to have been received by the addressee at
the address written above within five (5) business days of
posting or 24 hours if sent by fax to the addressee.
8.4 Each of the Parties shall promptly notify the other of any
change of its address or fax number.
8.5 None of the Parties shall deliberately disconnect its fax at
any time except for essential servicing and repairs.
8.6 This License supersedes any prior agreement or arrangement
between the Parties which is hereby cancelled.
-6-
8.7 The License contains the complete agreement between the
Parties. This License may not be modified or amended except in
writing, signed by duly authorized representatives of each
party and such writing must reflect the intention that it be
considered as an amendment.
8.8 The neuter singular used throughout this License shall include
all genders and the plural.
8.9 This License shall enure for the benefit of and shall bind the
successors in title of the Parties.
8.10 The Parties are not partners or joint venturers in any way.
8.11 Neither Party is able to act as the agent of the other Party
except as expressly authorized in this License.
8.12 Neither Party is able to pledge the credit of the other Party
in any way.
8.13 This License and any rights under it are capable of being
granted, assigned, charged or otherwise dealt with or disposed
of by the Licensee without the consent of any third party.
8.14 No exercise of any rights under this License by any of the
Parties shall restrict or prejudice the exercise of any other
right granted to or reserved by it under this License or
otherwise available to it.
8.15 The obligations of the Licensor in this License shall survive
the expiration or termination of this License to the extent
necessary to fulfill its agreements and liabilities to the
Licensee under this License.
8.16 The failure by the Licensee to enforce at any time any of the
terms and conditions of this License (including any agreements
and obligations on the part of the Licensor under this License
or otherwise) shall not be a waiver of any of them or of its
right subsequently to enforce all or any such terms and
conditions.
8.17 Each of the Parties shall pay its own costs and expenses
incurred by it in connection with the preparation and exchange
of this License.
8.18 In the event of the failure of any part of the System at any
time as a result of which the Licensee suffers any proven loss
or damage the Licensor shall:
8.18.1 be liable to reimburse the Licensee for the
administrative costs and expenses of tracing any
Order lost by such failure; and
-7-
8.18.2 indemnify or recompense the Licensee for any such
loss or damage or any legal or other expenses
incurred by the Licensee in pursuing or defending
any claim by any Customer or other person.
8.19 This License shall be governed by the laws of the Commonwealth
of Massachusetts, United States of America, excluding its
choice of law rules, in every particular including formation
and interpretation. In any legal action relating to this
Agreement, the Licensor agrees to the exercise of jurisdiction
over it by a federal court of the Commonwealth of
Massachusetts or a state court of the Commonwealth of
Massachusetts. The Licensor also agrees to the forum selection
of the Licensee.
8.20 The parties acknowledge that a remedy at law for any breach or
threatened breach of this License would be inadequate and,
therefore, agree that the terms of this License shall be
enforceable by injunctive relief in case of any breach or
threatened breach.
Signed for and on behalf of
International Software Development Limited -----------------------------
Authorized Signatory
Signed for and on behalf of Websecure, Inc. -----------------------------
Authorized Signatory
-8-
MANADARIN TRADING COMPANY LIMITED
SOFTWARE LICENSE AGREEMENT
This SOFTWARE LICENSE AGREEMENT shall be dated as of March 29, 1996.
1.0 PARTIES
1.1 LICENSOR: MANADARIN TRADING COMPANY LIMITED, an Irish
corporation with its principal place of
business at 2 Calwilliam Terrace, Dublin 2,
Republic of Ireland.
1.2. LICENSEE: WEBSECURE, INC., a Delaware corporation with
a place of business at 1711 Broadway,
Corporate Center North, Saugus,
Massachusetts 01906, United States of
America.
2.0 TERMS
The following terms shall have the following meanings respectively in
this License:
2.1 "COMMENCEMENT DATE" The 29th day of March, 1996
2.2 "CONDITIONS" The conditions on the following
pages which are incorporated in
this License in their entirety.
2.3 "EXPIRATION DATE" The 29th day of March, 2006.
2.4 "INTELLECTUAL PROPERTY" All or any of the following:
2.4.1 "Copyright" All copyright in any such Trade
Names, the Software, the Codes and
the contents of any manual
instructions and/or written
descriptions of or user's guide to
any of the Intellectual Property
issued by the Licensor from time
to time.
2.4.2 "Design Rights" All design rights of any kind in
respect of any design or graphics
in the Software or used in or
displayed on or in association
with any written or other material
issued by the Licensor from time
to time in connection with any of
the Intellectual Property.
2.4.3 "Know-How" All know-how arising from, devised
and developed for and associated
with the use of the Software.
2.4.4 "Mark" The Trade Names and/or
any logo colors or legend
associated with the same as
amended by the Licensor from time
to time.
2.4.5 "Software" The software and computer programs
identified as RIGHTWEB (also
presented as RightWeb), ASTROWEB
(also presented as AstroWeb),
WEBELAN (also presented as
WebElan) and all future versions
of said Software devised and
developed by the Licensor from
time to time.
2.4.6 "Trade Names" "RIGHTWEB," "RightWeb," "WEBELAN,"
"WebElan," "ASTROWEB," "AstroWeb"
and/or any other name or invented
word or words used by the Licensor
to identify the Software and/or
the Software from time to time.
2.5 "TERM" The Commencement Date through
Expiration Date.
3.0 GRANT
In consideration of and subject to the agreements and obligations on
the part of the Licensee contained in the following Conditions, the Licensor
hereby grants to the Licensee an exclusive, worldwide, transferable,
royalty-free right and license to market, use, sell, distribute, relicense or
sublicense the Software, Trade Names and Intellectual Property, together with
any enhancements, improvements, and/or modifications. The Licensee is hereby
licensed to use the Software, Trade Names and all Intellectual Property rights
relating thereto including the Know-How, patents, source codes, Design Rights,
Marks and Copyrights. The License granted herein is not revocable by the
Licensor.
4.0 LICENSOR'S OBLIGATIONS
In consideration of payment by the Licensee as provided in a Stock
Issuance Agreement of even date herewith, the Licensor hereby agrees with the
Licensee as follows:
4.1 to update the Software whenever it is revised or improved by
the Licensor and to maintain all updated versions of the
Software.
4.2 to investigate promptly any complaints concerning the
operation of the Software or reports that it has been
compromised in any way.
-2-
4.3 to make substantial progress in identifying and correcting a
defect of the Software within thirty (30) days of notification
by the Licensee and then by applying diligent efforts toward
such correction.
4.4 to promptly notify the Licensee of any breach of security
which comes to its knowledge and which in its opinion is
likely to compromise the Software.
4.5 not to license or supply the Software to any other person or
entity.
4.6 not to reveal to any person or entity the confidential
operational methods in the Software or any Intellectual
Property.
4.7 to use all necessary measures to maintain and protect the
confidentiality of the Software, Know-How and Intellectual
Property from infringement, disclosure or compromise in any
way.
4.8 to keep confidential all information concerning any
transaction using the Software between any result of any
problems in the course of any such transaction.
4.9 to indemnify the Licensee from any liability incurred to any
third party for any use by the Licensee of any of the
Intellectual Property in accordance with this License.
4.10 At the Licensee's sole option to:
4.10.A indemnify and hold harmless the Licensee and its
subsidiaries or affiliates under its control, and its
directors, officers, employees and agents, against
any and all losses, liabilities, judgments, awards
and costs (including legal fees and expenses) arising
out of or related to any claim that the Licensee's
use or possession of the Intellectual Property, or
the license granted hereunder, infringes or violates
the copyright, trade secret or other proprietary
right of any third party. The Licensor shall defend
and settle at its own expense all suits or
proceedings arising out of the foregoing; or
4.10.B recognize the hereby expressly acknowledged and
granted Licensee's right, but not obligation, to
initiate or defend any action arising out of or
related to any claim that the Licensee's use or
possession of the Intellectual Property, or the
license granted hereunder, infringes or violates the
copyright, trade secret or other proprietary right of
any third party. The Licensor shall provide for all
costs and expenses, including legal fees and
expenses, of all suits or proceedings arising out of
the foregoing as such costs and expenses are
incurred.
-3-
5.0 LICENSEE'S OBLIGATIONS
In consideration of the grant of this License by the Licensor and its
agreements set out above, the Licensee hereby agrees with the Licensor to use
reasonable efforts not to cause or permit anything which may damage or endanger
the Intellectual Property in any way or any other intellectual property of the
Licensor or the title of the Licensor to it or any of it.
6.0 GENERAL
It is further agreed between the Parties as follows:
6.1 The Licensor has devised and developed the Software and
Intellectual Property.
6.2 If at any time during the Term the Licensee discovers or
conceives any actual or potential improvements to or
development of the Intellectual Property, the property in any
such improvement or development and the right to apply for any
relevant protection belongs to the Licensee.
6.2 If any provision of this License is declared by any judicial
or other competent authority in any jurisdiction to be void,
voidable, illegal or otherwise unenforceable or indications of
the same are received by either of the Parties from any such
competent authority:
6.2.1 the Parties shall amend that provision in such
reasonable manner as achieves the intentions of
the Parties without illegality or other grounds
for unenforceability; or
6.2.2 sever the provision from this License in whole or
in part.
6.2.3 the remaining provisions of this License shall
remain in full force and effect unless the
Licensee decides that the result of any such
declaration is to defeat the original intention
of the Parties in which event the Licensee shall
be at liberty to terminate this License upon
written notice.
6.3 Any notice to be served by any of the Parties upon any other
shall be sent by:
6.3.1 pre-paid first-class registered air mail (return
receipt requested); or
6.3.2 by fax and shall be deemed to have been received
by the addressee at the address written above
within five (5) business days of posting or 24
hours if sent by fax to the addressee.
-4-
6.4 Each of the Parties shall promptly notify the other of any
change of its address or fax number.
6.5 None of the Parties shall deliberately disconnect its fax at
any time except for essential servicing and repairs.
6.6 This License supersedes any prior agreement or arrangement
between the Parties which is hereby cancelled.
6.7 The License contains the complete agreement between the
Parties. This License may not be modified or amended except in
writing, signed by duly authorized representatives of each
party and such writing must reflect the intention that it be
considered as an amendment.
6.8 The neuter singular used throughout this License shall include
all genders and the plural.
6.9 This License shall enure for the benefit of and shall bind the
successors in title of the Parties.
6.10 The Parties are not partners or joint venturers in any way.
6.11 Neither Party is able to act as the agent of the other Party
except as expressly authorized in this License.
6.12 Neither Party is able to pledge the credit of the other Party
in any way.
6.13 This License and any rights under it are capable of being
granted, assigned, charged or otherwise dealt with or disposed
of by the Licensee without the consent of any third party.
6.14 No exercise of any rights under this License by any of the
Parties shall restrict or prejudice the exercise of any other
right granted to or reserved by it under this License or
otherwise available to it.
6.15 The obligations of the Licensor in this License shall survive
the expiration or termination of this License to the extent
necessary to fulfill its agreements and liabilities to the
Licensee under this License.
6.16 The failure by the Licensee to enforce at any time any of the
terms and conditions of this License (including any agreements
and obligations on the part of the Licensor under this License
or otherwise) shall not be a waiver of any of them or of its
right subsequently to enforce all or any such terms and
conditions.
-5-
6.17 Each of the Parties shall pay its own costs and expenses
incurred by it in connection with the preparation and exchange
of this License.
6.18 In the event of the failure of any part of the Software at any
time as a result of which the Licensee suffers any proven loss
or damage the Licensor shall:
6.18.1 be liable to reimburse the Licensee for the
administrative costs and expenses of such
failure; and
6.18.2 indemnify or recompense the Licensee for any such
loss or damage or any legal or other expenses
incurred by the Licensee in pursuing or defending
any claim related to the failure of the Software.
6.19 This License shall be governed by the laws of the Commonwealth
of Massachusetts, United States of America, excluding its
choice of law rules, in every particular including formation
and interpretation. In any legal action relating to this
Agreement, the Licensor agrees to the exercise of jurisdiction
over it by a federal court of the Commonwealth of
Massachusetts or a state court of the Commonwealth of
Massachusetts. The Licensor also agrees to the forum selection
of the Licensee.
6.20 The parties acknowledge that a remedy at law for any breach or
threatened breach of this License would be inadequate and,
therefore, agree that the terms of this License shall be
enforceable by injunctive relief in case of any breach or
threatened breach.
Signed for and on behalf of
Manadarin Trading Company Limited ------------------------------------
Authorized Signatory
Signed for and on behalf of Websecure, Inc. ------------------------------------
Authorized Signatory
-6-
WEBSECURE, INC.
1996 STOCK OPTION PLAN
ARTICLE I
PURPOSE OF THE PLAN
The purpose of this Plan is to encourage and enable employees,
consultants, directors and others who are in a position to make significant
contributions to the success of WEBSECURE, INC. and of its affiliated
corporations upon whose judgment, initiative and efforts the Corporation depends
for the successful conduct of its business, to acquire a closer identification
of their interests with those of the Corporation by providing them with
opportunities to purchase stock in the Corporation pursuant to options granted
hereunder, thereby stimulating their efforts on behalf of the Corporation and
strengthening their desire to remain involved with the Corporation. Any
employee, consultant or advisor designated to participate in the Plan is
referred to as a "Participant."
ARTICLE II
DEFINITIONS
2.1 "Affiliated Corporation" means any stock corporation of which a
majority of the voting common or capital stock is owned directly or indirectly
by the Corporation.
2.2 "Award" means an Option granted under Article V.
2.3 "Board" means the Board of Directors of the Corporation or, if one
or more has been appointed, a Committee of the Board of Directors of the
Corporation.
2.4 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
2.5 "Committee" means a Committee of not less than two members of the
Board appointed by the Board to administer the Plan.
2.6 "Corporation" means WEBSECURE, INC., a Delaware corporation, or its
successor.
2.7 "Employee" means any person who is a regular full-time or part-time
employee of the Corporation or an Affiliated Corporation on or after February
12, 1996.
2.8 "Incentive Stock Option" ("ISO") means an option which qualifies as
an incentive stock option as defined in Section 422 of the Code, as amended.
2.9 "Non-Qualified Option" means any option not intended to qualify as
an Incentive Stock Option.
2.10 "Option" means an Incentive Stock Option or Non-Qualified Option
granted by the Board under Article V of this Plan in the form of a right to
purchase Stock evidenced by an instrument containing such provisions as the
Board may establish. Except as otherwise expressly provided with respect to an
Option grant, no Option granted pursuant to the Plan shall be an Incentive Stock
Option.
2.11 "Participant" means a person selected by the Committee to receive
an award under the Plan.
2.12 "Plan" means this 1996 Stock Option Plan.
2.13 "Reporting Person" means a person subject to Section 16 of the
Securities Exchange Act of 1934 or any successor provision.
2.14 "Restricted Period" means the period of time selected by the
Committee during which an award may be forfeited by the person.
2.15 "Stock" means the Common Stock, $.01 par value per share, of the
Corporation or any successor, including any adjustments in the event of changes
in capital structure of the type described in Article XI.
-2-
ARTICLE III
ADMINISTRATION OF THE PLAN
3.1 Administration by Board. This Plan shall be administered by the
Board of Directors of the Corporation. The Board may, from time to time,
delegate any of its functions under this Plan to one or more Committees. All
references in this Plan to the Board shall also include the Committee or
Committees, if one or more have been appointed by the Board. From time to time
the Board may increase the size of the Committee or Committees and appoint
additional members thereto, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies however caused, or remove
all members of the Committee or Committees and thereafter directly administer
the Plan. No member of the Board or a Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any options
granted hereunder.
If a Committee is appointed by the Board, a majority of the members of
the Committee shall constitute a quorum, and all determinations of the Committee
under the Plan may be made without notice or meeting of the Committee by a
writing signed by a majority of Committee members. On or after registration of
the Stock under the Securities Exchange Act of 1934, as amended, the Board shall
delegate the power to select directors and officers to receive Awards under the
Plan, and the timing, pricing and amount of such Awards to a Committee, all
members of which shall be "disinterested persons" within the meaning of Rule
16b-3 under that Act.
3.2 Powers. The Board of Directors and/or any Committee appointed by
the Board shall have full and final authority to operate, manage and administer
the Plan on behalf of the Corporation. This authority includes, but is not
limited to:
(a) The power to grant Awards conditionally or unconditionally,
-3-
(b) The power to prescribe the form or forms of any instruments
evidencing Awards granted under this Plan,
(c) The power to interpret the Plan,
(d) The power to provide regulations for the operation of the
incentive features of the Plan, and otherwise to prescribe and
rescind regulations for interpretation, management and
administration of the Plan,
(e) The power to delegate responsibility for Plan operation,
management and administration on such terms, consistent with
the Plan, as the Board may establish,
(f) The power to delegate to other persons the responsibility of
performing ministerial acts in furtherance of the Plan's
purpose, and
(g) The power to engage the services of persons, companies, or
organizations in furtherance of the Plan's purpose, including
but not limited to, banks, insurance companies, brokerage
firms and consultants.
3.3 Additional Powers. In addition, as to each Option to buy Stock of
the Corporation, the Board shall have full and final authority in its
discretion: (a) to determine the number of shares of Stock subject to each
Option; (b) to determine the time or times at which Options will be granted; (c)
to determine the option price of the shares of Stock subject to each Option,
which price shall be not less than the minimum price specified in Article V of
this Plan; (d) to determine the time or times when each Option shall become
exercisable and the duration of the exercise period (including the acceleration
of any exercise period), which shall not exceed the maximum period specified in
Article V; (e) to determine whether each Option granted shall be an Incentive
Stock Option or a Non-qualified Option; and (f) to waive compliance by a
Participant with any obligation to be performed by him under an Option, to waive
any condition or provision of an Option, and to amend or cancel
-4-
any Option (and if an Option is cancelled, to grant a new Option on such terms
as the Board may specify), except that the Board may not take any action with
respect to an outstanding option that would adversely affect the rights of the
Participant under such Option without such Participant's consent. Nothing in the
preceding sentence shall be construed as limiting the power of the Board to make
adjustments required by Article XI.
In no event may the Company grant an Employee any Incentive Stock
Option that is first exercisable during any one calendar year to the extent the
aggregate fair market value of the Stock (determined at the time the options are
granted) exceeds $100,000 (under all stock option plans of the Corporation and
any Affiliated Corporation); provided, however, that this paragraph shall have
no force and effect if its inclusion in the Plan is not necessary for Incentive
Stock Options issued under the Plan to qualify as such pursuant to Section
422(d)(1) of the Code.
ARTICLE IV
ELIGIBILITY
4.1 Eligible Employees. All Employees (including Directors who are
Employees) are eligible to be granted Incentive Stock Option and Non-Qualified
Option Awards under this Plan.
4.2 Consultants, Directors and other Non-Employees. Any Consultant,
Director (whether or not an Employee) and any other Non-Employee is eligible to
be granted Non-Qualified Option Awards under the Plan, provided the person has
not irrevocably elected to be ineligible to participate in the Plan.
4.3 Relevant Factors. In selecting individual Employees, Consultants,
Directors and other Non-Employees to whom Awards shall be granted, the Board
shall weigh such factors as are relevant to accomplish the purpose of the Plan
as stated in Article I. An individual who has been granted an Award may be
granted one or more additional Awards, if the Board so determines. The
-5-
granting of an Award to any individual shall neither entitle that individual to,
nor disqualify him from, participation in any other grant of Awards.
ARTICLE V
Stock Option Awards
5.1 Number of Shares. Subject to the provisions of Article XI of this
Plan, the aggregate number of shares of Stock for which options may be granted
under this Plan shall not exceed eight hundred thousand (800,000) shares. The
shares to be delivered upon exercise of Options under this Plan shall be made
available, at the discretion of the Board, either from authorized but unissued
shares or from previously issued and reacquired shares of Stock held by the
Corporation as treasury shares, including shares purchased in the open market.
Stock issuable upon exercise of an option granted under the Plan may be
subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Board of Directors.
5.2 Effect of Expiration, Termination or Surrender. If an Option under
this Plan shall expire or terminate unexercised as to any shares covered
thereby, or shall cease for any reason to be exercisable in whole or in part, or
if the Company shall reacquire any unvested shares issued pursuant to Options
under the Plan, such shares shall thereafter be available for the granting of
other Options under this Plan.
5.3 Term of Options. The full term of each Option granted hereunder
shall be for such period as the Board shall determine. In the case of Incentive
Stock Options granted hereunder, the term shall not exceed ten (10) years from
the date of granting thereof. Each Option shall be subject to earlier
termination as provided in Sections 6.3 and 6.4. Notwithstanding the foregoing,
the term of options intended to qualify as "Incentive Stock Options" shall not
exceed five (5) years from the
-6-
date of granting hereof if such option is granted to any employee who at the
time such option is granted owns more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company.
5.4 Option Price. The Option price shall be determined by the Board at
the time any Option is granted. In the case of Incentive Stock Options, the
exercise price shall not be less than one hundred percent (100%) of the fair
market value of the shares covered thereby at the time the Incentive Stock
Option is granted (but in no event less than par value), provided that no
Incentive Stock Option shall be granted hereunder to any Employee if at the time
of grant the Employee, directly or indirectly, owns Stock possessing more than
ten percent (10%) of the combined voting power of all classes of stock of the
Corporation and its Affiliated Corporations unless the Incentive Stock Option
price equals not less than one hundred ten percent (110%) of the fair market
value of the shares covered thereby at the time the Incentive Stock Option is
granted.
5.5 Fair Market Value. If, at the time an Option is granted under the
Plan, the Corporation's Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date such Option is granted and
shall mean (i) the average (on that date) of the high and low sales prices of
the Stock on the principal national securities exchange on which the Stock is
traded, if the Stock is then traded on a national securities exchange; or (ii)
the last reported sale price (on that date) of the Stock on the NASDAQ National
Market List, if the Stock is not then traded on a national securities exchange;
or (iii) the closing bid price (or average of bid prices) last quoted (on that
date) by an established quotation service for over-the-counter securities, if
the Stock is not reported on the NASDAQ National Market List. However, if the
Stock is not publicly traded at the time an Option is granted under the Plan,
"fair market value" shall be deemed to be the fair value of the Stock as
-7-
determined by the Board after taking into consideration all factors which it
deems appropriate, including, without limitation, recent sale and offer prices
of the Stock in private transactions negotiated at arm's length.
5.6 Non-Transferability of Options. No Option granted under this Plan
shall be transferable by the grantee otherwise than by will or the laws of
descent and distribution, and such Option may be exercised during the grantee's
lifetime only by the grantee.
5.7 Foreign Nationals. Awards may be granted to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or comply with
applicable laws.
ARTICLE VI
EXERCISE OF OPTION
6.1 Exercise. Each Option granted under this Plan shall be exercisable
on such date or dates and during such period and for such number of shares as
shall be determined pursuant to the provisions of the instrument evidencing such
Option. The Board shall have the right to accelerate the date of exercise of any
option, provided that, the Board shall not accelerate the exercise date of any
Incentive Stock Option granted if such acceleration would violate the annual
vesting limitation contained in Section 422(d)(1) of the Code.
6.2 Notice of Exercise. A person electing to exercise an Option shall
give written notice to the Corporation of such election and of the number of
shares he or she has elected to purchase and shall at the time of exercise
tender the full purchase price of the shares he or she has elected to purchase.
The purchase price can be paid partly or completely in shares of the
Corporation's stock valued at Fair Market Value as defined in Section 5.5
hereof, or by any such other lawful
-8-
consideration as the Board may determine. Until such person has been issued a
certificate or certificates for the shares so purchased and has fully paid the
purchase price for such shares, he or she shall possess no rights of a record
holder with respect to any of such shares. In the event that the Corporation
elects to receive payment for such shares by means of a promissory note, such
note, if issued to an officer, director or holder of 5% or more of the Company's
outstanding Common Stock, shall provide for payment of interest at a rate no
less than the interest rate then payable by the Company to its principal
commercial lender, or if the Company has no loan outstanding to a commercial
lender, then the interest rate payable shall equal the prevailing prime rate of
interest then charged by commercial banks headquartered in Massachusetts (as
determined by the Board of Directors in its reasonable discretion) plus two
percent (2%).
6.3 Option Unaffected by Change in Duties. No Incentive Stock Option
(and, unless otherwise determined by the Board of Directors, no Non-Qualified
Option granted to a person who is, on the date of the grant, an Employee of the
Corporation or an Affiliated Corporation) shall be affected by any change of
duties or position of the optionee (including transfer to or from an Affiliated
Corporation), so long as he or she continues to be an Employee. Employment shall
be considered as continuing uninterrupted during any bona fide leave of absence
(such as those attributable to illness, military obligations or governmental
service) provided that the period of such leave does not exceed ninety (90) days
or, if longer, any period during which such optionee's right to reemployment is
guaranteed by statute. A bona fide leave of absence with the written approval of
the Board shall not be considered an interruption of employment under the Plan,
provided that such written approval contractually obligates the Corporation or
any Affiliated Corporation to continue the employment of the optionee after the
approved period of absence.
-9-
If the optionee shall cease to be an Employee for any reason other than
death, such Option shall thereafter be exercisable only to the extent of the
purchase rights, if any, which have accrued as of the date of such cessation;
provided that (i) the Board may provide in the instrument evidencing any Option
that the Board may in its absolute discretion, upon any such cessation of
employment, determine (but be under no obligation to determine) that such
accrued purchase rights shall be deemed to include additional shares covered by
such Option; and (ii) unless the Board shall otherwise provide in the instrument
evidencing any Option, upon any such cessation of employment, such remaining
rights to purchase shall in any event terminate upon the earlier of (A) the
expiration of the original term of the Option; or (B) where such cessation of
employment is on account of disability, the expiration of one year from the date
of such cessation of employment and, otherwise, the expiration of three months
from such date. For purposes of the Plan, the term "disability" shall mean
"permanent and total disability" as defined in Section 22(e)(3) of the Code.
In the case of a Participant who is not an employee, provisions
relating to the exercisability of an Option following termination of service
shall be specified in the award. If not so specified, all Options held by such
Participant shall terminate on termination of service to the Corporation.
6.4 Death of Optionee. Should an optionee die while in possession of
the legal right to exercise an Option or Options under this Plan, such persons
as shall have acquired, by will or by the laws of descent and distribution, the
right to exercise any Options theretofore granted, may, unless otherwise
provided by the Board in any instrument evidencing any Option, exercise such
Options at any time prior to one year from the date of death; provided, that
such Option or Options shall expire in all events no later than the last day of
the original term of such Option; provided, further, that any such exercise
shall be limited to the purchase rights which have accrued as of the date when
the optionee ceased to be an Employee, whether by death or otherwise, unless the
Board provides
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in the instrument evidencing such Option that, in the discretion of the Board,
additional shares covered by such Option may become subject to purchase
immediately upon the death of the optionee.
ARTICLE VII
REPORTING PERSON LIMITATIONS
To the extent required to qualify for the exemption provided by Rule
16b-3 under the Securities Exchange Act of 1934, and any successor provision, at
least six months must elapse from the date of acquisition of an Option by a
Reporting Person to the date of disposition of such Option (other than upon
exercise) or its underlying Common Stock.
ARTICLE VIII
TERMS AND CONDITIONS OF OPTIONS
Options shall be evidenced by instruments (which need not be identical)
in such forms as the Board may from time to time approve. Such instruments shall
conform to the terms and conditions set forth in Articles V and VI hereof and
may contain such other provisions as the Board deems advisable which are not
inconsistent with the Plan, including restrictions applicable to shares of Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Board may specify that such Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to Incentive Stock Options, or to
such other termination and cancellation provisions as the Board may determine.
The Board may from time to time confer authority and responsibility on one or
more of its own members and/or one or more officers of the Corporation to
execute and deliver such instruments. The proper officers of the Corporation are
authorized and directed to take any and all action necessary or advisable from
time to time to carry out the terms of such instruments.
-11-
ARTICLE IX
BENEFIT PLANS
Awards under the Plan are discretionary and are not a part of regular
salary. Awards may not be used in determining the amount of compensation for any
purpose under the benefit plans of the Corporation, or an Affiliated
Corporation, except as the Board may from time to time expressly provide.
Neither the Plan, an Option or any instrument evidencing an Option confers upon
any Participant any right to continue as an employee of, or consultant or
advisor to, the Company or an Affiliated Corporation or affect the right of the
Corporation or any Affiliated Corporation to terminate them at any time. Except
as specifically provided by the Board in any particular case, the loss of
existing or potential profits granted under this Plan shall not constitute an
element of damages in the event of termination of the relationship of a
Participant even if the termination is in violation of an obligation of the
Corporation to the Participant by contract or otherwise.
ARTICLE X
AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
The Board may suspend the Plan or any part thereof at any time or may
terminate the Plan in its entirety. Awards shall not be granted after Plan
termination. The Board may also amend the Plan from time to time, except that
amendments which affect the following subjects must be approved by stockholders
of the Corporation:
(a) Except as provided in Article XI relative to capital changes, the
number of shares as to which Options may be granted pursuant to
Article V;
(b) The maximum term of Options granted;
(c) The minimum price at which Options may be granted;
(d) The term of the Plan; and
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(e) The requirements as to eligibility for participation in the Plan.
Awards granted prior to suspension or termination of the Plan may
not be cancelled solely because of such suspension or termination,
except with the consent of the grantee of the Award.
ARTICLE XI
CHANGES IN CAPITAL STRUCTURE
The instruments evidencing Options granted hereunder shall be subject
to adjustment in the event of changes in the outstanding Stock of the
Corporation by reason of Stock dividends, Stock splits, recapitalizations,
reorganizations, mergers, consolidations, combinations, exchanges or other
relevant changes in capitalization occurring after the date of an Award to the
same extent as would affect an actual share of Stock issued and outstanding on
the effective date of such change. Such adjustment to outstanding Options shall
be made without change in the total price applicable to the unexercised portion
of such options, and a corresponding adjustment in the applicable option price
per share shall be made. In the event of any such change, the aggregate number
and classes of shares for which Options may thereafter be granted under Section
5.1 of this Plan may be appropriately adjusted as determined by the Board so as
to reflect such change.
Notwithstanding the foregoing, any adjustments made pursuant to this
Article XI with respect to Incentive Stock Options shall be made only after the
Board, after consulting with counsel for the Corporation, determines whether
such adjustments would constitute a "modification" of such Incentive Stock
Options (as that term is defined in Section 424 of the Code) or would cause any
adverse tax consequences for the holders of such Incentive Stock Options. If the
Board determines that such adjustments made with respect to Incentive Stock
Options would constitute a modification of such Incentive Stock Options, it may
refrain from making such adjustments.
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In the event of the proposed dissolution or liquidation of the
Corporation, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as the Board shall determine.
Except as expressly provided herein, no issuance by the Corporation of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. No adjustments
shall be made for dividends paid in cash or in property other than securities of
the Corporation.
No fractional shares shall be issued under the Plan and the optionee
shall receive from the Corporation cash in lieu of such fractional shares.
ARTICLE XII
EFFECTIVE DATE AND TERM OF THE PLAN
The Plan shall become effective on February 12, 1996. The Plan shall
continue until such time as it may be terminated by action of the Board or the
Committee; provided, however, that no Options may be granted under this Plan on
or after the tenth anniversary of the effective date hereof.
ARTICLE XIII
CONVERSION OF ISOS INTO NON-QUALIFIED
OPTIONS; TERMINATION OF ISOS
The Board, at the written request of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's
Incentive Stock Options, that have not been exercised on the date of conversion,
into Non-Qualified Options at any time prior to the expiration of such Incentive
Stock Options, regardless of whether the optionee is an employee of the
Corporation or an Affiliated Corporation at the time of such conversion. Such
actions may include, but not be
-14-
limited to, extending the exercise period or reducing the exercise price of such
Options. At the time of such conversion, the Board or the Committee (with the
consent of the optionee) may impose such conditions on the exercise of the
resulting Non-Qualified Options as the Board or the Committee in its discretion
may determine, provided that such conditions shall not be inconsistent with the
Plan. Nothing in the Plan shall be deemed to give any optionee the right to have
such optionee's Incentive Stock Options converted into Non-Qualified Options,
and no such conversion shall occur until and unless the Board or the Committee
takes appropriate action. The Board, with the optionee's consent, may also
terminate any portion of any Incentive Stock Option that has not been exercised
at the time of such termination.
ARTICLE XIV
APPLICATION OF FUNDS
The proceeds received by the Corporation from the sale of shares
pursuant to Options granted under the Plan shall be used for general corporate
purposes.
ARTICLE XV
GOVERNMENTAL REGULATION
The Corporation's obligation to sell and deliver shares of Stock under
this Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
ARTICLE XVI
WITHHOLDING OF ADDITIONAL INCOME TAXES
Upon the exercise of a Non-Qualified Option or the making of a
Disqualifying Disposition (as defined in Article XVII) the Corporation, in
accordance with Section 3402(a) of the Code, may require the optionee to pay
additional withholding taxes in respect of the amount that is considered
-15-
compensation includible in such person's gross income. The Board in its
discretion may condition the exercise of an Option on the payment of such
additional withholding taxes.
ARTICLE XVII
NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION
Each employee who receives an Incentive Stock Option must agree to
notify the Corporation in writing immediately after the employee makes a
Disqualifying Disposition of any Stock acquired pursuant to the exercise of an
Incentive Stock Option. A Disqualifying Disposition is any disposition
(including any sale) of such Stock before the later of (a) two years after the
date the employee was granted the Incentive Stock Option or (b) one year after
the date the employee acquired Stock by exercising the Incentive Stock Option.
If the employee has died before such stock is sold, these holding period
requirements do not apply and no Disqualifying Disposition can occur thereafter.
ARTICLE XVIII
GOVERNING LAW; CONSTRUCTION
The validity and construction of the Plan and the instruments
evidencing Options shall be governed by the laws of the Commonwealth of
Massachusetts (without regard to the conflict of law principles thereof). In
construing this Plan, the singular shall include the plural and the masculine
gender shall include the feminine and neuter, unless the context otherwise
requires.
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WEBSECURE, INC.
1996 FORMULA STOCK OPTION PLAN
ARTICLE I
PURPOSE OF THE PLAN
The purpose of this Plan is to encourage and enable non-employee
Directors who are in a position to make significant contributions to the success
of WEBSECURE, INC. and of its affiliated corporations upon whose judgment,
initiative and efforts the Corporation depends for the successful conduct of its
business, to acquire a closer identification of their interests with those of
the Corporation by providing them with opportunities to purchase stock in the
Corporation pursuant to options granted hereunder, thereby stimulating their
efforts on behalf of the Corporation and strengthening their desire to remain
involved with the Corporation. Any non-employee Director designated to
participate in the Plan is referred to as a "Participant."
ARTICLE II
DEFINITIONS
2.1 "Affiliated Corporation" means any stock corporation of which a
majority of the voting common or capital stock is owned directly or indirectly
by the Corporation.
2.2 "Award" means an Option granted under Article V.
2.3 "Board" means the Board of Directors of the Corporation or, if one
or more has been appointed, a Committee of the Board of Directors of the
Corporation.
2.4 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
2.5 "Committee" means a Committee of not less than two members of the
Board appointed by the Board to administer the Plan.
2.6 "Corporation" means WEBSECURE, INC. a Delaware corporation.
2.7 "Non-Employee" means any person who, on or after February 12, 1996,
is not a regular full-time or part-time employee of the Corporation or an
Affiliated Corporation or any person who is not an employee of an employee
leasing company under contract with the Corporation who performs services to the
Corporation or an Affiliated Corporation of the type and character normally
performed by employees on a regular full-time or part-time basis.
2.8 "Non-Qualified Option" means any option not intended to qualify as
an Incentive Stock Option.
2.9 "Option" means a Non-Qualified Option granted by the Board under
Article V of this Plan in the form of a right to purchase Stock evidenced by an
instrument containing such provisions as the Board may establish.
2.10 "Participant" means a person who is to receive an award under the
Plan.
2.11 "Plan" means this 1996 Formula Stock Option Plan.
2.12 "Reporting Person" means a person subject to Section 16 of the
Securities Exchange Act of 1934 or any successor provision.
2.13 "Restricted Period" means the period of time selected by the
Committee during which an award may be forfeited by the person.
2.14 "Stock" means the Common Stock, $.01 par value, of the Corporation
or any successor, including any adjustments in the event of changes in capital
structure of the type described in Article XI.
ARTICLE III
ADMINISTRATION OF THE PLAN
3.1 Administration by Board. This Plan may be administered by the Board
of Directors or by a committee of the Board of Directors of the Corporation. If
a committee administers this
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Plan, the Board may, from time to time, increase the size of the Committee or
committees and appoint additional members thereto, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee or committees and
thereafter directly administer the Plan. No member of the Board or a committee
shall be liable for any action or determination made in good faith with respect
to the Plan or any options granted hereunder.
3.2 Powers. The Board of Directors and/or any committee appointed by
the Board shall have full and final authority to operate, manage and administer
the Plan on behalf of the Corporation. This authority includes, but is not
limited to:
(a) The power to grant Awards conditionally or unconditionally,
(b) The power to prescribe the form or forms of any instruments
evidencing Awards granted under this Plan,
(c) The power to interpret the Plan,
(d) The power to delegate responsibility for Plan operation, management
and administration on such terms, consistent with the Plan, as the
Board may establish,
(e) The power to delegate to other persons the responsibility of
performing ministerial acts in furtherance of the Plan's purpose,
and
(f) The power to engage the services of persons, companies, or
organizations in furtherance of the Plan's purpose, including but
not limited to, banks, insurance companies, brokerage firms and
consultants.
-3-
ARTICLE IV Eligibility 4.1 Eligible Persons. All non-employee Directors
are eligible to be granted Non-Qualified Option Awards under this Plan provided
the person has not irrevocably elected to be ineligible to participate in the
Plan.
ARTICLE V
STOCK OPTION AWARDS
5.1 Number of Shares. Subject to the provisions of Article XI of this
Plan, the aggregate number of shares of Stock for which Options may be granted
under this Plan shall not exceed sixty thousand (60,000) shares. Options shall
be granted under this Plan, without approval or discretion on the part of the
Board, to non-employee Directors as follows: Effective June 1, 1996, the
Corporation shall grant to each of its non-employee Directors who has not
otherwise received options under any discretionary stock option plan of the
Company, on the date he or she becomes a Director, options to purchase a total
of 5,000 shares of Stock. The exercise price of options granted to non-employee
Directors shall be the fair market value of the shares of Stock on the date of
the grant and said options shall vest completely and be exercisable one year
from the date of the grant, subject to the Director's continued service as a
Director on such date.
Effective June 1, 1996, the Corporation shall grant to each of its
non-employee Directors who has served as a Director of the Corporation for at
least one full year, options to purchase a total of 1,000 shares of Stock on the
first business day immediately following the Corporation's annual meeting of
shareholders. The exercise price of such options will be the fair market value
of the shares of Stock on the date of the grant. Said options shall vest
completely and be exercisable immediately on the date of the grant. The options
shall be granted to a non-employee Director only
-4-
if the Director is a Director on the date of the grant and has attended, during
the Corporation's fiscal year immediately preceding the grant, at least 75% of
meetings of the Board of Directors and the Committees on which the Director has
served.
The shares to be delivered upon exercise of Options under this Plan
shall be made available, at the discretion of the Board, either from authorized
but unissued shares or from previously issued and reacquired shares of Stock
held by the Corporation as treasury shares, including shares purchased in the
open market.
Stock issuable upon exercise of an option granted under the Plan may be
subject to such restrictions on transfer or repurchase rights as shall be
determined by the Board of Directors.
5.2 Effect of Expiration, Termination or Surrender. If an Option under
this Plan shall expire or terminate unexercised as to any shares covered
thereby, or shall cease for any reason to be exercisable in whole or in part, or
if the Corporation shall reacquire any unvested shares issued pursuant to
Options under the Plan, such shares shall thereafter be available for the
granting of other Options under this Plan.
5.3 Term of Options. Each Option granted hereunder shall be for a term
five (5) years from the date of granting thereof. Each Option shall be subject
to earlier termination as provided in Sections 6.3 and 6.4.
5.4 Fair Market Value. If, at the time an Option is granted under the
Plan, the Corporation's Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date such Option is granted and
shall mean (i) the average (on that date) of the high and low prices of the
Stock on the principal national securities exchange on which the Stock is
traded, if the Stock is then traded on a national securities exchange; or (ii)
the last reported sale price (on that date) of the Stock on the
-5-
NASDAQ National Market List, if the Stock is not then traded on a national
securities exchange; or (iii) the average of the bid and asked prices last
quoted (on that date) by an established quotation service for over-the-counter
securities, if the Stock is not reported on the NASDAQ National Market List.
However, if the Stock is not publicly traded at the time an Option is granted
under the Plan, "fair market value" shall be deemed to be the fair value of the
Stock as determined by the Board after taking into consideration all factors
which it deems appropriate, including, without limitation, recent sale and offer
prices of the Stock in private transactions negotiated at arm's length.
5.5 Non-Transferability of Options. No Option granted under this Plan
shall be transferable by the grantee otherwise than by will or the laws of
descent and distribution, and such Option may be exercised during the grantee's
lifetime only by the grantee.
5.6 Foreign Nationals. Awards may be granted to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or comply with
applicable laws.
ARTICLE VI
EXERCISE OF OPTION
6.1 Exercise. Each Option granted under this Plan shall be exercisable
on such date or dates and during such period and for such number of shares as
shall be determined pursuant to the provisions of the instrument evidencing such
Option. The Board shall have the right to accelerate the date of exercise of any
option.
6.2 Notice of Exercise. A person electing to exercise an Option shall
give written notice to the Corporation of such election and of the number of
shares he or she has elected to purchase and shall at the time of exercise
tender the full purchase price of the shares he or she has elected to
-6-
purchase. The purchase price can be paid partly or completely in shares of the
Corporation's stock valued at Fair Market Value as defined in Section 5.4
hereof, or by any such other lawful consideration as the Board may determine.
Until such person has been issued a certificate or certificates for the shares
so purchased and has fully paid the purchase price for such shares, he or she
shall possess no rights of a record holder with respect to any of such shares.
If the Corporation elects to receive payment for such shares by means of a
promissory note, such note, if issued to an officer, director or holder of 5% or
more of the Corporation's outstanding Common Stock, shall provide for payment of
interest at a rate no less than the interest rate then payable by the
Corporation to its principal commercial lender, or if the Corporation has no
loan outstanding to a commercial lender, then the interest rate payable shall
equal the prevailing prime rate of interest then charged by commercial banks
headquartered in Massachusetts (as determined by the Board of Directors in its
reasonable discretion) plus two percent.
6.3 Option Unaffected by Certain Changes. A Director's term shall be
considered as continuing uninterrupted during any bona fide leave of absence
(such as those attributable to illness, military obligations or governmental
service) provided that the period of such leave does not exceed 90 days or, if
longer, any period during which such optionee's right to reemployment is
guaranteed by statute. A bona fide leave of absence with the written approval of
the Board shall not be considered an interruption of service under the Plan.
If the optionee shall cease to be a Director for any reason other than
death, such Option shall thereafter be exercisable only to the extent of the
purchase rights, if any, which have accrued as of the date of such cessation;
provided that upon any such cessation of service, such remaining rights to
purchase shall in any event terminate upon the expiration of the original term
of the Option.
-7-
6.4 Death of Optionee. Should an optionee die while in possession of
the legal right to exercise an Option or Options under this Plan, such persons
as shall have acquired, by will or by the laws of descent and distribution, the
right to exercise any Options theretofore granted, may, unless otherwise
provided by the Board in any instrument evidencing any Option, exercise such
Options until the expiration of the original term of the Options, provided,
further, that any such exercise shall be limited to the purchase rights that
have accrued as of the date when the optionee ceased to be a Director whether by
death or otherwise.
ARTICLE VII
REPORTING PERSON LIMITATIONS
To the extent required to qualify for the exemption provided by Rule
16b-3 under the Securities Exchange Act of 1934, and any successor provision, at
least six months must elapse from the date of acquisition of an Option by a
Reporting Person to the date of disposition of such Option (other than upon
exercise) or its underlying Common Stock.
ARTICLE VIII
TERMS AND CONDITIONS OF OPTIONS
Options shall be evidenced by instruments (which need not be identical)
in such forms as the Board may from time to time approve. Such instruments shall
conform to the terms and conditions set forth in Articles V and VI hereof and
may contain such other provisions as the Board deems advisable that are not
inconsistent with the Plan, including restrictions applicable to shares of Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Board may specify that such Non-Qualified Option shall be subject to such other
termination and cancellation provisions as the Board may determine. The Board
may from time to time confer authority and responsibility on one or more of its
own members and/or one or more officers of the Corporation to
-8-
execute and deliver such instruments. The proper officers of the Corporation are
authorized and directed to take any and all action necessary or advisable from
time to time to carry out the terms of such instruments.
ARTICLE IX
BENEFIT PLANS
Awards under the Plan are not discretionary. Awards may
not be used in determining the amount of compensation for any purpose under the
benefit plans of the Corporation, or an Affiliated Corporation, except as the
Board may from time to time expressly provide. Neither the Plan, an Option or
any instrument evidencing an Option confers upon any Participant any right to
continue as a Director of, or consultant or advisor to, the Corporation or an
Affiliated Corporation. Except as specifically provided by the Board in any
particular case, the loss of existing or potential profits granted under this
Plan shall not constitute an element of damages in the event of termination of
the relationship of a Participant even if the termination is in violation of an
obligation of the Corporation to the Participant by contract or otherwise.
ARTICLE X
AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
The Board may suspend the Plan or any part thereof at any time or may
terminate the Plan in its entirety. Awards shall not be granted after Plan
termination. The Plan may not be amended more than once every six months, unless
such changes are necessary to comport with changes in the Code, the Employee
Retirement Income Security Act, or the rules thereunder. Subject to the
foregoing, the Board may also amend the Plan from time to time, except that
amendments that affect the following subjects must be approved by stockholders
of the Corporation:
-9-
(a) Except as provided in Article XI relative to capital changes, the
number of shares as to which Options may be granted pursuant to
Article V;
(b) The maximum term of Options granted;
(c) The minimum price at which Options may be granted;
(d) The term of the Plan; and
(e) The requirements as to eligibility for participation in the Plan.
Awards granted prior to suspension or termination of the Plan may
not be cancelled solely because of such suspension or termination,
except with the consent of the grantee of the Award.
ARTICLE XI
CHANGES IN CAPITAL STRUCTURE
The instruments evidencing Options granted hereunder shall be subject
to adjustment in the event of changes in the outstanding Stock of the
Corporation by reason of stock dividends, Stock splits, recapitalizations,
reorganizations, mergers, consolidations, combinations, exchanges or other
relevant changes in capitalization occurring after the date of an Award to the
same extent as would affect an actual share of Stock issued and outstanding on
the effective date of such change. Such adjustment to outstanding Options shall
be made without change in the total price applicable to the unexercised portion
of such options, and a corresponding adjustment in the applicable option price
per share shall be made. In the event of any such change, the aggregate number
and classes of shares for which Options may thereafter be granted under Section
5.1 of this Plan may be appropriately adjusted as determined by the Board so as
to reflect such change.
In the event of the proposed dissolution or liquidation of the
Corporation, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as the Board shall determine.
-10-
Except as expressly provided herein, no issuance by the Corporation of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. No adjustments
shall be made for dividends paid in cash or in property other than securities of
the Corporation.
No fractional shares shall be issued under the Plan and the optionee
shall receive from the Corporation cash in lieu of such fractional shares.
ARTICLE XII
EFFECTIVE DATE AND TERM OF THE PLAN
The Plan shall become effective on February 12, 1996. The Plan shall
continue until such time as it may be terminated by action of the Board or the
Committee; provided, however, that no Options may be granted under this Plan on
or after the tenth anniversary of the effective date hereof.
ARTICLE XIII
APPLICATION OF FUNDS
The proceeds received by the Corporation from the sale of shares
pursuant to Options granted under the Plan shall be used for general corporate
purposes.
ARTICLE XIV
GOVERNMENTAL REGULATION
The Corporation's obligation to sell and deliver shares of Stock under
this Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
ARTICLE XV
WITHHOLDING OF ADDITIONAL INCOME TAXES
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Upon the exercise of a Non-Qualified Option the Corporation, in
accordance with Section 3402(a) of the Code, may require the optionee to pay
additional withholding taxes in respect of the amount that is considered
compensation includible in such person's gross income. The Board in its
discretion may condition the exercise of an Option on the payment of such
additional withholding taxes.
ARTICLE XVI
GOVERNING LAW; CONSTRUCTION
The validity and construction of the Plan and the instruments
evidencing Options shall be governed by the internal laws of the Commonwealth of
Massachusetts (without regard to the conflict of law principles thereof). In
construing this Plan, the singular shall include the plural and the masculine
gender shall include the feminine and neuter, unless the context otherwise
requires.
-12-
KEY EMPLOYEE AGREEMENT
To: Robert Kuzara As of April 1, 1996
19 Smith Farm Trail
Lynnfield, Massachusetts 01940
The undersigned, WebSecure, Inc., a Delaware corporation (the
"Company"), hereby agrees with you as follows:
1. POSITION AND RESPONSIBILITIES.
1.1 You shall serve as President and Chief Executive Officer
for the Company, and shall perform the duties customarily associated with such
capacity from time to time and at such place or places as are appropriate and
necessary in connection with such employment.
1.2 You will, to the best of your ability, devote your full
time and best efforts to the performance of your duties hereunder and the
business and affairs of the Company. You agree to perform such executive duties
as may be assigned to you by or on authority of the Company's Board of Directors
from time to time. After receipt of notice of termination of your employment
hereunder pursuant to Section 2, you shall continue to be available to the
Company for up to twenty (20) hours per week for a period of up to four (4)
weeks to assist in any necessary transition, with your compensation for that
period based on terms mutually acceptable to you and the Company.
1.3 You will duly, punctually and faithfully perform and
observe any and all rules and regulations which the Company may now or shall
hereafter establish governing the conduct of its business.
2. TERM OF EMPLOYMENT.
2.1 The term (the "Term") of this Agreement shall be for the
period of years set forth on Exhibit A annexed hereto commencing with the
effective date hereof. Thereafter, this Agreement shall be automatically renewed
for successive periods of one (1) year, unless the Company or you shall give the
other not less than three (3) months prior written notice of non-renewal. Your
employment with the Company may be terminated at any time only as provided in
Section 2.2.
2.2 The Company shall have the right, on written notice to
you, to terminate your employment:
(a) immediately at any time for cause; or
(b) at any time without cause provided the Company shall
pay you severance payments set forth in Section 2.4,
herein or
(c) or by not renewing this Agreement pursuant to
Section 2.1 hereof.
2.3 For purposes of Section 2.2, the term "cause" shall mean:
(a) Your intentional failure or refusal to
substantially perform the services specified herein other than any such
failure resulting from your incapacity due to physical disability;
(b) conviction of a felony;
(c) fraud or embezzlement involving the assets
of the Company, its customers, suppliers or affiliates;
provided, however, that prior to any such termination, you have had a reasonable
opportunity to be heard thereon. Further, any dispute, controversy, or claim
arising out of, in connection with, or in relation to this definition of "cause"
shall be settled by arbitration in Boston, Massachusetts, pursuant to the rules
then in effect of the American Arbitration Association. Any award or
determination shall be final, binding, and conclusive upon the parties, and a
judgment rendered may be entered in any court having jurisdiction thereof.
2.4 If at any time (i) the Company or a substantial portion of the
Company is acquired without your consent, (ii) your employment is terminated
without cause, (iii) your salary is reduced without your consent, (iv) there is
a substantial change in your position or authority within the Company without
your consent, or (v) there is a change of your principle place of employment
from the greater Boston, Massachusetts area without your consent, then (i) the
Company shall be obligated to pay to you within thirty (30) days of the date of
your termination, as severance pay, an amount equal to your Base Salary (as set
forth on Exhibit A hereto) that would have been due to you during the remainder
of the Term, less applicable taxes, other required withholdings and any amounts
you may owe to the Company and (ii) all unvested stock options held by you shall
vest within thirty (30) days of the date of your termination.
2.5 You shall have the right to terminate this Agreement for
any reason upon not less than ninety (90) days prior written notice to the
Company.
-2-
3. COMPENSATION. You shall receive the compensation and benefits set
forth on Exhibit A hereto ("Compensation") for all services to be rendered by
you hereunder and for your transfer of property rights pursuant to an agreement
relating to proprietary information and inventions of even date herewith
attached hereto as Exhibit C between you and the Company (the "Proprietary
Information and Inventions Agreement").
4. OTHER ACTIVITIES DURING EMPLOYMENT.
4.1 Except for any outside employments and directorships
currently held by you as listed on Exhibit B hereto, and except with the prior
written consent of the Company's Board of Directors, you will not during the
term of this Agreement undertake or engage in any other employment, occupation
or business enterprise other than one in which you are an inactive investor.
4.2 You hereby agree that, except as disclosed on Exhibit B
hereto, during your employment hereunder, you will not, directly or indirectly,
engage (a) individually, (b) as an officer, (c) as a director, (d) as an
employee, (e) as a consultant, (f) as an advisor, (g) as an agent (whether a
salesperson or otherwise), (h) as a broker, or (i) as a partner, coventurer,
stockholder or other proprietor owning directly or indirectly more than five
percent (5%) interest in any firm, corporation, partnership, trust, association,
or other organization which is engaged in any line of business engaged in or
under demonstrable development by the Company (such firm, corporation,
partnership, trust, association, or other organization being hereinafter
referred to as a "Prohibited Enterprise"). Except as may be shown on Exhibit C
hereto, you hereby represent that you are not engaged in any of the foregoing
capacities (a) through (i) in any Prohibited Enterprise.
5. FORMER EMPLOYERS.
5.1 You represent and warrant that your employment by the
Company will not conflict with and will not be constrained by any prior or
current employment, consulting agreement or relationship whether oral or
written. You represent and warrant that you do not possess confidential
information arising out of any such employment, consulting agreement or
relationship which, in your best judgment, would be utilized in connection with
your employment by the Company in the absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you
should find that confidential information belonging to any other person or
entity might be usable in connection with the Company's business, you will not
intentionally disclose to the Company or use on behalf of the Company any
confidential information belonging to any of your former employers; but during
your employment by the Company you will use in the performance of your duties
all information which is generally known and used by persons with training and
experience comparable to your own all information which is common knowledge in
the industry or otherwise legally in the public domain.
6. PROPRIETARY INFORMATION AND INVENTIONS. You agree to execute,
deliver and be bound by the provisions of the Proprietary Information and
Inventions Agreement.
-3-
7. POST-EMPLOYMENT ACTIVITIES.
7.1 For a period of one (1) year after your termination with
cause or the expiration of your employment with the Company hereunder, absent
the Company's prior written approval, you will not directly or indirectly engage
in activities similar or reasonably related to those in which you shall have
engaged hereunder during the one (1) year immediately preceding termination or
expiration, nor render services similar or reasonably related to those which you
shall have rendered hereunder during such one (1) year to any person or entity
whether now existing or hereafter established which directly competes with (or
proposes or plans to directly compete with) the Company ("Direct Competitor") in
any line of business engaged in or under development by the Company. Nor shall
you entice, induce or encourage any of the Company's other employees to engage
in any activity which, were it done by you, would violate any provision of the
Proprietary Information and Inventions Agreement or this Section 7. As used in
this Section 7.1, the term "any line of business engaged in or under development
by the Company" shall be applied as at the date of termination of your
employment, or, if later, as at the date of termination of any post-employment
consulting arrangement.
7.2 For a period of one (1) year after the termination of your
employment with the Company, the provisions of Section 4.2 shall be applicable
to you and you shall comply therewith. As applied to such one (1) year
post-employment period, the term "any other line of business engaged in or under
development by the Company," as used in Section 4.2, shall be applied as at the
date of termination of your employment with the Company or, if later, as at the
date of termination of any post-employment consulting arrangement with the
Company.
7.3 No provision of this Agreement shall be construed to
preclude you from performing the same services which the Company hereby retains
you to perform for any person or entity which is not a Direct Competitor of the
Company upon the expiration or termination of your employment (or any
post-employment consulting arrangement) so long as you do not thereby violate
any term of the Proprietary Information and Inventions Agreement.
8. REMEDIES. Your obligations under the Proprietary Information and
Inventions Agreement and the provisions of Sections 6, 7, 8 and 9 of this
Agreement (as modified by Section 10, if applicable) shall survive the
expiration or termination of your employment (whether through your resignation
or otherwise) with the Company. You acknowledge that a remedy at law for any
breach or threatened breach by you of the provisions of the Proprietary
Information and Inventions Agreement or Section 7 would be inadequate and you
therefore agree that the Company shall be entitled to such injunctive relief in
case of any such breach or threatened breach.
9. ASSIGNMENT. This Agreement and the rights and obligations of the
parties hereto shall bind and inure to the benefit of any successor or
successors of the Company by reorganization, merger or consolidation and any
assignee of all or substantially all of its business and properties, but, except
as to any such successor or assignee of the Company, neither this Agreement nor
any rights or benefits hereunder may be assigned by the Company or by you,
except by operation of law.
-4-
10. INTERPRETATION. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT in case any one or more of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by limiting and reducing it as determined by a court of competent
jurisdiction, so as to be enforceable to the extent compatible with applicable
law.
11. NOTICES. Any notice which the Company is required to or may desire
to give you shall be given by personal delivery or registered or certified mail,
return receipt requested, addressed to you at your address of record with the
Company, or at such other place as you may from time to time designate in
writing. Any notice which you are required or may desire to give to the Company
hereunder shall be given by personal delivery or by registered or certified
mail, return receipt requested, addressed to the Company at its principal
office, or at such other office as the Company may from time to time designate
in writing. The date of personal delivery or the date of mailing any notice
under this Section 11 shall be deemed to be the date of delivery thereof.
12. WAIVERS. If either party should waive any breach of any provision
of this Agreement, such party shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
13. COMPLETE AGREEMENT; AMENDMENTS. The foregoing including Exhibits A,
B and C hereto, is the entire agreement of the parties with respect to the
subject matter hereof, superseding any previous oral or written communications,
representations, understandings, or agreements with the Company or any officer
or representative thereof. Any amendment to this Agreement or waiver by the
Company of any right hereunder shall be effective only if evidenced by a written
instrument executed by the parties hereto, upon authorization of the Company's
Board of Directors.
14. HEADINGS. The headings of the Sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning of this Agreement.
15. COUNTERPARTS. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
16. GOVERNING LAW. This Agreement shall be governed by and construed
under Massachusetts law.
If you are in agreement with the foregoing, please sign your name below
and also at the bottom of the Proprietary Information and Inventions Agreement,
whereupon this Agreement shall become binding in accordance with its terms.
Please then return this Agreement to the Company.
-5-
(You may retain for your records the accompanying counterpart of this Agreement
enclosed herewith).
Very truly yours,
WEBSECURE, INC.
By:
-----------------------------------------
Carole Ouellette, Chief Financial Officer
Accepted and Agreed:
- ------------------------------------
Robert Kuzara
-6-
EXHIBIT A
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF ROBERT KUZARA
1. TERM. The term of the Agreement to which this Exhibit A is annexed and
incorporated shall be until April 4, 1999.
2. COMPENSATION.
(a) Base Salary. our Base Salary shall be $150,000 per annum,
payable in accordance with the Company's payroll policies.
(b) Bonuses. You shall be entitled to participate in the Bonus
Plan established by the Board of Directors for the President
of the Company, as attached to this Agreement such bonuses as
may be determined by the Company's Board of Directors.
3. VACATION. You shall be entitled to all legal and religious holidays,
and four (4) weeks paid vacation per annum.
4. INSURANCE AND BENEFITS. You shall be eligible for participation in any
health or other group insurance plan which may be established by the
Company or which the Company is required to maintain by law. You shall
also be eligible to receive any other benefits which are provided to
any of the executive officers of the Company.
5. STOCK OPTIONS. You shall be entitled to Stock Options as determined by
the Board of Directors.
-7-
EXHIBIT B
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS OF
ROBERT KUZARA
Employee Resources, Inc. - Director and Officer
Business Solutions, Inc. - Director and Officer
B-1
EXHIBIT C
-----------------
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
-----------------
To: WebSecure, Inc. As of April 1, 1996
1711 Broadway
Corporate Center North
Saugus, Massachusetts 01906
The undersigned, in consideration of and as a condition of my
employment or continued employment by you and/or by companies which you own,
control, or are affiliated with or their successors in business (collectively,
the "Company"), hereby agrees as follows:
1. CONFIDENTIALITY. I agree to keep confidential, except as the Company
may otherwise consent in writing, and, except for the Company's benefit, not to
disclose or make any use of at any time either during or subsequent to my
employment, any Inventions (as hereinafter defined), trade secrets, confidential
information, knowledge, data or other information of the Company relating to
products, processes, know-how, designs, formulas, test data, customer lists,
business plans, marketing plans and strategies, pricing strategies, or other
subject matter pertaining to any business of the Company or any of its
affiliates, which I may produce, obtain, or otherwise acquire during the course
of my employment, except as herein provided. I further agree not to deliver,
reproduce or in any way allow any such trade secrets, confidential information,
knowledge, data or other information, or any documentation relating thereto, to
be delivered to or used by any third parties without specific direction or
consent of a duly authorized representative of the Company.
2. CONFLICTING EMPLOYMENT; RETURN OF CONFIDENTIAL MATERIAL. I agree
that during my employment with the Company I will not engage in any other
employment, occupation, consulting or other activity relating to the business in
which the Company is now or may hereafter become engaged, or which would
otherwise conflict with my obligations to the Company. In the event my
employment with the Company terminates for any reason whatsoever, I agree to
promptly surrender and deliver to the Company all records, materials, equipment,
drawings, documents and data which I may obtain or produce during the course of
my employment, and I will not take with me any description containing or
pertaining to any confidential information, knowledge or data of the Company
which I may produce or obtain during the course of my employment.
C-1
3. ASSIGNMENT OF INVENTIONS.
3.1 I hereby acknowledge and agree that the Company is the
owner of all Inventions. In order to protect the Company's rights to such
Inventions, by executing this Agreement I hereby irrevocably assign to the
Company all my right, title and interest in and to all Inventions to the
Company.
3.2 For purposes of this Agreement, "Inventions" shall mean
all discoveries, processes, designs, technologies, devices, or improvements in
any of the foregoing or other ideas, whether or not patentable and whether or
not reduced to practice, made or conceived by me (whether solely or jointly with
others) during the period of my employment with the Company which relate in any
manner to the actual or demonstrably anticipated business, work, or research and
development of the Company, or result from or are suggested by any task assigned
to me or any work performed by me for or on behalf of the Company.
3.3 Any discovery, process, design, technology, device, or
improvement in any of the foregoing or other ideas, whether or not patentable
and whether or not reduced to practice, made or conceived by me (whether solely
or jointly with others) which I develop entirely on my own time not using any of
the Company's equipment, supplies, facilities, or trade secret information
("Personal Invention") is excluded from this Agreement provided such Personal
Invention (a) does not relate to the actual or demonstrably anticipated
business, research and development of the Company, and (b) does not result,
directly or indirectly, from any work performed by me for the Company.
4. Disclosure of Inventions. I agree that in connection with any
Invention, I will promptly disclose such Invention to my immediate superior at
the Company in order to permit the Company to enforce its property rights to
such Invention in accordance with this Agreement. My disclosure shall be
received in confidence by the Company.
5. PATENTS AND COPYRIGHTS; EXECUTION OF DOCUMENTS.
5.1 Upon request, I agree to assist the Company or its nominee
(at its expense) during and at any time subsequent to my employment in every
reasonable way to obtain for its own benefit patents and copyrights for
Inventions in any and all countries. Such patents and copyrights shall be and
remain the sole and exclusive property of the Company or its nominee. I agree to
perform such lawful acts as the Company deems to be necessary to allow it to
exercise all right, title and interest in and to such patents and copyrights.
5.2 In connection with this Agreement, I agree to execute,
acknowledge and deliver to the Company or its nominee upon request and at its
expense all documents, including assignments of title, patent or copyright
applications, assignments of such applications, assignments of patents or
copyrights upon issuance, as the Company may determine necessary or desirable to
C-2
protect the Company's or its nominee's interest in Inventions, and/or to use in
obtaining patents or copyrights in any and all countries and to vest title
thereto in the Company or its nominee to any of the foregoing.
6. MAINTENANCE OF RECORDS. I agree to keep and maintain adequate and
current written records of all Inventions made by me (in the form of notes,
sketches, drawings and other records as may be specified by the Company), which
records shall be available to and remain the sole property of the Company at all
times.
7. PRIOR INVENTIONS. It is understood that all Personal Inventions, if
any, whether patented or unpatented, which I made prior to my employment by the
Company, are excluded from this Agreement. To preclude any possible uncertainty,
I have set forth on Schedule A attached hereto a complete list of all of my
prior Personal Inventions, including numbers of all patents and patent
applications and a brief description of all unpatented Personal Inventions which
are not the property of a previous employer. I represent and covenant that the
list is complete and that, if no items are on the list, I have no such prior
Personal Inventions. I agree to notify the Company in writing before I make any
disclosure or perform any work on behalf of the Company which appears to
threaten or conflict with proprietary rights I claim in any Personal Invention.
In the event of my failure to give such notice, I agree that I will make no
claim against the Company with respect to any such Personal Invention.
8. OTHER OBLIGATIONS. I acknowledge that the Company from time to time
may have agreements with other persons or with the U.S. Government or agencies
thereof, which impose obligations or restrictions on the Company regarding
Inventions made during the course of work thereunder or regarding the
confidential nature of such work. I agree to be bound by all such obligations
and restrictions and to take all action necessary to discharge the Company's
obligations.
9. TRADE SECRETS OF OTHERS. I represent that my performance of all the
terms of this Agreement and my position as an employee of the Company do not and
will not breach any agreement to keep confidential proprietary information,
knowledge or data acquired by me in confidence or in trust prior to my
employment with the Company, and I will not disclose to the Company, or induce
the Company to use, any confidential or proprietary information or material
belonging to any previous employer or others. I agree not to enter into any
agreement either written or oral in conflict herewith.
10. MODIFICATION. I agree that any subsequent change or changes in my
employment duties, salary or compensation or, if applicable, in any Employment
Agreement between the Company and me, shall not affect the validity or scope of
this Agreement.
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon my
heirs, executors, administrators or other legal representatives and is for the
benefit of the Company, its successors and assigns.
C-3
12. INTERPRETATION. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT in case any one or more of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by limiting and reducing it in accordance with a judgment of a court
of competent jurisdiction, so as to be enforceable to the extent compatible with
applicable law.
13. WAIVERS. If either party should waive any breach of any provision
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
14. COMPLETE AGREEMENT, AMENDMENTS. I acknowledge receipt of this
Agreement, and agree that with respect to the subject matter thereof it is my
entire agreement with the Company, superseding any previous oral or written
communications, representations, understandings, or agreements with the Company
or any officer or representative thereof. Any amendment to this Agreement or
waiver by either party of any right hereunder shall be effective only if
evidenced by a written instrument executed by the parties hereto, and, in the
case of the Company, upon written authorization of the Company's Board of
Directors.
15. HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
16. COUNTERPARTS. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
C-4
17. GOVERNING LAW. This Agreement shall be governed and construed under
Massachusetts law.
---------------------------------
Robert Kuzara
Accepted and Agreed:
WEBSECURE, INC.
By:
- --------------------------------------------
Carole Ouellette, Chief Financial Officer
C-5
SCHEDULE A
LIST OF PRIOR INVENTIONS
Identifying Number of patents and patent applications
Title Date or Brief Description of unpatented personal invention
- ----- ---- -----------------------------------------------------
C-6
NAME OF OFFEREE:
-----------------
NETSAFE(TM), INC.
LIMITED OFFERING
FOR ACCREDITED INVESTORS ONLY
SUBSCRIPTION AGREEMENT
NOVEMBER 27, 1995
INSTRUCTIONS
------------
1. Fill in missing information on page 1 and in Sections 6.1 and 6.2.
2. Complete and sign the Subscription Agreement in Section 6.2.
3. Return the Subscription Agreement to O'Connor, Broude & Aronson, 950
Winter Street, Suite 2300, Waltham, Massachusetts 02154, Attention:
Andrew D. Myers, Esquire.
SUBSCRIPTION AGREEMENT
Limited Offering of up to 500,000 Shares of Common Stock,
$.01 par value per share, at $4.00 per Share,
of Netsafe, Inc.
(a) Number of Shares subscribed for ________
(b) Total Subscription Price
(multiply (a) by $4.00 per Share) $_______
THE UNDERSIGNED ("Subscriber") hereby subscribes for the number of
shares of Common Stock, $.01 par value per share (the "Shares"), offered by
Netsafe, Inc., a Delaware corporation (the "Company"), set forth in (a) above.
The Subscriber hereby agrees to pay the amount set forth in (b) above
upon execution of this Agreement, subject to and in accordance with the
following terms, conditions, and investment risks.
SECTION 1. SUBSCRIPTION FOR SHARES
1.1 Subscriber hereby deposits with O'Connor, Broude & Aronson, as
escrow agent for Netsafe, Inc.,the amount set forth in (b) above via wire
transfer, certified or bank check to Cambridge Trust Company, Cambridge,
Massachusetts, ABA #011300595, Account #57-240-3-01, for credit to or drawn to
the order of "O'Connor, Broude & Aronson - Client Fund Account for Netsafe,
Inc." Upon acceptance of this Agreement, the Company may immediately use the
funds deposited for working capital and general corporate purposes. Should this
Agreement not be accepted by the Company, the funds shall be promptly returned
to the Subscriber without interest thereon.
1.2 The Company shall deliver to the Subscriber a stock certificate
representing the Shares of Common Stock purchased by Subscriber hereunder,
registered in the Subscriber's name promptly following acceptance of this
Subscription Agreement by the Company. The Shares issued hereunder, when
delivered to the Subscriber in accordance with the terms hereof, shall be duly
authorized by appropriate corporate action and shall constitute validly issued
and outstanding securities of the Company.
1.3 Subscriber hereby understands and agrees that the Company reserves
the right to reject this subscription for the Shares, as a whole or in part, if
in the Company's judgment it deems such action to be in the best interest of the
Company. In the event of rejection of this Subscription,
-1-
said payment will promptly be returned to Subscriber without interest or
deduction, and to the extent applicable, this Subscription Agreement shall have
no force or effect.
1.4 Subscriber agrees that he will not transfer or assign this
Subscription Agreement or any of Subscriber's interest herein. Subscriber may
not cancel, terminate or revoke this Subscription Agreement, and this
Subscription Agreement will be binding upon Subscriber's successors and assigns.
1.5 The Subscriber undertakes to execute and deliver to the Company
within ten (10) days after receipt of the Company's request therefor, such
further designations, powers of attorney and other instruments as the Company
deems necessary or appropriate to carry out the provisions of this Agreement.
1.6 The Subscriber acknowledges that the Shares are being sold to him
pursuant to exemptions from the registration provisions of the Act and the
securities laws of the state of his legal residence, in reliance upon the
representations made by the Subscriber herein.
THE SUBSCRIBER UNDERSTANDS THAT AN INVESTMENT IN THE SECURITIES OF THE
COMPANY INVOLVES A HIGH DEGREE OF RISK AND HE HAS CAREFULLY CONSIDERED THE
IMPACT OF THE RISKS IDENTIFIED UNDER "RISK FACTORS" IN THE ACCOMPANYING
CONFIDENTIAL LIMITED OFFERING MEMORANDUM.
SECTION 2. REPRESENTATIONS, WARRANTIES, ACKNOWLEDGEMENTS AND COVENANTS
OF SUBSCRIBERS
The Subscriber acknowledges that the Company is offering the Shares in
reliance upon the representations, warranties, covenants and other information
presented by the Subscriber herein. The Subscriber undertakes to notify the
Company immediately of any changes in any of the representations, warranties,
and other information contained herein.
In order to induce the Company to accept the subscription made hereby,
the Subscriber hereby represents, warrants, acknowledges and covenants to the
Company as follows:
2.1 Sophistication. The Subscriber acknowledges that he or she has
prior investment experience, including investment in non-listed and
non-registered securities, or that he or she has employed the services of an
investment advisor, attorney or accountant to read all of the documents
furnished or made available by the Company both to him or her and to all other
prospective subscribers in connection with this Limited Offering and to evaluate
the merits and risks of such an investment on his or her behalf.
2.2 Access to Information. The Subscriber acknowledges that he and his
representatives, if any, have reviewed the Company's Confidential Limited
Offering Memorandum, dated November
-2-
27, 1995 (the "Memorandum"), and have been given access through meetings with
representatives of the Company to current and other information about the
Company as well as an opportunity to ask questions of the Company's officers and
directors about the information to which he and his representatives have been
given access. The Subscriber understands all of the risk factors related to the
purchase of the Shares, including those described under "Risk Factors" in the
Memorandum. The Subscriber or his legal counsel or investment advisor has been
given a full opportunity to ask questions of, and to receive answers from, the
Company and its officers and directors concerning the terms and conditions of
the offering and the business of the Company and to obtain additional
information necessary to verify the accuracy of the information concerning the
Company, or such other information as he or his legal counsel or investment
advisor desired in order to evaluate an investment in the Shares, and all such
questions have been answered to the full satisfaction of the undersigned.
2.3 Investment Representation. The Subscriber represents that he is
acquiring the securities hereunder for his own account and not with a view to
reselling or otherwise distributing such securities in violation of any federal
securities laws and understands and agrees that the securities to be issued
hereunder are restricted on transfer and must be held unless they are registered
under the Securities Act or an exemption from registration is available, and the
Company has received an opinion of counsel, in form and substance satisfactory
to it, to such effect.
2.4 Authority. The Subscriber represents that he has full legal power
and authority to enter into this Subscription Agreement and to purchase the
Shares.
2.5 Decision to Invest. In making his decision to purchase the Shares
herein subscribed for, the Subscriber has relied solely upon the information
about the Company provided to him and upon independent investigations made by
him or his legal counsel or investment advisor. He is not relying on any
representations or warranties from the Company or any of its officers,
directors, affiliates, employees or agents other than the information provided
by the Company to him in this offering.
2.6 Unregistered Securities. The Subscriber understands that the Shares
have not been registered under the Securities Act of 1933, as amended (the
"Act"), in reliance upon specific exemptions from registration thereunder, and
understands that it is not anticipated that there will be any market for resale
of the Shares and that it may not be possible for the undersigned to liquidate
an investment in the Shares on an emergency basis.
2.7 No State Review. The Subscriber acknowledges that the Shares are
being sold pursuant to exemptions from the registration requirements of the
state indicated as the Subscriber's state of residence, that no securities
commission or regulatory authority has approved, passed upon, or endorsed the
merits of this Offering, nor is it intended that any such agency will do so. Any
representation to the contrary is unlawful.
-3-
2.8 State Residence Status. The Subscriber represents that he is a
resident and domiciliary (not a temporary or transient resident) of the state,
county, and country set forth below, has no present intention to become a
resident of any other jurisdiction, and all communications, written or oral,
concerning the Shares have been directed to the Subscriber in, and received by
him in, such state jurisdiction.
2.9 No Representation on Company's Results of Operations. There has
never been represented, guaranteed, or warranted to the Subscriber by any
broker, the Company, its officers, directors or agents, or employees or any
other person, expressly or by implication the level of future revenues or
profitability of the Company
2.10 Non-Transferability of the Shares. The Subscriber recognizes that
the Shares cannot be sold or otherwise transferred without registration under
the the Act and any applicable state laws or an opinion of counsel, concurred in
by counsel for the Company, has been delivered to the effect that registration
of such securities is not required because of exemptions therefrom. The
Subscriber further recognizes: (i) that restrictive legends will appear on the
certificates or other documents evidencing the securities stating that the
securities have not been registered under the Act or any state securities or
"blue sky" laws and setting forth the restrictions on the sale and transfer of
the securities; (ii) that the Company's transfer agent will be given stop
transfer orders and other instructions, or notations will be made in the
appropriate Company records, concerning these restrictions; and (iii) that there
are no buy back rights for the Company or for subscribers for the Shares. These
restrictions shall obligate all successors in the interest to such Shares. In
addition, Subscriber agrees that he or she will not transfer, pledge,
hypothecate or assign the Shares for a period of nine months following an
initial public offering of Common Stock of the Company. Subscriber agrees to
sign any lock-up or similar letter required by a managing underwriter of such
initial public offering, if any, to further evidence such agreement.
2.11 Accredited Investor. The Subscriber acknowledges that he or she
must be an Accredited Investor, as described herein, to qualify for the purchase
of the shares of Common Stock, and that he or she must be able to bear the
economic risk of this investment.
2.12 No Public Market for Shares. The Subscriber understands that no
public market for the Company's Common Stock exists, that no public market may
ever develop for the Common Stock, and that the Shares may never qualify for an
exemption from registration under the Securities Laws. The Subscriber
understands and hereby acknowledges that the Company is under no obligation to
register the Shares under the Securities Laws, or to take any action to qualify
the Shares under any exemption from registration under the Securities Laws.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Subscribers that as
of the date hereof, except as otherwise set forth herein:
-4-
3.1 Organization and Corporate Power. The Company is a Company duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and is qualified to do business as a foreign Company in each
jurisdiction in which such qualification is required, except where failure so to
qualify would not have a material adverse effect on the Company. The Company has
all required corporate power and authority to own its property, to carry on its
business as presently conducted or contemplated, to enter into and perform this
Agreement and generally to carry out the transactions contemplated hereby.
3.2 Capitalization. As of the date of this Agreement, the authorized
capital stock of the Company consists of 2,000,000 shares of Common Stock, $.01
par value per share, 807,500 of which are issued and outstanding. Two former
employees of the Company have advised the Company that they believe they have
rights of ownership to an additional 70,000 shares of the Company's Common Stock
in the aggregate. The Company disputes these claims and believes them to be
without merit. The Company is currently engaged in discussions with these
employees to resolve this dispute and cannot currently predict the outcome of
such discussions. A resolution of these claims could result in the issuance of
up to or in excess of 70,000 shares, which would result in additional dilution
to Subscriber.
3.3 Authorization. This Agreement, and all documents and instruments
executed pursuant hereto, are legal, valid and binding obligations of the
Company, enforceable in accordance with their terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws applicable to
creditors' rights and remedies and to the exercise of judicial discretion in
accordance with general principles of equity. The execution, delivery and
performance of this Agreement and the issuance of the shares of Common Stock
have been duly authorized by all necessary corporate or other action of the
Company.
SECTION 4. RISK FACTORS. The Shares offered hereby involves a high
degree of risk. Subscribers should carefully consider the information presented
under "Risk Factors" in the Memorandum.
SECTION 5. MISCELLANEOUS PROVISIONS
5.1 Definition of Common Stock. As used in this Agreement, the term
"Common Stock" shall mean and include the Company's authorized Common Stock,
$.01 par value per share.
5.2 Use of Speech. All pronouns contained herein and any variations
thereof, shall be deemed to refer to the masculine, feminine or neuter, singular
or plural, as the identity of the parties may require.
5.3 Waiver. No waiver of any right under this Agreement shall be deemed
effective unless contained in a writing signed by the party charged with such
waiver, and no waiver of any right arising from any breach or failure to perform
shall be deemed to be a waiver of any future such right or of any other right
arising under this Agreement.
-5-
5.4 Entire Agreement; Modification. This Agreement constitutes the
entire agreement between the parties and supersedes any prior understanding or
agreements concerning the subject matter hereof. This Agreement may not be
amended, modified, or terminated except by a written instrument signed by the
Company.
5.5 Severability. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any other
provision.
5.6 Governing Law. This Agreement shall be deemed to have been made and
defined in the Commonwealth of Massachusetts and the validity and interpretation
hereof and thereof and the performance hereunder and thereunder shall be
governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts (without regard to the conflict of law principles thereof).
Subscriber agrees that any disputes arising with respect to or in connection
with this Agreement shall be finally decided in accordance with the rules of
arbitration.
5.7 Notices. All notices, requests, and communications related to this
Agreement will be deemed given if and when delivered personally or sent by
registered or certified mail, return receipt requested, postage prepaid, to the
Company at Netsafe, Inc., 1711 Broadway, Corporate Center North, Saugus,
Massachusetts 01906, with a copy to Andrew D. Myers, Esquire, O'Connor, Broude &
Aronson, 950 Winter Street, Suite 2300, Waltham, Massachusetts 02154, and to the
Subscriber at the address set forth below, or, as to each of the foregoing, at
such other address as shall be designated by the addressee in a written notice
to the other parties complying as to delivery with the terms of this Section 5.7
Notwithstanding anything to the contrary contained in this Agreement, all
notices, requests, demands and other communications shall be effective when
received.
5.8 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties
hereto and their respective legal representatives and successors.
5.9 Headings. Headings contained in this Agreement are only as a matter
of convenience and in no way define, limit, extend, or describe the scope of
this Agreement or the intent of any provisions hereof.
5.10 Unenforceability. If any provision of this Agreement is or becomes
or is deemed invalid, illegal, or unenforceable in any jurisdiction, to the
maximum extent permissible, such provision shall be deemed amended to conform to
applicable laws so as to be materially altering the intention of the parties, it
shall be stricken and the remainder of this Agreement shall remain in full force
and effect.
5.11 Assignment. The Subscriber may not assign this Agreement or its
rights hereunder without the Company's written consent.
-6-
5.12 Multiple Subscribers. If more than one person is signing this
Agreement, each representation, warranty, and undertaking stated herein shall be
the joint and several representation, warranty, and undertaking of each such
person. The Subscribers understand the meaning and legal consequences of the
representations and warranties contained in this Agreement.
5.13 Indemnification. Subscriber hereby agrees to indemnify and hold
harmless the Company, its officers, directors, shareholders, employees, agents,
and attorneys against any and all losses, claims, demands, liabilities, and
expenses (including reasonable legal or other expenses, including reasonable
attorneys' fees) incurred by each such person in connection with defending or
investigating any such claims or liabilities, whether or not resulting in any
liability to such person, to which any such indemnified party may become subject
under the Securities Act, under any other statute, at common law or otherwise,
insofar as such losses, claims, demands, liabilities and expenses (a) arise out
of or are based upon any untrue statement or alleged untrue statement of a
material fact made by Subscriber and contained in this Subscription Agreement,
or (b) arise out of or are based upon any breach of any representation,
warranty, or agreement made by Subscriber contained herein.
5.14 Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which when so executed and delivered shall be
taken to be an original; but such counterparts shall together constitute but one
and the same document.
5.15 Acceptance of Subscription. The Company may accept this
Subscription Agreement at any time for all or any portion of the Shares
subscribed for by executing a copy hereof as provided and notifying Subscriber
within a reasonable time thereafter.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-7-
SECTION 6. SUBSCRIPTION.
6.1 Accredited Investor Status. Please indicate whether you fit within
any of the following definitions of an "accredited investor:"
____ Any natural person whose net worth, or joint net worth, with
that person's spouse, at the time of his purchase exceeds
$1,000,000;
____ Any natural person who had an individual income in excess of
$200,000 in each of the two most recent years (or $300,000
jointly with his spouse) and who reasonably expects an income
in excess of $200,000 (or $300,000 jointly with his spouse) in
the current year;
____ Any corporation, partnership, or business trust not formed for
the specific purpose of making the investment and having
assets in excess of $5,000,000;
____ Any trust with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated person;
____ Any entity in which all of the equity owners are accredited
investors;
____ Any bank, savings and loan association, broker, dealer,
insurance company, investment company, business development
company, or small business investment company;
____ Any employee benefit plan with assets greater than $5,000,000
or where the investment decision is made by a bank, savings
and loan association, insurance company, or registered
investment advisor;
____ Any self-directed employee benefit plan if the investment
decisions are made solely by accredited investors; or
____ None of the above (please indicate).
[THIS SPACE INTENTIONALLY LEFT BLANK]
-8-
6.2. Subscription. Your signature below on this page evidences your
agreement to be bound by the Subscription Agreement, and indicates your assent
to the following statements:
1. The undersigned represents that (a) the information contained in
this Subscription Agreement is complete and accurate and (b) that the
undersigned will notify the Company's counsel, O'Connor, Broude & Aronson, (617)
890-6600, Attention: Andrew D. Myers, Esquire, immediately if any material
change in any of this information occurs before the acceptance of the
undersigned subscription and will promptly send written confirmation of such
change; and
2. The undersigned hereby certifies that he or she has read and
understands the Subscription Agreement. The undersigned also acknowledges that
he or she has received a copy of the Memorandum.
------------------------------------
Date
------------------------------------
Signature
------------------------------------
Name (Please Type or Print)
INDIVIDUAL:
- ------------------------------- ------------------------------------
Print Name of Individual Social Security Number
- ------------------------------- ------------------------------------
Signature of Individual Number and Street
- ------------------------------- ------------------------------------
Date: City and State
Manner in which Shares are to be held:
____ Individual Ownership
____ Joint Tenant with Right of Survivorship
____ Community Property
____ Separate Property
____ Partnership
____ Trust or Other (please indicate)
-9-
CORPORATE OR OTHER ENTITY:
By:
- --------------------------------- --------------------------------
Print Name of Entity Signature
- --------------------------------- --------------------------------
Federal ID Number Print Name and Title of
Signatory
- --------------------------------- --------------------------------
Date: Number and Street
--------------------------------
City and State
NOTE: PLEASE SIGN AND RETURN BOTH COPIES OF THIS PAGE.
******************************
By signing below the undersigned accepts the foregoing subscription and
agrees to be bound by its terms.
NETSAFE, INC.
Date: , 199_ By:
-------------------------------
Robert Kuzara, President
-10-
CORPORATE OR OTHER ENTITY:
By:
- ------------------------------ -------------------------------
Print Name of Entity Signature
- ------------------------------ -------------------------------
Federal ID Number Print Name and Title of
Signatory
- ------------------------------ -------------------------------
Date: Number and Street
-------------------------------
City and State
NOTE: PLEASE SIGN AND RETURN BOTH COPIES OF THIS PAGE.
******************************
By signing below the undersigned accepts the foregoing subscription and
agrees to be bound by its terms.
NETSAFE, INC.
Date: , 199_ By:
--------------------------------
Robert Kuzara, President
-11-
Exhibit 11
WebSecure, Inc.
Computation of Shares Used in
Computing Net Loss Per Common and
Common Equivalent Shares
The following table presents information used in calculating the net loss per
common and common equivalent shares:
<TABLE>
<CAPTION>
Period from Cumulative
Nine Months Inception from Inception
Ended (July 19, 1995) to (July 19, 1995)
May 31, 1996 August 31, 1995 to May 31, 1996
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average number of
shares of common stock
outstanding, as adjusted
for application of SAB No. 83(a):
Founders 782,500 782,500 782,500
For professional services 20,000 20,000 20,000
Private offering 500,000 500,000 500,000
Issurance of common stock in
connection with the acquisition
of research and development 802,500 802,500 802,500
Common stock equivalents:
Assumed exercise of stock
options calculated under the
treasury stock method 199,900 199,900 199,900
Convertible securities:
Conversion of 625 000 shares
of Class B common
stock to common stock 2,500,000 2,500,000 2,500,000
- --------------------------------------------------------------------------------------------------------------------------
Shares used in computing loss
per share of common and
common equivalent shares 4,804,900 4,804,900 4,804,900
- --------------------------------------------------------------------------------------------------------------------------
Net loss applicable to common
and common equivalent shares $(7,258,649) $(33,626) $(7,292,275)
Net loss per share of common
and common equivalent shares $ (1.51) $(.01) $(1.52)
- --------------------------------------------------------------------------------------------------------------------------
- -------------------------------
(a) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83 ("SAB No. 83"), common stock and common equivalent share issued within
one year of the initial public offering at a price less than the initial public
offering price is treated as outstanding for all periods presented.
</TABLE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus, constituting part of this
Registration Statement, of our report dated September 6, 1996 on the financial
statements of WebSecure, Inc. as of May 31, 1996 and August 31, 1995 and for the
nine months ended May 31, 1996, and the period from inception (July 19, 1995) to
August 31, 1995 and for the period from inception to May 31, 1996.
We also consent to the reference to us under the caption "Experts" in said
prospectus.
/s/ BDO Seidman, LLP
Boston, Massachusetts
September 6, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> MAY-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 19,248
<ALLOWANCES> 0
<INVENTORY> 10,295
<CURRENT-ASSETS> 966,114
<PP&E> 777,844
<DEPRECIATION> (138,008)
<TOTAL-ASSETS> 1,860,516
<CURRENT-LIABILITIES> 974,209
<BONDS> 0
0
0
<COMMON> 27,300
<OTHER-SE> 531,150
<TOTAL-LIABILITY-AND-EQUITY> 1,860,516
<SALES> 41,772
<TOTAL-REVENUES> 41,772
<CGS> 71,821
<TOTAL-COSTS> 7,273,335
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,086
<INCOME-PRETAX> (7,258,649)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,258,649)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,258,649)
<EPS-PRIMARY> (1.51)
<EPS-DILUTED> (1.51)
</TABLE>
