<PAGE>
As filed with the Securities and Exchange Commission on December 30, 1997.
Registration No. 333-_____
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NETVALUE, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
7319
(Primary Standard Industrial Classification Number)
23-2855659
(I.R.S. Employer Identification Number)
1960 Bronson Road, Building No. 2
Fairfield, Connecticut 06430
(203) 319-7000
(Address, Including Zip Code and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
Michael A. Clark, President
1960 Bronson Road, Building No. 2
Fairfield, Connecticut 06430
(203) 319-7000
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
Copies to:
Steve Wasserman, Esquire Michael C. Forman, Esquire
Bernstein & Wasserman Klehr, Harrison, Harvey,
950 Third Avenue Branzburg & Ellers LLP
New York, New York 10022 1401 Walnut Street
(212)826-0730 Philadelphia, Pennsylvania 19102
(215) 568-6060
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
-----------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Proposed Proposed Maximum Amount of
Title of Each Class of Securities Amount To Be Maximum Offering Aggregate Offering Registration
To Be Registered Registered Price Per Share Price Fee
====================================================================================================================================
<S> <C> <C> <C> <C>
Common Stock, $.001 par value 2,760,000 (1) $5.00 (2) $13,800,000 $4,071.00
====================================================================================================================================
</TABLE>
(1) Includes underwriter's over-allotment option.
(2) Estimated solely for purposes of calculating registration fee.
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 or until the Registration Statement shall become effective on
such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
NETVALUE, INC.
CROSS-REFERENCE TABLE
Pursuant to Item 501(b) of
Regulation S-K
<TABLE>
<CAPTION>
Item No. Form S-1 Caption Prospectus Caption
- -------- ---------------- ------------------
<S> <C> <C>
Item 1 Forepart of the Registration Facing Page of Registration Statement;
Statement and Outside Front Cover Cross Reference Sheet; Outside Front
Page of Prospectus Cover Page of Prospectus
Item 2 Inside Front and Outside Back Inside Front and Outside Back Cover
Cover Pages of Prospectus Pages of Prospectus; Available
Information
Item 3 Summary Information, Risk Factors Prospectus Summary; Risk Factors
and Ratio of Earnings to Fixed
Charges
Item 4 Use of Proceeds Prospectus Summary: Use of Proceeds
Item 5 Determination of Offering Price Risk Factors; Underwriting
Item 6 Dilution Dilution
Item 7 Selling Security Holders Not Applicable
Item 8 Plan of Distribution Underwriting
Item 9 Description of Securities to be Outside Front Cover Page of
Registered Prospectus; Prospectus Summary;
Market Price of and Dividends on the
Common Stock and Related
Shareholder Matters; Description of
Capital Stock
Item 10 Interests of Named Experts and Legal Matters; Experts
Counsel
Item 11 Information with Respect to the Prospectus Summary; Risk Factors;
Registrant Market Price of and Dividends on
Common Stock and Related Shareholder
Matters; Selected Financial Data;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Management;
Certain Transactions; Capital Stock
Item 12 Disclosure of Commission Position Not Applicable
on Indemnification for Securities
Act Liabilities
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED DECEMBER 30, 1997
PROSPECTUS
2,400,000 SHARES
NETVALUE, INC.
COMMON STOCK
netValue, Inc. ("netValue" or the "Company") hereby offers 2,400,000
shares of common stock, $.001 par value per share ("Common Stock"). It is
currently anticipated that the initial public offering price will be $5.00 per
share. See "Underwriting" for factors to be considered in determining the
initial public offering price.
Prior to this offering of Common Stock (the "Offering"), there has
been no public market for the Common Stock, and there can be no assurance that
following this Offering an active market for the Common Stock will develop. The
Company intends to apply for quotation of the Common Stock on The NASDAQ
SmallCap (the "SmallCap") Market. There is no assurance that this initial
application will be approved or, if it is approved, that the Company's listing
on the SmallCap will be maintained.
An investment in the Common Stock offered hereby involves a high
degree of risk. See "Risk Factors" beginning on page 5 hereof for a discussion
of certain matters that prospective purchasers should carefully consider.
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>
====================================================================================================================================
Underwriting Discounts
Price to Public and Commissions(1) Proceeds to Company(2)
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<S> <C> <C> <C>
Per Share . . . . . . . . . . . . . . . $ $ $
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Total(3) . . . . . . . . . . . . . . . $ $ $
====================================================================================================================================
</TABLE>
(1) Does not include additional compensation to be paid to J.B. Sutton Group,
LLC (the "Underwriter") in the form of (i) a nonaccountable expense
allowance of $360,000 ($414,000 if the over-allotment option referred to in
footnote 3 is exercised in full), (ii) the value of an option entitling the
Underwriter to purchase up to 240,000 shares of Common Stock at a price
equal to 120% of the offering price per share, exercisable for a period of
18 months commencing on the date of this Prospectus, or (iii) the payment
of $10,000 per month for a period of 18 months, commencing on the date of
this Prospectus, representing the full amount due under a consulting
arrangement pursuant to which the Underwriter is to render investment
banking advice to the Company. The Company has agreed to indemnify the
Underwriter against certain liabilities under the Securities Act of 1933,
as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated to be $300,000,
not including the Underwriter's nonaccountable expense allowance and
investment banking fees described in footnote 1 above.
(3) The Company has granted the Underwriter an option, exercisable within 30
days of the date of this Prospectus, to purchase up to 360,000 additional
shares on the same terms and conditions as set forth above solely to cover
over-allotments, if any. If the option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ , $ , and $ , respectively. See "Underwriting."
<PAGE>
The shares of Common Stock are being offered by the Underwriter on a
firm commitment basis, subject to a declaration by the Securities and Exchange
Commission (the "Commission") that the registration is effective, as specified
herein, and subject to receipt and acceptance by the Underwriter and its right
to reject any order in whole or part and to prior sale, withdrawal or
cancellation of the offer without notice. It is expected that delivery of the
shares of Common Stock will be made at the offices of J.B. Sutton Group, LLC in
New York, New York, on or about __________, 1998.
--------------
J.B. Sutton Group, LLC
1010 Northern Boulevard, Suite 214
Great Neck, New York 11021
(516) 498-2100 (Telephone)
(516) 498-2198 (Facsimile)
The date of this Prospectus is
<PAGE>
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-1 (such
registration statement, as the same may be amended and together with all
exhibits and schedules thereto, the "Registration Statement") with the
Commission under the Securities Act with respect to the securities offered
hereby. As permitted by the rules and regulations of the Commission, this
prospectus (the "Prospectus") does not contain all of the information contained
in the Registration Statement. For further information regarding both the
Company and the securities offered hereby, reference is made to the Registration
Statement, which may be inspected without charge at the public reference
facilities of the Commission's Washington, D.C. office, Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and its regional office located at 7 World
Trade Center, Suite 1300, New York, NY 10048. Copies may be obtained from the
Washington D.C. office public reference library upon request and payment of the
prescribed fee. Such reports and other information can be reviewed through the
Commission's Electronic Data Gathering Analysis and Retrieval System, which is
publicly available through the Commission's web site (http://www.sec.gov).
The Company will furnish to its stockholders annual reports containing
audited financial statements and quarterly reports containing unaudited
financial statements for the first three quarters of each year. The Company is
not currently subject to the periodic reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
-2-
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information, including "Risk Factors" and the financial statements and
notes thereto, appearing elsewhere in this Prospectus. Each prospective investor
is urged to read this Prospectus in its entirety. Unless otherwise indicated,
all information contained in this Prospectus, including share and per share
data, assumes (i) no exercise of the Underwriter's over-allotment option or any
other options or warrants outstanding as of the date hereof and (ii) no
conversion of any preferred stock outstanding as of the date hereof. See
"Description of Capital Stock."
The Company
netValue is a development stage company which provides electronic
commerce and database marketing services to Internet advertisers and publishers.
The Company's first product, Coupons OnlineTM, allows marketers to deliver
targeted, secure coupons and other incentives to consumers from any Internet web
site. Consumers use the Company's web-browser plug-in software to access and
print coupon offers from the web site of netValue's clients. The Company's
systems provide online targeting and validation for each consumer and coupon. In
July 1997, the Company commenced commercial operations of its Coupons Online(TM)
service.
The Company's second product, i-Value(sm), is a service to which
consumers subscribe to receive periodic "electronic packages" of incentives
delivered to their personal computers. Promotional offers can be individually
tailored to each consumer's product preferences and shopping habits. netValue
provides client retailers with consumer software, targeting, validation and
reporting services. The Company expects to commercially launch its i-Value(sm)
program in the second quarter of 1998.
The Company expects its principal customers and sources of revenue to
be national, regional and local retailers, manufacturers of consumer products,
service providers and online publishers. The Company's revenues are expected to
be generated through a combination of software licensing, promotion set-up and
transaction fees.
The Company was incorporated as a Delaware corporation on July 16,
1996 and is the successor by merger (the "Merger") to Coupons Online, L.L.C.
("COL"), a New Jersey limited liability company formed in December 1994 ("COL").
See "Certain Transactions - The Merger." The Company's address is 1960 Bronson
Road, Building No. 2, Fairfield, Connecticut 06430. Its phone number is (203)
319-7000. The Company's web site is located at www.netvalueinc.com.
The Offering
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered by the Company............................ 2,400,000 shares
Common Stock outstanding before the Offering(1)................ 10,686,006 shares
Common Stock to be outstanding after the Offering(1)........... 13,086,006 shares
Use of proceeds by the Company................................. The Company plans to use the net proceeds from
this Offering, estimated to be $10,140,000, in the
following approximate amounts: $4,500,000 to
repay short term notes payable including interest,
$1,600,000 to repay outstanding accounts payable
due and $4,040,000 to provide funds for working
capital and general corporate purposes. See "Use
Of Proceeds."
</TABLE>
- -----------------------
(1) Does not include 2,576,500 shares of Common Stock issuable upon the
exercise of outstanding options and warrants, 150,000 shares of Common
Stock issuable to Rozel International Holdings Limited upon the
satisfaction of an obligation to purchase 300,000 shares of Preferred
Stock, 10,000 shares of Common Stock issuable to Golden Eagle
Partners, a creditor of the Company, and 360,000 shares of Common
Stock issuable upon the exercise of the Underwriter's over-allotment
option.
-3-
<PAGE>
Summary of Selected Financial Data
The following summary of selected financial data should be read in
conjunction with the financial statements and notes thereto appearing elsewhere
herein.
<TABLE>
<CAPTION>
December 16, December 16,
1994 1994
(inception) Nine Months Nine Months (inception)
through Year Ended Year Ended Ended Ended through
December 31, December 31, December 31, September 30, September 30, September 30,
1994 1995 1996 1996 1997 1997
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data (1)
Loss from operations $(17,142) $(746,945) $(3,316,522) $(998,374) $(6,090,727) $(10,171,336)
Net interest income
(expense) --- (615) 2,428 2,316 (720,338) (718,575)
Net loss (17,142) (747,560) (3,314,094) (996,058) (6,811,065) (10,889,861)
September 30, 1997
------------------------------------
Actual As Adjusted (2)
------------- ---------------
Balance Sheet Data (1)
Working capital (deficit) $(3,769,538) $6,263,154
Total assets 747,879 8,007,324
Total liabilities 6,375,387 1,054,174
Notes payable and accrued interest 3,773,213 ---
Stockholders' equity (deficit) (5,627,508) 6,953,150
</TABLE>
(1) The historical financial data for the period from January 1, 1996 to
September 18, 1996 and for the years prior to 1996 represents historical
financial data for COL (predecessor to the Company). See Notes 1 and 2 of
Notes to Financial Statements.
(2) Adjusted to reflect borrowings, conversion and repayment of certain notes
payable and accrued interest; the sale of the shares of Common Stock from
the assumed public offering and the application of the net proceeds
thereof. Does not include (i) 360,000 shares of Common Stock issuable upon
the exercise of the Underwriter's over-allotment option and (ii) 2,576,500
shares of Common Stock issuable upon the exercise of outstanding options
and warrants, 150,000 shares of Common Stock issuable to Rozel
International Holdings Limited upon the satisfaction of an obligation to
purchase 300,000 shares of Preferred Stock, and 10,000 shares of Common
Stock issuable to Golden Eagle Partners, a creditor of the Company. See
"Use of Proceeds," "Capitalization" and "Underwriting."
-4-
<PAGE>
FORWARD-LOOKING STATEMENTS
This Prospectus contains "forward-looking" statements regarding
potential future events and developments affecting the business of the Company.
Such statements relate to, among other things, (i) competition for customers for
its products and services; (ii) the uncertainty of developing or obtaining
rights to new products that will be accepted by the market and the timing of the
introduction of new products into the market; and (iii) other statements about
the Company's role in the online services industry.
The Company's ability to predict the results or the effect of any
pending events on the Company's operating results is inherently subject to
various risks and uncertainties, including: competition for users of the
Company's products and services; the risks of doing business via the Internet;
the uncertainty of developing or obtaining rights to new products and services
that will be accepted by the market; and the effects of government regulations
on the Company's business. Actual results in all likelihood will differ from
those projected in the forward-looking statements included in this Prospectus,
and such differences may be material.
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk and
should be considered only by persons who can afford the loss of their entire
investment. The following risk factors should be considered carefully, in
addition to the other information contained in this Prospectus, in evaluating
the Company and its business prospects and an investment in the Common Stock.
RISKS RELATED TO THE COMPANY
Development Stage Company; Limited Operating History; Significant Cumulative
Operating Losses; Auditor Report Modification for Going Concern
The Company was formed on July 16, 1996 and is the successor by merger
(the "Merger") to Coupons Online, L.L.C. ("COL") which was formed in December
1994. See "Certain Transactions - The Merger." Since its formation, the Company
has been in the development stage and its activities have been primarily limited
to developing and promoting Coupons Online(TM) and i-Value(sm), its online
targeted incentive distribution programs (collectively, the "Programs"). For a
more complete description of the Programs, see "Business."
From inception through the date hereof, the Company has generated funds
primarily through the sale of its securities and debt financing transactions.
The auditor's report includes a modification that indicates that the Company's
dependence on outside financing, negative working capital and losses since
inception raise substantial doubt about the Company's ability to continue as a
going concern. See "Financial Statements." Since its inception, the Company has
not generated any revenues from operations. For the years ended December 31,
1995 and December 31, 1996 and for the nine months ended September 30, 1997, the
Company incurred net losses of $747,560, $3,314,094 and $6,811,065 (unaudited),
respectively. From its inception on December 16, 1994 through September 30,
1997, the Company has incurred an accumulated deficit of $10,889,861
(unaudited). Operating losses are anticipated to continue through at least
December 31, 1998. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Accordingly, the Company has an extremely
limited operating history upon which an evaluation of the Company's prospects
can be made. The Company's prospects must be considered in light of the risks,
expenses and difficulties encountered by a development stage company. There is
currently no basis upon which to assume that the Company's products and services
will prove financially profitable or generate more than nominal operating
revenues. Until sufficient cash flow is generated from operations, the Company
will have to utilize its capital resources or external sources of funding, if
available, to satisfy its working capital needs and/or to make the required
payments on the Company's outstanding indebtedness. See "Need for Additional
Financing." There can be no assurance that the Company will be able to continue
to sell additional equity securities or enter into additional debt financings.
If the Company fails to generate increased revenues and/or fails to sell
additional securities, investors may lose all or a substantial portion of their
investment.
-5-
<PAGE>
Need for Additional Financing
In addition to the proceeds of this Offering, the Company anticipates
that it will need significant additional financing to support its operations and
satisfy its working capital needs. As of September 30, 1997, the Company had a
working capital deficit of $3,769,538 (excluding the $2,547,966 of principal and
accrued interest outstanding of senior secured indebtedness of the Company,
which was converted into 3,222,877 shares of Common Stock of the Company in
November 1997). The amount of additional financing required to fund the
Company's operations and working capital needs will depend upon the timing of
the Company's expenditures to develop, test and introduce new products and the
availability of cash flow from the Company's operations. Such financing may
involve the issuance of debt or equity securities, or a combination thereof. Any
additional equity financing may cause substantial dilution to the Company's book
value per share and the ownership percentage of the Company's current
stockholders. There can be no assurance that additional financing will be
available to the Company at the times or on terms desirable to the Company, or
at all. The failure of the Company to obtain such additional financing would
require the Company to modify its business plan and would require the Company to
cease operations and liquidate. It is likely that a liquidation by the Company
would result in a total loss to the Company's stockholders.
No Assurance of Protection of Patents and Proprietary Technology
The Company's success may depend in part on its ability to obtain patent
protection for its technology, to preserve its trade secrets and to operate
without infringing on the proprietary rights of third parties. While none of the
Company's technology is patented, the Company has applied for a patent entitled
"Method and Distribution of Product Redemption Coupons." The Company believes it
will use the technology that is the subject of this patent application to
distribute coupons and/or other promotional vehicles to consumers via commercial
online services and via the Internet. The Company may file additional patent
applications as it deems appropriate. There can be no assurance that the patents
applied for will be reviewed timely, that any patents will issue or that any
patents issued will afford meaningful protection against competitors with
similar technology or that any patents issued will not be challenged by third
parties. The Company cannot be certain that others will not independently
develop similar technologies, duplicate the Company's technologies or design
around the Company's technologies, whether or not patented. At any point in
time, the Company may not have sufficient resources to maintain a patent
infringement lawsuit should anyone be found or believed to be infringing upon
its patents, if any. There also can be no assurance that the technology
ultimately used by the Company will be covered by any patent issued from its
pending patent application or other patent applications which it may file. Many
patents and patent applications have been filed by third parties with respect to
online technology. The Company does not believe that its technology infringes on
the patent rights of third parties. However, there can be no assurance that
certain aspects of the Company's technology will not be challenged by the
holders of such patents or that the Company will not be required to license or
otherwise acquire from third parties the right to use certain technology. The
failure to overcome such challenges or obtain such licenses or rights on
acceptable terms could have a material adverse effect on the Company.
Many of the processes and much of the know-how of importance to the
Company's technology are dependent upon the skills, knowledge and experience of
its technical personnel, consultants and advisors and such skills, knowledge and
experience are not patentable. To help protect its rights, the Company requires
employees, significant consultants and advisors with access to confidential
information to enter into confidentiality agreements with the Company. There can
be no assurance, however, that these agreements will provide adequate protection
for the Company's trade secrets, know-how or proprietary information in the
event of any unauthorized use or disclosure. There can be no assurance that the
Company will be able to obtain a license for any technology that it may require
to conduct its business or that, if obtainable, such technology can be licensed
at a reasonable cost. The cost of obtaining and enforcing patent protection and
of protecting proprietary technology may involve a substantial commitment of the
Company's resources. Any such commitment may divert resources from other areas
of the Company. The Company may be required to license or sublicense certain
technology or patents in order to commence or continue operations. There can be
no assurance that the Company will be able to obtain any necessary licenses or
to do so on satisfactory terms. In addition, the Company could incur substantial
costs in defending itself against suits brought by other parties for
infringement of intellectual property rights. See "Business - Patents and
Proprietary Rights."
-6-
<PAGE>
Competition
The Company faces significant competition from many consumer promotion
and advertising companies which compete, directly or indirectly, for consumer
advertising and promotion business from advertisers and for consumers' time and
attention. Many of these advertising and promotion companies have longer
operating histories, greater market presence, and substantially greater
financial and other resources than the Company. Many of these companies,
including Catalina Marketing Corporation, Money Mailer, Val-Pak Direct Marketing
Systems and Interactive Coupon Network, have initiated or are planning to
initiate programs and services involving the Internet. Additionally, the
Internet is a relatively new format upon which retailers and consumers conduct
business. As the Internet evolves and consumers gain greater confidence in the
Internet and other means of electronic commerce, it is likely that competition
will increase. Accordingly, there can be no assurance that competition will not
increase from existing competitors, that established or new companies will not
enter the market, that competitors will not offer comparable products and
services at lower prices than the Company, or that the Company will be able to
compete successfully with such existing or new competitors.
Significant Indebtedness
The Company currently has significant indebtedness in the aggregate
principal amount of approximately $6,100,000, $4,500,000 of which constitutes
short-term notes and accrued interest thereon, and approximately $1,600,000 of
which consists of past due accounts payable as of December 19, 1997. The Company
intends to use a portion of the net proceeds from this Offering to repay all
such indebtedness. See "Use of Proceeds."
Reliance on Key Personnel
The Company is dependent upon the continuing services of its executive
officers, particularly Michael A. Clark, its President and Chief Executive
Officer and Richard F. Davey, its Vice President and Chief Technology Officer
and certain other key employees. The Company is also dependent upon certain
other officers who possess specialized knowledge and experience relating to the
Company's technology, markets and sales. The Company does not presently maintain
or intend to obtain key-man insurance on any of its executive officers. There
can be no assurance that such individuals will continue their relationship with
the Company. In the event that any of these individuals terminate their
relationship with the Company or otherwise cease to be affiliated with the
Company and acceptable replacements are not identified, there could be a
material adverse effect on the Company's business and prospects. See "Business
Executive Compensation - Employment Agreements and Other Matters." Additionally,
there can be no assurance that suitable replacements could be hired without the
Company incurring substantial additional costs, or at all. The success of the
Company is also dependent upon its ability to attract and retain highly
qualified technical, managerial and marketing personnel. The Company faces
competition for such personnel from other entities, many of which have
significantly greater resources than the Company. There can be no assurances
that the Company will be able to recruit and retain such personnel.
Dependence on Third Party Providers
The Company has historically been, and in the future will be, dependent
on unaffiliated service providers to carry out its business plan. In connection
therewith, the Company has entered into an agreement with DMR Trecom, Inc.
("Trecom") to develop core software for the Company and perform the Company's
initial systems integration. The development and integration of the Company's
core software and operating systems is crucial to the financial viability of the
Company. In June 1997, in response to the Company's failure to satisfy certain
invoices of Trecom for services rendered to the Company, Trecom discontinued
work on the Company's software. Trecom recommenced such work following execution
of an agreement pursuant to which the terms of payment were restructured. A
failure by Trecom to develop such core software and/or to complete the Company's
initial systems integration on a timely basis, or at all, or any failure by
other significant third party service providers to provide required services,
could have a material adverse effect on the business and prospects of the
Company. See "Financial Statements; Business - General."
Rapid Technological Changes
The online services industry is subject to rapid and significant changes
in technology. Such changes could lead to new products and services that compete
with Coupons Online(TM) or other products proposed to be offered by the Company
or could lower the cost of current competing products and services to the point
where the Company's products and services could become non-competitive and the
Company could be required to reduce the prices of its services. While the
Company is not aware of any technology changes that would materially affect the
attractiveness and effectiveness of its proposed products and services, the
effect of technological changes on the business of the Company cannot be
predicted. In the event that the Company is unable to continue to upgrade its
products and services, it will be unable to provide the types of products and
services demanded by consumers of online services.
-7-
<PAGE>
Government Regulation
The Company's operations are subject to various federal, state and local
laws and the supervision of various regulatory authorities, including the
Federal Trade Commission, with respect to the Company's advertising and
promotion services, and the Federal Communications Commission and individual
state utility commissions, with respect to those elements of the Company's
operations which involve telecommunications. Based on current laws and
regulations, the Company does not believe there are any legal or regulatory
impediments to the Company's operations as presently contemplated. However,
applicable legal and regulatory environments are subject to change and there can
be no assurance that future federal, state and local laws and/or regulations
will not be enacted which would have a material adverse effect on the Company's
business.
RISKS RELATED TO THE OFFERING
Arbitrary Determination of Offering Price
The offering price of the Common Stock has been determined solely by
negotiation between the Company and the Underwriter. In determining the offering
price, the Company and Underwriter considered, among other things, estimates of
the business potential of the Company and the relative capabilities of the
management of the Company. The offering price does not necessarily bear any
relationship to assets, book value, net worth or earnings history of the Company
or other investment criteria. The offering price of the Common Stock should not
necessarily be considered an indication of the actual value of the Company's
securities. See "Underwriting."
Lack of Public Market; Possible Volatility of Stock Price; No Assurance that
Listing on NASDAQ SmallCap will be Approved or Maintained
Prior to this Offering there has been no public market for the Common
Stock of the Company and there can be no assurance that an active trading market
will develop or be sustained after this Offering. See "Underwriting." The market
prices of securities of emerging growth companies have historically been highly
volatile. Factors having a significant effect on the market price of the Common
Stock include fluctuation in the Company's operating results, announcement of
technical innovations or new commercial products by the Company or its
competitors, governmental regulation, developments in patent or other
proprietary rights, developments in the Company's relationships with current or
future collaborative partners and general market conditions.
An application is being prepared and will be made to have the Common
Stock approved for quotation on the SmallCap. The National Association of
Securities Dealers, Inc. ("NASD") has recently enhanced the requirements for
both initial and continued listing on the SmallCap. Accordingly, there can be no
assurance that the NASD will approve the Company's application for initial
listing on the SmallCap or that the Company will meet the requirements to
maintain its listing on the SmallCap. In either of these situations, the
development of a public market for the Company's Common Stock will be greatly
delayed as its only alternative will be to initiate quotations of the Company's
Common Stock in the OTC Bulletin Board Service, the NQB Pink Sheets, or another
comparable quotation medium.
Dividends
No assurance can be given that the proposed operations of the Company
will be profitable. No dividends have been paid by the Company since inception
and the payment of dividends on the Common Stock is not contemplated in the
foreseeable future. The payment of future dividends will be directly dependent
upon the earnings of the Company, its financial needs and other similarly
unpredictable factors. Earnings, if any, are expected to be retained to finance
and develop the Company's business. See "Market Price and Dividends on the
Common Stock and Related Stockholder Matters."
-8-
<PAGE>
Immediate Substantial Dilution
Investors who purchase shares of Common Stock in this Offering will
experience an immediate and substantial dilution in the net tangible book value
per share of the Common Stock of $4.47 per share, approximately an 89% decrease
from the assumed public offering price of $5.00 per share. See "Dilution."
Control by Stockholders; Anti-Takeover Effect of Bylaws
Prior to this Offering, as of the date of this Prospectus, executive
officers and directors of the Company and other significant stockholders
own approximately 59.9% of the issued and outstanding shares of Common Stock.
Accordingly, if such persons act together they will be able to control the Board
of Directors and to direct the affairs of the Company. Following the
consummation of this Offering, as of the date of this Prospectus, executive
officers and directors of the Company and other significant stockholders will
own approximately 48.9% of the issued and outstanding shares of Common Stock.
Accordingly, these persons, if they act together, will be able to exert
significant influence over the Board of Directors and the direction of the
affairs of the Company.
The Company's Bylaws contain certain provisions which may be deemed to
have an anti-takeover effect and may discourage takeover attempts not first
approved by the Board of Directors (including takeovers which some stockholders
may deem to be in their best interests). These provisions could delay or
frustrate the removal of incumbent directors or the assumption of control by an
acquirer, even if such removal or assumption of control would be beneficial to
stockholders. These provisions also could discourage or make it more difficult
to consummate a merger, tender offer or proxy contest, even if such events would
be beneficial, in the short term, to the interest of stockholders. These
provisions include a classified Board of Directors serving staggered three-year
terms and the ability of the Board of Directors to issue and determine the terms
of preferred stock.
Shares Eligible for Future Sale
Sales of substantial amounts of Common Stock in the public market, if
any, or the prospect of such sales could materially adversely affect the market
price of the Common Stock, depending on the timing of such sales. Additionally,
sales of shares of Common Stock issuable upon conversion or exercise of
securities convertible into or exercisable for Common Stock may effect a
dilution of the book value per share of Common Stock. For a description of the
Company's shares of Common Stock eligible for future sale, see "Shares Eligible
for Future Sale."
Possible Negative Effects of Preferred Stock
The Company's Amended and Restated Certificate of Incorporation
authorizes the issuance of Preferred Stock in one or more series and grants the
Company's board of directors broad authority to determine the voting powers,
designations, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions of such series to
the fullest extent permitted by the laws of the State of Delaware. Upon the
completion of this Offering, 22,500 shares of Series A Convertible Preferred
Stock will be issued and outstanding, 277,500 shares of Series A Convertible
Preferred Stock will be reserved for issuance, and 700,000 shares of Preferred
Stock will remain authorized, undesignated and unissued. Accordingly, the
Company's board of directors is empowered, without stockholder approval, to
issue Preferred Stock with dividend, liquidation, conversion, voting or other
rights that could adversely affect the voting power or other rights of the
holders of Common Stock. Although there is no present intention to issue any
shares of the Company's Preferred Stock, there can be no assurance that the
Company will not do so in the future. See "Description of Capital Stock -
Preferred Stock."
Broad Discretion Over Use of Proceeds
Approximately $6,100,000 of the estimated net proceeds of this Offering
will be used to repay short term promissory notes, including the interest
accrued thereon, and repayment of commercial accounts payable. The remaining
$4,040,000 of estimated net proceeds of this Offering will be used for working
capital purposes. The Company has provided an estimate of its expected needs and
anticipated uses of the proceeds based upon its current plans and certain
assumptions. If these plans or assumptions change, the Company reserves the
right to modify or reallocate its use of these proceeds. Accordingly, the
Company will have broad discretion as to the application of such proceeds. See
"Use of Proceeds."
-9-
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,400,000 shares of
Common Stock offered hereby, at an assumed initial public offering price of
$5.00 per share, and after deducting underwriting discounts, commissions and
expenses of $1,560,000, and other expenses of the Offering in the amount of
$300,000, are estimated to be approximately $10,140,000 ($11,706,000 if the
Underwriter's over-allotment option is exercised in full). At this time, the
Company plans to use the net proceeds of this Offering as follows:
<TABLE>
<CAPTION>
<S> <C>
Repayment of Short Term Promissory Notes, including interest.............................................$4,500,000
Repayment of Commercial Accounts Payable.................................................................$1,600,000
Working Capital Purposes:
Research and Development $1,131,000
Sales and Marketing $1,455,000
Systems and Operations $ 444,000
General and Administrative $ 566,000
Capital Expenditures $ 444,000
-----------
$4,040,000
----------
TOTAL...................................................................................................$10,140,000
===========
</TABLE>
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations." Pending its use for the foregoing purposes, the Company intends to
invest the proceeds of the Offering in investment grade short-term,
interest-bearing obligations.
The allocation of net proceeds set forth in the table above represents
the Company's current estimates of its anticipated needs and is based upon its
current plans and certain assumptions. If any of these factors or assumptions
change, the Company reserves the right to reallocate some or all of the proceeds
within the above-listed categories or use all or portions thereof for other
purposes. See "Risk Factors - Broad Discretion in Application of Proceeds."
The proposed repayment of short-term promissory notes relates to the
following:
1. Promissory notes (the "Notes") in the aggregate principal amount of
$4,025,000 that were sold in two separate debt/equity financing transactions
which the Company completed in October and early December 1997. The Notes are
unsecured subordinated obligations of the Company which accrue interest at the
rate of 10% per annum (upon the occurrence of an event of default, the interest
rate increases to 15%). All principal and accrued interest due and payable on
the Notes is payable in full on the earlier of (i) the one year anniversary of
their date of issuance and (ii) five days after the consummation by the Company
of any of the following transactions which provide gross proceeds to the Company
of at least $3,000,000: (a) the Offering, (b) an offering of the Company's
capital stock, (c) the sale of all, or a portion, of the Company's assets or (d)
the licensing of all, or a portion, of the Company's intellectual property
rights to a third party. The proceeds of these financings were used to pay past
due accounts payable and to satisfy other working capital requirements.
2. A promissory note in the principal amount of $250,000 that relates to
a senior secured loan made by Golden Eagle Partners ("Golden Eagle") to the
Company on June 17, 1997. The promissory note accrues interest at the rate of
10% per annum (upon the occurrence of an event of default, the interest rate
increases to 15%). All principal and accrued interest due and payable on the
promissory note is payable in full within five business days of the Company's
receipt of proceeds from this Offering. In exchange for Golden Eagle's agreement
to release any conversion and registration rights it had under its Loan and
Security Agreement, the Company has agreed to issue 10,000 shares of its Common
Stock to Golden Eagle at the time it repays the principal amount and accrued
interest due under the promissory note.
-10-
<PAGE>
MARKET PRICE AND DIVIDENDS ON THE
COMMON STOCK AND RELATED STOCKHOLDER MATTERS
There currently is no trading market for the Common Stock. As of
December 19, 1997, there were approximately 250 record holders of the Common
Stock.
The Company has never paid any dividends on the Common Stock and
anticipates that for the foreseeable future all earnings, if any, will be
retained for the operation and expansion of its business. Accordingly, the
Company does not anticipate paying any cash dividends in the foreseeable future.
See "Risk Factors-Risks Related to the Offering-Dividends."
CAPITALIZATION
The following table sets forth the total capitalization of the Company
at September 30, 1997 and the as adjusted capitalization at September 30, 1997
assuming the conversion of notes payable to Common Stock amounting to 3,222,877
shares, the issuance of 190,200 shares of Common Stock to a creditor of the
Company in exchange for entering and forbearing on the collection of a loan,
borrowings of $4,025,000 and the issuance of 402,500 shares of Common Stock as a
borrowing cost in October, November and December 1997, repayment of an aggregate
of $5,020,000 of notes and loans payable including accrued interest thereon,
receipt of proceeds from the issuance of $225,000 of Preferred Stock and the
sale of the 2,400,000 shares of Common Stock offered hereby at the assumed
public offering price of $5.00 per share net of Offering costs of $1,860,000.
See "Use of Proceeds."
<TABLE>
<CAPTION>
September 30, 1997
--------------------------------
Actual As Adjusted
------ -----------
<S> <C> <C>
Notes and loans payable (inclusive of accrued interest) $3,773,213 $ --
Stockholders' equity
Preferred Stock, par value $.001 -
1,000,000 shares authorized, 0 actual, and 22,500 as
adjusted, respectively, issued and outstanding -- 23
Common stock, par value $.001 -
24,000,000 shares authorized, 6,870,429 actual, and 13,086,006 as
adjusted, respectively, issued, issuable and
outstanding 6,870 13,086
Additional paid-in capital 5,255,483 18,975,445
Deficit accumulated during the development stage (1) (10,889,061) (12,035,404)
Total stockholders' equity (deficit) (5,627,508) 6,953,150
Total capitalization (1,854,295) 6,953,150
</TABLE>
-11-
<PAGE>
(1) Includes prepaid financing fees assumed to be expensed upon the
repayment of certain notes and loans payable and interest incurred on
such notes and loans payable from September 30, 1997 until the expected
date of repayment, which approximates the date of the consummation of
the public offering.
(2) Does not include 2,576,500 shares of Common Stock issuable upon exercise
of outstanding options and warrants, 150,000 shares of Common Stock
issuable to Rozel International Holdings Limited upon the satisfaction
of an obligation to purchase 300,000 shares of Preferred Stock, 10,000
shares of Common Stock issuable to Golden Eagle Partners, a creditor of
the Company, and the Underwriter's over-allotment option.
-12-
<PAGE>
DILUTION
The net tangible book value (deficit) of the Company at September 30,
1997 was ($5,642,479), or ($.82) per share of Common Stock. Net tangible book
value per share is determined by subtracting total liabilities from total assets
less intangible assets of $4,971 and prepaid expenses of $10,000, divided by the
number of outstanding shares of Common Stock. Assuming the conversion of notes
payable to Common Stock amounting to 3,222,877 shares, the issuance of 190,200
shares of Common Stock to a creditor of the Company in exchange for entering and
forbearing on the collection of a loan, repayment of an aggregate of $5,020,000
of notes and loans payable including accrued interest thereon, receipt of
proceeds from the issuance of $225,000 of Preferred Stock, and 2,400,000 shares
of Common Stock offered hereby had been sold by the Company at the initial
public offering price of $5.00 per share, the net tangible book value of the
Company at that date (after deducting estimated underwriter's discounts and
commissions and other offering expenses of $1,860,000) would have been
$6,968,121 or $.53 per share. This represents an immediate increase in net
tangible book value per share of $1.35 to the existing stockholders and an
immediate dilution of $4.47 per share to the new investors as illustrated in the
following table:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed public offering price per share $5.00
Net tangible book value (deficit) per share before Offering ($.82)
Increase per share attributable to new investors 1.35
------
Pro forma net tangible book value per share after Offering .53
-------
Immediate dilution to new investors $4.47
=====
</TABLE>
The following table summarizes on a pro forma basis as of September 30,
1997, the number of shares of Common Stock issued by the Company, the total
consideration received by the Company and the average price per share paid by
existing stockholders and to be paid by purchasers of the Common Stock offered
hereby (before deducting offering expenses and underwriting discounts and
commissions) at an assumed offering price of $5.00 per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
Per Share
Number Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C>
Existing common stockholders (1)..... 10,686,006 81.7% $6,344,391 34.6% $ .59
New investors....................... 2,400,000 18.3 12,000,000 65.4 $5.00 (2)
---------- ------- ---------- ----- ---------
Total............................. 13,086,006 100% $18,344,391 100% $ 1.40
========== ===== =========== ===== ======
</TABLE>
- ---------------------------
(1) Includes 4,415,577 shares of Common Stock issued subsequent to September
30, 1997.
(2) Assumed initial public offering price of $5.00 per share.
-13-
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below for each of the periods
ended December 31, 1994, 1995 and 1996 have been derived from the Company's
audited financial statements. The financial data for the periods ended September
30, 1997 and 1996 have been derived from financial statements which have not
been audited, but which, in the opinion of management, include all adjustments
necessary for a fair presentation of such data. The results of operations for
the nine months ended September 30, 1997 are not necessarily indicative of the
results for the full year. The selected financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Financial Statements."
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months Ended September 30,
December 16, 1994 ---------------------- ----------------------------- December 16, 1994
(inception) through (inception) through
December 31, 1994 1995 1996 1996 1997 September 30, 1997
----------------- ---- ---- ---- ---- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Operating Expenses
Compensation and $ -- $ 131,174 $ 742,545 $ 374,737 $ 1,957,371 $ 2,831,090
related expenses
Professional fees -- 38,436 399,356 325,945 226,290 664,082
Advertising -- 236,775 219,760 10,965 777,058 1,233,593
Consulting -- 9,492 869,693 164,566 480,491 1,359,676
Research and
development
expenses -- 142,224 809,491 75,365 1,898,258 2,849,973
Depreciation and
amortization -- 7,570 13,148 5,500 125,030 145,748
Other general and
administrative 17,142 181,274 262,529 41,296 626,229 1,087,174
------------ ------------ ------------ ------------ ------------ ------------
Loss from Operations (17,142) (746,945) (3,316,522) (998,374) (6,090,727) (10,171,336)
Interest Income -- 1,405 4,953 4,841 -- 6,358
Interest Expense -- (2,020) (2,525) (2,525) (157,338) (161,883)
Financing Fees -- -- -- -- (523,000) (523,000)
------------ ------------ ------------ ------------ ------------ ------------
Net Loss $ (17,142) $ (747,560) $ (3,314,094) $ (996,058) $ (6,811,065) $(10,889,861)
============ ============ ============ ============ ============ ============
Net Loss Per Share Data
Net loss per common
and common
equivalent shares $ (.63)
============
Weighted average number
of common and
common equivalent
shares outstanding used
in the computation 10,870,861
==========
Pro forma Information
(Unaudited)
Net Loss (17,142) (747,560) (3,314,094)
Pro forma Tax Provision -- -- --
------------ ------------ ------------
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months Ended September 30,
December 16, 1994 ----------------------- ------------------------------- December 16, 1994
(inception) through (inception) through
December 31, 1994 1995 1996 1996 1997 September 30, 1997
----------------- ---- ---- ---- ---- ------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Pro forma Net Loss (17,142) (747,560) (3,314,094)
======== ======== ==========
Net Loss Per Share Data
Net loss per common and
common equivalent
shares $ (.42)
===========
Weighted average number
of common and
common equivalent
shares outstanding used
in the computation 7,924,083
===========
December 31, 1995 December 31,1996 September 30, 1997
----------------- ---------------- ------------------
(Unaudited)
Balance Sheet Data
Cash and cash equivalents $ 2,407 $299,351 $ 26,391
Working capital (deficit) (306,910) (792,841) (3,769,538)
Total assets 29,615 794,592 747,879
Total liabilities 309,317 1,099,684 6,375,387
Notes payable and accrued interests -- -- 3,773,213
Stockholders' deficit (279,702) (305,092) (5,627,508)
</TABLE>
-15-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the financial
statements, including the notes thereto, of the Company contained elsewhere in
this Prospectus.
The Company was formed on July 16, 1996 for the purposes of merging with
COL and developing and marketing online coupons. See "Certain Transactions -
Organization of the Company." The business and assets of COL were acquired by
the Company through merger on September 19, 1996. See "Certain Transactions -
The Merger." The Company is in the development stage. See "Business."
Twelve Months Ended December 31, 1996 Compared to the Twelve Months
Ended December 31, 1995. The Company did not generate any revenues in 1996 or
1995. The Company was operated as a limited liability company until its
restructuring as a Delaware corporation in September 1996. The Company's
principal focus in 1995 was business concept development and activities
associated with raising capital. The Company continued to focus on these
principal activities in 1996 until the restructuring and infusion of capital in
September 1996. Subsequent to the restructuring, the Company commenced business
planning, market research, product development, sales and marketing, and
operational infrastructure building activities.
The Company incurred a net loss of $3,314,094 in 1996 compared to a net
loss of $747,560 in 1995. This $2,566,534 increase in net loss was primarily
attributable to the costs associated with the restructuring and the commencement
of product and market development activities. Ninety-seven percent of the total
increase in net loss can be accounted for by increases in four categories of
operating expenses, as follows:
Compensation and related expenses increased from $131,174 in 1995 to
$742,545 in 1996, representing additional payroll costs related to the
implementation of a management team and an operational infrastructure.
Professional fees increased from $38,436 in 1995 to $399,356 in 1996,
primarily due to the restructuring and related capital raising activities.
Consulting expenses increased from $9,492 in 1995 to $869,693 in 1996,
primarily reflecting implementation of the Company's strategy of outsourcing
certain marketing functions in order to focus internal efforts on product
development and to reduce initial infrastructure requirements.
Research and development expenses increased from $142,224 in 1995 to
$809,491 in 1996 due to the commencement of product development activities.
Nine Month Period Ended September 30, 1997 Compared to Nine Month Period
Ended September 30, 1996. There were no revenues for the nine months ended
September 30, 1997, nor were any revenues generated during the same period of
1996.
The Company initiated commercial operation of its first product and
service, Coupons Online(TM), in mid-July 1997 and believes it will recognize its
first revenues during the quarter ending March 31, 1998. As the Company is in
the early stage of commercial operations with respect to its first product,
management does not believe it is possible to draw conclusions from these
results with respect to future revenue potential of its products. See
"Business." The Company incurred a net loss of $6,811,065 during the nine months
ended September 30, 1997, compared to a net loss of $996,058 for the comparable
period in 1996. This $5,815,007 increase reflects primarily the change in focus
from concept development to actual product and business development and charges
to earnings taken as a result of certain restructuring activities. See "Business
- - Program Development."
Compensation and related expenses increased from $374,737 during the
nine months ended September 30, 1996 to $1,957,371 during the nine months ended
September 30, 1997 as the Company increased staffing levels from 8 full-time
employees to 20 full-time employees in order to commence product development,
marketing and sales activities.
-16-
<PAGE>
Professional fees decreased from $325,945 during the nine months ended
September 30, 1996 to $226,290 during the nine months ended September 30, 1997
primarily due to the accounting and legal fees incurred in 1996 related to
restructuring and capital raising activities that occurred in September 1996.
Consulting expenses increased from $164,566 during the nine months ended
September 30, 1996 to $480,491 during the nine months ended September 30, 1997,
primarily reflecting continued implementation of the Company's strategy of
outsourcing certain marketing functions in order to focus internal efforts on
product development and to reduce initial infrastructure requirements.
Advertising expenses increased from $10,965 during the nine months ended
September 30, 1996 to $777,058 during the nine months ended September 30, 1997.
This increase was due to the initiation of advertising and promotional campaigns
to support the introduction of the Company's products, the first of which,
Coupons OnlineTM, commenced commercial operations in July 1997.
For the nine months ended September 30, 1997, the Company incurred
$1,898,258 in research and development expenses compared to $75,365 for the same
period in 1996. The Company intends to continue to devote significant funds to
research and development activities and believes that incurring these expenses
will be necessary in order for the Company's products and services to
successfully compete in its markets, each of which is characterized by rapid
technological change. Interest expense increased to $157,338 for the period
ended September 30, 1997 from $2,525 for the comparable period in 1996,
reflecting the Company's use of various forms of debt financing to fund its
development and operations. During the nine months ended September 30, 1997, the
Company incurred $563,000 in stock based financing fees related to the issuance
of an aggregate of 330,200 shares of Common Stock to various lenders as an
inducement for them to either enter into or forbear on the collection of various
loans which were made to the Company.
As of September 30, 1997, the Company had an accumulated deficit of
$10,889,861. The Company believes approximately $8,010,000 of this amount will
be available to offset future taxable income, if any. See Note 5 to the
Company's financial statements included herein. The Company anticipates that it
will continue to incur significant net operating losses for the remainder of
1997 and through 1998.
Coupons Online L.L.C.
COL was formed on July 16, 1994 and ceased operations on September 19,
1996 upon its merger into the Company. COL's objective was to develop and
commercialize an approach to delivering coupons via various online networks such
as America OnLine, CompuServe and Prodigy.
COL did not generate any revenues during that period and incurred net
losses of $1,749,138, principally from activities associated with testing its
concept, defining its business development requirements and plans and seeking
capital. When it ceased operations on September 19, 1996, COL had an accumulated
deficit of $1,749,138.
Changes in Financial Position, Liquidity and Capital Resources
The funds utilized to sustain the Company's developmental activities and
initial commercial operations have been obtained principally through the sale of
the Company's Common Stock, as well as related and third-party debt
transactions. During the period from January 1, 1997 through September 30, 1997,
the Company received an aggregate of $590,000 in gross proceeds through the sale
of 295,000 shares of Common Stock in private offerings.
As of September 30, 1997, the Company had cash available of $26,391 for
operating expenses and capital equipment purchases; however, at that date, the
Company had accounts payable of $2,117,257, short-term debt of $1,216,000 and
accrued expenses of $484,917.
Since September 30, 1997, the Company has received gross proceeds of
$4,025,000 in two separate debt/equity financing transactions that resulted in
the issuance of an aggregate of 402,500 shares of Common Stock and the issuance
of an aggregate of 402,500 Common Stock Purchase Warrants. The Company will use
these funds to pay commercial accounts payable due and to fund continuing
operations until such time as it receives the proceeds of this Offering. The
Company intends to use the proceeds of this Offering to repay the short term
notes related to the recent debt/equity
-17-
<PAGE>
financing transactions, to repay another short-term note having a principal
balance of $250,000, and to pay its remaining commercial accounts payable due.
See "Use of Proceeds."
In November 1997, the Company converted an aggregate of $2,578,301 in
notes payable and accrued interest into an aggregate of 3,222,877 shares of
Common Stock.
Beginning in late July 1997, the Company was unable to meet its payroll
for a period of approximately six weeks. During this period, the Company laid
off its employees and continued its operations at a minimal level with a
volunteer staff. Subsequently, the Company re-hired its staff but lost three
employees due to the uncertainty regarding the Company's ability to attract
sufficient funding to continue operations. The Company believes that, although
it lost momentum in its marketing efforts as a direct result of this
interruption, there will be no long-term negative impact on the Company's
prospects.
Of the approximately $10,140,000 the Company expects to receive as net
proceeds from this Offering, management expects that approximately $6,100,000
will be used to repay short term notes payable and commercial accounts payable
due. Management intends to use the remaining net proceeds of approximately
$4,040,000 as follows:
$1,131,000 Research and Development
$1,455,000 Sales and Marketing
$ 444,000 Systems and Operations
$ 566,000 General and Administrative
$ 444,000 Capital Expenditures
Management has estimated that the net proceeds of this Offering, when
combined with other financial commitments (See "Description of Capital Stock -
Preferred Stock"), will be sufficient to meet the Company's cash requirements
through at least December 31, 1998. However, operating revenues may fall short
of, and expenses may exceed, the Company's projections. Because of the lack of a
stable operating history on which to base projections, the unproven demand for
the Company's products and services, and the volatile nature of the markets in
which the Company is operating, the Company's projections may prove to be
inaccurate. Moreover, the viability of the Company depends on the Company's
ability to significantly expand its operations on a profitable basis. Due to the
limited operating history of the Company, it is impossible to predict with any
degree of certainty the extent to which the Company must expand its operations
in order to become profitable. There can be no assurance that the Company will
be able to sustain or expand its operations, that needed financing will be
available on acceptable terms or at all, that the Company will not require
further financing to sustain or expand its operations, or that the Company will
become profitable in the future. See "Risk Factors - Risks Related to the
Company - Development Stage Company; Limited Operating History; Significant
Cumulative Operating Losses; Auditor Report Modification for Going
Concern,""Risk Factors - Risks Related to the Company - Need for Additional
Financing," "Use of Proceeds" and "Business."
The Company's independent auditors stated in their report that the
Company's net losses and the need for additional financing to implement its
business plan and continue its operations raise substantial doubt about the
Company's ability to continue as a going concern unless additional financing can
be obtained through this Offering or from alternative sources. If the Company
does not generate revenues sufficient to produce break-even cash flow during the
period in which it attempts to fully implement its business plan, additional
financing will be required. See "Risk Factors - Need For Additional Financing."
Effect of Inflation and Changing Prices
The Company's limited operating history provides no experience regarding
the impact of inflation on the conduct of its business. At present, the Company
does not have long-term commitments for maintenance of its core software and
systems nor does the Company have long-term contracts with customers for the use
of its products and services. Accordingly, the Company's costs and projected
revenues may fluctuate due to general inflation or changes in the specific
competitive environments in which the Company operates. Additionally, the online
services industry is generally characterized by rapid and significant changes in
technology and does not have a long history which would enable reliable
prediction of trends. The Company cannot predict its ability to pass along
future development costs or operating cost increases to its customers.
-18-
<PAGE>
BUSINESS
General
The Company is a development stage company which provides electronic
commerce and database marketing services to Internet advertisers and publishers.
The Company's first product, Coupons Online(TM), allows marketers to
deliver targeted, secure coupons and other promotional incentives to consumers
from Internet Web sites. Consumers use the Company's Web-browser plug-in
software to access and print coupon offers from the Web site of netValue's
clients. The Company's systems provide online targeting and validation for each
consumer and coupon. In July 1997, the Company commenced commercial operations
of its Coupons Online service.
The Company's second product, i-Value(sm), is a service to which
consumers will be able to subscribe to receive periodic "electronic packages" of
incentives delivered to their personal computers. netValue provides client
retailers with consumer software, targeting, validation and reporting services.
Through this software and these services, promotional offers will be
individually tailored to each consumer's product preferences and shopping
habits. The Company expects to commercially launch its i-Value(sm) program in
the second quarter of 1998. Coupons Online(TM), i-Value(sm) and any future
products developed by the Company are referred to in this Prospectus as the
"Programs."
The Company expects its principal customers and sources of revenue to be
national, regional and local retailers, manufacturers of consumer products,
service providers and online publishers ("clients"). The Company expects that
its revenues will be generated through a combination of software licensing,
promotion set-up and transaction fees.
In developing its products, the Company has obtained input from major
retailers, product manufacturers, coupon clearing agents and online publishers.
The Company believes that its products and services provide a faster and easier
method than traditional alternatives (such as freestanding inserts and coupon
mailers) for online consumers to receive meaningful values on the Internet and
that its products provide a more cost-effective and secure means for marketers
to distribute and track targeted consumer incentives. However, the Company has a
limited operating history and little market experience and there can be no
assurance that the Company's products and services will be attractive to current
or future online consumers, that consumers will participate in the Programs at
sufficient levels so as to be attractive to the Company's clients or that the
Company will be able to attract and retain sufficient clients on terms favorable
to the Company.
Program Development
Background. The Company was incorporated in Delaware on July 16, 1996
and is the successor by merger to COL. For a more detailed description of the
merger of COL into the Company (the "Merger"), see "Certain Transactions - The
Merger." COL was formed in December 1994 for the purpose of developing and
commercializing an approach to delivering coupons via various online networks
such as CompuServe, America OnLine and Prodigy.
Prior to the Merger, all of COL's resources were principally utilized
for research and development activities including (i) conducting interviews with
retailers, advertisers and coupon clearing companies in order to understand the
market environment and product service attributes which might be attractive to
potential customers, (ii) developing product and service specifications and
initial prototypes, (iii) establishing relationships with online service
providers, (iv) developing its business plans and models and (v) seeking
additional development capital.
Strategy. Responding to changes in technology and the rapid growth of
consumer Internet use over the past two years, the Company has modified its
business strategies to focus on the market for providing Internet promotion
solutions for retailers, manufacturers and online publishers.
During the next twelve months, the Company anticipates expanding
commercial operations of its Coupons Online(TM) service and the commercial
launch of its i-Value(sm) product. The Company expects to expend significant
funds during such period in order to (i) complete its initial systems
development, (ii) perform market research and (iii) build an appropriate
infrastructure to support its planned commercial operations. The net proceeds of
this Offering
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<PAGE>
together with existing cash on hand are expected to be sufficient to finance
these planned expenditures. Thereafter, there can be no assurance that the
Company's current market activities will generate sufficient revenues and cash
flow to fund the Company's planned operations. Therefore, the Company may need
to seek additional financing. In connection with such financing, the Company may
issue additional shares of Common Stock and/or Preferred Stock. Any such
issuance may result in dilution of existing stockholders. Additionally, there
can be no assurance that the Company will be successful in securing the required
funding when needed, or at all, or that such capital investments will be on
terms favorable to the Company or its current investors. In the event the
Company cannot obtain additional funding on a timely basis, the Company may be
forced to cease operations. See "Risk Factors--Need for Additional Financing."
The Company currently has 23 employees and expects to hire approximately
30 additional employees during 1998 to support its expansion program.
Market
According to industry sources, in 1996, combined advertising and
promotion spending by retailers and product and service marketers totaled more
than $240 billion, including approximately $5 billion spent by local area
merchants and $7 billion spent to deliver over 300 billion coupons to U.S.
consumers. However, while coupon issuance has been growing, the relative
effectiveness of traditional coupons has been steadily declining with redemption
levels declining from 6% to below 2% over the past 15 years. Similarly, the
Company believes that the relative effectiveness of other forms of traditional
mass media have also declined in recent years as the growth of new, more
targeted media (e.g. cable, in-store) have continued to fragment consumer
audiences into even narrower communities of interest.
One new consumer communications medium which has demonstrated
significant growth over the past several years is the World Wide Web portion of
the Internet, in which consumers use personal computers and, most recently,
television sets to access multimedia information and transact business. Since
1994, the base of consumers reportedly using the Internet has grown from 2
million to approximately 56 million in the third quarter of 1997. Given this
potential of the Internet to effect highly targeted, one-on-one communications
with individual consumers, numerous consumer marketers have been testing a
variety of Web-based programs to advertise and promote their products and
services. Internet spending by advertisers is projected to grow from an
estimated $950 million annually in 1997 to more than $7 billion annually by the
year 2002.
The growth of the Internet as an advertising and promotion medium has
been characterized by innovation, rapid technological change and business
uncertainty. Very few Web-based ventures have achieved profitability and, since
the majority have been in business for less than three years, it is not possible
to draw reliable conclusions concerning such ventures' ability to sustain growth
or their long term business viability.
Marketing and Sales Strategy
Product Development and Management. The Company has developed its
initial products and services to reflect the current state and direction of
Internet advertising and promotion. Therefore, the Company has developed Coupons
Online(TM) to reflect the market's need for a "pull" distribution promotion
solution in which the consumer is visiting Web sites, sees an item of interest
from a Client and wishes to receive and print a promotional offer. The Company
has developed i-Value(sm) to address the current trend of "push" distribution
solutions in which the consumer subscribes to regularly receive personalized
content.
The Company believes that its success will be directly related to (i)
consumer willingness to use the Company's Programs to access Client promotions,
(ii) the Company's ability to attract and maintain Clients in its Programs and
(iii) the Company's ability to adapt quickly and appropriately to continuing
advancements in Internet technologies and trends. Therefore, the Company intends
to commit a significant portion of its resources to ongoing product and service
development, as well as market research and product testing.
Consumer Positioning Strategies. Although the Company does not market
directly to consumers, its products and services are used by consumers to obtain
promotional information from, and to transact business with, the Company's
Clients. Therefore, an important part of the service delivered to the Company's
Clients is the Company's know-how in respect of consumer promotion strategies,
database marketing and computer interfaces. In designing its Programs, the
Company has targeted both current and future Internet users with an emphasis on
less technology-oriented
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<PAGE>
consumers. By using familiar analogs (such as coupon clipping and organization),
the Company's interfaces are designed to empower the consumer by being intuitive
and easy to use.
Additionally, the Company believes that consumer control over the
privacy of personal information and the security of transactions conducted via
computers and networks is, and will continue to be, an important and highly
visible public issue and area of sensitivity for large numbers of consumers,
particularly in respect of data based products and services. The Company
believes that its privacy policy - that the Company will never give individual
consumer-identified information to anyone, for any reason - is an important
point of market differentiation and will likely play a prominent role in the
positioning of the Company's products and services to Clients and consumers.
Client Positioning and Sales Strategies. The Company is structuring its
product development and management efforts to reflect three primary market
segments of potential Clients: (i) retailers - including grocery, drug, mass
merchandise and specialty retailers; (ii) product and service marketers -
including consumer package goods manufacturers, durable goods manufacturers,
entertainment and other service providers; and (iii) local area merchants
independent retail and consumer service providers operating within a limited
trading area. The Company believes that the benefits of its products and
services, while largely applicable to each of these three segments, will require
different positionings, pricing, promotion and sales channels in order to
maximize the Company's sales opportunities.
Based on the Company's belief that its products and services provide
different value sets to each of its three target segments and that each
represents a unique sales environment, the Company has established three
distinct sales channels.
o Product and Service Marketer Sales. The Company believes that
product and service marketers are the most likely potential
clients to immediately understand and implement the Company's
targeted delivery services. Since promotional spending is
generally divided between direct-to-consumer and trade
promotion, the Company has established dual sales channels.
Direct-to-consumer promotion, which is typically administered
at a headquarters location, is handled by the Company's direct
sales force. Trade promotion is handled through a
revenue-sharing arrangement with retailers who are
well-positioned to take advantage of existing relationships
and trade practices.
o Retailer Sales. The Company believes that this segment
presents an excellent opportunity to immediately build upon
retailers' existing relationships with product manufacturers
and to provide targeted delivery for retailers based on their
own purchase behavior databases arising out of card-based
frequent shopper programs. By co-branding its Programs and
sharing revenues with chain retailers, the Company believes it
can leverage both the retailers' goodwill with consumers and
the retailers' relationships with manufacturers. The Company
has established its own sales force for this segment.
o Local Area Merchant Sales. The Company believes that this
segment holds significant long-term potential. Given the size
and complexity of the sales and service infrastructure
required to develop this segment, however, the Company has
determined that its best strategy is to partner with
organizations which already have established sales and service
infrastructures and for which the incremental cost of
representing the Company's products and services can be
effectively offset by the incremental revenues attributable to
those sales. Potential partners include newspapers,
directories, search engines, direct mailers and content
aggregators.
Technology and Systems Strategies. The Company views the Internet as an
extremely dynamic marketplace featuring rapidly evolving technologies and market
approaches. Accordingly, the Company has developed core systems which are
designed to provide secure, targeted delivery of consumer promotions which
operate independently from Internet technology trends. For example, i-Value(sm)
was initially conceived as a stand-alone software application residing on the
consumer's personal computer which, when connected to the Company's Web site,
would receive and store a package of targeted promotions. Given the recent
emergence of "channels" and other "push" delivery technologies (whereby
consumers subscribe to and automatically receive content), the Company is
preparing to support this method of delivery for i-Value(sm) beginning in the
second quarter of 1998.
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<PAGE>
Systems and Technology
The systems and technology required to deliver the Company's products
and services consist of three interrelated sub-systems: (i) Consumer Software;
(ii) Internet Communications and Online Database; and (iii) Targeting. The
Consumer Software sub-system is a proprietary application which resides on each
consumer's personal computer and provides connection, viewing, storage, and
printing functions and controls. The Internet Communications and Online Database
sub-system provides the interface between consumers and the Company's products
and services. The Targeting sub-system maintains consumer profile and usage data
and client promotional database and executes packaging of targeted promotions to
individual consumers for distribution through the Online Database sub-system.
In order to speed the time required to launch its test phase and to
minimize the Company's initial infrastructure requirements, the Company has
decided to hire independent contractors to develop and integrate its sub-systems
as well as to conduct certain operational functions (e.g. DMR Trecom Systems,
Inc. See "Risk Factors - Risks Related to the Company - Dependence on Third
Party Providers"). Once its products and services become operational, the
Company will determine which operational and development elements to bring
in-house and an appropriate timetable for bringing such functions in-house.
During the initial development cycle, the Company intends to maintain a modest
development and operations staff to manage its external development resources.
Backlog
Because the Company is in its development stage, it has no backlog and,
given the nature of its primary business as a provider of on-line services,
anticipates that no material backlog of the delivery of its products and
services will develop in the near future.
Competition
The Company faces significant competition from many consumer promotion
and advertising companies which compete, directly or indirectly, for consumer
advertising and promotion business from advertisers and for consumers' attention
acceptance of promotional offers. Many of such advertising and promotion
companies have longer operating histories, greater market presence, and
substantially greater financial and other resources than the Company. Many of
these companies, including Catalina Marketing Corporation, Money Mailer, Val-Pak
Direct Marketing Systems and Interactive Coupon Network, have initiated or are
planning to initiate programs and services involving the Internet. There can be
no assurance that competition will not increase from existing competitors, that
established or new companies will not enter the market, that pricing policies
will not be undertaken by more established companies so as to erode the benefits
of the Company's products and services, or that the Company will be able to
compete successfully with such existing or new competitors.
Patent and Trademark Protection
The Company has applied for a patent entitled "Method and Distribution
of Product Redemption Coupons," which describes what the Company believes to be
a proprietary process for executing its products and services, and has received
an indication from the United States Patent and Trademark Office that certain of
the claims of this application are allowable. Additionally, the Company has
registered COUPONS ONLINE as a trademark, and intends to apply for federal
registration of its trademarks and/or service marks I-VALUE, NETVALUE and the
NETVALUE logo, and INTERNET MARKETING AND RESEARCH INSTITUTE. However, there can
be no assurance that the patent, servicemark or trademark registrations applied
for will be reviewed on a timely basis, that any patents, service marks, or
trademarks will be granted and issued, that any patents, service marks or
trademarks issued will afford meaningful protection against competitors with
similar names, technology or services, or that any patents, service marks or
trademarks issued will not be challenged by third parties. The Company believes
it is the only company currently using its approach to the distribution of
targeted, scannable, fraud-resistant incentives and that the service marks and
trademarks applied for are currently unencumbered and available to the Company.
See "Risk Factors - No Assurance of Protection of Important Patents and
Proprietary Technology."
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<PAGE>
Employees
As of December 19, 1997, the Company employed 23 full-time employees.
These employees include ten operations and software development staff, ten
marketing and sales staff and three finance and administration staff. None of
the Company's employees is covered by collective bargaining agreements and the
Company considers its relations with its employees to be satisfactory. However,
in August 1997, as a result of financial uncertainty experienced by the Company
in connection with its development, three employees left the Company.
Facilities
Until December 1997, the Company's principal facilities consisted of
approximately 9,287 square feet of office space in Stamford, Connecticut. The
Company subleased these facilities under an agreement which expires on January
14, 1998, at a cost of $11,062 per month, including utilities. In October 1997,
in final settlement of this lease agreement, the landlord agreed to apply
$35,671 of the Company's security deposit to a rental arrearage and to accept
payment of $30,713 for the remaining term of the lease.
In November 1997, the Company signed a lease for its new executive
offices located at 1960 Bronson Road, Building No. 2, Fairfield, Connecticut.
The new offices consist of approximately 8,800 square feet. Under the lease, the
Company is required to pay a monthly rental of $13,284 per month plus utilities,
general liability insurance premiums for up to $5,000,000 of coverage, and the
amount of any increases in operating expenses and real estate taxes up to 5%
over the amounts paid for these expenses during the year ended June 30, 1998.
The Company has assumed possession of the new office space and its obligation to
pay rent under the lease commences on January 1, 1998. The lease expires on
December 31, 2000.
Legal Proceedings
In November 1997, Guild Concepts, Limited d/b/a The Guild Group
("Guild") filed an action against the Company in the United States District
Court for the Southern District of New York alleging breach of contract and
other claims related to services rendered by Guild to the Company in connection
with the development of the Company's marketing plans and strategy. Guild seeks
damages in the amount of $243,538 from the Company for the services allegedly
provided. It is the Company's belief that the parties entered into an agreement
in October 1997 whereby the repayment terms of the amounts due to Guild were
extended until March 1, 1998. It is the Company's position that it has complied
with the repayment terms set forth in this agreement including the repayment of
$70,000 to Guild in October 1997. Accordingly, the Company believes it has
meritorious defenses to Guild's complaint and intends to vigorously defend the
claims asserted in this litigation.
The Company, in the normal course of business, is also party to
litigation relating to contract-related disputes. To date, all of these matters
have related to amounts payable to trade creditors for services rendered.
Management of the Company does not believe that any of these actions, either
individually or in the aggregate, will have a material adverse effect on the
Company's results of operations or financial condition.
Independent Accountants
In August 1996, the Company engaged Ernst & Young LLP ("E&Y") to
prepare an audit of the Company's financial statements for the year ended
December 31, 1995 for the purpose of including such financial statements in a
registration statement to be filed with the Commission. Such registration
statement was never filed and accordingly, such audit was never completed. In
September 1997, the Company and E&Y mutually agreed to end their relationship.
Such decision was not based on any disagreement on any matter of accounting
principles or the like.
On September 15, 1997, the Company engaged LJ Soldinger Associates as
its independent accountant.
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<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth the name, age and position of each
present executive officer and director of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Michael A. Clark 42 President and Chief Executive Officer, Secretary, Treasurer and Director
Craig W. Barnett 33 Vice President - Local Market Administration, Director
David E. Brandkamp 56 Vice President - Retail Sales, Director
Richard F. Davey 51 Vice President and Chief Technology Officer, Director
Michael Cirillo 49 Director
Steven B. Rosner 46 Director
Edward J. Zobian 26 Director of Investor Relations, Director
</TABLE>
Michael A. Clark has served as President, Chief Executive Officer and a
Director of the Company since September 19, 1996. In addition, Mr. Clark
provided consulting services to the Company consistent with those typically
provided by a company's chief executive officer from June 1996 to September 18,
1996. From September 1994 until joining the Company, Mr. Clark was the principal
of mc2, a consulting firm specializing in the development of strategic planning
and marketing for emerging electronic media ventures. From April 1992 through
September 1994, Mr. Clark served as President and Chief Executive Officer of TSS
Ltd. ("TSS"), a company which owned and operated electronic promotional kiosks
in chain retail stores until it ceased operations in September 1994. From July
1990 until joining TSS, he was Managing Director - Marketing for Citicorp POS
Information Services ("Citicorp POS"), a provider of targeted marketing programs
based on consumer purchase behavior data bases.
Craig W. Barnett has served as a Director of the Company since
September 19, 1996 and was appointed Vice President of Local Market
Administration in December 1997. In December 1994, Mr. Barnett co-founded COL.
Prior to founding COL, from April 1982 to January 1994, Mr. Barnett was a vice
president of Alpha Omega Technologies, Inc., a food and medical products
irradiation company, where he was responsible for international joint ventures.
In connection with such position, Mr. Barnett designed and patented
computer-controlled plants and related equipment.
David E. Brandkamp has served as the Company's Vice President of Retail
Sales since April 1997, and was elected a Director of the Company in December
1997. From August 1995 until joining the Company, Mr. Brandkamp was the Sales
Director of Inter*Act, a company that distributed database targeted coupons
through in-store kiosks. From October 1993 through July 1995, Mr. Brandkamp
served as a National Account Executive for Advanced Promotion Technologies, a
company that performed targeted coupon distribution through printers located in
retail store checkout lanes. From April 1991 to July 1993, Mr. Brandkamp was a
Regional Sales Director for VideOcart, a micromarketing media company.
Richard F. Davey has served as the Company's Vice President and Chief
Technology Officer since September 1996 and was elected a Director of the
Company in December 1997. In addition, Mr. Davey provided consulting services to
the Company consistent with those provided by a company's chief technology
officer from August 1, 1996 to September 18, 1996. From July 1995 until joining
the Company, Mr. Davey served as the Vice President of Technology for Inter*Act,
a direct to consumer target marketing company using in-store kiosk technology.
From February 1992 through June 1995, Mr. Davey served as the Director of
Information Services for the law firm of Sullivan & Cromwell where he was
responsible for their worldwide computer, network and voice systems. From
October 1984
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<PAGE>
through January 1992, Mr. Davey served as a director of Citicorp POS, a database
marketing company to national retailers and package good manufacturers, where he
was responsible for the collection and storage of the consumer data.
Michael Cirillo was elected a Director of the Company in December 1997.
Mr. Cirillo has been a director of Aviation, Inc. since May 1997, has been the
President of D.A.R. Group, Inc., a New York based investment banking firm, since
1995, and has been President of CBM Consultants, Inc., a New York based
marketing and consulting firm since 1995. From 1987 to 1995, Mr. Cirillo was an
officer and director of Flex Resources, a temporary and permanent employment
firm based in New Jersey, which was a major contractor of employment services
for the Resolution Trust Corporation and Fidelity National Bank.
Steven B. Rosner was elected a Director of the Company in December 1997.
Mr. Rosner is the sole shareholder of SLD Capital Corporation, which specializes
in providing consulting and investment banking services. Previously, Mr. Rosner
served as President of Centaur Financial Corporation an investment banking firm,
from 1984 to 1996. He also serves as a director of several privately held
corporations including Tradewinds, Inc. and Informatix, Inc. Also, Mr. Rosner
was President and Director of Pacific Rim Entertainment from December 1996 to
December 1997.
Edward J. Zobian has served as Director of the Company since September
19, 1996. Since September 1997, Mr. Zobian has been employed by the Company as
its Director of Investor Relations. From January 1995 until joining the Company,
Mr. Zobian was employed by American Maple Leaf Financial Corporation ("AML"),
the Company's investment advisor, as an associate responsible for serving as an
intermediary between AML's clients and investment bankers, institutional
investors and research analysts. From September 1990 through May 1994, Mr.
Zobian attended Haverford College where he obtained a Bachelor of Arts degree in
Economics.
During the last five years, except as discussed below with respect to
Mr. Clark, none of the Company's executive officers, directors, promoters or
control persons has: (i) had any bankruptcy petition filed by or against any
business of which such person was a general partner or executive officer either
at the time of the bankruptcy or within two years prior to that time; (ii) been
convicted in a criminal proceeding or been subject to a pending criminal
proceeding (excluding traffic violations and other minor offenses); (iii) been
subject to any order, judgment, or decree, not subsequently reversed, suspended
or vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in any type
of business, securities, commodities or banking activities; or (iv) been found
by a court of competent jurisdiction (in a civil action), the Commission, or the
Commodity Futures Trading Commission to have violated a federal or state
securities or commodities law, which judgment has not been reversed, suspended,
or vacated.
From April 1992 through September 1994, Mr. Clark served as the
President and Chief Executive Officer of TSS which ceased operations in
September 1994 after a general assignment for the benefit of creditors (a state
insolvency proceeding similar to a federal bankruptcy proceeding).
Executive Compensation
The following table sets forth certain information with respect to
compensation paid or accrued by the Company during the year ended December 31,
1996 to the Company's Chief Executive Officers (the "Named Executive Officers").
During 1996, no executive officer's salary and bonus exceeded $100,000.
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<PAGE>
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
Name and ----------------------------- ---------------------
Principal Position Salary Bonus Number of Options
------------------ ------ ----- -----------------
<S> <C> <C> <C>
Craig W. Barnett $24,600(1) 0 0
Chief Executive Officer from
January 1, 1996 through
September 18, 1996
Michael A. Clark $70,000 0 900,000(2)
President and Chief Executive Officer
from September 18, 1996 to Present
</TABLE>
(1) Represents the amount paid to Mr. Barnett pursuant to the terms of his
consulting agreement with the Company. See "Employment/Consulting
Agreements."
(2) On September 18, 1996, Mr. Clark was granted options to purchase an
aggregate of 350,000 shares of Common Stock. In December 1997, in
connection with the amendment of Mr. Clark's employment agreement, the
exercise price of 240,000 of such options was reduced, Mr. Clark was
granted options to purchase an additional 550,000 shares of Common Stock,
and Mr. Clark's annual salary was increased to $165,000 effective September
19, 1997. See "Employment/Consulting Agreements". All information contained
in this Prospectus relating to Mr. Clark's options reflects such amendment.
Of such options, (i) 110,000 have vested and are exercisable at a price of
$.63 per share, (ii) 158,000 have vested and are exercisable at a price of
$.80 per share and (iii) 158,000 will vest and become exercisable on each
of September 19, 1998, 1999, 2000 and 2001 at prices of $4.00, $5.00, $6.00
and $7.00 per share, respectively.
The following table contains information concerning the grant of stock
options during Fiscal 1996 to the Named Executive Officers.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term (1)
----------------- -------------------
% of Total
Options
Granted
to
Number of Employees Exercise
Options in Fiscal or
Name Granted Year Base Price Expiration Date 5% 10%
---- ------- ------------ ----------- --------------- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Michael A. Clark 60,000 14.6% $ .63 September 18, 2001 $346,200 $ 445,800
Michael A. Clark 50,000 12.2% $ .63 September 18, 2002 $304,000 $ 412,000
Michael A. Clark 60,000(2) 14.6% $6.00 September 18, 2002 $ 42,600 $ 172,200
Michael A. Clark 60,000(2) 14.6% $6.00 September 18, 2003 $ 63,000 $ 225,600
Michael A. Clark 60,000(2) 14.6% $6.00 September 18, 2004 $ 84,000 $ 284,400
Michael A. Clark 60,000(2) 14.6% $6.00 September 18, 2005 $106,200 $ 348,600
</TABLE>
(1) Based upon the assumed public offering price for the Common Stock of $5.00
per share.
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<PAGE>
(2) The 240,000 options with an exercise price of $6.00 per share were repriced
during 1997. See "Management-Employment/Consulting Agreements".
The following table sets forth information regarding the number and
value of options held as of the date hereof by each of the Named Executive
Officers. Neither of the Named Executive Officers exercised options during
Fiscal 1996.
Fiscal Year End Option Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised Options In-the-Money Options
at Fiscal Year End at Fiscal Year End (1)
------------------------------ ------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael A. Clark 60,000 290,000 $262,200 $218,500
</TABLE>
(1) Based on the assumed public offering price of $5.00 for the Common Stock.
Board of Directors
The Company's Bylaws currently provide that the authorized number of
directors of the Company will be a variable number ranging from one to seven
with the exact number to be fixed by the Board of Directors.
The Board of Directors currently consists of seven members. Members of
the Board of Directors hold office for a period of three years. The terms of the
current directors are staggered as follows:
Class of 2000: Michael A. Clark, David Brandkamp, Craig W. Barnett
Class of 1999: Richard F. Davey, Steven B. Rosner
Class of 1998: Michael Cirillo, Edward J. Zobian
Each director holds office until his successor has been elected and
qualified at the Annual Meeting of Shareholders held during the year in which
his term expires. The Audit Committee of the Board of Directors consists of
Michael A. Clark, Steven B. Rosner and Michael Cirillo. The Compensation
Committee of the Board of Directors consists of Michael A. Clark, Steven B.
Rosner and Michael Cirillo. The Nominating Committee of the Board of Directors
consists of Michael A. Clark, Edward J. Zobian and Craig W. Barnett. The Pricing
Committee consists of Michael A. Clark and Edward J. Zobian.
Directors of the Company do not currently receive compensation for
their services.
Employment/Consulting Agreements
The Company has entered into the following employment agreements and
consulting arrangements:
Mr. Clark entered into an employment agreement pursuant to which he
agreed to serve as the Company's President and Chief Executive Officer through
September 19, 2002. Under the agreement, Mr. Clark is paid an annual base salary
of $165,000 and is eligible to receive bonuses and increases to his base salary
at the discretion of the Company's Board of Directors (the "Board"). In
addition, Mr. Clark was granted options to purchase an aggregate of 900,000
shares of Common Stock. Of such options, (i) 110,000 have vested and are
exercisable at a price of $.63 per share, (ii) 158,000 have vested and are
exercisable immediately at a price of $.80 per share and (iii) 158,000 will vest
and become exercisable on each of September 19, 1998, 1999, 2000 and 2001 at
prices of $4.00, $5.00, $6.00 and $7.00
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<PAGE>
per share, respectively. In the event that Mr. Clark is terminated upon a Change
of Control (as defined below) of the Company, (i) he shall receive an amount
equal to two years of his then current base salary (provided, however, that this
amount shall be increased by two additional months of base salary on each
anniversary of his employment with the Company) and (ii) any of his 900,000
options which have not vested as of the effective date of the Change of Control
shall immediately vest and become exercisable. In addition, all severance
payments payable to Mr. Clark pursuant to his employment agreement are secured
by a lien on the Company's intellectual property rights.
For purposes of this Prospectus, "Change of Control" of the Company
shall mean the occurrence of an event which would be required to be reported by
the Company in response to Items 1 or 2 of Current Report on Form 8-K of the
Exchange Act.
Mr. Davey entered into an agreement pursuant to which he agreed to
serve as the Company's Vice President and Chief Technology Officer until
September 19, 1998. Under the agreement, Mr. Davey is paid an annual base salary
of $140,000 and is eligible to receive bonuses and increases to his base salary
at the discretion of the Board. In addition, Mr. Davey was granted options to
purchase 152,000 shares of netValue Common Stock. Of such options, (i) 38,000
vested and became exercisable on September 19, 1997 at an exercise price of $.80
per share and (ii) 38,000 will vest and become exercisable on each of September
19, 1998, 1999 and 2000 at exercise prices of $4.00, $5.00 and $6.00 per share,
respectively.
Pursuant to their respective employment agreements, each of Messrs.
Clark and Davey is entitled to receive all employee benefits offered to senior
executives and key management employees, including disability insurance,
hospitalization insurance, major medical insurance, medical reimbursement,
survivor income, life insurance and any other benefit plan or arrangement
instituted by the Company. In addition, each of them is entitled to be
reimbursed for all out-of-pocket expenses reasonably and necessarily incurred in
the performance of their duties.
Each of Messrs. Barnett and Mark D. Braunstein, co-founders of COL,
entered into a consulting agreement pursuant to which he has agreed to serve as
a consultant to the Company until September 19, 1999. Pursuant to their
consulting agreements, they were each entitled to be paid $84,000 per year as
consideration for their services. In addition, in connection with the Merger,
each of Mr. Barnett and Mr. Braunstein was granted 300,000 shares of Common
Stock (collectively, the "Consulting Shares") which were to vest upon the
earlier of (i) a Change of Control of the Company or (ii) the commencement of
beta testing in a test market for the Company's online targeted incentive
program. In July 1997, the beta testing for the Company's online targeted
incentive program was completed and the consulting shares were issued to Messrs.
Barnett and Braunstein in December 1997.
In December 1997, the consulting agreements with Messrs. Barnett and
Braunstein were canceled and Messrs. Barnett and Braunstein each entered into
employment agreements with the Company. Mr. Barnett entered into an agreement
pursuant to which he agreed to serve as the Company's Vice President of Local
Market Administration. Mr. Braunstein entered into an agreement pursuant to
which he agreed to serve as the Company's Vice President of Local Market
Development. Under the agreements, Messrs. Barnett and Braunstein are each paid
a base salary of $63,750 through September 30, 1998. Thereafter, Messrs. Barnett
and Braunstein will each be compensated solely on a commission basis. They will
each receive an annual draw against commissions of $85,000 and will receive the
balance of earned commissions, if any, on a quarterly basis commencing on June
30, 1998. In addition, Messrs. Barnett and Braunstein were each granted options
to purchase an aggregate of 60,000 shares of Common Stock. These options will
vest and become exercisable on each of July 1, 1997, 1998, 1999 and 2000 at
prices of $.80, $4.00, $5.00 and $6.00 per share, respectively.
Each of Messrs. Clark, Davey, Barnett and Braunstein is bound by his
respective agreement, to treat confidentially all proprietary information
learned by him during the course of his engagement with the Company or COL for
the term of the agreement and at all times thereafter. They have each also
agreed to refrain from (i) competing with the Company or any of its affiliates
and (ii) soliciting the Corporation's employees or officers, during the term of
such agreement and for a period of one year thereafter.
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<PAGE>
1996 Non-Qualified Stock Option Plan
General
The netValue, Inc. 1996 Non-Qualified Stock Option Plan (as amended,
the "Plan") authorizes the Board or a committee which the Board may appoint from
among its members (the "Compensation Committee") to grant options ("Options") to
purchase up to 2,500,000 shares of Common Stock. None of the Options will be
"incentive stock options" as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code").
Option Grants to Date
As of the date hereof, the Company has granted Options to purchase
1,674,000 shares of Common Stock.
Purpose
The general purpose of the Plan is to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to officers, directors, employees, consultants and
independent contractors and to promote the success of the Company's business.
Administration
The Plan may be administered by the Board or the Compensation
Committee. Subject to the other provisions of the Plan, the Board or the
Compensation Committee has the authority to (i) award Options; (ii) determine
the exercise price of any Options to be awarded; (iii) determine the eligible
participants to whom, and the time or times at which, Options shall be awarded,
and the number of shares to be subject to each Option; (iv) to prescribe, amend
and rescind rules and regulations relating to the Plan; (v) determine the terms
and provisions of each Option awarded under the Plan, each option agreement and,
with the consent of the optionee, to modify or amend an outstanding Option or
option agreement; (vi) accelerate the vesting or exercise date of any Option;
(vii) determine whether any Optionee will be required to execute any agreement
as a condition to the exercise of an Option, and to determine the terms and
provisions of any such agreement and, with the consent of the Optionee, to amend
any such agreement; (viii) interpret the Plan or any agreement entered into with
respect to the Award or exercise of Options; (ix) authorize any person to
execute on behalf of the Company any instrument required to effectuate the Award
of an Option previously awarded or to take such other actions as may be
necessary or appropriate with respect to the Company's rights pursuant to
Options or agreements relating to the Award or exercise thereof; and (x) make
such other determinations and establish such other procedures as it deems
necessary or advisable for the administration of the Plan.
Eligibility
The Plan provides that Options may be granted to the Company's
officers, directors and employees and to any consultants or independent
contractors engaged by the Company.
Terms and Conditions of Options
Each Option to be granted under the Plan will be evidenced by a written
award agreement between the optionee and the Company and is subject to the
following terms and conditions:
(a) Exercise Price. The Board or the Compensation Committee is
responsible for determining the exercise price of Options at the time such
Options are granted.
(b) Form of Consideration. The means of payment for shares of
Common Stock issued upon exercise of an Option is specified in each award
agreement and generally may be made by cash, check, promissory note or shares of
Series A Preferred Stock having a Stated Value on the date of surrender equal to
the aggregate exercise price of the options.
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<PAGE>
(c) Exercise of the Option. Each Option agreement will specify
the terms of the Option and the date when the Option is to become exercisable.
However, in no event shall an Option granted under the Plan be exercised more
than ten years after the date of grant.
(d) Termination of Employment. If an optionee's employment
terminates for any reason (other than death or permanent disability), then all
Options held by such Optionee under the Plan expire upon the earlier of (i) one
year from the date of such termination and (ii) the expiration date of the
Option, unless otherwise provided for in the Option Agreement related to such
Option.
(e) Permanent Disability, Death. If an Optionee dies while
employed by the Company or is unable to continue employment with the Company as
a result of permanent and total disability (as defined in the Code), his or her
Option shall expire upon the earlier of (i) twelve months after the Optionee's
death or disability or (ii) the expiration date of the Option. The executor or
other legal representative of the Optionee may exercise all or part of the
Option at any time before such expiration to the extent that such Option was
exercisable at the time of death or permanent disability of the Optionee.
(f) Termination of Options. Each award agreement will specify
the expiration date of the Option. No Option may be exercised by any person
after the expiration of its term.
(g) Nontransferability of Options. During the lifetime of the
Optionee, his or her Option(s) shall be exercisable only by the Optionee and
shall not be transferable other than by will or laws of descent and
distribution.
Adjustment Upon Changes in Capitalization, Corporate Transactions
In the event that the capital stock of the Company is changed by reason
of any stock split, reverse stock split, stock dividend, recapitalization or
other change in the capital structure of the Company, appropriate proportional
adjustments shall be made in the number and class of shares of Common Stock
subject to the Plan, the number and class of shares of Common Stock subject to
any Option outstanding under the Plan, and the exercise price of any such
outstanding Option. Any such adjustment shall be made upon approval of the Board
and, if required, the stockholders of the Company, whose determination shall be
conclusive. In the event of a Change of Control of the Company, the Board shall
have the right to accelerate the vesting of all unmatured Options. In addition,
in the event of a Change of Control of the Company by reason of a merger,
consolidation or tax free reorganization or sale of all or substantially all of
the assets of the Company (other than in the ordinary course of business), the
Board shall have right to terminate and to (a) exchange all Options for options
to purchase common stock in the successor corporation or (b) distribute to each
optionee cash and/or other property in an amount equal to and in the same form
as the optionee would have received from the successor corporation if the
optionee had owned the shares of Common Stock subject to the Option rather than
the Option at the time of the Change of Control. The form of payment or
distribution to the optionee pursuant to this section shall be determined by the
Board.
Amendment, Suspensions and Termination of the Plan
The Board may amend, suspend or terminate the Plan at any time, subject
to any restrictions imposed by applicable law.
Federal Tax Information
Options granted under the Plan are not "incentive stock options," as
defined in Section 422 of the Code.
The Company will be entitled to a tax deduction in the same amount as
the ordinary income recognized by the optionee with respect to shares of Common
Stock acquired upon exercise of an Option.
Liability and Indemnification of Officers and Directors
The Company's Amended and Restated Certificate of Incorporation
provides that directors of the Company will not be liable for monetary damages
for breach of their fiduciary duty as directors, other than the liability of a
director (i) for a breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions
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<PAGE>
by the director not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for a willful or negligent declaration of an
unlawful dividend, stock purchase or redemption or (iv) for transactions from
which the director derived an improper personal benefit. These provisions are
consistent with applicable Delaware law.
In addition, the Company's Bylaws include provisions to indemnify its
officers and directors and other persons against expenses, judgments, fines and
amounts incurred or paid in settlement in connection with civil or criminal
claims, actions, suits or proceedings against such persons by reason of serving
or having served as officers, directors, or in other capacities, if such person
acted in good faith, and in a manner such person reasonably believed to be in or
not opposed to the best interest of the Company and, in a criminal action or
proceeding, if he had no reasonable cause to believe that his/her conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he or she reasonably believed to be in or not opposed to
the best interests of the Company or that he or she had reasonable cause to
believe his or her conduct was unlawful. Indemnification as provided in the
Bylaws shall be made only as authorized in a specific case and upon a
determination that the person met the applicable standards of conduct. Insofar
as the limitation of, or indemnification for, liabilities arising under the
Securities Act may be permitted to directors, officers, or persons controlling
the Company pursuant to the foregoing, or otherwise, the Company has been
advised that, in the opinion of the Commission, such limitation or
indemnification is against public policy as expressed in the Securities Act, and
is therefore, unenforceable.
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<PAGE>
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth information with respect to the
beneficial ownership (as calculated pursuant to Rule 13d-3(d)(1) promulgated
under the Exchange Act) of Common Stock owned, as of December 19, 1997, by (i)
the holders of more than 5% of the Common Stock, (ii) each director of the
Company, (iii) the Named Executive Officers and (iv) all directors and executive
officers of the Company as a group. Prior to this Offering, as of December 19,
1997, an aggregate of 10,686,006 shares of Common Stock were issued and
outstanding. Assuming the consummation of this Offering, as of December 19,
1997, an aggregate of 13,086,006 shares of Common Stock were issued and
outstanding. For purposes of computing the percentages under this table, it is
assumed that all options and warrants to acquire Common Stock which have been
issued to the directors, executive officers and the holders of more than 5% of
the Common Stock and are fully vested or will become fully vested within 60 days
of the date of this Prospectus have been exercised by these individuals and the
appropriate number of shares of Common Stock have been issued to these
individuals.
<TABLE>
<CAPTION>
Shares of Common Stock Beneficially Owned
Name and Address Number Percent of Class
- ---------------- ------ ----------------
Before Offering After Offering
--------------- --------------
<S> <C> <C> <C>
American Maple Leaf 1,306,850 (1) 11.7 9.6
Financial Corporation
401 City Line Avenue
Bala Cynwyd, PA 19004
APP Investments, Inc. 1,306,850 (2) 11.7 9.6
401 City Line Avenue
Bala Cynwyd, PA 19004
Craig W. Barnett 752,000 (3) 7.0 5.7
300 E. 71st Street, #19K
New York, NY 10021
David Brandkamp - 0 - * *
40 Oak Grove
East Greenwich, RI 02818
Mark D. Braunstein 657,000 (4) 6.1 5.0
405 E. 54th Street, #11H
New York, NY 10022
Michael Cirillo - 0 - * *
55 Eastwood Blvd.
Manalopan, NJ 07726
Michael A. Clark 268,000 (5) 2.4 2.0
20 Hill Street
Milford, CT 06460
Richard F. Davey 38,000 (6) * *
95 Saddle Hill Road
Stamford, CT 06903
Steven B. Rosner 222,500 (7) 2.1 1.7
1220 Mirabeau Lane
Gladwynne, PA 19035
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Shares of Common Stock Beneficially Owned
Name and Address Number Percent of Class
- ---------------- ------ ----------------
Before Offering After Offering
--------------- --------------
<S> <C> <C> <C>
VDC Corporation Ltd. 3,972,877 37.2 30.4
Bermuda Commercial Bank Building
84 Church Street
Hamilton HM12 Bermuda
Edward J. Zobian 22,500 (8) * *
1156 Old Mill Lane
Wyomissing, PA 19610
All directors and executive officers 1,303,000 11.8 9.7
as a group (7 people)
</TABLE>
- ----------------
* Less than 1%
(1) Consists of 806,850 shares of Common Stock and the 500,000 APP Warrant
Shares (as defined under "Certain Transactions - Organization of the
Company") issuable to APP Investments, Inc. ("APP"). Andrew Panzo is
the controlling shareholder, President and a director of both AML and
APP and as a result thereof, the 500,000 APP Warrant Shares issuable to
APP upon the exercise of the APP Warrant (as defined under "Certain
Transactions - Organization of the Company") may be deemed to be
beneficially owned by AML.
(2) Consists of 500,000 APP Warrant Shares and the 806,850 shares of Common
Stock owned by AML. Andrew Panzo is the controlling shareholder,
President and a director of both APP and AML and as a result thereof,
the 806,850 Common Shares owned by AML may be deemed to be beneficially
owned by APP.
(3) Includes 15,000 shares of Common Stock issuable upon the exercise of
certain outstanding options held by Mr. Barnett which are currently
exercisable at a price of $.80 per share. Does not include 47,500
shares of Common Stock owned by Mr. Barnett's brother, Larry Barnett.
Mr. Barnett disclaims beneficial ownership of such shares.
(4) Includes 15,000 shares of Common Stock issuable upon the exercise of
certain outstanding options held by Mr. Braunstein which are currently
exercisable at a price of $.80 per share.
(5) Consists of 110,000 and 158,000 shares of Common Stock issuable upon
the exercise of certain outstanding options held by Mr. Clark which are
currently exercisable at a price of $.63 and $.80 per share,
respectively.
(6) Consists of 38,000 shares of Common Stock issuable upon the exercise of
certain outstanding options held by Mr. Davey which are currently
exercisable at a price of $.80 per share.
(7) Includes 32,500 shares of Common Stock owned by the Steven B. Rosner
Money Purchase Pension Plan of which Mr. Rosner is a trustee.
(8) Includes 7,500 shares of Common Stock issuable upon the exercise of
certain outstanding options held by Mr. Zobian which are currently
exercisable at a price of $.80 per share. Does not include 5,000 shares
of Common Stock owned by Mr. Zobian's father, Edward Joseph Zobian. Mr.
Zobian disclaims beneficial ownership of such shares.
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<PAGE>
CERTAIN TRANSACTIONS
Organization of the Company
On July 16, 1996, the Company was formed solely for the purpose of
merging with COL. In exchange for an aggregate purchase price of $1,090, the
Company's founders, including American Maple Leaf Financial Corporation ("AML"),
received an aggregate of 1,090,000 shares of Common Stock. In addition, in
connection with the Company's formation, APP Investments, Inc. ("APP"), an
affiliate of AML, was issued a warrant to acquire 500,000 shares of Common Stock
(the "APP Warrant Shares") at an exercise price of $6.00 per share (the "APP
Warrant"). None of the APP Warrant Shares issuable upon the exercise of the APP
Warrant may be sold, transferred or otherwise disposed of prior to September 19,
1998 without the prior written approval of AML.
The Merger
On September 19, 1996, the Merger was consummated and COL was merged
with and into the Company. In connection with the Merger, the Company issued an
aggregate of 3,074,000 shares of Common Stock to the members of COL (the "COL
Shares") in exchange for (i) all of the issued and outstanding membership
interests of COL, (ii) the termination of all agreements among COL and certain
of its members and other affiliated parties (collectively, the "COL Holders")
and (iii) the waiver of all pre-existing rights, claims, causes of action and
suits which COL Holders have or may have against COL, except for the Surviving
Claims (as defined below).
In connection with the Merger, the Company agreed to pay an aggregate
of $292,966 to certain of the COL Holders in satisfaction of certain (i)
loans advanced to COL by the officers of COL and (ii) compensation owed by COL
to such COL Holders (the "Surviving Claims"). In satisfaction of certain of the
Surviving Claims, Mr. Barnett was paid an aggregate of $88,669. Also in
connection with the Merger, the Company (i) reserved an aggregate of 600,000
shares of Common Stock for issuance to Messrs. Barnett and Braunstein (these
shares were subsequently issued in December 1997), (ii) entered into an
agreement with Muzak Limited Partnership ("Muzak"), whereby Muzak was appointed
the Company's exclusive sales agent for a three-year period (the parties
mutually agreed to terminate this Agreement on April 3, 1997, and the
termination of this relationship has not had a material adverse effect on the
Company), and (iii) adopted the Plan. Except for an aggregate of 266,000 of COL
Shares, none of COL shares may be sold or transferred prior to September 19,
1998 without the prior written consent of AML.
AML Consulting Agreement
On September 18, 1996, the Company entered into a six-month consulting
agreement with AML pursuant to which AML agreed to provide investment banking
services to the Company in exchange for 350,000 shares of Common Stock. As AML
has satisfied all of its obligations under such agreement, all of such shares
have been issued to AML.
During 1997, AML advanced $1,001,000 in short-term bridge financing to
the Company. As of October 31, 1997, the Company had repaid $976,000 of this
amount. In December 1997, the Company issued 190,200 shares of Common Stock to
AML as consideration for the advance of the financings and the consensual
forbearance by AML from collecting the amounts due during the term of the
financings. In December 1997 the Company repaid the remaining $25,000 due under
the short-term bridge financing.
Employment/Consulting Agreements
On September 18, 1996, the Company entered into Employment Agreements
with each of Messrs. Clark and Davey and Consulting Agreements with each of
Messrs. Barnett and Braunstein. The Employment Agreements with Messrs. Clark and
Davey were amended in December 1997 effective retroactive to September 19, 1997.
In December 1997, the consulting agreements with each of Messrs. Barnett and
Braunstein were canceled and the Company entered into employment agreements with
each of them. Also in December 1997, the Company issued 300,000 shares of Common
Stock to each of Messrs. Barnett and Braunstein in accordance with the terms of
each of their respective consulting agreements. See "Management -
Employment/Consulting Agreements" for a complete description of such agreements.
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<PAGE>
Transactions With VDC Corporation Ltd.
On September 6, 1996, the Company issued and sold 650,000 shares of
Common Stock to VDC Corporation Ltd. ("VDC") for an aggregate purchase price of
$650,000.
On April 22, 1997, the Company entered into an agreement with VDC
pursuant to which VDC proposed to acquire the Company through a statutory merger
or similar business combination (the "VDC Agreement"). On August 26, 1997, the
Company and VDC mutually agreed to terminate the VDC Agreement in order to allow
the Company to proceed with other financing alternatives.
In connection with the VDC Agreement, VDC provided the Company with
bridge financing in the principal amount of $2,500,000 (the "Bridge Financing")
and a senior secured loan in the principal amount of $100,000 (the "Loan"). The
Bridge Financing and the Loan were secured by a lien on all of the Company's
tangible and intangible assets (the "VDC Lien"). In consideration for the
receipt of the Bridge Financing and the Loan, the Company issued 100,000 shares
of Common Stock to VDC. In December 1997, $2,400,000 principal amount of the
Bridge Financing and interest accrued on the Bridge Financing and the Loan
through November 14, 1997 was canceled and converted into 3,222,877 shares of
Common Stock. In December 1997, the Company repaid the remaining $200,000
principal amount outstanding on the Bridge Financing and the Loan.
DESCRIPTION OF CAPITAL STOCK
Authorized Shares
Under the Company's Amended and Restated Certificate of Incorporation,
the authorized capital stock of the Company consists of 24,000,000 shares of
Common Stock, par value $.001 per share, and 1,000,000 shares of preferred
stock, $.001 par value per share ("Preferred Stock"). As of the date of this
Prospectus, (i) 10,686,006 shares of Common Stock were issued and outstanding,
(ii) 2,500,000 shares of Common Stock were reserved for issuance pursuant to
Plan, (iii) 902,500 shares of Common Stock were reserved for issuance upon the
exercise of outstanding warrants (including the APP warrant) and (iv) 2,400,000
shares of Common Stock were reserved for issuance upon the consummation of this
Offering. As of the date of this Prospectus, 22,500 shares of Preferred Stock
are issued and outstanding.
Common Stock
Holders of Common Stock are entitled to one vote for each share on all
matters voted on by stockholders and are not entitled to cumulative voting. The
first annual meeting of stockholders is expected to be held during 1998.
All shares of Common Stock to be distributed will be fully paid and
nonassessable. Holders of Common Stock do not have any subscription, redemption
or conversion privileges. Holders of Common Stock are entitled to participate
ratably in dividends on the Common Stock as declared by the Board of Directors.
Holders of Common Stock are entitled to share ratably in all assets available
for distribution to stockholders in the event of liquidation or dissolution of
the Company.
Preferred Stock
The shares of Preferred Stock may be issued in one or more classes and
in one or more series within a class with such designations, powers,
preferences, rights, qualifications, limitations and restrictions as may be
established from time to time by resolution of the Board of Directors at or
prior to the time of issuance of shares of such class or series.
In connection with a Preferred Stock Purchase Agreement (the
"Agreement") that the Company entered into with Rozel International Holdings
Limited ("Rozel"), the Board of Directors designated a Series A Convertible
Preferred Stock consisting of 300,000 shares ("Series A Shares"). The Agreement
provides that the Company may request that Rozel purchase up to an aggregate of
300,000 shares at an aggregate purchase price of $3,000,000. As of the date of
this Prospectus, Rozel has purchased 22,500 shares for $225,000. The Company can
request that Rozel purchase an
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<PAGE>
additional 70,000 Series A Shares at any time subsequent to February 1, 1998, an
additional 70,000 Series A Shares at any time subsequent to March 1, 1998, an
additional 50,000 Series A Shares at any time subsequent to April 1, 1998, an
additional 50,000 Series A Shares at any time subsequent to May 1, 1998 and an
additional 37,500 Series A Shares at any time subsequent to June 1, 1998. At any
time, each Series A Share is convertible at the option of either Rozel or the
Company into 12.5 shares of the Company's Common Stock. Upon any conversion of
Series A Shares by either Rozel or the Company, Rozel shall turn over its
certificates representing the Series A Shares and the Company shall issue a
certificate for that number of shares of Common Stock into which the Series A
Shares are convertible. The Series A Shares will be canceled and will no longer
be issued and outstanding.
The Series A Shares do not have any voting rights or any registration
rights. Upon any liquidation or dissolution of the Company, the Series A Shares
shall have a preference over any subsequent series of Preferred Stock issues by
the Company.
All remaining authorized shares of Preferred Stock currently are
undesignated. Although it has no current intention to do so, the Board of
Directors may authorize and issue series of Preferred Stock with voting or
conversion rights that could adversely affect the voting power or other rights
of the holders of Common Stock. In addition, the issuance of Preferred Stock may
have the effect of deferring or preventing a change in control of the Company.
See "Risk Factors - Risks Related to the Offering - Possible Negative Effects of
Preferred Stock."
Common Stock Purchase Warrants
As of the date of this prospectus, the Company has issued 902,500
Common Stock Purchase Warrants.
In connection with the formation of the Company, the Company issued to
APP 500,000 Common Stock Purchase Warrants (the "APP Warrants"). The APP
Warrants have an exercise price of $6.00 per share and are exercisable at any
time prior to August 2, 2001. During the period commencing on the date on which
the Company's Common Stock has been traded for 5 consecutive days on a public
exchange, over-the-counter market or other public trading system or market, and
ending 10 days thereafter, the Company may, in its sole discretion, require the
exercise of all of the APP Warrants (the "Mandatory Exercise"). If APP fails to
exercise any of the APP Warrants within 30 days of receiving notice of the
Company's election of the Mandatory Exercise, then all rights granted to APP
related to the unexercised APP Warrants shall be terminated.
In connection with private offerings of its securities which the
Company completed in October and December 1997, the Company issued an aggregate
of 402,500 Common Stock Purchase Warrants (the "1997 Warrants"). The 1997
Warrants have an exercise price equal to the lower of (i) $4.00 and (ii) the
price per share at which the Common Stock is offered to the public in the
initial public offering of the Company's Common Stock. The 1997 Warrants are
exercisable for a period of 5 years commencing on the date the Common Stock is
first registered with the Securities and Exchange Commission pursuant to Section
12(g) of the Securities Exchange Act of 1934.
Preemptive Rights
No holder of any capital stock of the Company has any preemptive right
to subscribe for or purchase any securities of any class or kind of the Company.
Listing and Trading of Common Stock
The Company has made an application to have the Common Stock approved
for listing on the Nasdaq SmallCap Market. There can be no assurance that the
NASD will approve the Company's application for initial listing on the SmallCap
or that, once the Company's initial listing is approved by the NASD, that the
Company will be able to maintain its listing on the SmallCap. See "Risk Factors
- - Risks Related to the Offering - Lack of Public Market; Possible Volatility of
Stock Price; No Assurance that Listing on NASDAQ SmallCap will be Approved or
Maintained." There is currently no public market for the Common Stock. Until the
Common Stock is fully distributed and an orderly market develops, the prices at
which trading in such stock occurs may fluctuate significantly. The prices at
which the Common Stock trades will be determined by the marketplace and may be
influenced by many factors, including, among others, the depth and liquidity of
the market for the Common Stock, investor perception of the Company and its
industry and general economic and market conditions.
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<PAGE>
Registration Rights
The Company has granted certain demand and incidental registration
rights under the Securities Act to stockholders an aggregate of 3,510,929 shares
of the Company's Common Stock. The Company has agreed to pay certain of the
expenses of certain of such registrations, other than brokers' commissions and
fees. See "Shares Eligible for Future Sale" and "Underwriting."
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Common Stock is StockTrans,
Inc. located in Ardmore, Pennsylvania.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 13,086,006
shares of Common Stock outstanding (13,446,006 shares if the over-allotment
option is exercised in full).
Pursuant to the terms of the Underwriting Agreement, the Underwriter
has requested that all issued and outstanding shares of the Company's Common
Stock be subjected to restrictions under which they cannot be sold or otherwise
transferred, except for certain familial transfers, for a period of 18 months
from the date of this Prospectus. The Company is in the process of requiring its
shareholders to sign agreements to abide by these transfer restrictions (the
"Lock-ups") and has agreed to deliver the Lock-ups to the Underwriter within 45
days of the initial filing of this Registration Statement with the Securities
and Exchange Commission. See "Underwriting." In addition to the Underwriter's
restrictions on the transfer of the Company's Common Stock, under the terms of
the subscription agreements of previous private placements of the Company's
Common Stock, 4,959,929 outstanding shares of Common Stock may not be sold or
otherwise transferred, without the prior written consent of the Company or AML,
except for certain familial transfers, until the date set forth below:
Number of Shares Restrictions in
Subject to Restriction Effect Through
---------------------- --------------
133,000 March 19, 1998
4,129,429 September 19, 1998
155,000 February 19, 1999
37,500 March 24, 1999
102,500 May 31, 1999
20,000 October 7, 1998
97,500 October 17, 1998
182,500 October 31, 1998
102,500 December 11, 1998
Holders of an aggregate of 3,510,929 shares of Common Stock (the
"Registrable Shares") have certain registration rights with respect to the
registration of the resale of such shares under the Securities Act and will,
upon the effectiveness of a registration statement filed by the Company on
behalf of such holders, be freely tradeable under the Securities Act, subject to
the transfer restrictions described above. The Company intends to file a
registration statement with Commission covering the resale of such shares of
Common Stock following the expiration of the Lock-ups.
Once the transfer restrictions required by the Underwriter have lapsed,
all of the 2,400,000 shares (2,760,000 shares if the over-allotment option is
exercised in full) sold in this Offering will be freely transferable by persons
other than "affiliates" of the Company (as that term is defined under the
Securities Act), without restriction or further registration under the
Securities Act.
Following this Offering, 38% of the Company's outstanding shares of
Common Stock (including the 3,510,929 Registrable Shares until the resale of
such shares is registered as described above) will be "restricted securities"
and may, subject to the transfer restrictions described above, in the future be
sold in compliance with Rule 144 adopted under the Securities Act ("Rule 144").
Rule 144 generally provides that beneficial owners of Common Stock who have held
such Common Stock for one year may sell within a three-month period a number of
shares not exceeding the greater of 1%
-37-
<PAGE>
of the total outstanding shares or the average weekly trading volume of the
shares during the four calendar weeks preceding such sale. Sales under Rule 144
are also subject to certain manner of sale limitations, notice requirements and
the availability of current public information about the Company. Rule 144(k)
provides that a person who is not deemed an "affiliate" and who has beneficially
owned shares for at least two years is entitled to sell such shares at any time
under Rule 144 without regard to the limitations described above.
Future sales of restricted Common Stock under Rule 144 or otherwise or
of the Registrable Shares pursuant to a registration statement could negatively
impact the market price of the Common Stock.
In addition to the outstanding shares of Common Stock described above,
as of the date of this Prospectus, the Company has 2,500,000 shares of Common
Stock reserved for issuance upon the exercise of outstanding options under the
Plan and 902,500 shares of Common Stock are reserved for issuance upon the
exercise of outstanding warrants.
The Company is unable to estimate the number of shares that may be sold
in the future by its existing stockholders or the effect, if any, that sales of
shares by such stockholders will have on the market price of Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock by
existing stockholders could adversely affect prevailing market prices.
UNDERWRITING
The Underwriter has agreed, subject to the terms and conditions
contained in the Underwriting Agreement, to purchase from the Company the number
of shares of Common Stock indicated below at the initial offering price less the
underwriting discount set fourth on the cover page of the Prospectus. The
Underwriter is committed to purchase all of such shares, if any are purchased.
The Company has been advised by the Underwriter that the Underwriter
proposes to offer the shares to the public at the public offering price set
forth on the cover page of this Prospectus, and to certain securities dealers at
such price less a concession of not more than $_____ per share, and that the
Underwriter and such dealers may reallot to other dealers, including the
Underwriter, a discount not in excess of $______ per share. After this Offering,
the public offering price and concessions and discounts may be changed by the
Underwriter. No reduction in such terms will change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
The Company has granted an option to the Underwriter exercisable for a
period of 30 days after the date of this Prospectus, to purchase up to an
additional 360,000 shares of Common Stock from the Company at the public
offering price set forth on the cover page of this Prospectus less the
underwriting discounts and commissions. The Underwriter may exercise this option
only for the purpose of covering over-allotments, if any.
In addition to receiving its commission equal to 10% of the gross
proceeds of this offering, the Underwriter is entitled to receive a
non-accountable expense allowance equal to 3% of the gross proceeds of this
Offering.
The Company has granted to the Underwriter a right of first refusal to
underwrite or place any public or private sale of debt or equity securities of
the Company during the 18 month period following the date of this Prospectus and
on the same terms as offered to the Company by a third party. In addition, the
Underwriter has the right to conduct any transactions for the account of any of
the Company's officers, directors or beneficial shareholders of 5% or more of
the Company's Common Stock regarding any of the Company's securities sold
pursuant to Rule 144.
The Company has granted the Underwriter an option to purchase up to 10%
of the number of shares sold to the public in this offering for a period of 18
months following the date of this Prospectus at an exercise price equal to 120%
of the public offering price set forth on the cover page of this Prospectus.
The Company has agreed to retain the Underwriters as financial
consultants to the Company for a period of 18 months commencing on the date of
this Prospectus at a fee equal to $10,000 per month. The Company has also
granted the Underwriter the right to appoint a financial advisor to the
Company's Board of Directors for a term of 18 months commencing upon the
completion of this Offering.
-38-
<PAGE>
The Underwriting Agreement provides that the Company will indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act, or will contribute to payments the Underwriter may be required
to make in respect thereof.
Pursuant to the terms of the Underwriting Agreement, the Underwriter
has required that all shares of the Common Stock owned by all shareholders may
not be sold or otherwise transferred, except for certain transfers to family
members, family trusts or other family entitles, for a period of 18 months from
the date of this Prospectus. In order to enforce this provision, the Underwriter
has required that the Company obtain a signed agreement to abide by these
transfer restrictions from every shareholder of the Company within 45 days of
the initial filing of this Prospectus with the Securities and Exchange
Commission (the "Lock-ups"). All of the 2,400,000 shares (2,760,000 shares if
the over-allotment option is exercised in full) sold in this Offering will be
freely transferrable by persons other than "affiliates" (as that term is defined
under the Securities Act) of the Company, without restriction or further
registration under the Securities Act.
The offering price of the Common Stock has been determined solely by
negotiation between the Company and the Underwriter. In determining the offering
price, the Company and Underwriter considered, among other things, estimates of
the business potential of the Company and the relative capabilities of
management of the Company. The offering price does not necessarily bear any
relationship to assets, book value, net worth or earnings history of the Company
or other investment criteria. The offering price of the Common Stock should not
necessarily be considered an indication of the actual value of the Company's
securities.
The foregoing sets forth the material terms and conditions of the
Underwriting Agreement, but does not purport to be a complete statement of the
terms and conditions thereof, copies of which are on file at the offices of the
Underwriter, the Company and the Commission. See "Available Information."
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Klehr, Harrison, Harvey, Branzburg & Ellers LLP, Philadelphia,
Pennsylvania.
EXPERTS
The financial statements of the Company as of December 31, 1996 and
1995 and for the years then ended and for the period from December 16, 1994
(inception) through December 31, 1994 included herein and elsewhere in the
Registration Statement have been included herein and in the Registration
Statement in reliance upon the report (which includes a modification that
indicates that the Company's existence may be dependent on its ability to
continue to raise capital and generate sufficient working capital from
operations) of LJ Soldinger Associates, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
-39-
<PAGE>
INDEX TO THE FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report F2
Balance Sheets F3
Statements of Operations F4
Statements of Stockholders' Deficit F5
Statements of Cash Flows F6-F6A
Notes to Financial Statements F7-F21
-F1-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of netValue, Inc.
We have audited the accompanying balance sheets of netValue, Inc. (a development
stage entity) (the "Company") as of December 31, 1995 and 1996, and the related
statements of operations, stockholders' deficit and cash flows for the years
then ended, and for the period from December 16, 1994 (date of inception)
through December 31, 1994. 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 audits 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 netValue, Inc. as of December
31, 1995 and 1996, and the results of its operations, stockholders' deficit and
cash flows for the years then ended and for the period from December 16, 1994
(date of inception) through December 31, 1994, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully discussed in Note 3 to
the financial statements, the Company's dependence on outside financing,
negative working capital and losses since inception raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty. Management's plans concerning these matters are also described
in Note 3.
L J SOLDINGER ASSOCIATES
Arlington Heights, Illinois
December 30, 1997
-F2-
<PAGE>
netValue, Inc.
(A Development Stage Entity)
Balance Sheets
<TABLE>
<CAPTION>
ASSETS
December 31, September 30,
----------------------------------- -------------
1995 1996 1997
------------ ------------- -------------
(Unaudited)
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 2,407 $ 299,351 $ 26,391
Employee advances -- 7,492 21,492
Prepaid expenses -- -- 10,000
------------ ------------- -------------
Total Current Assets 2,407 306,843 57,883
Property and Equipment at Cost (Net of accumulated
depreciation of $5,758 in 1995, $17,210 in 1996 and
$141,655 in 1997) 19,599 432,049 668,350
Intangibles (Net of accumulated amortization of $1,812
in 1995, $3,508 in 1996 and $4,092 in 1997) 7,251 5,555 4,971
Deposits 358 50,145 16,675
------------ ------------- -------------
$ 29,615 $ 794,592 $ 747,879
============ ============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Note payable - related party $ -- $ -- $ 1,216,000
Accounts payable 93,164 885,052 2,117,257
Due to LLC members, net 54,778 -- --
Accrued salaries and other expenses 161,375 156,299 171,917
Accrued expenses - related parties -- 58,333 322,247
------------ ------------- -------------
Total Current Liabilities 309,317 1,099,684 3,827,421
Notes and loans payable - related parties -- -- 2,400,000
Accrued interest - related parties -- -- 147,966
------------ ------------- -------------
Total Liabilities 309,317 1,099,684 6,375,387
------------ ------------- -------------
Commitments and Contingencies -- -- --
Stockholders' Deficit
Members' capital 485,000 -- --
Preferred stock, $.001 par value per share; 1,000,000
shares authorized, 0 shares issued and outstanding -- -- --
Common stock, $.001 par value per share;
24,000,000 shares authorized
6,270,429 shares issued and outstanding -- 5,670 6,270
600,000 shares to be issued and issuable -- 600 600
Additional paid-in capital -- 3,767,434 5,255,483
Deficit accumulated during the development stage (764,702) (4,078,796) (10,889,861)
------------ ------------- -------------
Total Stockholders' Deficit (279,702) (305,092) (5,627,508)
------------ ------------- -------------
$ 29,615 $ 794,592 $ 747,879
============ ============= =============
</TABLE>
The accompanying notes are an integral
part of the financial statements.
-F3-
<PAGE>
netValue, Inc.
(A Development Stage Entity)
Statements of Operations
<TABLE>
<CAPTION>
Nine Months Ended
December 16, 1994 Year Ended December 31, September 30, December 16, 1994
(Inception) through ------------------------- ------------------------ (Inception) through
December 31, 1994 1995 1996 1996 1997 September 30, 1997
------------------- ----------- ------------ ---------- ------------ -------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Operating Expenses
Compensation and
related expenses $ -- $ 131,174 $ 742,545 $ 374,737 $ 1,957,371 $ 2,831,090
Professional fees -- 38,436 399,356 325,945 226,290 664,082
Advertising -- 236,775 219,760 10,965 777,058 1,233,593
Consulting -- 9,492 869,693 164,566 480,491 1,359,676
Research and
development expenses -- 142,224 809,491 75,365 1,898,258 2,849,973
Depreciation and
amortization -- 7,570 13,148 5,500 125,030 145,748
Other general and
administrative 17,142 181,274 262,529 41,296 626,229 1,087,174
-------- --------- ----------- --------- ----------- ------------
Loss From Operations (17,142) (746,945) (3,316,522) (998,374) (6,090,727) (10,171,336)
Other Income (Expense)
Interest Income -- 1,405 4,953 4,841 -- 6,358
Interest Expense -- (2,020) (2,525) (2,525) (157,338) (161,883)
Financing Fees -- -- -- -- (563,000) (563,000)
-------- --------- ----------- --------- ----------- ------------
Net Loss $(17,142) $(747,560) $(3,314,094) $(996,058) $(6,811,065) $(10,889,861)
======== ========= =========== ========= =========== ============
Net Loss Per Share Data:
Net loss per common and
common equivalent shares $ (.63)
===========
Weighted average number
of common and common
equivalent shares out-
standing used in the
computation 10,870,861
===========
Proforma Information
(Unaudited):
Net Loss (17,142) (747,560) (3,314,094)
Pro Forma Tax Provision -- -- --
-------- --------- -----------
Pro Forma Net Loss (17,142) (747,560) (3,314,094)
======== ========= ===========
Net Loss Per Share Data
Net loss per common and
common equivalent shares $ (.42)
===========
Weighted average number
of common and common
equivalent shares out-
standing used in the
computation 7,924,083
===========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
-F4-
<PAGE>
netValue, Inc.
(A Development Stage Entity)
Statements of Stockholders' Deficit
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
Par Value $0.001 Additional During the
----------------------------- Paid-In Members' Development
Shares Amount Capital Capital Stage Total
---------- --------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
December 16, 1994 (Date of
Inception) - $ - $ - $ - $ - $ -
Net loss - - - - (17,142) (17,142)
---------- --------- ---------- ----------- ----------- ----------
Balance at December 31, 1994 - - - - (17,142) (17,142)
Capital contribution - - - 485,000 - 485,000
Net loss - - - - (747,560) (747,560)
---------- --------- ---------- ----------- ----------- ----------
Balance at December 31, 1995 - 485,000 (764,702) (279,702)
Capital contribution - - - 15,000 - 15,000
Founders' stock; issued 1,090,000 1,090 - - - 1,090
Common stock; issued in private
placements, (net of offering
costs of $189,090) 1,931,429 1,931 2,483,979 - - 2,485,910
Common stock; issued and issuable
to former members 3,074,000 3,074 496,926 (500,000) - -
Compensatory common stock
options issued - - 172,200 - - 172,200
Compensatory common stock
warrants issued - - 2,000 - - 2,000
Common stock granted for
consulting services 350,000 350 962,152 - - 962,502
Unearned consulting services (174,999) (175) (349,823) - - (349,998)
Net loss - - - - (3,314,094) (3,314,094)
---------- --------- ---------- ----------- ----------- ----------
Balances at December 31, 1996 6,270,430 6,270 3,767,434 - (4,078,796) (305,092)
Common stock granted for
consulting services (unaudited) 174,999 175 349,823 - - 349,998
Compensatory common stock options
issued (unaudited) - - 354,100 - - 354,100
Common stock; issued in private
placements (net of offering costs
of $65,449) (unaudited) 295,000 295 524,256 - - 524,551
Common stock; issued in connection
with notes and loans payable
(unaudited) 130,000 130 259,870 - - 260,000
Net loss for period (unaudited) - - - - (6,811,065) (6,811,065)
---------- --------- ---------- ----------- ------------ ---------
Balances at September 30, 1997
(Unaudited) 6,870,429 $ 6,870 $ 5,255,483 $ - $(10,889,861) $(5,627,508)
========= ======== ============ =========== ============ ===========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
-F5-
<PAGE>
netValue, Inc.
(A Development Stage Entity)
Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
December 16, 1994 Year Ended December 31, September 30, December 16, 1994
(Inception) through ---------------------- ------------------------- (Inception) through
December 31, 1994 1995 1996 1996 1997 September 30, 1997
----------------- --------- --------- ----------- ---------- ------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Operating Activities
Net Loss $(17,142) $(747,560) $ (3,314,094) $ (996,058) $ (6,811,065) $(10,889,861)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization -- 7,570 13,148 5,500 125,030 145,748
Financing fees -- -- -- -- 563,000 563,000
Compensatory common stocks,
options and warrants issued
and issuable -- -- 786,704 174,200 704,098 1,490,802
Change in assets and liabilities
(Increase) decrease in
employee advances and
deposits -- (358) (57,279) (27,516) 19,470 (38,167)
Increase in accounts payable
and accrued expenses -- 248,691 671,806 456,731 1,362,829 2,283,326
Increase in accrued expenses -
related parties -- -- 58,333 102,085 98,880 157,213
-------- --------- ------------ ------------ ------------ ------------
Net Cash Used in
Operating Activities (17,142) (491,657) (1,841,382) (285,058) (3,937,758) (6,287,939)
-------- --------- ------------ ------------ ------------ ------------
Investing Activities
Payments for organization costs -- (9,063) -- -- -- (9,063)
Purchase of furniture and equipment -- (19,509) (308,896) (7,534) (475,753) (804,158)
-------- --------- ------------ ------------ ------------ ------------
Net Cash Used in
Investing Activities -- (28,572) (308,896) (7,534) (475,753) (813,221)
-------- --------- ------------ ------------ ------------ ------------
Financing Activities
Proceeds from member loans 17,142 37,636 26,045 26,045 -- 80,823
Repayment of member loans -- -- (80,823) (80,823) -- (80,823)
Proceeds from bridge loan -- -- 245,000 245,000 -- 245,000
Repayment of bridge loan -- -- (245,000) (245,000) -- (245,000)
Proceeds from notes and loans
payable - related parties -- -- -- -- 4,011,000 4,011,000
Repayments of notes and loans
payable - related parties -- -- -- -- (395,000) (395,000)
Proceeds from member capital
contributions -- 485,000 15,000 15,000 -- 500,000
Proceeds from private placements and
Founders' Stock, net of offering
costs -- -- 2,487,000 2,487,000 524,551 3,011,551
-------- --------- ------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral
part of the financial statements.
-F6-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net Cash Provided by
Financing Activities 17,142 522,636 2,447,222 2,447,222 4,140,551 7,127,551
-------- --------- ------------ ------------ ------------ ------------
Net Increase (Decrease) in Cash $ -- $ 2,407 $ 296,944 $ 2,154,630 $ (272,960) $ 26,391
Cash at Beginning of Period -- -- 2,407 2,407 299,351 --
-------- --------- ------------ ------------ ------------ ------------
Cash at End of Period $ -- $ 2,407 $ 299,351 $ 2,157,037 $ 26,931 $ 26,931
======== ========= ============ ============ ============ ============
Cash Paid for Interest and Taxes $ -- $ -- $ -- $ -- $ -- $ --
======== ========= ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral
part of the financial statements.
-F6A-
<PAGE>
netValue, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1997 and for the
Nine-Month Periods Ended September 30, 1996 and 1997 is Unaudited)
NOTE 1 - DESCRIPTION OF THE BUSINESS
netValue, Inc. (formerly Vsquared, Inc. which was formerly COL Acquisition
Corp.) ("netValue") was formed on July 16, 1996 and subsequently merged on
September 18, 1996 with Coupons Online, L.L.C. (the "LLC"), a limited liability
company formed on December 16, 1994 (collectively, the "Company"). The business
combination (the "Merger") was treated as a purchase in accordance with
Accounting Principles Board Opinion No. 16 "Business Combinations," whereby the
members of the LLC exchanged their membership interests in the LLC for common
stock in netValue, the surviving entity, in proportion to their former interest
in the LLC. Additional parties also received common stock in exchange for their
cancellation of certain agreements and pre-existing rights and the waiver of
certain obligations of the LLC (see Note 9 for additional discussions on the
Merger).
The Company is a Development Stage Enterprise, as defined in Statement of
Financial Accounting Standards No. 7 "Accounting and Reporting for Development
Stage Enterprises," which is developing Internet software products intended to
provide fee based targeted marketing services to both retailers and advertisers
of consumer products and services through the electronic transmission of coupon
incentives to be delivered to specific consumer segments. The Company has been
in the process of developing two products. Product testing was successfully
completed on its initial product, Coupons Online ("COL") in July 1997. The
Company has since contracted to provide services to five clients. The second
product ("i-Value"), which management anticipates will be the Company's
principal revenue producing product, has incurred the majority of the Company's
software development costs to date and is expected to begin commercial
operations in the second quarter of 1998. The Company has obtained a trademark
for COL and has applied for, but not yet obtained, a trademark for i-Value. The
Company has also applied for, but not yet obtained, patents relating to the
process for both products.
The Company's financial statements are prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles, and have
been presented on a going concern basis which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business (see
Note 3). In order to commence operations for i-Value, additional capital
investments will be required to complete the development and marketing of the
product. No assurance can be given that the Company will be able to complete the
development of i-Value nor achieve market acceptance of its products.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and the accompanying
notes. Actual results could differ from those estimates.
Research and Development Costs
Through September 30, 1997, the Company has expensed its research and
development costs in accordance with Statement of Financial Accounting Standards
No. 86 "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed" (SFAS 86). The Company intends to continue expensing such
costs until software feasibility is established. Thereafter, the Company will
capitalize the direct costs and allocated overhead associated with the
development of software products. Under SFAS 86, costs incurred subsequent to
the product release and research and development performed under contract
services are charged to operations.
Organization Costs - Intangibles
Costs incurred in connection with the organization of netValue have been
capitalized and are being amortized ratably over five years. Amortization
expense for 1995, 1996 and the nine-month periods ended September 30, 1996 and
1997 was $1,812, $1,696, $1,360 and $585, respectively. There was no
amortization expense in 1994.
-F7-
<PAGE>
netValue, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1997 and for the
Nine-Month Periods Ended September 30, 1996 and 1997 is Unaudited)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and Equipment
Property and equipment are stated at cost. The Company's policy is to depreciate
these assets over their estimated useful lives, as indicated in the following
table, using straight-line and accelerated methods.
Years
-----
Computer Hardware 5
Office Furniture and Equipment 7
Advertising Expenses
The Company expenses advertising costs as incurred. During 1995, 1996 and the
nine-month periods ended September 30, 1996 and 1997, the Company incurred
advertising expenses of $236,775, $219,760, $10,965 and $777,058, respectively.
The Company incurred no advertising expenses in 1994.
Loss Per Share
Loss per share is computed based upon the weighted average number of shares of
common stock outstanding for the period. Common stock equivalents are excluded
as their effect is anti-dilutive, except for the effect of the application of
Securities and Exchange Commission ("SEC") Staff Accounting Bulletin No. 83
("SAB No. 83"), which uses the treasury stock method. Pursuant to SAB No. 83,
common stock and common stock subject to options and warrants issued by the
Company at prices less than the contemplated initial public offering price
during the twelve months preceding the initial filing of the registration
statement (of which these financial statements form a part), have been treated
as outstanding for all periods presented.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet for cash, accounts payable
and current liabilities approximate fair value.
Segment Information
The Company conducts its business within one industry segment.
Prepaid Expenses
Prepaid expenses consist of prepaid financing fees incurred by the Company on
borrowings during the nine months ended September 30, 1997. The prepaid portion
of these fees will be charged to expense over the remainder of the term of the
related borrowings (see Note 8).
Interim Financial Information
The balance sheet as of September 30, 1997 and the related statements of
operations, stockholders' deficit and cash flows for the nine-month periods
ended September 30, 1996 and 1997 and for the period from December 16, 1994
(inception) through September 30, 1997, are unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of such financial
statements have been included. Such adjustments consisted of normal recurring
items. Interim results are not necessarily indicative of results for a full
year.
-F8-
<PAGE>
netValue, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1997 and for the
Nine-Month Periods Ended September 30, 1996 and 1997 is Unaudited)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
Income taxes for netValue are recorded in the period in which the related
transactions have been recognized in the financial statements, net of the
valuation allowances which have been recorded against deferred tax assets.
Deferred tax assets and/or liabilities are recorded for the expected future tax
consequences of temporary differences between the tax basis and financial
reporting basis of assets and liabilities. At December 31, 1996 and September
30, 1997, deferred tax assets, relating primarily to stock-based compensation
and accrued salaries to related parties that have been deferred for tax
purposes, have been offset by a valuation reserve because future utilization of
these assets cannot be determined.
Pursuant to the terms of the Internal Revenue Code, no provision or benefit for
federal income taxes has been reflected in the accompanying financial statements
for the LLC, since all tax losses flowed directly to the members.
Compensatory Stock-Based Arrangements
Management has utilized the guidelines of Accounting Principles Board Opinion
No. 25 to account for the value of stock-based compensation arrangements that
were entered into by the Company in exchange for services performed by employees
and independent contractors (see Note 9).
Concentrations
As discussed in Note 1, the Company has only one product which was offered to
the public commercially in 1997, and only one other product which is expected to
be offered to the public in 1998. Both products are to be sold in the same
industry. Lack of product development or customer interest could have a material
adverse effect on the Company. Further, significant changes in technology could
lead to new products or services that compete with the products to be offered by
the Company. These changes could materially affect the price of the Company's
products and services or render them obsolete.
Credit Risk
The Company maintains cash balances at several financial institutions. Accounts
at each institution are insured by the Federal Deposit Insurance Corporation up
to a maximum of $100,000. At December 31, 1996, the Company's uninsured cash
balances totaled $229,975. No uninsured balances existed as of September 30,
1997.
Subsequent Accounting Pronouncements Implementation
In February 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128 "Earnings Per Share" ("SFAS 128"). SFAS
128 prescribes a new method to be used when calculating earnings per share and
supersedes the prior accounting guidance provided by Accounting Principles Board
No. 15 "Earnings per Share". The Company will adopt SFAS 128 at December 31,
1997 and for the years then ended, as earlier implementation is prohibited.
Basic Loss per Share under SFAS 128 and Primary Loss per Share in accordance
with Accounting Principles Board No. 15 "Earnings per Share" (see Note 2) will
not differ significantly for the periods presented in the financial statements
and are not expected to significantly differ in 1997. Diluted Loss per Share is
anticipated to be identical to Basic Loss per Share, as, upon applying the
treasury stock method, all options and warrants would be considered
anti-dilutive and therefore excluded from the presentation.
Pro Forma Financial Information
As discussed in Note 1, netValue, which consisted substantially of cash at the
date of merger, is a successor to the LLC whose members maintained a controlling
interest upon the acquisition of netValue. Since netValue was deemed a
predecessor business, no pro forma information has been included in the
financial statements relating to netValue prior to its being acquired by the
LLC.
-F9-
<PAGE>
netValue, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1997 and for the
Nine-Month Periods Ended September 30, 1996 and 1997 is Unaudited)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Pro Forma Financial Information (Continued)
As discussed in Note 1, the Company was originally organized in the form of a
limited liability company. Upon the merger, its capital structure changed to
that of a "C" corporation. The change resulted in the Company retaining the tax
benefit for subsequent net operating losses which were formerly passed through
to the LLC members. Pursuant to Staff Accounting Bulletin Number 1B.2 "Pro Forma
Financial Statements and Earnings per Share" ("SAB 1B.2)", a pro forma income
statement has been presented which reflects the impact of the Company's change
in capital structure as if it had occurred December 16, 1994 (inception). The
effect of this presentation relates principally to the Company generating a tax
benefit for net operating losses incurred by the LLC during 1994, 1995 and 1996
(see Note 5). Pursuant to SAB 1B.2, pro forma earnings per share has only been
presented for the most recent fiscal year, which is 1996.
NOTE 3 - CONTINGENCY - GOING CONCERN
At December 31, 1996, September 30, 1997 and as of the date of this report, the
Company is in arrears with a significant number of its key vendors. Further,
Management anticipates the Company will need to expend an aggregate of
approximately $12 million in 1997 through 1998 in order to complete its systems
development, perform its market research and tests and build an appropriate
infrastructure to support its planned commercial venture.
The Company does not expect that existing stockholders will provide a material
portion of the Company's future financing requirements and intends on obtaining
additional financing from an Initial Public Offering ("IPO"). There can be no
assurance that an IPO will occur or that the Company will successfully raise the
required financing on terms desirable to the Company. Management expects to
utilize the proceeds of its Bridge Offerings (Note 11) in order to implement its
business plan, repay certain debt obligations and fund development stage cash
requirements prior to obtaining the needed funding from an IPO. The failure of
the Company to obtain such additional financing would require the Company to
adjust its business plan or may require the Company to cease operations and
liquidate. As a result of the foregoing, there is substantial doubt about the
Company's ability to continue as a going concern. These financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
December 31, December 31, September 30,
1995 1996 1997
----------- ------------ -------------
(Unaudited)
Computer equipment $ 17,197 $ 327,878 $ 685,919
Office equipment 3,973 46,087 48,792
Office furniture 4,187 75,294 75,294
--------- --------- ---------
25,357 449,259 810,005
Less accumulated depreciation (5,758) (17,210) (141,655)
--------- --------- ---------
$ 19,599 $ 432,049 $ 668,350
========= ========= =========
Depreciation expense for 1995, 1996 and the nine-month periods ended September
30, 1996 and 1997 was $5,758, $11,452, $4,140 and $124,445, respectively. There
was no depreciation expense in 1994.
-F10-
<PAGE>
netValue, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1997 and for the
Nine-Month Periods Ended September 30, 1996 and 1997 is Unaudited)
NOTE 5 - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the financial statement carrying amounts of assets and liabilities and
the amounts used for income tax purposes. The tax effects of temporary
differences and carryforwards that give rise to significant portions of the
deferred tax assets recognized at December 31, 1996 and September 30, 1997 are
presented below:
December 31, September 30,
1996 1997
------------ -------------
Deferred tax assets:
Temporary differences:
Vesting of non-qualified stock options $ 69,000 $ 211,000
Accrued salaries and compensation
to related parties 30,000 11,000
Common stock warrants issued 1,000 1,000
----------- -----------
Total temporary differences 100,000 223,000
Federal and state deferred tax benefit arising
from net operating loss carryforwards 667,000 3,220,000
Research and development credit -- 123,000
----------- -----------
Total deferred tax assets $ 767,000 $ 3,566,000
Less valuation allowance (767,000) (3,566,000)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
In accordance with federal income tax regulations, the net loss incurred by the
LLC from inception to the date of the Merger has been excluded from the benefits
of the net operating loss carryforwards reflected above.
The following table presents the principal reasons for the difference between
the effective tax rates and the United States federal statutory income tax rate
of 35%:
<TABLE>
<CAPTION>
Pro Forma
--------------------------------------------------------
December 31,
December 31, September 30, ----------------------------------------- September 30,
1996 1997 1994 1995 1996 1996
----------- ----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Federal income tax benefit at statutory
rate $ 1,160,000 $ 2,384,000 $ 6,000 $ 262,000 $ 1,160,000 $ 349,000
State and local income tax benefits,
net of effect of federal income
tax benefit 166,000 341,000 1,000 37,000 166 ,000 50,000
Research and development credit,
net of basis reduction -- 74,000 -- -- -- --
Nondeductible research and
development costs (342,000) -- -- (57,000) 354,000 (30,000)
Net loss for LLC in 1996 prior to
date of Merger (see below) (217,000) -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
767,000 2,799,000 7,000 242,000 972,000 369,000
Valuation allowance for deferred
income tax benefit (767,000) (2,799,000) (7,000) (242,000) (972,000) (369,000)
----------- ----------- ----------- ----------- ----------- -----------
Income tax benefit $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
=========== =========== =========== =========== =========== ===========
Effective income tax rate 0% 0% 0% 0% 0% 0%
=========== =========== =========== =========== =========== ===========
</TABLE>
-F11-
<PAGE>
netValue, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1997 and for the
Nine-Month Periods Ended September 30, 1996 and 1997 is Unaudited)
NOTE 5 - INCOME TAXES (Continued)
Prior to September 18, 1996, the Company was a Limited Liability Company and,
accordingly, losses were passed through to its members. For the period from
September 18, 1996 through September 30, 1997, the Company had losses which
resulted in net operating loss carryforwards for income tax purposes amounting
to approximately $8,050,000, which expire in 2011 and 2012. However, this
carryforward may be significantly limited due to changes in the ownership of the
Company as a result of future equity offerings. The Company has also generated
research and development credits approximating $123,000 that expire in 2012.
The pro forma presentation reflects the effect on the Company had the change in
capital structure to a C corporation been effective as of December 16, 1994
(inception) (see Note 2).
Recognition of the benefits of the deferred tax assets will require that the
Company generate future taxable income. There can be no assurance that the
Company will generate any earnings or any specific level of earnings in future
years. Therefore, the Company has established valuation allowances for deferred
tax assets of approximately $767,000 and $3,566,000 as of December 31, 1996 and
September 30, 1997, respectively.
NOTE 6 - OPERATING LEASES
The Company conducted its primary operations from a facility located in
Stamford, Connecticut until December 1997, which was subleased under a
sixteen-month lease agreement that commenced October 1996 and was scheduled to
expire January 1998. Monthly rent under the lease agreement amounts to $11,062.
In July 1997 the Company became delinquent on its monthly rental obligations. In
October 1997, in complete settlement of the existing lease agreement, the
landlord agreed to apply $35,671 of the Company's security deposit to the rental
arrearage and accept payment of $30,713 for the remaining term of the lease.
In November 1997, the Company executed a lease agreement for a facility located
in Fairfield, Connecticut where it currently conducts its primary operations.
The agreement commences December 1997 and expires December 2000. Monthly rent
under this lease agreement amounts to $13,284 plus additional rent for the
Company's pro rata portion of certain property expenses. A security deposit of
$79,704 was paid pursuant to the terms of the lease agreement.
The Company previously conducted its operations in a facility located in New
York City under a lease agreement with monthly lease payments of $1,512 which
commenced June 1995 and expired June 1997.
Total rental expense amounted to $10,584, $29,300, $12,096 and $97,818 in 1995,
1996 and for the nine-month periods ended September 30, 1996 and 1997,
respectively. There was no rental expense in 1994. Annual minimum rental
payments required under the terms of the Company's lease agreements amount to
$159,408 in 1998, 1999 and 2000.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Commitments and contingencies not disclosed elsewhere in the financial
statements are as follows:
The Company entered into a five-year employment agreement with its Chief
Executive Officer ("CEO") and a one-year employment agreement with its Chief
Technology Officer ("CTO") on September 19, 1996, which were subsequently
amended and restated as of September 19, 1997 (collectively the "Compensation
Agreements") (see Note 11).
-F12-
<PAGE>
netValue, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1997 and for the
Nine-Month Periods Ended September 30, 1996 and 1997 is Unaudited)
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
The Compensation Agreements call for the issuance of stock options [see Note 9
(i)], annual salaries at specified amounts, and bonuses and salary increases to
be given at the discretion of the Company's Board of Directors. The Compensation
Agreements also require the deferral of specified salary amounts which
approximated $17,700 and $26,250 at December 31, 1996 and September 30, 1997,
respectively. In addition, the CEO's employment agreement provides that in the
event severance payments become due, such payments will be secured by a lien and
security interest in certain of the Company's intangible assets.
During 1996, the Company entered into an agreement with DMR Trecom, Inc.
("Trecom") pursuant to which Trecom agreed to develop core software for the
Company and perform the Company's initial systems integration for its two
products. As described in Note 1, Management has completed development of its
initial product, COL, and is currently in the process of developing i-Value.
Pursuant to the agreement, Trecom was granted a security interest in the
software on which it provided development services. The security interest
encumbers the Company's ownership and title to the software, and requires
Trecom's authorization when it will be utilized by the Company for commercial
purposes. Upon satisfaction of all of the Company's obligations under the
agreement, the Company will no longer be encumbered by the security interest. At
December 31, 1996 and September 30, 1997, the Company owed Trecom $300,000 and
$1,173,365, respectively.
As of September 30, 1997, the Company owed Trecom $1,173,365 in arrears, and
Trecom had discontinued work on the Company's software. In October 1997, the
Company paid Trecom $600,000 (which included a $300,000 prepayment for future
services), and as a result Trecom resumed its services. As of the date of this
report, the Company and Trecom were negotiating to restructure the terms of
payment on the remaining $900,000 balance owed to Trecom. Management believes
that the final agreement with Trecom will require that the $900,000 balance be
paid by the earlier of April 30, 1998 or five days subsequent to the Company's
IPO, with simple interest accruing at the prime rate on the unpaid balance
commencing October 1, 1997. Failure by Trecom to develop the core software for
i-Value and/or complete the Company's initial systems integration of the product
on a timely basis could have a material adverse effect on the Company.
During 1996, the Company entered into a series of agreements with Media Circus
to develop consumer interface software and other products for the Company. As of
December 31, 1996, $97,250 of expense had been incurred and paid in connection
with these agreements of which $10,000 was incurred in the nine months ended
September 30, 1996. The Company has since discontinued its relationship with
Media Circus and is currently disputing outstanding invoices totaling $32,250.
During 1996, the Company reached an agreement with Guild Concepts, Ltd.
("Guild") pursuant to which Guild agreed to provide the Company with certain
marketing and creative services in connection with the promotion of the
Company's programs. As of December 31, 1996 and September 30, 1997,
approximately $60,000 and $432,000, respectively, had been incurred in
connection with this agreement. None of these costs were incurred in the nine
months ended September 30, 1996. As of September 30, 1997, approximately
$243,000 was owed to Guild and included in accounts payable.
During the nine-month period ended September 30, 1997, the Company became a
defendant in three lawsuits which aggregate approximately $85,000. The
plaintiffs are vendors that allege nonpayment of obligations which were incurred
in 1997. In addition, in November 1997, Guild filed a lawsuit against the
Company for $243,538 also alleging non payment. Management is currently working
to resolve these lawsuits in a manner favorable to the Company.
-F13-
<PAGE>
netValue, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1997 and for the
Nine-Month Periods Ended September 30, 1996 and 1997 is Unaudited)
NOTE 8 - NOTES AND LOANS PAYABLE - RELATED PARTIES
Notes and loans payable at September 30, 1997 consisted of the following:
VDC Corporation, Ltd. (a) $2,600,000
Golden Eagle Partners (b) 250,000
American Maple Leaf Financial Corporation (c) 466,000
Private Investor (d) 300,000
----------
3,616,000
Less: Current Portion 1,216,000
----------
Long-Term Portion $2,400,000
==========
There were no outstanding notes or loans payable at December 31, 1995 and 1996.
(a) On January 17, 1997, the Company entered into an agreement with VDC
Corporation, Ltd. ("VDC"), whereby VDC provided the Company with one year
bridge financing amounting to $2,500,000. In consideration for the receipt
of the VDC bridge financing, the Company issued 100,000 shares of common
stock to VDC which has been recorded as a financing fee expense of $200,000
for the nine-month period ended September 30, 1997. The VDC bridge
financing accrued interest at a rate of 10% per annum and was subordinate
to the Golden Eagle note discussed below [see Note 8(b)]. On November 14,
1997 the Company and VDC agreed to convert $2,400,000 of the bridge
financing into common stock (see Note 11). As a result of the conversion,
$2,400,000 has been reflected in the long-term portion of notes and loans
payable at September 30, 1997. The remaining balance of the VDC bridge
financing in the amount of $100,000 was repaid in December, 1997 with
proceeds from the sale of the Company's preferred stock (see Note 11).
On April 22, 1997, the Company and VDC entered into an agreement whereby
the Company was to be recapitalized, and VDC would acquire a majority
voting interest in the Company ("VDC Agreement"). The VDC Agreement was not
consummated, and on August 26, 1997 the Company and VDC mutually agreed to
terminate the VDC Agreement.
On August 13, 1997, the Company obtained an additional $100,000 in
financing from VDC. In consideration for the financing, the Company issued
a convertible promissory note which accrued interest at the rate of 10% per
annum, with all principal and accrued interest due November 11, 1997. The
maturity date for the note had been extended until August 13, 1998 as long
as the Company was proceeding towards the consummation of an IPO. The
balance of accrued interest associated with this note was converted into
the Company's common stock on November 14, 1997 (see Note 11). The
principal balance of $100,000 was repaid with proceeds from the sale of the
Company's preferred stock (see Note 11).
(b) On June 17, 1997, the Company obtained $250,000 in financing from Golden
Eagle Partners ("Golden Eagle"). In consideration for the financing, the
Company issued a convertible promissory note which accrued interest at the
rate of 10% per annum with all principal and accrued interest due September
15, 1997. The maturity date for the note had been extended until June 17,
1998 as long as the Company was proceeding towards the consummation of an
IPO. On December 1, 1997, the Company agreed to issue 10,000 shares of
common stock to Golden Eagle as consideration in the amount of $20,000 for
the cancellation of Golden Eagle's conversion and registration rights under
the terms of Loan and Security Agreement between the Company and Golden
Eagle (see Note 11). Expense related to this loan restructuring of $13,000
was incurred for the nine-month period ended September 30, 1997, and
reflected in accrued expense-related parties. The balance of the loan
restructuring cost in the amount of $7,000 will be recorded as an expense
over the unexpired term of the loan.
-F14-
<PAGE>
netValue, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1997 and for the
Nine-Month Periods Ended September 30, 1996 and 1997 is Unaudited)
NOTE 8 - NOTES AND LOANS PAYABLE - RELATED PARTIES (Continued)
(c) During the nine months ended September 30, 1997, the Company received
$466,000 in unsecured advances (net of repayments amounting to $395,000)
from American Maple Leaf Financial Corporation (" AML"). The Company also
issued 190,200 shares to AML as payment for financing fees in the amount of
$380,400 incurred in connection with AML's consensual forbearance on these
advances. Expense of $300,000 was incurred for the nine-month period ended
September 30, 1997, and reflected in accrued expenses - related parties.
The balance of the financing fee in the amount of $80,400 will be recorded
as an expense over the remaining term of the loan. The balance of the loan
of $25,000 was repaid in December 1997 with proceeds from the sale of the
Company's preferred stock (see Note 11).
(d) On September 5, 1997, the Company obtained $300,000 in an unsecured 30-day
bridge financing note at an interest rate of 10% from a private investor.
As additional consideration for such financing, the Company issued 30,000
shares of common stock to the investor amounting to $60,000. An expense
relating to this financing fee in the amount of $50,000 was incurred in the
nine-month period ended September 30, 1997, with the unexpired balance of
$10,000 reflected as prepaid expenses. The note was acquired by another
private investor, who extended the maturity date to November 4, 1997. The
note was subsequently paid in October 1997.
NOTE 9 - CAPITAL STOCK ACTIVITY
Capital stock activity for the year ended December 31, 1996 and the nine-month
period ended September 30, 1997 was as follows:
<TABLE>
<CAPTION>
Purchase Price Consulting Cost
---------------------- -----------------------
Shares Issued Date Per Share Total Per Share Total
------------- -------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
1,090,000 (a) 08/02/96 $ .001 $ 1,090 $ - $ -
581,429 (b) 09/06/96 $ .17 100,000 - -
250,000 (c) 09/06/96 $ 1.40 350,000 - -
650,000 (d) 09/06/96 $ 1.00 650,000 - -
2,474,000 (g) 09/18/96 $ - - - -
450,000 (h) 09/19/96 $ 3.50 1,575,000 - -
175,001 (f) various 3.50 612,504
Costs of issuance (189,090)
--------- -----------
Balances
December 31, 1996 5,670,430 $ 2,487,000
--------- ==========
174,999 (f) various $ - $ - $ 2.00 $ 349,998
192,500 (j) 03/97 $ 2.00 385,000 - -
102,500 (k) 05/97 $ 2.00 205,000 - -
100,000 (l) - $ - - - -
30,000 (l) - $ - - - -
- Costs of issuance (65,449)
---------------- -----------
Balances September 30,
1997 (Unaudited) 6,270,429 $ 524,551
========= ==========
Purchase Price
--------------
Shares Issuable Date Per Share Total
--------------- ---- --------- -----
600,000 (g) 09/18/96 $ - $ -
=========
</TABLE>
-F15-
<PAGE>
netValue, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1997 and for the
Nine-Month Periods Ended September 30, 1996 and 1997 is Unaudited)
NOTE 9 - CAPITAL STOCK ACTIVITY (Continued)
<TABLE>
<CAPTION>
Warrants/ Date of Exercise Date
Options Issued Grant Price Exercisable
-------------- ----- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
500,000 (a) 08/02/96 $ 6.00 8/2/96
439,634 (e) 09/18/96 $ 3.50* 1/1/98*
16,334 (e) 09/18/96 $ 6.00* 1/1/98*
* canceled April 3, 1997
Compensatory Options
Options Issued
Options Issued to Other
to Vesting Exercise Directors and Vesting Exercise
CEO and CTO Date ** Price (i) Employees Date ** Price (i)
--------------- ---------- ----------- ---------------- ---------- ---------
60,000 09/19/96 $ .63 155,500 7/1/97-12/12/98 $.80
50,000 09/19/97 .63 155,500 7/1/98-12/12/99 4.00
196,000 09/19/97 .80 155,500 7/1/99-12/12/2000 5.00
196,000 09/19/98 4.00 155,500 7/1/2000-12/12/2001 6.00
196,000 09/19/99 5.00
196,000 09/19/2000 6.00
158,000 09/19/2001 7.00
</TABLE>
** All options expire on the fifth anniversary of their vesting date.
Management has elected to follow Accounting Principles Board No. 25 "Accounting
for Stock Issued to Employees" ("APB 25") and related interpretations in
accounting for its stock-based compensation. Additional disclosure as required
under the guidelines of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" is presented below.
<TABLE>
<CAPTION>
December 31, 1996 September 30, 1996 September 30, 1997
----------------------------- ---------------------- ----------------------------
(Unaudited) (Unaudited)
Pro Forma
(Unaudited)
Net Loss Per Share Net Loss Net Loss Per Share
------------- ------------- --------------------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
As Reported $ (3,314,094) $(.42) $ (996,058) $(6,811,065) $(.63)
============= ====== =========== =========== ======
Pro Forma $ (3,149,487) $(.40) $ (831,451) $(6,456,965) $(.59)
============= ====== =========== =========== ======
</TABLE>
No such differences between the application of APB 25 and SFAS 123 existed for
1994 and 1995.
(a) On July 16, 1996, netValue was formed solely for the purpose of merging
with the LLC. On August 2, 1996, in exchange for $1,090, the initial
stockholders ("the Founders") received an aggregate of 1,090,000 shares of
common stock (the "Founders' Shares"). In connection with the Company's
formation, APP Investments, Inc., an affiliate of AML, was issued warrants
to acquire 500,000 shares of common stock at an exercise price of $6.00 per
share and at a fair value of $.004 per share (as determined by an
independent valuation company). The issuance resulted in stock-based
consulting expense of $2,000. The warrants (and the underlying shares) and
the Founders' Shares, except for 450,000 shares issued to AML, are
restricted from sale, transfer or disposal ("Lockup Agreement") until
September 1998 without the prior written consent of AML. The warrants are
currently exercisable and expire in August 2001.
-F16-
<PAGE>
netValue, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1997 and for the
Nine-Month Periods Ended September 30, 1996 and 1997 is Unaudited)
NOTE 9 - CAPITAL STOCK ACTIVITY (Continued)
(b) On September 6, 1996 the Company sold an aggregate of 581,429 shares of
common stock to a group of Accredited Investors (as defined under
Regulation D of the Securities Act of 1933, as amended ("Accredited
Investors")) for an aggregate price of $100,000 ($.17 per share). These
shares are subject to a Lockup Agreement until September 18, 1998 without
the prior written consent of the Company.
(c) On September 6, 1996 the Company sold an aggregate of 250,000 shares of
common stock to a group of Accredited Investors for an aggregate price of
$350,000 ($1.40 per share). These shares are subject to a Lockup Agreement
until September 18, 1998 without the prior written consent of the Company.
(d) On September 6, 1996 the Company sold 650,000 shares of common stock to VDC
for an aggregate purchase price of $650,000 ($1.00 per share) (see Note
10). All of the shares held by VDC are subject to a one-year Lockup
Agreement from the effective date of the Company's anticipated IPO.
(e) On September 12, 1996, the LLC entered into an agreement with Muzak Limited
Partnership ("Muzak") (the "Muzak Agreement"). Under the Muzak Agreement,
Muzak was appointed as the exclusive sales agent for a three-year period to
sell and solicit orders for various targeted coupons, rebates, special
offers and incentives offered by the Company via the Internet. In
connection with the Muzak Agreement and Merger agreement, Muzak received
474,000 shares of common stock, an option (the "Muzak Option") to purchase
439,634 shares of common stock at an exercise price of $3.50 per share
pursuant to certain anti-dilutive protections ("the Muzak Option") and
16,334 shares of common stock at $6.00 per share pursuant to such
anti-dilutive protections.
On April 3, 1997, the Company and Muzak mutually agreed to terminate the
Muzak Agreement. Upon the termination of the Muzak Agreement, the Muzak
Option automatically expired and was canceled.
(f) On September 18, 1996, the Company entered into an agreement with AML, a
related party, pursuant to which AML agreed to provide investment banking
services to the Company for the six-month period commencing September 18,
1996 in exchange for 350,000 shares of common stock valued at $962,502.
Such shares were issuable to AML in six equal installments over the term of
the Agreement which commenced on October 17, 1996 and ended on March 17,
1997. During 1996, in accordance with APB 25, the Company recorded
consulting expense of approximately $671,000, representing the cost of
175,001 shares issued as of December 31, 1996, and approximately $58,000 of
accrued expense. Unearned shares not yet issued at December 31, 1996 were
deducted from equity on the balance sheet. Consulting expense incurred in
the nine-month period ended September 30, 1996 amounted to approximately
$102,000. During the nine-month period ended September 30, 1997, the
remaining 174,999 shares were issued, resulting in consulting expense of
approximately $292,000. None of the shares held by AML are subject to
Lockup Agreements.
(g) In connection with the Merger, the members of the LLC exchanged all of
their issued and outstanding membership interests, representing cumulative
capital contributions of $500,000, plus the termination and waiver of all
related party agreements, pre-existing rights, claims and causes of action
(except for some predetermined surviving claims) for 3,074,000 shares of
common stock of netValue. 600,000 of these shares (the "Holdback Shares")
were issuable pending verification of certain representations and
warranties made by the Co-Founders of the LLC which was accomplished in
July 1997 (see Note 11). At the completion of the transaction, the LLC
ceased to exist and, as discussed in Note 1, the transfer of the member
ownership interests was recorded as a purchase in accordance with
Accounting Principles Board No. 16 "Business Combinations". Holders of
532,000 shares of common stock entered into Lockup Agreements subject to
the prior written consent of AML, until September 18, 1997 with respect to
25% of such shares, March 18, 1998 with respect to 25% of such shares and
September 18, 1998 with respect to the balance of such shares. The Holdback
Shares were not subject to a Lockup Agreement, and the remaining 1,942,000
shares are subject to a Lockup Agreement until September 18, 1998 unless
prior written consent of AML is obtained.
-F17-
<PAGE>
netValue, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1997 and for the
Nine-Month Periods Ended September 30, 1996 and 1997 is Unaudited)
NOTE 9 - CAPITAL STOCK ACTIVITY (Continued)
(h) On September 19, 1996 the Company sold an aggregate of 450,000 shares of
common stock to a group of Accredited Investors for an aggregate amount of
$1,575,000 ($3.50 per share). These shares are subject to a Lockup
Agreement until September 19, 1998 unless prior written consent of AML is
obtained.
(i) During 1996, a stock option plan (the "Plan") was adopted by the Company
which granted nonqualified stock options to employees, directors and
consultants. Pursuant to the amended Plan, as of the date of this report,
2,500,000 shares of common stock were reserved for issuance. On September
19, 1997, options aggregating 1,052,000 shares were issued to the CEO and
CTO in connection with their employment agreements (see Notes 7 and 11).
Such shares are subject to a Lockup Agreement until September 19, 1998
unless prior written consent of the Company is obtained. In addition to the
1,052,000 options issued to the CEO and CTO, in December of 1997 the
Company issued compensatory options aggregating 622,000 shares of common
stock to employees and other directors of the Company (see Note 11).
Certain grants of fully-vested options carried exercise prices which were
less than the fair value of the common stock at the date of the grant
resulting in compensation expense of $172,200 and $354,100 for 1996 and for
the nine-month period ended September 30, 1997, respectively.
(j) During the first quarter of 1997, the Company sold an aggregate of 192,500
shares of common stock to a group of Accredited Investors for an aggregate
purchase price of $385,000 ($2.00 per share) less approximately $18,852 in
commissions paid to registered broker dealers. Such shares are subject to a
Lockup Agreement for two years from the date of issuance unless prior
written consent of AML is obtained.
(k) On May 31, 1997, the Company sold an aggregate of 102,500 shares of common
stock to a group of Accredited Investors for an aggregate purchase price of
$205,000 ($2.00 per share). Such shares are subject to a Lockup Agreement
for two years from the date of issuance unless prior written consent of AML
is obtained. Commissions of $4,500 were paid on this offering.
(l) During the nine-month period ended September 30, 1997, the Company issued
100,000 shares of common stock to VDC [see Note 8(a)] and 30,000 shares to
a private investor [see Note 8(d)] in connection with the requirements of
each of their respective loan agreements.
Costs relating to the above transactions consisted of legal fees and commissions
paid to registered broker-dealers amounting to $189,090 and $65,449 in 1996 and
the nine-month period ended September 30, 1997, respectively, of which $31,150
and $23,352, respectively, was paid to AML, a related party.
NOTE 10 - RELATED PARTIES
Related party transactions not disclosed elsewhere in the financial statements
are as follows:
In 1994, the former president of the LLC, who is currently a significant
shareholder of the Company, loaned the Company $17,142 to fund operations.
During 1995, certain members of the LLC advanced funds to the Company amounting
to $37,636. Such amounts were non-interest bearing and were payable when funds
became available. These advances from the members were repaid in full during
1996.
In 1996, an additional $26,045 was advanced to the Company by certain
shareholders. The advance was repaid in full during 1996.
-F18-
<PAGE>
netValue, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1997 and for the
Nine-Month Periods Ended September 30, 1996 and 1997 is Unaudited)
NOTE 10 - RELATED PARTIES (Continued)
American Maple Leaf Financial Corp. ("AML"), a significant shareholder of the
Company that was also an employer of a director of the Company until September
1997, received $31,150 and $23,352 during 1996 and the nine-month period ended
September 30, 1997, respectively, in investment banking fees and expenses
related to the Company's various private placement offerings (see Note 9). AML
also received stock-based compensation of 350,000 shares of the Company's stock
with an aggregate value of $962,502 for the performance of additional investment
banking services [see Note 9(f)].
On June 14, 1996, the Company entered into a $245,000 bridge loan agreement with
VDC Corporation, Ltd. ("VDC"), a significant shareholder. The loan was paid in
full in September 1996 in conjunction with a stock purchase by VDC [see Note
9(d)].
On September 18, 1996, the Company entered into three-year consulting agreements
with two former executives of the LLC, who are also significant shareholders of
the Company ("Co-Founders"). The agreements provide each consultant with
compensation of $84,000 per year. The aggregate amount paid on these agreements
was $46,480 in 1996 and $130,904 for the nine-month period ended September 30,
1997. No such compensation was paid in the nine-month period ended September 30,
1996. In December 1997, the consulting agreements with the Co-Founders were
canceled and replaced with employment agreements and option agreements (see
Notes 9 and 11).
NOTE 11 - SUBSEQUENT EVENTS
During the third and fourth quarters of 1997, the Company commenced a $3,000,000
and a $2,000,000 private placement offering ("Bridge Offerings") aggregating 200
Units at $25,000 per Unit. Each Unit consisted of a promissory note in the
principal amount of $25,000 ("Note"), 2,500 shares of common stock, and a
warrant to purchase 2,500 shares of common stock. The Notes are unsecured
subordinated obligations of the Company which accrue interest at the rate of 10%
per annum. All principal and accrued interest due and payable on the Notes is
payable in full on the earlier of the one year anniversary of their date of
issuance or that date which is five days after the consummation by the Company
of certain equity or licensing transactions which provide gross proceeds to the
Company of at least $3,000,000. The warrants have an exercise price equal to the
lower of $4.00 or the price per share at which the common stock is offered to
the public in the event of an IPO. The warrants are exercisable for a period of
five years commencing on the date the common stock is first registered with the
SEC. All of the Units and the notes, warrants and shares of common stock
issuable as part of the Units or upon exercise of the warrants, are subject to a
Lockup Agreement until the one-year anniversary of the date of the issuance of
the Units, unless prior written consent of AML is obtained. The Bridge Offerings
began closing in October 1997 and was completed as of December 15, 1997, the
Company had raised $4,025,000 related to the Bridge Offerings.
On October 5, 1997, the Company's $300,000 bridge note from a private investor
[Note 8(d)] was acquired by another private investor, who extended its maturity
date to November 5, 1997. The Company paid the balance of the bridge note in
October 1997 with proceeds from the Bridge Offerings.
On November 14, 1997 the Company and VDC mutually agreed to convert the
outstanding balance of principal and accrued interest on $2,400,000 of the VDC
bridge financing and accrued interest on the convertible promissory note [see
Note 8(a)], which aggregated $2,578,301, into 3,222,877 shares of the Company's
common stock.
-F19-
<PAGE>
netValue, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1997 and for the
Nine-Month Periods Ended September 30, 1996 and 1997 is Unaudited)
NOTE 11 - SUBSEQUENT EVENTS (Continued)
On December 1, 1997 the Company and Golden Eagle agreed to modify their Loan and
Security Agreement ("Golden Eagle Agreement") relating to the Company's $250,000
obligation to Golden Eagle. The modification requires the Company to pay the
outstanding balance of the loan plus the balance of accrued interest to Golden
Eagle within five days of the Company's IPO. In addition, at the time of
repayment, the Company will issue 10,000 shares of common stock as additional
consideration. In return, Golden Eagle agreed to the cancellation of its
registration and conversion rights under the Golden Eagle Agreement. As further
consideration, Golden Eagle agreed to cancel its Intercreditor Agreement with
VDC, thereby allowing the Company to repay VDC prior to Golden Eagle.
In December 1997, the Company amended and restated its five-year employment
agreement with its CEO and its one-year employment agreement with its CTO (see
Note 7). The modifications to each of the Compensation Agreements related to the
cancellation and replacement of certain previously issued options and increased
annual salaries.
In December 1997, the Company issued 190,200 shares of common stock to AML as
consideration for the advance of short-term bridge financing and the consensual
forbearance by AML [see note 8(c)].
In December 1997, the Company issued the 600,000 Holdback Shares [see Note 9(g)]
of common stock to the Co-Founders of the LLC.
In November 1997, the Company executed a lease agreement for a facility located
in Fairfield, Connecticut where it intends to conduct its primary operations.
The agreement commences December 1997 and expires December 2000. Monthly rent
under this lease agreement amounts to $13,284 plus additional rent for the
Company's pro rata portion of certain property expenses. A security deposit of
$79,704 was paid pursuant to the terms of the lease agreement.
In November 1997, the Company became a defendant in a lawsuit from Guild whereby
Guild alleged non payment of the Company's obligation amounting to $243,538.
Management is currently working to resolve this lawsuit in a manner favorable to
the Company.
In December 1997, the Company canceled the consulting agreements with the
Co-Founders. The consulting agreements were replaced with employment agreements
providing each of the Co-Founders with an annual salary of $85,000 plus
commissions for the first year with compensation on a commission basis
thereafter. In addition, the Co-Founders were each granted options to purchase
an aggregate of 60,000 shares of common stock (see Note 9). All stock purchased
under these option agreements is subject to a two year lock-up commencing
December 19, 1997.
In December 1997, the Company granted 502,000 options to acquire common stock to
certain employees, including 78,000 options granted to employees who are also
directors. The options vest equally over four years commencing on each
employee's anniversary date of employment (see Note 9).
On December 15, 1997, the Company entered into a Preferred Stock Purchase
Agreement (the "Preferred Stock Agreement") with Rozel International Holdings
Limited ("Rozel"). Pursuant to the terms of the Preferred Stock Agreement, the
Board of Directors created a Series A Convertible Preferred Stock consisting of
300,000 shares at $.001 par value, $10.00 stated value ("Series A Shares") with
no common voting or registration rights. The Series A Shares may be converted
into 12.5 shares of common stock at the option of the Company or Rozel. The
shares bear no dividends, and the preferred shareholders would receive the
stated value of their shares as a priority over common stock shareholders in the
event of a liquidation of the Company.
-F20-
<PAGE>
netValue, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1997 and for the
Nine-Month Periods Ended September 30, 1996 and 1997 is Unaudited)
NOTE 11 - SUBSEQUENT EVENTS (Continued)
The Preferred Stock Agreement requires Rozel, upon the request of the Company,
to periodically purchase up to an aggregate of 300,000 shares at an aggregate
purchase price of $3,000,000. The terms of the Preferred Stock Agreement provide
that the Company may require Rozel to purchase the Series A Shares as follows:
Purchase
Date Shares Price
-------------------- ------ -----
December 15, 1997 22,500 $ 225,000
Subsequent to 2/1/98 70,000 $ 700,000
Subsequent to 3/1/98 70,000 $ 700,000
Subsequent to 4/1/98 50,000 $ 500,000
Subsequent to 5/1/98 50,000 $ 500,000
Subsequent to 6/1/98 37,500 $ 375,000
Converted shares are subject to an eighteen-month Lockup Agreement commencing
on the date of the Company's IPO.
In exchange for satisfying the aforementioned purchase requirements of the
Preferred Stock Agreement, the Company will issue 150,000 shares of common stock
to Rozel upon satisfaction of the aforementioned funding requirements. These
shares of common stock will have registration rights for the purpose of public
resale and will be subject to an eighteen-month Lockup Agreement commencing on
the effective date of the Company's IPO. In December 1997, Rozel had purchased
22,500 Series A Shares for $225,000. The remaining 277,500 shares of Series A
Shares are reserved for issuance. 900,000 shares of Preferred Stock remain
authorized, undesignated and unissued.
In December 1997, the Company signed a letter of intent with J.B. Sutton Group,
L.L.C. ("Underwriter") to underwrite the Company's initial public offering of
2,400,000 shares at an offering price of $5.00 per share, which would result in
aggregate offering proceeds of $12,000,000 less offering costs. The
underwriter's agreement calls for the Underwriter to receive a commission of 10%
and an expense allowance of 3% of the IPO's gross proceeds. The underwriter's
agreement also requires all of the Company's shareholders of record prior to the
IPO to agree to an eighteen-month Lockup Agreement within forty-five days of the
Company's filing of a registration statements with the SEC. In addition, the
Company will retain the Underwriter as financial consultants for an
eighteen-month period commencing at or prior to the closing of the IPO for a fee
of $10,000 per month.
-F21-
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to sell
or solicitation of an offer to buy any securities in any jurisdiction in which
such offer or solicitation is not authorized, or in which the person making such
offer or solicitation is not qualified to do so, or to any person to whom it is
unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company or
that information contained herein is correct as of any time subsequent to the
date hereof.
-------------------
TABLE OF CONTENTS
-------------------
Page
----
Available Information...............................................2
Prospectus Summary..................................................3
Forward-Looking Statements..........................................5
Risk Factors .......................................................5
Use of Proceeds....................................................10
Market Price of and Dividends on Common
Stock and Related Shareholder Matters............................11
Capitalization.....................................................11
Dilution...........................................................13
Selected Financial Data............................................14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.......................................................16
Business...........................................................19
Management ........................................................24
Security Ownership of Principal Stockholders
and Management...................................................32
Certain Transactions ..............................................34
Description of Capital Stock.......................................35
Shares Eligible for Future Sale....................................37
Underwriting.......................................................38
Legal Matters......................................................39
Experts............................................................39
Index to Financial Statements......................................F1
================================================================================
<PAGE>
================================================================================
-------------------------------
NETVALUE, INC.
2,400,000 SHARES OF COMMON STOCK
-------------
PROSPECTUS
--------------
December 30, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses to be incurred in
connection with the Offering. All amounts are estimates except the Commission
Registration Fee.
Commission Registration Fee....................... $4,071.00
NASD Filing Fee................................... 1,880.00
NASDAQ SmallCap Fee............................... 11,760.00
EDGAR and Printing Expenses....................... 15,000.00
Legal Fees and Expenses........................... 65,000.00
Accounting Fees and Expenses...................... 65,000.00
Blue Sky Fees and Expenses........................ 30,000.00
Transfer Agent's Fees and Expenses................ 15,000.00
Miscellaneous Expenses............................ 92,289.00
---------
Total*................................... $300,000.00
===========
* All expenses other than the Commission Registration Fee, NASD Filing
Fee, NASDAQ SmallCap Fee and the Blue Sky Fees and Expenses are estimated.
Item 14. Indemnification of Directors and Officers.
The Company's Amended and Restated Certificate of Incorporation
eliminates the liability of directors of the Company for monetary damages for
breach of their fiduciary duty as directors, other than the liability of a
director (i) for a breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions by the director not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii) for
a willful or negligent declaration of an unlawful dividend, stock purchase or
redemption or (iv) for transactions from which the director derived an improper
personal benefit. These provisions are consistent with applicable Delaware law.
In addition, the Company's Bylaws include provisions to indemnify its
officers and directors and other persons against expenses, judgments, fines and
amounts incurred or paid in settlement in connection with civil or criminal
claims, actions, suits or proceedings against such persons by reason of serving
or having served as officers, directors, or in other capacities, if such person
acted in good faith, and in a manner such person reasonably believed to be in or
not opposed to the best interest of the Company and, in a criminal action or
proceeding, if he had no reasonable cause to believe that his/her conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he or she reasonably believed to be in or not opposed to
the best interests of the Company or that he or she had reasonable cause to
believe his or her conduct was unlawful. Indemnification as provided in the
Bylaws shall be made only as authorized in a specific case and upon a
determination that the person met the applicable standards of conduct.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
issuer pursuant to the foregoing provisions, or otherwise, the issuer 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. In the event that a claim for indemnification
against such liabilities (other than the payment by the issuer of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the 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 Securities Act and will be governed by the final
adjudication of such issue.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
The following sets forth all sales of the Company's securities during
the past three years. None of such securities were registered under the
Securities Act of 1933, as amended (the "Securities Act"), in reliance on
exemptions from registration under Section 4(2) of the Securities Act as
transactions by an issuer not involving any public offering. The purchasers in
these transactions acquired the securities for investment purposes only and the
stock certificates representing the shares issued in connection with such
exemptions bear restrictive legends indicating that the shares may not be freely
transferred.
On July 16, 1996, the Company was formed solely for the purpose of
merging with Coupons Online, L.L.C. ("COL") through a merger or similar
transaction (the "Merger"). In exchange for an aggregate purchase price of
$1,090, the founders, including American Maple Leaf Financial Corporation
("AML"), received an aggregate of 1,090,000 shares of the Company's common
stock, $.001 par value per share (the "Common Stock"). In addition, in
connection with the Company's formation, APP Investments, Inc., an affiliate of
AML, was issued a five-year warrant to acquire 500,000 shares of Common Stock at
an exercise price of $6.00 per share.
On September 6, 1996, the Company issued and sold an aggregate of
581,429 shares of Common Stock pursuant to Section 4(2) of the Securities Act to
a group of "accredited investors" (as defined in Rule 501(a) of Regulation D
promulgated under the Securities Act) for an aggregate purchase price of
$100,000 ($.17 per share of Common Stock).
On September 6, 1996, the Company issued and sold an aggregate of
250,000 shares of Common Stock pursuant to Section 4(2) of the Securities Act to
a group of accredited investors for an aggregate purchase price of $350,000
($1.40 per share of Common Stock).
On September 6, 1996, the Company issued and sold 650,000 shares of
Common Stock pursuant to Section 4(2) of the Securities Act to VDC for an
aggregate purchase price of $650,000 ($1.00 per share of Common Stock).
On September 18, 1996, the Company entered into a Consulting Agreement
with AML (the "AML Consulting Agreement") pursuant to which AML agreed to
provide investment banking services to the Company in exchange for 350,000
shares of Common Stock, all of which shares have been issued pursuant to Section
4(2) of the Securities Act.
On September 18, 1996, Coupons Online, L.L.C., New Jersey Limited
Liability Company (the "COL"), was merged (the "Merger") with and into the
Company. In connection with the Merger, the Company issued an aggregate of
3,074,000 shares of Common Stock to the members of COL (the "COL Shares") in
exchange for (i) all of the issued and outstanding membership interests of COL,
(ii) the termination of any and all agreements among COL and certain of its
members and other affiliated parties (collectively, the "COL Holders") and (iii)
the waiver of any and all pre-existing rights, claims, causes of action and
suits which COL Holders have or may have against COL, except for certain
surviving claims. Included in such shares were 600,000 shares which were
issuable to the two co-founders of the COL pending verification of their certain
representations and warranties. This was accomplished in July 1997 and the
600,000 shares were issued on December 15, 1997.
On September 19, 1996, the Company issued and sold an aggregate of
450,000 shares of Common Stock to a group of accredited investors pursuant to
Rule 506 for an aggregate purchase price of approximately $1,575,000 ($3.50 per
share of Common Stock). The Company paid an aggregate of $75,000 from the
proceeds of such transaction as commissions to registered broker-dealers.
On February 19, 1997 and March 24, 1997, the Company issued and sold an
aggregate of 192,500 shares of Common Stock to accredited investors pursuant to
Rule 506 for an aggregate purchase price of $385,000 ($2.00 per share of Common
Stock). The Company paid an aggregate of $15,000 from the proceeds of such
transaction as commissions to registered broker-dealers.
On March 25, 1997, pursuant to Section 4(2) of the Securities Act, the
Company issued 100,000 shares of Common Stock to an investor in connection with
the provision of $2,500,000 in bridge financing (the "VDC Financing") by such
investor to the Company. In November 1997, the VDC Financing and accrued
interest thereon was canceled and converted into 3,222,877 shares of Common
Stock.
II-2
<PAGE>
On May 31, 1997, the Company issued and sold an aggregate of 102,500
shares of Common Stock to a group of accredited investors pursuant to Rule 506
for an aggregate purchase price of $205,000 ($2.00 per share of Common Stock).
The Company paid an aggregate of $4,500 from the proceeds of such transaction as
commissions to registered broker-dealers.
On September 5, 1997, pursuant to Section 4(2) of the Securities Act,
the Company issued 30,000 shares of Common Stock to an accredited investor in
connection with the provision of $300,000 in bridge financing by such investor
to the Company.
On October 7, October 17, 1997 and October 31, 1997, the Company issued
and sold an aggregate of 120 Units, pursuant to Rule 506 of Regulation D
promulgated under the Securities Act, to a group of accredited investors for an
aggregate purchase price of $3,000,000. Each Unit consisted of a promissory note
in the principal amount of $25,000, 2,500 shares of Common Stock, and a warrant
to purchase 2,500 shares of Common Stock at an exercise price of the lower of
(i) $4.00 and (ii) the price per share at which the Common Stock is offered in
an initial public offering. The Company paid an aggregate of $300,000 from the
proceeds of such transaction as commissions to registered broker-dealers,
including $287,500 to First United Equities Corporation and $12,500 to J.P.
Turner & Company, the Underwriters for this Offering.
On December 11, 1997, the Company issued and sold an aggregate of 41
Units, pursuant to Rule 506 of Regulation D promulgated under the Securities
Act, to a group of accredited investors for an aggregate purchase price of
$1,025,000. Each Unit consisted of a promissory note in the principal amount of
$25,000, 2,500 shares of Common Stock, and a warrant to purchase 2,500 shares of
Common Stock at an exercise price of the lower of (i) $4.00 and (ii) the price
per share at which the Common Stock is offered in an initial public offering.
The Company paid $100,000 from the proceeds of this transaction as commissions
to J.P. Turner & Company.
In December 1997, pursuant to Section 4(2) of the Securities Act, the
Company issued 190,200 shares of Common Stock to American Maple Leaf Financial
Corporation ("AML") as consideration for the advance of short-term bridge
financing and the consensual forbearance by AML relating thereto.
In December 1997, pursuant to Section 4(2) of the Securities Act, the
Company issued 300,000 shares of Common Stock to each of Messrs. Barnett and
Braunstein in satisfaction of the terms of their respective consulting
agreements with the Company.
In December 1997, pursuant to Section 4(2) of the Securities Act, the
Company issued and sold 22,500 shares of Preferred Stock to an accredited
investor for a purchase price of $225,000.
Item 16. Financial Statements and Exhibits.
(a) Financial Statements:
(b) Exhibits:
* 1.1 Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation
3.2 Bylaws of the Company as amended to date
4.1 Certificate of Designation of Series A Convertible
Preferred Stock
* 5 Opinion of Klehr, Harrison, Harvey, Branzburg &
Ellers LLP
10.1 Registrant's Amended and Restated 1996 Non-Qualified
Stock Option Plan
10.2 Agreement and Plan of Merger and Reorganization between
the Registrant and Coupons Online, L.L.C. dated as of
September 12, 1996
II-3
<PAGE>
10.3 Amended and Restated Employment Agreement between Michael
A. Clark and the Registrant dated December 19, 1997
10.4 Amended Employment Agreement between Richard F. Davey and
the Registrant dated December 19, 1997
10.5 Employment Agreement between Craig W. Barnett and the
Registrant dated December 19, 1997.
10.6 Employment Agreement between Mark D. Braunstein and
the Registrant dated December 19, 1997.
10.7 Conversion Agreement, dated as of November 14, 1997
between the Registrant and VDC Corporation Ltd.
10.8 Letter Agreement, dated December 1, 1997, between the
Registrant and American Maple Leaf Financial Corporation
10.9 Letter Agreement dated December 1, 1997 between the
Registrant and Golden Eagle Partners
11 Computation of Net Income (Net Loss) Per Share
24 Consent of LJ Soldinger Associates, independent auditors
to the Company
- --------------------------------
*To be filed by amendment.
Item 17. Undertakings.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To provide to the underwriter at the closing specified in the
underwriting agreements certificates in such designations and registered in such
names as required by the underwriter to permit prompt delivery to each
purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Fairfield, Connecticut,
on December 30, 1997.
NETVALUE, INC.
By: /s/ Michael A. Clark
-------------------------------
Michael A. Clark, President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael A. Clark and Edward J. Zobian,
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place, and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on December 30, 1997.
Signature Title
- --------- -----
/s/ Michael A. Clark
- --------------------------- President and Director
Michael A. Clark (Principal Executive, Financial
and Accounting Officer)
/s/ Craig W. Barnett
- --------------------------- Director
Craig W. Barnett
/s/ David E. Brandkamp
- --------------------------- Director
David E. Brandkamp
/s/ Michael Cirillo
- --------------------------- Director
Michael Cirillo
/s/ Richard F. Davey
- --------------------------- Director
Richard F. Davey
/s/ Steven B. Rosner
- --------------------------- Director
Steven B. Rosner
/s/ Edward J. Zobian
- --------------------------- Director
Edward J. Zobian
II-5
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
VSQUARED, INC.
VSQUARED, INC.., a corporation existing under the laws of the State of
Delaware (the "Corporation"), hereby certifies as follows:
FIRST: The name of the Corporation is VSquared, Inc. The name under
which the Corporation was originally incorporated was COL Acquisition Corp. The
date of the filing of the Corporation's original Certificate of Incorporation
was July 16, 1996.
SECOND: This Restated Certificate of Incorporation restates and
integrates and further amends the Certificate of Incorporation of the
Corporation.
THIRD: This Restated Certificate of Incorporation was duly adopted by
written consent of the stockholders of the Corporation in accordance with the
applicable provisions of Sections 228, 242 and 245 of the General Corporation
Law of the State of Delaware.
FOURTH: The text of the Certificate of Incorporation as amended
heretofore is further amended hereby to read as herein set forth in full:
1. The name of the corporation is:
NETVALUE, INC.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware
19801, located in the County of New Castle, Delaware. The name of its
registered agent at such address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted is:
To engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware,
as amended (the "DGCL").
<PAGE>
4. The authorized capital stock of the Corporation shall consist of
25,000,000 shares of which 1,000,000 shall be Preferred Stock, with a
par value of $.001 per share, and 24,000,000 shall be Common Stock,
with a par value of $.001 per share, and the voting powers,
designations, preferences and relative, participating, optional or
other special qualifications, limitations or restrictions thereof are
set forth hereinafter:
(a) The Preferred Stock may be issued in one or more series, each
of which shall be distinctively designated, shall rank equally
and shall be identical in all respects except as otherwise
provided in subsection (b) of this Section 4.
(b) Authority is hereby vested in the Board of Directors to issue
from time to time the Preferred Stock of any series and to
state in the resolution or resolutions providing for the
issuance of shares of any series the voting powers, if any,
designations, preferences and relative, participating,
optional or other special rights, and the qualifications,
limitations or restrictions of such series to the full extent
now or hereafter permitted by the law of the State of Delaware
in respect of the matters set forth in the following clauses
(i) to (viii) inclusive:
(i) the number of shares to constitute such series, and
the distinctive designations thereof;
(ii) the voting powers, full or limited, if any, of such
series;
(iii) the rate of dividends payable on shares of such
series, the conditions on which and the times when
such dividends are payable, the preference to, or the
relation to, the payment of the dividends payable on
any other class, classes or series of stock, whether
cumulative or non-cumulative and, if cumulative, the
date from which dividends on shares of such series
shall be cumulative;
(iv) the redemption price or prices, if any, and the terms
and conditions on which shares of such series shall
be redeemable;
(v) the requirement of any sinking fund or funds to be
applied to the purchase or redemption of shares of
such series and, if so, the amount of such fund or
funds and the manner of application;
(vi) the rights of shares of such series upon the
liquidation, dissolution or winding up of, or upon
any distribution of the assets of, the Corporation;
(vii) the rights, if any, of the holders of shares of such
series to convert such shares into, or to exchange
such shares for, shares of any other class, classes
or series of stock and the price or prices or the
rates of exchange and the adjustments at which such
shares shall be convertible or exchangeable, and any
other terms
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<PAGE>
and conditions of such conversion or exchange; and
(viii) any other preferences and relative, participating,
optional or other special rights of shares of such
series, and qualifications, limitations or
restrictions including, without limitation, any
restriction on an increase in the number of shares of
any series theretofore authorized and any
qualifications, limitations or restrictions of rights
or powers to which shares of any future series shall
be subject.
(c) The number of authorized shares of Preferred Stock may be
increased or decreased by the affirmative vote of the holders
of a majority of the votes of all classes of voting securities
of the Corporation without a class vote of the Preferred
Stock, or any series thereof, except as otherwise provided in
the resolution or resolutions fixing the voting rights of any
series of the Preferred Stock.
5. The Corporation is to have perpetual existence.
6. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter
or repeal the By-Laws of the Corporation. Elections of Directors need
not be written ballot unless the By-Laws of the Corporation shall so
provide.
7. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
8. A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a Director except for liability (i) for any breach of
the Director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, or (iv) for any transaction from which the
Director derived any improper personal benefit.
9. The corporation shall, to the full extent permitted by Section 145 of
the DGCL, indemnify all persons whom it may indemnify pursuant thereto.
10. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the
application in a summary way of this Corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers
appointed for this Corporation under the provisions of Section 291 of
Title 8 of the Delaware Code or on the application of trustees
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<PAGE>
in dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the
said court directs. If a majority in number representing three fourths
in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case
may be, agree to any compromise or arrangement and to any
reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of
this Corporation, as the case may be, and also on this Corporation.
4
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Michael A. Clark, its President, this day of October, 1996.
[corporate seal] VSQUARED, INC.
By: /s/ Michael A. Clark
---------------------------------
Michael A. Clark, President
5
<PAGE>
Exhibit 3.2
BY-LAWS OF
COL ACQUISITION CORP.
ARTICLE I - OFFICES
Section 1-1. Registered Office and Registered Agent. The Corporation
shall maintain a registered office and registered agent within the State of
Delaware, which may be changed by the Board of Directors from time to time.
Section 1-2. Other Offices. The Corporation may also have offices at
such other places, within or without the State of Delaware, as the Board of
Directors may from time to time determine.
ARTICLE II - STOCKHOLDERS' MEETINGS
Section 2-1. Place of Stockholders' Meetings. Meetings of stockholders
may be held at such place, either within or without the State of Delaware, as
may be designated by the Board of Directors from time to time. If no such place
is designated by the Board of directors, meetings of the stockholders shall be
held at the registered office of the corporation in the State of Delaware.
Section 2-2. Annual Meeting. A Meeting of the stockholders of the
Corporation shall be held in each calendar year, on such date and time as is
designated by the Board of Directors.
Section 2-3. Special Meetings. Except as otherwise specifically
provided by law, special meetings of the stockholders, for any purpose or
purposes prescribed in the notice of the meeting, may be called at any time by
the Board of Directors or the President of the Corporation, and shall be held at
such place, on such date and at such time as the Board of Directors, the
President or the stockholders shall fix pursuant to the notice.
Section 2-4. Notice of Meetings and Adjourned Meetings. Written notice
stating the place, date and hour of any meeting shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote at such meeting. If mailed, notice is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation. Such
notice may be given by or at the direction of the person or persons authorized
to call the meeting.
When a meeting is adjourned to another time or place, notice need not
be given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the
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adjournment is taken. If the adjournment is for more than thirty (30) days, or
if after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be give to each stockholder of record
entitled to vote at the meeting.
Section 2-5. Quorum. At all meetings of stockholders, the presence in
person or by proxy, of the holders of a majority of the outstanding shares
entitled to vote shall constitute a quorum. The stockholders present at a duly
organized meeting can continue to do business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. If a meeting
cannot be organized because of the absence of a quorum, those present may,
except as otherwise provided by law, adjourn the meeting to such time and place
as they may determine. At any adjourned meeting at which a quorum is present any
action may be taken which might have been taken at the meeting as originally
called.
Section 2-6. Voting List; Proxies. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten (10) days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by proxy. All proxies shall
be executed in writing and shall be filed with the Secretary of the Corporation
not later than the day on which exercised. No proxy shall be voted or acted upon
after three (3) years from its date, unless the proxy provides for a longer
period.
Except as otherwise specifically provided by law, all matters coming
before the meeting shall be determined by a vote by shares. Except as otherwise
specifically provided by law, all other votes may be taken by voice unless a
stockholder demands that it be taken by ballot, in which latter event the vote
shall be taken by written ballot.
Section 2-7. Informal Action by Stockholders. Unless otherwise provided
by the Certificate of Incorporation, any action required to be taken at any
annual or special meeting of stockholders, or any action which may be taken at
any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and shall be delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of
2
<PAGE>
business, or an officer or agent of the Corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
the Corporation's registered office shall be by hand or be certified or
registered mail, return receipt requested.
Prompt notice of the taking of corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE III - BOARD OF DIRECTORS
Section 3-1. Number. The business and affairs of the Corporation shall
be managed by a Board of Directors that shall consist of a minimum of 1 member
and a maximum of 7 members, as may be fixed from time to time by the vote of a
majority of the Board of Directors. In the event that there shall be more than
three (3) directors, the directors shall be divided into three classes as nearly
equal in number as reasonably possible, with the term of office of the first
class to expire at the first annual meeting of stockholders, the term of office
of the second class to expire at the second annual meeting of the stockholders,
and the term of office of the third class to expire at the third annual meeting
of the stockholders. At each annual meeting of stockholders following such
initial election, directors elected to succeed those directors whose terms
expire shall be elected for a term of office to expire at the third succeeding
annual meeting of stockholders after their election.
Whenever the authorized number of directors is increased
between the annual meetings of the stockholders, a majority of the directors
then in office shall have the power to elect such new directors for the balance
of the term and until their successors are elected. Any decrease in the
authorized number of directors shall not become effective until the expiration
of the term of the directors then in office unless, at the time of such
decrease, there shall be vacancies on the Board of Directors which are being
eliminated by the decrease.
Section 3-2. Place of Meeting. Meetings of the Board of Directors may
be held at such place either within or without the State of Delaware, as a
majority of the Directors may from time to time designate or as may be
designated in the notice calling the meeting.
Section 3-3. Regular Meetings. A regular meeting of the Board of
Directors shall be held annually, immediately following the annual meeting of
stockholders, at the place where such meeting of the stockholders is held or at
such other place, date and hour as a majority of the Directors may from time to
time designate or as may be designated in the notice calling the meeting.
Section 3-4. Special Meetings. Special meetings of the Board of
Directors shall be held whenever ordered by the President or by a majority of
the Directors in office.
Section 3-5. Notices of Meetings of Board of Directors.
(a) Regular Meetings. No notice shall be required to be given
of any
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regular meeting, unless the same be held at other than the time or place for
holding such meetings as fixed in accordance with Section 3-3 of these by-laws,
in which event two (2) days notice shall be given of the time and place of such
meeting.
(b) Special Meetings. At least two (2) day's notice shall be
given of the time, place and purpose for which any special meeting of the Board
of Directors is to be held.
Section 3-6. Quorum. A majority of the total number of Directors shall
constitute a quorum for the transaction of business, and the vote of a majority
of the Directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors. If there be less than a quorum present, a
majority of those present may adjourn the meeting from time to time and place to
place and shall cause notice of each such adjourned meeting to be given to all
absent Directors.
Section 3-7. Informal Action by the Board of Directors. Any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board or
committee.
Section 3-8. Powers.
(a) General Powers. The Board of Directors shall have all
powers necessary or appropriate to the management of the business and affairs of
the Corporation, and, in addition to the power and authority conferred by these
by-laws, may exercise all powers of the Corporation and do all such lawful acts
and things as are not by statute, these by-laws or the Certificate of
Incorporation directed or required to be exercised or done by the stockholders.
(b) Specific Powers. Without limiting the general powers
conferred by the last preceding clause and the powers conferred by the
Certificate of Incorporation and by-laws of the Corporation, it is hereby
expressly declared that the Board of Directors shall have the following powers:
(i) To declare dividends from time to time in
accordance with law.
(ii) To confer upon any officer or officers of the
Corporation the power to choose, remove or suspend assistant officers, agents or
servants.
(iii) To appoint any person, firm or corporation to
accept and hold in trust for the Corporation any property belonging to the
Corporation or in which it is interested, and to authorize any such person, firm
or corporation to execute any documents and perform any duties that may be
requisite in relation to any such trust.
(iv) To appoint a person or persons to vote shares of
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<PAGE>
another corporation held and owned by the Corporation.
(v) To adopt, from time to time, such stock option,
stock purchase, bonus or other compensation plans for Directors, officers,
employees and agents of the Corporation and its subsidiaries as it may
determine.
(vi) To adopt, from time to time, such insurance,
retirement, and other benefit plans for Directors, officers, employees and
agents of the Corporation and its subsidiaries as it may determine.
(vii) By resolution passed by a majority of the whole
Board of Directors, to designate one (1) or more additional committees, each to
consist of one (1) or more Directors, to have such duties, owners and authority
as the Board of Directors shall determine. All committees of the Board of
Directors shall have the authority to adopt their own rules of procedure. Absent
the adoption of specific procedures, the procedures applicable to the Board of
Directors shall also apply to committees thereof.
(viii) To fix the place, time and purpose of meetings
of stockholders.
(ix) To purchase or otherwise acquire for the
Corporation any property, rights or privileges which the Corporation is
authorized to acquire, at such prices, on such terms and conditions and for such
consideration as it shall from time to time see fit, and, at its discretion, to
pay any property or rights acquired by the Corporation, either wholly or partly
in money or in stocks, bonds, debentures or other securities of the Corporation.
(x) To create, make and issue mortgages, bonds, deeds
of trust, trust agreements and negotiable or transferable instruments and
securities, secured by mortgage or otherwise, and to do every other act and
thing necessary to effectuate the same.
(xi) To appoint and remove or suspend such
subordinate officers, agents or servants, permanently or temporarily, as it may
from time to time think fit, and to determine their duties, and fix, and from
time to time change, their salaries or emoluments, and to require security in
such instances and in such amounts as it think fit.
(xii) To determine who shall be authorized on the
Corporation's behalf to sign bills, notes, receipts, acceptances, endorsements,
checks, releases, contracts and documents.
Section 3-9. Compensation of Directors. Compensation of Directors and
reimbursement of their expenses incurred in connection with the business of the
Corporation, if any, shall be as determined from time to time by resolution of
the Board of Directors.
Section 3-10. Removal of Directors by Stockholders. The entire Board of
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Directors or any individual Director may be removed from office with or without
cause by a majority vote of the holders of the outstanding shares then entitled
to vote at an election of directors. In case the Board of Directors or any one
(1) or more Directors be so removed, new Directors may be elected at the same
time for the unexpired portion of the full term of the Director or Directors so
removed.
Section 3-11. Resignations. Any Director may resign at any time by
submitting his written resignation to the Corporation. Such resignation shall
take effect at the time of its receipt by the Corporation unless another time be
fixed in the resignation, in which case it shall become effective at the time so
fixed. The acceptance of a resignation shall not be required to make it
effective.
Section 3-12. Vacancies. Vacancies and new created directorships
resulting from any increase in the authorized number of Directors elected by all
of the stockholders having the right to vote as a single class may be filled by
a majority of the Directors then in office, although less than a quorum, or by a
sole remaining Director, and each person so elected shall hold office for a term
expiring at the annual meeting of stockholders at which the term of the class to
which he or she has been elected expires, and until such directors successor
shall have been duly elected and qualified.
Section 3-13. Participation by Conference Telephone. Directors may
participate in regular or special meetings of the Board by telephone or similar
communications equipment by means of which all other persons participating in
the meeting can hear each other, and such participation shall constitute
presence at the meeting.
ARTICLE IV - OFFICERS
Section 4-1. Election and Office. The Corporation shall have a
President, Secretary and a Treasurer, all of whom shall be elected by the Board
of Directors. The Board of Directors may elect such additional officers as it
may deem proper, including a Chairman and a Vice Chairman of the Board of
Directors, one (1) or more Vice Presidents, and one (1) or more assistant or
honorary officers. Any number of offices may be held by the same person.
Section 4-2. Term. The term of office of any officer shall be as
specified by the Board of Directors.
Section 4-3. Powers and Duties of the Chairman of the Board of
Directors. Unless otherwise determined by the Board of Directors, the Chairman
of the Board of Directors, if any, shall preside at all meetings of Directors.
He shall have such other powers and perform such further duties as may be
assigned to him by the Board of Directors.
Section 4-4. Powers and Duties of the President. Unless otherwise
determined by the Board of Directors, the President shall have the usual duties
of an executive officer with general supervision over and direction of the
affairs of the Corporation. In the exercise of these duties and subject to the
limitations of the laws of the State of Delaware, these by-laws, and the actions
of the
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Board of Directors, he may appoint, suspend and discharge employees and agents,
shall preside at all meetings of the stockholders at which he shall be present,
and, unless there is a Chairman of the Board of Directors and, unless otherwise
specified by the Board of Directors, shall be a member of all committees. He
shall also do and perform such other duties as from time to time may be assigned
to him by the Board of Directors.
Unless otherwise determined by the Board of Directors, the
President shall have full power and authority on behalf of the Corporation to
attend and to act and to vote at any meeting of the stockholders of any
corporation in which the Corporation may hold stock and, at any such meeting,
shall possess and may exercise any and all of the rights and powers incident to
the ownership of such stock and which, as the owner thereof, the Corporation
might have possessed and exercised.
Section 4-5. Powers and Duties of the Secretary. Unless otherwise
determined by the Board of Directors, the Secretary shall record all proceedings
of the meetings of the Corporation, the Board of Directors and all committees,
in books to be kept for that purpose, and shall attend to the giving and serving
of all notices for the Corporation. He shall have charge of the corporate seal,
the certificate books, transfer books and stock ledgers, and such other books
and papers as the Board of Directors may direct. He shall perform all other
duties ordinarily incident to the office of Secretary and shall have such other
powers and perform such other duties as may be assigned to him by the Board of
Directors.
Section 4-6. Powers and Duties of the Treasurer. Unless otherwise
determined by the Board of Directors, the Treasurer shall have charge of all the
funds and securities of the Corporation which may come into his hands. When
necessary or proper, unless otherwise ordered by the Board of Directors, he
shall endorse for collection on behalf of the Corporation checks, notes and
other obligations, and shall deposit the same to the credit of the Corporation
In such banks or depositories as the Board of Directors may designate and shall
sign all receipts and vouchers for payments made to the Corporation. He shall
sign all checks made by the Corporation, except when the Board of Directors
shall otherwise direct. He shall enter regularly, in books of the Corporation to
be kept by him for that purpose, a full and accurate account of all moneys
received and paid by him on account of the Corporation. Whenever required by the
Board of Directors, he shall render a statement of the financial condition of
the Corporation. He shall at all reasonable times exhibit his books and accounts
to any Director of the Corporation, upon application at the office of the
Corporation during business hours. He shall have such other powers and shall
perform such other duties as may be assigned to him from time to time by the
Board of Directors. He shall give such bond, if any, for the faithful
performance of his duties as shall be required by the Board of Directors and any
such bond shall remain in the custody of the President.
Section 4-7. Powers and Duties of Vice Presidents and Assistant
Officers. Unless otherwise determined by the Board of Directors, each Vice
President and each assistant officer shall have the powers and perform the
duties of his respective superior officer. Vice Presidents and assistant
officers shall have such rank as shall be designated by the Board of Directors
and each, in the order of rank, shall act for such superior officer in his
absence, or upon his disability or when so
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directed by such superior officer or by the Board of Directors. Vice Presidents
may be designated as having responsibility for a specific aspect of the
Corporation's affairs, in which event each such Vice President shall be superior
to the other Vice Presidents in relation to matters within his aspect. Except as
otherwise set forth herein, the President shall be the superior officer of the
Vice Presidents. The Treasurer and the Secretary shall be the superior officers
of the Assistant Treasurers and Assistant Secretaries, respectively.
Section 4-8. Delegation of Office. The Board of Directors may delegate
the powers or duties of any officer of the Corporation to any other officer or
to any Director from time to time.
Section 4-9. Vacancies. The Board of Directors shall have the power to
fill any vacancies in any office occurring from whatever reason.
Section 4-10. Resignations. Any officer may resign at any time by
submitting his written resignation to the Corporation. Such resignation shall
take effect at the time of its receipt by the Corporation, unless another time
be fixed in the resignation, in which case it shall become effective at the time
so fixed. The acceptance of a resignation shall lot be required to make it
effective.
Section 4-11. Removal. Subject to the provisions of any employment
agreement approved by the Board of Directors, any officer of the Corporation may
be removed at any time, with or without cause, by the Board of Directors.
ARTICLE V - CAPITAL STOCK
Section 5-1. Stock Certificates. Shares of the Corporation shall be
represented by certificates signed by or in the name of the Corporation by (a)
the Chairman or Vice Chairman of the Board of Directors, or the President or a
Vice President, and (b) the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary, representing the number of shares
registered in certificate form. If such certificate is countersigned (i) by a
transfer agent other than the Corporation or its employee, or (ii) by a
registrar other than the Corporation or its employee, the signatures of the
officers of the Corporation may be facsimiles. In case any officer who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer before such certificate is issued, it may be
issued by the Corporation with the same effect as if he were such officer at the
date of issue.
Section 5-2. Determination of Stockholders of Record.
(a) The Board of Directors may fix a record date to determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, which record date shall not precede the date upon
which the resolution fixing the record date is adopted by the board of
Directors, and which record date shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting. If no record date is fixed by the
Board of
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Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
(b) The Board of Directors may fix a record date to determine
the stockholders entitled to consent to corporate action in writing without a
meeting, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. If no record date
has been fixed by the Board of Directors, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required, shall be
the first date on which a signed written consent setting forth the action taken
or proposed to be taken s delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of business, or
an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are. recorded. Delivery made to the
Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the Board of
Directors and prior action by the Board of Directors is required, the record
date for determining stockholders entitled to consent to corporate action in
writing without a meeting shall be at the close of business on the day on which
the Board of Directors adopts the resolution taking such prior action.
(c) The Board of Directors may fix a record date to determine
the stockholders entitled to receive payment of any dividend or other dividend
or other distribution or allotment of any rights or the stockholders entitled to
exercise any rights with respect of any exchange, conversion or exchange of
stock, or for the purpose of any other lawful action, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty (60) days prior to
such action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
Section 5-3. Transfer of Shares. Transfer of shares shall be made only
upon the transfer books of the Corporation kept at an office of the Corporation,
or by transfer agents designated to transfer shares of stock of the Corporation.
Except where a certificate is issued in accordance with Section 5-4 of these
by-laws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation duly endorsed and otherwise in proper form for
transfer before a new certificate is issued therefor. No transfer of shares
shall be made on the books of this Corporation if such transfer is in violation
of a lawful restriction noted conspicuously on the certificate.
Section 5-4. Lost, Stolen or Destroyed Share Certificates. The
Corporation may issue a new certificate of stock or uncertified shares in place
of any certificate therefor issued by it, alleged
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<PAGE>
to heave been lost, stolen or destroyed, and the Corporation may require the
owner of the lost, stolen, or destroyed certificate, or his legal representative
to give the Corporation a bond sufficient to indemnify it against claim that may
be made against it on account of the alleged loss, theft or destruction of any
such certificate or the issuance of such new certificate or uncertificated
shares.
ARTICLE VI - NOTICES
Section 6-1. Contents of Notice. Whenever any notice of a meeting is
required to be given pursuant to these by-laws or the Certificate of
Incorporation or otherwise, the notice shall specify the place, day and hour of
the meeting and, In the case of a special meeting or where otherwise required by
law, the general nature of the business to be transacted at such meeting.
Section 6-2. Method of Notice. All notices shall be given to each
person entitled thereto, either personally or by sending a copy thereof through
the mail or by telegraph, charges prepaid, to his address as it appears on the
records of the Corporation, or supplied by him to the Corporation for the
purpose of notice. Notices of special meetings of stockholders shall conform to
Section 2-4 and notices of special meetings or the Board of Directors shall
conform to Section 3-5. If notice is sent by mail or telegraph, it shall be
deemed to have been given to the person entitled thereto when deposited in the
United States mail or with the telegraph office for transmission. If no address
for a stockholder appears on the books of the Corporation and such stockholder
has not supplied the Corporation with an address for the purpose of notice,
notice deposited in the United States mail addressed to such stockholder care of
General Delivery in the city in which the principal office of the Corporation is
located shall be sufficient.
Section 6-3. Waiver of Notice. Whenever notice is required to be given
under any provision of law or of the Certificate of Incorporation or by-laws of
the Corporation, written waiver, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders, Directors, or members of a committee of Directors need be
specified in any written waiver of notice unless so required by the Certificate
of Incorporation.
ARTICLE VII - INDEMNIFICATION OF DIRECTORS AND OFFICERS
AND OTHER PERSONS
Section 7-1. The corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the
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corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 7-2. The corporation shall indemnify any person who was or is a
party, or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he 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 except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
Section 7-3. To the extent that a director, officer, employee or agent
of the corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Sections 7.1 or 7.2 of this
Article, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
Section 7-4. Any indemnification under Sections 7.1 or 7.2 of this
Article (unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in such section. Such
determination shall be made:
(a) By the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
or
(b) If such a quorum is not obtainable, or, even if obtainable
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a quorum of disinterested directors so directs, by independent legal counsel in
a written opinion, or
(c) By the stockholders.
Section 7-5. Expenses (including attorneys' fees) incurred by an
officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this Section. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the board of directors deems
appropriate.
Section 7-6. The indemnification and advancement of expenses provided
by, or granted pursuant to the other sections of this Article shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
Section 7-7. The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under the provisions of this Article.
Section 7-8. For purposes of this Article, references to "the
corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under this Article with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation of its separate existence had continued.
Section 7-9. For purposes of this Article, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the corporation"
shall include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in
a manner he reasonably believed to be in the interest of the participants and
beneficiaries of an
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employee benefit plan shall be deemed to have acted in a manner "not opposed to
the best interests of the corporation" as referred to in this Article.
Section 7-10. The indemnification and advancement of expenses provided
by, or granted pursuant to, this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 7-11. No director or officer of the corporation shall be
personally liable to the corporation or to any stockholder of the corporation
for monetary damages for breach of fiduciary duty as a director or officer,
provided that this provision shall not limit the liability of a director or
officer (i) for any breach of the director's or the officer's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of Delaware, or (iv) for
any transaction from which the director or officer derived an improper personal
benefit.
ARTICLE VIII - RELIANCE UPON BOOKS, REPORTS AND RECORDS
Each Director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation, shall, in the performance of his
duties, be fully protected in relying in good faith upon the books of account or
other records of the Corporation, including reports made to the Corporation by
any of its officers, by an independent certified public accountant, or by an
appraiser selected with reasonable care.
ARTICLE IX - SEAL
The form of the seal of the Corporation, called the corporate seal
[Form of Seal] of the Corporation, shall be as impressed adjacent hereto.
ARTICLE X - FISCAL YEAR
The Board of Directors shall have the power by resolution to
fix the fiscal year of the Corporation. If the Board of Directors shall fail to
do so, the President shall fix the fiscal year.
ARTICLE XI - AMENDMENTS
The original or other by-laws may be adopted, amended or
repealed by the stockholders entitled to vote thereon at any regular or special
meeting or, if the Certificate of Incorporation so provides, by the Board of
Directors. The fact that such power has been so
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conferred upon the Board of Directors shall not divest the stockholders of the
power nor limit their power to adopt, amend or repeal by-laws.
ARTICLE XII - INTERPRETATION OF BY-LAWS
All words, terms and provisions of these by-laws shall be interpreted
and defined by and in accordance with the General Corporation Law of the State
of Delaware, as amended, and as amended from time to time hereafter.
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Exhibit 4.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
of
SERIES A CONVERTIBLE PREFERRED STOCK
of
NETVALUE, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
netValue, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), hereby certifies
that the following resolutions were adopted by the Board of Directors of the
Corporation pursuant to authority of the Board of Directors as required by
Section 151 of the Delaware General Corporation Law:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (the "Board of Directors" or the "Board")
in accordance with the provisions of its Amended and Restated Certificate of
Incorporation, the Board of Directors hereby creates a series of the
Corporation's previously authorized Preferred Stock, par value $.001 per share
(the "Preferred Stock"), and hereby states the designation and number of shares,
and fixes the relative rights, preferences, privileges, powers and restrictions
thereof as follows:
Series A Convertible Preferred Stock:
Article I. Designation and Amount
The designation of this series, which consists of 300,000 shares of
Preferred Stock, is Series A Convertible Preferred Stock (the "Series A
Preferred Stock") and the stated value is $10.00 per share (the "Stated Value").
The number of shares of the Series A Preferred Stock may be decreased from time
to time by a resolution or resolutions of the Board of Directors; provided,
however, that no such amendment shall reduce the number of shares of the Series
A Preferred Stock to a number less than the aggregate number of shares of the
Series A Preferred Stock then issued and outstanding. Notwithstanding any other
provision in this Certificate of Designation, the Corporation shall not be
<PAGE>
required to issue fractional shares of Series A Preferred Stock.
Article II. Rank
All Series A Preferred Stock shall rank (i) prior to the Corporation's
common stock, par value $.001 per share (the "Common Stock"), and (ii) unless
the holders of Series A Preferred Stock shall otherwise consent pursuant to
paragraph A of Article VII, prior to any other class or series of the
Corporation's capital stock, as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.
Article III. Dividends
The Series A Preferred Stock will bear no dividends, and the holders of
the Series A Preferred Stock will not be entitled to receive dividends on the
Series A Preferred Stock.
Article IV. Liquidation Preference
A. If the Corporation shall commence a voluntary case under
the federal bankruptcy laws or any other applicable federal or state bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of substantially all of its property, or make an assignment for
the benefit of its creditors, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the federal bankruptcy laws or any other applicable
federal or state bankruptcy, insolvency or similar law resulting in the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of substantially
all of its property, or ordering the winding up or liquidation of its affairs,
and any such decree or order shall be unstayed and in effect for a period of 60
consecutive days and, on account of any such event (a "Liquidation Event"), the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up, no distribution shall be made to the
holders of any shares of capital stock of the Corporation (other than any class
or series of Preferred Stock that, in accordance with Article II, ranks senior
to the Series A Preferred Stock) upon such liquidation, dissolution or winding
up unless prior thereto, the holders of shares of Series A Preferred Stock,
shall have received the Liquidation Preference (as defined below) with respect
to each share in accordance with the provisions of this Article IV. If upon the
occurrence of a Liquidation Event, the assets and funds available for
distribution among the holders of the Series A Preferred Stock shall be
insufficient to permit the payment to such holders of the preferential amounts
payable thereon, then the entire assets and funds legally available for
distribution to the Series A Preferred Stock shall be distributed ratably among
such shares.
B. After payment in full of the Liquidation Preference of the
Series A Preferred Stock, holders of Series A Preferred Stock shall not be
entitled to receive any additional cash, property or other assets of the
Corporation upon liquidation, dissolution or winding up of the Corporation.
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<PAGE>
C. Neither the consolidation, merger or other business
combination of the Corporation with or into any other entity, nor the sale,
exchange or transfer of all or substantially all the assets of the Corporation
shall be deemed to be a liquidation, dissolution or winding up of the
Corporation for purposes of this Article IV unless such sale, exchange or
transfer is in connection with a plan of liquidation, dissolution or winding up
of the Corporation.
D. For purposes hereof, the "Liquidation Preference" means,
with respect to such shares of Series A Preferred Stock, an amount equal to the
Stated Value.
Article V. Conversion at Option of Holder
A. At the option of any holder thereof, the Series A Preferred
Stock shall be convertible, in whole but not in part, into fully paid and
non-assessable shares of Common Stock at any time in accordance with this
Article V. The number of shares of Common Stock deliverable upon conversion of a
share of Series A Preferred Stock shall be the quotient obtained by dividing (i)
the Stated Value by (ii) the then effective "Conversion Price", which initially
shall be $.80 and shall be subject to adjustment from time to time as provided
in paragraph C of this Article V.
B. Any holder may, at its option, elect at any time to have
all, but not less than all, of its shares of Series A Preferred Stock converted
into Common Stock by delivering to the Corporation a notice executed by the
holder setting forth such election to convert the Series A Preferred Stock into
Common Stock in accordance with this Article V (the "Holder's Optional
Conversion Notice") and the share certificates representing all shares of Series
A Preferred Stock owned by such holder (the "Certificates").
Not more than 10 business days after its receipt of a Holder's
Optional Conversion Notice and the Certificates, the Corporation shall mail to
the holder at its last address reflected on the stock books of the Corporation a
certificate representing that number of shares of Common Stock into which the
Series A Preferred Stock is convertible under this Article V. The Corporation
shall not be required to pay any tax in respect of the issuance and delivery
upon conversion of shares of Common Stock or other securities or property in a
name other than that of the registered holder of the shares of the Series A
Preferred Stock being converted.
C. In case the Corporation shall (i) declare a dividend or
make a distribution on the outstanding shares of its Common Stock in shares of
its Common Stock, (ii) subdivide its outstanding shares of Common Stock into a
greater number of shares, or (iii) combine its outstanding shares of Common
Stock into a smaller number of shares, the Conversion Price in effect at the
time of the record date for such dividend or distribution or the effective date
of such subdivision or combination shall be proportionately adjusted so that the
holder of any shares of Series A Preferred Stock surrendered for conversion
after such time shall be entitled to receive the aggregate number of shares of
Common Stock that the holder would have owned or been entitled to receive had
such
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<PAGE>
shares of Series A Preferred Stock been converted immediately prior to such
record date or effective date and the resulting Common Stock had been subject to
such dividend, distribution, subdivision or combination.
D. No fractional shares of Common Stock or other securities,
if any, or scrip representing fractional shares of Common Stock or other
securities, if any, shall be issued upon the conversion of any share or shares
of Series A Preferred Stock. If the conversion of a share or shares of Series A
Preferred Stock results in a fraction of Common Stock or other securities, such
fractional shares shall be disregarded and the number of shares of Common Stock
issuable upon conversion shall be the next higher number of such shares.
E. The Corporation at all times that any shares of Series A
Preferred Stock are outstanding shall reserve a number of shares of authorized
but unissued Common Stock sufficient to provide for the conversion of the Series
A Preferred Stock outstanding at the then current Conversion Price, subject to
the provisions of paragraph F of Article V. If the Corporation shall issue any
securities or make any change in its capital structure that would change the
number of shares of Common Stock into which each share of Series A Preferred
Stock shall be convertible at the then current Conversion Price, the Corporation
shall at the same time also make proper provision so that thereafter there shall
be a sufficient number of shares of Common Stock authorized and reserved for
conversion of the outstanding Series A Preferred Stock.
F. In case of (i) any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination), (ii) any consolidation or merger of the
Corporation with any other corporation (other than a merger in which the
Corporation is the surviving or continuing corporation and its outstanding
capital stock is unchanged), (iii) any sale or transfer of all or substantially
all of the assets of the Corporation or (iv) any share exchange pursuant to
which all of the outstanding shares of Common Stock are converted into other
securities or property, the Corporation shall in each such case make appropriate
provision or cause appropriate provision to be made so that the holders of
shares of Series A Preferred Stock then outstanding shall have the right
thereafter to convert each such share of Series A Preferred Stock into the kind
and amount of other securities and property receivable upon such
reclassification, consolidation, merger, sale, transfer or share exchange by a
holder of the number of shares of Common Stock into which each such share of
Series A Preferred Stock might have been converted immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange. To
the extent that as a result of any such reclassification, consolidation, merger,
sale, transfer or share exchange the Series A Preferred Stock becomes
convertible into a new common stock of the Corporation or the common stock of
any other corporation involved in a merger with the Corporation, the Corporation
shall make appropriate provision or cause appropriate provision to be made so
that the Conversion Price with respect to such new common stock shall be subject
to further adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to Common Stock
contained in this Article V. If in connection with any such reclassification,
consolidation, merger, sale, transfer or share exchange, each holder of shares
of Common Stock is entitled to elect
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<PAGE>
to receive alternative forms of consideration upon completion of such
transaction, the Corporation shall provide or cause to be provided to each
holder of Series A Preferred Stock upon conversion thereof of the shares of
capital stock or other securities or property receivable by a holder of Common
Stock who failed to make an election with respect to the form of consideration
receivable in such transaction. The Corporation shall not effect any such
transaction without first complying with this paragraph F. The foregoing
provisions of this paragraph F, shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share exchanges.
G. Upon the occurrence of each adjustment or readjustment of
the Conversion Price pursuant to this Article V, the Corporation, at its
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to all holders of Series A
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in reasonable detail the basis therefor. The Corporation shall, upon the
written request at any time of any holder of Series A Preferred Stock, furnish
or cause to be furnished to such holder a like certificate setting forth (i)
such adjustment or readjustment, (ii) the Conversion Price at the time in effect
and (iii) the number of shares of Common Stock and the amount, if any, of other
securities or property that at the time would be received upon conversion of a
share of Series A Preferred Stock.
Article VI. Conversion at the Option of the Corporation
The Corporation shall have the option to convert the Series A Preferred
Stock, in whole or in part, into fully paid and non-assessable shares of Common
Stock at any time in accordance with this Article VI. The number of shares of
Common Stock deliverable upon conversion of a share of Series A Preferred Stock
shall be the quotient obtained by dividing (i) the Stated Value by (ii) the then
effective "Conversion Price", which initially shall be $.80 and shall be subject
to adjustment from time to time as provided in paragraph C of Article V. The
Corporation may exercise this option by delivering to the holders of Series A
Preferred Stock a notice setting forth such election to convert the Series A
Preferred Stock into Common Stock in accordance with paragraph A of this Article
VI ("Corporation Optional Conversion Notice"). Not more than 10 business days
after its receipt of a Corporation Optional Conversion Notice, each holder shall
mail the certificates representing its Series A Preferred Stock to the
Corporation. Immediately upon receipt of the certificates representing Series A
Preferred Stock, the Corporation shall cancel these certificates on its books
and issue a certificate representing that number of shares of Common Stock into
which the Series A Preferred Stock is convertible under this Article VI to each
holder remitting a Series A Preferred Stock certificate. The Corporation shall
not be required to pay any tax in respect of the issuance and delivery upon
conversion of shares of Common Stock or other securities or property in a name
other than that of the registered holder of the shares of the Series A Preferred
Stock being converted.
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<PAGE>
Article VII. Voting Rights
In addition to any voting rights provided by law, the holders of shares
of Series A Preferred Stock shall have the following rights:
A. The affirmative vote of the holders of a majority of the
voting power represented by the outstanding shares of Series A Preferred Stock,
voting separately as a single class, shall be necessary to (i) authorize, adopt
or approve an amendment to the Amended and Restated Certificate of Incorporation
of the Corporation that would either (A) increase or decrease the aggregate
number or par value of authorized shares of Series A Preferred Stock, or (B)
alter or change the powers, preferences or special rights of any shares of
capital stock so as to affect the shares of Series A Preferred Stock adversely
or (ii) issue any shares of capital stock of the Corporation that are senior to
the Series A Preferred Stock.
B. (i) The rights of holders of shares of Series A Preferred
Stock to take any actions as provided in paragraph A of this Article VII may be
exercised at any annual meeting of stockholders or any special meeting of
stockholders or holders of Series A Preferred Stock held for such purposes as
hereinafter provided or at any adjournment thereof, or by the written consent,
delivered to the Secretary of the Corporation, of the holders of the minimum
number of shares of Series A Preferred Stock required to take such action.
So long as such right to vote continues (and unless such right
has been exercised by written consent of the minimum number of shares required
to take such action), the Chairman of the Board of the Corporation may call, and
upon the written request addressed to the Secretary of the Corporation at the
principal office of the Corporation of holders of record of twenty percent 20%
of the voting power represented by the outstanding shares of Series A Preferred
Stock, shall call a special meeting of the holders of shares entitled to vote as
provided herein. Such meeting shall be held within 30 days after delivery of
such request to the Secretary, at the place and upon the notice provided by law
and in the Bylaws of the Corporation for the holding of meetings of
stockholders.
(ii) At each meeting of stockholders at which the
holders of shares of Series A Preferred Stock shall have the right, voting
separately as a single class, to take any action, the presence in person or by
proxy of the holders of record of one-third of the voting power represented by
the total number of shares of Series A Preferred Stock voting separately as a
single class then outstanding and entitled to vote on the matter shall
constitute a quorum. At any such meeting or at any adjournment thereof:
(A) the absence of a quorum of the holders of Series
A Preferred Stock shall not prevent the election of directors, and the
absence of a quorum of the holders of shares of any other class or
series of capital stock shall not prevent the taking of any action
pursuant to this Article VII; and
(B) in the absence of a quorum of the holders of
Series A Preferred Stock,
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<PAGE>
the holders of a majority of the voting power represented by such stock
present in person or by proxy shall have the power to adjourn the
meeting as to the actions to be taken by the holders of Series A
Preferred Stock from time to time and without notice other than
announcement at the meeting until a quorum shall be present.
D. Unless as otherwise required by law, the holders of shares
of Series A Preferred Stock shall have no voting rights except as set forth in
this Article VII.
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<PAGE>
IN WITNESS WHEREOF, this Certificate of Designations, Preferences and
Rights is executed on behalf of the Corporation by its President this 19th day
of December, 1997.
NETVALUE, INC.
By: /s/ Michael A. Clark
---------------------------------
Michael A. Clark, President
8
<PAGE>
NETVALUE, INC.
AMENDED AND RESTATED
1996 NON-QUALIFIED STOCK
OPTION PLAN
Effective September 18, 1996
Initially Adopted by the Board September 6, 1996
Amended by the Board on December 12, 1997
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Table of Contents
Page
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Section 1. Purpose....................................................4
Section 2. Definitions................................................4
Section 3. Participation..............................................6
Section 4. Administration.............................................6
Section 5. Eligibility................................................7
Section 6. Stock Subject to the Plan..................................7
Section 7. Terms and Conditions of Options............................7
Section 8. Determination of Fair Market Value of Common Stock........10
Section 9. Adjustments...............................................11
Section 10. Rights as a Stockholder...................................11
Section 11. Time of Awarding Options..................................11
Section 12. Modification, Extension and Renewal of Option.............11
Section 13. Purchase for Investment and Other Restrictions............12
Section 14. Transferability...........................................13
Section 15. Other Provisions..........................................13
Section 16. Power of Board in case of Change of Control...............13
Section 17. Amendment of the Plan.....................................13
Section 18. Application of Funds......................................13
Section 19. No Obligation to Exercise Option..........................13
Section 20. Conditions Upon Issuance of Shares........................14
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Section 21. Reservation of Shares....................................14
Section 22. Stock Option Agreement...................................14
Section 23. Taxes, Fees, Expenses and Withholding of Taxes...........15
Section 24. Notices..................................................15
Section 25. No Enlargement of Employment Rights......................15
Section 26. Information to Optionees.................................16
Section 27. Availability of Plan.....................................16
Section 28. Invalid Provisions.......................................16
Section 29. Applicable Law...........................................16
Section 30. Board Action.............................................16
Exhibit A...............................................A-1
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NETVALUE, INC.
AMENDED AND RESTATED
1996 NON-QUALIFIED STOCK
OPTION PLAN
Section 1. Purpose.
netValue, Inc. (successor to COL Acquisition Corp. and f/k/a VSquared,
Inc., the "Company") has established this Amended and Restated netValue, Inc.
1996 Non-Qualified Stock Option Plan (the "Plan") to (a) recognize and
compensate selected individuals, including employees of and consultants to the
Company and independent contractors who contribute to the development and
success of the Company; (b) to maintain the competitive position of the Company
by attracting and retaining key employees; and (c) to provide incentive
compensation to key employees based upon the Company's performance, as measured
by the appreciation in Common Stock. The Options issued pursuant to the Plan are
intended to constitute non-qualified stock options. The terms of this Plan shall
be incorporated into the Option Agreement to be executed by the Optionee.
Section 2. Definitions.
(a) "Award" shall mean a grant of an Option or Options to a Participant
pursuant to the provisions of this Plan. Each separate grant of an Option or
Options to a Participant and each group of Options which matures on a separate
date is treated as a separate Award.
(b) "Board" shall mean the Board of Directors of the Company, as
constituted from time to time.
(c) "Change of Control" shall mean the happening of an event which
would be required to be reported by the Company in response to Items 1 or 2 of
Form 8-K of the Securities and Exchange Act of 1934, as amended.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Committee" shall mean the Committee appointed by the Board in
accordance with Section 4(a) of the Plan, if one is appointed, in which event
the Committee shall possess the power and authority of the Board.
(f) "Company" shall mean netValue, Inc. (successor to COL Acquisition
Corp. and f/k/a VSquared, Inc.), a Delaware Corporation.
(g) "Common Stock" shall mean common stock of the Company, $.001 par
value per share.
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(h) "Disability" or "Disabled" shall mean, with respect to an Optionee,
(a) when the Optionee is determined to be disabled within the meaning of any
long-term disability policy or program sponsored by the Company, as in effect as
of the date of such determination, or (b) if no such policy or program shall be
in effect, when the Optionee is prevented by a physical or mental impairment
from engaging in any substantial gainful activity for a period of at least six
(6) months or when such physical or mental impairment is likely to result in
death. The determination of whether an Optionee is Disabled pursuant to (b)
above shall be determined by the Board, whose determination shall be conclusive;
provided that, (I) if an Optionee is bound by the terms of an employment
agreement between the Optionee and the Company, whether the Optionee is
"Disabled" for purposes of the Plan shall be determined in accordance with the
procedures set forth in said employment agreement, if such procedures are
therein provided; and (II) an Optionee bound by such an employment agreement
shall not be determined to be Disabled under the Plan any earlier than he would
be determined to be disabled under his employment agreement.
(i) "Exchange Act" shall mean The Securities Exchange Act of 1934, as
amended.
(j) "Fair Market Value" shall mean the fair market value of a share of
Common Stock, as determined pursuant to Section 8 hereof.
(k) "Option" shall mean a non-qualified stock option to purchase Shares
that is Awarded pursuant to the Plan.
(l) "Option Agreement" shall mean a written agreement substantially in
the form of Exhibit A, or such other form or forms as the Board (subject to the
terms and conditions of this Plan) may from time to time approve evidencing and
reflecting the terms of an Option.
(m) "Optionee" shall mean a Participant to whom an Option is Awarded.
(n) "Participant" shall mean any person providing services to the
Company who has been selected by the Board for participation hereunder,
including employees, officers, directors, independent contractors and
consultants.
(o) "Plan" shall mean the netValue, Inc. 1996 Non-Qualified Stock
Option Plan, as amended from time to time.
(p) "Pool" shall mean the pool of shares of Common Stock subject to the
Plan, as described and set forth in Section 6 hereof.
(q) "Securities Act" shall mean The Securities Act of 1933, as amended.
(r) "Shares" shall mean shares of Common Stock contained in the Pool,
as adjusted in accordance with Section 9 of the Plan.
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Section 3. Participation.
The Board may make Awards pursuant to the Plan at any time and from
time to time to Participants selected by the Board. Any Award may include or
exclude any eligible Participant, as the Board shall determine in its sole
discretion.
Section 4. Administration.
(a) Procedure. The Plan shall be administered by the Board unless a
Committee is appointed in which case it shall be administered by the Committee.
Members of the Board or the Committee, as the case may be, who are eligible for
Options or have been Awarded Options may vote on any matters affecting the
administration of the Plan or the Award of any Options pursuant to the Plan. The
Board may at any time by a unanimous vote, with each member voting, appoint a
Committee consisting of not less than two persons to administer the Plan on
behalf of the Board, subject to such terms and conditions as the Board may
prescribe. Members of the Committee shall serve for such period of time as the
Board may determine. From time to time the Board may increase the size of the
Committee and appoint additional members thereto, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and thereafter directly
administer the Plan.
(b) Powers of the Board. Subject to the provisions of the Plan, the
Board or its Committee shall have the authority, in its discretion: (i) to Award
Options; (ii) to determine, upon review of relevant information and in
accordance with Section 8 of the Plan, the Fair Market Value per Share; (iii) to
determine the exercise price of the Options to be Awarded in accordance with
Sections 7 and 8 of the Plan; (iv) to determine the eligible Participants to
whom, and the time or times at which, Options shall be Awarded, and the number
of Shares to be subject to each Option; (v) to prescribe, amend and rescind
rules and regulations relating to the Plan; (vi) to determine the terms and
provisions of each Option Awarded under the Plan, each Option Agreement (which
need not be identical with the terms of other Options and Option Agreements)
and, with the consent of the Optionee, to modify or amend an outstanding Option
or Option Agreement; (vii) to accelerate the vesting or exercise date of any
Option; (viii) to determine whether any Optionee will be required to execute any
agreement as a condition to the exercise of an Option, and to determine the
terms and provisions of any such agreement (which need not be identical with the
terms of any other such agreement) and, with the consent of the Optionee, to
amend any such agreement; (ix) to interpret the Plan or any agreement entered
into with respect to the Award or exercise of Options; (x) to authorize any
person to execute on behalf of the Company any instrument required to effectuate
the Award of an Option previously Awarded by the Board or to take such other
actions as may be necessary or appropriate with respect to the Company's rights
pursuant to Options or agreements relating to the Award or exercise thereof; and
(xi) to make such other determinations and establish such other procedures as it
deems necessary or advisable for the administration of the Plan.
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(c) Effect of the Board's or Committee's Decision. All decisions,
determinations and interpretations of the Board or the Committee shall be final
and binding with respect to all Options and Optionees.
(d) Limitation of Liability. Notwithstanding anything herein to the
contrary (with the exception of Section 30 hereof), no member of the Board or
the Committee shall be liable for any good faith determination, act or failure
to act in connection with the Plan or any Option Awarded hereunder.
Section 5. Eligibility.
Options may be Awarded only to eligible Participants. A Participant who
has been Awarded an Option, if he or she is otherwise eligible, may be Awarded
additional Options.
Section 6. Stock Subject to the Plan.
Subject to the provisions of Section 9 of the Plan, the maximum
aggregate number of Shares which may be Awarded and sold under the Plan is Two
Million Five Hundred Thousand (2,500,000) Shares (collectively, the "Pool").
Options Awarded from the Pool will be non-qualified stock options. If an Option
should expire or become unexercisable for any reason without having been
exercised in full, or, if Shares are subsequently repurchased by the Company,
the unpurchased or repurchased Shares which were subject thereto shall, unless
the Plan shall have been terminated, return to the Plan and become available for
future Award under the Plan.
Section 7. Terms and Conditions of Options.
Each Option Awarded pursuant to the Plan shall be authorized by the
Board and shall be evidenced by an Option Agreement in such form as the Board
may from time to time determine. Each Option Agreement shall incorporate by
reference all terms and conditions of the Plan, including the following terms
and conditions:
(a) Number of Shares. The number of Shares subject to the Option, which
may include fractional Shares.
(b) Option Price. The price per Share payable on the exercise of any
Option shall be stated in the Option Agreement and shall be no less than $.001
per Share.
(c) Consideration. The consideration to be paid for the Shares to be
issued upon the exercise of an Option, including the method of payment, shall be
determined by the Board and may consist entirely of cash, check, promissory
notes or shares of Common Stock having a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised, or any combination of such methods of payment, or
such other consideration and method of payment permitted under any laws to which
the Company is subject
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and which is approved by the Board. In making its determination as to the type
of consideration to accept, the Board shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company.
(i) If the consideration for the exercise of an Option is a
promissory note, it may, in the discretion of the Board, be either full recourse
or nonrecourse and shall bear interest at a per annum rate which is not less
than the applicable federal rate determined in accordance with Section 1274(d)
of the Code as of the date of exercise. Further, in addition to the execution of
a promissory note, the Participant shall pay to the Company in cash or cashier's
check an amount equal to the par value multiplied by the number of shares as to
which such Option is being exercised. In such an instance the Company may retain
the Shares purchased upon the exercise of the Option in escrow as security for
payment of the promissory note.
(ii) If the consideration for the exercise of an Option is the
surrender of previously acquired and owned shares of Common Stock, the Optionee
will be required to make representations and warranties satisfactory to the
Company regarding his title to the shares of Common Stock used to effect the
purchase, including without limitation, representations and warranties that the
Optionee has good and marketable title to such shares of Common Stock free and
clear of any and all liens, encumbrances, charges, equities, claims, security
interests, options or restrictions, and has full power to deliver such shares of
Common Stock without obtaining the consent or approval of any person or
governmental authority other than those which have already given consent or
approval in a manner satisfactory to the Company. The value of the shares of
Common Stock used to effect the purchase shall be the Fair Market Value of such
shares of Common Stock on the date of exercise as determined by the Board in its
sole discretion, exercised in good faith.
(d) Exercise of Options. Any Option Awarded hereunder shall be
exercisable at such times and under such conditions as may be determined by the
Board and as shall be permissible under the terms of the Plan, including
performance criteria with respect to the Company and/or the Optionee, and as
shall be permissible under the terms of the Plan.
An Option may be exercised in accordance with the provisions
of this Plan as to all or any portion of the Shares then exercisable under an
Option from time to time during the term of the Option. An Option may not be
exercised solely for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company at its principal executive office
in accordance with the terms of the Option Agreement by the person entitled to
exercise the Option and full payment for the Shares with respect to which the
Option is exercised has been received by the Company, accompanied by any other
agreements required by the terms of the Plan and/or Option Agreement. If and to
the extent determined by the Board at or after Award, payment in full or in part
may be made in the form of a "cashless exercise." A "cashless exercise" shall be
accomplished by reduction in the number of Shares issuable upon exercise based
on the Fair Market Value of such shares of Common Stock on the date of exercise,
so that the aggregate spread between the Fair Market Value of such shares of
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Common Stock on the date of exercise and the exercise price of the foregone
shares of Common Stock is equal to the aggregate exercise price for all of the
shares of Common Stock plus any tax withholding required. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Option is exercised, except as provided in Section 9 of the Plan.
As soon as practicable after any proper exercise of an Option
in accordance with the provisions of the Plan, the Company shall, without
transfer or issue tax to the Optionee, deliver to the Optionee at the principal
executive office of the Company or such other place as shall be mutually agreed
upon between the Company and the Optionee, a certificate or certificates
representing the Shares for which the Option shall have been exercised. The time
of issuance and delivery of the certificate(s) representing the Shares for which
the Option shall have been exercised may be postponed by the Company for such
period as may be required by the Company, with reasonable diligence, to comply
with any applicable listing requirements of any national or regional securities
exchange or any law or regulation applicable to the issuance or delivery of such
Shares.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for Award under
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(e) Term and Vesting of Options.
(i) Notwithstanding any other provision of this Plan, no
Option shall be (A) Awarded under this Plan after ten (10) years from the date
on which this Plan is adopted by the Board, or (B) exercisable more than ten
(10) years from the date of Award.
(ii) Options Awarded hereunder shall mature and become
exercisable in whole or in part, in accordance with such vesting schedule as the
Board shall determine, which schedule shall be stated in the Option Agreement.
Options may be exercised in any order elected by the Optionee whether or not the
Optionee holds any unexercised Options under this Plan or any other plan of the
Company.
(f) Termination of Options.
(i) Unless sooner terminated as provided in this Plan, each
Option shall be exercisable for the period of time as shall be determined by the
Board and set forth in the Option Agreement, and shall be void and unexercisable
thereafter.
(ii) Except as otherwise provided herein, upon the termination
of the Optionee's employment or other relationship with the Company for any
reason, Options exercisable on the date of termination of employment or such
other relationship shall be exercisable by the Optionee (or in the case of the
Optionee's death subsequent to termination of employment or such other
relationship, by the Optionee's executor(s) or administrator(s)) for a period of
one (1) year from the date of the
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Optionee's termination of employment or such other relationship, unless
otherwise provided in such Optionee's Option Agreement.
(iii) Upon the Disability or death of an Optionee while in the
employ of or engagement by the Company, Options held by such Optionee which are
exercisable on the date of Disability or death shall be exercisable for a period
of one (1) year commencing on the date of the Optionee's Disability or death, by
the Optionee or his legal guardian or representative or, in the case of death,
by his executor(s) or administrator(s), unless otherwise provided in such
Optionee's Option Agreement; provided, however, that if such Disabled Optionee
shall commence any employment or engagement during such one (1) year period with
a competitor of the Company (including, but not limited to, full or part-time
employment or independent consulting work), as determined by the Board, all
Options held by such Optionee which have not yet been exercised shall terminate
immediately upon the commencement thereof.
(iv) Options may be terminated at any time by agreement
between the Company and the Optionee.
(g) Forfeiture. Notwithstanding any other provision of this Plan, if
the Board makes a determination that the Optionee (i) has engaged in any type of
disloyalty to the Company, including without limitation, fraud,
misappropriation, embezzlement, theft, or dishonesty in the course of his
employment or engagement, or (ii) has been convicted of a felony or other crime
involving a breach of trust or fiduciary duty owed to the Company, or (iii) has
disclosed trade secrets or confidential information of the Company or (iv) has
breached any agreement with the Company in respect of confidentiality,
non-disclosure, non-competition or otherwise, all unexercised Options shall
terminate upon the date of such determination. In the event of such a finding,
in addition to immediate termination of all unexercised Options, the Optionee
shall forfeit all Shares for which the Company has not yet delivered share
certificates to the Optionee and the Company shall refund to the Optionee the
Option purchase price paid to it. Notwithstanding anything herein to the
contrary, the Company may withhold delivery of share certificates pending the
resolution of any inquiry that could lead to a finding resulting in forfeiture.
Section 8. Determination of Fair Market Value of Common Stock.
(a) Except to the extent otherwise provided in this Section 8, the Fair
Market Value of a share of Common Stock shall be determined by the Board in its
sole discretion.
(b) Notwithstanding the provisions of Section 8(a), in the event that
shares of Common Stock are traded in the over-the-counter market, the Fair
Market Value of a share of Common Stock shall be the mean of the bid and asked
prices for a share of Common Stock on the relevant valuation date as reported in
The Wall Street Journal (or, if not so reported, as otherwise reported by the
National Association of Securities Dealers Automated Quotations ("NASDAQ")
System or the NASD OTC Bulletin Board), as applicable or, if there is no trading
on such date, on the next trading date. In the event shares of Common Stock are
listed on a national or regional securities exchange
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or traded through NASDAQ/NMS, the Fair Market Value of a share of Common Stock
shall be the closing price for a share of Common Stock on the exchange or on
NASDAQ/NMS, as reported in The Wall Street Journal on the relevant valuation
date, or if there is no trading on that date, on the next trading date.
Section 9. Adjustments.
(a) Subject to required action by the stockholders, if any, the number
of Shares as to which Options may be Awarded under this Plan and the number of
Shares subject to outstanding Options and the option prices thereof shall be
adjusted proportionately for any increase or decrease in the number of
outstanding shares of Common Stock of the Company resulting from stock splits,
reverse stock splits, stock dividends, reclassifications and recapitalizations.
(b) No fractional Shares shall be issuable on account of any action
aforesaid, and the aggregate number of Shares into which Shares then covered by
the Option, when changed as the result of such action, shall be reduced to the
number of whole Shares resulting from such action, unless the Board, in its sole
discretion, shall determine to issue scrip certificates in respect to any
fractional Shares, which scrip certificates, in such event, shall be in a form
and have such terms and conditions as the Board in its discretion shall
prescribe.
Section 10. Rights as a Stockholder.
The Optionee shall have no rights as a stockholder of the Company and
shall not have the right to vote nor receive dividends with respect to any
Shares subject to an Option until such Option has been exercised and a
certificate with respect to the Shares purchased upon such exercise has been
issued to him.
Section 11. Time of Awarding Options.
The date of Award of an Option shall be the date which the Board
specifies when the Board makes its determination Awarding such Option or if none
is specified, then the date of the Board's determination. Notice of the
determination shall be given to each Participant to whom an Option is so Awarded
within a reasonable time after the date of such Award.
Section 12. Modification, Extension and Renewal of Option.
Subject to the terms and conditions of the Plan, the Board may modify,
extend or renew an Option, or accept the surrender of an Option (to the extent
not theretofore exercised). Notwithstanding the foregoing, no modification of an
Option which adversely affects the Optionee shall be made without the consent of
the Optionee.
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Section 13. Purchase for Investment and Other Restrictions.
The issuance of Shares on the exercise of an Option shall be
conditioned on obtaining such appropriate representations, warranties,
restrictions and agreements of the Optionee as required by the Company. Among
other representations, warranties, restrictions and agreements, the Optionee
shall represent and agree that the purchase of Shares under the applicable
Option Agreement shall be for investment, and not with a view to the public
resale or distribution thereof, unless the Shares subject to the Option are
registered under the Securities Act and the transfer or sale of such Shares
complies with all other laws, rules and regulations applicable thereto. Unless
the Shares are registered under the Securities Act, the Optionee shall
acknowledge that the Shares purchased on exercise of the Option are not
registered under the Securities Act and may not be sold or otherwise transferred
unless the Shares have been registered under the Securities Act in connection
with the sale or other transfer thereof, or that counsel satisfactory to the
Company has issued an opinion satisfactory to the Company that the sale or other
transfer of such Shares is exempt from registration under the Securities Act,
and unless said sale or transfer is in compliance with all other applicable
laws, rules and regulations, including all applicable federal and state
securities laws, rules and regulations. Additionally, the Shares, when issued
upon the exercise of an Option, shall be subject to other transfer restrictions,
rights of first refusal and right of repurchase as the Company may require. The
certificates representing the Shares shall contain the following legend in
substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY APPLICABLE STATE
SECURITIES LAWS. THESE SHARES HAVE NOT BEEN ACQUIRED WITH A VIEW TO
DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR DISPOSED
OF, BY GIFT OR OTHERWISE, OR IN ANY WAY ENCUMBERED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT 1933,
AS AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS, OR A SATISFACTORY
OPINION OF COUNSEL SATISFACTORY TO NETVALUE, INC. THAT REGISTRATION IS
NOT REQUIRED UNDER SUCH ACT AND UNDER APPLICABLE STATE SECURITIES LAWS.
MOREOVER, THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AND
RESTRICTED BY THE PROVISIONS OF A CERTAIN STOCK OPTION AGREEMENT
BETWEEN NETVALUE, INC. AND THE STOCKHOLDER, A COPY OF WHICH AGREEMENT
WILL BE FURNISHED BY NETVALUE, INC. UPON WRITTEN REQUEST AND WITHOUT
CHARGE, AND ALL OF THE PROVISIONS OF SUCH AGREEMENT ARE INCORPORATED BY
REFERENCE IN THIS CERTIFICATE.
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Section 14. Transferability.
No Option shall be assignable or transferable otherwise than by will or
by the laws of descent and distribution. During the lifetime of the Optionee,
his Options shall be exercisable only by him or, in the event of his legal
incapacity or Disability, by his legal guardian or representative.
Section 15. Other Provisions.
The Option Agreement may contain such other provisions as the Board in
its discretion deems advisable and which are not inconsistent with the
provisions of this Plan, including, without limitation, restrictions upon or
conditions precedent to the exercise of the Option.
Section 16. Power of Board in Case of Change of Control.
Notwithstanding anything to the contrary set forth in this Plan (with
the exception of Section 30 hereof), in the event of a Change of Control, the
Board shall have the right to accelerate the vesting of all unmatured Options.
In addition, in the event of a Change of Control of the Company by reason of a
merger, consolidation or tax free reorganization or sale of all or substantially
all of the assets of the Company (other than in the ordinary course of
business), the Board shall have the right to terminate this Plan and to (a)
exchange all Options for options to purchase common stock in the successor
corporation or (b) distribute to each Optionee cash and/or other property in an
amount equal to and in the same form as the Optionee would have received from
the successor corporation if the Optionee had owned the Shares subject to the
Option rather than the Option at the time of the Change of Control. The form of
payment or distribution to the Optionee pursuant to this Section shall be
determined by the Board.
Section 17. Amendment of the Plan.
Insofar as permitted by law and the Plan, the Board may from time to
time suspend, terminate or discontinue the Plan or revise or amend it in any
respect whatsoever with respect to any Shares at the time not subject to an
Option.
Section 18. Application of Funds.
The proceeds received by the Company from the sale of the Shares
pursuant to the exercise of Options shall be used for general corporate
purposes.
Section 19. No Obligation to Exercise Option.
The Awarding of an Option shall impose no obligation upon the Optionee
to exercise such Option.
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Section 20. Conditions Upon Issuance of Shares.
(a) Options Awarded under the Plan are conditioned upon the Company
obtaining any required permit or order from appropriate governmental agencies,
authorizing the Company to issue such Options and Shares issuable upon the
exercise thereof.
(b) Shares shall not be issued pursuant to the exercise of an Option
unless the exercise of such Option and the issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act, the Exchange Act, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
(c) As a condition to the exercise of an Option, the Board may require
the person exercising such Option to execute an agreement with, and/or may
require the person exercising such Option to make any representation and/or
warranty to, the Company as may be, in the judgment of counsel to the Company,
required under applicable law or regulation, including but not limited to a
representation and warranty that the Shares are being purchased only for
investment and without present intention to sell or distribute such Shares if,
in the opinion of counsel for the Company, such a representation and warranty is
appropriate under any of the aforementioned relevant provisions of law.
Section 21. Reservation of Shares.
The Company, during the term of this Plan, shall at all times reserve
and keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
The Company, during the term of this Plan, shall use its best efforts
to seek to obtain from appropriate regulatory agencies any requisite
authorization in order to issue and sell such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain from any such regulatory agency having jurisdiction the requisite
authorization(s) deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any Shares hereunder, or the inability of the Company to
confirm to its satisfaction that any issuance and sale of any Shares hereunder
will meet applicable legal requirements, shall relieve the Company of any
liability in respect to the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
Section 22. Stock Option Agreement.
Options shall be evidenced by an Option Agreement in such form or forms
as the Board shall approve from time to time. Upon the exercise of an Option,
the Optionee shall sign and deliver to the Company any form of restriction
agreement as the Board shall approve from time to time.
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Section 23. Taxes, Fees, Expenses and Withholding of Taxes.
(a) The Company shall pay all original issue and transfer taxes (but
not income taxes, if any) with respect to the Award of Options and/or the issue
and transfer of Shares pursuant to the exercise thereof, and all other fees and
expenses necessarily incurred by the Company in connection therewith, and will
from time to time use its best efforts to comply with all laws and regulations
which, in the opinion of counsel for the Company, shall be applicable thereto.
(b) The Award of Options hereunder and the issuance of Shares pursuant
to the exercise thereof is conditioned upon the Company's reservation of the
right to withhold in accordance with any applicable law, from any compensation
or other amounts payable to the Optionee, any taxes required to be withheld
under federal, state or local law as a result of the Award or exercise of such
Option or the sale of the Shares issued upon exercise thereof. To the extent
that compensation or other amounts, if any, payable to the Optionee is
insufficient to pay any taxes required to be so withheld, the Company may, in
its sole discretion, require the Optionee (or such other person entitled herein
to exercise the Option), as a condition of the exercise of an Option, to pay in
cash to the Company an amount sufficient to cover such tax liability or
otherwise to make adequate provision for the Company's satisfaction of its
withholding obligations under federal, state and local law. An Optionee may
satisfy the requirement to pay any required taxes by using the "cashless
exercise" provision in Section 7(d) herein.
Section 24. Notices.
Any notice to be given to the Company pursuant to the provisions of
this Plan shall be addressed to the Company in care of its Secretary (or such
other person as the Company may designate from time to time) at its principal
executive office, and any notice to be given to an Optionee shall be delivered
personally or addressed to him or her at the address given beneath his or her
signature on his or her Option Agreement, or at such other address as such
Optionee or his or her permitted transferee (upon the transfer of the Shares)
may hereafter designate in writing to the Company. Any such notice shall be
deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, registered or certified, and deposited, postage and
registry or certification fee prepaid, in a post office or branch post office
regularly maintained by the United States Postal Service. It shall be the
obligation of each Optionee and each permitted transferee holding Shares
purchased upon exercise of an Option to provide the Secretary of the Company, by
letter mailed as provided herein, with written notice of his or her direct
mailing address.
Section 25. No Enlargement of Employment Rights.
This Plan is purely voluntary on the part of the Company, and the
continuance of the Plan shall not be deemed to constitute a contract between the
Company and any Participant, or to be consideration for or a condition of the
employment or service of any Participant. Nothing contained in this Plan shall
be deemed to give any Participant the right to be retained in the employ or
service of the Company or to interfere with the right of the Company or any such
corporation to discharge
15
<PAGE>
or retire any Participant thereof at any time. No Participant shall have any
right to or interest in Options authorized hereunder prior to the Award thereof
to such Participant, and upon such Award he shall have only such rights and
interests as are expressly provided herein, subject, however, to all applicable
provisions of the Company's Certificate of Incorporation, as the same may be
amended from time to time.
Section 26. Information to Optionees.
The Company, upon request, shall provide without charge to each
Optionee copies of such annual and periodic reports as are provided by the
Company to its stockholders generally.
Section 27. Availability of Plan.
A copy of this Plan shall be delivered to the Secretary of the Company
and shall be shown by him to any eligible person making reasonable inquire
concerning it.
Section 28. Invalid Provisions.
In the event that any provisions of this Plan is found to be invalid or
otherwise unenforceability under any applicable law, such invalidity or
unenforceability shall not be construed as rendering any other provisions
contained herein as invalid or unenforceable, and all such other provisions
shall be given full force and effect to the same extent as though the invalid or
unenforceable provision was not contained herein.
Section 29. Applicable Law.
This Plan shall be governed by and construed in accordance with the
laws of the State of Delaware.
Section 30. Board Action.
Notwithstanding anything to the contrary set forth in this Plan, any
and all actions of the Board of Committee, as the case may be, taken under or in
connection with the Plan and any agreements, instruments, documents,
certificates or other writings entered into, executed, granted, issued and/or
delivered pursuant to the terms hereof, shall be subject to and limited by any
and all votes, consents, approvals, waivers or other actions of all or certain
stockholders of the Company or other person required pursuant to (a) the
Company's Certificate of Incorporation (as the same may be amended and/or
restated from time to time), (b) the Company's Bylaws (as the same may be
amended and/or restated from time to time), and (c) any other agreement,
instrument, document or writing now or hereafter existing, between or among the
Company and its stockholders or other persons (as the same may be amended from
time to time).
16
<PAGE>
EXHIBIT A
FORM OF NON-QUALIFIED STOCK OPTION AGREEMENT
NETVALUE, INC. (the "Company") hereby grants to ________________ (the
"Optionee") an option to purchase shares of Common Stock (the "Shares") of the
Company, at the price set forth herein subject to the terms set forth herein,
and in all respects subject to the terms and provisions of the Amended and
Restated netValue, Inc. 1996 Non-Qualified Stock Option Plan (the "Plan"), which
terms and provisions are hereby incorporated by reference herein. Unless the
context herein otherwise requires, the terms defined in the Plan shall have the
same meanings herein.
1. Nature of the Option. This Option is intended to be a nonstatutory
stock option and is not intended to be an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or to otherwise qualify for any special tax benefits to the Optionee.
2. Date of Grant; Term of Option. This Option is granted this ____ day
of ________________, 199____, and it may not be exercised later than
________________.
3. Option Exercise Price and Vesting. Subject to the terms and
conditions herein set forth and set forth in the Plan, the Company hereby grants
to Optionee an option to purchase an aggregate number of Shares of the Company
at the option price as follows:
(a) An option to purchase a total of _________ Shares of the
Company at an option price of $______ per Share. This Option shall vest and
become exercisable in installments, the Optionee having the right hereunder to
purchase from the Company, on and after the following dates, the following
number of Shares:
Date Shares
---- ------
(b) An option to purchase a total of _________ Shares of the
Company at an option price of $______ per Share. This Option shall vest and
become exercisable in installments, the Optionee having the right hereunder to
purchase from the Company, on and after the following dates, the following
number of Shares:
Date Shares
---- ------
4. Exercise of Option. This Option shall be exercisable during its term
only in accordance with the terms and provisions of the Plan and this Option as
follows:
(a) Method of Exercise. This Option shall be exercisable by
written notice which shall state the election to exercise this Option, the
number of Shares in respect to which this
A-1
<PAGE>
Option is being exercised and such other representations and agreements as to
the Optionee's investment intent with respect to such Shares as may be required
by the Company hereunder or pursuant to the provisions of the Plan. Such written
notice shall be signed by the Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company or such other person as may be
designated by the Company. The written notice shall be accompanied by payment of
the purchase price along with any other agreements as the Company may require.
Payment of the purchase price shall be by check or such consideration and method
of payment authorized by the Board pursuant to the Plan. The certificate or
certificates for the Shares as to which the Option shall be exercised shall be
registered in the name of the Optionee and shall be legended as required under
the Plan, and/or applicable law.
(b) Restrictions on Exercise. This Option may not be exercised
if the issuance of the Shares upon such exercise would constitute a violation of
any applicable federal or state securities laws or other laws or regulations. As
a condition to the exercise of this Option, the Company may require the Optionee
to make any representation and warranty to the Company as may be required by any
applicable law or regulation.
5. Investment Representations. Unless the Shares have been registered
under the Securities Act of 1933, in connection with the acquisition of this
Option, the Optionee represents and warrants as follows:
(a) The Optionee is acquiring this Option, and upon exercise
of this Option, he will be acquiring the Shares for investment for his own
account, not as a nominee or agent, and not with a view to, or for resale in
connection with, any distribution thereof.
(b) The Optionee has a preexisting business or personal
relationship with the Company or one of its directors, officers or controlling
personal and by reason of his business or financial experience, has, and could
be reasonably assumed to have, the capacity to protect his interests in
connection with the acquisition of this Option and the Shares.
6. Termination of Relationship with the Company. Subject to the
provisions of Section 7 hereof, if the Optionee ceases to serve the Company for
any reason other than death or Disability and thereby terminates his employment
or other relationship with the Company, the Optionee shall have the right to
exercise this Option at any time within the ____________ period after the date
of termination to the extent that the Optionee was entitled to exercise the
Option at the date of such termination. If the Optionee ceases to serve the
Company due to death or Disability, this Option may be exercised at any time
within __________ after the date of death or Disability, in the case of death,
by the Optionee's estate or by a person who acquired the right to exercise this
Option by bequest or inheritance, or, in the case of Disability, by the Optionee
or his legal guardian or representative, but in any case, only to the extent the
Optionee was entitled to exercise this Option at the date of such termination;
[provided, however, that if such disabled Optionee shall commence any employment
or engagement during such __________ period with or by a competitor of the
Company (including, but not limited to, full or part-time employment or
independent consulting
A-2
<PAGE>
work), as determined solely in the judgment of the Board, this Option shall
terminate immediately upon the commencement thereof.] To the extent that the
Optionee was not entitled to exercise the Option at the date of termination, or
to the extent the Option is not exercised within the time specified herein, this
Option shall terminate. Notwithstanding the foregoing, this Option shall not be
exercisable after the expiration of the term set forth in Section 2 hereof.
7. Forfeiture of Option. Notwithstanding any other provision of this
Option, if, in the sole determination of the Board of Directors, the Optionee
(i) has engaged in any type of disloyalty to the Company including, without
limitation, fraud, misappropriation, embezzlement, theft, or dishonesty in the
course of his employment or engagement, or (ii) has been convicted of a felony
or a crime involving a breach of trust or other fiduciary duty owed to the
Company, or (iii) has disclosed trade secrets or confidential information of the
Company, or (iv) has breached any agreement with the Company in respect of
confidentiality, nondisclosure, noncompetition or otherwise, all unexercised
Options shall terminate the date of such determination. In the event of such a
determination, in addition to immediate termination of all unexercised Options,
the Optionee shall forfeit all Option shares for which the Company has not yet
delivered share certificates to the Optionee and the Company shall refund to the
Optionee the Option price paid to it. Notwithstanding anything to herein to the
contrary, the Company may withhold delivery of share certificates pending the
resolution of any inquiry that could lead to a determination resulting in
forfeiture.
9. Continuation of Employment or Engagement. Neither the Plan nor this
Option shall confer upon any Optionee any right to continue in the service of
the Company or limit, in any respect, the right of the Company to discharge the
Optionee at any time, with or without cause and with or without notice.
10. Withholding. The Company reserves the right to withhold, in
accordance with any applicable laws, from any consideration payable to Optionee
any taxes required to be withheld by federal, state or local law as a result of
the grant or exercise of this Option or the sale or other disposition of the
Shares issued upon exercise of this Option. If the amount of any consideration
payable to the Optionee is insufficient to pay such taxes or if no consideration
is payable to the Optionee, upon the request of the Company, the Optionee (or
such other person entitled to exercise the Option pursuant to Section 6 hereof)
shall pay to the Company an amount sufficient for the Company to satisfy any
federal, state or local tax withholding requirements it may incur, as a result
of the grant or exercise of this Option or the sale or other disposition of the
Shares issued upon the exercise of this Option.
11. The Plan. This Option is subject to, and the Company and the
Optionee agree to be bound by, all of the terms and conditions of the Plan as
such Plan may be amended from time to time in accordance with the terms thereof.
Pursuant to the Plan, the Board of Directors of the Company is authorized to
adopt rules and regulations not inconsistent with the Plan as it shall deem
appropriate and proper. A copy of the Plan in its present form is available for
inspection during business hours by the Optionee or the persons entitled to
exercise this Option at the Company's principal office.
A-3
<PAGE>
12. Entire Agreement. This Agreement, together with the Plan and the
other exhibits attached thereto or hereto, represents the entire agreement
between the parties.
13. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Delaware.
14. Amendment. Subject to the provisions of the Plan, this Agreement
may only be amended by a writing signed by each of the parties hereto.
DATE:______________________________ NETVALUE, INC.
BY:________________________________
TITLE:_____________________________
A-4
<PAGE>
ACKNOWLEDGMENT
The Optionee acknowledges receipt of a copy of the Plan, a copy of
which is attached hereto, and represents that he has read and is familiar with
the terms and provisions thereof, and hereby accepts this Option subject to all
of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board of
Directors or the Committee upon any questions arising under the Plan.
DATE:___________________________ ___________________________________
Optionee: [___________________]
___________________________________
Address
___________________________________
City, State, Zip
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON THE EXERCISE
OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE, TRANSFER OR DISTRIBUTION THEREOF. NO SUCH SALE,
TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO OR A SATISFACTORY OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
A-5
<PAGE>
Exhibit 10.2
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
BY AND AMONG
COL ACQUISITION CORP., COUPONS ONLINE, L.L.C.,
CRAIG W. BARNETT, MARK D. BRAUNSTEIN, KAREN REISNER,
RAM REDDY, JODI JAMIESON, JAMES HORGAN, LARRY BARNETT,
BARRY BRAVERMAN, DIVERSIFIED EQUITIES AND MANAGEMENT II
t/a DEM II, GEORGE GORDON, MANUEL GORDON,
LORRAINE MARTIN, JEFFREY SILVERSTEIN, DR. ROBERT C. GORDON,
RENEE GORDON, NORMAN BATANSKY, TOBY BATANSKY,
ALAN KLEBAN FAMILY TRUST, BRUCE MALINOWSKI
AND MUZAK LIMITED PARTNERSHIP
DATED AS OF SEPTEMBER 12, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE 1..................................................................-2-
The Merger.................................................................-2-
1.1 The Merger....................................................-2-
1.2 Effective Time................................................-2-
1.3 Effect of the Merger..........................................-2-
1.4 Certificate of Incorporation; By-Laws; Operating Agreement....-2-
1.5 Directors and Officers.......................................-3-
1.6 Effect on Securities..........................................-3-
1.7 Taking of Necessary Action; Further Action...................-6-
1.8 Material Adverse Effect; Ordinary Course of Business.........-6-
1.9 Tax Consequences..............................................-7-
ARTICLE 2..................................................................-7-
Representations and Warranties of COL and the Active Holders...............-7-
ARTICLE 3..................................................................-7-
Representations and Warranties the Holders.................................-7-
ARTICLE 4..................................................................-7-
(i)
<PAGE>
Representations and Warranties of Company...................................-7-
ARTICLE 5...................................................................-8-
Conduct of Business Pending the Merger......................................-8-
Section 5.1 Conduct of Business by COL Pending the Merger....-8-
5.2 No Solicitation or Transfer of Interests.....................10-
5.3 No Transfer of Holder Rights.................................10-
5.4 Conduct of Business by the Company Pending the Merger........10-
ARTICLE 6...................................................................11-
Additional Covenants.......................................................-11-
6.1 Registration Under the Securities Act........................11-
6.2 Access to Information........................................14-
6.3 Consents; Approvals..........................................15-
6.4 Notification of Certain Matters..............................15-
6.5 Further Action...............................................15-
6.6 Public Announcements.........................................15-
6.7 Conveyance Taxes.............................................15-
ARTICLE 7...................................................................15-
Conditions to the Merger...................................................-15-
7.1 Conditions to Obligation of Each Party to Effect the Merger..16-
7.2 Additional Conditions to Obligations of the Company..........16-
7.3 Additional Conditions to Obligation of COL and the Holders...18-
ARTICLE 8...................................................................19-
Termination.................................................................19-
8.1 Termination..................................................19-
8.2 Effect of Termination........................................20-
8.3 Fees and Expenses............................................20-
ARTICLE 9...................................................................21-
Survival of Representations and Warranties; Indemnification................-21-
9.1 Survival.................................................-21-
9.2 Indemnification..........................................-21-
9.3 Conditions of Indemnification for Third Party Claims.....-22-
9.4 Payment of Claims........................................-23-
9.5 Set-Off..................................................-23-
(ii)
<PAGE>
9.6 Loan and Security Agreement..............................-24-
ARTICLE 10.................................................................-24-
General Provisions.........................................................-24-
10.1 Disclosure Schedules.....................................-24-
10.2 Notices..................................................-24-
10.3 Certain Definitions......................................-25-
10.4 Amendment................................................-25-
10.5 Waiver...................................................-26-
10.6 Headings.................................................-26-
10.7 Severability.............................................-26-
10.8 Entire Agreement.........................................-26-
10.9 No Assignment............................................-26-
10.10 Parties In Interest......................................-26-
10.11 Failure or Indulgence Not Waiver; Remedies Cumulative....-27-
10.12 GOVERNING LAW............................................-27-
10.13 Counterparts.............................................-27-
10.14 Joint Participation......................................-27-
10.15 No Tax Advice............................................-27-
10.16 Exhibits and Schedules...................................-27-
10.17 WAIVER OF JURY TRIAL.....................................-28-
(iii)
<PAGE>
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
Agreement and Plan of Merger and Reorganization, dated as of September
12, 1996 (this "Agreement"), by and among COL Acquisition Corp., a Delaware
corporation (the "Company"), Coupons Online, L.L.C., a New Jersey limited
liability company ("COL"), Craig W. Barnett ("C. Barnett"), Mark D. Braunstein
("Braunstein"), Karen Reisner ("Reisner"), Ram Reddy ("Reddy"), Jodi Jamieson
("Jamieson"), James Horgan ("Horgan"), Larry Barnett ("L. Barnett"), Barry
Braverman ("Braverman"), Diversified Equities and Management II t/a DEM II
("DEM"), George Gordon ("G. Gordon"), Manuel Gordon ("M. Gordon"), Lorraine
Martin ("Martin"), Jeffrey Silverstein ("Silverstein"), Dr. Robert C. Gordon
("Dr. Gordon"), Renee Gordon ("R. Gordon"), Norman Batansky ("N. Batansky"),
Toby Batansky ("T. Batansky"), Alan Kleban Family Trust ("Trust"), Bruce
Malinowski ("Malinowski") and Muzak Limited Partnership ("Muzak") (collectively,
the "Holders").
C. Barnett and Braunstein are sometimes collectively referred to as
the "Active Holders". Reisner, Reddy, Jamieson, Horgan, L. Barnett, Braverman,
DEM, G. Gordon, M. Gordon, Martin, Silverstein, Dr. Gordon, R. Gordon, N.
Batansky, T. Batansky, Trust, Malinowski and Muzak are sometimes collectively
referred to as the "Passive Holders". DEM, G. Gordon, M. Gordon, Martin,
Silverstein, Dr. Gordon, R. Gordon, N. Batansky, T. Batansky and Trust are
sometimes collectively referred to as the "Gordon Group". The Active Holders,
the Gordon Group, Reisner, Reddy, Jamieson, Horgan, L. Barnett and Braverman are
sometimes collectively referred to as the "Interest Holders".
WITNESSETH:
WHEREAS, the Board of Directors of the Company and the Board of
Managers of COL have each determined that it is advisable and in the best
interests of their respective stockholders and members for COL to be acquired by
the Company pursuant to the merger (the "Merger") of COL with and into the
Company upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance thereof, the Board of Directors of the Company
and the Board of Managers and members of COL have each approved the Merger in
accordance with the applicable provisions of the Delaware General Corporation
Law ("Delaware Law") and the New Jersey Limited Liability Company Act ("New
Jersey Law") and upon the terms and subject to the conditions set forth herein;
and
WHEREAS, pursuant to the Merger, the Holders will receive the Merger
Consideration (as defined in Section 1.6(d) hereof), in exchange for (i) all of
the issued and outstanding membership interests of COL, (ii) the termination of
any and all agreements among COL and the Holders and (iii) the release of any
and all pre-existing rights, claims, causes of actions and suits which the
Holders have or may have against COL, upon the terms and subject to the
conditions set forth herein.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, the Company, COL and each of the Holders hereby agree as follows:
ARTICLE 1.
The Merger
Section 1.1 The Merger.
(a) Effective Time. At the Effective Time (as defined in
Section 1.2), and subject to and upon the terms and conditions of this
Agreement, New Jersey Law and Delaware Law, respectively, COL shall be merged
with and into the Company, the separate existence of COL shall cease, and the
Company shall continue as the surviving corporation. The Company, as the
surviving corporation after the Merger, is hereinafter sometimes referred to as
the "Surviving Corporation."
(b) Closing. Subject to the satisfaction or waiver of the
conditions set forth in Article 7 hereof, the closing of the transactions
contemplated hereby will take place upon the earlier of (i) the satisfaction or
waiver of the conditions set forth in Article 7 hereof and (ii) September 18,
1996, at the offices of Klehr, Harrison, Harvey, Branzburg & Ellers LLP, 1401
Walnut Street, Philadelphia, Pennsylvania 19102, or such other date, time or
place as is agreed to in writing by the Company and COL (the date of the closing
of the transactions contemplated hereby is hereinafter referred to as the
"Closing Time").
Section 1.2 Effective Time. As promptly as practicable after the
Closing Time, the parties hereto shall cause the Merger to be consummated by
filing articles of merger (the "Articles of Merger"), together with any required
certificates, with the Secretary of State of the State of New Jersey and the
Secretary of State of the State of Delaware, in such form as is required by, and
executed in accordance with, the relevant provisions of New Jersey Law and
Delaware Law, respectively (the time of such filing being the "Effective Time").
Section 1.3 Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Articles of Merger and
the applicable provisions of New Jersey Law and Delaware Law, respectively.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
each of COL and the Company shall vest in the Surviving Corporation, and all
debts, liabilities and duties of each of COL and the Company shall become the
debts, liabilities and duties of the Surviving Corporation.
Section 1.4 Certificate of Incorporation; By-Laws; Operating
Agreement.
(a) Certificate of Incorporation. At the Effective Time, the
Certificate of Incorporation of the Company, as in effect immediately prior to
the Closing Time, shall be the
-2-
<PAGE>
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by Delaware Law and such Certificate of Incorporation;
provided, however, that Article I of the Certificate of Incorporation of the
Surviving Corporation shall be amended as of the Effective Time to read as
follows: "FIRST" The name of the corporation is "Coupons Online, Inc." (or such
other name as is selected by the Surviving Corporation).
(b) By-Laws. At the Effective Time, the By-Laws of the Company,
as in effect immediately prior to the Closing Time, shall be the By-Laws of the
Surviving Corporation until thereafter amended as provided by Delaware Law, the
Certificate of Incorporation of the Surviving Corporation and such By-Laws.
(c) Operating Agreement. At the Effective Time, the Operating
Agreement (as defined in Section 1.6(a) hereof) and all obligations and rights
thereunder shall be terminated and shall no longer be of any force or effect.
(d) Investors Agreement. At the Effective Time, that certain
Investors Agreement by and among COL and the Gordon Group and all obligations
and rights thereunder shall be terminated and shall no longer be of any force or
effect.
Section 1.5 Directors and Officers. As soon as reasonably practicable
following the Effective Time, the sole director of the Company shall cause (i)
the three (3) individuals to be identified by American Maple Leaf Financial
Corporation, Michael A. Clark and C. Barnett (with Braunstein having the right
to attend all meetings of the Board of Directors so long as C. Barnett shall be
a director of the Surviving Corporation) to be elected to and constitute the
entire Board of Directors of the Surviving Corporation and (ii) Michael A. Clark
and such other executive officers of the Surviving Corporation as are identified
by Mr. Clark to be appointed to their respective positions, in each case until
their respective successors are duly elected or appointed and qualified. Mr.
Clark and C. Barnett shall be elected to serve as Class B Directors of the
Surviving Corporation in accordance with the Surviving Corporation's Bylaws.
Section 1.6 Effect on Securities. Subject to the terms and conditions
contained herein, at the Effective Time, by virtue of the Merger and without any
action on the part of the Company, COL or any of the Holders:
(a) Conversion of Securities. All of the Interests (as defined
in the Operating Agreement for COL dated December 1994 by and among COL and the
Interest Holders (the "Operating Agreement")) of COL shall be canceled.
(b) Termination of Agreements. Any and all agreements among COL
and any of the Holders (the "Holder Agreements") shall be terminated.
(c) Release of Claims. Except for the obligations of COL set
forth on Schedule 1.6(c) attached hereto, which claims shall survive the
consummation of the Merger (collectively, the
-3-
<PAGE>
"Surviving Claims"), any and all pre-existing rights, claims, causes of actions
and suits which any of the Holders then have or may have against COL (the
"Holder Claims" (which term specifically excludes the Surviving Claims) and
together with the Holder Agreements, the "Holder Rights") shall be released.
(d) Merger Consideration. In exchange for the consideration set
forth in clauses (a), (b) and (c) of this Section 1.6, the Holders shall
receive, in the aggregate, 2,474,000 shares of validly issued, fully paid and
nonassessable shares of common stock of the Company, $.01 par value per share
(the "Common Stock"). No fraction of a share of Common Stock shall be issued
hereunder and no cash shall be issued in lieu of any such fractional shares
which would otherwise be issuable thereof. The Common Stock issuable under this
Section 1.6(d) is referred to herein as the "Merger Consideration".
The shares of Common Stock issued as Merger
Consideration, except (i) for all the shares of Common Stock issued to the
Gordon Group (the "Gordon Shares") and (ii) 57,000 of the shares of Common Stock
issued to Braverman (the "Unrestricted Braverman Shares"), may not be sold,
transferred or otherwise disposed of by any or all of the Holders until the
Second Anniversary of the Effective Time (the "Transfer Restriction").
Notwithstanding the foregoing, the restrictions contained herein shall in no way
restrict or limit such Holder's ability to (a) transfer shares of Common Stock
to (1) another Holder, (2) his immediate family members or (3) a trust or trusts
for the benefit of his immediate family members for estate planning purposes or
(b) pledge shares of Common Stock to a bona fide reputable financial institution
as security for debt incurred by such Holder (all transferees permitted by
clause (a) and (b) are referred to herein as "Permitted Transferees"); provided,
however, that such Holder and such Permitted Transferees shall (i) be bound by
the Transfer Restriction and (ii) execute, prior to any such transfer to such
Permitted Transferee, such documents as may be reasonably requested by the
Company to evidence and affirm its obligations hereunder (each of such permitted
transfers shall hereinafter be referred to as a "Permissible Transfer").
The Gordon Shares may not be sold, transferred or
otherwise disposed of by any or all of the Holders constituting the Gordon Group
except (i) in connection with a Permissible Transfer or (ii) in accordance with
the following provisions: (x) 25% of such Shares on the first anniversary of the
Effective Date; (y) 25% of such Shares on the eighteenth month anniversary of
the Effective Date; and (z) the balance of such Shares on the second anniversary
of the Effective Date.
The Unrestricted Braverman Shares may not be sold,
transferred or otherwise disposed of by Braverman except (i) in connection with
a Permissible Transfer or (ii) in accordance with the following provisions: (x)
25% of such Shares on the first anniversary of the Effective Date; (y) 25% of
such Shares on the eighteenth month anniversary of the Effective Date; and (z)
the balance of such Shares on the second anniversary of the Effective Date.
(e) The certificates for all shares of Common Stock issued as
Merger Consideration will be issued with a restrictive legend setting forth or
otherwise indicating the
-4-
<PAGE>
restrictions on transfer set forth in clause (d) of this Section 1.6.
Immediately upon the Effective Time, (i) all Interests of COL shall
automatically be canceled and all rights of holders of such Interests with
respect thereto shall cease and be extinguished, (ii) all Holder Agreements
shall be terminated and (iii) all Holder Claims shall be waived. The Merger
Consideration shall be allocated among the Holders as set forth in Exhibit A
attached hereto. By accepting a certificate for shares of Common Stock
representing such Merger Consideration, a Holder shall knowingly and willingly
remise, waive, release and forever discharge COL and its successors, including
the Company, and their respective members, managers, shareholders, directors,
officers, employees, agents, affiliates, and assigns (collectively, the
"Releasees") of and from any and all manner of actions and causes of action,
debts, agreements, claims and demands whatsoever (collectively, "Claims") which
such Holder, his heirs, executors, administrators or assigns has, had or may
hereafter have against the Releasees or any of them from or by reason of any
cause, matter or thing whatsoever from the beginning of time to the Effective
Time, including, without in any way limiting the generality of the foregoing
(but specifically excluding the Surviving Claims), (i) any and all matters
relating to his status as a member of COL; (ii) any and all matters relating to
his employment, if any, by COL and the termination thereof; (iii) any and all
claims under any federal, state or local law; (iv) any common law claims now or
hereafter recognized and (v) all claims for counsel fees and costs. By accepting
such Merger Consideration, except in connection with the Surviving Claims,
Holder shall also be deemed to agree that neither he nor any person,
organization, or other entity acting on his behalf, will file, charge, claim,
sue or cause or permit to be filed, charged, or claimed any action, suit or
proceeding against any of the Releasees involving any matter occurring at any
time in the past up to the Effective Time or involving any continuing effects of
any acts or practices which may have arisen or occurred prior to the Effective
Time.
(f) Capital Stock of the Company. Each share of Common Stock,
and all rights, options and warrants to purchase Common Stock ("Stock Purchase
Rights") of the Company issued and outstanding immediately prior to the
Effective Time shall become shares and Stock Purchase Rights of the Surviving
Corporation after the Merger and together with all the shares of Common Stock
issuable as Merger Consideration hereunder shall at the Effective Time
constitute all of the issued and outstanding shares and Stock Purchase Rights of
the Surviving Corporation. Each stock certificate or agreement of the Company
evidencing ownership of any such shares and Stock Purchase Rights shall continue
to evidence ownership of such shares and Stock Purchase Rights of the Surviving
Corporation.
(g) Adjustments to Merger Consideration. In the event the
Company shall effect any stock split, reverse split, stock dividend (including
any dividend or other similar distribution of securities convertible into Common
Stock), reorganization, recapitalization or other like change with respect to
Common Stock after the date hereof and prior to the Effective Time, the number
of shares of Common Stock issuable as Merger Consideration hereunder shall be
adjusted to reflect fully such split, dividend, reorganization, recapitalization
or change.
(h) Delivery of Certificates. At the Effective Time, the
Company will cause to be delivered to each Holder (in accordance with clauses
(a) through (e) of this Section 1.6 and Exhibit
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A attached hereto) certificate or certificates, appropriately registered in the
name of the holder, representing the shares of Common Stock issuable as Merger
Consideration hereunder.
(i) Withholding Rights. The Company shall be entitled to
receive from each Holder, prior to the payment of the Merger Consideration, an
amount in cash equal to the amount which the Company is required to deduct and
withhold with respect to the making of such payment under the Internal Revenue
Code of 1986, as amended (the "Code") or any provision of state, local,
provincial or foreign tax law.
(j) The Merger Consideration delivered upon the surrender for
exchange of Interests and termination and/or waiver of Holder Rights in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Interests and/or Holder Rights, as
the case may be.
Section 1.7 Taking of Necessary Action; Further Action. Each of the
Company, COL and each of the Holders in good faith will take, and will cause any
other persons who are or become holders of Interests or other rights against the
Company at or prior to the Effective Time to take, all such commercially
reasonable and lawful actions as may be necessary or appropriate in order to
effectuate the Merger in accordance with this Agreement as promptly as possible.
If, at any time after the Effective Time, any such further action is necessary
or desirable to carry out the purposes of this Agreement and to vest the
Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of COL and the Company, the
officers, managers and directors of COL and the Company, respectively, are fully
authorized in the name of their respective corporations or otherwise to take,
and will take, all such lawful and necessary actions.
Section 1.8 Material Adverse Effect; Ordinary Course of Business. When
used herein or in any Exhibit, Annex or Schedule hereto in connection with COL
or the Company, as the case may be, the term "Material Adverse Effect", or any
derivation thereof, means any change or effect that, individually or when taken
together with all other such changes or effects that have occurred prior to the
date of determination of the occurrence of the Material Adverse Effect, is or is
reasonably likely to be materially adverse to the business, assets (including
intangible assets), financial condition, prospects or results of operations of
COL or the Company, as the case may be, in each case taken as a whole.
When used in connection with either COL or the Company, as the case
may be, the term "ordinary course of business", or derivations thereof, means
the normal conduct of business consistent with past practice except that no
action which is contrary to law, order, rule or regulation or otherwise contrary
to commercial reasonableness shall be considered to be in the ordinary course of
business.
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Section 1.9 Tax Consequences. It is intended by the parties hereto
that the Merger be part of a series of transactions which, together, will be
treated as a transaction in which no gain or loss is recognized pursuant to
Section 351 of the Code. The parties hereto agree to report the Merger
consistent with such treatment for income tax purposes.
ARTICLE 2.
Representations and Warranties of COL and the Active Holders
COL and each Active Holder hereby, jointly and severally, represents
and warrants to the Company (which representations and warranties shall be true
and correct on the date hereof and at the Effective Time) as to each of the
matters set forth in Annex I hereto.
In addition, COL hereby represents and warrants to Muzak (which
representation and warranty shall be true and correct on the date hereof and at
the Effective Time) that, to the best of COL's knowledge, there are no claims,
actions, suits, proceedings or investigations pending or threatened against COL
or any properties or rights of COL, before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign, which claims, actions, suits, proceedings or investigations are
reasonably likely to be asserted or commenced against Muzak or any of its assets
or properties. Notwithstanding anything to the contrary contained herein, in the
event that the representation and warranty set forth in the preceding sentence
is determined (by a court of competent jurisdiction) to have been untrue as of
the date hereof or at the Effective Time, then Muzak's remission, waiver,
release and discharge of the Claims set forth in Section 1.6(e) hereof shall be
of no force and effect.
ARTICLE 3.
Representations and Warranties the Holders
Each Holder, with respect to such Holder only, hereby represents and
warrants to the Company (which representations and warranties shall be true and
correct as of the date hereof and at the Effective Time) as to each of the
matters set forth in Annex II hereto.
ARTICLE 4.
Representations and Warranties of Company
The Company represents and warrants to COL and to each Holder (which
representations and warranties shall be true and correct on the date hereof and
at the Effective Time) as to each of the matters set forth in Annex III hereto.
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ARTICLE 5.
Conduct of Business Pending the Merger
Section 5.1 Conduct of Business by COL Pending the Merger. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, COL covenants and agrees
that, unless the Company shall otherwise agree in writing, COL shall conduct its
business only in, and COL shall not take any action except in, the ordinary
course of business; and COL shall use reasonable commercial efforts to (i)
preserve substantially intact its business organization, (ii) pay its trade
payables and other liabilities in accordance with their terms as they became
due, (iii) collect its receivables and other claims in full in accordance with
their terms, as they become due, (iv) keep available the services of each of its
present officers, employees and consultants, (v) take all reasonable actions in
the ordinary course of business necessary to prevent the loss, cancellation,
abandonment forfeiture or expiration of any COL Intellectual Property, and (vi)
preserve each of its present relationships with customers, suppliers and other
persons with which COL has significant business relations. By way of
amplification and not limitation, except as contemplated by this Agreement, COL
shall not, during the period from the date of this Agreement and continuing
until the earlier of the termination of this Agreement or the Effective Time,
directly or indirectly do, or propose to do, any of the following without the
prior written consent of the Company:
(a) amend or otherwise change its Articles of Formation or the
Operating Agreement;
(b) issue, transfer, pledge, dispose of or encumber, or
authorize the transfer, pledge, disposition or encumbrance of, any Interests;
(c) sell, lease, assign, transfer, pledge, dispose of or
encumber any of its assets (whether real, personal or intellectual property)
(except for (i) sales of assets in the ordinary course of business; and (ii)
dispositions of obsolete or worthless assets).
(d) [Intentionally Omitted];
(e) sell, transfer, license, sublicense or otherwise dispose of
any COL Intellectual Property Rights, or amend or modify any existing agreements
with respect to COL Intellectual Property Rights or Third Party Intellectual
Property Rights, other than nonexclusive licenses in the ordinary course of
business;
(f) (i) acquire (by merger, consolidation, or acquisition of
stock or assets) any corporation, partnership or other business organization or
division thereof; (ii) incur any indebtedness for borrowed money or representing
the deferred purchase price of any property or assets or issue debt securities
or assume, guarantee or endorse or otherwise as an accommodation become
responsible for, the obligations of any person (except for the endorsement of
commercial paper for
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deposit or collection in the ordinary course of business) or make any loans or
advances to or investments in any person; (iii) create, incur, assume or suffer
to exist, any mortgage, lien, pledge, charge, security interest or encumbrance
of any kind or nature upon its property or assets, income or profits, whether
now owned or hereafter acquired, other than "Permitted Liens" (as defined in
that certain Loan and Security Agreement dated as of June 14, 1996 by and
between VDC Corporation and COL (the "VDC Loan Agreement")); (iv) assume,
guarantee, endorse or otherwise in anyway be or become responsible or liable
for, directly or indirectly, any contingent obligation; (v) enter into or amend
any contract or agreement other than in the ordinary course of business; (vi)
authorize any capital expenditures or purchase of fixed assets which are, in the
aggregate, in excess of $10,000 for COL, taken as a whole; (vii) enter into any
agreement or become liable under any agreement for the lease, hire or use of any
real or personal property; or (viii) enter into or amend any contract,
agreement, commitment or arrangement to effect any of the matters prohibited by
this Section 4.1(f);
(g) increase the compensation payable or to become payable to
any of their officers or employees (except for such increases as may be set
forth in the employment agreements and/or consulting agreements to be entered
into upon consummation of the Merger) or grant any severance or termination pay
to, or enter into any employment or severance agreement with, any director,
officer or other employee of COL, or establish, adopt or enter into any Employee
Plan;
(h) take any action, other than as required by GAAP, to change
accounting policies or procedures (including, without limitation, procedures
with respect to revenue recognition, payments of accounts payable and collection
of accounts receivable);
(i) make any material Tax election inconsistent with past
practices or settle or compromise any material, federal, state, local or foreign
tax liability or agree to an extension of a statute of limitations for any
assessment of any Tax, except to the extent the amount of any such settlement
has been reserved for on the Balance Sheet of COL;
(j) pay, discharge or satisfy any principal of any debt prior
to its scheduled maturity for borrowed money or for the deferred purchase price
of property or services, except at the stated maturity of such debt or as
required by mandatory prepayment provisions relating thereto; or amend any
provision pertaining to the subordination or the terms of payment of any debt;
(k) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or otherwise)
except for (i) the payment, discharge or satisfaction in the ordinary course of
business of liabilities reflected or reserved against on the Balance Sheet of
COL or incurred in the ordinary course of business, (ii) the Loan (as such term
is defined in the VDC Loan Agreement), (iii) reasonable attorneys' fees and
expenses incurred in the ordinary course of business, and (iv) Indebtedness
secured by Permitted Liens (as each such term is defined in the VDC Loan
Agreement);
(l) liquidate or dissolve itself (or suffer any liquidation or
dissolution); or
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(m) take, or agree in writing or otherwise to take, any of the
actions described in Sections 5.1(a) through (l) above, or any action which
would make any of the representations or warranties contained in Article 2 or
Article 3 of this Agreement untrue or incorrect or prevent COL from performing
or cause COL not to perform its covenants hereunder or result in any of the
conditions to the Merger set forth herein not being satisfied.
Section 5.2 No Solicitation or Transfer of Interests.
(a) COL and each Holder agrees that neither it nor any of their
respective officers, managers, or directors shall, and COL and each Interest
Holder shall direct and use their best efforts to cause the employees, agents,
directors and representatives of COL and of each Interest Holder (including,
without limitation, any attorney or accountant retained by any of them) not to,
initiate, solicit or encourage, directly or indirectly, any inquiries or the
making of any proposals or offers (including, without limitation, any proposals
or offers to members of COL) with respect to a merger, consolidation or similar
transaction involving, or any purchase of all or any significant portion of the
assets or any equity securities of, COL or a change of the managers of COL (any
such proposal or offer being hereinafter referred to as an "Acquisition
Proposal") or engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal.
(b) COL and each Holder (to the extent such Holder is aware of
such Acquisition Proposal) shall immediately notify the Company after receipt of
any Acquisition Proposal or any request for information relating to COL in
connection with an Acquisition Proposal or for access to the properties, books
or records of COL by any person or entity that informs COL or such Holder that
it is considering making, or has made, an Acquisition Proposal. Such notice to
the Company shall be made orally and in writing and shall indicate in reasonable
detail the identity of the offeror and the terms and conditions of such
proposal, inquiry or contact.
(c) COL shall ensure that its officers, managers and employees,
and COL and each Interest Holder shall ensure that its or his advisors and
representatives are aware of the restrictions described in this Section, and
shall be responsible for any breach of this Section 5.2 by such officers,
managers, employees, advisors or representatives.
(d) No Interest Holder shall transfer, pledge or otherwise
dispose of any or all of his Interests or any rights therein prior to the
Effective Time or earlier termination of this Agreement.
Section 5.3 No Transfer of Holder Rights. No Holder shall transfer,
pledge or otherwise dispose of any or all of his Holder Rights prior to the
Effective Time or earlier termination of this Agreement.
Section 5.4 Conduct of Business by the Company Pending the Merger.
During the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement
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or the Effective Time, the Company covenants and agrees that, unless COL shall
otherwise agree in writing, other than actions taken by the Company in
contemplation of the Merger, the Company shall not directly or indirectly do, or
propose to take or agree in writing or otherwise to take any action which would
prevent the Company from performing or cause the Company not to perform its
obligations hereunder.
ARTICLE 6.
Additional Covenants
Section 6.1 Registration Under the Securities Act.
(a) The Company shall use its best efforts to file, as promptly
as practicable after the Effective Time, and to cause to become effective as
soon thereafter as is reasonably practicable, a registration statement on Form
SB-2 (together with all supplements and amendments thereto, the "Registration
Statement") with the SEC covering the public resale of the Gordon Shares and
Unrestricted Braverman Shares.
(b) The Company shall pay all Registration Expenses (as defined
below) in connection with the registration contemplated by this Section 6.1.
Each selling shareholder shall pay all underwriting and selling discounts and
commissions and transfer taxes, if any, relating to the sale or disposition of
such shareholder's shares of Common Stock pursuant to the Registration
Statement. For purposes of this Agreement, "Registration Expenses" shall mean
any and all expenses incurred by the Company incident to the performance of or
compliance by the Company with this Section 6.1, including all SEC, stock
exchange or NASD registration and filing fees, all fees and expenses incurred in
connection with compliance with state securities or "blue sky" laws (including
reasonable fees and disbursements of the Company's counsel), all fees and
expenses incurred in connection with the preparation and printing of the
Registration Statement and the related prospectus and the fees and disbursements
of the Company's counsel and independent public accountants, but excluding fees
of counsel to the selling shareholders and underwriting and selling discounts
and commissions and transfer taxes, if any, relating to the sale or disposition
of such selling shareholders' shares of Common Stock pursuant to the
Registration Statement.
(c) In connection with the obligations of the Company under
this Section 6.1, the Company shall:
(i) prepare and file with the SEC such amendments and
post-effective amendments to the Registration Statement as may be necessary to
(x) keep such Registration Statement effective for the applicable period under
this Agreement and (y) cause each prospectus included as part of such
Registration Statement (a "Prospectus") to be supplemented by any required
prospectus supplement and, as so supplemented, to be filed pursuant to Rule 424
under the Securities Act and (z) keep each Prospectus current during the period
described under Section 4(3) and Rule 174 under the Securities Act that is
applicable to transactions by brokers or dealers with respect to
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the securities covered by such Prospectus;
(ii) furnish to each selling shareholder, without
charge, as many copies of each Prospectus, including each preliminary
Prospectus, and any amendment or supplement thereto and such other documents as
such selling shareholder may reasonably request, in order to facilitate the
public sale or other disposition of the Common Stock covered by the Registration
Statement;
(iii) use its reasonable best efforts to register or
qualify the Common Stock covered by the Registration Statement under all
applicable Blue Sky Laws of such jurisdictions as any selling shareholder with
Common Stock covered by the Registration Statement shall reasonably request in
writing by the time the Registration Statement is declared effective by the SEC;
provided, however, that the Company shall not be required to (x) qualify as a
foreign entity or as a dealer in securities in any jurisdiction where it would
not otherwise be required to qualify but for this Section 6.1(c)(iii), (y) file
any general consent to service of process or (z) subject itself to taxation in
any such jurisdiction if it is not so subject.
(iv) notify each selling shareholder (v) when the
Registration Statement has become effective and when any post-effective
amendments and supplements thereto have been filed and become effective, (w) of
any request by the SEC or any state securities authority for amendments and
supplements to the Registration Statement and related Prospectus or for
additional information after the Registration Statement has become effective,
(x) of the issuance by the SEC or any state securities authority of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose, (y) of the happening of any
event which makes any statement made in the Registration Statement or the
related Prospectus untrue in any material respect or which requires the making
of any changes in the Registration statement or Prospectus in order to make the
statements therein not misleading and (z) of any determination by the Company
that a post-effective amendment to the Registration Statement would be
appropriate;
(v) make every reasonable effort to obtain the
withdrawal of any order suspending the effectiveness of the Registration
Statement at the earliest possible moment and provide prompt notice to each
selling shareholder of the withdrawal of any such order;
(d) The Company may require each selling shareholder to furnish
to the Company such information regarding the selling shareholder and the
proposed distribution by such selling shareholder of Common Stock covered by the
Registration Statement as the Company may from time to time reasonably request
in writing. Each such selling shareholder shall provide the Company with any
such information within five business days after such information is requested
and shall provide to the Company, within five business days after such selling
shareholder receives a draft of the Registration Statement or amendment thereto
in which such information is included, comments on such Registration Statement
or amendment thereto. The Company agrees to supplement or amend the Registration
statement, if required by the rules, regulations or instructions applicable to
the Registration Statement or by the Securities Act or by any other rules and
regulations thereunder for shelf registration or if reasonably requested by a
selling shareholder with respect to information
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relating to such selling shareholder in order to accurately reflect information
regarding such selling shareholder or such selling shareholder's plan of
distribution as required by the Registration Statement, and to use its best
efforts to cause any such amendment to become effective and such Registration
Statement to become usable as soon as thereafter practicable. The Company agrees
to furnish to the selling shareholders copies of any such supplement or
amendment promptly after its being made available for use or filed with the SEC.
(e) Each selling shareholder agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 6.1(c)(iv)(x)(y) or (z) hereof, such selling shareholder will forthwith
discontinue disposition of Common Stock pursuant to the Registration Statement
until such selling shareholder's receipt of the copies of the supplemented or
amended Prospectus and, if so directed by the Company, such selling shareholder
will deliver to the Company (at its expense) all copies in its possession, other
than permanent file copies then in such selling shareholder's possession, of the
Prospectus current at the time of receipt of such notice.
(f) (i) The Company agrees to indemnify and hold harmless, each
selling shareholder from and against any and all losses, claims, damages,
liabilities and expenses (including, without limitation, any legal or other
expenses reasonably incurred by such selling shareholder in connection with
defending or investigating any such action or claim) arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any Prospectus, or caused by any omission or
alleged omission to state therein a material fact necessary to make the
statements therein in light of the circumstances under which they were made not
misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any untrue statement or omission or
alleged untrue statement or omission which has been made therein or omitted
therefrom in reliance upon and in conformity with information relating to any
selling shareholder furnished to the Company by a selling shareholder for use
therein; provided, however, that the indemnification provided for in this
paragraph shall not inure to the benefit of any selling shareholder with respect
to any sale or disposition of Common Stock by such selling shareholder in
violation of Section 1.6.
(ii) Each Holder comprising the Gordon Group and
Braverman (collectively, the "Indemnifying Holders") agrees, severally and not
jointly, to indemnify and hold harmless the Company, each other selling
shareholder, each director and officer of the Company and each person, if any,
who controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act or is under common control with
or is controlled by the Company to the same extent as the foregoing indemnity
from the Company to the selling shareholders with respect to any and all
information provided by such Indemnifying Holder to the Company for use or
inclusion in the Registration Statement.
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(iii) If any action, suit or proceeding shall be
instituted involving any person in respect of which such person is entitled to
indemnity pursuant to either paragraph (i) or (ii) above, such person (the
"indemnified party") shall promptly notify the parties against whom
indemnification is being sought (each an "indemnifying party") and such
indemnifying parties shall assume the defense thereof, including the employment
of counsel and payment of all fees and expenses. Such indemnified party shall
have the right to select its own counsel, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (x) the
indemnifying parties have agreed in writing to pay such fees and expenses, (y)
the indemnifying parties shall have failed to assume the defense and employ
counsel on a timely basis or (z) the named parties to any such action, suit, or
proceeding (including any impleaded parties) include both such indemnifying
parties and such indemnified party and such indemnified party shall have been
reasonably advised by its counsel that representation of such indemnified party
and any indemnifying party by the same counsel would be inappropriate under
applicable standards of professional conduct (whether or not such representation
by the same counsel has been proposed due to actual or potential differing
interests between them (in which case the indemnifying parties shall not have
the right to assume the defense of such action, suit or proceeding on behalf of
the indemnified party)). It is understood, however, that the indemnifying
parties shall, in connection with any one such action, suit or proceeding, or
substantially similar action, suit or proceeding or related actions, suits or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys (in addition to any local counsel) at any time for
all of the indemnified parties. The indemnifying parties shall not be liable for
any settlement of any action, suit or proceeding effected without their written
consent, but if settled with such written consent or if there be a final
judgment for the plaintiff, the indemnifying parties agree to indemnify and hold
harmless the indemnified party from and against any loss, action, damage,
liability or expense by reason of such settlement or judgment.
(iv) No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened action, suit or proceeding in respect of which any indemnified
party is or could have been a party and indemnity could have been sought
hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such action, suit or proceeding.
(g) The Holders acknowledge that the Company has granted
certain of its security holders the right to include additional shares of Common
Stock in the Registration Statement.
Section 6.2 Access to Information. COL shall afford to the officers,
employees, accountants, counsel and other representatives of the Company,
reasonable access, during the period prior to the Effective Time, to all its
properties, books, contracts, commitments and records and, during such period,
COL shall furnish promptly to the Company all information concerning its
business, properties and personnel as the Company may reasonably request, and
COL shall make available to the Company the appropriate individuals (including
attorneys, accountants and other professionals) for discussion of its business,
properties and personnel as the Company may reasonably request. The Company
acknowledges and agrees that all such information shall be maintained in strict
confidence and may not be used for any purpose other than to facilitate the
Merger.
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Section 6.3 Consents; Approvals. COL, each Holder and the Company
shall each use their best efforts to obtain all consents, waivers, approvals,
authorizations or orders (including, without limitation, all United States and
foreign governmental and regulatory rulings and approvals), and COL, each Holder
and the Company shall make all filings (including, without limitation, all
filings with United States and foreign governmental or regulatory agencies)
required in connection with the authorization, execution and delivery of this
Agreement by COL, the Holders and the Company, respectively, and the
consummation by them of the transactions contemplated hereby.
Section 6.4 Notification of Certain Matters. COL and each Holder shall
give prompt notice to the Company and the Company shall give prompt notice to
COL and to each Holder of (i) the occurrence, or non-occurrence, of any event
the occurrence, or non-occurrence, of which would be likely to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate, and (ii) any failure of COL, each Holder and the Company, as the
case may be, materially to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it or him hereunder; provided,
however, that the delivery of any notice pursuant to this Section shall not
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
Section 6.5 Further Action. Upon the terms and subject to the
conditions hereof, each of the parties hereto in good faith shall use all
commercially reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all other things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement, to obtain in a timely manner all necessary
filings, and to otherwise satisfy or cause to be satisfied all conditions
precedent to its obligations under this Agreement.
Section 6.6 Public Announcements. The Company shall be responsible
for, and have exclusive control over, any and all press releases and public
statements with respect to the Merger or this Agreement.
Section 6.7 Conveyance Taxes. The Company, COL and the Holders shall
cooperate in the preparation, execution and filing of all returns,
questionnaires, applications or other documents regarding any real property
transfer or gains, sales, use, transfer, value added, stock transfer and stamp
taxes, any transfer, recording, registration and other fees, and any similar
taxes which become payable in connection with the transactions contemplated
hereby that are required or permitted to be filed on or before the Effective
Time.
ARTICLE 7.
Conditions to the Merger
Section 7.1 Conditions to Obligation of Each Party to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
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(a) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the Merger shall be in effect, nor
shall any proceeding brought by any administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; and there shall not be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, which makes the consummation of the Merger illegal.
(b) (i) The Company shall have raised an aggregate of at least
$2,000,000 in one or more private placements of the Company's securities.
(ii) Without in any way limiting the foregoing
condition, COL and each of the Holders hereby acknowledges that the Company
expects to raise an aggregate of $2,600,000 in exchange for 1,910,000 shares of
Common Stock (the "Private Placement Shares") in four separate private
placements. In the first private placement, the Company expects to issue an
aggregate of 581,429 shares of Common Stock to a group of accredited investors
in exchange for $100,000. In the second private placement, the Company expects
to issue an aggregate of 250,000 shares of Common Stock to a group of accredited
investors in exchange for $350,000. In the third private placement, the Company
expects to issue 650,000 shares of Common Stock to VDC Corporation Ltd. ("VDC")
in exchange for $650,000. It is then contemplated that VDC will spin off all of
such shares to its existing stockholders. In the fourth private placement, the
Company expects to issue an aggregate of 428,571 shares of Common Stock to a
group of accredited investors in exchange for $1,500,000. There can be no
assurance that the transactions contemplated by this Section 7.1(b)(ii) will be
consummated by the Company on the terms set forth above, or at all. As further
clarification, it is acknowledged by the parties that the consummation of any or
all of transactions contemplated by this Section 7.1(b)(ii) is not a condition
to the Merger.
Section 7.2 Additional Conditions to Obligations of the Company. The
obligations of the Company to effect the Merger are also subject to the
following conditions:
(a) The satisfactory completion of the Company's due diligence
investigation of COL;
(b) Representations and Warranties. The representations and
warranties of COL and each of the Holders contained in this Agreement (together
with the COL Disclosure Schedule) shall be true and correct in all respects as
of the date hereof and on and as of the Effective Time, except for (i) changes
contemplated by this Agreement and (ii) those representations and warranties
which address matters only as of a particular date (which shall remain true and
correct as of such date), with the same force and effect as if made on and as of
the Effective Time, and the Company shall have received a certificate to such
effect signed by the President of COL and each Holder;
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(c) Agreements and Covenants. COL and each Holder shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or prior to
the Effective Time, and the Company shall have received a certificate to such
effect signed by the President of COL and each Holder;
(d) Consents Obtained. All material consents, waivers,
approvals, authorizations or orders required or advisable (in the Company's
discretion) to be obtained, and all filings required to be made, by COL for the
authorization, execution and delivery of this Agreement and the consummation by
them of the transactions contemplated hereby shall have been obtained or made by
COL. At the Effective Time, COL shall deliver to the Company copies of the
resolutions adopted by the members and Board of Managers of COL approving the
Merger and the other transactions contemplated hereby, certified by the
Secretary of COL as being in full force and effect and not modified in any
manner whatsoever;
(e) Governmental Actions. There shall not have been instituted,
pending or threatened any action or proceeding (or any investigation or other
inquiry that might result in such an action or proceeding) by any governmental
authority or administrative agency before any governmental authority,
administrative agency or court of competent jurisdiction, in either case,
seeking to prohibit or limit the Merger or the transactions contemplated by this
Agreement;
(f) Material Adverse Change. Since the date of this Agreement,
there shall have been no change, occurrence or circumstance affecting the
business, results of operations or financial condition of COL having or which
may have a Material Adverse Effect;
(g) Legal Opinion. The Company shall have received an opinion,
dated the Effective Date, from Greenberg, Traurig, counsel to COL, substantially
in the form of, and covering such matters as are set forth in, Exhibit B hereto;
(h) Private Placement Representations. The Company shall have
received a certificate dated as of the Effective Time from each Holder,
substantially in the form of Exhibit C hereto, to ensure that the issuance of
Common Stock as Merger Consideration hereunder will be a valid private placement
under Section 4(2) of the Securities Act and will not require any filings to be
made with any state securities regulatory authority under any Blue Sky Laws;
(i) Other Certificates. COL and the Holders shall have
furnished to the Company such other certificates and documents as the Company
shall have reasonably requested;
(j) Contractual Matters. All unliquidated claims which may
arise under, and/or all material ambiguities contained in, any agreement to
which COL may be a party (the determination of whether any such unliquidated
claim or ambiguity exists is to be made by the Company in its reasonable
discretion) shall be clarified and satisfied to the reasonable satisfaction of
the Company, and no such clarification shall result in any additional material
obligation on the part of the Surviving Corporation or the Company;
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(k) [Intentionally Omitted.]
(l) Muzak Agreement. COL shall have entered into a new
agreement with Muzak on terms satisfactory to the Company. Such agreement shall
supersede any and all previous agreements or arrangements between Muzak and COL
and shall inure to the benefit of the Surviving Corporation upon consummation of
the Merger;
(m) Employment/Consulting Agreements. Each of Barnett,
Braunstein, Malinowski, Michael Clark and Richard Davey shall terminate their
existing employment/consulting agreements with COL and shall have entered into
an employment/consulting agreement with the Surviving Corporation; and
(n) Consulting Agreement. The Company shall have entered into a
Consulting Agreement with American Maple Leaf Corporation ("AML") pursuant to
which AML will provide the Company with future investment banking services in
exchange for an aggregate of 350,000 shares of Common Stock.
Section 7.3 Additional Conditions to Obligation of COL and the
Holders. The obligation of each of COL and each Holder to effect the Merger is
also subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true and correct
in all respects as of the date hereof and on and as of the Effective Time,
except for (i) changes contemplated by this Agreement and (ii) those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date), with the same force
and effect as if made on and as of the Effective Time, and COL shall have
received a certificate to such effect signed by the President and Chief
Financial Officer of the Company;
(b) Agreements and Covenants. The Company shall have performed
or complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by them on or prior to the
Effective Time, and COL and such Holder shall have received a certificate to
such effect signed by the President and Chief Financial Officer of the Company;
(c) Consents Obtained. All material consents, waivers,
approvals, authorizations or orders required to be obtained, and all filings
required to be made, by the Company for the authorization, execution and
delivery of this Agreement and the consummation by them of the transactions
contemplated hereby shall have been obtained or made by the Company. At the
Effective Time, the Company shall deliver to COL and to the Holders copies of
the resolutions adopted by the Company approving the Merger and the other
transactions contemplated hereby certified by the Secretary of the Company, as
the case may be, as being in full force and effect and not modified in any
manner whatsoever;
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(d) Material Adverse Change. Since the date of this Agreement,
there shall have been no change, occurrence or circumstance in the business,
results of operations or financial condition of the Company having or reasonably
likely to have a Material Adverse Effect; and
(e) The Company Common Stock Certificates. The Company shall
have tendered for delivery to each Holder certificates representing the number
of shares of Common Stock set forth next to such Holder's name on Exhibit A.
(f) Stock Option Plan. The Company shall have effectuated an
employee stock option plan.
(g) Management Shares. The Company shall have reserved for
issuance an additional 600,000 shares of Common Stock (the "Management Shares");
provided, however, that in the event COL's negative net worth as of August 31,
1996 (as determined by Ernst & Young, LLP or such other accounting firm engaged
by the Surviving Corporation and then acting as its outside auditors) is greater
than $470,000 (assuming the capitalization of those certain amounts previously
indicated by Ernst & Young, LLP as appropriate to be capitalized in the
aggregate amount of $229,388)(the "Permissible Negative Net Worth"), as is
determined in accordance with generally accepted accounting principles to the
extent applicable, such number of Management Shares shall be reduced by 1 1/2
shares for each dollar by which COL's negative net worth exceeds the Permissible
Negative Net Worth. Such Shares to be granted to the management of the Surviving
Corporation shall vest according to a schedule established by the Company.
ARTICLE 8.
Termination
Section 8.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, notwithstanding approval thereof by the Holders:
(a) by mutual written consent of the Company and COL;
(b) by the Company if the Merger shall not have been
consummated by September 18, 1996, provided that the Company's right to
terminate this Agreement pursuant to this Section 8.1(b) shall not be available
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in the event the Company's failure to fulfill any obligation under this
Agreement or any action or inaction on the part of the Company has been, in full
or in part, the cause of or resulted in, in full or in part, the failure of the
conditions to COL's and each Holder's obligation to consummate the Merger to be
satisfied or the failure of the Merger to occur on or before such date;
(c) by COL or any Holder if the Merger shall not have been
consummated by September 18, 1996, provided that the right of COL or any Holder,
as the case may be, to terminate this Agreement pursuant to this Section 8.1(c)
shall not be available in the event COL's or such Holder's, as the case may be,
failure to fulfill any obligation under this Agreement or any action or inaction
on the part of COL or any Holder, as the case may be, has been, in full or in
part, the cause of or resulted in, in full or in part, the failure of the
conditions to the Company's obligation to consummate the Merger to be satisfied
or the failure of the Merger to occur on or before such date;
(d) by the Company or COL if a court of competent jurisdiction
or governmental, regulatory or administrative agency or commission shall have
issued a non-appealable final order, decree or ruling or taken any other action,
in each case having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger; or
(e) by the Company if prior to the Effective Time, (i) trading
in securities generally on the New York Stock Exchange, American Stock Exchange
or The Nasdaq National Market shall have been suspended or materially limited,
(ii) a general moratorium on commercial banking activities in New York shall
have been declared by either Federal or state authorities or (iii) there shall
have occurred any outbreak or escalation of hostilities or other international
or domestic calamity, crisis or change in political, financial or economic
conditions, the effect of which on the financial markets of the United States is
such as to make it, in the judgment of the Company, impracticable or inadvisable
to consummate the transactions contemplated hereby.
Section 8.2 Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 8.1, this Agreement shall forthwith become
null and void and there shall be no liability on the part of any party hereto or
any of its affiliates, directors, officers, managers, members or stockholders
except (i) as set forth in Section 8.3, Article 9 and Section 10.8 hereof, and
(ii) nothing herein shall relieve any party from liability for any willful
breach hereof.
Section 8.3 Fees and Expenses.
In the event the Merger is consummated, the Surviving Corporation
will pay all reasonable legal and accounting fees and costs incurred by the
parties in connection with this Agreement and the transactions contemplated
hereby; provided, however, that with respect to any such legal fees and costs
incurred by COL or any of the Holders, the Surviving Corporation shall only be
obligated to pay those reasonable amounts attributable to the engagement of
Greenberg, Traurig in connection with the transactions contemplated hereby and
shall have no obligation to pay any legal fees and costs incurred by any Holder
in connection with their engagement of independent counsel.
In the event the Merger is not consummated as a result of COL's or any
Holder's (i) breach of their respective representations, warranties, agreements
or covenants contained herein or (ii) failure to fulfill their respective
obligations hereunder, COL shall be obligated to pay all reasonable
out-of-pocket expenses and legal and accounting fees and costs incurred by the
Company in connection with this Agreement and the transactions contemplated
hereby. In the event the Merger is not consummated for any reason other than as
set forth in the preceding sentence, the parties' obligations with respect to
the payment of fees and expenses shall be as set forth in the Letter Agreement
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dated June 7, 1996 by and among COL and American Maple Leaf Financial
Corporation (the "Letter Agreement").
ARTICLE 9.
Survival of Representations and Warranties; Indemnification
Section 9.1 Survival. All statements contained in any certificate or
other instrument delivered by or on behalf of COL, any of the Holders or the
Company pursuant to this Agreement or in connection with the transactions
contemplated by this Agreement shall be considered representations and
warranties by COL, such Holder or Holders or the Company with the same force and
effect as if contained in this Agreement. All representations, warranties,
covenants and agreements by COL, any Holder or the Company shall survive the
Effective Time for a period of two years after the Effective Time (provided that
the representations, warranties, covenants and agreements contained in Annex I
hereto and this Article 8 in so far as they relate to any Tax shall survive
until the expiration of the applicable statute of limitation for a claim by the
applicable taxing authority for such Tax) notwithstanding any investigation at
any time by or on behalf of any party to which such representation or warranty
was given, and shall not be considered waived by the consummation of the Merger
contemplated by this Agreement with knowledge of any breach or misrepresentation
by any of the parties hereto.
Section 9.2 Indemnification.
(a) Each of COL and each Active Holder shall jointly and
severally indemnify and hold harmless the Surviving Corporation against all
loss, liability, damage or expense (including reasonable fees and expenses of
counsel in any matter, whether involving a third party or between the
indemnifying or indemnified parties) Surviving Corporation may suffer, sustain
or become subject to as a result of (i) any breach by such Holder or COL of any
of its or his representations, warranties, covenants or other agreements
contained in this Agreement, (whether or not the Surviving Corporation had
knowledge, at or prior to the Effective Time, of the breach), (ii) the failure
by COL to pay, perform or discharge prior to the Effective Time any COL
Liabilities (other than the Assumed Liabilities), (iii) any liability or
obligation (other than the Assumed Liabilities) arising prior to the Effective
Time, or after the Effective Time as a result of events occurring prior to the
Effective Time, from or in connection with the violation of any federal, state
or local statute, rule or regulation, decree or ordinance applicable to COL,
(iv) any other claim (other than the Assumed Liabilities), whether made before
or after the date of this Agreement, or any litigation, proceeding or
governmental investigation, whether commenced before or after the date of this
Agreement (collectively, the "Litigation")), arising out of the operations of
COL prior to the Effective Time (regardless of whether or not referred to on a
schedule to this Agreement or otherwise disclosed or known to the Company as of
the date of this Agreement), or (v) any claim by any person that the Merger
Consideration payable hereunder should have been paid in a manner inconsistent
with the manner set forth in Exhibit A. Notwithstanding the foregoing, (i) no
Holder shall have any indemnification obligation for any claim or liability to
the extent covered by insurance maintained by the Surviving Corporation and (ii)
COL shall not have any
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liability to the Surviving Corporation or any Holder (by contribution or
otherwise) hereunder at any time after the Effective Time. Notwithstanding the
foregoing, the liability of each of the Active Holders pursuant to this Section
9.2 shall be limited to (i) the amount of any and all Merger Consideration to be
issued to such Active Holder upon the consummation of the Merger and (ii) the
right of set-off set forth in Section 9.5 hereof; provided, however, that there
shall be no such limitation of liability in the event the Company seeks
indemnification from an Active Holder for any knowing breach of the provisions
of this Agreement or any fraudulent or criminal action or inaction.
(b) Each Holder shall indemnify and hold harmless the Surviving
Corporation against all loss, liability, damage or expense (including reasonable
fees and expenses of counsel in any matter, whether involving a third party or
between the indemnifying and indemnified parties) Surviving Corporation may
suffer, sustain or become subject to as a result of any breach of any
warranties, covenants or other agreements made by such Holder in this Agreement
or any misrepresentation by such Holder, or as a result of any of such Holder's
representations or warranties not being true and correct as of the Effective
Time (whether or not the Company had knowledge, prior to the Effective Time, of
the misrepresentation or breach of warranty). Notwithstanding the foregoing, the
liability of each Holder pursuant to this Section 9.2 shall be limited to (i)
the amount of any and all Merger Consideration to be issued to such Holder upon
the consummation of the Merger and (ii) the right of set-off set forth in
Section 9.5 hereof; provided, however, that there shall be no such limitation of
liability in the event the Surviving Corporation seeks indemnification from such
Holder for any fraudulent or criminal action or inaction.
(c) The Surviving Corporation shall indemnify and hold harmless
each Holder against all loss, liability, damage or expense (including reasonable
fees and expenses of counsel in any matter, whether involving a third party or
between the indemnifying and indemnified parties) such Holder may suffer,
sustain or become subject to as a result of any breach of any warranties,
covenants or other agreements contained in this Agreement or any
misrepresentation by the Company, or as a result of any of the Company's
representations or warranties not being true and correct as of the Effective
Time (whether or not such Holder had knowledge, prior to the Effective Time, of
the misrepresentation or breach of warranty).
(d) Each party acknowledges that reliance shall not be an
element of any claim by the other for breach of warranty or misrepresentation
under this Agreement.
Section 9.3 Conditions of Indemnification for Third Party Claims. The
obligations and liabilities of the parties under this Agreement with respect to,
relating to, caused (in whole or in part) by or arising out of claims of third
parties (individually, a "Third Party Claim" and collectively "Third Party
Claims") including, without limitation, any Federal, state or local taxing
authorities, shall be subject to the following terms and conditions:
(a) The party entitled to be indemnified hereunder (the
"Indemnified Party") shall give the party obligated to provide the indemnity
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(the "Indemnifying Party") prompt notice of any Third Party Claim, and, provided
that the Indemnifying Party acknowledges in writing its obligation to indemnify
in accordance with the terms and subject to the limitations on such party's
obligation to indemnify contained in this Agreement with respect to that claim
(or part of that claim), the Indemnifying Party shall have the right to approve
(such approval not to be unreasonably withheld) the representatives to undertake
the defense of that claim. Any such notice of a Third Party Claim shall identify
with reasonable specificity the basis for the Third Party Claim, the facts
giving rise to the Third Party Claim, and the amount of the Third Party Claim
(or, if such amount is not yet known, a reasonable estimate of the amount of the
Third Party Claim (if determinable)). The Indemnified Party shall make available
to the Indemnifying Party copies of all relevant documents and records in its
possession. In addition, no settlement or compromise of such Third Party Claim
shall be made with the prior written consent of the Indemnifying Party.
(b) If the Indemnifying Party, within ten (10) business days
after receiving notice of any such Third Party Claim, fails to acknowledge in
writing its obligation to indemnify in accordance with Section 9.3(a) hereof,
the Indemnified Party shall (upon further notice to the Indemnifying Party and
subject to Section 9.3(c) hereof) have the right to defend, compromise or settle
the Third Party Claim without obtaining any consents from the Indemnifying
Party.
(c) Anything in this Section 9.3 to the contrary
notwithstanding, (i) the Indemnifying Party shall not, without the written
consent of the Indemnified Party (which consent shall not be unreasonably
withheld), settle or compromise any Third Party Claim or consent to the entry of
judgment which does not include as an unconditional term thereof the giving by
the claimant or the plaintiff to the Indemnified Party an unconditional release
from all liability in respect of the Third Party Claim; and (ii) if there is a
reasonable probability that a claim may materially and adversely affect the
Indemnified Party other than as a result of money damages or other money
payments, the Indemnified Party shall have the right, at its own cost and
expense, to participate in the defense of the Third Party Claim.
Section 9.4 Payment of Claims. Any party obligated to indemnify
another party hereunder shall advance any amounts so payable to the Indemnified
Party as such amounts are incurred by such Indemnified Party upon written demand
therefor containing reasonable supporting documentation of the amounts so
payable.
Section 9.5 Set-Off. Any party (the "Entitled Party") entitled to
indemnification from another party hereunder (the "Obligated Party") pursuant to
the terms of this Agreement shall have the right to set-off against any amounts
payable (in cash, Common Stock or otherwise) by such Entitled Party to the
Obligated Party under this Agreement or any other agreement(s) such Obligated
Party may have with the Entitled Party (including, without limitation, any
consulting agreement) all amounts payable to the Entitled Party by the Obligated
Party under this Section 9.
Section 9.6 Loan and Security Agreement. Notwithstanding anything to
the contrary contained herein, each of the parties hereby acknowledges that
neither the execution of this Agreement, nor the consummation (or failure to
consummate) the transactions contemplated hereby, shall release COL or the
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Surviving Corporation, as the case may be, from COL's obligations under the VDC
Loan Agreement.
ARTICLE 10.
General Provisions
Section 10.1 Disclosure Schedules. Any disclosure made with reference
to one or more sections of the COL Disclosure Schedule shall be deemed disclosed
with respect to each other section therein as to which such disclosure is
relevant provided such relevance is reasonably apparent.
Section 10.2 Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made as of the date delivered if delivered personally, three days after
being sent by registered or certified U.S. mail (postage prepaid, return receipt
requested), one day after dispatch by recognized overnight courier (provided
delivery is confirmed by the carrier), to the parties at the following addresses
(or at such other address for a party as shall be specified by like changes of
address):
(a) If to COL Acquisition Corp.:
COL Acquisition Corp.
401 City Line Avenue
Suite 725
Bala Cynwyd, PA 19004
Attention: Edward S. Zobian, President
With a copy to:
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
1401 Walnut Street
Philadelphia, PA 19102
Telecopier No. (215) 568-6603
Attention: Michael C. Forman, Esq.
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(b) If to COL:
Coupons Online, L.L.C.
271 Madison Avenue
Suite 1005
New York, NY 10016
Attention: Craig W. Barnett, President
With a copy to:
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel
153 East 53rd Street, 35th Floor
New York, NY 10022
Attention: Andrew Cosentino, Esq.
(c) If to Muzak:
Muzak Limited Partnership
2901 3rd Avenue
Seattle, WA 98121
Attention: President
(d) If to any Holder (other than Muzak), to the Holder's
address reflected in the Operating Agreement.
Section 10.3 Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliates" means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned person, including, without limitation,
any partnership or joint venture in which either of COL (either alone, or
through or together with any other subsidiary) has, directly or indirectly, an
interest of 10 percent or more;
(b) "business day" means any day other than a day on which
banks in New York are required or authorized to be closed; and
(c) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d)(3)) of the Exchange Act).
Section 10.4 Amendment. This Agreement may be amended by COL and the
Company (without the consent of any Holder) by action taken by or on behalf of
the Board of Directors of the
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Company and the Board of Managers of COL at any time prior to the Effective
Time; provided, however, that no amendment may be made which by law requires
further approval by the members of COL without such further approval; provided,
further, that no amendment that materially and adversely affects a Holder shall
be binding on or effective as to such Holder without such Holder's written
consent. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto entitled to effectuate such amendment.
Section 10.5 Waiver. At any time prior to the Effective Time, any
party hereto may with respect to any other party hereto (a) extend the time for
the performance of any of the obligations or other acts, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any such extension or waiver shall be
valid if set forth in an instrument in writing signed by the party or parties to
be bound thereby.
Section 10.6 Headings. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 10.7 Severability. If any term or other provision of this
Agreement is held to be invalid, illegal or incapable of being enforced under
any rule of law or public policy by a court of competent jurisdiction, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner so that the transactions
contemplated hereby are fulfilled to the extent possible.
Section 10.8 Entire Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes all prior agreements and
undertakings both written and oral, among the parties, or any of them, with
respect to the subject matter hereof and, except as otherwise expressly provided
herein, is not intended to confer upon any other person any rights or remedies
hereunder. Notwithstanding the foregoing, the parties hereto acknowledge that
the terms and provisions of (i) the Letter Agreement regarding confidentiality
and the payment of fees and expenses (as qualified by Section 8.3 hereof) and
(ii) the VDC Loan Agreement shall survive the execution of this Agreement, the
termination or breach of this Agreement by any party hereto for any reason
whatsoever and the consummation of the Merger, and shall thereafter continue in
full force and effect. Each Holder hereto agrees to comply with all such terms
of the Letter Agreement as if he were named a party therein.
Section 10.9 No Assignment. This Agreement shall not be assigned by
operation of law or otherwise.
Section 10.10 Parties In Interest. This Agreement shall be binding
upon and inure solely to
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the benefit of each party hereto, and nothing in this Agreement, express or
implied, is intended to or shall confer upon any other person any right, benefit
or remedy of any nature whatsoever under or by reason of this Agreement.
Section 10.11 Failure or Indulgence Not Waiver; Remedies Cumulative.
No failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
Section 10.12 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF DELAWARE
APPLICABLE TO CONTRACTS EXECUTED AND FULLY PERFORMED WITHIN THE STATE OF
DELAWARE (WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES). EACH OF THE PARTIES
HERETO, BY EXECUTION OF THIS AGREEMENT, SUBMITS TO THE JURISDICTION OF THE
COURTS OF THE STATE OF DELAWARE AND THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF DELAWARE, IN EACH CASE, LOCATED IN NEW CASTLE COUNTY, AND WAIVES ANY
OBJECTION TO SUCH JURISDICTION ON THE GROUNDS OF VENUE OR FORUM NON-CONVENIENCE,
THE ABSENCE OF IN PERSONAM OR SUBJECT MATTER JURISDICTION OR ANY SIMILAR GROUNDS
AND CONSENTS TO THE SERVICE OF PROCESS BY MAIL OR BY ANY OTHER MANNER PERMITTED
BY LAW.
Section 10.13 Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same Agreement.
Section 10.14 Joint Participation. The Company, COL and each of the
Holders has participated in the drafting of this Agreement and expressly
acknowledges such joint participation, to avoid application of any rule
construing contractual language against the party which drafted the language.
Section 10.15 No Tax Advice. COL and each of the Holders hereby
acknowledges that it has not received any tax advice, guidance or information
with respect to the Tax consequences, effects or impact of transactions
contemplated hereby by the Company or any representative or agent thereof. Each
of the Holders should consult such Holder's individual counsel with regard to
such matters.
Section 10.16 Exhibits and Schedules. All Exhibits and Disclosure
Schedules attached hereto are delivered pursuant to this Agreement are
incorporated by reference into, and made a part of, this Agreement.
-27-
<PAGE>
Section 10.17 WAIVER OF JURY TRIAL. EACH OF COL, THE COMPANY AND THE
HOLDERS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED
UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
-28-
<PAGE>
IN WITNESS WHEREOF, the Company, COL and each Holder have caused this
Agreement to be executed as of the date first written above.
COL ACQUISITION CORP.
By: _______________________________
Name:
Title:
COUPONS ONLINE, L.L.C.
By: _______________________________
Name:
Title:
[SIGNATURES CONTINUED]
-29-
<PAGE>
HOLDERS:
_________________________________
CRAIG W. BARNETT
_________________________________
MARK D. BRAUNSTEIN
_________________________________
KAREN REISNER
_________________________________
RAM REDDY
_________________________________
JODI JAMIESON
_________________________________
JAMES HORGAN
_________________________________
LARRY BARNETT
[SIGNATURES CONTINUED]
-30-
<PAGE>
_________________________________
BARRY BRAVERMAN
DIVERSIFIED EQUITIES AND
MANAGEMENT II t/a DEM II
By: _______________________________
Name:
Title:
_________________________________
GEORGE GORDON
_________________________________
MANUEL GORDON
_________________________________
LORRAINE MARTIN
_________________________________
JEFFREY SILVERSTEIN
[SIGNATURES CONTINUED]
-31-
<PAGE>
_________________________________
DR. ROBERT C. GORDON
_________________________________
RENEE GORDON
_________________________________
NORMAN BATANSKY
_________________________________
TOBY BATANSKY
_________________________________
ALAN KLEBAN FAMILY TRUST
By: _______________________________
Name:
Title:
_________________________________
BRUCE MALINOWSKI
MUZAK LIMITED PARTNERSHIP
By: _______________________________
Name:
Title:
-32-
<PAGE>
EXHIBIT A
Holder Shares of Common Stock
------ ----------------------
Muzak Limited Partnership 474,000
Craig W. Barnett 437,000
Mark D. Braunstein 342,000
Bruce Malinowski 100,000
Gordon Group 475,000
Barry Braverman 380,000
Ram Reddy 114,000
Jodi Jamieson 57,000
Jim Horgan 47,500
Larry Barnett 47,500
<PAGE>
EXHIBIT B
Form of Legal Opinion
For the purposes of these opinions we shall assume, with the
permission of the Company, that the procedural and substantive laws of the State
of New Jersey are the same as those in the State of Delaware.
(a) COL is a limited liability company duly organized, validly existing
and in good standing under the laws of New Jersey. With respect to COL's good
standing we have relied solely upon a certificate of the Secretary of State of
the State of New Jersey.
(b) COL has the power and authority under its Articles of Formation,
the Operating Agreement and New Jersey Law to own, lease and operate its current
properties and to transact the business in which it is currently engaged.
(c) COL has all necessary power and authority under its Articles of
Formation and the New Jersey Law to execute and deliver the Merger Agreement and
to perform its obligations thereunder. The execution, delivery and performance
by COL of the Merger Agreement have been duly authorized by all necessary action
of COL.
(d) The Merger Agreement has been duly executed and delivered on behalf
of COL and constitutes a valid and binding obligation of COL, enforceable
against COL in accordance with its terms, subject to customary enforceability
qualifications.
(e) The execution, delivery and performance by COL of the Merger
Agreement do not (i) require any approval of its members which has not been
obtained or (ii) violate the New Jersey Law or COL's Articles of Formation or
the Operating Agreement.
(f) Upon the filing of the Articles of Merger in accordance with the
Delaware Law, the merger of COL into the Company will be legally effective in
accordance with the New Jersey Law.
Provided, that further assumptions and qualifications to these legal
opinions are to be contained in Counsel's final form of legal opinion.
In addition to the opinions contained above, the opinion letter shall
contain a factual statement to the effect that to the best of our knowledge and
without the benefit of conducing a lien search or any independent investigation,
all of the outstanding Interests are held by the Holders free and clear of all
security interests, liens, claims, pledges, agreements, limitations or other
encumbrances of any nature whatsoever.
<PAGE>
EXHIBIT C
CERTIFICATE
The undersigned has executed and delivered this Certificate to COL
Acquisition Corp. (the "Company") this ____ day of September, 1996 pursuant to
Section 7.2(h) of that certain Agreement and Plan of Merger and Reorganization
dated September __, 1996, by and among the Company, Coupons Online, L.L.C., and
the Holders named therein (the "Merger Agreement"). The undersigned acknowledges
that the Company is relying upon the representations and warranties contained
herein in issuing its Common Stock to the undersigned as Merger Consideration
pursuant to the Merger Agreement.
NOW THEREFORE, the undersigned hereby certifies as follows:
1. [He/She] has received a copy of the Merger Agreement. The
undersigned acknowledges that [he/she] has had sufficient time to review the
Merger Agreement and has had the opportunity to ask questions and receive
answers concerning the terms and conditions of the merger contemplated by the
Merger Agreement and to obtain any additional information which Acquisition
Corp. possesses or can acquire without unreasonable effort or expense to verify
the information contained in the foregoing documents.
2. The undersigned has such knowledge and experience in financial and
business matters that [he/she] is capable of evaluating the merits and risks of
an investment in the Company's Common Stock.
3. The undersigned acknowledges that the shares of the Company's Common
Stock delivered to the undersigned as Merger Consideration pursuant to the
Merger Agreement have not been registered under the Securities Act of 1933, as
amended, or any state securities laws and, unless so registered, may not be
offered or sold in the United States except pursuant to an exemption from, or in
a transaction not subject to, the registration requirements of the Securities
Act and applicable state securities laws.
4. The undersigned is acquiring the shares of the Company's Common
Stock issuable to [him/her] pursuant to the Merger Agreement for [his/her] own
account.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
_____ day of September, 1996.
_______________________________
<PAGE>
Exhibit 10.3
MICHAEL A. CLARK
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement"),
dated December 19, 1997 is between MICHAEL A. CLARK ("Clark") and NETVALUE,
INC., a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, Clark entered into an Employment Agreement with the Company,
dated September 19, 1996 (the "Prior Agreement"), pursuant to which Clark is
currently employed by the Company;
WHEREAS, Clark and the Company wish to amend and restate the terms of
Clark's employment as set forth in this Agreement which shall supersede and make
null and void the Prior Agreement; such amendment shall be effective on
September 19, 1997, the anniversary date of Clark's employment with the Company.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and agreements herein contained, and intending to be legally bound,
Clark and the Company hereby agree as follows:
1. Position. The Company agrees to employ Clark and Clark agrees to
serve the Company during the term hereof as President and Chief Executive
Officer of the Company, or in such other executive position as may be mutually
agreed upon by Clark and the Company. During the Term (as defined in Section 3
hereof), subject to the Company's fiduciary duty to its stockholders, the
Company shall use its best efforts to cause Clark to be elected a member of the
Board of Directors of the Company (the "Board"); provided, however, that the
failure of Clark to be elected or reelected to the Board shall not constitute a
breach of this Agreement. Clark shall be furnished with such facilities and
services as are suitable to his position and adequate for the performance of his
duties.
2. Duties. Clark agrees to assume such duties and responsibilities as
may be consistent with the position specified in Section 1 hereof, and as may be
assigned to Clark by the Board and in accordance with the by-laws of the Company
from time to time. Clark agrees to devote his best efforts and such time, skill,
attention and energies as are necessary to the performance of his duties
and responsibilities under this Agreement, consistent with practices and
policies established from time to time by the Board.
<PAGE>
3. Term. The term of this Agreement shall commence as of the date
hereof (the "Effective Date") and shall continue for a term of five (5) years,
unless otherwise terminated by either party in accordance with the provisions of
Section 5 hereof.
4. Compensation.
4.1. Base Salary and Bonus. For services rendered hereunder,
from the Effective Date until the first anniversary thereof, Clark shall be paid
an annual base salary in the amount of One Hundred Sixty-Five Thousand Dollars
($165,000.00), provided that Twenty Five Thousand Dollars ($25,000.00) of such
base salary shall be deferred and shall be paid to Clark prior to each
anniversary of the Effective Date. Clark's salary shall be payable in a manner
and at such times as is consistent with the payroll practices of the Company.
Not less often than annually, the Board shall review the base salary of Clark
for the purpose of making such increases therein as the performance of Clark
during the prior year may warrant; provided, however, that the base salary of
Clark shall not be decreased, without his consent, from that in effect from time
to time. The Board, in its sole discretion, may award Clark bonuses in such
amounts and at such times as the Board deems appropriate.
4.2. Fringe Benefits. Clark shall be entitled to such fringe
benefits as are agreed to by Clark and the Board, provided, however, that in no
event shall such benefits be less than those which are provided to other senior
officers of the Company.
4.3. Reimbursement of Expenses. Subject to such conditions as
the Board may from time to time determine, Clark shall be reimbursed upon
presentation of vouchers or paid upon presentation of invoices for reasonable
expenses incurred by him in the performance of his duties in carrying out the
terms of this Agreement, including expenses for entertainment, travel, lodging
and membership in local luncheon clubs, business associations and service
organizations.
4.4. Employee Stock Options. The Company and Clark shall enter
into the Award Agreement attached hereto as Exhibit A on or before the Effective
Time. Such Award Agreement shall govern the terms and conditions of the stock
options to be granted to Clark under the terms of the Company's employee stock
option plan.
5. Termination.
5.1. Company. Upon ten (10) days advance written notice, the
Company, by action of the Board, may terminate this Agreement, at any time for
cause in the event of (i) the death or permanent disability of Clark; (ii) the
demonstrated continued failure by Clark to perform his duties as set forth
herein or as otherwise required by the Board after written demand for
performance is made by the Board, which demand specifically identifies the
manner in which the Board finds there has been a failure to perform; provided,
however, that Clark shall be given ninety (90) days to cure any such failure (if
such failure is capable of
-2-
<PAGE>
being cured); (iii) fraud, misappropriation, embezzlement or other violation of
the law or like nature or severity; (iv) a material breach of this Agreement by
Clark; or (v) willful misconduct of Clark having a material adverse effect on
the business or prospects of the Company; all as may be reasonably determined by
the Board. For purposes of this Agreement, "permanent disability" shall have the
same meaning as such phrase is given under the long term disability program
sponsored by the Company or, in the absence of such policy, as determined by a
physician selected by the Company and reasonably satisfactory to Clark or his
personal representative. Upon ninety (90) days advance written notice, the
Company may terminate this Agreement at any time without cause.
5.2. Clark. Upon ten (10) days advance written notice, Clark
may terminate this Agreement at any time for cause in the event of (i) the
assignment to him of any duties materially inconsistent with his position,
duties and responsibilities as of the date of this Agreement; (ii) a reduction
in his compensation under this Agreement; (iii) other material breach of this
Agreement by the Company or (iv) the failure of the Company to maintain
appropriate levels of director and officer liability insurance. The right of
Clark to terminate this Agreement pursuant to clauses (i), (ii) or (iii) of the
preceding sentence shall not become effective if the breach by the Company is
cured within thirty (30) days after receipt of written notification of such
breach from Clark; provided, however, that, in the event such breach cannot be
cured within such thirty (30) day period, other than by reason of conditions or
circumstances within the control of the Company, the Company shall be given a
total of ninety (90) days to cure any such breach. Upon ninety (90) days advance
written notice, Clark may terminate this Agreement at any time without cause.
5.3. Consequences.
(a) Except as provided in Section 5.3(e), in the
event that the Agreement is terminated (i) by the Company for the cause pursuant
to Section 5.1 hereof or (ii) by Clark without cause, all rights of Clark under
this Agreement (except to the extent specifically set forth in this Agreement)
shall terminate as of the date of the termination of this Agreement, but Clark
shall continue to be bound by the covenant not to compete as set forth in
Section 9 hereof until one (1) year after the date of such termination.
(b) Except as provided in Sections 5.3(d) and (e), in
the event that the Agreement is terminated by the Company (x) by reason of
Clark's death or disability or (y) without cause, in addition to the deferred
compensation due to Clark in accordance with Section 4.1(i) hereof, Clark shall
receive his then current base salary, as provided in this Agreement, for a term
of one (1) year (the "Severance Period") from the date of termination of this
Agreement; provided, however, that the Severance Period shall be increased by
two (2) additional months on each anniversary of his employment with the Company
hereunder and under the Prior Agreement (all such severance payments to be paid
to Clark during such period shall be net of all applicable taxes that are
required to be withheld therefrom). In such event, Clark shall be treated as an
employee for the period during which he is receiving payments under this Section
5.3(b) and shall be entitled to participate in the fringe benefit programs under
Section 4.2 for the duration of such period, notwithstanding that any of such
benefits were provided on a group
-3-
<PAGE>
basis prior to such termination. Clark shall continue to be bound by the
covenant not to compete set forth in Section 9 hereof during the Severance
Period.
(c) Except as provided in Sections 5.3(d) and (e), in
the event that the Agreement is terminated by Clark for cause pursuant to
Section 5.2 hereof, in addition to the deferred compensation due to Clark in
accordance with Section 4.1(i) hereof, Clark shall receive his then current base
salary, as provided in this Agreement, for a term of two (2) years (the "For
Cause Severance Period") from the date of termination of this Agreement (all
such severance payments to be paid to Clark during such period shall be net of
all applicable taxes that are required to be withheld therefrom). In such event,
Clark shall be treated as an employee for the period during which he is
receiving payments under this Section 5.3(c) and shall be entitled to
participate in the fringe benefit programs under Section 4.2 for the duration of
such period, notwithstanding that any of such benefits were provided on a group
basis prior to such termination. Clark shall continue to be bound by the
covenant not to compete set forth in Section 9 hereof during the For Cause
Severance Period.
(d) The compensation payable to Clark or his estate
or legal representative under any paragraph of this Section 5.3 shall be in
addition to any benefits otherwise payable to Clark in accordance with Section
4.2 hereof, but shall be in lieu of other compensation ordinarily paid by the
Company upon the termination, death or disability of a senior officer of the
Company. For example, in the event the Company maintains long term disability,
life insurance and the like for its senior officers, Clark shall be entitled to
such fringe benefits.
(e) In the event that the Company or Clark terminates
this Agreement for any reason within nine (9) months subsequent to a "Change of
Control" (as hereinafter defined) of the Company, Clark shall receive an amount
equal to two (2) years base salary hereunder, provided, however, that the amount
Clark shall receive pursuant to this Section 5.3(e) shall be increased by two
(2) additional months of base salary on each anniversary of his employment with
the Company hereunder and under the Prior Agreement. Payments to Clark under
this Section 5.3(e) shall be made in approximately equal monthly installments
over a period of one (1) year (the "Payment Term") and shall be net of all
applicable taxes that are required to be withheld. In such event, Clark shall be
treated as an employee for the period during which he is receiving payments
under this Section 5.3(e), and shall be entitled to receive fringe benefit under
Section 4.2 for the duration of such period. Clark shall be subject to the
covenant not to complete set forth in Section 9 hereof during the Payment Term.
A "Change of Control" of the Company shall mean the
occurrence of an event which would be required to be reported by the Company in
response to Items 1 or 2 of Form 8-K under the Securities & Exchange Act of
1934, as amended.
(f) Any and all amounts payable to Clark pursuant to
this Section 5.3 following termination of this Agreement shall be secured by a
lien on, and security interest in, any and all intellectual property of the
Company, whether now owned or hereinafter acquired, including, without
limitation, business and product concepts, service marks, trademarks, patents,
proprietary systems and
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<PAGE>
technology and software, copyrights, graphic designs and user interfaces, upon
the terms and conditions set forth in the Collateral Assignment of Patents and
Trademarks between the Company and Clark executed in connection herewith (the
"Assignment Agreement"). The Company represents and warrants that the foregoing
assets shall be free and clear of all liens and encumbrances as of the date of
the execution of this Agreement. The Company further agrees that it will not
pledge, collateralize, or take any actions that would encumber these assets
without first obtaining the prior written consent of Clark.
6. Indemnification.
(a) The Company shall indemnify Clark and shall save and hold
Clark harmless from, against, for, and, in respect of any and all damages,
losses, obligations, deficiencies, costs and expenses, including, without
limitation, reasonable attorneys' fees and other costs and expenses, incident
to, or arising out of any threatened, pending or completed suit, action, claim
or proceeding, whether civil, criminal, administrative or investigative,
suffered, incurred or required to be paid by Clark by reason of being a
director, officer, employee or agent of the Company or by reason of service at
the request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise (whether or
not Clark continues to be a director, officer, employee or agent of the Company
or such corporation, partnership, joint venture, trust or other enterprise at
the time such action, suit or proceeding is brought or threatened) if Clark's
act or omission was taken or made in good faith and in a manner reasonably
believed to be in or not inconsistent with the best interests of the Company;
provided, that such act or omission did not constitute gross negligence, willful
misconduct or fraud. The foregoing right of indemnification shall be in addition
to any rights to which Clark may otherwise be entitled and shall inure to the
benefit of Clark's heirs, executors or administrators. The Company shall pay the
expenses incurred by Clark in defending any action, suit or proceeding, upon
receipt of an undertaking by Clark to repay such payment if there shall be a
final adjudication or determination that it is not entitled to indemnification
as provided herein.
(b) During the term of this Agreement, the Company shall
maintain appropriate levels, as determined by the Board of Directors, of
Directors and Officers liability insurance.
7. Company Property. All materials, information and data of any kind
furnished by the Company to Clark or developed by Clark on behalf of the Company
or at the Company's direction or for the Company's use or otherwise in
connection with Clark's employment hereunder, are and shall remain the sole and
confidential property of the Company. In the event that the Company requests the
return of such materials at any time during the term of this Agreement or at or
after the termination of this Agreement, Clark shall immediately deliver such
material to the Company.
8. Confidentiality. During the term of this Agreement and at all times
thereafter, Clark shall not use for his personal benefit, or disclose,
communicate or divulge to, or use for the direct or indirect benefit of any
person or entity other than the Company, any material referred to in Section 7
-5-
<PAGE>
above or any information regarding the business methods or policies, procedures,
techniques, projects, trade secrets or other confidential knowledge relating to
the Company, its business or activities, except for such materials, information
and knowledge which is generally available to the public other than by reason of
its disclosure by Clark or which were available, or becomes available, to Clark
on a non-confidential basis prior to its disclosure to him by the Company.
9. Non-Compete. During the term of this Agreement and for one (1) year
thereafter (or the Severance Period in the case of Clark's termination by the
Company without cause or the For Cause Severance Period in the case the
termination of Clark's employment by Clark for cause pursuant to Section 5.2
hereof), Clark agrees that he shall not (a) engage or be interested in or
receive any compensation from any business that directly competes with the
Company or its affiliates or (b) induce or attempt to induce any employee, agent
or customer of the Company or any of its affiliates to terminate or reduce the
scope of his, her or its relationship with the Company or one of its affiliates.
For the purposes of this Agreement, Clark shall be deemed to be interested in a
business if he is engaged or interested in that business as a stockholder,
director, officer, employee, salesman, sales representative, agent, broker,
partner, individual proprietor, lender, consultant or otherwise, but not if that
interest is limited solely to the ownership of five percent (5%) or less of any
class of the equity or debt securities of a corporation whose shares are listed
for trading on a national securities exchange or traded in the over-the-counter
market. Clark shall not, directly or indirectly, engage in any other business
enterprise, or have an interest, financial or otherwise, in any other business
enterprise which interferes or is likely to interfere with Clark's employment
hereunder.
10. Equitable Relief. Clark acknowledges and agrees that the Company
may seek to enforce the covenants and restrictions pertaining to his obligations
in Sections 7, 8 and 9 hereof at law or in equity. The covenants and
restrictions pertaining to Clark's obligations in Sections 7, 8 and 9 hereof
shall remain in full force and effect, notwithstanding the fact that this
Agreement has been terminated. If a court determines that the restrictions in
Section 9 are too broad or otherwise unreasonable under applicable law,
including with respect to time or geographical scope, the court is hereby
requested and authorized by the parties hereto to revise the foregoing
restrictions to include the maximum restriction allowable under the applicable
law. If Clark violates any of the restrictions contained in Section 9, the
restrictive period shall not run in favor of Clark from the time of the
commencement of any such violation until such time as such violation shall be
cured by Clark to the satisfaction of the Company.
11. Prior Agreements. Clark represents and warrants to the Company that
there are no restrictions, agreements or understandings of any kind whatsoever
to which Clark is a party, or by which he is bound, which would inhibit, prevent
or make unlawful his execution or performance of this Agreement, and that his
execution and performance of this Agreement shall not constitute a breach of any
contract, agreement or understanding, whether oral or written, to which he is a
party or by which he is bound.
12. Acknowledgment. Clark hereby acknowledges and certifies that he has
read the terms of this Agreement, that he has been informed by the Company that
he should discuss it with an attorney of his choice, and that he understands it
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<PAGE>
terms and effects. Clark further acknowledges that based on his training and
experience, he has the capacity to earn a livelihood by performing services as
an employee or otherwise in a business that does not violate the provisions of
Section 9. Neither the Company, Clark nor their respective agents,
representatives or attorneys have made any representations to the other
concerning the terms or effects of this Agreement other than those contained
herein.
13. Assignment. Without the prior written consent of the Company, Clark
shall have no right to exchange, convert, encumber or dispose of his rights to
receive benefits and payments under this Agreement, which payments, benefits and
rights thereto are non-assignable and non-transferrable. In the event of any
attempted assignment or transfer, Clark shall forfeit his rights to receive any
payments or benefits, and the Company shall have no further liability under this
Agreement.
14. Entire Agreement. This Agreement together with the Assignment
Agreement constitutes the entire understanding between the parties with respect
to the subject matter contained herein and supersedes any prior understandings
and agreements between them respecting such subject matter. Specifically, by
executing this Agreement, the Prior Agreement shall become null and void and any
rights and obligations existing thereunder shall cease.
15. Headings. The headings describing the provisions of this Agreement
are for convenience of reference only, and shall not affect its interpretation.
16. Severability. If any provision of this Agreement is held illegal,
invalid or unenforceable, such illegality, invalidity, or unenforceability shall
not affect any other provision hereof. Such provision and the remainder of this
Agreement shall, in such circumstances, be modified to the extent necessary to
render enforceable the remaining provisions hereof.
17. Notices. All notices shall be in writing and shall be deemed to
have been given if presented personally, sent by recognized national overnight
carrier, or sent by certified or registered mail, postage prepaid, return
receipt requested, to the following addressees:
If to the Company:
NETVALUE, INC.
One Stamford Landing
Stamford, CT 06901
-7-
<PAGE>
With a copy to:
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
1401 Walnut Street
Philadelphia, PA 19102
Attention: Michael C. Forman, Esquire
If to Clark:
MICHAEL A. CLARK
20 Hill Street
Milford, CT 06460
Notice of any change in such addresses shall also be given in
the manner set forth above. Whenever the giving of notice is required, the
giving of such notice may be waived by the party entitled to receive such
notice.
18. Counterparts. This Agreement may be executed in counterparts, all
of which taken together shall constitute one and the same instrument.
19. Waiver. The failure of either party to insist upon strict
performance of any of the terms or conditions of this Agreement shall not
constitute a waiver of any of its rights hereunder.
20. Successors and Assigns. This Agreement binds, inures to the benefit
of, and is enforceable by Clark and his heirs and personal representatives, and
the Company and its successors and permitted assigns, and does not confer any
rights on any other persons or entities. The duties, obligations, rights and
responsibilities of Clark under this Agreement are personal and shall not be
assigned by Clark without the prior written consent of the Company, as set forth
in Section 7 hereof.
21. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware.
22. Amendments. This Agreement may be amended and supplemented only by
a written instrument duly executed by both parties.
23. Joint Participation in Drafting. Each party to this Agreement
participated in the drafting of this Agreement. As such, the language used
herein shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction will be applied
against any party to this Agreement.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and date first above written.
By: /s/ Michael A. Clark
---------------------------------
MICHAEL A. CLARK
NETVALUE, INC.
By: /s/ Edward J. Zobian
---------------------------------
Edward J. Zobian, Director
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<PAGE>
EXHIBIT A TO MICHAEL A. CLARK
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AMENDED AND RESTATED NON-QUALIFIED STOCK OPTION AGREEMENT
NETVALUE, INC. (the "Company") hereby grants to MICHAEL A. CLARK (the
"Optionee") an option to purchase shares of Common Stock (the "Shares") of the
Company, at the price set forth herein subject to the terms set forth herein,
and in all respects subject to the terms and provisions of the netValue, Inc.
1996 Non-Qualified Stock Option Plan (as amended, the "Plan"), which terms and
provisions are hereby incorporated by reference herein. This Amended and
Restated Non-Qualified Stock Option Agreement (this "Agreement") amends and
restates and makes null and void the Non-Qualified Stock Option Agreement, dated
September 19, 1996, between the Company and the Optionee, and any and all
Options granted thereunder (collectively, the "Prior Option Agreement"). Unless
the context herein otherwise requires, the terms defined in the Plan shall have
the same meanings herein.
1. Nature of the Option. This Option is intended to be a nonstatutory
stock option and is not intended to be an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or to otherwise qualify for any special tax benefits to the Optionee.
2. Date of Grant; Term of Option. This Option is granted as of
September 19, 1996 and, subject to the specific terms contained herein, may not
be exercised later than the fifth anniversary of each Vesting Event (as
hereinafter defined) with respect to such Option.
3. Option Exercise Price and Vesting. Subject to the terms and
conditions herein set forth and set forth in the Plan, the Company hereby grants
to Optionee an option to purchase an aggregate number of Shares of the Company
at the option price as follows:
(a) An option to purchase a total of 268,000 Shares, of which
(i) 110,000 shall have an exercise price of $.63 per share, 60,000 of which
vested and were fully exercisable as of September 19, 1996, and 50,000 of which
have vested and were fully exercisable as of September 19, 1997, and (ii)
158,000 shall have an exercise price of $.80 per share, all of which have vested
and were fully exercisable as of September 19, 1997.
(b) An option to purchase a total of 632,000 Shares at the
exercise prices set forth below. This Option shall vest and become exercisable
in annual installments, the Optionee having the right hereunder to purchase from
the Company, on and after the following dates (each such vesting period being
hereinafter referred to as a "Vesting Year" and each such date being hereinafter
referred to as a "Vesting Event"), the following number of Shares:
<PAGE>
September 19, Shares Exercise Price
------------- ------ --------------
1998 158,000 $4.00
1999 158,000 $5.00
2000 158,000 $6.00
2001 158,000 $7.00
(c) Notwithstanding the vesting and exercisability of any
Option granted hereunder, without the prior written consent of the Company,
Optionee may not sell, transfer, gift, pledge, hypothecate, assign or otherwise
dispose of any Shares issuable thereunder or any right or interest therein
granted under this Section 3, whether voluntary, by operation of law or
otherwise, prior to September 19, 1998.
(d) In the event that the Optionee's employment with the
Company is terminated:
(i) (A) by the Company for cause (other than death or
disability) as set forth in Section 5.1 of Optionee's Employment Agreement or
(B) by the Optionee without cause (including his resignation), then Optionee
shall be entitled, for a period of two (2) years from the effective date of such
termination, to exercise all Options which have vested and become exercisable
pursuant to the provisions of Section 3 hereof prior to the effective date of
such resignation. All Options not so exercised shall terminate.
(ii) (A) by the Company without cause or (B) by the
Optionee for cause pursuant to Section 5.2 of the Employment Agreement or (C) by
reason of the Optionee's death or disability, the Optionee (or, in the case of
Optionee's death, the Optionee's estate or a person who acquired the right to
exercise this Option by bequest or inheritance, or, in the case of disability,
by the Optionee or his legal guardian or representative, as applicable) shall be
entitled, for a period of five (5) years from the effective date of such
termination (the "Post-Termination Exercise Period"), to exercise all Options
granted to Optionee in Section 3 hereof, provided that the Optionee agrees to
forbear from terminating his employment for cause pursuant to Section 5.2 of the
Employment Agreement based on the Company's failure to maintain appropriate
levels of director and officer liability insurance, until the earlier of March
31, 1998 or 30 days after the Company's successful completion of an initial
public offering of any class of its equity securities (an "IPO"). All Options
not so exercised shall terminate.
(iii) by the Company or the Optionee following a
Change of Control (as such term is defined in the Plan), all unvested and
unexercisable Options, granted pursuant to Section 3 hereof, shall immediately
vest and become exercisable during the Post-Termination Exercise Period. All
Options not so exercised shall terminate.
(iv) the Company shall be obligated to file and cause
to become effective, within twelve (12) months after the effective date of such
termination, a registration statement on
-2-
<PAGE>
Form S-8 with the SEC covering the public resale of any and all Shares issuable
upon the exercise of all Options which have vested and become exercisable
pursuant to the provisions of this Section 4.
4. Exercise of Option. This Option shall be exercisable during its term
only in accordance with the terms and provisions of the Plan and this Option as
follows:
(a) Method of Exercise. This Option shall be exercisable by
written notice which shall state the election to exercise this Option, the
number of Shares in respect to which this Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such Shares as may be required by the Company hereunder or pursuant
to the provisions of the Plan. Such written notice shall be signed by the
Optionee and shall be delivered in person or by certified mail to the Secretary
of the Company or such other person as may be designated by the Company. The
written notice shall be accompanied by payment of the purchase price along with
any other agreements as the Company may require. Payment of the purchase price
shall be by check or such consideration and method of payment authorized by the
Board pursuant to the Plan. The certificate or certificates for the Shares as to
which the Option shall be exercised shall be registered in the name of the
Optionee and shall be legended as required under this Agreement, the Plan,
and/or applicable law.
(b) Restrictions on Exercise. This Option may not be exercised
if the issuance of the Shares upon such exercise would constitute a violation of
any applicable federal or state securities laws or other laws or regulations. As
a condition to the exercise of this Option, the Company may require the Optionee
to make any representation and warranty to the Company as may be required by any
applicable law or regulation, provided that such representation and warranty
shall not alter Optionee's right to sell any of the Shares, subject, however, to
customary and reasonable holdbacks in connection with any public sale of the
Company's Common Stock as reasonably required by the Company's underwriter(s).
5. Investment Representations. Unless the Shares have been registered
under the Securities Act, in connection with the acquisition of this Option, the
Optionee represents and warrants as follows:
(a) The Optionee is acquiring this Option, and upon exercise
of this Option, he will be acquiring the Shares for investment for his own
account, not as a nominee or agent, and not with a view to, or for resale in
connection with, any distribution thereof.
(b) The Optionee has a preexisting business or personal
relationship with the Company or one of its directors, officers or controlling
personal and by reason of his business or financial experience, has, and could
be reasonably assumed to have, the capacity to protect his interests in
connection with the acquisition of this Option and the Shares.
6. Forfeiture of Option. Notwithstanding any other provision of this
Option, if it is
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<PAGE>
finally determined by a court of competent jurisdiction or other tribunal or
panel having jurisdiction over such dispute that the Optionee (i) has disclosed
trade secrets or confidential information of the Company in contravention of
Section 8 of Optionee's Employment Agreement, or (ii) has breached any agreement
with the Company in respect of confidentiality, nondisclosure, noncompetition or
otherwise, all unexercised Options shall terminate as of the date of such
determination. In the event of such a determination, in addition to immediate
termination of all unexercised Options, the Optionee shall forfeit all Option
shares for which the Company has not yet delivered share certificates to the
Optionee and the Company shall refund to the Optionee the Option price paid to
it. Notwithstanding anything to herein to the contrary, the Company may withhold
delivery of share certificates pending the resolution of any inquiry that could
lead to a determination resulting in forfeiture.
7. Continuation of Employment or Engagement. Neither the Plan nor this
Option shall confer upon Optionee any right to continue in the service of the
Company or limit, in any respect, the right of the Company to discharge the
Optionee at any time in accordance with the terms of Optionee's Employment
Agreement.
8. Withholding. The Company reserves the right to withhold, in
accordance with any applicable laws, from any consideration payable to Optionee
any taxes required to be withheld by federal, state or local law as a result of
the grant or exercise of this Option or the sale or other disposition of the
Shares issued upon exercise of this Option. If the amount of any consideration
payable to the Optionee is insufficient to pay such taxes or if no consideration
is payable to the Optionee, upon the request of the Company, the Optionee (or
such other person entitled to exercise the Option pursuant to Section 3(c)
hereof) shall pay to the Company an amount sufficient for the Company to satisfy
any federal, state or local tax withholding requirements it may incur, as a
result of the grant or exercise of this Option or the sale or other disposition
of the Shares issued upon the exercise of this Option.
9. The Plan. This Option is subject to, and the Company and the
Optionee agree to be bound by, all of the terms and conditions of the Plan as
such Plan may be amended from time to time in accordance with the terms thereof.
Pursuant to the Plan, the Board of Directors of the Company is authorized to
adopt rules and regulations not inconsistent with the Plan as it shall deem
appropriate and proper. A copy of the Plan in its present form is available for
inspection during business hours by the Optionee or the persons entitled to
exercise this Option at the Company's principal office.
10. Entire Agreement. This Agreement, together with the Plan and the
other exhibits attached thereto or hereto, represents the entire agreement
between the parties and supersedes and makes null and void the Prior Option
Agreement.
11. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Delaware.
-4-
<PAGE>
12. Amendment. Subject to the provisions of the Plan, this Agreement
may only be amended by a writing signed by each of the parties hereto.
DATE: December 19, 1997 NETVALUE, INC.
By: /s/ Edward J. Zobian
------------------------------
Edward J. Zobian, Director
-5-
<PAGE>
ACKNOWLEDGMENT
The Optionee acknowledges receipt of a copy of the Plan, a copy of
which is attached hereto, and represents that he has read and is familiar with
the terms and provisions thereof, and hereby accepts this Option subject to all
of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board of
Directors or the Committee upon any questions arising under the Plan. In
addition, the Optionee acknowledges that this Amended and Restated Non-Qualified
Stock Option Agreement supersedes and makes null and void the Prior Option
Agreement.
DATE:______________________ ___________________________________
Optionee: MICHAEL A. CLARK
____________________________________
Address
____________________________________
City, State, Zip
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON THE EXERCISE
OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE, TRANSFER OR DISTRIBUTION THEREOF. NO SUCH SALE,
TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO OR A SATISFACTORY OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
-6-
<PAGE>
Exhibit 10.4
RICHARD DAVEY
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the "Agreement"), dated this
19th day of December, 1997, is between RICHARD DAVEY ("Davey") and NETVALUE,
INC., a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, Davey entered into an Employment Agreement with the Company,
dated September 19, 1996 (the "Agreement") pursuant to which Davey is currently
employed by the Company; and
WHEREAS, Davey and the Company wish to amend certain terms of the
Agreement, effective September 19, 1997, as set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and agreements herein contained, and intending to be legally bound,
Clark and the Company hereby agree as follows:
1. As of the date hereof, Davey's annual base salary shall be
increased to One Hundred Forty Thousand Dollars ($140,000.00); Fifteen Thousand
Dollars ($15,000.00) of which shall be paid as deferred compensation. The
deferred compensation shall be paid to Davey on or prior to each anniversary of
the date hereof and shall be pro-rated based upon the period of Davey's
employment during such year.
2. Except as amended hereby, the Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and date first above written.
/s/ Richard Davey
------------------------------------
RICHARD DAVEY
NETVALUE, INC.
BY: /s/ Michael A. Clark
----------------------------
Michael A. Clark, President
<PAGE>
EXHIBIT A TO RICHARD DAVEY EMPLOYMENT AGREEMENT, AS AMENDED
AMENDED AND RESTATED NON-QUALIFIED STOCK OPTION AGREEMENT
NETVALUE, INC. (the "Company") hereby grants to RICHARD DAVEY (the
"Optionee") an option to purchase shares of Common Stock (the "Shares") of the
Company, at the price set forth herein subject to the terms set forth herein,
and in all respects subject to the terms and provisions of the netValue, Inc.
1996 Non-Qualified Stock Option Plan (as amended, the "Plan"), which terms and
provisions are hereby incorporated by reference herein. This Amended and
Restated Non-Qualified Stock Option Agreement (this "Agreement") amends and
restates and makes null and void the NonQualified Stock Option Agreement, dated
September 19, 1996, between the Company and the Optionee, and any and all
options granted thereunder (collectively, the "Prior Option Agreement"). Unless
the context herein otherwise requires, the terms defined in the Plan shall have
the same meanings herein.
1. Nature of the Option. This Option is intended to be a nonstatutory
stock option and is not intended to be an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or to otherwise qualify for any special tax benefits to the Optionee.
2. Date of Grant; Term of Option. This Option is granted as of
September 19, 1996 and, subject to the specific terms contained herein, may not
be exercised later than the fifth anniversary of the Vesting Event (as
hereinafter defined) with respect to such Option.
3. Option Exercise Price and Vesting. Subject to the terms and
conditions herein set forth and set forth in the Plan, the Company hereby grants
to Optionee an option to purchase an aggregate number of Shares of the Company
at the option price as follows:
(a) An option to purchase a total of 152,000 Shares at the
exercise prices set forth below. This Option shall vest and become exercisable
in annual installments, the Optionee having the right hereunder to purchase from
the Company, on and after the following dates (each such vesting period being
hereinafter referred to as a "Vesting Year" and each such date being hereinafter
referred to as a "Vesting Event"), the following number of Shares:
September 19, Shares Exercise Price
------------- ------ --------------
1997 38,000 $ .80
1998 38,000 $4.00
1999 38,000 $5.00
2000 38,000 $6.00
(b) Notwithstanding the vesting and exercisability of any
Option granted hereunder, without the prior written consent of the Company,
Optionee may not sell, transfer, gift, pledge, hypothecate, assign or otherwise
dispose of any Shares issuable
<PAGE>
thereunder or any right or interest therein granted under this Section 3,
whether voluntary, by operation of law or otherwise, prior to September 19,
1998.
(d) In the event that the Optionee's employment with the
Company is terminated:
(i) by the Company for cause (other than death or
disability) as set forth in Section 5.1 of Optionee's Employment Agreement, then
Optionee shall be entitled, for a period of one (1) year from the effective date
of such termination, to exercise all Options which have vested and become
exercisable pursuant to the provisions of Section 3 hereof prior to the
effective date of such resignation. All Options not so exercised shall
terminate.
(ii) (A) by the Company without cause or (B) by
reason of the Optionee's death or disability, the Optionee (or, in the case of
Optionee's death, the Optionee's estate or a person who acquired the right to
exercise this Option by bequest or inheritance, or, in the case of disability,
by the Optionee or his legal guardian or representative, as applicable) shall be
entitled, for a period of five (5) years from the effective date of such
termination (the "Post-Termination Exercise Period"), to exercise (x) all
Options which have vested and become exercisable pursuant to the provisions of
Section 3 hereof, prior to the effective date of such resignation and (y) a
number of Options equal to the number of Options which would have vested and
become exercisable on the Vesting Event following the effective date of such
termination divided by the number of months (including partial months) in the
Vesting Year that Optionee was employed by the Company (the "Pro Rata Options").
All Options not so exercised shall terminate.
4. Exercise of Option. This Option shall be exercisable during its term
only in accordance with the terms and provisions of the Plan and this Option as
follows:
(a) Method of Exercise. This Option shall be exercisable by
written notice which shall state the election to exercise this Option, the
number of Shares in respect to which this Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such Shares as may be required by the Company hereunder or pursuant
to the provisions of the Plan. Such written notice shall be signed by the
Optionee and shall be delivered in person or by certified mail to the Secretary
of the Company or such other person as may be designated by the Company. The
written notice shall be accompanied by payment of the purchase price along with
any other agreements as the Company may require. Payment of the purchase price
shall be by check or such consideration and method of payment authorized by the
Board pursuant to the Plan. The certificate or certificates for the Shares as to
which the Option shall be exercised shall be registered in the name of the
Optionee and shall be legended as required under this Agreement, the Plan,
and/or applicable law.
(b) Restrictions on Exercise. This Option may not be exercised
if the issuance of the Shares upon such exercise would constitute a violation of
any applicable federal or state securities laws or other laws or regulations. As
a condition to the exercise of this Option, the
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<PAGE>
Company may require the Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation, provided that
such representation and warranty shall not alter Optionee's right to sell any of
the Shares, subject, however, to customary and reasonable holdbacks in
connection with any public sale of the Company's Common Stock as reasonably
required by the Company's underwriter(s).
5. Investment Representations. Unless the Shares have been registered
under the Securities Act, in connection with the acquisition of this Option, the
Optionee represents and warrants as follows:
(a) The Optionee is acquiring this Option, and upon exercise
of this Option, he will be acquiring the Shares for investment for his own
account, not as a nominee or agent, and not with a view to, or for resale in
connection with, any distribution thereof.
(b) The Optionee has a preexisting business or personal
relationship with the Company or one of its directors, officers or controlling
personal and by reason of his business or financial experience, has, and could
be reasonably assumed to have, the capacity to protect his interests in
connection with the acquisition of this Option and the Shares.
6. Forfeiture of Option. Notwithstanding any other provision of this
Option, if, in the sole determination of the Board of Directors, the Optionee
(i) has disclosed trade secrets or confidential information of the Company in
contravention of Section 8 of Optionee's Employment Agreement, or (ii) has
breached any agreement with the Company in respect of confidentiality,
nondisclosure, noncompetition or otherwise, all unexercised Options shall
terminate as of the date of such determination. In the event of such a
determination, in addition to immediate termination of all unexercised Options,
the Optionee shall forfeit all Option shares for which the Company has not yet
delivered share certificates to the Optionee and the Company shall refund to the
Optionee the Option price paid to it. Notwithstanding anything to herein to the
contrary, the Company may withhold delivery of share certificates pending the
resolution of any inquiry that could lead to a determination resulting in
forfeiture.
7. Continuation of Employment or Engagement. Neither the Plan nor this
Option shall confer upon Optionee any right to continue in the service of the
Company or limit, in any respect, the right of the Company to discharge the
Optionee at any time in accordance with the terms of Optionee's Employment
Agreement.
8. Withholding. The Company reserves the right to withhold, in
accordance with any applicable laws, from any consideration payable to Optionee
any taxes required to be withheld by federal, state or local law as a result of
the grant or exercise of this Option or the sale or other disposition of the
Shares issued upon exercise of this Option. If the amount of any consideration
payable to the Optionee is insufficient to pay such taxes or if no consideration
is payable to the Optionee, upon the request of the Company, the Optionee (or
such other person entitled to exercise the Option pursuant to Section 3(c)
hereof) shall pay to the Company an amount sufficient for the
-3-
<PAGE>
Company to satisfy any federal, state or local tax withholding requirements it
may incur, as a result of the grant or exercise of this Option or the sale or
other disposition of the Shares issued upon the exercise of this Option.
9. The Plan. This Option is subject to, and the Company and the
Optionee agree to be bound by, all of the terms and conditions of the Plan as
such Plan may be amended from time to time in accordance with the terms thereof.
Pursuant to the Plan, the Board of Directors of the Company is authorized to
adopt rules and regulations not inconsistent with the Plan as it shall deem
appropriate and proper. A copy of the Plan in its present form is available for
inspection during business hours by the Optionee or the persons entitled to
exercise this Option at the Company's principal office.
10. Entire Agreement. This Agreement, together with the Plan and the
other exhibits attached thereto or hereto, represents the entire agreement
between the parties and supersedes and makes null and void the Prior Option
Agreement.
11. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Delaware.
12. Amendment. Subject to the provisions of the Plan, this Agreement
may only be amended by a writing signed by each of the parties hereto.
DATE: December 19, 1997 NETVALUE, INC.
BY: /s/ Michael A. Clark
--------------------------------
Michael A. Clark, President
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<PAGE>
ACKNOWLEDGMENT
The Optionee acknowledges receipt of a copy of the Plan, a copy of
which is attached hereto, and represents that he has read and is familiar with
the terms and provisions thereof, and hereby accepts this Option subject to all
of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board of
Directors or the Committee upon any questions arising under the Plan. In
addition, the Optionee acknowledges that this Amended and Restated Non-Qualified
Stock Option Agreement supersedes and makes null and void the Prior Option
Agreement.
DATE:__________________________ ___________________________________
Optionee: RICHARD DAVEY
____________________________________
Address
____________________________________
City, State, Zip
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON THE EXERCISE
OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE, TRANSFER OR DISTRIBUTION THEREOF. NO SUCH SALE,
TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO OR A SATISFACTORY OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
-5-
<PAGE>
Exhibit 10.5
CRAIG BARNETT
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated this 19th day of
December, 1997 is made by and between CRAIG BARNETT ("Barnett") and NETVALUE,
INC. (formerly known as VSQUARED, Inc., formerly known as COL Acquisition
Corp.), a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, Barnett entered into a Consulting Agreement with the Company
dated September 18, 1996 (the "Consulting Agreement") pursuant to which he
agreed to render certain consulting services to the Company;
WHEREAS, Barnett and the Company have agreed to enter into an
Employment Agreement to be effective as of October 1, 1997 (the "Effective
Date"), which Employment Agreement shall supersede and make null and void the
Consulting Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and agreements herein contained, and intending to be legally bound,
Barnett and the Company hereby agree as follows:
1. Position. The Company agrees to employ Barnett and Barnett agrees to
serve the Company during the term hereof as Vice President of Local Market
Administration, or in such other executive position as may be mutually agreed
upon by Barnett and the Company. Barnett shall be furnished with such facilities
and services as are suitable to his position and adequate for the performance of
his duties.
2. Duties. Barnett agrees to assume such duties and responsibilities as
may be consistent with the position specified in Section 1 hereof, and as may be
assigned to Barnett by the Board and in accordance with the by-laws of the
Company from time to time. Barnett agrees to devote his best efforts and such
time, skill, attention and energies as are necessary to the performance of his
duties and responsibilities under this Agreement, consistent with practices and
policies established from time to time by the Company's Board of Directors.
3. Term. The term of this Agreement shall commence as of the Effective
Date and shall continue for successive one (1) year terms, unless otherwise
<PAGE>
terminated by either party in accordance with the provisions of Section 5
hereof.
4. Compensation.
4.1. Salary and Commission.
(i) For the period commencing on the Effective Date
and ending September 30, 1998 ("Year 1"), the Company shall pay Barnett a salary
of Eighty Five Thousand Dollars ($85,000.00) (the "Starting Salary"). The
Starting Salary shall be paid by the Company to Barnett in accordance with the
Company's normal payment practices (but not less frequently than bi-weekly). In
addition, during Year 1, the Company shall pay Barnett a commission (the "Year 1
Commission") as follows:
Year 1 Commission = 0.125 x (GR-COGS-COS-NRD)
where
GR = the gross revenues of the Company directly
attributable to the sales of the Company's products
and services in Local Markets Business Unit, as that
term is defined, from time to time, by the Company.
COGS = the cost of the goods sold to produce GR as
determined by the Company in accordance with
generally accepted accounting principles.
COS = the cost of the sales associated with GR including,
but not limited to, administrative and marketing
expenses as determined by the Company in accordance
with generally accepted accounting principles.
NRD = that part of GR attributable to non-recurring sales,
as determined by the Company, multiplied by a
fraction, the numerator of which is the number of
months over which GR is determined and the
denominator of which is 36. For any time period for
which NRD is calculated for purposes of this
Agreement, an amount equal to the non-recurring sales
of that time period less NRD shall be included in the
non-recurring sales of the subsequent time period for
which NRD is calculated for purposes of this
Agreement.
(Hereinafter, the amount represented by GR-COGS-COS-NRD for any given time
period shall be referred to as "Local Market Net Revenues").
(ii) After Year 1, the Company shall pay Barnett commissions
only, without guaranteed salary, in accordance with this Section 4.1. For the
one-year period
-2-
<PAGE>
commencing the day after the end of the Year 1 ("Year 2"), the one-year period
commencing the day after the end of Year 2 ("Year 3"), the one-year period
commencing the day after the end of Year 3 ("Year 4") and each one year period
thereafter (the "Going Forward Years"), the Company shall pay Barnett
commissions (the "Year 2 Commission," "Year 3 Commission," "Year 4 Commission"
and "Going Forward Years Commissions", collectively, the "Earned Commissions")
as follows:
Year 2 Commission = 0.10 x Local Market Net Revenues
Year 3 Commission = 0.075 x Local Market Net Revenues
Year 4 Commission = 0.064 x Local Market Net Revenues
Going Forward Years Commissions = 0.025 x Local Market Net Revenues
(iii) The Company shall pay Barnett a draw against the Year 1
Commission equal to Fifteen Thousand Dollars ($15,000) and draws against each of
the Year 2 Commission, the Year 3 Commission, the Year 4 Commission, and the
Going Forward Years Commissions equal to Eighty Five Thousand Dollars
($85,000.00) (the "Draws"). The Draws shall be paid by the Company to Barnett in
accordance with the Company's normal payment practices (but not less than
bi-weekly). In the event that Barnett's level of sales production materially
decreases or the economic condition or prospects of the Company materially
deteriorates to the point where the Company is not meeting payroll, the amount
of the Draws may be adjusted from time to time at the Company's reasonable
discretion. Periodically, as set forth below, the Company shall pay to Barnett
an amount equal to the Earned Commissions for that period less any Draws for
that same period (the "Periodic Payment"). The first Periodic Payment shall be
calculated as of June 30, 1998 and paid within two weeks thereafter. Subsequent
calculations of Periodic Payments shall be performed quarterly on September 30,
December 31, March 31, and June 30 of each subsequent one year period with
payments of these Periodic Payments to be made within two weeks of the
calculation thereof. In the event that the Draw is greater than the Earned
Commission for any given period, then such difference shall be considered to
have been paid as a Draw for the subsequent period. The computation of the
Earned Commission shall be performed solely by the Company; provided, however,
Barnett shall have the right, upon reasonable notice to the Company, to examine
all work papers used to compute the Earned Commissions and to submit such work
papers, at Barnett's expense, to an independent and mutually agreed upon third
party for review. Subject to the terms of this Agreement, in the event that this
Agreement is terminated for any reason, the Company shall make all payments
earned and due to Barnett hereunder as of the date of such termination,
including any amounts earned but not yet payable, and neither party shall have
any further obligations or liability to the other party under this Agreement
except as otherwise provided herein to the contrary.
4.2. Fringe Benefits. Barnett shall be provided with those
fringe benefits which are to be provided to other similarly situated employees
of the Company.
4.3. Reimbursement of Expenses. Subject to such conditions as
the Board may from time to time reasonably determine, Barnett shall be
reimbursed upon presentation of vouchers or paid upon presentation of invoices
for reasonable expenses incurred by him in the performance
-3-
<PAGE>
of his duties in carrying out the terms of this Agreement; provided, however,
any expense in excess of $2,500 must be approved in advance by the President of
the Company.
4.4. Employee Stock Options. The Company and Barnett shall
enter into the Award Agreement attached hereto as Exhibit A on or before the
Effective Date. Such Award Agreement shall govern the terms and conditions of
the stock options to be granted to Barnett under the terms of the Company's
employee stock option plan.
5. Termination.
5.1. Company. Immediately upon written notice, the Company, by
action of the Board, may terminate this Agreement, at any time for cause solely
in the event of the (i) death or permanent disability of Barnett; (ii) the
demonstrated continued failure by Barnett to perform his duties as set forth
herein or as otherwise required by the Board after written demand for
performance is made by the Board, which demand specifically identifies the
manner in which the Board finds there has been a failure to perform; provided,
however, that Barnett shall be given thirty (30) days to cure any such failure
(if such failure is capable of being cured); (iii) fraud, misappropriation,
embezzlement or other violation of the law or like nature or severity; (iv) a
material breach of this Agreement by Barnett; provided, however, that Barnett
shall be given thirty (30) days to cure any such breach (if such breach is
capable of being cured); or (v) willful misconduct of Barnett having a material
adverse effect on the business or prospects of the Company; all as may be
reasonably determined by the Board. For purposes of this Agreement, "permanent
disability" shall have the same meaning as such phrase is given under the long
term disability program sponsored by the Company or, in the absence of such
policy, as determined by a physician selected by the Company and reasonably
satisfactory to Barnett or his personal representative. Upon ninety (90) days
advance written notice, the Company may terminate this Agreement at any time
without cause.
5.2. Barnett. Upon ten (10) days advance written notice,
Barnett may terminate this Agreement at any time for cause solely in the event
of (i) the assignment to him of any duties materially inconsistent with his
position, duties and responsibilities as of the date of this Agreement; (ii) a
reduction in his compensation under this Agreement; (iii) other material breach
of this Agreement by the Company; or (iv) a demand by the Company that Barnett
relocate. The right of Barnett to terminate this Agreement shall not become
effective if the breach by the Company is cured within ten (10) days after
receipt of written notification of such breach from Barnett. Upon ninety (90)
days advance written notice, Barnett may terminate this Agreement at any time
without cause.
5.3. Consequences.
(a) In the event that the Company terminates this
Agreement for any cause set forth in Section 5.1 hereof, or in the event Barnett
terminates this Agreement without cause, all rights of Barnett under this
Agreement shall terminate as of the date of the termination of this Agreement,
but Barnett shall continue to be bound by the covenant not to compete as set
forth in Section 9 hereof until one (1) year after the date of such termination.
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<PAGE>
(b) Except as provided in Section 5.3(c), in the
event that the Company terminates this Agreement without cause, including
pursuant to Section 3 hereof, or in the event that Barnett terminates this
Agreement for any cause as set forth in Section 5.2 hereof, Barnett shall
receive an amount equal to two and one-half percent (2.5%) of Local Market Net
Revenues for the two year period subsequent to the termination (the "Severance
Pay"). If, however, the Company terminates this Agreement without cause prior to
September 30, 2001, the Severance Pay shall be calculated based on the
prevailing commission rate set forth in Section 4.1(b) of this Agreement until
September 30, 2001. Such amount shall be paid to Barnett, net of all applicable
taxes that are required to be withheld, in accordance with procedures set forth
for the payment of Earned Commissions set forth in Section 4 hereof except that
Barnett will not be paid a Draw against any amounts due under this Section
5.3(b). In such event, Barnett shall be treated as an employee for the period
during which he is receiving payments under this Section 5.3(b) and shall be
entitled to participate in the fringe benefit programs under Section 4.2 for the
duration of such period, notwithstanding that any of such benefits were provided
on a group basis prior to such termination. Barnett shall continue to be bound
by the covenant not to compete set forth in Section 8 hereof during the
Severance Period. For purposes of this Section 5.3(b) only, the death or
disability of Barnett shall be treated as a termination by the Company without
cause.
(c) The compensation payable to Barnett or his estate
or legal representative under any paragraph of this Section 5.3 shall be in
addition to any benefits payable in accordance with Section 4.2 hereof, but
shall be in lieu of other compensation ordinarily paid by the Company upon the
termination, death or disability of a senior officer of the Company.
(d) Notwithstanding anything in this Section 5.3 to
the contrary, in the event that this Agreement is terminated prior to September
30, 1998 by the Company, with or without cause, or by Barnett, Barnett will
still receive the Starting Salary set forth in Section 4.1(a) of this Agreement.
6. Company Property. All materials, information and data of any kind
furnished by the Company to Barnett or developed by Barnett on behalf of the
Company or at the Company's direction or for the Company's use or otherwise in
connection with Barnett's employment hereunder, are and shall remain the sole
and confidential property of the Company. In the event that the Company requests
the return of such materials at any time during the term of this Agreement or at
or after the termination of this Agreement, Barnett shall immediately deliver
such material to the Company.
7. Confidentiality. During the term of this Agreement and at all times
thereafter, Barnett shall not use for his personal benefit, or disclose,
communicate or divulge to, or use for the direct or indirect benefit of any
person or entity other than the Company, any material referred to in Section 7
above or any information regarding the business methods or policies, procedures,
techniques, projects, trade secrets or other confidential knowledge relating to
the Company, its business or activities.
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<PAGE>
8. Non-Compete. During the term of this Agreement and for one (1) year
thereafter (or during the Severance Period in the case of Barnett's termination
by the Company without cause or by Barnett for any cause set forth in Section
5.2), Barnett agrees that he shall not (a) engage or be interested in or receive
any compensation from any business that competes directly with the Company or
its affiliates or (b) induce or attempt to induce any employee, agent or
customer of the Company or any of its affiliates to terminate or reduce the
scope of his, her or its relationship with the Company or one of its affiliates.
For the purposes of this Agreement, Barnett shall be deemed to be interested in
a business if he is engaged or interested in that business as a stockholder,
director, officer, employee, salesman, sales representative, agent, broker,
partner, individual proprietor, lender, consultant or otherwise, but not if that
interest is limited solely to the ownership of five percent (5%) or less of any
class of the equity or debt securities of a corporation whose shares are listed
for trading on a national securities exchange or traded in the over-the-counter
market or ownership of five percent (5%) or less of any private company if such
ownership of the private company is acquired by Barnett by way of inheritance or
gift. Barnett shall not, directly or indirectly, engage in any other business
enterprise, or have an interest, financial or otherwise, in any other business
enterprise which interferes or is likely to interfere with Barnett's employment
hereunder.
9. Equitable Relief. Barnett acknowledges and agrees that the Company
may seek to enforce the covenants and restrictions pertaining to his obligations
in Sections 7, 8 and 9 hereof at law or in equity. The covenants and
restrictions pertaining to Barnett's obligations in Sections 7, 8 and 9 hereof
shall remain in full force and effect, notwithstanding the fact that this
Agreement has been terminated. If a court determines that the restrictions in
Section 9 are too broad or otherwise unreasonable under applicable law,
including with respect to time or geographical scope, the court is hereby
requested and authorized by the parties hereto to revise the foregoing
restrictions to include the maximum restriction allowable under the applicable
law. If Barnett violates any of the restrictions contained in Section 9, the
restrictive period shall not run in favor of Barnett from the time of the
commencement of any such violation until such time as such violation shall be
cured by Barnett to the satisfaction of the Company.
10. Prior Agreements. Barnett represents and warrants to the Company
that there are no restrictions, agreements or understandings of any kind
whatsoever to which Barnett is a party, or by which he is bound, which would
inhibit, prevent or make unlawful his execution or performance of this
Agreement, and that his execution and performance of this Agreement shall not
constitute a breach of any contract, agreement or understanding, whether oral or
written, to which he is a party or by which he is bound. Barnett further
represents and warrants that the Consulting Agreement is null and void.
11. Acknowledgment. Barnett hereby acknowledges and certifies that he
has read the terms of this Agreement, that he has been informed by the Company
that he should discuss it with an attorney of his choice, and that he
understands it terms and effects. Barnett further acknowledges
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<PAGE>
that based on his training and experience, he has the capacity to earn a
livelihood by performing services as an employee or otherwise in a business that
does not violate the provisions of Section 9. Neither the Company, Barnett nor
their respective agents, representatives or attorneys have made any
representations to the other concerning the terms or effects of this Agreement
other than those contained herein.
12. Assignment. Without the prior written consent of the Company,
Barnett shall have no right to exchange, convert, encumber or dispose of his
rights to receive benefits and payments under this Agreement, which payments,
benefits and rights thereto are non-assignable and non-transferrable. In the
event of any attempted assignment or transfer, Barnett shall forfeit his rights
to receive any payments or benefits, and the Company shall have no further
liability under this Agreement.
13. Entire Agreement. This Agreement constitutes the entire
understanding between the parties with respect to the subject matter contained
herein and supersedes any prior understandings and agreements between them
respecting such subject matter. Specifically, by executing this Agreement, the
Consulting Agreement shall become null and void and any rights and obligations
existing thereunder shall cease.
14. Headings. The headings describing the provisions of this Agreement
are for convenience of reference only, and shall not affect its interpretation.
15. Severability. If any provision of this Agreement is held illegal,
invalid or unenforceable, such illegality, invalidity, or unenforceability shall
not affect any other provision hereof. Such provision and the remainder of this
Agreement shall, in such circumstances, be modified to the extent necessary to
render enforceable the remaining provisions hereof.
16. Notices. All notices shall be in writing and shall be deemed to
have been given if presented personally, sent by recognized national overnight
carrier, or sent by certified or registered mail, postage prepaid, return
receipt requested, to the following addressees:
If to the Company:
netValue, Inc.
One Stamford Landing
Stamford, CT 06901
Attention: Michael A. Clark, President
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<PAGE>
With a copy to:
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
1401 Walnut Street
Philadelphia, PA 19102
Attention: Michael C. Forman, Esq.
If to Barnett:
Craig Barnett
300 East 71st Street, #3E
New York, NY 10021
Notice of any change in such addresses shall also be given in the manner set
forth above. Whenever the giving of notice is required, the giving of such
notice may be waived by the party entitled to receive such notice.
17. Counterparts. This Agreement may be executed in counterparts, all
of which taken together shall constitute one and the same instrument.
18. Waiver. The failure of either party to insist upon strict
performance of any of the terms or conditions of this Agreement shall not
constitute a waiver of any of its rights hereunder.
19. Successors and Assigns. This Agreement binds, inures to the benefit
of, and is enforceable by Barnett and his heirs and personal representatives,
and the Company and its successors and permitted assigns, and does not confer
any rights on any other persons or entities. The duties, obligations, rights and
responsibilities of Barnett under this Agreement are personal and shall not be
assigned by Barnett without the prior written consent of the Company, as set
forth in Section 7 hereof.
20. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware.
21. Amendments. This Agreement may be amended and supplemented only by
a written instrument duly executed by both parties.
22. Joint Participation in Drafting. Each party to this Agreement
participated in the drafting of this Agreement. As such, the language used
herein shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction will be applied
against any party to this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and date first above written.
/s/ Craig Barnett
----------------------------------
CRAIG BARNETT
NETVALUE, INC.
BY: /s/ Michael A. Clark
----------------------------------
Michael A. Clark
President
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<PAGE>
EXHIBIT A TO CRAIG BARNETT EMPLOYMENT AGREEMENT
NON-QUALIFIED STOCK OPTION AGREEMENT
netValue, Inc. (the "Company") hereby grants to Craig Barnett (the
"Optionee") an option to purchase shares of Common Stock (the "Shares") of the
Company, at the price set forth herein subject to the terms set forth herein,
and in all respects subject to the terms and provisions of the netValue, Inc.
1996 Non-Qualified Stock Option Plan (as amended, the "Plan")], which terms and
provisions are hereby incorporated by reference herein. Unless the context
herein otherwise requires, the terms defined in the Plan shall have the same
meanings herein.
1. Nature of the Option. This Option is intended to be a nonstatutory
stock option and is not intended to be an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or to otherwise qualify for any special tax benefits to the Optionee.
2. Date of Grant; Term of Option. This Option is granted as of the 19th
day of December, 1997, and, subject to the specific terms contained herein, may
not be exercised later than the fifth anniversary of the Vesting Event (as
hereinafter defined) with respect to such Option.
3. Option Exercise Price and Vesting. Subject to the terms and
conditions herein set forth and set forth in the Plan, the Company hereby grants
to Optionee an option to purchase an aggregate number of Shares of the Company
at the option price as follows:
(a) An option to purchase a total of 60,000 Shares at the
exercise prices set forth below. This Option shall vest and become exercisable
in annual installments, the Optionee having the right hereunder to purchase from
the Company, on and after the following dates (each such vesting period being
hereinafter referred to as a "Vesting Year" and each such date being hereinafter
referred to as a "Vesting Event"), the following number of Shares:
July 1, Shares Exercise Price
------- ------ --------------
1997 15,000 $ .80
1998 15,000 $4.00
1999 15,000 $5.00
2000 15,000 $6.00
(b) Notwithstanding the vesting and exercisability of any
Option granted hereunder, without the prior written consent of the Company,
Optionee may not sell, transfer, gift, pledge, hypothecate, assign or otherwise
dispose of any Shares issuable thereunder or any right or interest therein
granted under this Section 3, whether voluntary, by operation of law or
otherwise, prior to the second anniversary of the Grant Date.
(c) In the event that the Optionee's employment with the
Company is terminated:
<PAGE>
(i) by the Company for cause (other than death or
disability) as set forth in Section 5.1 of Optionee's Employment Agreement, then
Optionee shall be entitled, for a period of one (1) year from the effective date
of such termination, to exercise all Options which have vested and become
exercisable pursuant to the provisions of Section 3 hereof, prior to the
effective date of such resignation. All Options not so exercised shall
terminate.
(ii) (A) by the Company without cause or (B) by
reason of the Optionee's death or disability, the Optionee (or, in the case of
Optionee's death, the Optionee's estate or a person who acquired the right to
exercise this Option by bequest or inheritance, or, in the case of disability,
by the Optionee or his legal guardian or representative, as applicable) shall be
entitled, for a period of five (5) years from the effective date of such
termination (the "Post-Termination Exercise Period"), to exercise (x) all
Options which have vested and become exercisable pursuant to the provisions of
Section 3 hereof, prior to the effective date of such resignation and (y) a
number of Options equal to the number of Options which would have vested and
become exercisable on the Vesting Date following the effective date of such
termination divided by the number of months (including partial months) in the
Vesting Period that Optionee was employed by the Company (the "Pro Rata
Options"). All Options not so exercised shall terminate.
4. Exercise of Option. This Option shall be exercisable during its term
only in accordance with the terms and provisions of the Plan and this Option as
follows:
(a) Method of Exercise. This Option shall be exercisable by
written notice which shall state the election to exercise this Option, the
number of Shares in respect to which this Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such Shares as may be required by the Company hereunder or pursuant
to the provisions of the Plan. Such written notice shall be signed by the
Optionee and shall be delivered in person or by certified mail to the Secretary
of the Company or such other person as may be designated by the Company. The
written notice shall be accompanied by payment of the purchase price along with
any other agreements as the Company may require. Payment of the purchase price
shall be by check or such consideration and method of payment authorized by the
Board pursuant to the Plan. The certificate or certificates for the Shares as to
which the Option shall be exercised shall be registered in the name of the
Optionee and shall be legended as required under this Agreement, the Plan,
and/or applicable law.
(b) Restrictions on Exercise. This Option may not be exercised
if the issuance of the Shares upon such exercise would constitute a violation of
any applicable federal or state securities laws or other laws or regulations. As
a condition to the exercise of this Option, the Company may require the Optionee
to make any representation and warranty to the Company as may be required by any
applicable law or regulation, provided that such representation and warranty
shall not alter Optionee's right to sell any of the Shares, subject, however, to
customary and reasonable holdbacks in connection with any public sale of the
Company's Common Stock as reasonably required by the Company's underwriter(s).
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<PAGE>
5. Investment Representations. Unless the Shares have been registered
under the Securities Act of 1933, as amended, in connection with the acquisition
of this Option, the Optionee represents and warrants as follows:
(a) The Optionee is acquiring this Option, and upon exercise
of this Option, he will be acquiring the Shares for investment for his own
account, not as a nominee or agent, and not with a view to, or for resale in
connection with, any distribution thereof.
(b) The Optionee has a preexisting business or personal
relationship with the Company or one of its directors, officers or controlling
persons and by reason of his business or financial experience, has, and could be
reasonably assumed to have, the capacity to protect his interests in connection
with the acquisition of this Option and the Shares.
6. Forfeiture of Option. Notwithstanding any other provision of this
Option, if, in the sole determination of the Board of Directors, the Optionee
(i) has disclosed trade secrets or confidential information of the Company in
contravention of Section 8 of Optionee's Employment Agreement, or (ii) has
breached any agreement with the Company in respect of confidentiality,
nondisclosure, noncompetition or otherwise, all unexercised Options shall
terminate as of the date of such determination. In the event of such a
determination, in addition to immediate termination of all unexercised Options,
the Optionee shall forfeit all Option shares for which the Company has not yet
delivered share certificates to the Optionee and the Company shall refund to the
Optionee the Option price paid to it. Notwithstanding anything herein to the
contrary, the Company may withhold delivery of share certificates pending the
resolution of any inquiry that could lead to a determination resulting in
forfeiture.
7. Continuation of Employment or Engagement. Neither the Plan nor this
Option shall confer upon Optionee any right to continue in the service of the
Company or limit, in any respect, the right of the Company to discharge the
Optionee at any time in accordance with the terms of Optionee's Employment
Agreement.
8. Withholding. The Company reserves the right to withhold, in
accordance with any applicable laws, from any consideration payable to Optionee
any taxes required to be withheld by federal, state or local law as a result of
the grant or exercise of this Option or the sale or other disposition of the
Shares issued upon exercise of this Option. If the amount of any consideration
payable to the Optionee is insufficient to pay such taxes or if no consideration
is payable to the Optionee, upon the request of the Company, the Optionee (or
such other person entitled to exercise the Option pursuant to Section 3(c)
hereof) shall pay to the Company an amount sufficient for the Company to satisfy
any federal, state or local tax withholding requirements it may incur, as a
result of the grant or exercise of this Option or the sale or other disposition
of the Shares issued upon the exercise of this Option.
9. The Plan. This Option is subject to, and the Company and the
Optionee agree to be bound by, all of the terms and conditions of the Plan as
such Plan may be amended from time to time in accordance with the terms thereof.
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<PAGE>
Pursuant to the Plan, the Board of Directors of the Company is authorized to
adopt rules and regulations not inconsistent with the Plan as it shall deem
appropriate and proper. A copy of the Plan in its present form is available for
inspection during business hours by the Optionee or the persons entitled to
exercise this Option at the Company's principal office.
10. Entire Agreement. This Agreement, together with the Plan and the
other exhibits attached thereto or hereto, represents the entire agreement
between the parties.
11. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Delaware.
12. Amendment. Subject to the provisions of the Plan, this Agreement
may only be amended by a writing signed by each of the parties hereto.
DATE: December 19, 1997 NETVALUE, INC.
By: /s/ Michael A. Clark
-------------------------------
Michael A. Clark, President
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<PAGE>
ACKNOWLEDGMENT
The Optionee acknowledges receipt of a copy of the Plan, a copy of
which is attached hereto, and represents that he has read and is familiar with
the terms and provisions thereof, and hereby accepts this Option subject to all
of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board of
Directors or the Committee upon any questions arising under the Plan.
DATE:________________________ ___________________________________
Optionee: CRAIG BARNETT
___________________________________
Address
___________________________________
City, State, Zip
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON THE EXERCISE
OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE, TRANSFER OR DISTRIBUTION THEREOF. NO SUCH SALE,
TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO OR A SATISFACTORY OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
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<PAGE>
Exhibit 10.6
MARK BRAUNSTEIN
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated this 19th day of
December, 1997 is made by and between MARK BRAUNSTEIN ("Braunstein") and
NETVALUE, INC. (formerly known as VSQUARED, Inc., formerly known as COL
Acquisition Corp.), a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, Braunstein entered into a Consulting Agreement with the
Company dated September 18, 1996 (the "Consulting Agreement") pursuant to which
he agreed to render certain consulting services to the Company;
WHEREAS, Braunstein and the Company have agreed to enter into an
Employment Agreement to be effective as of October 1, 1997 (the "Effective
Date"), which Employment Agreement shall supersede and make null and void the
Consulting Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and agreements herein contained, and intending to be legally bound,
Braunstein and the Company hereby agree as follows:
1. Position. The Company agrees to employ Braunstein and Braunstein
agrees to serve the Company during the term hereof as Vice President of Local
Market Development, or in such other executive position as may be mutually
agreed upon by Braunstein and the Company. Braunstein shall be furnished with
such facilities and services as are suitable to his position and adequate for
the performance of his duties.
2. Duties. Braunstein agrees to assume such duties and responsibilities
as may be consistent with the position specified in Section 1 hereof, and as may
be assigned to Braunstein by the Board and in accordance with the by-laws of the
Company from time to time. Braunstein agrees to devote his best efforts and such
time, skill, attention and energies as are necessary to the performance of his
duties and responsibilities under this Agreement, consistent with practices and
policies established from time to time by the Company's Board of Directors.
3. Term. The term of this Agreement shall commence as of the Effective
Date and shall continue for successive one (1) year terms, unless otherwise
<PAGE>
terminated by either party in accordance with the provisions of Section 5
hereof.
4. Compensation.
4.1. Salary and Commission.
(i) For the period commencing on the Effective Date
and ending September 30, 1998 ("Year 1"), the Company shall pay Braunstein a
salary of Eighty Five Thousand Dollars ($85,000.00) (the "Starting Salary"). The
Starting Salary shall be paid by the Company to Braunstein in accordance with
the Company's normal payment practices (but not less frequently than bi-weekly).
In addition, during Year 1, the Company shall pay Braunstein a commission (the
"Year 1 Commission") as follows:
Year 1 Commission = 0.125 x (GR-COGS-COS-NRD)
where
GR = the gross revenues of the Company directly
attributable to the sales of the Company's products
and services in Local Markets Business Unit, as that
term is defined, from time to time, by the Company.
COGS= the cost of the goods sold to produce GR as
determined by the Company in accordance with
generally accepted accounting principles.
COS = the cost of the sales associated with GR including,
but not limited to, administrative and marketing
expenses as determined by the Company in accordance
with generally accepted accounting principles.
NRD = that part of GR attributable to non-recurring sales,
as determined by the Company, multiplied by a
fraction, the numerator of which is the number of
months over which GR is determined and the
denominator of which is 36. For any time period for
which NRD is calculated for purposes of this
Agreement, an amount equal to the non-recurring sales
of that time period less NRD shall be included in the
non-recurring sales of the subsequent time period for
which NRD is calculated for purposes of this
Agreement.
(Hereinafter, the amount represented by GR-COGS-COS-NRD for any given time
period shall be referred to as "Local Market Net Revenues").
(ii) After Year 1, the Company shall pay Braunstein
commissions only, without guaranteed salary, in accordance with this Section
4.1. For the one-year period commencing the day
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<PAGE>
after the end of the Year 1 ("Year 2"), the one-year period commencing the day
after the end of Year 2 ("Year 3"), the one-year period commencing the day after
the end of Year 3 ("Year 4") and each one year period thereafter (the "Going
Forward Years"), the Company shall pay Braunstein commissions (the "Year 2
Commission," "Year 3 Commission," "Year 4 Commission" and "Going Forward Years
Commissions", collectively, the "Earned Commissions") as follows:
Year 2 Commission = 0.10 x Local Market Net Revenues
Year 3 Commission = 0.075 x Local Market Net Revenues
Year 4 Commission = 0.064 x Local Market Net Revenues
Going Forward Years Commissions = 0.025 x Local Market Net Revenues
(iii) The Company shall pay Braunstein a draw against the Year
1 Commission equal to Fifteen Thousand Dollars ($15,000) and draws against each
of the Year 2 Commission, the Year 3 Commission, the Year 4 Commission, and the
Going Forward Years Commissions equal to Eighty Five Thousand Dollars
($85,000.00) (the "Draws"). The Draws shall be paid by the Company to Braunstein
in accordance with the Company's normal payment practices (but not less than
bi-weekly). In the event that Braunstein's level of sales production materially
decreases or the economic condition or prospects of the Company materially
deteriorates to the point where the Company is not meeting payroll, the amount
of the Draws may be adjusted from time to time at the Company's reasonable
discretion. Periodically, as set forth below, the Company shall pay to
Braunstein an amount equal to the Earned Commissions for that period less any
Draws for that same period (the "Periodic Payment"). The first Periodic Payment
shall be calculated as of June 30, 1998 and paid within two weeks thereafter.
Subsequent calculations of Periodic Payments shall be performed quarterly on
September 30, December 31, March 31, and June 30 of each subsequent one year
period with payments of these Periodic Payments to be made within two weeks of
the calculation thereof. In the event that the Draw is greater than the Earned
Commission for any given period, then such difference shall be considered to
have been paid as a Draw for the subsequent period. The computation of the
Earned Commission shall be performed solely by the Company; provided, however,
Braunstein shall have the right, upon reasonable notice to the Company, to
examine all work papers used to compute the Earned Commissions and to submit
such work papers, at Braunstein's expense, to an independent and mutually agreed
upon third party for review. Subject to the terms of this Agreement, in the
event that this Agreement is terminated for any reason, the Company shall make
all payments earned and due to Braunstein hereunder as of the date of such
termination, including any amounts earned but not yet payable, and neither party
shall have any further obligations or liability to the other party under this
Agreement except as otherwise provided herein to the contrary.
4.2. Fringe Benefits. Braunstein shall be provided with those
fringe benefits which are to be provided to other similarly situated employees
of the Company.
4.3. Reimbursement of Expenses. Subject to such conditions as
the Board may from time to time reasonably determine, Braunstein shall be
reimbursed upon presentation of vouchers or paid upon presentation of invoices
for reasonable expenses incurred by him in the
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<PAGE>
performance of his duties in carrying out the terms of this Agreement; provided,
however, any expense in excess of $2,500 must be approved in advance by the
President of the Company.
4.4. Employee Stock Options. The Company and Braunstein shall
enter into the Award Agreement attached hereto as Exhibit A on or before the
Effective Date. Such Award Agreement shall govern the terms and conditions of
the stock options to be granted to Braunstein under the terms of the Company's
employee stock option plan.
5. Termination.
5.1. Company. Immediately upon written notice, the Company, by
action of the Board, may terminate this Agreement, at any time for cause solely
in the event of the (i) death or permanent disability of Braunstein; (ii) the
demonstrated continued failure by Braunstein to perform his duties as set forth
herein or as otherwise required by the Board after written demand for
performance is made by the Board, which demand specifically identifies the
manner in which the Board finds there has been a failure to perform; provided,
however, that Braunstein shall be given thirty (30) days to cure any such
failure (if such failure is capable of being cured); (iii) fraud,
misappropriation, embezzlement or other violation of the law or like nature or
severity; (iv) a material breach of this Agreement by Braunstein; provided,
however, that Braunstein shall be given thirty (30) days to cure any such breach
(if such breach is capable of being cured); or (v) willful misconduct of
Braunstein having a material adverse effect on the business or prospects of the
Company; all as may be reasonably determined by the Board. For purposes of this
Agreement, "permanent disability" shall have the same meaning as such phrase is
given under the long term disability program sponsored by the Company or, in the
absence of such policy, as determined by a physician selected by the Company and
reasonably satisfactory to Braunstein or his personal representative. Upon
ninety (90) days advance written notice, the Company may terminate this
Agreement at any time without cause.
5.2. Braunstein. Upon ten (10) days advance written notice,
Braunstein may terminate this Agreement at any time for cause solely in the
event of (i) the assignment to him of any duties materially inconsistent with
his position, duties and responsibilities as of the date of this Agreement; (ii)
a reduction in his compensation under this Agreement; (iii) other material
breach of this Agreement by the Company; or (iv) a demand by the Company that
Braunstein relocate. The right of Braunstein to terminate this Agreement shall
not become effective if the breach by the Company is cured within ten (10) days
after receipt of written notification of such breach from Braunstein. Upon
ninety (90) days advance written notice, Braunstein may terminate this Agreement
at any time without cause.
5.3. Consequences.
(a) In the event that the Company terminates this
Agreement for any cause set forth in Section 5.1 hereof, or in the event
Braunstein terminates this Agreement without cause, all rights of Braunstein
under this Agreement shall terminate as of the date of the termination of this
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<PAGE>
Agreement, but Braunstein shall continue to be bound by the covenant not to
compete as set forth in Section 9 hereof until one (1) year after the date of
such termination.
(b) Except as provided in Section 5.3(c), in the
event that the Company terminates this Agreement without cause, including
pursuant to Section 3 hereof, or in the event that Braunstein terminates this
Agreement for any cause as set forth in Section 5.2 hereof, Braunstein shall
receive an amount equal to two and one-half percent (2.5%) of Local Market Net
Revenues for the two year period subsequent to the termination (the "Severance
Pay"). If, however, the Company terminates this Agreement without cause prior to
September 30, 2001, the Severance Pay shall be calculated based on the
prevailing commission rate set forth in Section 4.1(b) of this Agreement until
September 30, 2001. Such amount shall be paid to Braunstein, net of all
applicable taxes that are required to be withheld, in accordance with procedures
set forth for the payment of Earned Commissions set forth in Section 4 hereof
except that Braunstein will not be paid a Draw against any amounts due under
this Section 5.3(b). In such event, Braunstein shall be treated as an employee
for the period during which he is receiving payments under this Section 5.3(b)
and shall be entitled to participate in the fringe benefit programs under
Section 4.2 for the duration of such period, notwithstanding that any of such
benefits were provided on a group basis prior to such termination. Braunstein
shall continue to be bound by the covenant not to compete set forth in Section 8
hereof during the Severance Period. For purposes of this Section 5.3(b) only,
the death or disability of Braunstein shall be treated as a termination by the
Company without cause.
(c) The compensation payable to Braunstein or his
estate or legal representative under any paragraph of this Section 5.3 shall be
in addition to any benefits payable in accordance with Section 4.2 hereof, but
shall be in lieu of other compensation ordinarily paid by the Company upon the
termination, death or disability of a senior officer of the Company.
(d) Notwithstanding anything in this Section 5.3 to
the contrary, in the event that this Agreement is terminated prior to September
30, 1998 by the Company, with or without cause, or by Braunstein, Braunstein
will still receive the Starting Salary set forth in Section 4.1(a) of this
Agreement.
6. Company Property. All materials, information and data of any kind
furnished by the Company to Braunstein or developed by Braunstein on behalf of
the Company or at the Company's direction or for the Company's use or otherwise
in connection with Braunstein's employment hereunder, are and shall remain the
sole and confidential property of the Company. In the event that the Company
requests the return of such materials at any time during the term of this
Agreement or at or after the termination of this Agreement, Braunstein shall
immediately deliver such material to the Company.
7. Confidentiality. During the term of this Agreement and at all times
thereafter, Braunstein shall not use for his personal benefit, or disclose,
communicate or divulge to, or use for the direct or indirect benefit of any
person or entity other than the Company, any material referred to in Section 7
above or any information regarding the business methods or policies, procedures,
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<PAGE>
techniques, projects, trade secrets or other confidential knowledge relating to
the Company, its business or activities.
8. Non-Compete. During the term of this Agreement and for one (1) year
thereafter (or during the Severance Period in the case of Braunstein's
termination by the Company without cause or by Braunstein for any cause set
forth in Section 5.2), Braunstein agrees that he shall not (a) engage or be
interested in or receive any compensation from any business that competes
directly with the Company or its affiliates or (b) induce or attempt to induce
any employee, agent or customer of the Company or any of its affiliates to
terminate or reduce the scope of his, her or its relationship with the Company
or one of its affiliates. For the purposes of this Agreement, Braunstein shall
be deemed to be interested in a business if he is engaged or interested in that
business as a stockholder, director, officer, employee, salesman, sales
representative, agent, broker, partner, individual proprietor, lender,
consultant or otherwise, but not if that interest is limited solely to the
ownership of five percent (5%) or less of any class of the equity or debt
securities of a corporation whose shares are listed for trading on a national
securities exchange or traded in the over-the-counter market or ownership of
five percent (5%) or less of any private company if such ownership of the
private company is acquired by Braunstein by way of inheritance or gift.
Braunstein shall not, directly or indirectly, engage in any other business
enterprise, or have an interest, financial or otherwise, in any other business
enterprise which interferes or is likely to interfere with Braunstein's
employment hereunder.
9. Equitable Relief. Braunstein acknowledges and agrees that the
Company may seek to enforce the covenants and restrictions pertaining to his
obligations in Sections 7, 8 and 9 hereof at law or in equity. The covenants and
restrictions pertaining to Braunstein's obligations in Sections 7, 8 and 9
hereof shall remain in full force and effect, notwithstanding the fact that this
Agreement has been terminated. If a court determines that the restrictions in
Section 9 are too broad or otherwise unreasonable under applicable law,
including with respect to time or geographical scope, the court is hereby
requested and authorized by the parties hereto to revise the foregoing
restrictions to include the maximum restriction allowable under the applicable
law. If Braunstein violates any of the restrictions contained in Section 9, the
restrictive period shall not run in favor of Braunstein from the time of the
commencement of any such violation until such time as such violation shall be
cured by Braunstein to the satisfaction of the Company.
10. Prior Agreements. Braunstein represents and warrants to the Company
that there are no restrictions, agreements or understandings of any kind
whatsoever to which Braunstein is a party, or by which he is bound, which would
inhibit, prevent or make unlawful his execution or performance of this
Agreement, and that his execution and performance of this Agreement shall not
constitute a breach of any contract, agreement or understanding, whether oral or
written, to which he is a party or by which he is bound. Braunstein further
represents and warrants that the Consulting Agreement is null and void.
11. Acknowledgment. Braunstein hereby acknowledges and certifies that
he has read the terms of this Agreement, that he has been informed by the
Company that he should discuss it with an attorney of his choice, and that he
understands it terms and effects. Braunstein further acknowledges that based on
his training and experience, he has the capacity to earn a livelihood by
performing services as an employee or otherwise in a business that does not
violate the provisions of Section 9.
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<PAGE>
Neither the Company, Braunstein nor their respective agents, representatives or
attorneys have made any representations to the other concerning the terms or
effects of this Agreement other than those contained herein.
12. Assignment. Without the prior written consent of the Company,
Braunstein shall have no right to exchange, convert, encumber or dispose of his
rights to receive benefits and payments under this Agreement, which payments,
benefits and rights thereto are non-assignable and non-transferrable. In the
event of any attempted assignment or transfer, Braunstein shall forfeit his
rights to receive any payments or benefits, and the Company shall have no
further liability under this Agreement.
13. Entire Agreement. This Agreement constitutes the entire
understanding between the parties with respect to the subject matter contained
herein and supersedes any prior understandings and agreements between them
respecting such subject matter. Specifically, by executing this Agreement, the
Consulting Agreement shall become null and void and any rights and obligations
existing thereunder shall cease.
14. Headings. The headings describing the provisions of this Agreement
are for convenience of reference only, and shall not affect its interpretation.
15. Severability. If any provision of this Agreement is held illegal,
invalid or unenforceable, such illegality, invalidity, or unenforceability shall
not affect any other provision hereof. Such provision and the remainder of this
Agreement shall, in such circumstances, be modified to the extent necessary to
render enforceable the remaining provisions hereof.
16. Notices. All notices shall be in writing and shall be deemed to
have been given if presented personally, sent by recognized national overnight
carrier, or sent by certified or registered mail, postage prepaid, return
receipt requested, to the following addressees:
If to the Company:
netValue, Inc.
One Stamford Landing
Stamford, Connecticut 06901
Attention: Michael A. Clark, President
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<PAGE>
With a copy to:
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
1401 Walnut Street
Philadelphia, PA 19102
Attention: Michael C. Forman, Esquire
If to Braunstein:
Mark Braunstein
405 East 54th Street, #11H
New York, NY 10022
Notice of any change in such addresses shall also be given in the manner set
forth above. Whenever the giving of notice is required, the giving of such
notice may be waived by the party entitled to receive such notice.
17. Counterparts. This Agreement may be executed in counterparts, all
of which taken together shall constitute one and the same instrument.
18. Waiver. The failure of either party to insist upon strict
performance of any of the terms or conditions of this Agreement shall not
constitute a waiver of any of its rights hereunder.
19. Successors and Assigns. This Agreement binds, inures to the benefit
of, and is enforceable by Braunstein and his heirs and personal representatives,
and the Company and its successors and permitted assigns, and does not confer
any rights on any other persons or entities. The duties, obligations, rights and
responsibilities of Braunstein under this Agreement are personal and shall not
be assigned by Braunstein without the prior written consent of the Company, as
set forth in Section 7 hereof.
20. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware.
21. Amendments. This Agreement may be amended and supplemented only by
a written instrument duly executed by both parties.
22. Joint Participation in Drafting. Each party to this Agreement
participated in the drafting of this Agreement. As such, the language used
herein shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction will be applied
against any party to this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and date first above written.
/s/ Mark Braunstein
-------------------------------------
MARK BRAUNSTEIN
NETVALUE, INC.
BY: /s/ Michael A. Clark
---------------------------------
Michael A. Clark
President
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<PAGE>
EXHIBIT A TO MARK BRAUNSTEIN EMPLOYMENT AGREEMENT
NON-QUALIFIED STOCK OPTION AGREEMENT
netValue, Inc. (the "Company") hereby grants to Mark Braunstein (the
"Optionee") an option to purchase shares of Common Stock (the "Shares") of the
Company, at the price set forth herein subject to the terms set forth herein,
and in all respects subject to the terms and provisions of the netValue, Inc.
1996 Non-Qualified Stock Option Plan (as amended, the "Plan")], which terms and
provisions are hereby incorporated by reference herein. Unless the context
herein otherwise requires, the terms defined in the Plan shall have the same
meanings herein.
1. Nature of the Option. This Option is intended to be a nonstatutory
stock option and is not intended to be an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or to otherwise qualify for any special tax benefits to the Optionee.
2. Date of Grant; Term of Option. This Option is granted as of the 19th
day of December, 1997, and, subject to the specific terms contained herein, may
not be exercised later than the fifth anniversary of the Vesting Event (as
hereinafter defined) with respect to such Option.
3. Option Exercise Price and Vesting. Subject to the terms and
conditions herein set forth and set forth in the Plan, the Company hereby grants
to Optionee an option to purchase an aggregate number of Shares of the Company
at the option price as follows:
(a) An option to purchase a total of 60,000 Shares at the
exercise prices set forth below. This Option shall vest and become exercisable
in annual installments, the Optionee having the right hereunder to purchase from
the Company, on and after the following dates (each such vesting period being
hereinafter referred to as a "Vesting Year" and each such date being hereinafter
referred to as a "Vesting Event"), the following number of Shares:
July 1, Shares Exercise Price
------- ------ --------------
1997 15,000 $ .80
1998 15,000 $4.00
1999 15,000 $5.00
2000 15,000 $6.00
(b) Notwithstanding the vesting and exercisability of any
Option granted hereunder, without the prior written consent of the Company,
Optionee may not sell, transfer, gift, pledge, hypothecate, assign or otherwise
dispose of any Shares issuable thereunder or any right or interest therein
granted under this Section 3, whether voluntary, by operation of law or
otherwise, prior to the second anniversary of the Grant Date.
(c) In the event that the Optionee's employment with
the Company is terminated:
<PAGE>
(i) by the Company for cause (other than death or
disability) as set forth in Section 5.1 of Optionee's Employment Agreement, then
Optionee shall be entitled, for a period of one (1) year from the effective date
of such termination, to exercise all Options which have vested and become
exercisable pursuant to the provisions of Section 3 hereof, prior to the
effective date of such resignation. All Options not so exercised shall
terminate.
(ii) (A) by the Company without cause or (B) by
reason of the Optionee's death or disability, the Optionee (or, in the case of
Optionee's death, the Optionee's estate or a person who acquired the right to
exercise this Option by bequest or inheritance, or, in the case of disability,
by the Optionee or his legal guardian or representative, as applicable) shall be
entitled, for a period of five (5) years from the effective date of such
termination (the "Post-Termination Exercise Period"), to exercise (x) all
Options which have vested and become exercisable pursuant to the provisions of
Section 3 hereof, prior to the effective date of such resignation and (y) a
number of Options equal to the number of Options which would have vested and
become exercisable on the Vesting Date following the effective date of such
termination divided by the number of months (including partial months) in the
Vesting Period that Optionee was employed by the Company (the "Pro Rata
Options"). All Options not so exercised shall terminate.
4. Exercise of Option. This Option shall be exercisable during its term
only in accordance with the terms and provisions of the Plan and this Option as
follows:
(a) Method of Exercise. This Option shall be exercisable by
written notice which shall state the election to exercise this Option, the
number of Shares in respect to which this Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such Shares as may be required by the Company hereunder or pursuant
to the provisions of the Plan. Such written notice shall be signed by the
Optionee and shall be delivered in person or by certified mail to the Secretary
of the Company or such other person as may be designated by the Company. The
written notice shall be accompanied by payment of the purchase price along with
any other agreements as the Company may require. Payment of the purchase price
shall be by check or such consideration and method of payment authorized by the
Board pursuant to the Plan. The certificate or certificates for the Shares as to
which the Option shall be exercised shall be registered in the name of the
Optionee and shall be legended as required under this Agreement, the Plan,
and/or applicable law.
(b) Restrictions on Exercise. This Option may not be exercised
if the issuance of the Shares upon such exercise would constitute a violation of
any applicable federal or state securities laws or other laws or regulations. As
a condition to the exercise of this Option, the Company may require the Optionee
to make any representation and warranty to the Company as may be required by any
applicable law or regulation, provided that such representation and warranty
shall not alter Optionee's right to sell any of the Shares, subject, however, to
customary and reasonable holdbacks in connection with any public sale of the
Company's Common Stock as reasonably required by the Company's underwriter(s).
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<PAGE>
5. Investment Representations. Unless the Shares have been registered
under the Securities Act of 1933, as amended, in connection with the acquisition
of this Option, the Optionee represents and warrants as follows:
(a) The Optionee is acquiring this Option, and upon exercise
of this Option, he will be acquiring the Shares for investment for his own
account, not as a nominee or agent, and not with a view to, or for resale in
connection with, any distribution thereof.
(b) The Optionee has a preexisting business or personal
relationship with the Company or one of its directors, officers or controlling
persons and by reason of his business or financial experience, has, and could be
reasonably assumed to have, the capacity to protect his interests in connection
with the acquisition of this Option and the Shares.
6. Forfeiture of Option. Notwithstanding any other provision of this
Option, if, in the sole determination of the Board of Directors, the Optionee
(i) has disclosed trade secrets or confidential information of the Company in
contravention of Section 8 of Optionee's Employment Agreement, or (ii) has
breached any agreement with the Company in respect of confidentiality,
nondisclosure, noncompetition or otherwise, all unexercised Options shall
terminate as of the date of such determination. In the event of such a
determination, in addition to immediate termination of all unexercised Options,
the Optionee shall forfeit all Option shares for which the Company has not yet
delivered share certificates to the Optionee and the Company shall refund to the
Optionee the Option price paid to it. Notwithstanding anything herein to the
contrary, the Company may withhold delivery of share certificates pending the
resolution of any inquiry that could lead to a determination resulting in
forfeiture.
7. Continuation of Employment or Engagement. Neither the Plan nor this
Option shall confer upon Optionee any right to continue in the service of the
Company or limit, in any respect, the right of the Company to discharge the
Optionee at any time in accordance with the terms of Optionee's Employment
Agreement.
8. Withholding. The Company reserves the right to withhold, in
accordance with any applicable laws, from any consideration payable to Optionee
any taxes required to be withheld by federal, state or local law as a result of
the grant or exercise of this Option or the sale or other disposition of the
Shares issued upon exercise of this Option. If the amount of any consideration
payable to the Optionee is insufficient to pay such taxes or if no consideration
is payable to the Optionee, upon the request of the Company, the Optionee (or
such other person entitled to exercise the Option pursuant to Section 3(c)
hereof) shall pay to the Company an amount sufficient for the Company to satisfy
any federal, state or local tax withholding requirements it may incur, as a
result of the grant or exercise of this Option or the sale or other disposition
of the Shares issued upon the exercise of this Option.
9. The Plan. This Option is subject to, and the Company and the
Optionee agree to be bound by, all of the terms and conditions of the Plan as
such Plan may be amended from time to time in accordance with the terms thereof.
Pursuant to the Plan, the Board of Directors of the Company is authorized to
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<PAGE>
adopt rules and regulations not inconsistent with the Plan as it shall deem
appropriate and proper. A copy of the Plan in its present form is available for
inspection during business hours by the Optionee or the persons entitled to
exercise this Option at the Company's principal office.
10. Entire Agreement. This Agreement, together with the Plan and the
other exhibits attached thereto or hereto, represents the entire agreement
between the parties.
11. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Delaware.
12. Amendment. Subject to the provisions of the Plan, this Agreement
may only be amended by a writing signed by each of the parties hereto.
DATE: December 19, 1997 NETVALUE, INC.
By: /s/ Michael A. Clark
---------------------------------
Michael A. Clark, President
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<PAGE>
ACKNOWLEDGMENT
The Optionee acknowledges receipt of a copy of the Plan, a copy of
which is attached hereto, and represents that he has read and is familiar with
the terms and provisions thereof, and hereby accepts this Option subject to all
of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board of
Directors or the Committee upon any questions arising under the Plan.
DATE:___________________________ ___________________________________
Optionee: MARK BRAUNSTEIN
____________________________________
Address
____________________________________
City, State, Zip
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON THE EXERCISE
OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE, TRANSFER OR DISTRIBUTION THEREOF. NO SUCH SALE,
TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO OR A SATISFACTORY OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
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<PAGE>
Exhibit 10.7
CONVERSION AGREEMENT
This Conversion Agreement (the "Agreement") is made as of November 14,
1997 between VDC Corporation Ltd., a Bermuda corporation with its principal
executive office at Bermuda Commercial Bank Building, 44 Church Street, Hamilton
HM 12 Bermuda ("VDC"), and netValue, Inc., a Delaware Corporation with its
principal executive office at One Stamford Landing, Stamford, Connecticut 06901
(the "Company").
WITNESSETH
WHEREAS, the Company is indebted to VDC for various loans and
extensions of credit in the aggregate principal amount of Two Million Four
Hundred Thousand Dollars ($2,400,000.00) (the "Debt") as evidenced by a
Promissory Note dated January 17, 1997 (the "Note");
WHEREAS, the Company is indebted to VDC for interest accrued on various
loans and extensions of credit through November 14, 1997 in the aggregate amount
of $178,301.37 (the "Accrued Interest").
WHEREAS, in connection with the Company's incurrence of the Debt, it
granted to VDC continuing liens on and a security interest in the Collateral (as
defined in the Loan Agreement referenced herein) as evidenced by a Loan and
Security Agreement, dated January 17, 1997 (the "Loan Agreement");
WHEREAS, in connection with the Company's incurrence of the Debt, it
assigned to VDC all of the Company's rights to and interests in its Patent and
Trademark Collateral (as defined in the Assignment Agreements referenced herein,
and collectively with the Collateral, the "Property"), as evidenced by a Patent
Collateral Assignment and Security Agreement, dated January 17, 1997, and a
Trademark Security and Pledge Agreement, dated January 17, 1997 (collectively,
the "Assignment Agreements"); and
WHEREAS, the parties desire to cancel and convert the Debt and the
Accrued Interest through November 14, 1997 into equity securities of the Company
to be issued to VDC and to release the liens and security interests held by VDC
on the Property, all on the terms set forth herein.
NOW, THEREFORE, with the foregoing background deemed incorporated
hereinafter by this reference and hereby made a part hereof, and in
consideration of the promises and the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound hereby,
further covenant and agree as follows:
<PAGE>
I. CONVERSION OF DEBT
1.1 Simultaneously with the execution hereof (the "Effective Time"),
the Debt shall be canceled and converted into 3,000,000 shares of the Company's
common stock, par value $.001 per share (the "Common Stock") and the Accrued
Interest through November 14, 1997 shall be canceled and converted into 222,877
shares of Common Stock (collectively, the "Shares").
1.2 At the Effective Time, VDC shall deliver the Notes to the Company
for cancellation and, in exchange therefor, the Company shall issue certificates
evidencing the Shares.
II. RELEASE OF LIENS
At the Effective Time, all liens held by VDC pursuant to the terms of
the Loan Agreements and the Assignment Agreements and the Loan Agreements and
the Assignment Agreements themselves shall be terminated. In connection
therewith, VDC shall assist the Company in taking all necessary action to
release all liens VDC holds against the Property, including, without limitation,
filing a Statement-Termination on Form UCC-3 and any necessary forms with the
United States Patent and Trademark Office.
III. RELEASE FROM INTERCREDITOR AGREEMENT
In connection with this Agreement, the Company and VDC shall take any
and all necessary action to cancel the Intercreditor Agreement between VDC and
Golden Eagle Partners ("Golden Eagle"), dated June 17, 1997, including, without
limitation, taking all reasonable action to ensure Golden Eagle's execution of
the Termination Letter attached hereto as Exhibit B.
IV. LOCK-UP OF THE SHARES
All shares of Common Stock owned by VDC, including those previously
issued to VDC by the Company and the 3,000,000 shares that will be issued in
conversion of the Debt and the 222,877 shares that will be issued in conversion
of the Accrued Interest pursuant to this Conversion Agreement, will be subject
to a one year lock-up commencing on the effective date of the registration
statement related to the initial public offering of the Company's Common Stock
and VDC will take all required actions to accomplish the foregoing.
V. MISCELLANEOUS
5.1 This Agreement shall be governed by Delaware law without regard to
principles of conflicts of laws. This Agreement contains the entire agreement
between the parties hereto, and may only be modified by a writing signed by both
parties.
5.2 Any notices or consents required or permitted by this Agreement
shall be in writing and shall be delivered in person, or by commercial courier
against receipt or if sent by certified mail,
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<PAGE>
postage prepaid, return receipt requested, to the address for each party written
above, unless such address is changed by written notice hereunder.
5.3 This Agreement, and the documents executed and delivered pursuant
hereto, constitute the entire agreement between the parties, and may be amended
only by a writing signed on behalf of each party.
5.4 Neither this Agreement nor the rights of either party hereunder may
be assigned by a party.
5.5 All of the understandings, agreements, representations, and
warranties contained herein are solely for the benefit of the Company and VDC
and there are no other parties (other than Golden Eagle in connection with the
Intercreditor Agreement) who are intended to be benefited by this Agreement.
5.6 The headings of any paragraph or section of this Agreement are for
convenience only and shall not be used to interpret any provision of this
Agreement.
5.7 This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute but one and the same instrument, and may be executed by facsimile.
IN WITNESS WHEREOF, the parties hereto have duly executed and exchanged
this Conversion Agreement as of the date first written above.
NETVALUE, INC.
By: /s/ Michael A. Clark
--------------------------------
Michael A. Clark
President
VDC CORPORATION LTD.
By: /s/ Graham Ferguson Lacey
--------------------------------
Graham Ferguson Lacey
President
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<PAGE>
Exhibit 10.8
netValue, Inc.
One Stamford Landing
Stamford, Connecticut 06901
December 1, 1997
American Maple Leaf Financial Corporation
401 City Line Avenue
Bala Cynwyd, Pennsylvania 19004
Attention: Andrew Panzo
Re: Accounts Payable
Dear Andrew:
As you are aware, American Maple Leaf Financial Corporation ("AML") has
advanced $1,001,000 in short term bridge financing to netValue, Inc. (the
"Company")(the "Financing"). As previously agreed and as additional
consideration for the advance of the Financing and the consensual forbearance by
AML relating thereto, the Company hereby agrees to issue 190,200 shares of
Common Stock to AML.
These shares of Common Stock will not have any registration rights.
Very truly yours,
/s/ Michael A. Clark
------------------------------------
Michael A. Clark, President
<PAGE>
Exhibit 10.9
netValue, Inc.
One Stamford Landing
Stamford, Connecticut 06901
December 1, 1997
Golden Eagle Partners
100 Front Street, Suite 1410
West Conshohocken, Pennsylvania 19428
Attention: John F. McGlinn II, President
Re: Repayment of $250,000 Bridge Loan
Dear John:
As you are aware, netValue, Inc. (the "Company") is currently indebted
to Golden Eagle Partners ("Golden Eagle") in the principal amount of $250,000
(the "Principal") and in the amount of $11,369.97 for interest accrued through
November 30, 1997 (such total, as calculated through the date of repayment, the
"Accrued Interest"), for certain short term bridge financing advanced by Golden
Eagle to the Company (the "Financing").
This letter will serve to evidence the agreement between us as to the
repayment of the Financing.
1. Within five business days of the Company's receipt of proceeds from
its initial public offering of Common Stock (the "IPO"), the Company will repay
to Golden Eagle the Principal and the Accrued Interest related to the Financing.
2. Upon execution of this agreement, each of the following agreements
or sections of agreements shall be deemed to be null and void:
a. The letter agreement between the Company and Golden Eagle dated
November 14, 1997 and executed by Golden Eagle on November 24, 1997.
b. Sections 8 and 9 of the Loan and Security Agreement between the
Company and Golden Eagle, executed on June 17, 1997, regarding conversion rights
and registration rights granted to Golden Eagle.
<PAGE>
3. Golden Eagle will take the required actions to cancel the
Intercreditor Agreement it has executed with VDC Corporation ("VDC") and will
consent to the Company's repayment of all amounts currently owed to VDC.
4. As consideration for canceling the agreements described in paragraph
2 hereof, upon completion of the payments described in paragraph 1 hereof, the
Company will issue 10,000 shares of Common Stock to Golden Eagle.
5. Upon repayment of Principal and Accrued Interest, (i) Golden Eagle
will release all claims it has or may have against the Company, including those
relating to the Financing, (ii) Golden Eagle will release all Liens it currently
holds on netValue property pursuant to Section 4 of the Loan and Security
Agreement executed by the parties on June 17, 1997, (iii) Golden Eagle will
return the Note marked satisfied, and (iv) Golden Eagle will execute UCC-3
financing statements as requested by netValue.
Very truly yours,
/s/ Michael A. Clark
------------------------------------
Michael A. Clark, President
Agreed to and accepted this 1st day of December, 1997.
GOLDEN EAGLE PARTNERS
By: Tarbhan Associates, Inc., its general partner
By: /s/ John McGlinn II
--------------------------------------
John McGlinn II, President
-2-
<PAGE>
Exhibit 11
Computation of Earnings/(Loss) Per Share
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1996 September 30, 1997
----------------- ------------------
(Pro Forma)
<S> <C> <C>
Net loss used for loss per share amounts (3,314,094) (6,811,065)
=========== ===========
Weighted average number of common shares 3,739,236 6,686,014
outstanding
* Add (deduct) incremental shares representing:
Shares issued as Cheap Stock 3,695,087 3,695,087
Shares issuable upon exercise of Cheap
Stock Warrants and Options 489,760 489,760
------------ -----------
Weighted average number of shares used
in calculation of fully diluted net loss per
common share 7,924,083 10,870,861
============ ===========
Net loss per common share (.42) (.63)
============ ===========
</TABLE>
* Under the treasury stock method, common stock, warrants and options issued for
consideration that is less than the IPO price ("Cheap Stock, Warrants and
Options") and within the 12 months preceding the filing of the Registration
Statement on Form S-1 is considered to have been issued and outstanding for the
entire reported period.
<PAGE>
Exhibit 24
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our report
included in or made part of this Registration Statement.
LJ SOLDINGER ASSOCIATES
Arlington Heights, Illinois
December 30, 1997
