<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 1997
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
NEI WEBWORLD, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 2752 75-2524630
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
4647 BRONZE WAY
DALLAS, TEXAS 75236
(214) 330-7273
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MR. RICHARD J. WIENCEK
PRESIDENT
NEI WEBWORLD, INC.
4647 BRONZE WAY
DALLAS, TEXAS 75236
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
CROUCH & HALLETT, L.L.P. JACKSON & WALKER, L.L.P.
717 NORTH HARWOOD, SUITE 1400 901 MAIN STREET, SUITE 6000
DALLAS, TEXAS 75201 DALLAS, TEXAS 75202
ATTN: BRUCE H. HALLETT ATTN: RICHARD F. DAHLSON
(214) 953-0053 (214) 953-5896
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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- -----------------------------------------------------------------------------------------------
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED(1) REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value.................. 1,150,000(2) $ 7.50 $ 8,625,000 $2,614
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Common Stock Purchase
Warrant................ 1,150,000(3) $ .125 (8) (8)
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Common Stock, issuable
under Warrants(4)...... 1,150,000 $11.25 $12,937,500 $3,921
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Representative's Common
Stock(5)............... 115,000 $ 9.00 $ 1,035,000 $ 314
- -----------------------------------------------------------------------------------------------
Representative's Common
Stock Purchase
Warrants(6)............ 115,000 $ .150 (8) (8)
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Representative's Common
Stock issuable under
Representative's Common
Stock Purchase
Warrant(7)............. 115,000 $13.50 $ 1,552,500 $ 471
- -----------------------------------------------------------------------------------------------
TOTAL................... $7,320
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- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the amount of the
registration fee pursuant to Rule 457 under the Securities Act of 1933, as
amended.
(2) Includes 150,000 Shares of Common Stock issuable pursuant to the
Representative's over-allotment option.
(3) Includes 150,000 Warrants issuable pursuant to the Representative's over-
allotment option.
(4) Represents shares of Common Stock issuable upon exercise of the Warrants
registered hereby together with such additional indeterminate number of
shares as may be issued upon exercise of such Warrants by reason of the
anti-dilution provisions contained therein.
(5) Represents shares of Common Stock issuable upon exercise of the
Representative's Warrant, together with such additional indeterminate
number of shares of Common Stock as may be issued upon exercise of such
Representative's Warrant by reason of the anti-dilution provisions
contained therein.
(6) Represents Common Stock Purchase Warrants issuable upon exercise of the
Representative's Warrant, together with such additional indeterminate
number of Warrants as may be issued upon exercise of such Representative's
Warrant.
(7) Represents shares of Common Stock issuable upon exercise of the Common
Stock Purchase Warrants included within the Representative's Warrant,
together with such additional indeterminate number of shares of Common
Stock as may be issued upon exercise of such Warrants by reason of the
anti-dilution provisions contained therein.
(8) Pursuant to Rule 416 of the Securities Act of 1933, no separate
registration fee is required because the Common Stock underlying the
Common Stock Purchase Warrants is being registered in the same
registration statement.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<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 MARCH 10, 1997
[LOGO]
1,000,000 SHARES OF COMMON STOCK
1,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
-----------
NEI WebWorld, Inc. (the "Company") is offering 1,000,000 shares of Common
Stock, $.01 par value per share (the "Common Stock"), and 1,000,000 Redeemable
Common Stock Purchase Warrants (the "Warrants"). The Common Stock and the
Warrants (collectively, the "Securities") are being offered separately and not
as units, and each are separately transferable. Prior to this Offering, there
has been no public market for the Common Stock and the Warrants. It is
estimated that the initial public offering price will be between $6.50 and
$7.50 per share for the Common Stock (the "Share Offering Price") and $.125 per
Warrant.
Each Warrant entitles the holder to purchase one share of Common Stock at a
price of $ per share (150% of the Share Offering Price) during the five-year
period commencing on the date of this Prospectus. The Warrants are redeemable
by the Company for $.05 per Warrant on not less than 30 nor more than 60 days
written notice if the closing price for the Common Stock for seven trading days
during a 10 consecutive trading day period ending not more than 15 days prior
to the date that the notice of redemption is mailed equals or exceeds $ per
share (200% of the Share Offering Price), subject to adjustment under certain
circumstances and provided there is then a current effective registration
statement under the Securities Act of 1933, as amended (the "Act"), with
respect to the issuance and sale of Common Stock upon the exercise of the
Warrants. Any redemption of the Warrants during the one-year period commencing
on the date of this Prospectus shall require the written consent of First
London Securities Corporation, the representative of the Underwriters (the
"Representative"). See "Description of Securities."
Prior to this Offering, there has been no public market for the Common Stock
or the Warrants. The initial public offering prices of the Common Stock and
Warrants and the exercise price and other terms of the Warrants have been
determined through negotiations between the Company and the Representative and
are not related to the Company's assets, book value, financial condition or
other recognized criteria of value. Although the Company has applied for the
inclusion of the Common Stock and the Warrants on the Pacific Stock Exchange
under the symbols " " and " ," respectively, and on the Nasdaq SmallCap
Market under the symbols " " and " ", respectively, there can be no
assurance that an active trading market in the Company's securities will
develop or be sustained.
-----------
THESE ARE SPECULATIVE SECURITIES, AN INVESTMENT IN THE SECURITIES OFFERED
HEREBY INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION
FROM THE PUBLIC OFFERING PRICE OF THE COMMON STOCK AND SHOULD BE
CONSIDERED ONLY BY INVESTORS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS" ON PAGES 6-11 AND "DILUTION."
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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<CAPTION>
UNDERWRITING DISCOUNTS PROCEEDS TO
PRICE TO PUBLIC AND COMMISSIONS (1) COMPANY (2)(3)
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<S> <C> <C> <C>
Per Share................. $ $ $
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Per Warrant............... $ $ $
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Total(3).................. $ $ $
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</TABLE>
*See Footnotes on following Page
The shares of Common Stock and the Warrants are offered by the Underwriters
on a firm commitment basis, subject to prior sale, when, as and if delivered to
and accepted by the Underwriters, and subject to their right to reject orders
in whole or in part. It is expected that delivery of the certificates for the
shares of Common Stock will be made on or about , 1997.
FIRST LONDON SECURITIES CORPORATION
The date of this Prospectus is , 1997
<PAGE>
- --------
(1) Does not include additional underwriting compensation to be received by
the Representative in the form of (i) a non-accountable expense allowance
equal to 2% of the gross proceeds of this Offering, of which $50,000 has
been paid to date, and (ii) a warrant issued to the Representative (the
"Representative's Warrant") to purchase 115,000 shares of Common Stock and
115,000 warrants exercisable for a five-year period commencing from the
effective date of this Offering at an exercise price of 120% of the
initial offering price of the Shares and Warrants (in each case subject to
adjustment). In addition, the Company has granted to the Representative
certain registration rights with respect to registration of the shares of
Common Stock and the warrants underlying the Representative's Warrant (the
"Underlying Warrants") and the shares of Common Stock issuable upon
exercise of the Underlying Warrants. The Company has agreed to pay the
Representative upon the exercise or redemption of the Warrants a fee equal
to 5% of the gross proceeds received by the Company from the exercise of
the Warrants and 5% of the aggregate redemption price for Warrants
redeemed. The Company has agreed to indemnify the Underwriters against
certain liabilities arising under the Act. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $525,000,
including the Representative's non-accountable expense allowance.
(3) The Company has granted the Representative an option (the
"Representative's Over-Allotment Option"), exercisable within 30 days from
the date of this Prospectus, to purchase on the same terms as the
Securities offered hereby up to 150,000 additional shares of Common Stock
and up to 150,000 additional Warrants solely to cover over-allotments, if
any. If the Representative's Over-Allotment Option is exercised in full,
the total Price to Public, Underwriting Commissions, and Proceeds to
Company will be $ , $ and $ , respectively. See "Underwriting."
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (the "Registration
Statement"), pursuant to the Act with respect to the securities offered by
this Prospectus. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits thereto. THE STATEMENTS
CONTAINED IN THIS PROSPECTUS AS TO THE CONTENTS OF ANY CONTRACT OR OTHER
DOCUMENT IDENTIFIED AS EXHIBITS IN THIS PROSPECTUS ARE NOT NECESSARILY
COMPLETE, AND IN EACH INSTANCE, REFERENCE IS MADE TO A COPY OF SUCH CONTRACT
OR DOCUMENT FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT, EACH STATEMENT
BEING QUALIFIED IN ANY AND ALL RESPECTS BY SUCH REFERENCE. For further
information with respect to the Company and the securities offered hereby,
reference is made to the Registration Statement and exhibits which may be
inspected without charge at the Commission's principal office at Judiciary
Plaza, 450 Fifth Street, NW, Washington, DC 20549.
Upon consummation of this Offering, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and in accordance therewith will file reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at its New York Regional Office, Room 1300, 7 World Trade
Center, New York, New York 10048; and at its Chicago Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material may also be obtained from the
Public Reference Section of the Commission at prescribed rates. The Company's
Registration Statement on Form SB-2 as well as any reports to be filed under
the Exchange Act can also be obtained electronically after the Company has
filed such documents with the Commission through a variety of databases,
including among others, the Commission's Electronic Data Gathering, Analysis
And Retrieval ("EDGAR") program, Knight-Ridder Information, Inc., Federal
Filings/Dow Jones and Lexis/Nexis. Additionally, the Commission maintains a
Website (at http://www.sec.gov) that contains such information regarding the
Company.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and such other reports as the Company
deems appropriate or as may be required by law.
Such requests may be directed to Barry B. Conrad, Chairman of the Board, c/o
NEI WebWorld, Inc., 4647 Bronze Way, Dallas, Texas 75236, telephone number
(214) 330-7273.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OR THE WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE OVER-THE-COUNTER MARKET
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and must be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, (i) all information in this Prospectus assumes no exercise
of the Warrants, the Representative's Over-Allotment Option and the
Representative's Warrant; (ii) all share and per share data have been adjusted
to give effect to a 3.33 for one stock split in March 1997; (iii) all
information in this Prospectus has been adjusted to reflect the conversion of
the outstanding shares of the Company's preferred stock into Common Stock upon
the effective date of this Offering; and (iv) all information in this
Prospectus assumes a public offering price of $7.00 per share of Common Stock
and $.125 per Warrant. All references to the "Company" or "WebWorld" refer to
NEI WebWorld, Inc.
THE COMPANY
WebWorld owns and operates a commercial printing facility and offers pre-
press, printing and post-press services to mid- and large-sized customers in
the Southwestern United States. Through its high production web presses, the
Company offers a broad range of services, including printing magazines,
catalogs, tabloids, inserts and mail wraps on a range of paper stocks. Through
pre-press and post-press production services, the Company provides customers
with services such as converting supplied data and information into printing
plates and stapling, binding, sorting and folding printed materials for mass
mailings. The Company primarily uses high production presses to print materials
which are often mass produced and distributed; for example, the Company prints
the weekly edition of The Dallas Morning News TV Magazine.
WebWorld believes a large part of its success to date has resulted from its
ability to make three strategic acquisitions which increased its printing
capabilities, provided greater purchasing efficiencies and increased operating
efficiencies through overhead reductions as a percentage of sales while
expanding the scope of printing related services offered to its customers. In
1994, the Company acquired the business of Newspaper Enterprises, Inc., which
primarily printed The Dallas Morning News TV Magazine. In 1994 the Company also
acquired certain assets of Computer Language Research, Inc., including three
half-web presses and certain post-production equipment. In September 1996, the
Company purchased two full web presses from The Webworks Inc. ("Webworks"), a
subsidiary of Morris Newspaper Corporation, which has enabled the Company to
increase operating efficiencies by assigning presses to generally run specific
types of paper stock. The three-month period ending December 31, 1996 was the
first quarter to reflect the results of the increased customer growth including
certain customers who previously did business with Webworks. During that
quarter, revenues were $5.5 million compared to $3.8 million in the quarter
ended September 30, 1996 for an increase of 45%.
The Company plans to grow its business through the following expansion
strategy:
. Implement Integrated Commercial Web Press Facility. WebWorld believes
that developing a series of high capacity, integrated web press
facilities capable of servicing the needs of most mid-to-large size
users of commercial printed materials will provide a sustainable,
competitive advantage.
. Strategic Acquisitions. The Company plans to target acquisitions of web
printers which will diversify its customer base, business mix and
geographical coverage. Acquisition targets would generally be required
to have characteristics which would enable rapid consolidation and
integration to existing operations and produce cost savings and overhead
reductions.
. Single-Source Service Provider. WebWorld intends to expand its pre-press
and post-press capabilities to provide a one-stop service for many of
its customers. The Company intends to purchase additional equipment to
expand the Company's post-press production services such as high speed
binding and stitching, ink jetting, in-line finishing and mailing. These
value-added services often produce higher margins than printing alone
and are in demand by high-volume users.
3
<PAGE>
. Develop Direct Marketing. In order to develop long-term relationships
with a broad and diverse customer base, the Company is expanding its in-
house marketing staff. The objective of this program is to produce a
base of recurring printing jobs on a regularly scheduled basis and then
seek higher margin value-added opportunities to utilize additional
capacity. By expanding the in-house marketing efforts, the Company plans
to decrease its historical pattern of using print brokers to fill excess
capacity.
The Company was incorporated in 1993 as a Texas corporation and currently has
over 140 employees. The Company's offices are located at 4647 Bronze Way,
Dallas, Texas 75236, and its telephone number is (214) 330-7273.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered.... 1,000,000 Shares
Warrants Offered........ 1,000,000 Warrants
Common Stock
Outstanding:
Before the Offering... 2,719,778 Shares
After the Offering.... 3,719,778 Shares
Warrants Outstanding:
Before the Offering... None
After the Offering.... 1,000,000
Estimated Net Proceeds.. $5.9 million(1)
Use of Proceeds......... Repay outstanding indebtedness, fund equipment
installation costs
and capital expenditures, and provide additional working
capital. See "Use of Proceeds."
Proposed Trading
Symbols(2):
Pacific Stock
Exchange:
Common Stock........
Warrants............
Nasdaq SmallCap
Market:
Common Stock........
Warrants............
Risk Factors............ The Common Stock and the Warrants offered hereby are
speculative and involve a high degree of risk. Investors
should carefully consider the risk factors enumerated
hereafter before investing in the Common Stock and the
Warrants. See "Risk Factors" and "Dilution."
</TABLE>
- --------
(1) After subtracting the underwriting discounts and commissions and estimated
offering expenses payable by the Company, including a 2% non-accountable
expense allowance to the Representative.
(2) Pacific Stock Exchange and the Nasdaq SmallCap Market symbols do not imply
that an established public trading market will develop for any of these
securities, or if developed, that any such market will be sustained. See
"Risk Factors--Possible Applicability of Rules Relating to Low-Priced
Stock; Possible Failure to Qualify for Pacific Stock Exchange or Nasdaq
SmallCap Market Listing."
4
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED MARCH NINE MONTHS ENDED
31, DECEMBER 31,
------------------ --------------------
1995 1996 1995 1996
------- --------- --------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................... $12,006 $ 14,286 $ 11,039 $ 12,820
Cost of sales....................... 9,776 12,240 9,416 10,611
------- --------- --------- ---------
Gross profit........................ 2,230 2,046 1,623 2,209
Operating expenses.................. 1,663 1,966 1,557 1,809
------- --------- --------- ---------
Operating income.................... 567 80 66 400
Other income (expense).............. (417) (419) (311) (84)
------- --------- --------- ---------
Income (loss) before income tax
expense and extraordinary item..... 150 (339) (245) 316
Income tax (benefit) expense........ 48 (29) (22) 107
------- --------- --------- ---------
Income (loss) before extraordinary
item............................... 102 (310) (223) 209
Extraordinary item.................. -- -- -- (72)
------- --------- --------- ---------
Net income (loss)................... $ 102 $ (310) $ (223) $ 137
======= ========= ========= =========
Pro forma earnings per share:
Income (loss) before extraordinary
item.............................. -- (0.11) (0.08) 0.08
Net income (loss).................. -- (0.11) (0.08) 0.05
Pro forma common shares
outstanding....................... -- 2,719,778 2,719,778 2,719,778
OTHER DATA:
EBITDA(1)........................... $ 1,177 $ 723 $ 546 $ 953
Net cash provided by (used for)
operating activities............... (73) 31 (150) 431
Net cash used for investing
activities......................... (151) (245) (198) (158)
Net cash provided by (used for)
financing activities............... (154) 213 390 (273)
Depreciation and amortization....... 611 643 480 553
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------
ACTUAL AS ADJUSTED(2)
------ --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ $ (960) $ 3,675
Total assets........................................... 8,838 11,224
Long-term debt and capitalized lease obligations, less
current portion....................................... 3,396 2,143
Shareholders' equity................................... 778 6,666
</TABLE>
- --------
(1) EBITDA represents operating income excluding interest, taxes, depreciation,
amortization of goodwill and other intangible assets (as presented on the
face of the income statement). EBITDA is not a substitute for net cash
provided by operating activities or operating income in accordance with
generally accepted accounting principles. EBITDA is presented because
management believes that it is a widely accepted financial indicator of a
company's ability to service and/or incur indebtedness, maintain current
operating levels of fixed assets and acquire additional operations and
businesses. Accordingly, significant uses of EBITDA include, but are not
limited to, interest and principal payments on long-term debt, including
indebtedness under the Company's revolving credit agreement. Items excluded
from EBITDA, such as interest, taxes, depreciation and amortization, are
significant components of the Company's operations and should be considered
in evaluating the Company's financial performance.
(2) The as adjusted summary balance sheet data has been prepared as if the
Offering had occurred as of December 31, 1996 and reflects the issuance of
the Securities offered by the Company hereby and the application by the
Company of the net proceeds therefrom. See "Use of Proceeds."
5
<PAGE>
RISK FACTORS
Prospective investors should carefully review the following risk factors
together with the other information in this Prospectus in evaluating the
Company and its business prior to purchasing the Common Stock and the Warrants
offered by this Prospectus. This Prospectus contains forward-looking
statements that involve risks and uncertainties. Actual results could differ
from those discussed in the forward-looking statements as a result of factors,
including those set forth below and elsewhere in the Prospectus.
NATURE OF COMMERCIAL PRINTING BUSINESS
The Company's quarterly operating results have fluctuated as a result of a
number of factors, including overall trends in the economy, acquisitions of
new businesses and customer buying patterns. In addition, a fire at the
Company's facility in March 1996 had a significant adverse impact on the
Company's operations during the last quarter of fiscal 1996 and the first two
quarters of fiscal 1997. A material component of the Company's operating costs
is the price of paper, a commodity that has experienced significant price
volatility in recent years. WebWorld anticipates that fluctuations in the
price of paper will continue in the future. Increases in the cost of paper are
typically an expense of the Company's customers; however, increased paper
prices could decrease orders for printing services or the size of such orders.
High production commercial printing facilities require significant capital
expenditures. Although the Company has to date been able to acquire printing
presses at prices less than their replacement costs, there is no assurance
that it will continue to be able to do so. New presses offering comparable
characteristics to those operated by the Company generally range in price from
$6 to $12 million.
The Company competes in the general commercial printing sector, which is
characterized by individual orders from customers for specific printing
projects rather than long-term contracts, with continued engagement for
successive jobs dependent upon the customer's satisfaction with the services
provided. As such, WebWorld is unable to predict the number, size and
profitability of printing jobs in a given period. Consequently the timing of
projects in any quarter could have a significant impact on financial results
in that quarter. In addition, WebWorld has experienced some seasonality in its
sales with the calendar fourth quarter being the highest sales period and with
January and July being the lowest sales months. Quarterly results in the
future may be influenced by these or other factors and, accordingly, there may
be significant variations in the Company's quarterly operating results. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RELIANCE ON KEY CUSTOMERS
WebWorld has an existing contract with The Dallas Morning News to print its
TV Magazine. The contract was originally entered into by the Company's
predecessor in 1978 and has been renewed for successive terms ranging from one
to three years in duration. The current contract expires in January 1998. The
Dallas Morning News represented approximately 55% of the Company's business in
fiscal 1996; however, because of increased sales volume The Dallas Morning
News accounted for approximately 36% of the Company's sales in the first nine
months of fiscal 1997. Although the Company believes that its relations with
its customers are good, the termination of The Dallas Morning News TV Magazine
contract or loss of any other significant customer could have a material
adverse effect on the results of operations, financial condition and cash
flows of the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Business--Customers."
COMPETITION
The commercial printing industry is extremely competitive and fragmented.
The Company competes with numerous large and small printing companies, some of
which have greater financial resources. The Company
6
<PAGE>
competes on the basis of ongoing customer service, quality of finished
products and price. No assurance can be given that the Company will be able to
compete effectively in the future. See "Business--Competition."
FACILITIES RELOCATION
The Company's assets acquired from Webworks are located in a leased
facility, and the related lease expires in September 1997. The Company has
entered into a lease for a facility adjacent (but not attached) to the
Company's existing operations. The lease is for a five-year term with an
option to purchase the facility after six months from occupancy. The Company
is relocating the former Webworks assets to its facilities prior to September
1997 and shifting certain of its administrative offices and pre-press and
post-press services to the new leased facility. In connection with relocating
the assets acquired from Webworks, the two printing presses acquired from
Webworks will be dismantled in the former Webworks facility and reassembled in
the Company's facilities. The Company estimates that each press will be out of
operation for two to six months in connection with the relocation, and the
Company plans to stagger the relocation of the presses so that one of the
presses will be operating at all times. Although the Company does not
anticipate the relocation of these presses to adversely impact its ability to
service existing business, the reduction in the Company's operating capacity
during the relocation may adversely impact the Company's ability to attract or
service new business. In addition, there can be no assurance that the
relocation will be timely completed, that the costs will not be in excess of
the Company's estimates or that the operation of printing presses to be
relocated will not be materially impaired as a result of the relocation. If
unexpected problems occur with the printing presses or the relocation in
general, the Company's operations and financial performance could be
materially and adversely impacted.
INTEGRATION OF ACQUISITIONS
A material element of WebWorld's growth strategy is to expand its existing
business in the Dallas-Fort Worth metropolitan area and, in the future, in
other geographic markets. This expansion may be made through internal growth
or through strategic acquisitions. While the Company continuously evaluates
opportunities to make strategic acquisitions, it has no present commitments or
agreements with respect to any material acquisitions. There can be no
assurance that the Company will be able to identify and acquire such companies
or that it will be able to successfully integrate the operations of any
companies it acquires. Further, any acquisition may initially have an adverse
effect upon the Company's operating results while the acquired businesses are
adopting the Company's management and operating practices. In addition, there
can be no assurance that the Company will be able to establish, maintain or
increase profitability of an entity once it has been acquired. Also, if
WebWorld does not have sufficient cash resources for any acquisition, its
growth could be limited. There can be no assurance that WebWorld will be able
to obtain adequate financing for any acquisition, or that, if available, such
financing will be on terms acceptable to WebWorld. The consent of the
Company's primary lender will be required to be obtained in order to
consummate such acquisitions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Business--Business Strategy."
DEPENDENCE ON KEY PERSONNEL
The Company's success is largely dependent on the skills, experience and
performance of certain key members of its management, including particularly
Richard J. Wiencek, the Company's Chief Executive Officer. The loss of the
services of any of these key employees could have a material adverse effect on
the Company's business, financial condition, results of operations and cash
flows. The Company has entered into a three year employment contract with Mr.
Wiencek. The Company's future success and plans for growth also depend on its
ability to attract, train and retain skilled personnel in all areas of its
business. See "Management."
GEOGRAPHIC CONCENTRATION AND ECONOMIC CONDITIONS
The Company's operations are located in the Dallas-Fort Worth metroplex, and
the majority of its customers are located in the Southwestern United States.
The Company and its profitability may be susceptible to the effects of
unfavorable or adverse local economic factors and conditions affecting these
geographic regions.
7
<PAGE>
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
WebWorld is subject to the environmental laws and regulations of the United
States and Texas concerning emissions into the air, discharges into waterways
and the generation, handling and disposal of waste materials. While the
Company believes it is currently in substantial compliance with these laws and
regulations, there can be no assurance that future changes in such laws and
regulations will not have a material effect on the Company's operations. See
"Business--Government Regulation and Environmental Matters."
TECHNOLOGICAL CHANGES
Production technology in the printing industry has evolved and continues to
evolve. The Company does not consider itself a technology leader and does not
attempt to be a leader in this area. WebWorld invests in technology
improvements after such improvements have been proven to be cost-effective.
The Company is currently evaluating digital imaging technology, along with new
finishing technology for inclusion in its service facility. WebWorld will
continue to add technology as the needs occur.
The printing industry has experienced significant changes due to
technological changes. Because of advances in computer and related
communication technologies, certain products that were once printed by
commercial printers are now generated on computers through word processing or
desktop publishing software. In addition, some information is now disseminated
in a digital or electronic format rather than disseminated in a paper format
and this trend could continue in the future.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
3,719,778 shares of Common Stock (3,869,778 shares if the Underwriter's over-
allotment option is exercised in full). In addition, substantially all of the
2,719,778 shares previously issued by the Company would be eligible for resale
90 days after the Offering subject to the provisions of Rule 144 under the
Securities Act; however, shareholders owning 2,633,197 shares and the Company
have agreed not to offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock or any securities exercisable for or convertible into
Common Stock for a period of one year after the date of this Prospectus
without the prior written consent of the Representative.
No predictions can be made as to the effect, if any, that market sales of
such shares will have on the market price of shares of Common Stock prevailing
from time to time. However, sales of substantial amounts of Common Stock in
the open market or the availability of such shares for sale following this
Offering could adversely affect the market price for the Common Stock. See
"Shares Eligible for Future Sale," "Description of Capital Stock" and
"Principal Shareholders."
ARBITRARY OFFERING PRICE AND EXERCISE PRICE OF WARRANTS
The public offering price of the Common Stock and the Warrants and the
exercise price of the Warrants, as well as the exercise price of the warrants
underlying the Representative's Warrant, have been determined solely by
negotiations between the Company and the Representative. Among the factors
considered in determining these prices were the Company's current financial
condition and prospects, market prices of similar securities of comparable
publicly traded companies, and the general condition of the securities market.
However, the public offering price of the Common Stock and the Warrants and
the exercise price of the Warrants and the warrants underlying
Representative's Warrant do not necessarily bear any relationship to the
Company's assets, book value, earnings or any other established criterion of
value. See"Underwriting."
NECESSITY TO MAINTAIN CURRENT PROSPECTUS AND REGISTRATION STATEMENT
The Company must maintain an effective registration statement on file with
the Commission before any Warrant may be redeemed or exercised. It is possible
that the Company may be unable to cause a registration statement covering the
Common Stock underlying the Warrants to be effective. It is also possible that
the
8
<PAGE>
Warrants could be acquired by persons residing in states where the Company is
unable to qualify the Common Stock underlying the Warrants for sale. In either
event, the Warrants may expire, unexercised, which would result in the holders
losing all the value of the Warrants.
STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE WARRANTS
Holders of the Warrants have the right to exercise the Warrants only if the
underlying shares of Common Stock are qualified, registered or exempt from
registration under applicable securities laws of the states in which the
various holders of the Warrants reside. The Company cannot issue shares of
Common Stock to holders of the Warrants in states where such shares are not
qualified, registered or exempt. The Company has undertaken, however, to
qualify the Warrants for listing on the Pacific Stock Exchange which provides
for blue sky registration in over 20 states. See "Description of Securities--
Warrants."
REDEEMABLE WARRANTS AND IMPACT ON INVESTORS
The Warrants are subject to redemption by the Company in certain
circumstances. The Company's exercise of this right would force a holder of
the Warrants to exercise the Warrants and pay the exercise price at a time
when it may be disadvantageous for the holder to do so, to sell the Warrants
at the then current market price when the holder might otherwise wish to hold
the Warrants for possible additional appreciation, or to accept the redemption
price, which is likely to be substantially less than the market value of the
Warrants in the event of a call for redemption. Holders who do not exercise
their Warrants prior to redemption by the Company will forfeit their right to
purchase the shares of Common Stock underlying the Warrants. The foregoing
notwithstanding, the Company may not redeem the Warrants at any time that a
current registration statement under the Act is not then in effect. See
"Description of Securities--Warrants."
REPRESENTATIVE'S POTENTIAL INFLUENCE ON THE MARKET
It is anticipated that a significant amount of the Common Stock and the
Warrants will be sold to customers of the Representative. Although the
Representative has advised the Company that it intends to make a market in the
Common Stock and the Warrants, it will have no legal obligation to do so. The
prices and the liquidity of the Common Stock and the Warrants may be
significantly affected by the degree, if any, of the Representative's
participation in the market. No assurance can be given that any market making
activities of the Representative, if commenced, will be continued. See
"Underwriting."
POSSIBLE APPLICABILITY OF RULES RELATING TO LOW-PRICED STOCKS; POSSIBLE
FAILURE TO QUALIFY FOR PACIFIC STOCK EXCHANGE OR NASDAQ SMALLCAP MARKET
LISTING
The Commission has adopted regulations which generally define a "penny
stock" to be any equity security that has a market price (as defined) of less
than $5.00 per share, subject to certain exceptions. While the price at which
the shares of Common Stock offered to the public pursuant to this Offering
will be in excess of $5.00, the Warrants offered hereby will initially be
"penny stocks" and become subject to rules that impose additional sales
practice requirements on broker/dealers who sell such securities to persons
other than established customers and accredited investors, unless the Common
Stock and the Warrants are listed on the Pacific Stock Exchange. There can be
no assurance that the Company will be able to satisfy the listing criteria of
the Pacific Stock Exchange or that the Common Stock or the Warrants will trade
for $5.00 or more per security after the Offering. Consequently, the "penny
stock" rules may restrict the ability of broker/dealers to sell the Company's
securities and may affect the ability of purchasers in this Offering to sell
the Company's securities in a secondary market.
Although the Company has applied for listing of the Common Stock and the
Warrants on the Pacific Stock Exchange and the Nasdaq SmallCap Market, there
can be no assurance that such application will be approved or that a trading
market for the Common Stock and the Warrants will develop or, if developed,
will be sustained. Furthermore, there can be no assurance that the securities
purchased by the public hereunder may be resold at their original offering
price or at any other price. If the Common Stock and the Warrants are not
approved for
9
<PAGE>
listing on the Pacific Stock Exchange or the Nasdaq SmallCap Market, the
Company intends to apply for listing of the Common Stock and the Warrants on
the Boston Stock Exchange; however, there can be no assurance that such
application would be accepted.
In order to qualify for initial listing on the Pacific Stock Exchange, a
company must, among other things, have at least $2,000,000 in total assets,
$100,000 of after-tax income, $1.5 million "public float," and a minimum bid
price for its securities of $3.00 per share. For continued listing on the
Pacific Stock Exchange, a company must maintain a $1.0 million market value of
the public float and $2.0 million in total capital and surplus. In addition,
continued inclusion requires two market-makers and a minimum bid of $3.00 per
share. The failure to meet these maintenance criteria in the future may result
in the discontinuance of the listing of the Common Stock and Warrants on the
Pacific Stock Exchange.
In order to qualify for initial listing on the Nasdaq SmallCap Market, a
company must, among other things, have at least $4,000,000 in total assets,
$2.0 million of total capital and surplus, $1.0 million "public float," and a
minimum bid price for its securities of $3.00 per share. For continued listing
on the Nasdaq SmallCap Market, a company must maintain a $200,000 market value
of the public float, $2.0 million in total assets and $1.0 million in total
capital and surplus. In addition, continued inclusion requires two market-
makers and a minimum bid of $1.00 per share. The failure to meet these
maintenance criteria in the future may result in the discontinuance of the
listing of the Common Stock and Warrants on the Nasdaq SmallCap Market.
If the Company is or becomes unable to meet the listing criteria (either
initially or on a continued basis) of the Pacific Stock Exchange or the Nasdaq
SmallCap Market and is never traded or becomes delisted therefrom, trading, if
any, in the Common Stock and the Warrants would thereafter be conducted in the
over-the-counter market in the so-called "pink sheets" or, if then available,
"Electronic Bulletin Board" administered by the National Association of
Securities Dealers, Inc. (the "NASD"). In such an event, the market price of
the Common Stock and the Warrants may be adversely impacted. As a result, an
investor may find it difficult to dispose of or to obtain accurate quotations
as to the market value of the Common Stock and the Warrants.
EXERCISE OF REPRESENTATIVE'S PURCHASE WARRANTS
In connection with this Offering, the Company will sell to the
Representative, for nominal consideration, a Representative's Warrant to
purchase 115,000 shares of Common Stock and 115,000 Warrants from the Company.
The Representative's Warrant will be exercisable for a five-year period
commencing from the effective date of this Offering at an exercise price of
120% of the price at which the Common Stock and Warrants are sold to the
public, subject to adjustment. The Representative's Warrant may have certain
dilutive effects because the holders thereof will be given the opportunity to
profit from a rise in the market price of the underlying shares with a
resulting dilution in the interest of the Company's other shareholders. The
terms on which the Company could obtain additional capital during the life of
the Representative's Warrant may be adversely affected because the holders of
the Representative's Warrant might be expected to exercise them at a time when
the Company would otherwise be able to obtain comparable additional capital in
a new offering of securities at a price per share greater than the exercise
price of the Representative's Warrant.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF SECURITIES PRICES
Prior to this Offering, there has been no public market for the Common Stock
or the Warrants. Although the Company has applied to list the Common Stock and
the Warrants on the Pacific Stock Exchange and the Nasdaq SmallCap Market,
there can be no assurance that a regular trading market will develop (or be
sustained, if developed) for the Common Stock or the Warrants upon completion
of this Offering, or that purchasers will be able to resell their Common Stock
or Warrants or otherwise liquidate their investment without considerable
delay, if at all. Recent history relating to the market prices of newly public
companies indicates that, from time to time, there may be significant
volatility in their market price. There can be no assurance that the market
price of the Common Stock or the Warrants will not be volatile as a result of
a number of factors, including the Company's financial results or various
matters affecting the stock market generally.
10
<PAGE>
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward looking statements" within the meaning of
Section 27A of the Act, and Section 21E of the Exchange Act. The actual
results of the Company may differ significantly from the results discussed in
such forward-looking statements. Certain factors that might cause such
differences include, but are not limited to, the factors discussed in this
"Risk Factors" section. The safe harbors contained in Section 27A of the Act
and Section 21E of the Act, which apply to certain forward-looking statements,
are not applicable to this Offering.
NO DIVIDENDS
The Company has not declared or paid any cash dividends on its Common Stock
since its inception. The Company currently intends to retain all earnings for
the operation and expansion of its business and does not anticipate paying any
dividends in the foreseeable future. In addition, the Company's credit
agreement prohibits the payment of dividends. See "Dividend Policy" and Note 7
of "Notes to Financial Statements."
CONTROL BY PRINCIPAL SHAREHOLDERS
Upon completion of this Offering, the directors and executive officers will
own approximately 71% of the outstanding Common Stock of the Company. As a
result, these shareholders will be able to control the management and policies
of the Company through the ability to determine the outcome of elections for
the Company's Board of Directors and other matters requiring the vote or
consent of shareholders of the Company. See "Principal Shareholders."
PREFERRED STOCK AUTHORIZED
The Company's Articles of Incorporation authorizes the issuance of 2,000,000
shares of preferred stock, the rights, preferences and privileges of which are
to be determined by the Company's Board of Directors. Although the Company has
no intention at the present to issue any preferred stock, the Company may in
the future issue and sell preferred stock, which will likely have dividend,
distribution and liquidation preferences senior to common shareholders and
voting rights which may dilute the common shareholder voting rights. See
"Description of Capital Stock--Preferred Stock."
DILUTION
Purchasers of shares of Common Stock will suffer an immediate, substantial
dilution of approximately 76% in the net tangible book value of their shares
of Common Stock since the purchase price of the shares of Common Stock
substantially exceeds the current tangible book value per share of Common
Stock. See "Dilution."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of 1,000,000
shares of Common Stock and 1,000,000 Warrants offered hereby are estimated to
be approximately $5.9 million ($6.8 million if the Representative's Over-
Allotment Option is exercised in full) assuming an initial public offering
price of $7.00 per share for the Common Stock and $.125 per Warrant and after
deducting the estimated underwriting discounts and offering expenses and a
non-accountable expense allowance payable to the Representative equal to 2% of
such gross proceeds.
The following reflects the application of the estimated net proceeds by the
Company:
<TABLE>
<CAPTION>
PERCENT OF
USE DOLLAR AMOUNT NET PROCEEDS
--- ------------- ------------
<S> <C> <C>
Reduce outstanding balance on revolving credit
line with Congress Financial Corporation
(Southwest)..................................... $1,462,000 24.8%
Repay mortgage term note to Congress Financial
Corporation (Southwest)......................... 750,000 12.7
Repay term note to The Webworks, Inc............. 510,000 8.7
Repay term note to Robert L. Jensen.............. 200,000 3.4
Equipment installation and restoration costs..... 750,000 12.7
Working capital and capital expenditures......... 2,216,000 37.7
---------- -----
$5,888,000 100.0%
</TABLE>
At December 31, 1996, the Company's outstanding balance under the revolving
credit note issued to Congress Financial Corporation (Southwest) ("Congress")
was $1.46 million. The advances under this note have been used by the Company
to provide working capital. The outstanding indebtedness under this note bears
interest at a rate equal to Core States Bank prime rate plus 1.25% and is
repayable on December 31, 1998. The Company's outstanding indebtedness under
the Congress mortgage term loan bears interest at prime rate plus 1.5% per
annum and matures on December 31, 1998.
On December 31, 1996, the Company had outstanding indebtedness to The
Webworks, Inc. of $510,000. This indebtedness bears interest at 12% per annum
and is repayable in installments of $100,000 on September 12, 1997 and
September 12, 1998 and $310,000 on September 12, 1999.
The Company's note to Robert L. Jensen (seller of Newspaper Enterprises,
Inc.) bears interest at a rate of 8% per annum and matures on February 28,
1999. This note is not secured and is subordinated to all of the Company's
indebtedness to senior lenders.
The Company will utilize an estimated $580,000 of the net proceeds for the
relocation and installation of the assets acquired from Webworks to the
Company's facilities and an additional $170,000 for related capital
improvements. See "Business--Facilities and Capabilities."
The balance of the net proceeds will be used for general working capital
purposes and capital expenditures, including possible acquisitions of
additional printing operations. The Company does not have any present
agreements or understandings regarding any such acquisitions. The Company
plans to make capital purchases of approximately $2.0 million after completion
of the relocation of certain of its assets to its facilities to increase its
pre-press and post-press capabilities, including $300,000 to increase the
capacity and performance of an existing press. A portion of the net proceeds
will be used for such purposes.
12
<PAGE>
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its Common Stock
since its inception. The Company currently intends to retain all earnings for
the operation and expansion of its business and does not anticipate paying any
dividends in the foreseeable future. In addition, the Company's credit
agreement with Congress prohibits the payment of dividends. See Note 7 to
"Notes to Consolidated Financial Statements."
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
December 31, 1996, and (ii) as adjusted to reflect the sale by the Company of
1,000,000 shares of Common Stock and 1,000,000 Warrants offered hereby at an
assumed initial public offering price of $7.00 per share of Common Stock and
$.125 per Warrant (after deduction of the underwriting discount and estimated
offering expenses) and the application of the net proceeds therefrom as
described under "Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------
ACTUAL AS ADJUSTED(1)
------ --------------
<S> <C> <C>
Current portion of long-term debt....................... $ 664 $ 457
====== ======
Long-term debt, less current portion.................... $3,396 $2,143
Shareholders' equity:
Preferred stock: 2,000,000 shares of $1 par value
authorized, no shares issued and outstanding......... -0- -0-
Common stock: 20,000,000 shares of $.01 par value
authorized, 2,719,778 shares issued and outstanding
(actual) and 3,719,778 shares issued and outstanding
(as adjusted)........................................ 27 37
Common stock purchase warrants........................ -0- 113
Additional paid-in capital............................ 1,034 6,799
Accumulated deficit................................... (158) (158)
Notes receivable--shareholders........................ (125) (125)
------ ------
Total shareholders' equity.............................. 778 6,666
------ ------
Total capitalization.................................. $4,174 $8,809
====== ======
</TABLE>
- --------
(1) Excludes the issuance of (i) 1,000,000 shares of Common Stock upon
exercise of the Warrants; (ii) up to 300,000 shares of Common Stock
issuable pursuant to the Representative's Over-Allotment Option or that
underlie the Warrants contained therein; (iii) up to 230,000 shares
issuable pursuant to the Representative's Warrant or that underlie the
Warrants contained therein; and (iv) 350,000 shares of Common Stock
reserved for issuance under the Company's Stock Option Plan, of which no
shares of Common Stock are currently subject to outstanding options. See
"Underwriting," "Management--Stock Option Plan," and "Description of
Securities."
13
<PAGE>
DILUTION
The net tangible book value of the Common Stock at December 31, 1996 was
$238,000 or $.09 per share. "Net tangible book value per share" represents the
amount of total tangible assets less total liabilities, divided by the number
of total shares of Common Stock outstanding. After giving effect to the sale
of the 1,000,000 shares of Common Stock at an assumed initial public offering
price of $7.00 per share and $.125 per Warrant, and the initial application of
the estimated net proceeds therefrom, pro forma net tangible book value of the
Company at December 31, 1996, would have been $6,125,000 or $1.65 per share,
representing an immediate increase in net tangible book value of $1.56 per
share to existing shareholders and an immediate dilution of $5.35 per share
(or approximately 76% dilution) to purchasers of shares of Common Stock in
this Offering as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $7.00
Net tangible book value per share before this Offering....... $ .09
Increase in value per share attributable to new investors.... 1.56
Pro forma net tangible book value per share after this
Offering...................................................... 1.65
Dilution per share to new investors............................ $5.35
Percent of dilution to new investors........................... 76%
</TABLE>
The following table sets forth as of December 31, 1996, (i) the number of
shares of Common Stock purchased from the Company by the existing
shareholders, the total consideration paid and the average price per share
paid for such shares by the existing shareholders and (ii) the number of
shares of Common Stock to be sold by the Company in this Offering, the total
consideration to be paid and the average price per share.
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED(1) CONSIDERATION
----------------- ------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders........ 2,719,778 73.1% $1,148,500 14.1% $ .42
New investors................ 1,000,000 26.9% 7,000,000 85.9% $7.00
--------- ----- ---------- -----
Total...................... 3,719,778 100.0% $8,148,500 100.0%
========= ===== ========== =====
</TABLE>
- --------
(1) Excludes the issuance of (i) 1,000,000 shares of Common Stock upon
exercise of the Warrants; (ii) up to 300,000 shares of Common Stock
issuable pursuant to the Representative's Over-Allotment Option or that
underlie the Warrants contained therein; (iii) up to 230,000 shares
issuable pursuant to the Representative's Warrant or that underlie the
Warrants contained therein; and (iv) 350,000 shares of Common Stock
reserved for issuance under the Company's Stock Option Plan, of which no
shares of Common Stock are currently subject to outstanding options. See
"Underwriting," "Management--Stock Option Plan," and "Description of
Securities."
14
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
financial statements and the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this Prospectus. The data for the years ended March 31, 1995 and 1996 are
derived from the audited financial statements included elsewhere in this
Prospectus. The data for the nine months ended December 31, 1995 and 1996 are
derived from unaudited financial statements that are included elsewhere in
this Prospectus and that include, in the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information set forth therein. The results of
operations for the nine months ended December 31, 1996 are not necessarily
indicative of future results.
<TABLE>
<CAPTION>
YEAR ENDED MARCH NINE MONTHS ENDED
31, DECEMBER 31,
------------------ --------------------
1995 1996 1995 1996
------- --------- --------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................... $12,006 $ 14,286 $ 11,039 $ 12,820
Cost of sales....................... 9,776 12,240 9,416 10,611
------- --------- --------- ---------
Gross profit........................ 2,230 2,046 1,623 2,209
Operating expenses.................. 1,663 1,966 1,557 1,809
------- --------- --------- ---------
Operating income.................... 567 80 66 400
Other income (expense).............. (417) (419) (311) ( 84)
------- --------- --------- ---------
Income (loss) before income tax
expense and extraordinary item..... 150 (339) (245) 316
Income tax (benefit) expense........ 48 (29) (22) 107
------- --------- --------- ---------
Income (loss) before extraordinary
item............................... 102 (310) (223) 209
Extraordinary item.................. -- -- -- (72)
------- --------- --------- ---------
Net income (loss)................... $ 102 $ (310) $ (223) $ 137
======= ========= ========= =========
Pro forma earnings per share:
Income (loss) before extraordinary
item.............................. -- (0.11) (0.08) 0.08
Net income (loss).................. -- (0.11) (0.08) 0.05
Pro forma common shares
outstanding....................... -- 2,719,778 2,719,778 2,719,778
OTHER DATA:
EBITDA(1)........................... $ 1,177 $ 723 $ 546 $ 953
Net cash provided by (used for)
operating activities............... (73) 31 (150) 431
Net cash used for investing
activities......................... (151) (245) (198) (158)
Net cash provided by (used for)
financing activities............... (154) 213 390 (273)
Depreciation and amortization....... 611 643 480 553
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------
ACTUAL AS ADJUSTED(2)
------ --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ $ (960) $ 3,675
Total assets........................................... 8,838 11,224
Long-term debt and capitalized lease obligations, less
current portion....................................... 3,396 2,143
Shareholders' equity................................... 778 6,666
</TABLE>
- --------
(1) EBITDA represents operating income excluding interest, taxes,
depreciation, amortization of goodwill and other intangible assets (as
presented on the face of the income statement). EBITDA is not a substitute
for net cash provided by operating activities or operating income in
accordance with generally accepted accounting principles. EBITDA is
presented because management believes that it is a widely accepted
financial indicator of a company's ability to service and/or incur
indebtedness, maintain current operating levels of fixed assets and
acquire additional operations and businesses. Accordingly, significant
uses of EBITDA include, but are not limited to, interest and principal
payments on long-term debt, including indebtedness under the Company's
credit agreement and capital expenditures. Items excluded from EBITDA,
such as interest, taxes, depreciation and amortization, are significant
components of the Company's operations and should be considered in
evaluating the Company's financial performance.
(2) The as adjusted summary balance sheet data has been prepared as if the
Offering had occurred as of December 31, 1996 and reflects the issuance of
the Securities offered by the Company hereby and the application by the
Company of the net proceeds therefrom. See "Use of Proceeds."
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information
contained in the financial statements, including the notes thereto, and the
other financial information appearing elsewhere in this Prospectus.
GENERAL
WebWorld is a high-volume commercial printer specializing in the printing of
multi-color freestanding magazines, catalogs, tabloids, inserts and mail
wraps. Historically, the Company has concentrated on the newsprint magazine
sector of the printing industry. Contracts with local newspapers for the
printing of weekly television guides accounted for 72% and 61% of the gross
sales for the fiscal years ended March 31, 1995 and 1996, respectively, and
37% of gross sales for the nine months ended December 31, 1996.
In March 1996, the Company experienced a fire that adversely affected its
operations for approximately six months. In September 1996, the Company
purchased certain assets of Webworks, which will allow it to expand more
rapidly into the coated paper segment of the commercial printing market. The
Company expects to realize significant economies of scale through combined
plant operations, information systems and accounting functions and through
increased operation of under-utilized equipment. The asset acquisition will
also expand the Company's post-press production services such as stapling,
binding, sorting and folding printed materials for mass mailings.
The existing contract for production and sale of the weekly The Dallas
Morning News TV Magazine expires January 1998. Other than this annual
contract, the Company has no significant long-term printing contracts. Most
sales come from individual orders for specific printing projects. Customer
satisfaction with the quality, pricing and delivery of each job is required
for continued engagement.
Paper is the largest cost component of the Company's sales. The price of
paper is volatile and may cause significant fluctuations in sales and cost of
sales. Paper prices, specifically newsprint prices, increased consistently
through the Company's fiscal year ended March 31, 1995 to a peak in July and
August 1995. Prices since that time have fallen as paper mill production has
increased. The Company generally is able to pass paper cost increases to its
customers and conversely paper cost decreases. There can be no assurance that
future price increases can be passed through to customers.
Results of Operations
The following table sets forth certain percentage relationships based on the
Company's statements of operations for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
MARCH 31 DECEMBER 31
PERCENT OF PERCENT OF
NET SALES NET SALES
------------ ------------
1995 1996 1995 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Sales............................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales..................................... 81.4 85.7 85.3 82.8
Gross profit...................................... 18.6 14.3 14.7 17.2
Selling, general and administrative expenses...... 7.6 8.2 8.4 8.7
Depreciation and amortization..................... 5.1 4.5 4.3 4.3
Management and consulting fees.................... 1.2 1.1 1.4 1.1
Operating income.................................. 4.7 0.6 0.6 3.1
Interest expense (net)............................ 3.5 3.1 3.0 2.9
Other income...................................... 0.0 0.2 0.2 2.3
Income (loss) before income taxes and
extraordinary item............................... 1.2 (2.4) (2.2) 2.5
Income taxes...................................... 0.4 (0.2) (0.2) 0.8
Income (loss) before extraordinary item........... 0.8 (2.2) (2.0) 1.6
</TABLE>
16
<PAGE>
Nine Months Ended December 31, 1996 Compared to Nine Months ended December
31, 1995:
Sales increased 16.1% from $11 million for the nine months ended December
31, 1995 to $12.8 million for the nine months ended December 31, 1996. Sales
increased primarily due to increases in sales of coated paper product services
primarily in the last three months of the current period. Sales of newsprint
items increased marginally despite a material increase in total units produced
due primarily to sales price reductions resulting from a decrease in newsprint
prices of 25% beginning in August 1995 and continuing through December 1996.
Paper costs as a percent of gross sales at the Company went from a high of 62%
in July 1995 to 46.2% for the month of December 1996. Newsprint paper costs
are generally passed through at cost to the Company's major customers.
Gross profit increased 36% and $585,000 from $1.6 million and 15% of sales
for the nine months ended December 31, 1995 to $2.2 million and 17% of sales
for the nine months ended December 31, 1996. The gross profit as a percent of
sales increase is due to the higher margins associated with coated paper
products and due to lower newsprint paper prices in the current year. Material
costs decreased 7% as a percent of sales during the nine months ended December
31,1996 as compared to the nine months ended December 31, 1995. The cost
decrease was due to the net reduction in newsprint prices during the period
and a $400,000 job completed in November 1996 in which the customer supplied
the paper, which at an average paper cost of 46% had a .9% effect on the gross
profit margin. The decrease in material costs as a percent of sales was
partially mitigated by an increase of 4% in labor costs as a percent of sales
during the same period. The labor cost increase was due to the newsprint paper
cost reductions and the resultant gross sales decrease applied to a constant
labor cost on a units-produced basis and increased overtime during the last
three months of 1996 resulting primarily from a large, non-recurring job.
Selling, general and administrative expenses increased as a percent of sales
from 8.4% for the nine months ended December 31, 1995 to 8.7% for the nine
months ended December 31, 1996 due primarily to the temporary maintenance of
separate plant and administrative facilities in conjunction with the purchase
of the Webworks' assets and the short-term lease of its facility.
Operating income totaled $66,000 and $400,000 for the nine months ended
December 31, 1995 and 1996, respectively. The operating income increase is due
to the increased sales and gross profit resulting from increased sales in
higher margin coated paper and decreased newsprint paper prices mitigated by
the temporary increase in selling, general and administrative expenses.
Interest expense increased 12% from $335,000 for the nine months ended
December 31, 1995 to $375,000 for the nine months ended December 31, 1996, due
to an increase in the average debt balance in the revolving line of credit and
an increase in the average interest rate paid on term debt caused by
additional subordinated debt incurred in conjunction with the acquisition of
the Webworks assets.
Operations for the nine months ended December 31, 1996 included a gain of
$271,265 relating to the insurance settlement for the Company's claim arising
from the March 1996 fire at its facilities and an extraordinary loss, net of
income tax benefit, of $72,500 relating to the early retirement of debt.
Fiscal Year Ended March 31, 1996 Compared to Fiscal Year ended March 31,
1995:
Sales increased 19% from $12.0 million for fiscal year 1995 to $14.3 million
for fiscal year 1996 due to increased sales levels. Sales to The Dallas
Morning News increased 15% from $6.7 million to $7.7 million for fiscal year
1995 and fiscal year 1996, respectively. Sales to other customers increased
25% and $1.3 million during the same period. The increase was due to an
increase in sales and marketing efforts and to higher pass-through paper
prices.
Gross profit decreased 8% from $2.2 million for fiscal year 1995 to $2.05
million for the year ended March 31, 1996. Gross profit decreased as a percent
of sales from 18.6% for fiscal year 1995 to 14.3% for fiscal 1996 due to
increases in paper prices and labor. Material costs, including paper, ink,
plates and supplies increased as a percent of sales from 61.3% for fiscal year
1995 to 65% for fiscal year 1996 due to an increase in the average
17
<PAGE>
cost of paper, primarily newsprint, in fiscal year 1996 as compared to fiscal
year 1995. Labor costs as a percent of sales increased from 14.7% for fiscal
year 1995 to 15.1% for fiscal year 1996 due to increased overtime hours
worked.
Selling, general and administrative costs increased as a percent of sales
from 7.6% for fiscal year 1995 to 8.2% for fiscal year 1996 due primarily to
an increase in the sales and marketing and executive staff. Executive and
support salaries as a percent of sales increased .3% during fiscal year 1996
as compared to fiscal year 1995.
Based on the above factors, operating income decreased 86% from $567,000 for
fiscal year 1995 to $80,000 for fiscal year 1996.
Interest expense increased 6% from $421,000 for fiscal year 1995 to $445,000
for fiscal year 1996, primarily due to a higher average loan balance
outstanding for fiscal year 1996 as compared to the average loan balance
outstanding for fiscal year 1995. Principal payments made on term debt during
fiscal year 1996 of $637,000 were mitigated by a net increase of $850,000 on
the revolving line of credit and equipment-backed term debt.
Liquidity and Capital Resources
The Company has historically met its liquidity and capital investment
requirements through internally generated funds and external financing.
Operating income plus depreciation and amortization was $1,177,000 and
$723,000 for the fiscal years 1995 and 1996, respectively, and $546,000 and
$953,000 for the nine months ended December 31, 1995 and 1996, respectively.
Working capital was $142,000 on March 31, 1996 and ($960,000) at December 31,
1996. The negative working capital balance at December 31, 1996 is due
primarily to the refinancing of the Company's debt on December 31, 1996 and
the recognition of an accrual for equipment installation costs.
Congress has provided the Company revolving credit, equipment, real estate
and future capital expenditure financing facilities totaling $9.0 million, of
which $4.7 million was drawn at December 31, 1996. An additional $2.3 million
was available on such date under such revolving credit facility, and an
additional $2.0 million was available through the capital expenditure
facility. See "Use of Proceeds" with respect to the terms of the revolving
credit facility. The capital expenditure facility's term runs concurrently
with the term of the revolving credit facility and provides financing for up
to 85% of the value of the equipment purchased. These borrowings would be
payable over five years or by the termination of the facilities. The
indebtedness to Congress is secured by a lien on all of the Company's assets,
including a mortgage on the Company's printing facility.
Financing activities during the nine months ended December 31, 1996 related
primarily to the December 1996 refinancing of the indebtedness incurred in the
September 1996 Webworks asset acquisition, as well as replacing the Company's
revolving credit line and retiring subordinated debt.
Investment activities included capital expenditures of $193,000 and $266,000
for fiscal years 1995 and 1996, respectively, and a $2.02 million increase in
gross fixed assets for the nine months ended December 31, 1996, including
$1.59 million in assets purchased from Webworks and $396,000 in expenditures
to replace equipment and repair building damage related to the March 1996
fire. The remaining capital expenditures reflect normal and customary costs
associated with the continued operation and upgrading of existing machines.
The Company plans to make capital purchases of approximately $2.0 million
after completion of the relocation of certain of its assets to a new facility
to increase its pre-press and post-press capabilities, including $300,000 to
increase the capacity and performance of an existing press.
The Company has also executed an agreement to lease, with an option to
purchase, a facility adjacent to its existing building to accommodate the
Company's expansion for the acquisition of the Webworks assets and additional
post-press equipment. The purchase price (if the purchase option is exercised)
and the cost of upgrading leasehold improvements should approximate $1.7
million and $250,000, respectively. Capital expenditures, the building
purchase and improvements and additional asset acquisitions are expected to be
financed through internally generated funds, the proceeds from this Offering
and funds available under the Congress revolving credit facility.
18
<PAGE>
BUSINESS
WebWorld owns and operates a commercial printing facility and offers pre-
press, printing and post-press services to mid- and large-sized customers in
the Southwestern United States. Through its high production web presses the
Company offers a broad range of services, including printing magazines,
catalogs, tabloids, inserts and mail wraps on a range of paper stocks. Through
pre-press and post-press production services, the Company provides customers
with services such as converting supplied data and information into printing
plates and stapling, binding, sorting and folding printed materials for mass
mailings. The Company primarily uses high production web presses to print
materials which are often mass produced and distributed; for example, the
Company prints the weekly edition of The Dallas Morning News TV Magazine.
WebWorld believes a large part of its success to date has resulted from its
ability to make three strategic acquisitions which increased its printing
capabilities, provided greater purchasing efficiencies and increased operating
efficiencies through overhead reductions as a percentage of sales while
expanding the scope of printing related services offered to its customers.
BUSINESS STRATEGY
The Company has increased shareholder value by making strategic acquisitions
and quickly integrating operations to produce efficiencies in materials, labor
and overhead. These actions have enabled the Company to provide the customer
service and attention to detail of a small printer with the diverse capability
and economic advantage of a large printer.
The Company plans to grow its business through the following expansion
strategy:
. Implement Integrated Commercial Web Press Facility. With the acquisition
of the presses from Webworks and the planned relocation of these presses
to the Company's facilities, the Company will have nine presses, five of
which are high production web presses, in a centralized location. This
critical mass of printing capability enables the Company to print a
variety of commercial, high volume materials and to dedicate presses to
the type of paper stock, reducing clean-up time and achieving a higher
press utilization rate. In addition to expanded production capabilities,
a concentration of high production presses in one location as compared
to presses scattered among several locations allows the Company to
minimize delivery and transportation costs and to achieve other
operational efficiencies. The Company intends to increase its pre-press
and post-press production services to appeal to a diversified customer
base. The Company believes that developing a series of high capacity,
integrated web press facilities capable of servicing the needs of most
mid-to-large size users of commercial printed materials will provide a
sustainable, competitive advantage.
. Strategic Acquisitions. The commercial printing industry is highly
fragmented and continues to undergo consolidation at all levels to meet
changing customer demands. The Company plans to target acquisitions of
web printers which will diversify its customer base, business mix and
geographical coverage. Acquisition targets would be required to have
characteristics which would enable rapid consolidation and integration
into existing operations and produce cost savings and overhead
reductions.
. Single-Source Service Provider. WebWorld intends to expand its pre-press
and post-press capabilities to provide a one-stop service for many of
its customers. The Company intends to purchase additional equipment to
expand the Company's pre-press and post production services such as high
speed binding and stitching, ink jetting, in-line finishing and mailing.
These value-added services often produce higher margins than printing
alone and are in demand by high-volume users.
. Develop Direct Marketing. In order to develop its long-term
relationships with a broad and diverse customer base, WebWorld is
expanding its in-house marketing staff. The objective of this program is
to produce a base of recurring printing jobs on a regularly scheduled
basis and then seek higher margin value-added opportunities to utilize
additional capacity. By expanding the in-house marketing efforts, the
Company plans to decrease its historical pattern of using print brokers
to fill excess capacity.
19
<PAGE>
INDUSTRY BACKGROUND
The commercial printing industry is one of the largest and most fragmented
manufacturing industries in the United States, with total 1995 sales estimated
at $124 billion by Printing Industries of America, Inc. ("PIA"), a national
trade organization. PIA has estimated that there were approximately 25,174
commercial printing companies in the nation in 1995. Of these, approximately
13% (or 3,262) had over 20 employees. The printing services market includes
general commercial printing, financial printing, printing and publishing of
books, printing and publishing of newspapers and periodicals, quick printing,
and production of business forms and greeting cards. Within the printing
services market, the Company serves a portion of the general commercial
printing sector, which had total U.S. sales of approximately $40 billion in
1995, based on PIA sources.
OPERATIONS
There are a number of different printing processes, each with its own
distinguishing qualities and appearance characteristics. Short to medium run-
length commercial work generally is printed on sheet-fed presses, while long-
run commercial printing projects typically are printed on web presses in which
the paper is fed through the press from a large roll. The ink on printed
materials may be air-dried, which is generally a lower cost method but creates
a product that can be easily smeared, such as newsprint. Alternatively, ink
can be dried in a heatset process which uses ovens to create a brighter, more
durable finish. Over 90% of the Company's press capabilities are heatset.
Paper varies by type and appearance, including newsprint, coated stock, off-
set and hi-brite. Coated stock is associated with a glossier, brighter finish
such as for magazines and some catalogues while newsprint is used for
newspapers and other mass-produced products.
The Company was incorporated in 1993 and acquired in 1994 the business of
Newspaper Enterprises, Inc., which primarily printed The Dallas Morning News
TV Magazine. Also in 1994, the Company acquired certain assets of Computer
Language Research, Inc., including three half-web presses and certain post-
production equipment. In September 1996, the Company purchased two full web
presses from Webworks, which has enabled the Company to increase operating
efficiencies by assigning presses to generally run specific types of paper
stocks. The three-month period ending December 31, 1996 was the first quarter
to reflect increased customer growth including certain customers who
previously did business with Webworks. In this quarter, revenues were $5.5
million compared to $3.8 million in the quarter ended September 30, 1996,
representing an increase of 45%.
The Company currently operates nine presses that vary in size and speed and
can produce printed materials that range in page size, type of paper, number
of pages and the amount of color required. Of the nine presses, five are full
web presses, three are half-web presses and one is a sheet fed press. The
paper used in a full web press is generally 35 inches in width while the paper
printed on a half web press is generally 17 1/2 inches in width. All of the
Company's web presses use offset printing, which is a printing process
involving the transfer of an inked impression from a thin metal plate to a
rubber blanket and finally to the paper. In the web offset printing process,
the paper is fed through the press from a large roll of paper and is printed
on both sides of the paper. By varying the size and capabilities of its
presses, the Company can simultaneously perform of variety of printing jobs on
a cost-effective basis. The Company believes that it can compete effectively
in the Southwestern United States market place for many types of printing
products having medium to large print runs as well as time sensitive products
of any size.
20
<PAGE>
The Company currently operates the following presses:
<TABLE>
<CAPTION>
TYPE OF PRESS NAME SPECIFICATIONS
------------- ---- --------------
<C> <C> <S>
Full Web Presses: Hantscho Mark IV Web Heatset Perfecting Offset 22.75^ Cutoff, 8 units
with 5 roll stands,
Inline fold, glue and
trim
Hantscho Mark II Web Perfecting Offset 22.75^ Cutoff, 8 units
with 2 roll stands,
Inline fold
Harris 800 Heatset Web Perfecting Offset Double round 22.75^
Cutoff, 6 units with 3
roll stands, Inline
fold, glue and trim
Harris M200 Heatset Web Perfecting Offset 22.75^ Cutoff, 8 units
with 2 roll stands,
Inline fold
Goss SSC Non-heatset Web Perfecting Offset 22.75^ Cutoff, 8 units
with 3 roll stands,
Inline fold, glue and
trim
Half Web Presses: Didde Webcom 700 with U.V. dryers. 22^ cutoff, 8 units,
sheeter
Didde Glaser DG175-B Non-Heatset 22^ cutoff, 4 units,
sheeter
Didde Glaser 860 Non-Heatset 22^ cutoff, 4 units,
sheeter
Sheet Fed Press: AB Dick 9850 Press with T Head
</TABLE>
Although the Company has to date been able to acquire its printing presses
at prices less than their replacement costs, there is no assurance that it
will continue to be able to do so. See "Risk Factors--Nature of Commercial
Printing Business." A new press offering comparable characteristics to the
full web heat set presses operated by the Company generally ranges in price
from $6 to $12 million.
WebWorld also offers services in the pre-press and post-press operations.
Commercial pre-press services involve photographically duplicating mechanical
images and/or digitally producing images, separating color images into process
colors, assembling films and burning the film images onto plates. The post-
press operations provided by the Company include cutting, trimming, folding,
binding, finishing and distributing the finished product. The Company has 10
major pieces of post-press equipment to perform these functions. The Company
plans to expand its packaging and distribution services to handle bulk
shipments and mass mailings in order to meet customer needs and to increase
its higher margin services.
The Company's sense of urgency and scheduling flexibility allow it to
consistently react to its customers' requirement. Because of the need for
rapid implementation of printing projects, from conception through delivery,
the Company must maintain physical plant and customer service staff which
allow it to maximize work loads when called upon to do so. Consequently, the
Company does not always operate at full capacity.
The Company continuously reviews its printing equipment needs and evaluates
advances in computer software, hardware and peripherals, computer networking
and telecommunication systems as they relate to the Company's operations.
WebWorld is installing a printing software program and has hired a full-time
employee to integrate the program with the Company's production and financial
systems in order to develop a comprehensive management information system.
21
<PAGE>
SERVICES
The Company believes that by operating printing presses that vary in size
and capabilities, it can offer a broad range of printing and printing related
services. The Company's categories of its printed materials are as follows:
. Magazines. The Company prints a variety of magazine products utilizing
various printing technologies. The Company is able to print materials
that combine different paper types and are bound and trimmed in a single
operation. Other magazines are produced on various presses and bound in
off line operations. Portions of magazines are also printed for
inclusion with other materials in a final product. Magazines are
normally repetitive and run on pre-defined schedules. The Company's
customers in this area include a daily newspaper and a large public
university.
. Catalogs. The Company prints a variety of catalogs, the basic production
of which is essentially the same as a magazine. The catalog segment
tends to be seasonal in nature and is much more sensitive to economic
conditions. The Company's customers in this segment include local
community colleges and several large universities.
. Tabloids. The Company prints a variety of tabloids which resemble
newspapers in various sizes. Tabloids range in size and complexity based
on subject matter. Tabloids are often found inside of newspapers, in
magazine racks and are sold through subscription in highly targeted
markets. The Company's customers in this segment include local daily
newspapers, a state lottery commission and local municipalities.
. Inserts and Mail Wraps. The Company prints inserts and mail wraps to
support the direct mail market place. The focus of this line is in
smaller to medium sized markets where a variety of products are
required. The Company's customers in this segment include local daily
newspapers and marketing companies.
MARKETING AND SALES
The Company's business is service-oriented, and its primary marketing focus
is on responding rapidly to customer requirements. Responsiveness is essential
because of the typically short lead time on most printing jobs handled by the
Company. The Company's printing operations are designed to maintain maximum
flexibility to meet customer needs both on a scheduled and an emergency basis.
The Company targets those printing runs that will best utilize its equipment,
expertise and market orientation, and will maximize its profitability. Another
important aspect of the Company's marketing strategy is attention to quality
and price.
The Company initially focused its marketing efforts on its relationship with
The Dallas Morning News and filled excess capacity by selectively bidding
printing jobs through independent print brokers. The Company is now developing
an in-house professional marketing team and has recruited a sales staff of six
full time employees whose experience in the printing industry range from four
to 30 years. The marketing team is led by a Vice President of Sales and
Marketing who has over 14 years of sales experience with commercial printers.
Because the printing business requires a great deal of interaction with
customers, including personal sales calls, art work reviews, reviews of color
and other proofs and "press checks" (customer approval of the printed piece
while it is on the printing press), the Company's increasing emphasis on in-
house marketing efforts rather than print brokers would allow the Company to
develop more independent client relationships and to have greater interaction
with the end user of the printed products. Through its salespeople and other
management professionals, the Company will be able to develop stricter control
of the printing process from the time a prospective customer is introduced,
through credit checks, pricing, scheduling, pre-press, printing and post-press
operations.
CUSTOMERS
Due to the project-oriented nature of customers' printing requirements,
sales to particular customers may vary significantly from year to year
depending upon the number and size of their projects. The Company's single
22
<PAGE>
largest customer is The Dallas Morning News, which accounted for approximately
56% and 55% of the Company's sales in fiscal 1995 and 1996, respectively.
Because of increased sales volume to other customers, The Dallas Morning News
accounted for approximately 36% of the Company's sales in the first nine
months of fiscal 1997.
The Company's predecessor entered into an agreement with The Dallas Morning
News in 1978, and this agreement has been renewed for successive terms ranging
in duration from one to three years. The Company's current contract expires in
January 1998.
PURCHASING AND RAW MATERIALS
The Company purchases various materials, including paper, ink, film, offset
plates, chemicals and solvents, glue and wire, from a number of suppliers. The
Company's most significant expenditures are for paper. The Company purchases
paper directly from a number of manufacturers and distributors. In general,
the Company has not experienced any significant difficulty in obtaining raw
materials necessary for its operations. The price of paper, however, has
experienced much volatility in recent years, and future increases in the price
of paper could adversely impact the Company's operating costs and its
financial performance.
FACILITIES AND CAPABILITIES
The Company owns a 60,000-square foot facility on six acres of land in an
industrial park located in Dallas, Texas. Approximately three acres are
available for expansion. The original 45,000 square foot building was
constructed in 1971 and an additional 15,000 square feet were added in 1981. A
portion of this facility was damaged in a fire in March 1996. Although the
fire resulted in substantial damage to the Company's electrical and mechanical
systems, these systems have now been repaired and up-graded. Congress and
Webworks have a lien on this property.
In September 1996, the Company entered into a one-year lease with Webworks
to continue the operation of the presses purchased from Webworks in its
existing facility until the Company's facilities could be expanded to
consolidate all operations. The Company has entered into a lease for an
approximately 84,000 square foot building adjacent (but not attached) to the
Company's owned facility, and the lease is for a five-year term with an option
to purchase the facility after six months from occupancy. The Company is
relocating the former Webworks assets to the Company's facilities prior to
September 1997. In connection with relocating the assets acquired from
Webworks to the Company's facilities, the two printing presses acquired from
Webworks will be dismantled in the existing facility and reassembled in the
Company's other facilities. The Company estimates that each press will be out
of operation for two to six months. In connection with the relocation, and the
Company plans to stagger the relocation of the presses so one of the presses
will be operating at all times.
WebWorld does not anticipate the relocation of these presses to adversely
impact its ability to service existing business. Excess capacity is currently
being reserved, at the expense of new sales, to ensure its ability to meet all
customer commitments. Proper scheduling of existing resources and negotiations
with clients should allow for some excess capacity during this period.
Potential negative sales impact may be felt in the Company's ability to
rapidly respond to new short-term sales opportunities. In addition, there can
be no assurance that the relocation will be timely completed, that the costs
will not be in excess of estimated costs or that the operation of printing
presses to be relocated will not be materially impaired as a result of the
relocation. If unexpected problems occur with the printing presses or the
relocation in general, the Company's operations and financial performance will
be materially and adversely impacted.
COMPETITION
The Company competes with a number of other commercial printers, some of
which are subsidiaries or divisions of companies having greater financial
resources than those of the Company. Because of the nature of the Company's
business, most of the Company's competition is in the local printing market.
The major
23
<PAGE>
competitive factors in the Company's commercial printing business are ongoing
customer service, quality of finished products and price. Customer service
often is dependent on production and distribution capabilities and
availability of printing time on equipment which is appropriate in size and
function for a given project. In addition, competition in the commercial
printing area is based upon the ability to perform the services described with
speed and accuracy. Price and the quality of supporting services are also
important in this regard. WebWorld believes it competes effectively on all of
these bases.
EMPLOYEES
As of December 31, 1996, the Company had a total of 144 employees, 39 of
whom were salaried or commissioned employees and 105 of whom were hourly
employees. None of its employees are represented by a collective bargaining
agreement. The Company considers its relationship with its employees to be
good.
LEGAL PROCEEDINGS
From time to time the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. While the
Company maintains insurance coverage against potential claims in an amount
which it believes to be adequate, there can be no assurance that the Company's
insurance coverage will be adequate to cover all liabilities arising out of
such claims or that any such claims will be covered by the Company's
insurance. While the outcome of lawsuits or other proceedings against the
Company cannot be predicted with certainty, the Company does not believe these
matters will have a material adverse effect on its business or financial
position.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The Company is subject to the environmental laws and regulations of the
United States and the state of Texas concerning emissions into the air,
discharges into waterways and the generation, handling and disposal of waste
materials. Responsible agencies include, but are not limited to, the U.S.
Environmental Protection Agency, the Texas Natural Resource Conservation
Commission and regulatory agencies at the county and local level. The printing
business generates substantial quantities of inks, solvents and other waste
products requiring disposal under the numerous federal, state and local laws
and regulations relating to the environment. The Company typically recycles
waste paper, returns salvageable waste ink to its suppliers and contracts for
the removal of other waste products. The Company believes it is in substantial
compliance with all applicable air quality, waste disposal and other
environmental-related rules and regulations as well as with other general
employee health and safety laws and regulations. However, there can be no
assurance that future changes in such laws and regulations will not have a
material effect on the Company's operations.
24
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information concerning the persons
who are (i) executive officers, (ii) key employees or (iii) directors. Each
person nominated as a director (as indicated below) has agreed to become a
director of the Company upon the closing of the Offering.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Barry B. Conrad....... 56 Chairman of the Board
Richard J. Wiencek.... 58 Chief Executive Officer, President and Director
Bruce E. Fredriks..... 48 Vice President--Finance and Administration, Chief
Financial Officer, Treasurer and Secretary
Charles B. Combs, 64 Vice President--Engineering
Jr...................
Christopher A. 41 Vice President--Sales and Marketing
Schall...............
Dale H. Davenport..... 49 Vice President--Operations
Floyd W. Collins...... 44 Director
Brian A. Harpster..... 52 Director
Robert D. Kopitke..... 55 Director
</TABLE>
Barry B. Conrad has served as a director of the Company since the Company's
inception. Mr. Conrad is a co-founder and Managing Partner of Conrad/Collins
Merchant Banking Group Ltd. ("MBG"), a Dallas, Texas-based merchant bank
formed in 1988 that is active in leveraged buyouts of middle-market companies
in the Southwestern United States. Mr. Conrad has extensive experience in
investment banking, including more than five years as head of corporate
finance for Rauscher Pierce Refsnes, Inc. Prior to joining Rauscher Pierce
Refsnes, Inc. in 1983, he served for approximately ten years as Chief
Executive Officer of Hart Delta, Inc., a pharmaceutical manufacturing firm. He
also serves on the Board of DSI Toys, Inc.
Richard J. Wiencek has been the President and Chief Executive Officer of the
Company since the Company's inception. Prior to co-founding the Company, Mr.
Wiencek served in various executive positions with Computer Language Research,
Inc., a software development company, for 15 years, most recently as Group
Vice President, Corporate Operations. Mr. Wiencek's responsibilities at
Computer Language Research, Inc. included managing print operations,
telecommunications and product marketing as well as implementing a corporate
automation strategy connecting clients and employees nationwide through common
communications networks and standardized application software. Prior to
joining Computer Language Research, Inc., Mr. Wiencek served for approximately
14 years in various financial and operations management positions with Texas
Instruments, Inc.
Bruce E. Fredriks has served as the Vice President--Finance and
Administration and Chief Financial Officer of the Company since May 1996.
Prior to joining the Company, he was with Caltex Petroleum Corporation, an
international petroleum company, where he held various executive and
managerial positions both domestically and internationally, most recently as
Coordinator in Accounting Policies and Controls. Mr. Fredriks is a certified
public accountant.
Charles B. Combs, Jr. has served as the Vice President--Operations of the
Company since 1995. He has over 40 years experience in the printing industry,
including all aspects of printing such as pre-press, press, finishing and
administration. Prior to joining the Company, he was the Chief Operating
Officer for Anchor Press, a commercial printing company, in Fort Worth from
1993 to 1994. From 1987 to 1993, Mr. Combs owned and operated his own company,
Combs International Graphics, which designed, constructed and installed large
printing facilities in the United States and Africa.
Christopher A. Schall joined the Company in June 1996 as Vice President--
Sales and Marketing. Prior to joining the Company, he was Vice President of
Sales with Proctor Press, Inc., a printing company, from 1994 to
25
<PAGE>
1996. Prior to joining Proctor Press, Inc., he was a Senior Sales
Representative with Hoechstetter Printing Company, a commercial printing
company, from 1990 to 1994.
Dale H. Davenport joined the Company in February 1997 as the Vice
President--Operations. He has over 25 years experience in the printing
industry, including sales, operations and administration. Prior to joining the
Company, he was the Plant Manager for KOPCO, Inc., a printing company, from
1994 to 1997. From 1992 to 1994, Mr. Davenport was the General Manager for
Sierra Press, a printing company.
Floyd W. Collins has served as a director of the Company since March 1997.
Mr. Collins has been a co-founder and Managing Partner of MBG since 1988. Mr.
Collins has an extensive background in private equity investing, including
service as Executive Vice President of Hickory Venture Capital Corporation and
General Partner of Sunwestern Investment Group.
Brian A. Harpster has served as a director since February 1994. Mr. Harpster
has been engaged in investment and financial consulting for more than the past
five years through the ownership and management of Holly Investments, L.P.,
and Offshore Consulting Services, Inc.
Robert D. Kopitke has served as a director since February 1994. Mr. Kopitke
has been engaged in general business consulting for more than the past five
years as President of The Gensal Group, Inc.
BOARD OF DIRECTORS
Upon the consummation of the Offering, the Board of Directors of the Company
will consist of five members. Each director will hold office until the annual
meeting of the shareholders of the Company next following his election, until
his successor is elected and qualified. The holders of the shares of Common
Stock, voting separately as a class, will be entitled to elect all of the
directors.
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company will receive an annual fee of $5,000 as compensation for his or
her services as a member of the Board of Directors. All directors of the
Company are reimbursed for out-of-pocket expenses incurred in attending
meetings of the Board of Directors or committees thereof, and for other
expenses incurred in their capacities as directors of the Company. Directors
will also be eligible to participate in the Company's stock option plan. See
"Stock Option Plan".
In February 1994, the Company also entered into a management agreement with
MBG, of which Barry B. Conrad, the Chairman of the Board of the Company, and
Floyd W. Collins, a director of the Company, are principals. Under the terms
of the agreement, MBG provided supervisory management services to the Company,
including the negotiation, financing and consummation of all of the
acquisitions made by the Company. MBG has earned as fees $100,000, $100,000,
and $125,000 during fiscal years 1995 and 1996 and for the nine months ended
December 31, 1996, respectively. Pursuant to the management agreement, the
Company granted MBG an option to purchase 83,250 shares of common stock at an
exercise price of $.30 per share. As of April 1996, all the options became
fully vested, and were exercised.
In February 1994, the Company entered into a sales consulting agreement with
The Gensal Group, Inc., of which Robert D. Kopitke is a principal, under which
the Gensal Group, Inc. earned as fees $30,000, $30,000, and $ 52,500 during
fiscal years 1995 and 1996 and the nine months ended December 31, 1996,
respectively. Pursuant to such agreement, the Company granted The Gensal
Group, Inc. an option to purchase 83,250 shares of Common Stock at an exercise
price of $.30 per share. As of April 1996, all the options became fully vested
and were exercised. The agreement will terminate, effective April 30, 1997,
although Mr. Kopitke will be paid on a project basis for any future sales
consulting performed for the Company.
26
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established two committees: a Compensation
Committee and an Audit Committee. Each of these committees has two or more
members who serve at the discretion of the Board of Directors. The
Compensation Committee, currently comprised of Messrs. Conrad, Wiencek and
Kopitke, is responsible for reviewing and making recommendations to the Board
of Directors with respect to compensation of executive officers, other
compensation matters and awards under the Company's stock option plan. The
Audit Committee, currently comprised of Messrs. Collins and Harpster, is
responsible for reviewing the Company's financial statements, audit reports,
internal financial controls and the services performed by the Company's
independent public accountants, and for making recommendations with respect to
those matters to the Board of Directors.
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the total annual
compensation paid or accrued by the Company to or for the account of the Chief
Executive Officer who was the only executive officer of the Company whose
total cash compensation for the fiscal years ended March 31, 1995 and 1996
exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------- ALL OTHER
FISCAL SALARY BONUS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) $ ($)(1)
--------------------------- ------ -------- ------- ------------
<S> <C> <C> <C> <C>
Richard J. Wiencek, President and CEO 1996 $168,000 $26,813 $5,102
1995 $160,000 12,944 $4,453
</TABLE>
- --------
(1) Represents the Company's contribution under the Company's 401(k) savings
plan and premiums paid by the Company on a life insurance policy, the
beneficiary of which is Mr. Wiencek's estate.
The Company entered into an employment agreement with Richard J. Wiencek,
the Company's President and Chief Executive Officer, in February 1994. The
agreement provides for an initial term of five years and an automatic renewal
for additional successive one year terms. The agreement may be terminated by
the Company at the end of the initial term or any successive term upon written
notice prior to the end of the then current term. In addition, the agreement
may be terminated for cause or upon the death or disability of Mr. Wiencek.
Among other reasons, the Company may terminate the agreement for cause if the
Company fails to achieve certain financial performance targets. The agreement
provides for a base salary of $160,000 (subject to annual increases in the
discretion of the Company's Board of Directors) and annual bonuses equal to
25% of the Company's "free cash flow" as defined in the agreement. The
agreement also provides for a car allowance and certain other fringe benefits.
Pursuant to the agreement, Mr. Wiencek also received a grant of an option to
purchase 249,750 shares of common stock at an exercise price of $.30 per
share, which vested in April 1996. The agreement provides for the repurchase
of all shares of common stock of the Company owned by Mr. Wiencek at a price
specified in the agreement upon the termination of Mr. Wiencek's employment.
STOCK OPTION PLAN
The Company maintains the NEI WebWorld, Inc. Stock Option Plan (the "Option
Plan") which provides for the grant of options to eligible employees and
directors for the purchase of Common Stock of the Company. The Option Plan
covers, in the aggregate, a maximum of 350,000 shares of Common Stock. The
Option Plan provides for the granting of both incentive stock options (as
defined in Section 422 of the Internal Revenue Code of 1986) and nonqualified
stock options (options which do not meet the requirements of Section 422).
Under the Option Plan, the exercise price may not be less than the fair market
value of the Common Stock on the date of the grant of the option. No options
have been granted under the Option Plan.
27
<PAGE>
The Compensation Committee of the Board of Directors (the "Committee")
administers and interprets the Option Plan and is authorized to grant options
thereunder to all eligible employees of the Company, including officers. The
Committee designates the optionees, the number of shares subject to the
options and the terms and conditions of each option. Options under the Option
Plan generally vest over a five year period. Certain changes in control of the
Company will cause the options to vest immediately. Each option granted under
the Option Plan must be exercised, if at all, during a period established in
the grant which may not exceed 10 years from the date of grant. An optionee
may not transfer or assign any option granted and may not exercise any options
after a specified period subsequent to the termination of the optionee's
employment with the Company.
OPTION GRANTS
None of the Company's executive officers were granted options during the
year ended March 31, 1996. The Company has no outstanding options to purchase
shares of its capital stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors consists of
three members, Messrs. Conrad, Wiencek and Kopitke. No executive officer of
the Company serves as a member of the board of directors or compensation
committee of any entity which has one or more executive officers serving as a
member of the Company's Board of Directors or Compensation Committee.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Articles of Incorporation limit the liability of directors of
the Company to the Company or its shareholders to the fullest extent permitted
by Texas Business Corporations Act (the "TBCA").
WebWorld's Bylaws provide that the Company shall indemnify each of its
directors and officers, acting in such capacity, so long as such person acted
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the Company. Such indemnification may be made
only upon a determination by the Board of Directors that such indemnification
is proper in the circumstances because the person to be indemnified has met
the applicable standard of conduct to permit indemnification under the law.
The Company is also required to advance to such persons payment for their
expenses incurred in defending a proceeding to which indemnification might
apply, provided the recipient provides an undertaking agreeing to repay all
such advanced amounts if it is ultimately determined that he is not entitled
to be indemnified.
The Company has entered into indemnification and hold harmless agreements
with each of its directors, whereby the Company is required to indemnify such
persons to the fullest extent permitted by law.
As of this date hereof, there is no pending litigation or proceeding
involving a director, officer, employee or agent of the Company where
indemnification will be required or permitted, and the Company is not aware of
any threatened litigation or proceeding which may result in a claim for such
indemnification.
28
<PAGE>
CERTAIN TRANSACTIONS
The Company believes that all of the transactions set forth below were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors, principal shareholders and
affiliates, will be approved by a majority of the Board of Directors,
including a majority of the independent and disinterested outside directors,
and will be on terms no less favorable to the Company than could be obtained
from unaffiliated third parties.
In April 1996, the Board of Directors of the Company vested all of the
outstanding options granted in 1994 (covering an aggregate of 416,250 shares
of Common Stock) under certain agreements with Mr. Wiencek, MBG and The Gensal
Group, Inc. These shareholders exercised the outstanding options in April 1996
and purchased the underlying shares of Common Stock. In connection with this
exercise, Mr. Wiencek issued a note to the Company in the principal amount of
$75,000 which becomes due and payable in April 2001. Each of MBG and The
Gensal Group, Inc. issued a note to the Company for the exercise price of its
options in the principal amount of $25,000 which has the same terms as the
note issued by Mr. Wiencek. These notes bear interest at a per annum rate of
6%.
The Company has entered into a management agreement with MBG, an affiliate
of two of its directors, and an employment agreement with its president and
previously had entered into a consulting agreement with a director. See
"Management--Board of Directors" and "--Executive Compensation."
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1996 and as
adjusted to reflect the sale of Common Stock being offered by the Company
hereby, and the conversion of the outstanding shares of Preferred Stock for
(1) each person known by the Company to own beneficially 5% or more of the
Common Stock, (2) each director and executive officer of the Company and (3)
all directors, nominees for director and executive officers of the Company as
a group. Except pursuant to applicable community property laws and except as
otherwise indicated, each shareholder identified in the table possesses sole
voting and investment power with respect to its or his shares.
<TABLE>
<CAPTION>
PERCENTAGE OWNED
NUMBER OF ------------------------------
NAME SHARES BEFORE OFFERING AFTER OFFERING
---- --------- --------------- --------------
<S> <C> <C> <C>
Barry B. Conrad(1).................... 1,422,464 52.3% 38.2%
Richard J. Wiencek(2)................. 416,250 15.3% 11.2%
Bruce E. Fredriks..................... -0- -0- -0-
Charles B. Combs, Jr. ................ -0- -0- -0-
Christopher A. Schall................. -0- -0- -0-
Dale H. Davenport..................... -0- -0- -0-
Floyd W. Collins(1)................... 1,422,464 52.3% 38.2%
Brian A. Harpster(3).................. 669,608 24.6% 18.0%
Robert D. Kopitke(4).................. 124,875 4.6% 3.4%
All directors, nominees for director
and executive officers as a group
(nine individuals)................... 2,633,197 96.8% 70.8%
</TABLE>
- --------
(1) Includes 1,339,214 shares owned of record by Conrad/Collins Merchant
Banking Fund Ltd., a Texas limited partnership ("MBF") of which MBG is the
general partner. The general partner of MBG is Conrad Collins, Inc., a
Texas corporation, of which Messrs. Conrad and Collins are the sole
directors and shareholders. Also includes 83,250 shares owned by MBG. The
address of Messrs. Conrad and Collins is 700 N. Pearl, Suite 1910, Dallas,
Texas 75201.
(2) Mr. Wiencek's address is 4647 Bronze Way, Dallas, Texas 75236.
(3) Consists of 669,608 shares held by Holly Investments, L.P., of which Mr.
Harpster's spouse is the beneficial owner. Mr. Harpster's address is 1324
E. Grand Avenue, Ponca City, Oklahoma 74601.
(4) Consists of 124,875 shares held by The Gensal Group, Inc., of which Mr.
Kopitke is the principal shareholder.
29
<PAGE>
DESCRIPTION OF CAPITAL STOCK
WebWorld's authorized capital stock consists of 20,000,000 shares of Common
Stock, $.01 par value, and 2,000,000 shares of preferred stock, $1.00 par
value per share ("Preferred Stock").
The following description of the Company's capital stock does not purport to
be complete and is subject in all respects to applicable Texas law and to the
provisions of the Company's Articles of Incorporation and By-laws, as amended
to date.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of shareholders, including the election of
directors. The Common Stock does not have cumulative voting rights, which
means that the holders of a majority of the shares voting for election of
directors can elect all members of the Board of Directors. Dividends may be
paid ratably to holders of Common Stock when and if declared by the Board of
Directors out of funds legally available therefor. Upon liquidation or
dissolution of the Company, the holders of Common Stock will be entitled to
share ratably in the assets of the Company legally available for distribution
to shareholders after payment of all liabilities and the liquidation
preferences of any outstanding Preferred Stock.
The holders of Common Stock have no preemptive or conversion rights or other
subscription rights and are not subject to redemption or sinking fund
provisions or to calls or assessments by the Company. The shares of Common
Stock offered hereby will be, when issued and paid for, fully paid and not
liable for call or assessment. The Company has applied for listing of the
Common Stock on the Pacific Stock Exchange and Nasdaq SmallCap Market.
As of March 1, 1997, there were eight holders of record of Common Stock.
PREFERRED STOCK
The Company may issue Preferred Stock in one or more series and the Board of
Directors may designate the dividend rate, voting rights and other rights,
preferences and restrictions of each series. It is not possible to share the
actual effect of the issuance of any shares of Preferred Stock upon the rights
of holders of the Common Stock until the Board of Directors determines the
specific rights of the holders of such Preferred Stock. However, the effects
might include, among other things, restricting dividends on the Common Stock,
diluting the voting power of the Common Stock, impairing the liquidation
rights of the Common Stock and delaying or preventing a change in control of
the Company without further action by the shareholders. The Company presently
has no plans to issue any shares of Preferred Stock.
The Company previously issued an aggregate of 935,000 shares of preferred
stock in three different series. The holders of these shares agreed with the
Company to convert such shares into an aggregate of 2,008,823 shares of Common
Stock on the effective date of this Offering. Unless the context otherwise
indicates, all of the historical financial statements and other financial
information set forth herein gives effect to such conversion into Common
Stock. See Note 10 of Notes to Financial Statements.
WARRANTS
The Warrants will be issued in registered form pursuant to an agreement
dated the date of this Prospectus (the "Warrant Agreement"), between the
Company and American Stock Transfer Corporation, as Warrant Agent (the
"Warrant Agent"). The following discussion of certain terms and provisions of
the Warrants is qualified in its entirety by reference to the Warrant
Agreement. A form of the certificate representing the Warrants which form a
part of the Warrant Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.
30
<PAGE>
Each of the Warrants entitles the registered holder to purchase one share of
Common Stock. The Warrants are exercisable at a price equal to 150% of the
Share Offering Price (which exercise price has been arbitrarily determined by
the Company and the Representative) subject to certain adjustments. The
Warrants are entitled to the benefit of adjustments in their exercise prices
and in the number of shares of Common Stock or other securities deliverable
upon the exercise thereof in the event of a stock dividend, stock split,
reclassification, reorganization, consolidation or merger.
The Warrants may be exercised at any time and continuing thereafter until
the close of five years from the date hereof, unless such period is extended
by the Company. After the expiration date, Warrant holders shall have no
further rights. Warrants may be exercised by surrendering the certificate
evidencing such Warrant, with the form of election to purchase on the reverse
side of such certificate properly completed and executed, together with
payment of the exercise price and any transfer tax, to the Warrant Agent. If
less than all of the Warrants evidenced by a warrant certificate are
exercised, a new certificate will be issued for the remaining number of
Warrants. Payment of the exercise price may be made by cash, bank draft or
official bank or certified check equal to the exercise price.
Warrant holders do not have any voting or any other rights as shareholders
of the Company. The Company has the right at any time beginning six months
from the date hereof to redeem the Warrants, at a price of $.05 per Warrant,
by written notice to the registered holders thereof, mailed not less than 30
nor more than 60 days prior to the Redemption Date. The Company may exercise
this right only if the closing bid price for the Common Stock for seven
trading days during a 10 consecutive trading day period ending no more than 15
days prior to the date that the notice of redemption is given, equals or
exceeds $ per share, subject to adjustment. If the Company exercises its
right to call Warrants for redemption, such Warrants may still be exercised
until the close of business on the day immediately preceding the Redemption
Date. If any Warrant called for redemption is not exercised by such time, it
will cease to be exercisable, and the holder thereof will be entitled only to
the repurchase price. Notice of redemption will be mailed to all holders of
Warrants of record at least 30 days, but not more than 60 days, before the
Redemption Date. The foregoing notwithstanding, the Company may not call the
Warrants at any time that a current registration statement under the Act is
not then in effect. Any redemption of the Warrants during the one-year period
commencing on the date of this Prospectus shall require the written consent of
the Representative.
The Warrant Agreement permits the Company and the Warrant Agent without the
consent of Warrant holders, to supplement or amend the Warrant Agreement in
order to cure any ambiguity, manifest error or other mistake, or to address
other matters or questions arising thereafter that the Company and the Warrant
Agent deem necessary or desirable and that do not adversely affect the
interest of any Warrant holder. The Company and the Warrant Agent may also
supplement or amend the Warrant Agreement in any other respect with the
written consent of holders of not less than a majority in the number of the
Warrants then outstanding; however, no such supplement or amendment may (i)
make any modification of the terms upon which the Warrants are exercisable or
may be redeemed; or (ii) reduce the percentage interest of the holders of the
Warrants without the consent of each Warrant holder affected thereby.
In order for the holder to exercise a Warrant, there must be an effective
registration statement, with a current prospectus on file with the Commission
covering the shares of Common Stock underlying the Warrants, and the issuance
of such shares to the holder must be registered, qualified or exempt under the
laws of the state in which the holder resides. If required, the Company will
file a new registration statement with the Commission with respect to the
securities underlying the Warrants prior to the exercise of such Warrants and
will deliver a prospectus with respect to such securities to all holders
thereof as required by Section 10(a)(3) of the Act. See "Risk Factors--
Necessity to Maintain Current Prospectus" and "State Blue Sky Registration
Required to Exercise Warrants."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is American
Stock Transfer Corporation, New York, New York.
31
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The Company has outstanding 2,719,778 shares of Common Stock. In addition,
the Company has 350,000 shares reserved for issuance upon exercise of options
granted under the Company's Stock Option Plan, none of which are immediately
exercisable. Of the 3,719,778 shares to be outstanding after the Offering, the
1,000,000 shares sold to the public hereby will be freely tradeable without
restrictions or registration under the Act, except that any shares purchased
by "affiliates" of the Company, as that term is defined in Rule 144 ("Rule
144") under the Act ("Affiliates"), may generally only be sold to clients
within the limitations of Rule 144 described below. An aggregate of 1,000,000
shares will be issued upon the exercise of the Warrants. The Company has
agreed to register these shares under the Act in order to permit the resale of
such shares in the open market from time to time and has agreed to maintain
the effectiveness of such registration for two years. Following the sale of
such shares pursuant to an effective registration statement filed in
connection with such registration, these shares shall be freely tradeable. The
remaining 2,719,778 shares were issued and sold by the Company in private
transactions in reliance upon exemptions from registration under the Act and
are, therefore deemed "restricted securities" under Rule 144 which may not be
sold publicly unless the shares are registered under the Act or are sold under
Rule 144. Under Rule 144, substantially all of the remaining restricted
securities would become eligible for resale 90 days after the date the Company
becomes subject to the reporting requirements of the Exchange Act, although
2,633,197 of such shares are subject to contractual resale restrictions.
The Company, the Company's executive officers and directors, and
shareholders of the Company that own in the aggregate 96% of the Common Stock
outstanding prior to the Offering have agreed not to offer, sell, contract to
sell or otherwise dispose of any shares of Common Stock or any securities
exercisable for or convertible into Common Stock for a period of one year
after the date of this Prospectus without the prior written consent of the
Representative.
In general, under Rule 144 a person (or persons whose sales are aggregated)
who beneficially owns restricted securities for one year or any other shares
not contemplated as restrictive securities without regard to such one-year
holding period, is entitled to sell within any three-month period a number of
shares that does not exceed the greater of 1% of the then outstanding shares
of the Company's Common Stock or the average weekly trading volume in the
Company's Common Stock during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain manner-of-sale provisions,
notice requirements and the availability of current public information about
the Company. A person who has not been an affiliate of the Company at any time
during the three months preceding a sale, and who beneficially owns shares
last acquired from the Company or an affiliate of the Company at least two
years previously, is entitled to sell all such shares under Rule 144 without
regard to any of the limitations of the Rule.
REGISTRATION RIGHTS
Upon the expiration of the contractual one-year lock-up period described
above, certain shares issued or issuable upon the exercise of options granted
prior to the date of this Prospectus also may be issuable for sale in the
public market pursuant to Rule 701 under the Securities Act. In general, Rule
701 permits resales of shares issued pursuant to certain compensatory benefit
plans and contracts commencing at the end of the 90 day period after the
Company becomes subject to the reporting requirements of the Exchange Act. If
all of the requirements of Rule 701 are satisfied, and upon completion of the
one-year period, an additional 416,250 shares of Common Stock issued in 1996
upon exercise of previously granted options will be eligible for sale, subject
to the repayment of notes issued for the payment of the exercise price.
The Company intends to file a registration statement under the Securities
Act to register all shares of Common Stock issuable pursuant to the Company's
Stock Option Plan. See "Management--Stock Option Plan." Subject to the
completion of the one-year period described above, shares of Common Stock
issued after the effective date of such registration statement upon the
exercise of awards issued under such plan generally will be eligible for sale
in the public market.
32
<PAGE>
The Company cannot predict the effect, if any, that sales of restricted
securities or the availability of such securities for sale could have on the
market price, if any, prevailing from time to time. Nevertheless, sales of
substantial amounts of the Company's securities, including the securities
offered hereby, could adversely affect prevailing market prices of the
Company's securities and the Company's ability to raise additional capital by
occurring at a time when it would be beneficial for the Company to sell
securities.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for whom First London Securities Corporation is
acting as Representative, have severally agreed to purchase from the Company
an aggregate of 1,000,000 shares of Common Stock ("Shares") and 1,000,000
Warrants. The number of Shares and Warrants which each Underwriter has agreed
to purchase is set forth opposite its name.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NAME SHARES WARRANTS
---- --------- ---------
<S> <C> <C>
First London Securities Corporation.....................
--------- ---------
Total................................................. 1,000,000 1,000,000
========= =========
</TABLE>
The Securities are offered by the Underwriters subject to prior sale, when,
as and if delivered to and accepted by the Underwriters and subject to
approval of certain legal matters by counsel and certain other conditions. The
Underwriters are committed to purchase all Securities offered by this
Prospectus, if any are purchased.
The Company has been advised by the Representative that the Underwriters
propose initially to offer the Securities offered hereby to the public at the
offering price set forth on the cover page of this Prospectus. The
Representative has advised the Company that the Underwriters propose to offer
the Securities through members of the NASD, and may allow a concession, in
their discretion, to certain dealers who are members of the NASD and who agree
to sell the Securities in conformity with the NASD Conduct Rules. Such
concessions shall not exceed the amount of the underwriting discount that the
Underwriters are to receive.
The Company has granted to the Representative an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an additional 150,000
Shares and an additional 150,000 Warrants at the public offering price less
the underwriting discount set forth on the cover page of this Prospectus (the
"Over-Allotment Option"). The Representative may exercise the Over-Allotment
Option solely to cover over-allotments in the sale of the Securities being
offered by this Prospectus.
Officers and directors of the Company may introduce the Representative to
persons to consider the Offering and purchase Securities either through the
Representative, other Underwriters, or through participating dealers. In this
connection, officers and directors will not receive any commissions or any
other compensation.
The Company has agreed to pay the Representative a commission of 10% of the
gross proceeds of the offering (the "Underwriting Discount"), including the
gross proceeds from the sale of the Over-Allotment Option, if exercised. In
addition, the Company has agreed to pay to the Representative a non-
accountable expense allowance of two percent (2%) of the gross proceeds of
this Offering, including proceeds from any Securities purchased pursuant to
the Over-Allotment Option. The Representative's expenses in excess of the non-
accountable expense allowance will be paid by the Representative. To the
extent that the expenses of the Representative are less than the amount of the
non-accountable expense allowance received, such excess shall be
33
<PAGE>
deemed to be additional compensation to the Representative. The Company has
also agreed to pay the Representative upon the exercise or redemption of the
Warrants a fee equal to 5% of the gross proceeds received by the Company from
the exercise of the Warrants and 5% of the aggregate redemption price for the
Warrants redeemed. Additionally, the Representative shall have the right to
nominate an Advisory Director to the Company's Board of Directors. The
Advisory Director will have the same privileges as a normal director,
including equal compensation, but will forfeit the right to vote on Board
issues. The Representative has informed the Company that it does not expect
sales to discretionary accounts to exceed 5% of the total number of Securities
offered by the Company hereby.
Prior to this Offering, there has been no public market for the Shares of
Common Stock or Warrants of the Company. Consequently, the initial public
offering price for the Securities, and the terms of the Warrants (including
the exercise price of the Warrants), have been determined by negotiation
between the Company and the Representative. Among the factors considered in
determining the public offering price were the history of, and the prospect
for, the Company's business, an assessment of the Company's management, its
past and present operations, the Company's development and the general
condition of the securities market at the time of this Offering. The initial
public offering price does not necessarily bear any relationship to the
Company's assets, book value, earnings or other established criteria of value.
Such price is subject to change as a result of market conditions and other
factors, and no assurance can be given that a public market for the Shares or
Warrants will develop after the close of this Offering, or if a public market
in fact develops, that such public market will be sustained, or that the
Shares or Warrants can be resold at any time at the offering or any other
price. See "Risk Factors."
At the closing of this Offering, the Company will issue to the
Representative or persons related to the Representative, for nominal
consideration, a Representative's Warrant to purchase up to 115,000 Shares and
115,000 Warrants ("Underlying Warrants"). The Representative's Warrant will be
exercisable for a five-year period commencing from the effective date of this
Offering at an exercise price of 120% of the price at which the Common Stock
and Warrants are sold to the public, subject to adjustment. Each Underlying
Warrant will be exercisable for a five year period commencing on the date of
this Prospectus to purchase one share of Common Stock at an exercise price of
$ per share of Common Stock. The Representative's Warrant will not be
transferable for one year from the date of this Prospectus, except (i) to
officers of the Representative, other Underwriters, and officers and partners
thereof; (ii) by will; or (iii) by operation of law.
The Representative's Warrant contains provisions providing for appropriate
adjustment in the event of any merger, consolidation, recapitalization,
reclassification, stock dividend, stock split or similar transaction. The
Representative's Warrant contain net issuance provisions permitting the
holders thereof to elect to exercise the Representative's Warrant in whole or
in part and instruct the Company to withhold from the securities issuable upon
exercise, a number of securities, valued at the current fair market value on
the date of exercise, to pay the exercise price. Such net exercise provision
has the effect of requiring the Company to issue shares of Common Stock
without a corresponding increase in capital. A net exercise of the
Representative's Warrant will have the same dilutive effect on the interests
of the Company's shareholders as will a cash exercise. The Representative's
Warrant does not entitle the holders thereof to any rights as a shareholder of
the Company until such Representative's Warrant is exercised and shares of
Common Stock are purchased thereunder.
The Company has agreed to indemnify the Underwriters against any costs or
liabilities incurred by the Underwriters by reasons of misstatements or
omissions to state material facts in connection with the statements made in
the Registration Statement and the Prospectus. The Underwriters have in turn
agreed to indemnify the Company against any liabilities by reason of
misstatements or omissions to state material facts in connection with the
statements made in the Prospectus, based on information relating to the
Underwriters and furnished in writing by the Underwriters. To the extent that
this section may purport to provide exculpation from possible liabilities
arising from the federal securities laws, in the opinion of the Commission,
such indemnification is contrary to public policy and therefore unenforceable.
34
<PAGE>
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to
copies of each such agreement which are filed as exhibits to the Registration
Statement. See "Available Information."
LEGAL MATTERS
Legal matters in connection with the Common Stock and Warrants being offered
hereby will be passed upon for the Company by Crouch & Hallett, L.L.P.,
Dallas, Texas. Certain legal matters will be passed upon for the Underwriters
by Jackson & Walker, L.L.P.
EXPERTS
The financial statements of the Company as of March 31, 1996, and for each
of the two years in the period then ended, included in this Prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein, and have been so included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
35
<PAGE>
NEI WEBWORLD, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT.............................................. F-2
FINANCIAL STATEMENTS AND NOTES:
Balance Sheets as of March 31, 1996, and December 31, 1996 (unaudited).... F-3
Statements of Operations for the Years Ended March 31, 1995 and 1996, and
for the Nine Months Ended December 31, 1995 (unaudited) and 1996
(unaudited).............................................................. F-4
Statements of Shareholders' Equity for the Years Ended March 31, 1995 and
1996, and for the Nine Months Ended December 31, 1996 (unaudited)........ F-5
Statements of Cash Flows for the Years Ended March 31, 1995 and 1996, and
for the Nine Months Ended December 31, 1995 (unaudited) and 1996
(unaudited).............................................................. F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Directors and Shareholders of NEI WebWorld, Inc.:
We have audited the accompanying balance sheet of NEI WebWorld, Inc. as of
March 31, 1996, and the related statements of operations, shareholders' equity
and cash flows for each of the two years in the period then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of NEI WebWorld, Inc. as of March 31, 1996,
and the results of its operations and its cash flows for each of the two years
in the period then ended, in conformity with generally accepted accounting
principles.
Dallas, Texas
June 28, 1996
----------------
To the Directors and Shareholders of NEI WebWorld, Inc.:
The accompanying financial statements are presented to give effect to the
3.33-to-one common stock split and for the conversion of preferred stock into
2,008,823 shares of common stock in connection with the Company's contemplated
offering as described in Notes 10 and 11 to the financial statements. The
above report is in the form that we will sign upon the effectiveness of such
events assuming that, from June 28, 1996 to the effective date of such events,
no other material events have occurred that would affect these financial
statements.
Deloitte & Touche LLP
Dallas, Texas
June 28, 1996
F-2
<PAGE>
NEI WEBWORLD, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
---------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................ $ 500 $ 500
Accounts receivable--net (Notes 3 and 7)............ 1,718,046 2,773,738
Inventories (Note 7)................................ 607,538 929,235
Prepaid expenses and other.......................... 20,145 443
Deferred income tax benefits (Note 9)............... 13,292 --
Deferred costs on insurance claims in process (Note
6)................................................. 290,172 --
---------- ----------
Total current assets.............................. 2,649,693 3,703,916
PROPERTY, PLANT AND EQUIPMENT--Net (Notes 4 and 7).... 2,870,215 4,573,785
INTANGIBLES AND OTHER ASSETS--Net (Note 5)............ 657,951 540,532
DEFERRED INCOME TAX BENEFITS (Note 9)................. 42,024 20,000
---------- ----------
TOTAL............................................. $6,219,883 $8,838,233
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable (Note 7)............................... $ 950,000 $1,461,831
Current portion of long-term debt (Note 7).......... 689,904 664,286
Accounts payable.................................... 706,156 1,578,365
Accrued expenses and other liabilities.............. 129,613 251,695
Accrued management and consulting fees (Note 13).... 32,500 82,500
Accrued equipment installation costs (Note 2)....... -- 580,000
Income taxes payable (Note 9)....................... -- 45,526
---------- ----------
Total current liabilities......................... 2,508,173 4,664,203
LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS--Less
current portion (Note 7)............................. 3,020,027 3,395,714
COMMITMENTS (Note 8)
SHAREHOLDERS' EQUITY (Notes 10 and 11):
Common stock put warrants for 90,000 shares, at
estimated redemption value......................... 50,000 --
Common stock: 20,000,000 shares of $.01 par value
authorized; 2,203,628 shares and 2,719,778 shares
issued and outstanding, respectively............... 22,036 27,198
Additional paid-in capital.......................... 853,849 1,033,687
Accumulated deficit................................. (234,202) (157,569)
Notes receivable--shareholders...................... -- (125,000)
---------- ----------
Total shareholders' equity........................ 691,683 778,316
---------- ----------
TOTAL............................................. $6,219,883 $8,838,233
========== ==========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
NEI WEBWORLD, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
------------------------ ------------------------
1995 1996 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES (Note 3)........ $12,005,532 $14,285,858 $11,039,603 $12,820,032
COST OF SALES............. 9,775,507 12,239,998 9,416,389 10,611,446
----------- ----------- ----------- -----------
GROSS PROFIT.............. 2,230,025 2,045,860 1,623,214 2,208,586
OPERATING EXPENSES:
Selling, general and
administrative (Note
12).................... 912,390 1,164,963 923,931 1,116,539
Depreciation--property.. 378,151 410,702 305,926 378,899
Amortization--
intangibles............ 232,624 232,485 174,430 174,163
Management and
consulting fees (Note
13).................... 140,250 157,408 152,950 138,499
----------- ----------- ----------- -----------
Total................. 1,663,415 1,965,558 1,557,237 1,808,100
----------- ----------- ----------- -----------
OPERATING INCOME.......... 566,610 80,302 65,977 400,486
OTHER INCOME (EXPENSE):
Interest expense (Note
7)..................... (420,856) (445,154) (335,052) (374,986)
Other................... 3,943 25,776 23,932 19,413
Gain on fire insurance
settlement (Note 6).... -- -- -- 271,265
----------- ----------- ----------- -----------
Total................. (416,913) (419,378) (311,120) (84,308)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
INCOME TAX EXPENSE AND
EXTRAORDINARY ITEM....... 149,697 (339,076) (245,143) 316,178
INCOME TAX (BENEFIT)
EXPENSE (Note 9)......... 47,823 (29,019) (21,764) 107,000
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM....... 101,874 (310,057) (223,379) 209,178
EXTRAORDINARY ITEM--Loss
on debt retirement (net
of income tax benefit of
$36,000) (Note 7)........ -- -- -- (72,545)
----------- ----------- ----------- -----------
NET INCOME (LOSS)......... $ 101,874 $ (310,057) $ (223,379) $ 136,633
=========== =========== =========== ===========
PRO FORMA EARNINGS PER
SHARE:
Income (loss) before
extraordinary item..... $ (0.11) $ (0.08) $ 0.08
=========== =========== ===========
Net income (loss)....... $ (0.11) $ (0.08) $ 0.05
=========== =========== ===========
PRO FORMA COMMON SHARES
OUTSTANDING.............. 2,719,778 2,719,778 2,719,778
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
NEI WEBWORLD, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON COMMON STOCK ADDITIONAL NOTES TOTAL
STOCK PUT ----------------- PAID-IN ACCUMULATED RECEIVABLE- SHAREHOLDERS'
WARRANTS SHARES AMOUNT CAPITAL DEFICIT SHAREHOLDERS EQUITY
--------- --------- ------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT APRIL 1,
1994................... $ 50,000 2,003,828 $20,038 $ 823,462 $ 6,366 $ -- $ 899,866
Accretion on preferred
stock previously
outstanding (Note
10).................. -- 99,900 999 101,027 (102,026) -- --
Accretion for
estimated redemption
value of common stock
put warrants for
90,000 shares........ 159,124 -- -- -- (159,124) -- --
Net income............ -- -- -- -- 101,874 -- 101,874
-------- --------- ------- ---------- --------- --------- ---------
BALANCES AT MARCH 31,
1995................... 209,124 2,103,728 21,037 924,489 (152,910) -- 1,001,740
Accretion on preferred
stock previously
outstanding (Note
10).................. -- 99,900 999 (70,640) 69,641 -- --
Accretion (decrease)
for estimated
redemption value of
the common stock put
warrants............. (159,124) -- -- -- 159,124 -- --
Net loss.............. -- -- -- -- (310,057) -- (310,057)
-------- --------- ------- ---------- --------- --------- ---------
BALANCES AT MARCH 31,
1996................... 50,000 2,203,628 22,036 853,849 (234,202) -- 691,683
Accretion on preferred
stock previously
outstanding (Note
10).................. -- 99,900 999 59,001 (60,000) -- --
Issuance of common
stock warrants for
80,000 shares........ 23,500 -- -- -- (23,500) -- --
Redemption of common
stock warrants for
170,000 shares....... (73,500) -- -- -- 23,500 -- (50,000)
Exercise of stock
options.............. -- 416,250 4,163 120,837 -- (125,000) --
Net income............ -- -- -- -- 136,633 -- 136,633
-------- --------- ------- ---------- --------- --------- ---------
BALANCES AT DECEMBER 31,
1996 (UNAUDITED)....... $ -- 2,719,778 $27,198 $1,033,687 $(157,569) $(125,000) $ 778,316
======== ========= ======= ========== ========= ========= =========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
NEI WEBWORLD, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
---------------------- ----------------------
1995 1996 1995 1996
---------- ---------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)............. $ 101,874 $ (310,057) $(223,379) $ 136,633
Extraordinary loss on debt
retirement................... -- -- -- 108,545
Gain on fire insurance
settlement (Note 6).......... -- -- -- (271,265)
Noncash items in net income:
Depreciation and
amortization............... 610,775 643,187 473,294 544,964
Amortization of debt
discount................... 8,956 9,510 7,062 8,098
Gain on retirement of
asset...................... -- (17,032) -- --
Deferred income taxes....... (37,083) (18,233) (13,675) 35,316
Cash from (used for) operating
working capital:
Accounts receivable......... (442,699) (272,919) (402,855) (559,828)
Inventories................. (523,761) 333,659 (163,359) 231,241
Prepaid expenses and other.. 2,850 17,928 (7,030) 19,702
Costs related to insurance
claims settlements (Note
6)......................... -- (127,741) -- (83,227)
Accounts payable and accrued
liabilities................ 158,235 (179,315) 226,628 215,490
Income taxes payable........ 47,542 (47,542) (46,906) 45,526
---------- ---------- --------- -----------
Net cash provided by (used
for) operating
activities............... (73,311) 31,445 (150,220) 431,195
---------- ---------- --------- -----------
INVESTING ACTIVITIES:
Acquisition of assets (Note
2)........................... (217,063)
Additions to property, plant
and equipment................ (193,079) (266,420) (198,382) (429,707)
Proceeds from insurance
settlements (Note 6)......... 61,853 21,824 -- 578,965
Increase in intangibles and
other assets................. (20,201) -- -- (90,079)
---------- ---------- --------- -----------
Net cash used for investing
activities................. (151,427) (244,596) (198,382) (157,884)
---------- ---------- --------- -----------
FINANCING ACTIVITIES:
Borrowings on notes payable
and long-term debt........... 400,000 550,000 850,000 4,711,831
Payments/retirement of notes
payable and long-term debt... (553,808) (636,849) (460,470) (4,935,142)
Borrowings under capital lease
arrangements................. -- 300,000 -- --
Redemption of warrants........ -- -- -- (50,000)
---------- ---------- --------- -----------
Net cash provided by (used
for) financing activities.. (153,808) 213,151 389,530 (273,311)
---------- ---------- --------- -----------
INCREASE (DECREASE) IN CASH..... (378,546) -- 40,928 --
CASH:
Beginning of period........... 379,046 500 500 500
---------- ---------- --------- -----------
End of period................. $ 500 $ 500 $ 41,428 $ 500
========== ========== ========= ===========
SUPPLEMENTAL INFORMATION:
Interest paid................. $ 436,075 $ 445,806 $ 327,990 $ 366,573
========== ========== ========= ===========
Income taxes paid (received).. $ 40,000 $ 47,000 $ 47,000 $ (9,842)
========== ========== ========= ===========
Noncash investing and
financing activities:
Acquisition of assets for
long-term debt (Note 2).... $ 1,010,000
===========
Exercise of stock options
for notes receivable (Note
11)........................ $ 125,000
===========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
NEI WEBWORLD, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1995 AND 1996, NINE MONTHS ENDED DECEMBER 31, 1995
(UNAUDITED) AND 1996 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business--NEI WebWorld, Inc. (the "Company") is in the business of printing
television programming schedules, advertising circulars, school catalogs and
other similar supplements for newspapers and periodicals. The Company
commenced operations in February 1994 following an acquisition accounted for
under the purchase method.
Preparation of Financial Statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingencies at the date of the financial statements and the
reported amounts of revenues and expenses for the period. Differences from
those estimates are recorded in the period they become known.
Revenues are recognized as sales primarily when print jobs are shipped.
Also, in accordance with trade practice, revenues are accrued for jobs in
process at year-end on the basis of production activity at pro rata billing
value of work completed.
Inventories, which consist primarily of paper, are stated at the lower of
cost (first-in, first-out method) or market.
Property, Plant and Equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are provided
using the straight-line method over the estimated useful lives of the assets
as follows: building and improvements--7 to 40 years, printing equipment and
other property--5 to 11 years.
Intangibles and Other Assets are amortized on a straight-line basis over
five years.
Financial Instruments consist of cash, receivables, payables and debt, the
carrying values of which are a reasonable estimate of their fair values due to
their short maturities or current interest rates.
Deferred Income Taxes are provided under the asset and liability method for
temporary differences in the recognition of income and expense for tax and
financial reporting purposes.
Stock-Based Compensation arising from stock option grants is accounted for
by the intrinsic value method under APB Opinion No. 25. Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," is
effective for the Company beginning April 1, 1996, although no options have
been granted since that date. This statement requires expanded disclosures of
stock-based compensation arrangements with employees and encourages (but does
not require) compensation cost to be measured based on the fair value of the
equity instrument awarded. As permitted by SFAS No. 123, the Company will
continue to apply APB Opinion No. 25 to its stock-based compensation awards to
employees and will disclose the required pro forma effect on net income and
earnings per share.
Pro Forma Earnings Per Share are computed based on the weighted average
number of common shares restated for the common stock split and the preferred
stock conversion discussed in Notes 10 and 11 outstanding in fiscal 1996 and
in the interim periods presented.
Unaudited Interim Financial Information at December 31, 1996, and for the
nine months ended December 31, 1995 and 1996, have been prepared on the same
basis as the audited financial statements presented. In the opinion of
management, such unaudited information includes all adjustments, consisting
only of normal recurring
F-7
<PAGE>
NEI WEBWORLD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
adjustments, necessary for a fair presentation of this interim information.
The results of the nine months ended December 31, 1996, are not necessarily
indicative of future results.
2. ASSET ACQUISITION (UNAUDITED)
Effective September 13, 1996, the Company acquired certain printing
equipment and other assets and assumed certain liabilities from Webworks, Inc.
("Webworks"), a subsidiary of Morris Newspaper Corporation, for $50,000 cash,
a $1,010,000 note payable to the seller (Note 7) and $167,063 of acquisition
costs primarily paid in cash. The total purchase price was allocated to the
assets acquired and liabilities assumed in proportion to their fair values as
shown below:
<TABLE>
<S> <C>
Current assets acquired--primarily receivables and
inventories................................................ $1,048,802
Current liabilities assumed................................. (828,802)
Accrued equipment installation costs........................ (580,000)
----------
Net current liabilities..................................... (360,000)
Web presses and other printing equipment acquired........... 1,587,063
----------
$1,227,063
==========
</TABLE>
The acquired printing equipment is located in a facility leased under a
short-term operating lease. The estimated costs for the Company to relocate
and install the equipment in its facilities have been accrued, based on the
installation plan initiated at acquisition. The installation will commence in
March 1997 and is expected to be completed in September 1997.
3. ACCOUNTS RECEIVABLE AND SIGNIFICANT CUSTOMERS
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
---------- ------------
(UNAUDITED)
<S> <C> <C>
Trade:
Billed........................................... $1,616,545 $2,694,549
Accrued revenues on jobs in process.............. 43,209 84,854
Other accounts receivable.......................... 60,644 16,686
---------- ----------
1,720,398 2,796,089
Less allowance for doubtful accounts............... 2,352 22,351
---------- ----------
Accounts receivable--net........................... $1,718,046 $2,773,738
========== ==========
</TABLE>
Revenues and accounts receivable from significant customers represent the
following percentages of the Company's net sales and accounts receivable:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31, NINE MONTHS ENDED DECEMBER 31,
----------------------------------------- -----------------------------------------
1995 1996 1995 (UNAUDITED) 1996 (UNAUDITED)
-------------------- -------------------- -------------------- --------------------
ACCOUNTS ACCOUNTS ACCOUNTS ACCOUNTS
NET SALES RECEIVABLE NET SALES RECEIVABLE NET SALES RECEIVABLE NET SALES RECEIVABLE
--------- ---------- --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Customer A.............. 56% 48% 55% 36% 53% 39% 36% 18%
Customer B.............. 16% 7% 6% 1% 6% 1% 1% 1%
Customer C.............. -- -- 6% 14% 5% 11% 10% 7%
Customer D.............. 4% 6% 5% 9% 5% 17% 7% 7%
</TABLE>
F-8
<PAGE>
NEI WEBWORLD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
---------- ------------
(UNAUDITED)
<S> <C> <C>
Land.............................................. $ 186,264 $ 186,264
Building and improvements......................... 863,830 1,181,156
Printing equipment and other property............. 2,611,376 4,374,719
Furniture and fixtures............................ 27,909 29,709
Automotive and office equipment................... 8,000 8,000
---------- ----------
3,697,379 5,779,848
Less accumulated depreciation and amortization.... 827,164 1,206,063
---------- ----------
Property, plant and equipment--net................ $2,870,215 $4,573,785
========== ==========
</TABLE>
5. INTANGIBLES AND OTHER ASSETS
Intangibles and other assets consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
---------- ------------
(UNAUDITED)
<S> <C> <C>
Noncompete agreements.............................. $ 750,000 $ 750,000
Goodwill........................................... 305,533 305,533
Debt issuance costs................................ 80,322 90,079
Organizational costs............................... 25,235 25,235
---------- ----------
1,161,090 1,170,847
Less accumulated amortization...................... 503,139 630,315
---------- ----------
Intangibles and other assets--net.................. $ 657,951 $ 540,532
========== ==========
</TABLE>
6. FIRE INSURANCE CLAIMS
On March 6, 1996, a fire damaged a portion of the Company's facilities.
Related to this fire, the Company deferred costs totaling $290,172, consisting
primarily of $162,431 for the net book value of property identified as damaged
by the fire, $62,042 for cleanup costs and $65,699 for restoration and
enhancement costs incurred through March 31, 1996. The Company continued to
incur cleanup and restoration costs after March 31, 1996, and was in the
process of finalizing its claim with an insurance company at that date.
In the nine months ended December 31, 1996 (unaudited), the Company incurred
additional cleanup costs of $83,227, received insurance proceeds of $578,965
and recorded a gain of $271,265. Also, total restoration and enhancement costs
of $395,903 were recorded as additions to buildings and improvements and to
equipment.
F-9
<PAGE>
NEI WEBWORLD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. NOTES PAYABLE, CREDIT FACILITIES AND CAPITALIZED LEASE OBLIGATIONS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
---------- ------------
(UNAUDITED)
<S> <C> <C>
Notes payable to lender under term loans, due in
monthly principal installments of $38,690, plus in-
terest at lender's prime rate (8% at December 31,
1996), plus 1.5%, balance due December 31, 1998, col-
lateralized by substantially all Company assets...... $ -- $3,250,000
Subordinated note payable to Webworks, interest at 12%
payable quarterly, plus principal installments of
$500,000 on December 31, 1996, $100,000 on September
12, 1997 and 1998, and $310,000 on September 12,
1999, collateralized by certain property............. -- 510,000
Subordinated note payable to prior owner, due in an-
nual principal installments of $100,000, plus inter-
est at 8% payable quarterly, through February 28,
1999................................................. 300,000 300,000
Note payable to bank under term loan, due in monthly
installments of $9,320, including interest at 8.64%,
balance due March 31, 1999, collateralized by sub-
stantially all Company assets........................ 859,660 --
Subordinated notes payable to lender (net of $31,434
unamortized discount assigned to common stock war-
rant), interest at 12% payable quarterly, plus prin-
cipal installments of $62,500 per quarter beginning
June 30, 1997 through March 31, 2000, collateralized
by substantially all Company assets.................. 718,566 --
Capital lease obligations, due in monthly installments
of $58,660, including interest at 8.6% to 10.9%
through December 31, 2000, collateralized by the
leased equipment. Future minimum lease payments total
$2,100,431, which includes interest of $268,726...... 1,831,705 --
---------- ----------
3,709,931 4,060,000
Less current portion.................................. 689,904 664,286
---------- ----------
Long-term debt--less current portion.................. $3,020,027 $3,395,714
========== ==========
</TABLE>
Notes payable of $1,461,831 at December 31, 1996 (unaudited), are due under
a $3,750,000 revolving loan agreement as of that date which matures December
31, 1998, and is subject to annual renewals thereafter. Borrowings under the
revolving loan are subject to borrowing base requirements which may be
adjusted at the lender's discretion, bear interest payable monthly at lender's
prime rate plus 1.25%, and are collateralized by a lockbox requirement and by
substantially all Company assets. The revolving loan carries a .25% annual
commitment fee, payable quarterly, on the unused portion of the loan.
The loan agreement and notes payable to lender under the revolving loan and
term loans require maintenance of specified levels of adjusted net worth and
limit additional debt, investing activities, payment of dividends, purchases
of Company stock, other changes in ownership and transactions with related
parties. The loan agreement carries a $1,000 monthly servicing fee and early
termination fees of $270,000 prior to December 31, 1997, $180,000 prior to
December 31, 1998, and $90,000 prior to the end of any renewal period.
The loan agreement also provides for capital expenditures loans of up to
$2,000,000, which would bear interest at the lender's prime rate, plus 1.5%,
would be payable monthly over five years or by the termination of the
agreement, and would be collateralized by substantially all Company assets. No
capital expenditures loans are outstanding at December 31, 1996.
F-10
<PAGE>
NEI WEBWORLD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In December 1996 (unaudited), a portion of the proceeds under these
facilities were used by the Company to retire the notes payable to the bank
under the revolving line of credit, the term loans and the subordinated notes
payable discussed below.
Notes payable of $950,000 at March 31, 1996, are due under a $1,100,000
revolving bank line of credit which matures March 31, 1997 (as revised on
September 13, 1996). Borrowings under the line of credit are subject to
borrowing base requirements, bear interest payable monthly at the bank's base
rate (8.25% at March 31, 1996) plus 1.5% and are collateralized by
substantially all Company assets. The revolving line of credit carries a
commitment fee of .25% on the unused portion of the loan.
On September 13, 1996, the subordinated lender and the Company amended the
subordinated loan agreement. The amended agreement provides for an accelerated
payment on the original loan of $50,000 payable on September 19, 1996, without
prepayment penalty. In addition, this lender received warrants to purchase
80,000 shares of the Company's stock for $1 a share, and granted the Company
the option to repay the loan in full by December 31, 1996, without any
prepayment penalties and repurchase the 1994 and 1996 warrants for $50,000.
Long-term debt under the agreements existing at December 31, 1996
(unaudited), matures as follows:
<TABLE>
<S> <C>
Fiscal year ending March 31:
1997......................................................... $ 216,071
1998 (including $448,215 for the nine months ending
December 31, 1997).......................................... 664,285
1999......................................................... 2,869,644
2000......................................................... 310,000
----------
$4,060,000
==========
</TABLE>
8. COMMITMENTS
Purchase Commitments--During the period ended December 31, 1996 (unaudited),
the Company assumed an unconditional purchase obligation to a printing
materials supplier for purchases at market value through March 1999. Minimum
future purchases under the agreement at December 31, 1996, are as follows:
<TABLE>
<S> <C>
Fiscal year ending March 31:
1997......................................................... $ 178,652
1998......................................................... 714,608
1999......................................................... 406,697
----------
$1,299,957
==========
</TABLE>
F-11
<PAGE>
NEI WEBWORLD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Operating Leases--During the period ended, and subsequent to, December 31,
1996 (unaudited), the Company has entered into long-term noncancelable
operating leases for certain equipment and for an adjacent plant facility. The
Company has the option to purchase the leased facility for $1,700,000. Minimum
future rental commitments for these leases at December 31, 1996, are as
follows:
<TABLE>
<S> <C>
Fiscal year ending March 31:
1997......................................................... $ 2,133
1998......................................................... 182,760
1999......................................................... 216,254
2000......................................................... 211,250
2001......................................................... 211,250
2002......................................................... 211,250
2003......................................................... 35,208
----------
$1,070,105
==========
</TABLE>
Rent expense under operating leases for the nine months ended December 31,
1996, was $2,133.
9. INCOME TAXES
The tax effects of significant items comprising the Company's net deferred
income tax benefit are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
--------- ------------
(UNAUDITED)
<S> <C> <C>
Current:
Allowance for accounts receivable, not
currently deductible.......................... $ 1,000 $ 8,000
Vacation and bonus accruals, not currently
deductible.................................... 7,000 29,000
Net operating loss carryforward................ 28,000
Other.......................................... 5,292 (6,000)
Valuation allowance............................ -- (59,000)
-------- --------
Total current assets......................... 13,292 --
Long-term:
Accelerated depreciation and amortization for
tax purposes.................................. (68,468) (79,000)
Gain on fire insurance settlement, not
currently taxable............................. -- (92,000)
Net operating loss carryforward (expiring
2011)......................................... 120,000 92,000
Alternative minimum tax credit carryforward.... 68,000 101,000
Valuation allowance............................ (77,508) (2,000)
-------- --------
Total long-term assets....................... 42,024 20,000
-------- --------
Net deferred tax asset........................... $ 55,316 $ 20,000
======== ========
</TABLE>
F-12
<PAGE>
NEI WEBWORLD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The resulting components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
---------------------- ------------------
1995 1996 1995 1996
---------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current...................... $ 84,906 $ (10,786) $ (8,089) $ 35,684
Deferred..................... (37,083) (18,233) (13,675) 51,824
Change in valuation
allowance................... -- -- -- (16,508)
---------- ---------- -------- --------
Income tax expense
(benefit)................... $ 47,823 $ (29,019) $(21,764) $ 71,000
========== ========== ======== ========
</TABLE>
Income (loss) before income taxes and the related income tax (benefit) for
the nine months ended December 31, 1996 (unaudited), are as follows:
<TABLE>
<CAPTION>
INCOME TAX
AMOUNT (BENEFIT)
-------- ----------
<S> <C> <C>
Income before income tax expense and extraordinary
item.............................................. $316,178 $107,000
Extraordinary item................................. (108,545) (36,000)
-------- --------
$207,633 $ 71,000
======== ========
</TABLE>
Income tax expense of $71,000 represents taxes computed by applying the
statutory federal income tax rate of 34% to income before income taxes, less
extraordinary item.
10. PREFERRED STOCKS CONVERTED
The Company is authorized to issue 2,000,000 shares of $1 par value
preferred stock. In fiscal 1996 and prior years, the Company had Series A, B
and C preferred stocks issued and outstanding, which had annual cumulative
dividends (payable in Series C preferred stock) and mandatory redemption
features requiring annual accretion. These preferred stocks were converted to
common stock when the registration statement related to the contemplated
offering was declared effective. The financial statements are presented as if
these stocks were converted at the beginning of the periods reported.
11. COMMON STOCK
Common Stock--In March 1997 (unaudited), the Company effected a 3.33-to-one
stock split. At the effective date of the contemplated offering, the Company
converted Series A, B and C preferred stocks to 2,008,823 shares of common
stock. All share data has been restated for these events.
Common Stock Put Warrants--In connection with the subordinated notes payable
to lender, in February 1994, the Company issued warrants for 90,000 shares of
common stock. The warrants were exercisable at any time on or prior to the
expiration date of February 28, 2004, and entitled the holder to purchase
common stock for $1 per share, subject to certain adjustments. An estimated
initial value of $50,000 was assigned to the warrants. The warrant holder
could require the Company to purchase the warrants or common shares issued
upon exercise of the warrants (warrant shares) on or after February 28, 2000,
until the expiration date, subject to certain limitations.
In September 1996 (unaudited), the Company issued to the warrant holder
additional warrants for the purchase of 80,000 shares of common stock for $1
per share, valued at $23,500, and in December 1996, redeemed the total 170,000
warrants outstanding for $50,000.
F-13
<PAGE>
NEI WEBWORLD, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Common Stock Options--Under a stock option plan, options for no more than
150,000 shares of common stock may be granted to certain Company employees and
consultants at prices equal to or greater than the fair market value of the
common stock as determined by the Board of Directors at the dates of grant. In
February 1994, the Company granted a principal officer/shareholder, a
director/shareholder and a preferred shareholder options to purchase a total
of 125,000 shares of common stock at an exercise price of $1 per share. The
options are exercisable subject to the Company's attainment of certain
earnings requirements. At March 31, 1996, 25,000 options are exercisable.
In April 1996 (unaudited), the Company vested all options previously granted
and terminated that plan. These options for 125,000 shares of common stock
were exercised for notes receivable totaling $125,000, which are classified as
a reduction of shareholders' equity. The notes (with recourse) bear interest
at 6% payable annually and mature April 2001.
Subsequent to December 31, 1996 (unaudited), the Company adopted the Stock
Option Plan (the "Plan") which authorizes the Company to grant to employees
and directors incentive and nonqualified options to purchase up to 350,000
shares of common stock at a price not less than the fair market value of the
common stock on the date of grant. Options under the Plan generally vest over
five years, vest immediately upon certain events and expire no more than ten
years from the date of grant. No options have been granted under the Plan.
12. EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) savings plan which covers substantially all
of its regular employees. The Company's annual contribution to the savings
plan is determined at the discretion of the Board of Directors. The Company
recorded contributions of approximately $31,000, $36,000 and $23,000 for
fiscal years 1996 and 1995 and for the nine months ended December 31, 1996
(unaudited), respectively.
13. TRANSACTIONS WITH RELATED PARTIES
The Company has an agreement with a preferred shareholder to provide
supervisory management services to the Company. Management fees totaled
$100,000 in fiscal 1996 and 1995, with $25,000 included in accrued management
and consulting fees at March 31, 1996. For the nine months ended December 31,
1996 (unaudited), management fees totaled $125,000, $50,000 of which related
to the acquisition of Webworks assets and refinancing of long-term debt. At
December 31, 1996, $75,000 is included in accrued management and consulting
fees.
The Company has a consulting agreement with a director and shareholder which
provides for a fixed fee each quarter and a contingent fee based on the
Company's sales growth. Consulting fees totaled $30,000 in fiscal 1996 and
1995, with $7,500 included in accrued management and consulting fees at March
31, 1996. For the nine months ended December 31, 1996 (unaudited), consulting
fees totaled $52,500, $30,000 of which related to the acquisition of Webworks
assets. At December 31, 1996, $7,500 is included in accrued management and
consulting fees.
F-14
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE INFOR-
MATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CON-
NECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES TO ANY PERSON
IN ANY JURISDICTION IN WHICH SUCH AN 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 SOLICITA-
TION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HERE-
OF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... 2
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 12
Dividend Policy.......................................................... 13
Capitalization........................................................... 13
Dilution................................................................. 14
Selected Financial Data.................................................. 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business................................................................. 19
Management............................................................... 25
Certain Transactions..................................................... 29
Principal Shareholders................................................... 29
Description of Capital Stock............................................. 30
Shares Eligible For Future Sale.......................................... 32
Underwriting............................................................. 33
Legal Matters............................................................ 35
Experts.................................................................. 35
Index to Financial Statements............................................ F-1
</TABLE>
----------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPEC-
TUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UN-
SOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1,000,000 SHARES OF
COMMON STOCK
1,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
NEI WEBWORLD, INC.
----------------
PROSPECTUS
, 1997
----------------
FIRST LONDON SECURITIES CORPORATION
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 2.02-1 of the Texas Business Corporation Act provides generally and
in pertinent part that a Texas corporation may indemnify its directors and
officers against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by them in connection with any suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) if, in connection with
the matters in issue, they acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation,
and, in connection with any criminal suit or proceeding, if in connection with
the matters in issue, they had no reasonable cause to believe their conduct
was unlawful.
The registrant's Articles of Incorporation provide that a director of the
registrant shall not be liable to the registrant or its shareholders for any
act or omission in such director's capacity as a director to the fullest
extent permitted by Texas statutory or decisional law.
The Company's Bylaws provide that the Company shall indemnify each of its
directors and officers, acting in such capacity, so long as such person acted
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the Company. Such indemnification may be made
only upon a determination that such indemnification is proper in the
circumstances because the person to be indemnified has met the applicable
standard of conduct to permit indemnification under the law. The Company is
also required to advance to such persons payment for their expenses incurred
in defending a proceeding to which indemnification might apply, provided the
recipient provides an undertaking agreeing to repay all such advanced amounts
if it is ultimately determined that he is not entitled to be indemnified.
The Company has entered into Indemnification and Hold Harmless Agreements
with its directors which provide that the Company will indemnify its directors
to the fullest extent permitted by applicable law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amount shown are estimates
except the Securities and Exchange Commission registration and NASD filing
fees.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 7,364
NASD filing fee.................................................. 2,931
Pacific Stock Exchange and Nasdaq SmallCap Market listing fee.... 27,500
Underwriters' non-accountable expense allowance.................. 175,375
Legal fees and expenses.......................................... 125,000
Accounting fees and expenses..................................... 120,000
Printing and engraving expenses.................................. 30,000
Transfer agent and registrar fees and expenses................... 3,000
Blue Sky fees and expenses....................................... 15,000
Miscellaneous expenses........................................... 18,830
--------
Total........................................................ $525,000
========
</TABLE>
ITEM 26. RECENT SALE OF UNREGISTERED SECURITIES.
Since March 7, 1994, the Company has not sold or issued any unregistered or
registered securities, other than the issuance of 416,250 shares of Common
Stock in April 1996 upon the exercise of options granted in February 1994. The
Company relied on the exemption provided by Section 4(2) of the Act.
II-1
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of NEI WebWorld, Inc., as amended.
3.2 Bylaws, as amended and restated, of NEI WebWorld, Inc.
4.1 Warrant Agreement.
5.1 Opinion of Crouch & Hallett, L.L.P.
10.1 Employment Agreement of Richard M. Wiencek.
10.2 Consulting Agreement of Robert D. Kopitke.
10.3 Management Agreement of Conrad/Collins Merchant Banking Group, Ltd.
10.4 NEI WebWorld, Inc. Stock Option Plan.
10.5 Contract with The Dallas Morning News.
10.6 Loan and Security Agreement by and among the Company and Congress
Financial Corporation (Southwest), dated December 31, 1996.
10.7 Promissory Note issued by NEI WebWorld, Inc. to The Webworks, Inc. as
of September 13, 1996 as amended by the Modification of Promissory
Note dated December 30, 1996.
10.8 Subordinated Note dated February 28, 1994 in the amount of $500,000
executed by NEI WebWorld, Inc. (formerly known as NEI Acquisition
Corporation) to Robert L. Jensen.
10.9 Form of note dated April 2, 1996 issued by certain shareholders of NEI
WebWorld, Inc. in connection with stock option exercises.
10.10 Form of Indemnification and Hold Harmless Agreement.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Crouch & Hallett, L.L.P. (included in Exhibit 5.1).
24.1 Power of Attorney (included on page II-4).
27.1 Financial Data Schedule.
</TABLE>
ITEM 28. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(b) The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act 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 Act, 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.
(c) The Registrant hereby undertakes (1) to file, during any period in which
it offers or sells securities, a post-effective amendment to this Registration
Statement, to include any prospectus required by section 10(a)(3) of the Act,
to reflect in the prospectus any facts or events which, individually or
together, represent a
II-2
<PAGE>
fundamental change in the information in the Registration Statements, and to
include any additional or changed material information on the plan of
distribution; (2) that, for the purpose of determining any liability under the
Act, to treat each post-effective amendment as a new Registration Statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof; and
(3) to file a post-effective amendment to remove from registration any of the
securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising from the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant 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 Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENT 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 THE CITY OF DALLAS, STATE OF TEXAS
ON THE 7TH DAY OF MARCH, 1997.
NEI WEBWORLD, INC.
By: /s/ Richard J. Wiencek
-----------------------------------
RICHARD J. WIENCEK, PRESIDENT
POWER OF ATTORNEY
We, the undersigned officers and directors of NEI WebWorld, Inc. hereby
severally constitute and appoint Barry B. Conrad and Richard J. Wiencek, and
each of them singly, our true and lawful attorneys, with full power to them
and each of them singly, to sign for us in our names in the capacities
indicated below, all pre-effective and post-effective amendments to this
Registration Statement, including any filings pursuant to Rule 462(b) under
the Securities Act of 1933, as amended, and generally to do all things in our
names and on our behalf in such capacities to enable NEI WebWorld, Inc. to
comply with the provisions of the Securities Act of 1933, as amended, and all
requirements of the Securities and Exchange Commission.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES ON THE 7TH DAY OF MARCH, 1997.
NAME TITLE
/s/ Richard J. Wiencek President and Chief Executive
- ------------------------------------- Officer and Director
RICHARD J. WIENCEK
/s/ Bruce E. Fredriks Vice President--Finance and
- ------------------------------------- Administration and Chief Financial
BRUCE E. FREDRIKS Officer (Principal Financial
Officer)
/s/ Barry B. Conrad Director and Chairman of the Board
- -------------------------------------
BARRY B. CONRAD
/s/ Floyd W. Collins Director
- -------------------------------------
FLOYD W. COLLINS
/s/ Brian A. Harpster Director
- -------------------------------------
BRIAN A. HARPSTER
/s/ Robert D. Kopitke Director
- -------------------------------------
ROBERT D. KOPITKE
II-4
<PAGE>
EXHIBIT 1.1
NEI WEBWORLD, INC.
1,000,000 SHARES OF COMMON STOCK AND
1,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
UNDERWRITING AGREEMENT
----------------------
Dallas, Texas
, 1997
----------
First London Securities Corporation
2600 State Street
Dallas, Texas 75204
Gentlemen:
NEI WebWorld, Inc. (the "Company"), on the basis of the representations,
warranties, covenants and conditions contained herein, hereby proposes to issue
and sell to such Underwriters as named in Schedule A (the "Underwriters") to
this Underwriting Agreement (the "Agreement"), for whom First London Securities
Corporation is acting as the representative (the "Representative"), pursuant to
the terms of this Agreement, on a "firm commitment" basis, 1,000,000 shares of
Common Stock (the "Shares") at $____ per Share and 1,000,000 Redeemable Common
Stock Purchase Warrants (the "Warrants") at $____ per Warrant. The Shares and
the Warrants are collectively referred to as the "Securities". Each Warrant is
exercisable to purchase one (1) share of Common Stock (the "Common Stock") at
the Initial Public Offering Price per share at any time during the period
between the Effective Date and five (5) years from the Effective Date. The date
upon which the Securities and Exchange Commission ("Commission") shall declare
the registration statement of the Company effective shall be the "Effective
Date". The Warrants are subject to redemption under certain circumstances. In
addition, the Company proposes to grant to the Underwriters (or, at the option
of the Representative, to the Representative, individually) the option referred
to in Section 2(b) to purchase all or any part of an aggregate of 150,000
additional Shares and/or 150,000 additional Warrants (the "Option Securities").
You have advised the Company that you and the other Underwriters desire to
purchase, severally, the Securities, and that you have been authorized by the
Underwriters to execute this Agreement on their behalf. The Company confirms the
agreements made by it with respect to the purchase of the Securities by the
several Underwriters on whose behalf you are signing this Agreement, as follows:
1
<PAGE>
1. Representations and Warranties of the Company.
---------------------------------------------
The Company represents and warrants to, and agrees with each of the
Underwriters as of the Effective Date (as defined above), the Closing Date (as
hereinafter defined) and the Option Closing Date (as hereinafter defined) that:
(a) A registration statement (File No. 333-_______) on Form SB-2
relating to the public offering of the Securities, including a preliminary form
of the prospectus, copies of which have heretofore been delivered to you, has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(the "Rules and Regulations") of the Commission thereunder, and has been filed
with the Commission under the Act. The Company has prepared in the same manner
and proposes to file, prior to the Effective Date of such registration
statement, an additional amendment or amendments to such registration statement,
including a final form of Prospectus, copies of which shall be delivered to you.
"Preliminary Prospectus" shall mean each prospectus filed pursuant to the Rules
and Regulations under the Act prior to the Effective Date. The registration
statement (including all financial schedules and exhibits) as amended at the
time it becomes effective and the final prospectus included therein are
respectively referred to as the "Registration Statement" and the "Prospectus",
except that (i) if the prospectus first filed by the Company pursuant to Rule
424(b) of the Rules and Regulations shall differ from said prospectus as then
amended, the term "Prospectus" shall mean the prospectus first filed pursuant to
Rule 424(b), and (ii) if such registration statement or prospectus is amended or
such prospectus is supplemented, after the effective date of such registration
statement and prior to the Option Closing Date (as hereinafter defined) , the
terms "Registration Statement" and "Prospectus" shall include such registration
statement and prospectus as so amended, and the term "Prospectus" shall include
the prospectus as so supplemented, or both, as the case may be.
(b) At the Effective Date and at all times subsequent thereto up to
the Option Closing Date, if any, and during such longer period as the Prospectus
may be required to be delivered in connection with sales by the Underwriters or
Selected Dealers: (i) the Registration Statement and Prospectus will in all
respects conform to the requirements of the Act and the Rules and Regulations;
and (ii) neither the Registration Statement nor the Prospectus will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make statements therein, in light of the
circumstances under which they are made, not misleading; provided, however, that
the Company makes no representations, warranties or agreement as to information
contained in or omitted from the Registration Statement or Prospectus in
reliance upon, and in conformity with, written information furnished to the
Company by the Underwriters specifically for use in the preparation thereof. It
is understood that the statements set forth in the Prospectus with respect to
stabilization, under the heading "Underwriting" and regarding the identity of
counsel to the Underwriters under the heading "Legal Matters" constitute the
only information furnished in writing by the Underwriters for inclusion in the
Prospectus.
(c) Each of the Company and each subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with full power and authority (corporate and
other) to own its properties and conduct its business as described in the
Prospectus and is duly qualified to do business as a foreign corporation and is
in good standing in all other jurisdictions in which the nature of its business
or the character or location
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of its properties requires such qualification, except where failure to so
qualify will not materially affect the Company's business, properties or
financial condition.
(d) The authorized, issued and outstanding securities of the Company
as of the date of the Prospectus is as set forth in the Prospectus under
"Capitalization"; all of the issued and outstanding securities of the Company
have been, or will be when issued as set forth in the Prospectus, duly
authorized, validly issued and fully paid and non-assessable; the issuances and
sales of all such securities complied in all material respects with applicable
Federal and state securities laws; the holders thereof have no rights of
rescission against the Company with respect thereto, and are not subject to
personal liability by reason of being such holders; none of such securities were
issued in violation of the preemptive rights of any holders of any security of
the Company or similar contractual rights granted by the Company; except as set
forth in the Prospectus, no options, warrants or other rights to purchase,
agreements or other obligations to issue, or agreements or other rights to
convert any obligation into, any securities of the Company have been granted or
entered into by the Company; and all of the securities of the Company, issued
and to be issued as set forth in the Registration Statement, conform to all
statements relating thereto contained in the Registration Statement and
Prospectus.
(e) The Shares are duly authorized, and when issued, delivered and
paid for pursuant to this Agreement, will be duly authorized, validly issued,
fully paid and non-assessable and free of preemptive rights of any security
holder of the Company. Neither the filing of the Registration Statement nor the
offering or sale of the Securities as contemplated in this Agreement gives rise
to any rights, other than those which have been waived or satisfied, for or
relating to the registration of any securities of the Company, except as
described in the Registration Statement and Prospectus.
The Warrants have been duly authorized and, when issued, delivered and
paid for pursuant to this Agreement, will have been duly authorized, issued and
delivered and will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms and entitled to the benefits
provided by the warrant agreement pursuant to which such Warrants are to be
issued (the "Warrant Agreement"), which will be substantially in the form filed
as an exhibit to the Registration Statement. The shares of Common Stock
issuable upon exercise of the Warrants have been reserved for issuance and when
issued in accordance with the terms of the Warrants and Warrant Agreement, will
be duly and validly authorized, validly issued, fully paid and non-assessable,
free of preemptive rights and no personal liability will attach to the ownership
thereof. The Warrant exercise period and the Warrant exercise price may not be
changed or revised by the Company without the prior written consent of the
Representative. The Warrant Agreement has been duly authorized and, when
executed and delivered pursuant to this Agreement will constitute the valid and
legally binding obligation of the Company enforceable in accordance with its
terms.
The Common Stock Representative Warrants, the Warrant Representative
Warrants, the Underlying Warrants, the shares of Common Stock issuable upon
exercise of the Common Stock Representative Warrants, and the shares of Common
Stock issuable upon exercise of the Underlying Warrants (all as defined in the
Representative's Warrant Agreement described in Section 12 herein), have been
duly authorized and, when issued, delivered and paid for, will be validly
issued, fully paid, non-assessable, free of preemptive rights and no personal
liability will attach to the ownership thereof, and will constitute valid and
legally binding obligations of the Company enforceable in
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accordance with their terms and entitled to the benefits provided by the
Representative's Warrant Agreement.
(f) This Agreement, the Warrant Agreement and the Representative's
Warrant Agreement have been duly and validly authorized, executed and delivered
by the Company, and assuming due execution of this Agreement by the other party
hereto, constitute valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, except as enforceability may
be limited by bankruptcy, insolvency or other laws affecting the rights of
creditors generally. The Company has full power and lawful authority to
authorize, issue and sell the Securities to be sold by it hereunder on the terms
and conditions set forth herein, and no consent, approval, authorization or
other order of any third party or any governmental authority is required in
connection with such authorization, execution and delivery or with the
authorization, issuance and sale of the Securities or the securities to be
issued pursuant to the Representative's Warrant Agreement, except such as may be
required under the Act or state securities laws, or as otherwise have been
obtained.
(g) Except as described in the Prospectus, neither the Company nor any
subsidiary is in material violation, breach of or default under, and
consummation of the transactions herein contemplated and the fulfillment of the
terms of this Agreement will not conflict with, or result in a breach of, or
constitute a material default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any of the property or assets of the
Company or each subsidiary or any of the terms or provisions of any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company or each subsidiary is a party or by which the Company or each
subsidiary may be bound or to which any of the property or assets of the Company
or each subsidiary is subject, nor will such action result in any material
violation of the provisions of the articles of incorporation or bylaws as
amended of the Company or each subsidiary, or any statute or any order, rule or
regulation applicable to the Company or subsidiary of any court or of any
regulatory authority or other governmental body having jurisdiction over the
Company or each subsidiary.
(h) Subject to the qualifications stated in the Prospectus, the
Company and each subsidiary have good and marketable title to all properties and
assets described in the Prospectus as owned by each of them, free and clear of
all liens, charges, encumbrances or restrictions, except such as are not
materially significant or important in relation to its business; all of the
material leases and subleases under which the Company or each subsidiary is the
lessor or sublessor of properties or assets or under which the Company or each
subsidiary holds properties or assets as lessee or sublessee as described in the
Prospectus are in full force and effect, and, except as described in the
Prospectus, neither the Company nor each subsidiary is in default in any
material respect with respect to any of the terms or provisions of any of such
leases or subleases, and no claim has been asserted by anyone, adverse to rights
of the Company or each subsidiary as lessor, sublessor, lessee, or sublessee
under any of the leases or subleases mentioned above, or affecting or
questioning the right of the Company or each subsidiary to continued possession
of the leased or subleased premises or assets under any such lease or sublease
except as described or referred to in the Prospectus; and the Company and each
subsidiary owns or leases all such properties described in the Prospectus as are
necessary to its operations as now conducted and, except as otherwise stated in
the Prospectus, as proposed to be conducted as set forth in the Prospectus.
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(i) Deloitte & Touche LLP, who have given their report on certain
financial statements filed and to be filed with the Commission as part of the
Registration Statement, and which are included in the Prospectus, are with
respect to the Company, independent public accountants as required by the Act
and the Rules and Regulations.
(j) The financial statements and schedules, together with related
notes, set forth in the Prospectus and the Registration Statement present fairly
the financial position and results of operations and changes in financial
position of the Company on the basis stated in the Registration Statement, at
the respective dates and for the respective periods to which they apply. Said
statements and related notes and schedules have been prepared in accordance with
generally accepted accounting principles applied on a basis which is consistent
during the periods involved. The Company's internal accounting controls and
procedures are sufficient to cause the Company and each subsidiary to prepare
financial statements which comply in all material respects with generally
accepted accounting principles applied on a basis which is consistent during the
periods involved. During the preceding five (5) year period, nothing has been
brought to the attention of the Company's management that would result in any
reportable condition relating to the Company's internal accounting procedures,
weaknesses or controls.
(k) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and the Prospectus and to and including the
Option Closing Date, except as set forth in or contemplated by the Registration
Statement and the Prospectus, (i) neither the Company nor any subsidiary has
incurred and will not have incurred any material liabilities or obligations,
direct or contingent, and has not entered into and will not have entered into
any material transactions other than in the ordinary course of business and/or
as contemplated in the Registration Statement and the Prospectus; (ii) neither
the Company nor any subsidiary has and will not have paid or declared any
dividends or have made any other distribution on its capital stock; (iii) there
has not been any change in the capital stock of, or any incurrence of long-term
debt by, the Company or any subsidiary; (iv) neither the Company nor any
subsidiary has issued any options, warrants or other rights to purchase the
capital stock of the Company or any subsidiary; and (v) there has not been and
will not have been any material adverse change in the business, financial
condition or results of operations of the Company or any subsidiary, or in the
book value of the assets of the Company or any subsidiary, arising for any
reason whatsoever.
(l) Except as set forth in the Prospectus, there is not pending or, to
the knowledge of the Company or any subsidiary, threatened, any material action,
suit, proceeding, inquiry, arbitration or investigation against the Company or
any subsidiary, or any of the officers or directors of the Company or any
subsidiary, or any material action, suit, proceeding, inquiry, arbitration, or
investigation, which might result in any material adverse change in the
condition (financial or other), business prospects, net worth, or properties of
the Company or any subsidiary.
(m) Except as disclosed in the Prospectus, each of the Company and
each subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns and has paid all taxes shown as due thereon; and there is
no tax deficiency which has been or to the knowledge of the Company might be
asserted against the Company or any subsidiary that has not been provided for in
the financial statements.
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(n) Except as set forth in the Prospectus, each of the Company and
each subsidiary has sufficient licenses, permits and other governmental
authorizations currently required for the conduct of its business or the
ownership of its property as described in the Prospectus and is in all material
respects in compliance therewith and owns or possesses adequate right to use all
material patents, patent applications, trademarks, service marks, trade-names,
trademark registrations, service mark registrations, copyrights, and licenses
necessary for the conduct of such business and has not received any notice of
conflict, with the asserted rights of others in respect thereof. To the best of
the Company's knowledge, none of the activities or business of the Company or
any subsidiary are in violation of, or cause the Company or any subsidiary to
violate, any law, rule, regulation or order of the United States, any state,
county or locality, or of any agency or body of the United States or of any
state, county or locality, the violation of which would have a material adverse
impact upon the condition (financial or otherwise), business, property,
prospective results of operations, or net worth of the Company and any
subsidiary.
(o) Neither the Company nor any subsidiary has, directly or
indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution, in
violation of law or (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar public or
quasi-public duties, other than payments or contributions required or allowed by
applicable law.
(p) On the Closing Dates (herein defined) all transfer or other taxes
(including franchise, capital stock or other tax, other than income taxes,
imposed by any jurisdiction) if any, which are required to be paid in connection
with the sale and transfer of the Securities to the several Underwriters
hereunder will have been fully paid or provided for by the Company and all laws
imposing such taxes will have been fully complied with.
(q) All contracts and other documents which are required to be
described in or filed as exhibits to the Registration Statement have been so
described and/or filed.
(r) Except as described in the Registration Statement and Prospectus,
no holders of Common Stock or of any other securities of the Company have the
right to include such Common Stock or other securities in the Registration
Statement and Prospectus.
(s) Except as set forth in or contemplated by the Registration
Statement and the Prospectus, neither the Company nor any subsidiary has any
material contingent liabilities.
(t) The Company has no subsidiary corporations except as disclosed in
the Registration Statement and Prospectus, nor has it any equity interest in any
partnership, joint venture, association or other entity except as disclosed in
the Registration Statement or Prospectus. Except as described in the
Registration Statement and Prospectus, the Company owns all of the outstanding
securities of each of its subsidiaries.
(u) The Commission has not issued an order preventing or suspending
the use of any Preliminary Prospectus with respect to the offer and sale of the
Securities and each Preliminary Prospectus, as of its date, has conformed fully
in all material respects with the requirements of the
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Act and the Rules and Regulations and did not include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein not misleading.
(v) Neither the Company, nor, to the Company's knowledge, any of its
officers, directors, employees or stockholders, have taken or will take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any of the securities of the
Company.
(w) Item 26 of Part II of the Registration Statement accurately
discloses all unregistered securities sold by the Company within the three year
period prior to the date as of which information is presented in the
Registration Statement. All of such securities were sold in transactions which
were exempt from the registration provisions of the Act and not in violation of
Section 5 thereof.
(x) Other than as set forth in the Prospectus, the Company has not
entered into any agreement pursuant to which any person is entitled, either
directly or indirectly, to compensation from the Company for services as a
finder in connection with the proposed offering, and the Company agrees to
indemnify and hold harmless the Underwriters against any losses, claims, damages
or liabilities, joint or several, which shall include, but not be limited to,
all costs to defend against any such claim, so long as such claim arises out of
agreements made or allegedly made by the Company.
(y) Based upon written representations received by the Company, no
officer, director or five percent (5%) or greater stockholder of the Company or
any subsidiary has any direct or indirect affiliation or association with any
member of the National Association of Securities Dealers, Inc. ("NASD"), except
as disclosed to the Representative in writing, and no beneficial owner of the
Company's unregistered securities has any direct or indirect affiliation or
association with any NASD member except as disclosed to the Representative in
writing. The Company will advise the Representative and the NASD if any five
percent (5%) or greater shareholder of the Company or any subsidiary is or
becomes an affiliate or associated person of an NASD member participating in the
distribution.
(z) The Company and each subsidiary is in compliance in all material
respects with all federal, state and local laws and regulations respecting the
employment of its employees and employment practices, terms and conditions of
employment and wages and hours relating thereto. There are no pending
investigations involving the Company or any subsidiary by the U.S. Department of
Labor, or any other governmental agency responsible for the enforcement of such
federal, state or local laws and regulations. There is no unfair labor practice
charge or complaint against the Company or any subsidiary pending before the
National Labor Relations Board or any strike, picketing, boycott, dispute,
slowdown or stoppage pending or to the knowledge of the Company, threatened
against or involving the Company or any subsidiary or any predecessor entity.
No question concerning representation exists respecting the employees of the
Company or any subsidiary and no collective bargaining agreement or modification
thereof is currently being negotiated by the Company or any subsidiary. No
grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company or any subsidiary, if any.
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(aa) Neither the Company nor any subsidiary maintains, sponsors nor
contributes to, nor is it required to contribute to, any program or arrangement
that is an "employee pension benefit plan" an "employee welfare benefit plan",
or a "multi-employer plan" as such terms are defined in Sections 3(2), 3(i) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). Neither the Company nor any subsidiary
maintained or contributed to a defined benefit plan, as defined in Section 3(35)
of ERISA.
(ab) Based upon written representations received from the officers
and directors of the Company and each subsidiary, except as disclosed in the
Prospectus, during the past five years, none of the officers or directors of the
Company or any subsidiary have been:
(1) Subject of a petition under the Federal bankruptcy laws
or any state insolvency law filed by or against them, or by a
receiver, fiscal agent or similar officer appointed by a court
for their business or property, or any partnership in which
either or them was a general partner at or within two years
before the time of such filing, or any corporation or business
association of which either of them was an executive officer at
or within two years before the time of such filing;
(2) Convicted in a criminal proceeding or a named subject of
a pending criminal proceeding (excluding traffic violations and
other minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining
either of them from, or otherwise limiting, any of the following
activities:
(i) acting as a futures commission merchant,
introducing broker, commodity trading advisor, commodity
pool operator, floor broker, leverage transaction merchant,
any other person regulated by the Commodity Futures Trading
Commission, or an associated person of any of the
foregoing, or as an investment adviser, underwriter, broker
or dealer in securities, or as an affiliated person,
director or employee of any investment company, bank,
savings and loan association or insurance company, or
engaging in or continuing any conduct or practice in
connection with any such activity;
(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with the
purchase or sale of any security or commodity or in
connection with any violation of Federal or State
securities law or Federal Commodity laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any Federal or
State authority barring, suspending or otherwise limiting for
more than sixty (60) days either of their right to engage in any
activity described in paragraph (3)(i) above, or be associated
with persons engaged in any such activity;
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(5) Found by any court of competent jurisdiction in a civil
action or by the Securities and Exchange Commission to have
violated any Federal or State securities law, and the judgment
in such civil action or finding by the Commission has not been
subsequently reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to have
violated any Federal Commodities Law, and the judgment in such
civil action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed, suspended or
vacated.
(ac) Based upon written representations received from the officers
and directors of the Company, each of the officers and directors of the Company
has reviewed the sections in the Prospectus relating to their biographical data
and equity ownership position in the Company, and all information contained
therein is true and accurate.
2. Purchase, Delivery and Sale of the Securities.
---------------------------------------------
(a) Subject to the terms and conditions of this Agreement and upon the
basis of the representations, warranties and agreements herein contained, the
Company hereby agrees to issue and sell to the Underwriters an aggregate of
1,000,000 Shares at $____ per Share and 1,000,000 Warrants at $____ per Warrant,
(the public offering price less ten percent (10%)), at the place and time
hereinafter specified, in accordance with the number of Shares and/or Warrants
set forth opposite the names of the Underwriters in Schedule A attached hereto
plus any additional Securities which such Underwriters may become obligated to
purchase pursuant to the provisions of Section 9 hereof. The Securities shall
consist of 1,000,000 Shares and 1,000,000 Warrants to be purchased from the
Company, and the price at which the Underwriters shall sell the Securities to
the public shall be $__.00 per Share and $____ per Warrant.
Delivery of the Securities against payment therefor shall take place
at the offices of First London Securities Corporation, 2600 State Street,
Dallas, Texas 75204 (or at such other place as may be designated by the
Representative) at 10:00 a.m., Eastern Time, on such date after the Effective
date as the Representative shall designate, but not later than ten (10) business
days (holidays excepted) following the first date that any of the Securities are
released to you, such time and date of payment and delivery for the Securities
being herein called the "Closing Date".
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, the Company hereby grants the "Option" to the Underwriters
(or, at the option of the Representative, to the Representative, individually)
to purchase all or any part of an aggregate of an additional 150,000 Shares and
150,000 Warrants at the same price per Share and Warrant as the Underwriters
shall pay for the Securities being sold pursuant to the provisions of subsection
(a) of this Section 2 (such additional Securities being referred to herein as
the "Option Securities"). This Option may be exercised within 30 days after the
Effective Date upon notice by the Underwriters (or the Representative,
individually) to the Company advising as to the amount of Option Securities as
to which the Option is being exercised, the names and denominations in which the
certificates for such Option Securities are to be registered and the time and
date when such certificates are to be delivered. Such time and date shall be
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determined by the Underwriters (or the Representative, individually) but shall
not be later than ten (10) full business days after the exercise of the Option,
nor in any event prior to the Closing Date, and such time and date is referred
to herein as the "Option Closing Date". Delivery of the Option Securities
against payment therefor shall take place at the offices of the Representative.
The Option granted hereunder may be exercised only to cover over allotments in
the sale by the Underwriters of the Securities referred to in subsection (a)
above. In the event the Company declares or pays a dividend or distribution on
its Common Stock, whether in the form of cash, shares of Common Stock or any
other consideration, prior to the Option Closing Date, such dividend or
distribution shall also be paid on the Option Closing Date.
(c) The Company will make the certificates for the Securities to be
sold hereunder available to you for inspection at least two (2) full business
days prior to the Closing Date and the Option closing date at the offices of the
Representative, and such certificates shall be registered in such names and
denominations as you may request. Time shall be of the essence and delivery at
the time and place specified in this Agreement is a further condition to the
obligations of the Company to each Underwriter.
Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriters hereunder will be delivered by the Company to you
for the accounts of the several Underwriters against payment of the respective
purchase prices by the several Underwriters, by certified or bank cashier's
checks in New York Clearing House funds, payable to the order of the Company or
by wire transfer in New York Clearing House funds.
In addition, in the event the Underwriters (or the Representative,
individually) exercise the Option to purchase from the Company all or any
portion of the Option Securities pursuant to the provisions of subsection (b)
above, payment for such Securities shall be made payable in New York Clearing
House funds at the offices of the Representative, or by wire transfer, at the
time and date of delivery of such Securities as required by the provisions of
subsection (b) above, against receipt of the certificates for such Securities by
the Representative for the respective accounts of the several Underwriters
registered in such names and in such denominations as the Representative may
request.
It is understood that the Representative, individually and not as
Representative of the several Underwriters, may (but shall not be obligated to)
make any and all payments required pursuant to this Section 2 on behalf of any
Underwriters whose check or checks shall not have been received by the
Representative at the time of delivery of the Securities to be purchased by such
Underwriter or Underwriters. Any such payment by the Representative shall not
relieve any such Underwriter or Underwriters of any of its or their obligations
hereunder. It is also understood that the Representative individually, rather
than all of the Underwriters, may (but shall not be obligated to) purchase the
Option Securities referred to in subsection (b) of this Section 2, but only to
cover over allotments.
It is understood that the several Underwriters propose to offer the
Securities to be purchased hereunder to the public upon the terms and conditions
set forth in the Registration Statement, after the Registration Statement is
declared effective by the Commission.
3. Covenants of the Company. The Company covenants and agrees with
------------------------
the several Underwriters that:
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(a) The Company, upon notification from the Commission that the
Registration Statement has become effective, will so advise you and will not at
any time, whether before or after the Effective Date, file any amendment to the
Registration Statement or supplement to the Prospectus of which you shall not
previously been advised and furnished with a copy or to which you or your
counsel shall have objected in writing, acting reasonably, or which is not in
compliance with the Act and the Rules and Regulations. At any time prior to the
later of (i) the completion by the Underwriters of the distribution of the
Securities as contemplated hereby; or (ii) 25 days after the date on which the
Registration Statement shall have become or been declared effective, the Company
will prepare and file with the Commission, promptly upon your request, any
amendments or supplements to the Registration Statement or Prospectus which may
be necessary or advisable in connection with the distribution of the Securities
and as mutually agreed to by the Company and the Representative.
After the Effective Date and as soon as the Company is advised
thereof, the Company will advise you, and confirm the advice in writing, of the
receipt of any comments of the Commission, of the effectiveness of any post-
effective amendment to the Registration Statement, of the filing of any
supplement to the Prospectus or any amended Prospectus, of any request made by
the Commission for amendment of the Registration Statement or for supplementing
of the Prospectus or for additional information with respect thereto, of the
issuance by the Commission or any state or regulatory body of any stop order or
other order suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of any Preliminary Prospectus, or of the
suspension of the qualification of the Securities for offering in any
jurisdiction, or of the institution of any proceedings for any of such purposes,
and will use its best efforts to prevent the issuance of any such order, and, if
issued, to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each
Preliminary Prospectus and Definitive Prospectus, and the Company has consented
and hereby consents to the use of such copies for the purposes permitted by the
Act. The Company authorizes the Underwriters and Selected Dealers to use the
Prospectus in connection with the sale of the Securities for such period as in
the opinion of counsel to the Underwriters the use thereof is required to comply
with the applicable provisions of the Act and the Rules and Regulations. In
case of the happening, at any time within such period as a Prospectus is
required under the Act to be delivered in connection with sales by the
Underwriters or Selected Dealers, of any event of which the Company has
knowledge and which materially affects the Company or the securities of the
Company, or which in the opinion of counsel for the Company or counsel for the
Underwriters, should be set forth in an amendment to the Registration Statement
or a supplement to the Prospectus, in order to make the statements therein not
then misleading, in light of the circumstances existing at the time the
Prospectus is required to be delivered to a purchaser of the Securities, or in
case it shall be necessary to amend or supplement the Prospectus to comply with
law or with the Act and the Rules and Regulations, the Company will notify you
promptly and forthwith prepare and furnish to you copies of such amended
Prospectus or of such supplement to be attached to the Prospectus, in such
quantities as you may reasonably request, in order that the Prospectus, as so
amended or supplemented, will not contain any untrue statement of a material
fact or omit to state any material facts necessary in order to make the
statements in the Prospectus, in the light of the circumstances under which they
are made, not misleading. The preparation and furnishing of any such amendment
or supplement to the Registration Statement or amended Prospectus or supplement
to be attached to the Prospectus shall be without expense to the Underwriters.
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The Company will comply with the Act, the Rules and Regulations
thereunder, the Securities Exchange Act of 1934 (the "1934 Act"), and the rules
and regulations thereunder in connection with the offering and issuance of the
Securities.
(b) The Company will qualify to register the Securities for sale under
the securities or "blue sky" laws of such jurisdictions as the Representative
may designate and will make such applications and furnish such information as
may be required for that purpose and to comply with such laws, provided the
Company shall not be required to qualify as a foreign corporation or a dealer in
securities or to execute a general consent to service of process in any
jurisdiction in any action other than one arising out of the offering or sale of
the Securities. The Company will, from time to time, prepare and file such
statements and reports as are or may be required to continue such qualification
in effect for so long a period as the Underwriters may reasonably request.
(c) If the sale of the Securities provided for herein is not
consummated, the Company shall pay all costs and expenses incident to the
performance of the Company's obligations hereunder, including, but not limited
to, all such expenses itemized in Section 8(a) and 8(c) hereof, and the out-of-
pocket expenses up to $25,000 of the Representative and expenses up to $25,000
of the counsel to the Representative, if the offering for any reason is
terminated. For the purposes of this sub-paragraph, the Representative shall be
deemed to have assumed such expenses when they are billed or incurred,
regardless of whether such expenses have been paid. The Representative shall
not be responsible for any expenses of the Company or others, or for any charges
or claims relative to the proposed public offering whether or not consummated.
(d) The Company will deliver to you at or before the Closing Date two
signed copies of the Registration Statement, including all financial statements
and exhibits filed therewith, and of each amendment or supplement thereto. The
Company will deliver to or upon the order of the several Underwriters, from time
to time until the Effective Date of the Registration Statement, as many copies
of any Preliminary Prospectus filed with the Commission prior to the Effective
Date of the Registration Statement as the Underwriters may reasonably request.
The Company will deliver to the Underwriters on the Effective Date of the
Registration Statement and thereafter for so long as a Prospectus is required to
be delivered under the Act, from time to time, as many copies of the Prospectus,
in final form, or as thereafter amended or supplemented as the several
Underwriters may from time to time reasonably request.
(e) For so long as the Company is a reporting company under either
Section 12 or 15 of the 1934 Act, the Company, at its expense, will furnish to
the Representative during the period ending five (5) years from the Effective
Date, (i) as soon as practicable after the end of each fiscal year, a balance
sheet of the Company and any of its subsidiaries as at the end of such fiscal
year, together with statements of income, surplus and cash flow of the Company
and any subsidiaries for such fiscal year, all in reasonable detail and
accompanied by a copy of the certificate or report thereon of independent
accountants; (ii) as soon as they are available, a copy of all reports
(financial or other) mailed to security holders; (iii) as soon as they are
available, a copy of all non-confidential documents, including annual reports,
periodic reports and financial statements, furnished to or filed with the
Commission under the Act and the 1934 Act; (iv) copies of each press release,
news item and article with respect to the Company's affairs released by the
Company; and (v) such other information as you may from time to time reasonably
request.
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(f) In the event the Company has an active subsidiary or subsidiaries,
such financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its stockholders
generally.
(g) The Company will make generally available to its stockholders and
to the registered holders of its Warrants and deliver to you as soon as it is
practicable, but in no event later than the first day of the sixteenth full
calendar month following the Effective Date, an earnings statement (which need
not be audited) covering a period of at least twelve consecutive months
beginning with the Effective Date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
(h) On the Closing Date, the Company shall have taken the necessary
action to become a reporting company under Section 12 of the 1934 Act, and the
Company will make all filings required to, and will have obtained approval for,
the listing of the Shares and Warrants on The Nasdaq Small Cap Market or a
listing on a national market, and will use its best efforts to maintain such
listing for at least five (5) years from the date of this Agreement.
(i) For such period as the Company's securities are registered under
the 1934 Act, the Company will hold an annual meeting of stockholders for the
election of Directors within 180 days after the end of each of the Company's
fiscal years and, within 150 days after the end of each of the Company's fiscal
years will provide the Company's stockholders with the audited financial
statements of the Company as of the end of the fiscal year just completed prior
thereto. Such financial statements shall be those required by Rule 14a-3 under
the 1934 Act and shall be included in an annual report pursuant to the
requirements of such Rule.
(j) The Company will apply the net proceeds from the sale of the
Securities substantially in accordance with its statement under the caption "Use
of Proceeds" in the Prospectus, and will file such reports with the Commission
with respect to the sale of the Securities and the application of the proceeds
therefrom as may be required by Sections 12, 13 and/or 15 of the 1934 Act and
pursuant to Rule 463 under the Act.
(k) The Company will, promptly upon your request, prepare and file
with the Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in the
reasonable opinion of counsel to the Underwriters and the Company may be
reasonably necessary or advisable in connection with the distribution of the
Securities and will use its best efforts to cause the same to become effective
as promptly as possible.
(l) On the Closing Date the Company shall execute and deliver to you
the Representative's Warrant Agreement. The Representative's Warrant Agreement
and Warrant Certificates will be substantially in the form of the
Representative's Warrant Agreement and Warrant Certificates filed, as an exhibit
to the Registration Statement.
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(m) The Company will reserve and keep available for issuance that
maximum number of its authorized but unissued securities which are issuable upon
exercise of the Representative's Warrants outstanding from time to time.
(n) All beneficial owners of the Company's securities (including
Warrants, Options and Common Stock of the Company), as of the Effective Date,
shall agree in writing, in a form satisfactory to the Representative, not to
sell, transfer or otherwise dispose of any of such securities or underlying
securities (except to a transferee who agrees to be bound by this provision) for
a period of twelve (12) months from the Effective Date (the "lock-up period"),
or any longer period required by any State, without the prior written consent of
the Representative. Any of such securities which are originally registered in a
name of a original beneficial owner and are subsequently registered under a
different name will be subject to the twelve (12) month lock-up period. Sales of
the Company's securities by officers and/or directors of the Company pursuant to
the expiration of the lock-up period shall be effected through the
Representative.
(o) The Company shall pay to the representative a fee of 5% of the
gross proceeds of this offering upon the conversion of all warrants issued to
the public in this offering or upon redemption of any warrants by the Company.
(p) Prior to the Closing Date, the Company shall at its own expense,
undertake to list the Company's securities in the appropriate recognized
securities manual or manuals published by Standard & Poor's Corporation and such
other manuals as the Representative may designate, such listings to contain the
information required by such manuals and the Uniform Securities Act. The Company
hereby agrees to use its best efforts to maintain such listing for a period of
not less than five (5) years unless the Company's securities otherwise qualify
for a secondary market trading exemption. The Company shall take such action as
may be reasonably requested by the Representative to obtain a secondary market
trading exemption in such states as may be reasonably requested by the
Representative.
(q) During the one hundred eighty (180) day period commencing on the
Closing Date, the Company will not, without the prior written consent of the
Representative, grant options or warrants to purchase the Company's Common Stock
at a price less than the initial per share public offering price.
(r) During the twelve month period commencing on the closing Date, the
Company will not, without the prior written consent of the Representative, issue
any additional securities of the Company except for securities issued in
connection with an acquisition or merger by the Company.
(s) Prior to the Closing Date, neither the Company nor any subsidiary
will issue, directly or indirectly, without your prior consent, any press
release or other communication or hold any press conference with respect to the
Company or its activities or the offering of the Securities other than routine
customary advertising of the Company's products and services, and except as
required by any applicable law or the directives of any relevant regulatory
authority in any relevant jurisdiction.
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(t) The Company shall employ the services of a firm of independent
certified public accountants in connection with the preparation of the financial
statements to be included in any registration statement or similar disclosure
document to be filed by the Company hereunder, or any amendment or supplement
thereto. For a period of five (5) years from the Effective Date, the Company,
at its expense, shall cause its regularly engaged independent certified public
accountants to review (but not audit) the Company's financial statements for
each of the first three (3) fiscal quarters prior to the announcement of
quarterly financial information, the filing of the Company's quarterly report
and the filing of quarterly financial information to stockholders.
(u) The Company shall retain American Stock Transfer & Trust Company
as the transfer agent for the securities of the Company, or such other transfer
agent as you may agree to in writing. In addition, the Company shall direct
such transfer agent to furnish the Representative with daily transfer sheets as
to each of the Company's securities as prepared by the Company's transfer agent
and copies of lists of stockholders and warrantholders as reasonably requested
by the Underwriter, for a five (5) year period commencing from the Closing Date.
(v) The Company shall cause the Depository Trust Company, or such
other depository of the Company's securities, to deliver a "special security
position report" to the Representative on a daily and weekly basis at the
expense of the Company, for a five (5) year period from the Effective Date.
(w) Following the Effective Date, the Company shall, at its sole cost
and expense, prepare and file such Blue Sky applications with such jurisdictions
as the Representative shall designate and the Company may reasonably agree.
(x) On the Effective Date and for a period of three (3) years
thereafter, the Company's Board of Directors shall consist of a minimum of five
(5) persons, two (2) of whom shall be independent and not otherwise affiliated
with the Company or associated with any of the Company's affiliates. The
Representative shall have the right for a period of three (3) years from the
Effective Date to nominate one Advisory Director to the Board of Directors. The
Advisory Director will have all of the same privileges as a normal Director,
including equal compensation, but will forfeit the right to vote on Board
issues.
(y) For such period as any Warrants are outstanding, the Company shall
use its best efforts to cause post-effective amendments to the Registration
Statement or a new Registration Statement to become effective in compliance with
the Act and without any lapse of time between the effectiveness of any such
post-effective amendments and cause a copy of each Prospectus, as then amended,
to be delivered to each holder of record of a Warrant and to furnish to each of
the Underwriters and each dealer as many copies of each such Prospectus as such
Underwriter or such dealer may reasonably request. Such post-effective
amendments or new Registration Statements shall also register the
Representative's Warrants and all the securities underlying the Representative's
Warrants. The Company shall not call for redemption of any of the Warrants
unless a Registration Statement covering the securities underlying the Warrants
or Representative Warrants has been declared effective by the Commission and
remains current at least until the date fixed for redemption. In addition, the
Warrants or Representative Warrants shall not be redeemable during the first
year after the Effective Date without the written consent of the Representative.
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(z) Until such time as the securities of the Company are listed or
quoted on either the New York Stock Exchange, Nasdaq National Market or the
American Stock Exchange, the Company shall engage the Company's legal counsel to
deliver to the Representative a written opinion detailing those states in which
the Shares and Warrants of the Company may be traded in non-issuer transactions
under the Blue Sky laws of the fifty states ("Secondary Market Trading
Opinion"). The initial Secondary Market Trading opinion shall be delivered to
the Representative on the Effective Date, and the Company shall continue to
update such opinion and deliver same to the Representative on a timely basis,
but in any event at the beginning of each fiscal year, for a five (5) year
period, if required.
4. Conditions of Underwriters, Obligations. The obligations of the
---------------------------------------
several Underwriters to purchase and pay for the Securities which they have
agreed to purchase hereunder from the Company are subject, as of the date hereof
and as of the Closing Date and the Option Closing Date, to the continuing
accuracy of, and compliance with, the representations and warranties of the
Company herein, to the accuracy of statements of officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, and to the following conditions:
(a) (i)The Registration Statement shall have become effective not
later than 5:00 p.m., Eastern Time, on the date of this Agreement, or at such
later time or on such later date as you may agree to in writing; (ii) at or
prior to the Closing Date or Option Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued by the
Commission and no proceeding for that purpose shall have been initiated or
pending, or shall be threatened, or to the knowledge of the Company,
contemplated by the Commission; (iii) no stop order suspending the effectiveness
of the qualification or registration of the Securities under the securities or
"blue sky" laws of any jurisdiction (whether or not a jurisdiction which you
shall have specified) shall be threatened or to the knowledge of the Company
contemplated by the authorities of any such jurisdiction or shall have been
issued and in effect; (iv) any request for additional information on the part of
the Commission or any such authorities shall have been complied with to the
satisfaction of the Commission and any such authorities, and to the satisfaction
of counsel to the Underwriters; and (v) after the date hereof no amendment or
supplement to the Registration Statement or the Prospectus shall have been filed
unless a copy thereof was first submitted to the Underwriters and the
Underwriters did not object thereto.
(b) At the Closing Date, since the respective dates as of which
information is presented in the Registration Statement and the Prospectus, (i)
there shall not have been any material change in the capital stock or other
securities of the Company or any subsidiary or any material adverse change in
the long-term debt of the Company or any subsidiary except as set forth in or
contemplated by the Registration Statement, (ii) there shall not have been any
material adverse change in the general affairs, business, properties, condition
(financial or otherwise), management, or results of operations of the Company or
any subsidiary, whether or not arising from transactions in the ordinary course
of business, in each case other than as set forth in or contemplated by the
Registration Statement or Prospectus; (iii) neither the Company nor any
subsidiary shall have sustained any material interference with its business or
properties from fire, explosion, flood or other casualty, whether or not covered
by insurance, or from any labor dispute or any court or legislative or other
governmental action, order or decree, which is not set forth in the Registration
Statement and
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Prospectus; and (iv) the Registration Statement and the Prospectus and any
amendments or supplements thereto shall contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and shall in all material respects conform to the requirements
thereof, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto shall contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstance under
which they are made, not misleading.
(c) Except as set forth in the Prospectus, there is not pending or, to
the knowledge of the Company or any subsidiary, threatened, any material action,
suit, proceeding, inquiry, arbitration or investigation against the Company or
any subsidiary, or any of the officers or directors of the Company or any
subsidiary, or any material action, suit, proceeding, inquiry, arbitration, or
investigation, which might result in any material adverse change in the
condition (financial or other), business prospects, net worth, or properties of
the Company or any subsidiary.
(d) Each of the representations and warranties of the Company
contained herein shall be true and correct as of this date and at the Closing
Date as if made at the Closing Date, and all covenants and agreements herein
contained to be performed on the part of the Company and all conditions herein
contained to be fulfilled or complied with by the Company at or prior to the
Closing Date and Option Closing Date shall have been duly performed, fulfilled
or complied with.
(e) At each Closing Date, you shall have received the opinion,
together with copies of such opinion for each of the other several Underwriters,
dated as of each Closing Date, from Crouch & Hallett, L.L.P., counsel for the
Company, in form and substance satisfactory to counsel for the Underwriters, to
the effect that:
(i) the Company and each subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, with full corporate power
and authority to own its properties and conduct its business as
described in the Registration Statement and Prospectus and is duly
qualified or licensed to do business as a foreign corporation and is
in good standing in each other jurisdiction in which the ownership or
leasing of its properties or conduct of its business requires such
qualification except for jurisdictions in which the failure to so
qualify would not have a material adverse effect on the Company and
each subsidiary as a whole;
(ii) the authorized capitalization of the Company is as set forth
under "Capitalization" in the Prospectus; all shares of the Company's
outstanding stock and other securities requiring authorization for
issuance by the Company's Board of Directors have been duly
authorized, validly issued, are fully paid and non-assessable and
conform to the description thereof contained in the Prospectus; the
outstanding shares of Common Stock of the Company and other securities
have not been issued in violation of the preemptive rights of any
shareholder and the shareholders of the Company do not have any
preemptive rights or, to such counsel's knowledge, other rights to
subscribe for or to purchase securities of the Company, nor, to such
counsel's knowledge, are there any restrictions upon the voting or
transfer of any of the securities of the Company, except as disclosed
in the Prospectus; the Common Stock, the Shares, the Warrants, and the
securities contained in the Representative's
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Warrant Agreement conform to the respective descriptions thereof
contained in the Prospectus; the Common Stock, the Shares, the
Warrants, the shares of Common Stock to be issued upon exercise of the
Warrants and the securities contained in the Representative's Warrant
Agreement, have been duly authorized and, when issued, delivered and
paid for, will be duly authorized, validly issued, fully paid, non-
assessable, free of preemptive rights and no personal liability will
attach to the ownership thereof; all prior sales by the Company of the
Company's securities have been made in compliance with or under an
exemption from registration under the Act and applicable state
securities laws and no shareholders of the Company have any rescission
rights against the Company with respect to the Company's securities; a
sufficient number of shares of Common Stock has been reserved for
issuance upon exercise of the Warrants and the Representative's
Warrants, and to the best of such counsel's knowledge, neither the
filing of the Registration Statement nor the offering or sale of the
Securities as contemplated by this Agreement gives rise to any
registration rights or other rights, other than those which have been
waived or satisfied or described in the Registration Statement;
(iii) this Agreement, the Representative's Warrant Agreement and
the Warrant Agreement have been duly and validly authorized, executed
and delivered by the Company and, assuming the due authorization,
execution and delivery of this Agreement by the Representative, are
the valid and legally binding obligations of the Company, enforceable
in accordance with their terms, except (a) as such enforceability may
be limited by applicable bankruptcy, insolvency, moratorium,
reorganization or similar laws from time to time in effect which
effect creditors, rights generally; and (b) no opinion is expressed as
to the enforceability of the indemnity provisions or the contribution
provisions contained in this Agreement;
(iv) the certificates evidencing the outstanding securities of
the Company, the Shares, the Common Stock and the Warrants are in
valid and proper legal form;
(v) to the best of such counsel's knowledge, except as set
forth in the Prospectus, there is not pending or, to the knowledge of
the Company, threatened, any material action, suit, proceeding,
inquiry, arbitration or investigation against the Company or any
subsidiary or any of the officers of directors of the Company or any
subsidiary, nor any material action, suit, proceeding, inquiry,
arbitration, or investigation, which might materially and adversely
affect the condition (financial or otherwise), business prospects, net
worth, or properties of the Company or any subsidiary;
(vi) the execution and delivery of this Agreement, the
Representative's Warrant Agreement and the Warrant Agreement, and the
incurrence of the obligations herein and therein set forth and the
consummation of the transactions herein or therein contemplated, will
not result in a violation of, or constitute a default under (a) the
Articles of Incorporation or By-Laws of the Company and each
subsidiary; (b) to the best of such counsel's knowledge, any material
obligations, agreement, covenant or condition contained in any bond,
debenture, note or other evidence of indebtedness or in any contract,
indenture, mortgage, loan agreement, lease, joint venture or other
agreement or instrument to which the Company or any subsidiary is a
party or by which it or any of its properties is bound; or (c) to the
best
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of such counsel's knowledge, any material order, rule, regulation,
writ, injunction, or decree of any government, governmental
instrumentality or court, domestic or foreign;
(vii) the Registration Statement has become effective under the
Act, and to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for that purpose have been instituted or
are pending before, or threatened by, the Commission; the Registration
Statement and the Prospectus (except for the financial statements and
other financial data contained therein, or omitted therefrom, as to
which such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act and the
Rules and Regulations; and
(viii) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or
delivery of the Securities by the Company, in connection with the
execution, delivery and performance of this Agreement by the Company
or in connection with the taking of any action contemplated herein, or
the issuance of the Representative's Warrants or the Securities
underlying the Representative's Warrants, other than registrations or
qualifications of the Securities under applicable state or foreign
securities or Blue Sky laws and registration under the Act.
Such opinion shall also cover such matters incident to the
transactions contemplated hereby as the Underwriter or counsel for the
Underwriter shall reasonably request. In rendering such opinion, such counsel
may rely upon certificates of any officer of the Company or public officials as
to matters of fact; and may rely as to all matters of law, upon opinions of
counsel satisfactory to you and counsel to the Underwriters. The opinion of
such counsel to the Company shall state that the opinion of any such other
counsel is in form satisfactory to such counsel and that the Representative and
they are justified in relying thereon.
Such counsel shall also include a statement to the effect that such
counsel has participated in the preparation of the Registration Statement and
the Prospectus and nothing has come to the attention of such counsel to lead
such counsel to believe that the Registration Statement or any amendment thereto
at the time it became effective contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading or that the Prospectus or any supplement
thereto contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make
statements therein, in light of the circumstances under which they are made, not
misleading (except, in the case of both the Registration Statement and any
amendment thereto and the Prospectus and any supplement thereto, for the
financial statements, notes thereto and other financial information and
statistical data contained therein, as to which such counsel need express no
opinion).
(f) You and the several Underwriters shall have received on each
Closing Date a certificate dated as of each Closing Date, signed by the Chief
Executive Officer and the Chief Financial officer of the Company and such other
officers of the Company as the Underwriters may request, certifying that:
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(i) No order suspending the effectiveness of the Registration
Statement or stop order regarding the sale of the Securities in effect
and no proceedings for such purpose are pending or are, to their
knowledge, threatened by the Commission;
(ii) To their knowledge there is no litigation instituted or
threatened against the Company or any subsidiary or any officer or
director of the Company or any subsidiary of a character required to
be disclosed in the Registration Statement which is not disclosed
therein; to their knowledge there are no contracts which are required
to be summarized in the Prospectus which are not so summarized; and to
their knowledge there are no material contracts required to be filed
as exhibits to the Registration Statement which are not so filed;
(iii) They have each carefully examined the Registration
Statement and the Prospectus and, to the best of their knowledge,
neither the Registration Statement nor the Prospectus nor any
amendment or supplement to either of the foregoing contains an untrue
statement of any material fact or omits to state any material fact
required to be stated therein or necessary to make the statement
therein, in light of the circumstances under which they are made, not
misleading; and since the Effective Date, to the best of their
knowledge, there has occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been so set forth;
(iv) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been any material adverse change in the condition of the Company or
any subsidiary, financial or otherwise, or in the results of its
operations, except as reflected in or contemplated by the Registration
Statement and the Prospectus and except as so reflected or
contemplated since such date, there has not been any material
transaction entered into by the Company or any subsidiary;
(v) The representations and warranties set forth in this
Agreement are true and correct in all material respects and the
Company has complied with all of its agreements herein contained;
(vi) Neither the Company nor any subsidiary is delinquent in
the filing of any federal, state and municipal tax return or the
payment of any federal, state or municipal taxes; they know of no
proposed re-determination or reassessment of taxes, adverse to the
Company or any subsidiary, and the Company and each subsidiary has
paid or provided by adequate reserves for all known tax liabilities;
(vii) They know of no material obligation or liability of the
Company or any subsidiary, contingent or otherwise, not disclosed in
the Registration Statement and Prospectus;
(viii) This Agreement, the Representative's Warrant Agreement and
the Warrant Agreement the consummation of the transactions herein of
therein contemplated, and the fulfillment of the terms hereof or
thereof, will not result in a breach by the Company of any terms of,
or constitute a default under, its Articles of Incorporation or By-
Laws, any indenture, mortgage, lease, deed or trust, bank loan or
credit agreement or any other material
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agreement or undertaking of the Company or any subsidiary including,
by way of specification but not by way of limitation, any agreement or
instrument to which the Company or any subsidiary is now a party or
pursuant to which the Company or any subsidiary has acquired any right
and/or obligations by succession or otherwise;
(ix) The financial statements and schedules filed with and as
part of the Registration Statement present fairly the financial
position of the Company as of the dates thereof all in conformity with
generally accepted principles of accounting applied on a consistent
basis throughout the periods involved. Since the respective dates of
such financial statements, there have been no material adverse change
in the condition or general affairs of the Company, financial or
otherwise, other than as referred to in the Prospectus ;
(x) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, except as may
otherwise be indicated therein, neither the Company nor any subsidiary
has, prior to the Closing Date, either (i) issued any securities or
incurred any material liability or obligation, direct or contingent,
for borrowed money, or (ii) entered into any material transaction
other than in the ordinary course of business. The Company has not
declared, paid or made any dividend or distribution of any kind on its
capital stock;
(xi) Based upon written representation from the offices and
directors of the Company and each subsidiary they have reviewed the
sections in the Prospectus relating to their biographical data and
equity ownership position in the Company, and all information
contained therein is true and accurate; and
(xii) Based upon written representation from the offices and
directors of the Company and each subsidiary except as disclosed in
the Prospectus, during the past five years, they have not been:
(1) Subject of a petition under the Federal bankruptcy
laws or any state insolvency law filed by or against them, or by a
receiver, fiscal agent or similar officer appointed by a court for
their business or property, or any partnership in which either or
them was a general partner at or within two years before the time
of such filing, or any corporation or business association of
which either of them was an executive officer at or within two
years before the time of such filing;
(2) Convicted in a criminal proceeding or a named subject
of a pending criminal proceeding (excluding traffic violations and
other minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining
either of them from, or otherwise limiting, any of the following
activities:
(i) acting as a futures commission merchant,
introducing broker, commodity trading advisor, commodity
pool operator, floor broker, leverage
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transaction merchant, any other person regulated by the
Commodity Futures Trading Commission, or an associated
person of any of the foregoing, or as an investment
adviser, underwriter, broker or dealer in securities, or
as an affiliated person, director or employee of any
investment company, bank, savings and loan association or
insurance company, or engaging in or continuing any
conduct or practice in connection with any such activity;
(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with
the purchase or sale of any security or commodity or in
connection with any violation of Federal or State
securities law or Federal Commodity laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any Federal or
State authority barring, suspending or otherwise limiting for
more than sixty (60) days either of their right to engage in any
activity described in paragraph (3) (i) above, or be associated
with persons engaged in any such activity;
(5) Found by any court of competent jurisdiction in a
civil action or by the Securities and Exchange Commission to
have violated any Federal or State securities law, and the
judgment in such civil action or finding by the Commission has
not been subsequently reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to have
violated any Federal Commodities Law, and the judgment in such
civil action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed, suspended or
vacated.
(g) The Underwriters shall have received from Deloitte & Touche LLP,
independent auditors to the Company, certificates or letters, one dated and
delivered on the Effective Date and one dated and delivered on the Closing Date,
in form and substance satisfactory to the Underwriters, stating, that:
(i) they are independent certified public accountants with
respect to the Company within the meaning of the Act and the
applicable Rules and Regulations;
(ii) the financial statements and the schedules included in the
Registration Statement and the Prospectus were examined by them and,
in their opinion, comply as to form in all material respects with the
applicable accounting requirements of the Act, the Rules and
Regulations and instructions of the Commission with respect to
Registration Statements on Form SB-2;
(iii) on the basis of inquiries and procedures conducted by them
(not constituting an examination in accordance with generally accepted
auditing standards) , including a reading of the latest available
unaudited interim financial statements or other financial
22
<PAGE>
information of the Company (with an indication of the date of the
latest available unaudited interim financial statements), inquiries of
officers of the Company who have responsibility for financial and
accounting matters, review of minutes of all meetings of the
shareholders and the Board of Directors of the Company and other
specified inquiries and procedures, nothing has come to their
attention as a result of the foregoing inquiries and procedures that
causes them to believe that:
(a) during the period from (and including) the date of
the financial statements in the Registration Statement and the
Prospectus to a specified date not more than five days prior to
the date of such letters, there has been any change in the
Common Stock, long-term debt or other securities of the Company
(except as specifically contemplated in the Registration
Statement and Prospectus) or any material decreases in net
current assets, net assets, shareholder's equity, working
capital or in any other item appearing in the Company's
financial statements as to which the Underwriters may request
advice, in each case as compared with amounts shown in the
balance sheet as of the date of the financial statement in the
Prospectus, except in each case for changes, increases or
decreases which the Prospectus discloses have occurred or will
occur;
(b) during the period from (and including) the date of
the financial statements in the Registration Statement and the
Prospectus to such specified date there was any material
decrease in revenues or in the total or per share amounts of
income or loss before extraordinary items or net income or loss,
or any other material change in such other items appearing in
the Company's financial statements as to which the Underwriters
may request advice, in each case as compared with the fiscal
period ended as of the date of the financial statement in the
Prospectus, except in each case for increases, changes or
decreases which the Prospectus discloses have occurred or will
occur;
(c) the unaudited interim financial statements of the
Company appearing in the Registration Statement and the
Prospectus (if any) do not comply as to form in all material
respects with the applicable accounting requirements of the Act
and the Rules and Regulations or are not fairly presented in
conformity with generally accepted accounting principles and
practices on a basis substantially consistent with the audited
financial statements included in the Registration Statements or
the Prospectus.
(iv) they have compared specific dollar amounts, numbers of
shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the
general accounting records, including work sheets, of the Company and
excluding any questions requiring an interpretation by legal counsel,
with the results obtained from the application of specified readings,
inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted
auditing standards) set forth in the letter and found them to be in
agreement; and
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<PAGE>
(v) they have not during the immediately preceding five (5)
year period brought to the attention of the Company's management any
reportable condition related to the Company's internal accounting
procedures, weaknesses and/or controls.
Such letters shall also set forth such other information as may be
requested by counsel for the Underwriters. Any changes, increases or decreases
in the items set forth in such letters which, in the judgment of the several
Underwriters, are materially adverse with respect to the financial position or
results of operations of the Company shall be deemed to constitute a failure of
the Company to comply with the conditions of the obligations to the several
Underwriters hereunder.
(h) Upon exercise of the Option provided for in Section 2(b) hereof,
the obligation of the several Underwriters (or, at its option, the
Representative, individually) to purchase and pay for the Option Securities
referred to therein will be subject (as of the date hereof and as of the Option
Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness
thereof shall have been issued and no proceedings for that purpose
shall have been instituted or shall be pending, or, to your knowledge
or the knowledge of the Company, shall be contemplated by the
Commission, and any reasonable request on the part of the Commission
for additional information shall have been complied with to the
satisfaction of counsel to the Underwriters.
(ii) At the Option Closing Date, there shall have been
delivered to you the signed opinion from Crouch & Hallett, L.L.P.,
counsel for the Company, dated as of the Option Closing Date, in form
and substance satisfactory to counsel to the Underwriters, which
opinion shall be substantially the same in scope and substance as the
opinion furnished to you at the Closing Date pursuant to Section 4 (e)
hereof, except that such opinion, where appropriate, shall cover the
Option Securities.
(iii) At the Option Closing Date, there shall have been
delivered to you a certificate of the Chief Executive Officer and
Chief Financial Officer of the Company, dated the Option Closing Date,
in form and substance satisfactory to counsel to the Underwriters,
substantially the same in scope and substance as the certificate
furnished to you at the Closing Date pursuant to Section 4(f) hereof.
(iv) At the Option Closing Date, there shall have been
delivered to you a letter in form and substance satisfactory to you
from (NAME OF ACCOUNTANT), independent auditors to the Company, dated
the Option Closing Date and addressed to the several Underwriters
confirming the information in their letter referred to in Section 4(g)
hereof and stating that nothing has come to their attention during the
period from the ending date of their review referred to in said letter
to a date not more than five business days prior to the Option Closing
Date, which would require any change in said letter if it were
required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing
Date in connection with the sale and issuance of the Option Securities
shall be satisfactory in form and substance
24
<PAGE>
to the Underwriters, and the Underwriters and counsel to the
Underwriters shall have been furnished with all such documents,
certificates, and opinions as you may request in connection with this
transaction in order to evidence the accuracy and completeness of any
of the representations, warranties or statements of the Company or its
compliance with any of the covenants or conditions contained herein.
(i) No action shall have been taken by the Commission or the NASD,
the effect of which would make it improper, at any time prior to the Closing
Date, for members of the NASD to execute transactions (as principal or agent) in
the Common Stock and no proceedings for the taking of such action shall have
been instituted or shall be pending, or, to the knowledge of the several
Underwriters or the Company, shall be contemplated by the Commission or the
NASD. The Company represents that at the date hereof it has no knowledge that
any such action is in fact contemplated by the Commission or the NASD. The
Company shall advise the Representative of any NASD affiliations of any of its
officers, directors, or stockholders or their affiliates in accordance with
paragraph 1(y) of this Agreement.
(j) At the Effective Date, you shall have received from counsel to
the Company, dated as of the Effective Date, in form and substance satisfactory
to counsel for the Underwriter, a written Secondary Market Trading Opinion
detailing those states in which the Shares and Warrants may be traded in non-
issuer transactions under the Blue Sky laws of the fifty (50) states after the
Effective Date, in accordance with paragraph 3(ab) of this Agreement.
(k) The authorization and issuance of the Securities and delivery
thereof, the Registration Statement, the Prospectus, and all corporate
proceedings incident thereto shall be satisfactory in all respects to counsel
for the several Underwriters, and such counsel shall be furnished with such
documents, certificates and opinions as they may reasonably request to enable
them to pass upon the matters referred to in this sub-paragraph.
(l) Prior to the Effective Date, the Representative shall have
received clearance from the NASD as to the amount of compensation allowable or
payable to the Representative, as described in the Registration Statement.
(m) If any of the conditions herein provided for in this Section
shall not have been fulfilled as of the date indicated, this Agreement and all
obligations of the several Underwriters under this Agreement may be canceled at,
or at any time prior to, the Closing Date and/or the Option Closing Date by the
Representative and/or the Underwriters notifying the Company of such
cancellation in writing or by telegram at or prior to the applicable Closing
Date. Any such cancellation shall be without liability of the several
Underwriters to the Company.
5. Conditions of the Obligations of the Company. The obligation of the
--------------------------------------------
Company to sell and deliver the Securities is subject to the following
conditions:
(i) The Registration Statement shall have become effective not later
than 5:00 p.m., Eastern Time, on the date of this Agreement, or on such
later time or date as the Company and the Representative may agree in
writing; and
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<PAGE>
(ii) At the Closing Date and the Option Closing Date, no stop orders
suspending the effectiveness of the Registration Statement shall have been
issued under the Act or any proceedings therefore initiated or threatened
by the Commission.
If the conditions to the obligations of the Company provided for in
this Section have been fulfilled on the Closing Date but are not fulfilled
after the Closing Date and prior to the Option Closing Date, then only the
obligation of the Company to sell and deliver the Securities on exercise of
the Option provided for in Section 2(b) hereof shall be affected.
6. Indemnification. (a) The Company indemnifies and holds harmless each
----------------
Underwriter and each person, if any, who controls the Underwriter within the
meaning of the Act against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include but not be
limited to, all reasonable costs of defense and investigation and all attorneys'
fees), to which the Underwriter or such controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
(i) the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment or supplement thereto, (ii) any blue sky application or other
document executed by the Company specifically for that purpose or based upon
written information furnished by the Company and filed in any state or other
jurisdiction in order to qualify any or all of the Securities under the
securities laws thereof (any such application, document or information being
hereinafter called a "Blue Sky Application"), or arise out of or are based upon
the omission or alleged omission to state in the Registration Statement, any
Preliminary Prospectus, Prospectus, or any amendment or supplement thereto, or
in any Blue Sky Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company will not be liable in any such cases to the extent, but only to the
extent, that any such losses, claim, damages or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Underwriters
specifically for use in the preparation of the Registration Statement or any
such amendment or supplement thereof or any such Blue Sky Application or any
such Preliminary Prospectus or the Prospectus or any such amendment or
supplement thereto. Notwithstanding the foregoing, the Company shall have no
liability under this section if such untrue statement or omission made in a
Preliminary Prospectus is cured in the Prospectus and the Prospectus is not
delivered to the person or persons alleging the liability upon which
indemnification is being sought. This indemnity will be in addition to any
liability which the Company may otherwise have.
(b) Each Underwriter, severally, but not jointly, indemnifies and
holds harmless the Company, each of its directors, each nominee (if any) for
director named in the Prospectus, each of its officers who have signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of the Act, against any losses, claims, damages or liabilities
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees) to which the
Company or any such director, nominee, officer or controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement,
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<PAGE>
any Preliminary Prospectus, the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statements or alleged untrue statement or
omission or alleged omission was made in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
in reliance upon and in conformity with written information furnished to the
Company by you or by any Underwriter through you specifically for use in the
preparation thereof. Notwithstanding the foregoing, the Underwriters shall have
no liability under this Section if such untrue statement or omission made in a
Preliminary Prospectus is cured in the Prospectus and the Prospectus is not
delivered to the person or persons alleging the liability upon which
indemnification is being sought through no fault of the Underwriter. This
indemnity agreement will be in addition to any liability which the Underwriter
may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify in writing the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is an Underwriter
or a person who controls such Underwriter within the meaning of the Act, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both the Underwriter or such
controlling person and the indemnifying party and in the reasonable judgment of
the Representative, it is advisable for the Representative or such Underwriters
or controlling persons to be represented by separate counsel (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the Underwriter or such controlling person, it being understood,
however, that the indemnifying party shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys for all such Underwriters and controlling persons, which firm shall be
designated in writing by you). No settlement of any action against an
indemnified party shall be made without the consent of the indemnifying party,
which shall not be unreasonably withheld in light of all factors of importance
to such indemnifying party.
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<PAGE>
7. Contribution. In order to provide for just and equitable contribution
------------
under the Act in any case in which (i) each Underwriter makes claim for
indemnification pursuant to Section 6 hereof but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case, notwithstanding the fact
that the express provisions of Section 6 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
Underwriter, then the Company and each person who controls the Company, in the
aggregate, and any such Underwriter shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys, fees) in either
such case (after contribution from others) in such proportions that all such
Underwriters are responsible in the aggregate for that portion of such losses,
claims, damages or liabilities represented by the percentage that the
underwriting discount per Share appearing on the cover page of the Prospectus
bears to the public offering price appearing thereon, and the Company shall be
responsible for the remaining portion, provided, however, that (a) if such
allocation is not permitted by applicable law then the relative fault of the
Company and the Underwriter and controlling persons, in the aggregate, in
connection with the statements or omissions which resulted in such damages and
other relevant equitable considerations shall also be considered. The relative
fault shall be determined by reference to, among other things, whether in the
case of an untrue statement of a material fact or the omission to state a
material fact, such statement or omission relates to information supplied by the
Company, or the Underwriter and the parties, relative intent, knowledge, access
to information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if the respective obligations of the Company and the Underwriters to
contribute pursuant to this Section 7 were to be determined by pro rata or per
capita allocation of the aggregate damages (even if the Underwriters and their
controlling persons in the aggregate were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the first sentence of this Section; and
(b) that the contribution of each contributing Underwriter shall not be in
excess of its proportionate share (based on the ratio of the number of
Securities purchased by such Underwriter to the number of Securities purchased
by all contributing Underwriters) of the portion of such losses, claims, damages
or liabilities for which the Underwriters are responsible. No person ultimately
determined to be guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
is nor ultimately determined to be guilty of such fraudulent misrepresentation.
As used in this paragraph, the term "Underwriter" includes any officer,
director, or other person who controls the Underwriter within the meaning of
Section 15 of the Act, and the word "Company" includes any officer, director, or
person who controls the Company within the meaning of Section 15 of the Act. If
the full amount of the contribution specified in this paragraph is not permitted
by law, then the Underwriter and each person who controls the Underwriter shall
be entitled to contribution from the Company, its officers, directors and
controlling persons to the full extent permitted by law. This foregoing
agreement shall in no way affect the contribution liabilities of any persons
having liability under Section 11 of the Act other than the Company and the
Underwriter. No contribution shall be requested with regard to the settlement
of any matter from any party who did not consent to the settlement; provided,
however, that such consent shall not be unreasonably withheld in light of all
factors of importance to such party.
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8. Costs and Expenses. (a) Whether or not this Agreement becomes
------------------
effective or the sale of the Securities to the Underwriters is consummated, the
Company will pay all costs and expenses incident to the performance of this
Agreement by the Company including but not limited to the fees and expenses of
the counsel to the Company or of the Company's accountants; the costs and
expenses incident to the preparation, printing, filing and distribution under
the Act of the Registration Statement (including the financial statements
therein and all amendments and exhibits thereto), Preliminary Prospectus and the
Prospectus, as amended or supplemented; the fee of the NASD in connection with
the filing required by the NASD relating to the offering of the Securities
contemplated hereby; all state filing fees, expenses and disbursements and legal
fees of counsel to the Company who shall serve as Blue Sky counsel to the
Company in connection with the filing of applications to register the Securities
under the state securities or blue sky laws; the cost of printing and furnishing
to the several Underwriters copies of the Registration Statement, each
Preliminary Prospectus, the Prospectus, this Agreement, the Selected Dealers
Agreement, the Agreement Among Underwriters, Underwriters Questionnaire,
Underwriters Power of Attorney and the Blue Sky Memorandum; the cost of printing
the certificates evidencing the securities comprising the Securities; the cost
of preparing and delivering to the Underwriters and its counsel bound volumes
containing copies of all documents and appropriate correspondence filed with or
received from the Commission and the NASD and all closing documents; and the
fees and disbursements of the transfer agent for the Company's securities. The
Company shall pay any and all taxes (including any original issue, transfer,
franchise, capital stock or other tax imposed by any jurisdiction) on sales to
the Underwriters hereunder. The Company will also pay all costs and expenses
incident to the furnishing of any amended Prospectus or of any supplement to be
attached to the Prospectus. The Company shall also engage the Company's counsel
to provide the Representative with a written Secondary Market Trading Opinion in
accordance with paragraphs 3(ab) and 4(j) of this Agreement.
(b) In addition to the foregoing expenses, the Company shall at the
Closing Date pay to the Representative a non-accountable expense allowance equal
to three percent (2%) of the gross proceeds received from the sale of the
Securities, of which an advance of $______ has been paid to date. In the event
the over allotment option is exercised, the Company shall pay to the
Representative at the Option Closing Date an additional amount equal to three
percent (2%) of the gross proceeds received upon exercise of the over allotment
option.
(c) Other than as disclosed in the Registration Statement, no person
is entitled either directly or indirectly to compensation from the Company, from
the Representative or from any other person for services as a finder in
connection with the proposed offering, and the Company agrees to indemnify and
hold harmless the Representative and the other Underwriters against any losses,
claims, damages or liabilities, joint or several which shall, for all purposes
of this Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys, fees, to which the Representative or such other
Underwriter may become subject insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon the.
claim of any person (other than an employee of the party claiming indemnity) or
entity that he or it is entitled to a finder's fee in connection with the
proposed offering by reason of such person's or entity's influence or prior
contact with the indemnifying party.
9. Substitution of Underwriters. If any of the Underwriters shall for
----------------------------
any reason not permitted hereunder cancel their obligations to purchase the
Securities hereunder, or shall fail to take
29
<PAGE>
up and pay for the number of Securities set forth opposite their respective
names in Schedule A hereto upon tender of such Securities in accordance with the
terms hereof, then:
(a) if the aggregate number of Securities which such Underwriter or
Underwriters agreed but failed to purchase does not exceed ten percent (10%) of
the total number of Securities, the other Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the Securities which such defaulting Underwriter or Underwriters agreed but
failed to purchase.
(b) If any Underwriter or Underwriters so default and the agreed
number of Securities with respect to which such default or defaults occurs is
more than ten percent (10%) of the total number of Securities, the remaining
Underwriters shall have the right to take up and pay for (in such proportion as
may be agreed upon among them) the Securities which the defaulting Underwriter
or Underwriters agreed but failed to purchase. If such remaining Underwriters do
not, at the Closing Date, take up and pay for the Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase, the time
for delivery of the Securities shall be extended to the next business day to
allow the several Underwriters the privilege of substituting within twenty-four
hours (including non-business hours) another Underwriter or Underwriters
satisfactory to the Company. If no such Underwriter or Underwriters shall have
been substituted as aforesaid, within such twenty-four period, the time of
delivery of the Securities may, at the option of the Company, be again extended
to the next following business day, if necessary, to allow the Company the
privilege of finding within twenty-four hours (including non-business hours)
another Underwriter or Underwriters to purchase the Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted Underwriters to
take up the Securities of the defaulting Underwriter or Underwriters as provided
in this Section, (i) the Company or the Representative shall have the right to
postpone the time of delivery for a period of not more than seven (7) business
days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees promptly to file any amendments to the
Registration Statement or supplements to the Prospectus which may thereby be
made necessary; and (ii) the respective numbers of Securities to be purchased by
the remaining Underwriters or substituted Underwriters shall be taken at the
basis of the underwriting obligation for all purposes of this Agreement.
If in the event of a default by one or more Underwriters and the
remaining Underwriters shall not take up and pay for all the Securities agreed
to be purchased by the defaulting Underwriters or substitute another Underwriter
or Underwriters as aforesaid, and the Company shall not find or shall not elect
to seek another Underwriter or Underwriters for such Securities as aforesaid,
then this Agreement shall terminate.
If, following exercise of the Option provided in Section 2(b) hereof,
any Underwriter or Underwriters shall for any reason not permitted hereunder
cancel their obligations to purchase Option Securities at the Option Closing
Date, or shall fail to take up and pay for the number of Option Securities,
which they become obligated to purchase at the Option Closing Date upon tender
of such Option Securities in accordance with the terms hereof, then the
remaining Underwriters or substituted Underwriters may take up and pay for the
Option Securities of the defaulting Underwriters in the manner provided in
Section 9(b) hereof. If the remaining Underwriters or substituted Underwriters
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<PAGE>
shall not take up and pay for all Option Securities, the Underwriters shall be
entitled to purchase the number of Option Securities for which there is no
default or, at their election, the option shall terminate, the exercise thereof
shall be of no effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of termination,
there shall be no liability on the part of any non-defaulting Underwriter to the
Company, provided that the provisions of this Section 9 shall not in any event
affect the liability of any defaulting Underwriter to the Company arising out of
such default.
10. Effective Date. The Agreement shall become effective upon its
--------------
execution except that you may, at your option, delay its effectiveness until
11:00 a.m., Eastern time, on the first full business day following the effective
date of the Registration Statement, or at such earlier time after the effective
date of the Registration Statement as you in your discretion shall first
commence the public offering by the Underwriters of any of the Securities. The
time of the public offering shall mean the time after the effectiveness of the
Registration Statement when the Securities are first generally offered by you to
the other Underwriters and Selected Dealers. This Agreement may be terminated
by you at any time before it becomes effective as provided above, except that
Sections 3(c), 6, 7, 8, 13, 14, 15, 16, 17 and 18 shall remain in effect
notwithstanding such termination.
11. Termination. (a) This Agreement, except for Sections 3(c), 6, 7, 8,
-----------
13, 14, 15, 16, 17, and 18 hereof, may be terminated at any time prior to the
Closing Date, and the Option referred to in Section 2(b) hereof, if exercised,
may be canceled at any time prior to the Option Closing Date, by you if in your
judgment it is impracticable to offer for sale or to enforce contracts made by
the Underwriters for the resale of the Securities agreed to be purchased
hereunder by reason of: (i) the Company having sustained a material adverse
loss, whether or not insured, by reason of fire, earthquake, flood, accident or
other calamity, or from any labor dispute or court or government action, order
or decree; (ii) trading in securities on the New York Stock Exchange or the
American Stock Exchange having been suspended or limited; (iii) material
governmental restrictions having been imposed on trading in securities generally
(not in force and effect on the date hereof); (iv) a banking moratorium having
been declared by Federal or New York or Florida state authorities; (v) an
outbreak of major international hostilities or other national or international
calamity having occurred; (vi) the passage by the Congress of the United States
or by any state legislative body of similar impact, of any act or measure, or
the adoption of any orders, rules or regulations by any governmental body or any
authoritative accounting institute or board, or any governmental executive,
which is reasonably believed likely by the Representative to have a material
adverse impact on the business, financial condition or financial statements of
the Company or the market for the securities offered hereby; (vii) any material
adverse change in the financial or securities markets beyond normal market
fluctuations having occurred since the date of this Agreement; (viii) any
material adverse change having occurred, since the respective dates as of which
information is given in the Registration Statement and Prospectus, in the
earnings, business prospects or general condition of the Company, financial or
otherwise, whether or not arising in the ordinary course of business; (ix) a
pending or threatened legal or governmental proceeding or action relating
generally to the Company's business, or a notification having been received by
the Company of the threat of any such proceeding or action, which could, in the
reasonable judgment of the Representative, materially adversely affect the
Company; (x) except as contemplated by the Prospectus, the Company is merged or
consolidated
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into or acquired by another company or group or there exists a binding legal
commitment for the foregoing or any other material change of ownership or
control occurs; or (xi) the Company shall not have complied in all material
respects with any term, condition or provisions on their part to be performed,
complied with or fulfilled (including but not limited to those set forth in this
Agreement) within the respective times therein provided.
(b) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section, the Company shall be
promptly notified by you, by telephone, telegram or facsimile, confirmed by
letter.
12. Representative's Warrant Agreement. At the Closing Date, the Company
----------------------------------
will issue to the Representative and/or persons related to the Representative,
for an aggregate purchase price of $100, and upon the terms and conditions set
forth in the form of Representative's Warrant Agreement annexed as an exhibit to
the Registration Statement, Representative Warrants to purchase up to an
aggregate of 115,000 Shares and 115,000 Warrants, in such denominations as the
Representative shall designate. In the event of conflict in the terms of this
Agreement and the Representative's Warrant Agreement, the language of the form
of Representative's Warrant Agreement shall control.
13. Representations, Warranties and Agreements to Survive Delivery. The
----------------------------------------------------- --------
respective indemnities, agreements, representations, warranties and other
statements of the Company and its principal officers, where appropriate, and the
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of the
Underwriters, the Company or any of its officers or directors or any controlling
person and will survive delivery of and payment for the Securities and the
termination of this Agreement.
14. Notice. All communications hereunder will be in writing and, except
------
as otherwise expressly provided herein, will be mailed, delivered or telegraphed
and confirmed:
If to the Underwriters: Douglas Nichols, President
First London Securities Corporation
2600 State Street
Dallas, Texas 75204
Copy to: Richard F. Dahlson
Jackson & Walker, LLP
901 Main Street, Suite 6000
Dallas, Texas 75202-3797
If to the Company: Barry Conrad, Chairman
NEI WebWorld, Inc.
North Tower, Plaza of the Americas
Suite 1910
Dallas, TX 75201
32
<PAGE>
Copy to: Bruce Hallett
Crouch & Hallett
717 North Harwood
Suite 1400
Dallas, Texas 75201
15. Parties in Interest. This Agreement herein set forth is made solely
-------------------
for the benefit of the several Underwriters, the Company and, to the extent
expressed, any person controlling the Company or of the Underwriters, and
directors of the Company, nominees for directors (if any) named in the
Prospectus, its officers who have signed the Registration Statement, and their
respective executors, administrators, successors, assigns and no other person
shall acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser of the Securities, as
such purchaser, from the several Underwriters. All of the obligations of the
Underwriters hereunder are several and not joint.
16. Applicable Law. This Agreement shall be governed and construed in
--------------
accordance with the laws of the State of Texas applicable to contracts made and
to be performed entirely within the State of Texas. The parties agree that any
action brought by any party against another party in connection with any rights
or obligations arising out of this Agreement shall be instituted properly in a
federal or state court of competent jurisdiction with venue only in the State
District Court of Dallas, County, Texas or the United States District Court for
the Northern District of Texas. A party to this Agreement named as a Defendant
in any action brought in connection with this Agreement in any court outside of
the above named designated county or district shall have the right to have the
venue of said action changed to the above designated county or district or, if
necessary, have the case dismissed, requiring the other party to re-file such
action in an appropriate court in the above designated county or federal
district.
17. Counterparts. This Agreement may be executed in any number of
------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counter-parts shall together constitute but one and the
same instrument.
18. Entire Agreement. This Agreement and the agreements referred to
----------------
within this Agreement constitute the entire agreement of the parties, and
supersedes all prior agreement, understanding, negotiations and discussions,
whether written or oral, of the parties hereto.
19. Representative as Underwriter. In the event the Representative acts
-----------------------------
as the sole Underwriter ("Underwriter") in connection with the underwriting of
the securities being offered pursuant to the Registration Statement, all
references to the Representative in this Agreement shall be replaced by
reference to the "Underwriter", and (i) any consents required to be obtained
from the Representative shall be required to be obtained solely from the
Underwriter; (ii) all compensation to be received by the Representative shall
instead be received by the Underwriter; and (iii) the provisions of section nine
(9) of this Agreement shall not apply.
33
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return this Agreement, whereupon it will become a binding
Agreement between the Company and the several Underwriters in accordance with
its terms.
Very truly yours,
NEI WebWorld, Inc.
BY:
-----------------------------------------------
Barry Conrad, Chairman
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
FIRST LONDON SECURITIES CORPORATION
BY:
-----------------------------------------------
Douglas Nichols, President
For itself and as Representative of the
several Underwriters
34
<PAGE>
SCHEDULE A
TO THE UNDERWRITING AGREEMENT
-----------------------------
UNDERWRITER SHARES
- ----------- ------
First London Securities Corporation................................ 1,000,000
UNDERWRITER WARRANTS
- ----------- --------
First London Securities Corporation................................ 1,000,000
35
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
NEI ACQUISITION CORPORATION
The undersigned, being a natural person of the age of eighteen (18) years
or more, acting as the incorporator of a corporation under the Texas Business
Corporation Act, hereby adopts the following Articles of Incorporation for such
corporation:
ARTICLE I
The name of the corporation is NEI Acquisition Corporation.
ARTICLE II
The period of its duration is perpetual.
ARTICLE III
The purpose for which the corporation is organized is to transact any and
all lawful business for which corporations may be incorporated under the Texas
Business Corporation Act.
ARTICLE IV
The street address of the initial registered office of the corporation is
717 N. Harwood, Suite 1400, Dallas, Texas 75201, and the name of the initial
registered agent of the corporation at such address is Bruce H. Hallett.
ARTICLE V
The corporation is authorized to issue one class of capital stock to be
designated Common Stock. The aggregate number of shares which the corporation
shall have authority to issue is One Hundred Thousand (100,000) shares of Common
Stock, $.01 par value.
ARTICLE VI
Cumulative voting in the election of directors is expressly prohibited.
ARTICLE VII
No shareholder of the corporation will by reason of his holding shares of
stock of the corporation have any preemptive or preferential rights to purchase
or subscribe to any shares of any class of stock of the corporation, or any
notes, debentures, bonds, warrants, options or other securities of the
corporation, now or hereafter to be authorized.
ARTICLE VIII
The corporation will not commence business until it has received for the
issuance of its shares consideration of the value of One Thousand Dollars
($l,000.00), consisting of money
<PAGE>
paid, labor done or property actually received, which property actually received
shall have a value of not less than One Thousand Dollars ($l,000.00).
ARTICLE IX
The number of directors shall be fixed in the manner provided in the Bylaws
of the corporation. The initial Board of Directors will consist of three
directors, and the names and addresses of the persons who are to serve as
directors until the first annual meeting of shareholders or until their
successors are elected and qualified are:
Name Address
---- -------
Barry B. Conrad c/o Merchant Banking Group
RPR Tower, Suite 1910
700 North Pearl, LB 321
Dallas, Texas 75201
Floyd W. Collins c/o Merchant Banking Group
RPR Tower, Suite 1910
700 North Pearl, LB 321
Dallas, Texas 75201
ARTICLE X
To the fullest extent permitted by Texas statutory or decisional law, as
the same exists or may hereafter be amended or interpreted, a director of the
corporation shall not be liable to the corporation or its shareholders for any
act or omission in such director's capacity as a director. Any repeal or
amendment of this Article, or adoption of any other provision of these Articles
of Incorporation inconsistent with this Article, by the shareholders of the
corporation shall be prospective only and shall not adversely affect any
limitation on the liability to the corporation or its shareholders of a director
of the corporation existing at the time of such repeal, amendment or adoption of
an inconsistent provision.
ARTICLE XI
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting, without prior notice, and without a
vote, if a written consent or consents, setting forth the action so taken, is
signed by the holders of shares having not less than the minimum number of votes
necessary to take such action at a meeting at which the holders of all shares
entitled to vote on the action were present and voted.
2
<PAGE>
ARTICLE XII
The name and address of the incorporator is as follows:
Name Address
---- -------
Bruce H. Hallett 717 N. Harwood
Suite 1400
Dallas, Texas 75201
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 10th day
of September, 1993.
---------------------------------------
Bruce H. Hallett
3
<PAGE>
ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
OF
NEI ACQUISITION CORPORATION
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation hereby adopts the following
Articles of Amendment to its Restated Articles of Incorporation:
ARTICLE ONE
The name of the corporation is NEI Acquisition Corporation (the
"Corporation").
ARTICLE TWO
The following amendment to the Articles of Incorporation was adopted by the
shareholders of Corporation by written consent dated February 28, 1994.
Article V is hereby amended to read in its entirety as follows:
"A. The corporation is authorized to issue two classes of shares of
capital stock, designated "Common Stock" and "Preferred Stock",
respectively. The aggregate number of shares of Common Stock authorized to
be issued is 1,000,000 shares with a par value of $.01 per share. The
aggregate number of shares of shares of Preferred Stock authorized to be
issued is 2,000,000 shares with a par value of $1.00 per share. Shares of
the Preferred Stock may be issued from time to time in one or more series,
each such series to have such distinctive designation or title as may be
fixed by the Board of Directors prior to the issuance of any shares
thereof. Each such series shall have such designations, preferences,
limitations and relative rights, including voting rights, as shall be
stated in the resolution or resolutions providing for the issuance of such
series of Preferred Stock, as may be adopted from time to time by the Board
of Directors prior to the issuance of any shares thereof, in accordance
with the laws of the State of Texas. The Board of Directors, in such
resolution or resolutions, may increase or decrease the number of shares
within each such series; provided, however, the Board of Directors may not
decrease the number of shares within a series to less than the number of
shares within such series that are then issued. On the date hereof, the
Board of Directors has designated 271,500 shares of Series A Convertible
Preferred Stock ("Series A Preferred Stock"), 478,500 shares of Series B
Redeemable Preferred Stock ("Series B Preferred Stock") and 526,500 shares
of Series C Redeemable Preferred Stock ("Series C Preferred
Stock")(collectively referred to as the "Preferred Stock"), which shall
have the following preferences, limitations and relative rights:
<PAGE>
1. Dividends. The holders of Series A and Series B Preferred Stock shall
---------
be entitled to receive, when and as declared by the Board of Directors, out
of the funds of the Company legally permissible, in preference to the
holders of the Common Stock, $.01 par value, of the Company ("Common
Stock"), cumulative annual dividends at the annual rate of $.08 per share.
Such dividends shall consist of the Company's Series C Preferred Stock,
each share of which shall be deemed to have a value of $1.00. Dividends on
Series A and Series B Preferred Stock shall commence to accrue and shall be
cumulative from March 1, 1994. Accrued dividends shall be paid in full by
March 31, 2001, to the extent legally permissible. If the dividend on the
Series A and Series B Preferred Stock for any dividend period shall not
have been paid (in the manner set forth above) or set apart in full, it
shall accrue and the aggregate deficiency shall be cumulative and shall be
fully paid or set apart for payment for all prior completed annual periods
before any dividend shall be declared and paid or set aside for payment
upon the Common Stock and before any asset which is by law available for
the payment of dividends shall be paid or set aside for the purchase or
redemption of the Preferred Stock or the purchase of any share of Common
Stock; provided, however, that the repurchase of capital stock held by
Stratford Capital Group, Inc. (and its assigns and transferees) shall be
exempt from the restriction set forth in this sentence. Accumulations of
dividends on the Series A and Series B Preferred Stock shall not bear
interest. Shares of the Series C Preferred Stock shall not be entitled to
receive dividends thereon.
2. Voting Rights.
-------------
(a) Except as otherwise required by law, a holder of each share of
Series A Preferred Stock shall be entitled to vote on all matters presented
for the vote or consent of shareholders and shall be entitled to the number
of votes per share that it would have been entitled to had it converted its
shares of Series A Preferred Stock into shares of Common Stock immediately
prior to the record date for the determination of shareholders entitled to
vote on such matters or, if no record date is established, on the date such
vote is taken or any written consent of shareholders is solicited.
(b) Except as otherwise required by law, a holder of each share of
Series B and Series C Preferred Stock shall not be entitled to vote on all
matters presented for the vote or consent of shareholders; provided,
however, the affirmative consent or vote of a majority of the outstanding
shares of Series B Preferred Stock, voting as a class, shall be required
with respect to the following actions:
2
<PAGE>
(i) any increase in the number of directors on the Board of
Directors of the Company;
(ii) entering into any employment contracts or agreements wherein
the employee's salary exceeds $100,000;
(iii) consolidation or merger of the Company into another
corporation, where the Company is not the surviving entity, or the sale,
lease, transfer or conveyance of all or substantially all of the assets of
the Company;
(iv) purchase of all or substantially all of the assets, stock or
ownership interest of another entity;
(v) entering into any agreement or understanding or otherwise incur
any obligation which by its terms would violate, modify or cancel the
rights of holders of Series B Preferred Stock hereunder, or change the
relative rights of holders of Series B Preferred Stock as to the payments
of dividends or liquidation preferences in relation to such rights of
holders of any other capital stock of the Company;
(vi) purchase, redemption or otherwise acquire for value (or pay or
set aside for a sinking fund for such purpose) any of the capital stock of
the Company other than any redemption of Preferred Stock (or shares of
Common Stock issuable upon the conversion of Series A Preferred Stock) or
as set forth in any shareholders' agreement where holders of Series B
Preferred Stock are a party or as set forth in the Company's Subordinated
Loan and Warrant Purchase Agreement with Stratford Capital Group, Inc.; or
(vii) incurring any funded indebtedness (or entering into any
agreement to incur funded indebtedness) if the same would increase the
funded indebtedness of the Company in excess of $7.0 million.
(c) Except as set forth in Subparagraph (b) above or as otherwise
required by law, shares of Series A Preferred Stock, Series B Preferred
Stock and Common Stock shall be voted together as a single class and not as
separate classes.
3. Priority of the Preferred Stock in Event of Dissolution.
-------------------------------------------------------
(a) In the event of a dissolution, liquidation or winding up of the
Company (whether voluntary or involuntary), after payment or provision for
payment in full to the creditors of the Company, but before any
distribution to the holders of Common Stock, the holders of Preferred Stock
then outstanding
3
<PAGE>
shall be entitled to receive an amount equal to $1.00 per share. In the
event that the funds available therefor are insufficient for the payment of
the aforesaid amount with respect to all of the outstanding shares of
Preferred Stock, such funds will be paid pro rata among the outstanding
shares of Preferred Stock.
(b) A consolidation, merger or reorganization of the Company with
or into any other corporation or corporations, or a sale, or a series of
related sales, of all or substantially all of the assets of the Company
shall not be deemed to be a liquidation, dissolution or winding up for the
purpose of this Paragraph 3.
4. Conversion of Series A Preferred Stock into Common Stock.
--------------------------------------------------------
(a) Each share of Series A Preferred Stock shall be convertible
into Common Stock, at the then applicable Series A Conversion Price, at any
time and from time to time at the option of the holder thereof. Before any
holder of Series A Preferred Stock shall be entitled to convert such stock
into shares of Common Stock, the holder shall surrender the certificate or
certificates therefor, duly endorsed, to the Company and shall give written
notice, duly executed, to the Company of such election to convert the same
and shall state the number of shares of Series A Preferred Stock being
converted. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of the surrender of the shares
of Series A Preferred Stock to be converted, and the holder of such shares
shall be treated for all purposes as the record holder of such shares of
Common Stock on such date.
(b) The per share price at which shares of Common Stock shall be
deliverable upon conversion of the Series A Preferred Stock shall be called
the "Series A Conversion Price," as determined in accordance with this
Paragraph 4. Each share of Series A Preferred Stock shall be convertible
into such number of fully paid and nonassessable shares of Common Stock as
is determined by dividing $1.00 by the Series A Conversion Price in effect
at the time of conversion. The initial Series A Conversion Price shall be
$1.00.
(c) No fractional shares of Common Stock shall be issued upon
conversion of the Series A Preferred Stock, and in lieu of any fractional
shares to which the holder would otherwise be entitled, the Company shall
pay cash equal to such fraction multiplied by the Series A Conversion
Price.
(d) The Series A Conversion Price shall be subject to adjustment as
provided herein:
4
<PAGE>
(i) In case the Company shall at any time or from time to time
(A) pay a dividend with respect to its Common Stock in shares of its
capital stock (whether shares of Common Stock or of capital stock of
any other class), (B) subdivide its outstanding shares of Common
Stock, (C) combine its outstanding shares of Common Stock into a
smaller number of shares, or (D) issue any shares of its capital stock
by reclassification of its Common Stock (including any such
reclassific ation in connection with a consolidation or merger in
which the Company is the continuing corporation), the conversion
privilege and the Series A Conversion Price in effect immediately
prior to such action shall be proportionately adjusted so that the
holder of any shares of Series A Preferred Stock thereafter
surrendered for conversion shall be entitled to receive the number and
kind of shares of capital stock of the Company which it would have
owned or have been entitled to receive immediately following the
happening of any of the events described above, had such Series A
Preferred Stock been converted immediately prior thereto. An
adjustment made pursuant to this Subparagraph (d)(i) shall become
effective retroactively immediately after the record date in the case
of a dividend with respect to the Common Stock in shares of capital
stock and shall become effective immediately after the effective date
in the case of a subdivision, combination or reclassification. If, as
a result of an adjustment made pursuant to this Subparagraph (d)(i),
the holder of any shares of Series A Preferred Stock thereafter
surrendered for conversion shall become entitled to receive shares of
two or more classes of capital stock of the Company, the Board of
Directors shall determine the allocation of the adjusted Series A
Conversion Price between or among shares of such classes of capital
stock.
(ii) In the event the Company sells any shares of its Common
Stock or any securities convertible into or exercisable for its Common
Stock and the net per share price received by the Company from the
sale of such Common Stock or securities plus any additional amounts to
be received on the conversion of such securities into, or exercise of
such securities for, Common Stock is less than the then current Series
A Conversion Price, or in the event of the exercise of any options or
warrants to purchase its Common Stock for a net per share price less
than the then current Series A Conversion Price, the Series A
Conversion Price shall thereafter be reduced, as of the opening of
business on the date of such issue or sale, to a price determined by
multiplying the Series A Conversion Price in effect prior to such
issuance by a fraction, (A) the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to such issue
or sale plus the number of shares of Common Stock that the aggregate
5
<PAGE>
consideration received by the Company for the total number of
additional shares of Common Stock so issued would purchase at such
Series A Conversion Price, and (B) the denominator of which shall be
the number of shares of Common Stock outstanding immediately prior to
such issue or sale plus the number of such additional shares of Common
Stock so issued.
(iii) Notwithstanding anything set forth in this Paragraph 4, no
adjustment in the Series A Conversion Price shall be made as a result
of the issuance or sale of any Common Stock by the Company in
connection with the exercise of any stock option granted by the
Company pursuant to option plans approved by the board of directors of
the Company or pursuant to the common stock purchase warrants issued
by the Company to Stratford Capital Group, Inc. (or their assigns and
transferees).
(e) In case of any capital reorganization or of any reclassification
of the Common Stock of the Company, or in case of the consolidation of the
Company with, or the merger of the Company into, any other corporation, or
of the sale of the properties and assets of the Company as, or
substantially as, an entirety to any other corporation, the Series A
Preferred Stock shall after such capital reorganization, reclassification
of Common Stock, consolidation, merger or sale be exercisable for the
number of shares of stock or other securities or property of the Company,
or of the corporation resulting from such consolidation or surviving such
merger or to which such sale shall be made, as the case may be, to which
the holder of Common Stock issuable (at the time of such capital
reorganization, reclassification of Common Stock, consolidation, merger or
sale) upon exercise of the conversion privilege of the Series A Preferred
Stock would have been entitled upon such capital reorganization,
reclassification of Common Stock, consolidation, merger or sale had the
conversion privilege of the Series A Preferred Stock been exercised prior
thereto; and in any case, if necessary, the provisions set forth in this
Paragraph 4 regarding the rights and interests thereafter of the holders of
Series A Preferred Stock shall be appropriately adjusted so as to be
applicable, as nearly as may reasonably be, to any shares of stock or other
securities or property thereafter deliverable on the exercise of the
conversion privilege of the Series A Preferred Stock. The subdivision or
combination of shares of Common Stock issuable upon exercise of the
conversion privilege of the Series A Preferred Stock into a greater or
lesser number of shares of Common Stock (whether with or without par value)
shall not be deemed to be a reclassification of the Common Stock of the
Company for the purposes of this Paragraph 4.
6
<PAGE>
(f) The Company shall at all times reserve and keep available out of
its authorized but unissued Common Stock, solely for the purpose of
effecting the conversion of Series A Preferred Stock, such number of shares
of Common Stock as shall from time to time be issuable upon the conversion
of all outstanding shares of Series A Preferred Stock.
(g) The issuance of certificates for shares of Common Stock upon
conversion of the Series A Preferred Stock shall be made without charge for
any tax in respect of such issuance. However, if any certificate is to be
issued in a name other than that of the holder of record of the Series A
Preferred Stock so converted, the person or persons requesting the issuance
thereof shall pay to the Company the amount of any tax which may be payable
in respect of any transfer involved in such issuance, or shall establish to
the satisfaction of the Company that such tax has been paid or is not due
and payable.
5. Redemption.
----------
(a) The Company may at any time on and after the earlier of (i) the
consummation of a bona fide underwritten public offering of the Common
Stock of the Company resulting in net proceeds to the Company of at least
$10.0 million or (ii) March 31, 2001, to the extent it has sufficient
surplus, redeem outstanding shares of Series A Preferred Stock at a
redemption price equal to $1.00 per share.
(b) On March 31, 2001, the Company shall be required to redeem the
outstanding shares of Series B and Series C Preferred Stock at a price per
share equal to $1.00. If funds legally available to the Company for the
repurchase of the Series B and Series C Preferred Stock shall be
insufficient to redeem all of the outstanding Series B and Series C
Preferred Stock required hereby to be redeemed, the Company shall redeem
such number of shares of Series B and Series C Preferred Stock as such
legally available funds shall permit, shall take all other actions allowed
by law in order to redeem such unredeemed shares of Series B and Series C
Preferred Stock and shall redeem such remaining unredeemed shares of Series
B and Series C Preferred Stock as soon as practicable after funds legally
available to the Company for such redemption are obtained.
7
<PAGE>
(c) The Company shall give written notice (the "Redemption Notice") to
the holders of Series A, Series B or Series C Preferred Stock (as the case
may be) at such address as has been last provided by each such party for
purposes of receiving notice setting forth the intent of the Company to
exercise the right of redemption at least thirty days before the date fixed
for each redemption payment (the "Redemption Date") and further specifying
in such notice the number of shares to be redeemed and the Redemption Date.
(d) On or before each Redemption Date, each holder of Preferred Stock
to be redeemed shall surrender the certificate or certificates representing
such shares to the Company, in the manner and at the price designated in
the Redemption Notice, and thereupon the sum of $1.00 per share for such
shares shall be payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof, and each surrendered
certificate shall be cancelled and retired. In the event less than all of
the shares represented by such certificate are redeemed, a new certificate
representing the unredeemed shares shall be issued to the holder of such
shares.
B. No shareholder of the corporation will, by reason of his holding
shares of stock of the corporation, have any preemptive or preferential
rights to purchase or subscribe to any shares of any class of stock of the
corporation, or any notes, debentures, bonds, warrants, options or other
securities of the corporation, whether now or hereafter authorized."
ARTICLE THREE
The number of shares of the Corporation outstanding at the time of such
adoption was 1,000, and the number of shares entitled to vote thereon was 1,000.
ARTICLE FOUR
The number of shares voted for such amendment was 1,000, and the number of
shares voted against such amendment was -0-.
IN WITNESS WHEREOF, the Corporation has executed this document as of
February 28, 1994.
NEI ACQUISITION CORPORATION
By:
-----------------------------------
Barry B. Conrad
Chairman
8
<PAGE>
ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION
OF NEI ACQUISITION CORPORATION
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, NEI ACQUISITION, INC. (the "Corporation"), hereby adopts the
following Articles of Amendment to its Articles of Incorporation to change the
name of the Corporation:
ARTICLE ONE. The name of the Corporation is NEI Acquisition Corporation.
ARTICLE TWO. The following amendment to the Articles of Incorporation was
adopted by the Corporation as of May 2, 1994.
A new Article One is hereby added to the Articles of Incorporation, to read
in its entirety as follows:
"ARTICLE ONE"
The name of the corporation (the "Company") is NEI WebWorld, Inc.
ARTICLE THREE. The number of shares of Common Stock of the Corporation
outstanding and entitled to vote was One Thousand (1,000) at the time of the
adoption of these amendments.
ARTICLE FOUR. The holder of all the shares of Common Stock outstanding
and entitled to vote has signed a written consent to the adoption of these
amendments.
DATED as of the 24th day of May, 1994.
NEI ACQUISITION CORPORATION
By: _______________________________
Richard J. Wiencek, President
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
NEI ACQUISITION CORPORATION
(A TEXAS CORPORATION)
<PAGE>
ARTICLE I
OFFICES
Section 1. Principal Office. The principal office of the Corporation
--------- ----------------
shall be in Dallas County, Texas.
Section 2. Other Offices. The Corporation may also have offices at
--------- -------------
such other places both within and without the State of Texas as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
SHAREHOLDERS
Section 1. Time and Place of Meetings. Meetings of the shareholders
--------- --------------------------
shall be held at such time and at such place, within the State of Texas, as
shall be determined by the Board of Directors.
Section 2. Annual Meetings. Annual meetings of shareholders shall be
--------- ---------------
held on such date and at such time as shall be determined by the Board of
Directors. At each annual meeting the shareholders shall elect a Board of
Directors and transact such other business as may properly be brought before the
meeting.
Section 3. Special Meetings. Special meetings of the shareholders may
--------- ----------------
be called at any time by the Chief Executive Officer, President or the Board of
Directors, and shall be called by the Chief Executive Officer, President or the
Secretary at the request in writing of the holders of not less than ten percent
(10%) of the voting power represented by all the shares issued, outstanding and
entitled to be voted at the proposed special meeting, unless the Articles of
Incorporation provide for a different percentage, in which event such provision
of the Articles of Incorporation shall govern. Such request shall state the
purpose or purposes of the proposed meeting. Business transacted at special
meetings shall be confined to the purposes stated in the notice of the meeting.
Section 4. Notice. Written or printed notice stating the place, day
--------- ------
and hour of any shareholders' meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten nor more than 60 days before the date of the meeting, either personally
or by mail, by or at the direction of the Chief Executive Officer, President,
Secretary or the officer or person calling the meeting, to each shareholder
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, postage prepaid, addressed
to the shareholder at his address as it appears on the share transfer records of
the Corporation.
Section 5. Closing of Share Transfer Records and Fixing Record Dates
--------- ---------------------------------------------------------
for Matters Other than Consents to Action. For the purpose of determining
- -----------------------------------------
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any distribution or
share dividend, or in order to make a determination of shareholders for any
other proper purpose (other than determining shareholders entitled to consent to
action by shareholders proposed to be taken without a meeting of shareholders),
the Board of Directors of the Corporation may provide that the share transfer
records shall be closed for a stated period but not to exceed, in any case, 60
days. If the share transfer records shall be closed for the purpose of
determining shareholders, such records shall be closed for at least ten days
immediately preceding such meeting. In lieu of closing the share transfer
records, the Board of Directors may fix in advance a date as the record date for
any such determination of shareholders, such date in any case to
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be not more than 60 days and, in the case of a meeting of shareholders, not less
than ten days prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If the share transfer records are
not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a distribution (other than a distribution
involving a purchase or redemption by the Corporation of any of its own shares)
or share dividend, the date on which notice of the meeting is mailed or the date
on which the resolution of the Board of Directors declaring such distribution or
share dividend is adopted, as the case may be, shall be the record date for such
determination of shareholders. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment thereof except where the
determination has been made through the closing of share transfer records and
the stated period of closing has expired.
Section 6. Fixing Record Dates for Consents to Action. Unless a record
--------- ------------------------------------------
date shall have previously been fixed or determined pursuant to this Section 6,
whenever action by shareholders is proposed to be taken by consent in writing
without a meeting of shareholders, the Board of Directors may fix a record date
for the purpose of determining shareholders entitled to consent to that action,
which record date shall not precede, and shall not be more than ten 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
and the prior action of the Board of Directors is not required by the Texas
Business Corporation Act (herein called the "Act"), the record date for
determining shareholders entitled to consent to action in writing without a
meeting shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the Corporation by
delivery to its registered office, its principal place of business, or an
officer or agent of the Corporation having custody of the records in which
proceedings of meetings of shareholders are recorded. Delivery shall be by hand
or by certified or registered mail, return receipt requested. Delivery to the
Corporation's principal place of business shall be addressed to the President or
the Chief Executive Officer of the Corporation. If no record date shall have
been fixed by the Board of Directors and prior action of the Board of Directors
is required by the Act, the record date for determining shareholders entitled to
consent to action in writing without a meeting shall be at the close of business
on the date on which the Board of Directors adopts a resolution taking such
prior action.
Section 7. List of Shareholders. The officer or agent of the
--------- --------------------
Corporation having charge of the share transfer records for shares of the
Corporation shall make, at least ten days before each meeting of the
shareholders, a complete list of the shareholders entitled to vote at such
meeting or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of voting shares held by each, which list, for a
period of ten days prior to such meeting, shall be kept on file at the
registered office or principal place of business of the Corporation and shall be
subject to inspection by any shareholder at any time during the usual business
hours of the Corporation. Such list shall also be produced and kept open at the
time and place of the meeting and shall be subject to the inspection of any
shareholder during the whole time of the meeting. The original share transfer
records shall be prima facie evidence as to who are the shareholders entitled to
examine such list or transfer records or to vote at any meeting of shareholders.
Failure to comply with the requirements of this Section shall not affect the
validity of any action taken at such meeting.
Section 8. Quorum. A quorum shall be present at a meeting of
--------- ------
shareholders if the holders of shares having a majority of the voting power
represented by all issued and outstanding shares entitled to vote at the meeting
are present in person or represented by proxy at such meeting, unless otherwise
provided by the Articles of Incorporation in accordance with the Act. Once a
quorum is present at a meeting of shareholders, the shareholders represented in
person or by proxy at the meeting may conduct such business as may properly be
brought before the meeting until it is adjourned, and the subsequent withdrawal
from the meeting of any shareholder or the refusal of any shareholder
represented in person or by proxy to vote shall not affect the presence of a
quorum at the meeting. If, however, a quorum shall not be present at any
meeting
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of shareholders, the shareholders entitled to vote, present in person or
represented by proxy, shall have power to adjourn the meeting, without notice
(other than announcement at the meeting at which the adjournment is taken of the
time and place of the adjourned meeting), until such time and to such place as
may be determined by a vote of the holders of a majority of the shares
represented in person or by proxy at such meeting until a quorum shall be
present. At such adjourned meeting at which a quorum is present, any business
may be transacted which might have been transacted at the meeting as originally
noticed.
Section 9. Voting. When a quorum is present at any meeting, the vote
--------- ------
of the holders of a majority of the shares entitled to vote, present in person
or represented by proxy at such meeting, shall decide any matter brought before
such meeting, other than the election of directors or a matter for which the
affirmative vote of the holders of a specified portion of the shares entitled to
vote is required by the Act, and shall be the act of the shareholders, unless
otherwise provided by the Articles of Incorporation, these Bylaws or by
resolution of the Board of Directors in accordance with the Act.
Unless otherwise provided in the Articles of Incorporation or these
Bylaws in accordance with the Act, directors of the Corporation shall be elected
by a plurality of the votes cast by the holders of shares entitled to vote in
the election of directors at a meeting of shareholders at which a quorum is
present.
At every meeting of the shareholders, each shareholder shall be entitled
to such number of votes, in person or by proxy, for each share having voting
power held by such shareholder, as is specified in the Articles of Incorporation
(including the resolution of the Board of Directors (or a committee thereof)
creating such shares), except to the extent that the voting rights of the shares
of any class or series are limited or denied by the Articles of Incorporation.
At each election of directors, every shareholder shall be entitled to cast, in
person or by proxy, the number of votes to which the shares owned by him are
entitled for as many persons as there are directors to be elected and for whose
election he has a right to vote. Cumulative voting is prohibited by the Articles
of Incorporation. Every proxy shall be in writing and be executed by the
shareholder. A telegram, telex, cablegram, or similar transmission by the
shareholder, or a photographic, photostatic, facsimile, or similar reproduction
of a writing executed by the shareholder, shall be treated as an execution in
writing for the purposes of this Section 9. No proxy shall be valid after 11
months from the date of its execution unless otherwise provided therein. Each
proxy shall be revocable unless (i) the proxy form conspicuously states that the
proxy is irrevocable, and (ii) the proxy is coupled with an interest, as defined
in the Act and other Texas law.
Shares standing in the name of another corporation may be voted by such
officer, agent or proxy as the bylaws of such corporation may prescribe or, in
the absence of such provision, as the board of directors of such corporation may
determine.
Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name as trustee.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without being transferred into his name, if such authority is contained
in an appropriate order of the court that appointed the receiver.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
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<PAGE>
Treasury shares, shares of the Corporation's stock owned by another
corporation the majority of the voting stock of which is owned or controlled by
the Corporation, and shares of its own stock held by the Corporation in a
fiduciary capacity shall not be voted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of outstanding shares
at any given time.
Section 10. Action by Consent. Any action required or permitted to be
---------- -----------------
taken at a meeting of the shareholders 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 all of the shareholders entitled to vote
with respect to the action that is the subject of the consent.
In addition, if the Articles of Incorporation so provide, any action
required or permitted to be taken at a meeting of the shareholders may be taken
without a meeting, without prior notice, and without a vote if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holder or holders of shares having not less than the minimum number of votes
that would be necessary to take such action at a meeting at which the holders of
all shares entitled to vote on the action were present and voted. Prompt notice
of the taking of any action by shareholders without a meeting by less than
unanimous written consent shall be given to those shareholders who did not
consent in writing to the action.
Every written consent signed by the holders of less than all the shares
entitled to vote with respect to the action that is the subject of the consent
shall bear the date of signature of each shareholder who signs the consent. No
written consent signed by the holders of less than all the shares entitled to
vote with respect to the action that is the subject of the consent shall be
effective to take the action that is the subject of the consent unless, within
60 days after the date of the earliest dated consent delivered to the
Corporation as set forth below in this Section 10, the consent or consents
signed by the holder or holders of shares having not less than the minimum
number of votes that would be necessary to take the action that is the subject
of the consent are delivered to the Corporation by delivery to its registered
office, its principal place of business, or an officer or agent of the
Corporation having custody of the records in which proceedings of meetings of
shareholders are recorded. Delivery shall be by hand or certified or registered
mail, return receipt requested. Delivery to the Corporation's principal place of
business shall be addressed to the President or the Chief Executive Officer of
the Corporation. A telegram, telex, cablegram, or similar transmission by a
shareholder, or a photographic, photostatic, facsimile, or similar reproduction
of a writing signed by a shareholder, shall be regarded as signed by the
shareholder for the purposes of this Section 10.
Section 11. Presence at Meetings by Means of Communications Equipment.
---------- ---------------------------------------------------------
Shareholders may participate in and hold a meeting of the shareholders by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and participation
in a meeting pursuant to this Section 11 shall constitute presence in person at
such meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
ARTICLE III
DIRECTORS
Section 1. Number of Directors. The number of directors of the
--------- -------------------
Corporation shall be fixed from time to time by resolution of the Board of
Directors, but in no case shall the number of directors be less than one. Until
otherwise fixed by resolution of the Board of Directors, the number of directors
shall be the number stated in the Articles of Incorporation. No decrease in the
number of directors shall have the effect of reducing the term of any incumbent
director. Directors shall be elected at each annual meeting of the shareholders
by the holders of shares entitled to vote in the election of directors, except
as provided in
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<PAGE>
Section 2 of this Article III, and each director shall hold office until the
annual meeting of shareholders following his election or until his successor is
elected and qualified. Directors shall be residents of the State of Texas.
Section 2. Vacancies. Subject to other provisions of this Section 2,
--------- ---------
any vacancy occurring in the Board of Directors may be filled by election at an
annual or special meeting of the shareholders called for that purpose or by the
affirmative vote of a majority of the remaining directors, though the remaining
directors may constitute less than a quorum of the Board of Directors as fixed
by Section 8 of this Article III. A director elected to fill a vacancy shall be
elected for the unexpired term of his predecessor in office. Any directorship
to be filled by reason of an increase in the number of directors shall be filled
by election at an annual meeting or at a special meeting of shareholders called
for that purpose or may be filled by the Board of Directors for a term of office
continuing only until the next election of one or more directors by the
shareholders; provided that the Board of Directors may not fill more than two
such directorships during the period between any two successive annual meetings
of shareholders. Shareholders holding a majority of shares then entitled to
vote at an election of directors may, at any time and with or without cause,
terminate the term of office of all or any of the directors by a vote at any
annual or special meeting called for that purpose. Such removal shall be
effective immediately upon such shareholder action even if successors are not
elected simultaneously, and the vacancies on the Board of Directors caused by
such action shall be filled only by election by the shareholders.
Notwithstanding the foregoing, whenever the holders of any class or
series of shares are entitled to elect one or more directors by the provisions
of the Articles of Incorporation, only the holders of shares of that class or
series shall be entitled to vote for or against the removal of any director
elected by the holders of shares of that class or series; and any vacancies in
such directorships and any newly created directorships of such class or series
to be filled by reason of an increase in the number of such directors may be
filled by the affirmative vote of a majority of the directors elected by such
class or series then in office or by a sole remaining director so elected, or by
the vote of the holders of the outstanding shares of such class or series, and
such directorships shall not in any case be filled by the vote of the remaining
directors or the holders of the outstanding shares as a whole unless otherwise
provided in the Articles of Incorporation.
Section 3. General Powers. The powers of the Corporation shall be
--------- --------------
exercised by or under the authority of, and the business and affairs of the
Corporation shall be managed under the direction of, its Board of Directors,
which may do or cause to be done all such lawful acts and things, as are not by
the Act, the Articles of Incorporation or these Bylaws directed or required to
be exercised or done by the shareholders.
Section 4. Place of Meetings. The Board of Directors of the
--------- -----------------
Corporation may hold meetings, both regular and special, which shall be held
within the State of Texas.
Section 5. Annual Meetings. The first meeting of each newly elected
--------- ---------------
Board of Directors shall be held, without further notice, immediately following
the annual meeting of shareholders at the same place, unless by the majority
vote or unanimous consent of the directors then elected and serving, such time
or place shall be changed.
Section 6. Regular Meetings. Regular meetings of the Board of
--------- ----------------
Directors may be held with or without notice at such time and place as the Board
of Directors may determine by resolution.
Section 7. Special Meetings. Special meetings of the Board of
--------- ----------------
Directors may be called by or at the request of the Chief Executive Officer and
shall be called by the Secretary on the written request of a majority of the
incumbent directors. The person or persons authorized to call special meetings
of the Board of Directors may fix the place for holding any special meeting of
the Board of Directors called by such person
5
<PAGE>
or persons. Notice of any special meeting shall be given at least 24 hours
previous thereto if given either personally (including written notice delivered
personally or telephone notice) or by telex, telecopy, telegram or other means
of immediate communication, and at least 72 hours previous thereto if given by
written notice mailed or otherwise transmitted to each director at the address
of his business or residence. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting. Any director may
waive notice of any meeting, as provided in Section 2 of Article IV of these
Bylaws. The attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
Section 8. Quorum and Voting. At all meetings of the Board of
--------- -----------------
Directors, the presence of a majority of the number of directors fixed in the
manner provided in Section 1 of this Article III shall constitute a quorum for
the transaction of business. At all meetings of committees of the Board of
Directors (if one or more be designated in the manner described in Section 9 of
this Article III), the presence of a majority of the number of directors fixed
from time to time by resolution of the Board of Directors to serve as members of
such committees shall constitute a quorum for the transaction of business. The
affirmative vote of at least a majority of the directors present and entitled to
vote at any meeting of the Board of Directors or a committee of the Board of
Directors at which there is a quorum shall be the act of the Board of Directors
or the committee, except as may be otherwise specifically provided by the Act,
the Articles of Incorporation or these Bylaws. Directors may not vote by proxy
at any meeting of the Board of Directors. Directors with an interest in a
business transaction of the Corporation and directors who are directors or
officers or have a financial interest in any other corporation, partnership,
association or other organization with which the Corporation is transacting
business may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee of the Board of Directors to authorize
such business transaction. If a quorum shall not be present at any meeting of
the Board of Directors or a committee thereof, a majority of the directors
present thereat may adjourn the meeting, without notice other than announcement
at the meeting, until such time and to such place as may be determined by such
majority of directors, until a quorum shall be present.
Section 9. Committees of the Board of Directors. The Board of
--------- ------------------------------------
Directors may, by resolution passed by a majority of the whole Board of
Directors, designate from among its members one or more committees, each of
which shall be composed of one or more of its members, and may designate one or
more of its members as alternate members of any committee, who may, subject to
any limitations imposed by the Board of Directors, replace absent or
disqualified members at any meeting of that committee. Any such committee, to
the extent provided in the resolution of the Board of Directors designating the
committee or in the Articles of Incorporation or these Bylaws, shall have and
may exercise all of the authority of the Board of Directors of the Corporation,
except where action of the Board of Directors is required by the Act or by the
Articles of Incorporation. Any member of a committee of the Board of Directors
may be removed, for or without cause, by the affirmative vote of a majority of
the whole Board of Directors. If any vacancy or vacancies occur in a committee
of the Board of Directors caused by death, resignation, retirement,
disqualification, removal from office or otherwise, the vacancy or vacancies
shall be filled by the affirmative vote of a majority of the whole Board of
Directors. Such committee or committees shall have such name or names as may be
designated by the Board of Directors and shall keep regular minutes of their
proceedings and report the same to the Board of Directors when required.
Section 10. Compensation of Directors. Unless otherwise provided by
---------- -------------------------
resolution of the Board of Directors, directors, as members of the Board of
Directors or of any committee thereof, shall not be entitled to receive any
stated salary for their services. Nothing herein contained, however, shall be
construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
6
<PAGE>
Section 11. Action by Unanimous Consent. 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 a written consent, setting
forth the action so taken, is signed by all the members of the Board of
Directors or the committee, as the case may be, and such written consent shall
have the same force and effect as a unanimous vote at a meeting of the Board of
Directors.
Section 12. Presence at Meetings by Means of Communications Equipment.
---------- ---------------------------------------------------------
Members of the Board of Directors of the Corporation or any committee designated
by the Board of Directors, may participate in and hold a meeting of such board
or committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 12 shall
constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE IV
NOTICES
Section 1. Form of Notice. Whenever under the provisions of the Act,
--------- --------------
the Articles of Incorporation or these Bylaws, notice is required to be given to
any director or shareholder, and no provision is made as to how such notice
shall be given, it shall not be construed to mean personal notice exclusively,
but any such notice may be given in writing, by mail, postage prepaid, or by
telex, telecopy, or telegram, or other means of immediate communication,
addressed or transmitted to such director or shareholder at such address as
appears on the books of the Corporation. Any notice required or permitted to be
given by mail shall be deemed to be given at the time when the same be thus
deposited, postage prepaid, in the United States mail as aforesaid. Any notice
required or permitted to be given by telex, telecopy, telegram, or other means
of immediate communication shall be deemed to be given at the time of actual
delivery.
Section 2. Waiver. Whenever under the provisions of the Act, the
--------- ------
Articles of Incorporation or these Bylaws, any notice is required to be given to
any director or shareholder of the Corporation, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether before or after
the time stated in such notice, shall be equivalent to the giving of such
notice.
Section 3. When Notice Unnecessary. Whenever, under the provisions of
--------- -----------------------
the Act, the Articles of Incorporation or these Bylaws, any notice is required
to be given to any shareholder, such notice need not be given to the shareholder
if:
(a) notice of two consecutive annual meetings and all notices of meetings
held during the period between those annual meetings, if any, or
(b) all (but in no event less than two) payments (if sent by first class
mail) of distributions or interest on securities during a 12-month
period,
have been mailed to that person, addressed at his address as shown on the
records of the Corporation, and have been returned undeliverable. Any action or
meeting taken or held without notice to such a person shall have the same force
and effect as if the notice had been duly given. If such a person delivers to
the Corporation a written notice setting forth his then current address, the
requirement that notice be given to that person shall be reinstated.
7
<PAGE>
ARTICLE V
OFFICERS
Section 1. General. The elected officers of the Corporation shall
--------- -------
be a President and a Secretary. The Board of Directors may also elect or
appoint a Chairman of the Board, a Vice Chairman, one or more Vice Presidents,
one or more Assistant Vice Presidents, one or more Assistant Secretaries, a
Treasurer, one or more Assistant Treasurers, and such other officers as may be
deemed necessary, all of whom shall also be officers. Two or more offices may
be held by the same person.
Section 2. Election. The Board of Directors shall elect the
--------- --------
officers of the Corporation at each annual meeting of the Board of Directors.
The Board of Directors may appoint such other officers and agents as it shall
deem necessary and shall determine the salaries of all officers and agents from
time to time. The officers shall hold office until their successors are chosen
and qualified. No officer need be a member of the Board of Directors except the
Chairman of the Board, if one be elected. Any officer elected or appointed by
the Board of Directors may be removed, with or without cause, at any time by a
majority vote of the whole Board. Election or appointment of an officer or
agent shall not of itself create contract rights.
Section 3. Chairman of the Board. The Chairman of the Board, if
--------- ---------------------
any, shall preside, when present, at all meetings of shareholders and at all
meetings of the Board of Directors. The Vice Chairman, if any, shall preside
when the Chairman of the Board is absent.
Section 4. President. The President shall be the ranking and Chief
--------- ---------
Executive Officer of the Corporation, and subject to the provisions of these
Bylaws, shall have general supervision of the affairs of the Corporation and
shall have general and active control of all its business. The President shall
see that all orders and resolutions of the Board of Directors and the
shareholders are carried into effect. He shall have general authority to
execute bonds, deeds and contracts in the name of the Corporation and affix the
corporate seal thereto; to sign stock certificates; to cause the employment or
appointment of such employees and agents of the Corporation as the proper
conduct of operations may require, and to fix their compensation, subject to the
provisions of these Bylaws; to remove or suspend any employee or agent who shall
have been employed or appointed under his authority or under authority of an
officer subordinate to him; to suspend for cause, pending final action by the
authority which shall have elected or appointed him, any officer subordinate to
the President and, in general, to exercise all the powers and authority usually
appertaining to the chief executive officer of a corporation, except as
otherwise provided in these Bylaws.
Section 5. Vice Presidents. In the absence of the President or in
--------- ---------------
the event of his inability or refusal to act, the Vice President, if any (or in
the event there be more than one, the Vice Presidents in the order designated
or, in the absence of any designation, then in the order of their election),
shall perform the duties of the President, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the President. The
Vice President shall perform such other duties and have such other powers as the
Board of Directors, the Chief Executive Officer or the Chief Operating Officer
may from time to time prescribe. The Vice President in charge of finance, if
any, shall also perform the duties and assume the responsibilities described in
Section 9 of this Article for the Treasurer, and shall report directly to the
Chief Executive Officer of the Corporation.
Section 6. Assistant Vice Presidents. In the absence of a Vice
--------- -------------------------
President or in the event of his inability or refusal to act, the Assistant Vice
President, if any (or, if there be more than one, the Assistant Vice Presidents
in the order designated or, in the absence of any designation, then in the order
of their election), shall perform the duties and exercise the powers of that
Vice President, and shall perform such other duties and have such other powers
as the Board of Directors, the Chief Executive Officer, the Chief Operating
Officer or the Vice President under whose supervision he is appointed may from
time to time prescribe.
8
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Section 7. Secretary. The Secretary shall attend and record minutes
--------- ---------
of the proceedings of all meetings of the Board of Directors and any committees
thereof and all meetings of the shareholders. He shall file the records of such
meetings in one or more books to be kept by him for that purpose. Unless the
Corporation has appointed a transfer agent or other agent to keep such a record,
the Secretary shall also keep at the Corporation's registered office or
principal place of business a record of the original issuance of shares issued
by the Corporation and a record of each transfer of those shares that have been
presented to the Corporation for registration of transfer. Such records shall
contain the names and addresses of all past and current shareholders of the
Corporation and the number and class of shares issued by the Corporation held by
each of them. He shall give, or cause to be given, notice of all meetings of
the shareholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or the
Chief Executive Officer, under whose supervision he shall be. He shall have
custody of the corporate seal of the Corporation and he, or an Assistant
Secretary, shall have authority to affix the same to any instrument requiring
it, and when so affixed, it may be attested by his signature or by the signature
of such Assistant Secretary. The Board of Directors may give general authority
to any other officer to affix the seal of the Corporation and to attest the
affixing by his signature. The Secretary shall keep and account for all books,
documents, papers and records of the Corporation except those for which some
other officer or agent is properly accountable. He shall have authority to sign
stock certificates and shall generally perform all the duties usually
appertaining to the office of the secretary of a corporation.
Section 8. Assistant Secretaries. In the absence of the Secretary
--------- ---------------------
or in the event of his inability or refusal to act, the Assistant Secretary, if
any (or, if there be more than one, the Assistant Secretaries in the order
designated or, in the absence of any designation, then in the order of their
election), shall perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as the Board of
Directors, the Chief Executive Officer or the Secretary may from time to time
prescribe.
Section 9. Treasurer. The Treasurer, if any (or the Vice President
--------- ---------
in charge of finance, if one be elected), shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and shall
render to the Chief Executive Officer and the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as Treasurer and of the financial condition of the Corporation. If
required by the Board of Directors, he shall give the Corporation a bond (which
shall be renewed every six years) in such sum and with such surety or sureties
as shall be satisfactory to the Board of Directors for the faithful performance
of the duties of his office and for the restoration of the Corporation, in case
of his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his possession or
under his control belonging to the Corporation. The Treasurer shall be under
the supervision of the Vice President in charge of finance, if any, and he shall
perform such other duties as may be prescribed by the Board of Directors, the
Chief Executive Officer or any such Vice President in charge of finance.
Section 10. Assistant Treasurers. In the absence of the Treasurer
---------- --------------------
or in the event of his inability or refusal to act, the Assistant Treasurer, if
one be elected (or, if there shall be more than one, the Assistant Treasurer in
the order designated or, in the absence of any designation, then in the order of
their election), shall perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board of Directors, the Chief Executive Officer or the Treasurer may from time
to time prescribe.
Section 11. Bonding. If required by the Board of Directors, all or
---------- -------
certain of the officers shall give the Corporation a bond, in such form, in such
sum and with such surety or sureties as shall be satisfactory to the
9
<PAGE>
Board, for the faithful performance of the duties of their office and for the
restoration to the Corporation, in case of their death, resignation, retirement
or removal from office, of all books, papers, vouchers, money and other property
of whatever kind in their possession or under their control belonging to the
Corporation.
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
Section 1. Form of Certificates. The Corporation shall deliver
--------- --------------------
certificates representing all shares to which shareholders are entitled.
Certificates representing shares of the Corporation shall be in such form as
shall be approved and adopted by the Board of Directors and shall be numbered
consecutively and entered in the share transfer records of the Corporation as
they are issued. Each certificate shall state on the face thereof that the
Corporation is organized under the laws of the State of Texas, the name of the
registered holder, the number and class of shares, and the designation of the
series, if any, which said certificate represents, and either the par value of
the shares or a statement that the shares are without par value. Each
certificate shall also set forth on the back thereof a full or summary statement
of matters required by the Act or the Articles of Incorporation to be described
on certificates representing shares, and shall contain a conspicuous statement
on the face thereof referring to the matters set forth on the back thereof.
Certificates shall be signed by the Chairman of the Board, President or any Vice
President and the Secretary or any Assistant Secretary, and may be sealed with
the seal of the Corporation. Either the seal of the Corporation or the
signatures of the Corporation's officers or both may be facsimiles. In case any
officer or officers who have signed, or whose facsimile signature or signatures
have been used on such certificate or certificates, shall cease to be such
officer or officers of the Corporation, whether because of death, resignation or
otherwise, before such certificate or certificates have been delivered by the
Corporation or its agents, such certificate or certificates may nevertheless be
issued and delivered as though the person or persons who signed the certificate
or certificates or whose facsimile signature or signatures have been used
thereon had not ceased to be such officer or officers of the Corporation.
Section 2. Lost Certificates. The Corporation may direct that a new
--------- -----------------
certificate be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing the issue of a new certificate, the Board of
Directors, in its discretion and as a condition precedent to the issuance
thereof, may require the owner of the lost or destroyed certificate, or his
legal representative, to advertise the same in such manner as it shall require
and/or give the Corporation a bond in such form, in such sum, and with such
surety or sureties as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
Section 3. Transfer of Shares. Shares of stock shall be
--------- ------------------
transferable only on the share transfer records of the Corporation by the holder
thereof in person or by his duly authorized attorney. Subject to any
restrictions on transfer set forth in the Articles of Incorporation, these
Bylaws or any agreement among shareholders to which this Corporation is a party
or has notice, upon surrender to the Corporation or to the transfer agent of the
Corporation of a certificate representing shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the Corporation or the transfer agent of the Corporation to issue a
new certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 4. Registered Shareholders. Except as otherwise provided in
--------- -----------------------
the Act or other Texas law, the Corporation shall be entitled to regard the
person in whose name any shares issued by the Corporation are registered in the
share transfer records of the Corporation at any particular time (including,
without limitation, as of the record date fixed pursuant to Section 5 or Section
6 of Article II hereof) as the owner of those
10
<PAGE>
shares and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof.
ARTICLE VII
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 1. General. The Corporation shall indemnify persons who are
--------- -------
or were a director or officer of the Corporation both in their capacities as
directors and officers of the Corporation and, if serving at the request of the
Corporation as a director, officer, trustee, employee, agent or similar
functionary of another foreign or domestic corporation, trust, partnership,
joint venture, sole proprietorship, employee benefit plan or other enterprise,
in each of those capacities, against any and all liability and reasonable
expense that may be incurred by them in connection with or resulting from (a)
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative, (b) an appeal in such an
action, suit or proceeding, or (c) any inquiry or investigation that could lead
to such an action, suit or proceeding, all to the full extent permitted by
Article 2.02-1 of the Act. The Corporation shall indemnify persons who are or
were employees or agents of the Corporation, or persons who are not or were not
employees or agents of the Corporation but who are or were serving at the
request of the Corporation as a director, officer, trustee, employee, agent or
similar functionary of another foreign or domestic corporation, trust,
partnership, joint venture, sole proprietorship, employee benefit plan or other
enterprise (collectively, along with the directors and officers of the
Corporation, such persons are referred to herein as "Corporate Functionaries")
against any and all liability and reasonable expense that may be incurred by
them in connection with or resulting from (a) any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative, (b) an appeal in such an action, suit or
proceeding, or (c) any inquiry or investigation that could lead to such an
action, suit or proceeding, all to the full extent permitted by Article 2.02-1
of the Act, and the Corporation may indemnify such persons to the extent
permitted by the Act. The rights of indemnification provided for in this
Article VII shall be in addition to all rights to which any Corporate
Functionary may be entitled under any agreement or vote of shareholders or as a
matter of law or otherwise.
Section 2. Insurance. The Corporation may purchase or maintain
--------- ---------
insurance on behalf of any Corporate Functionary against any liability asserted
against him and incurred by him in such a capacity or arising out of his status
as a Corporate Functionary, whether or not the Corporation would have the power
to indemnify him or her against the liability under the Act or these Bylaws;
provided, however, that if the insurance or other arrangement is with a person
or entity that is not regularly engaged in the business of providing insurance
coverage, the insurance or arrangement may provide for payment of a liability
with respect to which the Corporation would not have the power to indemnify the
person only if including coverage for the additional liability has been approved
by the shareholders of the Corporation. Without limiting the power of the
Corporation to procure or maintain any kind of insurance or arrangement, the
Corporation may, for the benefit of persons indemnified by the Corporation, (i)
create a trust fund, (ii) establish any form of self-insurance, (iii) secure its
indemnification obligation by grant of any security interest or other lien on
the assets of the Corporation, or (iv) establish a letter of credit, guaranty or
surety arrangement. Any such insurance or other arrangement may be procured,
maintained or established within the Corporation or its affiliates or with any
insurer or other person deemed appropriate by the Board of Directors of the
Corporation regardless of whether all or part of the stock or other securities
thereof are owned in whole or in part by the Corporation. In the absence of
fraud, the judgment of the Board of Directors of the Corporation as to the terms
and conditions of such insurance or other arrangement and the identity of the
insurer or other person participating in an arrangement shall be conclusive, and
the insurance or arrangement shall not be voidable and shall not subject the
directors approving the insurance or arrangement to liability, on any ground,
regardless of whether directors participating in approving such insurance or
other arrangement shall be beneficiaries thereof.
11
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ARTICLE VIII
GENERAL PROVISIONS
Section 1. Distributions and Share Dividends. Distributions or
--------- ---------------------------------
share dividends to the shareholders of the Corporation, subject to the
provisions of the Act and the Articles of Incorporation and any agreements or
obligations of the Corporation, if any, may be declared by the Board of
Directors at any regular or special meeting. Distributions may be declared and
paid in cash or in property (other than shares or rights to acquire shares of
the Corporation), provided that all such declarations and payments of
distributions, and all declarations and issuances of share dividends, shall be
in strict compliance with all applicable laws and the Articles of Incorporation.
Section 2. Reserves. There may be created by resolution of the
--------- --------
Board of Directors out of the surplus of the Corporation such reserve or
reserves as the Board of Directors from time to time, in its discretion, deems
proper to provide for contingencies, or to equalize distributions or share
dividends, or to repair or maintain any property of the Corporation, or for such
other proper purpose as the Board shall deem beneficial to the Corporation, and
the Board may increase, decrease or abolish any reserve in the same manner in
which it was created.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
--------- -----------
determined by the Board of Directors.
Section 4. Seal. The Corporation shall have a seal which may be
--------- ----
used by causing it or a facsimile thereof to be impressed or affixed or in any
manner reproduced. Any officer of the Corporation shall have authority to affix
the seal to any document requiring it.
Section 5. Resignation. Any director, officer or agent of the
--------- -----------
Corporation may resign by giving written notice to the President or the
Secretary. The resignation shall take effect at the time specified therein, or
immediately if no time is specified therein. Unless specified in such notice,
the acceptance of such resignation shall not be necessary to make it effective.
ARTICLE IX
AMENDMENTS TO BYLAWS
Unless otherwise provided by the Articles of Incorporation or a bylaw
adopted by the shareholders of the Corporation, these Bylaws may be amended or
repealed, or new Bylaws may be adopted, at any meeting of the shareholders of
the Corporation or of the Board of Directors at which a quorum is present, by
the affirmative vote of the holders of a majority of the shares or the
directors, as the case may be, present at such meeting.
12
<PAGE>
The undersigned hereby certifies that the foregoing is a true, correct,
and complete copy of the Bylaws of NEI Acquisition Corporation, adopted by its
Board of Directors as of September 13, 1993.
------------------------------------
William K. Daniels, Secretary
13
<PAGE>
EXHIBIT 4.1
WARRANT AGREEMENT
THIS WARRANT AGREEMENT ("AGREEMENT") IS MADE AND ENTERED INTO AS OF
THIS ___ DAY OF ________, 1997, BY AND BETWEEN NEI WEBWORLD, INC., a corporation
organized and existing under the laws of the State of California ("Company"),
and AMERICAN STOCK TRANSFER & TRUST COMPANY, a national banking association, as
warrant agent ("Warrant Agent").
WHEREAS, the Company proposes to offer and sell a maximum of 1,000,000
shares of common stock ("Common Stock"), $.01 par value per share, (which
includes 150,000 shares of Common Stock pursuant to the Underwriters' over-
allotment option) at a purchase price of $____ per share and 1,000,000
Redeemable Common Stock purchase warrants ("Warrants") (which includes 150,000
shares of Warrants pursuant to the Underwriters' over-allotment option) at a
purchase price of $____ per Warrant pursuant to a Registration Statement on Form
SB-2 (the "Prospectus"), File Number 333-_____, filed with the Securities and
Exchange Commission; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance, registration, registration of transfer, exchange and exercise of the
Warrants;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
1. Appointment of Warrant Agent. The Company hereby appoints the
----------------------------
Warrant Agent to act an agent for the Company in accordance with the
instructions hereinafter set forth in this Agreement, and the Warrant Agent
hereby accepts such appointment.
2. Form of Warrants. The text and the terms of the Warrants, and the
----------------
form of election to purchase shares of Common Stock appearing on the reverse
side thereof shall be substantially as set forth in Exhibit A attached hereto
and made a part hereof. The Warrants shall be executed on behalf of the Company
by the manual or facsimile signature of the Chairman or a vice Chairman of the
Company and by the manual or facsimile of the secretary or assistant secretary
of the Company under its corporate seal, affixed or in facsimile.
The Warrants shall be dated by the Warrant Agent as of the initial
date of issuance thereof, and upon transfer or exchange, the Warrant shall be
dated as of such subsequent issuance date.
3. Registration and Countersignature. The Warrant Agent shall
---------------------------------
maintain books for the transfer and registration of the Warrants. Upon the
initial issuance of the Warrants, the Warrant Agent shall issue and register the
Warrants in the names of the respective registered holders, and upon subsequent
issuance, such Warrants shall be registered in the names of the respective
succeeding registered holders. The Warrants shall be countersigned by the
Warrant Agent (or by any successor
1
<PAGE>
to the Warrant Agent then acting as warrant agent under this Agreement) and
shall not be valid for any purpose unless so countersigned. Warrants may be so
countersigned, however, by the Warrant Agent (or by its successor as warrant
agent) and be delivered by the Warrant Agent, notwithstanding that the persons
whose manual or facsimile signature appear thereon as proper officers of the
Company shall have ceased to be such officers at the time of such
countersignature or delivery. Until a Warrant is transferred on the books of
the Warrant Agent, the Company and the Warrant Agent may treat any registered
holder of Warrants as the absolute owner thereof for all purposes,
notwithstanding any notice to the contrary.
4. Registration of Transfers and Exchanges. The Warrant Agent shall
---------------------------------------
transfer any outstanding Warrants on the books to be maintained by the Warrant
Agent for that purpose, upon surrender thereof for transfer, properly endorsed
or accompanied by appropriate instructions for transfer with proper documentary
stamps affixed thereto, if requested. Upon any such transfer, a new Warrant
shall be issued to the transferee, and the surrendered Warrant shall be canceled
by the Warrant Agent. Warrants so canceled shall be delivered by the Warrant
Agent to the Company from time to time. Warrants may be exchanged at the option
of the holder thereof when surrendered at the office of the Warrant Agent, for
another Warrant, or other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of shares of
Common Stock. The Warrant Agent is hereby irrevocably authorized to countersign
and deliver the Warrants in accordance with the provisions of this Paragraph 4,
and the Company, whenever required by the Warrant Agent, will supply the Warrant
Agent with Warrants duly executed on behalf of the Company for such purpose.
5. Exercise of Warrants. Subject to the provisions of this
--------------------
Agreement, each registered holder of Warrants shall have the right, which right
may be exercised as in such Warrants expressed, to purchase from the Company,
and the Company shall issue and sell to such registered holder of Warrants, the
number of fully paid and nonassessable shares of Common Stock specified in such
Warrants, upon surrender to the Company at the office of the Warrant Agent, with
the form of election to purchase on the reverse side thereof duly completed and
signed, and upon payment to the Warrant Agent for the account of the Company of
the Exercise Price for the number of shares of Common Stock in respect of which
such Warrants are then exercised. Payment of such Exercise Price may be made in
cash or by certified check, bank draft, or postal or express money order,
payable in United States dollars, to the order of the Company. Subject to the
provisions of Paragraph 8 hereof, upon such surrender of Warrants and payment of
the Exercise Price as aforesaid, the Company, acting through the Warrant Agent,
shall issue and cause to be delivered with all reasonable dispatch to or upon
the written order of the registered holder of such Warrants and in such name or
names as such registered holder may designate, a certificate or certificates for
the number of full shares of Common Stock so purchased upon the exercise of such
Warrants. Such certificates shall be deemed to have been issued, and any person
so designated to be named therein shall be deemed to have become a holder of
record of such Common Stock, as of the date of surrender of such Warrants and
payment of the Exercise Price, as aforesaid; provided, however, that if, at the
date of surrender of such warrants and the payment of such Exercise Price, the
transfer books for the Common Stock purchasable upon the exercise of such
Warrants shall be closed, the certificates for
2
<PAGE>
the shares in respect of which such Warrants are then exercised shall be
issuable as of the date on which such books shall next be opened, and until such
date the Company shall be under no duty to deliver any certificate for such
shares; provided further, however, that the transfer books aforesaid, unless
otherwise required by law, shall not be closed at any one time for a period
longer than 20 days. The right of purchase represented by the Warrants shall be
exercisable, at the election of the registered holders thereof, either as an
entirety or, from time to time, for part only of the shares specified therein,
and in the event that any Warrant is exercised in respect of less than all of
the shares specified therein at any time prior to the date of expiration of the
Warrants, a new Warrant or warrants will be issued for the remaining number of
Common Stock specified in the Warrant so surrendered, and the Warrant Agent is
hereby irrevocably authorized to countersign and to deliver the required new
Warrants pursuant to the provisions of this Paragraph 5 and of Paragraph 3 of
this Agreement, and the Company, whenever required by the Warrant Agent, will
supply the Warrant Agent with Warrants duly executed on behalf of the Company
for such purposes.
Notwithstanding anything contained herein to the contrary, no Warrant
may be exercised if the issuance of Common Stock in connection therewith would
constitute a violation of the registration provisions of federal or state
securities laws.
Upon thirty (30) days' prior written notice to all holders of the
Warrants, the Company shall have the right to reduce the exercise price and/or
extend the term of the Warrants in compliance with the requirements of Rule 13e-
4 to the extent applicable.
The "Exercise Price" of the Warrants shall mean the exercise price
specified in the Warrants until the occurrence of a re-capitalization or
reclassification that, pursuant to the provisions hereof, shall require an
increase or decrease in the exercise price of the Warrants, and thereafter shall
mean said price as adjusted from time to time in accordance with the provisions
hereof. No such adjustment shall be made unless such adjustment would change
the then purchase price per share by ten cents ($.10) or more; provided,
however, that all adjustments not so made shall be deferred and made when the
aggregate thereof would change the then purchase price per share by ten cents
($.10) or more. No adjustment made pursuant to any provision hereof shall have
the effect of increasing the total consideration payable upon exercise of any of
the Warrants.
6. Adjustments in Certain Cases. In case the Company shall at any
----------------------------
time prior to the exercise or termination of any of the Warrants effect a re-
capitalization or reclassification of such character that its Common Stock shall
be changed into or become exchangeable for a larger or smaller number of shares,
then, upon the effective date thereof, the number of shares of Common Stock that
the holders of the Warrants shall be entitled to purchase upon exercise thereof
shall be increased or decreased, as the case may be, in direct proportion to the
increase or decrease in such number of shares of Common Stock by reason of such
re-capitalization or reclassification, and the purchase price per share of such
re-capitalized or reclassified Common Stock shall, in the case of an increase in
the number of shares, be proportionately decreased and, in the case of a
decrease in the number of shares, be proportionately increased.
3
<PAGE>
In case the Company shall at any time prior to the exercise or
termination of any of the Warrants distribute to holders of its Common Stock
cash, evidences of indebtedness, or other securities or assets, other than as
dividends or distributions payable out of current or accumulated earnings, then,
in any such case, the holders of the Warrants shall be entitled to receive, upon
exercise thereof, with respect to each share of Common Stock issuable upon such
exercise, the amount of cash or evidences of indebtedness or other securities or
assets that such holder would have been entitled to receive with respect to the
Common Stock as a result of the happening of such event, had the Warrants been
exercised immediately prior to the record date or other date fixing shareholders
to be affected by such event (without giving effect to any restriction upon such
exercise).
In case the Company shall at any time prior to the exercise or
termination of any of the Warrants consolidate or merge with any other
corporation or transfer all or substantially all of its assets to any other
corporation preparatory to a dissolution, then the Company shall, as a condition
precedent to such transaction, cause effective provision to be made so that the
holders of the Warrants, upon the exercise thereof after the effective date of
such transaction, shall be entitled to receive the kind and amount of shares,
evidences of indebtedness, and/or other property receivable on such transaction
by a holder of the number of shares of Common Stock as to which the Warrants
were exercisable immediately prior to such transaction (without giving effect to
any restriction upon such exercise); and, in any such case, appropriate
provision shall be made with respect to the rights and interests of the holders
thereof to the effect that the provisions of the Warrants shall thereafter be
applicable (as nearly as may be practicable) with respect to any shares,
evidences of indebtedness, or other securities or assets thereafter deliverable
upon exercise of the Warrants.
Whenever the number of shares of Common Stock or other types of
securities or assets purchasable upon exercise of any of the Warrants shall be
adjusted as provided herein, the Company shall forthwith obtain and file with
its corporate records a certificate or letter from a firm of independent public
accountants of recognized standing setting forth the computation and the
adjusted number of shares of Common Stock or other securities or assets
purchasable hereunder resulting from such adjustments, and a copy of such
certificate or letter shall be mailed to each of the registered holders of the
Warrants. Any such certificate or letter shall be conclusive evidence as to the
correctness of the adjustment or adjustments referred to therein and shall be
available for inspection by the holders of the Warrants on any day during normal
business hours.
In the event that at any time as a result of an adjustment made
pursuant hereto the holders of the Warrants shall become entitled to purchase
upon exercise thereof shares, evidences of indebtedness, or other securities or
assets (other than Common Stock, then, wherever appropriate, all references
herein to Common Stock shall be deemed to refer to and include such shares,
evidences of indebtedness, or other securities or assets, and thereafter the
number of such shares, evidences of indebtedness, or other securities or assets
shall be subject to adjustment from time to time in a manner and upon terms as
nearly equivalent as practicable to the provisions hereof.
7. Redemption. The Warrants may be redeemed at the option of the
----------
Company, at a redemption price of $.15 per Warrant at any time commencing ninety
(90) days from the date of the
4
<PAGE>
Company's Prospectus dated _________, 1997, upon not less than thirty (30) days
nor more than sixty (60) days prior written notice, if the closing price of the
Common Stock, as reported by the principal exchange on which the Common Stock is
traded, the Nasdaq Small Cap Market or the National Quotation Bureau,
Incorporated, as the case may be, for fifteen (15) days during any twenty (20)
consecutive trading day period ending not more than fifteen (15) days prior to
the date the notice of redemption is marked equals or exceeds $__.00 per share,
subject to adjustment under certain circumstances during a period of thirty (30)
consecutive trading days ending not earlier than ten (10) of the date of the
Warrants are called for redemption. Any redemption of the Warrants during the
one-year period commencing on _________, 1997 shall require the written consent
of First London Securities Corporation the representative of the Underwriters.
On and after the date fixed for redemption, the Registered Holder shall have no
rights with respect to the Warrants except to receive the $.15 per Warrant upon
surrender of this Warrant Certificate.
8. Payment of Taxes. The Company will pay all documentary stamp
----------------
taxes, if any, attributable to the initial issuance of securities upon the
exercise of the Warrants; provided, however, that the Company shall not be
required to pay any tax or taxes that may be payable in respect of any transfer
involved in the issue or delivery of any securities in a name other than that of
the registered holder of Warrants in respect of which such securities are issued
and, in such case, neither the Company nor the Warrant Agent shall be required
to issue or deliver any certificate representing such securities or any Warrant
until the person requesting the same has paid to the Company or the Warrant
Agent the amount of such tax or has established to the Company's satisfaction
that such tax has been paid.
9. Mutilated or Missing Warrants. In case any of the Warrants shall
-----------------------------
be Mutilated, lost, stolen or destroyed, the Warrant Agent may countersign and
deliver in exchange and substitution for and upon cancellation of the mutilated
Warrant or in lieu of and substitution for the Warrant lost, stolen or
destroyed, a new Warrant of like tenor and representing an equivalent right or
interest, but only upon receipt of evidence satisfactory to the Warrant Agent of
such loss, theft or destruction of such Warrants and indemnity, if requested,
also satisfactory to them. Applicants for such substitute Warrants shall also
comply with such other reasonable regulations and pay such other reasonable
charges as the Company or the Warrant Agent may prescribe.
10. Reservation of Common Stock. Prior to the issuance of any
---------------------------
Warrants, there shall have been reserved, and the Company shall at all times
keep reserved out of the authorized and unissued Common Stock, a number of
shares of Common Stock sufficient to provide for the exercise of the rights of
purchase represented by the Warrants, and the transfer agent for the Common
Stock and every subsequent transfer for any of the Company's Common Stock
issuable upon the exercise of any of the rights of purchase aforesaid are hereby
irrevocably authorized and directed at all times to reserve such number of
authorized and unissued Common Stock as shall be requisite for such purpose. The
Company agrees that all Common Stock issued upon exercise of the Warrants shall
be, at the time of delivery of the certificates representing such Common Stock,
validly issued and outstanding, fully paid and non-assessable. The Company will
keep a copy of this Agreement on file with the transfer agent for the Common
Stock and with every subsequent transfer agent for the
5
<PAGE>
Company's Common Stock issuable upon the exercise of the right of purchase
represented by the Warrants. The Warrant Agent is hereby irrevocably authorized
to requisition from time to time from such transfer agent stock certificates
required to honor outstanding Warrants that have been exercised. The Company
will supply such transfer agent with duly executed stock certificates for such
purpose. All Warrants surrendered in the exercise of the rights thereby
evidenced shall be canceled by the Warrant Agent and shall thereafter be
delivered to the Company, and such canceled Warrants shall constitute sufficient
evidence of the number of shares of Common Stock that have been issued upon the
exercise of such Warrants. All Warrants surrendered for transfer, exchange or
partial exercise shall be canceled by the Warrant Agent and delivered to the
Company. Promptly after the date of expiration of the Warrants, the Warrant
Agent shall certify to the Company the total aggregate amount of Warrants then
outstanding and, thereafter, no Common Stock shall be subject to reservation in
respect of such Warrants.
11. Disposition of Proceeds on Exercise of Warrants. Unless otherwise
-----------------------------------------------
instructed by the Company in writing, the Warrant Agent shall account promptly
to the Company with respect to Warrants exercised and shall promptly deposit in
an account for the benefit of the Company, in a bank designated by the Company,
all moneys received by the Warrant Agent for the purchase of Common Stock
through the exercise of such Warrants.
12. Merger or Consolidation or Change of Name of Warrant Agent. Any
----------------------------------------------------------
corporation or company that may succeed to the business of the Warrant Agent by
merger or consolidation or otherwise to which the Warrant Agent shall be a
party, or any corporation or company or otherwise succeeding to the business of
the Warrant Agent shall be the successor to the Warrant Agent hereunder without
the execution or filing of any paper or any further act on the part of any of
the parties hereto; provided, however, that such corporation would be eligible
for appointment as a successor Warrant Agent under the provision of Paragraph 14
of this Agreement. In case at the time such successor to the Warrant Agent shall
succeed to the agency created by this Agreement or in case at any time the name
of the Warrant Agent shall be changed, and any of the Warrants shall have been
countersigned but not delivered, any such successor to the Warrant Agent may
adopt the countersignature of the original Warrant Agent and deliver such
Warrants so countersigned; and in case at the time any of the Warrants shall not
have been countersigned, the successor to the Warrant Agent may countersign such
Warrants, either in the name of the predecessor Warrant Agent or in the name of
the successor Warrant Agent; and in all such cases, such Warrants shall have the
full force provided in the Warrants and in this Agreement.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrants shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior name
and deliver Warrants so countersigned; and if at that time any of the Warrants
shall not have been countersigned, the Warrant Agent may countersign such
Warrants either in its prior name or in its changed name; and in all such cases,
such Warrants shall have the full force provided in the Warrants and this
Agreement.
6
<PAGE>
13. Duties of the Warrant Agent.
---------------------------
(a) The Warrant Agent undertakes the duties and obligations
imposed by this Agreement upon the following terms and conditions, by all of
which the Company shall be bound:
(i) The statements contained herein and in the Warrants
shall be taken as statements of the Company, and the Warrant Agent assumes no
responsibility for the correctness of any of the same, except such as describe
the Warrant Agent or action or actions taken or to be taken by it. The Warrant
Agent assumes no responsibility with respect to the distribution of the
Warrants, except as herein otherwise provided.
(ii) The Warrant Agent shall not be responsible for any
failure of the Company to comply with any of the covenants contained in this
Agreement or in the Warrants to be complied with by the Company.
(iii) The Warrant Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder, either
itself, or by or through its attorneys, agents or employees.
(iv) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company), and the Warrant Agent
shall incur no liability or responsibility to the Company or to any holder of
any Warrant in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion or advice of such counsel,
provided the Warrant Agent shall have exercised reasonable care in the selection
and continued employment of such counsel.
(v) The Warrant Agent shall incur no liability or
responsibility to the Company or to any holder of any Warrant for any action
taken in reliance upon any notice, resolution, waiver, consent, order,
certificate or other paper, document or instrument reasonably believed by it to
have been signed, sent or presented by the proper party or parties.
(vi) The Company agrees to pay the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution of
this Agreement; to reimburse the Warrant Agent for all expenses, taxes,
governmental charges and other charges of any kind and nature incurred by the
Warrant Agent in the execution of this Agreement; and to indemnify the Warrant
Agent and save it harmless from and against any and all liabilities, including
judgments, costs and reasonable attorneys' fees for anything done or omitted by
the Warrant Agent in the execution of this Agreement, except as a result of the
Warrant Agent's negligence or bad faith.
(vii) The Warrant Agent shall be under no obligation to
institute any action, suit or legal proceeding, or to take any other action
likely to involve expense, unless the Company or one or more registered holders
of Warrants shall furnish the Warrant Agent with reasonable security and
indemnity. All rights of action under this Agreement or under any of the
Warrants or in the production thereof at any trial or other proceeding relative
thereto, and any such action, suit
7
<PAGE>
or proceeding instituted by the Warrant Agent shall be brought in its name as
Warrant Agent, and any recovery of judgment shall be for the benefit of the
registered holders of the Warrants, as their respective rights or interests may
appear.
(viii) The Warrant Agent and any shareholder, director,
officer, partner or employee of the Warrant Agent may buy, sell or deal in any
of the Warrants or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be interested, or
contract with or lend money to or otherwise act as fully and freely as though it
were not the Warrant Agent under this Agreement. Nothing herein shall preclude
the Warrant Agent from acting in any other capacity for the Company or for any
other legal entity.
(ix) The Warrant Agent shall act hereunder solely as agent,
and its duties shall be determined solely by the provisions hereof. The Warrant
Agent shall not be liable for anything that it may do or refrain from doing in
connection with this Agreement, except for its own negligence or bad faith.
(x) The Warrant Agent shall keep copies of this Agreement
available for inspection by holders of the Warrants during normal business hours
at its principal office in New Jersey.
14. Change of Warrant Agent. The Warrant Agent may resign and be
-----------------------
discharged from its duties under this Agreement by giving notice in writing to
the Company and by giving notice by mailing to holders of the Warrants at their
addresses as such addresses appear on the Warrant register of such resignation,
specifying a date when such resignation shall take effect, which date shall not
be less than 30 days after the mailing of said notice. The Warrant Agent may be
removed at the discretion of the Company by like notice to the Warrant Agent
from the Company and by like mailing of notice to the holders of the Warrants.
If the Warrant Agent shall resign or be removed or otherwise become incapable of
acting, the Company shall appoint a successor to the Warrant Agent. If the
Company shall fail to make such appointment within a period of 30 days after
such removal, or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Warrant Agent or by the registered
holder of a Warrant (who shall, with such notice, submit his Warrant for
inspection by the Company), then the registered holder of any Warrant may apply
to any court of competent jurisdiction for the appointment of a successor to the
Warrant Agent. After appointment, any successor Warrant Agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Warrant Agent without further act or deed, but the former
Warrant Agent shall deliver and transfer to the successor Warrant Agent any
property at the time held by it hereunder, and execute and deliver any further
assurance, conveyance act or deed necessary for the purpose. Not later than the
effective date of any such appointment, the Company shall give notice thereof to
the predecessor Warrant Agent and each transfer agent for the Common Stock, and
shall forthwith give notice to the holders of the Warrants in the manner
prescribed in this section. Failure to file or mail any notice provided for in
this Section 14, however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Warrant Agent or the
appointment of any successor Warrant Agent, as the case may be.
8
<PAGE>
15. Identity of Transfer Agent. Forthwith upon the appointment of any
--------------------------
transfer agent other than the Warrant Agent for the Common Stock of the Company
issuable upon the exercise of the rights of purchase represented by the
Warrants, the Company will file with the Warrant Agent a statement setting forth
the name and address of such transfer agent.
16. Notices. Any notice pursuant to this Agreement to be given or
-------
made by the Warrant Agent or by the registered holder of any Warrant to the
Company shall be deemed to have been sufficiently given or made if sent by
certified mail, return receipt requested, postage prepaid, addressed (until
another address is filed in writing by the Company with the Warrant Agent) as
follows:
To the Company: NEI WebWorld, Inc.
North Tower, Plaza of the Americas
Suite 1910
Dallas, TX 75201
To the Warrant Agent: American Stock Transfer & Trust Company
40 Wall Street - 46th Floor
New York, NY 10005
Any notice pursuant to this Agreement to be given or made by the Company or by
the registered holder of any Warrant to the Warrant Agent shall be deemed to
have been sufficiently given or made if sent by certified mail, return receipt
requested, postage prepaid, addressed (until another address is filed In writing
by the Warrant Agent with the Company) to the Warrant Agent as set forth above.
17. Standard of Conduct. Notwithstanding any implication to the
-------------------
contrary elsewhere herein, whenever the Company or the Warrant Agent are
required or permitted to make any judgment or to take any action, no such
judgment or action shall be made or taken in bad faith or in any arbitrary or
capricious fashion.
18. Supplements and Amendments. The Company and the Warrant Agent
--------------------------
may, from time to time, supplement or amend this Agreement without the approval
of any of the holders of the Warrants in order to cure any ambiguity or to
correct or supplement any provision contained herein that may be defective or
inconsistent with any other provision herein, or to make any other provisions in
regard to matters or questions arising hereunder that the Company and the
Warrant Agent may deem necessary or desirable, that shall not be inconsistent
with the provisions of the Warrants, and that shall not materially adversely
affect the rights of the holders of the Warrants.
19. Successors. All of the covenants and provisions hereof by or for
----------
the benefit of the Company or the Warrant Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
9
<PAGE>
20. Merger or Consolidation of the Company. The Company will not
--------------------------------------
merge or consolidate with or into any other corporation, unless the corporation
resulting from such merger or consolidation (if not the Company) shall expressly
assume, by supplemental agreement satisfactory in form to the Warrant Agent and
executed and delivered to the Warrant Agent, the due and punctual performance
and observance of each and every covenant and condition of this Agreement to be
performed and observed by the Company.
21. Texas Contract. This Agreement and each Warrant issued hereunder
--------------
shall be deemed to be a contract made under the laws of the State of Texas and
for all purposes shall be construed in accordance with the laws of said state.
22. Benefits of this Agreement. Nothing in this Agreement shall be
--------------------------
construed to give any person or corporation, other than the Company, the Warrant
Agent and the registered holders of the Warrants, any legal or equitable right,
remedy or claim under this Agreement, but this Agreement shall be for the sole
and exclusive benefit of the Company and the Warrant Agent and their respective
successors and of the holders of the Warrant Certificates.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
NEI WebWorld, Inc.
By:
----------------------------------------
Its:
---------------------------------------
ATTEST:
- -----------------------------
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:
----------------------------------------
Its:
---------------------------------------
ATTEST:
- -----------------------------
10
<PAGE>
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M, EASTERN TIME ON _____________, 2002
NO. W-______
___________ Common Stock ___________ Warrant
Representative Representative
Warrants Warrants
or
___________ Underlying
Warrants
This Warrant Certificate certifies that ___________________, or registered
assigns, is the registered holder of _____________ Common Stock Representative
Warrants and/or ________ Warrant Representative Warrants and/or
_________________ Underlying Warrants of NEI WebWorld, Inc. (the "Company").
Each Common Stock Representative Warrant permits the Holder hereof to purchase
initially, at any time from _________, 1997 ("Purchase Date") until 5:30 p.m.
Eastern Time on ____________, 2002 ("Expiration Date"), one (1) share of the
Company's Common Stock at the initial exercise price, subject to adjustment in
certain events (the "Exercise Price"), of $____ per share (___% of the public
offering price). Each Warrant Representative Warrant permits the Holder hereof
to purchase initially, at any time from the Purchase Date until five (5) years
from the Purchase Date, one (1) Underlying Warrant at the Exercise Price of
$____ per Underlying Warrant. Each Underlying Warrant permits the Holder
thereof to purchase, at any time from the Purchase Date until five (5) years
from the Purchase Date, one (1) share of the Company's Common Stock at the
Exercise Price of $____ per share.
<PAGE>
Any exercise of Common Stock Representative Warrants and/or Warrant
Representative Warrants and/or Underlying Warrants shall be effected by
surrender of this Warrant Certificate and payment of the Exercise Price at an
office or agency of the Company, but subject to the conditions set forth herein
and in the Representative's Warrant Agreement dated as of _____, 1997, between
the Company and First London Securities Corporation (the "Representative's
Warrant Agreement"). Payment of the Exercise Price shall be made by certified
check or official bank check in New York Clearing House funds payable to the
order of the Company in the event there is no cashless exercise pursuant to
Section 3.1(ii) of the Representative's Warrant Agreement. The Common Stock
Representative Warrants, the Warrant Representative Warrants, and the Underlying
Warrants are collectively referred to as "Warrants".
No Warrant may be exercised after 5:30 p.m., Eastern Time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Representative's Warrant
Agreement, which Representative's Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation or rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
The Representative's Warrant Agreement provides that upon the occurrence of
certain events, the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Representative's Warrant Agreement.
Upon due presentment for registration or transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferees) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the
Representative's Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
2
<PAGE>
The Company may deem and treat the registered holder (s) hereof as the
absolute owner(s) of this Warrant certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone) , for the purpose of any
exercise hereof, and of any distribution to the Holder hereof, and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
All terms used in this Warrant Certificate which are defined in the
Representative's Warrant Agreement shall have the meanings assigned to them in
the Representative's Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of ____________________, 1997
NEI WebWorld, Inc.
By:
----------------------------
Barry Conrad, Chairman
(Seal)
Attest:
- --------------------------------
________________ , Secretary
3
<PAGE>
EXHIBIT "A"
FORM OF SUBSCRIPTION (CASH EXERCISE)
------------------------------------
(To be signed only upon exercise of Warrant)
TO: NEI WebWorld, Inc.
North Tower, Plaza of the Americas
Suite 1910
Dallas, Texas 75201
The undersigned, the Holder of Warrant Certificate number ____ (the
"Warrant"), representing ______________ Common Stock Representative Warrants
and/or __________ Warrant Representative Warrants and/or _______________
Underlying Warrants of NEI WebWorld, Inc. (the "Company"), which Warrant
Certificate is being delivered herewith, hereby irrevocably elects to exercise
the purchase right provided by the Warrant Certificate for, and to purchase
thereunder, _____________ Shares and/or _____________ Underlying Warrants of the
Company, and herewith makes payment of $____________ therefor, and requests that
the certificates for such securities be issued in the name of, and delivered to,
_________________________________________ whose address is
______________________________________, all in accordance with the
Representative's Warrant Agreement and the Warrant Certificate.
Dated:____________________________
--------------------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
--------------------------------------
--------------------------------------
(Address)
4
<PAGE>
EXHIBIT "B"
FORM OF SUBSCRIPTION (CASHLESS EXERCISE)
----------------------------------------
TO: NEI WebWorld, Inc.
North Tower, Plaza of the Americas
Suite 1910
Dallas, Texas 75201
The undersigned, the Holder of Warrant Certificate number ____ (the
"Warrant"), representing ___________ Common Stock Representative Warrants and/or
_________________ Underlying Warrants of NEI WebWorld, Inc. (the "Company"),
which Warrant is being delivered herewith, hereby irrevocably elects the
cashless exercise of the purchase right provided by the Representative's Warrant
Agreement and the Warrant Certificate for, and to purchase thereunder, Shares of
the Company in accordance with the formula provided at Section three (3) of the
Representative's Warrant Agreement. The undersigned requests that the
certificates for such Shares be issued in the name of, and delivered to,
- --------------------------------------------------------------------------------
- -------------------- whose address is,------------------------------------------
- -------------------- all in accordance with the Warrant Certificate.
Dated:
----------------------------
-----------------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
-----------------------------------
-----------------------------------
(Address)
5
<PAGE>
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED
-----------------------------------------------------------
hereby sells, assigns and transfers unto
(Print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint
---------------------------
Attorney, to transfer the within Warrant Certificate on the books of the within-
named Company, and full power of substitution.
Dated: Signature:
- ----------------------- --------------------------------
(Signature must conform in all
respects to name of holder as
specified on the fact of the
Warrant Certificate)
--------------------------------
(Insert Social Security or
Other Identifying Number of
Assignee)
6
<PAGE>
EXHIBIT 5.1
(214) 953-0053
March 7, 1997
NEI WebWorld, Inc.
4647 Bronze Way
Dallas, Texas 75236
Gentlemen:
We have served as counsel for NEI WebWorld, Inc., a Texas corporation (the
"Company"), in connection with the Registration Statement on Form SB-2 (the
"Registration Statement"), filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, covering the sale of (i) 1,150,000
shares of common stock by the Company, (ii) 1,150,000 Common Stock Purchase
Warrants; (iii) 1,150,000 shares of common stock to be issued from time to time
upon the exercise of the Common Stock Purchase Warrants; (iv) 115,000 shares of
common stock and 115,000 Common Stock Purchase Warrants to be issued upon the
exercise of a warrant granted to the representative of the underwriters (the
"Representative Warrant"); and (v) 115,00 shares of common stock to be issued
from time to time upon the exercise of the Common Stock Purchase Warrants
comprising a portion of the Representative's Warrant (such shares of common
stock and Common Stock Purchase Warrants are collectively referred to as the
"Securities").
With respect to the foregoing, we have examined such documents and
questions of law as we have deemed necessary to render the opinion expressed
below. Based upon the foregoing, we are of the opinion that the Securities,
when sold and delivered, will be duly and validly issued and outstanding and
fully paid and nonassessable.
We consent to the use of this opinion as Exhibit 5 to the Registration
Statement and to the use of our name in the Registration Statement and in the
Prospectus included therein under the heading "Legal Matters."
Very truly yours,
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of February 28, 1994, is by and between NEI
Acquisition Corporation, a Texas corporation ("Company"), and Richard J. Wiencek
("Executive").
W I T N E S S E T H:
-------------------
WHEREAS, Executive has extensive experience and contacts in the commercial
printing business; and
WHEREAS, Company desires to utilize Executive's experience and contacts by
employing Executive in accordance with the terms and conditions of this
Agreement; and
WHEREAS, Executive desires to be employed by Company in accordance with the
terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the foregoing recital and of the mutual
covenants set forth below, the parties hereto agree as follows:
1. Employment. Company agrees to employ Executive, on the terms and
----------
conditions set forth below. Executive's job title shall be President and Chief
Executive Officer (or such other position as Company and Executive may mutually
agree) and his duties shall include those customarily performed by a chief
executive officer of a corporation, and performing such other similar services
for Company as may be directed from time to time by the Board of Directors of
Company. Executive agrees during the term of his employment to devote his full
business time (at least 40 hours per week) and his best efforts, skills and
abilities exclusively to the performance of his duties as stated in this
Agreement and to the furtherance of Company's business. Executive shall also
use his best efforts to preserve the business of Company and the good will of
all employees, customers, suppliers and other persons having business relations
with Company.
2. Term. The employment of Executive shall begin on the date of this
----
Agreement and shall continue until the earliest of:
(i) the date Company terminates it for "just cause" upon three days written
notice,
(ii) the death or disability of Executive,
(iii) the Expiration Date (as defined below),
<PAGE>
(iv) the date Company terminates it without just cause upon 30 days written
notice, or
(v) the date Executive terminates it for any reason (it being understood by
the parties that any resignation by Executive from his employment, unless
specifically requested by Company, shall be deemed a termination by Executive).
For purposes of this Section 2, "just cause" for termination shall mean:
(i) the failure or refusal of Executive to comply with the reasonable rules
and procedures established by the Board of Directors of the Company or to employ
reasonable acts or services, as and when requested, from the Board of Directors
of the Company (except when such performance would be a violation of any
existing law) for a period of 30 days after written notice of such failure or
refusal;
(ii) the failure of the Company to achieve approximately 85% of "Budgeted
EBITDA" (as defined hereinafter) in any fiscal year, as derived from the audited
financial statements of the Company during each fiscal year and as specifically
set forth below:
<TABLE>
<CAPTION>
Year Ending
March 31, Budget 85% of Budget
------------- ---------- -------------
<S> <C> <C>
1995 $1,542,000 $1,311,000
1996 1,912,000 1,625,000
1997 2,168,000 1,843,000
1998 2,559,000 2,175,000
1999 2,860,000 2,431,000
</TABLE>
(iii) the indictment of Execu tive for any felony, failure to abide by the
terms of this Agreement, or the com mission of an act of bad faith, fraud,
embezzlement, misappropriation, dishonesty, moral turpitude, or any act, or the
occurrence of state of facts, which renders Executive incapable of performing
his duties hereunder, or in the judgment of the Company, prove prejudicial to
the Company's best interest, or which adversely affects or could reasonably be
expected to adversely affect the Company or the Company's reputation.
Subject to the foregoing, the parties agree that this Agreement shall be
for an initial term of five years, and shall be automatically renewed for
additional successive one year terms; provided, however, Company may terminate
this Agreement effective as of the last day of the initial five year term, or
the last day of any successive one year term (as applicable, the "Expiration
Date"), upon written notice of termination to Executive at least 30 days prior
to the end of the then current term.
2
<PAGE>
Notwithstanding anything to the contrary in this Agreement, the provisions
of Sections 5, 6 and 7 shall survive any termination of Executive's employment
under this Agreement.
3. Compensation.
------------
(a) Base salary. Executive agrees to accept as full consideration for his
employment, $160,000.00 per year during the term of this Agreement, payable in
accordance with Company's standard payroll procedures, subject to all
appropriate withholdings. Executive's salary will be reviewed annually by the
Board of Directors of the Company.
(b) Bonuses. Executive shall be entitled to receive bonuses from the
Company as follows:
(i) In the event that the Company purchases certain commercial printing
presses from Computer Language Research listed on Schedule I hereto at a
cost (including acquisition costs, all transportation, installation and
similar costs, and the cost of any other assets necessary to make such
equipment fully functional and operational) of less than $400,000,
immediately following such purchase and installation, Executive
shall be entitled to receive a bonus equal to 50% of such deficiency.
(ii) Executive shall be entitled to receive a bonus with respect to
each year of operations in which he is employed by the Company equal to 25%
of the Company's "Free Cash Flow" (as defined herein); provided, however,
that so long as the Company has achieved 100% of "Budgeted EBITDA" (as
defined) for its fiscal years ended March 31, 1995 and/or 1996, such bonus
shall not be less than $25,000 with respect to fiscal 1995 and/or $50,000
with respect to fiscal 1996, as the case may be. The bonus shall be payable
as soon as practicable after the computation of Free Cash Flow from the
audited financial statements of the Company with respect to each fiscal
year of operations. As used herein:
(A) "Free Cash Flow" with respect to any fiscal year shall mean
EBITDA less debt service (principal and interest), capital expenditures,
management fees and income taxes, for such fiscal year; all as computed
in accordance with generally accepted accounting principles consistently
applied.
(B) "Budgeted EBITDA" shall mean $1,542,000 for the year
ended March 31, 1995, $1,912,000 for the year ended March 31, 1996,
$2,168,000 for the year ended March 31, 1997, $2,559,000 for
3
<PAGE>
the year ended March 31, 1998 and $2,860,000 for the year ended March 31,
1999.
(C) "EBITDA" with respect to any fiscal period shall mean earnings
before interest, taxes, depreciation and amortization (before management
fees and bonuses) for such period, as computed in accordance with
generally accepted accounting principles consistently applied.
(c) Car allowance. Executive shall receive a car allowance of $500 per
month to be used to pay the reasonable operating and maintenance expenses of an
automobile related to its business use.
(d) Vacation, medical insurance and fringe benefits. Executive shall be
entitled to four weeks paid vacation per year. Executive shall also participate
in all benefit plans in which employees of the Company participate and such
other fringe benefits as the Board of Directors of Company may, in its sole
discretion, determine.
(e) Business expenses. Upon proper documentation and compliance with
Company procedures by Executive, Company shall reimburse Executive for all
business expenses incurred by him on behalf of Company.
(f) Stock Options. Executive shall be granted an option to purchase 75,000
shares of Common Stock of the Company at an exercise price of $1.00 per share,
the terms and conditions of which are set forth in that certain Stock Option
Agreement in the form attached hereto as Exhibit A.
4. Compensation upon Termination.
-----------------------------
(a) Termination by Company for just cause; termination by Executive. Upon
termination of Executive's employment by Company for just cause or termination
by Executive, Company shall pay to Executive all compensation payable hereunder
that has accrued through the date of termination.
(b) Death or disability. Upon termination of Executive's employment as a
result of the death or disability of Executive, Company shall pay to Executive
(or his estate or legal representative, as the case may be) (i) all compensation
payable hereunder that has accrued through the date of termination and (ii) the
base salary which would have been payable to Executive had this Agreement
remained in effect for the 90 days subsequent to the date of termination. All
payments under clause (ii) above shall be made on the normal base salary payment
dates in the normal installments.
4
<PAGE>
(c) Termination by Company without just cause. Upon termination of
Executive's employment by Company without just cause (other than a termination
as of the Expiration Date resulting from the expiration of this Agreement),
Company shall pay to Executive (i) all compensation payable hereunder that has
accrued through the date of termination, (ii) the base salary which would have
been payable to Executive had this Agreement remained in effect for a period
equal to 12 months subsequent to the date of termination, and (iii) the prorated
portion (based upon the number of full months during which Executive was
employed by the Company) of the bonus which the Executive would have earned
hereunder with respect to the fiscal year during which Executive was terminated.
All payments under clause (ii) above shall be made on the normal base salary
payment dates in the normal installments. Executive's medical insurance shall
be continued for the same period for which salary payments are continued
hereunder.
(d) Repurchase of Common Stock. Upon termination of Executive's employment
with the Company, the Company shall purchase (subject to the prior approval of
Bank One, Texas, N.A. and Stratford Capital Group, Inc.), and Executive (or his
legal representative, as the case may be) shall sell to the Company, all shares
of Common Stock owned by the Executive (including the vested portion of any
unexercised stock option) at a price per share equal to the lesser of (A) the
quotient of (X) the excess of (i) 3.5 times EBITDA for the 12 months ending on
the month end immediately preceding the termination date of Executive's
employment, less (ii) the amount of outstanding indebtedness and redemption
value of redeemable preferred stock as of such month end, divided by (Y) the
number of fully diluted shares of Common Stock of the Company as of such month
end, and (B) the Fair Market Value (defined below) of the Common Stock owned by
Executive. The exercise price of the vested portion of any unexercised stock
option shall be deducted from the Company's payment to the Executive. The "Fair
Market Value" for purposes of this subsection (d) shall be determined as
follows: The fair market value of the Common Stock of the Company owned by
Executive as mutually agreed upon by Company and Executive; however, if Company
and Executive are unable to agree as to the fair market value of such Common
Stock within twenty (20) days following Executive's receipt of notice of the
Company's election to exercise its option to purchase Executive's Common Stock,
the Company and Executive shall appoint a mutually acceptable appraiser with at
least five years of experience in appraising privately-held companies
("Qualified Appraiser") to value the Common Stock of the Company. If the
Company and Executive agree as to the Qualified Appraiser, they shall promptly
instruct the Qualified Appraiser to value the Common Stock with the
understanding that such Qualified Appraiser's valuation shall be the Fair Market
Value and shall be binding upon the Company and Executive. If the Company and
Executive are unable to mutually agree upon a Qualified Appraiser (within ten
days following the expiration of the 20-day period described above), each of the
Company and Executive shall appoint a Qualified Appraiser to value the Common
Stock of the Company. Each of
5
<PAGE>
the appointed Qualified Appraisers shall determine the fair market value of the
Common Stock within 60 days of their selection and shall deliver to each of the
Company and the Executive a copy of its appraisal within such 60 day period. If
the determination of each of the appointed Qualified Appraisers is 90% or more
but less than 110% of the average of the two determinations, the fair market
value shall be such average. If the determination of either of the appointed
Qualified Appraisers is less than 90% or more than 110% of such average, then
the appointed Qualified Appraisers shall, within five days thereafter, select a
third Qualified Appraiser. The determination of such third Qualified Appraiser
(which shall not be higher than the higher of, nor lower than the lower of, the
determinations of the two first appointed Qualified Appraisers), shall govern
and shall be final and binding on all parties.
5. Nondisclosure Agreement. Executive, during the term of employment
-----------------------
under this Agreement, shall have access to and become familiar with various
trade secrets and proprietary and confidential information consisting of, but
not limited to, processes, computer programs, compilations of information,
records, sales procedures, customer requirements, pricing techniques, customer
lists, methods of doing business and other confidential information
(collectively referred to as the "Trade Secrets"), which are owned by Company
and regularly used in the operation of its business, but in connection with
which Company takes precautions to prevent dissemination to persons other than
certain directors, officers and employees. Executive acknowledges and agrees
that the Trade Secrets (1) are secret and not known in the industry; (2) are
entrusted to Executive after being informed of their confidential and secret
status by Company and because of the fiduciary position occupied by Executive
with Company; (3) have been developed by Company for and on behalf of Company
through substantial expenditures of time, effort and money and are used in its
business; (4) give Company an advantage over competitors who do not know or use
the Trade Secrets; (5) are of such value and nature as to make it reasonable and
necessary to protect and preserve the confidentiality and secrecy of the Trade
Secrets; and (6) the Trade Secrets are valuable, special and unique assets of
Company, the disclosure of which could cause substantial injury and loss of
profits and goodwill to Company. Executive shall not use in any way or disclose
any of the Trade Secrets, directly or indirectly, either during the term of this
Agreement or at any time thereafter, except as required in the course of his
employment under this Agreement. All files, records, documents, information,
data and similar items relating to the business of Company, whether prepared by
Executive or otherwise coming into his possession, shall remain the exclusive
property of Company and shall not be removed from the premises of Company under
any circumstances without the prior written consent of the Board of Directors of
Company (except in the ordinary course of business during Executive's period of
active employment under this Agreement), and in any event shall be promptly
delivered to Company upon termination of Executive's employment. Executive
agrees that upon his receipt of any subpoena, process or other request to
produce or divulge, directly or indirectly, any Trade
6
<PAGE>
Secrets to any entity, agency, tribunal or person, Executive shall timely notify
and promptly hand deliver a copy of the subpoena, process or other request to
the Chief Executive Officer of Company.
6. Noncompetition Agreement. Executive acknowledges and agrees that the
------------------------
training he will receive, the experience he will gain while employed and the
information he will acquire regarding the Trade Secrets will enable him to
injure Company if he should compete with Company in a business that is
competitive with the business conducted or to be conducted by Company. For
these reasons, Executive hereby agrees as follows:
(a) Without the prior written consent of Company, Executive shall not,
during the period of employment with Company, directly or indirectly, either as
an individual, a partner or a joint venturer, or in any other capacity, (i)
invest (other than investments in publicly-owned companies which constitute not
more than 10% of the voting securities of any such company) or engage in any
business that is competitive with that of Company or its affiliates, (ii) accept
employment with or render services to a competitor of Company or any of its
affiliates as a director, officer, agent, employee or consultant, (iii) contact,
solicit or attempt to solicit or accept business from any (A) customers of
Company or its affiliates or (B) person or entity whose business Company or its
affiliates is soliciting, (iv) contact, solicit or attempt to solicit or accept
or direct business that is competitive with such business being conducted by
Company or any of its affiliates during Executive's employment under this
Agreement from any of the customers of Company or any of its affiliates, or (v)
take any action inconsistent with the fiduciary relationship of an employee to
his employer. As used in this Section 6 and in Section 7 of this Agreement,
"affiliates" shall mean persons or entities that directly, or indirectly through
one or more intermediaries, control or are controlled by, or are under common
control with, Company.
(b) Upon any termination or cessation of his employment with Company for
any reason whatsoever, and for a period of two years thereafter, Executive shall
not, directly or indirectly, either as an individual, a partner or a joint
venturer, or in any other capacity (i) invest (other than investments in
publicly-owned companies which constitute not more than 10% of the voting
securities of any such company) or engage in any business that is competitive
with that of Company or its affiliates, (ii) accept employment with or render
services to a competitor of Company or its affiliates as a director, officer,
agent, employee or consultant, or (iii) contact, solicit or attempt to solicit
or accept business (A) from any of the customers of Company or its affiliates as
of the date of this Agreement or at the time of Executive's termination or
cessation of employment, or (B) from any person or entity whose business Company
or its affiliates were soliciting as of such time.
7
<PAGE>
7. Nonemployment Agreement. For a period of two years after the
-----------------------
termination or cessation of his employment with Company for any reason
whatsoever, Executive shall not, on his own behalf or on behalf of any other
person, partnership, association, corporation or other entity, hire or solicit
or in any manner attempt to influence or induce any employee of Company or its
affiliates to leave the employment of Company or its affiliates, nor shall he
use or disclose to any person, partnership, association, corporation or other
entity any information obtained while an employee of Company concerning the
names and addresses of Company's employees.
8. Severability. The parties hereto intend all provisions of Sections 6
------------
and 7 hereof to be enforced to the fullest extent permitted by law.
Accordingly, should a court of competent jurisdiction determine that the scope
of any provision of Sections 6 and 7 hereof is too broad to be enforced as
written, the parties intend that the court reform the provision to such narrower
scope as it determines to be reasonable and enforceable. In addition, however,
Executive agrees that the noncompetition agreements, nondisclosure agreements
and nonemployment agreements set forth above each constitute separate agreements
independently supported by good and adequate consideration and shall be
severable from the other provisions of, and shall survive, this Agreement. The
existence of any claim or cause of action of Executive against Company, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Company of the covenants and agreements of Executive contained in
the noncompetition, nondisclosure or nonemployment agreements. If any provision
of this Agreement is held to be illegal, invalid or unenforceable under present
or future laws effective during the term hereof, such provision shall be fully
severable and this Agreement shall be construed and enforced as if such illegal,
invalid or unenforceable provision never comprised a part of this Agreement; and
the remaining provisions of this Agreement shall remain in full force and effect
and shall not be affected by the illegal, invalid or unenforceable provision or
by its severance herefrom. Furthermore, in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as part of this
Agreement, a provision as similar in its terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
9. Affiliates. Executive will use his best efforts to ensure that no
----------
relative of his or corporation of which he is an officer, director or
shareholder, or other affiliate of his, shall take any action that Executive
could not take without violating any provision of this Agreement.
10. Remedies. Executive recognizes and acknowledges that the
--------
ascertainment of damages in the event of his breach of any provision of this
Agreement would be difficult, and Executive agrees that Company, in addition to
all
8
<PAGE>
other remedies it may have, shall have the right to injunctive relief if there
is such a breach.
11. Acknowledgements. Executive acknowledges and recognizes that the
----------------
enforcement of any of the noncompetition provisions in this Agreement by Company
will not interfere with Executive's ability to pursue a proper livelihood.
Executive further represents that he is capable of pursuing a career in other
industries to earn a proper livelihood. Executive recognizes and agrees that
the enforcement of this Agreement is necessary to ensure the preservation and
continuity of the business and good will of Company. Executive agrees that due
to the nature of Company's business, the noncompetition restrictions set forth
in this Agreement are reasonable as to time and geographic area.
12. Notices. Any notices, consents, demands, requests, approvals and
-------
other communications to be given under this Agreement by either party to the
other shall be deemed to have been duly given if given in writing and either (i)
personally delivered or sent by mail, registered or certified, postage prepaid
with return receipt requested, or by recognized next day delivery service,
addressed as follows: (i) if to Company, at its principal executive offices in
Dallas, Texas or (ii) if to Executive, at his address as set forth on the
payroll records of Company. Notices delivered personally shall be deemed
communicated as of actual receipt; mailed notices shall be deemed communicated
as of three days after mailing.
13. Entire Agreement. This Agreement supersedes any and all other
----------------
agreements, either oral or written, between the parties hereto with respect to
the subject matter hereof and contains all of the covenants and agreements
between the parties with respect thereto.
14. Modification. No change or modification of this Agreement shall be
------------
valid or binding upon the parties hereto, nor shall any waiver of any term or
condition in the future be so binding, unless such change or modification or
waiver shall be in writing and signed by the parties hereto.
15. Governing Law and Venue. The parties acknowledge and agree that this
-----------------------
Agreement and the obligations and undertakings of the parties hereunder will be
performable in Dallas, Dallas County, Texas. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Texas. If any
action is brought to enforce or interpret this Agreement, venue for such action
shall be in Dallas County, Texas.
16. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall constitute an original, but all of which shall constitute one
document.
9
<PAGE>
17. Costs. If any action at law or in equity is necessary to enforce or
-----
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which he or it may be entitled.
18. Estate. If Executive dies prior to the expiration of the term of
------
employment, any monies that may be due him from Company under this Agreement as
of the date of his death shall be paid to his estate.
19. Assignment. Company shall have the right to assign this Agreement to
----------
its successors or assigns. The terms "successors" and "assigns" shall include
any person, corporation, partnership or other entity that buys all or
substantially all of Company's assets or all of its stock, or with which Company
merges or consolidates. The rights, duties and benefits to Executive hereunder
are personal to him, and no such right or benefit may be assigned by him.
20. Binding Effect. This Agreement shall be binding upon the parties
--------------
hereto, together with their respective executors, administrators, successors,
personal representatives, heirs and permitted assigns.
21. Waiver of Breach. The waiver by Company of a breach of any provision
----------------
of this Agreement by Executive shall not operate or be construed as a waiver of
any subsequent breach by Executive.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
Company:
NEI ACQUISITION CORPORATION
By:____________________________________
Barry B. Conrad
Chairman
10
<PAGE>
Executive:
________________________________________
Richard J. Wiencek
11
<PAGE>
Schedule I
List of CLR Equipment to be Acquired
12
<PAGE>
EXHIBIT 10.2
CONSULTING AGREEMENT
This Consulting Agreement (this "Agreement") is made as of the 28th day of
February, 1994, by and between NEI Acquisition Corporation, a Texas corporation
(the "Company"), and Robert D. Kopitke ("RDK").
WHEREAS, the Company wishes to engage RDK to provide the Company certain
sales and marketing consulting services;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the Company and RDK agree as follows:
1. Engagement of RDK. The Company hereby engages RDK to perform certain
-----------------
sales and marketing services during the term of this Agreement, as such services
may be specifically defined by the Company's President and Chief Executive
Officer ("CEO"). RDK shall devote such portion of his business time as he and
the CEO reasonably determine is necessary to perform the duties described
herein.
2. Consideration.
-------------
2.1 Fees.
----
a. Subject to the provisions of this Agreement, the Company shall pay
RDK (i) a fixed fee ("Fixed Fee") of $3,750 per quarter and (ii) a
contingent fee (the "Contingent Fee") of $3,750 per quarter, each payable
in arrears no later than 30 days after the last day of each June,
September, December and March, commencing on June 30, 1994. The Contingent
Fee is subject to the Company achieving its sales growth objectives for the
respective quarter, as set forth in the sales growth objectives to be
established by the Board of Directors during each year as part of the
annual budgeting process. The sales growth objectives shall not be greater
than 85% of the annual sales plan that was presented in the "Acquisition
and Financing Memorandum for Web World" dated December 8, 1993.
b. RDK acknowledges and understands that the payment of the Fixed Fee
and the Contingent Fee is subject to certain restrictions imposed by the
lenders to the Company. In the event that the Company is unable to pay such
fees at any time as a result of restrictions imposed by its lenders, such
payment shall be deferred until the restrictions lapse.
2.2 Stock Options. Pursuant to its Stock Option Plan, the Company hereby
-------------
grants to RDK an option to purchase 25,000 shares of Common Stock at an exercise
price of $1.00 per share. The terms and conditions of such option shall be as
set forth in the Stock Option Agreement in the form attached hereto as Exhibit
A.
<PAGE>
2.3 Reimbursements. The Company shall promptly reimburse RDK for all
--------------
reasonable out-of-pocket expenses incurred by RDK in the performance of his
duties hereunder, as mutually agreed to by RDK and the Company's CEO.
3. Duration and Termination of Agreement. The engagement of RDK shall
-------------------------------------
begin on the date of this Agreement and shall continue until the date upon which
either party terminates this Agreement upon 90 days' prior written notice to the
other.
4. Miscellaneous Provisions.
------------------------
4.1 Governing Law. This Agreement shall be deemed to have been made in
-------------
and shall be governed by, and interpreted in accordance with, the laws of the
State of Texas.
4.2 Amendment. This Agreement may be amended only by a writing that
---------
specifically ramifies, confirms and incorporates as a part thereof the
provisions of this Agreement not thereby amended. Each such amendment must be
executed and delivered by both parties.
4.3 Non-Waiver. No waiver of, or failure to assert, any claim, right,
----------
benefit or remedy pursuant to this Agreement shall operate as a waiver of any
other claim, right or benefit. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner effect such
party's right at a later time to require such performance or fully to enforce
the same.
4.4 Binding Effect. The terms, conditions and covenants of this Agreement
--------------
shall apply to, inure to the benefit of, and be binding upon each of the parties
hereto and their respective successors in interest and permitted assigns.
4.5 Further Assurances. The parties hereto shall execute and deliver to
------------------
the appropriate party such other instruments and perform such other acts as may
reasonably be required in order fully to perform and carry out the terms and
intent of this Agreement.
EXECUTED as of the date first written above.
------------------------------------
Robert D. Kopitke
2
<PAGE>
NEI ACQUISITION CORPORATION
By:
---------------------------------
3
<PAGE>
EXHIBIT 10.3
MANAGEMENT AGREEMENT
This Management Agreement (this "Agreement") is made as of the 28th day of
February, 1994, by and between NEI Acquisition Corporation, a Texas corporation
(the "Company"), and Conrad/Collins Merchant Banking Group, Ltd. ("MBG").
WHEREAS, MBG organized the Company for the purpose of acquiring the
operating assets of Newspaper Enterprises Inc. of Texas and certain related
equipment; and
WHEREAS, MBG arranged for the financing of the Company's business and
located and identified the operating management of the Company; and
WHEREAS, Conrad/Collins Merchant Banking Fund, Ltd. ("MBF"), an affiliate
of MBG, has purchased preferred stock of the Company; and
WHEREAS, MBG has experience in the management of commercial enterprises;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the Company and MBG agree as follows:
1. Engagement of MBG. The Company hereby engages MBG to perform
-----------------
supervisory management services during the term of this Agreement. Such
services shall include coordinating relationships with the Company's financing
sources, overseeing the implementation of financial and management information
and reporting systems, general management consulting activities and furnishing
representatives to serve as members of the Company's board of directors. MBG
shall devote such portion of its business time as it, in the exercise of good
business judgment, reasonably determines is necessary to perform the activities
described herein.
2. Consideration.
-------------
2.1 Fee. The Company shall pay MBG a fee of $100,000 per year, payable
---
quarterly in arrears on the last day of each June, September, December and
March, commencing June 30, 1994. MBG acknowledges and understands that the
payment of the foregoing management fees shall be subject to certain
restrictions imposed by the lenders to the Company. In the event that the
Company is unable to pay management fees at any time as a result of restrictions
imposed by its lenders, such fees shall be deferred until the restrictions
lapse.
2.2 Stock Options. Pursuant to its Stock Option Plan, the Company hereby
-------------
grants to MBG an option to purchase 25,000 shares of Common Stock at an exercise
price of $1.00 per share. The terms and conditions of such option shall be as
set forth in the Stock Option Agreement in the form attached hereto as
Exhibit A.
<PAGE>
2.3 Reimbursements. The Company shall promptly reimburse MBG for all out-
--------------
of-pocket expenses incurred by MBG in the performance of its duties
hereunder; provided, however, that all reimbursements in excess of $500 shall
be subject to the prior approval of Stratford Capital Group, Inc..
3. Duration and Termination of Agreement.
-------------------------------------
3.1 Term. This Agreement shall continue in full force and effect from the
----
date hereof until the earliest of (i) the seventh anniversary date of this
Agreement, (ii) the date on which MBF and partners of MBF to whom MBF has
distributed securities of the Company shall (collectively) cease to own more
than 15% of the outstanding Common Stock of the Company on a fully diluted
basis, (iii) an event of default hereunder, (iv) the mutual consent of the
parties hereto, (v) the sale of substantially all of the assets of the Company,
merger of the Company with another entity, or an initial public offering of the
Company's Common Stock on a firm commitment basis in which the aggregate net
proceeds received by the Company at the public offering price is at least
$10,000,000.
3.2 Events of Default. If any party hereto (the "breaching party") fails
-----------------
to observe or perform any term, covenant or other provision contained herein for
a period of 30 days after written notice from the other party, an event of
default shall be deemed to exist with respect to the breaching party.
Notwithstanding the foregoing and any other provisions of this Agreement, if the
performance by the Company of any term, covenant or other provision of this
Agreement would violate, conflict with or cause (with or without the passage of
time) an event of default under any agreement, contract or understanding with
the Company's lenders then the Company's performance of such term, covenant or
provision is hereby waived by MBG until such time as the Company's performance
thereof would not so violate, conflict or cause an event of default under such
agreement, contract or understanding and in no event would such a failure by the
Company to perform its obligations hereunder be deemed an event of default
herein.
3.3 Remedies. If any event of default as described in paragraph 3.2
--------
exists with respect to any party hereto, the other party shall be entitled to
all remedies with respect to such defaulting party as permitted by applicable
law.
3.4 Remedies Cumulative. No remedy, right or power conferred herein upon
-------------------
any party is intended to be exclusive of any other remedy, right or power given
hereunder or now or hereafter existing at law, in equity or otherwise, and all
such remedies, rights and powers shall be cumulative.
4. Liability of MBG. Neither MBG nor any of its agents, employees or
----------------
representatives shall be liable to the Company for any acts or omissions in
connection
2
<PAGE>
with the activities contemplated herein, absent a final adjudication of gross
negligence or willful misconduct by MBG or such agent, employee or
representative.
5. Miscellaneous Provisions.
------------------------
5.1 Governing Law. This Agreement shall be deemed to have been made in
-------------
and shall be governed by, and interpreted in accordance with, the laws of the
State of Texas.
5.2 Amendment. This Agreement may be amended only by a writing that
---------
specifically ratifies, confirms and incorporates as a part thereof the
provisions of this Agreement not thereby amended. Each such amendment must be
executed and delivered by both parties.
5.3 Non-Waiver. No waiver of, or failure to assert, any claim, right,
----------
benefit or remedy pursuant to this Agreement shall operate as a waiver of any
other claim, right or benefit. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner effect such
party's right at a later time to require such performance or fully to enforce
the same.
5.4 Binding Effect. The terms, conditions and covenants of this Agreement
--------------
shall apply to, inure to the benefit of, and be binding upon each of the parties
hereto and their respective successors in interest and permitted assigns.
5.5 Further Assurances. The parties hereto shall execute and deliver to
------------------
the appropriate party such other instruments and perform such other acts as may
reasonably be required in order fully to perform and carry out the terms and
intent of this Agreement.
EXECUTED as of the date first written above.
CONRAD/COLLINS MERCHANT
BANKING GROUP, LTD.
By Conrad Collins Inc. (general partner)
By:
--------------------------------------
Barry B. Conrad, Chairman
NEI ACQUISITION CORPORATION
By:
--------------------------------------
3
<PAGE>
EXHIBIT 10.4
NEI WEBWORLD, INC.
1997 STOCK OPTION PLAN
On March , 1997, the Board of Directors of NEI WebWorld, Inc., a Texas
corporation (the "Company"), adopted, and the shareholders of the Company
approved, the following 1997 Stock Option Plan:
1. PURPOSE. The purpose of the Plan is to provide Employees with a
proprietary interest in the Company through the granting of options.
Options granted hereunder may either be Incentive Options or Nonqualified
Options, at the discretion of the Board of Directors and as reflected in
the terms of an option agreement.
2. ADMINISTRATION. The Plan will be administered by the Board of
Directors of the Company.
3. PARTICIPANTS. The Board of Directors shall, from time to time,
select the particular Employees of the Company and its Subsidiaries to whom
options are to be granted, and who will, upon such grant, become
participants in the Plan.
4. STOCK OWNERSHIP LIMITATION. No Incentive Option may be granted to
a Employee who owns more than 10% of the voting power of all classes of
stock of the Company or its Parent or Subsidiaries. This limitation will
not apply if the option price is at least 110% of the fair market value of
the stock at the time the option is granted and the option is not
exercisable more than five years from the date it is granted.
5. SHARES SUBJECT TO PLAN. The Board may not grant options under the
Plan for more than 350,000 shares of Common Stock of the Company, but this
number may be adjusted to reflect, if deemed appropriate by the Board, any
stock dividend, stock split, share combination, recapitalization or the
like, of or by the Company. Shares to be optioned and sold may be made
available from either authorized but unissued Common Stock or Common Stock
held by the Company in its treasury. Shares that by reason of the
expiration of an option or otherwise are no longer subject to purchase
pursuant to an option granted under the Plan may be reoffered under the
Plan.
6. LIMITATION ON AMOUNT. The aggregate fair market value (determined
at the time of grant) of the shares of Common Stock which any Employee is
first eligible to purchase in any calendar year by exercise of Incentive
Options granted under this Plan and all incentive stock option plans of the
Company or its Parent or Subsidiaries shall not exceed $100,000. For this
purpose, the fair market value (determined at the respective date of grant
<PAGE>
of each option) of the stock purchasable by exercise of an Incentive Option
(or an installment thereof) shall be counted against the $100,000 annual
limitation for a Employee only for the calendar year such stock is first
purchasable under the terms of the option. In no event shall options be
granted to any one Employee to purchase more than 50,000 shares.
7. ALLOTMENT OF SHARES. The Board shall determine the number of
shares of Common Stock to be offered from time to time by grant of options
to members of management of the Company. The grant of an option to a
Employee shall not be deemed either to entitle the Employee to, or to
disqualify the Employee from, participation in any other grant of options
under the Plan.
8. GRANT OF OPTIONS. All options under the Plan shall be granted by
the Board. The grant of options shall be evidenced by stock option
agreements containing such terms and provisions as are approved by the
Board, but not inconsistent with the Plan, including provisions that may be
necessary to assure that the option is an incentive stock option under the
Internal Revenue Code. The Company shall execute stock option agreements
upon instruments from the Board.
9. OPTION PRICE. The option price shall be determined by the Board.
In the case of any Incentive Options, the option price shall not be less
than 100% of the fair market value per share of the Common Stock on the
date the option is granted. The Board shall determine the fair market value
of the Common Stock on the date of grant, and shall set forth the
determination in its minutes, using any reasonable valuation method.
10. OPTION PERIOD. The Option Period will begin on the date the
option is granted, which will be the date the Board authorizes the option
unless the Board specifies a later date. No option may terminate later than
10 years from the later of (i) the date the option is granted or (ii) the
date on which the option is first exercisable. The Board may provide for
the exercise of options in installments and upon such terms, conditions and
restrictions as it may determine. The Board may provide for termination of
the option in the case of termination of employment or any other reason.
11. RIGHTS IN EVENT OF DEATH OR DISABILITY. If a participant dies or
becomes disabled (within the meaning of Section 22(e)(3) of the Internal
Revenue Code) while in the employ of the Company, but prior to termination
of his right to exercise an option in accordance with the provisions of his
stock option agreement without having totally exercised the option, the
option agreement may provide that it may be exercised, to the extent of the
shares
-2-
<PAGE>
with respect to which the option could have been exercised by the
participant on the date of the participant's death or disability, by (i)
the participant's estate or by the person who acquired the right to
exercise the option by bequest or inheritance or by reason of the death of
the participant in the event of the participant's death, or (ii) the
participant or his personal representative in the event of the
participant's disability, provided the option is exercised prior to the
date of its expiration or not more than one year from the date of the
participant's death or disability, whichever occurs first. The date of
disability of a participant shall be determined by the Company.
12. PAYMENT. Full payment for shares purchased upon exercising an
option shall be made in cash or by check at the time of exercise, or on
such other terms as are set forth in the applicable option agreement. No
shares may be issued until full payment of the purchase price therefor has
been made, and a participant will have none of the rights of a stockholder
until shares are issued to him.
13. EXERCISE OF OPTION. Options granted under the Plan may be
exercised during the Option Period, at such times, in such amounts, in
accordance with such terms and subject to such restrictions as are set
forth in the applicable stock option agreements. In no event may an option
be exercised or shares be issued pursuant to an option if any requisite
action, approval or consent of any governmental authority of any kind
having jurisdiction over the exercise of options shall not have been taken
or secured.
14. CAPITAL ADJUSTMENTS AND REORGANIZATIONS. The number of shares of
Common Stock covered by each outstanding option granted under the Plan and
the option price may be adjusted to reflect, as deemed appropriate by the
Board, any stock dividend, stock split, share combination, exchange of
shares, recapitalization, merger, consolidation, separation,
reorganization, liquidation or the like, of or by the Company.
15. NON-ASSIGNABILITY. Options may not be transferred other than by
will or by the laws of descent and distribution. During a participant's
lifetime, options granted to a participant may be exercised only by the
participant.
16. INTERPRETATION. The Board shall interpret the Plan and shall
prescribe such rules and regulations in connection with the operation of
the Plan as it determines to be advisable for the administration of the
Plan. The Board may rescind and amend its rules and regulations.
-3-
<PAGE>
17. AMENDMENT OR DISCONTINUANCE. The Plan may be amended or
discontinued by the Board without the approval of the stockholders of the
Company, except that any amendment that would (a) materially increase the
benefits accruing to participants under the Plan, (b) materially increase
the number of securities that may be issued under the Plan, or (c)
materially modify the requirements of eligibility for participation in the
Plan must be approved by the stockholders of the Company.
18. EFFECT OF PLAN. Neither the adoption of the Plan nor any action
of the Board shall be deemed to give any officer or Employee any right to
be granted an option to purchase Common Stock of the Company or any other
rights except as may be evidenced by the stock option agreement, or any
amendment thereto, duly authorized by the Board and executed on behalf of
the Company and then only to the extent and on the terms and conditions
expressly set forth therein.
19. TERM. Unless sooner terminated by action of the Board, the Plan
will terminate on February 28, 2007. The Board may not grant options under
the Plan after that date, but options granted before that date will
continue to be effective in accordance with their terms.
20. DEFINITIONS. for the purpose of this Plan, unless the context
requires otherwise, the following terms shall have the meanings indicated:
(a) "Plan" means this 1997 Stock Option Plan as amended from time to
time.
(b) "Board" means the Board of Directors of the Company.
(c) "Common Stock" means the Common Stock which the Company is
currently authorized to issue or may in the future be authorized to issue
(as long as the common stock varies from that currently authorized, if at
all, only in amount of par value).
(d) "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if, at the time of the granting of
the option, each of the corporations other than the last corporation in the
unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in
the chain, and "Subsidiaries" means more than one of any such corporations.
-4-
<PAGE>
(e) "Parent" means any corporation in an unbroken chain of
corporations ending with the Company if, at the time of granting of the
option, each of the corporations other than the Company owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
(f) "Option Period" means the period during which an option may be
exercised.
(g) "Incentive Option" means an option granted under the Plan which
meets the requirements of Section 422 of the Internal Revenue Code.
(h) "Nonqualified Option" means an option granted under the Plan which
is not intended to be an Incentive Option.
(i) "Employee" means any person, including officers and directors
employed by the Company or any Parent or Subsidiary.
-5-
<PAGE>
EXHIBIT 10.5
SECOND RENEWAL AND EXTENSION AGREEMENT
THIS SECOND RENEWAL AND EXTENSION AGREEMENT dated this 8th day of January,
1988, by and between THE DALLAS MORNING NEWS COMPANY, a Delaware corporation
("Dallas News"), as successor in interest to A. H. Belo Corporation, and
NEWSPAPER ENTERPRISES, INC. OF TEXAS, a Texas corporation ("NEI").
Preliminary Statement
---------------------
Dallas News and NEI are parties to a printing contract dated the 18th day
of July, 1983 (the "Printing Contract"), as amended by a Renewal and Extension
Agreement dated the 1st day of July, l985, providing for the printing by NEI of
weekly issues of TV Magazine (formerly referred to as TV Channels Magazine) for
distribution with each Sunday edition of The Dallas Morning News from July 17,
-----------------------
1983, through July 19, 1987. NEI has continued to print TV Magazine for Dallas
News since July 19, 1987, pursuant to an informal agreement to extend the
Printing Contract beyond the date specified in the first Renewal and Extension
Agreement. Dallas News and NEI desire to formally renew and extend the Printing
Contract on the terms hereinafter provided.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties HAVE AGREED and do hereby agree that the Printing Contract shall be
renewed and extended on the following terms and conditions:
1. Printing. NEI shall print each weekly issue of TV Magazine tot
--------
distribution with the Sunday edition of The Dallas Morning News at the prices
-----------------------
shown on Exhibit A hereto, subject to adjustment and upon the other terms and
conditions hereinafter provided. Exhibit A also describes in summary form the
understanding of the parties as to the size and appearance of the product,
quantities of production, the type of paper stock to be used by NEI, method of
preparation, and binding.
2. Term. The term of the Printing Contract as renewed and extended hereby
----
shall commence on the date hereof, but the first issue of TV Magazine to which
this Second Renewal and Extension Agreement shall be applicable shall be the TV
Magazine to be included in the Sunday edition of The Dallas Morning News of
-----------------------
February 7, 1988, unless sooner terminated or renewed, the Printing Contract as
hereby renewed and extended shall expire with the completion of the printing Of
the TV Magazine to be distributed with the Sunday edition of The Dallas Morning
------------------
News for Sunday, February 5, 1989. Upon the expiration of this Agreement, unless
- ----
it is further renewed or extended, Dallas News shall have no further obligation
to use the services of NEI for the printing of TV Magazine for any Sunday
edition of The Dallas
----------
<PAGE>
Morning News to be published after the date of such expiration, but all of the
- ------------
rights and remedies of the parties hereto at the date of such expiration shall
survive.
3. Quality of Printing. During the term of this Agreement, each edition
-------------------
of TV Magazine shall be printed on an offset press of the Hantscho Heat-set type
presently used by NEI, unless the parties agree in writing that a different
press shall be used.
4. Quantities. Dallas News shall notify NEI before the close of business
----------
on Thursday, eleven days prior to publication, of the quantity of TV Magazine
required for the publication of the Sunday edition of The Dallas Morning News to
-----------------------
be published on the second Sunday following the date of such notification, The
prices for printing specified on Exhibit A are based upon quantities of 600,000
copies of each issue of TV Magazine, with a different and lower rate quoted for
each additional 100,000 copies or portion thereof. If the print order for any
issue of TV Magazine is more than such 600,000 copies, such greater quantity
shall be billed at the rates specified on Exhibit A for additional copies. If
the print order shall be for fewer than 600,000 copies, but not fewer than
575,000 copies, the price charge shall be at a rate equal to the basic rate per
thousand copies times the number of thousand copies (plus one for any partial
number less than one thousand) covered by the print order. If any print order is
for fewer than 575,000 copies, the unit price for printing such lesser quantity
shall be determined by mutual agreement between Dallas News and NEI.
5. Prices. The prices set forth on Exhibit A are based upon the wage
------
scales and other terms and conditions affecting NEI's labor cost at its plant on
the date hereof. Changes in such labor cost shall be reflected, as hereinafter
described, by means of an adjustment to that portion of the total cost of
printing TV Magazine covered under the caption "Printing" on Exhibit A.
NEI has determined that on the date hereof the average composite hourly
rate for a standard press crew is $54.54 per hour, as reflected on Exhibit B
hereto. As soon as practicable after May 31, 1988, NEI shall determine the
average composite hourly rate in effect on May 31, 1988, for standard press crew
(consisting of the same number of persons performing the same functions as used
in the initial determination). To the extent that there shall be an increase or
decrease in such average composite hourly rate, there shall be a pro rata
increase or reduction in both the base price and the price for additional
quantities for the portion of the price applicable to labor cost, There shall be
a similar adjustment for increases or decreases in newsprint cost as they occur.
The schedule of prices on Exhibit A is based upon the assumption that the
newsprint required for an issue of TV Magazine consisting of forty-eight pages,
of the dimensions agreed to by Dallas News and NEI, will be a weight of 181.16
pounds per thousand copies.
2
<PAGE>
During the term of the Printing Contract as hereby renewed and extended,
Dallas News shall provide newsprint to NEI for the printing of TV Magazine. The
current price that Dallas News would charge to NEI for the newsprint required
for one thousand copies of a 48-page issue of TV Magazine is $48.19. To the
extent that such price shall increase or decrease, there shall be a commensurate
increase or decrease in the newsprint portion of the prices charged by NEI to
Dallas News. NEI shall remit payment to Dallas News for the newsprint supplied
by Dallas News during each calendar month by the twentieth day of the month
following.
6. Delivery Schedule. As provided in paragraph 4 above, Dallas News shall
-----------------
furnish to NEI not later than 5 p.m. on Thursday, eleven days prior to
publication date, the quantities of newsprint for TV Magazine required for the
applicable Sunday edition of The Dallas Morning News. Dallas News shall furnish
-----------------------
to NEI at NEI's plant color positions, colors, and separations not later than 5
p.m. on Friday, ten days prior to publication date for the next issue of TV
Magazine, and shall provide camera-ready copy by 5 p.m. on Monday, prior to the
date of publication for the same issue. NEI shall deliver to Dallas News at the
loading dock of Dallas News in Dallas, Texas, 300,000 copies of TV Magazine by 5
p.m. on the Thursday prior to publication date and shall deliver all remaining
copies specified in the applicable purchase order by 12 noon on Friday prior to
publication date. NEl shall not be responsible for delays in meeting any
delivery schedule hereunder if such delays are caused by Dallas News' failure to
meet the schedules herein imposed upon it. The prices specified in Exhibit A
include delivery costs.
7. Terms of Payment. NEI shall invoice Dallas News for each issue of TV
----------------
Magazine within three days after the issue date thereof, and the terms of
payment shall be net, 21 days from and after the issue date.
8. Right to Inspect. Dallas News shall have the right, but shall not be
----------------
obligated, to have one or more of its representatives at NEl's plant during
business hours when TV Magazine is being printed. Further, Dallas News shall be
entitled to inspect the premises of NEI and its books and records applicable to
the performance of this Agreement upon reasonable prior notice during regular
business hours.
9. Indemnity. Dallas News shall indemnify and hold NEI harmless from any
---------
loss, cost, damage, or expense (including reasonable attorneys' fees) which NEI
may sustain as a result of any real or alleged libel or violation of any
copyright or trademark laws or the proprietary rights of any third party in any
copy furnished by Dallas News to NEI under the terms of this Agreement.
10. Assignment. This Agreement shall be binding upon and shall inure to
----------
the benefit of the parties hereto and their respective successors and assigns;
provided,
3
<PAGE>
however, that NEI shall not be entitled to assign its rights under this
Agreement to any third party except upon the prior written consent of Dallas
News, which consent shall not be unreasonably withheld.
11. Excusable Delay. Neither Dallas News nor NEI shall be liable to the
---------------
other for any loss, cost, damage or expense caused by its temporary inability to
perform hereunder due to fire, explosion, freight embargos, accident,
governmental restrictions or regulations (including limitations on paper
consumption), strike, lock-out, flood, war, civil commotion, acts of the public
enemy, or any other contingency or cause beyond its control, whether or not
specified.
12. Notices. All notices required or permitted under this Agreement
-------
(except for print orders and other orders or notices given in the ordinary
course of business hereunder) shall be in writing and may be delivered
personally or by depositing such notice in the United States mail, postage
prepaid, addressed as follows:
If to Dallas News: The Dallas Morning News Company
Communications Center
Dallas, Texas 75202
Attention: Burl Osborne
copy to: J. William Cox
Sr. Vice President
Administration and Finance
If to NEI: Newspaper Enterprises Inc, of Texas
4647 Bronze Way
Dallas, Texas 75236
Attention: Chairman of the Board
copy to: James L. Truitt, Esq.
6000 First RepublicBank Plaza
Dallas, Texas 75202
Any such notice shall be deemed to be effective upon delivery, if delivered
personally, or forty-eight hours after deposit In the United States mail, if
delivered by mail. Any party hereto may from time to time change its address for
notices hereunder by giving notice to the other party in accordance with this
paragraph 12.
13. Cancellation. At any time during the term of this Agreement, the
------------
Dallas Morning News shall have an option to cancel this Agreement during the
term hereof
4
<PAGE>
with not less than six months written notice should the Dallas Morning News
decide to print the TV Magazine in its own plant or one of the A. H. Belo
subsidiaries.
14. Waiver. No waiver of any breach or default hereunder shall be
------
considered valid unless in writing and signed by the party giving such waiver
and no such waiver shall be deemed to waive any subsequent breach or default
under this Agreement.
15. Entire Agreement. This Agreement, together with exhibits and
----------------
attachments hereto, supersedes all prior agreements, oral or written, and
constitutes the entire agreement of the parties with respect to the printing of
those issues of TV Magazine to which this Agreement applies. This Agreement may
not be modified, amended or terminated except by a written document specifically
referring to the Printing Contract, as amended by this Second Renewal and
Extension Agreement, and signed by the appropriate party or parties hereto. All
exhibits, schedules and attachments annexed hereto, or to which reference is
made herein, are hereby incorporated herein by reference and made a part hereof.
16. Construction. This Agreement shall be construed in accordance with
------------
the laws of the State of Texas. The paragraph headings contained herein are
solely for the purpose of convenience, are not intended to define or limit the
contents of said paragraphs and shall not be considered to be a part hereof for
purposes of interpreting or construing this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Second Renewal and
Extension Agreement as of the day, month and year first above written.
THE DALLAS MORNING NEWS COMPANY
By:________________________________
Its: Burle Osborne,
President and Editor
NEWSPAPER ENTERPRISES, INC. OF TEXAS
By:________________________________
Its: Robert L. Jensen
Chm. and President
5
<PAGE>
Newspaper Enterprises, Inc. of Texas
Dallas Morning News
EXHIBIT A
PRODUCT Pony Tabloid - TV Magazine
11 3/8" x 8 3/4" Untrim Size
10 7/8" x 8 1/2" Trim Size
QUANTITY 600,000 Basic
Plus additional M prices
STOCK Cover web is 32# Hi Brite - 8 pages Hi Brite on
56 pages, 16 pages of Hi Brite on 64 pages
Additional Pages on 29.2# Newsprint
PREPARATION Camera ready boards
BINDING Press glued - Trimmed three sides
<TABLE>
<CAPTION>
Pages
-----
48 56 64
----- ----- -----
<S> <C> <C> <C>
Paper Costs, 600,000 48.19 53.45 62.57
Additionals 48.19 53.45 62.57
Printing, 600,000 33.05 35.90 37.25
Additionals 29.70 32.20 33.25
Total Base Price, 600,000 81.24 89.35 99.82
Additionals 77.89 85.65 95.82
Additional Color
Per Color Per M .22 .22 .22
Cover Cylinder .22 .22 .22
Other Cylinder
Plus $100 for first color
on each cylinder.
</TABLE>
Press make ready, start up waste, restripping
and replating cost for split run of reduced pages - $900.00
Effective January 25, 1988
<PAGE>
CONSENT TO ASSIGNMENT OF CONTRACT
The undersigned, through its duly authorized representative, does hereby consent
to the assignment of all rights and interests of Newspaper Enterprises Inc, of
Texas under that certain printing contract, dated January 8, 1988, as amended
between the undersigned, and Newspaper Enterprises Inc. of Texas, to NEI
Acquisition Corporation.
IN WITNESS WHEREOF, the undersigned has executed this Consent as of the 28th day
of February, 1994.
THE DALLAS MORNING NEWS COMPANY
By:
-----------------------------------------------
Its: Senior Vice President, Operations &
Administration
<PAGE>
EXHIBIT 10.6
Loan and Security Agreement
by and between
CONGRESS FINANCIAL CORPORATION (SOUTHWEST)
as Lender
and
NEI WEBWORLD, INC.
as Borrower
Dated: December 31, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1. DEFINITIONS............................................... 1
SECTION 2. CREDIT FACILITIES......................................... 8
2.1 Revolving Loans........................................... 8
2.2 Term Loan A............................................... 9
2.3 Term Loan B............................................... 9
2.4 Capital Expenditures Loans................................ 9
2.5 Availability Reserves..................................... 10
2.6 Maximum Credit and Lending Formulas....................... 10
SECTION 3. INTEREST AND FEES......................................... 10
3.1 Interest.................................................. 10
3.2 Closing Fee............................................... 11
3.3 Servicing Fee............................................. 12
3.4 Commitment Fee............................................ 12
SECTION 4. CONDITIONS PRECEDENT...................................... 12
4.1 Conditions Precedent to Initial Loans..................... 12
4.2 Conditions Precedent to All Loans......................... 14
SECTION 5. GRANT OF SECURITY INTEREST................................ 14
SECTION 6. COLLECTION AND ADMINISTRATION............................. 15
6.1 Borrower's Loan Account................................... 15
6.2 Statements................................................ 16
6.3 Collection of Accounts.................................... 16
6.4 Payments.................................................. 17
6.5 Authorization to Make Loans............................... 17
6.6 Use of Proceeds........................................... 17
SECTION 7. COLLATERAL REPORTING AND COVENANTS........................ 18
7.1 Collateral Reporting...................................... 18
7.2 Accounts Covenants........................................ 18
7.3 Inventory Covenants....................................... 20
7.4 Equipment Covenants....................................... 20
7.5 Power of Attorney......................................... 21
i
<PAGE>
7.6 Right to Cure............................................. 22
7.7 Access to Premises........................................ 22
SECTION 8. REPRESENTATIONS AND WARRANTIES............................ 22
8.1 Corporate Existence, Power and Authority; Subsidiaries.... 22
8.2 Financial Statements; No Material Adverse Change.......... 23
8.3 Chief Executive Office; Collateral Locations.............. 23
8.4 Priority of Liens; Title to Properties.................... 23
8.5 Tax Returns............................................... 23
8.6 Litigation................................................ 23
8.7 Compliance with Other Agreements and Applicable Laws...... 24
8.8 Accuracy and Completeness of Information.................. 24
8.9 Survival of Warranties; Cumulative........................ 24
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS........................ 24
9.1 Maintenance of Existence.................................. 24
9.2 New Collateral Locations.................................. 25
9.3 Compliance with Laws, Regulations, Etc.................... 25
9.4 Payment of Taxes and Claims............................... 25
9.5 Insurance................................................. 25
9.6 Financial Statements and Other Information................ 26
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc... 27
9.8 Encumbrances.............................................. 27
9.9 Indebtedness.............................................. 28
9.10 Loans, Investments, Guarantees, Etc....................... 28
9.11 Dividends and Redemptions................................. 29
9.12 Transactions with Affiliates.............................. 29
9.13 Adjusted Net Worth........................................ 29
9.14 Costs and Expenses........................................ 29
9.15 Further Assurances........................................ 30
9.16 Modifications of Other Agreement.......................... 30
9.17 Environmental Action...................................... 30
SECTION 10. EVENTS OF DEFAULT AND REMEDIES............................ 30
10.1 Events of Default......................................... 30
10.2 Remedies.................................................. 32
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW............................... 34
11.1 Governing Law; Choice of Forum; Service of Process;
Jury Trial Waiver......................................... 34
ii
<PAGE>
11.2 Waiver of Notices......................................... 35
11.3 Amendments and Waivers.................................... 35
11.4 Waiver of Counterclaims................................... 35
11.5 Indemnification........................................... 35
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS.......................... 36
12.1 Term...................................................... 36
12.2 Notices................................................... 37
12.3 Partial Invalidity........................................ 38
12.4 Successors................................................ 38
12.5 Entire Agreement.......................................... 38
12.6 Nonapplicability of Article 5069-15.01 et seq............. 38
12.7 DTPA Waiver............................................... 38
12.8 Oral Agreements Ineffective............................... 39
INDEX TO
EXHIBITS AND SCHEDULES
----------------------
Exhibit A Information Certificate
Exhibit B Jensen Note
Exhibit C Management Agreement
Exhibit D Consulting Agreement
Exhibit E WebWorks Note
Schedule 8.4 Existing Liens
iii
<PAGE>
LOAN AND SECURITY AGREEMENT
---------------------------
This Loan and Security Agreement dated December 31, 1996 is entered
into by and between Congress Financial Corporation (Southwest), a Texas
corporation ("Lender") and NEI WebWorld, Inc., a Texas corporation ("Borrower").
------ --------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Borrower has requested that Lender enter into certain
financing arrangements with Borrower pursuant to which Lender may make loans and
provide other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and provide such
financial accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS
-----------
All terms used herein which are defined in Article 1 or Article 9 of
the Uniform Commercial Code shall have the meanings given therein unless
otherwise defined in this Agreement. All references to the plural herein shall
also mean the singular and to the singular shall also mean the plural. All
references to Borrower and Lender pursuant to the definitions set forth in the
recitals hereto, or to any other person herein, shall include their respective
successors and assigns. The words "hereof", "herein", "hereunder", "this
Agreement" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not any particular provision of this Agreement
and as this Agreement now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced. An Event of Default
shall exist or continue or be continuing until such Event of Default is waived
in accordance with Section 11.3. Any accounting term used herein unless
------------
otherwise defined in this Agreement shall have the meanings customarily given to
such term in accordance with GAAP. For purposes of this Agreement, the
following terms shall have the respective meanings given to them below:
1.1 "Accounts" shall mean all present and future rights of Borrower
--------
to payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.
1.2 "Adjusted Net Worth" shall mean as to any Person, at any time, in
------------------
accordance with GAAP (except as otherwise specifically set forth below), on a
consolidated basis for such
1
<PAGE>
Person and its subsidiaries (if any), the amount equal to: (a) the difference
between: (i) the aggregate net book value of all assets of such Person and its
subsidiaries, calculating the book value of inventory for this purpose on a
first-in-first-out basis, after deducting from such book values all appropriate
reserves in accordance with GAAP (including all reserves for doubtful
receivables, obsolescence, depreciation and amortization) and (ii) the aggregate
amount of the indebtedness and other liabilities of such Person and its
subsidiaries (including tax and other proper accruals) plus (b) indebtedness of
----
such Person and its subsidiaries which is subordinated in right of payment to
the full and final payment of all of the Obligations on terms and conditions
acceptable to Lender.
1.3 "Applicable Rate" shall have the meaning set forth in Section
---------------
3.1(a) hereof.
1.4 "Availability Reserves" shall mean, as of any date of
---------------------
determination, such amounts as Lender may from time to time establish and revise
in good faith reducing the amount of Revolving Loans which would otherwise be
available to Borrower under the lending formula(s) provided for herein: (a) to
reflect events, conditions, contingencies or risks which, as determined by
Lender in good faith, do or may affect either (i) the Collateral or any other
property which is security for the Obligations or its value, (ii) the assets,
business or prospects of Borrower or any Obligor or (iii) the security interests
and other rights of Lender in the Collateral (including the enforceability,
perfection and priority thereof) or (b) to reflect Lender's good faith belief
that any collateral report or financial information furnished by or on behalf of
Borrower or any Obligor to Lender is or may have been incomplete, inaccurate or
misleading in any material respect or (c) in respect of any state of facts which
Lender determines in good faith constitutes an Event of Default or may, with
notice or passage of time or both, constitute an Event of Default.
1.5 "Capital Expenditures Loans" shall mean the loans now or
--------------------------
hereafter made by Lender to Borrower as described in Section 2.4 hereof.
-----------
1.6 "Collateral" shall have the meaning set forth in Section 5
---------- ---------
hereof.
1.7 "Consulting Agreement" shall mean that certain Consulting
--------------------
Agreement dated February 28, 1994, by and between Borrower and Robert D.
Kopitke, as in effect on the date hereof and as attached hereto as Exhibit D.
---------
1.8 "Eligible Accounts" shall mean Accounts created by Borrower which
-----------------
are and continue to be acceptable to Lender based on the criteria set forth
below. In general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide sale and
---- ----
delivery of goods by Borrower or rendition of services by Borrower in the
ordinary course of its business which transactions are completed in accordance
with the terms and provisions contained in any documents related thereto;
2
<PAGE>
(b) such Accounts are not unpaid more than sixty (60) days past
the original due date thereof or more than one hundred twenty (120) days after
the date of the original invoice for them;
(c) such Accounts comply with the terms and conditions contained
in Section 7.2(c) of this Agreement;
--------------
(d) such Accounts do not arise from sales on consignment,
guaranteed sale, sale and return, sale on approval, or other terms under which
payment by the account debtor may be conditional or contingent;
(e) the chief executive office of the account debtor with respect
to such Accounts is located in the United States of America, or, at Lender's
option, if either: (i) the account debtor has delivered to Borrower an
irrevocable letter of credit issued or confirmed by a bank satisfactory to
Lender, sufficient to cover such Account, in form and substance satisfactory to
Lender and, if required by Lender, the original of such letter of credit has
been delivered to Lender or Lender's agent and the issuer thereof notified of
the assignment of the proceeds of such letter of credit to Lender, or (ii) such
Account is subject to credit insurance payable to Lender issued by an insurer
and on terms and in an amount acceptable to Lender, or (iii) such Account is
otherwise acceptable in all respects to Lender (subject to such lending formula
with respect thereto as Lender may determine);
(f) such Accounts do not consist of progress billings, bill and
hold invoices or retainage invoices, except as to bill and hold invoices, if
Lender shall have received an agreement in writing from the account debtor, in
form and substance satisfactory to Lender, confirming the unconditional
obligation of the account debtor to take the goods related thereto and pay such
invoice;
(g) the account debtor with respect to such Accounts has not
asserted a counterclaim, defense or dispute and does not have, and does not
engage in transactions which may give rise to, any right of setoff against such
Accounts;
(h) there are no facts, events or occurrences which would impair
the validity, enforceability or collectability of such Accounts or reduce the
amount payable or delay payment thereunder;
(i) such Accounts are subject to the first priority, valid and
perfected security interest of Lender and any goods giving rise thereto are not,
and were not at the time of the sale thereof, subject to any liens except those
permitted in this Agreement;
(j) neither the account debtor nor any officer or employee of the
account debtor with respect to such Accounts is an officer, employee or agent of
or affiliated with Borrower directly or indirectly by virtue of family
membership, ownership, control, management or otherwise;
3
<PAGE>
(k) the account debtors with respect to such Accounts are not any
foreign government, the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, upon Lender's
request, the Federal Assignment of Claims Act of 1940, as amended or any similar
State or local law, if applicable, has been complied with in a manner
satisfactory to Lender;
(l) there are no proceedings or actions which are threatened or
pending against the account debtors with respect to such Accounts which might
result in any material adverse change in any such account debtor's financial
condition;
(m) such Accounts of (i) The Dallas Morning News/A.H. Belo
Corporation or its affiliates do not constitute more than fifty-five percent
(55%) of all otherwise Eligible Accounts, and (ii) any other single account
debtor or its affiliates do not constitute more than thirty percent (30%) of all
otherwise Eligible Accounts (but the portion of the Accounts not in excess of
such percentage may be deemed Eligible Accounts);
(n) such Accounts are not owed by an account debtor who has
Accounts unpaid more than sixty (60) days after the original due date thereof or
more than one hundred twenty (120) days after the date of the original invoice
for them which constitute more than fifty percent (50%) of the total Accounts of
such account debtor ;
(o) such Accounts are owed by account debtors whose total
indebtedness to Borrower does not exceed the credit limit with respect to such
account debtors as determined by Lender from time to time (but the portion of
the Accounts not in excess of such credit limit may still be deemed Eligible
Accounts); and
(p) such Accounts are owed by account debtors deemed creditworthy
at all times by Lender, as determined by Lender. General criteria for Eligible
Accounts may be established and revised from time to time by Lender in good
faith. Any Accounts which are not Eligible Accounts shall nevertheless be part
of the Collateral.
1.9 "Eligible Equipment" shall mean Equipment which is subject to a
------------------
first priority, valid and perfected security interest in favor of Lender and
which has otherwise been determined to be acceptable to Lender in good faith.
Any Equipment which is not Eligible Equipment shall nevertheless be part of the
Collateral.
1.10 "Eligible Inventory" shall mean Inventory consisting of raw
------------------
materials for finished goods to be held for resale in the ordinary course of
business, consisting of full rolls of newsprint and coated paper and which are
acceptable to Lender based on the criteria set forth below. In general, Eligible
Inventory shall not include (a) work-in-process or finished goods; (b)
components which are not part of finished goods; (c) spare parts for equipment;
(d) packaging and shipping materials; (e) supplies used or consumed in
Borrower's business; (f) Inventory at premises other than those owned and
controlled by Borrower, except if Lender shall have received an agreement in
writing from the person in possession of such Inventory and/or the
4
<PAGE>
owner or operator of such premises in form and substance satisfactory to Lender
acknowledging Lender's first priority security interest in the Inventory,
waiving security interests and claims by such person against the Inventory and
permitting Lender access to, and the right to remain on, the premises so as to
exercise Lender's rights and remedies and otherwise deal with the Collateral;
(g) Inventory subject to a security interest or lien in favor of any person
other than Lender except those permitted in this Agreement; (h) bill and hold
goods; (i) unserviceable, obsolete or slow moving Inventory; (j) Inventory which
is not subject to the first priority, valid and perfected security interest of
Lender; (k) returned, damaged and/or defective Inventory; (l) Inventory
purchased or sold on consignment; or (m) partial rolls of newsprint or coated
paper. General criteria for Eligible Inventory may be established and revised
from time to time by Lender in good faith. Any Inventory which is not Eligible
Inventory shall nevertheless be part of the Collateral.
1.11 "Eligible Real Estate" shall mean land and improvements thereon
--------------------
which are owned in fee by Borrower, are subject to a valid first priority
security interest in favor of Lender and have otherwise been determined to be
acceptable to Lender in good faith.
1.12 "Equipment" shall mean all of Borrower's now owned and hereafter
---------
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located, including without limitation all printing presses, collators, paper
cutters, folders, binders and other paper handling equipment.
1.13 "Event of Default" shall mean the occurrence or existence of any
----------------
event or condition described in Section 10.1 hereof.
------------
1.14 "Excess " shall have the meaning set forth in Section 3.1(b)
------ --------------
hereof.
1.15 "Excess Availability" shall mean the amount, as determined by
-------------------
Lender, calculated at any time, equal to: (a) the lesser of: (i) the amount of
the Revolving Loans available to Borrower as of such time based on the
applicable lending formulas multiplied by the Net Amount of Eligible Accounts
and the Value of Eligible Inventory, as determined by Lender, and subject to the
sublimits and Availability Reserves from time to time established by Lender
hereunder, and (ii) the Maximum Credit, minus (b) the sum of: (i) the amount of
all then outstanding and unpaid Obligations, plus (ii) the aggregate amount of
all then outstanding and unpaid trade payables of Borrower which are more than
sixty (60) days past due as of such time, plus (iii) all costs and expenses
payable by Borrower at closing.
1.16 "Financing Agreements" shall mean, collectively, this Agreement
--------------------
and all notes, guarantees, security agreements, deeds of trust and other
agreements, documents and instruments now or at any time hereafter executed
and/or delivered by Borrower or any Obligor in connection with this Agreement,
as the same now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
5
<PAGE>
1.17 "GAAP" shall mean generally accepted accounting principles in the
----
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Boards which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Section 9.13 hereof, GAAP shall be determined on the basis of
------------
such principles in effect on the date hereof and consistent with those used in
the preparation of the audited financial statements delivered to Lender prior to
the date hereof.
1.18 "Information Certificate" shall mean the Information Certificate
-----------------------
of Borrower constituting Exhibit A hereto containing material information with
---------
respect to Borrower, its business and assets provided by or on behalf of
Borrower to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.19 "Inventory" shall mean all of Borrower's now owned and hereafter
---------
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.20 "Jensen Note" shall mean that certain Subordinated Note dated
-----------
February 28, 1994, in the original principal amount of $500,000, payable to
Robert L. Jensen, as in effect on the date hereof and as attached hereto as
Exhibit B.
- ---------
1.21 "Loans" shall mean the Revolving Loans, the Term Loans and the
-----
Capital Expenditures Loans.
1.22 "Lockbox Accounts" shall have the meaning set forth in Section
---------------- -------
6.3 hereof.
- ---
1.23 "Management Agreement" shall mean that certain Management
--------------------
Agreement dated February 28, 1994, by and between Borrower and Conrad/Collins
Merchant Banking Group, Ltd., as in effect on the date hereof and as attached
hereto as Exhibit C.
---------
1.24 "Market Value" shall mean, for Eligible Real Estate, the fair
------------
market value of such Eligible Real Estate, as determined by appraisals in form,
scope and methodology acceptable to Lender conducted at Borrower's expense by
appraisers acceptable to Lender.
1.25 "Maximum Credit" shall mean the amount of $9,000,000.
--------------
1.26 "Maximum Legal Rate" shall have the meaning set forth in Section
------------------ -------
3.1(b) hereof.
- ------
1.27 "Net Amount of Eligible Accounts" shall mean the gross amount of
-------------------------------
Eligible Accounts less (a) sales, excise or similar taxes included in the amount
thereof and (b) returns, discounts, claims, credits and allowances of any nature
at any time issued, owing, granted, outstanding, available or claimed with
respect thereto.
6
<PAGE>
1.28 "Obligations" shall mean any and all Revolving Loans, the Term
-----------
Loans, the Capital Expenditures Loans and all other obligations, liabilities and
indebtedness of every kind, nature and description owing by Borrower to Lender
and/or its affiliates, including principal, interest, charges, fees, costs and
expenses, however evidenced, whether as principal, surety, endorser, guarantor
or otherwise, whether arising under this Agreement or otherwise, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of this Agreement or after the commencement of any
case with respect to Borrower under the United States Bankruptcy Code or any
similar statute (including, without limitation, the payment of interest and
other amounts which would accrue and become due but for the commencement of such
case), whether direct or indirect, absolute or contingent, joint or several, due
or not due, primary or secondary, liquidated or unliquidated, secured or
unsecured, and however acquired by Lender.
1.29 "Obligor" shall mean any guarantor, endorser, acceptor, surety or
-------
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than Borrower.
1.30 "Orderly Liquidation Value" shall mean, for Equipment, the value
-------------------------
which is attainable through an orderly liquidation of such Equipment within a
time frame of six (6) to twelve (12) months, the balance being sold at a public
auction, as determined by appraisals in form, scope and methodology acceptable
to Lender conducted at Borrower's expense by an appraiser acceptable to Lender.
1.31 "Payment Account" shall have the meaning set forth in Section 6.3
--------------- -----------
hereof.
1.32 "Person" or "person" shall mean any individual, sole
------ ------
proprietorship, partnership, corporation (including, without limitation, any
corporation which elects subchapter S status under the Internal Revenue Code of
1986, as amended), business trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
1.33 "Prime Rate" shall mean the rate from time to time publicly
----------
announced by CoreStates Bank, N.A., or its successors, at its office in
Philadelphia, Pennsylvania, as its prime rate, whether or not such announced
rate is the best rate available at such bank.
1.34 "Records" shall mean all of Borrower's present and future books
-------
of account of every kind or nature, purchase and sale agreements, invoices,
ledger cards, bills of lading and other shipping evidence, statements,
correspondence, memoranda, credit files and other data relating to the
Collateral or any account debtor, together with the tapes, disks, diskettes and
other data and software storage media and devices, file cabinets or containers
in or on which the foregoing are stored (including any rights of Borrower with
respect to the foregoing maintained with or by any other person).
7
<PAGE>
1.35 "Revolving Loans" shall mean the loans now or hereafter made by
---------------
Lender to or for the benefit of Borrower on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2.1 hereof.
-----------
1.36 "Subordination Agreements" shall mean, collectively, (i) that
------------------------
certain Subordination Agreement dated as of December 30, 1996, executed by
WebWorks in favor of Lender regarding the WebWorks Indebtedness, (ii) that
certain Junior Subordination Agreement dated of even date herewith, executed by
Robert D. Kopitke in favor of Lender regarding Borrower's obligations under the
Consulting Agreement, and (iii) that certain Junior Subordination Agreement of
even date herewith, executed by Conrad/Collins Merchant Banking Group, Ltd., in
favor of Lender regarding Borrower's obligations under the Management Agreement.
1.37 "Term Loan A" shall mean the term loan made by Lender to Borrower
-----------
as provided for in Section 2.2 hereof.
-----------
1.38 "Term Loan B" shall mean the term loan made by Lender to Borrower
-----------
as provided for in Section 2.3 hereof.
-----------
1.39 "Term Loans" shall mean collectively, Term Loan A and Term Loan
----------
B.
1.40 "Value" shall mean, as determined by Lender in good faith, with
-----
respect to Inventory, the lower of (a) cost computed on a first-in-first-out
basis in accordance with GAAP or (b) market value.
1.41 "WebWorks" shall mean The WebWorks, Inc.
--------
1.42 "WebWorks Indebtedness" shall mean that certain Promissory Note
---------------------
dated September 13, 1996, executed by Borrower, payable to WebWorks in the
original principal amount of $1,010,000, as amended by that certain Modification
of Promissory Note dated December 30, 1996 and as in effect on the date hereof
and as attached hereto as Exhibit E, and the obligations related thereto.
---------
SECTION 2. CREDIT FACILITIES
-----------------
2.1 Revolving Loans.
---------------
(a) Subject to, and upon the terms and conditions contained
herein, Lender agrees to make Revolving Loans to Borrower from time to time in
amounts requested by Borrower up to the amount equal to the lesser of (i)
$3,750,000 or (ii) the sum of:
(A) eighty-five percent (85%) of the Net Amount of Eligible
Accounts, plus
----
8
<PAGE>
(B) the lesser of: (I) sixty percent (60%) of the Value of
Eligible Inventory, or (II) $1,000,000, less
----
(C) any Availability Reserves.
(b) Lender may, in its discretion, from time to time (i) reduce
the lending formula with respect to Eligible Accounts to the extent that Lender
determines in good faith that: (A) the dilution with respect to the Accounts for
any period (based on the ratio of (1) the aggregate amount of reductions in
Accounts other than as a result of payments in cash to (2) the aggregate amount
of total sales) has increased in any material respect or may be reasonably
anticipated to increase in any material respect above historical levels, or (B)
the general creditworthiness of account debtors has declined or (ii) reduce the
lending formula(s) with respect to Eligible Inventory to the extent that Lender
determines that: (A) the number of days of the turnover of the Inventory for any
period has changed in any material respect or (B) the Value of the Eligible
Inventory, or any category thereof, has decreased, or (C) the nature and quality
of the Inventory has deteriorated. In determining whether to reduce the lending
formula(s), Lender may consider events, conditions, contingencies or risks which
are also considered in determining Eligible Accounts, Eligible Inventory or in
establishing Availability Reserves.
2.2 Term Loan A. (a) Subject to Section 2.2(b), Lender is making a
----------- --------------
Term Loan A to Borrower in an original principal amount of up to the lesser of
(i) $2,500,000 or (ii) eighty-five percent (85%) of the Orderly Liquidation
Value of Eligible Equipment. The Term Loan A is (a) evidenced by a Term A
Promissory Note in such original principal amount duly executed and delivered by
Borrower to Lender concurrently herewith; (b) to be repaid, together with
interest and other amounts, in accordance with this Agreement, the Term A
Promissory Note, and the other Financing Agreements and (c) secured by all of
the Collateral.
(b) Borrower and Lender acknowledge and agree that as of the
Closing Date, eighty-five percent (85%) of the Orderly Liquidation Value of the
Eligible Equipment is $146,000 less than $2,500,000. Lender is nonetheless
willing to make the Term Loan A in the original principal amount of $2,500,000,
provided, however, that the amount of such difference be established as an
- -------- -------
Availability Reserve.
2.3 Term Loan B. Lender is making a Term Loan B to Borrower in an
-----------
original principal amount of up to the lesser of (i) $750,000 or (ii) fifty
percent (50%) of the Market Value of Eligible Real Estate. The Term Loan B is
(a) evidenced by a Term B Promissory Note in such original principal amount duly
executed and delivered by Borrower to Lender concurrently herewith; (b) to be
repaid, together with interest and other amounts, in accordance with this
Agreement, the Term B Promissory Note, and the other Financing Agreements and
(c) secured by all of the Collateral.
2.4 Capital Expenditures Loans. (a) Subject to the terms and
--------------------------
conditions contained herein, Lender agrees to make Capital Expenditures Loans to
Borrower from time to time to finance purchases of Equipment for use in its
business. Each Capital Expenditures Loan shall be in the aggregate principal
amount of not less than $250,000 or if greater than $250,000, in
9
<PAGE>
integral multiples thereof, and shall not exceed eighty-five percent (85%) of
the invoiced purchase price (excluding installation, freight, taxes, title,
insurance and other related costs) of the Equipment being acquired with the
proceeds of such Capital Expenditures Loan. The aggregate principal amount of
all Capital Expenditures Loans made hereunder shall not exceed $1,000,000 in any
calendar year, or $2,000,000 during the term of this Agreement. Borrower may not
reborrow any amount repaid with respect to any Capital Expenditures Loan. Each
Capital Expenditures Loan shall be (a) evidenced by a Capital Expenditures
Promissory Note in the original principal amount of $2,000,000 duly executed and
delivered by Borrower to Lender concurrently herewith; (b) repaid, together with
interest and other amounts, in accordance with this Agreement, the Capital
Expenditures Promissory Note, and the other Financing Agreements; and (c)
secured by all of the Collateral.
(b) If at any time the aggregate principal amount outstanding
under the Capital Expenditures Loans is greater than eighty-five percent (85%)
of the value of the Equipment financed thereby, as determined by the appraisals
required pursuant to Section 7.4(a) hereof, an amount equal to such difference
--------------
shall immediately be established as an Availability Reserve.
2.5 Availability Reserves. All Revolving Loans otherwise available to
---------------------
Borrower pursuant to the lending formulas and subject to the Maximum Credit and
other applicable limits hereunder shall be subject to Lender's continuing right
to establish and revise Availability Reserves.
2.6 Maximum Credit and Lending Formulas. Except in Lender's
-----------------------------------
discretion, the aggregate amount of the Loans outstanding at any time shall not
exceed the Maximum Credit. In the event that the outstanding amount of any
component of the Loans, exceed the amounts available under the lending formulas
or the Maximum Credit, as applicable, such event shall not limit, waive or
otherwise affect any rights of Lender in that circumstance or on any future
occasions, unless otherwise provided herein, and Borrower shall, upon demand by
Lender, which may be made at any time or from time to time, immediately repay to
Lender the entire amount of any such excess(es) for which payment is demanded.
SECTION 3. INTEREST AND FEES
-----------------
3.1 Interest.
--------
(a) Borrower shall pay to Lender interest on the outstanding
principal amount of the Obligations at the following rates (individually called,
as applicable, an "Applicable Rate"): (i) the Term Loans and the Capital
---------------
Expenditures Loans at the rate of one and one-half of one percent (1.5%) per
annum in excess of the Prime Rate and (ii) the Revolving Loans and all other
non-contingent Obligations at the rate of one and one-quarter of one percent
(1.25%) per annum in excess of the Prime Rate, except that Borrower shall pay to
Lender interest, at Lender's option, without notice, at the rate of two (2%)
percent per annum in excess of the Applicable Rate: (A) on the non-contingent
Obligations for the period from and after the date of termination or non-renewal
hereof, or the date of the occurrence of an Event of Default, and for so long as
such Event of Default is continuing as determined by Lender and until such time
as Lender has
10
<PAGE>
received full and final payment of all such Obligations (notwithstanding entry
of any judgment against Borrower) and (B) on the Revolving Loans at any time
outstanding in excess of the amounts available to Borrower under Section 2
---------
(whether or not such excess(es), arise or are made with or without Lender's
knowledge or consent and whether made before or after an Event of Default, and
this provision shall not be deemed to constitute consent by Lender to any such
excess(es)). All interest accruing hereunder on and after the occurrence of any
of the events referred to in Sections 3.1(a)(A) or 3.1(a)(B) above shall be
------------------ ---------
payable on demand.
(b) Interest shall be payable by Borrower to Lender monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed. The interest rate shall increase or decrease by an amount equal to each
increase or decrease in the Prime Rate effective on the first day of the month
after any change in such Prime Rate is announced based on the Prime Rate in
effect on the last day of the month in which any such change occurs. No
agreements, conditions, provisions or stipulations contained in this Agreement
or any other instrument, document or agreement between Borrower and Lender or
default of Borrower, or the exercise by Lender of the right to accelerate the
payment of the maturity of principal and interest, or to exercise any option
whatsoever contained in this Agreement or any other Financing Agreement, or the
arising of any contingency whatsoever, shall entitle Lender to contract for,
charge, or receive, in any event, interest exceeding the maximum rate of
interest permitted by applicable state or federal law in effect from time to
time (hereinafter "Maximum Legal Rate"). In no event shall Borrower be obligated
------------------
to pay interest exceeding such Maximum Legal Rate and all agreements, conditions
or stipulations, if any, which may in any event or contingency whatsoever
operate to bind, obligate or compel Borrower to pay a rate of interest exceeding
the Maximum Legal Rate, shall be without binding force or effect, at law or in
equity, to the extent only of the excess of interest over such Maximum Legal
Rate. In the event any interest is contracted for, charged or received in excess
of the Maximum Legal Rate ("Excess"), Borrower acknowledges and stipulates that
------
any such contract, charge, or receipt shall be the result of an accident and
bona fide error, and that any Excess received by Lender shall be applied, first,
- ---------
to reduce the principal then unpaid hereunder; second, to reduce the other
Obligations; and third, returned to Borrower, it being the intention of the
parties hereto not to enter at any time into a usurious or otherwise illegal
relationship. Borrower recognizes that, with fluctuations in the Prime Rate and
the Maximum Legal Rate, such a result could inadvertently occur. By the
execution of this Agreement, Borrower covenants that (i) the credit or return of
any Excess shall constitute the acceptance by Borrower of such Excess, and (ii)
Borrower shall not seek or pursue any other remedy, legal or equitable, against
Lender, based in whole or in part upon contracting for, charging or receiving of
any interest in excess of the maximum authorized or receiving of any interest in
excess of the maximum authorized by applicable law. For the purpose of
determining whether or not any Excess has been contracted for, charged or
received by Lender, all interest at any time contracted for, charged or received
by Lender in connection with this Agreement shall be amortized, prorated,
allocated and spread in equal parts during the entire term of this Agreement.
3.2 Closing Fee. Borrower shall pay to Lender as a closing fee the
-----------
amount $45,000, which shall be fully earned as of and payable on the date
hereof.
11
<PAGE>
3.3 Servicing Fee. Borrower shall pay to Lender monthly a servicing
-------------
fee in an amount equal to $1,000 in respect of Lender's services for each month
(or part thereof) while this Agreement remains in effect and for so long
thereafter as any of the Obligations are outstanding, which fee shall be fully
earned as of and payable in advance on the date hereof and on the first day of
each month hereafter.
3.4 Commitment Fee. Borrower shall pay to Lender monthly a commitment
--------------
fee equal at a rate equal to one-quarter of one percent (.25%) per annum
calculated upon the amount by which $3,750,000 exceeds the average daily
principal balance of the outstanding Revolving Loans during the immediately
preceding month (or part thereof) while this Agreement is in effect and for so
long thereafter as any of the Obligations are outstanding, which fee shall be
payable on the first day of each month in arrears.
SECTION 4. CONDITIONS PRECEDENT
--------------------
4.1 Conditions Precedent to Initial Loans. Each of the following is a
-------------------------------------
condition precedent to Lender making the initial Loans hereunder:
(a) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid perfected and first priority
security interests in and liens upon the Collateral and any other property which
is intended to be security for the Obligations or the liability of any Obligor
in respect thereof, subject only to the security interests and liens permitted
herein or in the other Financing Agreements;
(b) all requisite corporate action and proceedings in connection
with this Agreement and the other Financing Agreements shall be satisfactory in
form and substance to Lender, and Lender shall have received all information and
copies of all documents, including, without limitation, records of requisite
corporate action and proceedings which Lender may have requested in connection
therewith, such documents where requested by Lender or its counsel to be
certified by appropriate corporate officers or governmental authorities;
(c) no material adverse change shall have occurred in the assets,
business or prospects of Borrower since the date of Lender's latest field
examination and no change or event shall have occurred which would impair the
ability of Borrower or any Obligor to perform its obligations hereunder or under
any of the other Financing Agreements to which it is a party or of Lender to
enforce the Obligations or realize upon the Collateral;
(d) Lender shall have completed a field review of the Records and
such other information with respect to the Collateral as Lender may require to
determine the amount of Revolving Loans available to Borrower, the results of
which shall be satisfactory to Lender, not more than three (3) business days
prior to the date hereof;
(e) Lender shall have received, in form and substance
satisfactory to Lender, all consents, waivers, acknowledgments and other
agreements from third persons which Lender
12
<PAGE>
may deem necessary or desirable in order to permit, protect and perfect its
security interests in and liens upon the Collateral or to effectuate the
provisions or purposes of this Agreement and the other Financing Agreements,
including, without limitation, acknowledgments by lessors, mortgagees and
warehousemen of Lender's security interests in the Collateral, waivers by such
persons of any security interests, liens or other claims by such persons to the
Collateral and agreements permitting Lender access to, and the right to remain
on, the premises to exercise its rights and remedies and otherwise deal with the
Collateral;
(f) Lender shall have received evidence of insurance and loss
payee endorsements required hereunder and under the other Financing Agreements,
in form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(g) Lender shall have received, in form and substance
satisfactory to Lender, such opinion letters of counsel to Borrower with respect
to the Financing Agreements and such other matters as Lender may request;
(h) the other Financing Agreements and all instruments and
documents hereunder and thereunder shall have been duly executed and delivered
to Lender, in form and substance satisfactory to Lender;
(i) the Excess Availability as determined by Lender, as of the
date hereof, shall be not less than $500,000 after giving effect to the initial
Loans made or to be made in connection with the initial transactions hereunder;
(j) each of WebWorks, Robert D. Kopitke and Conrad/Collins
Merchant Banking Group, Ltd. shall have executed and delivered its respective
Subordination Agreement, which shall be in form, scope and substance
satisfactory to Lender in its sole discretion;
(k) Lender shall have received, in form, scope and methodology
satisfactory to Lender, Phase I hazardous waste and environmental audits, upon
which Lender is expressly entitled to rely, conducted by an independent
environmental engineering firm at Borrower's expense, of all of Borrower's
plants and real estate, stating that in such firm's opinion (i) Borrower is in
compliance in all material respects with all applicable laws, rules,
regulations, ordinances, permits, programs, orders or consent decrees relating
to health, safety or environmental matters or to the manufacture, processing,
distribution, use, treatment, handling, storage or disposal of hazardous waste,
and (ii) there is no material potential or actual liability of Borrower for any
remedial action with respect to any environmental conditions or any other
significant environmental problems;
(l) the accounts payable and cash of Borrower shall be at a level
and in a condition acceptable to Lender;
(m) Lender shall have received a fully paid mortgagee title
insurance policy, in form and substance acceptable to Lender, issued by a title
insurance company satisfactory to
13
<PAGE>
Lender, in an amount equal to not less than the Market Value of the Eligible
Real Estate, insuring the deed of trust by which Borrower shall have granted and
conveyed to Lender, as security for the Obligations, a lien upon the Eligible
Real Estate to create a valid lien thereon, with no exceptions which Lender
shall not have approved in writing;
(n) Borrower shall enter into a lockbox agreement acceptable to
Lender;
(o) Lender shall have received a certificate executed by the
President and the Chief Financial Officer of Borrower setting forth in
reasonable detail the sources and uses of the funds in the transactions
contemplated herein;
(p) Lender shall have received a copy of a letter from Borrower
addressed to its accountants authorizing such accountants to disclose to Lender
any and all financial information concerning Borrower requested by Lender in
determining compliance with the covenants set forth herein;
(q) WebWorks shall have consented in writing to the transactions
contemplated herein and in the other Financing Agreements; and
(r) such other documents and information as Lender shall
reasonably request.
4.2 Conditions Precedent to All Loans. Each of the following is an
---------------------------------
additional condition precedent to Lender making Loans to Borrower, including the
initial Loans and any future Loans:
(a) all representations and warranties contained herein and in
the other Financing Agreements shall be true and correct in all material
respects with the same effect as though such representations and warranties had
been made on and as of the date of the making of each such Loan and after giving
effect thereto; and
(b) no Event of Default and no event or condition which, with
notice or passage of time or both, would constitute an Event of Default, shall
exist or have occurred and be continuing on and as of the date of the making of
such Loan and after giving effect thereto.
SECTION 5. GRANT OF SECURITY INTEREST
--------------------------
To secure payment and performance of all Obligations, Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right of
set off against, and hereby assigns to Lender as security, the following
property and interests in property, whether now owned or hereafter acquired or
existing, and wherever located (collectively, the "Collateral"):
----------
5.1 Accounts;
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5.2 All present and future contract rights, general intangibles
(including, but not limited to, tax and duty refunds, registered and
unregistered patents, trademarks, service marks, copyrights, trade names,
applications for the foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or licensee, choses in
action and other claims and existing and future leasehold interests in
equipment, real estate and fixtures), chattel paper, documents, instruments,
letters of credit, bankers' acceptances and guaranties;
5.3 All present and future monies, securities, credit balances,
deposits, deposit accounts and other property of Borrower now or hereafter held
or received by or in transit to Lender or its affiliates or at any other
depository or other institution from or for the account of Borrower, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and all
present and future liens, security interests, rights, remedies, title and
interest in, to and in respect of Accounts and other Collateral, including,
without limitation, (a) rights and remedies under or relating to guaranties,
contracts of suretyship, letters of credit and credit and other insurance
related to the Collateral, (b) rights of stoppage in transit, replevin,
repossession, reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, (c) goods described in invoices, documents, contracts
or instruments with respect to, or otherwise representing or evidencing,
Accounts or other Collateral, including, without limitation, returned,
repossessed and reclaimed goods, and (d) deposits by and property of account
debtors or other persons securing the obligations of account debtors;
5.4 Inventory;
5.5 Equipment;
5.6 Records;
5.7 Eligible Real Estate; and
5.8 all products and proceeds of the foregoing, in any form,
including, without limitation, insurance proceeds and all claims against third
parties for loss or damage to or destruction of any or all of the foregoing.
SECTION 6. COLLECTION AND ADMINISTRATION
-----------------------------
6.1 Borrower's Loan Account. Lender shall maintain one or more loan
-----------------------
account(s) on its books in which shall be recorded (a) all Loans and other
Obligations and the Collateral, (b) all payments made by or on behalf of
Borrower and (c) all other appropriate debits and credits as provided in this
Agreement, including, without limitation, fees, charges, costs, expenses and
interest. All entries in the loan account(s) shall be made in accordance with
Lender's customary practices as in effect from time to time.
15
<PAGE>
6.2 Statements. Lender shall render to Borrower each month a
----------
statement setting forth the balance in the Borrower's loan account(s) maintained
by Lender for Borrower pursuant to the provisions of this Agreement, including
principal, interest, fees, costs and expenses. Each such statement shall be
subject to subsequent adjustment by Lender but shall, absent manifest errors or
omissions, be considered correct and deemed accepted by Borrower and
conclusively binding upon Borrower as an account stated except to the extent
that Lender receives a written notice from Borrower of any specific exceptions
of Borrower thereto within thirty (30) days after the date such statement has
been mailed by Lender. Until such time as Lender shall have rendered to Borrower
a written statement as provided above, the balance in Borrower's loan account(s)
shall be presumptive evidence of the amounts due and owing to Lender by
Borrower.
6.3 Collection of Accounts.
----------------------
(a) Borrower shall establish and maintain, at its expense,
blocked accounts or lockboxes and related blocked accounts (in either case,
"Lockbox Accounts"), as Lender may specify, with such banks as are acceptable to
----------------
Lender into which Borrower shall promptly deposit and direct its account debtors
to directly remit all payments on Accounts and all payments constituting
proceeds of Inventory or other Collateral in the identical form in which such
payments are made, whether by cash, check or other manner. The banks at which
the Lockbox Accounts are established shall enter into an agreement, in form and
substance satisfactory to Lender, providing that all items received or deposited
in the Lockbox Accounts are the property of Lender, that the depository bank has
no lien upon, or right to setoff against, the Lockbox Accounts, the items
received for deposit therein, or the funds from time to time on deposit therein
and that the depository bank will wire, or otherwise transfer, in immediately
available funds, on a daily basis, all funds received or deposited into the
Lockbox Accounts to such bank account of Lender as Lender may from time to time
designate for such purpose ("Payment Account"). Borrower agrees that all
---------------
payments made to such Lockbox Accounts or other funds received and collected by
Lender, whether on the Accounts or as proceeds of Inventory or other Collateral
or otherwise shall be the property of Lender.
(b) For purposes of calculating interest on the Obligations, such
payments or other funds received will be applied (conditional upon final
collection) to the Obligations one (1) business day following the date of
receipt of immediately available funds by Lender in the Payment Account. For
purposes of calculating the amount of the Revolving Loans available to Borrower
such payments will be applied (conditional upon final collection) to the
Obligations on the business day of receipt by Lender in the Payment Account, if
such payments are received within sufficient time (in accordance with Lender's
usual and customary practices as in effect from time to time) to credit
Borrower's loan account on such day, and if not, then on the next business day.
(c) Borrower and all of its affiliates, subsidiaries,
shareholders, directors, employees or agents shall, acting as trustee for
Lender, receive, as the property of Lender, any monies, checks, notes, drafts or
any other payment relating to and/or proceeds of Accounts or other Collateral
which come into their possession or under their control and immediately upon
receipt thereof, shall deposit or cause the same to be deposited in the Lockbox
Accounts, or remit
16
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the same or cause the same to be remitted, in kind, to Lender. In no event shall
the same be commingled with Borrower's own funds. Borrower agrees to reimburse
Lender on demand for any amounts owed or paid to any bank at which a Lockbox
Account is established or any other bank or person involved in the transfer of
funds to or from the Lockbox Accounts arising out of Lender's payments to or
indemnification of such bank or person. The obligation of Borrower to reimburse
Lender for such amounts pursuant to this Section 6.3 shall survive the
-----------
termination or non-renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment Account
--------
as provided in Section 6.3 or such other place as Lender may designate from time
-----------
to time. Lender may apply payments received or collected from Borrower or for
the account of Borrower (including, without limitation, the monetary proceeds of
collections or of realization upon any Collateral) to such of the Obligations,
whether or not then due, in such order and manner as Lender determines. At
Lender's option, all principal, interest, fees, costs, expenses and other
charges provided for in this Agreement or the other Financing Agreements may be
charged directly to the loan account(s) of Borrower. Borrower shall make all
payments to Lender on the Obligations free and clear of, and without deduction
or withholding for or on account of, any setoff, counterclaim, defense, duties,
taxes, levies, imposts, fees, deductions, withholding, restrictions or
conditions of any kind. If after receipt of any payment of, or proceeds of
Collateral applied to the payment of, any of the Obligations, Lender is required
to surrender or return such payment or proceeds to any Person for any reason,
then the Obligations intended to be satisfied by such payment or proceeds shall
be reinstated and continue and this Agreement shall continue in full force and
effect as if such payment or proceeds had not been received by Lender. BORROWER
SHALL BE LIABLE TO PAY TO LENDER, AND DOES HEREBY INDEMNIFY AND HOLD LENDER
HARMLESS FOR THE AMOUNT OF ANY PAYMENTS OR PROCEEDS SURRENDERED OR RETURNED.
This Section 6.4 shall remain effective notwithstanding any contrary action
-----------
which may be taken by Lender in reliance upon such payment or proceeds. This
Section 6.4 shall survive the payment of the Obligations and the termination or
- -----------
non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the
---------------------------
Loans based upon telephonic or other instructions received from anyone
purporting to be an officer of Borrower or other authorized person or, at the
discretion of Lender, if such Loans are necessary to satisfy any Obligations.
All requests for Loans hereunder shall specify the date on which the requested
advance is to be made (which day shall be a business day) and the amount of the
requested Loan. Requests received after 11:00 a.m. Dallas, Texas time on any day
shall be deemed to have been made as of the opening of business on the
immediately following business day. All Loans under this Agreement shall be
conclusively presumed to have been made to, and at the request of and for the
benefit of, Borrower when deposited to the credit of Borrower or otherwise
disbursed or established in accordance with the instructions of Borrower or in
accordance with the terms and conditions of this Agreement.
6.6 Use of Proceeds. Borrower shall use the initial proceeds of the
---------------
Loans provided by Lender to Borrower hereunder only for: (a) payments to each of
the persons listed in the disbursement direction letter furnished by Borrower to
Lender on or about the date hereof and
17
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(b) costs, expenses and fees in connection with the preparation, negotiation,
execution and delivery of this Agreement and the other Financing Agreements. All
other Loans made by Lender to Borrower pursuant to the provisions hereof shall
be used by Borrower only for general operating, working capital, new Equipment
purchases (with respect to the Capital Expenditures Loans) and other proper
corporate purposes of Borrower not otherwise prohibited by the terms hereof.
None of the proceeds will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin security or for the purposes of reducing or
retiring any indebtedness which was originally incurred to purchase or carry any
margin security or for any other purpose which might cause any of the Loans to
be considered a "purpose credit" within the meaning of Regulation G of the Board
of Governors of the Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
----------------------------------
7.1 Collateral Reporting. Borrower shall provide Lender with the
--------------------
following documents in a form satisfactory to Lender: (a) on a regular basis as
required by Lender, a schedule of Accounts; (b) on a monthly basis or more
frequently as Lender may request, (i) perpetual inventory reports, (ii)
inventory reports by category and (iii) agings of accounts payable, (c) upon
Lender's request, (i) copies of customer statements and credit memos, remittance
advices and reports, and copies of deposit slips and bank statements, (ii)
copies of shipping and delivery documents, and (iii) copies of purchase orders,
invoices and delivery documents for Inventory and Equipment acquired by
Borrower; (d) agings of accounts receivable on a monthly basis or more
frequently as Lender may request; and (e) such other reports as to the
Collateral as Lender shall request from time to time. If any of Borrower's
records or reports of the Collateral are prepared or maintained by an accounting
service, contractor, shipper or other agent, Borrower hereby irrevocably
authorizes such service, contractor, shipper or agent to deliver such records,
reports, and related documents to Lender and to follow Lender's instructions
with respect to further services at any time that an Event of Default exists or
has occurred and is continuing.
7.2 Accounts Covenants.
------------------
(a) Borrower shall notify Lender promptly of: (i) any material
delay in Borrower's performance of any of its obligations to any account debtor
or the assertion of any claims, offsets, defenses or counterclaims by any
account debtor, or any disputes with account debtors, or any settlement,
adjustment or compromise thereof, (ii) all material adverse information relating
to the financial condition of any account debtor and (iii) any event or
circumstance which, to Borrower's knowledge would cause Lender to consider any
then existing Accounts as no longer constituting Eligible Accounts. No credit,
discount, allowance or extension or agreement for any of the foregoing shall be
granted to any account debtor without Lender's consent, except in the ordinary
course of Borrower's business in accordance with practices and policies
previously disclosed in writing to Lender. So long as no Event of Default exists
or has occurred and is continuing, Borrower shall settle, adjust or compromise
any claim, offset, counterclaim or dispute with any account debtor. At any time
that an Event of Default exists or has occurred and is continuing, Lender shall,
at its option, have the exclusive right to
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<PAGE>
settle, adjust or compromise any claim, offset, counterclaim or dispute with
account debtors or grant any credits, discounts or allowances.
(b) Borrower shall promptly report to Lender any return of
Inventory by an account debtor having a sales price in excess of $10,000. At any
time that Inventory is returned, reclaimed or repossessed, the related Account
shall not be deemed an Eligible Account. In the event any account debtor returns
Inventory when an Event of Default exists or has occurred and is continuing,
Borrower shall, upon Lender's request, (i) hold the returned Inventory in trust
for Lender, (ii) segregate all returned Inventory from all of its other
property, (iii) dispose of the returned Inventory solely according to Lender's
instructions, and (iv) not issue any credits, discounts or allowances with
respect thereto without Lender's prior written consent.
(c) With respect to each Account: (i) the amounts shown on any
invoice delivered to Lender or schedule thereof delivered to Lender shall be
true and complete, (ii) no payments shall be made thereon except payments
immediately delivered to Lender pursuant to the terms of this Agreement, (iii)
no credit, discount, allowance or extension or agreement for any of the
foregoing shall be granted to any account debtor except as reported to Lender in
accordance with this Agreement and except for credits, discounts, allowances or
extensions made or given in the ordinary course of Borrower's business in
accordance with practices and policies previously disclosed to Lender, (iv)
there shall be no setoffs, deductions, contras, defenses, counterclaims or
disputes existing or asserted with respect thereto except as reported to Lender
in accordance with the terms of this Agreement, and (v) none of the transactions
giving rise thereto will violate any applicable State or Federal laws or
regulations, all documentation relating thereto will be legally sufficient under
such laws and regulations and all such documentation will be legally enforceable
in accordance with its terms.
(d) Lender shall have the right at any time or times, in Lender's
name or in the name of a nominee of Lender, to verify the validity, amount or
any other matter relating to any Account or other Collateral, by mail,
telephone, facsimile transmission or otherwise.
(e) Borrower shall deliver or cause to be delivered to Lender,
with appropriate endorsement and assignment, with full recourse to Borrower, all
chattel paper and instruments which Borrower now owns or may at any time acquire
immediately upon Borrower's receipt thereof, except as Lender may otherwise
agree.
(f) Lender may, at any time or times that an Event of Default
exists or has occurred and is continuing, (i) notify any or all account debtors
that the Accounts have been assigned to Lender and that Lender has a security
interest therein and Lender may direct any or all accounts debtors to make
payment of Accounts directly to Lender, (ii) extend the time of payment of,
compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Accounts or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such other obligations, but without any duty
to do so, and Lender shall not be liable for its failure to collect or enforce
the payment thereof nor for the negligence
19
<PAGE>
of its agents or attorneys with respect thereto and (iv) take whatever other
action Lender may deem necessary or desirable for the protection of its
interests. At any time that an Event of Default exists or has occurred and is
continuing, at Lender's request, all invoices and statements sent to any account
debtor shall state that the Accounts and such other obligations have been
assigned to Lender and are payable directly and only to Lender and Borrower
shall deliver to Lender such originals of documents evidencing the sale and
delivery of goods or the performance of services giving rise to any Accounts as
Lender may require.
7.3 Inventory Covenants. With respect to the Inventory: (a) Borrower
-------------------
shall at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrower's cost therefor and daily
withdrawals therefrom and additions thereto; (b) Borrower shall conduct a
physical count of the Inventory at least once each year, but at any time or
times as Lender may request on or after an Event of Default, and promptly
following such physical inventory shall supply Lender with a report in the form
and with such specificity as may be reasonably satisfactory to Lender concerning
such physical count; (c) Borrower shall not remove any Inventory from the
locations set forth or permitted herein, without the prior written consent of
Lender, except for sales of Inventory in the ordinary course of Borrower's
business and except to move Inventory directly from one location set forth or
permitted herein to another such location; (d) upon Lender's request, Borrower
shall, at its expense, no more than once in any twelve (12) month period, but at
any time or times as Lender may request on or after an Event of Default, deliver
or cause to be delivered to Lender written reports or appraisals as to the
Inventory in form, scope and methodology acceptable to Lender and by an
appraiser acceptable to Lender, addressed to Lender or upon which Lender is
expressly permitted to rely; (e) Borrower shall produce, use, store and maintain
the Inventory, with all reasonable care and caution and in accordance with
applicable standards of any insurance and in conformity with applicable laws
(including, but not limited to, the requirements of the Federal Fair Labor
Standards Act of 1938, as amended and all rules, regulations and orders related
thereto); (f) Borrower assumes all responsibility and liability arising from or
relating to the production, use, sale or other disposition of the Inventory; (g)
Borrower shall not sell Inventory to any customer on approval, or any other
basis which entitles the customer to return or may obligate Borrower to
repurchase such Inventory; (h) Borrower shall keep the Inventory in good and
marketable condition; and (i) Borrower shall not, without prior written notice
to Lender, acquire or accept any Inventory on consignment or approval.
7.4 Equipment Covenants. With respect to the Equipment: (a) no less
-------------------
than once per year with respect to any Equipment financed by a Capital
Expenditures Loan and acquired after the most recent appraisal conducted
pursuant to this clause (a), and otherwise, upon Lender's request, Borrower
----------
shall, at its expense, at any time or times as Lender may request on or after an
Event of Default, deliver or cause to be delivered to Lender written reports or
appraisals as to the Equipment in form, scope and methodology acceptable to
Lender and by an appraiser acceptable to Lender; (b) Borrower shall keep the
Equipment in good order, repair, running and marketable condition (ordinary wear
and tear excepted); (c) Borrower shall use the Equipment with all reasonable
care and caution and in accordance with applicable standards of any insurance
and in conformity with all applicable laws; (d) the Equipment is and shall be
used in Borrower's
20
<PAGE>
business and not for personal, family, household or farming use; (e) Borrower
shall not remove any Equipment from the locations set forth or permitted herein,
except to the extent necessary to have any Equipment repaired or maintained in
the ordinary course of the business of Borrower or to move Equipment directly
from one location set forth or permitted herein to another such location and
except for the movement of motor vehicles used by or for the benefit of Borrower
in the ordinary course of business; (f) the Equipment is now and shall remain
personal property and Borrower shall not permit any of the Equipment to be or
become a part of or affixed to real property; and (g) Borrower assumes all
responsibility and liability arising from the use of the Equipment.
7.5 Power of Attorney. Borrower hereby irrevocably designates and
-----------------
appoints Lender (and all persons designated by Lender) as Borrower's true and
lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name,
to: (a) at any time an Event of Default or event which with notice or passage
of time or both would constitute an Event of Default exists or has occurred and
is continuing (i) demand payment on Accounts or other proceeds of Inventory or
other Collateral, (ii) enforce payment of Accounts by legal proceedings or
otherwise, (iii) exercise all of Borrower's rights and remedies to collect any
Account or other Collateral, (iv) sell or assign any Account upon such terms,
for such amount and at such time or times as the Lender deems advisable, (v)
settle, adjust, compromise, extend or renew an Account, (vi) discharge and
release any Account, (vii) prepare, file and sign Borrower's name on any proof
of claim in bankruptcy or other similar document against an account debtor,
(viii) notify the post office authorities to change the address for delivery of
Borrower's mail to an address designated by Lender, open all mail addressed to
Borrower, and return (at Borrower's expense) to Borrower any such mail that
Lender determines to be unrelated to the Financing Agreements, Lender's rights
thereunder or Borrower's ability to satisfy the Obligations (and Lender shall
not incur any liability for any failure to do so), and (ix) do all acts and
things which are necessary, in Lender's determination, to fulfill Borrower's
obligations under this Agreement and the other Financing Agreements and (b) at
any time to (i) take control in any manner of any item of payment or proceeds
thereof, (ii) have access to any lockbox or postal box into which Borrower's
mail is deposited, (iii) endorse Borrower's name upon any items of payment or
proceeds thereof and deposit the same in the Lender's account for application to
the Obligations, (iv) endorse Borrower's name upon any chattel paper, document,
instrument, invoice, or similar document or agreement relating to any Account or
any goods pertaining thereto or any other Collateral, (v) sign Borrower's name
on any verification of Accounts and notices thereof to account debtors and (vi)
execute in Borrower's name and file any UCC financing statements or amendments
thereto. BORROWER HEREBY RELEASES LENDER AND ITS OFFICERS, EMPLOYEES AND
DESIGNEES FROM ANY LIABILITIES ARISING FROM ANY ACT OR ACTS UNDER THIS POWER OF
ATTORNEY AND IN FURTHERANCE THEREOF, WHETHER OF OMISSION OR COMMISSION,
INCLUDING, WITHOUT LIMITATION, AS A RESULT OF LENDER'S OWN NEGLIGENCE, EXCEPT AS
A RESULT OF LENDER'S OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS DETERMINED
PURSUANT TO A FINAL NON-APPEALABLE ORDER OF A COURT OF COMPETENT JURISDICTION.
21
<PAGE>
7.6 Right to Cure. Lender may, at its option, (a) cure any default by
-------------
Borrower under any agreement with a third party or pay or bond on appeal any
judgment entered against Borrower, (b) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral and (c) pay any amount, incur any expense or perform any act
which, in Lender's judgment, is necessary or appropriate to preserve, protect,
insure or maintain the Collateral and the rights of Lender with respect thereto.
Lender may add any amounts so expended to the Obligations and charge Borrower's
account therefor, such amounts to be repayable by Borrower on demand. Lender
shall be under no obligation to effect such cure, payment or bonding and shall
not, by doing so, be deemed to have assumed any obligation or liability of
Borrower. Any payment made or other action taken by Lender under this Section
shall be without prejudice to any right to assert an Event of Default hereunder
and to proceed accordingly.
7.7 Access to Premises. From time to time as requested by Lender, at
------------------
the cost and expense of Borrower, Lender or its designee shall have complete
access to all of Borrower's premises during normal business hours, or at any
time if an Event of Default exists or has occurred and is continuing, for the
purposes of inspecting, verifying and auditing the Collateral and all of
Borrower's books and records, including, without limitation, the Records, and
Borrower shall promptly furnish to Lender such copies of such books and records
or extracts therefrom as Lender may request, and use during normal business
hours such of Borrower's personnel, equipment, supplies and premises as may be
reasonably necessary for the foregoing and if an Event of Default exists or has
occurred and is continuing for the collection of Accounts and realization of
other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans by Lender to
Borrower:
8.1 Corporate Existence, Power and Authority; Subsidiaries. Borrower
------------------------------------------------------
is a corporation duly organized and in good standing under the laws of its state
of incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on Borrower's financial condition,
results of operation or business or the rights of Lender in or to any of the
Collateral. The execution, delivery and performance of this Agreement, the other
Financing Agreements and the transactions contemplated hereunder and thereunder
are all within Borrower's corporate powers, have been duly authorized and are
not in contravention of law or the terms of Borrower's certificate of
incorporation, by-laws, or other organizational documentation, or any indenture,
agreement or undertaking to which Borrower is a party or by which Borrower or
its property are bound. This Agreement and the other Financing Agreements
constitute legal, valid and binding obligations of
22
<PAGE>
Borrower enforceable in accordance with their respective terms. Borrower does
not have any subsidiaries except as set forth on the Information Certificate.
8.2 Financial Statements; No Material Adverse Change. All financial
------------------------------------------------
statements relating to Borrower which have been or may hereafter be delivered by
Borrower to Lender have been prepared in accordance with GAAP and fairly present
the financial condition and the results of operation of Borrower as at the dates
and for the periods set forth therein. Except as disclosed in any interim
financial statements furnished by Borrower to Lender prior to the date of this
Agreement, there has been no material adverse change in the assets, liabilities,
properties and condition, financial or otherwise, of Borrower, since the date of
the most recent audited financial statements furnished by Borrower to Lender
prior to the date of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief executive
--------------------------------------------
office of Borrower and Borrower's Records concerning Accounts are located only
at the address set forth below and its only other places of business and the
only other locations of Collateral, if any, are the addresses set forth in the
Information Certificate, subject to the right of Borrower to establish new
locations in accordance with Section 9.2 below. The Information Certificate
-----------
correctly identifies any of such locations which are not owned by Borrower and
sets forth the owners and/or operators thereof and to the best of Borrower's
knowledge, the holders of any mortgages on such locations.
8.4 Priority of Liens; Title to Properties. The security interests
--------------------------------------
and liens granted to Lender under this Agreement and the other Financing
Agreements constitute valid and perfected first priority liens and security
interests in and upon the Collateral subject only to the liens indicated on
Schedule 8.4 hereto and the other liens permitted under Section 9.8 hereof.
- ------------ -----------
Borrower has good and marketable title to all of its properties and assets
subject to no liens, mortgages, pledges, security interests, encumbrances or
charges of any kind, except those granted to Lender and such others as are
specifically listed on Schedule 8.4 hereto or permitted under Section 9.8
------------ -----------
hereof.
8.5 Tax Returns. Borrower has filed, or caused to be filed, in a
-----------
timely manner all tax returns, reports and declarations which are required to be
filed by it (without requests for extension except as previously disclosed in
writing to Lender). All information in such tax returns, reports and
declarations is complete and accurate in all material respects. Borrower has
paid or caused to be paid all taxes due and payable or claimed due and payable
in any assessment received by it, except taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrower and with respect to which adequate reserves have been set
aside on its books. Adequate provision has been made for the payment of all
accrued and unpaid Federal, State, county, local, foreign and other taxes
whether or not yet due and payable and whether or not disputed.
8.6 Litigation. Except as set forth on the Information Certificate,
----------
there is no present investigation by any governmental agency pending, or to the
best of Borrower's knowledge threatened, against or affecting Borrower, its
assets or business and there is no action, suit, proceeding or claim by any
Person pending, or to the best of Borrower's knowledge threatened,
23
<PAGE>
against Borrower or its assets or goodwill, or against or affecting any
transactions contemplated by this Agreement, which if adversely determined
against Borrower would result in any material adverse change in the assets,
business or prospects of Borrower or would impair the ability of Borrower to
perform its obligations hereunder or under any of the other Financing Agreements
to which it is a party or of Lender to enforce any Obligations or realize upon
any Collateral.
8.7 Compliance with Other Agreements and Applicable Laws. Borrower is
----------------------------------------------------
not in default in any material respect under, or in violation in any material
respect of any of the terms of, any agreement, contract, instrument, lease or
other commitment to which it is a party or by which it or any of its assets are
bound and Borrower is in compliance in all material respects with all applicable
provisions of laws, rules, regulations, licenses, permits, approvals and orders
of any foreign, Federal, State or local governmental authority.
8.8 Accuracy and Completeness of Information. All information
----------------------------------------
furnished by or on behalf of Borrower in writing to Lender in connection with
this Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including, without limitation, all information
on the Information Certificate is true and correct in all material respects on
the date as of which such information is dated or certified and does not omit
any material fact necessary in order to make such information not misleading. No
event or circumstance has occurred which has had or could reasonably be expected
to have a material adverse affect on the business, assets or prospects of
Borrower, which has not been fully and accurately disclosed to Lender in
writing.
8.9 Survival of Warranties; Cumulative. All representations and
----------------------------------
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
Borrower shall now or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
----------------------------------
9.1 Maintenance of Existence. Borrower shall at all times preserve,
------------------------
renew and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, tradenames, approvals, authorizations, leases and
contracts necessary to carry on the business as presently or proposed to be
conducted. Borrower shall give Lender thirty (30) days prior written notice of
any proposed change in its corporate name, which notice shall set forth the new
name and Borrower shall deliver to Lender a copy of the amendment to the
Certificate of Incorporation of Borrower providing for the name change certified
by the Secretary of State of the jurisdiction of incorporation of Borrower as
soon as it is available.
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<PAGE>
9.2 New Collateral Locations. Borrower may open any new location
------------------------
within the continental United States provided Borrower gives Lender thirty (30)
days prior written notice of the intended opening of any such new location and
executes and delivers, or causes to be executed and delivered, to Lender such
agreements, documents, and instruments as Lender may deem reasonably necessary
or desirable to protect its interests in the Collateral at such location,
including, without limitation, UCC financing statements.
9.3 Compliance with Laws, Regulations, Etc. Borrower shall, at all
---------------------------------------
times, comply in all material respects with all laws, rules, regulations,
licenses, permits, approvals and orders of any Federal, State or local
governmental authority applicable to it.
9.4 Payment of Taxes and Claims. Borrower shall duly pay and
---------------------------
discharge all taxes, assessments, contributions and governmental charges upon or
against it or its properties or assets, except for taxes the validity of which
are being contested in good faith by appropriate proceedings diligently pursued
and available to Borrower and with respect to which adequate reserves have been
set aside on its books. BORROWER SHALL BE LIABLE FOR ANY TAX OR PENALTIES
IMPOSED ON LENDER AS A RESULT OF THE FINANCING ARRANGEMENTS PROVIDED FOR HEREIN
AND BORROWER AGREES TO INDEMNIFY AND HOLD LENDER HARMLESS WITH RESPECT TO THE
FOREGOING, AND TO REPAY TO LENDER ON DEMAND THE AMOUNT THEREOF, AND UNTIL PAID
BY BORROWER SUCH AMOUNT SHALL BE ADDED AND DEEMED PART OF THE LOANS, provided,
--------
that, nothing contained herein shall be construed to require Borrower to pay any
- ----
income or franchise taxes attributable to the income of Lender from any amounts
charged or paid hereunder to Lender. The foregoing indemnity shall survive the
payment of the Obligations and the termination or non-renewal of this Agreement.
9.5 Insurance. Borrower shall, at all times, maintain with
---------
financially sound and reputable insurers insurance with respect to the
Collateral against loss or damage and all other insurance of the kinds and in
the amounts customarily insured against or carried by corporations of
established reputation engaged in the same or similar businesses and similarly
situated. Said policies of insurance shall be satisfactory to Lender as to form,
amount and insurer. Borrower shall furnish certificates, policies or
endorsements to Lender as Lender shall require as proof of such insurance, and,
if Borrower fails to do so, Lender is authorized, but not required, to obtain
such insurance at the expense of Borrower. All policies shall provide for at
least thirty (30) days prior written notice to Lender of any cancellation or
reduction of coverage and that Lender may act as attorney for Borrower in
obtaining, and at any time an Event of Default exists or has occurred and is
continuing, adjusting, settling, amending and canceling such insurance. Borrower
shall cause Lender to be named as a loss payee and an additional insured (but
without any liability for any premiums) under such insurance policies and
Borrower shall obtain non-contributory lender's loss payable endorsements to all
insurance policies in form and substance satisfactory to Lender. Such lender's
loss payable endorsements shall specify that the proceeds of such insurance
shall be payable to Lender as its interests may appear and further specify that
Lender shall be paid regardless of any act or omission by Borrower or any of its
affiliates. At its option, Lender may apply any insurance proceeds received by
Lender at any time to the cost of repairs or replacement of Collateral and/or to
payment of the Obligations, whether
25
<PAGE>
or not then due, in any order and in such manner as Lender may determine or hold
such proceeds as cash collateral for the Obligations.
9.6 Financial Statements and Other Information.
------------------------------------------
(a) Borrower shall keep proper books and records in which true
and complete entries shall be made of all dealings or transactions of or in
relation to the Collateral and the business of Borrower and its subsidiaries (if
any) in accordance with GAAP and Borrower shall furnish or cause to be furnished
to Lender: (i) within thirty (30) days after the end of each fiscal month,
monthly unaudited consolidated financial statements, and, if Borrower has any
subsidiaries, unaudited consolidating financial statements (including in each
case balance sheets, statements of income and loss and statements of
shareholders' equity), all in reasonable detail, fairly presenting the financial
position and the results of the operations of Borrower and its subsidiaries as
of the end of and through such fiscal month and (ii) within ninety (90) days
after the end of each fiscal year, audited consolidated financial statements
and, if Borrower has any subsidiaries, audited consolidating financial
statements of Borrower and its subsidiaries (including in each case balance
sheets, statements of income and loss, statements of cash flow and statements of
shareholders' equity), and the accompanying notes thereto, all in reasonable
detail, fairly presenting the financial position and the results of the
operations of Borrower and its subsidiaries as of the end of and for such fiscal
year, together with the opinion of independent certified public accountants,
which accountants shall be an independent accounting firm selected by Borrower
and reasonably acceptable to Lender, that such financial statements have been
prepared in accordance with GAAP, and present fairly the results of operations
and financial condition of Borrower and its subsidiaries as of the end of and
for the fiscal year then ended.
(b) Borrower shall promptly notify Lender in writing of the
details of (i) any loss, damage, investigation, action, suit, proceeding or
claim relating to the Collateral or any other property which is security for the
Obligations or which would result in any material adverse change in Borrower's
business, properties, assets, goodwill or condition, financial or otherwise and
(ii) the occurrence of any Event of Default or event which, with the passage of
time or giving of notice or both, would constitute an Event of Default.
(c) Borrower shall promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all reports which Borrower
sends to its stockholders generally and copies of all reports and registration
statements which Borrower files with the Securities and Exchange Commission, any
national securities exchange or the National Association of Securities Dealers,
Inc.
(d) Borrower shall furnish or cause to be furnished to Lender
such budgets, forecasts, projections and other information respecting the
Collateral and the business of Borrower, as Lender may, from time to time,
reasonably request. Lender is hereby authorized to deliver a copy of any
financial statement or any other information relating to the business of
Borrower to any court or other government agency or to any participant or
assignee or prospective participant or assignee. Borrower hereby irrevocably
authorizes and directs all accountants or auditors to deliver to Lender, at
Borrower's expense, copies of the financial
26
<PAGE>
statements of Borrower and any reports or management letters prepared by such
accountants or auditors on behalf of Borrower and to disclose to Lender such
information as they may have regarding the business of Borrower. Any documents,
schedules, invoices or other papers delivered to Lender may be destroyed or
otherwise disposed of by Lender one (1) year after the same are delivered to
Lender, except as otherwise designated by Borrower to Lender in writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower
--------------------------------------------------------
shall not, directly or indirectly, (a) merge into or with or consolidate with
any other Person or permit any other Person to merge into or with or consolidate
with it, or (b) sell, assign, lease, transfer, abandon or otherwise dispose of
any stock or indebtedness to any other Person (except for (i) sales of stock
which in the aggregate do not result in the transfer more than 15% of the issued
and outstanding capital stock of Borrower on the date hereof and (ii) original
issuances of stock not otherwise in violation of this Agreement by Borrower with
the proceeds of such issuances being directly owing to Borrower) or any of its
assets to any other Person (except for (i) sales of Inventory in the ordinary
course of business and (ii) the disposition of worn-out or obsolete Equipment or
Equipment no longer used in the business of Borrower so long as (A) if an Event
of Default exists or has occurred and is continuing, any proceeds are paid to
Lender and (B) such sales do not involve Equipment having an aggregate fair
market value in excess of $25,000 for all such Equipment disposed of in any
fiscal year of Borrower), or (c) form or acquire any subsidiaries, or (d) wind
up, liquidate or dissolve or (e) agree to do any of the foregoing.
9.8 Encumbrances. Borrower shall not create, incur, assume or suffer
------------
to exist any security interest, mortgage, pledge, lien, charge or other
encumbrance of any nature whatsoever on any of its assets or properties,
including, without limitation, the Collateral, except: (a) liens and security
------
interests of Lender; (b) liens securing the payment of taxes, either not yet
overdue or the validity of which are being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower and with
respect to which adequate reserves have been set aside on its books; (c) non-
consensual statutory liens (other than liens securing the payment of taxes)
arising in the ordinary course of Borrower's business to the extent: (i) such
liens secure indebtedness which is not overdue or (ii) such liens secure
indebtedness relating to claims or liabilities which are fully insured and being
defended at the sole cost and expense and at the sole risk of the insurer or
being contested in good faith by appropriate proceedings diligently pursued and
available to Borrower, in each case prior to the commencement of foreclosure or
other similar proceedings and with respect to which adequate reserves have been
set aside on its books; (d) zoning restrictions, easements, licenses, covenants
and other restrictions affecting the use of real property which do not interfere
in any material respect with the use of such real property or ordinary conduct
of the business of Borrower as presently conducted thereon or materially impair
the value of the real property which may be subject thereto; (e) purchase money
security interests in Equipment (including capital leases) and purchase money
mortgages on real estate not to exceed $25,000 in the aggregate at any time
outstanding so long as such security interests and mortgages do not apply to any
property of Borrower other than the Equipment or real estate so acquired, and
the indebtedness secured thereby does not exceed the cost of the Equipment or
real estate so acquired, as the case may be; and (f) the security interests and
liens set forth on Schedule 8.4 hereto.
------------
27
<PAGE>
9.9 Indebtedness. Borrower shall not incur, create, assume, become or
------------
be liable in any manner with respect to, or permit to exist, any obligations or
indebtedness, except (a) the Obligations; (b) trade obligations and normal
accruals in the ordinary course of business not yet due and payable, or with
respect to which the Borrower is contesting in good faith the amount or validity
thereof by appropriate proceedings diligently pursued and available to Borrower,
and with respect to which adequate reserves have been set aside on its books;
(c) purchase money indebtedness (including capital leases) to the extent not
incurred or secured by liens (including capital leases) in violation of any
other provision of this Agreement; (d) indebtedness evidenced by the Jensen
Note, (e) the obligations under the Management Agreement and the Consulting
Agreement, and (f) the WebWorks Indebtedness; provided, that, (i) with respect
-------- ----
to clauses (a) through (c) above, Borrower may only make regularly scheduled
----------- ---
payments of principal and interest in respect of such indebtedness in accordance
with the terms of the agreement or instrument evidencing or giving rise to such
indebtedness as in effect on the date hereof, (ii) with respect to clause (d)
----------
above, Borrower may only make regularly scheduled payments of principal and
interest in respect of such indebtedness in accordance with the terms of the
Jensen Note, but only for so long as (A) no Event of Default, or event or
condition which, with the passage of time, the giving of notice or both, would
constitute an Event of Default, has occurred or would occur as a result of any
such payment, and (B) after giving effect to such payment, Excess Availability
is greater than or equal to $300,000, (iii) with respect to clauses (e) and (f)
----------- ---
above, Borrower may only make payments of principal and interest in respect of
such indebtedness to the extent that such payments are permitted to be demanded
and accepted pursuant to the terms and provisions of the applicable
Subordination Agreement, but only for so long, as (A) no Event of Default, or
event or condition which, with the passage of time, the giving of notice, or
both, would constitute an Event of Default, has occurred or would occur as a
result of any such payment and (B) the amount of Revolving Loans available to
Borrower as of such time based on the applicable lending formulas multiplied by
the Net Amount of Eligible Accounts and the Value of Eligible Inventory, as
determined by Lender, and subject to the sublimits and Availability Reserves
from time to time established by Lender hereunder, is sufficient, (iv) Borrower
shall not, directly or indirectly, (A) amend, modify, alter or change the terms
of such indebtedness or any agreement, document or instrument related thereto as
in effect on the date hereof, or (B) redeem, retire, defease, purchase or
otherwise acquire such indebtedness, or set aside or otherwise deposit or invest
any sums for such purpose, and (v) Borrower shall furnish to Lender all notices
or demands in connection with such indebtedness either received by Borrower or
on its behalf, promptly after the receipt thereof, or sent by Borrower or on its
behalf, concurrently with the sending thereof, as the case may be.
9.10 Loans, Investments, Guarantees, Etc. Borrower shall not, directly
------------------------------------
or indirectly, make any loans or advance money or property to any person, or
invest in (by capital contribution, dividend or otherwise) or purchase or
repurchase the stock or indebtedness or all or a substantial part of the assets
or property of any person, or guarantee, assume, endorse, or otherwise become
responsible for (directly or indirectly) the indebtedness, performance,
obligations or dividends of any Person or agree to do any of the foregoing,
except: (a) the endorsement of instruments for collection or deposit in the
- ------
ordinary course of business; (b) investments in: (i) short-term direct
obligations of the United States Government, (ii) negotiable certificates of
deposit issued by any bank satisfactory to Lender, payable to the order of the
Borrower or to bearer and delivered to
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<PAGE>
Lender, and (iii) commercial paper rated A1 or P1; provided, that, as to any of
-------- ----
the foregoing, unless waived in writing by Lender, Borrower shall take such
actions as are deemed necessary by Lender to perfect the security interest of
Lender in such investments and (c) the guarantees set forth in the Information
Certificate.
9.11 Dividends and Redemptions. Borrower shall not, directly or
-------------------------
indirectly, declare or pay any dividends on account of any shares of class of
capital stock of Borrower now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem, retire,
defease, purchase or otherwise acquire any shares of any class of capital stock
(or set aside or otherwise deposit or invest any sums for such purpose) for any
consideration other than common stock or apply or set apart any sum, or make any
other distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing.
9.12 Transactions with Affiliates. Borrower shall not enter into any
----------------------------
transaction for the purchase, sale or exchange of property or the rendering of
any service to or by any affiliate, except in the ordinary course of and
pursuant to the reasonable requirements of Borrower's business and upon fair and
reasonable terms no less favorable to the Borrower than Borrower would obtain in
a comparable arm's length transaction with an unaffiliated person, provided,
--------
however, that Borrower may make payments to Conrad/Collins Merchant Banking
- -------
Group, Ltd. under the Management Agreement not to exceed $125,000.00 per year
and payments to Robert D. Kopitke under the Consulting Agreement not to exceed
$30,000.00 per year, except to the extent such payments are not permitted by the
applicable Subordination Agreement or Section 9.9 hereof.
-----------
9.13 Adjusted Net Worth. Borrower shall, at all times, maintain
------------------
Adjusted Net Worth of not less than (i) $1,200,000 (such amount to exclude the
aggregate amount of any cash and non-cash accounting adjustments made in
connection with Borrower's refinancing of its indebtedness with Bank One, Texas,
N.A., Banc One Leasing Corporation, Banc One Texas Leasing Corporation and
Stratford Capital Group, Inc.) during the period from the date hereof through
and including March 31, 1997, and (ii) thereafter, $1,100,000.
9.14 Costs and Expenses. Borrower shall pay to Lender on demand all
------------------
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including, but not limited to: (a)
all costs and expenses of filing or recording (including Uniform Commercial Code
financing statement filing taxes and fees, documentary taxes, intangibles taxes
and mortgage recording taxes and fees, if applicable); (b) all title insurance
and other insurance premiums, appraisal fees and search fees; (c) costs and
expenses of remitting loan proceeds, collecting checks and other items of
payment, and establishing and maintaining the Lockbox Accounts, together with
Lender's customary charges and fees with respect thereto; (d) costs and expenses
of preserving and protecting the Collateral; (e) costs and expenses paid or
incurred in connection with obtaining payment of the Obligations,
29
<PAGE>
enforcing the security interests and liens of Lender, selling or otherwise
realizing upon the Collateral, and otherwise enforcing the provisions of this
Agreement and the other Financing Agreements or defending any claims made or
threatened against Lender arising out of the transactions contemplated hereby
and thereby (including, without limitation, preparations for and consultations
concerning any such matters); (f) all out-of-pocket expenses and costs
heretofore and from time to time hereafter incurred by Lender during the course
of periodic field examinations of the Collateral and Borrower's operations, plus
a per diem charge at the rate of $600 per person per day for Lender's examiners
in the field and office; and (g) the fees and disbursements of counsel
(including legal assistants) to Lender in connection with any of the foregoing.
9.15 Further Assurances. At the request of Lender at any time and from
------------------
time to time, Borrower shall, at its expense, duly execute and deliver, or cause
to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements. Lender may
at any time and from time to time request a certificate from an officer of
Borrower representing that all conditions precedent to the making of Loans
contained herein are satisfied. In the event of such request by Lender, Lender
may, at its option, cease to make any further Loans until Lender has received
such certificate and, in addition, Lender has determined that such conditions
are satisfied. Where permitted by law, Borrower hereby authorizes Lender to
execute and file one or more UCC financing statements signed only by Lender.
9.16 Modifications of Other Agreements. Borrower will not agree to any
---------------------------------
modification, amendment or waiver of any of the terms or provisions of documents
evidencing the WebWorks Indebtedness, the Jensen Note, the Management Agreement
or the Consulting Agreement without Lender's prior written consent.
9.17 Environmental Action. Borrower will keep and maintain all of its
--------------------
owned and leased real property in all material respects in compliance with, and
shall not cause or permit such real property to be in any material respect in
violation of, any federal, state, county or local statutes, laws, regulations,
rules, ordinances, codes, standards, orders, licenses and permits of any
governmental authorities relating to environmental matters.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
------------------------------
10.1 Events of Default. The occurrence or existence of any one or
-----------------
more of the following events are referred to herein individually as an "Event of
--------
Default", and collectively as "Events of Default":
- ------- -----------------
(a) Borrower (i) fails to deliver the information required by
Section 9.6(a) within fifteen (15) days after the due date thereof, or (ii)
- --------------
fails to pay when due any of the Obligations or fails to perform any of the
terms, covenants, conditions or provisions contained in
30
<PAGE>
this Agreement (including, without limitation, the other covenants in Section
9.6(a)) or any of the other Financing Agreements;
- -------
(b) any representation, warranty or statement of fact made by
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform any of
the terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered against
Borrower or any Obligor in excess of $50,000 in any one case or in excess of
$100,000 in the aggregate and shall remain undischarged or unvacated for a
period in excess of thirty (30) days or execution shall at any time not be
effectively stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered against Borrower or
any Obligor or any of their assets;
(e) any Obligor (being a natural person or a general partner of
an Obligor which is a partnership) dies or Borrower or any Obligor, which is a
partnership or corporation, dissolves or suspends or discontinues doing
business;
(f) Borrower or any Obligor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within sixty (60)
days after the date of its filing or Borrower or any Obligor shall file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrower or any Obligor or for all or any part of its
property; or
(i) any default by Borrower or any Obligor under any agreement,
document or instrument relating to any indebtedness for borrowed money owing to
any person other than Lender, or any capitalized lease obligations, contingent
indebtedness in connection with any
31
<PAGE>
guarantee, letter of credit, indemnity or similar type of instrument in favor of
any person other than Lender, in any case in an amount in excess of $50,000,
which default continues for more than the applicable cure period, if any, with
respect thereto, or any default by Borrower or any Obligor under any material
contract, lease, license or other obligation to any person other than Lender,
which default continues for more than the applicable cure period, if any, with
respect thereto;
(j) any change in the controlling ownership of Borrower;
(k) the indictment or threatened indictment of Borrower or any
Obligor under any criminal statute, or commencement or threatened commencement
of criminal or civil proceedings against Borrower or any Obligor, pursuant to
which statute or proceedings the penalties or remedies sought or available
include forfeiture of any of the property of Borrower or such Obligor;
(l) there shall be a material adverse change in the business,
assets or prospects of Borrower or any Obligor after the date hereof;
(m) there shall be an event of default under any of the other
Financing Agreements;
(n) there shall be any termination or non-renewal of the printing
contract between Borrower and The Dallas Morning News;
(o) Borrower shall fail to have substantively commenced the
analytical and corrective actions suggested by Roberts/Schornick Associates,
Inc. in the Phase I Environmental Site Assessment dated December 12, 1996, not
later than February 28, 1997; or
(p) an event of default under the documents evidencing the
WebWorks Indebtedness, the Jensen Note, the Management Agreement or the
Consulting Agreement.
10.2 Remedies.
--------
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by Borrower or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly
32
<PAGE>
against Borrower or any Obligor to collect the Obligations without prior
recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Lender may, in its discretion
and without limitation, (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender (provided, that, upon the occurrence of any
-------- ----
Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations
---------------- -------
shall automatically become immediately due and payable), (ii) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (iii) require Borrower, at Borrower's expense, to
assemble and make available to Lender any part or all of the Collateral at any
place and time designated by Lender, (iv) collect, foreclose, receive,
appropriate, setoff and realize upon any and all Collateral, (v) remove any or
all of the Collateral from any premises on or in which the same may be located
for the purpose of effecting the sale, foreclosure or other disposition thereof
or for any other purpose, (vi) sell, lease, transfer, assign, deliver or
otherwise dispose of any and all Collateral (including, without limitation,
entering into contracts with respect thereto, public or private sales at any
exchange, broker's board, at any office of Lender or elsewhere) at such prices
or terms as Lender may deem reasonable, for cash, upon credit or for future
delivery, with the Lender having the right to purchase the whole or any part of
the Collateral at any such public sale, all of the foregoing being free from any
right or equity of redemption of Borrower, which right or equity of redemption
is hereby expressly waived and released by Borrower and/or (vii) terminate this
Agreement. If any of the Collateral is sold or leased by Lender upon credit
terms or for future delivery, the Obligations shall not be reduced as a result
thereof until payment therefor is finally collected by Lender. If notice of
disposition of Collateral is required by law, five (5) days prior notice by
Lender to Borrower designating the time and place of any public sale or the time
after which any private sale or other intended disposition of Collateral is to
be made, shall be deemed to be reasonable notice thereof and Borrower waives any
other notice. In the event Lender institutes an action to recover any Collateral
or seeks recovery of any Collateral by way of prejudgment remedy, Borrower
waives the posting of any bond which might otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Borrower shall remain liable to
Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence of an
Event of Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice, (i)
cease making Loans or reduce the lending formulas or amounts of Revolving Loans
available to Borrower and/or (ii) terminate any provision of this Agreement
providing for any future Loans to be made by Lender to Borrower and/or (iii)
terminate this Agreement.
33
<PAGE>
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW
------------------------------------------------------------
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
--------------------------------------------------------------
Waiver.
- ------
(a) The validity, interpretation and enforcement of this
Agreement and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of Texas (without
giving effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and submit to the
non-exclusive jurisdiction of the State of Texas and the United States District
Court for the Northern District of Texas and waive any objection based on venue
or forum non conveniens with respect to any action instituted therein arising
----- --- ----------
under this Agreement or any of the other Financing Agreements or in any way
connected with or related or incidental to the dealings of the parties hereto in
respect of this Agreement or any of the other Financing Agreements or the
transactions related hereto or thereto, in each case whether now existing or
hereafter arising, and whether in contract, tort, equity or otherwise, and agree
that any dispute with respect to any such matters shall be heard only in the
courts described above (except that Lender shall have the right to bring any
action or proceeding against Borrower or its property in the courts of any other
jurisdiction which Lender deems necessary or appropriate in order to realize on
the Collateral or to otherwise enforce its rights against Borrower or its
property).
(c) Borrower hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth on
the signature pages hereof and service so made shall be deemed to be completed
five (5) days after the same shall have been so deposited in the U.S. mails, or,
at Lender's option, by service upon Borrower in any other manner provided under
the rules of any such courts. Within thirty (30) days after such service,
Borrower shall appear in answer to such process, failing which Borrower shall be
deemed in default and judgment may be entered by Lender against Borrower for the
amount of the claim and other relief requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR IN ANY WAY CONNECTED WITH
OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF
THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND LENDER
EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER OR
LENDER MAY FILE AN
34
<PAGE>
ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
(e) Lender shall not have any liability to Borrower (whether in
tort, contract, equity or otherwise) for losses suffered by Borrower in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and non-
appealable judgment or court order binding on Lender, that the losses were the
result of acts or omissions constituting gross negligence or willful misconduct.
In any such litigation, Lender shall be entitled to the benefit of the
rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement.
11.2 Waiver of Notices. Borrower hereby expressly waives demand,
-----------------
presentment, notice of intent to accelerate, notice of acceleration, protest and
notice of protest and notice of dishonor with respect to any and all instruments
and commercial paper, included in or evidencing any of the Obligations or the
Collateral, and any and all other demands and notices of any kind or nature
whatsoever with respect to the Obligations, the Collateral and this Agreement,
except such as are expressly provided for herein. No notice to or demand on
Borrower which Lender may elect to give shall entitle Borrower to any other or
further notice or demand in the same, similar or other circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
----------------------
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender. Lender shall not, by any act, delay, omission or otherwise be deemed to
have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically
set forth therein. A waiver by Lender of any right, power and/or remedy on any
one occasion shall not be construed as a bar to or waiver of any such right,
power and/or remedy which Lender would otherwise have on any future occasion,
whether similar in kind or otherwise.
11.4 Waiver of Counterclaims. Borrower waives all rights to interpose
-----------------------
any claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5 INDEMNIFICATION. BORROWER SHALL INDEMNIFY AND HOLD LENDER, AND
---------------
ITS DIRECTORS, AGENTS, EMPLOYEES AND COUNSEL, HARMLESS FROM AND AGAINST ANY AND
ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES, COSTS OR EXPENSES IMPOSED ON, INCURRED
BY OR ASSERTED AGAINST ANY OF THEM IN CONNECTION WITH ANY LITIGATION,
INVESTIGATION, CLAIM OR PROCEEDING COMMENCED OR THREATENED RELATED TO THE
NEGOTIATION, PREPARATION, EXECUTION, DELIVERY, ENFORCEMENT, PERFORMANCE OR
ADMINISTRATION OF THIS AGREEMENT,
35
<PAGE>
ANY OTHER FINANCING AGREEMENTS, OR ANY UNDERTAKING OR PROCEEDING RELATED TO ANY
OF THE TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACT, OMISSION, EVENT OR
TRANSACTION RELATED OR ATTENDANT THERETO, INCLUDING, WITHOUT LIMITATION, ANY AND
ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES, COSTS OR EXPENSES, CAUSED BY THE
LENDER AND LENDER'S DIRECTORS' AGENTS, EMPLOYEES AND COUNSEL, AND FURTHER
INCLUDING, WITHOUT LIMITATION, AMOUNTS PAID IN SETTLEMENT, COURT COSTS, AND THE
FEES AND EXPENSES OF COUNSEL. TO THE EXTENT THAT THE UNDERTAKING TO INDEMNIFY,
PAY AND HOLD HARMLESS SET FORTH IN THIS SECTION MAY BE UNENFORCEABLE BECAUSE IT
VIOLATES ANY LAW OR PUBLIC POLICY, BORROWER SHALL PAY THE MAXIMUM PORTION WHICH
IT IS PERMITTED TO PAY UNDER APPLICABLE LAW TO LENDER IN SATISFACTION OF
INDEMNIFIED MATTERS UNDER THIS SECTION. THE FOREGOING INDEMNITY SHALL SURVIVE
THE PAYMENT OF THE OBLIGATIONS AND THE TERMINATION OR NON-RENEWAL OF THIS
AGREEMENT.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
--------------------------------
12.1 Term.
----
(a) This Agreement and the other Financing Agreements shall
become effective as of the date set forth on the first page hereof and shall
continue in full force and effect for a term ending on the date two (2) years
from the date hereof (the "Renewal Date"), and from year to year thereafter,
------------
unless sooner terminated pursuant to the terms hereof; provided, that, Lender
-------- ----
may, at its option, extend the Renewal Date to the date three (3) years from the
date hereof by giving Borrower notice at least sixty (60) days prior to the
second anniversary of this Agreement. Lender or Borrower (subject to Lender's
right to extend the Renewal Date as provided above) may terminate this Agreement
and the other Financing Agreements effective on the Renewal Date or on the
anniversary of the Renewal Date in any year by giving to the other party at
least sixty (60) days prior written notice; provided, that, this Agreement and
-------- ----
all other Financing Agreements must be terminated simultaneously. Upon the
effective date of termination or non-renewal of the Financing Agreements,
Borrower shall pay to Lender, in full, all outstanding and unpaid Obligations
and shall furnish cash collateral to Lender in such amounts as Lender determines
are reasonably necessary to secure Lender from loss, cost, damage or expense,
including attorneys' fees and legal expenses, in connection with any contingent
Obligations, including checks or other payments provisionally credited to the
Obligations and/or as to which Lender has not yet received final and
indefeasible payment. Such cash collateral shall be remitted by wire transfer in
Federal funds to such bank account of Lender, as Lender may, in its discretion,
designate in writing to Borrower for such purpose. Interest shall be due until
and including the next business day, if the amounts so paid by Borrower to the
bank account designated by Lender are received in such bank account later than
12:00 noon, Dallas, Texas time.
36
<PAGE>
(b) No termination of this Agreement or the other Financing
Agreements shall relieve or discharge Borrower of its respective duties,
obligations and covenants under this Agreement or the other Financing Agreements
until all Obligations have been fully and finally discharged and paid, and
Lender's continuing security interest in the Collateral and the rights and
remedies of Lender hereunder, under the other Financing Agreements and
applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid.
(c) If for any reason this Agreement is terminated prior to the
end of the then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits as a result thereof, Borrower agrees to pay to Lender, upon the
effective date of such termination, an early termination fee in the amount set
forth below if such termination is effective in the period indicated:
Amount Period
------ ------
(i) 3% of Maximum Credit First twelve month period following the date of
this Agreement
(ii) 2% of Maximum Credit Second twelve month period following the date of
this Agreement
(iii) 1% of Maximum Credit Any period after the second anniversary of the
date of this Agreement
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the circumstances currently existing. The early
termination fee provided for in this Section 12.1 shall be deemed included in
------------
the Obligations.
Notwithstanding the foregoing or any provision of this Agreement,
Borrower may prepay the Term Loan B in full at any time prior to the termination
of this Agreement and no fee or premium shall result therefrom.
12.2 Notices. All notices, requests and demands hereunder shall be in
-------
writing and (a) made to Lender at its address set forth below and to Borrower at
its chief executive office set forth below, or to such other address as either
party may designate by written notice to the other in accordance with this
provision, and (b) deemed to have been given or made: if delivered in person,
immediately upon delivery; if by telex, telegram or facsimile transmission,
immediately upon sending and upon confirmation of receipt; if by nationally
recognized overnight courier service with instructions to deliver the next
business day, one (1) business day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.
37
<PAGE>
12.3 Partial Invalidity. If any provision of this Agreement is held
------------------
to be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4 Successors. This Agreement, the other Financing Agreements and
----------
any other document referred to herein or therein shall be binding upon and inure
to the benefit of and be enforceable by Lender, Borrower and their respective
successors and assigns, except that Borrower may not assign its rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Lender. Lender may,
after notice to Borrower, assign its rights and delegate its obligations under
this Agreement and the other Financing Agreements and further may assign, or
sell participations in, all or any part of the Loans or any other interest
herein to another financial institution or other person, in which event, the
assignee or participant shall have, to the extent of such assignment or
participation, the same rights and benefits as it would have if it were the
Lender hereunder, except as otherwise provided by the terms of such assignment
or participation.
12.5 Entire Agreement. This Agreement, the other Financing
----------------
Agreements, any supplements hereto or thereto, and any instruments or documents
delivered or to be delivered in connection herewith or therewith represents the
entire agreement and understanding concerning the subject matter hereof and
thereof between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written.
12.6 Nonapplicability of Article 5069-15.01 et seq. Borrower and
----------------------------------------------
Lender hereby agree that, except for Section 15.10(b) thereof, the provisions of
Tex. Rev. Civ. Stat. Ann. art. 5069-15.01 et seq. (Vernon 1987) (regulating
-- ---
certain revolving credit loans and revolving tri-party accounts) shall not apply
to this Agreement or any of the other Financing Agreements.
12.7 DTPA WAIVER. BORROWER HEREBY WAIVES ALL PROVISIONS OF THE
-----------
DECEPTIVE TRADE PRACTICES - CONSUMER PROTECTION ACT (TEX. BUS. & COM. CODE ANN.
(S)17.01 ET SEQ. (VERNON SUPP. 1987)), OTHER THAN SECTION 17.555 THEREOF
-- ---
PERTAINING TO CONTRIBUTION AND INDEMNITY, AND EXPRESSLY WARRANTS AND REPRESENTS
THAT BORROWER (A) HAS ASSETS OF $5,000,000 OR MORE, (B) HAS KNOWLEDGE AND
EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT ENABLE BORROWER TO EVALUATE
THE MERITS AND RISKS OF THIS TRANSACTION, (C) IS NOT IN A SIGNIFICANTLY
DISPARATE BARGAINING POSITION RELATIVE TO LENDER, AND (D) HAS BEEN REPRESENTED
BY LEGAL COUNSEL IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT.
38
<PAGE>
12.8 ORAL AGREEMENTS INEFFECTIVE. THIS AGREEMENT AND THE OTHER
---------------------------
FINANCING AGREEMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES, AND THE
SAME MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
39
<PAGE>
IN WITNESS WHEREOF, Lender and Borrower have caused these presents to
be duly executed as of the day and year first above written.
LENDER BORROWER
- ------ --------
CONGRESS FINANCIAL CORPORATION NEI WEBWORLD, INC.
(SOUTHWEST)
By:______________________________ By: _________________________________
Name:____________________________ Name:________________________________
Title:___________________________ Title: ______________________________
Address: Chief Executive Office:
- ------- ----------------------
1201 Main Street, Suite 1625 4647 Bronze Way
Dallas, Texas 75250 Dallas, Texas 75236
40
<PAGE>
EXHIBIT A
---------
INFORMATION CERTIFICATE
-----------------------
[SEE ATTACHED]
--------------
1
<PAGE>
EXHIBIT B
---------
JENSEN NOTE
-----------
[SEE ATTACHED]
--------------
1
<PAGE>
EXHIBIT C
---------
MANAGEMENT AGREEMENT
--------------------
[SEE ATTACHED]
--------------
1
<PAGE>
EXHIBIT D
---------
CONSULTING AGREEMENT
--------------------
[SEE ATTACHED]
--------------
1
<PAGE>
EXHIBIT E
---------
WEBWORKS NOTE
-------------
[SEE ATTACHED]
--------------
1
<PAGE>
SCHEDULE 8.4
------------
EXISTING LIENS
--------------
1
<PAGE>
EXHIBIT 10.7
PROMISSORY NOTE
---------------
THE RIGHTS, TITLE AND INTERESTS OF ANY HOLDER OF THIS PROMISSORY NOTE ARE
SUBJECT TO THAT CERTAIN SUBORDINATION AND INTERCREDITOR AGREEMENT BETWEEN BANC
ONE , TEXAS , N. A. AND THE WEBWORKS, INC., DATED SEPTEMBER 13, 1996 AND TO THAT
CERTAIN SUBORDINATION AND INTERCREDITOR AGREEMENT BETWEEN STRATFORD CAPITAL
GROUP, INC. AND THE WEBWORKS, INC. DATED SEPTEMBER 13, 1996, AS EACH OF THE
FOREGOING MAY BB MODIFIED, AMENDED, RENEWED, EXTENDED, RESTATED OR REPLACED FROM
TIME TO TIME, THE TERMS OF WHICH ARE HEREBY INCORPORATED HEREIN BY REFERENCE.
For value received, NEI WEBWORLD, INC. (hereinafter, the "Maker") promises
to pay to the order of WEBWORKS, INC. (hereinafter, the "Holder") at 27 Abercorn
Street, Savannah, Georgia 31401, or at such other place as the Holder hereof may
from time to time designate in writing, the principal sum of ONE MILLION TEN
THOUSAND DOLLARS ($1,010,000.00), plus interest at the rate of TWELVE PERCENT
(12%) per annum, determined daily, in lawful money of the United States of
America which shall be legal tender in payment of all debts and dues, public and
private; said principal and interest to be paid at the times and in the manner
as follows:
Principal:
---------
(a) The principal amount outstanding shall be due and payable as follows:
September 12, 1997 $100,000.00;
September 12, 1998 $100,000.00; and
September 12, 1999 $810,000.00.
-----------
Interest: Interest shall accrue on the unpaid principal balance at the
--------
rate of Twelve percent (12%) per annum, determined daily, from the date hereof
until all of the principal is repaid and shall be due and payable in arrears on
the first day of each calendar quarter (January 1, April 1, July 1, October 1).
The first interest payment shall be due on October 1, 1996.
Prepayments: Maker may prepay this Note in whole or in part without
-----------
penalty or fee. Any voluntary prepayment of principal under this subparagraph
shall be applied to the last annual payments of principal due hereunder in the
inverse order in which such annual payments become due.
Application of Payments: Notwithstanding anything to the foregoing
-----------------------
contained herein, each payment under this Note shall be applied first to accrued
interest, then to outstanding principal.
Late Payments: For each and every payment not made by Maker when due,
-------------
Maker shall immediately pay to Holder, as an addition to the principal
indebtedness due hereunder, a sum equal to five percent of the late payment.
Further, Maker and Holder hereby covenant and agree as follows:
1. Default. The following shall constitute events of default: (a) any
-------
failure to pay in full any payment within five (5) days of when due; (b) the
breach of any covenant, warranty, term or condition set forth herein; or (c) the
breach of any covenant, warranty, term or condition contained in the Security
Agreement of even date herewith executed by Maker in favor of Holder, which
breach is not cured as provided in said Security Agreement (if such is
permitted). Said Security Agreement the repayment of the indebtedness evidenced
hereby and is incorporated herein by this reference to provide additional terms
and conditions of a default hereunder. Upon the occurrence of an event of
default, Holder shall have the immediate right to accelerate the outstanding
indebtedness under this Note and declare all such sums immediately due and
payable without any further action or notice to Maker whatsoever as well as to
exercise any and all other
<PAGE>
remedies available to holders of any nature whatsoever. Upon acceleration,
interest shall accrue on all the outstanding indebtedness at the rate of fifteen
percent per annum, determined daily, from the date of acceleration until repaid.
2. Collection Costs and Attorney's Fees. Time is of the essence of this
------------------------------------
contract. In the event this Note is placed in the hands of an attorney for
collection (whether suit be brought or not), the Maker hereof shall repay on
demand all costs and expenses incurred by the Holder arising therefrom,
including reasonable attorney's fee" in an amount not less than fifteen percent
of outstanding principal and interest, with interest on such costs, expenses and
fees at the rate of fifteen percent per annum from the date incurred until paid.
3. Waivers.
-------
A. The Maker and all endorsers and guarantors hereof, if any, and all
others who may become liable for all or any part of the obligations
referenced hereunder each severally waives presentment for payment,
demand for payment, protest and notice of nonpayment, and any and all
other notices and demands which may be required by applicable law.
B. Failure to accelerate the indebtedness evidenced hereby by reason of
an occurrence of an event of default or the acceptance of a past-due
payment shall not be construed as a novation of this Agreement or a
waiver of the right of Holder to thereafter insist upon such
compliance with the terms of this Note without previous notice of such
intention given to Maker.
4. Notices. All notices and other communications required or permitted
-------
to be given hereunder or by reason of this note shall be in writing and shall be
deemed to have been properly given when delivered in person to the person to
whom such notice is directed; or three (3) days after deposited in the U.S.
Mail, Certified Mail, Return Receipt Requested, postage prepaid, to the parties
addressed as follows:
A. If to Maker: NEI WebWorld, Inc., Attn.: Richard J. Wiencek, 4647
Bronze Way, Dallas, TEXAS 75236.
B. If to Holder: The Webworks, Inc., Attn: Charles Morris, 27 Abercorn
Street, Savannah, GA 31401.
5. Entire Agreement; Modification; Waivers. This Note and all exhibits
---------------------------------------
and documents incorporated herein by reference constitute the entire and
complete agreement between the parties hereto and supersedes any prior oral or
written agreement between the parties with respect to the obligations and
covenants contemplated hereunder. It is expressly agreed that there are no
verbal understandings or agreements which in any way change the terms,
covenants, and conditions herein set forth, and that no modification of this
Agreement and no waiver or release of any obligation or right of any party
hereto shall be valid and enforceable unless made in writing and duly executed
by all parties hereto.
6. Assignment; Binding effect. No Maker may assign or delegate any of
--------------------------
his, her or its rights, duties or obligations under this Note without the prior
written consent of Holder. Holder may assign this Note without Maker's consent.
This Agreement shall inure to the benefit of and be binding upon the respective
successors, estates, heirs, legal representatives and permitted assigns of the
parties hereto.
7. Severability. Whenever possible, each provision of this Agreement, or
------------
subpart thereof, shall be interpreted so as to be valid and effective under
applicable law, but if any provision of this Agreement, or subpart thereof,
shall be prohibited or invalid under applicable law, that provision shall be
ineffective only to the extent of the prohibition or invalidity, without
invalidating the remainder of that provision or the remaining provisions of this
Agreement.
2
<PAGE>
8. Choice of Law. It is the intention of the parties hereto that the
-------------
terms of this Agreement are to be construed in accordance with and governed by
the laws of the State of Georgia, without reference to the conflicts or choice
of law principles thereof. Maker agrees that any legal action or proceeding with
respect to this Agreement may be brought in the federal or state courts of
Chatham County, State of Georgia, all as Holder may elect. By execution of this
Agreement, Maker hereby submits to the jurisdiction and venue of said courts,
hereby expressly waiving any defense of personal jurisdiction or improper venue.
Nothing herein shall affect the right of Holder to commence legal proceedings or
otherwise proceed against Maker in any other jurisdiction or to serve process in
any manner permitted or required by law. Should Holder obtain a judgment against
Maker, Maker hereby irrevocably agrees that Holder may domesticate and/or
enforce such judgment without limitation in any jurisdiction whatsoever,
including but not limited to TEXAS, in which Maker or Maker's property resides,
and (b) that Maker shall not contest or otherwise defend against such
enforcement.
9. Savings Clause. If from any circumstances whatsoever fulfillment of
--------------
any provision of this Note at the time performance of such provision shall be
due shall involve transcending the limit of validity presently prescribed by any
applicable usury statute or any other law, with regard to obligations of like
character and amount, then, ipso facto, the obligation to be fulfilled shall be
reduced to the limit of such validity, so that in no event shall any exaction be
possible under this Note that is in excess of the limit of such validity, but
such obligation shall be fulfilled to the limit of such validity.
10. Headings. The paragraph headings or captions appearing in this
--------
Agreement are for convenience only, are not part of this Agreement and are not
to be considered in interpreting this Agreement.
IN WITNESS WHEREOF, the undersigned each has caused this Note to be
executed as follows:
NEI WEBWORLD, INC.
By:
- ---------------------- ---------------------------------
Date Title:
Attest:
-----------------------------
Title: [Seal]
Signed, sealed and delivered
in the presence of:
- ---------------------------------
Notary Public
Expiration:
[Seal]
3
<PAGE>
MODIFICATION OF PROMISSORY NOTE
-------------------------------
This Modification of Promissory Note is made and entered into on December
30, 1996 by and between NEI WEBWORLD, INC., as maker ("Maker"), and WEBWORKS,
INC.. as holder ("Holder").
Whereas, Holder previously made a loan to Maker in the original principal
amount of One Million Ten Thousand Dollars ($1,010,000.00), as evidenced by that
certain promissory note in said amount dated as of September 13, 1996 made by
Maker in favor of Holder (the "Note"); and
Whereas, Holder and Maker desire to modify the Note on the terms set forth
herein so that, except as modified herein, the Note shall otherwise remain in
full force and effect in accordance with its terms.
Now, therefore, for and in consideration of the foregoing premises, the
mutual covenants contained herein, the sum of ten dollars paid in hand by each
party to the other and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Maker and Holder hereby modify the
Note as follows:
1. The first paragraph on page 1 of the Note is hereby deleted in its
entirety with the following language substituted in its stead and place as if an
original part thereof:
"THE RIGHTS, TITLE AND INTERESTS OF ANY HOLDER OF THIS PROMISSORY NOTE ARE
SUBJECT TO THAT CERTAIN SUBORDINATION AND INTERCREDITOR AGREEMENT BETWEEN
CONGRESS FINANCIAL CORPORATION (SOUTHWEST) AND THE WEBWORKS, INC., DATED AS
OF DECEMBER , 1996, AS SUCH MAY BE MODIFIED, AMENDED, RENEWED, EXTENDED,
RESTATED OR REPLACED FROM TIME TO TIME. THE TERMS OF WHICH ARE HEREBY
INCORPORATED HEREIN."
2. The third paragraph on page 1 of the Note regarding the repayment
schedule for principal is hereby deleted in its entirety with the following
language substituted in its stead and place as if an original part thereof:
"Principal:
----------
A. The principal amount outstanding shall be due and payable as follows:
December 31, 1996 $500,000.00;
September 12, 1997 $100,000.00;
September 12, 1998 $100,000.00; and
September 12, 1999 $310,000.00."
3. Except as modified hereby, the Note shall otherwise remain in full
force and effect in accordance with its terms, Maker and Holder hereby ratifying
and confirming same in all respects. Maker acknowledges that it is fully
obligated under the terms of the Note and that it has no offsets, claims,
counterclaims, or defenses with respect to the obligations thereunder, as
amended hereby, and to the extent that Maker has any offsets, claims,
counterclaims, or defenses with respect to the obligations under the Note, as
amended hereby, or any facts, events, transactions, omissions or agreements
relating thereto, the Maker hereby waivers and releases such offsets, claims,
counterclaims and defenses.
4. Without limitation, all terms and conditions of the Note are hereby
incorporated herein by this express reference for all purposes, and where a
conflict exists between this modification agreement and the Note, the terms and
conditions of the Note shall control. This modification agreement, including all
instruments and documents incorporated herein by reference, constitutes the
entire and complete agreement between the parties hereto and supersedes any
prior oral or written agreement between the parties with respect to the subject
matter hereof. It is expressly agreed that there are no verbal understandings or
agreements which in any way change the terms, covenants, and conditions herein
set forth.
No modification of this Agreement and no waiver or release of any
obligation or right of any party hereto shall be valid and enforceable unless
made in writing and duly executed by all parties hereto.
<PAGE>
This Agreement shall inure to the benefit of and be binding upon the heirs,
estates, guardians, personal and legal representatives, successors and permitted
assigns. if any. of the parties hereto.
It is the intention of the parties hereto that the terms of this Agreement
are to be construed in accordance with and governed by the laws of the State of
Georgia, without reference to the conflicts or choice of law principles thereof.
Whenever possible and without limitation, each provision, or part thereof,
of this Agreement shall be interpreted so as to be valid and effective under
applicable law, but if any provision, or part thereof, of this Agreement shall
be prohibited or invalid under applicable law, that provision, or part thereof,
shall be ineffective only to the extent of the prohibition or invalidity,
without invalidating the remainder of that provision or the remaining provisions
of this Agreement.
In Witness whereof, Maker and Holder each has caused this agreement to be
executed under seal by its properly and duly authorized officers as of the day,
month and Year first above written.
NEI WEBWORLD, INC.
By:
---------------------------------------
Title:
Attest:
---------------------------
Title: [Seal]
Signed, sealed and delivered
in the presence of:
- ----------------------------------
Unofficial witness
- ----------------------------------
Notary Public
WEBWORKS, INC.
By:
---------------------------------------
Title:
Attest:
---------------------------
Title: [Seal]
Signed, sealed and delivered
in the presence of:
- ----------------------------------
Unofficial Witness
- ----------------------------------
Notary Public
2
<PAGE>
EXHIBIT 10.8
NEI ACQUISITION CORPORATION
Subordinated Note
February 28, 1994 $500,000
NEI Acquisition Corporation, a Texas corporation (the "Maker"), for value
received, hereby promises to pay to Robert L. Jensen, or assigns (together with
his successors in interest hereinafter referred to as the "Holder"), the sum of
Five Hundred Thousand Dollars ($500,000), together with interest thereon, as
provided for herein. This Note has been issued pursuant to the NonCompetition
Agreement, dated the date hereof, by and between the Maker and the Holder.
Article 1. Payment Dates; Interest Rate.
----------------------------
(a) The unpaid principal balance of this Note shall be due and
payable as follows: an installment of $100,000 shall be due and payable on
each February 28, commencing February 28, 1995 through February 28, 1999.
(b) Interest on the unpaid balance of this Note shall be payable on
the last day of each February, May, August and November, commencing May 31,
1994, until the unpaid principal balance of this Note has been paid in
full.
(c) Interest shall accrue on the unpaid principal amount of this
Note at an annual rate equal to eight percent (8%). Interest shall be
computed on the basis of a 365 day year for the actual number of days
elapsed. Except as otherwise provided herein, all sums of past-due
principal and interest shall bear interest at the maximum rate of interest
permitted by applicable law.
Article 2. Place and Manner of Payment.
---------------------------
Payment of the principal of and interest on this Note will be made
at such address as the holder shall advise the Maker in writing from time
to time (provided, that if no such address is furnished, payment shall be
made at the principal office of the Maker), in such coin or currency of the
United States of America as at the time of payment is legal tender for
payment of public and private debts.
Article 3. Optional Redemption.
-------------------
The Maker may at any time, subject to the provisions of Article 4,
redeem all or any part of the outstanding principal amount of this Note at
a
<PAGE>
redemption price of 100% of the principal amount hereof being redeemed,
plus accrued interest thereon through the date of redemption. Any payments
made pursuant to this Article 3 shall be applied first to accrued interest
and thereafter to principal of this Note.
Article 4. Subordination.
-------------
(a) This Note, to the extent and in the manner hereinafter set
forth, shall be subordinated and subject in right of payment to the prior
payment in full of all principal of and premium, if any, and interest on
Senior Debt (as defined hereinbelow).
(b) No payment on account of principal or interest on this Note
shall be made, nor shall any property or assets be applied to the purchase
or other acquisition or retirement of this Note, if the Maker is at the
time of such payment, purchase, acquisition or retirement delinquent in the
full payment of amounts then due for principal and premium, if any, and
interest on its Senior Debt. Notwithstanding the foregoing, no payment on
account of this Note shall be made if, at the time of such payment or
immediately after giving effect thereto, and as a result thereof, (i) there
shall exist a default in the payment of principal, premium, if any, or
interest with respect to any Senior Debt or (ii) there shall have occurred
an Event of Default (other than a default in the payment of principal,
premium, if any, or interest) with respect to any Senior Debt or in the
instruments or documents pursuant to which the same is outstanding,
permitting the holders thereof to accelerate the maturity thereof, and such
Event of Default shall not have been cured or waived in writing by all
holders of Senior Debt.
(c) Upon (i) any acceleration of the principal amount due on this
Note pursuant to the terms of this Note or (ii) any payment or distribution
of assets of the Maker of any kind or character, whether in cash, property
or securities, to the creditors upon any dissolution or winding up or total
or partial liquidation or reorganization of the Maker, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other
proceedings, all principal, premium, if any, and interest due or to become
due upon all Senior Debt shall first be paid in full, or payment thereof
provided for in money or money's worth, before the Holder shall be entitled
to retain any assets so paid or distributed in respect thereof; and upon
any such dissolution or winding up or liquidation or reorganization, any
payment or distribution of assets of the Maker of any kind or character,
whether in cash, property or securities, to which the Holder would be
entitled, except for these provisions, shall be held in trust for, and
shall be paid by the Maker to any receiver, trustee in bankruptcy,
liquidating trustee, agent or other person making such payment or
distribution,
2
<PAGE>
or to the holder or holders of Senior Debt or their representatives, to the
extent necessary to pay all Senior Debt in full, in money or money's worth,
after giving effect to any concurrent payment or distribution to or for the
holder of such Senior Debt, before any payment or distribution is made to
the holder of this Note.
(d) Nothing contained in these provisions shall prevent the Maker
from making and the Holder of this Note from accepting and retaining
payment of the principal of and interest on this Note at any time except
under the conditions described in the preceding paragraphs of this Article
4. Nothing contained in these provisions is intended or shall impair as
between the Maker, its creditors other than the holders of Senior Debt, and
the Holder, the obligation of the Maker, which shall be absolute and
unconditional, to pay to the Holder the principal and interest on this
Note, as and when the same shall become due and payable in accordance with
its terms, or to affect the relative rights of the holder of this Note and
creditors of the Maker other than the holders of Senior Debt, nor shall
anything herein prevent any holder of this Note from exercising all
remedies otherwise permitted by applicable law, upon default, subject to
the rights, if any, under these provisions of the holders of Senior Debt in
respect of cash, property or securities of the Maker received upon the
exercise of any such remedy.
(e) "Senior Debt" shall mean all indebtedness of the Maker and its
subsidiaries for borrowed money to commercial banks or similar financial
institutions (or any renewals, extensions or replacements of any of the
foregoing).
(f) As long as this note remains outstanding, the Maker and its
subsidiaries will not incur or become liable with respect to any
indebtedness for borrowed money which is subordinate or junior in right of
payment to any Senior Debt, if such indebtedness is, or purports to be,
senior in right of payment to this Note.
Article 5. Default.
-------
(a) "Event of Default", wherever used herein, means any one of the
following events:
(1) default by the Maker in the payment of any principal or
interest payment, and such default shall have continued for a period
of three days after its due date; or
3
<PAGE>
(2) the entry of a decree or order for relief by a court
having jurisdiction in the premises in respect of the Maker or a
subsidiary in an involuntary case under the federal bankruptcy laws,
as now or hereafter constituted or other applicable federal or state
bankruptcy, insolvency or other similar law, or the consent by it or
a subsidiary to the appointment to or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator (or
other similar official) of the Maker or a subsidiary or for any
substantial part of its or their respective properties, or the
making by either of them of any assignment for the benefit of
creditors, or the admission by either of them in writing of its
inability to pay its debts generally as they become due; or
(3) obligations in an aggregate amount in excess of $100,000
of the Maker and its subsidiaries, whether as principal, guarantor,
surety, or other obligor, for the payment of any indebtedness (i)
shall become or shall be declared to be due and payable prior to the
express maturity thereof, or (ii) shall not be paid when due or
within any grace period for the payment thereof, or (iii) the holder
of such obligation shall have the right immediately to declare the
indebtedness evidenced thereby due and payable prior to its stated
maturity unless such failure or default is absolutely and
unconditionally waived by and on behalf of the holders of such
obligations or is discharged within five days by payment.
(b) If an Event of Default occurs, then and in every such case the
Holder may declare the principal of such Note to be due and payable
immediately, by a notice in writing to the Maker, and upon any such
declaration such principal shall become immediately due and payable except
if any Event of Default occurs under paragraph 6 above, the Note shall
become immediately due and payable without declaration or notice to the
Maker.
(c) The Maker expressly waives all notices, demands for payment,
presentations for payment, notices of intention to accelerate maturity,
protest and notice of protest, and any other notices of any kind as to this
Note and as to each, every and all installments or part payments thereof,
and consents that the Holder may at any time and from time to time, upon
request of or by agreement with the Maker, extend the date of maturity
hereof or change the time or method of payments hereof without notice to
any of the other makers, sureties or endorsers, who shall remain bound for
the payment hereof.
Article 6. Collection Fees. In the event of default hereunder, or if this
---------------
Note is collected by suit or legal proceedings or through bankruptcy
proceedings, the Maker agrees to pay in addition to all sums then due hereon,
including principal and interest, all reasonable expenses of collection,
including reasonable attorneys' fees.
4
<PAGE>
Article 7. Amendments and Waivers. This Note may be amended by written
----------------------
agreement of the Maker and the Holder. No waiver of the provisions hereof shall
be effective unless agreed to in writing by the party against whom such waiver
is asserted.
Article 8. Governing Law. This Note shall be deemed to be a contract made
-------------
under the laws of the State of Texas, and for all purposes shall be governed by
and construed in accordance with the laws of the State of Texas, exclusive of
any such law under which the law of any other jurisdiction would apply.
IN WITNESS WHEREOF, the Maker has caused this Note to be duly executed on
the 28th day of February, 1994.
NEI Acquisition Corporation
By:
-----------------------------------
Barry B. Conrad
Chairman
5
<PAGE>
EXHIBIT 10.9
PROMISSORY NOTE
Dallas, Texas
$_______ April 2, 1996
FOR VALUE RECEIVED, the undersigned, __________________ (the "Maker"),
promises to pay to the order of NEI WEBWORLD, INC. (together with any successors
or assigns, the "Payee"), at the principal place of business of the Payee in
Dallas, Texas, in lawful money of the United States, the principal sum of
_________ THOUSAND AND 00/100 DOLLARS ($_______), together with interest on any
and all principal amounts remaining unpaid hereunder from time to time at the
rates set forth below.
The entire balance of the unpaid original principal amount of this
Note, plus all accrued interest thereon, shall be due and payable on March 31,
2001 (the "Final Maturity Date").
The outstanding principal amount of this Note shall bear interest from
the date hereof until the due date at a per annum rate equal to six percent
(6%). On and after the Final Maturity Date, all sums of past-due principal (and
unpaid interest on such principal accrued through the due date thereof) shall
bear interest at the rate of ten percent (10%) per annum from the Final Maturity
Date.
This Note may be prepaid, in whole or in part, at any time or from
time to time, without premium or penalty. Each prepayment of principal shall be
accompanied by an amount equal to the accrued interest on the principal amount
prepaid to the date of such prepayment.
All agreements between the Maker and the holder hereof, whether now
existing or hereafter arising and whether written or oral, are hereby expressly
limited so that in no contingency or event whatsoever, whether by reason of
acceleration of the maturity hereof, or otherwise, shall the amount paid, or
agreed to be paid, to the holder hereof for the use, forbearance or detention of
the funds advanced pursuant to this Note, or otherwise, or for the payment of
performance of any covenant or obligation contained herein or in any other
document or instrument evidencing, securing or pertaining to this Note exceed
the maximum amount permissible under applicable law. If from any circumstances
whatsoever fulfillment of any provision hereof or any other document or
instrument exceeds the maximum amount of interest prescribed by law, then ipso
----
facto, the obligation to be fulfilled shall be reduced to the limit of such
- -----
validity, and if from any such circumstances the holder hereof shall ever
receive anything of value deemed interest by applicable law, which would exceed
interest at the highest lawful rate, such amount which would be excessive
interest shall be applied to the reduction of the unpaid principal balance of
this Note or on account of any other principal indebtedness of the Maker to the
holder hereof, and not to the payment of interest, or if such excessive interest
exceeds the unpaid principal balance of this Note and such other indebtedness,
such excess shall be refunded to the Maker. All sums paid, or agreed to be
paid, by the Maker for the use, forbearance or detention of the indebtedness of
the Maker to the holder of this Note shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout the full
term of such indebtedness until payment in full so that the actual rate of
interest on account of such indebtedness is uniform throughout the term hereof.
The terms and provisions of this
<PAGE>
paragraph shall control and supersede every other provision of all agreements
between the Maker and the holder hereof.
This Note is executed and delivered, and intended to be performed in,
the State of Texas, and shall be governed by and construed in accordance with
the laws of the State of Texas.
Executed as of the date first written above.
By:
-------------------------------------
2
<PAGE>
EXHIBIT 10.10
INDEMNIFICATION AND HOLD HARMLESS AGREEMENT
THIS INDEMNIFICATION AND HOLD HARMLESS AGREEMENT (this "Agreement") is
made as of February __, 1997, by and between NEI WebWorld, Inc., a Texas
corporation (the "Company"), and __________, a member of the Company's board of
directors ("Indemnitee").
WHEREAS, in order to induce Indemnitee to serve or to continue to
serve, as applicable, as a director of the Company, the Company has agreed to
indemnify Indemnitee as set forth below;
NOW, THEREFORE, in consideration of the foregoing and certain other
good and valuable consideration, the receipt of which is hereby acknowledged,
the parties, intending to be legally bound, hereby agree as follows:
1. Indemnification. The Company shall indemnify Indemnitee and hold
---------------
Indemnitee harmless if the Indemnitee 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, arbitrative or investigative, and in
any appeal in such action, suit or proceeding, and in any inquiry or
investigation that could lead to such an action, suit or proceeding, against
expenses (including court costs and attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by Indemnitee in
connection with such action, suit or proceeding arising out of or pertaining to
any action or omission which arises out of or relates to the fact that
Indemnitee is an executive officer or director of the Company or was serving at
the request of the Company as an officer or director of another corporation,
partnership, joint venture, trust or other enterprise, to the fullest extent
permitted by applicable law. Expenses incurred in defending a civil or criminal
action, suit or proceeding shall be paid by the Company on a regular monthly
basis. If acts of Indemnitee are found by a court of proper jurisdiction to be
intentional or willful, the Company shall not be liable to indemnify and hold
harmless Indemnitee for any judgment incurred by Indemnitee; and Indemnitee
shall repay to the Company such expenses paid on behalf of Indemnitee hereunder.
The indemnification rights provided hereby to Indemnitee shall continue even
though he or she may have ceased to be an officer or director of the Company.
2. Notice. Indemnitee shall give notice (the "Notice") to the
------
Company within five days after actual receipt of service or summons to appear in
any action begun in respect of which indemnity may be sought hereunder or actual
notice of assertion of a claim with respect to which he seeks indemnification.
Upon receipt of the Notice, the Company shall assume the defense of such action,
whereupon it shall not be liable for any fees or expenses of counsel for
Indemnitee incurred thereafter with respect to the matters set forth in the
Notice.
3. Non-Exclusivity. The rights of Indemnitee hereunder shall be in
---------------
addition to any rights Indemnitee may have under the Company's Articles of
Incorporation, By-
<PAGE>
laws, applicable law or otherwise and shall survive any termination,
resignation, death or other dismissal of Indemnitee.
4. Insurance. To the extent the Company maintains an insurance
---------
policy or policies providing liability insurance with respect to the actions or
omissions covered by this Agreement, Indemnitee shall be covered by such policy
or policies, in accordance with its or their terms, to the maximum extent of the
coverage available thereunder.
5. Payment. The Company shall not be liable to Indemnitee under this
-------
Agreement to make any payment in connection with any claim against Indemnitee to
the extent the Indemnitee has otherwise actually received payment (under any
insurance policy or otherwise) of the amounts otherwise indemnifiable hereunder.
6. Enforceability. The indemnification contained in this Agreement
--------------
shall be binding upon and inure to the benefit of and be enforceable by the
parties hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation, liquidation or otherwise
to all or substantially all of the business and/or assets of the Company),
spouses, heirs and personal and legal representatives.
7. Binding Obligation. If this Agreement or any portion hereof shall
------------------
be invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify and hold harmless Indemnitee, as to costs,
charges and expenses (including court costs and attorneys' fees), judgments,
fines and amounts paid in settlement with respect to any action, suit or
proceeding, whether civil, criminal, administrative, arbitrative or
investigative, and in any appeal in such action, suit or proceeding, and in any
inquiry or investigation that could lead to such an action, suit or proceeding,
to the full extent permitted by any applicable portion of this Agreement that
shall not have been invalidated and to the fullest extent permitted by
applicable law.
8. Governing Law. This Agreement shall be construed in accordance
-------------
with and governed by the laws of the State of Texas. This Agreement shall be
deemed to be performable in Dallas, Texas, and any venue for any action brought
pursuant hereto shall be in Dallas County, Texas.
9. Attorneys' Fees and Costs. If either party brings an action to
-------------------------
enforce this Agreement, the prevailing party shall be awarded his or her
reasonable attorneys' fees and costs.
10. Successors and Assigns. This Agreement shall be binding upon and
----------------------
shall
-2-
<PAGE>
inure to the benefit of the heirs, successors and assigns of each party to this
Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
NEI WEBWORLD, INC.
By:_________________________________________
Richard J. Wiencek
President and Chief Executive Officer
INDEMNITEE:
____________________________________________
-3-
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of NEI WebWorld, Inc. on
Form SB-2 of our report dated June 28, 1996, appearing in the Prospectus, which
is part of this Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
Dallas, Texas
March 7, 1997
------------------------------------------------
The financial statements of NEI WebWorld, Inc. appearing in the above Prospectus
are presented to give effect to the 3.33-to-one common stock split and for the
conversion of preferred stock into 2,008,823 shares of common stock in
connection with the Company's contemplated offering as described in Notes 10 and
11 to the financial statements. On the effective date of the Registration
Statement, the above consent is in the form that we will sign upon the
effectiveness of such events assuming that, from June 28, 1996 to the effective
date of such events, no other material events have occurred that would affect
these financial statements.
Deloitte & Touche LLP
Dallas, Texas
March 7, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEI
WEBWORLD, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> MAR-31-1996 MAR-31-1996
<PERIOD-START> APR-01-1995 APR-01-1996
<PERIOD-END> MAR-31-1996 DEC-31-1996
<CASH> 500 500
<SECURITIES> 0 0
<RECEIVABLES> 1,720,398 2,796,089
<ALLOWANCES> (2,352) (22,351)
<INVENTORY> 607,538 929,235
<CURRENT-ASSETS> 2,649,693 3,703,916
<PP&E> 3,697,379 5,779,848
<DEPRECIATION> (827,164) (1,206,063)
<TOTAL-ASSETS> 6,219,883 8,838,233
<CURRENT-LIABILITIES> 2,508,173 4,664,203
<BONDS> 0 0
0 0
0 0
<COMMON> 22,036 27,198
<OTHER-SE> 669,647 751,118
<TOTAL-LIABILITY-AND-EQUITY> 6,219,883 8,838,233
<SALES> 14,285,858 12,820,032
<TOTAL-REVENUES> 14,285,858 12,820,032
<CGS> 12,239,998 10,611,446
<TOTAL-COSTS> 12,239,998 10,611,446
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 32,294 19,999
<INTEREST-EXPENSE> 445,154 374,986
<INCOME-PRETAX> (339,076) 316,178
<INCOME-TAX> (29,019) 107,000
<INCOME-CONTINUING> (310,057) 209,178
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (72,545)
<CHANGES> 0 0
<NET-INCOME> (310,057) 136,633
<EPS-PRIMARY> (.11) .05
<EPS-DILUTED> (.11) .05
</TABLE>
