AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 27, 1996
REGISTRATION NO. 333-11751
================================================================================
SECURITIES AND EXCHANGE COMMISSION
7 WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
_______________
AMENDMENT NO.2 TO
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
_______________
WEBSECURE, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
_______________
DELAWARE 04-3296069
(STATE OR OTHER 7374 (I.R.S. EMPLOYER
JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE NUMBER)
ORGANIZATION)
_______________
ROBERT KUZARA, CHIEF EXECUTIVE OFFICER
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)
_______________
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
_______________
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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]
_______________
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 Management -- Directors and
Persons ............................................. 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 Management -- Limitation on Officers' and
for Securities Act Liabilities ...................... 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>
SUBJECT TO COMPLETION, DATED NOVEMBER 27, 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 $6.00 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 has been
given conditional approval for listing of the shares of Common Stock and
Redeemable Warrants offered hereby on the National Association of Securities
Dealers Automated Quotation System -- Small-Cap Market ("NASDAQ") under the
symbols "WEBS" and "WEBS.W", 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>
(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 $10.80 per share and/or up to 100,000 Redeemable Warrants at $.28
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 $480,000, 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
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.
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 TRANSACTIONS MAY BE EFFECTED ON NASDAQ 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 in Massachusetts on July 19, 1995 and was
reincorporated under Delaware law on September 12, 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 NASDAQ Symbols(3):
Common Stock .......... WEBS
Redeemable Warrants ... WEBS.W
______________
(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 339,600 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 10,000 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
FISCAL YEAR INCEPTION INCEPTION
ENDED (JULY 19, 1995) TO (JULY 19, 1995) TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue ................................................... $ 97,255 $ -- $ 97,255
Loss from operations ...................................... (7,877,804) (33,626) (7,911,430)
Net loss .................................................. (7,924,014) (33,626) (7,957,640)
Net loss per common and common equivalent share(1) ........ (1.65) (0.01) (1.66)
Shares used in computing net loss per common and common
equivalent share(1) ..................................... 4,805,050 4,805,050 4,805,050
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31, 1996
---------------
ACTUAL AS ADJUSTED(2)
------ --------------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets ............................................ $ 106,976 $ 6,088,976
Total assets .............................................. 1,745,948 7,303,888
Working capital (deficiency) .............................. (1,441,857) 5,636,203
Total liabilities ......................................... 1,849,263 753,203
Stockholders' equity (capital deficit) .................... (103,315) 6,550,685
</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 $6,654,000 from the sale of the Securities offered hereby on
the initial application of such proceeds to reduce certain indebtedness.
See "RISK FACTORS -- Substantial Options and Warrants Reserved," "USE OF
PROCEEDS" 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; Net Working Capital
Deficiency; 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 fiscal year ended August 31, 1996, the period from inception (July 19,
1995) to August 31, 1995 and for the cumulative period from inception (July 19,
1995) to August 31, 1996 states that the Company incurred a cumulative net loss
of $7,957,640 through August 31, 1996 and a working capital defecit of
$1,441,857 as of August 31, 1996, all of 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 has also experienced negative cash flow from operations since its
inception. See "Financial Statements".
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.
The Company estimates that approximately 10-15% of its 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
participants and groups, widespread adoption of a proprietary or closed standard
could preclude the Company from effectively doing so. Moreover, a number
8
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 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
9
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 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. The Company anticipates that
it may seek to secure loan financing as business and economic conditions
warrant. If additional funds are raised through the issuance of debt, the
Company will be subject to certain risks associated with debt financing,
including those attributable to interest rate fluctuations and insufficient cash
flow. No assurance can be given that additional financing will be available when
needed on terms favorable to the Company or at all. Substantially all of the
Company's assets
10
have been pledged as security for the Company's obligations under an equipment
lease agreement. The presence of a first priority security interest in the
Company's assets could have the effect of impeding the Company's attempts to
procure additional financing when needed. 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
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
11
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.
Lack of Liquidity of Low Price Stocks; Penny Stock Regulations. The
Company's Common Stock and Redeemable Warrants are expected to be eligible for
listing on NASDAQ after the completion of the Offering, although no assurance
can be given that the Company will maintain such listing. If the Securities were
to be delisted from NASDAQ, or if the Company's net tangible assets fell below
$2,000,000, trading in the Securities would become subject to Rule 15g-9 under
the Exchange Act, which imposes additional sales practice requirements on
broker-dealers that sell such securities to persons other than established
customers and "accredited investors" (generally, individuals with net worths in
excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together
with their spouses). For transactions covered by this rule, a broker-dealer must
make a special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. Although the
Securities will, as of the date of this ~Prospectus, be outside the definitional
scope of a penny stock as they will be listed on NASDAQ, in the event that the
Common Stock is subsequently characterized as a penny stock, the market
liquidity for the Securities could be severely affected. In such an event, the
application of Rule 15g-9 may adversely affect the ability of broker-dealers to
sell the Company's Securities and may adversely affect the ability of purchasers
in this Offering to sell any of the Securities acquired hereby in the secondary
market.
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
12
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 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."
Immediate and Substantial Dilution; Possible Right to Purchase Additional
Shares. Investors participating in this Offering will incur immediate and
substantial dilution in the net tangible book value of approximately $7.03 per
share or approximately 85.7% of the public offering price per share. To the
extent outstanding options or warrants to purchase the Company's Common Stock
are exercised, there will be further dilution. The present shareholders of the
Company have acquired their respective equity interests at costs substantially
below the offering price. Accordingly, to the extent that the Company incurs
losses, the public investors will bear a disproportionate risk of such losses.
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 339,600 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 $10.80 and up to 100,000 Redeemable Warrants at $0.28 per Redeemable
Warrant. The Redeemable Warrants underlying the Representatives' Warrant are
exercisable at $11.07 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
13
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; Speculative Investment. Purchasers of the Redeemable
Warrants will have the right to exercise them to purchase shares of Common Stock
only if 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.
No assurance can be given that the per share market price of the Common
Stock will ever increase to exceed the exercise price of the Redeemable
Warrants. Therefore, it may never become economically justifiable to exercise
the Redeemable Warrants prior to the expiration of the Redeemable Warrants on .
The failure of the per share market price of the Common Stock to increase to
exceed the exercise price of the Redeemable Warrants will, eventually, cause the
Redeemable Warrants to have no economic value. Because of the speculative nature
of the Securities, an investment in the Securities should only be considered by
those who can bear the risk of a loss of their entire investment. 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."
14
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 $750,000 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."
15
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 $6,654,000
($6,680,100 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 ............................................... 750,000
Working Capital and General Corporate Purposes .......................... 904,000
----------
$6,654,000
==========
</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 $750,000 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 October 22, 1996, the principal balance on these
notes was approximately $700,000. See "PRINCIPAL AND SELLING STOCKHOLDERS" and
"CERTAIN TRANSACTIONS."
WORKING CAPITAL AND GENERAL CORPORATE PURPOSES
Approximately $904,000 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.
The Company may deposit up to $600,000 allocated to working capital and general
corporate purposes as collateral to secure payment under a capital lease
agreement with a commercial bank. As of October 22, 1996, the Company had
approximately $600,000 outstanding under this agreement. See "PLAN OF OPERATION
- -- Liquidity and Capital Resources."
16
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.
17
DILUTION
At August 31, 1996, the net tangible book value of the Company was
approximately ($527,375), or ($.11) 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 August 31, 1996. After
giving effect to the receipt of the net proceeds (estimated to be approximately
$6,654,000) from the sale of the Securities offered hereby, the pro forma net
tangible book value of the Company at August 31, 1996, would have been
approximately $6,550,685 or $1.17 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 $7.03 per share. The following table
illustrates the per share dilution:
<TABLE>
<CAPTION>
<S> <C>
Public offering price per share of Common Stock(1) .......................... $ 8.20
Net tangible book value per share of Common Stock at August 31, 1996 . ($ .11)
Increase in net tangible book value per share of Common Stock(1) ........... 1.28
----
Pro forma net tangible book value per share of Common Stock after
Offering(2) ............................................................... $ 1.17
======
Dilution of net tangible book value per share of Common Stock to new
investors ................................................................. $ 7.03
======
</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 339,600 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 10,000 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% 7,854,325 50.0% $1.71
--------- ---- --------- ----
TOTAL ................................. 5,605,000 100.0% $15,854,325 100.0%
========= ===== =========== =====
</TABLE>
_____________
(1) After giving effect to the conversion of Class B Common Stock into
2,500,000 shares of Common Stock.
18
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
August 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>
AUGUST 31, 1996
PRO FORMA
ACTUAL AS ADJUSTED
<S> <C> <C>
Capital lease obligations, net of current .................... $ 300,430 $ 300,430
----------- -----------
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 14,452,275
Accumulated deficit .......................................... (7,957,640) (7,957,640)
---------- ----------
Total stockholders' equity (capital deficit) ............... (103,315) 6,550,685
---------- ----------
TOTAL CAPITALIZATION ......................................... $ 197,115 $ 6,851,115
=========== ===========
</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 339,600 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 10,000 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.
19
SELECTED FINANCIAL DATA
The statement of operations data for the period from inception (July 19,
1995) through August 31, 1996 and the balance sheet at August 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
FISCAL YEAR INCEPTION FROM INCEPTION
ENDED (JULY 19, 1995)TO (JULY 19, 1995)TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996
---------------- ---------------- ---------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Services .............................................. $ 78,833 $ -- $ 78,833
----------- ------------ -----------
Products .............................................. 18,422 -- 18,422
----------- ------------ -----------
Total revenues ...................................... 97,255 -- 97,255
----------- ------------ -----------
Cost of revenues:
Services .............................................. 177,469 -- 177,469
Products .............................................. 15,971 -- 15,971
----------- ------------ -----------
Total cost of revenues ............................. 193,440 -- 193,440
----------- ------------ -----------
Gross margin ....................................... (96,185) -- (96,185)
----------- ------------ -----------
Operating expenses:
Research and development .............................. 577,439 809 578,248
Selling and marketing ................................. 298,680 1,946 300,626
General and administrative ............................ 1,145,500 30,871 1,176,371
Charge for acquired research and development .......... 5,760,000 -- 5,760,000
----------- ------------ -----------
Total operating expenses ........................... 7,781,619 33,626 7,815,245
----------- ------------ -----------
Loss from operations ............................... (7,877,804) (33,626) (7,911,430)
Interest expense, net ................................... (46,210) -- (46,210)
----------- ------------ -----------
Net loss ........................................... $(7,924,014) $ (33,626) $(7,957,640)
=========== ============ ===========
Net loss per common and common equivalent
share(1) .......................................... $ (1.65) $ (.01) $ (1.66)
=========== ============ ===========
Shares used in computing net loss per common
and common equivalent share(1) ..................... 4,805,050 4,805,050 4,805,050
=========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31, 1996
---------------
ACTUAL AS ADJUSTED(2)
------ --------------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets $ 106,976 $ 6,088,976
Total assets 1,745,948 7,303,888
Working capital (deficiency) (1,441,857) 5,636,203
Total liabilities 1,849,263 753,203
Stockholders' equity (capital deficit) (103,315) 6,550,685
</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 $6,654,000 from the sale of the Securities offered hereby and
the initial application thereof. See "RISK FACTORS -- Substantial Options
and Warrants Reserved," "USE OF PROCEEDS" and "UNDERWRITING."
20
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
establishing (i) a commercial Web site domain, (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. The Company also resells SBT, a prepackaged
accounting software program. 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
August 31, 1996 relate to the Company's initial organization, establishment of
infrastructure and provision of 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 August 31, 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.
21
General and Administrative. General and administrative expenses consist
primarily of compensation expenses and fees for professional services. General
and administrative expenses were approximately $1,176,371 for the period from
inception to August 31, 1996. Approximately $1,007,000 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 August 31,
1996 was ($1,441,857). The Company has two capital lease agreements which are
secured by fixed assets and guaranteed by Centennial. The outstanding balance as
of August 31, 1996 for one of these agreements, was approximately $372,000,
bears interest at the rate of 10.35% per annum and matures in December 2000. In
September 1996, the Company entered into the second capital lease agreement
under which it may borrow up to $1,000,000. As of October 22, 1996, the Company
had drawn $600,000 against this lease agreement. This amount bears interest at
the rate of 10.5% per annum and matures in September 2001. The Company has
agreed to deposit as collateral a portion of the proceeds from the Offering
equal to the amount outstanding under this agreement. See "USE OF PROCEEDS" and
"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.
22
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 establishing (i) a commercial Web site domain, (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. The Company
also resells SBT, a prepackaged accounting software program. 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.
23
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.
24
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.
25
COMMERCIAL HOST SERVICES
The Company believes that its commercial host services will 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. Management of the Company believes
that 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. The Company has designed links within
customers' Web sites that contain order forms. When a user visits the link
containing such forms, software can 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 may 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 can 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 may 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.
26
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. Neither the Company nor any of its officers
or directors have any affiliation with ISDL, other than that ISDL is a principal
stockholder of the Company. See "RISK FACTORS -- Dependence on Intellectual
Property Rights; Risks of Infringement" and "Principal and Selling
Stockholders."
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.
27
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
28
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.
PERSONNEL
As of August 31, 1996, the Company had 24 full-time personnel that were leased
from ERI, of which three were executive officers (one of which is also involved
with sales and marketing), eight were involved with sales and marketing
functions, six were involved with research and product development, three were
involved with administration and four were involved with operations and 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 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 $17,000 per month, $4,591 of which is paid pursuant to a lease
with the Anstram Complex Realty Trust that expires in August 2000, and the
balance is paid on a month-to-month basis. The Company subleases approximately
2,000 square feet of this space 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.
29
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>
Carroll M. Lowenstein ................... 67 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
Michael Appe ............................ 45 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:
CARROLL M. LOWENSTEIN has served as Chairman of the Board of Directors since
November, 1996. Since 1985, Mr. Lowenstein has functioned as a business and
financial consultant and served as a Director on the boards of numerous small
companies. He presently is a director of Cauldron Corporation and Ocaul Corp.,
two privately-held companies. Mr. Lowenstein holds an AB degree from Harvard
College.
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. Since July 1995, Dr.
Blocher has 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. As part of his employment agreement with the
Company, Mr. Blocher has agreed to devote a minimum of 40 hours per week to the
business of the Company. Dr. Blocher has a Ph.D. in computer science from Boston
University and a Masters in Mathematics from Boston University.
30
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 $132,000 $0 $7,500
(1) For the period from inception (July 19, 1995) to August 31, 1996.
(2) Mr. Kuzara received a monthly car allowance of $1,000 per month from August
1995 through May 1996.
</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 ("Base Salary")
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 a lump sum payment equal to the Base Salary due during the remainder of
the contract term if: (i) the Company or a substantial portion of the Company is
acquired without his consent; (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.
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
31
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.
In October 1996, the Company entered into an employment and non-competition
agreement with Mr. Blocher, the Company's Chief Technical Officer, that expires
on October 1, 1999 (the "Blocher Employment Agreement"). The Blocher Employment
Agreement provides for an annual salary of $102,000 plus bonuses as may be
determined by the Company's Board of Directors. Mr. Blocher is entitled to
receive benefits offered to other executive officers of the Company as well as
severance benefits equal to 150% of his 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) his employment is terminated without cause (as defined below);
(iii) his salary is reduced without his consent; (iv) there is a change in his
principal place of employment from the greater Boston, Massachusetts area
without his consent or (v) his employment agreement is not renewed wihout his
consent. The Blocher Employment Agreement provides that "cause" includes (i) the
material and repetitive failure or refusal to 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
Blocher Employment Agreement contains a provision prohibiting Mr. Blocher from
competing with the Company for a six-month 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.
32
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.
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 339,600 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>
Robert Kuzara.................................... 200,000 $4.00 4/01/01
President and Chief Executive Officer
Carole Ouellette................................. 17,500 $4.00 4/01/01
Chief Financial Officer
William Blocher.................................. 50,000 $4.00 2/12/01
Chief Technical Officer
</TABLE>
33
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 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 10,000 shares
of Common Stock have been granted under the Formula Plan to Mr. Appe (5,000) and
Mr. Lowenstein (5,000).
34
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>
International Software Development Limited ............... 802,500 17.4% 14.3%
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
Carroll Lowenstein(7) .................................... 0 0 0
Carole Ouellette(8) ...................................... 0 0 0
All Officers and Directors as a
Group(1)(3)(5)(6)(7)(8)(9) ............................. 240,000 5.2 4.3
</TABLE>
___________
(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. and International Software Development limited is WebSecure, Inc.,
1711 Broadway, Saugus, Massachusetts 01906. The address for Centennial
Technologies, Inc. is 37 Manning Road, Billerica, Massachusetts 01821. The
address for International Software Development Limited is P.O. Box 617, St.
Helier, Jersey JE49NU, Channel Islands.
(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 April 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 5,000 shares of Common Stock issuable upon exercise of
stock options that vest in November 1997 at an exercise price of $4.00.
(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 April 1997.
(9) Does not include options to purchase 50,000 shares of Common Stock at $4.00
per share issuable upon exercise of stock options held by Mr.
Blocher that vest beginning in April 1997.
35
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"), ERI and Cauldron Corp. ERI is and Cauldron Corp. was, until July
1996, owned by Mr. Kuzara, the Company's President and Chief Executive Officer
and a member of the Board of Directors. Until October 1996, the Company's
services had 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. The
Company currently charges these companies fees at the Company's standard rates.
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 9.0% per annum and are due on demand. As of October 22, 1996,
approximately $700,000 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. The Company also purchased $371,500 of computer equipment from
Centennial during 1996. See "Use of Proceeds".
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% of the Company's outstanding Common
Stock. If the Underwriters' overallotment option is exercised, Centennial will
sell up to 150,000 shares of its Common Stock in connection with this Offering.
See "RISK FACTORS - Benefit to Affiliates" and "PRINCIPAL STOCKHOLDERS."
All of the Company's employees are leased by ERI, an employee leasing firm
wholly owned by Mr. Kuzara. For the year ended August 31, 1996, approximately
$1,007,000 was billed by ERI to the Company. The Company owed ERI approximately
$99,000 as of August 31, 1996 which is included in the amount due to related
parties in the balance sheet within the attached financial statements. ERI and
an affiliate also owed the Company approximately $46,000, which is included in
the amounts due from related parties in the accompanying August 31, 1996 balance
sheet within the attached financial statements. The amounts due to and due from
related parties do not bear interest and are due on demand. The Company also
charges ERI approximately $2,000 per month for subletting office space and
equipment rental.
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 developing the Company's products. CBP charged the Company a
management fee for its services. For the year ended August 31, 1996,
approximately $74,000 was billed from CBP to the Company. The Company also
charged CBP approximately $15,000 for subletting office space and equipment
rental which was charged to operations. CBP ceased operations as of June of
1996, at which time two former CBP employees joined the Company.
Information Capture Corporation ("ICC") is developing a data acceptance
device which is being built for ERI. Mr. Kuzara owned twenty percent (20%) of
the outstanding Common Stock of ICC, which he sold in August 1996. For the year
ended August 31, 1996, the Company billed approximately $14,000 to ICC for the
sublet of office space and equipment rental, all of which was paid as of August
31, 1996.
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."
36
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 37
stockholders of record (not including holders of Class B Common Stock).
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 March 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."
37
Exercise Price and Terms
Each Redeemable Warrant entitles the registered holder thereof to purchase
at any time commencing ________, 1997 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 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."
38
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 First National Bank of Boston, Boston,
Massachusetts, as Transfer and Warrant Agent for its Common Stock and Redeemable
Warrants.
39
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.
40
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 135% of the public offering price (the "Exercise Price") of
$10.80 per share of Common Stock and $.27 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
$12.96 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.
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.
Upon the exercise of the Redeemable Warrants more than one year after this
Offering 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. 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
41
exercised in an unsolicited transaction, or (c) the Redeemable Warrants are held
in any discretionary accounts and (d) advance disclosure is made to a Redeemable
Warrant holder. In addition, unless granted an exemption by the Commission from
Rule 10b-6 under the Exchange Act, the Representatives will be prohibited from
engaging in any market making activities or solicited brokerage activities with
regard to the Company's securities for two to nine days before the solicitation
of the exercise of any Redeemable Warrant or before the exercise of any
Redeemable Warrant based upon a prior solicitation, until the later of the
termination of such solicitation activity or the termination by waiver or
otherwise of any right the Representatives may have to receive a fee for the
exercise of the Redeemable Warrants following such solicitation.
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 August 31, 1996 and for the
year ended August 31, 1996 and for the periods from July 19, 1995 (inception)
through August 31, 1995 and July 19, 1995 (inception) through August 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.
42
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 Sheet as of August 31, 1996 ................................................. F-3
Statements of Operations for the year ended August 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 August 31, 1996 ...................................... F-4
Statements of Capital Deficit for the period from inception (July
19, 1995) to August 31, 1996 ...................................................... F-5
Statements of Cash Flows for the year ended August 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 August 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 sheet of WebSecure, Inc. (a
Development Stage Company), as of August 31, 1996, and the related statements of
operations, capital deficit and cash flows for the year ended August 31, 1996,
the period from inception (July 19, 1995) to August 31, 1995 and for the
cumulative period from inception (July 19, 1995) to August 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 August 31, 1996 and the results of its operations
and its cash flows for the year ended August 31, 1996, the period from inception
(July 19, 1995) to August 31, 1995 and for the cumulative period from inception
(July 19, 1995) to August 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 $7,957,640 through August 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.
BDO SEIDMAN, LLP
Boston, Massachusetts
October 11, 1996
F-2
WEBSECURE, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
<TABLE>
<CAPTION>
AUGUST 31,
1996
----
<S> <C>
ASSETS
Current:
Cash $ 12,832
Accounts receivable 21,797
Inventories 5,971
Due from related parties (Note 3) 59,776
Prepaid expenses and other 6,600
-----
Total current 106,976
-------
Property and equipment:
Computer equipment 833,721
Office equipment 300,646
Furniture and fixtures 137,726
Leasehold improvements 82,621
Software 16,149
------
1,370,863
Less accumulated depreciation and amortization 197,466
-------
Property and equipment, net 1,173,397
---------
Deferred registration costs 424,060
Other assets 41,515
------
$ 1,745,948
===========
LIABILITIES AND CAPITAL DEFICIT
Current liabilities:
Accounts payable and accrued expenses (Note 4) $ 679,435
Due to related parties (Note 3) 125,635
Note payable to related party (Note 3) 672,000
Current portion of capital lease obligation (Note 5) 71,763
------
Total current liabilities 1,548,833
Capital lease obligation, less current maturities (Note 5) 300,430
-------
Total liabilities 1,849,263
---------
Commitments and contingencies (Notes 1, 5, 8 and 9)
Capital 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 August 31, 1996 21,050
Class B common stock, $.01 par value; 2,000,000 shares authorized; 625,000 shares
issued and outstanding at August 31, 1996 6,250
Additional paid-in capital 7,827,025
Deficit accumulated during the development stage (7,957,640)
----------
Total capital deficit (103,315)
--------
$ 1,745,948
===========
</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)
AUGUST 31, 1996 TO AUGUST 31, 1995 TO AUGUST 31, 1996
--------------- ------------------ ------------------
<S> <C> <C> <C>
Revenues:
Service revenue $ 78,833 $ -- $ 78,833
Product revenue 18,422 -- 18,422
------ --------- ------
Total revenue 97,255 -- 97,255
------ --------- ------
Cost of revenue:
Service revenue 177,469 -- 177,469
Product revenue 15,971 -- 15,971
------ --------- ------
Total cost of revenues 193,440 -- 193,440
------- --------- -------
Gross margin (96,185) -- (96,185)
------- --------- -------
Operating expenses:
Research and development 577,439 809 578,248
Selling and marketing 298,680 1,946 300,626
General and administrative (Note 3) 1,145,500 30,871 1,176,371
Charge for acquired research and development (Note 6) 5,760,000 -- 5,760,000
--------- --------- ---------
Total operating expenses 7,781,619 33,626 7,815,245
--------- ------ ---------
Loss from operations (7,877,804) (33,626) (7,911,430)
Interest expense, net of interest income of $1,890 (46,210) -- (46,210)
------- --------- -------
Net loss $(7,924,014) $ (33,626) $(7,957,640)
=========== ========== ===========
Net loss per common and common equivalent share $ (1.65) $ (.01) $ (1.66)
=========== ========== ===========
Shares used in computing net loss per common and common
equivalent share 4,805,050 4,805,050 4,805,050
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-4
WEBSECURE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CAPITAL DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK CLASS B COMMON STOCK
------------ --------------------
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE TOTAL
NUMBER $.01 NUMBER $.01 PAID-IN REDEVELOPMENT CAPITAL
OF SHARES PAR VALUE OF SHARES PAR VALUE CAPITAL STAGE DEFICIT
--------- --------- --------- --------- ------- ----- -------
<S> <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 -- 14,325
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 -- -- -- -- -- (7,924,014) (7,924,014)
------- ------- -------- ------- ---------- ----------- ------------
Balance, August 31, 1996 2,105,000 $21,050 625,000 $6,250 $7,827,025 $(7,957,640) $ (103,315)
========= ======= ======= ====== ========== =========== ===========
</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
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996
--------------- --------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(7,924,014) $(33,626) $(7,957,640)
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 197,466 -- 197,466
Changes in operating assets and liabilities:
Accounts receivable (21,797) -- (21,797)
Inventories (5,971) -- (5,971)
Prepaid expenses and other 3,400 (10,000) (6,600)
Accounts payable and accrued expenses 669,597 9,838 679,435
------- ----- -------
Net cash used in operating activities (1,241,519) (33,788) (1,275,307)
---------- ------- ----------
Cash flows from investing activities:
Acquisition of property and equipment (1,364,874) (5,989) (1,370,863)
Deferred registration costs (424,060) -- (424,060)
Increase in other assets (32,815) (8,700) (41,515)
------- ------ -------
Net cash used in investing activities (1,821,749) (14,689) (1,836,438)
---------- ------- ----------
Cash flows from financing activities:
Borrowings under capital lease 389,056 -- 389,056
Principal payments on capital lease (16,863) -- (16,863)
Due from related parties (55,910) (3,866) (59,776)
Due to related parties 108,292 17,343 125,635
Proceeds from issuance of common stock 2,014,525 -- 2,014,525
Proceeds from notes payable to related party 1,460,000 35,000 1,495,000
Payments of notes payable to related party (823,000) -- (823,000)
-------- --------
Net cash provided by financing activities 3,076,100 48,477 3,124,577
--------- ------ ---------
Net increase in cash 12,832 -- 12,832
Cash, beginning of period -- -- --
---------- -------- ---------
Cash, end of period $ 12,832 $ -- $ 12,832
=========== ======== =========
Supplemental disclosure of financing information:
Cash paid for interest $ 33,649 $ 7,087 $ 40,736
</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 $7,957,640 through August
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 $6,654,000 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 August 31, 1996, the Company has incurred registration costs of
$424,060 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. Although collateral is not required, the Company periodically
reviews its accounts and provides estimated reserves for potential credit
losses. Services to related parties for the year ended August 31, 1996
represented approximately 41% of the Company's total revenue (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 SHARE
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 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.
3. RELATED PARTIES TRANSACTIONS
Discussed below are various related parties and transactions that occurred
during the period from inception (July 19, 1995) through August 31, 1996. As of
October 11, 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 year
ended August 31, 1996, approximately $1,007,000 was billed by ERI to the Company
and charged to operations. The Company owed ERI approximately $99,000 as of
August 31, 1996, which is included in the amount due to related parties in the
accompanying balance sheets. ERI and an affiliate also owed the Company
approximately $46,000, which is included in the amounts due from related parties
in the accompanying August 31, 1996 balance sheet. The amounts due to and due
from 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 was 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 year ended
August 31, 1996 which was charged to operations. The Company also charged CBP
approximately $15,000 for subletting office space and equipment rental which was
charged to operations. CBP ceased operations in June of 1996.
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. To date, Centennial
has made loans to the Company totalling $1,495,000 for general operations, of
which $823,000 was repaid. The Company owed Centennial $672,000 as of August 31,
1996, which is shown as note payable to related party in the accompanying
balance sheet. The note payable to Centennial bears interest at 9% per annum and
is due upon demand. Centennial interest expense for the year ended August 31,
1996 amounted to $20,700 of which $14,500 was unpaid and is included in amounts
due to related parties in the accompanying August 31, 1996 balance sheet. The
Company also purchased $371,500 of computer equipment from Centennial during the
year ended August 31, 1996.
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. For the year ended August 31,
1996, approximately $14,000 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 at August 31, 1996.
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
AUGUST 31,
1996
----
<S> <C>
Trade accounts payable $132,133
Registration costs 423,206
Payroll and vacation 99,537
Other accrued expenses 24,559
------
$679,435
========
</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>
1997 107,000
1998 107,000
1999 107,000
2000 107,000
Thereafter 36,000
------
Total minimum lease payments 464,000
Less amount representing interest 91,807
------
Present value of future lease payments 372,193
Less current portion of capital lease obligation 71,763
------
Long-term portion $300,430
========
</TABLE>
The related leased assets are included in property and equipment at a cost
of approximately $389,000 less accumulated amortization of $83,000 at August 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>
AUGUST 31,
1996
----
<S> <C>
Operating loss carryforwards $ 824,000
Amortization of acquired research and development 2,319,000
Tax credit carryforwards 6,000
Depreciation (36,000)
-------
3,113,000
Less valuation allowance 3,113,000
---------
$ --
==========
</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, as
there is significant doubt about the realizability of the deferred tax assets.
At August 31, 1996, the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $2,046,000, which expire
through 2011. 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 August 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 year ended
August 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 August 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 374,400 4.00 5,000 4.00
Terminated -- -- -- --
Exercised -- -- -- --
-------- ----- ----- -----
Outstanding, August 31, 1996 374,400 $4.00 5,000 $4.00
======= ===== ===== =====
Exercisable, August 31, 1996 -- $ -- -- $ --
======= ===== ===== =====
</TABLE>
Subsequent to August 31, 1996, the Company granted an additional 27,800
options under the 1996 Stock Option Plan at an exercise price of $4.00 per
share.
9. COMMITMENTS
Operating Leases
The Company leases its facilities under operating leases that expire through
August 2000. The future minimum lease commitments at August 31, 1996 are
approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDING AUGUST 31, AMOUNT
---------------------- ------
<S> <C>
1997 58,000
1998 60,000
1999 63,000
2000 65,000
---- ------
$246,000
========
</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 $95,000 for the year ended August 31, 1996 and for the period from
inception (July 19, 1995) to August 31, 1996.
Employment Agreements
The Company has entered into employment agreements with three executive
officers which provide for bonus and severance benefits for up to twelve months
upon termination of employment under certain circumstances. The agreements also
provide for minimum base annual compensation aggregating approximately $337,000
through 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 16
Dilution 18
Capitalization 19
Dividend Policy 19
Selected Financial Data 20
Plan of Operations 21
Business 23
Management 30
Principal and Selling Stockholders 35
Certain Transactions 36
Description of Securities 37
Shares Eligible for Future Sale 40
Underwriting 41
Legal Matters 42
Experts 42
Additional Information 42
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 24. 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
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.
II-1
ITEM 25. 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);
Registration Fee $ 7,713.14
NASD Filing Fee $ 2,778.41
NASDAQ Listing Fee* $ 10,000.00
Boston Stock Exchange Listing Fee* $ 5,000.00
Blue Sky Filing Fees and Expenses* $ 5,000.00
Printing and Engraving Cost* $ 50,000.00
Transfer Agent Fees* $ 1,000.00
Legal Fees* $ 250,000.00
Accounting Fees* $ 50,000.00
Miscellaneous* $ 99,508.45
-------------
TOTAL* $ 481,000.00
=============
ITEM 26. 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. The following is a list of investors in the offering:
Number
Name of Shares
---- ---------
George and Margaret Asprakis, JTRWOS 12,500
Joyce M. Byrwa 7,000
Centennial Technologies 138,750
Richard C. Crown 5,000
John DiRico 12,500
Helmut F. Gfatter 20,000
Catherine F. Giblin 37,500
Frances E. Hills 6,250
Geoffiey O. Hills 6,250
G. David Hopper Living Trust 5,000
Richard Lewin 13,000
Dennis M. and Janet M. Miller, JTWROS 16,250
David and Ester Mann, JTWROS 12,500
Bryan L. Omey 2,500
Arthur C. Reichstetter 50,000
Sac and Co. 6,250
Marie Senecal-Trembley 10,000
Sigler and Co., NES Limited 18,750
Sigler and Co., Q Settlement 12,500
Sigler and Co., Valleydale Investments 25,000
Joseph L. Sirois, Jr. 7,500
II-2
Number
Name of Shares
---- ---------
Stuart and Diane Sklar 7,500
Adele Wasserstrom 25,000
Joseph Wasserstrom 25,000
Mark Zyndorf 12,500
Sam Zyndorf 5,000
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 27. 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.
*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.
10g -- Promissory Note dated October 1, 1996 to KeyCorp Leasing Ltd.
10h -- Master Equipment Lease Agreement dated as of December 21, 1995 with KeyCorp Leasing Ltd.
10i -- Form of Lock-up Agreement.
+10j -- Employment Agreement with William Blocher.
II-3
+10k -- Employment Agreement with Carole Ouellette.
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
- -----------
* Filed with the Commission on September 11, 1996.
+ Relates to Management Compensation.
</TABLE>
ITEM 28. 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.
(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 AMENDMENT
NO. 2 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, IN THE CITY OF SAUGUS, COMMONWEALTH OF MASSACHUSETTS ON NOVEMBER
27, 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 AMENDMENT
NO. 2 TO THE 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/ CARROLL LOWENSTEIN CHAIRMAN OF THE BOARD OF NOVEMBER 27, 1996
- --------------------------- DIRECTORS
CARROLL LOWENSTEIN
/S/ ROBERT KUZARA PRESIDENT, CHIEF EXECUTIVE NOVEMBER 27, 1996
- --------------------------- OFFICER AND DIRECTOR
ROBERT KUZARA (PRINCIPAL EXECUTIVE OFFICER)
/S/ MICHAEL APPE DIRECTOR NOVEMBER 27, 1996
- ---------------------------
MICHAEL APPE
/S/ CAROLE OUELLETTE CHIEF FINANCIAL OFFICER, NOVEMBER 27, 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
10g -- Promissory Note dated October 1, 1996 to KeyCorp Leasing Ltd.
10h -- Master Equipment Lease Agreement with KeyCorp Leasing Ltd., dated as of
December 21, 1995, and Promissory Note dated October 1, 1996.
10i -- Form of Lock-up Agreement
+10j -- Employment Agreement with William Blocher
+10k -- Employment Agreement with Carole Ouellette
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
- ----------
* Filed with the Commission on September 11, 1996.
+ Relates to Management Compensation.
</TABLE>
EXHIBIT 4b
{LOGO}
Number WEBSECURE, INC. SHARES
WS INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE SEE
REVERSE
COMMON STOCK, $.01 PAR VALUE FOR
CERTAIN
DEFINITIONS
THIS IS TO CERTIFY CUSIP 947 683 108
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF THE PAR VALUE OF ONE
CENT ($.01) EACH OF
WEBSECURE, INC.
(Hereinafter called the "Corporation"), transferable on the books of the
Corporation by the holder in person or by duly authorized attorney upon
surrender of this certificate properly endorsed or assigned. This certificate
and the shares of Common Stock represented hereby are subject to the laws of
The State of Delaware and to the Certificate of Incorporation and By-Laws of the
Corporation as now in effect or hereafter amended.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and
the facsimile signatures of its duly authorized officers.
Dated:
/S/ Carol Ouellette /S/ Robert Kuzara
TREASURER WEBSECURE, INC. PRESIDENT
CORPORATE
SEAL
1995
DELAWARE
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
WEBSECURE, INC.
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS AND SERIES
OF STOCK. THE CORPORATION WILL FURNISH TO THE HOLDER UPON REQUEST AND WITHOUT
CHARGE THE PREFERENCES, POWERS, QUALIFICATIONS AND RIGHTS OF EACH CLASS OF STOCK
OR SERIES THEREOF.
The following abbreviations, when used in the inspection on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-____ Custodian _____
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ________________
in common (State)
COM PROP - as community property
Additional abbreviations may also be used though not in the above list.
For value received,______________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------shares
of the Capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ------------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated __________________________________
- --------------------------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS AGREEMENT MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARENTEE MEDALLION PROGRAM).
EXHIBIT 4d
FORM OF
WARRANT AGREEMENT
WebSecure, Inc., a Delaware corporation (the "Company"), and American
Securities Transfer & Trust, Inc. ("AST"), 1825 Lawrence Street, Suite 444,
Denver, Colorado 80202, a Colorado corporation (the "Warrant Agent"), agree as
follows:
1. PURPOSE. The Company proposes to publicly offer and issue up to
1,000,000 shares of its Common Stock, $.01 par value per Share (the "Shares"),
and 1,000,000 Redeemable Common Stock Purchase Warrants (the "Warrants").
2. WARRANTS. Each Warrant will entitle the registered holder of a
Warrant (the "Warrant Holder") to purchase from the Company one (1) Share at
$9.60 per Share (the "Exercise Price"). A Warrant Holder may exercise all or any
number of Warrants resulting in the purchase of a whole number of Shares.
3. EXERCISE PERIOD. The Warrants may be exercised at any time during
the period commencing _________, 1997 and ending at 5:00 p.m., New York City
time on ________, 1999 (the "Expiration Date") except as changed by Section 13
of this Agreement. If such date shall in the State of New York be a holiday or a
day on which banks are authorized to close, then the Expiration Date shall mean
5:00 p.m. (New York City time) the next following day which in the State of New
York is not a holiday or a day on which banks are authorized to close. After the
Expiration Date, any unexercised warrants will be void and all rights of Warrant
Holders shall cease.
4. DETACHABILITY. The Shares and Warrants are immediately separate.
5. REDEMPTION OF WARRANTS.
a. Redemption; Redemption Price. Commencing ___________, 1997,
the Company may, at its option, redeem the outstanding Warrants, in
whole or in part, upon not less than 30 days' prior written notice (the
"Notice of Redemption"), at a price of $.20 per Warrant (the
"Redemption Price"), if the average closing bid price of the Company's
Common Stock equals or exceeds $12.00 per share for ten (10)
consecutive trading days within the twenty (20) day period preceding
the date of such notice. If the Company shall determine to redeem less
than all of the Warrants then outstanding, then the Warrant Agent shall
determine the Warrants to be redeemed by such manner or method as it
shall deem fair and appropriate, whether by lot or otherwise.
b. Notice of Redemption. The Company shall give notice to the
Warrant Agent of any redemption in sufficient time so that the Warrant
Agent shall give the Notice of Redemption to all Holders of Warrant
Certificates to be redeemed at least thirty (30) days prior to the date
established for such redemption (the "Redemption Date"). Each Notice of
Redemption shall: (a) specify the Redemption Date and the Redemption
Price; (b) state that payment of the Redemption Price will be made by
the Warrant Agent upon presentation and surrender to the Warrant Agent
at its principal office of the Warrant Certificates representing the
Warrants being redeemed; (c) state that the rights to exercise the
Warrants shall terminate at 5:00 p.m. New York City time, on the fifth
business day preceding the Redemption Date; and (d) if less than all of
the Warrants then outstanding are being redeemed, specify the serial
numbers or portions of the Warrants to be redeemed.
c. Payment of Redemption Price. On or prior to the opening of
business on the Redemption Date, the Company will deposit with the
Warrant Agent cash, or an irrevocable letter of credit issued by a
national or state bank and in form reasonably satisfactory to the
Warrant Agent, sufficient in amount to purchase all of the Warrants
stated in the Notice of Redemption to be redeemed. Payment of the
Redemption Price shall be made by the Warrant Agent upon presentation
and surrender of the Warrant Certificates representing such Warrants to
the Warrant Agent at its principal office. If the Notice of Redemption
shall have been duly given and if the Company shall have duly deposited
with the Warrant Agent the cash or irrevocable letter of credit
required by this Section 4c, then any Warrants not exercised by 5:00
p.m., New York City time, on the Redemption Date shall no longer be
deemed to be outstanding, and all rights with respect to such Warrants
shall from and after such time and date cease and terminate, except
only for the right of the Holders thereof to receive the Redemption
Price, without interest.
6. CERTIFICATES. The Warrant Certificates shall be in registered form
only and shall be substantially in the form set forth in Exhibit A attached to
this Agreement. Warrant Certificates shall be signed by, or shall bear the
facsimile signature of, the President or a Vice President of the Company and the
Treasurer or an Assistant Treasurer of the Company and shall bear a facsimile of
the Company's corporate seal. If any person, whose facsimile signature has been
placed upon any Warrant Certificate as the signature of an officer of the
Company, shall have ceased to be such officer before such Warrant Certificate is
countersigned, issued and delivered, such Warrant Certificate shall be
countersigned, issued and delivered with the same effect as if such person had
not ceased to be such officer. Any Warrant Certificate may be signed by, or made
to bear the facsimile signature of, any person who at the actual date of the
preparation of such Warrant Certificate shall be a proper officer of the Company
to sign such Warrant Certificate even though such person was not such an officer
upon the date of this Agreement.
7. COUNTERSIGNING. Warrant Certificates shall be manually countersigned
by the Warrant Agent and shall not be valid for any purpose unless so
countersigned. The Warrant Agent hereby is authorized to countersign and deliver
to, or in accordance with the instructions of, any Warrant Holder any Warrant
Certificate which is properly issued.
-2-
8. REGISTRATION OF TRANSFERS AND EXCHANGES.
a. Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants or may
be transferred in whole or in part. The Warrant Agent shall from time
to time register the transfer of any outstanding Warrant Certificate
upon records maintained by the Warrant Agent for such purpose upon
surrender of such Warrant Certificate to the Warrant Agent for
transfer, accompanied by appropriate instruments of transfer in form
satisfactory to the Company and the Warrant Agent and duly executed by
the Warrant Holder or a duly authorized attorney. Upon any such
registration of transfer, a new Warrant Certificate shall be issued in
the name of and to the transferee and the surrendered Warrant
Certificate shall be cancelled.
b. With respect to any Warrant Certificates presented for
registration of transfer, or for exchange or exercise, the subscription
or exercise form, as the case may be, on the reverse thereof shall be
duly endorsed or be accompanied by a written instrument or instruments
of transfer and subscription, in form satisfactory to the Company and
the Warrant Agent, duly executed by the Warrant Holder thereof or his
attorney duly authorized in writing.
9. EXERCISE OF WARRANTS.
a. Any one Warrant or any multiple of one Warrant evidenced by
any Warrant Certificate may be exercised upon any single occasion on or
after the Exercise Date, and on or before the Expiration Date. A
Warrant shall be exercised by the Warrant Holder by surrendering to the
Warrant Agent the Warrant Certificate evidencing such Warrant with the
exercise form on the reverse of such Warrant Certificate duly completed
and executed and delivering to the Warrant Agent, by good check or bank
draft payable to the order of the Company, the Exercise Price for each
Share to be purchased.
b. Upon receipt of a Warrant Certificate with the exercise
form thereon duly executed together with payment in full of the
Exercise Price for the Shares for which Warrants are then being
exercised, the Warrant Agent shall requisition from any transfer agent
for the Shares, and upon receipt shall make delivery of, certificates
evidencing the total number of whole Shares for which Warrants are then
being exercised in such names and denominations as are required for
delivery to, or in accordance with the instructions of, the Warrant
Holder. Such certificates for the Shares shall be deemed to be issued,
and the person to whom such Shares are issued of record shall be deemed
to have become a holder of record of such Shares, as of the date of the
surrender of such Warrant Certificate and payment of the Exercise
Price, whichever shall last occur, provided that if the books of the
Company with respect to the Shares shall be closed as of such date the
Shares shall be deemed to be issued, and the person to whom such Shares
are issued of record shall be deemed to have become a record holder of
such Shares, as of the date on which such books
-3-
shall next be open (whether before, on or after the Expiration Date)
but at the Exercise Price, whichever shall have last occurred, to the
Warrant Agent.
c. If less than all the Warrants evidenced by a Warrant
Certificate are exercised upon a single occasion, a new Warrant
Certificate for the balance of the Warrants not so exercised shall be
issued and delivered to, or in accordance with, transfer instructions
properly given by the Warrant Holder until the Expiration Date.
d. All Warrant Certificates surrendered upon exercise of
Warrants shall be cancelled.
e. Upon the exercise, or conversion of any Warrant, the
Warrant Agent shall promptly deposit the payment therefor into an
escrow account established by mutual agreement of the Company and the
Warrant Agent at a federally insured commercial bank. All funds
deposited in the escrow account will be disbursed on a weekly basis to
the Company once they have been determined by the Warrant Agent to be
collected funds. Once the funds are determined to be collected, the
Warrant Agent shall cause the share certificate(s) representing the
exercised Warrants to be issued.
f. Expenses incurred by American Securities Transfer & Trust,
Inc. while acting in the capacity as Warrant Agent will be paid by the
Company. These expenses, including delivery of Share certificates to
the shareholder, will be deducted from the exercise fee submitted prior
to distribution of funds to the Company. A detailed accounting
statement relating to the number of shares exercised, names of
registered Warrant holder and the net amount of exercised funds
remitted will be given to the Company with the payment of each exercise
amount.
g. At the time of exercise of the Warrant(s), the transfer fee
is to be paid by the Company.
h. The Company covenants that if any securities to be reserved
for the purpose of exercise of Warrants hereunder require registration
with, or approval of, any governmental authority under any federal
securities law before such securities may be validly issued or
delivered upon such exercise, then the Company will file a registration
statement under the federal securities laws or a post effective
amendment, use its best efforts to cause the same to become effective
and use its best efforts to keep such registration statement current
while any of the Warrants are outstanding and deliver a prospectus
which complies with Section 10(a)(3) of the Securities Act of 1933, as
amended (the "Act"), to the Registered Holder exercising the Warrant
(except, if in the opinion of counsel to the Company, such registration
is not required under the federal securities laws or if the Company
receives a letter from the staff of the Securities and Exchange
Commission stating that it would not take any enforcement action if
such registration is not effected). The Company will use its best
efforts to obtain appropriate approvals or registrations under state
"blue sky" securities laws. With
-4-
respect to any such securities, however, Warrants may not be exercised
by, or shares of Common Stock issued to, any Registered Holder in any
state in which such exercise would be unlawful.
10. TAXES. The Company will pay all taxes attributable to the initial
issuance of Shares upon exercise of Warrants. The Company shall not, however, be
required to pay any tax which may be payable in respect to any transfer involved
in any issue of Warrant Certificates or in the issue of any certificates of
Shares in the name other than that of the Warrant Holder upon the exercise of
any Warrant.
11. MUTILATED OR MISSING WARRANT CERTIFICATES. If any Warrant
Certificate is mutilated, lost, stolen or destroyed, the Company and the Warrant
Agent may, on such terms as to indemnity or otherwise as they may in their
discretion impose (which shall, in the case of a mutilated Warrant Certificate,
include the surrender thereof), and upon receipt of evidence satisfactory to the
Company and the Warrant Agent of such mutilation, loss, theft or destruction,
issue a substitute Warrant Certificate of like denomination and tenor as the
Warrant Certificate so mutilated, lost, stolen or destroyed. Applicants for
substitute Warrant Certificates shall comply with such other reasonable
regulations and pay any reasonable charges as the Company or the Warrant Agent
may prescribe.
12. RESERVATION OF SHARES. For the purpose of enabling the Company to
satisfy all obligations to issue Shares upon exercise of Warrants, the Company
will at all times reserve and keep available free from preemptive rights, out of
the aggregate of its authorized but unissued Shares, the full number of Shares
which may be issued upon the exercise of Warrants, which will upon issue be
fully paid and nonassessable by the Company and free from all taxes, liens,
charges and security interests with respect to the issue thereof.
13. GOVERNMENTAL RESTRICTIONS. If any Shares issuable upon the exercise
of Warrants require registration or approval of any governmental authority, the
Company will endeavor to secure such registration or approval; provided, that in
no event shall such Shares be issued, and the Company shall have the authority
to suspend the exercise of all Warrants, until such registration or approval
shall have been obtained; but all Warrants, the exercise of which is requested
during any such suspension, shall be exercisable at the Exercise Price. If any
such period of suspension continues past the Expiration Date, all Warrants, the
exercise of which has been requested on or prior to the Expiration Date, shall
be exercisable upon the removal of such suspension until the close of business
on the business day immediately following the expiration of such suspension.
14. ADJUSTMENTS. If prior to the exercise of any Warrants the Company
shall have effected one or more stock split-ups, stock dividends or other
increases or reductions of the number of shares of its $.01 par value Common
Stock outstanding without receiving compensation therefor in money, services or
property, the number of Shares subject to the Warrant granted shall, (i) if a
net increase shall have been effected in the number of outstanding shares of the
Company's shares of Common Stock, be proportionately increased, and the cash
consideration payable per share shall be proportionately reduced, and, (ii) if a
net reduction shall have been effected in the number of
-5-
outstanding shares of the Company's Common Stock, be proportionately reduced and
the cash consideration payable per share be proportionately increased.
15. NOTICE TO WARRANT HOLDERS. Upon any adjustment as described in
Section 14, the Company within twenty (20) days thereafter shall (i) cause to be
filed with the Warrant Agent a certificate signed by a Company officer setting
forth the details of such adjustment, the method of calculation and the facts
upon which such calculation is based, which certificate shall be conclusive
evidence of the correctness of the matters set forth therein, and (ii) cause
written notice of such adjustments to be given to each Warrant Holder as of the
record date applicable to such adjustment. Also, if the Company proposes to
enter into any reorganization, reclassification, sale of substantially all of
its assets, consolidation, merger, dissolution, liquidation or winding up, the
Company shall give notice of such fact at least twenty (20) days prior to such
action to all Warrant Holders, which notice shall set forth such facts as
indicate the effect of such action (to the extent such effect may be known at
the date of such notice) on the Exercise Price and the kind and amount of the
Shares or other securities and property deliverable upon exercise of the
Warrants. Without limiting the obligation of the Company hereunder to provide
notice to each Warrant Holder, failure of the Company to give notice shall not
invalidate corporate action taken by the Company.
16. NO FRACTIONAL WARRANTS OR SHARES. The Company shall not be required
to issue fractions of Warrants upon the reissue of Warrants, any adjustments as
described in Section 14 or otherwise; but the Company in lieu of issuing any
such fractional interest, shall round up or down to the nearest full Warrant. If
the total Warrants surrendered by exercise would result in the issuance of a
fractional share, the Company shall not be required to issue a fractional share
but rather the aggregate number of shares issuable will be rounded up or down to
the nearest full share.
17. RIGHTS OF WARRANT HOLDERS. No Warrant Holder, as such, shall have
any rights of a shareholder of the Company, either at law or equity, and the
rights of the Warrant Holders, as such, are limited to those rights expressly
provided in this Agreement or in the Warrant Certificates. The Company and the
Warrant Agent may treat the registered Warrant Holder in respect of any Warrant
Certificate as the absolute owner thereof (notwithstanding any notations of
ownership or writing thereon made by anyone other than the Company or the
Warrant Agent) for all purposes notwithstanding any notice to the contrary.
18. WARRANT AGENT. The Company hereby appoints the Warrant Agent to act
as the agent of the Company and the Warrant Agent hereby accepts such
appointment upon the following terms and conditions by all of which the Company
and every Warrant Holder, by acceptance of his Warrants, shall be bound:
a. Statements contained in this Agreement and in the Warrant
Certificates shall be taken as statements of the Company. The Warrant
Agent assumes no responsibility for the correctness of any of the same
except such as describes the Warrant Agent or for action taken or to be
taken by the Warrant Agent.
-6-
b. The Warrant Agent shall not be responsible for any failure
of the Company to comply with any of the Company's covenants contained
in this Agreement or in the Warrant Certificates.
c. The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant
Agent shall incur no liability or responsibility to the Company or to
any Warrant Holder in respect of any action taken, suffered or omitted
by it hereunder in good faith and in accordance with the opinion or the
advice of such counsel, provided the Warrant Agent shall have exercised
reasonable care in the selection and continued employment of such
counsel.
d. The Warrant Agent shall incur no liability or
responsibility to the Company or to any Warrant Holder for any action
taken in reliance upon any notice, resolution, waiver, consent, order,
certificate or other paper, document or instrument believed by it to be
genuine and to have been signed, sent or presented by the proper party
or parties.
e. The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the
execution of this Agreement, to reimburse the Warrant Agent for all
expenses, taxes and governmental charges and all other charges of any
kind or nature incurred by the Warrant Agent in the execution of this
Agreement and to indemnify the Warrant Agent and save it harmless
against any and all liabilities, including judgments, costs and counsel
fees, for this Agreement except as a result of the Warrant Agent's
negligence or bad faith.
f. The Warrant Agent shall be under no obligation to institute
any action, suit or legal proceeding or to take any other action likely
to involve expense unless the Company or one or more Warrant Holders
shall furnish the Warrant Agent with reasonable security and indemnity
for any costs and expenses which may be incurred in connection with
such action, suit or legal proceeding, but this provision shall not
affect the power of the Warrant Agent to take such action as the
Warrant Agent may consider proper, whether with or without any such
security or indemnity. All rights of action under this Agreement or
under any of the Warrants may be enforced by the Warrant Agent without
the possession of any of the Warrant Certificates or the production
thereof at any trial or other proceeding relative thereto, and any such
action, suit or proceeding instituted by the Warrant Agent shall be
brought in its name as Warrant Agent, and any recovery of judgment
shall be for the ratable benefit of the Warrant Holders as their
respective rights or interests may appear.
g. The Warrant Agent and any shareholder, director, officer or
employee of the Warrant Agent may buy, sell or deal in any of the
Warrants or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be interested,
or contract with or lend money to the Company or otherwise act as fully
and freely as though it were not Warrant Agent under this Agreement.
Nothing herein shall preclude
-7-
the Warrant Agent from acting in any other capacity for the Company or
for any other legal entity.
19. SUCCESSOR WARRANT AGENT. Any corporation into which the Warrant
Agent may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Warrant Agent shall be a party, or any corporation succeeding to the corporate
trust business of the Warrant Agent, shall be the successor to the Warrant Agent
hereunder without the execution or filing of any paper or any further act of a
party or the parties hereto. In any such event or if the name of the Warrant
Agent is changed, the Warrant Agent or such successor may adopt the
countersignature of the original Warrant Agent and may countersign such Warrant
Certificates either in the name of the predecessor Warrant Agent or in the name
of the successor Warrant Agent.
20. CHANGE OF WARRANT AGENT. The Warrant Agent may resign or be
discharged by the Company from its duties under this Agreement by the Warrant
Agent or the Company, as the case may be, giving notice in writing to the other,
and by giving a date when such resignation or discharge shall take effect, which
notice shall be sent at least thirty (30) days prior to the date so specified.
If the Warrant Agent shall resign, be discharged or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Warrant Agent.
If the Company shall fail to make such appointment within a period of thirty
(30) days after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Warrant Agent or by any Warrant
Holder or after discharging the Warrant Agent, then any Warrant Holder may apply
to the District Court for Denver County, Colorado, for the appointment of a
successor to the Warrant Agent. Pending appointment of a successor to the
Warrant Agent, either by the Company or by such Court, the duties of the Warrant
Agent shall be carried out by the Company. Any successor Warrant Agent, whether
appointed by the Company or by such Court, shall be a bank or a trust company,
in good standing, organized under the laws of the State of Colorado or the State
of New York or of the United States of America, having its principal office in
Denver, Colorado or New York, New York and having at the time of its appointment
as Warrant Agent, a combined capital and surplus of at least four million
dollars. After appointment, the successor Warrant Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Warrant Agent without further act or deed and the former Warrant Agent
shall deliver and transfer to the successor Warrant Agent any property at the
time held by it thereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for effecting the delivery or transfer.
Failure to give any notice provided for in this section, however, or any defect
therein, shall not affect the legality or validity of the resignation or removal
of the Warrant Agent or the appointment of the successor Warrant Agent, as the
case may be.
21. NOTICES. Any notice or demand authorized by this Agreement to be
given or made by the Warrant Agent or by any Warrant Holder to or on the Company
shall be sufficiently given or made if sent by mail, first class, certified or
registered, postage prepaid, addressed (until another address is filed in
writing by the Company with the Warrant Agent), as follows:
-8-
WebSecure, Inc.
1711 Broadway
Saugus, Massachusetts 01906
Any notice or demand authorized by this Agreement to be given or made by any
Warrant Holder or by the Company to or on the Warrant Agent shall be
sufficiently given or made if sent by mail, first class, certified or
registered, postage prepaid, addressed (until another address is filed in
writing by the Warrant Agent with the Company), as follows:
American Securities Transfer & Trust, Inc.
1825 Lawrence Street, Suite 444
Denver, Colorado 80202
Any distribution, notice or demand required or authorized by this Agreement to
be given or made by the Company or the Warrant Agent to or on the Warrant
Holders shall be sufficiently given or made if sent by mail, first class,
certified or registered, postage prepaid, addressed to the Warrant Holders at
their last known addresses as they shall appear on the registration books for
the Warrant Certificates maintained by the Warrant Agent.
22. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant Agent may
from time to time supplement or amend this Agreement without the approval of any
Warrant Holders or the representatives of the underwriters in the Company's
initial public offering in order to cure any ambiguity or to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provisions herein, or to make any other provisions in regard to
matters or questions arising hereunder which the Company and the Warrant Agent
may deem necessary or desirable.
23. SUCCESSORS. All the covenants and provisions of this Agreement by
or for the benefit of the Company or the Warrant Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.
24. TERMINATION. This Agreement shall terminate at the close of
business on the Expiration Date or such earlier date upon which all Warrants
have been exercised; provided, however, that if exercise of the Warrants is
suspended pursuant to Section 13 and such suspension continues past the
Expiration Date, this Agreement shall terminate at the close of business on the
business day immediately following the expiration of such suspension. The
provisions of Section 18 shall survive such termination.
25. GOVERNING LAW. This Agreement and each Warrant Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
Colorado and for all purposes shall be construed in accordance with the laws of
said State.
-9-
26. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give any person or corporation other than the Company, the Warrant
Agent and the Warrant Holders any legal or equitable right, remedy or claim
under this Agreement; but this Agreement shall be for the sole and exclusive
benefit of the Company, the Warrant Agent and the Warrant Holders.
27. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of such counterparts shall for all purposes be deemed to be
an original and all such counterparts shall together constitute but one and the
same instrument.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-10-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year indicated below.
Date:_________________________ WEBSECURE, INC.,
a Delaware corporation
By:_________________________________
Robert Kuzara, President
SEAL
ATTEST:
- ------------------------------
, Secretary
AMERICAN SECURITIES TRANSFER &
TRUST, INC., a Colorado corporation
By:_________________________________
Gregory D. Tubbs, Vice President
SEAL
ATTEST:
- ------------------------------
-11-
EXHIBIT A
NO. ________ VOID AFTER ____________, 1999
_______ WARRANTS
FORM OF
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
WEBSECURE, INC.
CUSIP 947683116
--------------
THIS CERTIFIES THAT, FOR VALUE RECEIVED _______________________________
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. One (1) Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one (1) fully paid and nonassessable share of Common Stock, $.01 par
value, of WebSecure, Inc., a Delaware corporation (the "Company"), at any time
between _____________, 1997 (the "Initial Warrant Exercise Date"), and the
Expiration Date (as hereinafter defined) upon the presentation and surrender of
this Warrant Certificate with the Subscription Form on the reverse hereof duly
executed, at the corporate office of American Securities Transfer & Trust, Inc.,
1825 Lawrence Street, Suite 444, Denver, Colorado 80202, as Warrant Agent, or
its successor (the "Warrant Agent"), accompanied by payment of $9.60 per share,
subject to adjustment (the "Purchase Price"), in lawful money of the United
States of America by check made payable to the Warrant Agent for the account of
the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated
_________________, 1996, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Warrant Agent shall countersign, for the balance of such Warrants.
A-1
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
_______________, 1999. If such date shall in the State of New York be a holiday
or a day on which banks are authorized to close, then the Expiration Date shall
mean 5:00 p.m. (New York time) the next following day which in the State of New
York is not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has covenanted
and agreed that it will file a registration statement under the federal
securities laws, use its best efforts to cause the same to become effective, to
keep such registration statement current, if required under the Act, while any
of the Warrants are outstanding, and deliver a prospectus which complies with
Section 10(a)(3) of the Act to the Registered Holder exercising this Warrant.
This Warrant shall not be exercisable by a Registered Holder in any state where
such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Subject to the provisions of the Warrant Agreement, commencing
____________, 1997, this Warrant may be redeemed at the option of the Company in
whole or in part upon not less than 30 days' prior written notice (the "Notice
of Redemption"), at a price of $.20 per Warrant (the "Redemption Price"), if the
average of the high and low sales prices of the Company's Common Stock equals or
exceeds $12.00 per share (the "Notice Price") for ten (10) consecutive trading
days within the twenty (20) day period preceding the date of such notice. The
Notice of Redemption shall be given not later than the thirtieth day before the
date fixed for redemption, all as provided in the Warrant Agreement. On and
after the date fixed for redemption, the Registered Holder shall have no rights
with respect to the Warrants except to receive the $.20 per Warrant upon
surrender of this Warrant Certificate.
A-2
Under certain circumstances, Coburn & Meredith, Inc. and Shamrock
Partners, Ltd. shall be entitled to receive an aggregate of five percent (5%) of
the Purchase Price of the Warrants represented hereby.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Colorado without giving effect to its
conflict of law principles.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated:___________________, 1996 WEBSECURE, INC.
[SEAL]
By:_________________________________
Robert Kuzara, President
By:_________________________________
Carole Ouellette, Treasurer
COUNTERSIGNED:
AMERICAN SECURITIES TRANSFER & TRUST, INC.,
as Warrant Agent
By:___________________________________
Gregory D. Tubbs, Vice President
A-3
SUBSCRIPTION FORM
-----------------
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
____________ Warrants represented by this Warrant Certificate, and to purchase
the securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
________________________
________________________
________________________
________________________
(please print or type name and address)
and be delivered to
________________________
________________________
________________________
________________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
A-4
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. The exercise of this Warrant was solicited by Coburn & [ ]
Meredith, Inc. or Shamrock Partners, Ltd.
2. The exercise of this Warrant was solicited by [ ]
-----------------------------------
3. The exercise of this Warrant was not solicited [ ]
Dated:_____________________________ ___________________________________
Name
-----------------------------------
Number and Street
-----------------------------------
City/Town/State/Zip
-----------------------------------
Social Security or Taxpayer
Identification Number
-----------------------------------
Signature Guaranteed
-----------------------------------
A-5
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, __________________________________, hereby sells,
assigns, and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER
________________________
________________________
________________________
________________________
(please print or type name and address)
__________________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
_________________________________, Attorney to transfer this Warrant Certificate
on the books of the Company, with full power of substitution in the premises.
Dated:_________________________ ____________________________________
Signature Guaranteed
------------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
CONTINENTAL STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE,
MIDWEST STOCK EXCHANGE OR BOSTON STOCK EXCHANGE.
A-6
EXHIBIT 10g
PROMISSORY NOTE
U.S. $600,00.00 Date: October 1, 1996
FOR VALUE RECEIVED, WEBSECURE, INC., a Delaware corporation ("Maker"), promises
to pay to the order of KEYCORP LEASING LTD., a Delaware corporation ("Holder"),
the sum of SIX HUNDRED THOUSAND DOLLARS ($600,00.00) in lawful money of the
United States of America (the "Principal"), with interest thereon as hereafter
provided ("Interest"), to be paid in the manner set forth herein.
1. Interest Rate: Place of Payment. Interest on the balance of the
Principal outstanding on this Promissory Note shall accrue from the date of this
Promissory Note and shall be due and payable at a fixed rate of ten and
thirty-eight hundredths per annum (the "Interest Rate"). Interest shall be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Payment of the Principal and Interest hereunder shall be made to Holder at P.O.
Box 1865, Albany, New York 12201-1865, or at such other place as Holder may
designate from time to time in writing. Holder reserves the right to require
payment on this Promissory Note to be made by wired federal funds or other
immediately available funds.
2. Repayment Terms. The Principal and Interest shall be due and
payable in 60 (sixty) consecutive monthly installments payable in arrears, each
in an amount equal to $12,860.70, on the_____ day of each month
beginning_______, 1996 to and including__________, 2001. In addition, Maker will
pay a late payment charge of five percent (5%) of any payment due hereunder that
is not paid on or before the date due hereunder.
3. Security Agreement. This Promissory Note is executed pursuant to
that certain security agreement (the "Security Agreement") dated as of September
24, 1996 between Maker and Holder. Capitalized terms used herein without
definition shall have the meaning given them in the Security Agreement.
4. Security. Payment of the Principal and Interest hereunder, and the
performance and observance by Maker of all agreements, covenants and provisions
contained herein, is secured by the grant by Maker to Holder of a first priority
security interest in the Collateral.
5. Prepayment. EXCEPT AS CONTEMPLATED BY CLAUSE (3) OF SECTION 10 OF
THE SECURITY AGREEMENT, MAKER MAY NOT PREPAY, IN WHOLE OR IN PART, THE PRINCIPAL
OUTSTANDING HEREUNDER; PROVIDED, HOWEVER, THAT MAKER MAY PREPAY, IN WHOLE BUT
NOT IN PART, THE PRINCIPAL OUTSTANDING HEREUNDER BY PAYING TO HOLDER SUCH
OUTSTANDING PRINCIPAL, TOGETHER WITH ALL ACCRUED AND UNPAID INTEREST THEREON,
PLUS A PREPAYMENT PREMIUM ("PREPAYMENT PREMIUM") EQUAL TO FIVE PERCENT (5%) OF
SUCH OUTSTANDING PRINCIPAL.
6. Transfer or Assignment. Holder may at any time assign or otherwise
transfer or negotiate this Promissory Note in whole or in part, without any
notice to Maker. The rights and obligations of Maker may not be assigned or
delegated.
7. Application of Payments. Prior to an Event of Default, each payment
received on this Promissory Note shall be applied first to all costs of
collection, then to unpaid late payment charges (if any) and Prepayment Premium
(if any) hereunder, then to Interest as of the payment due date and the balance,
if any, to the outstanding Principal as of the date received. Upon the
occurrence, and during the continuance, of an Event of Default, any payments in
respect of the Secured Obligations and any proceeds of the Collateral when
received by Holder In cash or its equivalent, will be applied first to costs of
collection and, thereafter, in reduction of the Secured Obligations in such
order and manner as Holder
may direct in its sole discretion, and Maker irrevocably waives the right to
direct the application of such payments and proceeds and acknowledges and agrees
that Holder shall have the continuing and exclusive right to apply any and all
such payments and proceeds in the Holder's sole discretion, notwithstanding any
entry to the contrary upon any of its books and records.
8. Events of Default. (a) The occurrence of any of the following events
shall constitute and be an event of default hereunder (an "Event of Default"):
(1) Maker fails to make any installment of the Principal or Interest, or any
other payment due and owing, under this Promissory Note within five (5) days
after the same becomes due and payable; or (2) Maker fails to perform any other
obligation required to be performed by Maker under this Promissory Note or any
of the other Loan Documents for ten (10) days after written notice from Holder
of such failure; or (3) any representation, warranty or other statement by or on
behalf of Maker in connection with this Promissory Note is false or misleading
in any material respect; or (4) an event of default has occurred and is
continuing under the Security Agreement.
(b) Notwithstanding anything to the contrary contained herein, upon the
occurrence of an Event of Default: (i) Holder shall have the right to cause the
entire outstanding balance of the Principal, together with all accrued and
unpaid Interest thereon, to become immediately due and payable without notice or
demand which amounts shall, together with all other sums due hereunder, accrue
interest from such acceleration until the date of actual payment at the Late
Payment Rate (provided, however, that should there occur a Default and if a
voluntary or involuntary petition under the United States Bankruptcy Code is
filed by or against Maker while such Default remains uncured, the entire
outstanding balance of the Principal automatically shall be accelerated and due
and payable and interest thereon at the Late Payment Rate automatically shall
apply as of the date of the first occurrence of the Default, without any notice,
demand or action of any type on the part of Holder (including any action
evidencing the acceleration or imposition of the Late Payment Rate). The fact
that Holder has, prior to the filing of the voluntary or involuntary petition
under the United States Bankruptcy Code, acted in a manner which is inconsistent
with the acceleration and imposition of the Late Payment Rate shall not
constitute a waiver of this provision or estop Holder from asserting or
enforcing Holder's rights hereunder), (ii) Maker shall pay on demand all costs
and expenses of Holder with respect to the enforcement of its rights and
remedies hereunder and under the Security Agreement, including, without
limitation, reasonable attorneys' fees, and (iii) Holder shall have the right to
exercise any and all remedies available to it hereunder and under the Security
Agreement. The remedies of Holder provided herein and in the Security Agreement
shall be cumulative and concurrent and may be pursued singly, successively or
concurrently at the sole discretion of Holder and may be exercised as often as
occasion therefor shall occur. The failure to exercise, or any delay In the
exercise of, any right or remedy shall In no event be construed as a waiver,
release or exhaustion of any such remedies.
9. Collection Costs. In addition to the Principal, Interest, Prepayment
Premium (if any), and late payment charges (if any), Holder shall be entitled to
collect all costs and expenses of collection, including, without limitation,
reasonable attorneys' fees, incurred in connection with the protection or
realization of the Collateral or in connection with Holder's collection efforts,
whether or not suit on this Promissory Note or any foreclosure proceeding is
filed. All such costs and expenses shall be payable on demand and, until paid,
shall be Secured Obligations secured by the security interest granted under the
Security Agreement and all other collateral, if any, held by Holder as security
for Maker's obligations under this Promissory Note.
10. Binding Agreement: Governing Law. This Promissory Note is delivered
in, and shall be interpreted and construed in accordance with, the internal laws
of the State of New York (without regard to the conflict of laws principles of
such state). The provisions of this Promissory Note shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors and assigns.
11. More than One Signer. If more than one person or entity signs this
Promissory Note as a Maker, the obligations contained herein shall be deemed
joint and several and all references to "Maker" shall apply both jointly and
severally.
2
12. General. Maker represents and warrants that this Promissory Note
evidences a loan for business or commercial purposes. By signing this Promissory
Note, Maker agrees to be legally bound to all terms and conditions contained
herein.
13. Waiver. MAKER AND ALL ENDORSERS, SURETIES, AND GUARANTORS HEREOF
HEREBY JOINTLY AND SEVERALLY WAIVE PRESENTMENT FOR PAYMENT, DEMAND, NOTICE OF
NON-PAYMENT OR DISHONOR, NOTICE OF PROTEST AND PROTEST OF THIS PROMISSORY NOTE.
MAKER HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LITIGATION IN ANY COURT
WITH RESPECT TO, IN CONNECTION WITH OR ARISING OUT OF, THIS PROMISSORY NOTE OR
ANY DOCUMENT DELIVERED IN CONNECTION WITH THIS PROMISSORY NOTE.
14. Usury: Partial Invalidity. (a) At no time shall the Interest Rate
(or the Late Payment Rate or other amounts paid or collected hereunder) exceed
the highest rate allowed by applicable law for this type of loan. Should Holder
ever collect interest at a rate that exceeds the such applicable legal limit,
such excess will be credited to the Principal. If the amount of the credit
exceeds the balance of the Principal then outstanding on this Promissory Note,
such excess will be returned to Maker; and the effective rate of interest
automatically shall be reduced to the maximum lawful contract rate allowed under
Applicable Law as now or hereafter construed by the courts having jurisdiction
thereof. Notwithstanding the foregoing, if any applicable state law is amended
or the law of the United States of America preempts any applicable state law, so
that it becomes lawful for Holder to receive a greater per annum interest rate
than is presently allowed by law, the Maker agrees that, on the effective date
of such amendment or preemption, as the case may be, the lawful maximum
hereunder shall be increased to the maximum Interest rate per annum allowed by
the amended state law or the law of the United States of America (but not In
excess of the Interest Rate, or, if applicable, the Late Payment Rate provided
for herein). All calculations of the rate of interest contracted for, charged or
received under this Note or the Security Agreement which are made for the
purpose of determining whether such rate exceeds the maximum lawful contract
rate, shall be made, to the extent permitted by Applicable Law, by amortizing,
prorating, allocating and spreading in equal parts during the period of the full
stated term of the indebtedness evidenced hereby, all interest at any time
contracted for, charged or received from the Maker or otherwise by Holder in
connection with the Secured Obligations.
(b) Whenever possible, each provision of this Promissory Note shall be
interpreted In such manner as to be effective and valid under applicable law,
but if any provision of this Promissory Note shall be prohibited by or invalid
under the laws of any jurisdiction, such provision, as to such jurisdiction,
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Promissory Note in any other jurisdiction.
15. Notices. All notices and other communications under this Promissory
Note shall be in writing and shall be addressed: (i) if to Maker, 1711
Broadway, Corporate Center North, Saugus, MA 01906; and (ii) if to Holder,
KeyCorp Leasing Ltd., 54 State Street, Albany, New York 12207, Attention:
Business Coordinator, or such other address as either party hereto shall
communicate to the other party at its address specified above. All such notices
and other communications shall be deemed to have been duly given if delivered
by hand, overnight courier or if sent by certified mail, return receipt
requested, to the party to whom such notice is intended to be given, and shall
be effective upon receipt.
3
IN WITNESS WHEREOF, Maker, intending to be legally bound, has caused
this Promissory Note to be duly executed on the day and year first above
written.
MAKER:
WEBSECURE, INC.
By:
--------------------------------
Name:
Title:
STATE OF )
) ss.:
COUNTY OF )
On this 2nd day of October , 1996 , before me the subscriber personally
appeared Robert Kuzara , who being by me duly sworn, did depose and say; that
he/she resides at 19 Smith Farm Trail, Lynnfield, MA 01940 : that he/she is a
President / CEO of WebSecure, Inc. , the corporation described in an which
executed the foregoing instrument; and that he signed his name thereto by order
of the Board of Directors of said corporation.
- ----------------------------
NOTARY PUBLIC
My commission Expires: Jan. 20, 2000
4
EXHIBIT A
COLLATERAL. "Collateral" shall include the property described herein or in any
attachment hereto and all replacements, accessions, substitutions, additions,
products and proceeds thereof, whether now owned by Borrower or hereafter
acquired.
A. DESCRIPTION OF COLLATERAL. All of Borrower's presently owned or
hereafter acquired (1) accounts receivable, accounts, chattel paper, documents,
contract rights, instruments, general intangibles, and all right, title and
interest in sold, leased, or furnished goods giving rise thereto (including,
without limitation, all rights (a) of stoppage in transit, (b) of reclamation,
and (c) in returned or repossessed goods), (2) inventory (including, without
limitation, all goods that are (a) raw materials, (b) work in process, (c)
materials used or consumed in the ordinary course of Borrower's business or (d)
in the ordinary course of Borrower's business, held for sale or lease or
furnished or to be furnished under contracts of service), and (3) equipment,
including, without limitation, (a) all machinery, office furniture and
furnishing, tools, dies, jigs, and molds, (b) all goods used or bought for use
primarily in Borrower's business, (c) all goods that are not consumer goods or
farm products.
B. OTHER COLLATERAL. Collateral shall include all property, including
but not limited to deposit balances, securities and dividends, which now or
hereafter may be pledged, hypothecated or otherwise encumbered in favor of KCL
by the Borrower, or be in the possession of KCL, its parents, subsidiaries or
affiliates.
C. LOCATION OF COLLATERAL. Collateral or records concerning same, shall
be kept at 1711 Broadway, Corporate Center North, Saugus, MA 01906.
EXHIBIT 10h
MASTER EQUIPMENT LEASE AGREEMENT
THIS MASTER EQUIPMENT LEASE AGREEMENT dated as of December 21, 1995 is made
by and between KEYCORP LEASING LTD., a Delaware corporation with its principal
place of business at 54 State Street, Albany, New York 12207 ("Lessor"), and
WEBSECURE, INC., a Massachusetts corporation having its principal place of
business at 171 I Broadway, Saugus, MA 01906 ("Lessee").
TERMS AND CONDITIONS OF LEASE
1. LEASE. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Equipment, subject to and upon the terms and conditions set forth
herein. Each Equipment Schedule shall constitute a separate and enforceable
lease incorporating all the terms and conditions of this Master Equipment Lease
Agreement as if such terms and conditions were set forth in full in such
Equipment Schedule. In the event that any term or condition of any Equipment
Schedule conflicts with or is inconsistent with any term or condition of this
Master Equipment Lease Agreement, the terms and conditions of the Equipment
Schedule shall govern.
2. DISCLAIMER OF WARRANTIES. LESSOR MAKES NO (AND SHALL NOT BE DEEMED TO
HAVE MADE ANY) WARRANTIES. EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER
INCLUDING, WITHOUT LIMITATION, THE DESIGN, OPERATION OR CONDITION OF, OR THE
QUALITY OF THE MATERIAL, EQUIPMENT OR WORKMANSHIP IN, THE EQUIPMENT. ITS
MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE. THE STATE OF TITLE
THERETO OR ANY COMPONENT THERETO. THE ABSENCE OF LATENT OR OTHER DEFECTS
(WHETHER OR NOT DISCOVERABLE). AND LESSOR HEREBY DISCLAIMS THE SAME: IT BEING
UNDERSTOOD THAT THE EQUIPMENT IS LEASED TO LESSEE "AS IS" AND ALL SUCH RISKS. IF
ANY. ARE TO BE BORNE BY LESSEE. NO DEFECT IN, OR UNFITNESS OF, THE EQUIPMENT, OR
ANY OF THE OTHER FOREGOING MATTERS, SHALL RELIEVE LESSEE OF THE OBLIGATION TO
PAY RENT OR OF ANY OTHER OBLIGATION HEREUNDER. LESSEE HAS MADE THE SELECTION OF
THE EQUIPMENT FROM THE SUPPLIER BASED ON ITS OWN JUDGMENT AND EXPRESSLY
DISCLAIMS ANY RELIANCE UPON ANY STATEMENTS OR REPRESENTATIONS MADE BY LESSOR.
LESSOR IS NOT RESPONSIBLE FOR ANY REPAIRS, SERVICE, MAINTENANCE OR DEFECT IN THE
EQUIPMENT OR THE OPERATION THEREOF. IN NO EVENT SHALL LESSOR BE LIABLE FOR ANY
INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES (WHETHER UNDER THE UCC OR OTHERWISE),
INCLUDING, WITHOUT LIMITATION, ANY LOSS, COST OR DAMAGE TO LESSEE OR OTHERS
ARISING FROM ANY OF THE FOREGOING MATTERS, INCLUDING, WITHOUT LIMITATION,
DEFECTS, NEGLIGENCE, DELAYS, FAILURE OF DELIVERY OR NON-PERFORMANCE OF THE
EQUIPMENT. ANY WARRANTY BY THE SUPPLIER IS HEREBY ASSIGNED TO LESSEE BY LESSOR
WITHOUT RECOURSE. SUCH WARRANTY SHALL NOT RELEASE LESSEE FROM ITS OBLIGATION TO
LESSOR TO PAY RENT, TO PERFORM ALL OTHER OBLIGATIONS HEREUNDER AND TO KEEP,
MAINTAIN AND SURRENDER THE EQUIPMENT IN THE CONDITION REQUIRED BY SECTIONS 12
AND 13 HEREOF. Lessee's execution and delivery of a Certificate of Acceptance
shall be conclusive evidence as between Lessor and Lessee that the Items of
Equipment described therein are in all of the foregoing respects satisfactory to
Lessee, and Lessee shall not assert any claim of any nature whatsoever against
Lessor based on any of the foregoing matters; provided, however, that nothing
contained herein shall in any way bar, reduce or defeat any claim that Lessee
may have against the Supplier or any other person (other than Lessor).
3. NON-CANCELABLE LEASE. THIS LEASE IS A NET LEASE AND LESSEE'S OBLIGATION
TO PAY RENT AND PERFORM ITS OBLIGATIONS HEREUNDER ARE ABSOLUTE, IRREVOCABLE AND
UNCONDITIONAL UNDER ANY AND ALL CIRCUMSTANCES WHATSOEVER AND SHALL NOT BE
SUBJECT TO ANY RIGHT OF SET OFF, COUNTERCLAIM, DEDUCTION, DEFENSE OR OTHER RIGHT
WHICH LESSEE MAY HAVE AGAINST THE SUPPLIER, LESSOR OR ANY OTHER PARTY. LESSEE
SHALL HAVE NO RIGHT TO TERMINATE (EXCEPT AS EXPRESSLY PROVIDED HEREIN) OR CANCEL
THIS LEASE OR TO BE RELEASED OR DISCHARGED FROM ITS OBLIGATION HEREUNDER FOR ANY
REASON WHATSOEVER, INCLUDING, WITHOUT LIMITATION, DEFECTS IN, DESTRUCTION OF,
DAMAGE TO OR INTERFERENCE WITH ANY USE OF THE EQUIPMENT (FOR ANY REASON
WHATSOEVER, INCLUDING, WITHOUT LIMITATION, WAR, ACT OF GOD, STRIKE OR
GOVERNMENTAL REGULATION), THE INVALIDITY, ILLEGALITY OR UNENFORCEABILITY (OR ANY
ALLEGATION THEREOF) OF THIS LEASE OR ANY PROVISION HEREOF, OR ANY OTHER
OCCURRENCE WHATSOEVER, WHETHER SIMILAR OR DISSIMILAR TO THE FOREGOING, WHETHER
FORESEEN OR UNFORESEEN.
Page 1
4. Definitions. Unless the context otherwise requires, as used in this
Lease, the following terms shall have the respective meanings indicated below
and shall be equally applicable to both the singular and the plural forms
thereof:
(a) "APPLICABLE Law" shall mean all applicable Federal, state, local and
foreign laws (including, without limitation, any Environmental Law, industrial
hygiene and occupational safety or similar laws), ordinances, judgments,
decrees, injunctions, writs and orders of any Governmental Authority and rules,
regulations, orders, licenses and permits of any Governmental Authority.
(b) "Appraisal Procedure" shall mean the following procedure for obtaining
an appraisal of the Fair Market Sales Value or the Fair Market Rental Value.
Lessor shall provide Lessee with the names of three independent Appraisers.
Within ten (10) business days thereafter, Lessee shall select one of such
Appraisers to perform the appraisal. The selected Appraisal shall be instructed
to perform its appraisal based upon the assurnptions specified in the definition
of Fair Market Sales Value or Fair Market Rental Value, as applicable, and shall
complete its appraisal within twenty (20) business days after such selection.
Any such appraisal shall be final, binding and conclusive on Lessee and Lessor
and shall have the legal effect of an arbitration award. Lessee shall pay the
fees and expenses of the selected Appraiser.
(c) "Appraiser" shall mean a person engaged in the business of appraising
property who has at least ten years' experience in appraising property similar
to the Equipment.
(d) "Authorized Signer" shall mean those officers of Lessee, set forth on
an incumbency certificate (in form and substance satisfactory to Lessor)
delivered by Lessee to Lessor, who are authorized and empowered to execute this
Lease, the Equipment Schedules and all other documents the execution of which is
contemplated hereby.
(e) "Certificate of Acceptance" shall mean a certificate of acceptance, in
form and substance satisfactory to Lessor, executed and delivered by Lessee in
accordance with Section 7 hereof indicating, among other things, that the
Equipment described therein has been accepted by Lessee for all purposes of this
Lease.
(f) "Default" shall mean any event or condition which, with the passage of
time or the giving of notice, or both, would constitute an Event of Default.
(g) "Environmental Law" shall mean any federal, state, or local statute,
law, ordinance, code, rule, regulation, or order or decree regulating, relating
to or imposing liability upon a person in connection with the use, release or
disposal of any hazardous, toxic or dangerous substance, waste, or material as
same may relate to the Equipment or its operation.
(h) ""Equipment" shall mean an item or items of personal property
designated from time to time by Lessee which are described on an Equipment
Schedule and which are being or will be leased by Lessee pursuant to this Lease,
together with all replacement parts, additions and accessories incorporated
therein or affixed thereto.
(i) "Equipment Group" shall consist of all Items of Equipment listed on a
particular Equipment Schedule.
j) "Equipment Location" shall mean the location of the Equipment, as set
forth on an Equipment Schedule, or such other location (approved by Lessor) as
Lessee shall from time to time specify in writing.
(k) "Equipment Schedule" shall mean each equipment lease schedule from time
to time executed by Lessor and Lessee with respect to an Equipment Group,
pursuant to and incorporating by reference all of the terms and conditions of
this Master Equipment Lease Agreement.
(I) "Event of Default" shall have the meaning specified in Section 22
hereof.
(m) "Fair Market Rental Value" or "Fair Market Sale Value" shall mean the
value of each Item of Equipment for lease or sale, unless otherwise specified
herein as determined between Lessor and Lessee, or, if Lessor and Lessee are
unable to agree, pursuant to the Appraisal Procedure, which would be obtained in
an arms-length transaction between an informed and willing lessor or seller
(under no compulsion to lease or sell) and an informed and willing lessee or
buyer (under no compulsion to lease or purchase). In determining the Fair Market
Rental Value or Fair Market Sale Value of the Equipment, (a) such Fair Market
Rental Value or Fair Market Sale Value shall be calculated on the assumption
that the Equipment is in the condition and repair required by Sections 12 and 13
hereof, and (b) there shall be excluded from the calculation thereof the value
of any upgrades and attachments made pursuant to Section 14 hereof in which the
Lessor does not own an interest; provided, however, that, unless otherwise
provided in such Section 22, for purposes of Section 22 of the Lease, Fair
Market Sale Value of the Equipment shall be determined based upon the actual
facts and circumstances then prevailing without regard to the assumptions in
clause (a) above.
(n) "Governmental Action" shall mean all authorizations, consents,
approvals, waivers, filings and declarations of any Governmental Authority,
including, without limitation, those environmental and operating permits
required for the ownership, lease, use and operation of the Equipment.
(o) "Governmental Authority" shall mean any foreign, Federal, state,
county, municipal or other governmental authority, agency, board or court.
(p) "Guarantor" shall mean any guarantor of Lessee's obligations hereunder.
(q) "Item of Equipment" shall mean each item of the Equipment.
(r) "Late Payment Rate" shall mean an annual interest rate equal to the
lesser of 18% or the maximum interest rate permitted by Applicable Law.
(s) "Lease", "hereof", "herein" and "hereunder" shall mean, with respect to
an Equipment Group, this Master Equipment Lease Agreement and the Equipment
Schedule on which such Equipment Group is described, including all addenda
attached thereto and made a part thereof.
(t) "Lien" shall mean all mortgages, pledges, security interests, liens,
encumbrances, claims or other charges of any kind whatsoever.
Page 2
(u) "Purchase Agreement" shall mean any purchase agreement or other
contract entered into between the Supplier and Lessee for the acquisition of the
Equipment to be leased hereunder.
(v) "Related Equipment Schedule" shall have the meaning set forth in
Section 27 hereof.
(w) "Renewal Notice" shall have the meaning set forth in Section 32 hereof.
(x) "Return Notice" shall have the meaning set forth in Section 13 hereof.
(y) "Rent" shall mean the periodic rental payments due hereunder for the
leasing of the Equipment, as set forth on the Equipment Schedules, and, where
the context hereof requires, all such additional amounts as may from time to
time be payable under any provision of this Lease.
(z) "Rent Commencement Date" shall mean, with respect to an Equipment
Group, the date on which Lessor disburses funds for the purchase of such
Equipment Group, as determined by Lessor in its sole discretion.
(aa) "Rent Payment Date" with respect to an Equipment Group, shall have the
meaning set forth in the Equipment Schedule associated therewith.
(ab) "Stipulated Loss Value" shall mean, as of any Rent Payment Date and
with respect to an Item of Equipment, the amount determined by multiplying the
Total Cost for such Item of Equipment by the percentage specified in the
applicable Stipulated Loss Value Supplement opposite such Rent Payment Date.
(ac) "Stipulated Loss Value Supplement" with respect to an Equipment Group,
shall have the meaning set forth in the Equipment Schedule associated therewith.
(ad) "Supplier" shall mean the manufacturer or the vendor of the Equipment,
as set forth on each Equipment Schedule.
(ae) "Term" shall mean the Initial Term, as defined in Section 8 hereof,
and any Renewal Term, as defined in Section 8 hereof.
(af) "Total Cost" shall mean, with respect to an Item of Equipment, (1) the
acquisition cost of such Item of Equipment (including Lessor's capitalized
costs), as set forth on the Equipment Schedule on which such Item of Equipment
is described, or (2) if no such acquisition cost is specified, the Supplier's
invoice price for such Item of Equipment plus Lessor's capitalized costs, or (3)
if no such acquisition cost is specified and no such invoice price is
obtainable, an allocated price for such Item of Equipment based on the Total
Cost of all Items of Equipment set forth on the Equipment Schedule on which such
Item of Equipment is described, as determined by Lessor in its sole discretion.
5. Supplier Not an Agent. LESSEE UNDERSTANDS AND AGREES THAT (i) NEITHER
THE SUPPLIER, NOR ANY SALES REPRESENTATIVE OR OTHER AGENT OF THE SUPPLIER, IS (I
) AN AGENT OF LESSOR OR (2) AUTHORIZED TO MAKE OR ALTER ANY TERM OR CONDITION OF
THIS LEASE, AND (ii) NO SUCH WAIVER OR ALTERATION SHALL VARY THE TERMS OF THIS
LEASE UNLESS EXPRESSLY SET FORTH HEREIN.
6. Ordering Equipment. Lessee has selected and ordered the Equipment from
the Supplier and, if appropriate, has entered into a Purchase Agreement with
respect thereto. Lessor shall accept an assignment from Lessee of Lessee's
rights, but none of Lessee's obligations, under any such Purchase Agreement.
Lessee shall arrange for delivery of the Equipment so that it can be accepted in
accordance with Section 7 hereof. If an Item of Equipment is subject to an
existing Purchase Agreement between Lessee and the Supplier, Lessee warrants
that such Item of Equipment has not been delivered to Lessee as of the date of
the Equipment Schedule applicable thereto. If Lessee causes the Equipment to be
modified or altered, or requests any additions thereto prior to the Rent
Commencement Date, Lessee (i) acknowledges that any such modification,
alteration or addition to an Item of Equipment may affect the Total Cost, taxes,
purchase and renewal options, if any, Stipulated Loss Value and Rent with
respect to such Item of Equipment, and (ii) hereby authorizes Lessor to adjust
such Total Cost, taxes, purchase and renewal options, if any, Stipulated Loss
Value and Rent as appropriate. Lessee hereby authorizes Lessor to complete each
Equipment Schedule with the serial numbers and other identification data of the
Equipment Group associated therewith, as such data is received by Lessor.
7. Delivery and Acceptance. Upon acceptance for lease by Lessee of any
Equipment delivered to Lessee and described in any Equipment Schedule, Lessee
shall execute and Deliver to Lessor a Certificate of Acceptance. LESSOR SHALL
HAVE NO OBLIGATION TO ADVANCE FUNDS FOR THE PURCHASE OF THE EQUIPMENT UNLESS AND
UNTIL LESSOR SHALL HAVE RECEIVED A CERTIFICATE OF ACCEPTANCE RELATING THERETO
EXECUTED BY LESSEE. Such Certificate of Acceptance shall constitute Lessee's
acknowledgment that such Equipment (a) was received by Lessee, (b) is
satisfactory to Lessee in all respects and is acceptable to Lessee for lease
hereunder, (c) is suitable for Lessee's purposes, (d) is in good order, repair
and condition, (e) has been installed and operates properly, and (f) is subject
to all of the terms and conditions of this Lease (including, without limitation,
Section 2 hereof).
8. Term: Survival. With respect to any Item of Equipment, unless otherwise
specified thereon, the initial term of this Lease (the "Initial Term") shall
commence on the date on which such Item of Equipment is delivered to Lessee,
and, unless earlier terminated as provided herein, shall expire on the final
Rent Payment Date for such Item of Equipment. With respect to an Item of
Equipment, any renewal term of this Lease (individually, a "Renewal Term"), as
contemplated hereby, shall commence immediately upon the expiration of the
Initial Term or any prior Renewal Tenn, as the case may be, and, unless earlier
terminated as provided herein, shall expire on the date on which the final
payment of Rent is due and paid hereunder. All obligations of
Page 3
Lessee hereunder shall survive the expiration, cancellation or other termination
of the Term hereof.
9. Rent. With respect to Each Item of Equipment, Lessee shall pay the Rent
set forth on the Equipment Schedule applicable to such Item of Equipment,
commencing on the Rent Commencement Date, and, unless otherwise set forth on
such Equipment Schedule, on the same day of each payment period thereafter for
the balance of the Term. Rent shall be due whether or not Lessee has received
any notice that such payments are due. All Rent shall be paid to Lessor at its
address set forth on the Equipment Schedule, or as otherwise directed by Lessor
in writing.
10. Location: Inspection: Labels. The Equipment shall be delivered to the
Equipment Location and shall not be removed therefrom without Lessor's prior
written consent. Lessor shall have the right to enter upon the Equipment
Location and inspect the Equipment at any reasonable time. Lessor may, without
notice to Lessee, remove the Equipment if the Equipment is, in the opinion of
Lessor, being used beyond its capacity or is in any manner improperly cared for,
abused or misused. At Lessor's request, Lessee shall affix labels stating that
the Equipment is owned by Lessor permanently in a prominent place on the
Equipment and shall keep such labels in good repair and condition.
11. Use: Alterations. Lessee shall use the Equipment lawfully and only in
the manner for which it was designed and intended and so as to subject it only
to ordinary wear and tear. Lessee shall comply with all Applicable Law. Lessee
shall immediately notify Lessor in writing of any existing, pending or
threatened investigation, inquiry, claim or action by any Governmental Authority
in connection with any Applicable Law or Governmental Action which could
adversely affect the Equipment or this Lease. Lessee, at its own expense, shall
make such alterations, additions or modifications or irnprovements to the
Equipment as may be required from time to time to meet the requirements of
Applicable Law or Governmental Action. Except as otherwise permitted herein,
Lessee shall not make any alterations, additions, modifications or improvements
to the Equipment without Lessor's prior written consent.
12. Repairs and Maintenance~ Lessee, at Lessee's own cost and expense,
shall (a) keep the Equipment in good repair, good operating condition and
working order and in compliance with the manufacturer's specifications, and (b)
enter into and keep in full force and effect during the Term hereof a
maintenance agreement with the manufacturer of the Equipment, or a manufacturer-
approved maintenance organization, to maintain, service and repair the Equipment
so as to keep the Equipment in as good operating condition and working order as
it was when it first became subject to this Lease and in compliance with the
manufacturer's specifications. Upon Lessor's request, Lessee shall furnish
Lessor with an executed copy of any such maintenance agreement. An alternate
source of maintenance may be used by Lessee with Lessor's prior written consent.
Lessee, at its own cost and expense and within a reasonable period of time,
shall replace any part of any Item of Equipment that becomes worn out, lost,
stolen, destroyed, or otherwise rendered permanently unfit or unavailable for
use (whether or not such replacement is covered by the aforesaid maintenance
agreement), with a replacement part of the same manufacture, value, remaining
useful life and utility as the replaced part immediately preceding the
replacement (assuming that such replaced part is in the condition required by
this Lease).Such replacement part shall be free and clear of all Liens.
Notwithstanding the foregoing, this paragraph shall not apply to any Loss or
Damage (as defined in Section 16 hereof) of any Item of Equipment.
13. Return of Equipment. Upon the expiration (subject to Section 32 hereof
and except as otherwise provided in an Equipment Schedule) or earlier
termination of this Lease, Lessee, at its sole expense, shall return the
Equipment to Lessor by delivering such Equipment F.A.S. or F.O.B. to such
location on such carrier (packed for shipping) as Lessor shall specify. Lessee
agrees that the Equipment, when returned, shall be in the condition required by
Section 12 hereof. All components of the Equipment shall have been properly
serviced, following the manufacturer's written operating and servicing
procedures, such that the Equipment is eligible for a manufacturer's's standard,
full service maintenance contract without Lessor's incurring any expense to
repair or rehabilitate the Equipment. If, in the opinion of Lessor, any Item of
Equipment fails to meet the standards set forth above, Lessee agrees to pay on
demand all costs and expenses incurred in connection with repairing such Item of
Equipment and restoring it so as to meet such standards, assembling and
delivering such Item of Equipment. Lessee shall give Lessor ninety (90) days
written notice (the "Return Notice") that Lessee is returning the Equipment as
provided for above. If Lessee fails to return any Item of Equipment as required
hereunder, then, all of Lessee's obligations under this Lease (including,
without limitation, Lessee's obligation to pay Rent for such Item of Equipment
at the rental then applicable under this Lease) shall continue in full force and
effect until such Item of Equipment shall have been returned in the condition
required hereunder.
14. Equipment Upgrades/Attachments. In addition to the requirements of
Section 11 hereof, Lessee, at its own expense, may from time to time add or
install upgrades or attachments to the Equipment during the Term; provided. that
such upgrades or attachments (a) are readily removable without causing material
damage to the Equipment, (b) do not materially adversely affect the Fair Market
Sale Value, the Fair Market Rental Value, residual value, productive capacity,
utility or remaining useful life of the Equipment, and (c) do not cause such
Equipment to become "limited use property" within the meaning of Revenue
Procedure 76-30, 1976-2 C.B. 647 (or such other successor tax provision), as of
the applicable delivery date or the time of such upgrade or attachment. Any such
upgrades or attachments which are not required by Section 11 hereof and which
can be removed without
Page 4
causing damage to or adversely affecting the condition of the Equipment, or
reducing the Fair Market Sale Value, the Fair Market Rental Value, residual
value, productive capacity, utility or remaining useful life of the Equipment
shall remain the property of Lessee; and upon the expiration or earlier
termination of this Lease and provided that no Event of Default exists, Lessee
may, at its option, remove any such upgrades or attachments and, upon such
removal, shall restore the Equipment to the condition required hereunder.
15. Sublease and Assignment. (a) WITHOUT LESSOR'S PRIOR WRITTEN CONSENT,
LESSEE SHALL NOT (i) ASSIGN, TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE
OF THIS LEASE, THE EQUIPMENT OR ANY INTEREST THEREIN, OR (ii) SUBLET OR LEND THE
EQUIPMENT TO, OR PERMIT THE EQUIPMENT TO BE USED BY, ANYONE OTHER THAN LESSEE OR
LESSEE'S QUALIFIED EMPLOYEES.
(b) Lessor, at any time with or without notice to Lessee, may sell,
transfer, assign and/or grant a security interest in this Lease, any Equipment
Schedule or any Item of Equipment. In any such event, any such purchaser,
transferee, assignee or secured party shall have and may exercise all of
Lessor's rights hereunder with respect to the items to which any such sale,
transfer, assignment and/or security interest relates, and LESSEE SHALL NOT
ASSERT AGAINST ANY SUCH PURCHASER, TRANSFEREE, ASSIGNEE OR SECURED PARTY ANY
DEFENSE, COUNTERCLAIM OR OFFSET THAT LESSEE MAY HAVE AGAINST LESSOR. Lessee
acknowledges that no such sale, transfer, assignment and/or security interest
will materially change Lessee's duties hereunder or materially increase its
burdens or risks hereunder. Lessee agrees that upon written notice to Lessee of
any such sale, transfer, assignment and/or security interest, Lessee shall
acknowledge receipt thereof in writing and shall comply with the directions and
demands of Lessor's successor or assign.
16. Loss of or Damage to Equipment. (a) Lessee shall bear the entire risk
of loss, theft, destruction, disappearance of or damage to any and all Items of
Equipment ("Loss or Damage") from any cause whatsoever during the Term hereof
until the Equipment is returned to Lessor in accordance with Section 13 hereof.
No Loss or Damage shall relieve Lessee of the obligation to pay Rent or of any
other obligation under this Lease.
(b) In the event of Loss or Damage to any Item of Equipment, Lessee, at the
option of Lessor, shall within thirty (30) days following such Loss or Damage:
(I ) place such Item of Equipment in good condition and repair, in accordance
with the terms hereof; (2) replace such Item of Equipment with replacement
equipment (acceptable to Lessor) in as good condition and repair, and with the
same value, remaining useful economic life and utility, as such replaced Item of
Equipment immediately preceding the Loss or Damage (assuming that such replaced
Item of Equipment is the condition required by this Lease), which replacement
equipment shall be free and clear of all Liens; or (3) pay to Lessor the sum of
(i) all Rent due and owing hereunder with respect to such Item of Equipment (at
the time of such payment) plus (ii) the Stipulated Loss Value as of the Rent
Payment Date next following the date of such Loss or Damage with respect to such
Item of Equipment, as set forth on the Schedule applicable thereto. Upon
Lessor's receipt of the payment required under subsection (3) above, Lessee
shall be entitled to Lessor's interest in such Item of Equipment, in its then
condition and location, "as is" and "where is", without any warranties, express
or implied. If Lessee replaces the Item of Equipment pursuant to subsection (b)
above, title to such replacement equipment shall immediately (and without
further act) vest in Lessor and thereupon shall be deemed to constitute Items of
Equipment and be fully subject to this Lease as if originally leased hereunder.
If Lessee fails to either restore or replace the Item of Equipment pursuant to
subsection (I) or (2) above, respectively, Lessee shall make the payment under
subsection (3) above.
17. Insurance. (a) Lessee, at all times during the Term hereof (until the
Equipment shall have been returned to Lessor) and at Lessee's own cost and
expense, shall maintain (I) insurance against all risks of physical loss or
damage to the Equipment (including theft and collision for Equipment consisting
of motor vehicles) in an amount not less than the full replacement value thereof
or the Stipulated Loss Value thereof, whichever is greater, and (2)
comprehensive public liability insurance including blanket contractual liability
for personal and bodily injury and property damage in an amount satisfactory to
Lessor.
(b) All insurance policies required hereunder shall (I) require 30 days'
prior written notice of cancellation or material change in coverage to Lessor
(any such cancellation or change, as applicable, not being effective until the
thirtieth (30th) day after the giving of such notice); (2) name Lessor as an
additional insured under the public liability policies and name Lessor as sole
loss payee under the property insurance policies; (3) not require contributions
from other policies held by Lessor; (4) waive any right of subrogation against
Lessor; (5) in respect of any liability of any of Lessor, except for the
insurers' salvage rights in the event of a Loss or Damage, waive the right of
such insurers to set-off, to counterclaim or to any other deduction, whether by
attachment or otherwise, to the extent of any monies due Lessor under such
policies; (6) not require that Lessor pay or be liable for any premiums with
respect to such insurance covered thereby; (7) be in full force and effect
throughout any geographical areas at any time traversed by any Item of
Equipment; and (8) contain breach of warranty provisions providing that, in
respect of the interests of Lessor in such policies, the insurance shall not be
invalidated by any action or inaction of Lessee or any other person (other than
Lessor) and shall insure Lessor regardless of any breach or violation of any
warranty, declaration or condition contained in such policies by Lessee or by
any other person (other than Lessor). Prior to the first date of delivery of any
Item of Equipment hereunder, and thereafter not less than 15 days prior to the
expiration dates of the expiring policies theretofore delivered pursuant to this
Section, Lessee shall deliver to Lessor a duplicate original of all policies (or
in the case of blanket policies, certificates thereof issued by the insurers
thereunder) for the insurance maintained pursuant to this Section.
Page 5
18. General Tax Indemnification. Lessee shall pay when due and shall
indemnify and hold Lessor harmless from and against (on an after-tax basis) any
and all taxes, fees, withholdings, levies, imposts, duties, assessments and
charges of any kind and nature (together with interest ad penalties thereon)
(including, without limitation, sales, use, gross receipts, personal property,
ad valorem, business and occupational, franchise, value added, leasing, leasing
use, documentary, stamp or other taxes) imposed upon or against Lessor, Lessor's
assigns, Lessee or any Item of Equipment by any Governmental Authority with
respect to any Item of Equipment or the manufacturing, ordering, sale, purchase,
shipment, delivery, acceptance or rejection, ownership, titling, registration,
leasing, subleasing, possession, use, operation, removal, return or other
dispossession thereof or upon the rents, receipts or earnings arising therefrom
or upon or with respect to this Lease, excepting only all Federal, state and
local taxes on or measured by Lessor's net income (other than income tax
resulting from making any alterations, improvements, modifications, additions,
upgrades, attachments, replacements or substitutions by Lessee). Whenever this
Lease terminates as to any Item of Equipment, Lessee shall, upon written request
by Lessor, advance to Lessor the amount determined by Lessor to be the personal
property or other taxes on said item which are not yet payable, but for which
Lessee is responsible, provided Lessor provides Lessee with copies of tax bills
supporting Lessor's request.
19. Lessor's Right to Perform for Lessee. If Lessee fails to perform or
comply with any of its obligations contained herein, Lessor may (but shall not
be obligated to do so) itself perform or comply with such obligations, and the
amount of the reasonable costs and expenses of Lessor incurred in connection
with such performance or compliance, together with interest on such amount at
the Late Payment Rate, shall be payable by Lessee to Lessor upon demand. No such
performance or compliance by Lessor shall be deemed a waiver of the rights and
remedies of Lessor or any assignee of Lessor against Lessee hereunder or be
deemed to cure the default of Lessee hereunder.
20. Delinquent Payments: Interest. If Lessee fails to pay any Rent or other
sums under this Lease when the same becomes due, Lessee shall pay to Lessor a
late charge equal to five percent (5%) of such delinquent amount. Such late
charge shall be payable by Lessee upon demand by Lessor and shall be deemed Rent
hereunder. In no event shall such late charge exceed the maximum amounts
permitted under Applicable Law.
21. Personal Property: Liens. Lessor and Lessee hereby agree that the
Equipment is, and shall at all times remain, personal property notwithstanding
the fact that any Item of Equipment may now be, or hereafter become, in any
manner affixed or attached to real property or any improvements thereon. Lessee
shall at all times keep the Equipment free and clear from all Liens. Lessee
shall (i) give Lessor immediate written notice of any such Lien, (ii) promptly,
at Lessee's sole cost and expense, take such action as may be necessary to
discharge any such Lien, and (iii) indemnify and hold Lessor, on an after-tax
basis, harmless from and against any loss or damage caused by any such Lien.
22. Events of Default: Remedies. (a) As used herein, the term "Event of
Default" shall mean any of the following events: (1) Lessee fails to pay any
Rent within ten (10) days after the same shall have become due; (2) Lessee or
any Guarantor becomes insolvent or makes an assignment for the benefit of its
creditors; (3) a receiver, trustee, conservator or liquidator of Lessee or any
Guarantor or of all or a substantial part of Lessee's or such Guarantor's assets
is appointed with or without the application or consent of Lessee or such
Guarantor, respectively; (4) a petition is filed by or against Lessee or any
Guarantor under any bankruptcy, insolvency or similar legislation; (5) Lessee or
any Guarantor violates or fails to perform any provision of either this Lease or
any other loan, lease or credit agreement or any acquisition or purchase
agreement with Lessor or any other party; (6) Lessee violates or fails to
perform any covenant or representation made by Lessee herein; (7) any
representation or warranty made herein or in any Lease, certificate, financial
statement or other statement furnished to Lessor shall prove to be false or
misleading in any material respect as of the date on which the same was made;
(8) Lessee makes a bulk transfer of furniture, furnishings, fixtures or other
equipment or inventory; or (9) there is a material adverse change in Lessee's or
any Guarantor's financial condition since the first Rent Commencement Date of
any Equipment Schedule executed in connection herewith. An Event of Default with
respect to any Equipment Schedule hereunder shall, at Lessor's option,
constitute an Event of Default for all Equipment Schedules hereunder and any
other agreements between Lessor and Lessee.
(b) Upon the occurrence of an Event of Default, Lessor may do one or more
of the following as Lessor in its sole discretion shall elect: (1) proceed by
appropriate court action or actions, either at law or in equity, to enforce
performance by Lessee of the applicable covenants of this Lease or to recover
damages for the breach thereof; (2) sell any Item of Equipment at public or
private sale; (3) hold, keep idle or lease to others any Item of Equipment as
Lessor in its sole discretion may determine; (4) by notice in writing to Lessee,
terminate this Lease, without prejudice to any other remedies hereunder; (5)
demand that Lessee, and Lessee shall, upon written demand of Lessor and at
Lessee's expense forthwith return all Items of Equipment to Lessor or its order
in the manner and condition required by, and otherwise in accordance with all of
the provisions of this Lease, except those provisions relating to periods of
notice; (6) enter upon the premises of Lessee or other premises where any Item
of Equipment may be located and, without notice to Lessee and with or without
legal process, take possession of and remove all or any such Items of Equipment
without liability to Lessor by reason of such entry or taking possession, and
without such action constituting a termination of this Lease unless Lessor
notifies Lessee in writing to such effect; (7) by written notice to Lessee
specifying a payment date, demand that Lessee pay to Lessor, and Lessee shall
pay to Lessor, on the payment date specified in such notice, as
Page 6
liquidated damages for loss of a bargain and not as a penalty, any unpaid Rent
due prior to the payment dated specified in such notice plus whichever of the
following amounts Lessor, in its sole discretion, shall specify in such notice
(together with interest on such amount at the Late Payment Rate from the payment
date specified in such notice to the date of actual payment): (i) an amount,
with respect to an Item of Equipment, equal to the Rent payable for such Item of
Equipment, equal to the Rent payable for such Item of Equipment for the
remainder of the then current Term thereof, after discounting such Rent to
present worth as of the payment date specified in such notice on the basis of a
per annum rate of discount equal to five percent (5%) from the respective dates
upon which such Rent would have been paid had this Lease not been terminated; or
(ii) the Stipulated Loss Value, computed as of the payment date specified in
such notice or, if such payment date is not a Rent Payment Date, the Rent
Payment Date next following the payment date specified in such notice (provided,
however, that, with respect to any Item of Equipment returned to or repossessed
by Lessor, the amount recoverable under this clause (ii) shall be reduced (but
not below zero) by an amount equal to the Fair Market Sales Value (taking into
account its actual condition) of such Item of Equipment; (8) cause Lessee, at
its expense, to promptly assemble any and all Items of Equipment and return the
same to Lessor at such place as Lessor may designate in writing; and (9)
exercise any other right or remedy available to Lessor under applicable law or
proceed by appropriate court action to enforce the terms hereof or to recover
damages for the breach hereof or to rescind this Lease. In addition, Lessee
shall be liable, except as otherwise provided above, for any and all unpaid Rent
due hereunder before or during the exercise of any of the foregoing remedies,
and for legal fees and other costs and expenses incurred by reason of the
occurrence of any Event of Default or the exercise of Lessor's remedies with
respect thereto, including without limitation the repayment in full of any costs
and expenses necessary to be expended in repairing any Item of Equipment in
order to cause it to be in compliance with all maintenance and regulatory
standards imposed by this Lease. If an Event of Default occurs, to the fullest
extent permitted by law, Lessee hereby waives any right to notice of sale and
further waives any defenses, rights, offsets or claims against Lessor because of
the manner or method of sale or disposition of any Items of Equipment. None of
Lessor's rights or remedies hereunder are intended to be exclusive of, but each
shall be cumulative and in addition to any other right or remedy referred to
hereunder or otherwise available to Lessor or its assigns at law or in equity.
No express or implied waiver by Lessor of any Event of Default shall constitute
a waiver of any other Event of Default or a waiver of any of Lessor's rights
23. Notices. All notices and other communications hereunder shall be in
writing ant shall be transmitted by hand, overnight courier or certified mail
(return receipt requested), postage prepaid. Such notices and other
communications shall be addressed to the respective party at the address set
forth above or at such other address as any party may from time to time
designate by notice duly given in accordance with this Section. Such notices and
other communications shall be effective upon receipt.
24. General Indemnification. Lessee shal1 pay, and shall indemnify and hold
Lessor harmless on an after-tax basis from and against, any and all liabilities,
causes of action, claims, suits, penalties, damages, losses, costs or expenses
(including attorneys' fees), obligations, liabilities, demands and judgements,
and Liens, of any nature whatsoever (collectively, a "Liability") arising out of
or in any way related to: (a) this Lease or any other written agreement entered
into in connection with the transactions contemplated hereby and thereby
(including, without limitation, a Purchase Agreement, if aay) or any amendment,
waiver or modification of any of the foregoing or the enforcement of any of the
terms hereof or any of the foregoing, (b) thc manufacture, purchase, ownership,
selection, acceptance, rejection, possession, lease, sublease, operation, use,
maintenance, documenting, inspection, control, loss, damage, destruction,
removal storage, surrender, sale, use, condition, delivery, nondelivery, return
or other disposition of or any other matter relating to any Item of Equipment or
any part or portion thereof (including, in each case and without limitation,
latent or other defects, whether or not discoverable, any claim for patent,
trademark or copyright infringement and any and all Liabilities in any way
relating to or arising out of injury to persons, properties or the environment
or any and all Liabilities based on strict liability in tort, negligence, breach
of warranties or violations of any regulatory law or requirement, (c) a failure
to comply fully with any Environmental Law with respect to the Equipment or its
operation or use, and (d) Lessee's failure to perform any covenant, or breach of
any representation or warranty, hereunder; provided, that the foregoing
indemnity shall not extend to the Liabilitics to thc extent resulting solely
from the gross negligence or wilful misconduct of Lessor. Lessee shall deliver
promptly to Lcssor (i) copies of any documents roceived from the United States
Environmental Protection Agency or any state, county or municipal environmental
or health agency and (ii) copies of any documents submitted by Lessee or any of
its subsidiaries to the United States Environmental Protection Agency or any
state, county or municipal environmental or health agency concerning the
Equipment or Its operation.
25. Severability: Captions. Any provision of this Lease or any Equipment
Schedule which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability sha11 not invalidate or render
unenforceable such provision in any other jurisdiction. Captions are intended
for convenience or reference only, and shall not be construed to define, limit
or describe the scope or intent of any provisions hereof.
26. Lessor's Expense. Lessee shall pay all costs and expenses of Lessor,
including attorneys' fees and the fees of any collectlon agencies, incurred by
Lessor in enforcing any of the terms, conditions or provisions hereof or in
protecting Lessor's rights hereunder.
27. Related Equipment Schedules. In the event that any Item of Equipment
covered under any Equipment Schedule hereunder may become attached or affixed
to, or used in connection with, Equipment covered under another Equipment
Schedule hereunder (a "Related Equipment Schedule"), Lessee agree that, if
Lessee elects to exercise a purchase or renewal option under any such Equipment
Schedule, or if Lessee elects to return the Equipment under any such Equipment
Schedule pursuant to Section 13 hereof, then Lessor, in its sole dlscretion, may
require that all Equipment leased under all Related Equipment Schedules be
similarly disposed of.
28. Financial and Other Data. During the Term hereof, Lessee shal1 furnish
Lessor, as soon as available and in any event within 60 days after the end of
each quarterly period (except the last) of each fiscal year, and, as soon as
available and in any event within 120 days after the lst day of each fiscal
year, financial statements of Lessee and each Guarantor, in each case certified
by an independent public accountant if customarily available or requested.
Lessee shall also furnish such other financial reports, information or data as
Lessor may reasonably request from time to time;
29. Commitment Fee Requirement. An amount equal to the first periodic
payment of Rent must accompany each Lessee proposal for an Equipment Schedule
hereunder. THIS COMMITMENT FEE IS NONE-REFUNDABLE; provided, however, that, upon
Lessor's acceptance of Lessee's proposal to enter into such Equipment Schedule,
such commitment fee shall be applied to the first periodic payment of Rent
thereunder.
30. No Affiliation with the Supplier. Lessee hereby represents and warrants
to Lessor that, except as previously disclosed in writing to lessor, neither
Lessee nor any of its officers or directors (if a corporation) or partners (if a
partnership) has, directly or indirectly, any financial interest in the
Supplier.
31. Representations and Warranties of Lessee. Lessee represents and
warrants that: (a) Lessee is a corporation duly organized and validly existing
in good standing under the laws of the state of its incorporation; (b) the
execution, delivery and performance of this Lease and all related instruments
and documents (1) have been duly authorized by all necessary corporate and/or
partnership action on the part of Lessee, (2) do not require the approval of any
stockholder, partner, trustee or holder of any obligations of Lessee except such
as have becn duly obtained, and (3) do not and will not contravene any law,
governmental rule, regulation or order now binding on Lessee, or the character
or by-laws of Lessee, or contravene the provisions of, or constitute a default
under, or result in the creation of any lien or encumbrance upon the property of
Lessee under, any indenture, mortgage, contract or other agreement to which
Lcssee is a party or by which it or its property is bound; (c) this Lease and
all related instruments and documents, when entered into, will constitute legal,
valid and binding obligations of Lessee enforceable against Lessee in accordance
with tbe terms thereof; (d) there are no pending actions or proceedings to which
Lessee is a part, and tbere are no other pending or threatened actions or
proceedings of wbich Lessee has knowledge, before any court, arbitrator or
administrative agency, which, either individually or in the aggregate, would
adversely effect the financial condition of Lessee, or the ability of Lessee to
perform its obligations hereunder, (e) Lessee is not in default under any
obligation for tbe payment of borrowed money, for the deferred purchase price of
property or for the payment of any rent under any lease agreement which, either
individually or in the aggregate, would have the same such effect; (f) under the
laws of the state(s) in which the Equipment is to be located, the Equipment
consists solely of personal property and not fixtures; (g) the financial
statements of Lessee (copies of which have been furnished to Lessor) have been
prepared in accordance with generally acceptable accounting principles
consistently applied ("GAAP"), and fairly present Lessee's financial condition
and the results of its operations as of the date of and for the period covered
by such statements, and since the date of such statements there has been no
material adverse change in such conditions or operations; (h) the address stated
above is the chief place of business and chief executive office, or in the case
of individuals, the primary residece, of Lessee; (i) Lessee does not conduct
business under a trade, assumed or fictitious name; and (j) the Equipment is
being leased bereunder sololy for business purposes and that no item of
Equipment will be used for personal family or household purposes.
32. Renewal And Purchase Options. With respect to an Equipment Schedule and
the Equipment Group set forth thereon, so long as no Default or Event of Default
shall have occurred and is continuing, then, upon not less than ninety (90) days
prior Written notice to Lessor, ("Renewal Notice") Lessee may (a) at the
expiration of the Initial Term, or any Renewal Term, purchase all, but not less
than al1, of the Equipment Group for the Fair Market Sale Value of such
Equipment Group, payable in cash to Lessor upon the expiration of the Initial
Term or any Renewal Term, as the case may, (b) at the expiration of the Initial
Term, renew this Lease on a month to month basis at the same Rent payable at the
expiration of the Initial Term, or (c) at the expiration of tho Initial Term,
renew this Lease for a minimum period of not less than twelve (12) consecutive
months at the then current Fair Market Rental Value. If Lessee fails to give
Lessor the Return Notice or the Renewal Notice at least ninety (90) days before
the expiration of the Initial Term, Lessee shall be deemed to have chosen option
(b) above. If Lessee exercises option.(a) above, Lessee shall purchase the
Equipment "as is" and "where is" and without any warranties, express or implied,
Lessor.
33. Lessee's Waivers. To the extent permitted by Applicable Law, Lessee
hereby waives (a) any and all rights and remedies
which it may now have or which at any time hereafter may be conferred upon it by
statute (including, without limitation, Article 2A of the Uniform Commercial
Code, as applicable) or otherwise, (1) which may limit or modify Lessor's rights
or remedies hereunder, (2) to terminate, cancel, quit, repudiate or surrender
this Lease, except as expressly provided herein; (3) to reject, revoke
acceptance or accept partial delivery of thc Equipment; (4) to recover damages
from Lessor for any breach of warranty or for any other reason provided,
however, that no such waiver shall preclude Lessee from asserting any such claim
against Lessor in a separate cause of action; or (5) to setoff or deduct all or
any part of any claimed damages resulting from Lessor's default, if any, under
this Lease.
34. UCC Filings. LESSEE HEREBY APPOINTS LESSOR OR ITS ASSIGNEE AS ITS TRUE
AND LAWFUL ATTORNEY IN FACT, IRREVOCABLY AND COUPLED WITH AN INTEREST, TO
EXECUTE AND FILE ON BEHALF OF LESSEE ALL UCC FINANCING STATEMENTS WHICH IN
LESSOR'S SOLE DlSCRETION ARE NECESSARY OR PROPER TO SECURE LESSOR'S INTEREST IN
THE EQUIPMENT IN ALL APPLICABLE JURISDICTIONS.
35. Miscellaneous. Time is of the essence with respect to this Lease. Any
failure of Lessor to require strict performance by Lessee or any waiver by
Lessor or any provision berein shall not be construed as a consent or waiver of
any provision of this Lease. Neither this Lease nor any Equipment Schedule may
be amended except by a writing signed by Lessor and Lessee. This Lease and each
Equipment Schedule shall be binding upon, and inure to the benefit of, the
parties hereto, their permittedo successors and assigns. This Lease will be
binding upon Lessor only if executed by a duly authorized officer or
representative of Lessor at lessor's principal place of business as set forth
above. This Lease, and all other documents (the execution and delivery of which
by Lessee is contemplated hereunder), shall be executed on Lessee's behalf by
Authorized Signers of the Lessee. THIS LEASE IS BEING DELIVERED IN THE STATE OF
NEW YORK AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE.
36. Jury Trial Waiver LESSOR AND LESSER HEREBY WAIVE TRIAL BY JURY IN ANY
ACTION OR PROCEEDING TO WHICH LESSOR OR LESSEE MAY BE PARTIES ARISING OUT OF OR
ANY WAY PERTAINING TO THIS LEASE. THIS WAIVER IS MADE KNOWINGLY, WILLINGLY AND
VOLUNTARILY BY THE LESSOR AND THE LESSEE WHO EACH ACKNOWLEDGE THAT NO
REPRESENTATIONS HAVE BEBN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL
BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT.
37. More than One Lessee. If more than one person or entity executes this
Lease, each Equipment Schedule, and all addenda or other documents executed in
connection herewith or therewith, as "Lessee," the obligations of "Lessee"
contained herein and therein, shall be deemed joint and several and all
references to "Lessee" shall apply both 1ndividually and jointly.
38. Quiet Enjoyment. So long as no Event of Default has occurred and is
continuing, Lessee shall peaceably hold and quietly enjoy the Equipment without
interruption by Lessor or any person or entity claimmg through Lessor.
39. Entire Agreement. This Lease, together with all Equipment Schedules,
riders and addenda executed by Lessor and Lessee collectively constitute the
entire understanding or agreement between Lessor and Lessee with respect to the
leasing of the Equipment, and there is no understanding or agreement, oral or
written, which is not set forth herein or therein. By initialing below, Lessee
hereby further acknowledges the conditions of this Section 39.
Lessee's Initials: RK
40. Execution in Counterparts. This Master Equipment Lease Agreement may be
executed in several counterparts, each of which shall be an original and all of
whlch shall constitute but one and the same instrument.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of the
day and year first above written.
Lessee: Lusor:
WEBSECURE, INC. KEYCORP LEASING LTD.
By: Illegible By:
------------------------------- -------------------------
Name: Name:
Title: Title:
THIS IS A CERTIFICATE ACKNOWLEDGING
ACCEPTANCE OF THE EQUIPMENT FOR
PURPOSES OF THE BELOW-REFERENCED LEASE.
THIS IS NOT A DELIVERY RECEIPT.
LESSEE ACKNOWLEDGEMENT
(Certificate of Acceptance)
Lessee Narne: Websecure, Inc.
All the items of Equipment covered by Equipment Schedule No. 01 to Master
Equipment Lease Agreement dated December 21, 1995 (the "Lease") between KeyCorp
Leasing Ltd., as lessor ("KCL"), and the undersigned, as lessee,. (a) were
received by the undersigned, (b) are satisfactory to the undersigned in all
respects and are acceptable to the undersigned for lease under the Lease, (c)
are suitable for the undersigned's purposes, (d) are in good order, repair and
condition, (e) have been installed and operate properly, and (f) are subject to
all of the terms and conditions of the Lease (including, without limitation,-
Section 3 thereof).
To the extent that Article 2A ("Article 2A") of the Uniform Commercial Code
("UCC") applies to the characterization of the Lease, the undersigned hereby
agree(s) that the Lease is a "Finance Lease" as defined therein; The undersigned
acknowledge(s): (i) that the undersigned has selected the "Supplier" (as defined
in the UCC) and has directed KCL to purchase the Equipment from the Supplier in
connection with the Lease, and (ii) that the undersigned has been informed in
writing in the Lease, before the undersigned's execution of thereof, that the
undersigned is entitled under Article 2A to the promises and warranties,
including those of any third party, provided to KCL by the Supplier in
connection with or as part of the Purchase Agreement (as defined in the Lease),
and that the undersigned may communicate with the Supplier and receive an
accurate and complete statement of those promises and warranties, including any
disclaimers and limitations of them or of remedies.
Dated: *X l2/26 , 1995
Websecure, Inc.
By: Illegible
---------------------------
Nane:
Title:
* To the extent that this date is left blank, the undersigned hereby
authorize(s) KCL to date this Certificate of Acceptance on the undersigned's
behalf.
(Lessee's initials)
------
[EQUIPMENT SCHEDULE TO COME FROM OB&A]
EXHIBIT 10i
October __, 1996
Coburn & Meredith, Inc.
150 Trumbull Street
Hartford, Connecticut 06103
Shamrock Partners, Ltd.
111 Veterans Square
Media, Pennsylvania 19063
WebSecure, Inc.
1711 Broadway
Saugus, Massachusetts 01906
Re: Lock-up Agreement
Ladies and Gentlemen:
In order to induce Coburn & Meredith and Shamrock Partners
(collectively known as the "Underwriters") and WebSecure, Inc., a Delaware
corporation, and any successor thereof (the "Company"), to enter into an
underwriting agreement with respect to the initial public offering of shares of
Common Stock to be issued by the Company, as described in the Company's
Registration Statement on Form SB-2, the undersigned hereby agrees that for a
period of thirteen (13) months following the effective date of the Registration
Statement, the undersigned will not sell, transfer, assign, hypothecate, pledge
or otherwise dispose of any beneficial interest in (either pursuant to Rule 144
or the regulations under the Securities Act of 1933, as amended, or otherwise)
any securities issued by the Company (the "Securities") registered in the name
of the undersigned or beneficially owned by it without the prior consent of the
Underwriters.
In order to enable you to enforce the aforesaid covenants, the
undersigned hereby consents to the placing of legends and stop-transfer orders
with the transfer agent of the Company's securities with respect to any of the
securities registered in my name or beneficially owned by me.
Coburn & Meredith, Inc.
Shamrock Partners, Ltd.
WebSecure, Inc.
Re: Lock-up Agreement
October __, 1996
Page 2
This letter agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts, without giving effect to
conflict of law principles thereof.
------------------------------------
Signature
------------------------------------
Print Name
------------------------------------
Print Address
------------------------------------
Print Social Security Number or
Taxpayer I.D. Number
EXHIBIT 10j
---------------
FORM OF
KEY EMPLOYEE AGREEMENT
---------------
To: William Blocher, Ph.D.
7 Redgate Lane As of October 12, 1996
Amherst, NH 03031
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 Chief Technical Officer for the Company
reporting to the president, 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 devote at least forty hours
per week to the business 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 your full salary at the time of termination.
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 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 at any
time without cause, or by not renewing this Agreement pursuant to Section 2.1
hereof, provided the Company shall be obligated to pay you as severance pay an
amount equal to six (6) months of the annual Base Salary (as set forth on
Exhibit A hereto, as adjusted by periodic increases, if any),less applicable
taxes and other required withholdings and any amounts you may owe to the Company
and provided further that the Company shall continue in full force and effect
for a period of six (6) months all health and insurance benefits that you
enjoyed at the time of your termination. All unvested stock options would vest
on the date of your termination.
2.3 For purposes of Section 2.2, the term "cause" shall mean:
(a) Your intentional failure or refusal to perform
the services specified herein, or to carry out
any reasonable and lawful directions of the
Company with respect to the services to be
rendered or the manner of rendering such services
by you; provided, however, that (i) such failure
or refusal is material and repetitive, and (ii)
you have been given reasonable notice and
explanation of each refusal or failure, and
reasonable opportunity to cure such refusal or
failure, and no cure has been effected within a
reasonable time after notice;
(b) conviction of a felony;
(c) fraud or embezzlement involving the assets of the
Company, its customers, suppliers or affiliates;
(d) inability for a continuous period of at least one
hundred twenty (120) days to perform duties
hereunder due to a physical or mental disability;
or
(e) breach of any term of this Agreement other than
as noted in (a) above, 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
-2-
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 the approval of the Board of Directors, (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 principal place of employment from the greater Boston, Massachusetts area
without your consent, the Company shall be obligated to pay to you within thirty
(30) days of the date of your termination, as severance pay 150% of your annual
base salary for six (6) months (as set forth on Exhibit A hereto), less
applicable taxes, other required withholdings and any amounts you may owe to the
Company and provided further that the Company shall continue in full force and
effect for a period of six (6) months all health and insurance benefits that you
enjoyed at the time of your termination.
2.5 You shall have the right to terminate this Agreement for
any reason upon not less than sixty (60) days prior written notice to the
Company.
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,
-3-
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.
7. POST-EMPLOYMENT ACTIVITIES.
7.1 For a period of six months 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 six months immediately preceding termination or
expiration, nor render services similar or reasonably related to those which you
shall have rendered hereunder during such six months 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
-4-
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 six months 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.
-5-
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.
-6-
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. (You may retain for your
records the accompanying counterpart of this Agreement enclosed herewith).
Very truly yours,
WebSecure, Inc.
By:
-----------------------------
Robert Kuzara, President
Accepted and Agreed:
- ------------------------
William Blocher, Ph.D.
-7-
EXHIBIT A
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF WILLIAM BLOCHER, PH.D.
1. TERM. The term of the Agreement to which this Exhibit A is annexed and
incorporated shall be until October 1, 1999
2. COMPENSATION.
(a) Base Salary. Your Base Salary shall be $102,000.00 per
annum, payable in accordance with the Company's payroll
policies.
(b) Bonuses. You shall be entitled to such bonuses as may be
determined by the Company's Board of Directors.
(c) Performance Reviews. Written reviews will be performed
annually on your hire date anniversary . Salary increases will
be determined at the discretion of the compensation committee
of the Board of Directors.
3. STOCK OPTIONS. You will be offered 50,000 Stock Options at $4.00 per
share to be vested over three (3) years with the first vesting to be
April 1, 1997.
4. VACATION. You shall be entitled to all legal and religious holidays,
and four (4) weeks paid vacation per annum. You will be allowed to
carry over unused vacation entitlement to future periods or at your
option receive compensation equivalent to the unused vacation
entitlement at your then current salary.
5. 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.
6. SICK LEAVE. You shall be entitled to 5 (five) sick days per year. Sick
days will be allowed to carry over to future periods if unused. No more
than 65 days will be allowed to accrue.
-8-
EXHIBIT B
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS OF
WILLIAM BLOCHER, PH.D.
1. BBC Computers, Inc.
2. BBC Stores, Inc.
3. Presage Corp.
4. Harvard University
5. Boston University
B-1
EXHIBIT C
-------------
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
-------------
To: WebSecure, Inc. As of October 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
C-1
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.
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.
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
C-2
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
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.
C-3
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.
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.
C-4
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.
C-5
17. GOVERNING LAW. This Agreement shall be governed and construed under
Massachusetts law.
---------------------------------
William Blocher, Ph.D.
Accepted and Agreed:
WebSecure, Inc.
By:
----------------------------------
Robert Kuzara, President
C-6
SCHEDULE A
LIST OF PRIOR INVENTIONS
Identifying Number of patents and patent applications
Title Date or Brief Description of unpatented personal invention
- ----- ---- -----------------------------------------------------
Copyrighted software
Software programs under development
C-7
EXHIBIT 10k
---------------
KEY EMPLOYEE AGREEMENT
---------------
To: Carol Ouellette As of April 1, 1996
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 Chief Financial 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 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, 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 perform
the services specified herein, or to carry out any reasonable and
lawful directions of the Company with respect to the services to be
rendered or the manner of rendering such services by you; provided,
however, that (i) such failure or refusal is material and repetitive,
and (ii) you have been given reasonable notice and explanation of each
refusal or failure, and reasonable opportunity to cure such refusal or
failure, and no cure has been effected within a reasonable time after
notice;
(b) conviction of a felony;
(c) fraud or embezzlement involving the assets of the
Company, its customers, suppliers or affiliates;
(d) inability for a continuous period of at least one
hundred twenty (120) days to perform duties hereunder due to a physical
or mental disability; or
(e) breach of any term of this Agreement other than
as noted in (a) above,
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 the approval of the Board of Directors, (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 principal place of employment from the greater Boston, Massachusetts area
without your consent, 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
three (3) months of your Base Salary (as set forth on Exhibit
-2-
A hereto), less applicable taxes, other required withholdings and any amounts
you may owe to the Company and provided further that the Company shall continue
in full force and effect for a period of six (6) months all health and insurance
benefits that you enjoyed at the time 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.
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
-3-
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.
7. POST-EMPLOYMENT ACTIVITIES.
7.1 For a period of two (2) years 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 two (2) years immediately preceding termination or
expiration, nor render services similar or reasonably related to those which you
shall have rendered hereunder during such two (2) years 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 two (2) years 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 two (2)
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
-4-
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.
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.
-5-
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. (You may retain for your
records the accompanying counterpart of this Agreement enclosed herewith).
Very truly yours,
WEBSECURE, INC.
By:
-----------------------------------------
John J. Shields, Chief Executive Officer
Accepted and Agreed:
- -----------------------------
Carol Ouellette
-6-
EXHIBIT A
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF CAROL OUELLETTE
1. TERM. The term of the Agreement to which this Exhibit A is annexed and
incorporated shall be until May 1, 1999.
2. COMPENSATION.
(a) Base Salary. Your Base Salary shall be $ 85,000 per annum,
payable in accordance with the Company's payroll policies.
(b) Bonuses. You shall be entitled to 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 _____ (__) weeks paid vacation per annum.
4. TRANSPORTATION ALLOWANCE. The Company shall provide you with a
reasonable transportation allowance to cover the costs of leasing,
insuring and maintaining an automobile for your commute to and from the
Company and for your use on business travel that is directly related to
Company business. In addition, the Company shall reimburse you for all
other expenses reasonably incurred by you in the operation of the
automobile during use directly related to Company business.
5. 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.
-7-
EXHIBIT B
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS OF
CAROL OUELLETTE
1. None.
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.
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.
C-4
17. GOVERNING LAW. This Agreement shall be governed and construed under
Massachusetts law.
------------------------------
Carol Ouellette
Accepted and Agreed:
WEBSECURE, INC.
By:
----------------------------------------
John J. Shields, Chief Executive 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
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
Inception from Inception
Year Ended (July 19, 1995) to (July 19, 1995)
August 31, 1996 August 31, 1995 to August 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 200,050 200,050 200,050
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 4,805,050 4,805,050 4,805,050
- --------------------------------------------------------------------------------------------------------------------------
Net loss applicable to common
and common equivalent shares $(7,924,014) $(33,626) $(7,957,640)
Net loss per share of common
and common equivalent shares $ (1.65) $(.01) $(1.66)
- --------------------------------------------------------------------------------------------------------------------------
- -------------------------------
(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>
EXHIBIT 23a
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 October 11, 1996 on the financial
statements of WebSecure, Inc. as of August 31, 1996 and for the year ended
August 31, 1996, and the period from inception (July 19, 1995) to August 31,
1995 and for the period from inception to August 31, 1996.
We also consent to the reference to us under the caption "Experts" in said
prospectus.
/s/ BDO Seidman, LLP
----------------------
BDO Seidman, LLP
Boston, Massachusetts
October 24, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<CASH> 12,832
<SECURITIES> 0
<RECEIVABLES> 21,797
<ALLOWANCES> 0
<INVENTORY> 5,971
<CURRENT-ASSETS> 106,979
<PP&E> 1,370,863
<DEPRECIATION> (197,466)
<TOTAL-ASSETS> 1,745,948
<CURRENT-LIABILITIES> 1,548,833
<BONDS> 0
0
0
<COMMON> 21,050
<OTHER-SE> (124,365)
<TOTAL-LIABILITY-AND-EQUITY> 1,745,947
<SALES> 97,255
<TOTAL-REVENUES> 97,255
<CGS> 193,440
<TOTAL-COSTS> 7,781,619
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,210
<INCOME-PRETAX> (7,924,014)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,924,014)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,924,014)
<EPS-PRIMARY> (1.66)
<EPS-DILUTED> (1.66)
</TABLE>
