<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 30, 1997
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 000-20865
e-Net, Inc.
(Exact name of registrant as specified in its charter)
Delaware 52-1929282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12800 Middlebrook Road, Suite 200, Germantown, MD 20874
(Address of principal executive offices) (Zip Code)
(301) 601-8700
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report.)
Check whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
The Number Of Shares Of The Regristrant's Common Stock, $.01 Par Value Per
Share, Outstanding As Of August 5, 1997 Was 5,750,000.
Transitional Small Business Disclosure Format (check one):
Yes No X
------- ------
The Exhibit Index Appears in Sequentially Numbered Page 13
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements (Unaudited)
Accountants' Review Report.............................................3
Balance Sheets as of June 30 and March 31, 1997........................4
Statements of Operations for the three months ended June 30, 1997
and 1996...............................................................5
Statements of Cash Flows for the three months ended June 30, 1997
and 1996...............................................................6
Statements of Stockholders' Equity as of June 30, 1997.................7
Notes to Financial Statements.........................................8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................................11
Signatures....................................................................12
<PAGE>
Board of Directors
e-Net, Inc.
We have reviewed the accompanying balance sheet of e-Net, Inc. (a Delaware
Corporation), as of June 30, 1997, and the related statements of operations,
stockholders' equity and cash flows for the three-month period then ended.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet as of March 31, 1997, and the related statements of
operations, stockholders' equity and cash flows for the year then ended (not
presented herein), and in our report dated May 2, 1997, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying condensed balance sheet as of March
31, 1997, is fairly stated, in all material respects, in relation to the balance
sheet from which it has been derived.
Grant Thornton LLP
Vienna, Virginia
August 5, 1997
<PAGE>
e-NET, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, 1997 MARCH 31, 1997
(UNAUDITED) (AUDITED)
------------- --------------
<S> <C> <C>
Current Assets
Cash and cash equivalents........................................................ $ 2,350,656 $ 379,441
Short-term investments........................................................... 2,802,973 --
Accounts receivable.............................................................. 137,916 113,181
Inventory........................................................................ 71,317 --
Prepaid expenses................................................................. 111,372 14,800
------------- --------------
Total Current Assets............................................................... 5,474,234 507,422
Deposits and other assets.......................................................... 77,468 7,530
Property, Plant and Equipment, Net................................................. 257,286 203,125
Deferred Initial Public Offering Costs............................................. -- 964,706
Software Development Costs......................................................... 651,598 520,853
------------- --------------
$ 6,460,586 $ 2,203,636
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------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable--trade.......................................................... 93,358 105,301
Accrued liabilities.............................................................. 268,700 330,580
Capital lease obligation......................................................... 2,194 4,480
------------- --------------
Total Current Liabilities.......................................................... 364,252 440,361
Accrued Initial Public Offering Costs.............................................. -- 887,843
------------- --------------
Total Liabilities.................................................................. 364,252 1,328,204
Stockholders' Equity
Common stock, $.01 par value, 50,000,000 shares authorized,
5,750,000 and 4,250,000 shares outstanding at June 30, and March 31, 1997,
respectively................................................................... 57,500 42,500
Stock subscriptions and notes receivable......................................... (46) (46)
Additional paid-in capital....................................................... 14,100,846 8,307,627
Retained deficit................................................................. (8,061,966) (7,474,649)
------------- --------------
Total Stockholders' Equity......................................................... 6,096,334 875,432
------------- --------------
$ 6,460,586 $ 2,203,636
------------- --------------
------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
e-NET, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30,
<TABLE>
<CAPTION>
1997 1996
----------- -------------
<S> <C> <C>
Sales................................................................................. $ 88,004 $ 179,939
Operating Expenses
Cost of product sales and service................................................... 38,573 67,830
Selling, general and administrative................................................. 638,549 261,053
Research and development............................................................ 22,992 50,000
----------- -------------
Loss from Operations.................................................................. (612,110) (198,944)
Interest and Financing Charges Interest expense--bridge financing..................... -- (5,385,135)
Cost of abandoned stock registration................................................ -- (284,575)
Interest and financing expense...................................................... (10,103) (22,800)
Other expenses...................................................................... (32,213) (18,000)
Interest income..................................................................... 67,109 6,156
----------- -------------
Loss Before Income Taxes.............................................................. (587,317) (5,903,298)
Income Tax Provision.................................................................. -- --
----------- -------------
Net Loss.............................................................................. $ (587,317) $ (5,903,298)
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----------- -------------
Loss per Share........................................................................ $ (.11) $ (1.51)
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----------- -------------
Weighted Average Shares Outstanding................................................... 5,585,165 3,917,582
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
e-NET, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended June 30,
<TABLE>
<CAPTION>
1997 1996
----------- -------------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from Operating Activities
Net loss........................................................................... $ (587,317) $ (5,903,298)
Adjustments to reconcile net loss to net cash from operating activities
Interest expense--bridge financing............................................... -- 5,385,135
Depreciation and amortization.................................................... 10,000 11,334
Changes in operating assets and liabilities
(Increase) in accounts receivable.............................................. (24,735) (95,979)
(Increase) in inventory........................................................ (71,317) --
(Increase) in prepaid expenses, deposits and other assets...................... (166,510) --
(Decrease) Increase in accounts payable and accrued liabilities................ (73,823) 215,758
(Decease) in deferred revenue.................................................. -- (20,000)
----------- -------------
Net Cash (Used in) Provided by Operating Activities.................................. (913,702) (407,050)
----------- -------------
Cash Flows from Investing Activities
Capital expenditures............................................................... (64,161) (14,983)
Capitalized software development costs............................................. (130,745) (54,520)
Investment in short term securities................................................ (2,802,973) --
----------- -------------
Net Cash Used in Investing Activities................................................ (2,997,879) (69,503)
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Cash Flows from Financing Activities
Net proceeds from initial public offering of common stock.......................... 5,870,082 --
Issuance of common stock........................................................... 15,000 --
Proceeds from issuance of bridge notes payable..................................... -- 500,000
Payments on capital leases......................................................... (2,286) --
----------- -------------
Net Cash Provided by Financing Activities............................................ 5,882,796 500,000
----------- -------------
Net Increase in Cash and Cash Equivalents............................................ 1,971,215 23,447
Cash and Cash Equivalents at Beginning of Period..................................... 379,441 557,960
--------- -------------
Cash and Cash Equivalents at End of Period........................................... $ 2,350,656 $ 581,407
----------- -------------
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Supplemental Disclosures:
Income Taxes Paid.................................................................. $ -- $ --
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Interest Paid...................................................................... $ 103 $ --
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</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
e-NET, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK STOCK
--------------------- SUBSCRIPTIONS ADDITIONAL TOTAL
NO. OF AND NOTES PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT RECEIVABLE CAPITAL DEFICIT EQUITY
---------- --------- --------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1997................. 4,250,000 $ 42,500 $ (46) $ 8,307,627 $ (7,474,649) $ 875,432
Sale of common stock in initial public
offering............................. 1,500,000 15,000 -- 5,793,219 -- 5,808,219
Net loss............................... -- -- -- -- (587,317) (587,317)
---------- --------- --------- ------------- ------------- ------------
Balance, June 30, 1997................. 5,750,000 $ 57,500 $ (46) $ 14,100,846 $ (8,061,966) $6,096,334
---------- --------- --------- ------------- ------------- ------------
---------- --------- --------- ------------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
e-NET, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited financial statements include the accounts of
e-Net, Inc. (the "Company"). Such statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and pursuant to the regulations of the Securities and Exchange Commission;
accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments considered necessary for a fair
presentation (consisting of normal recurring accruals) have been included. The
results of operations for the quarter ended June 30, 1997 are not necessarily
indicative of the results for the fiscal year ending March 31, 1998. The
accompanying unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1997.
NOTE B--INITIAL PUBLIC OFFERING
In April 1997, the Company completed an initial public offering of
securities consisting of 1,500,000 shares of common stock and 1,725,000 common
stock warrants. In connection with the offering, the Company received proceeds
of $5,808,219 net of all expenses associated with the offering.
NOTE C--INVENTORY
Inventory is stated at the lower of cost or market value. Cost is
determined by the first-in, first-out method. The elements of cost include
subcontracted costs and materials handling charges.
NOTE D--SOFTWARE DEVELOPMENT COSTS
The Company has capitalized certain software development costs incurred
after establishing technological feasibility. Software costs will be amortized
over the estimated useful life of the software once the product is available for
general release to customers. At June 30, 1997, the Company has capitalized
$651,598. Should sufficient product sales fail to materialize, the carrying
amount of capitalized software costs may be reduced accordingly in the future.
NOTE E--LINE OF CREDIT FACILITY
On May 31, 1997, the Company signed a one (1) year promissory note for a
$1,000,000 line of credit facility which is secured by investments, receivables
and fixed assets of the Company.
NOTE F--NON-QUALIFIED STOCK OPTION PLAN
In April, 1997, the Board of Directors approved the adoption of the e-Net,
Inc. Non-Qualified Stock Option Plan including the allocation of up to 500,000
shares for option grants. The options are exercisable at fair market value
measured at the grant date with varying vesting schedules.
NOTE G--INCOME TAXES
The Company has generated net operating losses since it's inception. At
June 30, 1997, the Company recorded a valuation allowance in an amount equal to
the deferred tax asset due to the uncertainty of generating future taxable
income.
NOTE H--CONCENTRATION
Approximately 97% of the Company's accounts receivable balance at June 30,
1997, and the Company's sales for the quarter ended June 30, 1997, are from one
customer.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This information should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
consolidated financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1997.
RESULTS OF OPERATIONS
NET SALES
Net sales for the first quarter ended June 30, 1997 were approximately
$88,000, a decrease of 51% over the approximately $179,900 recorded for the
corresponding quarter of 1996. The revenue decline was driven primarily by the
lack of several large dollar value e-Net NMS software unit sales which occurred
in 1996, but did not recur in 1997, and an increased emphasis on development and
preparation for the general availability of the Company's T2000 product line.
The sales for the quarter ended June 30, 1997, were primarily from one customer.
OPERATING EXPENSES
Cost of product sales & services for the first quarter ended June 30, 1997,
were approximately $38,600, a decrease of 43% over the approximately $67,800
recorded for the corresponding quarter of 1996. The cost of product sales and
services declined as the net sales declined as described above.
Selling, general & administrative expenses for the first quarter ended June
30, 1997, were approximately $638,600, an increase of 145% over the
approximately $261,100 recorded for the corresponding quarter of 1996. The
dollar increase in these expenses over the prior year reflected additional
spending for personnel and programs consistent with the Company's emphasis on
the T2000 product line. The increased spending level in the first quarter of
1997 also reflected higher spending for programs and promotions needed to
generate and support the product roll-out, as well as substantial marketing
expenditures made in connection with the general availability of the Company's
T2000 product line.
Research & development expenses for the first quarter ended June 30, 1997,
were approximately $23,000, a 54% decrease over the approximately $50,000
recorded for the corresponding quarter of 1996. The $50,000 recorded in the
corresponding quarter of 1996 represented a one-time expenditure for the
acquisition of assets from an entity mainly comprised of prototype boards,
proprietary software code and existing research and development relating to
specific computer software products.
INTEREST & FINANCING EXPENSES
Interest & financing expenses for the first quarter ended June 30, 1997,
were approximately $24,800, a decrease over the approximately $5,704,300
recorded for the corresponding quarter of 1996. In the first quarter ended June
30, 1996, the Company's interest and financing expenses included several
one-time charges associated with the issuance of bridge loans which were
subsequently converted to equity of approximately $5,385,100, and with the cost
of an abandoned stock registration of approximately $284,600.
OTHER
To date, inflation and seasonality has not had a material impact on the
Company's results of operations.
LIQUIDITY AND CAPITAL RESOURCES
In the quarter ended June 30, 1997, the Company received net proceeds of
approximately $5,885,100 from an initial public offering of the Company's common
stock and common stock warrants. The Company also secured a $1,000,000 one year
credit facility in the quarter ended June 30, 1997, which is secured by
investments, receivables and fixed assets. The Company used approximately
$(577,300) in cash flows from operating activities, excluding changes in assets
and liabilities, during the first quarter ended June 30, 1997, compared to
approximately $(506,800) for the corresponding quarter of 1996. The increase in
cash flows used in operating activities excluding changes in assets and
liabilities was mainly due to the increase in selling, general and
administrative expenses discussed above. The total net cash used by operating
activities was approximately $(913,700) for the first quarter ended June 30,
1997, compared to approximately $(407,100) for the corresponding quarter of
1996.
Cash used by investing activities totalled approximately $2,997,900 for the
first quarter ended June 30, 1997 as compared to approximately $69,500 for the
corresponding quarter of 1996. The main component of that investing activity
was the investment in short-term securities of approximately $2,803,000, as well
as continued expenditures for capitalized software development and
<PAGE>
property and equipment of approximately $64,200 and $130,700, respectively. The
majority of the expenditures related to continued development of the T2000
product line.
Cash provided by financing activities totalled approximately $5,882,800
compared to approximately $500,000 for the corresponding quarter of 1996. The
Company successfully completed an initial public offering in April 1997, which
yielded net proceeds of approximately $5,885,100. The Company has access to a
$1,000,000 credit line secured by investments, fixed assets and receivables, but
did not borrow against that line of credit during the first quarter ended June
30, 1997.
The Company expects to continue to make significant investments in the
future to support its overall growth. Currently, it is anticipated that ongoing
operations will be financed primarily from net proceeds of the initial public
offering, the line of credit facility, and from internally generated funds. The
Company presently has a line of credit, investments ,and cash and cash
equivalents on hand and believes that these will be sufficient to meet cash
requirements as needed. However, as indicated in the Company's most recent
Annual Report on Form 10-KSB, that while operating activities may provide cash
in certain periods, to the extent the Company experiences growth in the future,
the Company anticipates that its operating and product development activities
may use cash and consequently, such growth may require the Company to obtain
additional sources of financing. There can be no assurances that unforeseen
events may not require more working capital than the Company currently has at
its disposal.
FUTURE OPERATING RESULTS
The preceding paragraph and the following discussion include
forward-looking statements regarding the Company's future financial position and
results of operations. Actual financial position and results of operations may
differ materially from these statements. All such statements are qualified by
the following cautionary statements.
The Company has invested significant amounts in the research and
development and the initial product roll-out marketing and selling for the T2000
product line. The emphasis, attention, and dedication of Company's limited
resources for the T2000 product line have caused and, in management's view, will
continue to cause the negative operating earnings experienced to date.
However, the Company believes that the value and sales potential of the T2000
product line outweighs the risk of continued operating losses. The first
products of the T2000 product line became generally available during the second
quarter of fiscal 1998 and the Company believes that revenues will begin to grow
as contracts are finalized and delivered over the remainder of fiscal 1998.
The Company does not expect revenue growth to occur ratably over the 1998
fiscal year; instead, the Company expects that the major impact of the T2000
product introduction on revenues and earnings will occur during the second half
of the year. Revenue growth in the second quarter of fiscal 1998 will depend to
a large extent on the timing of the Company's roll-out for the initial products
in the T2000 product line.
The Company's ability to achieve its revenue and profitability objectives
in fiscal 1998 will depend on many factors beyond the Company's control. These
include the timing and market acceptance of the T2000 product line and other new
products and features announced and introduced by the Company and its
competitors, ant the extent to which the Company is successful in implementing
its ongoing strategy of providing high fidelity or "toll quality" data
telephony. Other factors include rapid changes in technologies and standards
relating to telecommunications and data telephony.
The foregoing forward-looking statements involve a number of risks and
uncertainties. In addition to the factors discussed above, among the other
factors that could cause actual results to differ materially are those listed in
the Company's most recent Annual Report on Form 10-KSB under the headings "Item
1 - Description of Business -- Forward-Looking and Cautionary Statements" and
"Item 6 - Management's Discussion and Analysis of Financial Condition and
Results of Operations" and in the Company's Registration Statement on Form SB-2,
effective April 7, 1997, under the headings "Risk Factors" and "Business", which
are incorporated by reference herein, and included from time to time in other
documents filed by the Company with the Securities and Exchange Commission.
Because of the foregoing uncertainties affecting the Company's future
operating results, past performance should not be considered to be a reliable
indicator of future performance. The use of historical trends to anticipate
results or trends in future periods may be inappropriate. In addition, the
Company's participation in a highly dynamic industry may result in significant
volatility in the price of the Company's common stock.
The Company cautions that the preceding list of cautionary statements is not
exclusive. The Company does not undertake to update any forward-looking
statements that may be made from time to time by or on behalf of the Company.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit Description
10.1 Line of Credit Facility -Promissory Note with NationsBank,
N.A. dated May 31, 1997
10.2 Non-Qualified Stock Option Plan Agreement
(b) Since the end of its most recent fiscal year on March 31, 1997, e-Net,
Inc. has filed the following reports on Form 8-K:
Date of Report Item Reported
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
e-Net, Inc.
(Registrant)
DATE: August 5 1997 /s/ Robert A. Veschi
----------------------------------
Robert A. Veschi
President and Chief Executive Officer
(Duly Authorized Officer and Principal Financial Officer)
<PAGE>
Exhibit Index
Sequentially
Numbered
Exhibit Description Page
10.1 Line of Credit Facility -Promissory Note with NationsBank, N.A.
dated May 31, 1997
10.2 Non-Qualified Stock Option Plan Agreement
<PAGE>
Exhibit 10.1
NATIONSBANK, N.A. Customer #
LOAN AGREEMENT
This Loan Agreement (the "Agreement") dated as of May 31, 1997, by and
between NationsBank, N.A., a national banking association ("Bank") and the
Borrower described below.
In consideration of the Loan or Loans described below and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, Bank and Borrower agree as follows:
1. DEFINITIONS AND REFERENCE TERMS. In addition to any other terms
defined herein, the following terms shall have the meaning set forth with
respect thereto:
A. Borrower: e-Net, Inc.
B. Borrower's Address: 12800 Middlebrook Road, Suite 200
Gaithersburg, Maryland 20874
C. Current Assets. Current Assets means the aggregate amount of all
of Borrower's assets which would, in accordance with GAAP, properly be
defined as current assets.
D. Current Liabilities. Current Liabilities means the aggregate
amount of all current liabilities as determined in accordance with GAAP, but
in any event shall include all liabilities except those having a maturity
date which is more than one year from the date as of which such computation
is being made.
E. Hazardous Materials. Hazardous Materials include all materials
defined as hazardous materials or substances under any local, state or
federal environmental laws, rules or regulations, and petroleum, petroleum
products, oil and asbestos.
F. Loan. Any loan described in Section 2 hereof and any subsequent
loan which states that it is subject to this Loan Agreement.
G. Loan Documents. Loan Documents means this Loan Agreement and any
and all promissory notes executed by Borrower in favor of Bank and all other
documents, instruments, guarantees, certificates and agreements executed
and/or delivered by Borrower, any guarantor or third party in connection with
any Loan.
H. Tangible Net Worth. Tangible Net Worth means the amount by which
total assets exceed total liabilities in accordance with GAAP.
I. Accounting Terms. All accounting terms not specifically defined
or specified herein shall have the meanings generally attributed to such
terms under generally accepted accounting principles ("GAAP"), as in effect
from time to time, consistently applied, with respect to the financial
statements referenced in Section 3.H. hereof.
2. LOANS.
A. Loan. Bank hereby agrees to make (or has made) one or more
loans to Borrower. The obligation to repay the loans is evidenced by a
promissory note or notes (the promissory note or notes together with any and
all renewals, extensions or rearrangements thereof being hereafter collectively
referred to as the "Note") having a maturity date, repayment terms and interest
rate as set forth in the Note.
i. Revolving Credit Feature. The Loan provides for a revolving
line of credit (the "Line") under which Borrower may from time to time, borrow,
repay and re-borrow funds.
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Bank as follows:
A. Good Standing. Borrower is a corporation duly organized, validly
existing and in good standing under the laws of Maryland and has the power and
authority to own its property and to carry on its business in each jurisdiction
in which Borrower does business.
<PAGE>
B. Authority and Compliance. Borrower has full power and authority
to execute and deliver the Loan Documents and to incur and perform the
obligations provided for therein, all of which have been duly authorized by all
proper and necessary action of the appropriate governing body of Borrower. No
consent or approval of any public authority or other third party is required as
a condition to the validity of any Loan Document, and Borrower is in compliance
with all laws and regulatory requirements to which it is subject.
C. Binding Agreement. This Agreement and the other Loan Documents
executed by Borrower constitute valid and legally binding obligations of
Borrower, enforceable in accordance with their terms.
D. Litigation. There is no proceeding involving Borrower pending
or, to the knowledge of Borrower, threatened before any court or governmental
authority, agency or arbitration authority, except as disclosed to Bank in
writing and acknowledged by Bank prior to the date of this Agreement.
E. No Conflicting Agreements. There is no charter, bylaw, stock
provision, partnership agreement or other document pertaining to the
organization, power or authority of Borrower and no provision of any existing
agreement, mortgage, indenture or contract binding on Borrower or affecting its
property, which would conflict with or in any way prevent the execution,
delivery or carrying out of the terms of this Agreement and the other Loan
Documents.
F. Ownership of Assets. Borrower has good title to its assets, and
its assets are free and clear of liens, except those granted to Bank and as
disclosed to Bank in writing prior to the date of this Agreement.
G. Taxes. All taxes and assessments due and payable by Borrower
have been paid or are being contested in good faith by appropriate proceedings
and the Borrower has filed all tax returns which it is required to file.
H. Financial Statements. The financial statements of Borrower
heretofore delivered to Bank have been prepared in accordance with GAAP applied
on a consistent basis throughout the period involved and fairly present
Borrower's financial condition as of the date or dates thereof, and there has
been no material adverse change in Borrower's financial condition or operations
since the date of the most recent financial information. All factual
information furnished by Borrower to Bank in connection with this Agreement and
the other Loan Documents is and will be accurate and complete on the date as of
which such information is delivered to Bank and is not and will not be
incomplete by the omission of any material fact necessary to make such
information not misleading.
I. Place of Business. Borrower's chief executive office is located
at
12800 Middlebrook Road, Suite 200
Gaithersburg, Maryland 20874
J. Environmental The conduct of Borrower's business operations
and the condition of Borrower's property does not and will not violate any
federal laws, rules or ordinances for environmental protection, regulations of
the Environmental Protection Agency, any applicable local or state law, rule,
regulation or rule of common law or any judicial interpretation thereof relating
primarily to the environment or Hazardous Materials.
K. Continuation of Representations and Warranties. All
representations and warranties made under this Agreement shall be deemed to be
made at and as of the date hereof and at and as of the date of any advance under
any Loan.
4. AFFIRMATIVE COVENANTS. Until full payment and performance of all
obligations of Borrower under the Loan Documents, Borrower will, unless Bank
consents otherwise in writing (and without limiting any requirement of any other
Loan Document):
A. Financial Condition. Maintain a financial condition in
accordance with GAAP applied on a consistent basis throughout the period
involved.
B. Financial Statements and Other Information. Maintain a system of
accounting satisfactory to Bank and in accordance with GAAP applied on a
consistent basis throughout the period involved, permit Bank's officers or
authorized representatives to visit and inspect Borrower's books of account and
other records at such reasonable times and as often as Bank may desire, and pay
the reasonable fees and disbursements of any accountants or other agents of Bank
selected by Bank for the foregoing purposes. Unless written notice of another
location is given to Bank, Borrower's books and records will be located at
Borrower's chief executive office set forth above. All financial statements
called for below shall be prepared in form and content acceptable to Bank and
by independent certified public accountants acceptable to Bank.
<PAGE>
In addition, Borrower will:
i. Furnish to Bank annual audited and consolidated financial statements of
Borrower for each fiscal year of Borrower, within 125 days after the close of
each such fiscal year.
ii. Furnish to Bank 10-Q Reports of Borrower for each quarter of each
fiscal year of Borrower, within 45 days after the close of each such period.
iii. Furnish to Bank promptly such additional information, reports and
statements respecting the business operations and financial condition of
Borrower respectively, from time to time, as Bank may reasonably request.
C. Insurance. Maintain insurance with responsible insurance
companies on such of its properties, in such amounts and against such risks as
is customarily maintained by similar businesses operating in the same vicinity,
specifically to include fire and extended coverage insurance covering all
assets, business interruption insurance, workers compensation insurance and
liability insurance, all to be with such companies and in such amounts as are
satisfactory to Bank and providing for at least 30 days prior notice to Bank of
any cancellation thereof. Satisfactory evidence of such insurance will be
supplied to Bank prior to funding under the Loan(s) and 30 days prior to each
policy renewal.
D. Existence and Compliance. Maintain its existence, good standing
and qualification to do business, where required and comply with all laws,
regulations and governmental requirements including, without limitation,
environmental laws applicable to it or to any of its property, business
operations and transactions.
E. Adverse Conditions or Events. Promptly advise Bank in writing of
(i) any condition, event or act which comes to its attention that would or might
materially adversely affect Borrower's financial condition or operations or
Bank's rights under the Loan Documents, (ii) any litigation filed by or against
Borrower, (iii) any event that has occurred that would constitute an event of
default under any Loan Documents and (iv) any uninsured or partially uninsured
loss through fire, theft, liability or property damage.
F. Taxes and Other Obligations. Pay all of its taxes, assessments
and other obligations, including, but not limited to taxes, costs or other
expenses arising out of this transaction, as the same become due and payable,
except to the extent the same are being contested in good faith by appropriate
proceedings in a diligent manner.
G. Maintenance. Maintain all of its tangible property in good
condition and repair and make all necessary replacements thereof, and preserve
and maintain all licenses, trademarks, privileges, permits, franchises,
certificates and the like necessary for the operation of its business.
H. Environmental . Immediately advise Bank in writing of (i) any
and all enforcement, cleanup, remedial, removal, or other governmental or
regulatory actions instituted, completed or threatened pursuant to any
applicable federal, state, or local laws, ordinances or regulations relating to
any Hazardous Materials affecting Borrower's business operations; and (ii) all
claims made or threatened by any third party against Borrower relating to
damages, contribution, cost recovery, compensation, loss or injury resulting
from any Hazardous Materials. Borrower shall immediately notify Bank of any
remedial action taken by Borrower with respect to Borrower's business
operations. Borrower will not use or permit any other party to use any
Hazardous Materials at any of Borrower's places of business or at any other
property owned by Borrower except such materials as are incidental to Borrower's
normal course of business, maintenance and repairs and which are handled in
compliance with all applicable environmental laws. Borrower agrees to permit
Bank, its agents, contractors and employees to enter and inspect any of
Borrower's places of business or any other property of Borrower at any
reasonable times upon three (3) days prior notice for the purposes of conducting
an environmental investigation and audit (including taking physical samples) to
insure that Borrower is complying with this covenant and Borrower shall
reimburse Bank on demand for the costs of any such environmental investigation
and audit. Borrower shall provide Bank, its agents, contractors, employees and
representatives with access to and copies of any and all data and documents
relating to or dealing with any Hazardous Materials used, generated,
manufactured, stored or disposed of by Borrower's business operations within
five (5) days of the request therefore.
5. NEGATIVE COVENANTS. Until full payment and performance of all
obligations of Borrower under the Loan Documents, Borrower will not, without the
prior written consent of Bank (and without limiting any requirement of any other
Loan Documents):
<PAGE>
A. Character of Business. Change the general character of business
as conducted at the date hereof, or engage in any type of business not
reasonably related to its business as presently conducted.
6. DEFAULT. Borrower shall be in default under this Agreement and under
each of the other Loan Documents if it shall default in the payment of any
amounts due and owing under the Loan or should it fail to timely and properly
observe, keep or perform any term, covenant, agreement or condition in any Loan
Document or in any other loan agreement, promissory note, security agreement,
deed of trust, deed to secure debt, mortgage, assignment or other contract
securing or evidencing payment of any indebtedness of Borrower to Bank or any
affiliate or subsidiary of NationsBank Corporation.
7. REMEDIES UPON DEFAULT. If an event of default shall occur, Bank shall
have all rights, powers and remedies available under each of the Loan Documents
as well as all rights and remedies available at law or in equity.
8. NOTICES. All notices, requests or demands which any party is required
or may desire to give to any other party under any provision of this Agreement
must be in writing delivered to the other party at the following address:
Borrower: e-Net, Inc.
12800 Middlebrook Road, Suite 200
Gaithersburg, Maryland 20874
Fax. No. ___________________
Bank: NationsBank, N.A.
Attn: Barbara E. Deily
6610 Rockledge Drive, 3rd Floor
Bethesda, Maryland 20817
Fax No. 301-571-9098
or to such other address as any party may designate by written notice to the
other party. Each such notice, request and demand shall be deemed given or made
as follows:
A. If sent by mail, upon the earlier of the date of receipt or five
(5) days after deposit in the U.S. Mail, first class postage prepaid;
B. If sent by any other means, upon delivery.
9. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank
immediately upon demand the full amount of all costs and expenses, including
reasonable attorneys' fees (to include outside counsel fees and all allocated
costs of Bank's in-house counsel if permitted by applicable law), incurred by
Bank in connection with (a) negotiation and preparation of this Agreement and
each of the Loan Documents, and (b) . all other costs and attorneys' fees
incurred by Bank for which Borrower is obligated to reimburse Bank in accordance
with the terms of the Loan Documents.
10. MISCELLANEOUS. Borrower and Bank further covenant and agree as
follows, without limiting any requirement of any other Loan Document:
A. Cumulative Rights and No Waiver. Each and every right granted to
Bank under any Loan Document, or allowed it by law or equity shall be cumulative
of each other and may be exercised in addition to any and all other rights of
Bank, and no delay in exercising any right shall operate as a waiver thereof,
nor shall any single or partial exercise by Bank of any right preclude any other
or future exercise thereof or the exercise of any other right. Borrower
expressly waives any presentment, demand, protest or other notice of any kind,
including but not limited to notice of intent to accelerate and notice of
acceleration. No notice to or demand on Borrower in any case shall, of itself,
entitle Borrower to any other or future notice or demand in similar or other
circumstances.
B. Applicable Law. This Loan Agreement and the rights and
obligations of the parties hereunder shall be governed by and interpreted in
accordance with the laws of Maryland and applicable United States federal law.
C. Amendment. No modification, consent, amendment or waiver of any
provision of this Loan Agreement, nor consent to any departure by Borrower
therefrom, shall be effective unless the same shall be in writing and signed by
an officer of Bank, and then shall be effective only in the specified instance
and for the purpose for which given. This Loan Agreement is binding upon
<PAGE>
Borrower, its successors and assigns, and inures to the benefit of Bank, its
successors and assigns; however, no assignment or other transfer of Borrower's
rights or obligations hereunder shall be made or be effective without Bank's
prior written consent, nor shall it relieve Borrower of any obligations
hereunder. There is no third party beneficiary of this Loan Agreement.
D. Documents. All documents, certificates and other items required
under this Loan Agreement to be executed and/or delivered to Bank shall be in
form and content satisfactory to Bank and its counsel.
E. Partial Invalidity. The unenforceability or invalidity of any
provision of this Loan Agreement shall not affect the enforceability or validity
of any other provision herein and the invalidity or unenforceability of any
provision of any Loan Document to any person or circumstance shall not affect
the enforceability or validity of such provision as it may apply to other
persons or circumstances.
F. Indemnification. Notwithstanding anything to the contrary
contained in Section 10(G), Borrower shall indemnify, defend and hold Bank and
its successors and assigns harmless from and against any and all claims,
demands, suits, losses, damages, assessments, fines, penalties, costs or other
expenses (including reasonable attorneys' fees and court costs) arising from or
in any way related to any of the transactions contemplated hereby, including but
not limited to actual or threatened damage to the environment, agency costs of
investigation, personal injury or death, or property damage, due to a release or
alleged release of Hazardous Materials, arising from Borrower's business
operations, any other property owned by Borrower or in the surface or ground
water arising from Borrower's business operations, or gaseous emissions arising
from Borrower's business operations or any other condition existing or arising
from Borrower's business operations resulting from the use or existence of
Hazardous Materials, whether such claim proves to be true or false. Borrower
further agrees that its indemnity obligations shall include, but are not limited
to, liability for damages resulting from the personal injury or death of an
employee of the Borrower, regardless of whether the Borrower has paid the
employee under the workmen's compensation laws of any state or other similar
federal or state legislation for the protection of employees. The term
"property damage" as used in this paragraph includes, but is not limited to,
damage to any real or personal property of the Borrower, the Bank, and of any
third parties. The Borrower's obligations under this paragraph shall survive
the repayment of the Loan and any deed in lieu of foreclosure or foreclosure of
any Deed to Secure Debt, Deed of Trust, Security Agreement or Mortgage securing
the Loan.
G. Survivability. All covenants, agreements, representations and
warranties made herein or in the other Loan Documents shall survive the making
of the Loan and shall continue in full force and effect so long as the Loan is
outstanding or the obligation of the Bank to make any advances under the Line
shall not have expired.
11. NO ORAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed under seal by their duly authorized representatives as of the date
first above written.
BORROWER: e-Net, Inc. BANK: NationsBank, N.A.
By: ________________________ (Seal) By:___________________________ (Seal)
Name: Name: Barbara E. Deily
Title: Title: Vice President
[Corporate Seal]
If the Borrower is a corporation, the signature should be attested by the
Secretary or Assistant Secretary of the corporation and the corporate seal
affixed.
Attest:_________________________________ (Seal)
Name:___________________________________
Title:__________________________________
<PAGE>
Exhibit 10-2
NONQUALIFIED STOCK OPTION PLAN
1. Purpose
The Stock Option Plan (the "Plan") of e-Net, Inc. ("the Company"), is designed
to enable key employees and directors of the company and its Subsidiaries to
acquire or increase a proprietary interest in the Company, and thus to share in
the future success of the Company's business. Accordingly, the Plan is intended
as a further means not only of attracting and retaining outstanding management
personnel but also of promoting a closer identity of interests between
executives and stockholders. Since the executives eligible to receive Options
under the Plan will be those who are in positions to make important and direct
contributions to the success of the Company, the directors believe that the
grant of Options under the Plan will be in the Company's interest.
2. Definitions
Unless the context clearly indicates otherwise, the following terms, when used
in the Plan, shall have the meanings set forth in this Section 2.
(a) "Beneficiary" means the person or persons designated in writing by the
Grantee or, in the absence of such a designation or if the designated
erson or persons predecease the Grantee, the Grantee's Beneficiary shall
be the person or persons who acquire the right to exercise the Option by
bequest or inheritance. In order to be effective, a Grantee's
designation of a Beneficiary must be on file with the Committee before
the Grantee's death. Any Such designation may be revoked and a new
designation substituted therefore at any time before the Grantee's death.
(b) "Board of Directors" or "Board" means the Board of Directors of the
Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
(d) "Committee" means committee consisting of the members of the
Compensation Committee of the Board of Directors who are "disinterested
persons" within the meaning of Rule 16b-3 under the Securities and
Exchange Act of 1934 (or any successor rule of similar import).
(e) "Disability" means a disability as defined in the Company's Long-Term
Disability Plan, as amended from time to time.
(f) "Grantee" means a person to whom an Option has been granted under the
Plan.
(g) "Option" means an option to purchase a share or shares of the Company's
par value common stock.
(h) "Option Agreement" means the written agreement to be entered into by the
Company and the Grantee, as provided in Section 7 hereof.
(i) "Quota" means the portion of the total number of Shares subject to an
Option which the Grantee may purchase during each of the several periods
of the Term of the Option (if the Option is subject to Quotas), as
provided in Section 10(b) hereof.
(j) "Retirement" means retirement pursuant to the Company's Retirement
Pension Plan, as amended from time to time.
(k) "Shares" means shares of the Company's par value common stock.
(l) "Subsidiary" means a subsidiary corporation as defined in Section 424(f)
of the Code (or a successor provision of similar import).
(m) "Term" means the period during which a particular Option may be exercised
in accordance with Section 10(a) hereof.
(o) Whenever used herein, unless the context indicates otherwise, words in
the masculine form shall be deemed to refer to females as well as to
males.
3. Effective Date of Plan
This Plan shall become effective when adopted by the Board of Directors;
provided, however, that if the Plan is not approved by the holders of a majority
of the outstanding Shares prior to the first anniversary date of its adoption
by the Board, the Plan and all Options granted under the Plan prior to such
anniversary shall be null and void and shall be of no effect.
4. Number and Source of Shares Subject to the Plan
(a) The Company may grant Options under the Plan for not more than Five
Hundred Thousand (500,000) Shares, together with the Shares for which
Options were previously authorized under the Plan prior to its
amendment and extension, (subject, however, to adjustment as
provided in Section 15 hereof) Which shall be provided from Shares in
the treasury or by the issuance of Shares authorized but unissued.
<PAGE>
(b) In the event that an Option shall for any reason lapse or be terminated
without being exercised in whole or in part, the Shares subject to the
Option shall be restored to the total number of Shares with respect to
which Options may be granted under the Plan, but only to the extent
that the Option has not previously been exercised.
5. Administration of the Plan
(a) The Plan shall be administered by the Committee, except that
non-Committee members of the Board shall approve awards of options,
if any, to any Committee members.
(b) The Committee shall adopt such rules or procedures as it may deem
proper; provided, however, that it may take action upon the agreement
of a majorityof its members then in office. Any action that the
Committee may take through a written instrument signed by a majority
of its members then in office shall be as effective as though taken
as a meeting duly called and held.
(c) The powers of the committee shall include plenary authority to
interpret the Plan, and, subject to the provisions hereof, the
Committee may determine(1) the persons to whom Options shall be
granted, (2) the number of Shares subject to each Option, and (3) the
Term of each Option, the date on which each Option shall be granted,
and (5) the provisions of each Option Agreement.
6. Employees Eligible to Receive Options
(a) Options may be granted under the Plan to key employees or Directors
of the Company or any Subsidiary (including employees who are
directors). All determinations by the Committee as to the identity of
the persons to whom Options shall be granted hereunder shall be
conclusive.
(b) An individual employee may receive more than one Option.
7. Option Agreement
(a) No Option shall be exercised by a Grantee unless he shall have executed
and delivered an Option Agreement.
(b) Appropriate officers of the company are hereby authorized to execute
and deliver Option Agreements in the name of the company as directed
from time to time by the Committee.
8. Nonqualified Options
It is intended that the Options granted hereunder will not be "incentive stock
options" within the meaning of Section 422(b) of the Code.
9. Option Price
The option price to be paid by the Grantee to the company for each Share
purchased upon the exercise of the Option shall be equal to the fair market
value of the Share on the date the Option is granted. In no event may an Option
be granted under the Plan if the Option price per share is less than the par
value of a Share.
10. Term and Quotas of Options; Exercise of Option During life of Grantee
(a) Each Option granted under the Plan shall be exercisable only during
a Term commencing at least one year after the date when the option was
granted; provided, that in the case of an Option that is granted at
the time the Grantee first becomes employed by the company or a
Subsidiary, the Committee shall have the authority to shorten or
eliminate the foregoing one-year period. The Term of each Option shall
end (unless the Option shall have terminated earlier under any other
provision of the Plan) on a date fixed by the Committee and set forth
in the applicable Option Agreement. In no event shall the Term of the
Option extend beyond ten years from the date of grant of the Option.
(b) The Committee shall have authority to grant both Options exercisable in
full at any time during their Term and/or Options exercisable in
Quotas. Quotas or portions thereof not purchased in earlier periods
shall be cumulative and shall be available
<PAGE>
for purchase in later periods within the Term of the Option. In
exercising an Option, the Grantee may purchase less than the full
Quota available under the Option.
(c) Options shall be exercised by delivering or mailing to the Committee:
(1) a notice, in the form and in the manner prescribed by the
Committee, specifying the number of Shares to be purchased, and
(2) payment in full of the Option price for the Shares by money order,
cashier's check, or certified check, and/or by the tender of
Shares to the Company; provided that Shares tendered in exchange
for Shares issued under the Plan must be held by grantee for at
least one year prior to their tender to the company; and provided
further, that the committee shall determine acceptable methods
for tendering Shares to exercise an Option under the Plan, and
may impose such limitations and prohibitions on the use of Shares
to exercise an Option as it deems appropriate. The Committee
shall determine the fair market value of any shares used to
exercise an Option. The date of exercise shall be deemed to be
the date that the notice of exercise and payment of the Option
Price are received by the Committee.
(d) Subject to Section 12(a) below, upon receipt of the notice of exercise
and upon payment of the Option price, the Company shall promptly
deliver to the Grantee a certificate or certificates for the Shares
purchased, without charge to him for issue or transfer tax.
11. Conditions on Exercise
(a) The exercise of each Option granted under the Plan shall be subject to
the condition that if at any time the Company shall determine in its
discretion that the satisfaction of withholding tax or other
withholding liabilities, or that the listing, registration or
qualification of any Shares otherwise deliverable upon such exercise
upon any securities exchange or under any State or federal law, or
the consent or approval of any regulatory body, is necessary or
desirable as a condition of, or in connection with, such exercise or
the delivery or purchase of Shares thereunder, then in any such event
such exercise shall not be effective unless such withholding, listing,
registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the
Company. Any such postponement shall not extend the time within which
the Option may be exercised; and neither the Company nor its directors
or officers shall have any obligations or liability to the Grantee or
to a Beneficiary with respect to any Shares as to which the Option
shall lapse because of such postponement.
(b) All Options granted under the Plan shall be nontransferable other than
by will or by the laws of descent and distribution in accordance with
Section 12(a) hereof, and an Option may be exercised during the
lifetime of the Grantee only by him.
(c) Upon the purchase of Shares under an Option, the stock certification
or certificates may, at the request of the Grantee or his Beneficiary,
be issued in his name and the name of another person as joint tenants
with right of survivorship.
12. Exercise of Options After Death, Disability, Retirement, or Other
Termination of Employment
(a) Death. If a Grantee's employment with the Company or a Subsidiary
shall cease due to the Grantee's death, or if the Grantee shall die
within twelve months after cessation of employment while the Option
is exercisable pursuant to paragraph (b) below, or if the Grantee
shall die within three months after cessation of employment while the
Option is exercisable pursuant to paragraph (c) below, any Option held
by the Grantee on the date of his death may be exercised only within
twelve months after the Grantee's death, and only by the Grantee's
Beneficiary, to the extent that such Option have been exercised by
such deceased Grantee immediately before the Grantee's death. In no
event shall the Option be exercisable after the expiration date
thereof specified in the Option Agreement.
(b) Disability. If a Grantee's employment with the Company or a Subsidiary
ceases due to his disability, after at least one year of continuous
employment with the Company and/or such Subsidiary immediately
following the date on which an Option, to the extent that the Option
could be exercised at the cessation of employment, then the Option
may be exercised at any time within twelve months after the Grantee
shall cease to be an employee. In no event shall the Option be
exercisable after the expiration date thereof specified in the Option
Agreement.
(c) Retirement. If a Grantee's employment with the Company or a Subsidiary
ceases due to his retirement, after at least one year of continuous
employment with the Company and/or such Subsidiary immediately
following the date on which an Option was granted, the Grantee may
exercise the Option to the extent the Option could be exercised at the
cessation of employment, at any time within three months after the
Grantee shall so cease to be an employee. In no event shall the
Option be exercisable after the expiration date thereof specified in
the Option Agreement.
(d) Termination for Other Reasons. Upon termination of a Grantee's
employment with the Company and its Subsidiaries for any reason other
than those specified in subsections (a) through (c) above, the
Grantee's outstanding Options shall be immediately canceled.
<PAGE>
13. Stockholder Rights
No person shall have any rights of a stockholder by virtue of an Option except
with respect to Shares actually issued to him, and the issuance of Shares shall
confer no retroactive right to dividends.
14. Adjustment for Changes in Capitalization
In the event that there is any change in the Shares through merger,
consolidation, reorganization, recapitalization or otherwise, or if there shall
be any dividend on the Company's Shares, payable in such Shares, or if there
shall be a stock split or a combination of Shares, the aggregate number of
Shares available for Options, the number of Shares subject to outstanding
Options, and the Option price per Share of each outstanding Option shall be
proportionately adjusted by the Board of Directors as it deems equitable in its
absolute discretion, to prevent dilution or enlargement of the rights of the
Grantees; provided, that any fractional Shares resulting from such adjustments
shall be eliminated. The Board's determination with respect to any such
adjustments shall be conclusive.
15. Effect of Merger or Other Reorganization
If the Company shall be the surviving corporation in a merger or other
reorganization, Options shall extend to stock and securities of the Company to
the same extent that a holder of that number of Shares immediately before the
merger or consolidation corresponding to the number of Shares covered by the
Option would be entitled to have or obtain stock and securities of the Company
under the terms of the merger or consolidation. If the Company dissolves, sells
substantially all of its assets, is acquired in a stock for stock or securities
exchange, or is a party to a merger or other reorganization in which it is not
the surviving corporation, then each Option shall be exercisable in full within
the period 60 days commencing upon the date the action of the shareholders (or
of the Board if shareholders' action is not required) is taken to approve the
transaction, and upon the expiration of that period all Options shall
automatically terminate.
16. Termination, Suspension or Modification of Plan
The Board of Directors may at any time terminate, suspend, or modify the Plan,
except that the Board of Directors shall not, without the authorization of the
holders of a majority of the Company's outstanding Shares at a shareholders'
meeting duly called and held, change (other than through adjustment for changes
in capitalization as provided in Section 14 hereof (a) the aggregate number of
Shares with respect to which Options may be granted; (b) the class of persons
eligible for Options, (c) the Option price; or (d) the maximum duration of the
Plan. No termination, suspension or modification of the Plan shall adversely
affect any right acquired by any Grantee, or by any Beneficiary, under the terms
of an Option granted before the date of such termination, suspension or
modification, unless such Grantee or Beneficiary shall consent; but it shall be
conclusively presumed that any adjustment for changes in capitalization in
accordance with Section 14 hereof does not adversely affect any such right.
17. Application of Proceeds
The proceeds received by the company from the sale of Shares under the Plan
shall be used for general corporate purposes.
18. Duration of the Plan
Unless sooner terminated in accordance with Section 16 hereof, the amended and
extended Plan shall remain in effect for a period of ten years from the date of
its amendment and extension by the Board of Directors.
19. Competition by Participant.
In the event a participant , within such period of time as shall be specified in
the related Option Agreement, directly or indirectly, individually or as an
employee, partner, officer, director, or stockholder or in any other capacity
whatsoever of any person, firm, partnership or corporation: (i) recruits,
hires, assists others in recruiting or hiring, discusses employment with or
refers to others any person who is, or within the preceding 12 months was, an
employee of the Company or any subsidiary thereof or any present,
<PAGE>
prospective of former subsidiary thereof ; (ii) competes with the Company or
any subsidiary thereof in such segments of the business of the Company and
within such territory as shall be specified in such related Agreements: (iii)
uses in competition with the Company or any subsidiary thereof, customer,
prospective customer or former customer, within such segments and specified
territory, any of the methods, information or systems developed by the Company
or any subsidiary thereof for its customers, prospective customers or former
customers where the Company or any subsidiary thereof or such customer ,
prospective customer or former customer does business; or (iv) calls upon,
solicits, accepts employment with, sells or endeavors to sell to, within such
segments and specified territory, any customer, prospective customer or former
customer of the Company or any subsidiary thereof; the following provisions
shall apply with respect to any shares of Option Stock received and options
granted under this Plan as of the date of the first occurrence prohibited under
this provision:
A. Such participant: (i) shall immediately sell and deliver to the
Company (as designated by the Committee), upon demand, all shares of Option
Stock sold or awarded to the participant under the Plan as to which the
participant is still the direct or indirect beneficial owner at the cash
price per share, if any, paid by the participant; and (ii) shall pay to the
Company (as designated by the Committee) an amount in cash with respect to
each share of Option Stock, not still so held equal to the Fair Market Value
of each such share on the first date on which such share is no longer held
less the price paid by him for such share.
B. Any option outstanding under the Plan shall automatically
terminate and shall no longer be execrable and all Restricted Stock Units then
held shall automatically terminate.
C. The provisions of this Section shall not limit or restrict in any
manner any rights or remedies which the Company and its subsidiaries may have
under any separate employment agreement with a participant and or otherwise
with respect to competition by a participant.
If any provisions of this Section 19 should be found by any court of
competent jurisdiction to be unreasonable by reason of its being too broad as to
the period of time, territory, aspects of business or customers covered or
otherwise, then, and in that event, such provision shall nevertheless remain
valid and fully effective, but shall be considered to be amended so that the
period of time, territory, aspects of business of customers covered or
otherwise set forth shall be changed to be the maximum period of time, the
largest territory, the most aspects of business and customers covered and/or the
broadest other limitations, as the case may be, which would be found reasonable
and enforceable by such court and similarly, if any remedy is so found to be
unenforceable in whole or in part, or to any extent, such provision shall
remain in effect only to the extent the remedies would be enforceable by such
court.
20. Related Agreements.
In order to enforce the restrictions imposed upon shares issued and options
granted hereunder and to comply with Federal and state securities laws and the
Code, the Company shall enter into a Option Stock Agreements with each
participant containing such terms and conditions, including additional
restrictions as the Committee shall determine, and the Committee may require
that the certificates representing shares of Unvested Stock shall remain in the
physical custody of the Company. The Committee shall have full authority upon
the consent of a participant to amend the terms and provisions of any such
agreement relating to the participant or the terms of any options relating to
the participant or the terms of any options relating to the participant which
are outstanding under the Plan.
21. No Effect on Employment.
Nothing herein, contained, including the sale or award of any shares and the
grant of any options, shall affect the right of the Company to terminate any
participant's employment at any time for any reason.
22. General Provisions
The grant of an Option in any year shall not give the Grantee any right to
similar grants in future years or any right to be retained in the employ of the
Company or its Subsidiaries.
23. Governing Law
The Plan shall be construed and its provisions enforced and administered in
accordance with the laws of Delaware except to the extent that such laws may be
superseded by any Federal law.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AT JUNE 30, 1997 (UNAUDITED) AND THE STATEMENT OF OPERATIONS FOR THE THREE
MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,350,656
<SECURITIES> 2,802,973
<RECEIVABLES> 137,916
<ALLOWANCES> 0
<INVENTORY> 71,317
<CURRENT-ASSETS> 5,474,234
<PP&E> 325,353
<DEPRECIATION> 68,067
<TOTAL-ASSETS> 6,460,586
<CURRENT-LIABILITIES> 364,252
<BONDS> 0
0
0
<COMMON> 57,500
<OTHER-SE> 6,038,834
<TOTAL-LIABILITY-AND-EQUITY> 6,460,586
<SALES> 88,004
<TOTAL-REVENUES> 88,004
<CGS> 38,573
<TOTAL-COSTS> 38,573
<OTHER-EXPENSES> 636,748
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 103
<INCOME-PRETAX> (587,317)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (587,317)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
