<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL , 1997
REGISTRATION NO. 333-
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DIDAX INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7371 54-1831588
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
4501 DALY DRIVE, SUITE 103
CHANTILLY, VIRGINIA 20151
(703) 968-4808
(Address and telephone number of principal executive offices)
------------------------
4501 DALY DRIVE, SUITE 103
CHANTILLY, VIRGINIA 20151
(Address of principal place of business or intended principal place of business)
ROBERT C. VARNEY, PH.D.
4501 DALY DRIVE, SUITE 103
CHANTILLY, VIRGINIA 20151 (703) 968-4808
(Name, address, and telephone number of agent for service)
COPIES TO:
<TABLE>
<S> <C>
CHARLES J. RENNERT DAVID A. CARTER, P.A.
BERMAN WOLFE & RENNERT, P.A. 2300 GLADES ROAD
NATIONSBANK TOWER, SUITE 3500 SUITE 210W
100 SOUTHEAST SECOND STREET BOCA RATON, FLORIDA 33431
MIAMI, FLORIDA 33131-2130 (561) 750-6999
(305) 577-4177 (561) 367-0960 FAX
(305) 373-6036 FAX (Counsel for the Underwriters)
(Counsel for the Company)
</TABLE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
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. [X]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
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PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF DOLLAR AMOUNT MAXIMUM OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED PRICE PER SHARE OFFERING PRICE REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
Common Stock(1) par value $.01 per share.... 2,300,000 $5.00 $11,500,000 $3,485.00
- --------------------------------------------------------------------------------------------------------------------
Redeemable Common Stock Purchase
Warrants(2)............................... 2,300,000 $0.125 $287,500 $88.00
- --------------------------------------------------------------------------------------------------------------------
Common Stock(3) par value $.01 per share
underlying Redeemable Common Stock
Purchase Warrants......................... 2,300,000 $5.75 $13,225,000 $4,008.00
- --------------------------------------------------------------------------------------------------------------------
Common Stock Representative Warrants(4)..... 200,000 $0.00002 $5 $1.00
- --------------------------------------------------------------------------------------------------------------------
Common Stock(5) par value $.01 per share
underlying Common Stock Representative
Warrants.................................. 200,000 $8.25 $1,650,000 $500.00
- --------------------------------------------------------------------------------------------------------------------
Warrant Representative Warrants(6).......... 200,000 $0.00002 $5 $1.00
- --------------------------------------------------------------------------------------------------------------------
Representative Underlying Warrants(7) 200,000 $0.20625 $41,250 $14.00
- --------------------------------------------------------------------------------------------------------------------
Common Stock(8) par value $.01 per share
underlying Representative Underlying
Warrants.................................. 200,000 $8.25 $1,650,000 $500.00
- --------------------------------------------------------------------------------------------------------------------
Total Fee................................... $8,597.00
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</TABLE>
(footnotes on next page)
<PAGE> 2
(1) Includes 300,000 shares reserved for the option, exercisable within 45 days
after the date on which the Securities and Exchange Commission (the
"Commission") declares this Registration Statement effective, to cover
over-allotments, if any (the "Over-Allotment Option"), granted by the
Company to Barron Chase Securities, Inc. (the "Representative"), acting as
representative of the several underwriters identified elsewhere herein (the
"Underwriters"). See "UNDERWRITING."
(2) Includes 300,000 Redeemable Common Stock Purchase Warrants (the "Purchase
Warrants" or the "Warrants") reserved for the Over-Allotment Option. The
Purchase Warrants (a) may be purchased separately from the Common Stock in
the offering, (b) are exercisable during a five-year period commencing on
the effective date of this Registration Statement, and (c) shall be
redeemable, at the option of the Registrant, at $0.25 per Purchase Warrant
upon 30 days' prior written notice, (i) if the closing bid price, as
reported on The Nasdaq SmallCap Market, or the closing sale price, as
reported on a national or regional securities exchange, as applicable, of
the shares of the Registrant's Common Stock for 30 consecutive trading days
ending within ten days of the notice of redemption of the Purchase Warrants
averages in excess of $10.00 per share, subject to adjustment, and (ii)
after a then current registration statement has been declared effective by
the Commission with regard to the shares of Common Stock to be received by
the holder upon exercise, but (iii) during the one-year period after the
effective date of this Registration Statement, only with the written consent
of the Representative. Pursuant to Rule 416 under the Securities Act of
1933, as amended (the "Securities Act"), such additional number of these
securities are also being registered to cover any adjustment resulting from
the operation of the anti-dilution provisions relating to the Purchase
Warrants.
(3) Reserved for issuance upon exercise of the Purchase Warrants. Pursuant to
Rule 416 under the Securities Act, such additional number of shares of
Common Stock subject to the Purchase Warrants are also being registered to
cover any adjustment resulting from the operation of the anti-dilution
provisions relating to the Purchase Warrants.
(4) To be issued to the Representative. Pursuant to Rule 416 under the
Securities Act, such additional number of Representative stock purchase
options (the "Common Stock Representative Warrants") are also being
registered to cover any adjustment resulting from the operation of the
antidilution provisions relating to the Common Stock Representative
Warrants.
(5) Reserved for issuance upon exercise of the Common Stock Representative
Warrants. Pursuant to Rule 416 under the Securities Act, such additional
number of shares of Common Stock subject to the Common Stock Representative
Warrants are also being registered to cover any adjustment resulting from
the operation of the anti-dilution provisions relating to the Common Stock
Representative Warrants.
(6) To be issued to the Representative. Pursuant to Rule 416 under the
Securities Act, such additional number of Representative warrant purchase
options (the "Warrant Representative Warrants") are also being registered to
cover any adjustment resulting from the operation of the antidilution
provisions relating to the Warrant Representative Warrants.
(7) Reserved for issuance upon exercise of the Warrant Representative Warrants.
Pursuant to Rule 416 under the Securities Act, such additional number of
warrants to purchase shares of Common Stock subject to the Warrant
Representative Warrants ("Representative Underlying Warrants") are also
being registered to cover any adjustment resulting from the operation of the
anti-dilution provisions relating to the Warrant Representative Warrants.
(8) Reserved for issuance upon exercise of the Representative Underlying
Warrants. Pursuant to Rule 416 under the Securities Act, such additional
number of shares of Common Stock subject to the Representative Underlying
Warrants are also being registered to cover any adjustment resulting from
the operation of the anti-dilution provisions relating to the Representative
Underlying Warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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<PAGE> 3
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 APRIL , 1997
PROSPECTUS
DIDAX INC.
2,000,000 SHARES OF COMMON STOCK
2,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
DIDAX INC. (the "Company") is offering hereby 2,000,000 shares (the
"Shares") of Common Stock, $.01 par value per share (the "Common Stock"), and
2,000,000 Redeemable Common Stock Purchase Warrants (the "Purchase Warrants" or
"Warrants") of the Company. The Shares and the Purchase Warrants (collectively,
the "Securities") are separately transferable at any time after the date of this
Prospectus (the "Effective Date"). Each Purchase Warrant entitles the registered
holder thereof to purchase, at any time during the period commencing on the
Effective Date, through , 2002, one share of the Common Stock at a price
of $5.75 per share, subject to adjustment under certain circumstances. The
Purchase Warrants offered hereby are not exercisable unless, at the time of
exercise, the Company has a current prospectus covering the shares of Common
Stock issuable upon exercise of the Purchase Warrants and such shares have been
registered, qualified or deemed to be exempt under the securities laws of the
states of residence of the exercising holders of the Purchase Warrants.
Commencing after the Effective Date, the Purchase Warrants are subject to
redemption by the Company, at the option of the Company, at $0.25 per Purchase
Warrant, upon 30 days' prior written notice, if the closing bid price, as
reported on The Nasdaq SmallCap Market(TM) ("Nasdaq"), or the closing sale
price, as reported on a national or regional securities exchange, as applicable,
of the shares of the Common Stock for 30 consecutive trading days ending within
ten days of the notice of redemption of the Purchase Warrants averages in excess
of $10.00 per share, subject to adjustment. The Company is required to maintain
an effective registration statement with respect to the Common Stock underlying
the Purchase Warrants prior to redemption of the Purchase Warrants. Prior to the
first anniversary of the Effective Date, the Purchase Warrants will not be
redeemable by the Company without the written consent of Barron Chase
Securities, (the "Representative") acting as representative of the several
underwriters identified elsewhere herein (the "Underwriters"). See "RISK
FACTORS -- Non-Registration in Certain Jurisdictions of Shares Underlying the
Purchase Warrants."
Prior to this Offering, there has been no public market for the Common
Stock or the Purchase Warrants. The Common Stock and the Purchase Warrants have
been approved for listing on Nasdaq under the symbols " " and " ",
respectively. There is no assurance that an active trading market in the Common
Stock or the Purchase Warrants will develop or that, if developed, any such
market will be sustained. The offering price of the Shares and the Purchase
Warrants, as well as the exercise price and other terms of the Purchase
Warrants, have been determined by negotiation between the Company and the
Representative, and bear no relationship to the Company's asset value, net worth
or other established criteria of value. See "RISK FACTORS" and "UNDERWRITING."
THE SECURITIES ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND
SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. IN ADDITION, PURCHASERS OF THE SECURITIES WILL SUFFER IMMEDIATE
SUBSTANTIAL DILUTION IN THAT THE BOOK VALUE PER SHARE OF THE COMMON STOCK AFTER
THIS OFFERING WILL BE SUBSTANTIALLY LESS THAN THE PUBLIC OFFERING PRICE OF THE
COMMON STOCK. SEE "RISK FACTORS" AND "DILUTION" AT PAGES [ ] AND [ ].
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS
PRICE TO TO
PUBLIC UNDERWRITING DISCOUNT(1) COMPANY(2)
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Per Share............................................ $5.00 $.50 $4.50
Per Warrant.......................................... $.125 $.0125 $.1125
Total(3)............................................. $10,250,000 $1,025,000 $9,225,000
</TABLE>
See footnotes on page [2] of Prospectus
------------------------
[BARRON CHASE SECURITIES LOGO]
The date of this Prospectus is , 1997
<PAGE> 4
- ---------------
(1) Does not include additional underwriting compensation in the form of (i) a
non-accountable expense allowance (the "Non-Accountable Expense Allowance")
equal to 3% of the total public offering price for the Securities; (ii)
stock purchase options (the "Common Stock Representative Warrants"), for
nominal consideration, to purchase up to 200,000 shares of Common Stock of
the Company at an exercise price of $8.25 per share (165% of the initial
public offering price), exercisable during a five-year period commencing on
the Effective Date; (iii) warrant purchase options (the "Warrant
Representative Warrants"), for nominal consideration, to purchase up to
200,000 warrants (the "Representative Underlying Warrants") at an exercise
price of $.20625 per warrant (165% of the initial public offering price),
exercisable during a five-year period commencing on the Effective Date, each
of which Underlying Warrant entitles the holder to purchase a share of
Common Stock of the Company at an exercise price of $8.25 per share,
exercisable during a five-year period commencing on the Effective Date; and
(iv) engagement by the Company of the Representative as a non-exclusive
financial advisor to the Company for a period of three years from the
Closing at a fee of $108,000, payable at the closing of this Offering (the
"Closing"). The Common Stock Representative Warrants, the Warrant
Representative Warrants, and the Underlying Warrants are sometimes
referenced in this Prospectus as the "Representative Warrants." In addition,
the Company has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act. See
"UNDERWRITING."
(2) Before deducting expenses of this offering (the "Offering") payable by the
Company (excluding the Underwriting Discount), including the Non-Accountable
Expense Allowance, federal and state registration and filing fees and taxes,
and listing, printing, legal, accounting and transfer agent fees
(collectively, the "Offering Costs"). The net proceeds to the Company, after
deducting all commissions and the Offering Costs (the "Net Proceeds"), are
estimated to be $8,577,500 (approximately 83.7% of the gross proceeds of
this Offering), or $9,915,125 (approximately 84.1% of the gross proceeds of
this Offering) if the Over-Allotment Option (as hereinafter defined) is
exercised in full.
(3) The Company has granted to the Representative an option, exercisable within
45 days after the Effective Date, to purchase up to 300,000 additional
shares of Common Stock of the Company and up to 300,000 additional Purchase
Warrants on the same terms and conditions as set forth above, solely to
cover over-allotments, if any (the "Over-Allotment Option"). If the Over-
Allotment Option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Company for Shares will be increased
to $11,787,500, $1,178,750 and $10,608,750, respectively. See
"UNDERWRITING."
The Securities are offered subject to prior sale, when, as and if delivered
to and accepted by the Underwriters and subject to the approval of certain legal
matters by counsel and certain other conditions. It is expected that delivery of
the certificates representing the Securities will be made at the offices of
Barron Chase Securities, Inc., 7700 West Camino Real, Boca Raton, Florida 33433,
on or about , 1997.
At the Effective Date, the Company will become subject to the informational
requirements of the Securities Exchange Act of 1934, as amended ("Exchange Act")
and, in accordance therewith, will be required to file reports, proxy or
information statements and other information with the Securities and Exchange
Commission (the "Commission"). At the Effective Date, the Securities will be
listed on Nasdaq. Accordingly, such reports, proxy statements and other
information can be inspected and copied at the Commission's principal office,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; the
Northeast Regional Office of the Commission at 7 World Trade Center, Suite 1300,
New York, New York 10048; and the Midwest Regional Office of the Commission,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
where copies may be obtained upon payment of the fees prescribed by the
Commission, as well as at the offices of Nasdaq, 1735 K Street, N.W.,
Washington, D.C. Such documents may also be obtained through the website
maintained by the Commission at http://www.sec.gov.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE REGISTERED
SECURITIES ISSUED IN THIS OFFERING AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON NASDAQ OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
INVESTORS SHOULD CAREFULLY REVIEW THE FINANCIAL STATEMENTS WHICH ARE AN
INTEGRAL PART OF THIS PROSPECTUS.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following is qualified in its entirety by reference to the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Each prospective investor is urged to
read this Prospectus in its entirety.
THE COMPANY
Since its inception in 1993, the operations of the Company and its
predecessors (referred to in this Prospectus collectively as the "Company") have
been limited to (a) research and development and marketing activities related to
The Christian Community Network(TM) ("CCN") (WWW.CHRISTCOM.NET), the Company's
interactive website focused on content material that the Company generally
believes appeals to the Christian community, and (b) providing for a fee, to
Christian organizations, limited technology consulting services, including
website development services, Internet access through the IBM Global Network,
hosting through various hosting services (including in-house hosting) and other
related Internet services. The Company's website, an Internet-based alternative
to traditional means of communication by Christian ministries and Christian
content publishers and retailers (such as fliers, periodicals, books, radio and
television) is intended to provide its target constituent base, the Christian
consumer, with resources and information provided by Christian and secular
retailers, publishers, charities and ministries. The Company's website is also
intended to reduce its clients' costs of contacting their target constituents
and markets while expanding the potential reach and duration of that contact.
Access to CCN is currently provided free of charge to persons who have Internet
access. To date, the Company has derived all of its revenues from (i) providing
website development and other technology consulting services (the "Consulting
Services") to Christian organizations, such as Promise Keepers, a nonprofit
Christian ministry (PK Net, www.promisekeepers.org), Christianity Today, Inc., a
publisher of Christian periodicals (www.christianity.net), Learn @ Home, a
coalition of Christian homeschooling professional organizations, and World
Vision, an international Christian relief agency; (ii) providing Internet access
through the IBM Global Network (the "Internet Access Services"); and (iii) to a
very limited extent retail sales of books , music and filtering software
("Retail Sales").
The Company targets the marketing of its sales, products and services and
the content on CCN to persons of all ages, economic levels, genders, ethnic
backgrounds and nationalities that identify themselves as Christian, principally
Protestant (regardless of denomination, if any) and Catholic, with particular
emphasis upon evangelical Christians. According to a poll conducted by the
Gallup Organization in 1994, approximately 25% of Americans identify themselves
as Catholic and approximately 20% identify themselves as Protestant. The Pew
Center for Civic Journalism, in a survey published in April 1997, reported that
approximately 35% of the United States population identify themselves as
evangelical Christians.
The Company presently intends to strive to position itself to generate
commercial sales of (i) Christian interest advertising space on CCN; (ii)
memberships in Christianity-based affinity marketing programs (such as sales of
Internet-based travel services), which afford participants price discounts and
other benefits of group purchasing power; (iii) Christian interest products
manufactured or developed by others (primarily Christian books, Christian music
and other Christian articles on CCN; and (iv) expanded computer consulting
services to Christian organizations. The Company recently has released on CCN
its on-line Christian books and music store featuring Christian content material
produced by others.
The Company has an extremely limited operating history upon which an
evaluation of the Company and its business can be based. For the fiscal years
ended December 31, 1995 and 1996 and the three-month periods ended March 31,
1996 and 1997, the Company generated net losses of $(706,564), $(2,464,904), and
$(529,737) (unaudited) and $(470,578) (unaudited), respectively, from
operations. See FINANCIAL STATEMENTS. The Company has achieved only limited
revenues to date, has incurred net losses since inception and expects to
continue to operate at a loss for the foreseeable future. Its expense levels are
based in part on its expectations as to future revenues, if any. Any shortfall
in revenues, whether caused by the cancellation or deferral of, or the failure
to obtain, advertising, retail or website development customers, or otherwise,
would have a material adverse impact on the Company's business, results of
operations and financial condition. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION."
3
<PAGE> 6
The Company's corporate headquarters are located at 4501 Daly Drive, Suite
103, Chantilly, Virginia 20151 and its telephone number is (703) 968-4808, its
fax number is (703) 968-4819 and its Internet address is
http://www.christcom.net.
THE OFFERING
SECURITIES OFFERED......... 2,000,000 shares of Common Stock at $5.00 per Share
and 2,000,000 Purchase Warrants at $0.125 per
Purchase Warrant. The Shares and the Purchase
Warrants are separately transferable at any time
after the Effective Date. Each Purchase Warrant
entitles the registered holder thereof to
purchase, at any time during the period
commencing on the Effective Date, through
, 2002, one share of the Common Stock
at a price of $5.75 per share, subject to
adjustment under certain circumstances. The
Purchase Warrants offered hereby are not
exercisable unless, at the time of exercise, the
Company has a current prospectus covering the
shares of Common Stock issuable upon exercise of
the Purchase Warrants and such shares have been
registered, qualified or deemed to be exempt
under the securities laws of the states of
residence of the exercising holders of the
Purchase Warrants. Commencing after the Effective
Date, the Purchase Warrants are subject to
redemption by the Company, at the option of the
Company, at $0.25 per Purchase Warrant, upon 30
days prior written notice, if the closing bid
price, as reported on Nasdaq, or the closing sale
price, as reported on a national or regional
securities exchange, as applicable, of the shares
of the Common Stock for 30 consecutive trading
days ending within ten days of the notice of
redemption of the Purchase Warrants averages in
excess of $10.00 per share, subject to
adjustment. The Company is required to maintain
an effective registration statement with respect
to the Common Stock underlying the Purchase
Warrants prior to redemption of the Purchase
Warrants. Prior to the first anniversary of the
Effective Date, the Purchase Warrants will not be
redeemable by the Company without the written
consent of the Representative. See "DESCRIPTION
OF SECURITIES" and "UNDERWRITING."
SHARES OF COMMON STOCK
OUTSTANDING
Prior to this Offering... 1,202,588 shares
After this Offering
(1)...................... 3,542,588 shares
ESTIMATED NET PROCEEDS..... $8,577,500 (or $9,915,125 if the Over-Allotment
Option is exercised in full)
USE OF PROCEEDS............ Approximately $2,400,000 (approximately 28%, or
approximately 24% if the Over-Allotment Option is
exercised in full) of the Net Proceeds will be
used to retire Company indebtedness, including
approximately $623,000 owed to officers of the
Company (the "Officer Notes"). Approximately
$2,400,000 (approximately 28%, or approximately
24% if the Over-Allotment Option is exercised in
full) will be used for marketing, sales and
consulting services, $1,200,000 (approximately
14%, or approximately 12% if the Over-Allotment
Option is
4
<PAGE> 7
exercised in full) will be used for product
development and approximately $2,500,000
(approximately 30%of the Net Proceeds of the
Offering) or approximately $3,900,000
(approximately 40% if the Over-Allotment Option
is exercised in full) will be used for working
capital and general corporate purposes. See "USE
OF PROCEEDS."
Common Stock Warrants
NASDAQ SYMBOLS
RISK FACTORS AND
DILUTION................... The Securities involve a high degree of risk
including risks related to the failure of the
Company to anticipate and adapt to a developing
market, the rejection of the Company's services
and products by Internet users, development of
equal or superior services or products by
competitors and the failure of the market to
adopt the Internet as a transaction medium. The
Securities should not be purchased by investors
who cannot afford the loss of their entire
investment. Purchasers of the Securities will
incur immediate substantial dilution of their
investment. See "RISK FACTORS," "DILUTION" and
"FINANCIAL STATEMENTS."
- ---------------
(1) Includes the issuance of 340,000 shares to holders of the Company's Junior
Convertible Subordinated Notes (the "Junior Notes"), which shares are
issuable by the Company upon the Company's satisfaction of the Junior Notes.
Assumes no exercise of (i) the Over-Allotment Option (300,000 shares of
Common Stock and 300,000 Purchase Warrants); (ii) the Purchase Warrants
offered hereby (2,000,000 Purchase Warrants); (iii) the Representative
Warrants (200,000 shares of the Common Stock and 200,000 Purchase Warrants);
or (iv) any outstanding options (the "Outstanding Stock Options") granted
pursuant to the Company's 1997 Stock Option Plan (options to acquire an
additional 1,548,628 shares, including options (the "Officer Note Options")
to acquire an aggregate of 121,476 shares of Common Stock, which options are
issuable to certain officers of the Company at the Closing in addition to
the satisfaction of the Officer Notes. The inclusion of the Common Stock and
the Purchase Warrants on Nasdaq does not imply that an established public
trading market will develop therefor or, if developed, that such market will
be sustained. See "RISK FACTORS -- No Prior Public Market and Share Price
Volatility," "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION --
Liquidity and Capital Resources," "PRINCIPAL STOCKHOLDERS," "MANAGEMENT
-1997 Stock Option Plan," and "UNDERWRITING."
5
<PAGE> 8
RISK FACTORS
The Securities are speculative, and involve immediate substantial dilution
and a high degree of risk, including, but not necessarily limited to, the
several factors described below. Each prospective investor should consider
carefully the following risk factors inherent in and affecting the business of
the Company and this Offering before making an investment decision.
EXTREMELY LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT AND ANTICIPATION OF
CONTINUED LOSSES
The Company is a development stage company, the predecessors of which were
founded in May 1993 and commenced offering internal systems development in
February 1995. Accordingly, the Company has an extremely limited operating
history upon which an evaluation of the Company and its business can be based.
The Company's business must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stage of
development, particularly companies in new and rapidly evolving markets such as
the Internet. Specifically, such risks include the failure of the Company to
anticipate and adapt to a developing market, the rejection of the Company's
services and products by Internet users, development of equal or superior
services or products by competitors and the failure of the market to adopt the
Internet as a transaction medium.
There can be no assurance that the Company will be successful in addressing
such risks. Since its inception, the Company has incurred costs to develop and
enhance its technology, to create, introduce, and enhance its service and
content offerings, to establish marketing and distribution relationships, to
recruit and train an engineering and marketing group, and to build an
administrative organization. The Company intends to continue these efforts in
order to develop customer participation from the content provided in order to
generate revenue. As of March 31, 1997, the Company had an accumulated deficit
of approximately $3.9 million. There can be no assurance that the Company can
generate revenue growth, or that any revenue growth that is achieved can be
sustained. Revenue growth that the Company may achieve may not be indicative of
future operating results. With revenue growth, the Company may increase further
its operating expenses in order to increase its sales and marketing efforts,
fund greater levels of product development, increase its editorial staff, and
increase its general and administrative costs to support the enlarged
organization. To the extent that the Company increases operating expenses and
does not experience an increase in revenues, the Company's business, results of
operations and financial condition will be materially adversely affected. Given
the level of planned expenditures, the Company anticipates that it will continue
to incur losses for the foreseeable future and there can be no assurance that
the Company will ever achieve or sustain profitability. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION."
DEVELOPMENT STAGE COMPANY AND GOING CONCERN QUALIFICATION IN INDEPENDENT
AUDITORS' REPORT
The Company's independent accountants' report on the Company's financial
statements includes an explanatory paragraph to the effect that THE COMPANY'S
ACCUMULATED DEFICIT ($3,970,807 AS OF MARCH 31, 1997) RAISES SUBSTANTIAL DOUBT
ABOUT ITS ABILITY TO CONTINUE AS A GOING CONCERN and that the financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern. See FINANCIAL STATEMENTS.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
As a result of the Company's extremely limited operating history and the
rapid technological change experienced in the Internet industry generally, the
Company has no meaningful historical financial data upon which to base future
operating expenses. Accordingly, the Company's expense levels are based in part
on its expectations as to future revenues, of which there can be no assurance.
There can be no assurance that the Company will be able to accurately predict
the levels of future revenues, if any, and the failure to do so would have a
materially adverse effect on the Company's business, results of operations and
financial condition.
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The Company expects to experience significant fluctuations in future
quarterly operating results that may be caused by many factors. Causes of such
significant fluctuations may include, among other factors, demand for the
Company's services, the number, timing and significance of new service
announcements by the Company and its competitors, the ability of the Company to
develop, market and introduce new and enhanced versions of its services on a
timely basis, the level of product and price competition, changes in operating
expenses, changes in service mix, changes in the Company's sales incentive
strategy, and general economic factors. A substantial portion of the Company's
cost of revenue, which consists principally of fees payable to information
providers, telecommunications costs, personnel expenses attributable to the
daily publication of its services and related editorial and client services
expenses, is relatively fixed in nature. In addition, a substantial portion of
the Company's operating expenses is related to personnel and marketing programs,
which cannot be adjusted quickly and are therefore fixed in the short term. The
Company's operating expense levels are based, in significant part, on the
Company's expectations of future revenue on a quarterly basis. If actual revenue
levels on a quarterly basis are below management's expectations, both gross
margins and results of operations are likely to be adversely affected because a
relatively small amount of the Company's costs and expenses varies with its
revenue in the short term. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION."
DEVELOPING MARKET; VALIDATION OF THE INTERNET AS AN EFFECTIVE COMMERCE MEDIUM
The market for the Company's services and products has recently begun to
develop, is rapidly evolving and is characterized by an increasing number of
market entrants who have introduced or developed services and products for use
on the Internet. As a result, the Company's mix of services and products may
undergo substantial changes as the Company reacts to competitive and other
developments in the overall Internet market. The Company's market is highly
dependent upon the increased use of the Internet for information, interaction,
distribution and commerce. In particular, the Internet is still an unproven
medium for paid services such as the Company's. Accordingly, the Company's
future operating results will depend substantially upon the increased use of the
Internet by individuals and companies for information, interaction, distribution
and commerce, and the emergence of the Internet as an effective commerce medium.
Moreover, critical issues concerning the commercial use of the Internet
(including security, reliability, cost, ease of use, access, quality of service
and acceptance of advertising), remains a barrier to entry for many individuals
and businesses and therefore may impact the rate of growth of Internet use. If
widespread commercial use of the Internet does not develop, or if the Internet
does not develop as an effective commerce medium, the Company's business,
results of operations and financial condition will be materially adversely
affected.
TECHNOLOGICAL CHANGE; DEPENDENCE ON RECENTLY INTRODUCED AND NEW PRODUCTS AND
RISK OF PRODUCT DELAYS
The market in which the Company competes is characterized by rapidly
changing technology, evolving industry standards, frequent new service and
product announcements, introductions and enhancements and changing customer
demands. These market characteristics are exacerbated by the emerging nature of
the Internet and the apparent need of companies from a multitude of industries
to offer Internet-based products and services. Accordingly, the Company's future
success will depend in significant part on its ability to adapt to rapidly
changing technologies, the ability to adapt its services and products to
evolving industry standards, and to continually improve the performance,
features and reliability of its services and products in response to both
evolving demands of the marketplace and competitive service and product
offerings. The failure of the Company to adapt to such changes and evolution
would have a materially adverse effect on the Company's business, results of
operations and financial condition.
Since advertising and retail sales are based entirely upon the use of the
Company's marketed services and products by Internet consumers, broad acceptance
of the Company's services and products offerings by Internet consumers is
critical to the Company's future success. Failure of the Company to successfully
design, develop, test and introduce new services and products to achieve market
acceptance could prevent the Company from developing its desired family of
services and products. Furthermore, there can be no assurance that the Company
will not experience difficulties that could delay or prevent the successful
development, introduction or marketing of these services and products, or that
its new or recently introduced services and
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products and enhancements thereon will adequately meet the requirements of the
marketplace and achieve any degree of significant market acceptance. If the
Company is unable, for technological or other reasons, to develop and introduce
new services, products or enhancements of services and products in a timely
manner in accordance with its business model or in response to changing market
conditions or customer requirements, or if the services provided do not achieve
a significant degree of market acceptance, the Company's business, results of
operations and financial condition would be materially adversely affected.
UNCERTAINTY OF PRICING OF ADVERTISING
The intense competition faced by the Company in the sale of Internet
advertising from online service providers and search engine companies, including
competition from other firms focused on Christian content, has resulted and will
continue to result in a wide range of rates quoted by different vendors for a
variety of advertising services. This, combined with a limitation on the type
and content of advertising acceptable to the Company for use on CCN, makes it
very difficult to project future levels of the Company's Internet advertising
costs. To date, the Company has derived no revenues from its sales of
advertising space on CCN.
LIMITED SALES FORCE; EVOLVING DISTRIBUTION CHANNELS
The Company has a limited number of sales and marketing employees and has
immature distribution channels for its services and products. In order to
generate advertising and retail sales, the Company must achieve broad promotion
of its services and products to Internet users, thereby, developing a
recognition of its services, products and technology. There can be no assurance
that the Company will be able to establish additional content relationships,
retain existing relationships or broadly promote its services and products and
generate demand for its services and products, and the inability to do so would
have a material adverse effect on the Company's business, results of operations
and financial condition. See "PROPOSED BUSINESS."
DEPENDENCE ON THE INTERNET
Because global commerce and online exchange of information on the Internet
and other similar open wide area networks are new and evolving, it is difficult
to predict with any assurance whether the Internet will prove to be a viable
commercial marketplace. The Internet has experienced, and is expected to
continue to experience growth in the number of users and amount of traffic.
There can be no assurance that the Internet infrastructure will continue to be
able to support the demands placed on it by this continued growth. In addition,
the Internet could lose its viability due to delays in the development or
adoption of new standards and protocols to handle increased levels of Internet
activity, or due to increased governmental regulation. There can be no assurance
that the infrastructure or complementary services necessary to make the Internet
a viable commercial marketplace will be developed, or, if developed, that the
Internet will become a viable commercial marketplace for services and products
such as those offered by the Company. If the necessary infrastructure or
complementary services or facilities are not developed, or if the Internet does
not become a viable marketplace, the Company's business, results of operations
and financial condition will be materially adversely affected. See "PROPOSED
BUSINESS."
RISK OF CAPACITY CONSTRAINTS
A key element of the Company's strategy is to generate a high volume of
traffic to its website, CCN. Accordingly, the performance of the Company's
services and products is critical to the Company's reputation, its ability to
attract customers to CCN and market acceptance of these services and products.
Any system failure that causes interruptions in the availability or increases
response time of the Company's services would reduce traffic to the Company's
website and, if sustained or repeated, would reduce the attractiveness of the
Company's services to advertisers and other future potential customers or
Internet users. An increase in the volume of traffic conducted through the
Company's services and products could strain the capacity of the software or
hardware deployed by the Company, which could lead to slower response time or
system failures. In addition, as the number of websites and Internet users
increases, there can be no assurance that the Company's services and products
will be able to compete with firms who may have greater financial resources than
the Company. The Company is also dependent upon web browsers and Internet and
online service
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providers for access to its services and consumers may experience difficulties
due to system failures unrelated to the Company's systems, services and
products. To the extent that the capacity restraints described above are not
effectively addressed by the Company, such constraints would have a material
adverse effect on the Company's business, results of operations and financial
condition.
DEPENDENCE ON COMPUTER INFRASTRUCTURE
Certain of the Company's communications hardware and certain of its
computer hardware operations are located at the Company's headquarters located
in Chantilly, Virginia, and at a customer site located in Denver, Colorado.
There can be no assurance that a system failure at these locations would not
adversely affect the performance of the Company's services. These locations are
vulnerable to damage from fire, floods, earthquakes, power loss,
telecommunications failures, break-ins and similar events. The Company does not
presently have a disaster recovery plan. Although the Company carries property
insurance, its coverage may not be adequate to compensate the Company for all
losses that may occur. Despite the implementation of network security measures
by the Company, its servers are also vulnerable to computer viruses, physical or
electronic break-ins and similar disruptive problems. Computer viruses,
break-ins or other problems caused by third parties could lead to interruptions,
delays or cessations in service to users of the Company's services and products.
The occurrence of any of these risks could have a material adverse effect on the
Company's business, results of operations and financial condition. See "PROPOSED
BUSINESS".
GOVERNMENT REGULATION AND REGULATORY UNCERTAINTIES
The Company is not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally, and there are
currently few laws or regulations directly applicable to access to or commerce
on the Internet. However, due to the increasing popularity and use of the
Internet, it is possible that a number of laws and regulations may be adopted
with respect to the Internet, covering issues such as user privacy, pricing,
characteristics and quality of products and services. The Telecommunications
Reform Act of 1996 imposes criminal penalties on anyone who distributes obscene,
indecent or patently offensive communications on the Internet (although certain
provisions of that law have been stayed, in part, by a United States District
Court.) The adoption of any additional laws or regulations may decrease the
growth of the Internet, which could in turn decrease the demand for the
Company's services and products and increase the Company's cost of doing
business or otherwise have an adverse effect on the Company's business, results
of operations and financial condition. Moreover, the applicability to the
Internet of existing laws in various jurisdictions governing issues such as
property ownership, libel and personal privacy is uncertain. Any such new
legislation or regulation could have a material adverse effect on the Company's
business, results of operations and financial condition.
PROPRIETARY TECHNOLOGY; LICENSES AND INTELLECTUAL PROPERTY
The Company regards its technology as proprietary and attempts to protect
it with copyrights, trademarks, trade secret laws, restrictions on disclosure
and transferring title and other methods. The Company also generally enters into
confidentiality or license agreements with its consultants and business
partners, and generally controls access to and distribution of its documentation
and other proprietary information. Despite these precautions, it may be possible
for a third party to copy or otherwise obtain and use the Company's products or
technology without authorization, or to develop similar technology
independently. Policing unauthorized use of the Company's technology is
difficult. There can be no assurance that the steps taken by the Company will
prevent misappropriation or infringement of its technology. In addition,
litigation may be necessary in the future to enforce the Company's intellectual
property rights, to protect the Company's trade secrets or to determine the
validity and scope of the proprietary rights of others. Such litigation could
result in substantial costs and diversion of resources and could have a material
adverse effect on the Company's business, results of operations and financial
condition.
The Company currently owns and licenses from third parties several
technologies, as it continues to introduce new services and products and to
incorporate new technologies. There can be no assurance that these third party
technology licenses will be available to the Company on commercially reasonable
terms, if at
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all. The inability of the Company to obtain any of these technology licenses
could result in delays or reductions in the introduction of new services or
product shipments or could materially and adversely affect the performance of
its services until equivalent technology could be identified, licensed and
integrated. Any such delays or reductions in the introduction of services or
product shipments or adverse impact on service quality could materially
adversely affect the Company's business, results of operations and financial
condition.
FUTURE CAPITAL NEEDS, UNCERTAINTY OF ADDITIONAL FINANCING
The Company currently anticipates that the Net Proceeds of this Offering,
together with available funds will be sufficient to meet its anticipated needs
for working capital, capital expenditures and business expansion for
approximately two years. Thereafter, the Company may need to raise additional
funds. The Company may need to raise additional funds sooner in order to fund
more rapid expansion, to develop new or enhanced services or products, to
respond to competitive pressures or to acquire complementary products,
businesses or technologies. If additional funds are raised through the issuance
of equity or convertible debt securities, the percentage ownership of the
stockholders of the Company will be reduced and such securities may have rights,
preferences or privileges senior to those of the existing stockholders of the
Company. There can be no assurance that additional financing will be available
on terms favorable to the Company, or at all. If adequate funds are not
available or are not available on acceptable terms, the Company may not be able
to fund growth, take advantage of acquisition opportunities, develop or enhance
services or products or respond to competitive pressures. Such inability could
have a material adverse effect on the Company's business, results of operations
and financial condition. See "USE OF PROCEEDS" and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION."
SIGNIFICANT FLEXIBILITY IN APPLYING NET PROCEEDS
Although the Company intends to utilize a majority of the Net Proceeds of
the Offering for repayment of notes payable and the expansion of its sales,
marketing, promotional and product development efforts, a portion of the Net
Proceeds may also be used to acquire or invest in complementary businesses or
products or to obtain product development rights or complementary technologies.
Accordingly, management will have significant flexibility in applying the Net
Proceeds of the Offering. Potential acquisition candidates may include companies
with a compatible vision, product and technology, where economies of scale and
significant synergy or increase in distribution of the Company's products and
services may result. As of the date of this Prospectus, the Company has no
agreements, understandings or arrangements with respect to any such
acquisitions. Investors in the Offering will not have an opportunity to evaluate
the specific merits or risks of any acquisition. See "USE OF PROCEEDS."
IMMEDIATE AND SUBSTANTIAL DILUTION
New investors will incur an immediate and substantial dilution of
approximately $3.02 per share (60.4%) (assuming no exercise of the Purchase
Warrants, the Over- Allotment Option, the Representative Warrants, or the
Outstanding Stock Options or options to be granted upon satisfaction of the
Officer Notes) between the pro forma net tangible book value per share of Common
Stock and the offering price. The Company believes that the Net Proceeds of the
Offering will be sufficient to meet the Company's operating and capital
requirements for the next two years. The Company anticipates that additional
funding will be required after the use of the Net Proceeds of the Offering. Such
additional funding will likely result in further dilution to the Company's
stockholders. See "DILUTION."
DEPENDENCE ON STRATEGIC RELATIONSHIPS
The Company has entered into certain agreements with numerous businesses
which provide services and products consisting of Internet access, networking,
filtering, hosting, radio and chat technology, market research and transaction
processing capability. If the Company's arrangements and activities with such
companies were lessened, curtailed, or otherwise modified, the Company may not
be able to replace or supplement such services alone or with other companies. If
these companies were to cease to jointly provide
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their services, the Company's business, results of operations, and financial
condition would be materially and adversely affected. See "PROPOSED BUSINESS."
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends, in significant part, upon the
continued service of Robert C. Varney, Ph.D. the Company's Chairman of the Board
of Directors and Chief Executive Officer, Dane B. West, the Company's President,
and William H. Bowers, the Company's Chief Technical Officer, all of whom have
entered into employment agreements with the Company for terms expiring on
. In addition, certain non-officer level skilled technical, editorial,
sales, and product development personnel, while not key to the success of the
business are important to the Company's operations. None of such personnel have
entered into employment agreements. The Company has obtained "key man" life
insurance on the lives of Dr. Varney and Messrs. West and Bowers. Although the
Company anticipates that it will maintain this "key man" life insurance for at
least the next two years, no assurance can be given that such insurance can be
maintained at reasonable rates, if at all. The loss of the services of Dr.
Varney, Mr. West or Mr. Bowers before suitable replacements are obtained could
have a material adverse effect on the Company's capacity to successfully achieve
its business objectives. In addition, departures and additions of skilled
personnel, to the extent disruptive, could have a material adverse effect on the
Company. The Company's future success also depends on its ability to identify,
hire, train and retain other skilled personnel. Competition for such skilled
personnel is intense, and there can be no assurance that the Company will be
able to attract, assimilate or retain such personnel in the future. The
inability to attract and retain the necessary skilled personnel could have a
material adverse effect upon the Company's business, results of operations and
financial condition. See "MANAGEMENT -- Employment Agreements" and "-- Executive
Officer Compensation."
INABILITY TO MANAGE GROWTH
The rapid execution necessary for the Company to establish itself as a
leader in the developmental market for Internet-based sales of Christian related
products and advertising requires an effective planning and management process.
The Company's development has placed, and is expected to continue to place, a
significant strain on the Company's managerial, technical, sales and marketing
and administrative personnel as well as the Company's financial resources. To
manage its growth, the Company must implement operational and financial systems
and train and manage its employee base. There can be no assurances that the
Company will be able to successfully implement such systems on a timely basis,
if at all. Further, the Company will be required to manage multiple
relationships with consumers, strategic partners and other third parties. There
can be no assurance that the Company's systems, procedures or controls will be
adequate to support the Company's future operations. The Company's future
operating results will also depend on its ability to expand its sales and
marketing organizations, implement and manage new services to penetrate broader
markets and further develop and expand its organization. If the Company is
unable to manage growth effectively, the Company's business, results of
operations and financial condition will be materially adversely affected. There
can be no assurance that the Company will be able to effectively manage such
change.
COMPETITION
There are several other companies, including nonprofit organizations, some
of which have longer operating histories, greater name recognition and
significantly greater financial and other resources than the Company, attempting
or which may attempt to aggregate Christian content on the Internet. There can
be no assurances that the Company will ever be positioned to compete
successfully with its current or future competitors nor can there be any
assurance that competitive pressures faced by the Company will not result in
increased marketing costs, decreased Internet traffic or loss of market share or
otherwise will not materially adversely affect the Company's business, results
of operations and financial condition. See "PROPOSED BUSINESS -- Competition."
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CLASSIFICATION AS A "RELIGIOUS CORPORATION"
Article XIII of the Company's Bylaws provides that the Company is a
"religious corporation." To this end, the Company's policy is generally, to
include among its officers and directors unconditionally, and employees, where a
bona-fide occupational qualification exists, only persons who, upon request,
subscribe to the Company's Christian statement of faith. The Company deems this
as necessary in order to best identify with and service its selected Christian
market niche and to generate its Internet product which is heavily content
laden. Based on advice of its special counsel, the Company believes that its use
of religious criteria in employment practices does not violate federal law
relating to equal employment opportunities ("Federal Employment Law") because
the Company qualifies as an exempt religious corporation for purposes of the
Federal Employment Law. The Federal Employment Law has been subject to limited
judicial and regulatory interpretation on the question of what type of religious
corporation would be exempt from the reach of the Federal Employment Law. The
Federal Employment Law is enforced, in part, by a federal regulatory agency that
is vested with broad discretion in interpreting its meaning. The Company's
policies and procedures with respect to hiring have not been examined by federal
or state authorities. For these reasons, there can be no assurances that a
review of the Company's hiring practices or the operation of the Company's
business will not result in determinations that materially adversely affect the
Company's business, results of operations and financial condition or the
Company's ability to attain its objectives. See "PROPOSED BUSINESS -- Christian
Statement of Faith -- the Company's Policy."
POSSIBLE SECURITIES LAW VIOLATION
In April 1996, the Company became aware that certain previously completed
private offerings of equity securities may be deemed not to have been properly
exempted from registration under federal and/or state law. This may give rise to
the opportunity for certain stockholders to exercise rescission rights, if any,
related to their investment in the Company. Based on advice of counsel, the
Company believes that there may be valid legal defenses to any and/or all such
rescission actions, if initiated. The potential of inadvertent exemption
violations was communicated by the Company to the investors concerned in August,
1996. Furthermore, in December, 1996, each stockholder and member who the
Company believed may have had certain claims to rescission rights, was sent a
written request to waive such rights (if any) to rescission and other remedies,
in connection with any past omissions or violations of federal or state
securities laws or regulations by the Company and to further release the Company
and its affiliates from liability associated with such possible breaches of the
law (the "Waivers"). Stockholders representing approximately 89% of the proceeds
raised by the Company in connection with such prior offerings delivered the
Waivers to the Company. Assuming the Waivers are valid and enforceable by the
Company, if in the future, it is determined that the prior offerings were
effected in violation of federal securities and/or certain state securities
laws, the Company may have to refund an aggregate of approximately $388,000 plus
interest from the date of purchase, to purchasers of securities in the prior
offerings who have not delivered the Waiver. The Company's financial statements
do not include a reserve for any amounts the Company may be required to deliver
in connection with a recission of the prior offerings.
NO PRIOR PUBLIC MARKET AND SHARE PRICE VOLATILITY
Prior to the Offering there has been no public market for the Common Stock
or Purchase Warrants and there can be no assurance that any such market will
develop for the securities offered herein. The initial offering price for the
Securities as well as the exercise price and other terms of the Purchase
Warrants, have been determined by negotiation between the Company and the
Representative and bear no relationship to the Company's asset value, net worth
or other established criteria of value. There can be no assurance that the
market price of those securities will be sustained at the offering price.
Quarterly variations in the Company's operating results, news regarding other
Internet firms, Company or industry performance compared to securities analyst
expectations, a drop in a technology stock index and an anti-Christian sentiment
in the press are examples of events which could have an immediate adverse effect
on the market price of the securities offered herein. See "DESCRIPTION OF
SECURITIES" and "UNDERWRITING."
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SHARES ELIGIBLE FOR FUTURE SALE
All of the 3,091,216 shares of Common Stock issued and outstanding before
giving effect to the Securities purchased in the Offering (which amount, for
this purpose, includes an aggregate of 340,000 shares to be issued to the
holders of the Junior Notes upon satisfaction of the Junior Notes) as well as
all shares issuable upon the exercise of the Outstanding Stock Options, are
"restricted securities," as that term is defined under Rule 144 ("Rule 144"),
promulgated under the Securities Act, and may only be sold pursuant to a
registration statement under the Securities Act or in compliance with Rule 144.
Furthermore, the holders of all of the restricted securities have agreed not to
sell, transfer or otherwise dispose of any shares of Common Stock for a period
of 18 months from the Effective Date, or any longer period required by the laws
of any state. The Company is unable to predict the effect that any subsequent
sales of the Company's securities by its existing stockholders, under Rule 144
or otherwise, may have on the then-prevailing market price of the Common Stock,
although such sales could have depressive effect on such market price.
Nevertheless, the possibility that substantial amounts of Common Stock may be
sold in the public market may adversely affect prevailing market prices of the
Common Stock and could impair the Company's ability to raise capital through the
sale of its equity securities. See "DESCRIPTION OF SECURITIES -- Shares Eligible
for Future Sale."
LIMITATION ON MONETARY LIABILITY OF OFFICERS AND DIRECTORS TO STOCKHOLDERS
Section 145 of the General Corporation Law of the State of Delaware
contains provisions entitling directors and officers of the Company to
indemnification from judgments, fines, amounts paid in settlement and reasonable
expenses, including attorney's fees, as a result of an action or proceeding in
which they may be involved by reason of being or having been a director or
officer of the Company provided said officers or directors acted in good faith.
Articles 10 and 11 of the Company's Certificate of Incorporation contain
provisions indemnifying officers and directors of the Company to the fullest
extent provided by Delaware law. As a result, the rights of the Company's
stockholders to recover monetary damages from directors of the Company for
breaches of directors' fiduciary duties may be significantly limited.
NON-REGISTRATION IN CERTAIN JURISDICTION OF SHARES UNDERLYING THE PURCHASE
WARRANTS
The Purchase Warrants are not exercisable unless, at the time of the
exercise, the Company has a current prospectus covering the shares of Common
Stock issuable upon exercise of the Purchase Warrants, and such shares are
registered, qualified or deemed to be exempt under the securities laws of the
states of residence of the exercising holders of the Purchase Warrants. Although
the Company will use its best efforts to have all of the shares of Common stock
issuable upon exercise of the Purchase Warrants registered or qualified on or
before the exercise date and to maintain a current prospectus relating thereto
until the expiration of the Purchase Warrants, there is no assurance that it
will be able to do so.
Although the Purchase Warrants will not knowingly be sold to purchasers in
jurisdictions in which the Securities are not registered or otherwise qualified
for sale, purchasers may buy Purchase Warrants in the after-market or may move
to jurisdictions in which the shares underlying the Purchase Warrants are also
registered or qualified during the period that the Purchase Warrants are
exercisable. In this event, the Company would be unable to issue shares of
Common Stock to those persons desiring to exercise their Purchase Warrants
(whether in response to a redemption notice or otherwise), unless and until the
shares could be qualified for sale in the jurisdictions in which such purchasers
reside, or exemptions exist in such jurisdictions from such qualification.
Purchase Warrant holders would have no choice but to attempt to sell the
Purchase Warrants or allow them to expire unexercised. See "Description of
Securities."
DIVIDEND POLICY
The Company has not paid any dividends on its capital stock to date and
does not currently intend to pay dividends in the foreseeable future. The
payment of dividends, if any, will be contingent upon the Company's revenues and
earnings, if any, capital requirements and general financial condition
subsequent to the Closing of this Offering. The payment of any dividends
subsequent to the Closing of this Offering will be within the discretion of the
Company's Board of Directors. It is the current intention of the Board of
Directors to retain
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all earnings, if any, for use in the Company's business operations and,
accordingly, the Board does not anticipate paying any cash dividends in the
foreseeable future. See "DESCRIPTION OF SECURITIES -- Dividends."
NASDAQ ELIGIBILITY AND MAINTENANCE; POSSIBLE DELISTING OF SECURITIES FROM NASDAQ
Under the current rules relating to the listing of securities on Nasdaq, a
company must have at least $4,000,000 in total assets, at least $2,000,000 in
stockholders equity, and a minimum bid price of $3.00 per share. For continued
listing, a company must maintain at least $2,000,000 in total assets, at least
$1,000,000 in stockholders equity, and a minimum bid price of $1.00 per share.
The Common Stock and the Purchase Warrants (the "Listed Securities") are
expected to be eligible for initial listing on Nasdaq under these rules upon the
Closing. If at any time after issuance the Common Stock and Purchase Warrants
are not listed on Nasdaq, and no other exclusion from the definition of a "penny
stock" under the Exchange Act were available, transactions in the Listed
Securities would become subject to the penny stock regulations which impose
additional sales practice requirements on broker-dealers who sell such
securities. See "-- Risk of Low-Priced Stocks."
If the Company should experience losses from operations, it may be unable
to maintain the standards for continued listing and the Listed Securities could
be subject to delisting from Nasdaq. Trading, if any, in the Listed Securities
would thereafter be conducted in the over-the-counter market on an electronic
bulletin board established for securities that do not meet the Nasdaq listing
requirements or in what are commonly referred to as the "pink sheets." As a
result, an investor may find it more difficult to dispose of, or to obtain
accurate quotations as to the price of, the Listed Securities.
RISK OF LOW-PRICED STOCKS
If the Listed Securities were delisted from Nasdaq, and no other exclusion
from the definition of a "penny stock" under applicable Commission regulations
were available, the Listed Securities may become subject to the penny stock
rules that impose additional sales practice requirements on broker-dealers who
sell such securities to persons other than established customers and accredited
investors (generally defined as investors with net worth in excess of $1,000,000
or annual income exceeding $200,000, or $300,000 together with spouse). For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase and must have received the
purchaser's written consent to the transaction prior to sale. Consequently,
delisting from Nasdaq, if it were to occur, could materially adversely affect
the ability of broker-dealers to sell the Securities and the ability of
purchasers in this Offering to sell their Securities in the secondary market.
See "DESCRIPTION OF SECURITIES."
REPRESENTATIVE'S INFLUENCE ON THE MARKET
A significant amount of the Securities may be sold to customers of the
Representative. Such customers subsequently may engage in transactions for the
sale or purchase of such Securities through or with the Representative. Although
it has no obligation to do so, the Representative has indicated to the Company
that it intends to make a market in the Securities. Such market-making activity
may be discontinued at any time. The price and liquidity of the Common Stock and
Purchase Warrants may be significantly affected by the degree, if any, of the
Representative's participation in such market. If the Representative ceases
making a market, the market and market prices for such Securities may be
adversely affected and the holders thereof may be unable to sell the Securities.
See "DESCRIPTION OF SECURITIES."
NON-EXERCISE OF PURCHASE WARRANTS CALLED FOR REDEMPTION
Commencing after the Effective Date, the Purchase Warrants are subject to
redemption by the Company, at the option of the Company, at $0.25 per Purchase
Warrant, upon 30 days prior written notice, if the closing bid price, as
reported on Nasdaq, or the closing sale price, as reported on a national or
regional securities exchange, as applicable, of the shares of the Common Stock
for 30 consecutive trading days ending within ten days of the notice of
redemption of the Purchase Warrants averages in excess of $10.00 per share,
14
<PAGE> 17
subject to adjustment. Prior to the first anniversary of the Effective Date, the
Purchase Warrants will not be redeemable by the Company without the written
consent of the Representative. The Company is required to maintain an effective
registration statement with respect to the Common Stock underlying the Purchase
Warrants prior to redemption of the Purchase Warrants. In the event the Company
elects to redeem the Purchase Warrants, such Purchase Warrants will be
exercisable until the close of business on the date for redemption fixed in such
notice. If any Purchase Warrant called for redemption is not exercised by such
time, it will cease to be exercisable and the holder will be entitled only to
the redemption price. Redemption of the Purchase Warrants could force Purchase
Warrant holders either to (i) exercise the Purchase Warrants and pay the
exercise price thereof at a time when it may be less advantageous economically
to do so, or (ii) accept the redemption price in consideration for cancellation
of the Purchase Warrants, which could be substantially less than the market
value thereof at the time of redemption. See "DESCRIPTION OF SECURITIES --
Purchase Warrants."
REPRESENTATIVE WARRANTS
In connection with this Offering, the Company has agreed to sell to the
Representative and/or persons related to the Representative, for nominal
consideration, the Common Stock Representative Warrants and the Warrant
Representative Warrants. See note (1) to the table on the cover page of this
Prospectus. The holders of the Representative Warrants will have certain
registration rights with respect to the Representative Warrants and the shares
of Common Stock underlying the Representative Warrants (the "Underlying
Shares"). See "UNDERWRITING." In addition, the sale, or even the possibility of
sale, of the securities issuable upon exercise of the Representative Warrants
could have an adverse effect on the market price for the Company's securities or
on the Company's ability to obtain future financing. If and to the extent the
Representative Warrants are exercised, stockholders may experience dilution in
the book value of their holdings. See "DILUTION."
USE OF PROCEEDS
The Net Proceeds to the Company from the sale of the Securities are
estimated to be $8,577,500. If the Over-Allotment Option is exercised in full,
the Net Proceeds would be $9,915,125. The Company anticipates that the Net
Proceeds will be expended substantially in the manner set forth in the following
table:
<TABLE>
<CAPTION>
APPROXIMATE
APPLICATION OF NET PROCEEDS DOLLAR AMOUNT % OF PROCEEDS
---------------------------------------------------------- ------------- -------------
<S> <C> <C>
Marketing and sales and consulting services(1)............ $ 2,408,000 28.0%
Research and Development(2)............................... 1,200,000 14.0%
Retirement of Debt(3)..................................... 2,400,000 28.0%
Working Capital and general corporate purposes(4)......... 2,569,500 30.0%
---------- ------
Total........................................... $ 8,577,500 100.0%
</TABLE>
- ---------------
(1) Represents anticipated costs for the promotion of CCN, participation in
trade shows, multimedia presentations, market research; the hiring of at
least four additional marketing and sales personnel and three additional
personnel to the Company's editorial staff and the payment at the Closing of
$108,000 to the Representative for consulting services to be delivered for a
three year period following the Closing.
(2) Includes continuing enhancements of CCN and related technology.
(3) Represents (i) the satisfaction of $623,000 principal amount of the Officer
Notes including interest payable thereon; and (ii) the satisfaction of
$1,700,000 principal amount of the Junior Notes. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION."
(4) Includes payment of salaries to executive officers of $ per annum
over the next two years.
In the event that the Company's plans change or its assumptions prove to be
inaccurate, or if the proceeds of this Offering prove insufficient to fund
operations, the Company may find it necessary to reallocate the proceeds within
the categories as described or to use a portion of the proceeds to seek
additional financing or to
15
<PAGE> 18
cease operations. Any changes in the allocation of the proceeds would be based ,
among other things, upon a revenue mix that differs materially from that
anticipated, the timing of revenue generation and the acceptance of CCN, all of
which affect the level of and content of operating expenses.
Although the Company intends to utilize a majority of the Net Proceeds for
repayment of indebtedness and the expansion of its sales, marketing, promotional
and product development efforts, a portion of the Net Proceeds may also be used
to acquire or invest in complementary businesses or products or to obtain
product development rights or complementary technologies. Accordingly,
management will have significant flexibility in applying the Net Proceeds.
Potential acquisition candidates may include companies with a compatible vision,
product and technology, where economies of scale and significant synergy or
increase in distribution of the Company's products and services may result. As
of the date of this Prospectus, the Company has no agreements, understandings or
arrangements with respect to any such acquisitions. Investors in this offering
will not have an opportunity to evaluate the specific merits or risks of any
acquisition. See "RISK FACTORS."
The Company currently anticipates that the Net Proceeds, together with
available funds will be sufficient to meet its anticipated needs for working
capital, capital expenditures and business expansion for at least two years.
Thereafter, the Company may need to raise additional funds. The Company may need
to raise additional funds sooner in order to fund more rapid expansion, to
develop new or enhanced services or products, to respond to competitive
pressures or to acquire complementary products, businesses or technologies. If
additional funds are raised through the issuance of equity or debt securities,
the percentage ownership of the stockholders of the Company will be reduced,
stockholders may experience additional dilution and such securities may have
rights, preferences or privileges senior to those of the stockholders of the
Company. There can be no assurance that additional financing will be available
on terms favorable to the Company, or at all. If adequate funds are not
available or are not available on acceptable terms, the Company may not be able
to fund its expansion, take advantage of acquisition opportunities, develop or
enhance services or products or respond to competitive pressures. Such inability
could have a material adverse effect on the Company's business, results of
operations and financial condition. See "RISK FACTORS" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION."
The Net Proceeds not immediately required for the purposes set forth above
will be invested in United States Government securities or other minimum risk,
short-term interest-bearing investments; provided, however, that the Company
will attempt not to invest the Net Proceeds in a manner which may result in the
Company being deemed to be an investment company under the Investment Company
Act of 1940.
16
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1997 and as adjusted to give effect to (i) the issuance and sale of the
Securities offered hereby (based on an assumed offering price of $5.00 per share
and $.125 per Purchase Warrant) and the initial application of the Net Proceeds
therefrom; (ii) the issuance of 340,000 shares of Common Stock upon the
repayment at the Closing, of the Junior Notes; and (iii) the repayment of the
Officer Notes. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION"
and FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
OUTSTANDING AS ADJUSTED
----------- -----------
<S> <C> <C>
Short Term Debt-Officer Notes................................... $ 623,000 --
Long Term Debt-Junior Notes..................................... $ 1,700,000 --
Stockholders Equity
(Net Capital Deficiency):
Common Stock, $.01 par value, 20,000,000 shares authorized,
1,202,588 shares issued and 3,542,588 shares issued (pro forma
as adjusted) (1).............................................. 12,004 35,404
Additional paid-in capital...................................... 2,479,843 12,817,630
Common Stock Warrants........................................... 111,187 --
Deferred Offering Costs......................................... (19,591) (1,692,091)
Accumulated Deficit............................................. (3,970,807) (4,160,352)
----------- -----------
Total stockholders' equity (net capital deficiency)........ $(1,387,364) $ 7,000,591
</TABLE>
- ---------------
(1) Excludes (i) 1,548,628 shares of Common Stock issuable upon exercise of
Outstanding Stock Options, including the Officer Note Options of which
options to purchase 580,156 shares are currently exercisable, including
options to acquire 20,000 shares to become exercisable at the Closing; (ii)
2,000,000 shares of Common Stock issuable upon exercise of the Purchase
Warrants; (iii) 600,000 shares of Common Stock reserved for issuance upon
exercise of the Over-Allotment Option, including the exercise of the
Purchase Warrants included in the Over-Allotment Option; and (iv) 400,000
shares of Common Stock reserved for issuance upon exercise of the
Representative Warrants, including the exercise of the Warrant
Representative Warrants. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION," "DESCRIPTION OF SECURITIES" and "UNDERWRITING."
17
<PAGE> 20
DILUTION
The difference between the public offering price per share and the pro
forma net tangible book value per share of Common Stock of the Company after
this Offering constitutes the dilution to investors in this Offering. Net
tangible book value per share is determined by dividing the net tangible book
value of the Company (total tangible assets less total liabilities) by the
number of outstanding shares of Common Stock.
At March 31, 1997, the net tangible book value of the Company was
$(1,387,364) or approximately $(1.15) per share of common stock of the Company
(based upon 1,202,588 shares then outstanding). After giving effect to the
issuance and sale of the 2,000,000 Shares offered hereby (and assuming that a
value of $0.125 is ascribed to each of the Purchase Warrants offered hereby),
the application of the estimated Net Proceeds and the issuance of 340,000 shares
upon satisfaction of the Junior Notes, the pro forma net tangible book value of
the Company at March 31, 1997 would have been $7,000,591 or approximately $1.98
per share, representing an immediate increase in net tangible book value of
$8,387,955 or $3.13 per share to existing stockholders and an immediate dilution
of $3.02 per share to new investors (which represents 60.4% of the public
offering price of the Shares). As of the date hereof, there are currently no
plans, proposals, arrangements, understandings or obligations with respect to
the sale of additional securities to any persons for the period commencing with
the Closing, other than the Company's issuance of shares of Common Stock upon
the exercise of the Over-Allotment Option, the Representative Warrants, the
Purchase Warrants and the Outstanding Stock Options. See "PROSPECTUS
SUMMARY -- The Offering," "PRINCIPAL STOCKHOLDERS," "MANAGEMENT -- 1997 Stock
Option Plan," "UNDERWRITING" and FINANCIAL STATEMENTS.
The following table illustrates the foregoing information with respect to
dilution to new investors on a per Share basis after this Offering:
<TABLE>
<S> <C> <C>
Initial public offering price per Share...................................... $5.00
Net tangible book value per share of Common Stock, before this Offering...... $(1.15)
Increase per share of Common Stock attributable to payment by new
investors.................................................................. 3.13
------
Pro forma adjusted net tangible book value per share of Common Stock after
this Offering.............................................................. 1.98
-----
Net tangible book value dilution to new investors per Share of Common
Stock...................................................................... 3.02
=====
</TABLE>
The following table sets forth as of the Effective Date, with respect to
existing stockholders (including for this purpose the holders of the Junior
Notes who will become stockholders upon the closing of this Offering) and new
investors, on a pro forma basis, a comparison of the number of shares of Common
Stock acquired from the Company, their percentage ownership of such shares, the
total consideration paid, the percentage of total consideration paid and the
average price per share of Common Stock:
<TABLE>
<CAPTION>
SECURITIES PURCHASED(1) TOTAL CONSIDERATION
------------------------ --------------------------
AMOUNT PERCENTAGE AMOUNT(3) PERCENTAGE
--------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Existing Stockholders(2).............................. 1,542,588 100.0% $ 2,502,909 19.6%
New Investors-Shares.................................. 2,000,000 100.0% $10,000,000 78.5%
New Investors-Warrants................................ 2,000,000 100.0% $ 250,000 1.9%
----------- -----
$12,752,909 100.0%
=========== =====
</TABLE>
- ---------------
(1) The above table assumes no exercise of the Purchase Warrants, the
Over-Allotment Option, the Representative Warrants or the Outstanding Stock
Options. If the Outstanding Stock Options currently exercisable had been
exercised at March 31, 1997, the net tangible book value per share would be
increased to $10,159,069 and the percentage of outstanding Common Stock
owned by new investors would decrease to 85.9%. If the Over-Allotment Option
is exercised in full with respect to Shares and with respect to Purchase
Warrants, the new investors will have paid $11,500,000 for 2,300,000 Shares
and 2,300,000 Purchase Warrants, representing approximately 82.1% of the
total consideration of $13,991,847. See "PROSPECTUS SUMMARY -- The
Offering," "PRINCIPAL STOCKHOLDERS, " "MANAGEMENT -- 1997 Stock Option Plan"
and "UNDERWRITING."
(2) Of these shares, 519,943 shares were purchased by officers, directors,
promoters and affiliated persons of the Company for an aggregate
consideration of $548,449.
(3) Before deduction of underwriting discounts and estimated expenses of the
Offering.
18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the Financial
Statements and Notes thereto of the Company included elsewhere in this
Prospectus.
GENERAL
In April 1997 (the "Merger Date"), DIDAX, INC., a Virginia corporation,
DIDAX ON-LINE, L.C., a Virginia limited liability company (collectively,
"Predecessor Didax") and DIDAX INC., a Delaware corporation organized on January
7, 1997 ("Didax Delaware") consummated a reorganization resulting in Didax
Delaware being the surviving corporation (the reorganization being referenced
herein as the "Merger"). Under the terms of the Merger, Didax Delaware, among
other things, issued a total of 1,160,376 shares of its Common Stock,
representing 100% of its outstanding Common Stock subsequent to the Merger. For
comparison purposes, the discussion below relates to the combined financial
statements of Predecessor Didax. Predecessor Didax and Didax Delaware are
referenced in this Prospectus collectively as the "Company."
Since its inception in 1993, the operations of the Company have been
limited to (a) research and development and marketing activities related to The
Christian Community Network(TM) (CCN) (WWW.CHRISTCOM.NET), the Company's
interactive website focused on content material that the Company generally
believes appeals to the Christian community, and (b) providing for a fee, to
Christian organizations, limited technology consulting services, including
website development services and other related Internet services. The Company
presently intends to position itself to generate commercial sales of (i)
Christian interest advertising space on CCN; (ii) memberships in
Christianity-based affinity marketing programs (affording participants price
discounts and other benefits of group purchasing power); and (iii) Christian
interest products manufactured or developed by others (primarily Christian
books, Christian music and other Christian articles) on CCN. To date, the
Company has generated revenues only from providing the Consulting Services, the
Internet Access Services, and to a very limited extent, Retail Sales.
The Company has an extremely limited operating history upon which an
evaluation of the Company and its business can be based. The Company's business
must be considered in light of the risks, expenses and problems frequently
encountered by companies in the early stage of development, particularly
companies in new and rapidly evolving markets, such as the Internet. The market
for the Company's services and products has only very recently begun to develop,
is rapidly evolving and is characterized by an increasing number of market
entrants who have introduced or developed services and products for use on the
Internet. As a result, the Company's mix of services and products may undergo
substantial changes as the Company reacts to competitive and other developments
in the overall Internet market. The Company has achieved only limited revenues
to date, has incurred net losses since inception and expects to continue to
operate at a loss for the foreseeable future. As of March 31, 1997, the Company
had an accumulated deficit of approximately $3,970,800. See "RISK
FACTORS -- Extremely Limited Operating History; Accumulated Deficit and
Anticipation of Continued Losses" and "-- Developing Market; Validation of the
Internet as an Effective Commerce Medium."
As a result of the Company's extremely limited operating history, the
Company has no meaningful historical financial data upon which to base future
operating expenses. Accordingly, the Company's expense levels are based in part
on the Company's goals for obtaining future revenues, of which there can be no
assurance. A shortfall in revenues would have an immediate adverse impact on the
Company's business, results of operations and financial condition. To date, the
Company has generated no revenue from the commercial sale of advertising space
on CCN and very limited sales of products via CNN. The Company plans to
significantly increase its operating expenses, increase its sales and marketing
efforts, fund greater levels of product development, increase its editorial
staff and increase its general and administrative costs. The Company expects to
experience significant fluctuations in future quarterly operating results and
believes that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as any indication of future
performance. See "RISK FACTORS -- Extremely Limited Operating History;
Accumulated Deficit and Anticipation of Continued Losses" and "-- Potential
Fluctuations in Quarterly Results."
19
<PAGE> 22
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996 (UNAUDITED)
For the three months ended March 31, 1997, the Company incurred a loss of
$470,578 compared to a loss of $529,736 for the three-month period ended March
31, 1996. This decreased loss of approximately $59,158 (approximately 11%) was
due to increased revenue and decreased payroll expenses offset by increases in
interest expense. During the three month periods ended March 31, 1997 and March
31, 1996 the Company donated to two separate Christian ministry customers
unaffiliated with the Company otherwise salable computer consulting services,
including website development services valued at approximately $22,000 and
$56,000, respectively.
The Company derived $92,737 in revenue during the three-month period ended
March 31, 1997 compared to no revenue for the three-month period ended March 31,
1996. $28,841 of the revenue generated during this period was generated from
Internet Access Services, $62,435 was generated from Consulting Services and
$1,461 was generated from Retail Sales. Interest income was $9,289 for the
three-month period ended March 31, 1997 compared to $5,200 for the three-month
period ended March 31, 1996.
Cost of goods and services, consisting primarily of costs related to
development, maintenance and support of customer websites increased to $43,760
for the three month period ended March 31, 1997 as compared to $0 for the three
month period ended March 31, 1996. Technical and development expenses,
consisting primarily of costs related to the Company's product development
activities for CCN decreased to $135,637 for the three-month period ended March
31, 1997 as compared to $156,155 for the three month period ended March 31,
1996. Sales and marketing costs, consisting primarily of expenses related to
employees and consultants engaged in sales activities, decreased to $158,042
during the three month period ended March 31, 1997 as compared to $203,378 for
the three month period ended March 31, 1996. The Company believes that it will
continue to incur substantial technical and marketing expenses in the
foreseeable future. General and administrative expenses consisting of payroll
and related expenses and office overhead costs (including rent) increased by
approximately $15,528 (8.9%) to $190,932 for the three months ended March 31,
1997, as compared to $175,404 for the three-month period ended March 31, 1996.
This increase was primarily a result of increased overhead expenses offset by a
reduction in professional fees. The Company's payroll costs decreased to
$266,778 from $294,922 primarily as a result of salary reductions.
For the three-month period ended March 31, 1997, interest expense was
$44,326 versus $0 for the comparable three-month period ended March 31, 1996.
This increase is a result of increased borrowings of $835,000 during the third
and fourth quarter of 1996 inclusive of recognition of amortization of the
discount on warrants issued to an executive officer and a director of the
Company. See "-- Liquidity and Capital Resources," and Note D to FINANCIAL
STATEMENTS.
YEAR ENDED DECEMBER 31, 1996 VS. YEAR ENDED DECEMBER 31, 1995
For the year ended December 31, 1996, the Company incurred a net loss of
$(2,464,904) compared to a net loss of $(706,564) for the year ended December
31, 1995. This increased loss of approximately $1,758,340 was due to substantial
increases in interest and expenses associated with product development,
marketing expenses and general and administrative expenses related to increases
in lease payments, professional fees and increased professional staff. During
the year ended December 31, 1996 and December 31, 1995, as part of its product
development expense, the Company provided without charge to Christian ministry
customers otherwise salable computer consulting services, including website
development services valued at approximately $240,500 and $250,000,
respectively.
The Company generated $180,776 in revenue during the year ended December
31, 1996 compared to no revenue for the year ended December 31, 1995. Of the
revenue generated in 1996, $90,571 was generated from Internet Access Services,
$81,371 was generated from Consulting Services, and $8,834 was generated from
Retail Sales. Interest income was $11,412 for the year ended December 31, 1996
compared to $4,353 for the year ended December 31, 1995 partially as a result of
the increase in liquid assets during 1996. See "-- Liquidity and Capital
Resources," and Note D to FINANCIAL STATEMENTS.
20
<PAGE> 23
Cost of goods and services increased to $226,220 for the year ended
December 31, 1996 as compared to none for the year ended December 31, 1995.
Technical and development expenses increased to $694,072 for the year ended
December 31, 1996 as compared to $283,819 for the year ended December 31, 1995.
Sales and marketing costs increased to $991,300 during the year ended December
31, 1996 as compared to $259,701 for the year ended December 31, 1995. General
and administrative expenses increased by approximately $504,128 (301%) to
$671,525 for the year ended December 31, 1996, as compared to $167,397 for the
year ended December 31, 1995, partially as a result of increased professional
fees relating to initial customer and vendor contracts. The Company's payroll
costs increased to approximately $1,334,896 for the year ended December 31, 1996
from $342,724 for the year ended December 31, 1995 as a result of approximately
ten additional employees hired.
For the year ended December 31, 1996, interest expense was $77,815 versus
none for the year ended December 31, 1995. This increase is a result of
borrowings of $835,000 during the third and fourth quarter of 1996 inclusive of
recognition of amortization of the discount on warrants issued to an executive
officer and a director of the Company. See "-- Liquidity and Capital Resources,"
and Note D to FINANCIAL STATEMENTS.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations and met its
capital expenditure requirements from proceeds of the private sale of its equity
securities totaling approximately $2,491,000, the issuance of the Officer Notes
in the principal amount of $623,000, and the issuance of the Junior Notes in the
principal amount of $1,700,000.
The Officer Notes consist of four promissory notes aggregating $623,000
principal amount of debt owed by the Company to Dr. Varney ($201,000) and Mr.
Edgington ($422,000), the Chairman of the Board of Directors and Chief Executive
Officer of the Company, and a director of the Company, respectively. The Officer
Notes bear interest at 9.75% per annum. The Officer Notes were issued on July
10, 1996, July 30, 1996, September 26, 1996 and October 30, 1996, and the
proceeds received by the Company from the issuance of the Officer Notes were
used for working capital. The Company intends to satisfy the Officer Notes at
the Closing. In connection with the satisfaction of the Officer Notes, the
Company is obligated to issue to Dr. Varney and Mr. Edgington Officer Note
Options to purchase up to 43,382 shares and 78,094 shares of the Common Stock,
respectively, at a purchase price of $4.00 per share, exercisable at any time
and from time to time for a period commencing with the satisfaction of the
Officer Notes and for a period of eight years thereafter.
The Junior Notes consist of $1,700,000 principal amount of non-interest
bearing Junior Convertible Subordinated Notes held by 25 persons unaffiliated
with the Company and John J. Meindl, Jr., a director of the Company. The Junior
Notes were issued by the Company during the period December 16, 1996 through
February 4, 1997, and the proceeds derived by the Company from the issuance of
the Junior Notes were used for development and marketing of additional websites,
CCN expansion, reduction of accounts payable and working capital. The Company
intends to satisfy the Junior Notes at the Closing. Pursuant to the terms of the
Junior Notes, the Company is obligated to deliver to the holders of the Junior
Notes an aggregate of 340,000 shares of the Common Stock upon satisfaction of
the Junior Notes.
During the three month periods ended March 31, 1997 and March 31, 1996, net
cash used in operating activities was $577,919 and $461,371, respectively.
During the fiscal year ended December 31, 1996 and December 31, 1995, net cash
used in operating activities was $2,023,558 and $693,309, respectively,
including $180,668 and $67,674 used in connection with investment activities
during 1996 and 1995, respectively.
As of March 31, 1997, the Company had current liquid assets of $768,437
compared to $1,932 at December 31, 1996. The Company had total assets of
$1,195,633 and $282,274 at March 31, 1997 and December 31, 1996, respectively.
The increase in liquid assets and total assets is attributable to the Company's
receipt of cash in exchange for the issuance of the Junior Notes.
21
<PAGE> 24
Capital expenditures have been, and future expenditures are anticipated to
be, primarily for facilities and equipment to support expansion of the Company's
operations and management information systems. While the Company has no material
capital commitments, the Company anticipates that its planned purchases of
capital equipment will increase with increases in salaried employees and website
traffic.
The Company is currently expending approximately $175,000 per month, which
expenses include operational expenses, salaries, rent and professional fees. The
Company anticipates that its expenses will increase due to additional expenses,
including the payment of salaries for additional personnel, increased
professional expenses and increased sales and marketing expenses. The Company
expects that the Net Proceeds will be sufficient to meet its working capital
requirements for two years. See "RISK FACTORS."
THE COMPANY'S FINANCIAL STATEMENTS INCLUDE AN EXPLANATORY PARAGRAPH TO THE
EFFECT THAT THE COMPANY'S ABILITY TO CONTINUE OPERATIONS IS DEPENDENT UPON THE
SALE OF THE SECURITIES OR OTHER FUND-RAISING, WHICH RAISES SUBSTANTIAL DOUBT
ABOUT ITS ABILITY TO CONTINUE AS A GOING CONCERN. THE COMPANY'S FINANCIAL
STATEMENTS DO NOT INCLUDE ANY ADJUSTMENTS WHICH MIGHT BE NECESSARY SHOULD THE
COMPANY BE UNABLE TO CONTINUE AS A GOING CONCERN. SEE FINANCIAL STATEMENTS.
The Company is not involved in any material acquisitions, nor are there any
material acquisitions currently planned. There is no assurance that the
Company's resources will be sufficient to finance any acquisition or expansion
of the Company's operations.
PROPOSED BUSINESS
OVERVIEW
Since its inception in 1993, the operations of the Company and its
predecessors (referred to in this Prospectus collectively as the "Company") have
been limited to (a) research and development and marketing activities related to
The Christian Community Network(TM) ("CCN") (WWW.CHRISTCOM.NET), the Company's
interactive website focused on content material that the Company generally
believes appeals to the Christian community, and (b) providing for a fee, to
Christian organizations, limited technology consulting services, including
website development services, Internet access through the IBM Global Network,
hosting through various hosting services (including in-house hosting) and other
related Internet services. The Company's website, an Internet-based alternative
to traditional means of communication by Christian ministries and Christian
content publishers and retailers (such as fliers, periodicals, books, radio and
television) is intended to provide its target constituent base, the Christian
consumer, with resources and information provided by Christian and secular
retailers, publishers, charities and ministries. The Company's website is also
intended to reduce its clients' costs of contacting their target constituents
and markets while expanding the potential reach and duration of that contact.
Access to CCN is currently provided free of charge to persons who have Internet
access. To date, the Company has derived all of its revenues from (i) providing
Consulting Services to Christian organizations, such as Promise Keepers, a
nonprofit Christian ministry (PK Net, www.promisekeepers.org), Christianity
Today, Inc., a publisher of Christian periodicals (www.christianity.net), Learn
@ Home, a coalition of Christian homeschooling professional organizations, and
World Vision, an international Christian relief agency; (ii) providing Internet
Access Services; and (iii) to a very limited extent, Retail Sales. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION -- General."
The Company targets the marketing of its sales, products and services and
the content on CCN to persons of all ages, economic levels, genders, ethnic
backgrounds and nationalities that identify themselves as Christian, principally
Protestant (regardless of denomination, if any) and Catholic, with particular
emphasis upon evangelical Christians. According to a poll conducted by the
Gallup Organization in 1994, approximately 25% of Americans identify themselves
as Catholic and approximately 20% identify themselves as Protestant. The Pew
Center for Civic Journalism in a survey published in April 1997, reported that
approximately 35% of the United States population identify themselves as
evangelical Christians. The Wall Street Journal (September 1996) reported that
the number of individuals on the Internet grew from approximately eight million
in September 1995 to approximately 30 million in September 1996. According to
Intelliquest, a
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marketing research firm, the number of individuals on the Internet grew to
approximately 47 million by February 1997. According to SOMA Communications,
Inc., a Christian broadcast market research firm, over 70% of Christians on the
Internet have annual incomes in excess of $40,000 and over 30% of Christians on
the Internet have annual incomes over $75,000. According to Christianity Today,
Inc., a publisher of Christian periodicals, when compared to the general U.S.
population, Christians are approximately 25% more likely to own a computer and
approximately 15% more likely to own a modem.
The Company presently intends to position itself to generate commercial
sales of (i) Christian interest advertising space on CCN; (ii) memberships in
Christianity-based affinity marketing programs (such as sales of Internet-based
travel services), which afford participants price discounts and other benefits
of group purchasing power; and (iii) Christian interest products manufactured or
developed by others (primarily Christian books, Christian music and other
Christian articles) on CCN. The Company recently has released on CCN its on-line
Christian books and music store featuring Christian content material produced by
others.
The Company has an extremely limited operating history upon which an
evaluation of the Company and its business can be based. For the fiscal years
ended December 31, 1995 and 1996 and the three-month periods ended March 31,
1996 and 1997, the Company generated net losses of $(706,564), $(2,464,904), and
$(529,737) (unaudited) and $(470,578) (unaudited), respectively, from
operations. See FINANCIAL STATEMENTS. The Company has achieved only limited
revenues to date, has incurred net losses since inception and expects to
continue to operate at a loss for the foreseeable future. Its expense levels are
based in part on its expectations as to future revenues, if any. Any shortfall
in revenues, whether caused by the cancellation or deferral of, or the failure
to obtain, advertising, retail or website development customers, or otherwise,
would have an immediate material adverse impact on the Company's business,
results of operations and financial condition. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION."
INFORMATION AND COMMERCE ON THE INTERNET GENERALLY
The Internet is a network of computers which enables users to access and
share information and conduct business transactions. Much of the recent growth
in the use of the Internet by businesses and individuals has been driven by the
emergence of the World Wide Web (the "Web"), which enables non-technical users
to exploit the resources of the Internet. International Data Corporation ("IDC")
estimates that the number of Web users increased from 16.1 million at the end of
1995 to 34.6 million at the end of 1996 and that this number will increase to
163 million by the end of the year 2000.
The emergence of the Internet as a significant communications medium is
driving the development and adoption of website content and commerce
applications that offer convenience and value to consumers, as well as unique
marketing opportunities and reduced operating costs to businesses. By hosting
information about products and services on a website, a company or organization
can enable potential customers or constituents in any geographical area to
gather relevant, in-depth information about products, services or organization
activities and messages at their convenience and according to their preferences.
A growing number of consumers have begun to transact business electronically,
such as paying bills, booking airline tickets, trading securities and purchasing
consumer goods, including personal computers, consumer electronics, compact
disks, books and vehicles. Moreover, online transactions can be faster, less
expensive and more convenient than transactions conducted through a human
intermediary. In addition, website commerce applications enable businesses and
organizations, including ministries, to rapidly target and economically manage a
broad customer and constituent base and establish and maintain ongoing direct
customer and constituent relationships. IDC estimates that the dollar value of
goods and services purchased over the Internet will increase from approximately
$318 million in 1995 to $95 billion in the year 2000.
CURRENT OPERATIONS
Research and Development; Initial Marketing
As of June 30, 1996, the Company had developed most of the infrastructure
necessary to support a coordinated collection of websites. During the third
quarter 1996, the Company created three products which
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could be accessed by Internet users via CCN: an Internet radio station,
discussion forums, and a Reuters news feed. Shortly thereafter, during the
fourth quarter 1996, retail purchasing services became accessible to Internet
users via CCN. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION -- Results of Operations."
Before 1997, the Company's marketing activities were limited to its direct
communication with Christian organizations and its distribution of diskettes to
participants in programs of Promise Keepers to afford them access to CCN. The
Company commenced more active promotional activity in January 1997 through
Internet-based marketing and expanded its non-Internet based marketing activity
to print media, radio stations and direct mail promotion in April 1997.
Website Development and Technology Consulting Services
The Company has been engaged in providing the Consulting Services for
others since late 1995. Substantially all of the Consulting Services were
donated to the Company's clients. Currently, the Company generates approximately
$30,000 per month from providing Consulting Services to others. The Company has
received more than 20 awards for its website development activities. In addition
to Promise Keepers and Christianity Today, Inc., for which the Company developed
websites in April 1996, the Company's website services and development clients
include World Vision, Maranatha! Music, the Salvation Army, Ministry Business
Services, Prison Fellowship, Family Research Council, Evangelical Council for
Financial Accountability (ECFA), Christian Liberty Academy and Billy Graham
Institute of Evangelism. Because other firms in the Christian niche market (some
of which have longer operating histories and may have greater financial and
other resources) offer website development and computer consulting services at
competitive prices, there can be no assurances that the Company will derive
significant revenues from providing Consulting Services in the future.
INTENDED OPERATIONS
Fee-Based Advertising
Access to CCN is provided by the Company free of charge to those persons
who have Internet access. The Company attempts to collect demographic (e.g. age,
sex, location) and psychographic (e.g. purchasing habits, brand loyalty, price
sensitivity) characteristics of its consumers by building individual profiles
over a period of time through guestbook registration, online surveys and instant
polling techniques. User profiles allow the Company to provide valuable,
targeted information to the consumer (called Personalization), resulting in the
Company positioning itself to receive a greater share of that consumer's
expenditures. At the same time, Personalization positions the Company to charge
higher premiums for third-party advertising on CCN because the advertising is
more targeted.
A "hit" is a request by the consumer's computer for information to be sent
from a server. Typically, 5 to 10 "hits" are necessary to produce a "page view",
which is the entire page displayed on the consumer's computer screen. Because of
the variability in hits per page view, there is no direct correlation between
the number of hits and the number of page views. A typical page view has several
advertisements, either in different locations on the page or rotating through a
single location.
The Company believes, based on an informal survey of the market, that the
cost of advertising on websites is within the range of $20 to $50 for each 1,000
times that a consumer views the advertisement. To the extent the Company has
advertisements on CCN for which it receives a fee, in the event there is an
increase in the website traffic on CCN, the Company's revenues from advertising
should increase. The growth in traffic on the Company's affiliated websites has
grown from 1,000,000 hits per month (representing approximately 100,000 to
200,000 page views) in May 1996 to 6,200,000 hits per month (representing
approximately 1,260,000 page views) in March 1997, a growth of approximately
600% over a ten-month period. Traffic on CCN has increased from 500,000 hits per
month (representing approximately 50,000 to 100,000 page views) in December 1996
to 900,000 hits per month (representing approximately 125,000 page views) in
March 1997. To date, the Company has derived no revenue from sales of
advertising on CCN. See "-- The DIDAX Plan."
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Affinity Program
In order to offer CCN consumers and other members of the Christian
community additional services and encourage them to regularly revisit CCN, the
Company intends to begin offering an Internet-based affinity program during the
fourth quarter of 1997. This program, which has been developed in conjunction
with an affinity consulting organization, may include various services,
including web-based travel services, overnight delivery service, long-distance
telephone service, business equipment imaging supplies, paging services and
financial services. Members will accumulate credits to be applied towards the
purchase of products on CCN. The Company currently expects that consumers will
pay an annual fee for such programs or a small commission each time certain
services are utilized, such annual fee to range from approximately $30 to $100
per member depending upon the level of membership.
Commercial Sales of Products and Services
The Company believes that enhancing its national brand name recognition and
position as a leading Internet-based Christian product and service marketer is
critical to its efforts to solicit purchase requests and subscribing
manufacturers, producers and distributorships. The Company believes the growing
number of websites offering competing services and the relatively low barriers
to entry in providing Internet services increase the importance of establishing
and maintaining brand name recognition. In order to enhance brand name
awareness, the Company intends to market aggressively its products and services
to consumers and Internet users by advertising on various websites, in print
media and by direct mail.
The only products currently being offered for retail sale on CCN are
approximately separate items of Christian books and music and related items. The
books and music are being offered on CCN through the Company's recently launched
on-line store, Books for Life. To encourage a greater awareness of Books for
Life, the Company has created a discussion forum called "Talk About Books" in
which discussion among the Company's website users takes place regarding
Christian music and books.
Additional Services
In order to generate additional revenues, attract more consumers to its
website and Christian organizations and retailers to its programs and remain
competitive, the Company must successfully develop, market and introduce new
services. There can be no assurance that the Company will successfully develop
or introduce new services, that such services will achieve market acceptance or
that subscribing Christian organizations and retailers will not view such new
services as competitive to services already offered by such Christian
organizations and retailers. The Company intends to incur additional expenses to
develop and successfully market such services. To the extent that revenues
generated by such additional services are insufficient to cover such expenses,
the Company's operating results would be adversely affected. Should the Company
fail to develop and successfully introduce competing services, the Company's
business, results of operations, and financial condition may be materially
adversely affected.
THE DIDAX PLAN
Having developed websites for Christian organizations and the
infrastructure and certain limited services for users of CCN, the Company
contemplates offering expanded services on CCN, including real time chat rooms
and forums, initially across four topic areas: (1) Business and Finance; (2)
Culture and Politics; (3) Arts and Entertainment; and (4) Christian Life. The
Company currently has an agreement with Reuters whereby Reuters provides for a
fee, secular news content on CCN, updated hourly. For Christian information on
CCN, in addition to the Company providing information, the Company has
arrangements with various Christian organizations, including Promise Keepers,
World Vision, Ron Blue & Company, Christian Financial Concepts, Family Research
Council and the Christian Film and TV Commission, whereby the Company receives
without charge, from these organizations, Christian content material to be
offered on CCN. The Company also plans to provide on CCN stock market and other
business data, as well as secular content through links to other Internet sites.
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In anticipation of the Company providing these expanded services on CCN,
the Company has commenced its first significant promotion in order to build
traffic to provide a strong base for advertising revenues. Specifically, the
Company has undertaken the following marketing initiatives: (1) CCN promotion by
public relations firms, including Superhighway Consulting Services and World
Wide Web Public Relations; (2) a CCN update and announcement service using
Intermind, a leading push technology; (3) a radio affiliate promotion program;
(4) retention of an advertising agency; (5) commencement of a banner exchange/
purchase program on websites; (6) print advertising; and (7) retention of a
public relations firm with news clipping services.
The Company intends to seek to grow its CCN traffic in order to position
itself to sell on CCN advertising space as well as products of particular
interest to the Christian community. The Company then will seek to develop
additional revenue paths, such as transaction processing, subscriptions,
micro-transactions, affinity programs, reservations, and ticket sales. The
selection will be determined by a combination of market research and current
site traffic analysis.
In the future, the Company may seek to integrate CCN with other Christian
resources on the Internet. In certain circumstances, the Company will attempt to
partner with other organizations, with the Company assuming responsibility for
various Internet activities and the partner assuming responsibility for areas in
which it has expertise, with the collective goal of providing more Christian
resources to Christian consumers.
COMPETITION
To the extent the Company engages in sales of advertising space on CCN, the
Company will compete with print and direct mail, radio and television
advertising, as well as several hundreds of thousands of other websites.
The Company's retail sales services compete against a variety of Internet
and traditional buying services and stores, some of which offer the same
products and services as the Company does on CCN. In the Internet-based market,
the Company competes for attention with other entities which maintain similar
commercial websites. The Company also competes indirectly against affinity
programs offered by several companies.
The market for Internet-based commercial services is new and competition
among commercial websites is expected to increase significantly in the future.
The Internet is currently characterized by minimal barriers to entry, and
current and new competitors can launch new websites at relatively low cost.
Potential competitors could include, but are not limited to, information service
providers and manufacturers, producers and distributors of products and
services. In order to compete successfully as an Internet commerce entity, the
Company must significantly increase awareness of the Company and its brand name,
effectively market its services and successfully differentiate its website.
Certain of the Company's current and potential competitors have longer operating
histories and greater name recognition. Such competitors could undertake more
aggressive and costly marketing campaigns than the Company, which may adversely
affect the Company's marketing strategies and have a material adverse effect on
the Company's business, results of operations or financial condition.
In addition, as the Company introduces new services, it will compete
directly with a greater number of companies. Such companies may already maintain
or may introduce websites which compete with those of the Company. There can be
no assurance that the Company can continue to compete successfully against
current or future competitors, nor can there be any assurance that competitive
pressures faced by the Company will not result in increased marketing costs,
decreased Internet traffic or loss of market share or otherwise will not
materially adversely affect its business, results of operations and financial
condition.
The Company believes that the principal competitive factors affecting the
market for Internet-based marketing services are the speed and quality of
service execution, the size and effectiveness and quality of products and
services of the participating manufacturers, producers and distributors,
competitive pricing, successful marketing and establishment of national brand
name recognition, positioning itself as a leading Internet-based marketing
service, the volume and quality of traffic to and purchase requests from a
website and the ability to introduce new services in a timely and cost-effective
manner. Although the Company
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believes that it currently competes favorably with respect to such factors,
there can be no assurance that the Company will be able to compete successfully
against current or future competitors with respect to any of these factors.
The Company's known competitors include CHRISTIANITY ONLINE (COL), an area
available only to American Online subscribers operated by Christianity Today,
Inc. The Company has developed Christianity.Net, a website operated by
Christianity Today, Inc. which is available through CCN to all Internet users
pursuant to an agreement between the Company and Christianity Today, Inc. Other
known competitors include GOSPEL COMMUNICATIONS NETWORK (GCN), a website
operated by a division of Gospel Films, currently with no commercial or
advertising capabilities; GOSHEN, a website operated by Media Management , which
provides limited news services and advertising space; ICRN (INVOLVED CHRISTIAN
RADIO NETWORK BY DOMAIN), a website operated by The Domain Group, a for-profit
international marketing and fund raising organization currently operating an
Internet radio service geared to the Christian community; LIGHTSOURCE ONLINE (BY
KMA), a website operated by Killian, McCabe and Associates (KMA), a for-profit
marketing and fund raising organization currently operating an Internet radio
service geared to the Christian community; CHRISTIAN ANSWERS, a website operated
by Eden Communications supported entirely by donations, including an area of
interest to young Christians and movie reviews; and NETCENTRAL, a website
operated by Net Central, Inc. and providing information on Christian music and
artists.
OPERATIONS AND TECHNOLOGY
The Company believes that its future success is dependent on its ability to
improve continuously the speed and reliability of CCN, enhance communications
functionality with its consumers and maintain the highest level of information
privacy and transaction security. Continuous system enhancements are primarily
intended to accommodate increased traffic across the Company's website, improve
the speed with which purchase requests are processed and heighten website
security, which will be increasingly important as the Company offers new
services. System enhancements entail the implementation of sophisticated new
technology and system processes and there can be no assurance that such
continuous enhancements may not result in unanticipated system disruptions, such
as power loss and telecommunications failures. The Company's primary servers are
located offsite and maintained by various unaffiliated third parties. In
addition the Company maintains certain servers at its corporate headquarters in
Chantilly, Virginia. The Company's servers are vulnerable to interruption by
damage from fire, hurricane, power loss, telecommunications failure and other
events beyond the Company's control. The Company is in the process of developing
comprehensive out-of-state disaster recovery plans to safeguard consumer
information. The Company maintains business interruption insurance for the
actual loss of business income sustained due to the suspension of its operations
over a twelve month period as a result of direct physical loss of or damage to
property at the Company's offices. However, in the event of a prolonged
interruption, it is probable that this business interruption insurance will not
be sufficient to fully compensate the Company. In the event that the Company
experiences significant system disruptions, the Company's business, results of
operations or financial condition could be materially adversely affected.
The Company's services also may be vulnerable to break-ins and similar
disruptive problems caused by Internet users. Further, weaknesses in the
Internet may compromise the security of confidential electronic information
exchanged across the Internet. This includes, but is not limited to, the
security of the physical network and security of the physical machines used for
the information transfer. Any such flaws in the Internet or the end-user
environment, or weaknesses or vulnerabilities in the Company's services or the
licensed technology incorporated in such service, would jeopardize the
confidential nature of information transmitted over the Internet and could
require the Company to expend significant financial and human resources to
protect against future breaches, if any, in order to alleviate or mitigate
problems caused by such security breaches. Concerns over the security of
Internet transactions and the privacy of users may also inhibit the growth of
the Internet generally, particularly as a means of conducting commercial
transactions. To the extent that activities of the Company, or third party
contractors, involve the storage and transmission of proprietary information
(such as personal financial information or credit card numbers), security
breaches could expose the Company to a risk of financial loss or litigation or
other liabilities. Any such occurrence could
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reduce consumer satisfaction in the Company's services and could have a material
adverse effect on the Company's business, results of operations or financial
condition.
TRADEMARKS AND PROPRIETARY RIGHTS
The Company's success and ability to compete is dependent in part upon its
proprietary systems and technology. While the Company relies on trademark, trade
secret and copyright laws to protect its proprietary rights, the Company
believes that the technical and creative skills of its personnel, continued
development of its proprietary systems and technology, brand name recognition
and reliable website maintenance are more essential in establishing and
maintaining a leadership position. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's services or to obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's proprietary rights is
difficult. In addition, litigation may be necessary in the future to enforce or
protect the Company's intellectual property rights or to defend against claims
of infringement or invalidity. Misappropriation of the Company's intellectual
property or potential litigation could have a material adverse effect on the
Company's business, results of operations or financial condition.
CHRISTIAN STATEMENT OF FAITH; THE COMPANY'S POLICY
Article XIII of the Company's Bylaws provides that the Company is a
"religious corporation." To this end and in order to best identify with and
service its selected Christian market niche and to generate its Internet product
which is heavily content laden, the Company's policy is generally to include
among its officers and directors unconditionally, and employees, where a
bona-fide occupation qualification exists, only persons who, upon request,
subscribe to the Company's Christian Statement of Faith as follows:
"1. We believe that there is one God, eternally existing in three persons: the
Father, the Son, and the Holy Spirit.
"2. We believe that the Bible is God's written revelation to man and that it is
verbally inspired, authoritative, and without error in the original
manuscripts.
"3. We believe in the deity of Jesus Christ, His virgin birth, sinless life,
miracles, death on the cross to provide for our redemption, bodily
resurrection and ascension into heaven, present ministry of intercession for
us, and His return to earth in power and glory.
"4. We believe in the personality and deity of the Holy Spirit, that He performs
the miracle of the new birth in an unbeliever and indwells believers,
enabling them to live a godly life.
"5. We believe that man was created in the image of God, but because of sin, was
alienated from God. That alienation can be removed only by accepting through
faith, God's gift of salvation which was made possible by Christ's death."
In order to implement the Christian Statement of Faith, the Company intends
generally to act in accordance with the following policy, as stated in its
Bylaws:
"The Corporation shall:
"1. Actively seek to market the services of the [C]orporation to those persons,
entities, and agencies which are actively involved in propagating a pattern
of beliefs and actions consistent with the tenets of the Statement of Faith.
Nothing herein shall be construed to prohibit marketing such services to
other persons, entities, or agencies except as specifically set forth in the
prohibitions or corporate action set forth below.
"2. To the extent permitted by law, expend from the revenues of the
[C]orporation such sums as are deemed prudent by the Board of Directors to
support, encourage, or sustain persons or entities which in the judgment of
the Board of Directors are expected to make significant efforts to propagate
the Gospel of Jesus Christ in any manner not in conflict with the Statement
of Faith. Such expenditures may be made without regard to the tax status or
nonprofit status of the recipient. It is expected that the expenditures
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paid out under the provisions of this paragraph shall approximate ten
percent (10%) of the amount that would otherwise be the net profits of the
[C]orporation for the accounting period.
"The Corporation shall not:
"1. Take any position publicly or privately that denies or conflicts with the
tenets of the Statement of Faith.
"2. Elect, qualify or permit to serve in office as a [d]irector or officer to
the [C]orporation any person who has not without reservation subscribed to
the Statement of Faith as being true, accurate and correct or who having so
subscribed has either publicly or privately recanted from a particular of
the Statement of Faith or who has publicly made statements or taken actions
without repentance which the Board of Directors finds to be in clear
conflict with the Statement of Faith.
"3. Hire or continue to employ any employee in any position in which, in the
sole discretion of the Corporation, subscription to the Statement of Faith
is a bona-fide occupational qualification reasonably necessary to the normal
operations of the Corporation's activities, where such employee refuses,
upon request, to subscribe to the Statement of Faith or having so subscribed
has either publicly or privately recanted from any particular of the
Statement of Faith or has publicly made statements or taken actions without
repentance which the Board of Directors finds to be in clear conflict with
the Statement of Faith. Because the Scriptures teach that bad company
corrupts good morals and that a little leaven affects the whole lump, it is
important to the Corporation's purposes that it be protected from the
influence of persons not in agreement with the Statement of Faith at every
level of employment.
"4. Permit any party to utilize the name, goodwill, trade marks, or trade names
of the [C]orporation in any course of action or dealings which the
[C]orporation itself is herein prohibited from taking.
"In addition to any other appropriate legend, prior to its issuance each
and every share certificate to be issued by this Corporation shall be inscribed
with a legend that states:
'This Corporation is a religious corporation. All shares
of this [C]orporation are subject to the terms as set forth in
the BYLAWS of the corporation which restricts the amendment or
deletion of that section of the BYLAWS which prescribes a
corporate Statement of Faith in the LORD JESUS CHRIST and
directs or prohibits certain corporate actions on the basis of
the Statement of Faith.' "
The Bylaws also state:
"No amendment to this Article XIII and no other superseding or
conflicting provision of these BYLAWS, the ARTICLES OF INCORPORATION,
or any stockholder agreement shall be adopted unless the result of the
count of votes approving the amendment is 90% affirmative without
dissension and a minimum of two-thirds of the shares outstanding are
represented and voting. Such vote must be made at an actual special
meeting of the stockholders called by written notice delivered to each
stockholder not less than 10 nor more than 60 days prior to the date
of the meeting. Time is of the essence as to this notice provision and
no extension of the time of the meeting or adjournment of the meeting
to a date outside the notice period shall be permitted except upon the
affirmative vote of not less than 70 percent of the shares then issued
and outstanding."
See "RISK FACTORS -- Classification as a 'Religious Corporation.' "
GOVERNMENT REGULATION
As the Company introduces new services, the Company may need to comply with
additional licensing regulations and regulatory requirements. Becoming licensed
may be an expensive and time-consuming process which could divert the efforts of
management. In the event that the Company does not successfully become licensed
under applicable state laws or otherwise comply with regulations necessitated by
changes in current regulations or the introduction of new services, the
Company's business, results of operations or financial condition be materially
adversely affected.
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There are currently few laws or regulations directly applicable to access
to or commerce on the Internet. However, because of the increasingly popularity
and use of the Internet, it is likely that a number of laws and regulations may
be adopted at the local, state, national or international levels with respect to
commerce over the Internet, potentially covering issues such as pricing of
services and products, advertising, user privacy and expression, intellectual
property, information security, anti-competitive practices or the convergence of
traditional distribution channels with Internet commerce. In addition, tax
authorities in a number of states are currently reviewing the appropriate tax
treatment of companies engaged in Internet commerce. New state tax regulations
may subject the Company to additional state sales and income taxes. The adoption
of any such laws or regulations may decrease the growth of Internet usage or the
acceptance of Internet commerce which could, in turn, decrease the demand for
the Company's services and increase the Company's costs or otherwise have a
material adverse effect on the Company's business, results of operations or
financial condition.
EMPLOYEES
The Company currently has 25 employees, all of whom are employed on a
full-time basis, including its four executive officers, Robert C. Varney, Ph.D.,
Chairman of the Board of Directors and Chief Executive Officer, Dane B. West,
President, William H. Bowers, Chief Technical Officer, and Gary A. Struzik,
Chief Financial Officer, Chief Operating Officer and Secretary.
PROPERTY AND FACILITIES
The Company currently maintains its executive offices in approximately
5,000 square feet of space at 4501 Daly Drive, Chantilly, Virginia pursuant to a
three-year lease terminating in September, 1998 with an unaffiliated third party
at an annual rental of approximately of $66,400. The Company considers this
space to be sufficient for its corporate headquarters.
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MANAGEMENT
The following sets forth certain information concerning the directors and
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ----------------------------- --- ----------------------------------------------
<S> <C> <C>
Robert C. Varney, Ph.D.(1) 52 Chairman of the Board of Directors, Chief
Executive Officer and director
Dane B. West 41 President and director
William H. Bowers 37 Chief Technical Officer and director
Gary A. Struzik 41 Chief Financial Officer, Chief Operating
Officer and Secretary
Bruce E. Edgington(1) 39 director
John J. Meindl, Jr.(1) 40 director
Clay T. Whitehead, Ph.D.(2) 58 director
James G. Buick(2) 64 director
Earl E. Gjelde(2) 52 director
</TABLE>
- ---------------
(1) Members of Compensation Committee
(2) Members of Audit Committee
ROBERT C. VARNEY, PH.D. has been Chairman of the Board of Directors, Chief
Executive Officer and a director of the Company and its predecessor entities
since July 1995. From 1993 until July 1995 he managed his personal real estate
holdings. Dr. Varney was Chairman and Chief Executive Officer of International
Telesystems Corporation ("ITC"), a firm engaged in outbound call center
automation, from 1985 through 1993. Dr. Varney received a B.S. degree from the
University of Rochester in June, 1966 and an M.S. and a Ph.D. degree in Computer
Science from Penn State University in 1969 and 1971, respectively.
DANE B. WEST has been the President and a director of the Company and its
predecessor entities since the Company's inception in 1993. From January 1992
through April, 1993, Mr. West was a student at the University of Virginia. Mr.
West is an ordained minister with 15 years of ministry leadership experience. As
a pastor, he recruited, trained and managed a volunteer staff of more than 300
persons. He has completed doctoral studies in educational administration at the
University of Virginia. He received a B.A. in Biblical Studies from The
Washington Bible College in 1978, and an M.A. in Christian Education from Talbot
Theological Seminary in 1981.
WILLIAM H. BOWERS has been the Chief Technical Officer and a director of
the Company and its predecessor entities since the Company's inception in 1993.
Mr. Bowers was a Branch Chief of the Central Intelligence Agency from April,
1990 until May, 1993, where his responsibilities included providing engineering
and technical support services. Mr. Bowers received a B.S. degree in Engineering
from Virginia Polytechnic Institute in 1983.
GARY A. STRUZIK has been the Chief Financial Officer, Chief Operating
Officer and Secretary of the Company since April 1997 and was Vice President,
Finance and Administration, of the Company's predecessor entities from February
1996 until April 1997. Mr. Struzik was Director of Accounting for Loral Defense
Systems (formally Unisys Defense Systems) from February 1995 through February
1996 and Director of Accounting for Unisys Defense Systems from October 1987
through February 1995, where his responsibilities included financial statement
preparation, external audit liaison, policy and procedures. Mr. Struzik received
a B.A. degree in Economics from the State University of New York at Oswego in
May 1977 and an M.B.A. from Chapman College in October 1984.
BRUCE E. EDGINGTON has been a director of the Company and its predecessors
since November 1995. From 1979 through 1988, Mr. Edgington was a registered
representative with Johnston & Lemmon, a securities broker-dealer, where his
responsibilities include the management of retail securities accounts and
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<PAGE> 34
administration. In 1988 he founded and continues to be an officer, director and
stockholder of DiBiasio & Edgington, a firm engaged in providing software to
investment firms and money managers.
JOHN J. MEINDL, JR. has been a director of the Company since April 1997,
has been self employed as a management consultant to medium and large firms in
the area of electronic records management, Internet strategies and business
reengineering since 1996. From 1993 through 1996 Mr. Meindl was Chief Operating
Officer of OTG Software, Inc., a firm engaged in the development of electronic
imaging and optical disk storage management software. Since 1988 he has been
Chief Executive Officer of GeneSys Data Technologies, Inc., a firm engaged in
providing software and services in the area of electronic records management.
GeneSys Data Technologies, Inc. has been dormant and inactive since 1992 but was
not liquidated because of its pursuit of a claim which was successfully awarded
in 1996. In connection with winding up the affairs of GeneSys Data Technologies,
Inc. GeneSys Data Technologies, Inc. filed for bankruptcy protection in June
1996 (Case No. 96-5-50118-SD, U.S. Bankruptcy Court, Baltimore, Maryland
District) and as of the date hereof has not been discharged.
CLAY T. WHITEHEAD, PH.D. has been a director of the Company since April
1997 and, since 1987, has been the President of Clay Whitehead Associates, a
consulting firm in the areas of strategic planning and business development
concentrating on the telecommunications and media industries. Mr. Whitehead
holds a B.S. and M.S. in Electrical Engineering and a Ph.D. in Management, all
from the Massachusetts Institute of Technology and from 1969 through 1974 held
various federal government positions, including Director of the U.S. Office of
Telecommunications Policy.
JAMES G. BUICK has been a director of the Company since April 1997. Since
1993 he has been self employed as a management consultant in the area of
business strategic long range financial planning. From 1984 to 1993, he was
President and Chief Executive Officer of the Zondervan Corporation, a firm
engaged in the distribution of Bibles, books, computer software, and religious
gifts. He currently is on the Board of Directors of Spartan Stores, a firm
engaged in food wholesale and operations, and is Chairman of the Board of the
Dove Foundation, a not-for-profit foundation engaged in the creation, promotion,
production and distribution of wholesome family entertainment.
EARL E. GJELDE has been a director of the Company since April 1997. From
1989 through 1993, he was Vice President, Chemical Waste Management, Inc. and
from 1991 to 1993 was Vice President, Waste Management Inc. (currently WMX
Technologies, Inc.). Since 1991, Mr. Gjedle has been Managing Director, Summit
Group International, Ltd., an energy and natural resource consulting firm with
Internet based security controlled document systems and since 1996, a partner in
Pipeline Power Partners, LP, a natural gas services company. From 1980 through
1989, Mr. Gjelde held various federal government positions including Under
Secretary and Chief Operating Officer of the U.S. Department of Interior from
1987 through 1989 and Special Assistant to the Secretary, Chief Operating
Officer, U.S. Department of Energy from 1982 through 1985. He is a member of the
Board of Directors of The United States Energy Association, The World Energy
Congress, and the National Wilderness Institute.
Each director serves until the next annual meeting of stockholders and the
election and qualification of their successors. Executive officers are elected
by the Board of Directors annually and serve at the discretion of the Board.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In 1997 the Company entered into employment agreements with Robert C.
Varney, Ph.D., Dane B. West and William H. Bowers for terms expiring on
. The employment agreements provide annual base salaries of
$ , $ and $ , for Dr. Varney, and Messrs. West and Bowers,
respectively. If at any time during the term of his employment agreement, a
change in ownership of more than 50% of the outstanding voting shares of the
Company occurs ("Change in Control"), and if, as a result thereof, Dr. Varney's,
or Messrs. West's or Bowers' compensation, responsibilities or position is
diminished, then that employee has the option to terminate his employment
agreement (the "Change in Control Termination") so long as the Change in Control
was not as a result of that employee's intentional bulk sale of his voting
shares. In the event of a Change in Control Termination, the Company is
obligated to pay to the
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<PAGE> 35
employee a lump sum equal to the total compensation paid to such employee
for the fiscal year prior to the Change in Control. Further, pursuant to the
employment agreement, each of Dr. Varney and Messrs. West and Bowers have
agreed, during the term of his respective employment with the Company and for
thereafter, not to compete with the Company.
The agreement with each of Dr. Varney and Messrs. West and Bowers provides
that, if his employment is terminated by the Company for cause (as defined in
the agreement) or by voluntary unilateral decision by the employee without
cause, then the employee is entitled to his base salary under the agreement
earned, accrued vacation, and reimbursement of expenses, through the date of
termination. In addition, the agreements provide, that, if employment is
otherwise terminated, the employee is entitled to receive, in one-lump sum
payment, the employee's total compensation (base salary plus bonus) paid by the
Company to the employee for the months prior to termination and all
applicable allowances and reimbursements to the date of termination.
In addition to their employment agreements, executive officers of the
Company may participate in the Option Plan. Other than the Option Plan, the
Company does not currently have any compensation plans or similar arrangements
under which an executive officer is entitled to benefits, except group life,
medical and dental insurance plans.
EXECUTIVE OFFICER COMPENSATION
No person employed by the Company received salary and bonus exceeding in
the aggregate $100,000 during any of the fiscal years 1994, 1995 and 1996. The
following Summary Compensation Table sets forth all compensation awarded to,
earned by or paid for services rendered to the Company in all capacities during
1996 by the Company's Chief Executive Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
ANNUAL COMPENSATION ------------
----------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
COMPENSATION OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) SARS(#)(2) ($)(3)
- ------------------------------- ----- --------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert C. Varney, Ph.D., 1996 38,203 0 4,271 162,839 140
Chairman of the Board of
Directors and Chief Executive
Officer
</TABLE>
- ---------------
(1) Other Annual Compensation represents medical insurance premiums paid by the
Company for Dr. Varney.
(2) See "OPTION GRANTS IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES."
(3) All Other Compensation represents term life insurance premiums paid by the
Company for Dr. Varney.
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<PAGE> 36
The following table sets forth information concerning stock option grants
made during 1996 to the executive officer of the Company named in the Summary
Compensation Table, and the fiscal year-end value of unexercised options. No
options were exercised during 1996 by Dr. Varney.
OPTION GRANTS IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE
OPTIONS IN FISCAL OR BASE PRICE
NAME GRANTED(1)(3) YEAR PER SHARE ($/SH) EXPIRATION DATE
- ------------------------ ------------- ------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Robert C. Varney, Ph.D. 17,524(2) 2.3% $ 4.00 December 31, 2006
145,312(4) 18.8% $ 5.00 September 30, 2006
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS AT FISCAL YEAR-END
--------------------------
EXERCISABLE/
NAME UNEXERCISABLE(3)
- ------------------------ --------------------------
<S> <C>
Robert C. Varney, Ph.D. 133,524/145,312
</TABLE>
- ---------------
(1) All options are non-qualified options.
(2) Does not include the Officer Note Options contemplated to be granted upon
the Company's satisfaction of the Officer Notes. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION -- Liquidity and Capital
Resources."
(3) The Board of Directors has determined that none of these options were
in-the-money at the date of grant or at December 31, 1996.
(4) These stock options are a portion of the Outstanding Stock Options to
acquire 712,500 shares of the Common Stock granted by the Company in
September 1996 to Dr. Varney (145,312), Mr. Edgington (160,314), Mr. Struzik
(71,250), Mr. Bowers (164,312) and Mr. West (171,312) and are exercisable
commencing upon the Company generating earnings per share of $.50 through
September 30, 2006
1997 STOCK OPTION PLAN
In April 1997, the Board of Directors adopted, and the stockholders
approved the Company's 1997 Stock Option Plan (the "Option Plan"), The Option
Plan provides for the issuance of up to 2,057,937 shares of the Company's Common
Stock. As of the Closing options to purchase 1,548,628 shares of the Company's
Common Stock will have been granted and will be outstanding under the Option
Plan of which options to purchase 580,156 shares will be exercisable. If any
options granted under the Option Plan shall terminate, expire or be canceled as
to any shares, new options may thereafter be granted covering such shares. In
addition, any shares purchased under this Option Plan subsequently repurchased
by the Company pursuant to the terms hereof may again be granted under the
Option Plan. The shares issued upon exercise of options under the option Plan
may, in whole or in part, may be either authorized but unissued shares or issued
shares reacquired by the Company.
The purpose of the Option Plan is to advance the interests of the Company
by providing an opportunity to its directors, employees and consultants,
including ministry partners, to purchase shares of the Company's Common Stock.
By encouraging stock ownership, the Company seeks to attract, retain and
motivate directors, employees and consultants. The Option Plan provides for the
grant of (i) incentive stock options ("Incentive Options") as described in
Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"); (ii)
nonqualified stock options ("Nonqualified Options," and, together with the
Incentive Options, the "Options"); and (iii) rights to purchase shares of Common
Stock ("Restricted Stock") of the Company pursuant to restricted stock
agreements and subscription agreements. The Option Plan is administered by the
Board of Directors, or at its discretion, by a committee which is appointed by
the Board to perform such function. Under the terms of the Option Plan, the
exercise price for Incentive Options may not be less than the fair market value
of the underlying stock at the time the Incentive Option is granted.
The Option Plan has a provision which limits the number of shares of the
Company's Common Stock for which options may be granted to any individual during
any year. With this provision, options granted under the Option Plan qualify as
performance-based compensation for purposes of Section 162(m) of the Code and
the
34
<PAGE> 37
regulation thereunder, and the Company will be entitled to deduct the
compensation paid to certain executives pursuant to the Option Plan,
notwithstanding the deduction limit contained in Section 162(m).
Under the Option Plan, the price payable upon exercise of options may be
paid in cash or check acceptable to the Company, or by any other consideration
that the Board deems acceptable. The exercise price may also be paid in shares
of the Company's Common Stock, duly owned by the optionee having a fair market
value equal to the option price on the date of exercise.
DIRECTOR COMPENSATION
In April 1997, the Company's (i) non-employee directors, other than Bruce
E. Edgington and (ii) an advisor to the Company's Board appointed by the
Representative (the "Advisor") each were granted under the Company's 1997 Stock
Option Plan options to acquire an aggregate of 37,000 shares of the Company's
Common Stock at an exercise price of $5.00 per share, exercisable for the
following number of shares for a period of five years subsequent to the
satisfaction of the following conditions precedent (collectively the "Non-
Employee Director Options"):
<TABLE>
<CAPTION>
NUMBER OF SHARES CONDITIONS PRECEDENT TO EXERCISE
- --------------------------------------------- ---------------------------------------------
<S> <C>
1,000 shares per Board of Director meeting Attendance at Board meeting
for the first three years as a member of
the Board up to a maximum of 4,000 shares
per year.
5,000 shares Closing of this Offering.
5,000 shares CCN's use exceeding one million hits per day.
5,000 shares The Company's quarterly earnings per share
equaling or exceeding $.05.
5,000 shares The Company's quarterly earnings per share
equaling or exceeding $.10.
5,000 shares The Company's quarterly earnings per share
equaling or exceeding $.15.
</TABLE>
As of the date hereof, non-employee directors excluding Mr. Edgington and
including the Advisor have the right to acquire an aggregate of 185,000 shares
of the Common Stock pursuant to the Non-Employee Director Options. In addition,
non-employee directors receive reimbursement of reasonable expenses incurred in
attending Board meeting.
35
<PAGE> 38
PRINCIPAL STOCKHOLDERS
The following table sets forth information, as of the date hereof and as
adjusted to reflect the sale of the Securities offered by the Company hereby,
based on information obtained from the persons named below, with respect to the
beneficial ownership of shares of Common Stock by (i) each person known by the
Company to be the owner of more than 5% of the outstanding shares of Common
Stock; (ii) each director and each executive officer named in the Summary
Compensation Table; and (iii) all executive officers and directors of the
Company as a group:
<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
---------------------- ----------------------
AMOUNT AND AMOUNT AND
NATURE OF PERCENT NATURE OF PERCENT
NAME AND ADDRESS BENEFICIAL OF BENEFICIAL OF
OF BENEFICIAL OWNER OWNERSHIP(1) SHARES(2) OWNERSHIP(1) SHARES(3)
- -------------------------------------- ----------- ------ ----------- ------
<S> <C> <C> <C> <C>
Bruce E. Edgington 247,500(4) 20.5% 325,594(5) 9.0%
7857 Heritage Drive
Annandale, VA 22003
Robert C. Varney, Ph.D. 163,849(6) 12.1% 207,231(7) 5.6%
4501 Daly Drive
Chantilly, VA 20151
Dane B. West 127,612(8) 10.3% 127,612(8) 3.6%
4501 Daly Drive
Chantilly, VA 20151
William H. Bowers 121,997(9) 10.0% 121,997(9) 3.4%
4501 Daly Drive
Chantilly, VA 20151
Robert E. Turner 62,500 5.2% 62,500 1.8%
1235 Westlake Dr., Suite 350
Berwyn, PA 19312
Ruth A. Hirsh Revocable Trust 62,500 5.2% 62,500 1.8%
80 East Sir Francis Drake Blvd.
Larkspur, CA 94939
John J. Meindl, Jr. 2,000(10) .2% 67,000(11) 1.9%
5 Old Tyler Court
Greenville, SC 29615
Clay T. Whitehead, Ph.D. 2,000(12) .2% 7,000(13) .2%
1320 Old Chain Bridge Rd.
McLean, VA 22101
James G. Buick 2,000(14) .2% 7,000(15) .2%
10081 East Rivershore Dr.
Alto, MI 49302
Earl E. Gjelde 2,000(16) .2% 7,000(17) .2%
42 Bristlecone Crt.
Keystone, CO 80435
All officers and directors 686,694 41.9% 888,170 21.5%
as a group (9 persons)
</TABLE>
- ---------------
(1) Unless otherwise noted, all persons named in the table have sole voting and
sole investment power with respect to all shares of Common Stock
beneficially owned by them, and no persons named in the table are acting as
nominees for any persons or are otherwise under the control of any person
or group of persons. For the purposes of this table, the term "beneficial
ownership" with respect to a security means sole or shared voting power
(including the power to vote or direct the vote) or sole or shared
investment power (including the power to dispose or direct the disposition)
with respect to the security through any contract, arrangement,
understanding, relationship or otherwise, including a right to acquire any
such power during the next 60 days.
(2) Based upon 1,202,588 shares of Common Stock outstanding as of the date
hereof.
36
<PAGE> 39
(3) Based upon 3,542,588 shares of Common Stock to be outstanding after the
Closing of this Offering, including 340,000 shares of Common Stock issuable
in connection with the satisfaction of the Junior Notes, assuming no
exercise of the Purchase Warrants, the Representative Warrants or the Over-
Allotment Option and unless otherwise noted, no exercise of the Outstanding
Stock Options.
(4) Includes 5,000 shares of Common Stock, issuable to Mr. Edgington upon
exercise of currently exercisable stock options.
(5) Includes 83,094 shares of Common Stock issuable to Mr. Edgington upon
exercise of stock options exercisable at the Closing of the Offering.
(6) Includes 141,599 shares of Common Stock issuable to Dr. Varney upon
exercise of currently exercisable stock options.
(7) Includes 184,981 shares of Common Stock issuable to Dr. Varney upon
exercise of stock options exercisable at the Closing of the Offering.
(8) Includes 37,611 shares of Common Stock issuable to Mr. West upon exercise
of currently exercisable stock options. Does not include 24,000 shares of
Common Stock owned by Mr. West's parents and Mr. West's spouse's parents,
with respect to which Mr. West disclaims beneficial ownership.
(9) Includes 16,805 shares of Common Stock issuable to Mr. Bowers upon exercise
of currently exercisable stock options.
(10) Represents 2,000 shares of Common Stock issuable to Mr. Meindl upon
exercise of currently exercisable stock options.
(11) Represents 7,000 shares of Common Stock issuable to Mr. Meindl upon
exercise of stock options exercisable at the Closing of the Offering and
60,000 shares of Common Stock issuable to Mr. Meindl at the Closing of the
Offering in connection with the Company's satisfaction of the Junior Notes.
(12) Represents 2,000 shares of Common Stock issuable to Dr. Whitehead upon
exercise of currently exercisable stock options.
(13) Represents 7,000 shares of Common Stock issuable to Dr. Whitehead upon
exercise of stock options exercisable at the Closing of the Offering.
(14) Represents 2,000 shares of Common Stock issuable to Mr. Buick upon exercise
of currently exercisable stock options.
(15) Represents 7,000 shares of Common Stock issuable to Mr. Buick upon exercise
of stock options exercisable at the Closing of the Offering.
(16) Represents 2,000 shares of Common Stock issuable to Mr. Gjelde upon
exercise of currently exercisable stock options.
(17) Represents 7,000 shares of Common Stock issuable to Mr. Gjelde upon
exercise of stock options exercisable at the Closing of the Offering.
CERTAIN TRANSACTIONS
In January 1997, John J. Meindl, Jr., a director of the Company, purchased
from the Company Junior Notes in the aggregate principal amount of $300,000. For
the fiscal years ended December 31, 1996 and December 31,1995 and for the three
month period ended March 31, 1997, there were no other material transactions
between the Company and any of its officers or directors which involved $60,000
or more.
37
<PAGE> 40
DESCRIPTION OF SECURITIES
The Company is authorized to issue 20,000,000 shares of Common Stock, $.01
par value per share. As of the date of this Prospectus, 1,202,588 shares of
Common Stock are held by 59 holders of record.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voted for the election of directors can
elect all of the directors. The holders of Common Stock are entitled to receive
dividends when, as and if declared by the Board of Directors out of funds
legally available therefor. In the event of liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to share ratably in
all assets remaining available for distribution to them after payment of
liabilities and after provision has been made for each class of stock, if any,
having preference over the Common Stock. Holders of shares of Common Stock, as
such, have no conversion, preemptive or other subscription rights, and, except
as noted herein, there are no redemption provisions applicable to the Common
Stock. All of the outstanding shares of Common Stock are, and the Shares, when
issued and paid for as set forth in this Prospectus, will be, fully paid and
nonassessable. See "UNDERWRITING."
The holders of Common Stock do not have any subscription, redemption or
conversion rights, nor do they have any preemptive or other rights to acquire or
subscribe for additional, unissued or treasury shares. Accordingly, if the
Company were to elect to sell additional shares of Common Stock following this
Offering, persons acquiring Common Stock in this Offering would have no right to
purchase additional shares, and, as a result, their percentage equity interest
in the Company would be reduced.
Pursuant to the Company's By Laws, except for any matters which, pursuant
to corporate law, require a greater percentage vote for approval (including, for
example certain mergers and consolidations and the amendment of certain
provisions of the Company's Bylaws) , the holders of majority of the issued and
outstanding Common Stock entitled to vote, if present in person or by proxy, are
necessary and sufficient to constitute a quorum for the transaction of business
at meetings of the Company's stockholders. Further, except as to any matter
which, pursuant to corporate law, requires a greater percentage vote for
approval (including, for example, certain mergers, consolidations, sales of
substantially all of the assets, and amendments to certain provisions of the
charter and Bylaws, of the Company), the affirmative vote of the holders of a
majority of the Common Stock voted on the matter (provided a quorum as aforesaid
is present) is necessary and sufficient to authorize, affirm or ratify any act
or action except the election of directors, which is by a plurality of the votes
cast. See "PROPOSED BUSINESS -- Christian Statement of Faith-the Company's
Policy."
The holders of Common Stock do not have cumulative voting rights.
Accordingly, the holders of more than half of the outstanding shares of Common
Stock can elect all of the directors to be elected in any election. In such
event, the holders of the remaining shares of Common Stock would not be able to
elect any directors. The Board of Directors is empowered to fill any vacancies
on the Board of Directors created by the resignation, death or removal of
directors.
In addition to voting at duly called meetings at which a quorum is present
in person or by proxy, corporate law, the Charter and the Company's By Laws
provide that stockholders may take action without the holding of a meeting by
written consent or consents signed by the holders of that number of the
outstanding shares of the capital stock of the Company entitled to vote thereon
which would be required to take the subject action. Prompt notice of the taking
of any action without a meeting by less than unanimous consent of the
stockholders will be given to those stockholders who do not consent in writing
to the action. The purposes of this provision are to facilitate action by
stockholders and to reduce the corporate expense associated with annual and
special meetings of stockholders. Pursuant to the rules and regulations of the
Commission, if stockholder action is taken by written consent, the Company will
be required to send to each stockholder entitled to vote on the matter acted on,
but whose consent was not solicited, an information statement containing
information substantially similar to that which would have been contained in a
proxy statement.
38
<PAGE> 41
Upon the Closing, without giving effect to the exercise of the Purchase
Warrants, Over-Allotment Option, or Representative Warrants or the Outstanding
Options, the Company's executive officers and directors will beneficially own
approximately 21.5% of the outstanding shares of Common Stock, and may
accordingly be in a position to significantly influence the voting results of
certain actions required or permitted to be taken by stockholders of the
Company, including the election of directors. As a result, the officers and
directors of the Company are in a position to control the outcome of
substantially all matters on which stockholders are entitled to vote, including
the election of directors.
PURCHASE WARRANTS
The following is a brief summary of certain provisions of the Purchase
Warrants, but such summary does not purport to be complete and is qualified in
all respects by reference to the actual text of the Purchase Warrant Agreement
between the Company and American Stock Transfer & Trust Company (the "Transfer
and Warrant Agent"). A copy of the Purchase Warrant Agreement has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part. See
"ADDITIONAL INFORMATION."
Exercise Price and Terms. Each Purchase Warrant entitles the holder thereof
to purchase, at any time from the Effective Date through the third anniversary
of the Effective Date, one share of Common Stock at a price of $5.75 per share
if exercised prior to , 2002, when the Purchase Warrants
expire, subject to adjustment in accordance with the anti-dilution and other
provisions referred to below.
The holder of any Purchase Warrant may exercise such Purchase Warrant by
surrendering the certificate representing the Purchase Warrant to the Transfer
and Warrant Agent, with the subscription form on the reverse side of such
certificate properly completed and executed, together with payment of the
exercise price. The Purchase Warrants may be exercised at any time in whole or
in part at the applicable exercise price until expiration of the Purchase
Warrants three years from the Effective Date. No fractional shares will be
issued upon the exercise of the Purchase Warrants.
Commencing after the Effective Date, the Purchase Warrants are subject to
redemption by the Company, at the option of the Company, at $0.25 per Purchase
Warrant, upon 30 days prior written notice, if the closing bid price, as
reported on Nasdaq, or the closing sale price, as reported on a national or
regional securities exchange, as applicable, of the shares of the Common Stock
for 30 consecutive trading days ending within ten days of the notice of
redemption of the Purchase Warrants averages in excess of $10.00 per share,
subject to adjustment. The Company is required to maintain an effective
registration statement with respect to the Common Stock underlying the Purchase
Warrants prior to redemption of the Purchase Warrants. Prior to the first
anniversary of the Effective Date, the Purchase Warrants will not be redeemable
by the Company without the written consent of the Representative. In the event
the Company exercises the right to redeem the Purchase Warrants, such Purchase
Warrants will be exercisable until the close of business on the date for
redemption fixed in such notice. If any Purchase Warrant called for redemption
is not exercised by such time, it will cease to be exercisable and the holder
will be entitled only to the redemption price. Redemption of the Purchase
Warrants could force the Purchase Warrant holders either to (i) exercise the
Purchase Warrants and pay the exercise price thereof at a time when it may be
less advantageous economically to do so, or (ii) accept the redemption price in
consideration for cancellation of the Purchase Warrant, which could be
substantially less than the market value thereof at the time of redemption.
The exercise price of the Purchase Warrants bear no relation to any
objective criteria of value and should in no event be regarded as an indication
of any future market price of the Securities offered hereby.
The Company has authorized and reserved for issuance a sufficient number of
shares of Common Stock to accommodate the exercise of all Purchase Warrants to
be issued in this Offering. All shares of Common Stock issued upon exercise of
the Purchase Warrants, if exercised in accordance with their terms, will be
fully paid and non-assessable.
Adjustments. The exercise price and the number of shares of Common Stock
purchasable upon exercise of the Purchase Warrants are subject to adjustment
upon the occurrence of certain events, including stock dividends, stock splits,
combinations or reclassification of the Common Stock, or sale by the Company of
39
<PAGE> 42
shares of its Common Stock (or other securities convertible into or exercisable
for Common Stock) at a price per share or share equivalent below the
then-applicable exercise price of the Purchase Warrants or the then-current
market price of the Common Stock. Additionally, an adjustment would be made in
the case of a reclassification or exchange of Common Stock, consolidation or
merger of the Company with or into another corporation, or sale of all or
substantially all of the assets of the Company, in order to enable Purchase
Warrant holders to acquire the kind and number of shares of stock or other
securities or property receivable in such event by a holder of that number of
shares of Common Stock that would have been issued upon exercise of the Purchase
Warrant immediately prior to such event. No adjustments will be made until the
cumulative adjustments in the exercise price per share amount to $.05 or more.
No adjustment to the exercise price of the shares subject to the Purchase
Warrants will be made for dividends (other than stock dividends), if any paid on
the Common Stock or upon exercise of the Purchase Warrants, the Representative
Warrant or any other options or warrants outstanding as of the date of this
Prospectus.
Transfer, Exchange and Exercise. The Purchase Warrants are in registered
form and may be presented to the Transfer and Warrant Agent for transfer,
exchange or exercise at any time prior to their expiration date three years from
the Effective Date, at which time the Purchase Warrants become wholly void and
of no value. If a market for the Purchase Warrants develops, the holder may sell
the Purchase Warrants instead of exercising them. There can be no assurance,
however, that a market for the Purchase Warrants will develop or continue. If
the Company is unable to qualify for sale in particular states the Common Stock
underlying the Purchase Warrants, holders of the Purchase Warrants residing in
such states and desiring to exercise the Purchase Warrants will have no choice
but to sell such Purchase Warrants or allow them to expire. See "-- Transfer and
Warrant Agent."
Warrant Holder Not a Stockholder. The Purchase Warrants do not confer upon
holders any dividend, voting, preemption or any other rights as stockholders of
the Company.
This Offering is the initial registered public offering of the Securities
and accordingly, there is no regular public trading market for the Securities at
the present time. There can be no assurance that a public trading market will
ever develop or, if one develops, that it will be maintained. Although it has no
obligation to do so, he Representative may from time to time become a
market-maker and otherwise effect transactions in the Securities. The
Representative, if it participates in the market, may be a dominating influence
in any market that might develop for any of the Securities. The price and
liquidity of the Securities may be significantly affected by the degree, if any,
of the Representative's participation in the market. See "RISK FACTORS."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, there will be 5,091,216 shares of Common
Stock outstanding including the issuance of 340,000 shares upon satisfaction of
the Junior Notes and an aggregate of 1,548,628 shares of Common Stock issuable
upon the exercise of the Outstanding Stock Options, excluding (a) an aggregate
of 3,000,000 shares issuable upon the exercise of (i) the Purchase Warrants;
(ii) the Over-Allotment Option (including shares issuable under the Purchase
Warrants included in the Over-Allotment Option); and (iii) the Representative
Warrants, including shares issuable under the Warrant Representative Warrants.
See "CAPITALIZATION" and "UNDERWRITING." Of these, the 2,000,000 Shares sold in
this Offering, the 2,000,000 shares underlying the Purchase Warrants, and the
maximum of 1,000,000 shares issuable upon full exercise of the Over-Allotment
Option (including shares issuable under the Purchase Warrants included in the
Over-Allotment Option) and the exercise of the Representative Warrants,
including the Warrant Representative Warrants, will be freely tradeable without
restriction or further registration under the Securities Act, except for any
such shares purchased by an "affiliate" of the Company. The 1,202,588 shares
currently outstanding as well as the 1,548,628 shares issuable upon exercise of
the Outstanding Stock Options and the 340,000 shares issuable upon satisfaction
of the Junior Notes(collectively, the "Current Shares") are "restricted
securities" as defined in Rule 144 and may not be sold without registration
under the Securities Act unless pursuant to an applicable exemption therefrom
(collectively, the "Restricted Shares").
In general, under Rule 144, a person (or persons whose shares are required
to be aggregated) who has satisfied a one-year holding period may, under certain
circumstances, sell within any three-month period a
40
<PAGE> 43
number of Restricted Shares, and an "affiliate" of the Company may, under
certain circumstances, sell within any three-month period a number of shares,
whether or not Restricted Shares, which does not exceed the greater of 1% of the
then-outstanding shares of Common Stock or the average weekly trading volume
during the four calendar weeks prior to such sale a reported on Nasdaq, all
exchanges and the consolidated transaction reporting system. Rule 144 also
permits the sale of Restricted Shares without any quantity limitations by a
person who is not an "affiliate" of the Company, who has not been an "affiliate"
of the Company for at least three months immediately preceding the sale, and who
has owned the shares for at least two years. The holders of all of the Current
Shares have agreed not to sell any shares of Common Stock for a period of 18
months from the Effective Date, or any longer period required by the law of any
state (the "Lock-up").
The Company is unable to predict the effect that any subsequent sales of
the Company's securities by its existing stockholders, under Rule 144 or
otherwise, may have on the then-prevailing market price of the Common Stock,
although such sales could have a depressive effect on such market price. The
foregoing summary of Rule 144 is not intended to be a complete description
thereof.
DIVIDENDS
The Company has not paid any dividends on its capital stock to date and
does not currently intend to pay cash dividends. The payment of dividends, if
any, will be contingent upon the Company's revenues and earnings, if any,
capital requirements and general financial condition at that time. The payment
of any dividends will be within the discretion of the Company's Board of
Directors. It is the current intention of the Board of Directors to retain all
earnings, if any, for use in the Company's business operations and, accordingly,
the Board does not anticipate paying any cash dividends in the foreseeable
future.
TRANSFER AND WARRANT AGENT
The transfer agent for the Common Stock and the warrant agent for the
Purchase Warrants is American Stock Transfer & Trust Company, New York, New
York.
41
<PAGE> 44
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom Barron Chase Securities,
Inc. (the "Representative") is acting as representative have severally agreed to
purchase from the Company an aggregate of 2,000,000 Shares and 2,000,000
Purchase Warrants (collectively, the "Securities"). The number of Securities
which each Underwriter has agreed to purchase is set forth opposite its name.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
UNDERWRITER SHARES WARRANTS
--------------------------------------------------------- --------- ---------
<S> <C> <C>
Barron Chase Securities, Inc. ...........................
</TABLE>
The number of Shares and number of 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 to offer the Securities to the public at the offering price set forth in
the cover page of this Prospectus, and that the Underwriters may allow
concessions to certain selected dealers who are members of the National
Association of Securities Dealers, Inc. ("NASD") and certain foreign dealers,
all of whom agree to sell the Securities in conformity with the NASD's Conduct
Rules. Such concessions will not exceed the amount of the underwriting discount
that the Underwriters are to receive.
The Company has granted to the Representative an Over-Allotment Option,
exercisable for 45 days from the Effective Date, to purchase up to an additional
300,000 Shares and an additional 300,000 Purchase Warrants at the public
offering price less the Underwriting Discount set forth on the cover page of
this Prospectus. The Representative may exercise this 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 this Offering and to 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 to the Representative a commission of 10% of
the gross proceeds of this Offering (the "Underwriting Discount"), including the
gross proceeds from the sale of the Over-Allotment Option, if exercised. The
Representative has informed the Company that it does not expect sales to
discretionary accounts to exceed five percent (5%) of the total number of
Securities offered by the Company hereby. (In addition, the Company has agreed
to pay to the Representative the Non-Accountable Expense Allowance of 3% 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 deemed to be additional compensation to the Representative.
The Company has agreed pursuant to the terms of a Financial Advisor
Agreement to be entered into at the Closing (the "Financial Advisor Agreement")
to engage the Representative as a financial advisor for a period of three years
from the Closing, at a fee of $108,000, all of which is payable to the
Representative at the Closing. Pursuant to the terms of a financial advisory
agreement, the Representative has agreed to provide, at the Company's request,
advice to the Company concerning potential merger and acquisition and financing
42
<PAGE> 45
proposals, whether by public financing or otherwise. There are currently no
plans, proposals, arrangements or understandings with respect to any potential
merger, acquisition, financial proposal or joint venture.
Prior to this Offering, there has been no public market for the shares of
Common Stock or Purchase Warrants. Consequently, the initial public offering
price for the Securities, and the terms of the Purchase Warrants (including the
exercise price of the Purchase 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 prospects
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 criterion 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 the Purchase Warrants will
develop after the Closing, or if a public market in fact develops, that such
public market will be sustained, or that the Shares or Purchase Warrants can be
resold at any time at the offering or any other price. See "RISK FACTORS -- No
Assurance of Public Market; Arbitrary Determination of Offering Price."
At the Closing, the Company will issue to the Representative or persons
related to the Representative, for nominal consideration, the Common Stock
Representative Warrants to purchase up to 200,000 shares of Common Stock (the
"Underlying Shares") and the Warrant Representative Warrants to purchase up to
200,000 warrants (the "Underlying Warrants"). The Common Stock Representative
Warrants, the Warrant Representative Warrants and the Underlying Warrants are
sometimes referred to in this Prospectus as the "Representative Warrants." The
Common Stock Representative Warrants and the Warrant Representative Warrants
will be exercisable for a five-year period commencing on the Effective Date. The
initial exercise price of each Common Stock Representative Warrant shall be
$8.25 per Underlying Share (165% of the public offering price). The initial
exercise price of each Warrant Representative Warrant shall be $.20625 per
Representative Underlying Warrant (165% of the public offering price). Each
Representative Underlying Warrant will be exercisable for a five-year period
commencing on the Effective Date to purchase one share of Common Stock at an
exercise price of $8.25 per share of Common Stock. The Representative Warrants
will not be transferable for twelve months from the Effective Date by the
holder, except (i) to officers of the Representative, other Underwriters and
members of the selling group and officers and partners thereof; (ii) by will; or
(iii) by operation of law.
The Common Stock Representative Warrants and the Warrant Representative
Warrants contain provisions providing for appropriate adjustment in the event of
any merger, consolidation, recapitalization, reclassification, stock dividend,
stock split or similar transaction. The Representative Warrants contain net
issuance provisions permitting the holders thereof to elect to exercise the
Representative Warrants 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 Warrants will have the same dilutive effect on
the interests of the Company's stockholders as will a cash exercise. The
Representative Warrants do not entitle the Representative to any rights as a
stockholder of the Company until such Representative Warrants are exercised and
shares of Common Stock are purchased thereunder.
The Representative Warrants and the securities issuable thereunder may not
be offered for sale except in compliance with the applicable provisions of the
Securities Act. The Company has agreed that if it shall cause a post-effective
amendment, a new registration statement, or similar offering document to be
filed with the Commission, the holders shall have the right, for seven years
from the Effective Date, to include in such registration statement or offering
statement the Representative Warrants and the securities issuable upon their
exercise at no expense to the holders. Additionally, the Company has agreed
that, upon request, by the holders of 50% or more of the Representative Warrants
during the period commencing 12 months from the Effective Date and expiring four
years thereafter, the Company will, under certain circumstances, register the
Representative Warrants and any of the securities issuable upon their exercise.
43
<PAGE> 46
The Company has also agreed that if the Company participates in any
transaction which the Representative has introduced in writing to the Company
during a period of five years after the Closing (including mergers,
acquisitions, joint ventures and any other business transaction for the Company
introduced in writing by the representative), and which is consummated after the
Closing (including an acquisition of assets or stock for which it pays, in whole
or in part, with shares or other securities of the Company), or if the Company
retains the services of the Representative in connection with any such
transaction (an "Introduced Consummated Transaction"), then the Company will pay
for the Representative's services in amount equal to 5% of up to one million
dollars of value paid or received in the transaction, 4% of the next million of
such value, 3% of the next million of such value, 2% of the next million of such
value, and 1% of the next million dollars of such value and of all such value
above $4,000,000. In the event an Introduced Consummated Transaction is
completed during the initial three (3) year term of the Financial Advisor
Agreement, the Company shall receive a $108,000 credit against any fee due the
Representative.
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 on Form SB-2 filed by the Company with the Commission
(the "Registration Statement") under the Securities Act and this Prospectus. The
Underwriters have in turn agreed to indemnify the Company against any costs or
liabilities by reason of misstatements or commissions to state material facts in
connection with the statements made in the Registration Statement and this
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.
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 "ADDITIONAL INFORMATION."
LEGAL PROCEEDINGS
The Company is not a party to, nor is it aware of, any pending litigation
to which it is a party or of which its property is subject.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Berman Wolfe & Rennert, P.A. Miami, Florida. Certain legal matters
will be passed upon for the Underwriters by David A. Carter, P.A. Boca Raton,
Florida.
EXPERTS
The combined financial statements of the Company's predecessor Companies
(companies in the development stage) at December 31, 1996 and 1995 and for the
years ended December 31, 1996 and 1995, appearing in this Prospectus and
Registration Statement have been audited by Hoffman, Morrison & Fitzgerald,
P.C., independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
44
<PAGE> 47
ADDITIONAL INFORMATION
The Company has filed with the Commission the Registration Statement under
the securities Act with respect to the Securities, among other securities. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and this Offering, reference is made to the Registration Statement,
including the exhibits filed therewith, which may be examined at the
Commission's principal office, Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549; the Northeast Regional Office of the Commission at
7 World Trade Center, Suite 1300, New York, New York 10048; and the Midwest
Regional Office of the Commission, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, where copies may be obtained upon payment
of the fees prescribed by the Commission. Such documents may also be obtained
through the website maintained by the Commission at http://www.sec.gov.
Descriptions contained in this Prospectus as to the contents of any contract or
other document filed as an exhibit to the Registration Statement are not
necessarily complete and each such description is qualified by reference to such
contract or document. The Company will provide without charge to each person who
receives a Prospectus, upon written or oral request of such person to the
following address or telephone number, a copy of any of the information that is
incorporated by reference in this Prospectus: 4501 Daly Drive, Suite 103,
Chantilly, Virginia 20151; (703) 968-4808.
45
<PAGE> 48
DIDAX ON-LINE, L.C. AND AFFILIATE
(DEVELOPMENT STAGE COMPANIES)
COMBINED FINANCIAL STATEMENTS
FROM MAY 12, 1993 (DATE OF INCEPTION)
TO MARCH 31, 1997
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
WITH
INDEPENDENT AUDITORS' REPORT
C O N T E N T S
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
INDEPENDENT AUDITORS' REPORT..................................................... F-2
COMBINED FINANCIAL STATEMENTS:
Balance sheets at December 31, 1996 and 1995 and March 31, 1997
(unaudited)................................................................ F-3
Statements of operations for the years ended December 31, 1996 and 1995, the
three months ended March 31, 1997 and 1996 (unaudited) and cumulative from
Inception (May 12, 1993) to March 31, 1997 (unaudited)..................... F-4
Statements of stockholders' and members' equity (deficit) from Inception
(May 12, 1993) to December 31, 1996 and for the three months ended March
31, 1997 (unaudited)....................................................... F-5
Statements of cash flows for the years ended December 31, 1996 and 1995, the
three months ended March 31, 1997 and 1996 (unaudited) and cumulative from
Inception (May 12, 1993) to March 31, 1997 (unaudited)..................... F-6
NOTES TO COMBINED FINANCIAL STATEMENTS........................................... F-7-F-17
</TABLE>
F-1
<PAGE> 49
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS, STOCKHOLDERS AND MEMBERS
DIDAX ON-LINE, L.C. AND AFFILIATE
Chantilly, Virginia
We have audited the accompanying combined balance sheets of DIDAX ON-LINE, L.C.
AND AFFILIATE (development stage companies) as of December 31, 1996 and 1995,
and the related combined statements of operations, stockholders' and members'
equity (deficit), and cash flows for the years then ended and for the period May
12, 1993 (date of inception) to December 31, 1996. These combined financial
statements are the responsibility of the Company s management. Our
responsibility is to express an opinion on these combined 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 combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of DIDAX
ON-LINE, L.C. AND AFFILIATE as of December 31, 1996 and 1995, and the combined
results of operations and their combined cash flows for the years then ended and
for the period May 12, 1993 (date of inception) to December 31, 1996, in
conformity with generally accepted accounting principles.
The accompanying combined financial statements have been prepared assuming that
the Company will continue as a going concern which contemplates the realization
of assets and liquidation of liabilities in the normal course of business. As
more fully described in Note A, the Company has incurred losses from operations
and has an accumulated deficit that raise substantial doubt about the Company's
ability to continue as a going concern. Management's plan in regard to these
matters is also described in Note A. The combined financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
HOFFMAN, MORRISON & FITZGERALD, P.C.
McLean, Virginia
January 30, 1997 except Note K
which is as of April 11, 1997
F-2
<PAGE> 50
DIDAX ON-LINE, L.C. AND AFFILIATE
(DEVELOPMENT STAGE COMPANIES)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................ $ 247,317 $ 1,932 $ 768,437
Accounts receivable including unbilled of $24,978
and $14,914 at December 31, 1996 and March 31,
1997, respectively............................. 0 46,450 89,370
Advances due from officer........................ 43,560 10,000 10,000
Prepaid expenses................................. 0 10,800 0
Deferred costs, net.............................. 0 29,367 38,779
----------- ----------- -----------
Total current assets........................ 290,877 98,549 906,586
PROPERTY AND EQUIPMENT, net........................... 60,384 166,923 151,277
OTHER ASSETS
Deposits......................................... 9,553 9,553 9,553
Deferred costs, net.............................. 0 7,249 128,217
----------- ----------- -----------
Total other assets.......................... 9,553 16,802 137,770
----------- ----------- -----------
$ 360,814 $ 282,274 $ 1,195,633
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' AND MEMBERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Short-term debt, officer and director, net of
discount of $69,797 at December 31, 1996 and
$42,000 at March 31, 1997...................... $ 0 $ 553,203 $ 581,000
Advances due to officer and director............. 30,000 212,000 0
Accounts payable................................. 4,894 258,897 75,121
Accrued liabilities.............................. 82,797 170,835 224,277
Deferred revenue................................. 0 4,125 2,599
----------- ----------- -----------
Total current liabilities................... 117,691 1,199,060 882,997
LONG-TERM DEBT........................................ 0 0 1,700,000
----------- ----------- -----------
Total liabilities........................... 117,691 1,199,060 2,582,997
COMMITMENTS AND CONTINGENCIES......................... 0 0 0
STOCKHOLDERS' AND MEMBERS' EQUITY (DEFICIT)
Common stock, $1 par value, 5,000 shares
authorized; 3,662 issued and outstanding at
December 31, 1995 and 1996, and March 31,
1997........................................... 3,662 3,662 3,662
Membership units, no par value, 3,000,000 units
authorized; 1,160,376 units issued and
outstanding at December 31, 1996 and March 31,
1997, and 852,193 units issued and outstanding
at December 31, 1995........................... 972,000 2,165,808 2,165,808
Common stock warrants............................ 111,187 111,187
Additional paid-in capital....................... 302,786 302,786 302,786
Deficit accumulated during development stage..... (1,035,325) (3,500,229) (3,970,807)
----------- ----------- -----------
Total stockholders' and members' equity
(deficit)................................. 243,123 (916,786) (1,387,364)
----------- ----------- -----------
$ 360,814 $ 282,274 $ 1,195,633
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 51
DIDAX ON-LINE, L.C. AND AFFILIATE
(DEVELOPMENT STAGE COMPANIES)
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, FOR THE THREE MONTHS CUMULATIVE
----------------------- ENDED MARCH 31, FROM INCEPTION
1995 1996 ------------------------- (MAY 12, 1993) TO
--------- ----------- 1996 1997 MARCH 31, 1997
----------- ----------- -----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Consulting services......... $ 0 $ 81,371 $ 0 $ 62,435 $ 143,806
Internet access............. 0 90,571 0 28,841 119,412
Retail sales................ 0 8,834 0 1,461 10,295
--------- ----------- ----------- ----------- -----------------
Total revenues......... 0 180,776 0 92,737 273,513
OPERATING EXPENSES:
Cost of goods and
services.................. 0 226,220 0 43,760 269,980
Technical and development... 283,819 694,072 156,155 135,657 1,163,193
Sales and marketing......... 259,701 991,300 203,378 158,042 1,479,641
General and
administrative............ 167,397 671,525 175,404 190,932 1,238,372
--------- ----------- ----------- ----------- -----------------
Total operating
expenses............. 710,917 2,583,117 534,937 528,391 4,151,186
--------- ----------- ----------- ----------- -----------------
LOSS FROM OPERATIONS............. (710,917) (2,402,341) (534,937) (435,654) (3,877,673)
OTHER INCOME (EXPENSE):
Interest income............. 4,353 11,412 5,200 9,289 25,054
Gain on exchange of
assets.................... 0 3,091 0 0 3,091
Miscellaneous income........ 0 749 0 113 862
Interest expense............ 0 (77,815) 0 (44,326) (122,141)
--------- ----------- ----------- ----------- -----------------
Total other income
(expenses)........... 4,353 (62,563) 5,200 (34,924) (93,134)
--------- ----------- ----------- ----------- -----------------
NET LOSS......................... $(706,564) $(2,464,904) $(529,737) $(470,578) $(3,970,807)
========= ========== ========= ========= =============
Net loss per membership unit..... $(1.22) $(2.18) $(0.54) $(0.39)
========= ========== ========= =========
Weighted average number of
membership units and membership
unit equivalents outstanding... 578,133 1,128,423 978,453 1,207,338
========= ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 52
DIDAX ON-LINE, L.C. AND AFFILIATE
(DEVELOPMENT STAGE COMPANIES)
COMBINED STATEMENTS OF STOCKHOLDERS' AND MEMBERS' EQUITY (DEFICIT)
FROM MAY 12, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
DIDAX, INC.
------------------------------------------
COMMON STOCK DIDAX ON-LINE, L.C.
--------------- -----------------------------------------------
DEFICIT DEFICIT
(ROUNDED TO ACCUMULATED ACCUMULATED
WHOLE SHARE) ADDITIONAL DURING MEMBERSHIP UNITS COMMON DURING TOTAL
--------------- PAID-IN DEVELOPMENT ---------------------- STOCK DEVELOPMENT EQUITY
SHARES AMOUNT CAPITAL STAGE UNITS AMOUNT WARRANTS STAGE (DEFICIT)
------ ------ ---------- ----------- --------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock to founders
on May 12, 1993 at
$1 par value....... 1,800 $1,800 $ 0 $ 0 $ 1,800
Issuance of common
stock to founders
in May 1993 in
consideration of
costs paid on
behalf of DIDAX,
INC. at $133.33 per
share.............. 170 170 22,520 0 22,690
Issuance of common
stock throughout
1993 at $166.67 per
share.............. 810 810 134,190 0 135,000
Net loss............. 0 0 0 (104,002) (104,002)
------ ------ ---------- ----------- -----------
BALANCE, DECEMBER 31,
1993............... 2,780 2,780 156,710 (104,002) 55,488
Issuance of common
stock to founders
in December 1994 in
consideration of
costs paid on
behalf of DIDAX,
INC. for $166.67
per share.......... 132 132 21,826 0 21,958
Issuance of common
stock throughout
1994 at $166.67 per
share.............. 600 600 99,400 0 100,000
Issuance of common
stock for outside
services rendered
throughout 1994 at
$166.67 per
share.............. 150 150 24,850 0 25,000
Net loss............. 0 0 0 (224,759) (224,759)
------ ------ ---------- ----------- -----------
BALANCE, DECEMBER 31,
1994............... 3,662 3,662 302,786 (328,761) (22,313)
Issuance of
membership units to
DIDAX, INC. on
January 12, 1995 in
exchange for
contribution of net
assets............. 0 0 0 0 366,193 $ 0 $ 0 $ 0 0
Issuance of
membership units
throughout 1995 at
$2 per unit........ 0 0 0 0 486,000 972,000 0 972,000
Net loss............. 0 0 0 0 0 0 0 (706,564) (706,564)
------ ------ ---------- ----------- --------- ---------- -------- ----------- -----------
BALANCE, DECEMBER 31,
1995............... 3,662 3,662 302,786 (328,761) 852,193 972,000 0 (706,564) 243,123
Issuance of
membership units in
January 1996 at $3
per unit........... 0 0 0 0 19,333 57,999 0 0 57,999
Issuance of
membership units
throughout 1996 at
$4 per unit, net of
offering costs of
$19,591............ 0 0 0 0 288,850 1,135,809 0 0 1,135,809
Issuance of common
stock warrants..... 111,187 111,187
Net loss............. 0 0 0 0 0 0 0 (2,464,904) (2,464,904)
------ ------ ---------- ----------- --------- ---------- -------- ----------- -----------
BALANCE, DECEMBER 31,
1996............... 3,662 3,662 302,786 (328,761) 1,160,376 2,165,808 111,187 (3,171,468) (916,786)
Net loss............. 0 0 0 0 0 0 0 (470,578) (470,578)
------ ------ ---------- ----------- --------- ---------- -------- ----------- -----------
BALANCE, MARCH 31,
1997 (UNAUDITED)... 3,662 $3,662 $302,786 $(328,761) 1,160,376 $2,165,808 $111,187 $(3,642,046) $(1,387,364)
===== ====== ======== ========= ======== ========= ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 53
DIDAX ON-LINE, L.C. AND AFFILIATE
(DEVELOPMENT STAGE COMPANIES)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, FOR THE THREE MONTHS CUMULATIVE
ENDED MARCH 31, FROM INCEPTION
-------------------------- --------------------------- (MAY 12, 1993) TO
1995 1996 1996 1997 MARCH 31, 1997
---------- ----------- ----------- ----------- -----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................ $ (706,564) $(2,464,904) $ (529,737) $ (470,578) $(3,970,807)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization....... 7,290 77,480 10,100 28,842 113,612
Amortization of debt discount
charged to interest expense....... 41,390 27,797 69,187
Common stock issued in lieu of cash
for professional services......... 25,000
Changes in assets and liabilities
affecting operations:
Accounts receivable............. 0 (46,450) 0 (42,920) (89,370)
Advances due from officer....... (30,000) 33,560 0 0 (10,000)
Prepaid expenses................ (9,553) (10,800) (11,123) 10,800 (9,553)
Accounts payable................ 4,894 254,003 (4,894) (183,776) 75,121
Accrued liabilities............. 40,624 88,038 84,282 53,442 224,277
Deferred revenue................ 0 4,125 0 (1,526) 2,599
Subscription receivable......... 0 0 (9,999) 0 0
---------- ----------- ----------- ----------- -----------------
Net cash used by operating
activities:............... (693,309) (2,023,558) (461,371) (577,919) (3,569,934)
---------- ----------- ----------- ----------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..... (67,674) (180,668) (147,881) (3,140) (251,482)
---------- ----------- ----------- ----------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt............ 0 0 0 1,700,000 1,700,000
Proceeds from short term debt, officer
and director.......................... 0 623,000 0 0 623,000
Proceeds from advances due to officer
and director.......................... 30,000 212,000 0 0 242,000
Repayment of advances due to officer and
director.............................. 0 (30,000) (212,000) (242,000)
Net proceeds from members' capital
contributions......................... 972,000 1,193,808 1,213,399 0 2,165,808
Net proceeds from issuance of common
stock................................. 0 0 0 0 281,448
Deferred costs.......................... 0 (39,967) 0 (140,436) (180,403)
---------- ----------- ----------- ----------- -----------------
Net cash provided by financing
activities........................ 1,002,000 1,958,841 1,213,399 1,347,564 4,589,853
---------- ----------- ----------- ----------- -----------------
NET CHANGE IN CASH AND CASH EQUIVALENTS.... 241,017 (245,385) 604,147 766,505 768,437
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD.................................... 6,300 247,317 247,317 1,932 0
---------- ----------- ----------- ----------- -----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD... $ 247,317 $ 1,932 $ 851,464 $ 768,437 $ 768,437
============ ============= =============== =============== ======================
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
INFORMATION:
Cash paid for interest.................. $ 0 $ 4,884 $ 0 $ 2,238 $ 0
============ ============= =============== =============== ======================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Membership shares totaling $2,000 were issued in 1995 in settlement of a loan from an officer.
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 54
DIDAX ON-LINE, L.C. AND AFFILIATE
(DEVELOPMENT STAGE COMPANIES)
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1996 IS UNAUDITED)
A. THE COMPANY AND GOING CONCERN CONSIDERATIONS
DIDAX ON-LINE, L.C. AND AFFILIATE (The "Company") is presented in the
accompanying combined financial statements and include the accounts of DIDAX
ON-LINE, L.C. ("DIDAX ON-LINE"), a Virginia limited liability company
incorporated in Virginia on January 12, 1995, and DIDAX, INC., an S-Corporation
("DIDAX, Inc.") incorporated on May 12, 1993 in Virginia. DIDAX ON-LINE has a
finite life and, accordingly, will cease to exist no later than January 2020.
The assets and liabilities of DIDAX ON-LINE were previously held by DIDAX, INC.
The net assets of DIDAX, Inc. were contributed to DIDAX ON-LINE in exchange for
366,193 membership units in DIDAX ON-LINE on January 12, 1995. The Company's
business includes the development of computer communications and information
services specifically designed to meet the needs of Christian users of the
Internet and World Wide Web.
The members of DIDAX ON-LINE and the stockholders of DIDAX, INC. voted to
merge into DIDAX INC., a Delaware corporation ("DIDAX"). See Note K.
The Company has incurred significant losses from operations of $2,464,904
and $706,564 during the years ended December 31, 1996 and 1995, respectively and
$470,578 and $529,737, during the three months ended March 31, 1997 and 1996,
respectively (unaudited), and an accumulated deficit that raise substantial
doubt about its ability to continue as a going concern. The Company has required
substantial funding through equity and debt financing since its inception to
fund its product development and marketing efforts. Management has historically
been successful in obtaining loans from its principal members and stockholders,
as well as outside financing to meet obligations and fund working capital
requirements. The Company recently closed on an offering of junior convertible
subordinated notes of $1,700,000, as bridge financing, as referred to in Note E.
On November 8, 1996, the Company executed a letter of intent, modified on
February 20, 1997, for a proposed initial public offering ("IPO") and the filing
of a registration statement on Form SB-2 with the Securities and Exchange
Commission. The Company will offer 2,000,000 shares of DIDAX common stock at a
price per share estimated to be in the range of $5.00 to $7.00. The anticipated
proceeds from this offering would be used to fund continued product development
and marketing, repay outstanding debt, fund working capital and facilitate
expansion of the Company's business. If the Company's proposed IPO is
consummated on the currently expected time schedule and generates the
anticipated proceeds, or if the Company is successful in completing comparable
fund raising activities on a similar time schedule, management believes that the
Company will continue as a going concern.
The Company intends to increase its level of activities following the
closing of the proposed IPO proceeds, and will make significant expenditures in
connection with marketing and product development activities. The Company
anticipates that losses will continue for the foreseeable future and until such
time as the Company is able to build an effective marketing and sales
organization, and achieve market acceptance of its products and services. There
can be no assurance that the Company will be able to successfully implement its
marketing strategy, generate significant revenues or achieve profitable
operations. Should the IPO not be successfully completed, the Company will
pursue other debt and equity financing alternatives.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation -- The accompanying combined financial statements
include the accounts of DIDAX ON-LINE, L.C. and DIDAX, INC., for years ended
1996 and 1995, and for the three months ended March 31, 1997 and 1996, both of
which are under common control. Intercompany transactions and balances have been
eliminated in combination.
F-7
<PAGE> 55
DIDAX ON-LINE, L.C. AND AFFILIATE
(DEVELOPMENT STAGE COMPANIES)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1996 IS UNAUDITED)
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Basis of accounting -- The Company's principal activities to date have been
planning and organization, initiating product development projects, conducting
market research and securing adequate financing for the development of its
products and marketing to potential customers. Accordingly, the Company's
financial statements are presented as those of a development stage enterprise,
as prescribed by Statement of Financial Accounting Standards ("SFAS") No. 7,
"Accounting and Reporting by Development Stage Enterprises."
Use of estimates -- Management uses estimates and assumptions in preparing
financial statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities, and
the reported revenues and expenses. Actual results could vary from the estimates
that were used.
Cash equivalents -- Cash and cash equivalents include cash and investments
with maturities of three months or less.
Depreciation and amortization -- Property and equipment are stated at cost.
Depreciation is determined using the straight-line method over estimated useful
lives ranging from three to seven years. Leasehold improvements are amortized
over the life of the related lease.
Revenue recognition -- Revenue is principally derived from customer
contracts for various Internet services, including consulting and web site
development and is recognized as earned on a percentage of completion method in
accordance with the provisions of the individual customer contracts. The Company
also offers semi-annual subscriptions to its customers for Internet access.
Advance payments for these services are deferred and recognized in the period in
which they relate.
Net loss per unit -- Net loss per membership unit is based on the weighted
average number of membership units and dilutive membership unit equivalents
outstanding during the periods presented. Pursuant to Securities and Exchange
Commission requirements, common stock issued and options and warrants to
purchase shares of common stock granted by the Company during the twelve months
preceding the initial filing date of the Registration Statement have been
included in the calculation of weighted average membership units and membership
unit equivalents outstanding as if they were outstanding for all periods
presented. Options and warrants issued by the Company prior to the
aforementioned twelve-month period have not been included in the calculation
because the effects of such items were anti-dilutive.
Stock-based compensation -- In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation",
which encourages companies to recognize expense for stock-based awards based on
their estimated value on the date of grant. SFAS No. 123 is effective beginning
with the year ending December 31, 1996. SFAS No. 123 permits companies to
account for stock based compensation based on provisions prescribed in SFAS No.
123, or based on the authoritative guidance in Accounting Principles Board
Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees." The
Company has elected to continue to account for its stock based compensation in
accordance with APB 25 which uses the intrinsic value method, however, as
required by SFAS No. 123, the Company has disclosed the pro forma impact on the
financial statements assuming the measurement provisions of SFAS No. 123 had
been adopted. See Note J. The Company does account for all other issuances of
equity instruments in accordance with SFAS No. 123.
Deferred Costs -- Deferred costs at December 31, 1996 consisted of legal,
accounting and other expenses associated with (1) the August 16, 1996 private
placement of 9.75% junior subordinated notes, which are being amortized using
the straight-line method over the term of the notes, see Note D; (2) the
December 3,
F-8
<PAGE> 56
DIDAX ON-LINE, L.C. AND AFFILIATE
(DEVELOPMENT STAGE COMPANIES)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1996 IS UNAUDITED)
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
1996 private placement of units of junior convertible subordinated notes which
are being amortized using the straight-line method over the term of the notes,
see Note E; and (3) specific incremental costs directly attributable to the
planned IPO, which will be charged against the gross proceeds of the offering,
see Notes A and K. In the event the offering is not completed, the costs will be
charged to expense at that time. During the three months ended March 31, 1997,
the Company incurred $128,510 and $11,926 of additional legal, accounting and
underwriting costs in connection with the December 3, 1996 private placement
mentioned above and the planned IPO, respectively.
Income Taxes -- DIDAX ON-LINE is classified as a limited partnership for
federal and state income tax purposes. Accordingly, no provision for income
taxes has been made in the accompanying combined financial statements, as all
items of tax attributes pass through pro-rata to each respective member in
accordance with the Operating Agreement. DIDAX, INC. has elected to be treated
as an S-corporation for federal and state income tax purposes and accordingly,
items of income, deduction, expense and credits pass through pro-rata directly
to the stockholders to be reported on their individual income tax returns.
Fair value of financial instruments -- The carrying value of cash and cash
equivalents, accounts receivable and notes payable approximate fair value
because of the relatively short maturity of these instruments.
Interim financial information -- The financial statements of the Company as
of March 31, 1997 and 1996 are unaudited and include, in the opinion of
management, all adjustments consisting of only normal recurring adjustments,
which the Company considers necessary to present fairly the financial position,
results of operations and cash flows of the Company for those interim periods.
The operating results for the three months ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the full year.
C. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of the following:
<TABLE>
<CAPTION>
MARCH 31,
1997
1995 1996 -----------
------- -------- (UNAUDITED)
<S> <C> <C> <C>
Computer equipment.................................... $59,049 $219,169 $ 212,662
Furniture and equipment............................... 8,625 26,873 26,873
Leasehold improvements................................ -- 2,300 2,300
------- -------- -----------
67,674 248,342 241,835
Less: accumulated depreciation and
amortization................................... (7,290) (81,419) (90,558)
------- -------- -----------
$60,384 $166,923 $ 151,277
======= ======== =========
</TABLE>
F-9
<PAGE> 57
DIDAX ON-LINE, L.C. AND AFFILIATE
(DEVELOPMENT STAGE COMPANIES)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1996 IS UNAUDITED)
D. SHORT-TERM DEBT, OFFICER AND DIRECTOR
Short-term debt to an officer and a director consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
1997
1996 -----------
-------- (UNAUDITED)
<S> <C> <C>
Junior subordinated note payable, original face value of $125,000, with
detachable warrants earned over the term of the note with original
discounted amount of $24,389 for estimated value of warrants, dated
July 10, 1996, to an officer and member of the Company, originally
due January 10, 1997 and extended to July 10, 1997 or earlier, at the
Company's discretion, interest accrued at 9.75% from the date amounts
were paid to the Company............................................. $112,805 $ 118,903
Junior subordinated note payable, original face value of $76,000, with
detachable warrants earned over the term of the note with original
discounted amount of $16,055 for estimated value of warrants, dated
September 26, 1996, to an officer and member of the Company,
originally due February 8, 1997 and extended to September 26, 1997 or
earlier, at the Company's discretion, interest accrued at 9.75% from
the date amounts were paid to the Company............................ 65,297 69,310
-------- -----------
Short-term debt to an officer..................................... $178,102 $ 188,213
Junior subordinated note payable, original face value of $125,000, with
detachable warrants earned over the term of the note with original
discounted amount of $24,634 for estimated value of warrants, dated
July 30, 1996, to a director and member of the Company, originally
due January 30, 1997, and extended to July 30, 1997 or earlier, at
the Company's discretion, interest accrued at 9.75% from the date
amounts were paid to the Company..................................... $112,683 $ 118,842
Junior subordinated note payable, original face value of $297,000, with
detachable warrants earned over the term of the note with original
discounted amount of $46,109 for estimated value of warrants, dated
October 30, 1996, to a director and member of the Company, originally
due July 30, 1997 or earlier, at the Company's discretion, interest
accrued at 9.75% from the date of amounts were paid to the Company... 262,418 273,945
-------- -----------
Short-term debt to a director..................................... 375,101 392,787
-------- -----------
Total short-term debt, officer and director.................. $553,203 $ 581,000
======== =========
</TABLE>
A director and an officer of the Company have purchased junior subordinated
notes in conjunction with the Company's private placement offering dated August
16, 1996 in the aggregate face value amount of $623,000. This total offering was
for $3,000,000 in junior subordinated debt. They agreed for the Company to close
the offering at $623,000 even though the total $3,000,000 was not obtained. As
part of the purchase of these junior subordinated debt securities, the purchaser
also earns warrants for the right to purchase membership units (or shares) of
the Company at $4.00 per unit (or share), exercisable after July 1998, or at the
time of an IPO, whichever occurs sooner. The warrants are earned over the period
the debt is outstanding. For their participation in this private placement, they
have earned through December 31, 1996 and March 31, 1997, 61,209 and 95,859
warrants, respectively.
F-10
<PAGE> 58
DIDAX ON-LINE, L.C. AND AFFILIATE
(DEVELOPMENT STAGE COMPANIES)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1996 IS UNAUDITED)
D. SHORT-TERM DEBT, OFFICER AND DIRECTOR -- (CONTINUED)
The maximum warrants that could be earned by the officer and director
through the maturities of the debt is 150,379 warrants. The portion of the
proceeds of the above debt securities allocated to these warrants, as estimated
by the Company, is $111,187 and is included in stockholders' and members' equity
in the accompanying financial statement. The Company recognized interest expense
of $41,390 and $27,797 for the year ended December 31, 1996 and for the three
months ended March 31, 1997 respectively, related to the amortization of this
discount. See Note J. Included in accrued expenses is interest payable to the
above officer and director in the amount of $29,972 and $45,832 at December 31,
1996 and March 31, 1997, respectively, relating to the notes payable.
E. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
1997
-----------
(UNAUDITED)
<S> <C>
Junior convertible subordinated notes................................... $ 1,400,000
Junior convertible subordinated notes -- director....................... 300,000
-----------
$ 1,700,000
=========
</TABLE>
On January 9, 1997, the Company closed on the minimum portion of a private
placement offering dated December 3, 1996, placed by the underwriter of the
Company's proposed IPO, for units consisting of junior convertible subordinated
notes with total gross proceeds to the Company from this offering of $750,000.
The maximum portion of the offering for an additional $750,000 was
oversubscribed and the Company closed this offering on February 21, 1997, with
$950,000 in additional gross proceeds. In accordance with this offering,
unregistered shares will be issued at no additional cost to each note holder at
the time of an IPO by dividing the principal of the holder's note by the IPO
price.
Thus, since $1,700,000 of notes were placed and assuming an IPO price of
$5.00 per share, 340,000 shares would be issued at the closing of an IPO. If an
IPO is not effected by the third anniversary of the investor subscription
agreement, then the notes shall mature and the holders have the option of
converting the notes to shares at a price of $4.00 per share, implying the
issuance of 425,000 shares if $1,700,000 in notes are converted, or receiving
repayment of the notes in four quarterly payments commencing one day after the
three year anniversary of their subscription agreement. The maturity dates of
the notes range from January 2000 through February 2000. These junior
convertible subordinated notes bear no interest. The underwriter received fees
aggregating $119,000 for this transaction.
F. SERVICES PROVIDED WITHOUT CHARGE
As part of an effort to obtain a large and reputable Christian organization
as a key customer, the Company provided $240,500, $250,000, and $22,000 worth of
products and services to this organization, at no charge, for the years ending
December 31, 1996 and 1995 and the period ending March 31, 1997, respectively.
It is anticipated that further services provided without charge of approximately
$50,000 will continue through the first six months of 1997. This work was
performed to demonstrate the Company's capabilities and to develop a growing
relationship. Another incentive to attract this customer was to commit 50,000
membership
F-11
<PAGE> 59
DIDAX ON-LINE, L.C. AND AFFILIATE
(DEVELOPMENT STAGE COMPANIES)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1996 IS UNAUDITED)
F. SERVICES PROVIDED WITHOUT CHARGE -- (CONTINUED)
units (or shares) of the Company to them as a donation. See Note J. In 1996, a
long term contract was signed with this major customer to provide Internet and
internal communications systems and services.
G. RELATED PARTY TRANSACTIONS
At December 31, 1996 and 1995, the Company had advances due from an officer
and member of the Company totaling $10,000 and $43,560, respectively. At March
31, 1997, advances due from this officer and member of the Company totaled
$10,000. These advances are non-interest bearing and are being repaid under
informal arrangements with no fixed due date.
In 1995, the Company borrowed $30,000 from an officer and member of the
Company under informal arrangements and repaid it in 1996. In 1996, the Company
borrowed $623,000 from an officer and a director. See Note D.
Also, an officer and a director advanced $212,000 to the Company to cover
operating costs for certain periods during 1996. These advances bear interest of
9.75% and were repaid from the proceeds from the most recent private placement
offering closed in February 1997. See Note K. Included in accrued liabilities at
December 31, 1996, is $1,569 in interest due to the officer and director.
On January 9, 1997, the Company borrowed $300,000 from a director of the
Company as part of the December 3, 1997 private placement offering of the junior
convertible subordinated notes. See Note E.
H. COMMITMENTS AND CONTINGENCIES
Operating Lease Obligations
The Company leases office space and certain equipment under non-cancelable
operating leases. The office lease provides for a three-year term, an annual
increase in base rent of 3%, and additional rent representing the Company's
pro-rata share of operating expenses as defined in the lease agreement. The
equipment lease provides for a three-year lease term.
Minimum future lease payments under non-cancelable operating leases are as
follows for each of the next two years ending December 31:
<TABLE>
<S> <C>
1997.............................................. $ 70,876
1998.............................................. 55,080
1999.............................................. 3,062
2000.............................................. 766
--------
$129,784
========
</TABLE>
Rent expense for the years ended December 31, 1996 and 1995 was $63,325 and
$21,981, respectively, and $16,611 for the three months ended March 31, 1997
(unaudited) and is included in general and administrative expenses.
Securities
In April of 1996, the Company became aware that certain prior private
placements may be deemed not to have been properly exempted from registration
under federal and/or state law. This may give rise to the
F-12
<PAGE> 60
DIDAX ON-LINE, L.C. AND AFFILIATE
(DEVELOPMENT STAGE COMPANIES)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1996 IS UNAUDITED)
H. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
opportunity for certain stockholders and members to exercise rescission rights,
if any, related to their investment in the Company. The Company believes there
may be valid legal defenses to any and/or all such rescission actions, if
initiated. The potential of inadvertent exemption violations was communicated to
the investors concerned in August of 1996. Furthermore, in late December of
1996, each stockholder and member who might have rescission rights was sent a
written request to waive such rights (if any) to rescission and other remedies
in connection with any past omissions or violations of federal or state
securities laws or regulations, and also to agree not to sue the Company or its
directors on the basis of such rights. Approximately 80% of the members
responded with waivers, representing approximately 89% of the outstanding
shares. The value of funds received of those that have not responded as of March
31, 1997 is approximately $388,000. It is the Company's expectation (but there
can be no assurance) that only a minority of the investors concerned will elect
to exercise their rescission rights, if indeed any in fact elect so to exercise.
Any assertion of rescission rights will be evaluated at the time made, in light
of all the facts and circumstances.
Other
50,000 membership units (or shares) have been reserved for donation to the
Company's first customer and ministry partner. See Note F. Before the effective
date of the proposed IPO, 40,000 of these units (or shares) will be donated. The
remaining 10,000 units (or shares) will be donated upon completion of several
customer tasks relevant to product promotion.
I. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents.
The Company maintains its cash accounts in commercial banks located in Virginia.
Cash balances are insured by the Federal Deposit Insurance Corporation ("FDIC")
up to $100,000 per financial institution. At December 31, 1996 and 1995, and
March 31, 1997, there were no uninsured cash balances.
Cash equivalents are maintained in a US government money fund. These cash
equivalents are not insured by the FDIC, but are collateralized by the
underlying assets of the federal government. At December 31, 1996 and 1995, cash
equivalents totaled approximately $200 and $204,000, respectively. At March 31,
1997, cash equivalents totaled approximately $764,000.
During 1996 and for the quarter ending March 31, 1997, revenue was
generated from major customers in amounts exceeding 10% of total revenue as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 MARCH 31, 1997 (UNAUDITED)
---------------------------- ----------------------------
ACCOUNTS ACCOUNTS
RECEIVABLE RECEIVABLE
REVENUE % BALANCE REVENUE % BALANCE
------- --- ---------- ------- --- ----------
<S> <C> <C> <C> <C> <C> <C>
Customer #1................................. $62,842 35% $ 2,994 $26,425 28% $ 25,615
Customer #2................................. $58,056 32% $ 28,085 $31,307 34% $ 29,948
Customer #3................................. $ -- --% $ -- $20,335 22% $ 22,520
</TABLE>
F-13
<PAGE> 61
DIDAX ON-LINE, L.C. AND AFFILIATE
(DEVELOPMENT STAGE COMPANIES)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1996 IS UNAUDITED)
J. STOCK OPTION PLAN
Since the inception of the Company, various options have been granted by
the Board of Directors to founders, directors, employees, consultants and
ministry partners. These options are pending approval by the stockholders of
DIDAX, pursuant to the adoption of the 1997 Stock Plan, by its Board of
Directors. See Note K. All options are stated in common stock of DIDAX. The
Board of Directors determines the option price (not less than fair market value)
at the date of grant. The objectives of the stock plan are to advance the
interest of DIDAX by providing an opportunity to its selected key employees,
consultants, and minority partners, to purchase shares of DIDAX. By encouraging
stock ownership, DIDAX seeks to attract, retain and motivate key employees,
consultants, and ministry partners. The plan will be administered by the Board
of Directors. The Plan provides for the granting of either qualified or
non-qualified option to purchase an aggregate of up to 2,057,937 shares of
common stock.
At December 31, 1996 and 1995, the Company had outstanding options to sell
936,931 and 152,500 shares of common stock, respectively, and 936,931 at March
31, 1997, to various officers and directors of the Company at exercise prices
ranging from $1.50 to $5.00 per share. As of December 31, 1996 and March 31,
1997, options for 204,431 shares are vested, and options for 46,000 shares are
scheduled to vest during the remaining part of 1997 and 46,000 in 1998. The
options expire ten years from the date granted.
At December 31, 1996 and 1995, and March 31, 1997, the Company had
outstanding options to sell 29,500 shares of common stock to various outside
consultants and a marketing partner at exercise prices ranging from $1.66 to
$4.00 per share. As of December 31, 1996 and March 31, 1997, options for 19,000
and 29,500 were vested. The options expire ten years from the date granted.
At December 31, 1996 and 1995, the Company granted to employees options for
233,631 and 141,703 shares of common stock, respectively, and 255,631 at March
31, 1997, at exercise prices ranging from $2.00 to $5.00 per share. The grant
prices of $2.00 to $4.00 was determined by the Board of Directors to represent
fair value. As of December 31, 1996 and March 31, 1997, options for 169,444 and
174,659 shares are vested with the remainder scheduled to vest through 1999. The
options expire through 2007.
F-14
<PAGE> 62
DIDAX ON-LINE, L.C. AND AFFILIATE
(DEVELOPMENT STAGE COMPANIES)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1996 IS UNAUDITED)
J. STOCK OPTION PLAN -- (CONTINUED)
A summary of activity for the period ended March 31, 1997, is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------
PER UNIT
NUMBER OF EXERCISE
SHARES PRICE
--------- ------------
<S> <C> <C>
Outstanding, January 1, 1995................................. 72,500 $1.50-$1.66
Options granted......................................... 246,203 $2.00
Options exercised....................................... -- --
Options expired......................................... -- --
Outstanding, December 31, 1995............................... 318,703 $1.50-$2.00
Options granted......................................... 921,759 $3.00-$5.00
Options exercised....................................... -- --
Options expired......................................... 40,400 $2.00-$5.00
--------- ------------
Outstanding, December 31, 1996............................... 1,200,062 $1.50-$5.00
Options granted......................................... 22,000 $5.00
Options exercised....................................... -- --
Options expired......................................... -- --
--------- ------------
Outstanding, March 31, 1997 (unaudited)...................... 1,222,062 $1.50-$5.00
======== ==========
</TABLE>
The Company accounts for the fair value of its options granted to employees
in accordance with APB 25. Accordingly, no compensation expense has been
recognized for the options granted, since the options are granted, at the
discretion of the Board of Directors, at an option price per share not less than
fair market value, as determined by the Board of Directors, at the date of
grant. Had compensation expense been determined based on the fair value of the
options at the grant dates consistent with the method of accounting under SFAS
123, the Company's net loss and net loss per share would have been increased to
the proforma amounts indicated below:
<TABLE>
<CAPTION>
FOR THE
THREE
MONTHS ENDED
MARCH 31,
1995 1996 1997
--------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Net loss
As reported........................................ $(706,564) $(2,464,904) $ (470,578)
Proforma........................................... $(879,320) $(2,715,065) $ (492,732)
Net loss per common share
As reported........................................ $ (1.22) $ (2.18) $ (0.39)
Proforma........................................... $ (1.52) $ (2.41) $ (0.41)
</TABLE>
The fair value of each option is estimated on the date of grant using a
type of Black-Scholes option-pricing model with the following assumptions used
for grants during the years ended December 31, 1996 and 1995: dividend yield of
0%, volatility of effectively 0%, risk-free interest rate based on the 10-year
bond Treasury yield at the date of grant, and expected term of 10 years. SFAS
No. 123 provides for the use of a 0% volatility assumption for grants made prior
to becoming a public company. All options granted to employees have been granted
at an exercise price of $1.50 to $5.00 per share.
F-15
<PAGE> 63
DIDAX ON-LINE, L.C. AND AFFILIATE
(DEVELOPMENT STAGE COMPANIES)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1996 IS UNAUDITED)
J. STOCK OPTION PLAN -- (CONTINUED)
During 1995, the Company reserved options for 85,000 membership units
(shares) to be provided to marketing partners at management's discretion. These
will be distributed based on identifiable contract milestones at a contract
specified price not less than market value at the time of contract consummation.
To date, 5,000 of these options have been granted, all at $4.00 per unit and is
included in the 29,500 option shares noted above.
During August 1996, the Company issued a private placement to secure
$3,000,000 in junior subordinated debt coupled with 375,000 warrants to purchase
membership units (shares) after July, 1998 at $4.00 per unit (share). This
offering was closed with $623,000 in notes and with 61,209 and 95,859 warrants
earned and granted as of December 31, 1996 and March 31, 1997, respectively. See
Note D. Since the only participants in this offering were an officer and a
director of the Company, the warrants earned pursuant to this offering have been
adopted in the 1997 Stock Option Plan, as approved by the Board of Directors of
DIDAX, and therefore are referred to as options by the Company.
K. SUBSEQUENT EVENTS
Proposed Public Offering
On November 8, 1996, the Company executed a letter of intent for a proposed
IPO. As of February 20, 1997, DIDAX and the underwriter have agreed to modify
the offer such that DIDAX will offer 2,000,000 shares of common stock at a
currently anticipated price of $5.00 per share and 2,000,000 purchase warrants
at a currently anticipated price of $.125 per purchase warrant. The shares and
the purchase warrants are separately transferable at any time after the date of
the IPO.
Each purchase warrant would entitle the registered holder thereof to
purchase, at any time during the five-year period commencing on the date of the
IPO, one share of the common stock at a price of $5.75 per share, subject to
adjustment under certain circumstances. The purchase warrants would not be
exercisable unless, at the time of exercise, DIDAX had a current prospectus
covering the shares of common stock issuable upon exercise of the purchase
warrants and such shares had been registered, qualified or deemed to be exempt
under the securities laws of the states of residence of the exercising holders
of the purchase warrants. Commencing after the date of the IPO, the purchase
warrants would be subject to redemption by DIDAX, at the option of DIDAX, at
$0.25 per purchase warrant, upon 30 days prior written notice, if the closing
bid or sale price, as reported on NASDAQ, a national or regional exchange, or
the National Association of Securities Dealers, Inc.'s OTC Bulletin Board, as
applicable, of the shares of the Common Stock for 30 consecutive trading days
ending within ten days of the notice of redemption of the purchase warrants
averaged in excess of $10.00 per share, subject to adjustment.
Prior to the first anniversary of the date of the IPO, the purchase
warrants would not be redeemable by DIDAX without the written consent of the
underwriter. All beneficial owners of DIDAX's securities as of the date of the
IPO would be subject to an 18-month irrevocable lock-up agreement whereby they
have agreed not to sell any shares of common stock in the public market without
the prior written consent of the Representative.
In addition, DIDAX is registering 400,000 shares for the purpose of
underlying representative warrants, to be issued to the underwriter or persons
related to the underwriter, and which consist of the right to purchase 200,000
shares of common stock at an exercise price of $8.25 per share (or the
equivalent of 165% of the anticipated public offering price,) and warrants
priced at $.20625 per warrant (or the equivalent of 165% of
F-16
<PAGE> 64
DIDAX ON-LINE, L.C. AND AFFILIATE
(DEVELOPMENT STAGE COMPANIES)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1997 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1996 IS UNAUDITED)
K. SUBSEQUENT EVENTS -- (CONTINUED)
the anticipated public offering price), to purchase 200,000 shares of common
stock, for the right to purchase 200,000 shares of common stock at $8.25 per
share. The representative warrants cannot be transferred, sold, assigned or
otherwise disposed of during the first twelve (12) months following the date of
the prospectus except to officers, directors and/or partners of the
representative and their selected dealers; by will; or by operation of law, and
may be exercised, in whole or in part, at any time, and from time to time,
during the five (5) year period following the date of the prospectus.
Merger with DIDAX
The stockholders of DIDAX, INC. and the members of DIDAX ON-LINE voted on
December 30, 1996 to reorganize their operations into DIDAX. Under this
reorganization, the members of DIDAX ON-LINE have exchanged their units in DIDAX
ON-LINE for 794,183 shares in DIDAX. In addition, the stockholders of DIDAX,
INC., have exchanged their shares for 366,193 shares in DIDAX. These exchanges
of units and shares were done pursuant to a statutory merger of the entities.
Under the terms of the Merger, DIDAX, among other things, issued a total of
1,160,376 shares of its common stock, representing 100% of the outstanding units
of DIDAX ON-LINE prior to the merger. The Board of Directors of DIDAX, approved
the two separate proposed plan and agreements of merger on April 9, 1997. The
merger plan was received and filed on April 10, 1997 in the State of Delaware
and was also approved by the State of Virginia on April 11, 1997. The merger has
been consummated as of April 11, 1997 and the Company will commence business
under DIDAX.
In February, 1997, the Incorporators of DIDAX authorized 8,500,000 shares,
at $.01 par value, necessary to underlie the total complement of common stock
and purchase warrants to be offered in the proposed IPO. In addition, the
Incorporators authorized 268,400 additional shares of common stock to underlie
additional options reserved for key employees and for future compensation to
members of the Board of Directors. On April 9, 1997, the Board of Directors
increased the authorized shares to 20,000,000 shares. The Board of Directors
also adopted, subject to approval of the Stockholders, the 1997 Stock Option
Plan, which covers 2,057,937 options inclusive of the 268,400 shares mentioned
above and any and all options or warrants granted in prior years by the Company.
See Note J.
Certain proceeds from the private placement offering dated December 3,
1996, were used to repay advances to the Company made by an officer and a
director in the aggregate amount of $212,000, plus interest of $2,238. See Note
G. The remainder was used for, among other things, working capital in the
Company.
F-17
<PAGE> 65
======================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS IN CONNECTION
WITH THE OFFERING DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF ANY
OFFER TO BUY, BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH
PERSON TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY OFFER, SOLICITATION OR SALE MADE HEREUNDER, SHALL UNDER ANY
CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE OF THE PROSPECTUS.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 15
Capitalization........................ 17
Dilution.............................. 18
Management's Discussion and Analysis
or Plan of Operation................ 19
Proposed Business..................... 22
Management............................ 31
Principal Stockholders................ 36
Description of Securities............. 38
Underwriting.......................... 42
Legal Proceedings..................... 44
Legal Matters......................... 44
Experts............................... 44
Additional Information................ 45
Financial Statements.................. F-1
</TABLE>
------------------
UNTIL , 1997 (25 DAYS AFTER THE FIRST DATE ON WHICH THE REGISTERED
SECURITIES WERE BONA FIDE OFFERED TO THE PUBLIC), ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WITH RESPECT TO THEIR
SOLICITATION OF SUBSCRIPTIONS TO PURCHASE THE SECURITIES OFFERED HEREBY.
======================================================
======================================================
DIDAX INC.
2,000,000 SHARES OF COMMON STOCK
2,000,000 REDEEMABLE
COMMON STOCK PURCHASE WARRANTS
--------------------
PROSPECTUS
--------------------
BARRON CHASE SECURITIES, INC.
7700 WEST CAMINO REAL
BOCA RATON, FLORIDA 33433
(561) 347-1200
ATLANTA, GEORGIA
BEVERLY HILLS, CALIFORNIA
BOSTON, MASSACHUSETTS
CHICAGO, ILLINOIS
CLEARWATER, FLORIDA
DENVER, COLORADO
EAST BOCA RATON, FLORIDA
HOOPESTON, ILLINOIS
LA JOLLA, CALIFORNIA
MIAMI, FLORIDA
MIDDLETOWN, NEW JERSEY
MINNEAPOLIS, MINNESOTA
NAPLES, FLORIDA
NEW YORK, NEW YORK
OKLAHOMA CITY, OKLAHOMA
ORLANDO, FLORIDA
SARASOTA, FLORIDA
TAMPA, FLORIDA
TULSA, OKLAHOMA
, 1997
======================================================
<PAGE> 66
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Articles 10 and 11 of the Company's Certificate of Incorporation, as
amended, and Article XI of the By-laws of the Company, as amended, contain the
following provisions with respect to indemnifying officers and directors of the
Company:
CERTIFICATE OF INCORPORATION
Article 10 To the fullest extent permitted by Delaware statutory or
decisional law, as amended or interpreted, no director of this Corporation shall
be personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director. This Article 10 does not affect the
availability of equitable remedies for breach of fiduciary duties.
Article 11 The Corporation shall, to the fullest extent legally
permissible, indemnify (fully or, if not possible, partially) each of its
directors and officers, and persons who serve at its request as directors or
officers of another organization in which it owns shares or of which it is a
creditor, against all liabilities (including expenses) imposed upon or
reasonably incurred by him in connection with any action, suit or other
proceeding, civil or criminal (including investigations, audits, the activities
of, or service upon special committees of the board) in which he may be involved
or with which he may be threatened, while in office or thereafter, by reason of
his acts or omissions as such director or officer, unless in any proceeding he
shall be finally adjudged not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Corporation; provided,
however, that such indemnification shall not cover liabilities in connection
with any matter which shall be disposed of through a compromise payment by such
director or officer, pursuant to a consent decree or otherwise, unless such
compromise shall be approved as in the best interest of the Corporation, after
notice that it involved such indemnification, (a) by a vote of the directors in
which no interested director participates, or (b) by a vote or the written
approval of the holders of a majority of the outstanding stock at the time
having the right to vote for directors, not counting as outstanding any stock
owned by any interested director or officer. Such indemnification may include
payment by the Corporation of expenses incurred in defending a civil or criminal
action or proceeding in advance of the final disposition of such action or
proceeding, upon receipt of an undertaking by the person indemnified to repay
such payment if he shall be adjudicated to be not entitled to indemnification
under these provisions. The rights of indemnification hereby provided shall not
be exclusive of or affect other rights to which any director or officer may be
entitled. As used in this paragraph, the terms "director" and "officer" include
their respective heirs, executors and administrators, and an "interested"
director or officer is one against whom as such the proceedings in question or
another proceeding on the same or similar grounds is then pending.
BYLAWS
Indemnification of employees and other agents of the Corporation (including
persons who serve at its request as employees or other agents of another
organization in which it owns shares or of which it is a creditor) may be
provided by the Corporation to whatever extent shall be authorized by the
directors before or after the occurrence of any event as to or in consequence of
which indemnification may be sought. Any indemnification to which a person is
entitled under these provisions may be provided although the person to be
indemnified is no longer a director, officer, employee or agent of the
Corporation or of such other organization. It is the intent of these provisions
to indemnify director and officers to the fullest extent not specifically
prohibited by law, including indemnification against claims brought
derivatively, in the name of the Corporation, and that such directors and
officers need not exhaust any other remedies.
II-1
<PAGE> 67
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth various expenses, other than the
underwriting discount, which will be incurred in connection with the Offering.
Other than the SEC Registration Fee, NASD filing fee and Non-Accountable Expense
Allowance, amounts set forth below are estimates:
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 8,597
NASD filing fee................................................... 4,000
NASDAQ listing fee................................................ 10,000
Transfer and warrant agent fee.................................... 3,500
Printing and engraving expenses................................... 90,000
Legal fees and expenses........................................... 110,000
Accounting fees and expenses...................................... 75,000
Blue Sky fees and expenses........................................ 38,903
Non-accountable expense allowance................................. $307,500
--------
TOTAL................................................... 647,500*
========
</TABLE>
- ---------------
* Assumes no exercise of the Over-Allotment Option or the payment of the
financial advisor fee to the Representative.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth information relating to all securities of the
Registrant sold by it within the past three years without registration under the
Securities Act.
The following shares of Common Stock were sold by the Company during the
past three years without registration under the Securities Act. There were no
underwriting discounts or commissions paid in connection with the issuance of
any of said securities.
The sales of the securities described in the following table were made in
reliance upon Regulation D, Rule 506 and Section 4(2) of the Securities Act,
which both provide for exemption for transactions not involving a public
offering. With regard to the Company's reliance upon this exemption from
registration, certain inquiries were made by the Company that such sales
qualified for such exemption. In particular, all investors certified to the
Company that they were accredited, they executed investment letters, and the
securities bear a legend accordingly.
II-2
<PAGE> 68
ITEM 26
<TABLE>
<CAPTION>
DATE PRICE NUMBER OF SHARES
FUNDS RECEIVED AMOUNT PER SHARE OF COMMON STOCK
- -------------------------------------------------------------
<S> <C> <C> <C>
04/15/96 $9,999 $3.0000 3,333
03/20/96 $20,000 $4.0000 5,000
03/15/96 $25,000 $4.0000 6,250
03/11/96 $40,000 $4.0000 10,000
03/05/96 $60,000 $4.0000 15,000
03/05/96 $15,000 $3.0000 5,000
03/04/96 $12,000 $4.0000 3,000
03/01/96 $40,000 $4.0000 10,000
03/01/96 $50,000 $4.0000 12,500
03/01/96 $10,000 $4.0000 2,500
03/01/96 $4,000 $4.0000 1,000
02/28/96 $40,000 $4.0000 10,000
02/28/96 $10,000 $4.0000 2,500
02/27/96 $22,000 $4.0000 5,500
02/27/96 $10,000 $4.0000 2,500
02/27/96 $5,000 $4.0000 1,250
02/26/96 $200,000 $4.0000 50,000
02/26/96 $25,000 $4.0000 6,250
02/23/96 $50,000 $4.0000 12,500
02/23/96 $25,000 $4.0000 6,250
02/22/96 $10,000 $4.0000 2,500
02/22/96 $19,400 $4.0000 4,850
02/22/96 $100,000 $4.0000 25,000
02/22/96 $15,000 $4.0000 3,750
02/21/96 $50,000 $4.0000 12,500
02/21/96 $28,000 $4.0000 7,000
02/20/96 $40,000 $4.0000 10,000
02/16/96 $70,000 $4.0000 17,500
02/16/96 $70,000 $4.0000 17,500
02/16/96 $20,000 $4.0000 5,000
02/16/96 $20,000 $4.0000 5,000
02/15/96 $10,000 $4.0000 2,500
02/15/96 $10,000 $4.0000 2,500
02/14/96 $25,000 $4.0000 6,250
02/13/96 $10,000 $4.0000 2,500
01/26/96 $3,000 $3.0000 1,000
01/24/96 $30,000 $3.0000 10,000
01/23/96 $10,000 $4.0000 2,500
10/12/95 $100,000 $2.0000 50,000
10/05/95 $10,000 $2.0000 5,000
09/12/95 $150,000 $2.0000 75,000
09/12/95 $50,000 $2.0000 25,000
09/08/95 $10,000 $2.0000 5,000
09/05/95 $2,000 $2.0000 1,000
09/01/95 $50,000 $2.0000 25,000
08/29/95 $50,000 $2.0000 25,000
08/29/95 $100,000 $2.0000 50,000
07/27/95 $200,000 $2.0000 100,000
06/10/95 $100,000 $2.0000 50,000
05/15/95 $50,000 $2.0000 25,000
03/07/95 $25,000 $2.0000 12,500
02/13/95 $25,000 $2.0000 12,500
01/04/95 $50,000 $2.0000 25,000
12/31/94 $13,280 $1.6667 7,968
12/31/94 $8,678 $1.6667 5,207
12/16/94 $10,000 $1.6667 6,000
09/27/94 $50,000 $1.6667 30,000
09/05/94 $25,000 $1.6667 15,000
08/04/94 $10,000 $1.6667 6,000
08/01/94 $10,000 $1.6667 6,000
---------- -----------------
$2,312,357 870,358
========== =================
</TABLE>
In addition, the Company issued 2,212 shares on April 11, 1997 to J.C.
Lasmanis for consulting services, which the Board of Directors has determined
had a value of $11,062.
II-3
<PAGE> 69
The sales of junior subordinated notes described in the following table
were made in reliance upon Regulation D, Rule 506 of the Securities Act, which
provides for exemption for transactions not involving a public offering. With
regard to the Company's reliance upon this exemption from registration, certain
inquiries were made by the Company that such sales qualified for such exemption.
In particular, all investors certified to the Company that they were accredited,
they executed investment letters, and the securities bear a legend accordingly.
<TABLE>
<CAPTION>
DOLLAR
AMOUNT
DATE PURCHASED
------------------------------------------------------------------ --------
<S> <C>
7/10/96 $125,000
7/30/96 125,000
9/26/96 76,000
10/30/96 297,000
--------
Total $623,000
========
</TABLE>
Holders of the above junior subordinated notes, earn interest payable in
the amount of 9.75% per annum, compounded monthly, payable in full at maturity,
with warrants to purchase up to 150,379 shares of the Company's common stock
exercisable at $4.00 per share, a portion of which are earned for every month
the notes are outstanding. As of December 31, 1996, warrants to purchase 61,209
shares of common stock have been earned by the Holders. At the effective date of
the Prospectus, it is anticipated that warrants to purchase 121,476 shares of
common stock will have been earned. The maximum of 150,379 warrants could be
earned if held through to maturity. These warrants are not exercisable until two
years after the date of subscription, or at the time of an IPO, whichever is
earlier. There were no underwriting discounts or commissions paid in connection
with the issuance of any of said securities.
II-4
<PAGE> 70
The sales of the junior convertible subordinated notes ("Notes") described
in the following table were made in reliance upon Regulation D, Rule 506 of the
Securities Act, which provides for exemption for transactions not involving a
public offering. With regard to the Company's reliance upon this exemption from
registration, certain inquiries were made by the Company that such sales
qualified for such exemption. In particular, all investors certified to the
Company that they were accredited, they executed investment letters, and the
securities bear a legend accordingly.
<TABLE>
<CAPTION>
AMOUNT
DATE FUNDS OF NOTES
RECEIVED PURCHASED
- ----------------------------------------
<S> <C>
12/16/96 $100,000
12/18/96 $100,000
12/18/96 $50,000
12/20/96 $25,000
12/20/96 $50,000
12/24/96 $100,000
12/26/96 $25,000
12/30/96 $50,000
01/03/97 $75,000
01/07/97 $100,000
01/07/97 $50,000
01/08/97 $25,000
01/09/97 $25,000
01/13/97 $25,000
01/14/97 $50,000
01/15/97 $45,000
01/15/97 $10,000
01/15/97 $25,000
01/15/97 $25,000
01/16/97 $200,000
01/16/97 $45,000
01/20/97 $25,000
01/24/97 $25,000
01/24/97 $25,000
01/31/97 $25,000
01/31/97 $25,000
01/31/97 $275,000
02/04/97 $100,000
------------------
$1,700,000
</TABLE>
II-5
<PAGE> 71
The holders of the Notes, as detailed above, also have the right to receive
at maturity, 340,000 shares of its common stock, which have been converted into
the right to receive an equal number of shares of common stock of the Company.
The Notes are unsecured, non interest bearing, and expressly subordinate to
institutional debt, and will mature at the earlier of the effective date of the
IPO or as indicated below. It is anticipated that proceeds from the IPO will be
used to repay the principal of the Notes on the closing date of the IPO. At that
time, in addition, unregistered shares of the company's stock, with a two year
irrevocable lock-up agreement, will be issued at no additional cost to each
holder of the notes in an amount calculated by dividing the principal of the
holder's Note by the IPO price of $5.00 per share (i.e., an aggregate of 340,000
shares). In the event that an initial public offering of the company's shares is
not effective within three years from the date of the Subscription Agreement, in
lieu of the right to receive shares of its common stock upon an IPO, the holder
of the Note has the option of converting the note to shares of the Company's
common stock in an amount calculated by dividing the principal of the holder's
Note by $4.00, or demanding repayment of the note in four quarterly
installments. Barron Chase Securities, Inc. served as placement agent for this
private placement and received a 7% commission amounting to $119,000 for their
services in this regard.
The following options to purchase Common Stock of the Company were granted
by the Company within the past three years.
<TABLE>
<CAPTION>
12/31/94 6/29/95 08/29/95 12/31/95 3/31/96 6/30/96 8/16/96 9/30/96 9/30/96 12/31/96 3/31/97
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
171,312 5,191
164,312 10,385
116,000 145,312 17,524
30,000 71,250 6,331
<CAPTION>
12/31/94 Preoffering
- ---------------------------------
<S> <C>
2,420
2,420
8,075
1,405
2,500 2,500 160,314
4,000
14,000
4,000
250
1,000
500
250
500
10,000 10,000 7,638 446
10,000 10,000 2,792 (7,500)
7,600 1,600
18,773 2,019 2,019 2,019 1,013
12,100 1,066
10,850 2,263
10,100 965
10,000 1,095
2,600 888
12,500 1,350
5,000 1,830
50,000 (18,000) 0
2,660 1,278
10,000 (10,000) 0
3,600 (700) 0
6,250 1,930
2,500 788
3,600 (2,700) 0
2,000 2,091
1,750 750 750 750 0
1,000 250 0
1,950 2,600
3,000 (750) 0
2,000 100
3,000 (250) 0
3,000 (250) 0
3,000 (250) 0
2,808
2,000 100
2,000
20,000
5,000 0
38,500 120,000 22,500 103,703 124,329 6,269 (20,650) 712,500 2,769 56,142 22,000
- ----------------------------------------------------------------------------------------------------------------------------------
$1.667 $2.00 $2.00 $2.00 $4.00 $4.00 $4.00 $5.00 $4.00 $4.00 $5.00
<CAPTION>
0
<S> <C>
37,000
37,000
37,000
37,000
14,000
4,000
500
37,000
10,000 325
10,000
405
805
565
805
405
405
805
1,250
38,500 205,090
- ---------------------------------------------
$1.667 $5.00
</TABLE>
II-6
<PAGE> 72
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------- -----------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement between Registrant and Representative
1.2 Form of Selected Dealer Agreement between the Representative and the selected
dealers
1.3 Form of Financial Advisory Agreement between Registrant and Representative
1.4 Form of Merger and Acquisition Agreement between Registrant and Representative
1.5 Form of Agreement Among Underwriters
2 Articles and Certificates of Merger of DIDAX ON-LINE, L.C. and DIDAX, INC. into the
Registrant
3.1 Certificate of Incorporation and Certificates of Amendment thereto of the
Registrant
3.2 Bylaws and amendments thereto of the Registrant
4.1* Form of certificate evidencing shares of Common Stock
4.2* Form of certificate evidencing Purchase Warrant
4.3 Form of Lock-Up Agreement
4.4 Form of Representative Warrant Agreement between Registrant and Representative
4.5* Form of Stock Option Agreement
5.1* Opinion of Berman Wolfe & Rennert, P.A.
10.1 Office Building Lease by and between 4501 Daly Dr. Inc. and the Registrant dated
September 12, 1995
10.2 Amended Office Building Lease by and between 4501 Daly Dr. Inc. and the Registrant
dated January 30, 1996
10.3 1997 Stock Option Plan
10.4 Promissory Note and Warrant Certificate between the Registrant and Robert Varney
dated July 10, 1996
10.5 Promissory Note and Warrant Certificate between the Registrant and Robert Varney
dated September 26, 1996
10.6 Amendment to terms of promissory notes between Registrant and Robert Varney dated
November 13, 1996
10.7 Promissory Note and Warrant Certificate between the Registrant and Bruce Edgington
dated July 30, 1996
10.8 Promissory Note and Warrant Certificate between the Registrant and Bruce Edgington
dated October 30, 1996
10.9 Amendment to terms of promissory notes between Registrant and Bruce Edgington dated
November 13, 1996
10.10 Promissory Note between the Registrant and John and Holli Meindl dated January 9,
1997
10.11 Form of Promissory Note between Registrant and Holders of Junior Notes
10.12 Agreement between the Registrant and NetRadio dated June 21, 1996
10.13 Agreements between the Registrant and digital NATION dated March 19, 1997 and
November 12, 1996
10.14 Agreement between the Registrant and Promise Keepers, Inc. dated March 13, 1996
with amendment dated February 10, 1997
10.15 Agreement between the Registrant and World Vision dated October 17, 1996
10.16 @* Employment Agreement between the Registrant and Robert Varney, Ph.D. dated as of
, 1997
10.17 @* Employment Agreement between the Registrant and Dane West dated as of ,
1997
10.18 @* Employment Agreement between the Registrant and William Bowers dated as of
, 1997.
11 Statement of computation of earnings per share
23.1 Consent of Berman Wolfe & Rennert, P.A. (Included as part of Exhibit 5.1)
23.2 Consent of Hoffman, Morrison & Fitzgerald P.C.
24 Power of Attorney (Included on the signature page of PART II of this Registration
Statement)
27 Financial Data Schedule of Financial Statements of the Registrant
</TABLE>
- ---------------
* To be filed by amendment.
@ Contracts with Executive Officers
II-7
<PAGE> 73
(b) FINANCIAL STATEMENT SCHEDULES. Financial statement schedules are omitted
because the conditions requiring their filing do not exist or the information
required thereby is included in the financial statements filed, including the
notes thereto.
ITEM 28. UNDERTAKINGS.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or together,
represent a fundamental change in the information in the Registration
Statement; and
(iii) To include any additional or changed material information on the
plan of distribution.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement of the securities offered, and the offering of the securities at that
time shall be deemed to be the initial bona fide offering.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered that remain unsold at the end of the
offering.
(4) To provide to the Representative at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in such
names as required by the Representative to permit prompt delivery to each
purchaser.
(5) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise (other than
insurance), the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act, , and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
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 Securities
Act and will be governed by the final adjudication of such issue.
(6) (a) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time the Commission declared it effective.
(b) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement for the securities offered in the
registration statement, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering of those securities.
II-8
<PAGE> 74
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, DIDAX INC., the Registrant, certifies that it has reasonable grounds to
believe that it meets all of the requirements of filing on Form SB-2 and
authorized this Registration Statement to be signed on its behalf by the
undersigned, in the city of Chantilly, State of Virginia, on the 25th day of
April, 1997.
DIDAX INC.
April 25, 1997 By: /s/ ROBERT C. VARNEY,
PH.D.
------------------------------------
Robert C. Varney, Ph.D.
Chairman of the Board of Directors
and
Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of DIDAX INC., do hereby
constitute and appoint Robert C. Varney, Ph.D. our true and lawful attorney and
agent to do any and all acts and things and to execute any and all instruments
which said attorney and agent may deem necessary and advisable to enable said
corporation to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with this Registration Statement or any registration statement for
the same offering that is effective upon filing pursuant to Rule 462(b) under
the Securities Act of 1933, as amended, including, specifically, but without
limitation, power and authority to sign for us or any of us and all amendments
hereto; and we do hereby ratify and confirm all that the said attorney and agent
shall do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement on Form SB-2 has been signed herein below
by the following persons in the capacities and on the dates indicated.
<TABLE>
<S> <C>
April 25, 1997 By: /s/ ROBERT C. VARNEY, PH.D.
-------------------------------------------
Robert C. Varney, Ph.D., Chairman of the
Board of Directors and Chief Executive
Officer and director
April 25, 1997 By: /s/ GARY A. STRUZIK
-------------------------------------------
Gary A. Struzik, Chief Financial Officer,
Chief Operating Officer and Secretary,
Chief Accounting Officer
April 25, 1997 By: /s/ DANE B. WEST
-------------------------------------------
Dane B. West, President and director
April 25, 1997 By: /s/ WILLIAM H. BOWERS
-------------------------------------------
William H. Bowers, Chief Technical Officer
and director
April 25, 1997 By: /s/ BRUCE E. EDGINGTON
-------------------------------------------
Bruce E. Edgington, director
</TABLE>
II-9
<PAGE> 75
<TABLE>
<S> <C>
April 25, 1997 By: /s/ JOHN J. MEINDL, JR.
-----------------------------------------------
John J. Meindl, Jr., director
April 25, 1997 By: /s/ CLAY T. WHITEHEAD, PH.D.
-------------------------------------------
Clay T. Whitehead, Ph.D., director
April 25, 1997 By: /s/ JAMES G. BUICK
-------------------------------------------
James G. Buick, director
April 25, 1997 By: /s/ EARL E. GJELDE
-------------------------------------------
Earl E. Gjelde, director
</TABLE>
II-10
<PAGE> 76
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- -------- ------------------------------------------------------------------------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement between Registrant and Representative.....
1.2 Form of Selected Dealer Agreement between the Representative and the
selected dealers.........................................................
1.3 Form of Financial Advisory Agreement between Registrant and
Representative...........................................................
1.4 Form of Merger and Acquisition Agreement between Registrant and
Representative...........................................................
1.5 Form of Agreement Among Underwriters.....................................
2 Articles and Certificates of Merger of DIDAX ON-LINE, L.C. and DIDAX,
INC. into the Registrant.................................................
3.1 Certificate of Incorporation and Certificates of Amendment thereto of the
Registrant...............................................................
3.2 Bylaws and amendments thereto of the Registrant..........................
4.3 Form of Lock-Up Agreement................................................
4.4 Form of Representative Warrant Agreement between Registrant and
Representative...........................................................
10.1 Office Building Lease by and between 4501 Daly Dr. Inc. and the
Registrant dated September 12, 1995......................................
10.2 Amended Office Building Lease by and between 4501 Daly Dr. Inc. and the
Registrant dated January 30, 1996........................................
10.3 1997 Stock Option Plan...................................................
10.4 Promissory Note and Warrant Certificate between the Registrant and Robert
Varney dated July 10, 1996...............................................
10.5 Promissory Note and Warrant Certificate between the Registrant and Robert
Varney dated September 26, 1996..........................................
10.6 Amendment to terms of promissory notes between Registrant and Robert
Varney dated November 13, 1996...........................................
10.7 Promissory Note and Warrant Certificate between the Registrant and Bruce
Edgington dated July 30, 1996............................................
10.8 Promissory Note and Warrant Certificate between the Registrant and Bruce
Edgington dated October 30, 1996.........................................
10.9 Amendment to terms of promissory notes between Registrant and Bruce
Edgington dated November 13, 1996........................................
10.10 Promissory Note between the Registrant and John and Holli Meindl dated
January 9, 1997..........................................................
10.11 Form of Promissory Note between Registrant and Holders of Junior Notes...
10.12 Agreement between the Registrant and NetRadio dated June 21, 1996........
10.13 Agreements between the Registrant and digital NATION dated March 19, 1997
and November 12, 1996....................................................
10.14 Agreement between the Registrant and Promise Keepers, Inc. dated March
13, 1996 with amendment dated February 10, 1997..........................
10.15 Agreement between the Registrant and World Vision dated October 17,
1996.....................................................................
11 Statement of computation of earnings per share...........................
23.2 Consent of Hoffman, Morrison & Fitzgerald P.C............................
27.1 Financial Data Schedule of Financial Statements of the Registrant........
</TABLE>
<PAGE> 1
EXHIBIT 1.1
DIDAX INC.
2,000,000 SHARES OF COMMON STOCK AND
2,000,000 COMMON STOCK PURCHASE WARRANTS
UNDERWRITING AGREEMENT
Boca Raton, Florida
, 1997
-------------
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
Gentlemen:
DIDAX 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 the Underwriting Agreement (the "Agreement"), for whom
Barron Chase Securities, Inc. is acting as a representative (the
"Representative"), pursuant to the terms of this Agreement, on a "firm
commitment" basis, 2,000,000 shares of Common Stock (the "Shares") at $5.00 per
Share and 2,000,000 Redeemable Common Stock Purchase Warrants (the "Warrants")
at $.125 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 $5.75 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 300,000 additional Shares and/or 300,000 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
<PAGE> 2
several Underwriters on whose behalf you are signing this Agreement, as
follows:
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. ____________ 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
<PAGE> 3
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 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
<PAGE> 4
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.
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 pre-emptive 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 have been duly executed and delivered and 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 pre-emptive rights
and no personal liability will attach to the ownership thereof, 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
Representative's Warrant Agreement.
(f) This Agreement, the Warrant Agreement, the Financial
Advisory Agreement, the Merger and Acquisition Agreement (the "M/A 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
<PAGE> 5
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 governmental authority is
required in connection with such authorization, execution and delivery or with
the authorization, issue 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 by-laws of the Company or each subsidiary, as amended, 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,
<PAGE> 6
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.
(i) Hoffman, Morrison & Fitzgerald, P.C., 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
<PAGE> 7
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.
(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.
<PAGE> 8
(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 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
<PAGE> 9
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
<PAGE> 10
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.
(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(1) 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
<PAGE> 11
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.
(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
<PAGE> 12
agreements herein contained, the Company hereby agrees to issue and sell to the
Underwriters an aggregate of 2,000,000 Shares at $4.50 per Share and 2,000,000
Warrants at $.1125 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 2,000,000
Shares and 2,000,000 Warrants to be purchased from the Company, and the price
at which the Underwriters shall sell the Securities to the public shall be
$5.00 per Share and $.125 per Warrant.
Delivery of the Securities against payment therefor shall take
place at the offices of Barron Chase Securities, Inc., 7700 West Camino Real,
Boca Raton, Florida 33433 (or at such other place as may be designated by the
Representative) at 10:00 a.m., Eastern Time, on such date after the
Registration Statement has become effective 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 an 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
300,000 Shares and 300,000 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 forty-five (45) days after the Effective Date of the
Registration Statement upon notice by the Underwriters 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 determined by
the Underwriters (or the Representative, individually) but shall not be later
than ten (10) full business days after the exercise of said 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 overallotments in the
sale by the
<PAGE> 13
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 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) exercises 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 overallotments.
<PAGE> 14
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:
(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 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
<PAGE> 15
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.
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 act in good faith and use its best
efforts and cooperate with you and your counsel to 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
<PAGE> 16
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 either (i)
the out-of-pocket expenses of the Representative, not to exceed the $50,000
previously paid if the Representative elects to terminate the offering for any
reason; or (ii) the out-of-pocket expenses of the Representative if the Company
elects to terminate the offering for any reason. 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 if it is 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,
<PAGE> 17
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.
(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 System, and will use its best efforts to maintain such listing for at
least seven (7) 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.
<PAGE> 18
(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 filed as an Exhibit to the Registration
Statement.
(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 for a period of eighteen (18) months from
the Effective Date, or any longer period required by the NASD, Nasdaq, or any
State, without the prior written consent of the Representative. All sales of
the Company's securities by officers and/or directors of the Company shall be
effected through the Representative.
(o) The Company will obtain, on or before the Closing
Date, key person life insurance on each of the lives of Dr. Robert C. Varney,
Dane B. West and William M. Bowers in an amount of not less than $1,000,000
each, and will use its best efforts to maintain such insurance for a period of
at least five (5) years from the Effective Date.
(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. The Company shall
take such action as may be reasonably requested by the Representative to obtain
a secondary market
<PAGE> 19
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) 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.
(s) At the Closing Date, the Company will engage the
Representative as a non-exclusive financial advisor to the Company for a period
of thirty-six (36) months commencing on the first day of the month following
the Company's receipt of the proceeds of this offering, at an aggregate fee of
$108,000, all of which shall be payable to the Representative on the Closing
Date. The financial advisory agreement will provide that the Representative
shall, at the Company's request, provide advice and consulting services to the
Company concerning potential merger and acquisition proposals and the obtaining
of short or long-term financing for the Company, whether by public financing or
otherwise.
(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 mailing 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
<PAGE> 20
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 Representative, 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 opportunity to invite an observer to attend
Board of Directors meetings of the Company at the expense of the Company.
(y) On the Closing Date, the Company shall execute and
deliver to you a non-exclusive M/A Agreement with the Representative in a form
satisfactory to the Representative, providing:
(1) that the Representative will be paid a
finder's fee, of from five percent (5%) of the first
$1,000,000 ranging in $1,000,000 increments down to one
percent (1%) of the excess, if any, over $4,000,000 of the
consideration involved in any transaction introduced in
writing by the Representative (including mergers,
acquisitions, joint ventures, and any other business for the
Company introduced by the Representative) consummated by the
Company, as an "Introduced, Consummated Transaction", by which
the Representative introduced the other party to the Company
during a period ending five (5) years from the date of the M/A
Agreement; and
(2) that any such finder's fee due to the
Representative will be paid in cash or stock as mutually
agreed at the closing of the particular Introduced,
Consummated Transaction for which the finder's fee is due.
<PAGE> 21
(3) In the event an Introduced, Consummated
Transaction is completed pursuant to this Agreement during the
initial three (3) year term of this Agreement, the Company
shall receive a $108,000 credit against any finder's fee due
the Finder.
(z) After the Closing Date, the Company shall prepare and
publish "tombstone" advertisements of at least 5 x 5 inches in publications to
be designated by the Representative at a total cost not to exceed $15,000.
(aa) 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 has been declared effective by the Commission and remains current
at least until the date fixed for redemption. In addition, the Warrants shall
not be redeemable during the first year after the Effective Date without the
written consent of the Representative.
(ab) Until such time as the securities of the Company are
listed or quoted on either the New York Stock Exchange 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 quarter, for a five (5) year period,
if required.
(ac) As promptly as practicable after the Closing Date, the
Company will prepare, at its own expense, hard cover "bound volumes" relating
to the offering, and will distribute such volumes to the individuals designated
by the Representative or counsel to the Representative.
<PAGE> 22
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, 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
<PAGE> 23
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 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 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 Berman Wolfe & Rennert, P.A.,
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
<PAGE> 24
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 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 pre-emptive 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 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;
<PAGE> 25
(iii) this Agreement, the Representative's Warrant
Agreement, the Warrant Agreement, the Financial Advisory
Agreement and the M/A 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, the Warrant Agreement,
the Financial Advisory Agreement and the M/A 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 of such counsel's knowledge, any
material order, rule, regulation, writ, injunction, or decree
of any government, governmental instrumentality or court,
domestic or foreign;
<PAGE> 26
(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
<PAGE> 27
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:
(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) They do not know of any litigation instituted
or, to their knowledge, 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; they do
not know of any contracts which are required to be summarized
in the Prospectus which are not so summarized; and they do not
know of any 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
<PAGE> 28
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 redetermination or
re-assessment 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, the Warrant Agreement, the Financial Advisory
Agreement and the M/A Agreement, the consummation of the
transactions therein contemplated, and the fulfillment of the
terms 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
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;
<PAGE> 29
(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) 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) 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 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
<PAGE> 30
'
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 Hoffman,
Morrison & Fitzgerald, P.C., 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
<PAGE> 31
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 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;
<PAGE> 32
(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
(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
<PAGE> 33
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 Berman Wolfe &
Rennert, P.A., 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 Hoffman, Morrison & Fitzgerald, P.C.,
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 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.
<PAGE> 34
(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
<PAGE> 35
date of this Agreement, or on such later time or date as the
Company and the Representative may agree in writing; and
(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
<PAGE> 36
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, 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
<PAGE> 37
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.
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
<PAGE> 38
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 not ultimately
determined to be guilty of such fraudulent misrepresentation. As used in this
paragraph, the term
<PAGE> 39
"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.
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 counsel to the Company and of the Company's accountants;
the costs and expenses incident to the preparation, printing, filing and
distribution under the Act of the Registration Statement (including the
financial statements therein and all amendments and exhibits thereto),
Preliminary Prospectus and the Prospectus, as amended or supplemented; the fee
of the National Association of Securities Dealers, Inc. ("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
<PAGE> 40
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 (3%) of the gross proceeds received from the
sale of the Securities, of which an advance of $50,000 has been paid to date.
In the event the overallotment option is exercised, the Company shall pay to
the Representative at the Option Closing Date an additional amount equal to
three percent (3%) of the gross proceeds received upon exercise of the
overallotment 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 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.
<PAGE> 41
(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
<PAGE> 42
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 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
execution of this Agreement; 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 cancelled 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
<PAGE> 43
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 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 $10, 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 200,000 Shares and 200,000 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
<PAGE> 44
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: Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
Copy to: David A. Carter, P.A.
2300 Glades Road, Suite 210W
Boca Raton, Florida 33431
If to the Company: Dr. Robert C. Varney, Chairman
DIDAX INC.
4501 Daly Drive, Suite 103
Chantilly, Virginia 20151
Copy to: Charles J. Rennert, Esq.
Berman Wolfe & Rennert, P.A.
NationsBank Tower, Suite 3500
100 Southeast Second Street
Miami, Florida 33131
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 Florida applicable to contracts made
and to be performed entirely within the State of Florida. 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 Fifteenth Judicial Circuit Court in and for
<PAGE> 45
Palm Beach County, Florida or the United States District Court for the Southern
District of Florida, West Palm Beach Division. 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 refile 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 counterparts 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.
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,
DIDAX INC.
BY:
----------------------------------------
Dr. Robert C. Varney, Chairman
- -------------------------
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
BARRON CHASE SECURITIES, INC.
BY:
----------------------------------------
Robert T. Kirk, President
- -------------------------------For itself and as Representative
of the several Underwriters
<PAGE> 46
SCHEDULE A
TO THE UNDERWRITING AGREEMENT
<TABLE>
<S> <C>
UNDERWRITER SHARES
- ---------------------------------------------------------------------------------------
Barron Chase Securities, Inc. . . . . . . . . . . . . . . . . . . . . . .
---------
2,000,000
</TABLE>
<TABLE>
<S> <C>
UNDERWRITER WARRANTS
- ---------------------------------------------------------------------------------------
Barron Chase Securities, Inc. . . . . . . . . . . . . . . . . . . . . . .
---------
2,000,000
</TABLE>
<PAGE> 1
EXHIBIT 1.2
DIDAX INC.
2,000,000 Shares of Common Stock and
2,000,000 Common Stock Purchase Warrants
SELECTED DEALER AGREEMENT
Boca Raton, Florida
, 1997
----------------
Gentlemen:
1. Barron Chase Securities, Inc. (the "Representative")
and the other Underwriters named in the Prospectus (collectively the
"Underwriters"), acting through us as the Representative, are severally
offering for sale an aggregate of 2,000,000 Shares of Common Stock (the
"Shares") and 2,000,000 Warrants (the "Warrants") (collectively the "Firm
Securities") of DIDAX INC (the "Company"), which we have agreed to purchase
from the Company, and which are more particularly described in the Registration
Statement, Underwriting Agreement and Prospectus. In addition, the several
Underwriters have been granted an option to purchase from the Company up to an
additional 300,000 Shares and an additional 300,000 Warrants (the "Option
Securities") to cover overallotments in connection with the sale of the Firm
Securities. The Firm Securities and any Option Securities purchased are herein
called the "Securities". The Securities and the terms under which they are to
be offered for sale by the several Underwriters are more particularly described
in the Prospectus.
2. The Securities are to be offered to the public by the
several Underwriters at the price per Share and price per Warrant set forth on
the cover page of the Prospectus (the "Public Offering Price"), in accordance
with the terms of offering set forth in the Prospectus.
3. Some or all of the several Underwriters are severally
offering, subject to the terms and conditions hereof, a portion of the
Securities for sale to certain dealers who are actually engaged in the
investment banking or securities business and who are either (a) members in
good standing of the National Association of Securities Dealers, Inc. (the
"NASD"), or (b) dealers with their principal places of business located outside
the United States, its territories and its possessions and not registered as
brokers or dealers under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), who have agreed not to
<PAGE> 2
make any sales within the United States, its territories or its possessions or
to persons who are nationals thereof or residents therein (such dealers who
shall agree to sell Securities hereunder being herein called "Selected
Dealers") at the public offering price, less a selling concession (which may be
changed) of not in excess of $______ per Share and/or $_________ per Warrant
payable as hereinafter provided, out of which concession an amount not
exceeding $__________ per Share and/or $_________ per Warrant may be reallowed
by Selected Dealers to members of the NASD or foreign dealers qualified as
aforesaid. The Selected Dealers who are members of the NASD agree to comply
with all of the provisions of the NASD Conduct Rules. Foreign Selected Dealers
agree to comply with the provisions of Rule 2740 of the NASD Conduct Rules,
and, if any such dealer is a foreign dealer and not a member of the NASD, such
Selected Dealer also agrees to comply with the NASD's Interpretation with
Respect to Free-Riding and Withholding, and to comply, as though it were a
member of the NASD, with the provisions of Rules 2730 and 2750 of the NASD
Conduct Rules, and to comply with Rule 2420 of the NASD Conduct Rules as that
Rule applies to non-member foreign dealers. Some or all of the Underwriters may
be included among the Selected Dealers. Each of the Underwriters has agreed
that, during the term of this Agreement, it will be governed by the terms and
conditions hereof whether or not such Underwriter is included among the
Selected Dealers.
4. Barron Chase Securities, Inc. shall act as
Representative on behalf of the Underwriters and shall have full authority to
take such action as we may deem advisable in respect to all matters pertaining
to the public offering of the Securities.
5. If you desire to act as a Selected Dealer, and
purchase any of the Securities, your application should reach us promptly by
facsimile or telegraph at the offices of Barron Chase Securities, Inc., 7700
West Camino Real, Boca Raton, Florida 33433, Attention: Robert T. Kirk. We
reserve the right to reject subscriptions in whole or in part, to make
allotments, and to close the subscription books at any time without notice.
The Securities allotted to you will be confirmed, subject to the terms and
conditions of this Agreement.
6. The privilege of subscribing for the Securities is
extended to you only on behalf of such of the Underwriters, if any, as may
lawfully sell the Securities to Selected Dealers in your state or other
applicable jurisdiction.
7. Any Securities to be purchased by you under the terms
of this Agreement may be immediately reoffered to the public in accordance with
the terms of offering as set forth herein and in
<PAGE> 3
the Prospectus, subject to the securities or Blue Sky laws of the various
states or other jurisdictions.
You agree to pay us on demand for the accounts of the several
Underwriters an amount equal to the Selected Dealer concession as to any
Securities purchased by you hereunder which, prior to the completion of the
public offering as defined in paragraph 8 below, we may purchase or contract to
purchase for the account of any Underwriter and, in addition, we may charge you
with any broker's commission and transfer tax paid in connection with such
purchase or contract to purchase. Certificates for Securities delivered on
such repurchases need not be the identical certificates originally purchased.
You agree to advise us from time to time, upon request, of the
number of Securities purchased by you hereunder and remaining unsold at the
time of such request, and, if in our opinion any such Securities shall be
needed to make delivery of the Securities sold or overallotted for the account
of one or more of the Underwriters, you will, forthwith upon our request, grant
to us for the account or accounts of such Underwriter or Underwriters the
right, exercisable promptly after receipt of notice from you that such right
has been granted, to purchase, at the Public Offering Price less the selling
concession or such part thereof as we shall determine, such number of
Securities owned by you as shall have been specified in our request.
No expenses shall be charged to Selected Dealers. A single
transfer tax, if payable, upon the sale of the Securities by the respective
Underwriters to you will be paid when such Securities are delivered to you.
However, you shall pay any transfer tax on sales of Securities by you and you
shall pay your proportionate share of any transfer tax (other than the single
transfer tax described above) in the event that any such tax shall from time to
time be assessed against you and other Selected Dealers as a group or
otherwise.
Neither you nor any other person is or has been authorized to
give any information or to make any representation in connection with the sale
of the Securities other than as contained in the Prospectus.
8. The first three paragraphs of Section 7 hereof will
terminate when we shall have determined that the public offering of the
Securities has been completed and upon telefax notice to you of such
termination, but, if not theretofore terminated, they will terminate at the
close of business on the 30th full business day after the date hereof;
provided, however, that we shall have the right to extend such provisions for a
further period or
<PAGE> 4
periods, not exceeding an additional 30 days in the aggregate upon facsimile
notice to you.
9. For the purpose of stabilizing the market in the
Securities, we have been authorized to make purchases and sales of the
Securities of the Company, in the open market or otherwise, for long or short
account, and, in arranging for sales, to overallot.
10. On becoming a Selected Dealer, and in offering and
selling the Securities, you agree to comply with all the applicable
requirements of the Securities Act of 1933, as amended (the "1933 Act"), and
the 1934 Act. You confirm that you are familiar with Rule 15c2-8 under the
1934 Act relating to the distribution of preliminary and final prospectuses for
securities of an issuer (whether or not the issuer is subject to the reporting
requirements of Section 13 or 15(d) of the 1934 Act) and confirm that you have
complied and will comply therewith.
We hereby confirm that we will make available to you such
number of copies of the Prospectus (as amended or supplemented) as you may
reasonably request for the purposes contemplated by the 1933 Act or the 1934
Act, or the rules and regulations thereunder.
11. Upon request, you will be informed as to the states
and other jurisdictions in which we have been advised that the Securities are
qualified for sale under the respective securities or Blue Sky laws of such
states and other jurisdictions, but neither we nor any of the Underwriters
assume any obligation or responsibility as to the right of any Selected Dealer
to sell the Securities in any state or other jurisdiction or as to the
eligibility of the Securities for sale therein. We will, if requested, file a
Further State Notice in respect of the Securities pursuant to Article 23-A of
the General Business Law of the State of New York.
12. No Selected Dealer is authorized to act as our agent
or as agent for the Underwriters, or otherwise to act on our behalf or on
behalf of the Underwriters, in offering or selling the Securities to the public
or otherwise or to furnish any information or make any representation except as
contained in the Prospectus.
13. Nothing will constitute the Selected Dealers an
association or other separate entity or partners with the Underwriters, or with
each other, but you will be responsible for your share of any liability or
expense based on any claim to the contrary. We and the several Underwriters
shall not be under any liability for or in respect of value, validity or form
of the
<PAGE> 5
Securities, or the delivery of the certificates for the Securities, or the
performance by anyone of any agreement on its part, or the qualification of the
Securities for sale under the laws of any jurisdiction, or for or in respect of
any other matter relating to this Agreement, except for lack of good faith and
for obligations expressly assumed by us or by the Underwriters in this
Agreement and no obligation on our part shall be implied herefrom. The
foregoing provisions shall not be deemed a waiver of any liability imposed
under the 1933 Act.
14. Payment for the Securities sold to you hereunder is
to be made at the Public Offering Price less the above-mentioned selling
concession on such time and date as we may advise, at the office of Barron
Chase Securities, Inc., 7700 West Camino Real, Boca Raton, Florida 33433,
Attention: Robert T. Kirk, by wire transfer to the account of the
Representative or by a certified or official bank check in current New York
Clearing House funds, payable to the order of Barron Chase Securities, Inc., as
Representative, against delivery of certificates for the Securities so
purchased. If such payment is not made at such time, you agree to pay us
interest on such funds at the prevailing broker's loan rate.
15. Notices to us should be addressed to us at the
offices of Barron Chase Securities, Inc., 7700 West Camino Real, Boca Raton,
Florida 33433, Attention: Robert T. Kirk. Notices to you shall be deemed to
have been duly given if telephoned, telefaxed, telegraphed or mailed to you at
the address to which this letter is addressed.
16. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida without giving effect to the
choice of law or conflicts of law principles thereof.
17. If you desire to purchase any Securities and act as a
Selected Dealer, please confirm your application by signing and returning to us
your confirmation on the duplicate copy of this letter enclosed herewith, even
though you may have previously advised us thereof by telephone or telegraph.
Our signature hereon may be by facsimile.
Very truly yours,
BARRON CHASE SECURITIES, INC.
As Representative of the Several
Underwriters
BY:
-------------------------------
Authorized Officer
<PAGE> 6
Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
We hereby subscribe for __________ Shares and/or ___________
Warrants of DIDAX INC. in accordance with the terms and conditions stated in
the foregoing Selected Dealers Agreement and letter. We hereby acknowledge
receipt of the Prospectus referred to in the Selected Dealers Agreement and
letter. We further state that in purchasing said Shares and/or Warrants we
have relied upon said Prospectus and upon no other statement whatsoever,
whether written or oral. We confirm that we are a dealer actually engaged in
the investment banking or securities business and that we are either (i) a
member in good standing of the National Association of Securities Dealers, Inc.
("NASD"); or (ii) a dealer with its principal place of business located outside
the United States, its territories and its possessions and not registered as a
broker or dealer under the Securities
<PAGE> 7
Exchange Act of 1934, as amended, who hereby agrees not to make any sales
within the United States, its territories or its possessions or to persons who
are nationals thereof or residents therein. As a member of the NASD, we hereby
agree to comply with all of the provisions of NASD Conduct Rules. If we are a
foreign Selected Dealer, we agree to comply with the provisions of Rule 2740 of
the NASD Conduct Rules, and if we are a foreign dealer and not a member of the
NASD, we agree to comply with the NASD's interpretation with respect to
free-riding and withholding, and agree to comply, as though we were a member of
the NASD, with provisions of Rules 2730 and 2750 of the NASD Conduct Rules, and
to comply with Rule 2420 of the NASD Conduct Rules as that Rule applies to
non-member foreign dealers.
Firm:
-------------------------
By:
-------------------------
(Name and Position)
Address:
-------------------------
- -------------------------------------------------------------------------------
Telephone No.:
-------------------------
Dated: , 1997
------------------
<PAGE> 1
EXHIBIT 1.3
FINANCIAL ADVISORY AGREEMENT
This Agreement is made and entered into as of the _____ day of
__________, 1997, between DIDAX INC. (the "Company") and Barron Chase
Securities, Inc. (the "Financial Advisor").
W I T N E S S E T H :
WHEREAS, The Company has engaged the Financial Advisor to act
as the Representative of the Underwriters in connection with the public
offering of the Company's securities; and
WHEREAS, the Financial Advisor has experience in providing
financial and business advice to public and private companies; and
WHEREAS, the Company is seeking and the Financial Advisor is
willing to furnish business and financial related advice and services to the
Company on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of, and for the mutual
promises and covenants contained herein, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties agree
as follows:
1. PURPOSE. The Company hereby engages the Financial
Advisor on a non-exclusive basis for the term specified in this Agreement to
render financial advisory and consulting advice to the Company as an investment
banker relating to financial and similar matters upon the terms and conditions
set forth herein. However, the advisory will only be rendered if specifically
requested in writing by the CEO of the Company.
2. REPRESENTATIONS OF THE FINANCIAL ADVISOR AND THE
COMPANY. The Financial Advisor represents and warrants to the Company that (i)
it is a member in good standing of the National Association of Securities
Dealers, Inc. ("NASD") and that it is engaged in the securities brokerage
business; (ii) in addition to its securities brokerage business, the Financial
Advisor provides consulting advisory services; and (iii) it is free to enter
into this Agreement and the services to be provided pursuant to this Agreement
are not in conflict with any other contractual or other obligation to which the
Financial Advisor is bound. The Company acknowledges that the Financial
Advisor is in the business of providing financial services and consulting
advice (of the type contemplated by this Agreement) to others and that nothing
herein contained shall be construed to limit or restrict the Financial Advisor
in conducting such business with respect to others, or rendering such advice to
others.
3. DUTIES OF THE FINANCIAL ADVISOR. During the term of
this Agreement, the Financial Advisor will provide the Company
<PAGE> 2
with consulting advice as specified below at the request of the Company,
provided that the Financial Advisor shall not be required to undertake duties
not reasonably within the scope of the consulting advisory service in which the
Financial Advisor is engaged generally. In performance of these duties, the
Financial Advisor shall provide the Company with the benefits of its best
judgment and efforts. It is understood and acknowledged by the parties that
the value of the Financial Advisor's advice is not measurable in any
quantitative manner, and that the amount of time spent rendering such
consulting advice shall be determined according to the Financial Advisor's
discretion.
The Financial Advisor's duties may include, but will not
necessarily be limited to:
1) Advice relating to corporate financing
activities;
2) Recommendations relating to specific business
operations and investments;
3) Advice relating to financial planning; and
4) Advice regarding future financings involving
securities of the Company or any subsidiary.
4. TERM. The term of this Agreement shall be for
thirty-six (36) months commencing on the first day of the month following the
Company's receipt of the proceeds from the contemplated public offering (the
"Commencement Date"); provided, however, that this Agreement may be renewed or
extended upon such terms and conditions as may be mutually agreed upon by the
parties hereto.
5. FEE. The Company shall pay the Financial Advisor a
fee of $108,000 for the financial services to be rendered pursuant to this
Agreement, all of which shall be payable at the Closing Date of the Company's
proposed public offering.
6. EXPENSES. In addition to the fees payable
hereunder, the Company shall reimburse the Financial Advisor, within five (5)
business days of its request, for any and all reasonable out-of-pocket expenses
incurred in connection with the services performed by the Financial Advisor and
its counsel pursuant to this Agreement, including (i) reasonable hotel, food
and associated expenses; (ii) reasonable charges for travel; (iii) reasonable
long-distance telephone calls; and (iv) other reasonable expenses spent or
incurred on the Company's behalf. All such expenses in excess of $500 shall be
pre-approved by the Company.
7. INTRODUCTION OF CUSTOMERS, ORIGINATION OF LINE OF
CREDIT AND SIMILAR TRANSACTIONS. In the event the Financial Advisor originates
a line of credit with a lender or a corporate partner, the Company and the
Financial Advisor will mutually agree on a satisfactory fee and the terms of
payment of such fee.
<PAGE> 3
In the event the Financial Advisor introduces the Company to a joint venture
partner or customer and sales develop as a result of the introduction, the
Company agrees to pay a fee of five percent (5%) of total sales generated
directly from this introduction during the first two years following the date
of the first sale. Total sales shall mean cost receipts less any applicable
refunds, returns, allowances, credits and shipping charges and monies paid by
the Company by way of settlement or judgment arising out of claims made by or
threatened against the Company. Commission payments shall be paid on the 15th
day of each month following the receipt of customers' payments. In the event
any adjustments are made to the total sales after the commission has been paid,
the Company shall be entitled to an appropriate refund or credit against
future payments under this Agreement.
All fees to be paid pursuant to this paragraph, except as
otherwise specified, are due and payable to the Financial Advisor in cash at
the closing or closings of any transaction specified in this paragraph. In the
event that this Agreement shall not be renewed or if terminated for any reason,
notwithstanding any such non-renewal or termination, the Financial Advisor
shall be entitled to a full fee as provided under this paragraph for any
transaction for which the discussions were initiated during the term of this
Agreement and which is consummated within a period of twelve months after
non-renewal or termination of this Agreement. Nothing herein shall impose any
obligation on the part of the Company to enter into any transaction or to use
any services of the Financial Advisor offered pursuant to this paragraph or
this Agreement.
8. USE OF ADVICE BY THE COMPANY; PUBLIC MARKET FOR THE
COMPANY'S SECURITIES. The Company acknowledges that all opinions and advice
(written or oral) given by the Financial Advisor to the Company in connection
with the engagement of the Financial Advisor are intended solely for the
benefit and use of the Company in considering the transaction to which they
relate, and the Company agrees that no person or entity other than the Company
shall be entitled to make use of or rely upon the advice of the Financial
Advisor to be given hereunder, and no such opinion or advice shall be used for
any other purpose or reproduced, disseminated, quoted or referred to at any
time, in any manner or for any purpose, nor may the Company make any public
references to the Financial Advisor, or use of the Financial Advisor's name in
any annual reports or any other reports or releases of the Company without the
prior written consent of the Financial Advisor.
The Company acknowledges that the Financial Advisor makes no
commitment whatsoever as to making a public trading market in the Company's
securities or to recommending or advising its clients to purchase the Company's
securities. Research reports or corporate finance reports that may be prepared
by the Financial Advisor will, when and if prepared, be done solely on the
merits
<PAGE> 4
or judgment and analysis of the Financial Advisor or any senior corporate
finance personnel of the Financial Advisor.
9. COMPANY INFORMATION; CONFIDENTIALLY. The Company
recognizes and confirms that, in advising the Company and in fulfilling its
engagement hereunder, the Financial Advisor will use and rely on data, material
and other information furnished to the Financial Advisor by the Company. The
Company acknowledges and agrees that in performing its services under this
engagement, the Financial Advisor may rely upon the data, material and other
information supplied by the Company without independently verifying the
accuracy, completeness or veracity of same. In addition, in the performance of
its services, the Financial Advisor may look to such others for such factual
information, economic advice and/or research upon which to base its advice to
the Company hereunder as the Financial Advisor shall in good faith deem
appropriate.
Except as contemplated by the terms hereof or as required by
applicable law, the Financial Advisor shall keep confidential all non-public
information provided to it by the Company, and shall not disclose such
information to any third party without the Company's prior written consent,
other than such of its employees and advisors as the Financial Advisor
determines to have a need to know.
10. INDEMNIFICATION. The Company shall indemnify and
hold harmless the Financial Advisor against any and all liabilities, claims,
lawsuits, including any and all awards and/or judgments to which it may become
subject under the Securities Act of 1933, (the "Act"), the Securities Exchange
Act of 1934, as amended (the "1934 Act") or any other federal or state statute,
at common law or otherwise, insofar as said liabilities, claims and lawsuits
(including costs, expenses, awards and/or judgments) arise out of or are in
connection with the services rendered by the Financial Advisor or any
transactions in connection with this Agreement, except for any liabilities,
claims and lawsuits (including awards and/or judgments), arising out of willful
misconduct or willful omissions of the Financial Advisor. In addition, the
Company shall also indemnify and hold harmless the Financial Advisor against
any and all reasonable costs and expenses, including reasonable counsel fees,
incurred relating to the foregoing.
The Financial Advisor shall give the Company prompt notice of
any such liability, claim or lawsuit which the Financial Advisor contends is
the subject matter of the Company's indemnification and the Company thereupon
shall be granted the right to take any and all necessary and proper action, at
its sole cost and expense, with respect to such liability, claim and lawsuit,
including the right to settle, compromise and dispose of such liability, claim
or lawsuit, excepting therefrom any and all proceedings or hearings before any
regulatory bodies and/or authorities.
The Financial Advisor shall indemnify and hold the Company
harmless against any and all liabilities, claims and lawsuits,
<PAGE> 5
including any and all awards and/or judgments to which it may become subject
under the Act, the 1934 Act or any other federal or state statute, at common
law or otherwise, insofar as said liabilities, claims and lawsuits (including
costs, expenses, awards and/or judgments) arise out of or are based upon
willful misconduct or willful omissions of the Financial Advisor. In addition,
the Financial Advisor shall also indemnify and hold the Company harmless
against any and all reasonable costs and expenses, including reasonable counsel
fees, incurred relating to the foregoing.
The Company shall give the Financial Advisor prompt notice of
any such liability, claim or lawsuit which the Company contends is the subject
matter of the Financial Advisor's indemnification and the Financial Advisor
thereupon shall be granted the right to take any and all necessary and proper
action, at its sole cost and expense, with respect to such liability, claim and
lawsuit, including the right to settle, compromise or dispose of such
liability, claim or lawsuit, excepting therefrom any and all proceedings or
hearings before any regulatory bodies and/or authorities.
11. THE FINANCIAL ADVISOR AS AN INDEPENDENT CONTRACTOR. The
Financial Advisor shall perform its services hereunder as an independent
contractor and not as an employee of the Company or an affiliate thereof. It
is expressly understood and agreed to by the parties hereto that the Financial
Advisor shall have no authority to act for, represent or bind the Company or
any affiliate thereof in any manner, except as may be agreed to expressly by
the Company in writing from time to time.
12. MISCELLANEOUS.
(a) This Agreement between the Company and the Financial
Advisor constitutes the entire agreement and understanding of the parties
hereto, and supersedes any and all previous agreements and understandings,
whether oral or written, between the parties with respect to the matters set
forth herein.
(b) Any notice or communication permitted or required
hereunder shall be in writing and shall be deemed sufficiently given if
hand-delivered or sent postage prepaid by certified or registered mail, return
receipt requested, to the respective parties as set forth below, or to such
other address as either party may notify the other in writing:
If to the Company: Dr. Robert C. Varney, Chairman
DIDAX INC.
4501 Daly Drive, Suite 103
Chantilly, Virgina 20151
Copy to: Charles J. Renner, Esq.
Berman Wolfe & Rennert, P.A.
NationsBank Tower, Suite 3500
100 Southeast Second Street
<PAGE> 6
Miami, Florida 33131
If to the
Financial Advisor: Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
Copy to: David A. Carter, P.A.
2300 Glades Road, Suite 210W
Boca Raton, Florida 33431
(c) This Agreement shall be binding upon and inure to the
benefit of each of the parties hereto and their respective successors, legal
representatives and assigns.
(d) This Agreement may be executed in any number of
counterparts, each of which together shall constitute one and the same original
document.
(e) No provision of this Agreement may be amended,
modified or waived, except in a writing signed by all of the parties hereto.
(f) This Agreement shall be construed in accordance with
and governed by the laws of the State of Florida, without giving effect to
conflict of law principles. The parties hereby agree that any dispute which
may arise between them arising out of or in connection with this Agreement
shall be adjudicated before a court located in Palm Beach County, Florida, and
they hereby submit to the exclusive jurisdiction of the courts of the State of
Florida located in Palm Beach County, Florida and of the federal courts in the
Southern District of Florida with respect to any action or legal proceeding
commenced by any party, and irrevocably waive any objection they now or
hereafter may have respecting the venue of any such action or proceeding
brought in such a court or respecting the fact that such court is an
inconvenient forum, relating to or arising out of this Agreement, and consent
to the service of process in any such action or legal proceeding by means of
registered or certified mail, return receipt requested, in care of the address
set forth in paragraph 12(b) hereof.
(g) This Agreement has been duly authorized, executed and
delivered by and on behalf of the Company and the Financial Advisor.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
Very truly yours,
DIDAX INC.
BY:
------------------------------
Dr. Robert C. Varney, Chairman
- ----------------------
BARRON CHASE SECURITIES, INC.
BY:
------------------------------
Robert T. Kirk, President
- ---------------------------
<PAGE> 1
EXHIBIT 1.4
, 1997
-----------
Dr. Robert C. Varney, Chairman
DIDAX, INC.
4501 Daly Drive, Suite 103
Chantilly, VA 22021
RE: MERGER AND ACQUISITION AGREEMENT
Gentlemen:
You have agreed that Barron Chase Securities, Inc., (the "Finder") may
act as a non-exclusive finder or financial consultant for you in various
transactions in which DIDAX, INC. (the "Company") may be involved, such as
mergers, acquisitions, joint ventures, debt or equity placements and similar or
other on-balance or off-balance sheet corporate finance transactions. The
Company hereby agrees that in the event that the Finder shall first introduce
to the Company another party or entity, in writing, and that as a result of
such introduction, a transaction between such entity and the Company is
consummated ("Consummated Transaction"), then the Company shall pay to the
Finder a finder's fee as follows:
a. Five percent (5%) of the first $1,000,000 of the consideration
paid in such transaction;
b. Four percent (4%) of the consideration in excess of $1,000,000
and up to $2,000,000;
c. Three percent (3%) of the consideration in excess of $2,000,000
and up to $3,000,000;
d. Two percent (2%) of any consideration in excess of $3,000,000 and
up to $4,000,000; and
e. One percent (1%) of any consideration in excess of $4,000,000.
The fee due the Finder shall be paid by the Company in cash and/or in
stock at the closing of the Consummated Transaction as mutually agreed between
the Company and the Finder, without regard to whether the Consummated
Transaction involves payments in cash, in stock, or a combination of stock and
cash, or is made on an installment sale basis. By way of example, if the
Consummated Transaction involves securities of the acquiring entity (whether
securities of the Company, if the Company is the
<PAGE> 2
acquiring party, or securities of another entity, if the Company is the selling
party) having a value of $5,000,000, the consideration to be paid by the
Company to the Finder at closing shall be $150,000.
In the event an Introduced, Consummated Transaction is completed
pursuant to this Agreement during the initial three (3) year term of this
Agreement, the Company shall receive a $108,000 credit against any finder's fee
due the Finder.
However, both parties agree that it is the purpose of the Company to
use the proceeds of the offering in the acquisition, merger, purchase of shares
or any other kind of association with foreign companies as described in the
prospectus. To the extent that the Company has any prior relationships with
such foreign companies these foreign companies are specifically excluded from
this Agreement.
In the event that for any reason the Company shall fail to pay to the
Finder all or any portion of the finder's fee payable hereunder when due,
interest shall accrue and be payable on the unpaid balance due hereunder from
the date when first due through and including that date when actually collected
by the Finder, at a rate equal to two (2) points over the prime rate of
Citibank, N.A. in New York, New York, computed on a daily basis and adjusted as
announced from time to time.
This agreement shall be effective on the date hereof and shall expire
on the fifth anniversary of the date hereof.
Notwithstanding anything herein to the contrary, if the Company shall,
within 180 days immediately following the termination of the five year period
provided above, conclude a Consummated Transaction with any party introduced by
the Finder to the Company prior to the termination of said five year period,
the Company shall also pay the Finder the fee determined above.
The Company represents and warrants to the Finder that the engagement
of the Finder hereunder has been duly authorized and approved by the Board of
Directors of the Company and this letter agreement has been duly executed and
delivered by the Company and constitutes a legal, valid and binding obligation
of the Company.
This agreement has been executed and delivered in the State of Florida
and shall be governed by the laws of such state, without giving effect to the
conflicts of laws rules thereunder.
This agreement shall be binding upon, and enforceable against, the
successors and assigns of each of the undersigned.
Please sign this letter at the place indicated below, whereupon it will
constitute our mutually binding agreement with respect to the matters contained
herein.
Very truly yours,
BARRON CHASE SECURITIES, INC.
BY:
------------------------------
Robert T. Kirk, President
Agreed to and Accepted
DIDAX INC.
By:
-------------------------------
Dr. Robert C. Varney, Chairman
<PAGE> 1
EXHIBIT 1.5
DIDAX INC.
2,000,000 Shares of Common Stock and
2,000,000 Common Stock Purchase Warrants
AGREEMENT AMONG UNDERWRITERS
Boca Raton, Florida
, 1997
-------------
Barron Chase Securities, Inc.
7700 West Camino Real
Boca Raton, Florida 33433
Dear Sirs:
1. Underwriting Agreement. We understand that DIDAX
INC. (the "Company"), proposes to enter into an underwriting agreement attached
hereto as Exhibit A (the "Underwriting Agreement") with Barron Chase
Securities, Inc. (the "Representative") and the other underwriters named in
Schedule A to the Underwriting Agreement (the "Underwriters"), acting severally
and not jointly, with respect to the purchase of an aggregate of 2,000,000
Shares of Common Stock (the "Shares") and 2,000,000 Warrants (the "Warrants").
The Shares and Warrants are hereinafter also referred to collectively as the
"Securities". The Securities and the terms under which they are to be offered
for sale by the several Underwriters are more particularly described in the
Registration Statement, Underwriting Agreement and Prospectus.
Unless the context indicates otherwise, the term Securities
shall also include an additional 300,000 Shares and an additional 300,000
Warrants (the "Option Securities"), all or any part of which the Representative
and/or the Underwriters are entitled to purchase from the Company upon exercise
of the Representative's over-allotment option referred to in Section 2(b) of
the Underwriting Agreement.
This is to confirm that we agree to purchase, in accordance
with the terms hereof and of the Underwriting Agreement, the number of
Securities set forth opposite our name in Schedule A, plus such number of
Securities, if any, which we may become obligated to purchase pursuant to
Section 2(b) of the Underwriting Agreement and Section 4 hereof ("our
Securities"). The ratio which the number of our Securities bears to the total
number of Securities purchased pursuant to the Underwriting Agreement is herein
called "our underwriting proportion".
2. Registration Statement and Prospectus. We have
heretofore received and examined a copy of the registration statement, as
amended to the date hereof, and the related
<PAGE> 2
prospectus in respect of the Securities, as filed with the Securities and
Exchange Commission. The registration statement as amended at the time it
becomes effective, including financial statements and exhibits, is hereafter
referred to as the "Registration Statement", and the prospectus in the form
first filed with the Securities and Exchange Commission pursuant to its Rule
424(b) after the Registration Statement becomes effective is referred to as the
"Prospectus".
We confirm that the information furnished to you by us for use
in the Registration Statement and in the Prospectus is correct and is not
misleading insofar as it relates to us. We consent to being named as an
Underwriter in such Registration Statement and we are willing to accept our
responsibilities under the Securities Act of 1933 (the "Act"), as a result
thereof. We confirm that we have authorized you to advise the Company on our
behalf (a) as to the statements to be included in any Preliminary Prospectus
and in the Prospectus under the heading "Underwriting" insofar as they relate
to us and (b) that there is no other information about us required to be stated
in the Registration Statement or Prospectus. We further confirm that, upon
request by you as Representative, we have furnished a copy of any amended
Preliminary Prospectus to each person to whom we have furnished a copy of any
previous Prospectus, and we confirm that we have delivered, and we agree that
we will deliver, all preliminary and final Prospectuses required for compliance
with the provisions of Rule 15c2-8 under the Securities Exchange Act of 1934
(the "1934 Act").
3. Authority of the Representative. We authorize you,
acting as Representative of the Underwriters, to execute and deliver on our
behalf, the Underwriting Agreement, and to agree to any variation of its terms
(except as to the purchase price and the number of our Securities) which, in
your judgment, is not a variation which materially and adversely affects our
rights and obligations. We also authorize you, in your discretion and on our
behalf, with approval of counsel for the Underwriters, to approve the
Prospectus and to approve of, or object to, any further amendments to the
Registration Statement, or amendments or supplements to the Prospectus. We
further authorize you to exercise all the authority and discretion vested in
the Underwriters and in you by the provisions of the Underwriting Agreement and
to take all such action as you in your discretion may believe desirable to
carry out the provisions of the Underwriting Agreement and of this Agreement
including the extension of any date specified in the Underwriting Agreement,
the exercise of any right of cancellation or termination and to determine all
matters relating to the public advertisement of the Securities; provided,
however, that, except with the consent of Underwriters who shall have agreed to
purchase in the aggregate 50% or more of the Securities, no extension of the
time by which the Registration Statement is to become effective as provided in
the Underwriting Agreement shall be for a period in excess of two
<PAGE> 3
business days. We authorize you to take such action as in your discretion may
be necessary or desirable to effect the sale and distribution of the
Securities, including, without limiting the generality of the foregoing, the
right to determine the terms of any proposed offering, the concession to
Selected Dealers (as hereinafter defined) and the reallowance, if any, to other
dealers and the right to make the judgments provided for in the Underwriting
Agreement.
4. Authority of Representative as to Defaulting
Underwriters. Until the termination of this Agreement, we authorize you to
arrange for the purchase by other persons, who may include you or any of the
other Underwriters, of any Securities not taken up by any defaulting
Underwriter. In the event that such arrangements are made, the respective
amounts of the Securities to be purchased by the non-defaulting Underwriters
and by such other person or persons, if any, shall be taken as the basis for
all rights and obligations hereunder; but this shall not in any way affect the
liability of any defaulting Underwriter to the other Underwriters for damages
resulting from its default, nor shall any such default relieve any other
Underwriter of any of its obligations hereunder or under the Underwriting
Agreement except as herein or therein provided.
In the event of default by one or more Underwriters in respect
of their obligations (a) under the Underwriting Agreement to purchase the
Securities agreed to be purchased by them thereunder, (b) under this Agreement
to take up and pay for any Securities purchased or (c) to deliver any
Securities sold or over-allotted by you for the respective accounts of the
Underwriters pursuant to this Agreement, or to bear their respective share of
expenses or liabilities pursuant to this Agreement, and to the extent that
arrangements shall not have been made by you for any persons to assume the
obligations of such defaulting Underwriter or Underwriters, we agree to assume
our proportionate share of the obligations of each defaulting Underwriter
(subject in the case of clause (a) above to the limitations contained in the
Underwriting Agreement) without relieving any such defaulting Underwriter of
its liability therefor.
5. Offering of Securities. We understand that you will
notify us when the public offering of the Securities is to be made and of the
initial public offering price. We hereby authorize you to fix the concession
to dealers and the reallowance to dealers and in your sole discretion after the
public offering to change the public offering price, the concession and the
reallowance. The offering price at any time in effect is hereinafter referred
to as the "public offering price". We agree that we will not offer any of the
Securities for sale at a price other than the public offering price or allow
any discount therefrom except as herein otherwise specifically provided.
<PAGE> 4
We agree that public advertisement of the offering shall be
made by you on behalf of the Underwriters on such date as you shall determine.
We have not advertised the offering and will not do so until after such date.
We understand that any advertisement we may then make will be on our own
responsibility and at our own expense.
We authorize you to reserve and offer for sale to institutions
and other retail purchasers and to dealers (the "Selected Dealers") to be
selected by you (such dealers may include any Underwriter) such of our
Securities as you in your sole discretion shall determine. Any such offering
to Selected Dealers may be made pursuant to a Selling Agreement, in the form
attached hereto as Exhibit B, or otherwise , as you may determine. The form of
Selling Agreement attached hereto as Exhibit B is satisfactory to us.
We authorize you to make purchases and sales of the Securities
from or to any Selected Dealers or Underwriters at the public offering price
less all or any part of the concession and, with your consent, any Underwriter
may make purchases or sales of the Securities from or to any Selected Dealer or
Underwriter at the public offering price less all or any of the concession.
We understand that you will notify each Underwriter promptly
upon the release of the Securities for public offering as to the amount of
Securities reserved for sale to Selected Dealers and retail purchasers.
Securities not so reserved may be sold by each Underwriter for its own account,
except that from time to time you may, in your discretion, add to the
Securities reserved for sale to Selected Dealers and retail purchasers any
Securities retained by an Underwriter remaining unsold. We agree to notify you
from time to time upon request of the amount of our Securities retained by us
remaining unsold. If all the Securities reserved for offering to Selected
Dealers and retail purchasers are not promptly sold by you, any Underwriter may
from time to time, with your consent, obtain a release of all or any Securities
of such Underwriter then remaining unsold and Securities so released shall
thereafter be deemed not to have been reserved. Securities of any Underwriter
so reserved which remain unsold, or, if sold, have not been paid for at any
time prior to the termination of this Agreement may, in your discretion or upon
the request of such Underwriter, be delivered to such Underwriter for carrying
purposes only, but such Securities shall remain subject to redelivery to you
upon demand for disposition by you until this Agreement is terminated.
We agree that in connection with sales and offers to sell the
Securities, if any, made by us outside the United States or its territories or
possessions, (a) we will furnish to each person to whom any such offer or sale
is made such Prospectus, advertisement or other offering document containing
information
<PAGE> 5
relating to the Securities or the Company as may be required under the laws of
the jurisdiction in which such offer or sale is made and (b) we will furnish to
each person to whom any such offer is made a copy of the then current
Preliminary Prospectus and to each person to whom any such sale is made a copy
of the Prospectus referred to in the Underwriting Agreement (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto). Any Prospectus, advertisement or other offering document (other than
any such preliminary Prospectus or Prospectus) furnished by us to any person in
accordance with the preceding sentence and all such additional offering
material, if any, as we may furnish to any person (i) shall comply in all
respects with the laws of the jurisdiction in which it is so furnished, (ii)
shall be prepared and so furnished at our sole risk and expense, and (iii)
shall not contain information relating to the Securities or the Company which
is inconsistent in any respect with information contained in the then current
Preliminary Prospectus or in the Prospectus (as then amended or supplemented if
the Company shall have furnished any amendments or supplements thereto), as the
case may be.
We recognize the importance of a broad distribution of the
Securities among bona fide investors and we agree to use our best efforts to
obtain such broad distribution and to that end, to the extent we deem
practicable, to give priority to small orders.
We agree that we will not sell to any account over which we
exercised discretionary authority any of the Securities which we have agreed to
purchase pursuant to the Underwriting Agreement.
6. Compensation to Representative. We authorize you to
charge to our account, as compensation for your services as Representative in
connection with this offering, including the purchase from the Company of the
Securities and the management of the offering, an amount equal to $_____ per
Share and/or $________ per Warrant in respect to each of our Securities.
7. Payment and Delivery. At or about 9:00 a.m., Eastern
Time, on the Closing Dates (including the first Closing Date and any Option
Closing Date, as defined in the Underwriting Agreement), we agree to deliver to
you at your office by wire transfer to the account of the Representative or by
a certified or official bank check payable in New York Clearing House funds to
your order in an amount equal to the initial public offering price, less the
concession to the Selected Dealers in respect of that portion of our Securities
which has been retained by or released to us for direct sales.
In the event that our funds are not received by you when
required, you are authorized, in your discretion, but shall not be obligated,
to make payment for our account pursuant to the Underwriting Agreement by
advancing your own funds. Any such
<PAGE> 6
payment by you shall not relieve us from any of our obligations hereunder or
under the Underwriting Agreement.
We authorize you to hold and deliver against payment any of
our Securities which have been sold or reserved for sale to Selected Dealers or
retail purchasers. Any of our Securities not sold or reserved by you as
aforesaid, will be available for delivery to us at your office as soon as
practicable after such Securities have been delivered to you.
Upon the termination of this Agreement, or prior thereto at
your discretion, you will deliver to us any of our Securities reserved by you
for sale to Selected Dealers or retail purchasers but not sold and paid for
against payment by us of an amount equal to the initial public offering price
of such Securities, less the concession to the Selected Dealers in respect
thereof.
8. Authority to Borrow. We authorize you to arrange
loans for our account and to execute and deliver any notes or other instruments
in connection therewith, and to pledge as security therefor all or any part of
our Securities, as you may deem necessary or advisable to carry out the
purchase, carrying and distribution of the Securities, and to advance your own
funds, charging current interest rates.
9. Over-allotment; Stabilization. We authorize you, for
the account of each Underwriter, prior to the termination of this Agreement,
and for such longer period as may be necessary to cover any short position
incurred for the accounts of the several Underwriters pursuant to this
Agreement, (a) to over-allot in arranging for sales of Securities to Selected
Dealers and others and, if necessary, to purchase Securities (whether pursuant
to exercise of the option set forth in Section 2(b) of the Underwriting
Agreement or otherwise) at such prices as you may determine for the purpose of
covering such over-allotments, and (b) for the purpose of stabilizing the
market in the Securities, to make purchases and sales of Securities on the open
market or otherwise, for long or short account, on a when-issued basis or
otherwise, at such prices, in such amounts and in such manner as you may
determine; provided, however, that at no time shall our net commitment, either
for long or short account, under this Section exceed 15% of the amount of our
Securities. Such purchases, sales and over-allotments shall be made for the
respective accounts of the several Underwriters as nearly as practicable to
their respective underwriting proportions. We agree to take up on demand at
cost any Securities so purchased for our account and deliver on demand any
Securities so sold or over-allotted for our account. We authorize you to sell
for the account of the Underwriters any Securities purchased pursuant to this
Section, upon such terms as you may deem advisable, and any Underwriter,
including yourselves, may purchase such Securities. You are authorized to
charge the respective accounts of the Underwriters with broker's commissions or
dealer's mark-up on purchases and sales effected by you.
<PAGE> 7
If pursuant to the provisions of the preceding paragraph and
prior to the termination of this Agreement (or prior to such earlier date as
you may have determined) you purchase or contract to purchase for the account
of any Underwriter in the open market or otherwise any Securities which were
retained by, or released to, us for direct sale, or any Securities which may
have been issued in exchange for such Securities, we authorize you either to
charge our account with an amount equal to the concession to Selected Dealers
with respect thereto, which amount shall be credited against the cost of such
Securities, or to require us to repurchase such Securities at a price equal to
the total cost of such purchase, including transfer taxes and broker's
commissions or dealer's mark-up, if any. In lieu of such action you may, in
your discretion, sell for our account the Securities so purchased and debit or
credit our account for the loss or profit resulting from such sale.
You will notify us promptly if and when you engage in any
stabilization transaction pursuant to this Section or otherwise and will notify
us of the date of termination of stabilization. We agree to file with you any
reports required of us including "Not as Manager" reports pursuant to Rule
17a-2 under the 1934 Act not later than five business days following the date
upon which stabilization was terminated, and we authorize you to file on our
behalf with the Securities and Exchange Commission any reports required by such
Rule.
10. Limitation on Transactions by Underwriters. Except
as permitted by you, we will not during the term of this Agreement bid for,
purchase, sell or attempt to induce others to purchase or sell, directly or
indirectly, any Securities other than (i) as provided in the Underwriting
Agreement and in this agreement, (ii) purchases from or sales to dealers of the
Securities at the public offering price less all or any part of the reallowance
to dealers or (iii) purchases or sales by us of any Securities as broker or
unsolicited orders for the account of others.
We represent that we have not participated in any transaction
prohibited by the preceding paragraph and that we have at all times complied
with the provisions of Rule 10b-6 and Rule 10b-6A under the 1934 Act applicable
to this offering.
We may, with your prior consent, make purchases of the
Securities from and sales to other Underwriters at the public offering price,
less all or any part of the concession to dealers.
11. Allocation and Payment of Expenses. We understand
that all expenses of a general nature incurred by you, as Representative, in
connection with the purchase, carrying, marketing and sale of the Securities
shall be borne by the Underwriters in accordance with their respective share of
the
<PAGE> 8
underwriting obligations. We authorize you to charge our account with our
share, based on our underwriting obligation, of the aforesaid expenses
including all transfer taxes paid of our behalf on sales or transfers made for
our account.
As promptly as possible after the termination of this
Agreement, the accounts arising pursuant hereto shall be settled and paid.
Your ascertainment of all expenses and the apportionment thereof shall be
conclusive. Notwithstanding any settlement or settlements hereunder, we will
remain liable for our share of all expenses and liabilities which may be
incurred by or the accounts of the Underwriters, including any expenses and
liabilities referred to in Sections 13 and 14 hereof, which shall be determined
as provided in this Section.
12. Termination. Unless this Agreement or any provision
hereof is earlier terminated by you and except for provisions herein that
contemplate obligations surviving the termination hereof as noted in the next
paragraph, this Agreement will terminate at the close of business on the 45th
day after the date hereof, but in your discretion may be extended by you for a
further period not exceeding 30 days with the consent of the Underwriters who
have agreed to purchase in the aggregate 50% or more of the Securities. No
termination or suspension pursuant to this Section shall affect your authority
to cover any short position under this Agreement.
Upon termination of this Agreement, all authorizations, rights
and obligations hereunder shall cease, except (i) the mutual obligations to
settle accounts under Section 11, (ii) our obligation to pay any transfer taxes
which may be assessed and paid on account of any sales thereunder for our
account, (iii) our obligation with respect to purchases which may be made by
you from time to time thereafter to cover any short position incurred under
this Agreement, (iv) the provisions of Sections 13 and 14 and (v) the
obligations of any defaulting Underwriter, all of which shall continue until
fully discharged.
13. Liability of Representative and Underwriters.
Neither as Representative nor individually shall you be under any liability
whatsoever to any other Underwriter nor shall you be under any liability in
respect of any matters connected herewith or action taken by you pursuant
hereto, except for the obligations expressly assumed by you in this Agreement.
You shall be under no liability for or in respect of the value for the
Securities or the validity of the form thereof, the Registration Statement, the
Prospectus, or agreements or other instruments executed by the Company or
others; or for or in respect of the delivery of the Securities; or for the
performance by the Company or others of any agreement on its or their part.
Nothing herein contained shall constitute the several
Underwriters an association, or partners with us or with each
<PAGE> 9
other, or, except as herein expressly provided, render any Underwriter liable
for the obligation of any other Underwriter. The rights, obligations and
liabilities of each of the Underwriters are several, in accordance with their
respective obligations, and not joint. Notwithstanding any settlement of
accounts under this Agreement, we agree to pay our underwriting proportion of
the amount of any claim demand or liability which may be asserted against and
discharged by the Underwriters or any of them, based on the claim that the
Underwriters constitute an association, unincorporated business or other
entity, and also to pay our underwriting proportion of expenses approved by you
incurred by the Underwriters, or any of them, in contesting any such claims,
demands or liabilities. If the Underwriters shall be deemed to constitute a
partnership for income tax purposes, it is the intent of each Underwriter to be
excluded from the application of Subchapter K, Chapter 1, Subtitle A of the
Internal Revenue Code of 1954, as amended. Each Underwriter elects to be so
excluded and agrees not to take any position inconsistent with such election.
Each Underwriter authorizes you, in your discretion, to execute and file on
behalf of the Underwriters such evidence of election as may be required by the
Internal Revenue Service.
14. Indemnification and Future Claims.
(a) We agree to indemnify and hold harmless you and each
other Underwriter, and each person, if any, who controls you and such other
Underwriter within the meaning of Section 15 of the Securities Act of 1933, and
to reimburse their expenses, to the extent and upon the terms that we agree to
indemnify and hold harmless the Company and to reimburse expenses as set forth
in the Underwriting Agreement. Our indemnity agreement set forth in this
Section remain in full force and effect regardless of any investigation made by
or on behalf of such other Underwriter or controlling person and shall survive
the delivery of and payment for the Securities and the termination of this
Agreement.
(b) In the event that at any time any claim or claims
shall be asserted against you, as Representative, or otherwise involving the
Underwriters generally, relating to the Registration Statement or any
Preliminary Prospectus or the Prospectus, as such may be from time to time
amended or supplemented, the public offering of the Securities or any of the
transactions contemplated by this Agreement, we authorize you to take such
other action as you shall deem necessary or desirable under the circumstances,
including settlement of any such claim or claims if such course of action shall
be recommended by counsel retained by you. We agree to pay to you on request,
our underwriting proportion of all expenses incurred by you (including, but not
limited to, disbursements and fees of counsel so retained) in investigating and
defending against such claim or claims and our underwriting proportion of any
liability incurred by you in respect of such claim or claims, whether such
liability
<PAGE> 10
shall be the result of a judgment or as a result of any such settlement.
15. Title to Securities. The Securities purchased by, or
on behalf of, the respective Underwriters shall remain the property of such
Underwriters until sold, and title to any such Securities shall not in any
event pass to the Representative by virtue of any of the provisions of this
Agreement.
16. Blue Sky Matters. It is understood that you assume
no responsibility with respect to the right of any Underwriter or other person
to offer or to sell Securities in any jurisdiction, not withstanding any
information which you may furnish as to the jurisdictions under the securities
laws of which it is believed the Securities may be sold.
17. Applicable Law. This Agreement will be governed by
and construed in accordance with the laws of the State of Florida.
18. Capital Requirements. We confirm that the incurrence
by us of our obligation under this Agreement and under the Underwriting
Agreement will not place us in violation of the net capital requirements of
Rule 15c3-1 under the 1934 Act or of any applicable rules relating to capital
requirements of any securities exchange to which we are subject.
19. Miscellaneous. Any notice from you to us shall be
deemed to have been duly given if telefaxed, telephoned or telegraphed, and
confirmed by mail to us at the address set forth in the Underwriters
Questionnaire furnished by us to you. Any notice from us to you shall be
deemed to have been duly given if telefaxed or telegraphed, and confirmed by
mail to you at 7700 West Camino Real, Boca Raton, Florida 33433, Attention:
Robert T. Kirk.
We understand that you are a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD"). We hereby confirm
that we are actually engaged in the investment banking or securities business
and are either (i) a member in good standing of the NASD or (ii) a dealer with
its principal place of business located outside the United States, its
territories and its possession and not registered as a broker or dealer under
the 1934 Act who agrees not to make any sales within the United States, its
territories or its possessions or to persons who are nationals thereof or
residents therein (except that we may participate in sales to Selected Dealers
and others under Section 5 of this Agreement). We hereby agree that if we are
members of the NASD, we will comply with all of the provisions of the NASD
Conduct Rules. If we are a foreign dealer, we agree to comply with Rule 2740
of the NASD Conduct Rules. If we are a foreign dealer and not a member of the
NASD, we agree to comply with the NASD's interpretation with respect to
free-riding and withholding, as though we were a member of the
<PAGE> 11
NASD, with the provisions of Rules 2730 and 2750 of the NASD Conduct Rules, and
to comply with Rule 2420 of the NASD Conduct Rules as that applies to a
non-member foreign dealer. In connection with sales and offers to sell
Securities made by us outside the United States, its territories and
possessions (i) we will either furnish to each person to whom any such sale or
offer is made a copy of the then current Preliminary Prospectus or the
Prospectus, as the case may be, or inform such person that such Preliminary
Prospectus or Prospectus will be available upon request, and (ii) we will
furnish to each person to whom any such sale or offer is made such Prospectus,
advertisement or other offering document containing information relating to the
Securities or the Company as may be required under the law of the jurisdiction
in which such sale or offer is made. Any Prospectus, advertisement or other
offering document furnished by us to any person in accordance with the
preceding sentence and any such additional offering material as we may furnish
to any person (i) shall comply in all respects with the law of the jurisdiction
in which it is so furnished, (ii) shall be prepared and so furnished at our
sole risk and expenses and (iii) shall not contain information relating to the
Securities or the Company which is inconsistent in any respect with the
information contained in the then current preliminary Prospectus or in the
Prospectus, as the case may be.
We understand that, in consideration of your services in
connection with the public offering of the Securities, the Company has agreed
with you individually, and not as Representative of the Underwriters (a) to
sell to you the Representative's Warrants referred to in the Underwriting
Agreement for the sum of $10; (b) to pay to you a non-accountable expense
allowance referred to in the Underwriting Agreement; (c) to pay you a financial
advisory fee referred to in the Underwriting Agreement; and (d) to enter into
the Merger and Acquisition Agreement (the "M/A Agreement") referred to in the
Underwriting Agreement. In addition, you may, at your sole discretion, elect
to exercise the over-allotment option individually. We confirm to you that we
shall make no claim to the Representative's Warrants (or any offering of the
Company's securities related thereto, or any right to participate in any
capacity in any offering resulting therefrom), any rights related thereto, the
Company's securities underlying the Representative's Warrants, the
non-accountable expense allowance, the financial advisory fee, or, to the
over-allotment option to the extent you elect to exercise such option
individually, or the M/A Agreement. You confirm to us that we shall have no
obligation or liabilities with respect to the purchase of the Representative's
Warrants, the exercise thereof, the Company's securities underlying the
Representative's Warrants (or any offering of the Company's securities related
thereto, unless we shall subsequently agree to become an underwriter for, or
otherwise participate in any such offering) or the non-accountable expense
allowance, the financial advisory agreement, the M/A Agreement, or, the
over-allotment
<PAGE> 12
option, to the extent you elect to exercise such option individually.
Please confirm that the foregoing correctly states the
understanding between us by signing and returning to us a counterpart hereof.
Very truly yours,
By:
---------------------------
(Attorney-in-fact for each of
the several Underwriters named
in Schedule A to the attached
Underwriting Agreement.)
Confirmed as of the date first
above written:
BARRON CHASE SECURITIES, INC.
By:
-----------------------------
Robert T. Kirk, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does
hereby irrevocably constitute and appoint Robert T. Kirk and/or Barron Chase
Securities, Inc., the true and lawful agent and attorney-in-fact of the
undersigned with respect to all matters arising in connection with the
undersigned's acting as one of the Underwriters of the proposed offering of an
aggregate of
2,000,000 Shares of Common Stock and
2,000,000 Common Stock Purchase Warrants
of
<PAGE> 13
DIDAX INC.
(such securities being more fully described in the Registration Statement No.
_________ filed by DIDAX INC. pursuant to the Securities Act of 1933) with full
power and authority to execute and deliver for and on behalf of the undersigned
all such agreements, consents and documents in connection therewith as said
agent and attorney-in-fact may deem advisable. The undersigned hereby gives to
said agent and attorney-in-fact full power and authority to act in the
premises, including, but not limited to, the power an authority to execute and
deliver an Agreement Among Underwriters relating to such financing, to agree to
increase or decrease the size of the offering to an amount as shall be approved
by Barron Chase Securities, Inc., as Representative of the Underwriters, and to
appoint a substitute or substitutes to act hereunder with the same power and
authority as said agent and attorney-in-fact would have if personally acting.
The undersigned hereby ratifies and confirms all that said agent and
attorney-in-fact, or any substitute or substitutes, may do by virtue hereof.
WITNESS the due execution hereof at
---------------------------
(Street) (City)
this day of , 1997.
--------- ------------------
--------------------------
Firm Name
By:
- ------------------------------------------- ---------------------------
Witness Partner, Officer or
Sole Proprietor
(indicate which)
CORPORATE ACKNOWLEDGEMENT
STATE OF )
) ss.:
COUNTY OF )
On this ________ day of _________________, 1997, before me
personally came ___________________________________, to me know, who being by
me duly sworn, deposes and say that he resides at No.
_________________________________________________: that he is the
____________________________ of _________________________________, the
aforementioned corporation, which executed the foregoing instrument; that he
knows the seal of said corporation;
<PAGE> 14
that the seal affixed to said instrument is such corporate seal; and that it
was so affixed by order the Board of Directors of said corporation; and that he
signed his name thereto by like order.
--------------------------
Notary Public
My Commission Expires:
PARTNERSHIP ACKNOWLEDGEMENT
STATE OF )
) ss.:
COUNTY OF )
On this ________ day of _________________, 1997, before me
personally came ___________________________________, one of the members of the
firm of ________________________________________, to me known and known to me
to be the individual who executed the foregoing instrument and acknowledged
that he executed, and was duly authorized to execute, the same as and for the
act and deed of said firm.
-----------------------------
Notary Public
My Commission Expires:
--------------------------------------
Unless prior to 5:00 p.m. Eastern Time, on the date
immediately preceding the proposed public offering date, Robert T. Kirk of the
Syndicate Department of Barron Chase Securities, Inc., 7700 West Camino Real,
Boca Raton, Florida 33433 receives a telegram or letter from you revoking the
Power of Attorney, the power and authority granted by such Power of Attorney
may be exercised in accordance with the terms thereof.
<PAGE> 1
EXHIBIT 2
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
MERGER, WHICH MERGES:
"DIDAX ON-LINE, L.C.", A VIRGINIA LIMITED LIABILITY COMPANY,
WITH AND INTO "DIDAX INC." UNDER THE NAME OF "DIDAX INC.", A
CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS
RECEIVED AND FILED IN THIS OFFICE THE TENTH DAY OF APRIL, A.D. 1997, AT 1:31
O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[DELAWARE /s/ EDWARD J. FREEL
SECRETARY'S -----------------------------------
OFFICE SEAL] Edward J. Freel, Secretary of State
2703861 8100M AUTHENTICATION: 8415063
971116613 DATE: 04-10-97
<PAGE> 2
CERTIFICATE OF MERGER
OF
DIDAX INC.,
a Delaware corporation,
AND
DIDAX ON-LINE, L.C.
a Virginia limited liability company
It is hereby certified that:
1. The constituent business corporations participating in the merger
herein certified are:
(i) DIDAX INC., which is incorporated under the laws of the State of
Delaware; and
(ii) Didax On-Line, L.C., which is formed under the laws of the State
of Virginia.
2. An Agreement of Merger has been approved, adopted, certified,
executed, and acknowledged by each of the aforesaid constituent corporations in
accordance with the provisions of subsection (c) of Section 264 of the General
Corporation Law of the State of Delaware, to wit, by Didax On-Line, L.C. in
accordance with the laws of the State of its formation and DIDAX INC. in the
same manner as is provided in Section 264 of the General Corporation Law of the
State of Delaware.
3. The name of the surviving corporation in the merger herein
certified is DIDAX INC., which will continue its existence as said surviving
corporation under its present name upon the effective date of said merger
pursuant to the provisions of the General Corporation Law of the State of
Delaware.
4. The Certificate of Incorporation of DIDAX INC., as now in force
and effect, shall continue to be the Certificate of Incorporation of said
surviving corporation until amended and changed pursuant to the provisions of
the General Corporation Law of the State of Delaware.
<PAGE> 3
5. The executed Plan and Agreement of Merger between the aforesaid
constituent entitues is on file at the principal place of business of the
aforesaid surviving corporation, the address of which is as follows:
4501 Daly Drive, Suite 103
Chantilly, Virginia 20151
6. A copy of the aforesaid Plan and Agreement of Merger will be
furnished by the aforesaid surviving corporation, on request, and without cost,
to any stockholder of each of the aforesaid constituent corporations.
7. The authorized capital of Didax On-Line, L.C. consists of 3,000,000
membership units, no par value per share.
Dated: April 9, 1997.
DIDAX INC., a Delaware Corporation
By: /s/ DANE B. WEST
-------------------------------
Name: Dane B. West
Title: President
Dated: April 9, 1997.
DIDAX ON-LINE, L.C., a Virginia limited
liability company
By: /s/ DANE B. WEST
------------------------------
Name: Dane B. West
Title: President
<PAGE> 4
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
MERGER, WHICH MERGES:
"DIDAX, INC.", A VIRGINIA CORPORATION,
WITH AND INTO "DIDAX INC." UNDER THE NAME OF "DIDAX INC.", A
CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS
RECEIVED AND FILED IN THIS OFFICE THE TENTH DAY OF APRIL, A.D. 1997, AT 1:30
O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[DELAWARE /s/ EDWARD J. FREEL
SECRETARY'S -----------------------------------
OFFICE SEAL] Edward J. Freel, Secretary of State
2703861 8100M AUTHENTICATION: 8415042
971116602 DATE: 04-10-97
<PAGE> 5
CERTIFICATE OF MERGER
OF
DIDAX INC.,
a Delaware corporation,
AND
DIDAX, INC.,
a Virginia corporation
It is hereby certified that:
1. The constituent business corporations participating in the merger
herein certified are:
(i) DIDAX INC., which is incorporated under the laws of the State
of Delaware ("New Didax"); and
(ii) DIDAX, Inc., which is incorporated under the laws of the State of
Virginia ("Old Didax").
2. An Agreement of Merger has been approved, adopted, certified,
executed, and acknowledged by each of the aforesaid constituent corporations in
accordance with the provisions of subsection (c) of Section 252 of the General
Corporation Law of the State of Delaware, to wit, by Old Didax in accordance
with the laws of the State of its incorporation and New Didax in the same
manner as is provided in Section 252 of the General Corporation Law of the
State of Delaware.
3. The name of the surviving corporation in the merger herein certified
is DIDAX INC., which will continue its existence as said surviving corporation
under its present name upon the effective date of said merger pursuant to the
provisions of the General Corporation Law of the State of Delaware.
4. The Certificate of Incorporation of New Didax, as now in force and
effect, shall continue to be the Certificate of Incorporation of said surviving
corporation until amended and changed pursuant to the provisions of the General
Corporation Law of the State of Delaware.
1
<PAGE> 6
5. The executed Plan and Agreement of Merger between the aforesaid
constituent corporations is on file at the principal place of business of the
aforesaid surviving corporation, the address of which is as follows:
4501 Daly Drive, Suite 103
Chantilly, VA 20151
6. A copy of the aforesaid Plan and Agreement of Merger will be
furnished by the aforesaid surviving corporation, on request, and without cost,
to any stockholder of each of the aforesaid constituent corporations.
7. The authorized capital stock of Old Didax consists of 500,000 shares
of a par value of $0.01 each.
Dated: April 9, 1997.
DIDAX INC., a Delaware corporation
By:/s/ DANE B. WEST
------------------------------
By: Dane B. West
Title: President
Dated: April 9, 1997.
DIDAX, INC., a Virginia corporation
By:/s/ DANE B. WEST
-----------------------------------
Name: Dane B. West
Title: President
2
<PAGE> 7
F129008 - 1
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
April 11, 1997
The State Corporation Commission finds the accompanying articles submitted
on behalf of
DIDAX INC.
to comply with the requirements of law. Therefore, it is ORDERED that this
CERTIFICATE OF MERGER
be issued and admitted to record with the articles in the office of the Clerk
of the Commission. Each of the following:
DIDAX ON-LINE, L.C.
DIDAX, INC.
is merged into DIDAX INC., which continues to exist under the laws of DELAWARE
with the name DIDAX INC.. The existence of each non-surviving entity ceases,
according to the plan of merger.
The certificate is effective on April 11, 1997.
STATE CORPORATION COMMISSION
By /s/ T.V. MORRISON, JR
--------------------------------
Commissioner
MERGACPT
CIS20436
97-04-10-0075
<PAGE> 8
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
ARTICLES OF MERGER FOR
DIDAX ON-LINE, L.C. (A VIRGINIA LIMITED LIABILITY COMPANY),
DIDAX, INC. (A VIRGINIA CORPORATION), AND
DIDAX INC. (A DELAWARE CORPORATION)
The undersigned limited liability company and corporations, pursuant to Title
13.1, Chapter 12, Article 13 and Title 13.1, Chapter 9, Article 12 of the Code
of Virginia, and to Title 8, Chapter 1, Subchapter IX of the Code of Delaware,
hereby execute the following articles of merger and set forth:
1. The plan of merger of DIDAX, INC. (a Virginia corporation) and DIDAX INC.
(a Delaware corporation) is attached as Exhibit A. The plan of merger of
DIDAX ON-LINE, L.C. (a Virginia limited liability company) and DIDAX INC.
(a Delaware corporation) is attached as Exhibit B.
2. The parties to the merger and the name of the state or country under whose
law each such party is incorporated, organized or formed are as follows:
NAME STATE OR COUNTRY
DIDAX, INC. Virginia
DIDAX ON-LINE, L.C. Virginia
DIDAX INC. Delaware
DIDAX INC., a Delaware corporation, will be the surviving entity of the
merger.
3. Name of surviving entity: DIDAX INC.
Jurisdiction of organization or incorporation: Delaware
Address of principal office: 4501 Daly Drive, Suite 103
Chantilly, Virginia 20151
4. The plan of merger was adopted by unanimous consent of the members of
DIDAX ON- LINE, L.C., the Virginia limited liability company, in
accordance with SECTION.13.1-1071 of the Code of Virginia.
5. The plan of merger was adopted by unanimous consent of the shareholders
of DIDAX, INC., the Virginia corporation, in accordance with
SECTION.13.1-718 of the Code of Virginia.
April 9, 1997 DIDAX INC. -- Articles of Merger Page 1 of 2
<PAGE> 9
6. The merger is permitted by the state or country under whose law each
foreign corporation that is a party to the merger is organized or
incorporated, and each foreign corporation that is a party to the merger
has complied with that law in effecting the merger. The plans of merger
were adopted by DIDAX INC., the Delaware corporation, in accordance with
Title 8, Chapter 1, of the Code of Delaware.
7. These Articles of Merger will be effective upon filing.
The undersigned directors and/or officers authorized to act on behalf of the
respective organizations declare that the facts herein stated are true as of
9 April, 1997.
DIDAX ON-LINE, L.C.
By: /s/ ROBERT C. VARNEY
---------------------------------------
Dr. Robert C. Varney
Manager and Member
DIDAX, INC. (a Virginia corporation)
By: /s/ ROBERT C. VARNEY
---------------------------------------
Dr. Robert C. Varney
Chairman of the Board of Directors and
Chief Executive Officer
DIDAX INC. (a Delaware corporation)
By: /s/ ROBERT C. VARNEY
--------------------------------------
Dr. Robert C. Varney
Chairman of the Board of Directors and
Chief Executive Officer
April 9, 1997 DIDAX INC. -- Articles of Merger Page 2 of 2
<PAGE> 10
Exhibit A
DIDAX, INC.
PLAN OF MERGER
Pursuant to a vote of the board of directors of DIDAX, INC. (the
"Corporation") a Plan of Merger (the "Plan") has been adopted, providing for
the merger of the Corporation into DIDAX, Inc., a Delaware corporation ("New
DIDAX"), in accordance with the Virginia Stock Corporation Act (the "Act") and
Delaware General Corporate Law , pursuant to the following steps:
1. The Corporation shall be formally merged into New DIDAX in
accordance with the Act. The Corporation's assets (being solely a
total of 366,193 membership units ("Units") of DIDAX On-Line
L.C., ("L.C."), subject to its liabilities, will be transferred
to New DIDAX without the necessity of any additional formalities.
The total number of Units in L.C. outstanding, including those
held by the Corporation, is 1,160,376.
2. The shareholders of the Corporation will receive in total 366,193
shares ("New Shares") of common stock in New DIDAX, the successor
to the assets, liabilities and business. Following the closing or
the Merger and the acquisition by DIDAX of L.C.'s assets, there
will be 1,160,376 New Shares outstanding.
3. The Plan shall become effective upon the approval by the
shareholders.
4. If the Plan is approved, a certificate of merger will be filed
with the State Corporation Commission(the "Commission") in
accordance with the Act.
5. Pursuant to the Act, and following the filing of the certificate
of merger, the existence of the Corporation shall cease, except
for the purpose of suits and other proceedings as provided in the
Act.
6. Upon the Plan's effective date, each Share of the Corporation's
common stock shall be converted into the right to receive 100 New
Shares of New DIDAX's common stock, $.01 par value, fully paid
and non-assessable.
7. The directors and the appropriate officers of the Corporation
shall carry out and consummate the Plan of Merger, and shall have
the authority, without further shareholder action, to adopt all
resolutions, execute all documents, file all papers, pay such
expenses and take any other action they may deem necessary or
appropriate for the purpose of implementing the Plan.
IN WITNESS WHEREOF, DIDAX INC., a Delaware corporation, and
DIDAX, INC., a Virginia corporation, pursuant to the approval and authority
duly given by resolutions adopted by their respective Boards of Directors
and/or shareholders have caused this Plan of Merger to be executed by an
authorized officer of each party thereto.
<PAGE> 11
DIDAX INC.
(A Delaware Corporation)
By: /s/ ROBERT C. VARNEY
-----------------------------------------
Dr. Robert C. Varney
Chairman of the Board of Directors and
Chief Executive Officer
DIDAX, INC.
(A Virginia Corporation)
By: /s/ ROBERT C. VARNEY
-----------------------------------------
Dr. Robert C. Varney
Chairman of the Board of Directors and
Chief Executive Officer
<PAGE> 12
Exhibit B
DIDAX ON-LINE L.C.
PLAN OF MERGER
Pursuant to a vote of the directorate of DIDAX ON-LINE L.C. (the
"Company") a Plan of Reorganization (the "Plan") has been adopted, providing
for the reorganization of the Company into DIDAX, Inc., a Delaware corporation
("New DIDAX"), in accordance with the Virginia Limited Liability Company Act
(the "Act") and Delaware General Corporation Law, pursuant to the following
steps:
1. The Company shall be formally reorganized such that the Company's
assets, subject to its liabilities, will be transferred to New
DIDAX without the necessity of any additional formalities. The
total number of Units in L.C. outstanding, including those held
by DIDAX INC., the original DIDAX S Corporation, whose
shareholders will be voting to merge into New DIDAX, is
1,160,376.
2. The members of the Company will receive in total 794,183 shares
("New Shares") of common stock in New DIDAX, the successor to the
Company's assets, liabilities and business. Following the closing
or the Reorganization and the acquisition by New DIDAX of DIDAX
INC.'s assets, there will be 1,160,376 New Shares outstanding.
3. The Plan shall become effective upon the approval by the members.
4. If the Plan is approved, a certificate of liquidation will be
filed with the State Corporation Commission(the "Commission") in
accordance with the Act.
5. Pursuant to the Act, and following the filing of the certificate
of liquidation, the existence of the Company shall cease, except
for the purpose of suits and other proceedings as provided in the
Act.
6. Upon the Plan's effective date, each Unit of the Company's
membership units shall be converted into the right to receive one
(1) New Share of New DIDAX's common stock, $.01 par value, fully
paid and non-assessable.
7. The managers of the Company shall carry out and consummate the
Plan of Reorganization, and shall have the authority, without
further member action, to adopt all resolutions, execute all
documents, file all papers, pay such expenses and take any other
action they may deem necessary or appropriate for the purpose of
implementing the Plan.
IN WITNESS WHEREOF, DIDAX INC., a Delaware corporation, and DIDAX
ON-LINE, L.C., a Virginia limited liability company, pursuant to the approval
and authority duly given by resolutions adopted by their respective Boards of
Directors and/or members have caused this Plan of Merger to be executed by an
authorized officer of each party thereto.
<PAGE> 13
DIDAX INC.
(A Delaware Corporation)
By: /s/ ROBERT C. VARNEY
------------------------------------------
Dr. Robert C. Varney
Chairman of the Board of Directors and
Chief Executive Officer
DIDAX ON-LINE, L.C.
(A Virginia Limited Liability Company)
By: /s/ ROBERT C. VARNEY
------------------------------------------
Dr. Robert C. Varney
Director, Manager, and Member
<PAGE> 1
Exhibit 3.1
State of Delaware PAGE 1
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "DIDAX INC.", FILED IN THIS OFFICE ON THE SEVENTH DAY OF
JANUARY, A.D. 1997, AT 4:30 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[Seal] /s/ Edward J. Freel
-------------------------------------
Edward J. Freel, Secretary of State
2703861 8100 AUTHENTICATION: 8276125
971006620 DATE: 01-08-97
<PAGE> 2
CERTIFICATE OF INCORPORATION
OF
DIDAX INC.
1. The name of the Corporation is DIDAX INC.
2. The address of its registered office in the State of Delaware is 1209
Orange Street, in the City of Wilmington, 19801, County of New Castle. The name
of its registered agent at such address is The Corporation Trust Company.
3. The nature of the business of the Corporation and the objects or
purposes to be transacted, promoted or carried on by it are as follows: To
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
4. The total number of shares of all classes of stock that the Corporation
is authorized to issue is three million five hundred thousand (3,500,000) shares
of Common Stock with a par value of $0.01 per share.
5. The name and mailing address of the sole incorporator is as follows:
Florence Ann Somma
c/o Morrison & Foerster LLP
1290 Avenue of the Americas
New York, NY 10104
6. The board of directors is expressly authorized to make, alter, or repeal
the bylaws of the Corporation.
7. Elections of directors need not be by written ballot unless the bylaws
of the Corporation shall so provide.
8. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in
<PAGE> 3
such manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
9. The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
10. To the fullest extent permitted by Delaware statutory or decisional
law, as amended or interpreted, no director of this Corporation shall be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director. This Article 10 does not affect the
availability of equitable remedies for breach of fiduciary duties.
11. The Corporation shall, to the fullest extent legally permissible,
indemnify (fully or, if not possible, partially) each of its directors and
officers, and persons who serve at its request as directors or officers of
another organization in which it owns shares or of which it is a creditor,
against all liabilities (including expenses) imposed upon or reasonably incurred
by him in connection with any action, suit or other proceeding, civil or
criminal (including investigations, audits, the activities of, or service upon
special committees of the board) in which he may be involved or with which he
may be threatened, while in office or thereafter, by reason of his acts or
omissions as such director or officer, unless in any proceeding he shall be
finally adjudged not to have acted in good faith in the reasonable belief that
his action was in the best interest of the Corporation; provided, however, that
such indemnification shall not cover liabilities in connection with any matter
which shall be disposed of through a compromise payment by such director or
officer, pursuant to a consent decree or otherwise, unless such compromise shall
be approved as in the best interest of the Corporation, after notice that it
involved such indemnification, (a) by a vote of the directors in which no
interested director participates, or (b) by a vote or the written approval of
the holders of a majority of the outstanding stock at the time having the right
to vote for directors, not counting as outstanding any stock owned by any
interested director or officer. Such indemnification may include payment by the
Corporation of expenses incurred in defending a civil or criminal action or
proceeding in advance of the final disposition of such action or proceeding,
upon receipt of an undertaking by the person indemnified to repay such payment
if he shall be adjudicated to be not entitled to indemnification under these
provisions. The rights of indemnification hereby provided shall not be exclusive
of or affect other rights to which any director or officer may be entitled. As
used in this paragraph, the terms "director" and "officer" include their
respective heirs, executors and administrators, and an "interested" director or
officer is one against whom as such the proceedings in question or another
proceeding on the same or similar grounds is then pending.
2
<PAGE> 4
Indemnification of employees and other agents of the Corporation (including
persons who serve at its request as employees or other agents of another
organization in which it owns shares or of which it is a creditor) may be
provided by the Corporation to whatever extent shall be authorized by the
directors before or after the occurrence of any event as to or in consequence of
which indemnification may be sought. Any indemnification to which a person is
entitled under these provisions may be provided although the person to be
indemnified is no longer a director, officer, employee or agent of the
Corporation or of such other organization. It is the intent of these provisions
to indemnify director and officers to the fullest extent not specifically
prohibited by law, including indemnification against claims brought
derivatively, in the name of the Corporation, and that such directors and
officers need not exhaust any other remedies.
I, the undersigned, being the sole incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and,
accordingly, have hereunto set my hands this 7th day of January, 1997.
/s/ Florence Ann Somma
-------------------------------------
Florence Ann Somma, Sole Incorporator
3
<PAGE> 5
PAGE 1
State of Delaware
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "DIDAX INC.", FILED IN THIS OFFICE ON THE TWENTY-FOURTH DAY OF FEBRUARY, A.D.
1997, AT 4:30 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[Seal] /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
2703861 8100
AUTHENTICATION: 8345786
971061277 DATE: 02-25-97
<PAGE> 6
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
BEFORE PAYMENT OF CAPITAL
OF
DIDAX INC.
The undersigned, being the sole incorporator of DIDAX INC. a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware,
DO HEREBY CERTIFY:
FIRST: That paragraph four (4) of the Certificate of Incorporation be and
it hereby is amended to read as follows:
"4. The total number of shares of all classes of stock that the
Corporation is authorized to issue is eight million seven hundred
sixty-eight thousand four hundred (8,768,400) shares of Common Stock with a
par value of $0.01 per share."
SECOND: That paragraph six (6) of the Certificate of Incorporation be and
it hereby is amended to read as follows:
"6. The board of directors is expressly authorized to make, alter
or repeal the bylaws of the Corporation, with the exception of Article
XIII of the bylaws which cannot be amended except by the affirmative vote
of each and every voting shareholder of the Corporation."
<PAGE> 7
THIRD: That the Corporation has not received any payment for any of its
stock.
FOURTH: That the amendment was duly adopted in accordance with the
provisions of Section 241 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the undersigned has executed this certificate this the
24th day of February, 1997.
/s/ FlorenceAnn Somma
--------------------
FlorenceAnn Somma
Sole Incorporator
<PAGE> 8
STATE OF DELAWARE PAGE 1
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "DIDAX INC.", FILED IN THIS OFFICE ON THE NINTH DAY OF APRIL,
A.D. 1997, AT 2 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL]
/s/ EDWARD J. FREEL
[SEAL] -------------------------------------------
Edward J. Freel, Secretary of State
2703861 8100 AUTHENTICATION: 8414105
971115887 DATE: 04-10-97
<PAGE> 9
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
BEFORE PAYMENT OF CAPITAL
OF
DIDAX INC.
The undersigned, being the President of DIDAX INC., a corporation
organized and existing under and by virtue of the General Corporation Law of
the State of Delaware,
DO HEREBY CERTIFY:
FIRST: That paragraph four (4) of the Certificate of Incorporation be
and it hereby is amended to read as follows:
"4. The total number of shares of all classes of stock
that the Corporation is authorized to issue is twenty million
(20,000,000) shares of Common Stock with a par value of $0.01 per
share."
SECOND: That the Corporation has not received any payment for any of
its stock.
THIRD: That the amendment was duly adopted in accordance with the
provisions of Section 241 of the General Corporation Law of the State of
Delaware.
<PAGE> 10
IN WITNESS WHEREOF, the undersigned has executed this certificate this
the 9th day of April, 1997.
/s/ DANE B. WEST
---------------------------
Dane B. West
President
<PAGE> 1
Exhibit 3.2
DIDAX INC.
BYLAWS
ARTICLE I
GENERAL
SECTION 1. Name. The name of the corporation shall be DIDAX INC., hereinafter
referred to as "the Corporation".
ARTICLE II
OFFICES
SECTION 1. Registered Office and Agent. The Corporation shall continuously
maintain a registered office and registered agent within the State of
Delaware.
SECTION 2. Principal Office. The principal office of the Corporation shall be
located at such place as shall be determined by the Board of Directors.
SECTION 3. Additional Offices. The Corporation may also have such additional
offices as the Board of Directors may from time to time determine that the
business of the Corporation may require.
ARTICLE III
STOCKHOLDERS MEETINGS
SECTION 1. Situs of Meetings. All meetings of the stockholders for the election
of Directors shall be held in the principal office of the Corporation or
at such other place as the Board of Directors may from time to time
designate. All meetings of stockholders may be held (within or without the
State of Virginia) at such place and time as shall be determined by the
Board
DIDAX INC. By-Laws Page 1 Apr 9, 1997
<PAGE> 2
of Directors and be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
SECTION 2. Annual Meeting. An annual meeting of stockholders shall be held
during the first quarter of the fiscal year, at a time to be selected by
the Board of Directors. At the meeting the shareholders shall elect
Directors by a plurality of the votes cast and transact such other
business as may properly be brought before the meeting.
SECTION 3. Notice of Annual Meeting. Written or printed notice of the annual
meeting stating the place, day, and hour of the meeting shall be delivered
not less that 10 nor more than 60 days before the date of the meeting,
either personally or by mail to each shareholder of record entitled to
vote at such meeting at his address as it appears on the stock transfer
books of the Corporation.
SECTION 4. Calling Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise proscribed by law or by the
articles of incorporation, may be called by the president and shall be
called by the president or secretary at the request of the Board of
Directors, or at the request in writing of stockholders owning 25 percent
in amount of the entire capital stock of the Corporation issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting. Business transacted at all special
meetings shall be confined to the objects stated in the call.
SECTION 5. Notice of Special Meeting. Written notice of a special meeting of
stockholders stating the time and place and purpose thereof shall be
served upon or mailed to each stockholder entitled to vote thereat, at
such address as appears on the books of the Corporation, not less than 10
days but no more than 60 days before such meeting.
DIDAX INC. By-Laws Page 2 Apr 9, 1997
<PAGE> 3
SECTION 6. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote, present in person or represented by
proxy, shall be required and shall constitute a quorum except as otherwise
provided by statute or the articles of incorporation. If, however, such
quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote therat, present in person
or represented by proxy, shall have power to adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such an adjourned meeting at
which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than 30 days, or if after the
adjournment, a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
SECTION 7. Majority Vote. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in
person or represented by proxy shall decide any question brought before
such meeting, unless the question is one upon which by express provision
of the statutes or of the articles of incorporation or of these bylaws, a
different vote is required, in which case such express provision shall
govern and control the decision of such question.
SECTION 8. Method of Voting. Each outstanding share, regardless of class, shall
be entitled to one vote on each matter submitted to a vote at a meeting of
the stockholders. At any meeting of the stockholders, every stockholder
having the right to vote may vote either in person, or by proxy executed
in writing by the stockholder or his duly authorized attorney-in-fact. No
proxy shall be valid after 11 months from the date of its execution,
unless otherwise provided
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in the proxy. Each proxy shall be revocable unless expressly provided
therein to be irrevocable or unless otherwise made irrevocable by law.
Each proxy shall be filed with the secretary of the Corporation prior to
the time of the meeting. Any vote taken shall be by voice vote or by show
of hands unless someone entitled to vote objects, in which case written
ballots shall be used.
SECTION 9. Action Without a Meeting. Whenever the vote of stockholders at a
meeting thereof is required or permitted to be taken in connection with
any corporation action by any provisions of the statutes or of the
articles of incorporation or of these bylaws, the meeting and vote of
stockholders may be dispensed with, if a majority of the stockholders who
would have been entitled to vote upon the action if such meeting were
held, shall consent in writing to such corporate action being taken.
SECTION 10. List of Stockholders.
(a) A complete list of the stockholders of the Corporation entitled to vote at
the ensuing meeting, arranged in alphabetical order, and showing the
address of, and number of shares owned by each stockholder shall be
prepared by the secretary. or other officer of the Corporation having
charge of the stock transfer books. This list shall be kept on file for a
period of at least 10 days prior to the meeting at the principal office of
the Corporation and shall be subject to inspection during the usual
business hours of such period by any stockholder. This list shall also be
produced at the meeting and shall be subject to inspection by any
stockholder at any time during the meeting.
(b) The original stock transfer books shall be prima facie evidence as to who
are the stockholders entitled to examine such list or to vote at any
meeting of the stockholders.
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(c) Failure to comply with the requirements of this section shall not affect
the validity of any action at such meeting of the stockholders except that
the willful neglect, or refusal of the Directors to produce the list of
stockholders at any meeting for the election of Directors, shall cause
such Directors to be ineligible for election to any office at such
meeting.
ARTICLE IV
DIRECTORS
SECTION 1. Number and Term. The Board of Directors shall consist of not less
than three nor more than eleven persons as may be determined from time to
time by resolution of the Board of Directors, and approved annually by the
shareholders. The Board of Directors shall have the power to fill any
vacancies created by an increase in the number of Director or by the
death, termination, or resignation of any Director. All Directors must be
elected at the annual shareholders meeting. Any Director appointed by the
Board of Directors shall serve until the next meeting of the shareholders.
Except as above provided, Directors shall be elected for a term of one
year and shall hold office until their successors be elected and qualify.
Directors need not be stockholders or residents of the State of Delaware.
SECTION 2. Vacancy. If the office of any Director or Directors becomes vacant,
the remaining Directors, though less than a quorum, shall select a
successor or successors, who shall be elected to serve the unexpired terms
of the vacated Directorships, without the need for shareholder approval.
SECTION 3. Powers. The property, affairs, and business of the Corporation shall
be managed by its Board of Directors, which may exercise all such powers
of the Corporation and do all such lawful acts and things as are not by
statute or by the articles of incorporation or by these bylaws directed or
required to be exercised or done by the stockholders.
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SECTION 4. Committee. The Board of Directors may appoint by resolution adopted
by a majority of the Directors in office, two or more persons from among
its own number to serve as special and standing committees, such as the
Board may determine are necessary, which shall have such powers and duties
as shall from time to time be prescribed by the Board. All actions by any
Board committee shall be reported to the Board of Directors at the meeting
next succeeding such action.
SECTION 5. Removal. Any Director may be removed with or without cause by a
majority vote of the stockholders at any meeting duly called and at which
a quorum is present, and said stockholders may thereupon elect a successor
or successors to fill any resulting vacancy for the unexpired term of any
removed Director.
SECTION 6. Transactions with Interested Directors. No contract or other
transaction between the Corporation and one or more of its Directors, or
between the Corporation and any entity in which one or more of its
Directors may have any relationship or interest, shall be either void or
voidable because of such relationship or interest or because such Director
or Directors are present at the meeting which authorizes, approves, or
ratifies such contract or transaction or because his or their votes are
counted for such purpose, if any of the following conditions are met:
(a) The material fact of such relationship or interest and as to the contract
or transaction are disclosed or known to the Board of Directors or the
committee, and the Board of Directors or the committee, in good faith
authorizes, approves, or ratifies the contract or transaction by a vote or
consent sufficient for the purpose without counting the votes or consents
of such interested Directors.
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(b) The material fact of such relationship or interest and as to the contract
or transaction are disclosed or are known to the stockholders entitled to
vote thereon and the contract or transaction is specifically approved,
authorized, or ratified in good faith by a vote or written consent.
(c) The contract or transaction is fair as to the corporation at the time it
is authorized, approved or ratified by the Board of Directors, a committee
or the stockholders. Common or interested Directors may be counted in
determining the presence or a quorum at a meeting of the Board of
Directors or a committee there of which authorizes, approves, or ratifies
such contract or transaction.
SECTION 7. Compensation of Directors. Directors and members of any committee of
the Board of Directors shall be entitled to such reasonable compensation
as shall be fixed from time to time by resolution of the Board of
Directors for their services as Directors and/or members of any such
committee. They shall also be entitled to reimbursement for any reasonable
expenses incurred in attending such meetings. Any Director whether or not
receiving compensation under these provisions shall not be barred from
serving the Corporation in any other capacity and receiving such
compensation for such other services as may be contracted for by the
Corporation or otherwise set by the Board of Directors.
ARTICLE V
MEETINGS OF THE BOARD
SECTION 1. First Meeting. The first meeting of each newly elected Board of
Directors may be held without further notice immediately following
adjournment of the annual stockholders meeting, or at such other time and
place, either within or outside the State of Virginia as shall be fixed by
the vote of the stockholders at the annual meeting or by consent of all
the
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Directors. Unless held in accordance with the preceding paragraph, such
first meeting shall be held pursuant to notice in the same manner as any
other meeting of the Directors.
SECTION 2. Regular and Special Meetings. Regular and special meetings of the
Board may be held with reasonable notice given to all Directors by any
Director or officer of the Corporation at the reasonable time set forth in
the notice and at an office of the corporation or at such other time and
place either within or outside the State of Delaware as shall from time to
time be determined by resolution of the Board.
SECTION 3. Quorum. A majority of the Directors shall be necessary and
sufficient to constitute a quorum for the transaction of business. Once
the presence of a quorum at a meeting has been established the meeting
shall be duly constituted and shall continue to be duly constituted until
it is properly adjourned. The act of a majority of the Directors present
and voting at a duly constituted meeting of the Board shall be the act of
the Board of Directors, except as may be otherwise specifically provided
by statute or by the articles of incorporation or by these bylaws.
SECTION 4. Action Without a Meeting. Any action required or permitted to be
taken at a meeting of the Board of Directors or by a committee thereof may
be taken without a meeting, by means of telephone, mail, telegram, cable,
or in any other way the Directors shall decide. However, a written consent
setting forth the action so taken and signed by all the members of the
Board or of a committee, as the case may be, must be filed with the
appropriate minutes.
SECTION 5. Participation by Conference Telephone. Members of the Board of
Directors or of any committee thereof may participate in a meeting of such
Board or committee by means of a conference telephone or similar
communications equipment whereby all persons participating in the meeting
can hear and/or communicate with each other at the same time.
Participation
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by such means shall constitute presence in person at such meeting. When
such a meeting is conducted by means of a conference telephone or similar
communications equipment, a written record shall be made of the action
taken at such meeting.
ARTICLE VI
STOCKHOLDER AND DIRECTOR NOTICES
SECTION 1. Notice. Whenever under the provisions of the statutes or of the
articles of incorporation or of these bylaws, notice is required to be
given to any Director or stockholder, it shall not necessarily be
construed to mean personal notice, but such notice may be given in writing
by mail, addressed to such Director or stockholder at such address as
appears on the books of the Corporation as the address for the person
entitled to notice.
SECTION 2. Waiver. Whenever any notice is required or permitted to be given, a
waiver thereof in writing signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. Attendance at a meeting by a person entitled to notice
shall constitute a waiver of notice of such meeting, except where
attendance is for the express purpose of objecting to the transaction of
business because the meeting is not lawfully called or convened.
ARTICLE VII
OFFICERS
SECTION 1. Number and positions. The officers of the Corporation shall be
elected by the Board of Directors and shall be the president, chief
executive officer, chief financial officer, and secretary. The Board may
elect such other officers and agents as it shall deem necessary, who shall
hold their offices for such terms and shall exercise such powers and
perform such
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duties as shall be determined from time to time by the Board. Two or more
offices may be held by the same person except that the offices of the
president and secretary may not be held by the same person unless there is
only one shareholder.
SECTION 2. Term of Office. The Board of Directors at its first meeting after
each annual meeting of stockholders or as soon thereafter as is
conveniently possible, shall elect officers of the Corporation. The
officers of the Corporation shall hold office until their successors are
chosen and qualify in their stead, or until death, resignation, or
removal. Any officer elected or appointed by the Board of Directors may be
removed with or without cause by a majority vote of the Board of
Directors; provided, however, that two-thirds of the Directors shall be
necessary to constitute a quorum at any meeting at which removal of any
officer is voted upon. If any office becomes vacant for any reason, the
vacancy shall be filled by the Board of Directors. In case of the absence
or disability of an officer of the Corporation, or in any other case that
the Board of Directors may deem sufficient reason therefor, the Board of
Directors by a majority vote may delegate for the time being any or all of
the powers or duties of any officer to any other officer, Director, or any
other person.
SECTION 3. The President. The president shall be the principal authorized agent
of the Corporation. He shall act on behalf of the Corporation to carry out
the directives of the Board of Directors. He shall make reports to the
Board of Directors and stockholders. He shall also perform such further
duties and have such further powers as may be assigned to him by the Board
of Directors.
SECTION 4. The Chief Executive Officer. The Chief Executive Officer shall
perform all such duties and have all of the powers of the President. He
shall make reports to the Board of Directors.
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He shall also perform such further duties and have such further powers as
may be assigned to him by the Board of Directors.
SECTION 5. The Chief Financial Officer. The Chief Financial Officer shall cause
all financial transactions of the Corporation to be recorded. Such
recordation shall as nearly as may be practicable be in accordance with
generally acceptable accounting principles consistently applied. He or she
shall, in accordance with the directives of the Board of Directors and
subject to the supervision of the President and/or Chief Executive
Officer, coordinate and supervise the corporation's banking relationships,
financial administration, and financial projections which set forth the
expected effect of the corporation's business plans. He shall regularly
report to the Board of Directors as to the financial condition of the
corporation and any risks thereto which he has identified. He shall also
perform such further duties and have such further powers as may be
assigned to him by the Board of Directors.
SECTION 6. The Secretary. The secretary or a designated assistant secretary
shall attend all meetings of the Board of Directors and of the
shareholders, and record all votes and the minutes of all proceedings in
the book to be kept for that purpose, and shall perform like duties for
the standing committees when required. The secretary shall give, or cause
to be given, such notice as is required of all meetings of the Board of
Directors or of the shareholders. The secretary shall keep in safe custody
the seal of the Corporation and, when authorized by the Board, affix the
same to any instrument requiring it, and when so affixed, it shall be
attested by his signature or by the signature of an assistant secretary.
He shall also perform such further duties and have such further powers as
may be assigned to him by the Board of Directors.
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SECTION 7. The Board of Directors may amend and reassign the duties of the
Corporate Officers in such manner as it shall by resolution determine.
ARTICLE VIII
CERTIFICATES OF STOCK
SECTION 1. Form. A record of each certificate of stock shall be entered in the
books of the Corporation as issued. Each certificate shall exhibit the
holder's name and number of shares and shall be sealed with the seal of
the Corporation and signed by the president or the chief executive officer
and secretary or assistant secretary of the Corporation.
SECTION 2. Transfers. Upon surrender to the Corporation of a certificate for
shares, duly endorsed or accompanied by proper evidence of succession,
assignment, or authority to transfer, and with all taxes thereon paid, it
shall be the duty 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 3. Registered Stockholders. The Corporation shall be entitled to treat
the registered holder of any share or shares of stock as the holder in
fact thereof, 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, except as otherwise provided by the laws of the State of
Delaware.
SECTION 4. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been
lost, stolen, or destroyed, upon the making of an affidavit of the fact by
the person claiming the certificate of stock to be lost, stolen, or
destroyed. Before authorizing such issue of a new certificate or
certificates, the Board of Directors may require the furnishing of an
indemnity bond in such sum and with such terms and surety as it may
direct.
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SECTION 5. Preemptive Rights. No stockholder or other person shall have any
preemptive rights whatsoever.
ARTICLE IX
DIVIDENDS
SECTION 1. Declaration of Dividends. Dividends upon the capital stock of the
Corporation may be declared by the Board of Directors at any regular or
special meeting and such dividends may be paid in cash, in property, or in
shares of capital stock pursuant to law and applicable provisions of the
articles of incorporation, if any.
SECTION 2. Reserve Fund. Before the payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum
or sums as the Directors from time to time, in their absolute discretion,
think proper as a reserve fund to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Directors shall determine to
be in the best interests of the Corporation, and the Directors may modify
or abolish any reserve in the manner it was created.
ARTICLE X
FISCAL MATTERS
SECTION 1. Deposits. The Board of Directors shall select banks, trust
companies, or other depositories in which all funds of the Corporation not
otherwise employed shall, from time to time, be deposited to the credit of
the Corporation.
SECTION 2. Checks. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
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SECTION 3. Inspection of Books. The Board of Directors shall determine from
time to time whether, under what conditions and regulations, the accounts
and books of the Corporation (except such as may by statute be
specifically open for inspection) shall be open to the inspection of any
stockholder and the rights of any stockholder in this respect shall be
restricted and limited accordingly.
SECTION 4. Fiscal Years. The Board of Directors shall have power to fix, and
from time to time change, the fiscal year of the Corporation. Unless
otherwise fixed by the Board, the fiscal year shall terminate on the
following December 31.
ARTICLE XI
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE
SECTION 1. Indemnification of Officers and Directors. The Corporation shall, to
the fullest extent legally permissible, indemnify (fully or, if not
possible, partially) each of its directors and officers, and persons who
serve at its request as directors or officers of another organization in
which it owns shares or of which it is a creditor, against all liabilities
(including expenses) imposed upon or reasonably incurred by him in
connection with any action, suit or other proceeding, civil or criminal
(including investigations, audits, the activities of, or service upon
special committees of the board) in which he may be involved or with which
he may be threatened, while in office or thereafter, by reason of his acts
or omissions as such director or officer, unless in any proceeding he
shall be finally adjudged not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Corporation;
provided, however, that such indemnification shall not cover liabilities
in connection with any matter which shall be disposed of through a
compromise payment by such director or officer,
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<PAGE> 15
pursuant to a consent decree or otherwise, unless such compromise shall be
approved as in the best interest of the Corporation, after notice that it
involved such indemnification, (a) by a vote of the directors in which no
interested director participates, or (b) by a vote or the written approval
of the holders of a majority of the outstanding stock at the time having
the right to vote for directors, not counting as outstanding any stock
owned by any interested director or officer. Such indemnification may
include payment by the Corporation of expenses incurred in defending a
civil or criminal action or proceeding in advance of the final disposition
of such action or proceeding, upon receipt of an undertaking by the person
indemnified to repay such payment if he shall be adjudicated to be not
entitled to indemnification under these provisions. The rights of
indemnification hereby provided shall not be exclusive of or affect other
rights to which any director or officer may be entitled. As used in this
paragraph, the terms "director" and "officer" include their respective
heirs, executors and administrators, and an "interested" director or
officer is one against whom as such the proceedings in question or another
proceeding on the same or similar grounds is then pending.
SECTION 2. Indemnification of Employees and Agents. Indemnification of employees
and other agents of the Corporation (including persons who serve at its
request as employees or other agents of another organization in which it
owns shares or of which it is a creditor) may be provided by the
Corporation to whatever extent shall be authorized by the directors before
or after the occurrence of any event as to or in consequence of which
indemnification may be sought. Any indemnification to which a person is
entitled under these provisions may be provided although the person to be
indemnified is no longer a director, officer, employee or agent of the
Corporation or of such other organization. It is the intent of these
provisions to
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indemnify director and officers to the fullest extent not specifically
prohibited by law, including indemnification against claims brought
derivatively, in the name of the Corporation, and that such directors and
officers need not exhaust any other remedies.
SECTION 3. Insurance. The Corporation may at any time through action of its
Board of Directors obtain appropriate indemnification insurance, to insure
itself or other Corporate Agents against any liability which may arise
under this Article; provided that this indemnification shall not apply to
any costs, expenses or settlements where the party to be indemnified is
adjudged to have acted in bad faith or contrary to the best interest of
the Corporation or illegally.
ARTICLE XII
AMENDMENTS
Except as provided in Article XIII below, these bylaws may be amended, altered,
or repealed by a majority vote of the stockholders at any regular meeting of
the stockholders or at any special meeting of the stockholders, provided notice
of the proposed amendment, alteration or repeal is contained in the notice of
such special meeting; or by the affirmative vote of a majority of the Board of
Directors at any regular meeting of the Board or at any special meeting of the
Board if notice of the proposed alteration or repeal is contained in the notice
of such special meeting.
ARTICLE XIII
CORPORATE RELIGIOUS PURPOSES AND RESTRICTIONS
This Corporation is a religious corporation. It has been brought
into existence to accomplish, within a for profit operating environment,
fundamentally religious spiritual purposes in support of the establishment of
the Kingdom of God and the propagation of the Gospel of Jesus Christ throughout
the earth. The Board of Directors of the Corporation has adopted this provision
of
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the BYLAWS prior to the issuance of any share of stock in the corporation.
Acceptance of any share of stock shall constitute acceptance of the terms of
this Article XIII which will be referenced in all prospectus. The provisions of
this Article shall be deemed to supersede and be controlling over any other
provision of these BYLAWS.
SECTION 1. Amendment. In light of the essential nature of the provisions of this
Article, a special provision restricting the procedures for amendment of
this Article XIII provision is hereby instituted and adopted. No amendment
to this Article XIII and no other superseding or conflicting provision of
these BYLAWS, the ARTICLES OF INCORPORATION, or any shareholder agreement
shall be adopted unless the result of the count of votes approving the
amendment is 90% affirmative, and a minimum of two thirds of the shares
outstanding are represented and voted. Such vote must be made at an actual
special meeting of the shareholders called by written notice delivered to
each shareholder not less than 10 nor more than 60 days prior to the date
of the meeting. Time is of the essence as to this notice provision and no
extension of the time of the meeting or adjournment of the meeting to a
date outside the notice period shall be permitted except upon the
affirmative vote of not less than 70 percent of the shares then issued and
outstanding. The notice for such meeting must contain each of the
following items of information:
1. the date, time, and place of the meeting;
2. the names, addresses and telephone numbers of the shareholders
requesting the meeting be called;
3. the exact language which the proponents of the meeting seek to have
adopted in amendment of the provisions of this Article;
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4. the exact language of this Article which would be amended, superseded
or otherwise modified by the proposal;
5. a written opinion from the legal counsel of the corporation as to
the legal effect of and/or ramifications arising out of the adoption of
the proposal;
6. a statement adopted by a majority of the Board of Directors of the
corporation setting forth their assessment of the effect of adopting
the proposal on the business of the corporation and on the
accomplishment of the spiritual purposes of the corporation;
7. such other additional information as the proponent of the proposal
and/or the Board of Directors shall deem appropriate to give the
shareholders a full and complete basis upon which to evaluate the
proposal.
SECTION 2. Statement of Faith. The following Statement of Faith is hereby
adopted:
1. We believe that there is one God, eternally existing in three persons:
the Father, the Son, and the Holy Spirit.
2. We believe that the Bible is God's written revelation to man and that
it is verbally inspired, authoritative, and without error in the
original manuscripts.
3. We believe in the deity of Jesus Christ, His virgin birth, sinless
life, miracles, death on the cross to provide for our redemption,
bodily resurrection and ascension into heaven, present ministry of
intercession for us, and His return to earth in power and glory.
4. We believe in the personality and deity of the Holy Spirit, that He
performs the miracle of the new birth in an unbeliever and indwells
believers, enabling them to live a godly life.
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5. We believe that man was created in the image of God, but because of
sin, was alienated from God. That alienation can be removed only by
accepting through faith God's gift of salvation which was made possible
by Christ's death.
SECTION 3. Affirmative Actions Required of the Corporation. The Corporation
shall:
1. Actively seek to market the services of the corporation to those
persons, entities, and agencies which are actively involved in
propagating a pattern of beliefs and actions consistent with the
tenets of the Statement of Faith. Nothing herein shall be construed to
prohibit marketing such services to other persons, entities, or
agencies except as specifically set forth in the prohibitions or
corporate action set forth below.
2. To the extent permitted by law, expend from the revenues of the
corporation such sums as are deemed prudent by the Board of Directors
to support, encourage, or sustain persons or entities which in the
judgment of the Board of Directors are expected to make significant
efforts to propagate the Gospel of Jesus Christ in any manner not in
conflict with the Statement of Faith. Such expenditures may be made
without regard to the tax status or nonprofit status of the recipient.
It is expected that the expenditures paid out under the provisions of
this paragraph shall approximate ten percent (10%) of the amount that
would otherwise be the net profits of the corporation for the
accounting period.
SECTION 4. Prohibition of Corporate Action. The Corporation shall not:
1. Take any position publicly or privately that denies or conflicts with
the tenets of the Statement of Faith.
2. Elect, qualify or permit to serve in office as a Director or officer
of the corporation any person who has not without reservation
subscribed to the Statement of Faith as
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being true, accurate and correct or who having so subscribed has
either publicly or privately recanted from any particular of the
Statement of Faith or who has publicly made statements or taken
actions without repentance which the Board of Directors finds to be in
clear conflict with the Statement of Faith.
3. Hire or continue to employ any employee in any position in which, in
the sole discretion of the Corporation, subscription to the Statement
of Faith is a bona fide occupational qualification reasonably necessary
to the normal operation of the Corporation's activities, where such
employee refuses, upon request, to subscribe to the Statement of Faith
or who having so subscribed, has either publicly or privately recanted
from any particular of the Statement of Faith or who has publicly made
statements or taken actions without repentance which the Board of
Directors finds to be in clear conflict with the Statement of Faith.
Because the Scriptures teach that bad company corrupts good morals and
that a little leaven affects the whole lump it is important to the
Corporation's purposes that it be protected from the influence of
persons not in agreement with the Statement of Faith at every level of
employment.
4. Permit any party to utilize the name, goodwill, trade marks, or trade
names of the corporation in any course of action or dealings which the
corporation itself is herein prohibited from taking.
SECTION 5. Stock Legend. In addition to any other appropriate legend, prior to
its issuance each and every share certificate to be issued by this
Corporation shall be inscribed with a legend that states:
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This Corporation is a religious corporation. All
shares of this corporation are subject to the terms
as set forth in the BYLAWS of the corporation which
restricts the amendment or deletion of that section
of the BYLAWS which prescribes a corporate Statement
of Faith in the LORD JESUS CHRIST and directs or
prohibits certain corporate actions on the basis of
the Statement of Faith.
These BYLAWS have been ADOPTED by the Board of Directors of the Corporation
prior to the issuance of any shares of stock at a meeting held the 9th day of
April, 1997.
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<PAGE> 1
Exhibit 4.3
Barron Chase Securities, Inc.
7700 West Camino Real, Suite 200
Boca Raton, FL 33433
Ladies and Gentlemen:
In connection with Barron Chase Securities, Inc. acting as the Underwriter
relating to an initial public offering of the securities of DIDAX INC., a
Delaware corporation (the "Company"), and in order to induce the consummation of
an Underwriting Agreement between Barron Chase Securities, Inc. and the Company,
the undersigned hereby agrees that the undersigned will not, directly of
indirectly, offer, sell, contract to sell, pledge, grant any option for the sale
of, or otherwise dispose or cause the disposition of, any (i) Company securities
owned by the undersigned as of the date of the effectiveness of the Company's
Registration Statement (the "Outstanding Securities"); or (ii) any Company
securities which are acquired pursuant to the exercise or conversion of the
Outstanding Securities, until the date which is eighteen months from the date of
the effectiveness of the Registration Statement on Form SB-2 relating to the
public offering of the Company's securities. In furtherance of the foregoing,
the Company and the Company's Transfer Agent and Registrar, are hereby
authorized to decline to make any transfer of securities if such transfer would
constitute a violation or breach of this agreement.
Very truly yours,
- -----------------------
Shareholder, DIDAX INC.
- -----------------------
Date
<PAGE> 1
EXHIBIT 4.4
REPRESENTATIVE'S WARRANT AGREEMENT (the "Representative's
Warrant Agreement" or "Agreement"), dated as of ________, 1997, between DIDAX
INC. (the "Company"), and BARRON CHASE SECURITIES, INC. (the "Representative").
W I T N E S S E T H:
WHEREAS, the Representative has agreed, pursuant to the
underwriting agreement (the "Underwriting Agreement") dated as of the date
hereof between the Company and the Representative, to act as the Representative
of the Underwriters in connection with the Company's proposed public offering
of 2,000,000 shares of the Company's Common Stock at $5.00 per share and
2,000,000 Warrants ("Public Warrants") at $.125 per warrant (the "Public
Offering"); and
WHEREAS, the Company proposes to issue to the Representative
and/or persons related to the Representative as those persons are defined in
Rule 2710 of the NASD Conduct Rules (the "Holder"), 200,000 warrants ("Common
Stock Representative Warrants") to purchase 200,000 shares of the Company's
Common stock (the "Shares") and 200,000 warrants ("Warrant Representative
Warrants") to purchase 200,000 Common Stock Purchase Warrants ("Underlying
Warrants") exercisable to purchase 200,000 shares of the Company's Common
Stock. The "Common Stock Representative Warrants" and the "Warrant
Representative Warrants" are collectively referred to as the "Warrants". The
"Shares" and the "Underlying Warrants" are collectively referred to as the
"Warrant Securities"; and
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Holders in consideration for, and as part of
the compensation in connection with, the Representative acting as
Representative pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, the payment
by the Representative to the Company of TEN DOLLARS AND NO CENTS ($10.00), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Grant and Period.
The Public Offering has been registered under a Registration
Statement on Form SB-2 (File No. __________) and declared effective by the
Securities and Exchange Commission (the "SEC" or "Commission") on ___________,
1997 (the "Effective Date"). This Agreement, relating to the purchase of the
Warrants, is entered
<PAGE> 2
into pursuant to the Underwriting Agreement between the Company and the
Representative, as representative of the Underwriters, in connection with the
Public Offering.
Pursuant to the Warrants, the Holders are hereby granted the
right to purchase from the Company, at any time during the period commencing on
the Effective Date and expiring five (5) years thereafter (the "Expiration
Time"), up to 200,000 Shares at an initial exercise price (subject to
adjustment as provided in Article 8 hereof) of $8.25 per share (165% of the
public offering price) and/or 200,000 non-redeemable Underlying Warrants at an
initial exercise price of $.20625 per warrant (165% of the public offering
price) (the "Exercise Price" or "Purchase Price"), subject to the terms and
conditions of this Agreement. Each Underlying Warrant is exercisable to
purchase one (1) share of Common Stock at $8.25 per share during the five (5)
year period commencing on the Effective Date.
Except as specifically otherwise provided herein, the Shares
and the Underlying Warrants constituting the Warrant Securities shall bear the
same terms and conditions as such securities described under the caption
"Description of Securities" in the Registration Statement, and as designated in
the Company's Articles of Incorporation and any amendments thereto, and the
Underlying Warrants shall be governed by the terms of the Warrant Agreement
executed in connection with the Company's public offering (the "Warrant
Agreement"), except as provided herein, and the Holders shall have registration
rights under the Securities Act of 1933, as amended (the "Act"), for the
Warrants, the Shares, the Underlying Warrants, and the shares of Common Stock
underlying the Underlying Warrants, as more fully described in paragraph seven
(7) of this Representative's Warrant Agreement. In the event of any extension
or change of the expiration date or reduction or change of the exercise price
of the Public Warrants, the same such changes to the Underlying Warrants shall
be simultaneously effected, except that the Underlying Warrants shall expire no
later than five (5) years from the Effective Date.
2. Warrant Certificates.
The warrant certificates (the "Warrant Certificate") delivered
and to be delivered pursuant to this Agreement shall be in the form set forth
in the form of Warrant Certificate, attached hereto and made a part hereof,
with such appropriate insertions, omissions, substitutions, and other
variations as required or permitted by this Agreement.
3. Exercise of Warrant.
3.1 Full Exercise.
<PAGE> 3
(i) The Holder hereof may effect a cash exercise
of the Common Stock Representative Warrants and/or the Warrant
Representative Warrants and/or the Underlying Warrants by
surrendering the Warrant Certificate, together with a
Subscription in the form of Exhibit "A" attached thereto, duly
executed by such Holder to the Company, at any time prior to
the Expiration Time, at the Company's principal office,
accompanied by payment in cash or by certified or official
bank check payable to the order of the Company in the amount
of the aggregate purchase price (the "Aggregate Price"),
subject to any adjustments provided for in this Agreement. The
aggregate price hereunder for each Holder shall be equal to
the exercise price as set forth in Section six (6) hereof
multiplied by the number of Warrants, Underlying Warrants or
Shares that are the subject of each Holder's Warrant (as
adjusted as hereinafter provided).
(ii) The Holder hereof may effect a cashless
exercise of the Common Stock Representative Warrants and/or
the Underlying Warrants by delivering the Warrant Certificate
to the Company together with a Subscription in the form of
Exhibit "B" attached thereto, duly executed by such Holder, in
which case no payment of cash will be required. Upon such
cashless exercise, the number of Shares to be purchased by
each Holder hereof shall be determined by dividing: (i) the
number obtained by multiplying the number of Shares that are
the subject of each Holder's Warrant Certificate by the
amount, if any, by which the then Market Value (as hereinafter
defined) exceeds the Purchase Price; by (ii) the per share
purchase price. In no event shall the Company be obligated to
issue any fractional securities and, at the time it causes a
certificate or certificates to be issued, it shall pay the
Holder in lieu of any fractional securities or shares to which
such Holder would otherwise be entitled, by the Company check,
in an amount equal to such fraction multiplied by the Market
Value. The Market Value shall be determined on a per Share
basis as of the close of the business day preceding the
exercise, which determination shall be made as follows: (a) if
the Common Stock is listed for trading on a national or
regional stock exchange or is included on the NASDAQ National
Market or Small-Cap Market, the average closing sale price
quoted on such exchange or the NASDAQ National Market or
Small-Cap Market which is published in The Wall Street Journal
for the ten (10) trading days immediately preceding the date
of exercise, or if no trade of the Common Stock shall have
been reported during such period, the last sale price so
quoted for the next day prior thereto on which a trade in the
Common Stock was so reported; or (b) if the Common Stock is
not so
<PAGE> 4
listed, admitted to trading or included, the average of the
closing highest reported bid and lowest reported ask price as
quoted on the National Association of Securities Dealer's OTC
Bulletin Board or in the "pink sheets" published by the
National Daily Quotation Bureau for the first day immediately
preceding the date of exercise on which the Common Stock is
traded.
3.2 Partial Exercise. The securities referred to in
paragraph 3.1 above also may be exercised from time to time in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1
hereof, except that with respect to a cash exercise, the Purchase Price payable
shall be equal to the number of securities being purchased hereunder multiplied
by the per security Purchase Price, subject to any adjustments provided for in
this Agreement. Upon any such partial exercise, the Company, at its expense,
will forthwith issue to the Holder hereof a new Warrant Certificate or Warrants
of like tenor calling in the aggregate for the number of securities (as
constituted as of the date hereof) for which the Warrant Certificate shall not
have been exercised, issued in the name of the Holder hereof or as such Holder
(upon payment by such Holder of any applicable transfer taxes) may direct.
4. Issuance of Certificates.
Upon the exercise of the Warrants and/or the Underlying
Warrants, the issuance of certificates for the shares of Common Stock and/or
other securities shall be made forthwith (and in any event within three (3)
business days thereafter) without charge to the Holder thereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Sections 5
and 7 hereof) be issued in the name of, or in such names as may be directed by,
the Holder thereof; provided, however, that the Company shall not be required
to pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any such certificates in a name other than that of the
Holder and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the
shares of Common Stock and/or other securities shall be executed on behalf of
the Company by the manual or facsimile signature of the then present Chairman
or Vice Chairman of the Board of Directors or President or Vice President of
the Company under its corporate seal reproduced thereon, attested to by the
<PAGE> 5
manual or facsimile signature of the then present Secretary or Assistant
Secretary of the Company. Warrant Certificates shall be dated the date of
execution by the Company upon initial issuance, division, exchange,
substitution or transfer.
5. Restriction On Transfer of Warrants.
The Holder of a Warrant Certificate, by acceptance thereof,
covenants and agrees that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of one
(1) year from the Effective Date of the Public Offering, except (a) to officers
of the Representative or to officers and partners of the other Underwriters or
Selected Dealers participating in the Public Offering; (b) by will; or (c) by
operation of law.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Prices.
The initial exercise price of each Common Stock Representative
Warrant shall be $8.25 per share (165% of the public offering price). The
initial exercise price of each Warrant Representative Warrant shall be $.20625
per Underlying Warrant (165% of the public offering price). The initial
exercise price of each Underlying Warrant shall be $8.25 per share. The
adjusted exercise price shall be the price which shall result from time to time
from any and all adjustments of the initial exercise price in accordance with
the provisions of Section 8 hereof. The Warrant Representative Warrants and
the Underlying Warrants are exercisable during the five (5) year period
commencing on the Effective Date.
6.2 Exercise Price.
The term "Exercise Price" herein shall mean the initial
exercise price or the adjusted exercise price, depending upon the context.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933.
The Warrants, the Shares, the Underlying Warrants and the
shares of Common Stock issuable upon exercise of the Underlying Warrants
(collectively the "Registrable Securities") have been registered under the
Securities Act of 1933, as amended (the "Act"). Upon exercise, in part or in
whole, of the Warrants, certificates representing the Shares, the Underlying
Warrants and/or the shares of Common Stock issuable upon exercise of the
<PAGE> 6
Underlying Warrants shall bear the following legend in the event there is no
current registration statement effective with the Commission at such time as to
such securities:
The securities represented by this certificate may not be
offered or sold except pursuant to (i) an effective
registration statement under the Act, (ii) to the extent
applicable, Rule 144 under the 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 to the issuer, that an exemption from
registration under such Act and applicable state securities
laws is available.
7.2 Piggyback Registration.
If, at any time commencing after the Effective Date of the
offering and expiring seven (7) years thereafter, the Company prepares and
files a post-effective amendment to the Registration Statement, or a new
Registration Statement under the Act, or files a Notification on Form 1-A or
otherwise registers securities under the Act, or files a similar disclosure
document with the Commission (collectively the "Registration Documents") as to
any of its securities under the Act (other than under a Registration Statement
pursuant to Form S-8), it will give written notice by registered mail, at least
thirty (30) days prior to the filing of each such Registration Document, to the
Representative and to all other Holders of the Registrable Securities of its
intention to do so. If the Representative and/or other Holders of the
Registrable Securities notify the Company within twenty (20) days after receipt
of any such notice of its or their desire to include any such Registrable
Securities in such proposed Registration Documents, the Company shall afford
the Representative and such Holders of such Registrable Securities the
opportunity to have any Registrable Securities registered under such
Registration Documents or any other available Registration Document.
Notwithstanding the provisions of this Section 7.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.2 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
7.3 Demand Registration.
<PAGE> 7
(a) At any time commencing one (1) year after the
Effective Date of the Public Offering, and expiring four (4) years thereafter,
the Holders of Registrable Securities representing more than 50% of such
securities at that time outstanding shall have the right (which right is in
addition to the registration rights under Section 7.2 hereof), exercisable by
written notice to the Company, to have the Company prepare and file with the
Commission, on one occasion, a registration statement and/or such other
documents, including a prospectus, and/or any other appropriate disclosure
document as may be reasonably necessary in the opinion of both counsel for the
Company and counsel for the Representative and Holders, in order to comply with
the provisions of the Act, so as to permit a public offering and sale of their
respective Registrable Securities for nine (9) consecutive months (or such
longer period of time as permitted by the Act) by such Holders and any other
Holders of any of the Registrable Securities who notify the Company within ten
(10) days after being given notice from the Company of such request. A Demand
Registration shall not be counted as a Demand Registration hereunder until such
Demand Registration has been declared effective by the SEC and maintained
continuously effective for a period of at least nine months or such shorter
period when all Registrable Securities included therein have been sold in
accordance with such Demand Registration, provided that a Demand Registration
shall be counted as a Demand Registration hereunder if the Company ceases its
efforts in respect of such Demand Registration at the request of the majority
Holders making the demand for a reason other than a material and adverse change
in the business, assets, prospects or condition (financial or otherwise) of the
Company and its subsidiaries taken as a whole.
(b) The Company covenants and agrees to give written
notice of any registration request under this Section 7.3 by the majority of
the Holders to all other registered Holders of any of the Registrable
Securities within ten (10) days from the date of the receipt of any such
registration request.
(c) In addition to the registration rights under Section
7.2 and subsection (a) of this Section 7.3, at any time commencing one (1) year
after the Effective Date of the offering, and expiring four (4) years
thereafter, the Holders of a majority of the Registrable Securities shall have
the right, exercisable by written request to the Company, to have the Company
prepare and file, on one occasion, with the Commission a registration statement
or any other appropriate disclosure document so as to permit a public offering
and sale for nine (9) consecutive months (or such longer period of time as
permitted by the Act) by any such Holder of Registrable Securities; provided,
however, that the provisions of Section 7.4(b) hereof shall not apply to any
such registration request and registration and all costs incident
<PAGE> 8
thereto shall be at the expense of the Holder or Holders participating in the
offering pro-rata.
(d) Any written request by the Holders made pursuant to
this Section 7.3 shall:
(i) specify the number of Registrable Securities
which the Holders intend to offer and sell and the minimum
price at which the Holders intend to offer and sell such
securities;
(ii) state the intention of the Holders to offer
such securities for sale;
(iii) describe the intended method of distribution
of such securities; and
(iv) contain an undertaking on the part of the
Holders to provide all such information and materials
concerning the Holders and take all such action as may be
reasonably required to permit the Company to comply with all
applicable requirements of the Commission and to obtain
acceleration of the effective date of the registration
statement.
(e) In the event the Company receives from the Holders of
any Registrable Securities representing more than 50% of such securities at
that time outstanding, a request that the Company effect a registration on Form
S-3 with respect to the Registrable Securities and if Form S-3 is available for
such offering, the Company shall, as soon as practicable, effect such
registration as would permit or facilitate the sale and distribution of the
Registrable Securities as are specified in the request. All expenses incurred
in connection with a registration requested pursuant to this Section shall be
borne by the Company. Registrations effected pursuant to this Section 7.3(e)
shall not be counted as registrations pursuant to Section 7.3(a) and 7.3(c)
hereof.
7.4 Covenants of the Company With Respect to
Registration.
In connection with any registration under Section 7.2 or 7.3
hereof, the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within forty-five (45) days of receipt of any demand
pursuant to Section 7.3, and shall use its best efforts to have any such
registration statement declared effective at the earliest practicable time.
The Company will promptly notify each seller of such Registrable Securities and
confirm such advice in writing, (i) when such registration statement becomes
effective, (ii) when any post-effective
<PAGE> 9
amendment to such registration statement becomes effective and (iii) of any
request by the SEC for any amendment or supplement to such registration
statement or any prospectus relating thereto or for additional information.
The Company shall furnish to each seller of such Registrable
Securities such number of copies of such registration statement and of each
such amendment and supplement thereto (in each case including each preliminary
prospectus and summary prospectus) in conformity with the requirements of the
Act, and such other documents as such seller may reasonably request in order to
facilitate the disposition of the Registrable Securities by such seller.
(b) The Company shall pay all costs (excluding transfer
taxes, if any, and fees and expenses of Holder(s)' counsel and the Holder's
pro-rata portion of the selling discount or commissions), fees and expenses in
connection with all registration statements filed pursuant to Sections 7.2 and
7.3(a) hereof including, without limitation, the Company's legal and accounting
fees, printing expenses, blue sky fees and expenses. The Holder(s) will pay all
costs, fees and expenses in connection with any registration statement filed
pursuant to Section 7.3(c). If the Company shall fail to comply with the
provisions of Section 7.3(a), the Company shall, in addition to any other
equitable or other relief available to the Holder(s), be liable for any or all
special and consequential damages sustained by the Holder(s) requesting
registration of their Registrable Securities.
(c) The Company shall prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be reasonably necessary to keep such
registration statement effective for at least nine months (or such longer
period as permitted by the Act), and to comply with the provisions of the Act
with respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the seller or sellers of Registrable Securities set forth in
such registration statement. If at any time the SEC should institute or
threaten to institute any proceedings for the purpose of issuing a stop order
suspending the effectiveness of any such registration statement, the Company
will promptly notify each seller of such Registrable Securities and will use
all reasonable efforts to prevent the issuance of any such stop order or to
obtain the withdrawal thereof as soon as possible. The Company will use its
good faith reasonable efforts and take all reasonably necessary action which
may be required in qualifying or registering the Registrable Securities
included in a registration statement for offering and sale under
<PAGE> 10
the securities or blue sky laws of such states as reasonably are required by
the Holder(s), provided that the Company shall not be obligated to execute or
file any general consent to service of process or to qualify as a foreign
corporation to do business under the laws of any such jurisdiction. The
Company shall use its good faith reasonable efforts to cause such Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities of the United
States or any State thereof as may be reasonably necessary to enable the seller
or sellers thereof to consummate the disposition of such Registrable
Securities.
(d) The Company shall indemnify the Holder(s) of the
Registrable Securities to be sold pursuant to any registration statement and
each person, if any, who controls such Holders within the meaning of Section 15
of the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise, arising from such registration
statement but only to the same extent and with the same effect as the
provisions pursuant to which the Company has agreed to indemnify the
Representative as contained in the Underwriting Agreement.
(e) If requested by the Company prior to the filing of
any registration statement covering the Registrable Securities, each of the
Holder(s) of the Registrable Securities to be sold pursuant to a registration
statement, and their successors and assigns, shall severally, and not jointly,
indemnify the Company, its officers and directors and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from written
information furnished by such Holder, or their successors or assigns, for
specific inclusion in such registration statement to the same extent and with
the same effect as the provisions contained in the Underwriting Agreement
pursuant to which the Representative has agreed to indemnify the Company,
except that the maximum amount which may be recovered from each Holder pursuant
to this paragraph or otherwise shall be limited to the amount of net proceeds
received by the Holder from the sale of the Registrable Securities.
<PAGE> 11
(f) Nothing contained in this Agreement shall be
construed as requiring the Holder(s) to exercise their Warrants or Underlying
Warrants prior to the filing of any registration statement or the effectiveness
thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Registrable Securities to be included in any
registration statement filed pursuant to Section 7.3 hereof without the prior
written consent of the Holders of the Registrable Securities representing a
majority of such securities.
(h) The Company shall furnish to each Holder
participating in the offering and to each underwriter, if any, a signed
counterpart, addressed to such Holder or underwriter, of (i) an opinion of
counsel to the Company, dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, an opinion
dated the date of the closing under the underwriting agreement), and (ii) a
"cold comfort" letter dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, a letter
dated the date of the closing under the underwriting agreement) signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to underwriters in underwritten
public offerings of securities.
(i) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and the managing underwriter copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to books, records and properties and opportunities to discuss
the business of the Company with its officers and independent auditors, all to
such reasonable extent and at such reasonable times and as often as any such
Holder shall reasonably request.
<PAGE> 12
(j) With respect to a registration statement filed
pursuant to Section 7.3, the Company, if requested, shall enter into an
underwriting agreement with the managing underwriter, reasonably satisfactory
to the Company, selected for such underwriting by Holders holding a majority of
the Registrable Securities requested to be included in such underwriting. Such
agreement shall be satisfactory in form and substance to the Company, each
Holder and such managing underwriters, and shall contain such representations,
warranties and covenants by the Company and such other terms as are customarily
contained in agreements of that type used by the managing underwriter. The
Holders, if required by the Underwriter to be parties to any underwriting
agreement relating to an underwritten sale of their Registrable Securities,
may, at their option, require that any or all the representations, warranties
and covenants of the Company to or for the benefit of such underwriters shall
also be made to and for the benefit of such Holders. Such Holders shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriters except as they may relate to such Holders and their
intended methods of distribution.
(k) Notwithstanding the provisions of paragraph 7.2 or
paragraph 7.3 of this Agreement, the Company shall not be required to effect or
cause the registration of Registrable Securities pursuant to paragraph 7.2 or
paragraph 7.3 hereof if, within thirty (30) days after its receipt of a request
to register such Registrable Securities (i) counsel for the Company delivers an
opinion to the Holders requesting registration of such Registrable Securities,
in form and substance satisfactory to counsel to such Holder(s), to the effect
that the entire number of Registrable Securities proposed to be sold by such
Holder(s) may otherwise be sold, in the manner proposed by such Holder(s),
without registration under the Securities Act, or (ii) the SEC shall have
issued a no-action position, in form and substance satisfactory to counsel for
the Holder(s) requesting registration of such Registrable Securities, to the
effect that the entire number of Registrable Securities proposed to be sold by
such Holder(s) may be sold by it, in the manner proposed by such Holder(s),
without registration under the Securities Act.
(l) After completion of the Public Offering, the Company
shall not, directly or indirectly, enter into any merger, business combination
or consolidation in which (a) the Company shall not be the surviving
corporation and (b) the stockholders of the Company are to receive, in whole or
in part, capital stock or other securities of the surviving corporation, unless
the surviving corporation shall, prior to such merger, business combination or
consolidation, agree in writing to assume the
<PAGE> 13
obligations of the Company under this Agreement, and for that purpose
references hereunder to "Registrable Securities" shall be deemed to include the
securities which the Holders would be entitled to receive in exchange for
Registrable Securities under any such merger, business combination or
consolidation, provided that to the extent such securities to be received are
convertible into shares of Common Stock of the issuer thereof, then any such
shares of Common Stock as are issued or issuable upon conversion of said
convertible securities shall also be included within the definition of
"Registrable Securities".
8. Adjustments to Exercise Price and Number of
Securities.
8.1 Adjustment for Dividends, Subdivisions, Combinations
or Reclassifications.
In case the Company shall (a) pay a dividend or make a
distribution 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 into a greater number of shares, (c) combine its outstanding
shares of Common Stock into a smaller number of shares, or (d) issue by
reclassification of its shares of Common Stock any shares of capital stock of
the Company; then, and in each such case, the per share Exercise Price and the
number of Warrant Securities in effect immediately prior to such action shall
be adjusted so that the Holder of this Warrant thereafter upon the exercise
hereof shall be entitled to receive the number and kind of shares of the
Company which such Holder would have owned immediately following such action
had this Warrant been exercised immediately prior thereto. An adjustment made
pursuant to this Section shall become effective immediately after the record
date in the case of a dividend or distribution 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
Section, the Holder of this Warrant shall become entitled to receive shares of
two or more classes of capital stock of the Company, the Board of Directors of
the Company (whose determination shall be conclusive) shall determine the
allocation of the adjusted Exercise Price between or among shares of such class
of capital stock.
Immediately upon any adjustment of the Exercise Price pursuant
to this Section, the Company shall send written notice thereof to the Holder of
Warrant Certificates (by first class mail, postage prepaid), which notice shall
state the Exercise Price resulting from such adjustment, and any increase or
decrease in the number of Warrant Securities to be acquired upon exercise of
the Warrants, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based.
<PAGE> 14
8.2 Adjustment For Reorganization, Merger or
Consolidation.
In case of any reorganization of the Company or consolidation
of the Company with, or merger of the Company with, or merger of the Company
into, another corporation (other than a consolidation or merger which does not
result in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental Warrant agreement providing that the Holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the
number of shares of Common Stock of the Company for which such warrant might
have been exercised immediately prior to such reorganization, consolidation,
merger, conveyance, sale or transfer. Such supplemental Warrant agreement
shall provide for adjustments which shall be identical to the adjustments
provided in Section 8 and such registration rights and other rights as provided
in this Agreement. The Company shall not effect any such consolidation,
merger, or similar transaction as contemplated by this paragraph, unless prior
to or simultaneously with the consummation thereof, the successor corporation
(if other than the Company) resulting from such consolidation or merger or the
corporation purchasing, receiving, or leasing such assets or other appropriate
corporation or entity shall assume, by written instrument executed and
delivered to the Holders, the obligation to deliver to the Holders, such shares
of stock, securities, or assets as, in accordance with the foregoing
provisions, such holders may be entitled to purchase, and to perform the other
obligations of the Company under this Agreement. The above provision of this
Subsection shall similarly apply to successive consolidations or successively
whenever any event listed above shall occur.
8.3 Dividends and Other Distributions.
In the event that the Company shall at any time prior to the
exercise of all of the Warrants and/or Underlying Warrants distribute to its
stockholders any assets, property, rights, evidences of indebtedness,
securities (other than a distribution made as a cash dividend payable out of
earnings or out of any earned surplus legally available for dividends under the
laws of the jurisdictions of incorporation of the Company), whether issued by
the Company or by another, the Holders of the unexercised Warrants shall
thereafter be entitled, in addition to
<PAGE> 15
the shares of Common Stock or other securities and property receivable upon the
exercise thereof, to receive, upon the exercise of such Warrants, the same
property, assets, rights, evidences of indebtedness, securities or any other
thing of value that they would have been entitled to receive at the time of
such distribution as if the Warrants had been exercised immediately prior to
such distribution. At the time of any such distribution, the Company shall make
appropriate reserves to ensure the timely performance of the provisions of this
subsection or an adjustment to the Exercise Price, which shall be effective as
of the day following the record date for such distribution.
8.4 Adjustment in Number of Securities.
Upon each adjustment of the Exercise Price pursuant to the
provisions of this Section 8, the number of securities issuable upon the
exercise of each Warrant and/or Underlying Warrant shall be adjusted to the
nearest full amount by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of securities
issuable upon exercise of the Warrants and/or the Underlying Warrants
immediately prior to such adjustment and dividing the product so obtained by
the adjusted Exercise Price.
8.5 No Adjustment of Exercise Price in Certain Cases.
No adjustment of the Exercise Price shall be made if the
amount of said adjustment shall be less than 5 cents ($.05) per Share,
provided, however, that in such case any adjustment that would otherwise be
required then to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to at least 5 cents ($.05) per
Share.
8.6 Accountant's Certificate of Adjustment.
In each case of an adjustment or readjustment of the Exercise
Price or the number of any securities issuable upon exercise of the Warrants
and/or Underlying Warrants, the Company, at its expense, shall cause
independent certified public accountants of recognized standing selected by the
Company (who may be the independent certified public accountants then auditing
the books of the Company) to compute such adjustment or readjustment in
accordance herewith and prepare a certificate showing such adjustment or
readjustment, and shall mail such certificate, by first class mail, postage
prepaid, to any Holder of the Warrants and/or Underlying Warrants at the
Holder's address as shown on the Company's books. The certificate shall
<PAGE> 16
set forth such adjustment or readjustment, showing in detail the facts upon
which such adjustment or readjustment is based including, but not limited to, a
statement of (i) the Exercise Price at the time in effect, and (ii) the number
of additional securities and the type and amount, if any, of other property
which at the time would be received upon exercise of the Warrants and/or
Underlying Warrants.
8.7 Adjustment of Underlying Warrant Exercise Price.
With respect to any of the Underlying Warrants whether or not
the Underlying Warrants have been exercised (or are exercisable) and whether or
not the Underlying Warrants are issued and outstanding, the Underlying Warrant
exercise price and the number of shares of Common Stock underlying such
Underlying Warrants shall be automatically adjusted in accordance with the
Warrant Agreement between the Company and the Company's transfer agent, upon
occurrence of any of the events relating to adjustments described therein.
Thereafter, the Underlying Warrants shall be exercisable at such adjusted
Underlying Warrant exercise price for such adjusted number of underlying shares
of Common Stock or other securities, properties or rights.
9. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon
the surrender thereof by the registered Holder at the principal executive
office of the Company, for a new Warrant Certificate of like tenor and date
representing in the aggregate the right to purchase the same number of
securities in such denominations as shall be designated by the Holder thereof
at the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interest.
The Company shall not be required to issue certificates
representing fractions of shares of Common Stock upon the exercise of the
Warrants and/or Underlying Warrants, nor shall it be required to issue script
or pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests may be eliminated, at the Company's option, by
rounding
<PAGE> 17
any fraction up to the nearest whole number of shares of Common Stock or other
securities, properties or rights, or in lieu thereof paying cash equal to such
fractional interest multiplied by the current value of a share of Common Stock.
11. Reservation and Listing.
The Company shall at all times reserve and keep available out
of its authorized shares of Common Stock, solely for the purpose of issuance
upon the exercise of the Warrants and the Underlying Warrants, such number of
shares of Common Stock or other securities, properties or rights as shall be
issuable upon the exercise thereof. The Company covenants and agrees that,
upon exercise of the Warrants and/or the Underlying Warrants, and payment of
the Exercise Price therefor, all shares of Common Stock and other securities
issuable upon such exercise shall be duly and validly issued, fully paid,
non-assessable and not subject to the preemptive rights of any stockholder. As
long as the Warrants and/or Underlying Warrants shall be outstanding, the
Company shall use its best efforts to cause all shares of Common Stock issuable
upon the exercise of the Warrants and the Underlying Warrants to be listed and
quoted (subject to official notice of issuance) on all securities Exchanges and
Systems on which the Common Stock and/or the Public Warrants may then be listed
and/or quoted, including Nasdaq.
12. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as
conferring upon the Holders of the Warrants and/or Underlying Warrants the
right to vote or to consent or to receive notice as a stockholder in respect of
any meetings of stockholders for the election of directors or any other matter,
or as having any rights whatsoever as a stockholder of the Company. If,
however, at any time prior to the expiration of the Warrants and/or Underlying
Warrants and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the
holders of its shares of Common Stock for the purpose of
entitling them to receive a dividend or distribution payable
otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or
distribution on the books of the Company; or
(b) the Company shall offer to all the holders of
its Common Stock any additional shares of capital stock of the
Company or securities convertible into or exchangeable for
<PAGE> 18
shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of
the Company (other than in connection with a consolidation or
merger) or a sale of all or substantially all of its property,
assets and business as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date of the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notices shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
13. Underlying Warrants.
The form of the certificate representing the Underlying
Warrants (and the form of election to purchase shares of Common Stock upon the
exercise of the Underlying Warrants and the form of assignment printed on the
reverse thereof) shall be substantially as set forth in the exhibits to the
Warrant Agreement. Subject to the terms of this Agreement, one (1) Underlying
Warrant shall evidence the right to initially purchase one (1) fully-paid and
non-assessable share of Common Stock at an initial purchase price of $8.25
during the five (5) year period commencing on the Effective Date of the
Registration Statement, at which time the Underlying Warrants, unless the
exercise period has been extended, shall expire. The exercise price of the
Underlying Warrants and the number of shares of Common Stock issuable upon the
exercise of the Underlying Warrants are subject to adjustment, whether or not
the Warrants have been exercised and the Underlying Warrants have been issued,
in the manner and upon the occurrence of the events set forth in the Warrant
Agreement, which is hereby incorporated herein by reference and made a part
hereof as if set forth in its entirety herein. Subject to the provisions of
this Agreement and upon issuance of the Underlying Warrants, each registered
holder of such Underlying Warrant shall have the right to purchase from the
Company (and the Company shall issue to such registered holders)
<PAGE> 19
up to the number of fully-paid and non-assessable shares of Common Stock
(subject to adjustment as provided in the Warrant Agreement) set forth in such
Warrant Certificate, free and clear of all preemptive rights of stockholders,
provided that such registered Holder complies with the terms governing exercise
of the Underlying Warrant set forth in the Warrant Agreement, and pays the
applicable exercise price, determined in accordance with the terms of the
Warrant Agreement. Upon exercise of the Underlying Warrants, the Company shall
forthwith issue to the registered Holder of any such Underlying Warrant in his
name or in such name as may be directed by him, certificates for the number of
shares of Common Stock so purchased. Except as otherwise provided herein and
in this Agreement, the Underlying Warrants shall be governed in all respects by
the terms of the Warrant Agreement. The Underlying Warrants shall be
transferrable in the manner provided in the Warrant Agreement, and upon any
such transfer, a new Underlying Warrant certificate shall be issued promptly to
the transferee. The Company covenants to send to each Holder, irrespective of
whether or not the Warrants have been exercised, any and all notices required
by the Warrant Agreement to be sent to holders of Underlying Warrants.
14. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly given when
personally delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to the registered Holder of any of the
Registrable Securities, to the address of such Holder as shown
on the books of the Company; or
(b) If to the Company, to the address set forth
below or to such other address as the Company may designate by
notice to the Holders.
Dr. Robert C. Varney, Chairman
DIDAX INC.
4501 Daly Drive, Suite 103
Chantilly, Virginia 20151
With a copy to: Charles J. Rennert, Esq.
Berman Wolfe & Rennert, P.A.
NationsBank Tower, Suite 3500
100 Southeast Second Street
Miami, Florida 33131
<PAGE> 20
15. Entire Agreement: Modification.
This Agreement (and the Underwriting Agreement and Warrant
Agreement to the extent applicable) contain the entire understanding between
the parties hereto with respect to the subject matter hereof, and the terms and
provisions of this Agreement may not be modified, waived or amended except in a
writing executed by the Company and the Holders of at least a majority of
Registrable Securities (based on underlying numbers of shares of Common Stock).
Notice of any modification, waiver or amendment shall be promptly provided to
any Holder not consenting to such modification, waiver or amendment.
16. Successors.
All the covenants and provisions of this Agreement shall be
binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
17. Termination.
This Agreement shall terminate at the close of business on
_________, 2004. Notwithstanding the foregoing, the indemnification provisions
of Section 7 shall survive such termination.
18. Governing Law; Submission to Jurisdiction.
This Agreement and each Warrant Certificate issued hereunder
shall be deemed to be a contract made under the laws of the State of Florida
and for all purposes shall be construed in accordance with the laws of said
State without giving effect to the rules of said State governing the conflicts
of laws. The Company, the Representative and the Holders hereby agree that any
action, proceeding or claim arising out of, or relating in any way to, this
Agreement shall be brought and enforced in a federal or state court of
competent jurisdiction with venue only in the Fifteenth Judicial Circuit Court
in and for Palm Beach County, Florida or the United States District Court for
the Southern District of Florida, West Palm Beach Division, and irrevocably
submits to such jurisdiction, which jurisdiction shall be exclusive. The
Company, the Representative and the Holders hereby irrevocably waive any
objection to such exclusive jurisdiction or inconvenient forum. Any such
process or summons to be served upon any of the Company, the Representative and
the Holders (at the option of the party bringing such action, proceeding or
claim) may be served by transmitting a copy thereof, by registered or certified
mail, return receipt requested, postage prepaid, addressed to it at the address
set forth in Section 14 hereof. Such mailing shall be deemed
<PAGE> 21
personal service and shall be legal and binding upon the party so served in any
action, proceeding or claim.
19. Severability.
If any provision of this Agreement shall be held to be invalid
or unenforceable, such invalidity or unenforceability shall not affect any
other provision of this Agreement.
20. Captions.
The caption headings of the Sections of this Agreement are for
convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive
effect.
21. Benefits of this Agreement.
Nothing in this Agreement shall be construed to give to any
person or corporation other than the Company and the Representative and any
other registered Holder(s) of the Warrant Certificates or Registrable
Securities any legal or equitable right, remedy or claim under this Agreement;
and this Agreement shall be for the sole and exclusive benefit of the Company
and the Representative and any other Holder(s) of the Warrant Certificates or
Registrable Securities.
22. 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 counterparts shall together constitute but one and the same
instrument.
IN WITNESS HEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
DIDAX INC.
By:
------------------------------
Dr. Robert C. Varney, Chairman
- -------------------------------------
Attest:
- --------------------------
Gary A. Struzik, Secretary
BARRON CHASE SECURITIES, INC.
By:
------------------------------
Robert Kirk, President
<PAGE> 22
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
<PAGE> 23
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 DIDAX 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 $8.25 per share (165% 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 $.20625 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 $8.25 per share.
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 Barron Chase Securities, Inc. (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
<PAGE> 24
(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 transferee(s) 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.
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(s) 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
----------
DIDAX INC.
By:
-------------------------------
Dr. Robert C. Varney, Chairman
Attest:
- -------------------------------
Gary A. Struzik, Secretary
<PAGE> 25
EXHIBIT "A"
FORM OF SUBSCRIPTION (CASH EXERCISE)
(To be signed only upon exercise of Warrant)
TO: DIDAX INC.
4501 Daly Drive, Suite 103
Chantilly, Virginia 20151
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 DIDAX INC. (the "Company"), which Warrant Certificate is being
delivered
<PAGE> 26
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)
EXHIBIT "B"
FORM OF SUBSCRIPTION (CASHLESS EXERCISE)
TO: DIDAX INC.
4501 Daly Drive, Suite 103
Chantilly, Virginia 20151
<PAGE> 27
The undersigned, the Holder of Warrant Certificate number ___(the
"Warrant"), representing _________ Common Stock Representative Warrants and/or
__________ Underlying Warrants DIDAX 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)
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if such
holder desires to transfer the Warrant Certificate.)
<PAGE> 28
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)
<PAGE> 1
EXHIBIT 10.1
DEED OF LEASE
BETWEEN
4501 Daly, L.P.
as Landlord,
AND
DIDAX, L.L.C.
as Tenant
Dated: 9/12 1995
For Premises Located at 4501 Daly Drive, Chantilly, Virginia
<PAGE> 2
<TABLE>
<S> <C>
ARTICLE 1 ................................................. 1
BASIC LEASE PROVISIONS .................................... 1
1.1 Premises ......................................... 8
1.2 Building ......................................... 8
1.3 Term ............................................. 8
1.4 Commencement Date ................................ 8
1.5 Expiration Date .................................. 8
1.6 Basic Rent ....................................... 8
1.7 Security Deposit ................................. 8
1.8 Expense Stop ..................................... 8
1.9 Tenant's Proportionate Share of Operating Expenses 9
1.10 Parking Space Allocation ........................ 9
1.11 Permitted Use ................................... 9
1.12 Tenant's Trade Name ............................. 9
1.13 Broker(s) ....................................... 9
1.14 Landlord's Address .............................. 9
1.15 Tenant's Address ................................ 9
ARTICLE 2 ................................................. 9
DEFINITIONS ............................................... 9
2.1 Additional Rent .................................. 9
2.2 Agents ........................................... 9
2.3 Alterations ...................................... 9
2.4 Calendar Year .................................... 9
2.5 Common Area ...................................... 10
2.6 Event of Default ................................. 10
2.7 Herein, hereafter, hereunder and hereof .......... 10
2.8 Interest Rate .................................... 10
2.9 Land ............................................. 10
2.10 Lease Year ...................................... 10
2.11 Mortgage ........................................ 10
2.12 Mortgagee ....................................... 10
2.13 Operating Expenses .............................. 10
2.14 Parking Facilities .............................. 10
2.15 Real Estate Taxes ............................... 10
2.16 Rent ............................................ 10
2.17 Rules and Regulations ........................... 11
2.18 Substantial Completion .......................... 11
2.19 Substantial Part ................................ 11
2.20 Work Agreement .................................. 11
2.21 Project ......................................... 11
2.22 Legal Requirements .............................. 11
</TABLE>
-2-
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 3 ................................................. 11
THE PREMISES .............................................. 11
3.1 Lease of Premises ................................ 11
3.2 Landlord's Reservations .......................... 12
ARTICLE 4 ................................................. 12
TERM ...................................................... 13
ARTICLE 5 ................................................. 12
RENT ...................................................... 12
5.1 Basic Rent ....................................... 12
5.2 Payment of Basic Rent ............................ 12
5.3 Additional Rent .................................. 13
ARTICLE 6 ................................................. 13
SECURITY DEPOSIT .......................................... 13
6.1 General .......................................... 13
6.2 Security in the Form of Cash ..................... 13
ARTICLE 7 ................................................. 14
OPERATING EXPENSES ........................................ 14
7.1 Tenant's Proportionate Share of Operating Expenses 14
7.2 Operating Expenses Defined ....................... 14
7.3 Exclusions from Operating Expenses ............... 16
7.4 Estimated Payments ............................... 17
7.5 Actual Operating Expenses ........................ 17
7.6 Tenant's Right to Audit .......................... 17
ARTICLE 8 ................................................. 18
TAXES ..................................................... 18
ARTICLE 9 ................................................. 18
PARKING ................................................... 18
9.1 Parking Spaces ................................... 18
9.2 Changes to Parking Facilities .................... 19
ARTICLE 10 ................................................ 19
USE ....................................................... 19
10.1 Use ............................................. 19
10.2 Payment of Taxes ................................ 19
</TABLE>
-3-
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE 11 ....................................... 19
ASSIGNMENT AND SUBLETTING ........................ 19
11.1 Consent ................................. 19
ARTICLE 12 ....................................... 20
MAINTENANCE AND REPAIR ........................... 20
12.1 Landlord's Obligation ................... 20
12.2 Tenant's Obligation ..................... 20
12.3 Compliance with Legal Requirements ...... 21
12.4 Landlord's Right to Maintain or Repair .. 21
ARTICLE 13 ........................................ 21
INITIAL CONSTRUCTION; ALTERATIONS ................. 21
13.1 Initial Construction .................... 21
13.2 Alterations ............................. 21
13.3 Removal of Alterations .................. 22
13.4 Landlord Alterations .................... 22
ARTICLE 14 ........................................ 23
SIGNS ............................................. 23
ARTICLE 15 ........................................ 23
TENANT'S EQUIPMENT AND PROPERTY ................... 23
15.1 Moving Tenant's Property .................. 23
15.2 Installing and Operating Tenant's Equipment 23
ARTICLE 16 ........................................ 24
RIGHT OF ENTRY .................................... 24
ARTICLE 17 ........................................ 24
INSURANCE ......................................... 24
17.1 Insurance Rating .......................... 24
17.2 Liability Insurance ....................... 24
17.3 Insurance for Personal Property ........... 24
17.4 Contractual Liability Insurance ........... 25
17.5 Requirements of Insurance Coverage ........ 25
17.6 Prohibition Against Concurrent Insurance .. 25
17.7 Waiver of Subrogation ..................... 25
17.8 Security .................................. 26
</TABLE>
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<TABLE>
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ARTICLE 18 ................................................. 26
LANDLORD SERVICES AND UTILITIES ............................ 26
18.1 Ordinary Services to the Premises ................. 26
18.2 After-Hours Services to the Premises .............. 26
18.3 Landlord's Right to Meter Tenant's Electrical Usage 26
ARTICLE 19 ................................................. 27
LIABILITY OF LANDLORD ...................................... 27
19.1 No Liability .................................... 27
19.2 Indemnity ....................................... 27
ARTICLE 20 ................................................. 28
RULES AND REGULATIONS ...................................... 28
ARTICLE 21 ................................................. 28
DAMAGE; CONDEMNATION ....................................... 28
21.1 Damage to the Premises ............................ 28
21.2 Landlord Released from Liability .................. 29
21.3 Condemnation ...................................... 29
ARTICLE 22 ................................................. 30
DEFAULT .................................................... 30
22.1 Events of Default ................................. 30
22.2 Landlord's Remedies ............................... 30
22.3 Rights Upon Possession ............................ 31
22.4 No Waiver ......................................... 31
22.5 Right of Landlord to Cure Tenant's Default ........ 32
22.6 Late Payment ...................................... 32
22.7 Bankruptcy Termination Provision .................. 32
22.8 Landlord Default .................................. 33
ARTICLE 23 ................................................. 33
MORTGAGES .................................................. 33
23.1 Subordination ..................................... 33
23.2 Mortgage Protection ............................... 34
23.3 Modification Due to Financing ..................... 34
ARTICLE 24 ................................................. 34
SURRENDER; HOLDING OVER .................................... 34
24.1 Surrender of the Premises ......................... 34
24.2 Holding Over ...................................... 35
ARTICLE 25 ................................................. 35
QUIET ENJOYMENT ............................................ 35
</TABLE>
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<TABLE>
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ARTICLE 26 ..................................... 35
TENANT'S COVENANTS REGARDING HAZARDOUS MATERIALS 35
26.1 Definition ........................... 35
26.2 General Prohibition .................. 35
26.3 Notice ............................... 36
26.4 Survival ............................. 36
ARTICLE 27 ..................................... 37
MISCELLANEOUS .................................. 37
27.1 No Representations by Landlord ....... 37
27.2 No Partnership ....................... 37
27.3 Brokers .............................. 37
27.4 Estoppel Certificate ................. 37
27.5 Waiver of Jury Trial ................. 38
27.6 Notices .............................. 38
27.7 Invalidity of Particular Provisions .. 38
27.8 Gender and Number .................... 38
27.9 Benefit and Burden ................... 38
27.10 Entire Agreement ..................... 38
27.11 Authority ............................ 38
27.12 Attorneys' Fees ...................... 39
27.13 Interpretation ....................... 39
27.14 No Personal Liability; Sale .......... 39
27.15 Time of the Essence .................. 40
27.16 Force Majeure ........................ 40
27.17 Headings ............................. 40
27.18 Memorandum of Lease .................. 40
27.19 Landlord's Relocation Option ......... 40
27.20 Effectiveness ........................ 40
27.21 Expansion Option ..................... 40
</TABLE>
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LIST OF EXHIBITS
<TABLE>
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Exhibit A-1 Plan Showing Premises
Exhibit A-2 Plat Showing Land and Building
Exhibit A-3 Plan Showing Expansion Space
Exhibit B Work Agreement
Exhibit C Rules and Regulations
</TABLE>
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DEED OF LEASE
THIS DEED OF LEASE (this "Lease") is made as of the 13 day of September
1995, the "Date of Lease"), by 4501 Daly, L.P., a Virginia Limited Partnership
("Landlord"), and DIDAX L.L.C., a Virginia Limited Liability Company ("Tenant").
Landlord and Tenant, intending legally to be bound, hereby covenant and
agree as set forth below:
ARTICLE I
BASIC LEASE PROVISIONS
The following terms, when used herein, shall have the meanings set
forth below:
1.1 Premises. Approximately 2,997 gross rentable square feet located in
the Building as shown in the cross hatched area on Exhibit A-1 attached hereto
and made a part hereof.
1.2 Building. The building containing approximately 67,962 gross
rentable square feet shown on Exhibit A-2 attached hereto and made a part
hereof, and all alterations, additions, improvements, restorations or
replacements now or hereafter made thereto, with an address of 4501 Daly Drive,
Chantilly, Virginia.
1.3 Term. Three (3) years, zero (0) months and zero (0) days.
1.4 Commencement Date. September 15, 1995, subject to adjustment as
set forth in Article 4.
1.5 Expiration Date. September 30, 1998, subject to adjustment as set
forth in Article 4.
1.6 Basic Rent. $12.75 for each rentable square foot of the Premises
for the first Lease Year which is equal to a total of $38,211.75 for the first
Lease Year payable in equal monthly installments of $3,184.31. The Basic Rent
for the entire Premises shall be increased annually by an amount equal to three
percent (3%) of the previous Lease Year Basic Rent commencing the Second Lease
Year.
1.7 Security Deposit. $9,552.93 in the form of cash. Please see Article
6.
1.8 Expenses Stop. The amount which is the sum of all of the Operating
Expenses (as defined in Article 7.2) incurred by the Landlord for the twelve
months of the Calendar Year 1996.
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1.9 Tenant's Proportionate Share of Operating Expenses. 4.41% of the
Operating Expenses allocable to the Building which is based upon the Premises
containing 2,997 gross rentable square feet of the total Building containing
67,962 gross rentable square feet.
1.10 Parking Space Allocation. Eleven (11) spaces, which shall be in
unreserved, non-exclusive parking spaces available in the Parking Facilities.
1.11 Permitted Use. General Office, including the telecommunications
and electronics necessary for Tenants business provided such equipment is
normally associated with general office use and complies with zoning
requirements.
1.12 Tenant's Trade Name. DIDAX, L.L.C.
1.13 Broker(s). Landlords: Barnes, Morris, Pardoe & Foster, Inc..
Tenant's: Dulles Real Estate Corporation.
1.14 Landlord's Address 4501 Daly Drive, Suite 200, Chantilly, VA 22021
Attention Mr. William H. Gordon.
1.15 Tenant's Address. Before occupancy: 12020 Sunrise Valley Drive,
Suite 100, Reston, VA 22091, Attn: Mr. Dane West. After Occupancy 4501 Daly
Drive, Suite 103, Chantilly, VA 22021 Attn: Mr. Dane West.
ARTICLE II
DEFINITIONS
The following terms, when used herein, shall have the meaning set forth
below.
2.1 Additional Rent. As defined in Section 5.3.
2.2 Agents. Officers, partners, directors, agents, members and
managers.
2.3 Alterations. Alterations, decorations, additions or improvements of
any kind or nature to the Premises or the Building, whether structural or
non-structural, interior, exterior, or otherwise.
2.4 Calendar Year. A period of twelve (12) months commencing on each
January 1 during the Term, except that the first Calendar Year shall be that
period from and including the Commencement Date through December 31 of that same
year, and the last Calendar Year shall be that period from and including the
last January 1 of the Term through the earlier of the Expiration Date or date of
Lease termination.
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2.5 Common Area. All areas, improvements, facilities and equipment from
time to time designated by Landlord for the common use or benefit of Tenant,
other tenants of the Building and their Agents, including, without limitation,
entrances and exits, landscaped areas, exterior lighting, loading areas,
pedestrian walkways, sidewalks, atriums, courtyards, concourses, stairs, ramps,
washrooms, maintenance and utility rooms and closets, exterior utility lines,
hallways, lobbies, elevators and their housing and rooms, common window areas,
common walls, common ceilings, common trash areas and Parking Facilities.
2.6 Event of Default. As defined in Article 22.
2.7 Herein, hereafter, hereunder and hereof. Under this Lease,
including, without limitation, all Exhibits, Riders, and addenda.
2.8 Interest Rate. The highest per annum interest rate listed as the
base rate on corporate loans at large U.S. money center commercial banks as
published from time to time under "Money Rates" in the Wall Street Journal plus
three percent (3%), but in no event greater than the maximum rate permitted by
law. In the event the Wall Street Journal ceases to publish such rates, Landlord
shall choose at Landlord's sole discretion a similar publication which publishes
such rates.
2.9 Land. The piece or parcel of land described in Exhibit A-2 and all
rights, easements and appurtenances thereunto belonging or pertaining, or such
portion thereof as shall be allocated by Landlord to the Building.
2.10 Lease Year. Each consecutive twelve (12) month period elapsing
after (i) the Commencement Date if the Commencement Date occurs on the first day
of a month, or (ii) the first day of the month following the Commencement Date
if the Commencement Date does not occur on the first day of a month.
2.11 Mortgage. Any mortgage, deed of trust, security interest or title
retention interest affecting the Building or the Land.
2.12 Mortgagee. The holder of any note or obligation secured by a
mortgage, deed of trust, security interest or title retention interest affecting
the Building or the Land, including, without limitation, lessors under ground
leases, sale-leasebacks and lease-leasebacks.
2.13 Operating Expenses. As defined in Section 7.2.
2.14 Parking Facilities. All parking areas now or hereafter made
available by Landlord for use by tenants, including, without limitation,
open-air parking, parking decks and parking areas under or within the Building,
whether reserved, exclusive, non-exclusive or otherwise.
2.15 Real Estate Taxes. As defined in Article 8.
2.16 Rent. Basic Rent and Additional Rent.
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2.17 Rules and Regulations. The rules and regulations set forth in
Exhibit C attached hereto and made a part hereof, as the same may be reasonably
amended or supplemented from time to time.
2.18 Substantial Completion. As defined in the Work Agreement attached
hereto and made a part hereof as Exhibit B.
2.19 Substantial Part. More than fifty percent (50%) of the rentable
square feet of the Premises or the Building, as the case may be.
2.20 Work Agreement. As set forth in Exhibit B attached hereto and made
a part hereof.
2.21 Project: The Building, Parking Facilities, Land, and all
structures located on the land.
2.22 Legal Requirements: All laws, statutes, ordinances, orders, rules,
regulations and requirements, including all mandatory energy conservation
requirements applicable to the Building, of all federal, state and municipal
governments, and the appropriate agencies, officers, departments, boards and
commissions thereof, whether now or hereafter in force, applicable to the Land,
the Building, the Parking Facility and the Premises, or any part thereof, all
applicable local, state and federal laws and regulations relating to the use on,
storage in, and the removal from, the Land and/or the Building of hazardous or
toxic material, petro-chemical products or asbestos or products containing
asbestos; notices from a Mortgagee of the Building as to the manner of use or
occupancy or the maintenance, repair or condition of the Premises and/or the
Building; and all covenants, conditions and restrictions of record affecting the
use or occupancy of the Building.
ARTICLE 3
THE PREMISES
3.1 Lease of Premises. In consideration of the agreements contained
herein, Landlord hereby leases the Premises to Tenant, and Tenant hereby leases
the Premises from Landlord, for the Term and upon the terms and conditions
hereinafter provided. As an appurtenance to the Premises, Tenant shall have the
non-exclusive right, together with other tenants of the Building and their
Agents, to use the Common Area. Landlord shall retain absolute dominion and
control over the Common Area and shall operate and maintain the Common Area in
such manner as Landlord, in its sole discretion, shall determine; provided,
however, such exclusive right shall not operate to prohibit Tenant from its use
of the Premises for the Permitted Use. Landlord expressly reserves the right
permanently to change, modify or eliminate, or temporarily to close, any portion
of the Common Area provided that such change, modification or elimination does
not materially or unreasonably interfere with Tenant's access to or use of the
Premises. The Premises are leased subject to, and Tenant agrees not to violate,
all present and
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future covenants provided that any future encumberances shall not materially
adversly affect the rights of Tenant under this lease, conditions and
restrictions of record which affect the Building.
3.2 Landlord's Reservations. In addition to the other rights of
Landlord under this Lease, Landlord reserves the right (i) to change the street
address and/or name of the Building, (ii) to install, erect, use, maintain and
repair mains, pipes, conduits and other such facilities to serve the Building's
tenants in and through the Premises, (iii) to grant to anyone the exclusive
right to conduct any particular business or undertaking in the Building, (iv) to
control the use of the roof and exterior walls of the Building for any purpose
and (v) to use Tenant's name in promotional materials relating to the Building.
Landlord may exercise any or all of the foregoing rights without being deemed to
be guilty of an eviction, actual or constructive, or a disturbance or
interruption of the business of Tenant or Tenant's use or occupancy of the
Premises.
ARTICLE 4
TERM
The Term shall commence on the Commencement Date and expire at midnight
on the Expiration Date, but in any event the Term shall end on any date when
this Lease is sooner terminated. If Substantial Completion of the Premises has
not occurred on the date set forth in Article 1 as the Commencement Date, or if
Tenant uses or accepts the Premises before the date set forth in Article 1 as
the Commencement Date, then the Commencement Date shall be the earlier of (i)
the date of Substantial Completion or (ii) the date upon which Tenant uses or
accepts the Premises (e.g. by the moving of any furnishings or other personalty
into the Premises). In such event, the Expiration Date shall be adjusted
accordingly so that the period of the Term is not changed. If requested by
Landlord, Tenant shall within fifteen (15) days of such request sign a
declaration in recordable form acknowledging the Commencement Date and the
Expiration Date and such other terms of this Agreement as Landlord reasonably
requests.
ARTICLE 5
RENT
5.1 Basic Rent. Tenant shall pay to Landlord the Basic Rent as
specified in Section 1.6.
5.2 Payment of Basic Rent. Basic Rent for each Lease Year shall be
payable in equal monthly installments, in advance, without demand, notice,
deduction, offset or counterclaim, on or before the first day of each and every
calendar month during the Term; provided, however, that the installment of the
Basic Rent payable for the first full calendar month of the Term (and, if the
Commencement Date occurs on a date other than on the first day of a calendar
month, Basic Rent prorated from such date until the first day of the following
month) shall be due and payable on the full execution and delivery of this
Lease. Tenant shall pay the Basic Rent and all Additional Rent, by good check or
in lawful currency of the United States of America, to Landlord at Landlord's
Address, or to such other address or in such other manner as Landlord from time
to time specifies
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by written notice to Tenant. If Tenant makes any payment to Landlord by check,
such payment shall be by check of Tenant and Landlord shall not be required to
accept the check of any other person, and any check received by Landlord shall
be deemed received subject to collection. If any check is mailed by Tenant,
Tenant shall post such check in sufficient time prior to the date when payment
is due so that such check will be received by Landlord on or before the date
when payment is due. Tenant shall assume the risk of lateness or failure of
delivery of the mails, and no lateness or failure of the mails will excuse
Tenant from its obligation to make the payment in question when required under
this Lease. All bank service charge resulting from any bad checks shall be borne
by Tenant. Any payment made by Tenant to Landlord on account of Basic Rent may
be credited by Landlord to the payment of any late charges then due and payable
and to any Basic Rent or Additional Rent then past due before credited to Basic
Rent currently due.
5.3 Additional Rent. All sums payable by Tenant under the Lease, other
than Basic Rent, shall be deemed "Additional Rent," and, unless otherwise set
forth herein, shall be payable in the same manner as set forth above for Basic
Rent.
ARTICLE 6
SECURITY DEPOSIT
6.1 General. Simultaneously with the execution of this Lease, Tenant
shall deposit in the form of cash and an irrevocable letter of credit the
Security Deposit with Landlord, which shall be held by Landlord, without
obligation for interest, as security, for the performance of Tenant's
obligations and covenants under the Lease. It is expressly understood and agreed
that such deposit is not an advance rental deposit or a measure of Landlord's
damages in case of an Event of Default.
6.2 Security in the Form of Cash. If an Event of Default shall occur or
if Tenant fails to surrender the Premises in the condition required by this
Lease, Landlord shall have the right (but not the obligation), and without
prejudice to any other remedy which Landlord may have on account thereof, to
apply all or any portion of the Security Deposit to cure such default or to
remedy the condition of the Premises. If Landlord so applies the Security
Deposit or any portion thereof before the Expiration Date or earlier termination
of this Lease, Tenant shall deposit with Landlord, upon demand, the amount
necessary to restore the Security Deposit to its original amount. If Landlord
shall sell or transfer its interest in the Building, Landlord shall transfer the
Full Security Deposit to such purchaser or transferee, in which event Tenant
shall look solely to the new landlord for the return of the Security Deposit.
Landlord shall provide written notice of such transfer to Tenant, and Landlord
thereupon shall be released from all liability to Tenant for the return of the
Security Deposit. Although the Security Deposit shall be deemed the property of
Landlord, any remaining balance of the Security Deposit shall be returned to
Tenant at such time after the Expiration Date or earlier termination of this
Lease that all of Tenant's obligations under this Lease have been fulfilled.
Landlord shall conduct a "Post Move-Out Inspection" of the Premises within
thirty (30) days prior to Landlord's return of all or any portion of the
Security Deposit. The Security Deposit shall not be mortgaged, assigned or
encumbered in any manner whatsoever by Tenant. Landlord shall return $3,184.31
of the security deposit to tenant any time
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after one (1) full year of timely lease payments and proof to the Landlord that
Tenant has a net worth of at least $500,000 as certified by a C.P.A.
ARTICLE 7
OPERATING EXPENSES
7.1 Tenant's Proportionate Share of Operating Expenses. Tenant shall
pay to Landlord throughout the Term, as Additional Rent, Tenant's Proportionate
Share of the amount by which the Operating Expenses during each Calendar Year
exceed the Expense Stop. In the event that the Commencement Date or the
Expiration Date are other than the first day of a Calendar Year then Tenant's
Proportionate Share of the Operating Expenses shall be adjusted to reflect the
actual period of occupancy during the Calendar Year. Notwithstanding the above,
Tenant shall not be required to pay Tenant's proportionate share of the amount
by which the Operating Expenses during each Calendar Year exceed the Expense
stop until January 1, 1997.
7.2 Operating Expenses Defined. As used herein, the term "Operating
Expenses" shall mean all expenses and costs of every kind and nature which
Landlord incurs because of or in connection with the ownership, maintenance,
management and operation of the Building (which expressly includes the Land, the
Building and the Common Area), if the Building is less than ninety-five percent
(95%) occupied, including all additional costs and expenses of operation,
management and maintenance of the Building, which Landlord reasonably determines
that it would have paid or incurred during any Calendar Year if the Building had
been ninety-five percent (95%) occupied. If, during all or any part of a
calendar year, any part of the Building is leased to a tenant (hereinafter
referred to as a "Special Tenant") which, in accordance with the terms of its
lease, provides its own cleaning and janitorial services, has separately
metered electrical service or is not otherwise required to pay Operating Expense
Increases on the basis of operating expenses for the Building which include
substantially the same components as the Operating Expenses (as defined in
Section 7.2), the Operating Expenses for such calendar year shall be increased
by the additional costs for cleaning and janitorial service, electricity and the
other expenses, as reasonably estimated by Landlord, that would have been
incurred by Landlord if Landlord had furnished and paid for cleaning and
janitorial services for the space occupied by the Special Tenant, the space
occupied by the Special Tenant was not separately metered for electricity or
Landlord had furnished and paid for any other service which the Special Tenant
did not receive and which was not included in operating expenses as defined in
the Special Tenant's lease. Operating Expenses shall include, without
limitation, all costs, expenses and disbursements incurred or made by or for
Landlord in connection with the following to the extent such expenses are
reasonably allocable to operation and maintenance of Building and have not been
directly or indirectly accounted for otherwise:
(i) Wages and salaries of all employees, including without
limitation an on-site management agent and staff, whether employed by Landlord
or the Building's management company, engaged in the operation and maintenance
or security or the Building and all costs related to or associated with such
employee or the carrying out of their duties, including uniforms
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and their cleaning, taxes, auto allowances and insurance and benefits
(including, without limitation, contributions to pension and/or profit sharing
plans and vacation or other paid absences);
(ii) All supplies and materials, including janitorial and
lighting supplies, used directly in the operation and maintenance of the
Project;
(iii) All utilities, including, without limitation,
electricity, telephone (including, without limitation, all costs and expenses of
telephone service for the sprinkler alarm system, if any), water, sewer, power,
gas, heating, lighting and air conditioning for the Project, except to the
extent such utilities are charged directly to or paid directly by, a tenant of
the Building;
(iv) All insurance purchased by Landlord or the Building's
management company relating to the Project and any equipment or other property
contained therein or located thereon including, without limitation, casualty,
liability, rental loss, sprinkler and water damage insurance;
(v) All repairs to the Project (excluding repairs paid for by
the proceeds of insurance or by Tenant or other third parties other than as a
part of the Operating Expenses), including interior, exterior, structural or
non-structural, and regardless of whether foreseen or unforeseen;
(vi) All maintenance of the Project, including, without
limitation, painting, ice and snow removal, landscaping including the purchase
and installation of additional landscaping not included in the original
landscaping plan and replacement or substitute landscaping, groundskeeping and
the patching, painting and resurfacing of driveways and parking lots;
(vii) A management fee payable to Landlord or the company or
companies, whether or not related to Landlord, managing the Building including
but not limited to a separate fee for the Parking Facilities, if any;
(viii) All maintenance, operation and service agreements for
the Project, and any equipment related thereto, including, without limitation,
service and/or maintenance agreements for the sprinkler system in the Building,
if any (excluding those paid for by Tenant or any third parties other than as a
part of Operating Expenses);
(ix) Accounting and legal fees incurred in connection with the
operation and maintenance of the Building or related thereto;
(x) Any additional services not provided to the Building at
the Commencement Date but thereafter provided by Landlord as Landlord in its
sole discretion shall deem necessary or desirable in connection with the
management or operation of the Project;
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(xi) All property owners association (Brookfield Corporate
Center) dues and related charges and all assessments, whether general, special
or otherwise, levied against Landlord or the Project pursuant to any
declaration or other instrument affecting the Project or any part or component
thereof,
(xii) All computer rentals for energy management or security
monitoring systems, if any;
(xiii) Any capital improvements made to the Building after the
Commencement Date to reduce operating expenses or to comply with legal
requirements (other than those made for the additional of rentable square
footage to the Building or for the sole benefit of a Building tenant pursuant to
its lease), the cost of which shall be amortized over such reasonable period as
Landlord shall determine, together with interest on the unamortized balance of
such cost at the Interest Rate or such higher rate as may have been paid by
Landlord on funds borrowed for the purposes of constructing said capital
improvements.
(xiv) All Real Estate Taxes which are defined in Article 8
below; all business license fees, personal property taxes and other taxes or
license fees which are part of the Project operations; and
(xv) Other reasonable and customary expenses and costs of
operating and maintaining the Project.
7.3 Exclusions from Operating Expenses. Operating Expenses shall not
include any direct or indirect expenses associated with the following:
(i) Legal fees, space planners' fees, real estate brokers'
leasing commissions and advertising expenses incurred in connection with the
original or future leasing of space in the Building;
(ii) Costs and expenses of alterations or improvements of the
Premises or the leasehold premises of other individual tenants;
(iii) Costs of correcting defects in the Building or the
materials used in the construction of the Building or the equipment or
appurtenances thereto to the extent covered by warranties and recovered by
Landlord;
(iv) Depreciation, interest and principal payments on
mortgages and other debts costs, if any, other than amortization of and the
interest factor attributable to permitted capital improvements;
(v) Costs and expenses associated with the operation of the
business of the person or entity which constitutes Landlord as the same are
distinguished from the costs of operation of the Building, including accounting
and legal matters, costs of defending any lawsuits with any mortgagee (except to
the extent the actions of Tenant or any other tenant may be in
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issue), cost of selling or financing any of Landlord's interest in the Building
and outside fees paid in connection with disputes with other tenants; and
(vi) Costs and expenses directly resulting from the gross
negligence or willful misconduct of Landlord or its Agents to the extent
provable by Tenant.
7.4 Estimated Payments. Landlord shall submit to Tenant, before the
beginning of each Calendar Year or as soon thereafter as possible, a statement
of Landlord's estimate of the prorated and reasonable Operating Expenses payable
by Tenant during such Calendar Year. In addition to the Basic Rent, Tenant shall
pay to Landlord on or before the first day of each month the properly prorated
share of estimated operating expenses payable by Tenant for such Calendar Year
as set forth in Landlord's statement. If Landlord fails to give Tenant notice of
its estimated payments due under this Section for any Calendar Year, then Tenant
shall continue making monthly estimated payments in accordance with the estimate
for the previous Calendar Year until a new estimate is provided. If the Landlord
determines that, because of unexpected increases in Operating Expenses or other
reasons, Landlord's estimate of the Operating Expenses was too low, then
Landlord shall have the right to give a new statement of the estimated Operating
Expenses due from Tenant for such Calendar Year or the balance thereof and to
bill Tenant for any deficiency which may have accrued during such Calendar Year,
and Tenant shall thereafter pay monthly estimated payments based on such new
statement.
7.5 Actual Operating Expenses. Within one hundred twenty (120) days
after the end of each Calendar Year or as soon as possible thereafter, Landlord
shall submit a statement to Tenant showing the actual Operating Expenses for
such Calendar Year and Tenant's Proportionate Share of the amount by which such
Operating Expenses exceed the Expense Stop. If for any Calendar Year, Tenant's
estimated monthly payments exceed Tenant's Proportionate Share of the amount by
which the actual Operating Expenses for such Calendar Year exceed the Expense
Stop, then Landlord shall give Tenant a credit in the amount of the overpayment
toward Tenant's next monthly payments of estimated Operating Expenses. In the
event that the credit exceeds Tenant's future monthly statements, the Landlord
shall immediately reimburse such excess to Tenant in cash. If for any Calendar
Year Tenant's estimated monthly payments are less than Tenant's Proportionate
Share of the amount by which the actual Operating Expenses for such Calendar
Year exceed the Expense Stop, than Tenant shall pay the total amount of such
deficiency to Landlord within forty-five (45) days after receipt of the
statement from Landlord. Landlord's and Tenant's obligations with respect to any
overpayment or underpayment of Operating Expenses shall survive the expiration
or termination of this Lease.
7.6 Tenant's Right to Audit. In the event Tenant shall dispute the
amount set forth in Landlord's statement of actual Operating Expenses of the
Building, Tenant shall have the right, not later than sixty (60) days following
receipt of such statement, to cause Landlord's books and records with respect to
the preceding Calendar Year to be audited by an independent certified public
accountant mutually acceptable to Landlord and Tenant. Such audit shall occur
upon not less than five (5) days prior written notice to Landlord, at Landlord's
place of business or the actual location of Landlord's books and records if
different from Landlord's place of business, during Landlord's normal business
hours. The amount payable under this Section by Landlord to
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Tenant or by Tenant to Landlord, as the case may be, shall be appropriately
adjusted on the basis of such audit. Tenant shall bear all costs relating to
such inspection, including, but not limited to, costs of photocopies, except
that if such audit or review discloses a discrepancy of more than ten percent
(10%) in the annual Operating Expenses, such audit or review shall be at
Landlord's expense; provided however that Landlord's liability to reimburse
costs under this Section 7.6 shall not exceed One Thousand Five Hundred Dollars
($1,500.00). Any discrepancy shall be promptly corrected by a payment of any
applicable audit, or by a credit against the next payment(s) of Rent hereunder.
If Tenant shall not request an audit in accordance with the provisions of this
Section within sixty (60) days of receipt of Landlord's statement of actual
Operating Expenses, such statement shall be conclusively binding upon Landlord
and Tenant.
ARTICLE 8
TAXES
"Real Estate Taxes" shall mean all taxes and assessments, including but
not limited to, general or special, ordinary or extraordinary, foreseen or
unforeseen, assessed, levied or imposed by any governmental authority upon the
Building and the Land and upon the fixtures, machinery, equipment or systems in,
upon or used in connection with any of the foregoing, and the rental, revenue or
receipts derived therefrom, under the current or any future taxation or
assessment system or modification of, supplement to, or substitute for such
system. Real Estate Taxes also shall include special assessments, which are in
the nature of or in substitution for real estate taxes, including, without
limitation, road improvement assessments, special use area assessments and
school district assessments. If at any time the method of taxation prevailing at
the date of Lease shall be altered so that in lieu of, as a substitute for or in
addition to the whole or any part of the taxes now levied or assessed, there
shall be levied or assessed a tax of whatever nature, then the same shall be
included as Real Estate Taxes hereunder. Further, for the purposes of this
Article, Real Estate Taxes shall include the reasonable expenses (including,
without limitation, attorney's fees) incurred by Landlord in challenging or
obtaining or attempting to obtain a reduction of such Real Estate Taxes,
regardless of the outcome of such challenge. Notwithstanding the foregoing,
Landlord shall have no obligation to challenge Real Estate Taxes. If as a result
of any such challenge, a tax refund is made to Landlord, then the amount of such
refund less the expenses of the challenge shall be deducted from Real Estate
Taxes due in the Lease Year such refund is received.
ARTICLE 9
PARKING
9.1 Parking Spaces. During the Term, Tenant shall be entitled to park
in that number of parking spaces set forth in Space Allocation.
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9.2 Changes to Parking Facilities. Landlord shall have the right, from
time to time, without Tenant's consent, to change, alter, add to, temporarily
close or otherwise affect the Parking Facilities in such manner as Landlord, in
its sole discretion, deems appropriate including, without limitation, the right
to designate reserved spaces available only for use by one or more tenants
(however, in such event, those parking spaces shall still be deemed Common Area
for the purpose of the definition of Operating Expenses), provided that, except
in emergency situations or situations beyond Landlord's control, Landlord shall
provide alternative Parking Facilities.
ARTICLE 10
USE
10.1 Tenant shall occupy the Premises solely for the Permitted Use
under Tenant's Trade Name. Landlord warrants that applicable laws, ordinances,
regulations, orders and restrictive covenants permit the Permises to be used for
the Permitted Use as stated in Article 1.11. The Premises shall not be used
for any other purpose without the prior written consent of Landlord. Tenant
shall comply, at Tenant's expense, with (i) all present and future laws,
ordinances, regulations and orders of the United States of America, the
Commonwealth of Virginia and any other public or quasi-public federal, state, or
local authority having jurisdiction over the Premises, and (ii) any reasonable
request of Mortgagee or any insurance company providing coverage with respect to
the Premises. Tenant shall not use or occupy the Premises in any manner that is
unlawful or dangerous or that shall constitute waste, unreasonable annoyance or
a nuisance to Landlord or the other tenants of the Building.
10.2 Payment of Taxes. Throughout the Term, Tenant covenants and agrees
to pay ten (10) days before delinquency any and all taxes, assessments and
public charge levied, assessed or imposed upon Tenant's business conducted in
the Leased Premises, upon the Leasehold Estate or upon Tenant's Personal
Property.
ARTICLE 11
ASSIGNMENT AND SUBLETTING
11.1 Consent. Tenant shall not assign, transfer, mortgage or otherwise
encumber this Lease or sublet or rent (or permit a third party to occupy or use)
the Premises, or any part thereof, nor shall any assignment or transfer of this
Lease or the right of occupancy hereunder be effected by operation of law or
otherwise, without the prior written consent of Landlord which shall not be
unreasonably withheld or delayed. For purposes of the foregoing prohibition, a
transfer at any one time or from time to time of fifty percent (50%) or more of
an interest in Tenant (whether stock, partnership interest or other form of
ownership or control) by any
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person(s) or entity(ties) having an interest in ownership or control of Tenant
at the Date of Lease shall be deemed to be an assignment of this Lease. If
Landlord consents to the proposed assignment or subletting, the initial Tenant
and any Guarantor shall remain liable under this Lease and the initial Tenant
shall pay to Landlord any amount of rent or other sums directly or indirectly
received by Tenant from any subtenant or assignee which exceeds the Rent. Any
assignment, encumbrance, or sublease without Landlord's written consent shall be
voidable by Landlord and, at Landlord's election, constitute an Event of Default
hereunder. Neither the consent by Landlord to any assignment, transfer,
encumbrance or subletting nor the collection or acceptance by Landlord of rent
from any assignee, subtenant or occupant shall be construed as a waiver or
release of the initial Tenant or any Guarantor from the terms and conditions of
this Lease or relieve Tenant or any subtenant, assignee or other party from
obtaining the consent in writing of Landlord to any further assignment,
transfer, encumbrance or subletting. Tenant hereby assigns to Landlord the rent
and other sums due from any subtenant, assignee or other occupant of the
Premises and hereby authorizes and directs each such subtenant, assignee or
other occupant to pay such rent or other sums directly to Landlord; provided,
however, that until the occurrence of an Event of Default, Tenant shall have the
license to continue collecting such rent and other sums.
ARTICLE 12
MAINTENANCE AND REPAIR
12.1 Landlord's Obligation. As long as no Event of Default has occurred
and is continuing, Landlord shall keep and maintain in good repair and working
order the Building, the Common Area and the equipment within and serving the
Premises and the Building (excluding Tenant's leasehold improvements in the
Premises) that are required for the normal maintenance and operation of the
Premises and the Building. The cost of such maintenance and repairs to the
Building and said equipment shall be included in the Operating Expenses and paid
by Tenant as provided in Article 7 herein. Tenant shall immediately give
Landlord written notice of any defect or need for repairs. After such notice,
Landlord shall have a reasonable opportunity to repair or cure such defect.
Landlord's liability with respect to any defects, repairs or maintenance for
which Landlord is responsible under any of the provisions of this Lease shall be
limited to the cost of such repairs or maintenance or the curing of such defect.
12.2 Tenant's Obligation. Tenant shall, at its own expense, maintain
all of Tenant's leasehold improvements in the Premises and other real and
personal property within the Premises in good condition, promptly making all
necessary repairs and replacements. Tenant shall repair at its expense, any and
all damage caused solely by Tenant or Tenant's Agents, contractors or
subcontractors to the Building, the Common Area, the Project or the Premises,
including equipment within and serving the Building, ordinary wear and tear
excepted. Notwithstanding the foregoing, Tenant shall bear the cost of, but
shall not itself perform without Landlord's prior consent, any such repairs
which would affect the Building's structure or mechanical or electrical systems
or which would be visible from the exterior of the Building or from any interior
Common Area of the Building. Where Landlord performs such repairs, Tenant shall
promptly pay to
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Landlord upon demand all reasonable and actual costs incurred in connection
therewith plus interest thereon at the Interest Rate from the demand date until
paid. Without the prior written consent of the Landlord, Tenant shall not have
access to the roof of the Building for any purpose whatsoever.
12.3 Compliance with Legal Requirements. Tenant, at its expense, shall
make any Alterations required after the Commencement Date to comply with Legal
Requirements to the extent the obligation to comply with such Legal Requirements
arises from Tenant's use or manner of use of the Premises. Tenant shall not use
or occupy the Premises, or permit the Premises, the Building, the Parking
Facility or the Project to be used or occupied, in violation of any Legal
Requirements. If, after the commencement of the Term, any governmental authority
shall contend or declare that the Premises are being used for a purpose which is
in violation of any Legal Requirements, Tenant shall, upon five days' notice
from Landlord, immediately discontinue such use of the Premises. If thereafter
the governmental authority asserting such violation threatens, commences or
continues proceedings against Landlord for Tenant's failure to discontinue such
use, in addition to any and all rights, privileges and remedies given to
Landlord under this Lease for default therein, Landlord shall have the right to
terminate this Lease forthwith. Tenant shall indemnify and hold harmless
Landlord from and against any and all liability for such violation or
violations.
12.4 Landlord's Right to Maintain Repair. If within five (5) days
following notice to Tenant, Tenant fails to commence to repair or replace any
damage to the Premises or Project which is Tenant's obligation to perform, and
diligently pursue timely completion of such repair and replacement, Landlord
may, at its option, cause all required maintenance, repairs or replacements to
be made. Tenant shall promptly pay Landlord all costs incurred in connection
therewith plus interest thereon at the Interest Rate from the due date until
paid.
ARTICLE 13
INITIAL CONSTRUCTION; ALTERATIONS
13.1 Initial Construction. Landlord and Tenant agree that the
construction of the Tenant Work and other initial construction with respect to
the Premises shall be performed in accordance with Exhibit B attached hereto and
made a part hereof
13.2 Alterations. Tenant shall not make or permit any Alternations
without the prior written consent of Landlord. Landlord may impose any
reasonable conditions to its consent, including, without limitation, (i)
delivery to Landlord of written and unconditional waivers of mechanic's and
materialmen's liens as to the Premises, the Building and the Land for all work,
labor, and services to be performed and materials to be furnished, signed by all
contractors, subcontractors, materialmen and laborers participating in the
Alterations, (ii) prior approval of the plans and specifications and Tenant's
contractor(s) with respect to the Alterations, (iii) supervision by Landlord's
representative at Tenant's expense of the Alterations and (iv) delivery to
Landlord of payment and performance bonds naming Landlord and Mortgagee as
obligees. The Alterations shall conform to the requirements of Landlord's and
Tenant's insurers and of the federal, state, and
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local governments having jurisdiction over the Premises, shall be performed in
accordance with the terms and provisions of this Lease in a good and workmanlike
manner befitting a first class office building and shall not adversely affect
the value, utility or character of the Premises. If the Alterations are not
performed as herein required, Landlord shall have the right, at Landlord's
option, to halt any further Alterations, or to require Tenant to perform the
Alterations as herein required or to require Tenant to return the Premises to
its condition before such Alterations. Subject to Section 13.3 herein, all
Alterations and fixtures, whether temporary or permanent in character, made in
or upon Premises either by Tenant or Landlord, will immediately become
Landlord's property and, at the end of the term will remain on the Premises
without compensation to Tenant. Notwithstanding the foregoing, if any mechanic's
or materialmen's lien is filed against the Premises, the Building or the Land
for work claimed to have been done for, or materials claimed to have been
furnished to or for the benefit of Tenant, such lien shall be discharged of
record by Tenant within ten (10) days by the Payment thereof or the filing of
any bond required by law. If Tenant shall fail to discharge any such lien,
Landlord may (but shall not be obligated to) discharge the same, the cost of
which shall be paid by Tenant within three (3) days of demand by Tenant. Such
discharge by Landlord shall not be deemed to waive or release the default of
Tenant in not discharging the same. Neither Landlord's consent to the
Alterations nor anything contained in this Lease shall be deemed to be the
agreement or consent of Landlord to subject Landlord's interest in the Premises,
the Building or the Land to any mechanic's or materialmens lien which may be
filed in respect of the Alterations.
13.3 Removal of Alterations. All or any part of the Alterations
(including, without limitation, wall-to-wall carpet and wiring), whether made
with or without the consent of Landlord, shall, at the election of Landlord,
either be removed by Tenant at its expense before the expiration of the Term or
shall remain upon the Premises and be surrendered therewith at the Expiration
Date or earlier termination of this Lease as the property of Landlord without
disturbance, molestation or injury. If Landlord requires the removal of all or
part of the Alterations, Tenant, at its expense, shall repair any damage to the
Premises or the Building caused by such removal. If Tenant fails to remove the
Alterations upon Landlord's request, then Landlord may (but shall not be
obligated to) remove the same and the cost of such removal and repair of any
damage caused by the same, together with any and all damages which Landlord may
suffer and sustain by reason of the failure of Tenant to remove the same, shall
be charged to Tenant and paid upon demand,
13.4 Landlord Alterations. Landlord shall have no obligation to make
any Alterations in or to the Premises, the Building, the Common area or the Land
except as specifically provided in the Work Agreement. Landlord hereby reserves
the right, from time to time, to make Alterations to the Building or the Land,
change the Building dimensions, erect additional stories thereon and attach
other buildings and structures thereto, and to erect such scaffolding and other
aids to construction as Landlord deems appropriate, and no such Alterations,
changes, construction or erection shall constitute an eviction, constructive or
otherwise, or permit Tenant any abatement of Rent or claim, provided that
Tenant's ability to conduct its business is not unreasonably curtailed.
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ARTICLE 14
SIGNS
No sign, advertisement or notice shall be inscribed, painted, affixed,
placed, or otherwise displayed by Tenant on any part of the Land or the outside
or the inside (including, without limitation, the windows) of the Building or
the Premises. Landlord shall, at Landlord's sole expense, place a suite entry
sign bearing Tenants name and a tenant identification sign on the Building
directory sign (together with other tenants in the Building) in accordance with
all applicable covenants, restrictions, governmental regulations and Landlord's
signage requirements. Any other permitted signs shall be installed and
maintained by Landlord at Tenant's sole expense. If any prohibited sign,
advertisement or notice is nevertheless exhibited by Tenant, Landlord shall have
the right to remove the same, and Tenant shall pay any and all expenses incurred
by Landlord in such removal, together with interest thereon at the Interest
Rate, upon demand. Landlord shall have the right to prohibit any sign,
advertisement, notice or statement to the public by Tenant which, in Landlord's
opinion, tends to impair the reputation of the Building or its desirability as a
first class office building.
ARTICLE 15
TENANT'S EQUIPMENT AND PROPERTY
15.1 Moving Tenant's Property. Any and all damage or injury to the
Premises or the Building caused by moving the property of Tenant into or out of
the Premises, or due to the same being on the Premises, shall be repaired by
Landlord, at the expense of Tenant. Tenant shall promptly remove from the Common
Area any of Tenant's furniture, equipment or other property there deposited.
15.2 Installing and Operating Tenant's Equipment. Without first
obtaining the written consent of Landlord, Tenant shall not install or operate
in the Premises (i) any electrically operated equipment or other machinery,
other than standard office equipment that does not require wiring, cooling, or
other service in excess of Building standards, (ii) any equipment of any kind or
nature whatsoever which will require any changes, replacements or additions to,
or changes in the use of, any water, heating, plumbing, air conditioning or
electrical system of the Premises or the Building, or (iii) any equipment which
causes the floor load to exceed the load limits for the Building. Landlord's
consent to such installation or operation may be conditioned upon the payment by
Tenant of additional compensation for any excess consumption of utilities and
any additional power, wiring, cooling or other service (as determined in the
sole discretion of Landlord) that may result from such equipment. Machines and
equipment which cause noise or vibration that may be transmitted to the
structure of the Building or to any space therein so as to be objectionable to
Landlord or any other Building tenant shall be installed and maintained by
Tenant, at its expense, on vibration eliminators or other devices sufficient to
eliminate such noise and vibration.
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ARTICLE 16
RIGHT OF ENTRY
Tenant shall permit Landlord or its Agents and contractors, at any time
with 24 hours advance notice except in the case of emergency, to enter the
Premises for a reasonable period, without charge therefore to Landlord and
without diminution of Rent, (i) to examine, inspect and protect the Premises and
the Building, (ii) to make such alterations and repairs or perform such
maintenance which in the sole judgment of Landlord may be deemed necessary or
desirable, (iii) to exhibit the same to prospective purchasers of the Building
or to present or future Mortgagees or (iv) to exhibit the same to prospective
tenants during the last twelve (12) months of the Term.
ARTICLE 17
INSURANCE
17.1 Insurance Rating. Tenant shall not conduct or permit any activity,
or place any equipment or material, in or about the Premises, the Building or
the Common Area which will increase the rate of fire or other insurance on the
Building or insurance benefitting any other tenant of the Building; and if any
increase in the rate of insurance is stated by any insurance company or by the
applicable insurance rating bureau to be due to any activity, equipment or
material of Tenant in or about the Premises, the Building or the Common Area,
such statement shall be conclusive evidence that the increase in such rate is
due to the same and, as a result thereof, Tenant shall pay such increase to
Landlord upon demand.
17.2 Liability Insurance. Tenant, at Tenant's sole cost and expense,
shall obtain and maintain in effect throughout the Term a policy of Commercial
General Liability Insurance (ISO form or equivalent) naming Landlord and (at
Landlord's request) the Mortgagees and any building manager as additional
insureds ("Additional Insureds"), protecting Landlord, Tenant and, if
applicable, the Additional Insureds against liability for bodily injury, death
and property damage occurring upon or in the Leased Premises, with such policy
to afford protection to the limit of not less than $2,000,000 with respect to
bodily injury or death or damage to property arising from any one occurrence and
$2,000,000 from the aggregate of all occurrences within each policy year. If
such policy also covers locations other than the Leased Premises, the policy
shall include a provision to the effect that the aggregate limit of $2,000,000
shall apply separately at the Leased Premises and that the insurer will provide
notice to Landlord if the aggregate is reduced either by payment of claims or
the establishment of reserves for claims if the payments or reserves exceed
$250,000. If the aggregate limit of $2,000,000 is reduced by the payment of a
claim or the establishment of a reserve, Tenant agrees to take immediate steps
to have the aggregate limit restored by endorsement to the existing policy or
the purchase of an additional insurance policy which complies with this
subsection.
17.3 Insurance for Personal Property. Tenant shall, at its sole cost
and expense, procure and maintain throughout the Term a property insurance
policy (written on an "All Risk" basis) insuring all of Tenant's personal
property, including but not limited to equipment, furniture,
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fixtures, furnishings and leasehold improvement which are the responsibility of
Tenant for not less than the full replacement cost of said property. All
proceeds of such insurance shall be used to repair or replace Tenant's property.
17.4 Contractual Liability Insurance. Tenant agrees to keep and
maintain as part of the coverage of its policy(ies) of liability insurance
contractual liability coverage or a contractual liability endorsement covering
Tenant's liability to Landlord for bodily injury or damage to property of
others, in the same limits required by subsection 17.2.
17.5 Requirements of Insurance Coverage. All such insurance required to
be carried by Tenant herein shall be with an insurance company licensed to do
business in the Commonwealth of Virginia and approved by Landlord. Such
insurance (i) shall contain an endorsement that such policy shall remain in full
force and effect notwithstanding that the insured has released its right of
action against any party before the occurrence of a loss; (ii) shall name
Landlord, Tenant and, at Landlord's request, any Mortgagee or ground lessor, as
the insured parties; and (iii) shall provide that the policy shall not be
cancelled, failed to be renewed or materially amended without at least
forty-five (45) days' prior written notice [fifteen (15) days if due to
non-payment of premium] to Landlord and, at Landlord's request, any Mortgagee.
On or before the Commencement Date and, thereafter, not less than thirty (30)
days before the expiration date of the insurance policy, an original of the
policy (including any renewal or replacement policy) or a certified copy
thereof, together with evidence satisfactory to Landlord of the payment of all
premiums for such policy, shall be delivered to Landlord and, at Landlord's
request, to any Mortgagee.
17.6 Prohibition Against Concurrent Insurance. All property insurance
shall be written as primary insurance. Tenant shall not take out separate
insurance concurrent in form or contributing in the event of loss with any
property damage insurance carried by Landlord for the Building unless Landlord
is included therein as an insured.
17.7 Waiver of Subrogation. Landlord and Tenant shall each include in
each of its property damage insurance policies, including Landlord's policies of
rent insurance and Tenant's policies of business interruption insurance, if any,
a waiver of the insurer's right of subrogation against the other party and the
officers, directors, agents and employees of, and the partners in, the other
party (and, in the case of Tenant's policies, against the Additional Insureds
and their respective officers, directors, agents and employees), or, if such
waiver at any time becomes unobtainable (i) an express agreement that such
policy shall not be invalidated if the insured waives or has waived before the
loss the right of recovery against any party responsible for an insured
casualty, or (ii) any other form of permission for the release of such
responsible party, provided such waiver, agreement or permission is obtainable
under normal commercial insurance practice at the time. If such waiver,
agreement, or permission is not, or ceases to be, obtainable without additional
charge or at all, the insured party shall so notify the other party promptly
after notice thereof. If the other party agrees in writing to pay the insurer's,
additional charge therefor, such waiver, agreement or permission shall (if
obtainable) be included in the policy. Landlord and Tenant hereby acknowledge
and agree that such waiver is obtainable under normal commercial insurance
practice on the date of this Lease at no additional charge.
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17.8 Security. In the event that Landlord engages the services of a
professional security system for the Building, it is understood that such
engagement shall in no way increase Landlord's liability for occurrences and/or
consequences which such a system is designed to detect or avert and that Tenant
shall look solely to its insurer as set out above for claims for damages or
injury to any person or property.
ARTICLE 18
LANDLORD SERVICES AND UTILITIES
18.1 Ordinary Services to the Premises. As long as no Event of Default
has occurred and is continuing, Landlord shall furnish to the Premises
throughout the Term (i) electricity, heating and air conditioning appropriate
for the Permitted Use between 8:00 a.m. and 6:00 p.m., Monday through Friday,
and between 9:00 a.m. and 1:00 p.m. on Saturday, except for legal holidays
observed by the federal government, (ii) reasonable janitorial service, (iii)
regular trash removal from the Premises, (iv) hot and cold water from points of
supply, (v) restrooms as required by applicable code, and (vi) elevator service,
if there is an elevator in the Building, provided that Landlord shall have the
right to remove such elevators from service as may be required for moving,
freight or for servicing or maintaining the elevators or the Building. The cost
of all services provided by Landlord hereunder shall be included within
Operating Expenses, unless changed directly (and not as a part of Operating
Expenses) to Tenant or another tenant of the Building. Landlord agrees to
furnish landscaping and grounds maintenance and snow clearing for the areas used
in common by the tenants of the Building. The foregoing services shall be
furnished by Landlord and reimbursed by Tenant as part of Operating Expenses;
provided, however, that Landlord shall be under no responsibility or liability
for occasional failure or interruption in such services caused by breakage,
accident, strikes, repairs or for any other cause or causes beyond the
reasonable control of Landlord, nor in any event for any indirect or
consequential damages; and failure or omission on the part of Landlord to
furnish such service shall not be construed as an eviction of Tenant, nor work
an abatement of Rent, nor render Landlord liable in damages, nor release Tenant
from prompt fulfillment of any of the covenants under this Lease.
18.2 After-Hours Services to the Premises. If Tenant requests that the
services to be furnished by Landlord (except Building standard electricity and
elevator service) be provided during periods in addition to the periods set
forth in Section 18.1, then Tenant shall obtain Landlord's consent thereto
and, if such consent is granted, shall pay upon demand Landlord's additional
expenses resulting therefrom. Landlord may, from time to time during the Term,
set a per hour charge for after-hours service which shall include the cost of
utility, service, labor costs, administrative costs and a cost for depreciation
of the equipment used to provide such after-hours service. The cost for after
hours service is currently $50.00 per hour.
18.3 Landlord's Right to Meter Tenant's Electrical Usage. If, at any
time or from time to time, the estimated connected electrical load (including
lighting and power) used by Tenant's lighting and electrically operated
equipment exceeds an average of 5 watts per square foot of the
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Premises, Landlord may either (i) install a separate electric meter for the
Premises, at Landlord's sole cost and expense, and Tenant shall reimburse
Landlord for the cost of electricity it consumes, as recorded by such meter, in
excess of the amount of electricity that would be consumed by a tenant whose
consumption of electricity was equal to, but did not exceed, the specified
limits, or (ii) from time to time have a survey made by an independent
electrical engineer or electrical consulting firm to be selected and paid for by
Landlord to determine the amount of electricity consumed by Tenant in excess of
the amount of electricity that would be consumed by a tenant whose consumption
of electricity was equal to, but did not exceed, the specified limits, and
Tenant shall pay to Landlord the cost of excess electricity it consumes as
determined by such electrical engineer or consulting firm.
ARTICLE 19
LIABILITY OF LANDLORD
19.1 No Liability. Landlord and its Agents shall not be liable to
Tenant or its Agents for, and Tenant, for itself and its Agents, does hereby
release Landlord and its Agents from liability for, any damage, compensation or
claim arising from (i) the necessity of repairing any portion of the Premises or
the Building or the Common Area or any structural defects thereto, (ii) any
interruption in the use of the Premises or the Common Area for any reason
including any interruption or suspension of utility service, (iii) fire or other
casualty or personal or property injury, damage or loss resulting from the use
or operation (by Landlord, Tenant, or any other person whomsoever) of the
Premises or the Building or the Common Area, (iv) the termination of this Lease,
(v) robbery, assault or theft or (vi) any leakage in the Premises or the
Building from water, rain, snow or other cause whatsoever. No such occurrence
shall give rise to diminution or abatement of Rent or constructive eviction. Any
goods, automobiles, property or personal effects stored or placed by Tenant or
its Agents in or about the Premises, the Building, the Land or the Common Area
shall be at the sole risk of Tenant, and Landlord and its Agents shall not in
any manner be held responsible therefor. Except to the extent expressly
prohibited by law, Tenant hereby waives any claim it might have against Landlord
or its Agents for any consequential damages sustained by Tenant arising out of
the loss or damage to any person or property of Tenant.
19.2 Indemnity. (i) Tenant shall indemnify and hold Landlord, and its
Agents, harmless from and against any and all damage, claim liability, cost or
expense (including, without limitation attorneys' or other professionals' fees)
of every kind and nature (including, without limitation, those arising from any
injury or damage to any person, property, or business) incurred by or claimed
against the other party or its Agents, directly or indirectly, as a result of,
arising from or in connection with the Tenant's or its Agent's use and occupancy
of the Premises, the Building or the Common Area. (ii) Landlord shall indemnify
and hold Tenant and its Agents harmless from and against any and all damage,
claims, liability, cost or expense (including, without limitation, attorneys' or
other professionals' fees) of every kind and nature (including, without
limitation, those arising from any injury or damage to any person, property or
business) incurred by or claimed against Tenant, directly or indirectly, as a
result of, arising from or in connection with Landlord's (but not any tenant's
or any tenant's sublessee, assign, invitee or guest) actions or
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culpable omissions upon or with respect to the Building or Common Area; provided
however, that no indemnity or hold harmless shall be provided by Landlord
pursuant to this paragraph as a result of, arising from or in connection with
any actions or omissions concerning which Landlord's liabilities or Tenant's
rights are limited pursuant to other provisions of this Lease.
ARTICLE 20
RULES AND REGULATIONS
Tenant and its Agents shall at all times abide by and observe the Rules
and Regulations and amendments thereto that may be promulgated from time to time
by Landlord for the operation and maintenance of the Building, the Land and the
Common Area and the Rules and Regulations shall be deemed to be covenants of the
Lease to be performed and/or observed by Tenant. Nothing contained in this Lease
shall be construed to impose upon Landlord any duty or obligation to enforce the
Rules and Regulations, or the terms or provisions contained in any other lease,
against any other tenant of the Building. Landlord shall not be liable to Tenant
for any violation by any party of the Rules and Regulations or the terms of any
other Building lease. If there is any inconsistency between this Lease and the
Rules and Regulation, this Lease shall govern. Landlord reserves the right to
amend and modify the Rules and Regulations as it deems necessary, provided such
amendments do not unreasonably and materially interfere with Tenant's conduct of
business or use of the Premises.
ARTICLE 21
DAMAGE; CONDEMNATION
21.1 Damage to the Premises. If the Premises shall be damaged by fire
or other cause without the fault or negligence of Tenant or its Agents, Landlord
shall diligently and as soon as practicable after such damage occurs (taking
into account the time necessary to effect a satisfactory settlement with any
insurance company involved) repair such damage at the expense of Landlord;
provided, however, that Landlord's obligation to repair such damage shall not
exceed the proceeds of insurance available to Landlord (reduced by any proceeds
retained pursuant to the rights of Mortgagee). Notwithstanding the foregoing, if
the Premises or the Building are damaged by fire or other cause to such an
extent that, in Landlord's sole judgment, the damage cannot be substantially
repaired within one hundred (100) days after the date of such damage, or if 50%
or more of the Premises are damaged during the last two (2) Lease Years, then
Landlord or Tenant within thirty (30) days from the date of such damage may
terminate this Lease by notice to the other. If either Landlord or Tenant
terminate this Lease, the Rent shall be apportioned and paid to the date of such
termination. If neither Landlord nor Tenant so elects to terminate this Lease
but the damage required to be repaired by Landlord is not repaired within one
hundred (100) days from the date of such damage (such one hundred (100) day
period to be extended by the period of any delay outside the direct control of
Landlord plus a reasonable period for a satisfactory settlement with any
insurance company involved), Tenant, within thirty (30) days from the expiration
of such one hundred (100) day period (as the same may be extended), may
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terminate this Lease by notice to Landlord. During the period that Tenant is
deprived of the use of the damaged portion of the Premises, and provided such
damage is not the consequence of the fault or negligence of Tenant or its
Agents, Basic Rent and Tenant's Proportionate Share shall be reduced by the
ratio that the rentable square footage of the Premises is unreasonably unuseable
because of the damage bears to the total rentable square footage of the Premises
before such damage. All injury as damage to the Premises or the Building
resulting from the fault or negligence of Tenant or its Agents shall be repaired
by Tenant, at Tenant's expense, and Rent shall not abate. If Tenant shall fail
to do so or if Landlord shall so elect, Landlord shall have the right to make
such repairs, and any expense so incurred by Landlord, together with interest
thereon at the Interest Rate, shall be paid by Tenant upon demand.
Notwithstanding anything herein to the contrary, Landlord shall not be required
to rebuild, replace or repair any nonstandard tenant improvements, tenant extras
or Alterations or any personal property of Tenant.
21.2 Landlord Released from Liability. As long as Tenant's policies of
property damage insurance include the waiver of subrogation or agreement or
permission to release liability referred to in Section 17.7, Tenant, to the
extent that such insurance is in force and collectible, hereby waives (and
agrees to cause all other occupants of the Premises to execute and deliver to
Landlord instruments waiving) any right of recovery against Landlord, the
Additional Insureds and any of their respective officers, directors, agents,
employees, partners, contractors or invitees, for any loss or damage to
Alterations or Tenant's Personal Property caused by fire or other insured peril.
If at any time any of Tenant's policies shall not include a waiver of
subrogation or agreement or permission or similar provisions, the waiver set
forth in the preceding sentence shall, upon notice given by Tenant to Landlord,
be of no further force or effect from and after the giving of such notice (or,
if such insurer shall not grant such waiver for all of the required parties,
such waiver shall be of no force or effect only with respect to the required
parties not included in the waiver). If Tenant fails to obtain and maintain the
policy of property damage insurance required by Section 17.3, Tenant hereby
waives (and agrees to cause all occupants of the Premises to execute and
delivery to Landlord instruments waiving) any right of recovery against
Landlord, the Additional Insureds and any of their respective officers,
directors, agents, employees, partners, contractors and invitees, for any loss
or damage to Alterations or Tenant's Personal Property caused by fire or other
perils of the type that would have been insured against by the policy of
property damage insurance required by Section 17.3 if Tenant had obtained such
policy and the policy had been in effect on the date of the fire or other
insured peril.
21.3 Condemnation. If the whole or a Substantial Part of the Premises
or the Building shall be taken or condemned by any governmental or quasi-public
use or purpose (including, without limitation, sale under threat of such a
taking), then the Term shall cease and terminate as of the date when title vests
in such governmental or quasi-governmental authority, and Rent shall be prorated
to the date when title vests in such governmental or quasi-governmental
authority. If less than a Substantial Part of the Premises is taken or condemned
by any governmental or quasi-governmental authority for any public or
quasi-public use or purpose (including, without limitation, sale under threat of
such a taking), Basic Rent and Tenant's Proportionate Share shall be reduced by
the ratio that the portion so taken bears to the rentable square footage of the
Premises before such taking, effective as of the date when title vests in such
governmental or quasi-governmental authority, and this Lease shall otherwise
continue in full force and effect.
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Tenant shall have no claim against Landlord (or otherwise) as a result of such
taking, and Tenant hereby agrees to make no claim against the condemning
authority for any portion of the amount that may be awarded as compensation or
damages as a result of such taking; provided, however, that Tenant may, to the
extent allowed by law, claim an award for moving expenses and for the taking of
any of Tenant's property (other than its leasehold interest in the Premises)
which does not, under the terms of this Lease, become the property of Landlord
at the termination hereof, as long as such claim is separate and distinct from
any claim of Landlord and does not diminish Landlord's award. Tenant hereby
assigns to Landlord any right and interest it may have in any award for its
leasehold interest in the Premises.
ARTICLE 22
DEFAULT
22.1 Events of Default. Each of the following shall constitute an Event
of Default: (i) Tenant fails to pay Rent within five (5) days after notice from
Landlord; provided that no such notice shall be required if at least two such
notices shall have been given during the same Lease Year; (ii) Tenant fails to
observe or perform any other term, condition or covenant herein binding upon or
obligating Tenant within ten (10) days after notice from Landlord; (iii)
Landlord fails to observe or perform any other term, condition or covenant
herein binding upon or obligating Landlord within twenty (20) days after notice
from Tenant; (iv) Tenant abandons or vacates the Premises; (v) Tenant or any
Guarantor makes or consents to a general assignment for the benefit of creditors
or a common law composition of creditors, or a receiver of the Premises for all
or substantially all of Tenant's or Guarantor's assets is appointed, or (vi)
Tenant or Guarantor files a voluntary petition in any bankruptcy or insolvency
proceeding, or an involuntary petition in any bankruptcy or insolvency
proceeding is file against Tenant or Guarantor and is not discharged by Tenant
or Guarantor within sixty (60) days.
22.2 Landlord's Remedies. Upon the occurrence of an Event of Default,
Landlord, at its option, without further notice or demand to Tenant, may in
addition to all other rights and remedies provided in this Lease, at law or in
equity:
(i) Terminate this Lease and Tenant's right of possession of
the Premises, and recover all damages to which Landlord is entitled under law,
specifically including but without limitation, all of Landlord's expenses of
reletting (including, without limitation, rental concessions to new tenants,
repairs, Alterations, legal fees and brokerage commissions). If Landlord elects
to terminate this Lease, every obligation of the parties shall cease as of the
date of such termination, except that Tenant shall remain liable for payment of
Rent and performance of all other terms and conditions of this Lease to the date
of termination.
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(ii) Terminate Tenant's right of possession of the Premises
without terminating this Lease, in which event Landlord may, but shall not be
obligated to, relet the Premises, or any part thereof, for the account of
Tenant, for such rent and term and upon such other conditions as are acceptable
to Landlord in Landlord's sole discretion. For purposes of such reletting,
Landlord is authorized to redecorate, repair, alter and improve the Premises to
the extent necessary in Landlord's sole discretion. Until Landlord relets the
Premises, Tenant shall remain obligated to pay Rent to Landlord as provided in
this Lease. If and when the Premises are relet and if a sufficient sum is not
realized from such reletting after payment of all Landlord's expenses of
reletting (including, without limitation, rental concessions to new tenants,
repairs, Alterations, legal fees and brokerage commissions) to satisfy the
payment of Rent due under this Lease for any month, Tenant shall pay Landlord
any such deficiency upon demand. Tenant agrees that Landlord may file suit to
recover any sums due Landlord under this Section from time to time and that such
a suit or recovery of any amount due Landlord shall not be any defense to any
subsequent action brought for any amount not previously reduced to judgment in
favor of Landlord.
(iii) Terminate this Lease and Tenant's right of possession of
the Premises, and recover from Tenant the net present value of the Rent due from
the date of termination until the Expiration Date, discounted at the lesser of
the Interest Rate as of the date of termination or seven percent (7%) per annum.
(iv) Re-enter and repossess the Premises and remove all
persons and effects therefrom by summary proceeding, ejectment or other legal
action.
(v) Recover from Tenant, to the extent permitted under the
laws of the Commonwealth of Virginia, the value and/or cost of all concessions
to Tenant under this Lease.
22.3 Rights Upon Possession. If Landlord takes possession pursuant to
this Article, with or without terminating this Lease, Landlord may, at its
option, enter into the Premises, remove Tenant's Alterations, signs, personal
property, equipment and other evidences of tenancy, and store them at Tenant's
risk and expense or dispose of them as Landlord may see fit, and take and hold
possession of the Premises; provided, however, that if Landlord elects to take
possession only without terminating this Lease, such entry and possession shall
not terminate this Lease or release Tenant or any Guarantor, in whole or in
part, from the obligation to pay the Rent reserved hereunder for the full Term
or from any other obligation under this Lease or any guaranty thereof.
22.4 No Waiver. If Landlord shall institute proceedings against Tenant
and a compromise or settlement thereof shall be made, the same shall not
constitute a waiver of any other covenant, condition or agreement herein
contained, nor of any of Landlord's rights hereunder. No waiver by Landlord of
any breach shall operate as a waiver of such covenant, condition or agreement,
or operate as a waiver of such covenant, condition or agreement itself, or of
any subsequent breach thereof.
If Tenant shall institute proceedings against Landlord and a compromise or
settlement thereof shall be made, the same shall not constitute a waiver of any
other covenant, condition or agreement herein contained, nor of any of Tenant's
rights hereunder. No waiver by Tenant of any breach
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shall operate as waiver of such covenant, condition or agreement, or operate a
waiver of such covenant, condition or agreement itself, or of any subsequent
breach thereof. No payment of Rent by Tenant or acceptance of Rent by Landlord
shall operate as a waiver of any breach or default by Tenant under this Lease.
No payment by Tenant or receipt by Landlord of a lesser amount than the monthly
installment of Rent herein stipulated shall be deemed to be other than a payment
on account of the earliest unpaid Rent, nor shall any endorsement or statement
on any check or communication accompanying a check for the payment of Rent be
deemed an accord and satisfaction, and Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance of such Rent or to
pursue any other remedy provided in this Lease. No re-entry by Landlord, and no
acceptance by Landlord of keys from Tenant, shall be considered an acceptance of
a surrender of the Lease.
22.5 Right of Landlord to Cure Tenant's Default. If any Event of Default
shall occur, then Landlord may (but shall not be obligated to) make such payment
or do such act to cure the Event of Default, and charge the amount of the
expense thereof, together with interest thereon at the Interest Rate, to Tenant.
Such payment shall be due and payable upon demand; however, the making of such
payment or the taking of such action by Landlord shall not be deemed to cure
that Event of Default or to stop Landlord from the pursuit of any remedy to
which Landlord would otherwise be entitled. Any such payment made be Landlord on
Tenant's behalf shall bear interest until paid at the Interest Rate.
22.6 Late Payment. If Tenant fails to pay any Rent within five (5)
business days after such Rent becomes due and payable, Tenant shall pay to
Landlord a late charge of the greater of $100 or five percent (5%) of the
amount of such overdue Rent. In addition, any such late Rent payment shall bear
interest from the date such Rent became due and payable to the date of payment
thereof by Tenant at the Interest Rate. Such late charge and interest shall be
due and payable within two (2) days after written demand from Landlord.
22.7 Bankruptcy Termination Provision. This Lease shall automatically
terminate and expire, without the performance of any act or the giving of any
notice by Landlord, upon the occurrence of any of the following events: (1)
Tenant's admitting in writing its inability to pay its debts generally as they
become due, or (2) the commencement by Tenant of a voluntary case under the
federal bankruptcy laws, as now constituted or hereafter amended, or any other
applicable federal or state bankruptcy, insolvency or other similar law, or (3)
the entry of a decree or order for relief by a court having jurisdiction in the
premises in respect of Tenant in an involuntary case under the federal
bankruptcy laws, as now constituted or hereafter amended, or any other
applicable federal or state bankruptcy, insolvency or other similar law, and the
continuance of any such decree or order unstayed and in effect for a period of
30 consecutive days, or (4) Tenant's making an assignment of all or a
substantial part of its property for the benefit of its creditors, or (5)
Tenant's seeking or consenting to or acquiescing in the appointment of, or the
taking of possession by, a receiver, trustee or custodian for all or a
substantial part of its property, or (6) the entry of a court order without
Tenant's consent, which order shall not be vacated, set aside or stayed within
30 days from the date of entry, appointment a receiver, trustee or custodian for
all or a substantial part of its property. The provisions of this Section shall
be construed with due recognition for the provisions of the federal bankruptcy
laws, where
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applicable, but shall be interpreted in a manner which results in a termination
of this Lease in each and every instance, and to the fullest extent, that such
termination is permitted under the federal bankruptcy laws, it being of prime
importance to the Landlord to deal only with tenants who have, and continue to
have, a strong degree of financial strength and financial stability.
22.8 Landlord Default. If Landlord shall fail to keep or perform any of
its obligations under this Lease, then Tenant may (but shall not be obligated to
do so) upon the continuance of such failure on Landlord's part for twenty (20)
days after Landlord's receipt of notice from Tenant specifying the failure (or,
in the case of any such failure which cannot with due diligence be cured within
twenty (20) days, within such additional period, if any, as may be reasonably
required by Landlord to cure such failure with due diligence), and without
waiving or releasing Landlord from any obligation, make such payment or perform
such obligation and all sums so paid by Tenant and all necessary and incidental
cost and expenses, including reasonable attorney's fees paid to independent
legal counsel, incurred by Tenant in making such payment or performing such
obligation, together with interest thereon at the Interest Rate from the date of
payment, shall be paid by Landlord to Tenant on demand, and if not so paid by
Landlord, Tenant shall have the right to pursue any legal remedies available to
it to collect payment, but shall not be entitled to offset such payment against
Rent thereafter payable under this Lease. If Landlord commits a default, Tenant
may pursue any remedies given in this lease or under law.
ARTICLE 23
MORTGAGES
23.1 Subordination. This Lease is subject and subordinate to all ground
or underlying leases and to any Mortgage(s) which may now or hereafter affect
such leases or the Land and to all renewals, modifications, consolidations,
replacements and extensions thereof. This subordination shall be self-operative;
however, in confirmation thereof, Tenant shall execute within one (1) week any
instrument that Landlord or any Mortgagee may request confirming such
subordination. Notwithstanding the foregoing, before any foreclosure sale under
a Mortgage, the Mortgagee shall have the right to subordinate the Mortgage to
this Lease, and, in the event of a foreclosure, this Lease may continue in full
force and effect and Tenant shall attorn to and recognize as its landlord the
purchaser of Landlord's interest under this Lease. Tenant shall, upon the
request of a Mortgagee or purchaser at foreclosure, execute, acknowledge and
deliver any instrument that has for its purpose and effect the subordination of
the lien of any Mortgagee to this Lease or Tenant's attornment to such
Purchaser.
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23.2 Mortgagee Protection. Tenant agrees to give any Mortgagee by
certified mail, return receipt requested, a copy of any notice of default served
upon Landlord, provided that before such notice Tenant has been notified in
writing of the address of such Mortgagee. Tenant further agrees that if Landlord
shall have failed to cure such default within the time provided for in this
Lease, then Mortgagee shall have an additional thirty (30) days within which to
cure such default; provided, however, that if such default cannot be reasonably
cured within that time, then such Mortgagee shall have such additional time as
may be necessary to cure such default so long as Mortgagee has commenced and is
diligently pursuing the remedies necessary to cure such default (including,
without limitation, the commencement of foreclosure proceedings, if necessary),
in which event this Lease shall not be terminated or Rent abated while such
remedies are being so diligently pursued. In the event of the sale of the Land
or the Building, by foreclosure or deed in lieu thereof, the Mortgagee or
purchaser at such sale shall be responsible for the return of the Security
Deposit only to the extent that such Mortgagee or purchaser actually received
the Security Deposit.
23.3 Modification Due to Financing. If, in connection with obtaining
construction or permanent financing for the Premises, the Building or the Land,
any lender (or Mortgagee) shall request reasonable modifications of this Lease
as a condition to such financing, Tenant shall promptly execute a modification
of this Lease, provided such modifications do not materially increase the
financial obligations of Tenant hereunder or materially adversely affect the
leasehold interest hereby created or Tenant's reasonable use and enjoyment of
the Premises. Tenant and any Guarantor shall each, prior to execution and
throughout the Term, upon request from time to time, provide such financial
information and documentation about itself to Landlord or Mortgagee as may be
requested.
ARTICLE 24
SURRENDER; HOLDING OVER
24.1 Surrender of the Premises. Tenant shall peaceably surrender the
Premises to Landlord on the Expiration Date or earlier termination of this
Lease, in broom-clean condition and in as good condition as when Tenant took
possession, including, without limitation, the repair of any damage to the
Premises caused by the removal of any of Tenant's personal property or trade
fixtures from the Premises, except for reasonable wear and tear and loss by fire
or other casualty not caused by Tenant or its Agents. Any of Tenant's personal
property left on or in the Premises, the Building, the Land or the Common Area
after the Expiration Date or earlier termination of this Lease shall be deemed
to be abandoned, and, at Landlord's option, title shall pass to Landlord under
this Lease.
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24.2 Holding Over. In the event that Tenant shall not immediately
surrender the Premises to Landlord on the Expiration Date or earlier termination
of this Lease, Tenant shall be deemed to be a month to month tenant upon all of
the terms and provisions of this Lease, except the monthly Basic Rent shall be
150% the monthly Basic Rent in effect during the last month of the Term.
Notwithstanding the foregoing, if Tenant shall hold over after the Expiration
Date or earlier termination of this Lease, and Landlord shall desire to regain
possession of the Premises, then Landlord may forthwith re-enter and take
possession of the Premises with due process, or by any legal process.
ARTICLE 25
QUIET ENJOYMENT
Landlord covenants that if Tenant shall pay Rent and perform all of the
terms and conditions of this Lease to be performed by Tenant, Tenant shall
during the Term peaceably and quietly occupy and enjoy possession of the
Premises without molestation or hindrance by Landlord or any party claiming
through or under Landlord, subject to the provisions of this Lease and any
Mortgage to which this Lease is subordinate and easements, conditions and
restrictions of record affecting the Land.
ARTICLE 26
TENANT'S COVENANTS REGARDING HAZARDOUS MATERIALS
26.1 Definition. As used in this Lease, the term "Hazardous Material"
means any flammable items, explosives, radioactive materials, hazardous or toxic
substances, material or waste or related materials, including any substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "infectious wastes," "hazardous materials" or "toxic substances" now or
subsequently regulated under any federal, state, or local laws, regulation or
ordinances including, without limitation, oil, petroleum-based products, paints,
solvents, lead, cyanide, DDT, printing inks, acids, pesticides, ammonia
compounds and other chemical products, asbestos, PCBs and similar compounds, and
including any different products and materials which are subsequently found to
have adverse effects on the environmental or the health and safety of persons.
26.2 General Prohibition. Tenant and Landlord certify that they shall
not generate, use, store or dispose of any Hazardous Materials in or about the
Premises, the Building or the Land. Landlord, to the best of its knowledge and
belief, covenants that the Premises and the Building do not contain any
Hazardous Materials and agrees not to bring into the Premises or Building any
Hazardous Materials. Tenant, to the best of its knowledge and belief, covenants
that the Premises do not contain any Hazardous Materials and agrees not to bring
into the Premises any Hazardous Materials. The covenants set forth in this
paragraph shall survive the expiration or earlier termination of the Lease term.
Notwithstanding the foregoing, the parties recognize and acknowledge that they
or their agents may use and store within the Building and, as to Tenant, the
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Premises, reasonable quantities of customary office cleaning supplies; provided
such items are stored, used and disposed of in accordance with applicable
federal, state or local law. Tenant and Landlord shall indemnify, defend and
hold each other harmless from and against any and all actions (including,
without limitation, remedial or enforcement actions of any kind, administrative
or judicial proceedings, and orders or judgments arising out of or resulting
therefrom), costs, claims, damages (including, without limitation, punitive
damages), expenses (including, without limitation, attorneys', consultants' and
experts' fees, court costs and amounts paid in settlement of any claims or
actions), fines, forfeitures or other civil, administrative or criminal
penalties, injunctive or other relief (whether or not based upon personal
injury, property damage, or contamination of, or adverse effects upon, the
environment, water tables or natural resources), liabilities or losses arising
from a breach of this prohibition by Tenant, its Agents or sublessees or
assignees.
26.3 Notice. In the event that Hazardous Materials are discovered upon,
in, or under the Premises, the Building or the Land, and the governmental agency
or entity having jurisdiction over the Premises, the Building or the Land
requires the removal of such Hazardous Materials, Tenant shall be responsible
for removing those Hazardous Materials arising out or related to the use or
occupancy of the Premises by the Tenant or its Agents, affiliates, sublessees or
assignees but not those of its predecessors. Notwithstanding the foregoing,
Tenant shall not take any remedial action in or about the Premises, the Building
or the Land, without first notifying Landlord of Tenant's intention to do so and
affording Landlord the opportunity to protect Landlord's interest with respect
thereto. Tenant immediately shall notify Landlord in writing of: (i) any spill,
release, discharge or disposal of any Hazardous Material in, on or under the
Premises, the Building, the Land or any portion thereof, (ii) any enforcement,
cleanup, removal, or other governmental or regulatory action instituted,
contemplated, or threatened (if Tenant has notice thereof) pursuant to any
Hazardous Materials Laws; (iii) any claim made or threatened by any person
against Tenant, the Premises, the Building or the Land relating to damage,
contribution, cost recovery, compensation, loss or injury resulting from or
claimed to result from any Hazardous Materials in, on, under or about or removed
from the Premises, the Building or the Land, including any complaints, notices,
warnings, reports or asserted violations in connection therewith. Tenant also
shall supply to Landlord as promptly as possible, and in any event within five
(5) business days after Tenant first receives or sends the same, copies of all
claims, reports, complaints, notices, warnings or asserted violations relating
in any way to the Premises, the Building, the Land or Tenant's use or occupancy
thereof
26.4 Survival. The respective rights and obligations of Landlord and
Tenant under this Article 26 shall survive the expiration or earlier termination
of this Lease.
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ARTICLE 27
MISCELLANEOUS
27.1 No Representations by Landlord. Tenant acknowledges that neither
Landlord or its Agents nor any broker has made any representation or promise
with respect to the Premises, the Building, the Land or the Common Area, except
as herein expressly set forth, and no rights, privileges, easements or licenses
are acquired by Tenant except as herein expressly set forth. Tenant, by taking
possession of the Premises shall accept the Premises and the Building "AS IS,"
and such taking of possessions shall be conclusive evidence that the Premises
and the Building are in good and satisfactory conditions at the time of such
taking of possession, subject to such punchlist items as are noted by Tenant and
Landlord at occupancy.
27.2 No Partnership. Nothing contained in this Lease shall be deemed or
construed to create a partnership or joint venture or between Landlord and
Tenant, or to create any other relationship between Landlord and Tenant other
than that of landlord and tenant.
27.3 Brokers. Landlord recognizes Broker(s) as the sole broker(s)
procuring this Lease and shall pay Broker(s) a commission therefor pursuant to a
separate agreement between Broker(s) and Landlord. Landlord and Tenant each
represent and warrant to the other that it has not employed any broker, agent or
finder other than Broker(s) relating to this Lease. Landlord shall indemnify and
hold Tenant harmless, and Tenant shall indemnify and hold Landlord harmless,
from and against any claim for brokerage or other commission arising from or out
of any breach of the indemnitor's representation and warranty.
27.4 Estoppel Certificate. Tenant shall, without charge, at any time
and from time to time, within five (5) business days after request therefor by
Landlord, Mortgagee, any purchaser of the Land or the Building or any other
interested person, execute, acknowledge and deliver to such requesting party a
written estoppel certificate certifying, as of the date of such estoppel
certificate, the following: (i) that this Lease is unmodified and in full force
and effect as modified and setting forth such modifications); (ii) that the Term
has commenced (and setting forth the Commencement date and Expiration Date);
(iii) that Tenant is presently occupying the Premises; (iv) the amounts of Base
Rent and Additional Rent currently due and payable by Tenant; (v) that any
Alterations required by the Lease to have been made by Landlord have been made
to the satisfaction of Tenant; (vi) that there are no existing set-offs,
charges, liens, claims or defenses against the enforcement of any right
hereunder, including, without limitation, Basic Rent or Additional Rent (or, if
alleged, specifying the same in detail); (vii) that no Basic Rent (except the
first installment thereof) has been paid more than thirty (30) days in advance
of its due date; (viii) that Tenant has no knowledge of any then uncured default
by Landlord of its obligations under this Lease (or, if Tenant has such
knowledge, specifying the same in detail); (ix) that Tenant is not in default;
(x) that the address to which notices to Tenant should be sent is as set forth
in the Lease (or, if not specifying the correct address); and (xi) any other
certifications requested by Landlord. In addition, within five (5) business days
after request by Landlord, Tenant shall deliver to Landlord financial statements
of Tenant for its most recently ended fiscal year and interim unaudited
financial statements for its most recently ended quarter.
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27.5 Waiver of Jury Trial. Tenant hereby waives trial by jury in any
action, proceeding or counterclaim brought by Landlord against Tenant with
respect to any matter whatsoever arising out of or in any way connected with
this Lease, the relationship of Landlord and Tenant hereunder or Tenant's use or
occupancy of the Premises. In the event Landlord commences any proceedings for
nonpayment of Rent, Tenant shall not interpose any counterclaims. This shall
not, however, be construed as a waiver of Tenant's right to assert such claims
in any separate action brought by Tenant.
27.6 Notices. All notice or other communications hereunder shall be in
writing and shall be deemed duly given if delivered in person or upon the
earlier of receipt, if mailed by certified or registered mail, or three (3) days
after certified or registered mailing, return receipt requested, postage
prepaid, addressed and sent, if to Landlord to Landlord's Address specified in
Section 1.14 or if to Tenant to Tenant's Address specified in Section 1.15.
Landlord and Tenant may from time to time by written notice to the other
designate another address for receipt of future notices.
27.7 Invalidity of Particular Provisions. If any provisions of this
Lease or the application thereof to any person or circumstances shall to any
extent by invalid or unenforceable, the remainder of this Lease, or the
application of such provision to persons or circumstances other than those to
which it is invalid or unenforceable, shall not be affected thereby, and each
provision of this Lease shall be valid and be enforced to the full extent
permitted by law.
27.8 Gender and Number. A11 terms and words used in this Lease,
regardless of the number or gender in which they are used, shall be deemed to
include any other number or gender as the context may require,
27.9 Benefit and Burden. Subject to the provisions of Article 11 and
except as otherwise expressly provided, the provisions of this Lease shall be
binding upon, and shall inure to the benefit of, the parties hereto and each of
their respective representatives, heirs, successors and assigns. Landlord may
freely and fully assign its interest hereunder.
27.10 Entire Agreement. This Lease (which includes the Exhibits and
Rider attached hereto) contains and embodies the entire agreement of the parties
hereto, and no representations, inducements or Agreements oral or otherwise,
between the parties not contained in this Lease shall be of any force or effect.
This Lease (other than the Rules and Regulations, which may be changed from time
to time as provided herein) may not be modified, changed or terminated in whole
or in part in any manner other than by an agreement in writing duly signed by
Landlord and Tenant.
27.11 Authority.
(i) If Tenant signs as a corporation, the person executing
this Lease on behalf of Tenant hereby represents and warrants that Tenant is a
duly formed and validly existing corporation, in good standing, qualified to do
business in the Commonwealth of Virginia, that the
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<PAGE> 39
corporation has full power and authority to enter into the Lease and that he or
she is authorized to execute this Lease on behalf of the corporation.
(ii) If Landlord signs as a corporation, the person executing
this Lease on behalf of Landlord hereby represents and warrants that Landlord is
a duly formed and validly existing corporation, in good standing, qualified to
do business in the Commonwealth of Virginia, that the corporation has full power
and authority to enter into the Lease and that he or she is authorized to
execute this Lease on behalf of the corporation.
(iii) If Tenant signs as a partnership, the person executing
this Lease on behalf of Tenant hereby represents and warrants that Tenant is a
duly formed, validly existing partnership qualified to do business in the
Commonwealth of Virginia, that the partnership has full power and authority to
enter into this Lease, and that he or she is authorized to execute this Lease on
behalf of the partnership.
(iv) If Landlord signs as a partnership, the person executing
this Lease on behalf of Landlord hereby represents and warrants that Landlord is
a duly formed, validly existing partnership qualified to do business in the
Commonwealth of Virginia, that the partnership has full power and authority to
enter into this Lease, and that he or she is authorized to execute this Lease on
behalf of the partnership.
27.12 Attorneys' Fees. If, as a result of any default of Landlord or
Tenant in its performance of any of the provisions of this Lease, the other
party uses the services of an attorney in order to secure compliance with such
provisions or recover damages therefor, or to terminate this Lease or evict
Tenant, the non-prevailing party shall reimburse the prevailing party upon
demand for any and all attorneys' fees and expenses so incurred by the
prevailing party.
27.13 Interpretation. This Lease is governed by the laws of the
Commonwealth of Virginia.
27.14 No Person Liability: Sale. Neither Landlord nor its Agents nor
Tenant or its Agents, whether disclosed or undisclosed, shall have any personal
liability under any provision of this Lease. In the event of a judgment in favor
of Tenant which remains unpaid, Tenant's rights of redress, execution and levy
shall be limited to the equity of Landlord in the Building as described in
Article 1 hereof. In the event that the original landlord hereunder, or any
successor owner of the Building, shall sell or convey the Building, all
liabilities and obligations on the part of the original Landlord, or such
successor owner, under this Lease occurring thereafter shall terminate as of the
day of such sale, and thereupon all such liabilities and obligations shall be
binding on the new owner. Tenant agrees to attorn to such new owner. Any
successor to Landlord's interest shall not be bound by (i) any payment of Basic
Rent or Additional Rent for more than one (1) month in advance, except for the
payment of the first installment of First Year Basic Rent or (ii) as to any
Mortgagee or any purchaser at foreclosure, any amendment or modification of this
Lease made without the consent of such Mortgagee.
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<PAGE> 40
27.15 Time of the Essence. Time is of the essence as to Tenant's and as
to the initial delivery of possession, Landlord's obligations contained in this
Lease.
27.16 Force Majeure. Except for Tenant's obligations to pay Rent under
this Lease, neither Landlord nor Tenant shall be required to perform any of its
obligations under this Lease, nor shall such party be liable for loss or damage
for failure to do so, nor shall the other party thereby be released from any of
its obligations under this Lease, where such failure by the non-performing party
arises from or through acts of God, strikes, lockouts, labor difficulties,
explosions, sabotage, accidents, riots, civil commotions, acts of war, results
or any warfare or warlike conditions in this or any foreign country, fire or
casualty, legal requirements, energy shortage or other causes beyond the
reasonable control of the non-performing party, unless such loss or damage
results from the willful misconduct or gross negligence of the non-prevailing
party.
27.17 Headings. Captions and headings are for convenience of reference
only.
27.18 Memorandum of Lease. Tenant shall at the request of Landlord,
execute and deliver a memorandum of lease in recordable form. Tenant shall not
record such a memorandum of this Lease without Landlord's consent. In the event
Tenant requests recordation of a memorandum of this Lease, Tenant shall be
obligated to pay all costs, fees and taxes, if any, associated with such
recordation. In the event Landlord elects to record a memorandum of this Lease,
Landlord shall be obligated to pay all costs, fees and taxes, if any, associated
with such recordation.
27.19 Landlord's Relocation Option. At any time during the Term,
Landlord shall have the option to relocate Tenant, at no direct cost of Tenant,
to space comparable to the Premises elsewhere in the Building, provided Landlord
gives Tenant three (3) months' written notice. Upon relocation, such new space
shall be deemed to be the "Premises" hereunder, and Tenant's Proportionate Share
shall be recalculated by Landlord to equal that fraction, the numerator of which
is the rentable square footage of the Premises and the denominator of which is
the rentable square footage of the Building (as reasonably determined by
Landlord).
27.20 Effectiveness. The furnishing of the form of this Lease shall not
constitute an offer and this Lease shall become effective upon and only upon its
execution by and delivery to each party hereto.
27.21 Expansion Option. Tenant shall have the one time First Right of
Refusal on approximately 2,063 square feet outlined in Exhibit A-3. Upon receipt
of a bona fide third party offer Landlord shall submit the terms and conditions
of that offer to Tenant. Tenant shall then have two (2) business days to accept
the terms and conditions of that offer in writing to Landlord. If accepted,
Tenant must execute a lease amendment within five (5) business days after
receipt of said amendment from Landlord. If Tenant rejects the offer or does not
respond to the offer all rights under this paragraph shall cease. In the event
Tenant exercises its option, Landlord agrees to provide an opening between the
premises and the expansion space. The said opening shall be approximately six
feet wide and standard door height.
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<PAGE> 41
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease under
seal as of the Date of Lease.
LANDLORD:
ATTEST/WITNESS: 4501 Daly, L.P.
- ---------------
/s/ Jacqueline C. Hough /s/ William H. Gordon
- ------------------------------- ---------------------------------
Name: Jacqueline C. Hough Name: William H. Gordon
-------------------------- ---------------------------
Date: 9/12/95 Date: 9/12/95
-------------------------- ---------------------------
ATTEST/WITNESS: TENANT:
DIDAX L.L.C.
/s/ Kevin E. Kennedy /s/ Dane B. West
- ------------------------------- ---------------------------------
Name: Kevin E. Kennedy Name: Dane B. West
-------------------------- ---------------------------
Date: 9/11/95 Date: 9/11/95
-------------------------- ---------------------------
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<PAGE> 42
EXHIBIT A-1
The Gordon Building
4501 Daly Drive
[MAP OF THE GORDON BUILDING]
<PAGE> 43
EXHIBIT A-2
[MAP OF THE GORDON BUILDING]
<PAGE> 44
EXHIBIT A-3
[MAP OF THE GORDON BUILDING]
<PAGE> 45
EXHIBIT B
(Work Agreement)
Landlord shall clean the carpet, finish and paint all drywall as needed in the
same color now used and shall repair all holes in the modular wall panels.
Landlord will also provide a microwave oven and a standard sized refrigerator.
Tenant shall otherwise accept the Premises in "as-is" condition.
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<PAGE> 46
EXHIBIT C
to the Lease Agreement between
4501 Daly, L.P., as Landlord, and
DIDAX, L.L.C., as Tenant.
Rules and Regulations - __________________
The following rules and regulations have been formulated for the safety
and well-being of all the tenants of the Building and become effective upon
occupancy. Strict adherence to these rules and regulations is necessary to
guarantee that each and every tenant will enjoy a safe and unannoyed occupancy
in the Building. Any repeated or continuing violation of these rules and
regulations by Tenant after notice from Landlord, shall be sufficient cause for
termination of this Lease at the option of Landlord.
Landlord may, upon request by any tenant, waive the compliance by such
tenant of any of the foregoing rules and regulations provided that (i) no
waiver shall be effective unless signed by Landlord or Landlord's authorized
agent; (ii) any such waiver shall not relieve such tenant from the obligation
to comply with such rule or regulation in the future unless expressly consented
to by Landlord, and (iii) no waiver granted to any tenant shall relieve any
other tenant from the obligation of complying with the foregoing rules and
regulations unless such other tenant has received a similar waiver in writing
from Landlord.
1. The sidewalks, entrances, passages, courts, vestibules, or
stairways, or other parts of the Building not occupied by any tenant shall not
be constructed or encumbered by any tenant or used for any purpose other than
ingress and egress to and from any tenant's Premises. Landlord shall have the
right to control and operate the public portions of the Building, and the
facilities furnished for the common use of the tenants, in such manner as
Landlord deems best for the benefit of the tenants generally. No tenant shall
permit the visit to its Premises of persons in such numbers or under such
conditions as to interfere with the use and enjoyment by other tenants of the
entrances, corridors, elevators, and other public portions or facilities of the
Building.
2. No signs, awnings or other projections shall be attached to the
outside walls of any building without the prior written consent of Landlord. No
drapes, blinds, shades or screens shall be attached to or hung in, or used in
connection with, any window or door of the Premises, without the prior consent
of Landlord. Such signs, awnings, projections, curtains, blinds, screens or
other fixtures must be of a quality, type design and color, and attached in the
manner approved by Landlord.
3. No show cases or other articles shall be put in front of or
affixed to any part of the exterior of the Building, nor placed in any interior
Common Area without the prior written consent of Landlord.
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<PAGE> 47
4. The water and wash closets and other plumbing fixtures shall not be
used for any purpose other than those for which they were constructed, and no
sweepings, rubbish, rags, or other substances shall be thrown therein. All
damages resulting from any misuse of the fixtures shall be borne by the tenant
who or whose servants, employees, agents, visitors, or licensees, shall have
caused the same.
5. There shall be no marking, painting, drilling into or in anyway
defacing any part of the Premises or the Building. No boring, cutting or
stringing or wires shall be permitted. No tenant shall construct, maintain, use
or operate within its Premises or elsewhere within or on the outside of the
Building, or any electrical device, wiring or apparatus in connection with a
loud speaker system or other sound system.
6. Tenant will fill out move-in/move-out sheets and will return such
sheets signed and dated within ten (10) days of moving in or out of the
Premises.
7. No animals, birds or pets of any kind shall be brought into or kept
in or about the Premises, and no cooking shall be done or permitted by any
tenant on its Premises except for a tenant's employee's own use. No tenant shall
cause or permit any unusual or objectionable odors to be produced or permeate
from its Premises.
8. No tenant shall make, or permit to be made, any unseemly or
disturbing noises or disturb or interface with occupants of this or any
neighboring building or Premises or with any person having business with such
occupants. No tenant shall throw anything out of the doors or windows or down
the corridors or stairs.
9. No inflammable, combustible, or explosive fluid, chemical or
radioactive substance shall be brought or kept upon the Premises.
10. No additional locks or bolts of any kind shall be placed upon any
of the doors, or windows, by any tenant, nor shall any changes be made in
existing locks or the mechanism thereof without prior approval from Landlord.
Each tenant shall, upon termination of its tenancy, restore to Landlord all keys
of stores, offices, storage, and toilet rooms either furnished to, or otherwise
procured by such tenant, and in the event of the loss of any keys so furnished
such tenant shall pay to Landlord the cost of replacement thereof
11. All removals, or the carrying in or out of any safes, freight,
furniture or bulky matter of any description must take place during the hours
which Landlord or its Agent may determine from time to time. Landlord reserves
the right to inspect all freight to be brought into the Premises and to exclude
from the Premises all freight which violates any of these Rules and Regulations
or the Lease of which these Rules and Regulations are a part.
12. Any person employed by any tenant to do janitorial work within its
Premises must obtain Landlord's consent and such person shall, while in the
Building and outside of the Premises, comply with all instructions issued by the
superintendent of the Building. No tenant
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<PAGE> 48
shall engage or pay any employees on its Premises, except those actually working
for such tenant on its Premises.
13. No tenant shall purchase spring water, ice, coffee, soft drinks,
towels, or other like service, from any company or persons whose repeated
violations of the Regulations have caused, in Landlord's opinion, a hazard or
nuisance to the Building and/or its occupants. Landlord shall provide written
notice of all such companies.
14. Landlord reserves the right to exclude from the Building at all
times any person who is not known or does not properly identify himself to the
Building management. Landlord may at its option require all persons admitted to
or leaving the Building between the hours of 6 p.m. and 8 a.m., Monday through
Friday, and at all times on Saturday, Sunday, and legal holidays, to register.
Each tenant shall be responsible for all persons for whom he authorizes entry
into or exit out of the Building and shall be liable to Landlord for all acts of
such persons.
15. The Premises shall not be used for lodging or sleeping or for any
immoral or illegal purpose.
16. No tenant shall occupy or permit any portion of its Premises to be
used or occupied for the possession, storage, manufacture, or sale or liquor,
narcotics, tobacco in any form, or as a barber or manicure shop, or as an
employment bureau, unless said Tenant's lease expressly grants permission to do
so. No Tenant shall engage or pay any employees on its Premises, except those
actually working for such Tenant on said Premises, nor advertise for laborers
giving an address at said Premises.
17. Landlord's employees shall not perform any work for Tenant or do
anything outside of their regular duties, unless under special instruction from
the management of the Building.
18. Canvassing, soliciting, and peddling on the Premises is prohibited
and each Tenant shall cooperate to prevent the same.
19. No water cooler, plumbing or electrical fixtures shall be installed
by any Tenant without the prior written consent of Landlord.
20. There shall not be used in any space, or in the public halls of the
Building, either by any Tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and side guards.
21. Where carpet is installed over access plates to underfloor ducts,
Tenant will be required, at Tenant's expense, to provide access to said access
plates when necessary.
22. Mats, trash, or other objects shall not be placed in the public
corridors.
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<PAGE> 49
23. Tenant shall not overload the floors or exceed the maximum floor
weight limits of the Premises.
24. If Landlord designates a certain portion of parking area for
employee parking, Tenant covenants that it will require its employees to park in
such area to the extent of spaces available. Landlord shall not be responsible
for enforcing Tenant's parking rights against any third parties.
25. Tenant agrees to conduct any vehicle or machine repair, painting,
or similar work only inside the Premises.
26. Tenant agrees not to operate any machinery in the Premises which
may cause vibration or damage to the Premises; not to use a loudspeaker which
can be heard outside the Premises, or to extend curb service to customers.
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<PAGE> 1
Exhibit 10.2
LEASE AMENDMENT 1
THIS LEASE AMENDMENT dated as of January 30, 1996, between 4501 Daly, L.P., a
Virginia Limited Partnership ("Landlord") having an office at 4501 Daly Drive,
Chantilly, Virginia, and DIDAX, L.L.C., a Virginia Limited Liability Company
("Tenant") having an office at 4501 Daly Drive, Chantilly, Virginia, recites and
provides
RECITALS:
By the lease dated as of September 12, 1995 (the "Existing Lease"), Landlord
leased to Tenant, and Tenant leased from Landlord, certain premises identified
as Suite 103 at the Gordon Building, 4501 Daly Drive, Chantilly, Virginia.
Tenant now desires to lease an additional suite identified as Suite 105 in the
Building from the Landlord and Landlord desires to lease Suite 105 to Tenant for
the remainder of the term under the Existing Lease. Landlord and Tenant,
therefore, desire to amend the Existing Lease as more particularly set forth
below by entering into this Lease Amendment.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing, the mutual agreements set
forth below and other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties agree as follows.
1. Demised Premises. For and in consideration of the rent hereafter
reserved and the mutual covenants hereinafter contained, Landlord does
hereby lease and demise unto Tenant, and Tenant does hereby like, lease and
accept from Landlord from the date hereof through the expiration of the
Term (as defined in Section 1.5 of the Existing Lease), and upon the terms
and conditions set forth hereafter and in the Lease, approximately 2,063
square feet of additional office space known as Suite No. 105 ("the
Additional Demised Premises") of the Building. The Additional Demised
Premises is outlined on the floor plan attached hereto as Exhibit A. Tenant
has inspected and approved the Additional Demised Premises, and agrees to
lease the same "AS-IS" except for the modifications described below in
Exhibit B. The "Demised Premises" as described in Section 1.1 of the
Existing Lease shall be referred to herein as the "Existing Demised
Premises."
2. Lease Commencement Date. The Lease Commencement Date in respect of the
Existing Demised Premises shall continue to be as set forth in the
Existing Lease. The Lease Commencement Date in respect of the Additional
Demised Premises shall be February 1, 1996.
3. Base Rent. The Annual Base Rent and Monthly Base Rent in respect to the
Existing Demised Premises shall continue to be as set forth in the Existing
Lease. In addition to the Annual Base Rent and Monthly Base Rent in respect
of the Existing Demised Premises, Tenant shall pay, in lawful money of the
United States, rental payments in accordance with the following schedule.
<TABLE>
<S> <C> <C>
02/01/96 - 09/30/96 $12.75 per square foot per year, full service $2,191.94
10/01/96 - 09/31/97 $13.13 per square foot per year, full service $2,257.27
10/01/97 - 09/30/98 $13.53 per square foot per year, full service $2,326.03
</TABLE>
If the Lease Commencement Date in respect to the Additional Demised
Premises is a date later
<PAGE> 2
than February 1, 1996, rent for the period commencing with and including
the Lease Commencement Date in respect of the Additional Demised Premises
and ending on and including the day prior to the first day of the following
month shall be prorated at the rate of one-thirtieth (1/30th) of the
Monthly Base Rent in respect of the Additional Premises per day and shall
be due and payable on the Lease Commencement Date in respect of the Demised
Premises.
4. Additional Rent. Tenant shall continue to pay additional rent for
Operating Expenses and for Real Estate Taxes in respect of the Demised
Premises as set forth in the Existing Lease. In addition and
notwithstanding any other provisions of the Lease, Tenant shall pay
additional rent for Operating Expenses and Real Estate Taxes in respect of
the Additional Demised Premises of 3.04% of the amount by which the sum of
the Operating Expenses and the Real Estate Taxes exceeds the Base Year
1996. Tenant's total percentage of the building is now 7.45%. Tenant shall
begin paying such amounts for Operating Expenses and Real Estate Taxes in
respect to the Additional Demised Premises as set forth in the Existing
Lease.
5. Ratification. Except as amended herein, the Existing Lease is ratified
and shall continue in full force.
WITNESS the following signatures:
Landlord:
4501 Daly, L.P.
By: William H. Gordon
----------------------------
Its: General Partner 4501
---------------------------
TENANT:
DIDAX L.L.C.,
By: /s/ R.C. Varney
----------------------------
Its: Chairman & CEO
---------------------------
<PAGE> 3
EXHIBIT A
The Gordon Building First Floor Job. No. 265.01-88
Date: February 15, 1995
EATON
DESIGN GROUP
<PAGE> 4
Exhibit B
Work Agreement
As soon as reasonably practicable after the full execution of this Lease
Amendment, Landlord, at Landlord's sole cost and expense, shall provide an
opening between the Demised Premises (Suite 105) and the Existing Demised
Premises (Suite 103). Said opening shall be no less than four (4) feet wide and
no greater than six (6) feet wide. The height of the opening shall be
approximately equivalent to a standard door height. Landlord, at Landlord's sole
discretion, shall determine the exact location of the opening.
<PAGE> 1
EXHIBIT 10.3
DIDAX INC.
1997 STOCK OPTION PLAN
1. PURPOSE. The purpose of this Plan is to advance the interests of DIDAX, INC.
(the "Company") by providing an opportunity to its selected key employees (as
defined in Paragraph 2(b)) and consultants (as defined in Paragraph 2(a)) to
purchase shares (the "Shares") of the Common Stock, par value $.01 per share
(the "Common Stock"), of the Company. By encouraging stock ownership, the
Company seeks to attract, retain and motivate key employees, consultants and
ministry partners. It is intended that this purpose will be effected by the
granting of (i) incentive stock options ("Incentive Options") as described in
Section 422A of the Internal Revenue Code of 1986, as amended (the "Code");
(ii) nonqualified stock options ("Nonqualified Options," and, together with the
incentive options, the "Options") as provided herein; and (iii) rights to
purchase shares of Common Stock ("Restricted Stock") of the Company pursuant to
restricted stock agreements and subscription agreements as provided herein
("Purchase Rights" and collectively with the options, the "Stock Incentives").
2. DEFINITIONS.
(a) The term "consultants" means those persons, other than employees of
the Company, who provide services to the Company, including nonemployee
directors of the Company, and who are determined by the Compensation
Committee to be eligible for Stock Incentives under this Plan.
(b) The term "key employees" means those executive, administrative,
operational, engineering or managerial employees who are determined by the
Compensation Committee to be eligible for Stock Incentives under this
Plan.
(c) The term "ministry partners" means those organizations or individuals.
other than employees and consultants, whose relationship with DIDAX is
critical to meeting the Company's business objectives and who are
determined by the Compensation Committee to be eligible for stock
incentives under this plan.
(d) The term "optionee" means an individual to whom an option is granted
under this Plan.
(e) The term "grantee" means an individual to whom a purchase right is
granted under this Plan.
3. EFFECTIVE DATE. This Plan became effective April 11, 1997, as so adopted
by the Board of Directors of the Company.
4. STOCK SUBJECT TO THE PLAN. The Shares that may be purchased (through the
exercise of options or the purchase of Restricted Stock) under this Plan shall
not exceed in the aggregate 2,057,937 Shares. If any Stock Incentives granted
under the Plan shall terminate, expire or be cancelled as to any Shares, new
Stock Incentives may thereafter be granted covering such Shares. In addition,
any Shares purchased under this Plan subsequently repurchased by the Company
pursuant to the terms hereof may again be granted under the Plan. The Shares
issued upon exercise of Stock Incentives under this Plan may, in whole or in
part, be either authorized but unissued Shares or issued Shares reacquired by
the Company. Notwithstanding any other provisions of this Plan, the aggregate
number of Shares subject to outstanding options granted under the Plan, plus
the aggregate number of shares issued upon the exercise of all options granted
under the Plan, shall never be permitted to exceed the number of Shares
specified in the first sentence of section 4, except in accordance with
subsection 8(a) below.
Stock subject to the plan consists of options granted in prior years, which
were approved by the Board in the absence of a formal stock plan. They are now
therefore subject to this plan and are subject also to shareholder vote. They
consist of the following:
<PAGE> 2
(a) 34,000 Shares to Founders @$1.50 per share, granted in 1993.
(b) 38,500 Shares to consultants and employees, @$1.66 per share, granted
in 1994.
(c) 246,203 Shares granted to CEO, consultants, a director and employees
all @$2.00 per share, granted in 1995.
(d) 163,859 Shares to employees, including executives and a director,
granted @$3.00 and $4.00 per share in 1996.
(e) 25,000 Shares to a ministry partner @$4.00 per share granted in 1996.
(f) 77,875 Shares to subscribers in debt with warrants offering @$4.00 per
share. The offering closed October 30, 1996. Warrants continue to accrue as
long as the debt remains outstanding. Any amount granted above this amount is
covered by this plan.
(g) 712,500 Shares of an Incentive Option to the CFO and the directors at
9/27/96, the date of the Board Resolution reserving these shares. They are
issuable @$5.00 per share upon attaining earnings of $.50 cents per share
or $.125 per share in a quarter.
5. ADMINISTRATION. The Plan shall be administered by the Board of Directors of
the Company (the "Board"), or by a committee appointed by the Board which shall
not have less than two (2) members (in either case, the "Compensation
Committee"). No option shall be granted to a director or officer of the
Company except: (a) by the Board when, as and if all of its members are
disinterested persons, or (b) by a Compensation Committee other than the Board
when the Compensation Committee is composed of two (2) or more directors having
full authority to act in the matter and each member of the Compensation
Committee is a disinterested person. "Disinterested person" for this purpose,
shall mean a person who, at the time he exercises discretion in administering
the Plan, has not at any time within one (1) year prior thereto been a person
to whom stock may be allocated or to whom stock options or stock appreciation
rights may be granted pursuant to the Plan or any other plan of the Company or
its affiliates entitling the participants therein to acquire stock, stock
options or stock appreciation rights of the Company or any of its affiliates.
The Compensation Committee may delegate nondiscretionary administrative duties
to such employees of the Company as it deems proper. Subject to the provisions
of the Plan, the Compensation Committee shall have the sole authority, in its
discretion:
(a) to determine to which of the eligible individuals, and the time or
times at which, options to purchase Common Stock of the Company shall be
granted;
(b) to determine the number of shares of Common Stock to be subject to
options granted to each eligible individual;
(c) to determine the price to be paid for the shares of Common Stock upon
the exercise of each option;
(d) to determine the term and the exercise schedule of each option;
(e) to determine the terms and conditions of each stock option agreement
(which need not be identical) entered into between the Company and any
eligible individual to whom the Compensation Committee has granted an
option;
(f) to interpret the Plan; and
(g) to make all determinations deemed necessary or advisable for the
administration of the Plan.
<PAGE> 3
The Compensation Committee, if any, shall be appointed by and shall serve at
the pleasure of the Board of Directors of the Company. No member of the
Compensation Committee shall be liable for any action or determination made
with respect to the Plan.
6. ELGIBLE EMPLOYEES, CONSULTANTS AND MINISTRY PARTNERS. Incentive Options may
be granted to such key employees of the Company, including members of the Board
of Directors who are also employees of the Company, as are selected by the
Compensation Committee or Board of Directors. Nonqualified Options and
Purchase Rights may be granted to such key employees, consultants and ministry
partners, including members of the Board of Directors, as are selected by the
Compensation Committee or the Board of Directors. The term "employee" includes
an officer or director who is an employee of the Company or a parent or
subsidiary of it, as well as a nonofficer, nondirector employee of the Company
or a parent or subsidiary or it.
7. DURATION OF THE PLAN. This Plan shall terminate ten (10) years from the
effective date of this Plan, unless terminated earlier pursuant to Paragraph 13
hereof, and no Stock Incentives may be granted after such termination.
8. RESTRICTIONS ON INCENTIVE OPTIONS. Incentive Options (but not Nonqualified
Options) granted under this Plan shall be subject to the following
restrictions:
(a) Limitation on Number of Shares. The aggregate fair market value,
determined as of the date the Incentive Option is granted, of the Shares
with respect to which Incentive Options are exercisable for the first time
by an employee during any calendar year shall not exceed $100,000. If an
employee is eligible to participate in any other incentive stock option
plans of the Company which are also intended to comply with the provisions
of Section 422A of the Code, the applicable annual limitation shall apply
to the aggregate number of Shares for which Incentive Options may be
granted under all such plans. An Incentive Option may be granted which
exceeds the $100,000 limitation, as long as under then applicable law the
portion of such option which is exercisable for shares in excess of the
$100,000 limitation shall be treated as a nonqualified option. No
Incentive Options may be exercised until and unless the Plan is approved
by the shareholders within one year of the date hereof, such approval to
be expressed in any legal way under Delaware law.
(b) 10% Stockholder. If any employee to whom an Incentive Option is
granted pursuant to the provisions of the Plan is on the date of grant the
owner of stock (as determined under Section 425(d) of the Code) possessing
more than 10% of the total combined voting power of all classes of stock
of the Company (or of any parent or subsidiary of the Company), then the
following special provisions shall be applicable to the Incentive Option
granted to such individual:
(i) The option price per Share subject to such Incentive Option shall
not be less than 110% of the fair market value of one Share on the date
of grant; and
(ii) The Incentive Option shall not have a term in excess of five (5)
years from the date of grant.
In determining stock ownership, an Optionee shall be considered as owning
the voting capital stock owned, directly or indirectly, by or for his
brother and sisters, spouse, ancestors, and lineal descendants. Voting
capital stock owned, directly or indirectly, by or for a corporation,
partnership, estate or trust shall be considered as being owned
proportionately by or for its shareholders, partners, or beneficiaries,
as applicable. Common Stock with respect to which any such Optionee
holds an option shall not be counted. Additionally, outstanding capital
stock shall include all capital stock actually issued and outstanding
immediately after the grant of the option to the optionee. Outstanding
capital stock shall not include capital stock authorized for issue under
outstanding options held by the Optionee or by any other person.
9. TERMS AND CONDITIONS OF OPTIONS. Incentive and Nonqualified Options granted
under this Plan shall be evidenced by stock option agreements in such form and
not inconsistent with the Plan
<PAGE> 4
as the Compensation Committee or the Board of Directors shall approve from time
to time, which agreements shall evidence the following terms and conditions:
(a) Price.
(i) Incentive Options. Subject to the condition of subparagraph (b)(i)
of Paragraph 8, if applicable, with respect to each Incentive Option,
the purchase price per Share payable upon the exercise of each Incentive
Option granted hereunder shall be determined by the Compensation
Committee or the Board of Directors and shall be not less than 100% of
the fair market value of one Share on the day the option is granted.
(ii) Nonqualified Options. With respect to each Nonqualified Option,
the purchase price per Share payable upon the exercise of each
Nonqualified Option granted hereunder shall be determined by the
Compensation Committee or the Board of Directors at the time the
Nonqualified Option is granted, but shall not be less than 40% of fair
market value at the time of grant.
(b) Number of Shares. Each option agreement shall specify the number of
Shares to which it pertains.
(c) Exercise. Subject to the conditions of subparagraphs (a) and (b) (ii)
of Paragraph 8, if applicable, each option shall be exercisable for the
full amount or for any part thereof and at such intervals or in such
installments as the Compensation Committee or the Board of Directors may
determine at the time it grants such option; provided, however, that no
option shall be exercisable with respect to any Shares later than ten (10)
years after the date of the grant of such option.
(d) Notice of Exercise and Payment. An option shall be exercisable only
by delivery of a written notice to the Compensation Committee or the Board
of Directors, any member of the Compensation Committee or the Board of
Directors, the Company's Treasurer, or any other officer of the Company
designated by the Compensation Committee or the Board of Directors to
accept such notices on its behalf, specifying the number of Shares for
which it is exercised. If such Shares are not at the time effectively
registered under the Securities Act of 1933, as amended, the Optionee
shall include with such notice a letter, in form and substance
satisfactory to the Company confirming that such Shares are being
purchased for the optionee's own account for investment and not with a
view to the resale or distribution thereof. Payment shall be made in full
at the time of delivery to the optionee of a certificate or certificates
covering the number of Shares for which the option was exercised. Payment
shall be made (i) by cash or check, (ii) if permitted by the Compensation
Committee or the Board of Directors, by delivery and assignment to the
Company of shares of the Company's stock having a fair market value (as
determined by the Compensation Committee) equal to the exercise price,
(iii) if permitted by the Compensation Committee or the Board of
Directors, by a promissory note, or (iv) by a combination of (i), (ii),
and (iii). The value of the shares of the Company's stock for such
purpose shall be its fair market value as of the date the option is
exercised, as determined in accordance with procedures to be established
by the Compensation Committee.
(e) Withholding Taxes; Delivery of Shares. The Company's obligation to
deliver Shares upon exercise of a Nonqualified Option, in whole or in
part, shall be subject to the Optionee's satisfaction of all applicable
federal, state, and local income and employment tax withholding
obligations. The Optionee may satisfy the obligation, in whole or in
part, by electing to have the Company withhold Shares having a value equal
to the amount required to be withheld. The value of Shares to be withheld
shall be based on the fair market value of the Shares on the date the
amount of tax to be withheld is to be determined. If Common Stock
acquired by exercise of an incentive stock option granted pursuant to this
Plan is disposed of within two (2) years from the date of grant of the
option or within one (1) year after the transfer of the Common Stock to
the optionee, the holder of the Common Stock immediately prior to the
disposition shall promptly
<PAGE> 5
notify the Company in writing of the date and terms of the disposition and
shall provide such other information regarding the disposition as the
Company may reasonably require.
(f) Nontransferability. No option shall be transferable by the Optionee
otherwise than by will or the laws of descent or distribution, and each
option shall be exercisable during his lifetime only by him (except as
otherwise provided for in subparagraph (g) below).
(g) Termination of Options. Each option shall terminate and may no longer
be exercised if the Optionee ceases for any reason to be an employee of,
or consultant to, or ministry partner with the Company, except that:
(i) if the Optionee's performance of services shall have terminated for
any reason other than cause, resignation or other voluntary action
before his eligibility to retire, disability (as defined below) or
death, he may at any time within a period of thirty (30) days after such
termination of the performance of services exercise his option to the
extent that the option was exercisable by him on the date of termination
of his performance of services;
(ii) if the Optionee's performance of services shall have been
terminated because of disability within the meaning of Section 22(e)(3)
of the Internal Revenue Code, the Optionee may, at any time within a
period of one (1) year after the termination of performance of services,
exercise his option to the extent that the option was exercisable by him
on the date of termination of his employment or performance of services;
and
(iii) if the Optionee dies at a time when the option was exercisable by
him, then his estate, personal representative or beneficiary to whom it
has been transferred may, at any time within a period of one (1) year
following his death if the Optionee's performance of services shall have
been terminated by his death, or for the period following the
termination of his performance of services during which the option would
have remained exercisable under clauses (i) or (ii) above if the
Optionee's performance of services shall have been terminated prior to
his death, exercise the option to the extent the Optionee might have
exercised it at the time of his death; provided, however, that no option
may be exercised to any extent by anyone after the date of expiration of
the option.
(iv) The Compensation Committee or its designate determines to extend
the option exercise date for the nonqualified portion of the plan on a
case by case basis.
(h) Rights as Stockholder. The Optionee shall have no rights as a
stockholder with respect to any Shares covered by his option until the
date of issuance of a stock certificate to him for such Shares.
(i) Repurchase of Shares by the Company. Any Shares purchased by an
Optionee upon exercise of an option may in the discretion of the
Compensation Committee or the Board of Directors be subject to
repurchase by the Company if and to the extent specifically set forth in
the agreement pursuant to which the Shares were purchased.
10. TERMS AND CONDITIONS OF PURCHASE RIGHTS. Purchase Rights granted under
this Plan shall be evidenced by restricted stock agreements and subscription
agreements in such form and not inconsistent with the Plan as the Compensation
Committee or Board of Directors shall approve from time to time, which
agreements shall include the following terms and conditions:
(a) Price. The purchase price of each Share purchased by key employees or
consultants pursuant to a Purchase Right hereunder shall be the price
determined by the Compensation Committee or the Board of Directors at the
time such Purchase Right is granted.
(b) Number of Shares. Each restricted stock agreement and subscription
agreement shall specify the number of Shares to which it pertains.
<PAGE> 6
(c) Investment Intent and Payment. If the Shares purchased are not at the
time effectively registered under the Securities Act of 1933, as amended,
the restricted stock agreement and subscription agreement shall provide
that the grantee is purchasing such Shares for the grantee's own account
for investment and not with a view to the resale or distribution thereof.
Payment shall be made in full at the time of delivery to the Company by
the grantee of an executed restricted stock agreement and subscription
agreement covering the number of Shares for which the Purchase Right was
granted. An officer or agent of the Company shall be entitled to retain
in escrow for the benefit of the grantee stock certificates representing
Shares which are subject to a repurchase option of the Company, as
described in subparagraph (f) below. Payment for Shares shall be made (i)
by cash or check, (ii) if permitted by the Compensation Committee or the
Board of Directors, by delivery and assignment to the Company of shares of
the Company's stock having a fair market value (as determined by the
Compensation Committee) equal to the purchase price, (iii) if permitted by
the Compensation Committee or the Board of Directors, by a promissory
note, or (iv) by a combination of (i), (ii), and (iii). The value of the
shares of the Company's stock for such purpose shall be its fair market
value as of the date of the restricted stock agreement, as determined in
accordance with procedures to be established by the Compensation
Committee.
(d) Withholding Taxes. The Company's obligation to deliver Shares to the
grantee shall be subject to the grantee's satisfaction of all applicable
federal, state, and local income and employment tax withholding
obligations. The grantee may satisfy such withholding obligations, in
whole or in part, by electing to have the Company withhold Shares having a
value equal to the amount required to be withheld. The value of the
Shares to be withheld shall be based on the fair market value of such
Shares as of the date the amount of tax is to be determined.
(e) Nontransferability. Any Shares purchased by a grantee pursuant to a
purchase right hereunder may, in the discretion of the Compensation
Committee or the Board of Directors, be subject to transfer restrictions
if and to the extent specifically set forth in the restricted stock
agreement governing such purchase.
(f) Repurchase of Shares by the Company. Any Shares purchased by a
grantee pursuant to a Purchase Right hereunder may, in the discretion of
the Compensation Committee or the Board of Directors, be subject to
repurchase by the Company if and to the extent set forth in the restricted
stock agreement governing such purchase.
(g) Rights as Stockholder. Except for the limitations on transferability
and the Company's repurchase rights set forth above, the grantee of a
Purchase Right shall, upon purchase of Shares, possess all rights as a
holder of Common Stock of the Company.
11. STOCK DIVIDENDS; STOCK SPLITS; STOCK COMBINATIONS; RECAPITALIZATIONS.
Appropriate adjustment shall be made in the maximum number of Shares of Common
Stock subject to the Plan and in the number, kind and price of Shares covered
by any Stock Incentive granted hereunder to give effect to any stock dividends
or other distributions, stock splits, stock combinations, recapitalizations and
other similar changes in the capital structure of the Company after the
effective date of the Plan.
12. MERGER; SALE OF ASSETS; DISSOLUTION. In the event of a change of the
Common Stock resulting from a merger or similar reorganization as to which the
Company is the surviving corporation, the number and kind of shares which
thereafter may be subject to Stock Incentives granted under this Plan and the
number, kind and price of Shares then subject to Stock Incentives shall be
appropriately adjusted in such manner as the Compensation Committee or the
Board of Directors may deem equitable to prevent substantial dilution or
enlargement of the rights available or granted hereunder. Except as otherwise
determined by the Board of Directors of the Company, a merger or a similar
reorganization that the Company does not survive, or a sale of all or
substantially all of the assets of the Company,
<PAGE> 7
shall cause every Incentive Option and Nonqualified Option outstanding
hereunder to terminate, to the extent not then exercised, unless any surviving
entity agrees to assume the obligations hereunder.
13. NO RIGHTS. Except as hereinabove expressly provided in Sections 10 and 11,
no optionee shall have any rights by reason of any subdivision or consolidation
of shares of the capital stock of any class or the payment of any stock
dividend or any other increase or decrease in the number of shares of any class
or by reason of any dissolution, liquidation, merger or consolidation or
spin-off of assets or stock of another corporation, and any issue by the
Company of shares of stock of any class or of securities convertible into
shares of stock of any class shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares subject to
any option granted hereunder. The grant of an option pursuant to this Plan
shall not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge or consolidate or to dissolve, liquidate, sell,
or transfer all or any part of its business or assets.
14. COMPLIANCE WITH APPLICABLE LAWS. Notwithstanding any other provision of
the Plan, the Company shall have no liability to issue any shares under the
Plan unless such issuance would comply with all applicable laws and the
applicable requirements of any securities exchange or similar entity. Prior to
the issuance of any shares under the Plan, the Company may require a written
statement that the recipient is acquiring the shares for investment and not for
the purpose or with the intention of distributing the shares.
15. DEATH OF A PARTICIPANT. In the event of the death of an Optionee, any
options which the Optionee was entitled to exercise on the date immediately
preceding his death shall be exercisable by the person or persons to whom those
rights pass by will or by the laws of descent and distribution. Any such
exercise shall be by written notice thereof filed with the Secretary of the
Company at the Company's corporate headquarters prior to the option's
expiration date, and any person exercising such an option shall be treated as
an Optionee for purposes of the provisions of this Plan.
16. EMPLOYMENT AND SHAREHOLDER STATUS. The Plan does not constitute a contract
of employment, and selection as an Optionee will not give any employee the
right to be retained in the employ of the Company. The grant of an option
under the Plan shall not confer upon the holder thereof any right as a
shareholder of the Company. As of the date on which an Optionee exercises an
option, the Optionee shall have all rights of a stockholder of record with
respect to the number of shares of Common Stock as to which the option is
exercised, irrespective of whether certificates to evidence the shares of stock
have been issued on such date. If the redistribution of shares is restricted
pursuant to Paragraph 13, certificates representing such shares may bear a
legend referred to such restrictions.
17. TERMINATION OR AMENDMENT OF PLAN. The Board of Directors may at any time
terminate this Plan or make such changes in or additions to the Plan as it
deems advisable without further action on the part of the stockholders of the
Company, provided that no such termination or amendment shall adversely affect
or impair any then outstanding Stock Incentive without the consent of the
person holding such Stock Incentive.
18. TERMINATION. The Plan shall terminate automatically on April 11, 2007, and
may be terminated at any earlier date by the Board. No option shall be granted
hereunder after the termination of the Plan, but such termination shall not
affect the validity of any option then outstanding.
19. TIME OF GRANTING OPTIONS. The date of grant of an option hereunder shall,
for all purposes, be the date on which the Compensation Committee or its
designate makes the determination granting such option.
20. RESERVATION OF SHARES. The Company, during the terms of this Plan, will at
all times reserve and keep available such number of shares of its Common Stock
as shall be sufficient to satisfy the requirements of the Plan.
<PAGE> 8
21. EFFECTIVE DATE. This Plan was adopted by the Board of Directors, pursuant
to shareholder approval in accordance with the requirements of the Internal
Revenue Code and the Delaware General Corporation Law of the Company on April
9, 1997, and shall be effective on said date, provided the Plan is approved
within twelve (12) months of said date. Options may be granted, but may not be
exercised, prior to the date of such shareholder approval.
22. CORPORATION FINANCIAL INFORMATION. The Company shall provide all optionees
on an annual basis with a balance sheet and income statement for the then
ending fiscal year.
<PAGE> 1
EXHIBIT 10.4
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. IT MAY NOT BE SOLD,
OFFERED FOR SALE OR OTHERWISE TRANSFERRED UNLESS REGISTERED UNDER SUCH ACT OR IN
COMPLIANCE WITH ANY EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT,
EACH CASE IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS. THIS COMPANY
IS A RELIGIOUS ORGANIZATION. ALL MEMBERS OF THIS COMPANY ARE SUBJECT TO THE
TERMS OF A MEMBER'S AGREEMENT AS SET FORTH IN THE OPERATING AGREEMENT OF THE
COMPANY WHICH LIMITS THE AMENDMENT OR DELETION OF THAT SECTION OF THE OPERATING
AGREEMENT AND WHICH PRESCRIBES A COMPANY STATEMENT OF FAITH IN THE LORD JESUS
CHRIST AND DIRECTS OR PROHIBITS CERTAIN COMPANY ACTIONS ON THE BASIS OF THAT
STATEMENT OF FAITH.
THIS PROMISSORY NOTE IS SUBJECT TO THE TERMS OF A SUBSCRIPTION AGREEMENT DATED
AS OF JULY 10, 1996 BETWEEN DIDAX ON-LINE L.C AND ROBERT C. VARNEY, WHICH
AGREEMENT IS INCORPORATED HEREIN BY REFERENCE.
Form of Promissory Note
$125,000 Chantilly, Virginia
July 10, 1996
FOR VALUE RECEIVED, the undersigned, DIDAX ON-LINE L.C., a Virginia
Limited Liability Company (the "Maker"), hereby unconditionally promises to pay
to the order of Robert C. Varney (the "Holder") at its offices in Chantilly,
Va., or such other place as the Holder of this Promissory Note may from time to
time designate, One Hundred Twenty Five Thousand Dollars($125,000), January 10,
1997 (the "Maturity Date"), together with all interest accrued from the date
hereof until the Maturity Date. This Note shall bear interest from the date
hereof through the Maturity Date at an annual rate of interest of nine and three
quarters percent (9.75%), compounded monthly on the tenth of each month through
maturity and payable in full upon the Maturity Date. The Principal amount of
this Promissory Note and all interest accrued thereon is payable in lawful money
of the United States of America, and in immediately available funds, to the
Holder. The Maker may, at its option, prepay this Promissory Note in whole or in
part at anytime or from time to time without penalty or premium.
If any one or more of the following events (each hereinafter
referred to as an "Event of Default") shall occur and be continuing for any
reason whatsoever:
(a) default in any payment of principal of this Promissory Note
when due (whether at maturity by acceleration or otherwise);
(b) adverse change to the Maker as evidenced by the occurrence of
any of the following events:
<PAGE> 2
(i) the commencement of a voluntary case under the
bankruptcy laws or any other action or proceeding for
any other relief under any law affecting creditors
rights generally or the seeking or an appointment of a
trustee, receiver, liquidator, custodian or other
similar official for its or any substantial part of its
properties; (ii) consent by answer or otherwise to an
order for relief against it in an involuntary case under
the bankruptcy laws or to the commencement of any other
such action or proceeding or to any such appointment;
(iii) the entry against it of an order for relief in an
involuntary case under the bankruptcy laws; (iv) the
commencement against it of an involuntary case under the
bankruptcy laws or any other such action or proceedings,
if such case or other action or proceeding shall not be
dismissed or stayed within 120 days following the
commencement thereof or if any such dismissal or stay
shall fail to remain in effect; or (v) the appointment
of a trustee, receiver, liquidator, custodian or other
similar official for it or any substantial portion of
its properties;
(c) any of the representations or warranties of the Maker set
forth in this Promissory Note shall prove to have been false
or misleading at the time made or deemed to have been made, or
at any time thereafter;
(d) any of the covenants of the Maker set forth in this Promissory
Note shall be breached at any time; or
(e) an event or condition shall exist which constitutes a default
or an event of default under any instrument or agreement
governing any other indebtedness of the Maker
then, and in respect of each and every such event:
(i) the then outstanding principal amount of this Promissory
Note and any interest which has accrued thereon shall
become immediately due and payable without any further
notice by the Holder or otherwise; and
(ii) The Holder shall have the right to exercise any and all
of its rights and remedies as a creditor pursuant to
applicable law.
The Maker hereby represents, warrants and covenants to the Holder that:
<PAGE> 3
(a) this Promissory Note has been validly authorized, executed and
delivered by the Maker and is a legal, valid and binding agreement
of the Maker enforceable in accordance with its terms;
(b) the Maker is a corporation duly incorporated and validly existing in
good standing under the laws of the State of Virginia. The Maker is
duly registered or qualified and in good standing to transact
business in each jurisdiction in which the nature of the business
requires such registration or qualification, and the Maker is
complying in all respects with all laws, ordinances and regulations
applicable to such properties and its business, non-compliance with
which, separately or in the aggregate, may adversely affect the
value or use of such properties or the results of operations of such
business;
(c) the Maker is not in violation of its articles of incorporation or
by-laws; the Maker is not in default in any respect in the
performance of any obligation, agreement or condition contained in
any debenture, note or any other evidence of indebtedness or in any
loan agreement, indenture, mortgage, deed of trust or any other
agreement or instrument of the Maker, and there exists no condition
which with the passage of time or otherwise would constitute a
default under an such document or instrument or result in the
imposition of any penalty or acceleration of any such indebtedness.
The execution and delivery of this Promissory Note will not conflict
with or constitute a breach of the articles of incorporation or
by-laws of the Maker, and will not conflict with, or constitute a
breach of, any of the terms or provisions of, or constitute a
default (with the passage of time or otherwise) under, or result in
the creation or imposition of any lien, charge or encumbrance upon
any of the properties or assets of the Maker pursuant to any
agreement, license, indenture or other instrument to which the Maker
is a party or by which it is bound, or any law or administrative
regulation or any order of any court or governmental agency or
authority applicable to it;
(d) there are no governmental proceedings pending, or legal proceedings
with aggregate claims in excess of One Million Dollars ($1,000,000)
pending, to which the Maker is a party, or of which the business or
property of the Maker is the subject, which might adversely affect
the financial condition or results of operations of the Maker or
adversely affect the ability of the Maker to perform its obligations
under this Promissory Note;
(e) the Maker has duly paid and discharged all taxes, assessments and
utility, governmental and other charges, levies or claims levied or
imposed, or which if unpaid might become a lien or charge upon the
properties, assets, earnings or business of the Maker;
<PAGE> 4
(f) the maker has used, and will use, all funds which it has received
from the Holder solely for funding administrative and accounting
expenses directly relating to the operations of the LLC and incurred
consistent with past practice;
(g) the Maker shall give the Holder notice in writing of the
commencement against the Maker of an involuntary case under the
bankruptcy laws, or any other such action or proceedings, within ten
(10) days from the filing of any petition to commence any such case;
and
(h) the Maker has assets of at least Two Hundred Thousand Dollars
($200,000) according to the Maker's most recent financial
statements, which were prepared in accordance with generally
accepted accounting principles.
No delay on the part of the Holder in exercising any rights
hereunder or failure to exercise the same shall operate as a waiver of such
rights; the remedies provided herein are cumulative and not exclusive of any
remedies provided by law; no notice to or demand on the undersigned shall be
deemed to be a waiver of the obligation of the undersigned or of the right of
the Holder to take further action without notice or demand as provided herein;
nor in any event shall any waiver be effective unless in writing and then the
same shall be applicable only in the specific instance for which given.
The Maker shall pay to the Holder, on demand, all costs and expenses
(including attorney's fees and expenses) incurred to collect any indebtedness
evidenced hereby. Demand, presentment, protest and notice of non-payment,
dishonor, and protest are hereby waived by the Maker. In the event of any
litigation with respect to any matter connected with this Promissory Note, the
Maker hereby waives the right to trial by jury and all defenses, rights of
setoff and rights to interpose counterclaims of any nature.
THIS PROMISSORY NOTE HAS BEEN DELIVERED AND ACCEPTED AT CHANTILLY,
VIRGINIA AND SHALL BE INTERPRETED, GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF VIRGINIA.
DIDAX ON-LINE L.C.
By: /s/ Gary Struzik
---------------------------
Vice President Finance
<PAGE> 5
THIS WARRANT HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. IT MAY NOT BE SOLD, OFFERED FOR
SALE OR OTHERWISE TRANSFERRED UNLESS REGISTERED UNDER SUCH ACT OR IN COMPLIANCE
WITH ANY EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT, EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS.
THIS COMPANY IS A RELIGIOUS ORGANIZATION. ALL MEMBERS OF THIS COMPANY ARE
SUBJECT TO THE TERMS OF A MEMBER'S AGREEMENT AS SET FORTH IN THE OPERATING
AGREEMENT OF THE COMPANY WHICH LIMITS THE AMENDMENT OR DELETION OF THAT SECTION
OF THE OPERATING AGREEMENT AND WHICH PRESCRIBES A COMPANY STATEMENT OF FAITH IN
THE LORD JESUS CHRIST AND DIRECTS OR PROHIBITS CERTAIN COMPANY ACTIONS ON THE
BASIS OF THAT STATEMENT OF FAITH.
THIS WARRANT IS SUBJECT TO THE TERMS OF A SUBSCRIPTION AGREEMENT DATED AS OF
JULY 10, 1996 BETWEEN DIDAX ON-LINE L.C. AND [HOLDER], WHICH AGREEMENT IS
INCORPORATED HEREIN BY REFERENCE.
DIDAX ON-LINE L.C.
FORM OF MEMBERSHIP UNITS WARRANT
The Transferability of This Warrant is
Restricted as Provided in Section 2.
Void after Date: September 30, 2006 Right to Purchase 15,625
Membership Units
(subject to adjustment of
DIDAX ON-LINE L.C.)
No. W-J10V
PREAMBLE
DIDAX ON-LINE L.C.. (the "Company"), a Virginia limited liability
company, hereby certifies that, for value received, HOLDER (the "Holder"), is
entitled, subject to the terms set forth below, to purchase from the Company
subject to the Exercise paragraph set forth in Section 2 hereof, fully paid and
nonassessable Membership Units, no par value, of the Company, at the purchase
price per unit (the "Purchase Price") of $4.00 (the "Initial Purchase Price").
The number and character of such Membership Units and the Purchase Price are
subject to adjustment as provided herein.
This Warrant is one of the Membership Unit Warrants (the "Warrants"),
evidencing the right to purchase Membership Units of the Company, issued
pursuant to a certain Subscription
<PAGE> 6
Agreement (the "Agreement"), dated as of July 10, 1996, between the Company (the
"Closing Date") and certain investors, copies of which are on file at the
principal office of the Company. The Warrants evidence rights to purchase an
aggregate of 200,000 Membership Units of the Company, granted over a six month
period of promissory note outstanding, at the percentages per month outstanding
indicated in Appendix "C", subject to adjustment as provided in such Warrants.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
1.1(a) The term "Company" includes any corporation which shall
succeed to or assume the obligations of the Company hereunder.
1.1(b) The term "Membership Units" means the Company's
membership unit, no par value per unit, in existence on the Closing Date, or any
class or classes (however designated) of such Membership Units subsequently
existing as a result of any recapitalization, reorganization or other
reclassification which affects the holders of Membership Units.
1.1(c) The term "Qualified Public Offering" shall mean the
closing of an underwritten public offering pursuant to an effective registration
statement on Form S1 or successor form under the Securities Act covering the
offering and sale of Common Stock for the account of the Company at a per share
price of at least $8.00 (as currently configured) in which the aggregate
proceeds (net of offering expenses and underwriters' discounts or commissions)
received by the Company equals or exceeds $10,000,000 (provided that the Company
shall have given notice of the initial filing of such registration statement
promptly after the date of such filing);
1.1(d) The term "Shares" means the Membership Units issued or
issuable upon exercise of the Warrants.
1.1(e) The term "Securities Act" means the Securities Act of
1933, or any successor Federal statute, and the rules and regulations of the
Securities and Exchange Commission thereunder, all as the same shall be in
effect at the time.
1.1(f) The term "Securities and Exchange Commission" or
"Commission" refers to the Securities and Exchange Commission or any other
Federal agency then administering the Securities Act.
1.1(g) The term "Securities Exchange Act" means the Securities
Exchange Act of 1934 or any successor Federal statute, and the rules and
regulations of the Securities and Exchange Commission thereunder, all as the
same shall be in effect at the time.
1. Restricted Shares.
1.1 This Warrant and all rights hereunder may not be transferred
until such Warrants are exercisable, as determined pursuant to Section 2.1
hereof.
<PAGE> 7
1.2 If, at the time of any transfer or exchange (other than a
transfer or exchange not involving a change in the beneficial ownership of such
Warrant or Shares) of a Warrant or Shares, such Warrant or Shares shall not be
registered under the Securities Act, the Company may require, as a condition of
allowing such transfer or exchange, that the Holder or transferee of such
Warrant or Shares, as the case may be, furnish to the Company an opinion of
counsel reasonably acceptable to the Company or a "no action" or similar letter
from the Securities and Exchange Commission to the effect that such exercise
transfer or exchange may be made without registration under the Securities Act.
In the case of such transfer or exchange and in the case of an exercise of a
Warrant if the Shares to be issued thereupon are not registered pursuant to the
Securities Act the Company may require a written statement that such Warrant or
Shares, as the case may be, are being acquired for investment and not with a
view to the distribution thereof. The certificates evidencing the Shares issued
on the exercise of the Warrants shall, if such Shares are being sold or
transferred without registration under the Securities Act, bear a legend to the
effect that the Shares evidenced by such certificates have not been so
registered.
1.3 (a) The Company shall make and keep public information
available, as those terms are understood and defined in Rule 144 under the
Securities Act, at all times from and after 90 days following the effective date
of the first registration of the Company under the Securities Act of an offering
of its securities to the general public.
(b) The Company shall file with the Commission in a timely
manner all reports and other documents as the Commission may prescribe under
Section 13(a) or 15(d) of the Exchange Act at any time after the Company has
become subject to such reporting requirements of the Exchange Act.
(c) The Company shall furnish to a Holder and/or a prospective
purchaser of such Warrants or Shares designated by such Holder, upon request,
(i) a written statement by the Company as to its compliance with the reporting
requirements of Rule 144 under the Securities Act (at any time from and after 90
days following the effective date of the first registration statement of the
Company for an offering of its securities to the general public) and of the
reporting requirements of the Exchange Act (at any time after it has become
subject to such reporting requirements), (ii) a copy of the most recent annual
or quarterly report of the Company, (iii) any other reports and documents
necessary to satisfy the information-furnishing condition to offers and sales
under Rule 144A under the Securities Act and (iv) such other reports and
documents as a Holder of any Warrants or Shares reasonably requests to avail
itself of any rule or regulation of the Commission allowing such Holder to sell
any such securities without registration.
1.4 This Warrant and all rights hereunder shall not be transferred
to any entity which is either a direct or indirect competitor of the Company and
which would, as a member of the Company, receive information concerning the
Company that would be prejudicial to the Company's business without the prior
written consent of the Company, which consent shall not unreasonably be
withheld.
<PAGE> 8
1.5 Certificates evidencing Shares shall, unless at the time of
exercise such Warrant Shares are registered under the Securities Act, bear a
legend substantially in the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED
OF UNLESS IT HAS BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
THIS COMPANY IS A RELIGIOUS ORGANIZATION. ALL MEMBERS OF THIS
COMPANY ARE SUBJECT TO THE TERMS OF A MEMBER'S AGREEMENT AS SET
FORTH IN THE OPERATING AGREEMENT OF THE COMPANY WHICH LIMITS THE
AMENDMENT OR DELETION OF THAT SECTION OF THE OPERATING AGREEMENT AND
WHICH PRESCRIBES A COMPANY STATEMENT OF FAITH IN THE LORD JESUS
CHRIST AND DIRECTS OR PROHIBITS CERTAIN COMPANY ACTIONS ON THE BASIS
OF THAT STATEMENT OF FAITH."
2. Exercise of Warrant.
2.1 Exercise Period. This Warrant shall not become exercisable until
[the second anniversary of the Closing Date September 30, 1998, 5:00 P.M.
Eastern Standard Time(the "Exercise Date"). Such Warrant shall be exercisable at
any time or from time to time for a period of eight years after the Exercise
Date, but in no event later than 5:00 P.M. Eastern Standard Time on September
30, 2006.
Notwithstanding the foregoing, this Warrant shall be exercisable
prior to the Exercise Date upon the occurrence of any Qualified Public Offering
by the Company.
2.2 Exercise in Full. The holder of this Warrant may exercise it in
full by surrendering this Warrant, with the form of subscription at the end
hereof duly executed by such holder, to the Company at its principal office. The
surrendered Warrant shall be accompanied by payment, in cash or by certified or
official bank check payable to the order of the Company, in the amount obtained
by multiplying the number of Membership Units called for on the face of this
Warrant (without giving effect to any adjustment therein) by the Initial
Purchase Price. Notwithstanding the foregoing, all or part of such payment may
be made by the surrender by such holder to the Company of any of the Company's
Notes issued pursuant to the Agreement and all such Notes so surrendered shall
be credited against such payment in an amount equal to the principal amount
thereof plus premium (if any) and accrued interest to the date of surrender.
2.3 Partial Exercise. This Warrant may be exercised in part by
surrender of this Warrant in the manner and at the place provided in Subsection
2.1 except that the amount obtained by multiplying (a) the number of Membership
Units called for on the face of this Warrant (without giving effect to any
adjustment therein) as shall be designated by the holder in the subscription at
the end hereof by (b) the Initial Purchase Price. On any such partial exercise,
<PAGE> 9
subject to the provisions of Section 2 hereof, the Company at its expense will
forthwith issue and deliver to or upon the order of the holder hereof a new
Warrant or Warrants of like tenor, in the name of the holder hereof or as such
holder may request, calling in the aggregate on the face or faces thereof for
the number of Membership Units (without giving effect to any adjustment therein)
equal to the number of such units called for on the face of this Warrant minus
the number of such units designated by the holder in the subscription at the end
hereof. Notwithstanding the foregoing, all or part of such payment may be made
by the surrender by such holder to the Company of any of the Company's Notes
issued pursuant to the Agreement and all such Notes so surrendered shall be
credited against such payment in an amount equal to the principal amount thereof
plus premium (if any) and accrued interest to the date of surrender.
2.4 Company Acknowledgment. The Company will, at the time of the
exercise, exchange or transfer of this Warrant, upon the request of the holder
hereof acknowledge in writing its continuing obligation to afford to such holder
or transferee any rights (including, without limitation, any right to
registration of the Shares) to which such holder or transferee shall continue to
be entitled after such exercise, exchange or transfer in accordance with the
provisions of this Warrant, provided that if the holder of this Warrant shall
fail to make any such request, such failure shall not affect the continuing
obligation of the Company to afford to such holder or transferee any such
rights.
3. Delivery of Certificates, etc., on Exercise. As soon as practicable
after the exercise of this Warrant in full or in part, and in any event within
10 days thereafter, the Company at its expense (including the payment by it of
any applicable issue taxes) will cause to be issued in the name of and delivered
to the holder hereof, or as such holder (upon payment by such holder of any
applicable transfer taxes) may direct, a certificate or certificates for the
number of fully paid and nonassessable Shares to which such holder shall be
entitled on such exercise, plus, in lieu of any fractional Share to which such
holder would otherwise be entitled, cash equal to such fraction multiplied by
the then current market value of one full Share.
4. Adjustment of Purchase Price and Number of Shares.
4.1 The Purchase Price hereof shall be subject to adjustment from
time to time as follows:
In case the Company shall (i) pay a dividend on its Membership Units
in Membership Units, (ii) subdivide its outstanding shares of Membership Units,
or (iii) combine its outstanding Membership Units into a small number or shares,
then, in such an event, the Purchase Price in effect immediately prior thereto
shall be adjusted proportionately so that the adjusted Purchase Price will bear
the same relation to the Purchase Price in effect immediately prior to any such
event as the total number of Membership Units outstanding immediately prior to
any such event shall bear to the total number of Membership Units outstanding
immediately after such event. An adjustment made pursuant to this subdivision
(i) shall become effective retroactively immediately after the record date in
the case of a dividend and (ii) shall become effective immediately after the
effective date in the case of a subdivision or combination. The Purchase Price,
as so adjusted, shall be readjusted in the same manner upon the happening of any
successive event or events described herein.
<PAGE> 10
4.2 Upon each adjustment of the Purchase Price pursuant to Section
4.1, the number of Membership Units purchasable upon exercise of this Warrant
Certificate shall be adjusted to the number of Membership Units, calculated to
the nearest one hundredth of a share, obtained by multiplying the number of
Membership Units purchasable immediately prior to such adjustment upon the
exercise of this Warrant Certificate by the Purchase Price in effect prior to
such adjustment and dividing the product so obtained by the new Purchase Price.
4.3 In case of any capital reorganization of the Company, or of any
reclassification of the Membership Units, this Warrant Certificate shall be
exercisable after such capital reorganization or reclassification upon the terms
and conditions specified in this Warrant Certificate, for the number of shares
of stock or other securities which the Membership Units issuable (at the time of
such capital reorganization or reclassification upon exercise of this Warrant
Certificate would have been entitled to receive upon such capital reorganization
or reclassification if such exercise had taken place immediately prior to such
action. The subdivision or combination of Membership Units at any time
outstanding into a greater or lesser number of Membership Units shall not be
deemed to be a reclassification of the Membership Units of the Company for the
purposes of this Subsection 4.3.
4.4 Whenever the Purchase Price is adjusted as herein provided, the
Company shall compute the adjusted Purchase Price in accordance with Subsection
4.1 and shall prepare a certificate signed by its Chairman of the Directors,
President or Vice President and its principal accounting officer setting forth
the adjusted Purchase Price and showing in reasonable detail the method of such
adjustment and the fact requiring the adjustment and upon which such calculation
is based, and such certificate shall forthwith be forwarded to the
Warrantholder.
4.5 In case at any time after the date of this Warrant Certificate:
(a) The Company shall declare a dividend (or any other
distribution) on its Membership Units payable otherwise than in cash out of its
earned surplus; or
(b) The Company shall authorize the granting to the holders of
its Membership Units of rights to subscribe for or purchase any shares of
capital stock of any class or of any other rights; or
(c) The Company shall authorize any reclassification of its
Membership Units (other than a subdivision or combination of its outstanding
Membership Units), or any consolidation or merger to which it is a party and for
which approval of any members of the Company is required, or the sale or
transfer of all or substantially all of its assets or all or substantially all
of its issued and outstanding units; or
(d) Events shall have occurred resulting in the voluntary and
involuntary dissolution, liquidation or winding up of the Company;
then the Company shall cause notice to be sent to the Warrantholder at least 20
days prior (or 10 days prior in any case specified in clause (a) or (b) above,
or on the date of any case specified in clause (d) above) to the applicable
record date hereinafter specified, a notice stating (x) the date
<PAGE> 11
on which a record is to be taken for the purpose of such dividend, distribution
or rights, or, if a record is not to be taken, the date as of which the holders
Membership Units of record to be entitled to such dividend, distribution or
rights are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, initial public offering, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of shares of Membership Units of record shall
be entitled to exchange their shares for securities or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up. Failure to give any such notice of any
defect therein shall not affect the validity of the proceedings referred to in
clauses (a), (b), (c) and (d) above.
4.6 The form of this Warrant Certificate need not be changed because
of any change in the Purchase Price pursuant to this Section 4 and any Warrant
Certificate issued after such change may state the same Purchase Price and the
same number of Membership Units as are stated in this Warrant Certificate as
initially issued. However, the Company may at any time in its sole discretion
(which shall be conclusive) make any change in the form of this Warrant
Certificate that it may deem appropriate and that does not affect the substance
thereof; and any Warrant Certificate thereafter issued or countersigned, whether
in exchange or substitution for an outstanding Warrant Certificate or otherwise,
may be in the form as so changed.
5. Exchange of Warrants. On surrender for exchange of any Warrant,
properly endorsed, to the Company, the Company at its expense will issue and
deliver to or (subject to Section 1) on the order of the holder thereof a new
Warrant or Warrants of like tenor, in the name of such holder or as such holder
(on payment by such holder or any applicable transfer taxes) may direct, calling
in the aggregate on the face or faces thereof for the number of Membership Units
called for on the face or faces of the Warrant or Warrants so surrendered.
6. Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction of any Warrant,
on delivery of an indemnity agreement or security reasonably satisfactory in
form and amount to the Company or, in the case of any such mutilation, on
surrender and cancellation of such Warrant, the Company at its expense will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
7. Remedies. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
8. Negotiability, etc. This Warrant is issued upon the following terms,
to all of which each holder or owner hereof by the taking hereof consents and
agrees:
<PAGE> 12
8.1 (a) title to this Warrant may be transferred by
endorsement (by the holder hereof executing the form of assignment at the end
hereof) and delivery in the same manner as in the case of a negotiable
instrument transferable by endorsement and delivery;
8.1 (b) any person in possession of this Warrant properly
endorsed is authorized to represent himself as absolute owner hereof and is
empowered to transfer absolute title hereto by endorsement and delivery hereof
to a bona fide purchaser hereof for value; each prior taker or owner waives and
renounces all of his equities or rights in this Warrant in favor of each such
bona fide purchaser, and each such bona fide purchaser shall acquire absolute
title hereto and to all rights represented hereby; and
8.1 (c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the contrary.
9. Notice, etc. All notices and other communications shall be mailed by
first class registered or certified mail, postage prepaid, as follows: (i) if to
the Holder, to the address for the Holder as shown on the signature page hereof,
or (ii) if to the Company, to Didax On-Line L.C., 4501 Daly Drive, Suite 103,
Chantilly, Virginia 22021, Attn: Vice President, Finance.
10. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant is being delivered in the State of Virginia and shall be
construed and enforced in accordance with and governed by its laws. Possession
of this Warrant or any Shares upon the exercise thereof shall not cause the
Holder to be a member of the Company and such Holder shall not be entitled to
any of the rights conferred upon members of the Company, including without
limitation, voting rights, notice of record date, change in corporate structure
or the like. The headings in this Warrant are for purposes of reference only,
and shall not limit or otherwise affect any of the terms hereof. This Warrant is
being executed as an instrument under seal. All nouns and pronouns used herein
shall be deemed to refer to the masculine, feminine or neuter, as the identity
of the person or persons to whom reference is made herein may require.
11. Expiration. The right to exercise this Warrant shall expire at 5:00
PM, Eastern Standard time, on September 30, 2006.
Dated: JULY 10, 1996 DIDAX ON-LINE L.C.
By: /s/ Gary Struzik
Title: VP FINANCE
Attest:
HOLDER:
[ ] Address: ___________________________
By: __________________________ ___________________________
Title: _______________________ ___________________________
<PAGE> 13
APPENDIX "C"
WARRANT GRANT SLIDING SIX MONTH SCALE
Six month note will receive 50% warrant @ $4 = Total aggregate of 200,000 Units
per $1,600,000 in Notes
<TABLE>
<CAPTION>
July Aug Sept Oct Nov Dec
or Month 1 or Month 2 or Month 3 or Month 4 or Month 5 or Month 6 Total
---------- ---------- ---------- ---------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
% of Warrant Earned 21.7% 20.0% 18.3% 13.3% 13.3% 13.3% 100.0%
</TABLE>
If note is liquidated prior to six months, the percentage of the total amount
earned will cease in the month note is liquidated. The portion of the month that
the note is open in the month liquidated will be granted proportionally.
For example, if note is liquidated on October 10, or the tenth day of month
four), Holder would be granted 64.3% of the total six month warrant potential,
equivalent to the month one through three earned value plus 10/31 of the 13.3%
month four earned value.
<PAGE> 1
EXHIBIT 10.5
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. IT MAY NOT BE SOLD,
OFFERED FOR SALE OR OTHERWISE TRANSFERRED UNLESS REGISTERED UNDER SUCH ACT OR IN
COMPLIANCE WITH ANY EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT,
EACH CASE IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS.
THIS COMPANY IS A RELIGIOUS ORGANIZATION. ALL MEMBERS OF THIS COMPANY ARE
SUBJECT TO THE TERMS OF A MEMBER'S AGREEMENT AS SET FORTH IN THE OPERATING
AGREEMENT OF THE COMPANY WHICH LIMITS THE AMENDMENT OR DELETION OF THAT SECTION
OF THE OPERATING AGREEMENT AND WHICH PRESCRIBES A COMPANY STATEMENT OF FAITH IN
THE LORD JESUS CHRIST AND DIRECTS OR PROHIBITS CERTAIN COMPANY ACTIONS ON THE
BASIS OF THAT STATEMENT OF FAITH.
THIS PROMISSORY NOTE IS SUBJECT TO THE TERMS OF A SUBSCRIPTION AGREEMENT DATED
AS OF SEPTEMBER 26, 1996 BETWEEN DIDAX ON-LINE L.C AND HOLDER, WHICH AGREEMENT
IS INCORPORATED HEREIN BY REFERENCE.
Promissory Note
$76,000 Chantilly, Virginia
September 26, 1996
FOR VALUE RECEIVED, the undersigned, DIDAX ON-LINE L.C., a
Virginia Limited Liability Company (the "Maker"), hereby unconditionally
promises to pay to the order of Robert C. Varney (the "Holder") at its offices
in Chantilly, Va., or such other place as the Holder of this Promissory Note may
from time to time designate, Seventy Six Thousand ($76,000), February 8, 1997
(the "Maturity Date"), together with all interest accrued from the date funds
were received as noted in Appendix A of the Subscription Agreement, until the
Maturity Date. This Note shall bear interest from the date hereof through the
Maturity Date at an annual rate of interest of nine and three quarters percent
(9.75%), compounded monthly on the tenth of each month and payable in full upon
the Maturity Date. The Principal amount of this Promissory Note and all interest
accrued thereon is payable in lawful money of the United States of America, and
in immediately available funds, to the Holder. The Maker may, at its option,
prepay this Promissory Note in whole or in part at anytime or from time to time
without penalty or premium.
If any one or more of the following events (each hereinafter
referred to as an "Event of Default") shall occur and be continuing for any
reason whatsoever:
(a) default in any payment of principal of this Promissory Note
when due (whether at maturity by acceleration or otherwise);
(b) adverse change to the Maker as evidenced by the occurrence of
any of the following events:
<PAGE> 2
(i) the commencement of a voluntary case under the
bankruptcy laws or any other action or proceeding for
any other relief under any law affecting creditors
rights generally or the seeking or an appointment of
a trustee, receiver, liquidator, custodian or other
similar official for its or any substantial part of
its properties; (ii) consent by answer or otherwise
to an order for relief against it in an involuntary
case under the bankruptcy laws or to the commencement
of any other such action or proceeding or to any such
appointment; (iii) the entry against it of an order
for relief in an involuntary case under the
bankruptcy laws; (iv) the commencement against it of
an involuntary case under the bankruptcy laws or any
other such action or proceedings, if such case or
other action or proceeding shall not be dismissed or
stayed within 120 days following the commencement
thereof or if any such dismissal or stay shall fail
to remain in effect; or (v) the appointment of a
trustee, receiver, liquidator, custodian or other
similar official for it or any substantial portion of
its properties; or
(c) an event or condition shall exist which constitutes a default
or an event of default under any instrument or agreement
governing any other indebtedness of the Maker
then, and in respect of each and every such event:
(i) the then outstanding principal amount of this
Promissory Note and any interest which has accrued
thereon shall become immediately due and payable
without any further notice by the Holder or
otherwise; and
(i) The Holder shall have the right to exercise any and
all of its rights and remedies as a creditor pursuant
to applicable law.
No delay on the part of the Holder in exercising any rights hereunder
or failure to exercise the same shall operate as a waiver of such rights; the
remedies provided herein are cumulative and not exclusive of any remedies
provided by law; no notice to or demand on the undersigned shall be deemed to be
a waiver of the obligation of the undersigned or of the right of the Holder to
take further action without notice or demand as provided herein; nor in any
event shall any waiver be effective unless in writing and then the same shall be
applicable only in the specific instance for which given.
The Maker shall pay to the Holder, on demand, all costs and expenses
(including attorney's fees and expenses) incurred to collect any indebtedness
evidenced hereby. Demand, presentment, protest and notice of non-payment,
dishonor, and protest are hereby waived by the Maker. In the event of any
litigation with respect to any matter connected with this Promissory
<PAGE> 3
Note, the Maker hereby waives the right to trial by jury and all defenses,
rights of setoff and rights to interpose counterclaims of any nature.
THIS PROMISSORY NOTE HAS BEEN DELIVERED AND ACCEPTED AT
CHANTILLY, VIRGINIA AND SHALL BE INTERPRETED, GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF VIRGINIA.
DIDAX ON-LINE L.C.
By: /s/ Gary Struzik
-------------------------------
Vice President Finance
<PAGE> 4
THIS WARRANT HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. IT MAY NOT BE SOLD, OFFERED FOR
SALE OR OTHERWISE TRANSFERRED UNLESS REGISTERED UNDER SUCH ACT OR IN COMPLIANCE
WITH ANY EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT, EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS.
THIS COMPANY IS A RELIGIOUS ORGANIZATION. ALL MEMBERS OF THIS COMPANY ARE
SUBJECT TO THE TERMS OF A MEMBER'S AGREEMENT AS SET FORTH IN THE OPERATING
AGREEMENT OF THE COMPANY WHICH LIMITS THE AMENDMENT OR DELETION OF THAT SECTION
OF THE OPERATING AGREEMENT AND WHICH PRESCRIBES A COMPANY STATEMENT OF FAITH IN
THE LORD JESUS CHRIST AND DIRECTS OR PROHIBITS CERTAIN COMPANY ACTIONS ON THE
BASIS OF THAT STATEMENT OF FAITH.
THIS WARRANT IS SUBJECT TO THE TERMS OF A SUBSCRIPTION AGREEMENT DATED AS OF
SEPTEMBER 26, 1996 BETWEEN DIDAX ON-LINE L.C. AND HOLDER, WHICH AGREEMENT IS
INCORPORATED HEREIN BY REFERENCE.
DIDAX ON-LINE L.C.
MEMBERSHIP UNITS WARRANT
The Transferability of This Warrant is
Restricted as Provided in Section 2.
Void after Date: December 31, 2006 Right to Purchase 9,500
Membership Units
(subject to adjustment of
DIDAX ON-LINE L.C.)
No. W-S26V
PREAMBLE
DIDAX ON-LINE L.C.. (the "Company"), a Virginia limited liability
company, hereby certifies that, for value received, HOLDER (the "Holder"), is
entitled, subject to the terms set forth below, to purchase from the Company
subject to the Exercise provision set forth in Section 3 hereof, fully paid and
nonassessable Membership Units, no par value, of the Company, at the purchase
price per share (the "Purchase Price") of $4.00 (the "Initial Purchase Price").
The number and character of such Membership Units and the Purchase Price are
subject to adjustment as provided herein.
This Warrant is one of the Membership Units Warrants (the "Warrants"),
evidencing the right to purchase Membership Units of the Company, issued
pursuant to a certain Subscription
<PAGE> 5
Agreement (the "Agreement"), dated as of September 26, 1996, between the Company
(the "Closing Date") and certain investors, copies of which are on file at the
principal office of the Company. The Warrants evidence rights to purchase an
aggregate of 375,000 Membership Units of the Company, granted over a six month
period of promissory note outstanding, at the percentages per month outstanding
indicated in Appendix "C", subject to adjustment as provided in such Warrants.
1. Definitions
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
1.1 (a)The term "Company" includes any corporation which shall
succeed to or assume the obligations of the Company hereunder.
1.1 (b)The term "Membership Units" means the Company's
membership unit, no par value per share, in existence on the Closing Date, or
any class or classes (however designated) of such Membership Units subsequently
existing as a result of any recapitalization, reorganization or other
reclassification which affects the holders of Membership Units.
1.1 (c)The term "Qualified Public Offering" shall mean the
closing of an underwritten public offering pursuant to an effective registration
statement on Form S1 or successor form under the Securities Act covering the
offering and sale of Common Stock for the account of the Company at a per share
price of at least $8.00 (as currently configured) in which the aggregate
proceeds (net of offering expenses and underwriters' discounts or commissions)
received by the Company equals or exceeds $10,000,000 (provided that the Company
shall have given notice of the initial filing of such registration statement
promptly after the date of such filing);
1.1 (d)The term "Shares" means the Membership Units issued or
issuable upon exercise of the Warrants.
1.1 (e)The term "Securities Act" means the Securities Act of
1933, or any successor Federal statute, and the rules and regulations of the
Securities and Exchange Commission thereunder, all as the same shall be in
effect at the time.
1.1 (f)The term "Securities and Exchange Commission" or
"Commission" refers to the Securities and Exchange Commission or any other
Federal agency then administering the Securities Act.
1.1 (g)The term "Securities Exchange Act" means the Securities
Exchange Act of 1934 or any successor Federal statute, and the rules and
regulations of the Securities and Exchange Commission thereunder, all as the
same shall be in effect at the time.
<PAGE> 6
2. Restricted Shares.
2.1 This Warrant and all rights hereunder may not be
transferred until such Warrants are exercisable, as determined pursuant to
Section 3.1 hereof.
2.2 If, at the time of any transfer or exchange (other than a
transfer or exchange not involving a change in the beneficial ownership of such
Warrant or Shares) of a Warrant or Shares, such Warrant or Shares shall not be
registered under the Securities Act, the Company may require, as a condition of
allowing such transfer or exchange, that the Holder or transferee of such
Warrant or Shares, as the case may be, furnish to the Company an opinion of
counsel reasonably acceptable to the Company or a "no action" or similar letter
from the Securities and Exchange Commission to the effect that such exercise
transfer or exchange may be made without registration under the Securities Act.
In the case of such transfer or exchange and in the case of an exercise of a
Warrant if the Shares to be issued thereupon are not registered pursuant to the
Securities Act the Company may require a written statement that such Warrant or
Shares, as the case may be, are being acquired for investment and not with a
view to the distribution thereof. The certificates evidencing the Shares issued
on the exercise of the Warrants shall, if such Shares are being sold or
transferred without registration under the Securities Act, bear a legend to the
effect that the Shares evidenced by such certificates have not been so
registered.
2.3(a) The Company shall make and keep public information
available, as those terms are understood and defined in Rule 144 under the
Securities Act, at all times from and after 90 days following the effective date
of the first registration of the Company under the Securities Act of an offering
of its securities to the general public.
(b) The Company shall file with the Commission in a
timely manner all reports and other documents as the Commission may prescribe
under Section 13(a) or 15(d) of the Exchange Act at any time after the Company
has become subject to such reporting requirements of the Exchange Act.
(c) The Company shall furnish to a Holder and/or a
prospective purchaser of such Warrants or Shares designated by such Holder, upon
request, (i) a written statement by the Company as to its compliance with the
reporting requirements of Rule 144 under the Securities Act (at any time from
and after 90 days following the effective date of the first registration
statement of the Company for an offering of its securities to the general
public) and of the reporting requirements of the Exchange Act (at any time after
it has become subject to such reporting requirements), (ii) a copy of the most
recent annual or quarterly report of the Company, (iii) any other reports and
documents necessary to satisfy the information-furnishing condition to offers
and sales under Rule 144A under the Securities Act and (iv) such other reports
and documents as a Holder of any Warrants or Shares reasonably requests to avail
itself of any rule or regulation of the Commission allowing such Holder to sell
any such securities without registration.
2.4 This Warrant and all rights hereunder shall not be transferred to
any entity which is either a direct or indirect competitor of the Company and
which would, as a member of
<PAGE> 7
the Company, receive information concerning the Company that would be
prejudicial to the Company's business without the prior written consent of the
Company, which consent shall not unreasonably be withheld.
2.5 Certificates evidencing Shares shall, unless at the time of
exercise such Warrant Shares are registered under the Securities Act, bear a
legend substantially in the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THAT
ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
THIS COMPANY IS A RELIGIOUS ORGANIZATION. ALL MEMBERS OF THIS
COMPANY ARE SUBJECT TO THE TERMS OF A MEMBER'S AGREEMENT AS
SET FORTH IN THE OPERATING AGREEMENT OF THE COMPANY WHICH
LIMITS THE AMENDMENT OR DELETION OF THAT SECTION OF THE
OPERATING AGREEMENT AND WHICH PRESCRIBES A COMPANY STATEMENT
OF FAITH IN THE LORD JESUS CHRIST AND DIRECTS OR PROHIBITS
CERTAIN COMPANY ACTIONS ON THE BASIS OF THAT STATEMENT OF
FAITH."
3. Exercise of Warrant.
3.1 Exercise Period. This Warrant shall not become exercisable
until the second anniversary of the Closing Date which is the date of acceptance
of the Subscription Agreement related to this Warrant. Such Warrant shall be
exercisable at any time or from time to time for a period of eight years after
the Exercise Date, but in no event later than 5:00 P.M. Eastern Standard Time on
December 31, 2006.
Notwithstanding the foregoing, this Warrant shall be
exercisable prior to the Exercise Date upon the occurrence of any Qualified
Public Offering by the Company.
3.2 Exercise in Full. The holder of this Warrant may exercise
it in full by surrendering this Warrant, with the form of subscription at the
end hereof duly executed by such holder, to the Company at its principal office.
The surrendered Warrant shall be accompanied by payment, in cash or by certified
or official bank check payable to the order of the Company, in the amount
obtained by multiplying the number of Membership Units called for on the face of
this Warrant (without giving effect to any adjustment therein) by the Initial
Purchase Price. Notwithstanding the foregoing, all or part of such payment may
be made by the surrender by such holder to the Company of any of the Company's
Notes issued pursuant to the Agreement and all such Notes so surrendered shall
be credited against such payment in an amount equal to the principal amount
thereof plus premium (if any) and accrued interest to the date of surrender.
<PAGE> 8
3.3 Partial Exercise. This Warrant may be exercised in part by
surrender of this Warrant in the manner and at the place provided in Subsection
3.1 except that the amount obtained by multiplying (a) the number of Membership
Units called for on the face of this Warrant (without giving effect to any
adjustment therein) as shall be designated by the holder in the subscription at
the end hereof by (b) the Initial Purchase Price. On any such partial exercise,
subject to the provisions of Section 3 hereof, the Company at its expense will
forthwith issue and deliver to or upon the order of the holder hereof a new
Warrant or Warrants of like tenor, in the name of the holder hereof or as such
holder may request, calling in the aggregate on the face or faces thereof for
the number of Membership Units (without giving effect to any adjustment therein)
equal to the number of such units called for on the face of this Warrant minus
the number of such shares designated by the holder in the subscription at the
end hereof. Notwithstanding the foregoing, all or part of such payment may be
made by the surrender by such holder to the Company of any of the Company's
Notes issued pursuant to the Agreement and all such Notes so surrendered shall
be credited against such payment in an amount equal to the principal amount
thereof plus premium (if any) and accrued interest to the date of surrender.
3.4 Company Acknowledgment. The Company will, at the time of
the exercise, exchange or transfer of this Warrant, upon the request of the
holder hereof acknowledge in writing its continuing obligation to afford to such
holder or transferee any rights (including, without limitation, any right to
registration of the Shares) to which such holder or transferee shall continue to
be entitled after such exercise, exchange or transfer in accordance with the
provisions of this Warrant, provided that if the holder of this Warrant shall
fail to make any such request, such failure shall not affect the continuing
obligation of the Company to afford to such holder or transferee any such
rights.
4. Delivery of Certificates, etc., on Exercise. As soon as practicable
after the exercise of this Warrant in full or in part, and in any event
within 10 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in
the name of and delivered to the holder hereof, or as such holder (upon
payment by such holder of any applicable transfer taxes) may direct, a
certificate or certificates for the number of fully paid and
nonassessable Shares to which such holder shall be entitled on such
exercise, plus, in lieu of any fractional Share to which such holder
would otherwise be entitled, cash equal to such fraction multiplied by
the then current market value of one full Share.
5. Adjustment of Purchase Price and Number of Shares.
5.1 The Purchase Price hereof shall be subject to adjustment
from time to time as follows:
In case the Company shall (i) pay a dividend on its Membership
Units in Membership Units, (ii) subdivide its outstanding Membership Units, or
(iii) combine its outstanding Membership Units into a small number or shares,
then, in such an event, the Purchase Price in effect immediately
<PAGE> 9
prior thereto shall be adjusted proportionately so that the adjusted Purchase
Price will bear the same relation to the Purchase Price in effect immediately
prior to any such event as the total number of Membership Units outstanding
immediately prior to any such event shall bear to the total number of Membership
Units outstanding immediately after such event. An adjustment made pursuant to
this subdivision (i) shall become effective retroactively immediately after the
record date in the case of a dividend and (ii) shall become effective
immediately after the effective date in the case of a subdivision or
combination. The Purchase Price, as so adjusted, shall be readjusted in the same
manner upon the happening of any successive event or events described herein.
5.2 Upon each adjustment of the Purchase Price pursuant to
Section 5.1, the number of Membership Units purchasable upon exercise of this
Warrant shall be adjusted to the number of Membership Units, calculated to the
nearest one hundredth of a share, obtained by multiplying the number of
Membership Units purchasable immediately prior to such adjustment upon the
exercise of this Warrant by the Purchase Price in effect prior to such
adjustment and dividing the product so obtained by the new Purchase Price.
5.3 In case of any capital reorganization of the Company, any
reclassification of the Membership Units, or the conversion of the Company from
a limited liability company to any other type of entity, this Warrant shall be
exercisable after such capital reorganization, reclassification or conversion
upon the terms and conditions specified in this Warrant Certificate, for the
number of shares of stock or other securities which the Membership Units
issuable at the time of such capital reorganization, reclassification or
conversion upon exercise of this Warrant Certificate would have been entitled to
receive upon such capital reorganization, reclassification or conversion if such
exercise had taken place immediately prior to such action. The subdivision or
combination of Membership Units at any time outstanding into a greater or lesser
number of Membership Units shall not be deemed to be a reclassification of the
Membership Units of the Company for the purposes of this Subsection 5.3.
5.4 Whenever the Purchase Price is adjusted as herein
provided, the Company shall compute the adjusted Purchase Price in accordance
with Subsection 5.1 and shall prepare a certificate signed by its Chairman of
the Directors, Vice Chairman of the Directors, President or Vice President and
its principal accounting officer setting forth the adjusted Purchase Price and
showing in reasonable detail the method of such adjustment and the fact
requiring the adjustment and upon which such calculation is based, and such
certificate shall forthwith be forwarded to the Warrantholder.
5.5 In case at any time after the date of this Warrant
Certificate:
(a) The Company shall declare a dividend (or any
other distribution) on its Membership Units payable otherwise than in cash out
of its earned surplus; or
(b) The Company shall authorize the granting to the
holders of its Membership Units of rights to subscribe for or purchase any
shares of capital stock of any class or of any other rights; or
(c) The Company shall authorize any reclassification
of its Membership Units (other than a subdivision or combination of its
outstanding Membership Units), or any
<PAGE> 10
consolidation or merger to which it is a party and for which approval of any
members of the Company is required, or the sale or transfer of all or
substantially all of its assets or all or substantially all of its issued and
outstanding units; or
(d) Events shall have occurred resulting in the
voluntary and involuntary dissolution, liquidation or winding up of the Company;
then the Company shall cause notice to be sent to the Warrantholder at least 20
days prior (or 10 days prior in any case specified in clause (a) or (b) above,
or on the date of any case specified in clause (d) above) to the applicable
record date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution or rights,
or, if a record is not to be taken, the date as of which the holders of
Membership Units of record to be entitled to such dividend, distribution or
rights are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, initial public offering, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of Membership Units of record shall be
entitled to exchange their shares for securities or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up. Failure to give any such notice of any defect therein
shall not affect the validity of the proceedings referred to in clauses (a),
(b), (c) and (d) above.
5.6 The form of this Warrant Certificate need not be changed
because of any change in the Purchase Price pursuant to this Section 5 and any
Warrant Certificate issued after such change may state the same Purchase Price
and the same number of Membership Units as are stated in this Warrant
Certificate as initially issued. However, the Company may at any time in its
sole discretion (which shall be conclusive) make any change in the form of this
Warrant Certificate that it may deem appropriate and that does not affect the
substance thereof; and any Warrant Certificate thereafter issued or
countersigned, whether in exchange or substitution for an outstanding Warrant
Certificate or otherwise, may be in the form as so changed.
6. Exchange of Warrants. On surrender for exchange of any Warrant,
properly endorsed, to the Company, the Company at its expense will
issue and deliver to or (subject to Section 2) on the order of the
holder thereof a new Warrant or Warrants of like tenor, in the name of
such holder or as such holder (on payment by such holder or any
applicable transfer taxes) may direct, calling in the aggregate on the
face or faces thereof for the number of Membership Units called for on
the face or faces of the Warrant or Warrants so surrendered.
7. Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and, in the case of any such loss, theft or
destruction of any Warrant, on delivery of an indemnity agreement or
security reasonably satisfactory in form and amount to the Company or,
in the case of any such mutilation, on surrender and cancellation of
such Warrant, the Company at its expense will execute and deliver, in
lieu thereof, a new Warrant of like tenor.
<PAGE> 11
8. Remedies. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened
default by the Company in the performance of or compliance with any of
the terms of this Warrant are not and will not be adequate, and that
such terms may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
9. Negotiability, etc. This Warrant is issued upon the following terms,
to all of which each holder or owner hereof by the taking hereof
consents and agrees:
9.1 (a)title to this Warrant may be transferred by endorsement
(by the holder hereof executing the form of assignment at the end hereof) and
delivery in the same manner as in the case of a negotiable instrument
transferable by endorsement and delivery;
9.1 (b)any person in possession of this Warrant properly
endorsed is authorized to represent himself as absolute owner hereof and is
empowered to transfer absolute title hereto by endorsement and delivery hereof
to a bona fide purchaser hereof for value; each prior taker or owner waives and
renounces all of his equities or rights in this Warrant in favor of each such
bona fide purchaser, and each such bona fide purchaser shall acquire absolute
title hereto and to all rights represented hereby; and
9.1 (c)until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the contrary.
10. Notice, etc. All notices and other communications shall be mailed
by first class registered or certified mail, postage prepaid, as
follows: (i) if to the Holder, to the address for the Holder as shown
on the signature page hereof, or (ii) if to the Company, to Didax
On-Line L.C., 4501 Daly Drive, Suite 103, Chantilly, Virginia 20151,
Attn: Vice President, Finance.
11. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver,
discharge or termination is sought. This Warrant is being delivered in
the State of Virginia and shall be construed and enforced in accordance
with and governed by its laws. Possession of this Warrant shall not
cause the Holder to be a member of the Company and such Holder shall
not be entitled to any of the rights conferred upon members of the
Company, including without limitation, voting rights, notice of record
date, change in corporate structure or the like. The headings in this
Warrant are for purposes of reference only, and shall not limit or
otherwise affect any of the terms hereof. This Warrant is being
executed as an instrument under seal. All nouns and pronouns used
herein shall be deemed to refer to the masculine, feminine or neuter,
as the identity of the person or persons to whom reference is made
herein may require.
12. Expiration. The right to exercise this Warrant shall expire at 5:00
PM, Eastern Standard time, on December 31, 2006.
<PAGE> 12
Dated: 9 26, 1996 DIDAX ON-LINE L.C.
------ --
By: Gary Struzik
----------------------------
Title: V.P. FINANCE
----------------------------
Attest:
HOLDER:
By:
-------------------------------
Title:
----------------------------
Address:
----------------------------
----------------------------
----------------------------
<PAGE> 13
APPENDIX "C"
WARRANT GRANT SLIDING SIX MONTH SCALE
Six month note will receive 50% warrant @ $4 = Total aggregate of 375,000 Units
per $3,000,000 in Notes
<TABLE>
<CAPTION>
July Aug Sept Oct Nov Dec
or Month 1 or Month 2 or Month 3 or Month 4 or Month 5 or Month 6 Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
% of Warrant Earned 21.7% 20.0% 18.3% 13.3% 13.3% 13.3% 100.0%
</TABLE>
If note is liquidated prior to six months, the percentage of the total amount
earned will cease in the month note is liquidated. The portion of the month that
the note is open in the month liquidated will be granted proportionally.
Each $100,000 debt outstanding after six months will earn 2,000 warrants for
membership units per month.
For example, if note is liquidated on October 10, or the tenth day of month
four), Holder would be granted 64.3% of the total six month warrant potential,
equivalent to the month one through three earned value plus 10/31 of the 13.3%
month four earned value.
<PAGE> 1
[LOGO]
Exhibit 10.6
Dr. Robert C. Varney November 13, 1996
2024 Upper Lake Dr.
Reston, Va. 22091
Dear Dr. Varney:
Pursuant to events which have occurred since the time of your subscription
agreements dated July 10, 1996 for $125,000 and September 26, 1996 for $76,000,
most specifically, the signing of a letter of intent with an underwriter toward
an Initial Public Offering, your concurrence is sought below to the following
changes in the Note and Warrants, therein subscribed:
Given the extensive expense the Company anticipates in operations and in
preparation of a potential IPO, your concurrence is requested to extend the
maturity date of the Note dated July 10, 1996 from January 10, 1997 to July 10,
1997 or earlier, at the Company's discretion. We also request that the maturity
date of your Note dated September 26, 1996 be extended from February 8, 1997 to
September 26, 1997, or earlier, at the Company's discretion. Interest on these
Notes will continue to accrue at 9.75% over the extended period.
Warrant No. W-Jl0V which describes the warrants that you are entitled to
for the value received in the Note dated July 10, 1996 is herein adjusted in
recognition of this extension. An additional 2,604 membership units in DIDAX
ON-LINE L.C. will be added to the original total of 15,625 membership units, for
each month the Note is outstanding during the extension period. Warrant No.
W-S26V which describes the warrants that you are entitled to for the value
received in the Note dated September 26, 1996 is also herein adjusted in
recognition of this extension. An additional 1,583 membership units in DIDAX
ON-LINE L.C. will be added to the original total of 9,500 membership units, for
each month the Note is outstanding during the extension period. These additional
warrants will be exercisable under the same terms of the original warrants. Upon
or prior to the successful completion of an IPO, the LLC will be reorganized in
a series of nontaxable reorganizations, the result of which shall convert the
LLC to a newly organized C corporation meaning in turn that equity interest in
the surviving Company will be represented by shares of common stock rather than
membership units. The IPO will, thusly entail the distribution of Shares and not
membership units.
Finally, in Section 1.1.1(c) of the Warrant documents described above,
which defines the term "Qualified Public Offering", is removed in completion and
replaced with the following:
The term "Qualified Public Offering" shall mean the closing of an
underwritten public offering pursuant to an effective registration statement on
Form S1 or successor form under the Securities Act covering the offering and
sale of Common Stock for the account of the Company.
4501 Daly Drive, Suite 103 - Chantilly, Virginia 20151
Phone: (703) 968-4808 - Fax: (703) 968-4819
<PAGE> 2
You are also herein advised that this private placement offering was closed
without meeting the originally desired funding of $3,000,000. The total amount
received was $623,000, as of October 30, 1996, the closing date of the offering.
Please indicate your concurrence with these changes in the space provided
below, and with your signature, it is also understood that you are willing to
allow DIDAX ON-LINE L.C. to retain your Note under the conditions so specified
in this memorandum, with full knowledge that the funding level requested in the
private placement was not received. Your flexibility in this regard is
appreciated.
Sincerely,
/s/ Gary A. Struzik
- ---------------------
Gary A. Struzik
Vice President Finance
Concur,
/s/ R.C. Varney 19 Nov '96
----------------------- ----------
Dr. Robert C. Varney Date
<PAGE> 1
EXHIBIT 10.7
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. IT MAY NOT BE SOLD,
OFFERED FOR SALE OR OTHERWISE TRANSFERRED UNLESS REGISTERED UNDER SUCH ACT OR IN
COMPLIANCE WITH ANY EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT,
EACH CASE IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS.
THIS COMPANY IS A RELIGIOUS ORGANIZATION. ALL MEMBERS OF THIS COMPANY ARE
SUBJECT TO THE TERMS OF A MEMBER'S AGREEMENT AS SET FORTH IN THE OPERATING
AGREEMENT OF THE COMPANY WHICH LIMITS THE AMENDMENT OR DELETION OF THAT SECTION
OF THE OPERATING AGREEMENT AND WHICH PRESCRIBES A COMPANY STATEMENT OF FAITH IN
THE LORD JESUS CHRIST AND DIRECTS OR PROHIBITS CERTAIN COMPANY ACTIONS ON THE
BASIS OF THAT STATEMENT OF FAITH.
THIS PROMISSORY NOTE IS SUBJECT TO THE TERMS OF A SUBSCRIPTION AGREEMENT DATED
AS OF July 30, 1996 BETWEEN DIDAX ON-LINE L.C AND HOLDER, WHICH AGREEMENT IS
INCORPORATED HEREIN BY REFERENCE.
Promissory Note
$125,000 Chantilly, Virginia
July 30, 1996
FOR VALUE RECEIVED, the undersigned, DIDAX ON-LINE L.C., a
Virginia Limited Liability Company (the "Maker"), hereby unconditionally
promises to pay to the order of Bruce E. Edgington (the "Holder") at its offices
in Chantilly, Va., or such other place as the Holder of this Promissory Note may
from time to time designate, One Hundred Twenty Five Thousand Dollars
($125,000), January 30, 1997 (the "Maturity Date"), together with all interest
accrued from the date hereof until the Maturity Date. This Note shall bear
interest from the date hereof through the Maturity Date at an annual rate of
interest of nine and three quarters percent (9.75%), compounded monthly on the
tenth of each month and payable in full upon the Maturity Date. However, $31,000
of this total, received on April 1, 1996 will accrue said interest from that
point through the maturity date noted above. The Principal amount of this
Promissory Note and all interest accrued thereon is payable in lawful money of
the United States of America, and in immediately available funds, to the Holder.
The Maker may, at its option, prepay this Promissory Note in whole or in part at
anytime or from time to time without penalty or premium.
If any one or more of the following events (each hereinafter
referred to as an "Event of Default") shall occur and be continuing for any
reason whatsoever:
(a) default in any payment of principal of this
Promissory Note when due (whether at maturity by
acceleration or otherwise);
<PAGE> 2
(b) adverse change to the Maker as evidenced by the
occurrence of any of the following events:
(i) the commencement of a voluntary case under
the bankruptcy laws or any other action or
proceeding for any other relief under any
law affecting creditors rights generally or
the seeking or an appointment of a trustee,
receiver, liquidator, custodian or other
similar official for its or any substantial
part of its properties; (ii) consent by
answer or otherwise to an order for relief
against it in an involuntary case under the
bankruptcy laws or to the commencement of
any other such action or proceeding or to
any such appointment; (iii) the entry
against it of an order for relief in an
involuntary case under the bankruptcy laws;
(iv) the commencement against it of an
involuntary case under the bankruptcy laws
or any other such action or proceedings, if
such case or other action or proceeding
shall not be dismissed or stayed within 120
days following the commencement thereof or
if any such dismissal or stay shall fail to
remain in effect; or (v) the appointment of
a trustee, receiver, liquidator, custodian
or other similar official for it or any
substantial portion of its properties; or
(c) an event or condition shall exist which constitutes a
default or an event of default under any instrument
or agreement governing any other indebtedness of the
Maker
then, and in respect of each and every such event:
(i) the then outstanding principal amount of
this Promissory Note and any interest which
has accrued thereon shall become immediately
due and payable without any further notice
by the Holder or otherwise; and
(ii) The Holder shall have the right to exercise
any and all of its rights and remedies as a
creditor pursuant to applicable law.
No delay on the part of the Holder in exercising any rights
hereunder or failure to exercise the same shall operate as a waiver of such
rights; the remedies provided herein are cumulative and not exclusive of any
remedies provided by law; no notice to or demand on the undersigned shall be
deemed to be a waiver of the obligation of the undersigned or of the right of
the Holder to take further action without notice or demand as provided herein;
nor in any event shall any waiver be effective unless in writing and then the
same shall be applicable only in the specific instance for which given.
<PAGE> 3
The Maker shall pay to the Holder, on demand, all costs and
expenses (including attorney's fees and expenses) incurred to collect any
indebtedness evidenced hereby. Demand, presentment, protest and notice of
non-payment, dishonor, and protest are hereby waived by the Maker. In the event
of any litigation with respect to any matter connected with this Promissory
Note, the Maker hereby waives the right to trial by jury and all defenses,
rights of setoff and rights to interpose counterclaims of any nature.
THIS PROMISSORY NOTE HAS BEEN DELIVERED AND ACCEPTED AT
CHANTILLY, VIRGINIA AND SHALL BE INTERPRETED, GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF VIRGINIA.
DIDAX ON-LINE L.C.
By: /s/ Gary A. Struzik
----------------------------
Vice President Finance
<PAGE> 4
THIS WARRANT HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. IT MAY NOT BE SOLD, OFFERED FOR
SALE OR OTHERWISE TRANSFERRED UNLESS REGISTERED UNDER SUCH ACT OR IN COMPLIANCE
WITH ANY EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT, EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS.
THIS COMPANY IS A RELIGIOUS ORGANIZATION. ALL MEMBERS OF THIS COMPANY ARE
SUBJECT TO THE TERMS OF A MEMBER'S AGREEMENT AS SET FORTH IN THE OPERATING
AGREEMENT OF THE COMPANY WHICH LIMITS THE AMENDMENT OR DELETION OF THAT SECTION
OF THE OPERATING AGREEMENT AND WHICH PRESCRIBES A COMPANY STATEMENT OF FAITH IN
THE LORD JESUS CHRIST AND DIRECTS OR PROHIBITS CERTAIN COMPANY ACTIONS ON THE
BASIS OF THAT STATEMENT OF FAITH.
THIS WARRANT IS SUBJECT TO THE TERMS OF A SUBSCRIPTION AGREEMENT DATED AS OF
JULY 30, 1996 BETWEEN DIDAX ON-LINE L.C. AND HOLDER, WHICH AGREEMENT IS
INCORPORATED HEREIN BY REFERENCE.
DIDAX ON-LINE L.C.
MEMBERSHIP UNITS WARRANT
The Transferability of This Warrant is
Restricted as Provided in Section 2.
Void after Date: December 31, 2006 Right to Purchase 15,625
Membership Units
(subject to adjustment of
DIDAX ON-LINE L.C.)
No. W-J30E
PREAMBLE
DIDAX ON-LINE L.C.. (the "Company"), a Virginia limited liability
company, hereby certifies that, for value received, HOLDER (the "Holder"), is
entitled, subject to the terms set forth below, to purchase from the Company
subject to the Exercise provision set forth in Section 3 hereof, fully paid and
nonassessable Membership Units, no par value, of the Company, at the purchase
price per share (the "Purchase Price") of $4.00 (the "Initial Purchase Price").
The number and character of such Membership Units and the Purchase Price are
subject to adjustment as provided herein.
This Warrant is one of the Membership Units Warrants (the "Warrants"),
evidencing the right to purchase Membership Units of the Company, issued
pursuant to a certain Subscription
<PAGE> 5
Agreement (the "Agreement"), dated as of July 30, 1996, between the Company (the
"Closing Date") and certain investors, copies of which are on file at the
principal office of the Company. The Warrants evidence rights to purchase an
aggregate of 375,000 Membership Units of the Company, granted over a six month
period of promissory note outstanding, at the percentages per month outstanding
indicated in Appendix "C", subject to adjustment as provided in such Warrants.
1. Definitions
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
1.1 (a) The term "Company" includes any corporation which
shall succeed to or assume the obligations of the Company hereunder.
1.1 (b) The term "Membership Units" means the Company's
membership unit, no par value per share, in existence on the Closing Date, or
any class or classes (however designated) of such Membership Units subsequently
existing as a result of any recapitalization, reorganization or other
reclassification which affects the holders of Membership Units.
1.1 (c) The term "Qualified Public Offering" shall mean the
closing of an underwritten public offering pursuant to an effective registration
statement on Form S1 or successor form under the Securities Act covering the
offering and sale of Common Stock for the account of the Company at a per share
price of at least $8.00 (as currently configured) in which the aggregate
proceeds (net of offering expenses and underwriters' discounts or commissions)
received by the Company equals or exceeds $10,000,000 (provided that the Company
shall have given notice of the initial filing of such registration statement
promptly after the date of such filing);
1.1 (d) The term "Shares" means the Membership Units issued or
issuable upon exercise of the Warrants.
1.1 (e) The term "Securities Act" means the Securities Act of
1933, or any successor Federal statute, and the rules and regulations of the
Securities and Exchange Commission thereunder, all as the same shall be in
effect at the time.
1.1 (f) The term "Securities and Exchange Commission" or
"Commission" refers to the Securities and Exchange Commission or any other
Federal agency then administering the Securities Act.
1.1 (g) The term "Securities Exchange Act" means the
Securities Exchange Act of 1934 or any successor Federal statute, and the rules
and regulations of the Securities and Exchange Commission thereunder, all as the
same shall be in effect at the time.
<PAGE> 6
2. Restricted Shares.
2.1 This Warrant and all rights hereunder may not be
transferred until such Warrants are exercisable, as determined pursuant to
Section 3.1 hereof.
2.2 If, at the time of any transfer or exchange (other than a
transfer or exchange not involving a change in the beneficial ownership of such
Warrant or Shares) of a Warrant or Shares, such Warrant or Shares shall not be
registered under the Securities Act, the Company may require, as a condition of
allowing such transfer or exchange, that the Holder or transferee of such
Warrant or Shares, as the case may be, furnish to the Company an opinion of
counsel reasonably acceptable to the Company or a "no action" or similar letter
from the Securities and Exchange Commission to the effect that such exercise
transfer or exchange may be made without registration under the Securities Act.
In the case of such transfer or exchange and in the case of an exercise of a
Warrant if the Shares to be issued thereupon are not registered pursuant to the
Securities Act the Company may require a written statement that such Warrant or
Shares, as the case may be, are being acquired for investment and not with a
view to the distribution thereof. The certificates evidencing the Shares issued
on the exercise of the Warrants shall, if such Shares are being sold or
transferred without registration under the Securities Act, bear a legend to the
effect that the Shares evidenced by such certificates have not been so
registered.
2.3 (a) The Company shall make and keep public information
available, as those terms are understood and defined in Rule 144 under the
Securities Act, at all times from and after 90 days following the effective date
of the first registration of the Company under the Securities Act of an offering
of its securities to the general public.
(b) The Company shall file with the Commission in a timely
manner all reports and other documents as the Commission may prescribe under
Section 13(a) or 15(d) of the Exchange Act at any time after the Company has
become subject to such reporting requirements of the Exchange Act.
(c) The Company shall furnish to a Holder and/or a
prospective purchaser of such Warrants or Shares designated by such Holder, upon
request, (i) a written statement by the Company as to its compliance with the
reporting requirements of Rule 144 under the Securities Act (at any time from
and after 90 days following the effective date of the first registration
statement of the Company for an offering of its securities to the general
public) and of the reporting requirements of the Exchange Act (at any time after
it has become subject to such reporting requirements), (ii) a copy of the most
recent annual or quarterly report of the Company, (iii) any other reports and
documents necessary to satisfy the information-furnishing condition to offers
and sales under Rule 144A under the Securities Act and (iv) such other reports
and documents as a Holder of any Warrants or Shares reasonably requests to avail
itself of any rule or regulation of the Commission allowing such Holder to sell
any such securities without registration.
2.4 This Warrant and all rights hereunder shall not be transferred to
any entity which is either a direct or indirect competitor of the Company and
which would, as a member of
<PAGE> 7
the Company, receive information concerning the Company that would be
prejudicial to the Company's business without the prior written consent of the
Company, which consent shall not unreasonably be withheld.
2.5 Certificates evidencing Shares shall, unless at the time
of exercise such Warrant Shares are registered under the Securities Act, bear a
legend substantially in the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THAT
ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
THIS COMPANY IS A RELIGIOUS ORGANIZATION. ALL MEMBERS OF THIS
COMPANY ARE SUBJECT TO THE TERMS OF A MEMBER'S AGREEMENT AS
SET FORTH IN THE OPERATING AGREEMENT OF THE COMPANY WHICH
LIMITS THE AMENDMENT OR DELETION OF THAT SECTION OF THE
OPERATING AGREEMENT AND WHICH PRESCRIBES A COMPANY STATEMENT
OF FAITH IN THE LORD JESUS CHRIST AND DIRECTS OR PROHIBITS
CERTAIN COMPANY ACTIONS ON THE BASIS OF THAT STATEMENT OF
FAITH."
3. Exercise of Warrant.
3.1 Exercise Period. This Warrant shall not become exercisable
until the second anniversary of the Closing Date which is the date of acceptance
of the Subscription Agreement related to this Warrant. Such Warrant shall be
exercisable at any time or from time to time for a period of eight years after
the Exercise Date, but in no event later than 5:00 P.M. Eastern Standard Time on
December 31, 2006.
Notwithstanding the foregoing, this Warrant shall be
exercisable prior to the Exercise Date upon the occurrence of any Qualified
Public Offering by the Company.
3.2 Exercise in Full. The holder of this Warrant may exercise
it in full by surrendering this Warrant, with the form of subscription at the
end hereof duly executed by such holder, to the Company at its principal office.
The surrendered Warrant shall be accompanied by payment, in cash or by certified
or official bank check payable to the order of the Company, in the amount
obtained by multiplying the number of Membership Units called for on the face of
this Warrant (without giving effect to any adjustment therein) by the Initial
Purchase Price. Notwithstanding the foregoing, all or part of such payment may
be made by the surrender by such holder to the Company of any of the Company's
Notes issued pursuant to the Agreement and all such Notes so surrendered shall
be credited against such payment in an amount equal to the principal amount
thereof plus premium (if any) and accrued interest to the date of surrender.
<PAGE> 8
3.3 Partial Exercise. This Warrant may be exercised in part by
surrender of this Warrant in the manner and at the place provided in Subsection
3.1 except that the amount obtained by multiplying (a) the number of Membership
Units called for on the face of this Warrant (without giving effect to any
adjustment therein) as shall be designated by the holder in the subscription at
the end hereof by (b) the Initial Purchase Price. On any such partial exercise,
subject to the provisions of Section 3 hereof, the Company at its expense will
forthwith issue and deliver to or upon the order of the holder hereof a new
Warrant or Warrants of like tenor, in the name of the holder hereof or as such
holder may request, calling in the aggregate on the face or faces thereof for
the number of Membership Units (without giving effect to any adjustment therein)
equal to the number of such units called for on the face of this Warrant minus
the number of such shares designated by the holder in the subscription at the
end hereof. Notwithstanding the foregoing, all or part of such payment may be
made by the surrender by such holder to the Company of any of the Company's
Notes issued pursuant to the Agreement and all such Notes so surrendered shall
be credited against such payment in an amount equal to the principal amount
thereof plus premium (if any) and accrued interest to the date of surrender.
3.4 Company Acknowledgment. The Company will, at the time of
the exercise, exchange or transfer of this Warrant, upon the request of the
holder hereof acknowledge in writing its continuing obligation to afford to such
holder or transferee any rights (including, without limitation, any right to
registration of the Shares) to which such holder or transferee shall continue to
be entitled after such exercise, exchange or transfer in accordance with the
provisions of this Warrant, provided that if the holder of this Warrant shall
fail to make any such request, such failure shall not affect the continuing
obligation of the Company to afford to such holder or transferee any such
rights.
4. Delivery of Certificates, etc., on Exercise. As soon as practicable
after the exercise of this Warrant in full or in part, and in any event
within 10 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in
the name of and delivered to the holder hereof, or as such holder (upon
payment by such holder of any applicable transfer taxes) may direct, a
certificate or certificates for the number of fully paid and
nonassessable Shares to which such holder shall be entitled on such
exercise, plus, in lieu of any fractional Share to which such holder
would otherwise be entitled, cash equal to such fraction multiplied by
the then current market value of one full Share.
5. Adjustment of Purchase Price and Number of Shares.
5.1 The Purchase Price hereof shall be subject to adjustment
from time to time as follows:
In case the Company shall (i) pay a dividend on its Membership
Units in Membership Units, (ii) subdivide its outstanding Membership Units, or
(iii) combine its outstanding Membership Units into a small number or shares,
then, in such an event, the Purchase Price in effect immediately prior thereto
shall be adjusted proportionately so that the adjusted Purchase Price will bear
the same relation to the Purchase Price in effect immediately
<PAGE> 9
prior to any such event as the total number of Membership Units outstanding
immediately prior to any such event shall bear to the total number of Membership
Units outstanding immediately after such event. An adjustment made pursuant to
this subdivision (i) shall become effective retroactively immediately after the
record date in the case of a dividend and (ii) shall become effective
immediately after the effective date in the case of a subdivision or
combination. The Purchase Price, as so adjusted, shall be readjusted in the same
manner upon the happening of any successive event or events described herein.
5.2 Upon each adjustment of the Purchase Price pursuant to
Section 5.1, the number of Membership Units purchasable upon exercise of this
Warrant shall be adjusted to the number of Membership Units, calculated to the
nearest one hundredth of a share, obtained by multiplying the number of
Membership Units purchasable immediately prior to such adjustment upon the
exercise of this Warrant by the Purchase Price in effect prior to such
adjustment and dividing the product so obtained by the new Purchase Price.
5.3 In case of any capital reorganization of the Company, any
reclassification of the Membership Units, or the conversion of the Company from
a limited liability company to any other type of entity, this Warrant shall be
exercisable after such capital reorganization, reclassification or conversion
upon the terms and conditions specified in this Warrant Certificate, for the
number of shares of stock or other securities which the Membership Units
issuable at the time of such capital reorganization, reclassification or
conversion upon exercise of this Warrant Certificate would have been entitled to
receive upon such capital reorganization, reclassification or conversion if such
exercise had taken place immediately prior to such action. The subdivision or
combination of Membership Units at any time outstanding into a greater or lesser
number of Membership Units shall not be deemed to be a reclassification of the
Membership Units of the Company for the purposes of this Subsection 5.3.
5.4 Whenever the Purchase Price is adjusted as herein
provided, the Company shall compute the adjusted Purchase Price in accordance
with Subsection 5.1 and shall prepare a certificate signed by its Chairman of
the Directors, Vice Chairman of the Directors, President or Vice President and
its principal accounting officer setting forth the adjusted Purchase Price and
showing in reasonable detail the method of such adjustment and the fact
requiring the adjustment and upon which such calculation is based, and such
certificate shall forthwith be forwarded to the Warrantholder.
5.5 In case at any time after the date of this Warrant
Certificate:
(a) The Company shall declare a dividend (or any
other distribution) on its Membership Units payable otherwise than in cash out
of its earned surplus; or
(b) The Company shall authorize the granting to the
holders of its Membership Units of rights to subscribe for or purchase any
shares of capital stock of any class or of any other rights; or
(c) The Company shall authorize any reclassification
of its Membership Units (other than a subdivision or combination of its
outstanding Membership Units), or any
<PAGE> 10
consolidation or merger to which it is a party and for which approval of any
members of the Company is required, or the sale or transfer of all or
substantially all of its assets or all or substantially all of its issued and
outstanding units; or
(d) Events shall have occurred resulting in the
voluntary and involuntary dissolution, liquidation or winding up of the Company;
then the Company shall cause notice to be sent to the Warrantholder at least 20
days prior (or 10 days prior in any case specified in clause (a) or (b) above,
or on the date of any case specified in clause (d) above) to the applicable
record date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution or rights,
or, if a record is not to be taken, the date as of which the holders of
Membership Units of record to be entitled to such dividend, distribution or
rights are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, initial public offering, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of Membership Units of record shall be
entitled to exchange their shares for securities or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up. Failure to give any such notice of any defect therein
shall not affect the validity of the proceedings referred to in clauses (a),
(b), (c) and (d) above.
5.6 The form of this Warrant Certificate need not be changed
because of any change in the Purchase Price pursuant to this Section 5 and any
Warrant Certificate issued after such change may state the same Purchase Price
and the same number of Membership Units as are stated in this Warrant
Certificate as initially issued. However, the Company may at any time in its
sole discretion (which shall be conclusive) make any change in the form of this
Warrant Certificate that it may deem appropriate and that does not affect the
substance thereof; and any Warrant Certificate thereafter issued or
countersigned, whether in exchange or substitution for an outstanding Warrant
Certificate or otherwise, may be in the form as so changed.
6. Exchange of Warrants. On surrender for exchange of any Warrant,
properly endorsed, to the Company, the Company at its expense will
issue and deliver to or (subject to Section 2) on the order of the
holder thereof a new Warrant or Warrants of like tenor, in the name of
such holder or as such holder (on payment by such holder or any
applicable transfer taxes) may direct, calling in the aggregate on the
face or faces thereof for the number of Membership Units called for on
the face or faces of the Warrant or Warrants so surrendered.
7. Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and, in the case of any such loss, theft or
destruction of any Warrant, on delivery of an indemnity agreement or
security reasonably satisfactory in form and amount to the Company or,
in the case of any such mutilation, on surrender and cancellation of
such Warrant, the Company at its expense will execute and deliver, in
lieu thereof, a new Warrant of like tenor.
<PAGE> 11
8. Remedies. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened
default by the Company in the performance of or compliance with any of
the terms of this Warrant are not and will not be adequate, and that
such terms may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
9. Negotiability, etc. This Warrant is issued upon the following terms,
to all of which each holder or owner hereof by the taking hereof
consents and agrees:
9.1 (a) title to this Warrant may be transferred by
endorsement (by the holder hereof executing the form of assignment at the end
hereof) and delivery in the same manner as in the case of a negotiable
instrument transferable by endorsement and delivery;
9.1 (b) any person in possession of this Warrant properly
endorsed is authorized to represent himself as absolute owner hereof and is
empowered to transfer absolute title hereto by endorsement and delivery hereof
to a bona fide purchaser hereof for value; each prior taker or owner waives and
renounces all of his equities or rights in this Warrant in favor of each such
bona fide purchaser, and each such bona fide purchaser shall acquire absolute
title hereto and to all rights represented hereby; and
9.1 (c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the contrary.
10. Notice, etc. All notices and other communications shall be mailed
by first class registered or certified mail, postage prepaid, as
follows: (i) if to the Holder, to the address for the Holder as shown
on the signature page hereof, or (ii) if to the Company, to Didax
On-Line L.C., 4501 Daly Drive, Suite 103, Chantilly, Virginia 20151,
Attn: Vice President, Finance.
11. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver,
discharge or termination is sought. This Warrant is being delivered in
the State of Virginia and shall be construed and enforced in accordance
with and governed by its laws. Possession of this Warrant shall not
cause the Holder to be a member of the Company and such Holder shall
not be entitled to any of the rights conferred upon members of the
Company, including without limitation, voting rights, notice of record
date, change in corporate structure or the like. The headings in this
Warrant are for purposes of reference only, and shall not limit or
otherwise affect any of the terms hereof. This Warrant is being
executed as an instrument under seal. All nouns and pronouns used
herein shall be deemed to refer to the masculine, feminine or neuter,
as the identity of the person or persons to whom reference is made
herein may require.
12. Expiration. The right to exercise this Warrant shall expire at 5:00
PM, Eastern Standard time, on December 31, 2006.
<PAGE> 12
Dated: July 30, 1996 DIDAX ON-LINE L.C.
By: /s/ Gary Struzik
------------------------------
Title: V.P. Finance
-----------------------------
Attest:
HOLDER:
By:
-------------------------------
Title:
-----------------------------
Address:
-----------------------------
-----------------------------
-----------------------------
<PAGE> 13
APPENDIX "C"
WARRANT GRANT SLIDING SIX MONTH SCALE
Six month note will receive 50% warrant @ $4 = Total aggregate of 375,000 Units
per $3,000,000 in Notes
<TABLE>
<CAPTION>
July Aug Sept Oct Nov Dec
or Month 1 or Month 2 or Month 3 or Month 4 or Month 5 or Month 6 Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
% of Warrant Earned 21.7% 20.0% 18.3% 13.3% 13.3% 13.3% 100.0%
</TABLE>
If note is liquidated prior to six months, the percentage of the total amount
earned will cease in the month note is liquidated. The portion of the month that
the note is open in the month liquidated will be granted proportionally.
Each $100,000 debt outstanding after six months will earn 2,000 warrants for
membership units per month.
For example, if note is liquidated on October 10, or the tenth day of month
four), Holder would be granted 64.3% of the total six month warrant potential,
equivalent to the month one through three earned value plus 10/31 of the 13.3%
month four earned value.
<PAGE> 1
Exhibit 10.8
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. IT MAY NOT BE SOLD,
OFFERED FOR SALE OR OTHERWISE TRANSFERRED UNLESS REGISTERED UNDER SUCH ACT OR IN
COMPLIANCE WITH ANY EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT,
EACH CASE IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS.
THIS COMPANY IS A RELIGIOUS ORGANIZATION. ALL MEMBERS OF THIS COMPANY ARE
SUBJECT TO THE TERMS OF A MEMBER'S AGREEMENT AS SET FORTH IN THE OPERATING
AGREEMENT OF THE COMPANY WHICH LIMITS THE AMENDMENT OR DELETION OF THAT SECTION
OF THE OPERATING AGREEMENT AND WHICH PRESCRIBES A COMPANY STATEMENT OF FAITH IN
THE LORD JESUS CHRIST AND DIRECTS OR PROHIBITS CERTAIN COMPANY ACTIONS ON THE
BASIS OF THAT STATEMENT OF FAITH.
THIS PROMISSORY NOTE IS SUBJECT TO THE TERMS OF A SUBSCRIPTION AGREEMENT DATED
AS OF OCTOBER 30, 1996 BETWEEN DIDAX ON-LINE L.C AND HOLDER, WHICH AGREEMENT IS
INCORPORATED HEREIN BY REFERENCE.
Promissory Note
$297,000 Chantilly, Virginia
October 30, 1996
FOR VALUE RECEIVED, the undersigned, DIDAX ON-LINE L.C., a
Virginia Limited Liability Company (the "Maker"), hereby unconditionally
promises to pay to the order of Bruce E. Edgington (the "Holder") at its offices
in Chantilly, Va., or such other place as the Holder of this Promissory Note may
from time to time designate, Two Hundred Ninety Seven Thousand ($297,000) This
Note shall bear interest from the date as indicated in the Subscription
Agreement Appendix A through the Maturity Date at an annual rate of interest of
nine and three quarters percent (9.75%), compounded monthly on the tenth of each
month and payable in full upon the Maturity Date. The maturity date of the Note
will be July 30, 1997, or an earlier date, at the Company's discretion. The
Principal amount of this Promissory Note and all interest accrued thereon is
payable in lawful money of the United States of America, and in immediately
available funds, to the Holder. The Maker may, at its option, prepay this
Promissory Note in whole or in part at anytime or from time to time without
penalty or premium.
If any one or more of the following events (each hereinafter
referred to as an "Event of Default") shall occur and be continuing for any
reason whatsoever:
(a) default in any payment of principal of this
Promissory Note when due (whether at maturity by
acceleration or otherwise);
(b) adverse change to the Maker as evidenced by the
occurrence of any of the following events:
<PAGE> 2
(i) the commencement of a voluntary case under
the bankruptcy laws or any other action or
proceeding for any other relief under any
law affecting creditors rights generally or
the seeking or an appointment of a trustee,
receiver, liquidator, custodian or other
similar official for its or any substantial
part of its properties; (ii) consent by
answer or otherwise to an order for relief
against it in an involuntary case under the
bankruptcy laws or to the commencement of
any other such action or proceeding or to
any such appointment; (iii) the entry
against it of an order for relief in an
involuntary case under the bankruptcy laws;
(iv) the commencement against it of an
involuntary case under the bankruptcy laws
or any other such action or proceedings, if
such case or other action or proceeding
shall not be dismissed or stayed within 120
days following the commencement thereof or
if any such dismissal or stay shall fail to
remain in effect; or (v) the appointment of
a trustee, receiver, liquidator, custodian
or other similar official for it or any
substantial portion of its properties; or
(c) an event or condition shall exist which constitutes a
default or an event of default under any instrument
or agreement governing any other indebtedness of the
Maker
then, and in respect of each and every such event:
(i) the then outstanding principal amount of
this Promissory Note and any interest which
has accrued thereon shall become immediately
due and payable without any further notice
by the Holder or otherwise; and
(ii) The Holder shall have the right to exercise
any and all of its rights and remedies as a
creditor pursuant to applicable law.
No delay on the part of the Holder in exercising any rights
hereunder or failure to exercise the same shall operate as a waiver of such
rights; the remedies provided herein are cumulative and not exclusive of any
remedies provided by law; no notice to or demand on the undersigned shall be
deemed to be a waiver of the obligation of the undersigned or of the right of
the Holder to take further action without notice or demand as provided herein;
nor in any event shall any waiver be effective unless in writing and then the
same shall be applicable only in the specific instance for which given.
The Maker shall pay to the Holder, on demand, all costs and
expenses (including attorney's fees and expenses) incurred to collect any
indebtedness evidenced hereby. Demand, presentment, protest and notice of
non-payment, dishonor, and protest are hereby waived by the Maker. In the event
of any litigation with respect to any matter connected with this Promissory
<PAGE> 3
Note, the Maker hereby waives the right to trial by jury and all defenses,
rights of setoff and rights to interpose counterclaims of any nature.
THIS PROMISSORY NOTE HAS BEEN DELIVERED AND ACCEPTED AT
CHANTILLY, VIRGINIA AND SHALL BE INTERPRETED, GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF VIRGINIA.
DIDAX ON-LINE L.C.
By: /s/ Gary Struzik
---------------------------
Vice President Finance
<PAGE> 4
THIS WARRANT HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. IT MAY NOT BE SOLD, OFFERED FOR
SALE OR OTHERWISE TRANSFERRED UNLESS REGISTERED UNDER SUCH ACT OR IN COMPLIANCE
WITH ANY EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT, EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS.
THIS COMPANY IS A RELIGIOUS ORGANIZATION. ALL MEMBERS OF THIS COMPANY ARE
SUBJECT TO THE TERMS OF A MEMBER'S AGREEMENT AS SET FORTH IN THE OPERATING
AGREEMENT OF THE COMPANY WHICH LIMITS THE AMENDMENT OR DELETION OF THAT SECTION
OF THE OPERATING AGREEMENT AND WHICH PRESCRIBES A COMPANY STATEMENT OF FAITH IN
THE LORD JESUS CHRIST AND DIRECTS OR PROHIBITS CERTAIN COMPANY ACTIONS ON THE
BASIS OF THAT STATEMENT OF FAITH.
THIS WARRANT IS SUBJECT TO THE TERMS OF A SUBSCRIPTION AGREEMENT DATED AS OF
OCTOBER 30, 1996 BETWEEN DIDAX ON-LINE L.C. AND HOLDER, WHICH AGREEMENT IS
INCORPORATED HEREIN BY REFERENCE.
DIDAX ON-LINE L.C.
MEMBERSHIP UNITS WARRANT
The Transferability of This Warrant is
Restricted as Provided in Section 2.
Void after Date: December 31, 2006 Right to Purchase 62,361
Membership Units
(subject to adjustment of
DIDAX ON-LINE L.C.)
No. W-O30E
PREAMBLE
DIDAX ON-LINE L.C.. (the "Company"), a Virginia limited liability
company, hereby certifies that, for value received, HOLDER (the "Holder"), is
entitled, subject to the terms set forth below, to purchase from the Company
subject to the Exercise provision set forth in Section 3 hereof, fully paid and
nonassessable Membership Units, no par value, of the Company, at the purchase
price per share (the "Purchase Price") of $4.00 (the "Initial Purchase Price").
The number and character of such Membership Units and the Purchase Price are
subject to adjustment as provided herein.
This Warrant is one of the Membership Units Warrants (the "Warrants"),
evidencing the right to purchase Membership Units of the Company, issued
pursuant to a certain Subscription
<PAGE> 5
Agreement (the "Agreement"), dated as of October 30, 1996, between the Company
(the "Closing Date") and certain investors, copies of which are on file at the
principal office of the Company. The Warrants evidence rights to purchase an
aggregate of 375,000 Membership Units of the Company, granted over a six month
period of promissory note outstanding, at the percentages per month outstanding
indicated in Appendix "C", subject to adjustment as provided in such Warrants.
If maturity is granted after this six month period, warrants to purchase
Membership Units at $4.00 will continue to be granted over an extended six month
period. 12,500 warrants to purchase 12,500 units at $4.00 per unit will be
granted each over a six month period, or 2,083 warrants per month for every
$100,000 invested.
1.Definitions
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
1.1 (a) The term "Company" includes any corporation which shall succeed
to or assume the obligations of the Company hereunder.
1.1 (b) The term "Membership Units" means the Company's membership
unit, no par value per share, in existence on the Closing Date, or any class or
classes (however designated) of such Membership Units subsequently existing as a
result of any recapitalization, reorganization or other reclassification which
affects the holders of Membership Units.
1.1 (c) The term "Qualified Public Offering" shall mean the closing of
an underwritten public offering pursuant to an effective registration statement
on Form S1 or successor form under the Securities Act covering the offering and
sale of Common Stock for the account of the Company.
1.1 (d) The term "Shares" means the Membership Units issued or issuable
upon exercise of the Warrants.
1.1 (e) The term "Securities Act" means the Securities Act of 1933, or
any successor Federal statute, and the rules and regulations of the Securities
and Exchange Commission thereunder, all as the same shall be in effect at the
time.
1.1 (f) The term "Securities and Exchange Commission" or "Commission"
refers to the Securities and Exchange Commission or any other Federal agency
then administering the Securities Act.
1.1 (g) The term "Securities Exchange Act" means the Securities
Exchange Act of 1934 or any successor Federal statute, and the rules and
regulations of the Securities and Exchange Commission thereunder, all as the
same shall be in effect at the time.
<PAGE> 6
2. Restricted Shares.
2.1 This Warrant and all rights hereunder may not be transferred
until such Warrants are exercisable, as determined pursuant to Section 3.1
hereof.
2.2 If, at the time of any transfer or exchange (other than a
transfer or exchange not involving a change in the beneficial ownership of such
Warrant or Shares) of a Warrant or Shares, such Warrant or Shares shall not be
registered under the Securities Act, the Company may require, as a condition of
allowing such transfer or exchange, that the Holder or transferee of such
Warrant or Shares, as the case may be, furnish to the Company an opinion of
counsel reasonably acceptable to the Company or a "no action" or similar letter
from the Securities and Exchange Commission to the effect that such exercise
transfer or exchange may be made without registration under the Securities Act.
In the case of such transfer or exchange and in the case of an exercise of a
Warrant if the Shares to be issued thereupon are not registered pursuant to the
Securities Act the Company may require a written statement that such Warrant or
Shares, as the case may be, are being acquired for investment and not with a
view to the distribution thereof. The certificates evidencing the Shares issued
on the exercise of the Warrants shall, if such Shares are being sold or
transferred without registration under the Securities Act, bear a legend to the
effect that the Shares evidenced by such certificates have not been so
registered.
2.3(a) The Company shall make and keep public information
available, as those terms are understood and defined in Rule 144 under the
Securities Act, at all times from and after 90 days following the effective date
of the first registration of the Company under the Securities Act of an offering
of its securities to the general public.
(b) The Company shall file with the Commission in a timely
manner all reports and other documents as the Commission may prescribe under
Section 13(a) or 15(d) of the Exchange Act at any time after the Company has
become subject to such reporting requirements of the Exchange Act.
(c) The Company shall furnish to a Holder and/or a prospective
purchaser of such Warrants or Shares designated by such Holder, upon request,
(i) a written statement by the Company as to its compliance with the reporting
requirements of Rule 144 under the Securities Act (at any time from and after 90
days following the effective date of the first registration statement of the
Company for an offering of its securities to the general public) and of the
reporting requirements of the Exchange Act (at any time after it has become
subject to such reporting requirements), (ii) a copy of the most recent annual
or quarterly report of the Company, (iii) any other reports and documents
necessary to satisfy the information-furnishing condition to offers and sales
under Rule 144A under the Securities Act and (iv) such other reports and
documents as a Holder of any Warrants or Shares reasonably requests to avail
itself of any rule or regulation of the Commission allowing such Holder to sell
any such securities without registration.
2.4 This Warrant and all rights hereunder shall not be
transferred to any entity which is either a direct or indirect competitor of
the Company and which would, as a member of
<PAGE> 7
the Company, receive information concerning the Company that would be
prejudicial to the Company's business without the prior written consent of the
Company, which consent shall not unreasonably be withheld.
2.5 Certificates evidencing Shares shall, unless at the time of
exercise such Warrant Shares are registered under the Securities Act, bear a
legend substantially in the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THAT
ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
THIS COMPANY IS A RELIGIOUS ORGANIZATION. ALL MEMBERS OF THIS
COMPANY ARE SUBJECT TO THE TERMS OF A MEMBER'S AGREEMENT AS
SET FORTH IN THE OPERATING AGREEMENT OF THE COMPANY WHICH
LIMITS THE AMENDMENT OR DELETION OF THAT SECTION OF THE
OPERATING AGREEMENT AND WHICH PRESCRIBES A COMPANY STATEMENT
OF FAITH IN THE LORD JESUS CHRIST AND DIRECTS OR PROHIBITS
CERTAIN COMPANY ACTIONS ON THE BASIS OF THAT STATEMENT OF
FAITH."
3. Exercise of Warrant.
3.1 Exercise Period. This Warrant shall not become exercisable until
the second anniversary of the Closing Date which is the date of acceptance of
the Subscription Agreement related to this Warrant. Such Warrant shall be
exercisable at any time or from time to time for a period of eight years after
the Exercise Date, but in no event later than 5:00 P.M. Eastern Standard Time on
December 31, 2006.
Notwithstanding the foregoing, this Warrant shall be exercisable prior
to the Exercise Date upon the occurrence of any Qualified Public Offering by the
Company.
3.2 Exercise in Full. The holder of this Warrant may exercise it in
full by surrendering this Warrant, with the form of subscription at the end
hereof duly executed by such holder, to the Company at its principal office. The
surrendered Warrant shall be accompanied by payment, in cash or by certified or
official bank check payable to the order of the Company, in the amount obtained
by multiplying the number of Membership Units called for on the face of this
Warrant (without giving effect to any adjustment therein) by the Initial
Purchase Price. Notwithstanding the foregoing, all or part of such payment may
be made by the surrender by such holder to the Company of any of the Company's
Notes issued pursuant to the Agreement and all such Notes so surrendered shall
be credited against such payment in an amount equal to the principal amount
thereof plus premium (if any) and accrued interest to the date of surrender.
<PAGE> 8
3.3 Partial Exercise. This Warrant may be exercised in part by
surrender of this Warrant in the manner and at the place provided in Subsection
3.1 except that the amount obtained by multiplying (a) the number of Membership
Units called for on the face of this Warrant (without giving effect to any
adjustment therein) as shall be designated by the holder in the subscription at
the end hereof by (b) the Initial Purchase Price. On any such partial exercise,
subject to the provisions of Section 3 hereof, the Company at its expense will
forthwith issue and deliver to or upon the order of the holder hereof a new
Warrant or Warrants of like tenor, in the name of the holder hereof or as such
holder may request, calling in the aggregate on the face or faces thereof for
the number of Membership Units (without giving effect to any adjustment therein)
equal to the number of such units called for on the face of this Warrant minus
the number of such shares designated by the holder in the subscription at the
end hereof. Notwithstanding the foregoing, all or part of such payment may be
made by the surrender by such holder to the Company of any of the Company's
Notes issued pursuant to the Agreement and all such Notes so surrendered shall
be credited against such payment in an amount equal to the principal amount
thereof plus premium (if any) and accrued interest to the date of surrender.
3.4 Company Acknowledgment. The Company will, at the time of
the exercise, exchange or transfer of this Warrant, upon the request of the
holder hereof acknowledge in writing its continuing obligation to afford to such
holder or transferee any rights (including, without limitation, any right to
registration of the Shares) to which such holder or transferee shall continue to
be entitled after such exercise, exchange or transfer in accordance with the
provisions of this Warrant, provided that if the holder of this Warrant shall
fail to make any such request, such failure shall not affect the continuing
obligation of the Company to afford to such holder or transferee any such
rights.
4. Delivery of Certificates, etc., on Exercise. As soon as
practicable after the exercise of this Warrant in full or in part, and
in any event within 10 days thereafter, the Company at its expense
(including the payment by it of any applicable issue taxes) will cause
to be issued in the name of and delivered to the holder hereof, or as
such holder (upon payment by such holder of any applicable transfer
taxes) may direct, a certificate or certificates for the number of
fully paid and nonassessable Shares to which such holder shall be
entitled on such exercise, plus, in lieu of any fractional Share to
which such holder would otherwise be entitled, cash equal to such
fraction multiplied by the then current market value of one full Share.
5. Adjustment of Purchase Price and Number of Shares.
5.1 The Purchase Price hereof shall be subject to adjustment
from time to time as follows:
In case the Company shall (i) pay a dividend on its Membership
Units in Membership Units, (ii) subdivide its outstanding Membership Units, or
(iii) combine its outstanding Membership Units into a small number or shares,
then, in such an event, the Purchase Price in effect immediately prior thereto
shall be adjusted proportionately so that the adjusted Purchase Price will bear
the same relation to the Purchase Price in effect immediately
<PAGE> 9
prior to any such event as the total number of Membership Units outstanding
immediately prior to any such event shall bear to the total number of Membership
Units outstanding immediately after such event. An adjustment made pursuant to
this subdivision (i) shall become effective retroactively immediately after the
record date in the case of a dividend and (ii) shall become effective
immediately after the effective date in the case of a subdivision or
combination. The Purchase Price, as so adjusted, shall be readjusted in the same
manner upon the happening of any successive event or events described herein.
5.2 Upon each adjustment of the Purchase Price pursuant to Section 5.1,
the number of Membership Units purchasable upon exercise of this Warrant shall
be adjusted to the number of Membership Units, calculated to the nearest one
hundredth of a share, obtained by multiplying the number of Membership Units
purchasable immediately prior to such adjustment upon the exercise of this
Warrant by the Purchase Price in effect prior to such adjustment and dividing
the product so obtained by the new Purchase Price.
5.3 In case of any capital reorganization of the Company, any
reclassification of the Membership Units, or the conversion of the Company from
a limited liability company to any other type of entity, this Warrant shall be
exercisable after such capital reorganization, reclassification or conversion
upon the terms and conditions specified in this Warrant Certificate, for the
number of shares of stock or other securities which the Membership Units
issuable at the time of such capital reorganization, reclassification or
conversion upon exercise of this Warrant Certificate would have been entitled to
receive upon such capital reorganization, reclassification or conversion if such
exercise had taken place immediately prior to such action. The subdivision or
combination of Membership Units at any time outstanding into a greater or lesser
number of Membership Units shall not be deemed to be a reclassification of the
Membership Units of the Company for the purposes of this Subsection 5.3.
5.4 Whenever the Purchase Price is adjusted as herein provided, the
Company shall compute the adjusted Purchase Price in accordance with Subsection
5.1 and shall prepare a certificate signed by its Chairman of the Directors,
Vice Chairman of the Directors, President or Vice President and its principal
accounting officer setting forth the adjusted Purchase Price and showing in
reasonable detail the method of such adjustment and the fact requiring the
adjustment and upon which such calculation is based, and such certificate shall
forthwith be forwarded to the Warrantholder.
5.5 In case at any time after the date of this Warrant Certificate:
(a) The Company shall declare a dividend (or any other
distribution) on its Membership Units payable otherwise than in cash out of its
earned surplus; or
(b) The Company shall authorize the granting to the holders of
its Membership Units of rights to subscribe for or purchase any shares of
capital stock of any class or of any other rights; or
(c) The Company shall authorize any reclassification of its
Membership Units (other than a subdivision or combination of its outstanding
Membership Units), or any
<PAGE> 10
consolidation or merger to which it is a party and for which approval of any
members of the Company is required, or the sale or transfer of all or
substantially all of its assets or all or substantially all of its issued and
outstanding units; or
(d) Events shall have occurred resulting in the voluntary and
involuntary dissolution, liquidation or winding up of the Company;
then the Company shall cause notice to be sent to the Warrantholder at least 20
days prior (or 10 days prior in any case specified in clause (a) or (b) above,
or on the date of any case specified in clause (d) above) to the applicable
record date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution or rights,
or, if a record is not to be taken, the date as of which the holders of
Membership Units of record to be entitled to such dividend, distribution or
rights are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, initial public offering, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of Membership Units of record shall be
entitled to exchange their shares for securities or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up. Failure to give any such notice of any defect therein
shall not affect the validity of the proceedings referred to in clauses (a),
(b), (c) and (d) above.
5.6 The form of this Warrant Certificate need not be changed because of
any change in the Purchase Price pursuant to this Section 5 and any Warrant
Certificate issued after such change may state the same Purchase Price and the
same number of Membership Units as are stated in this Warrant Certificate as
initially issued. However, the Company may at any time in its sole discretion
(which shall be conclusive) make any change in the form of this Warrant
Certificate that it may deem appropriate and that does not affect the substance
thereof; and any Warrant Certificate thereafter issued or countersigned, whether
in exchange or substitution for an outstanding Warrant Certificate or otherwise,
may be in the form as so changed.
6. Exchange of Warrants. On surrender for exchange of any Warrant,
properly endorsed, to the Company, the Company at its expense will
issue and deliver to or (subject to Section 2) on the order of the
holder thereof a new Warrant or Warrants of like tenor, in the name of
such holder or as such holder (on payment by such holder or any
applicable transfer taxes) may direct, calling in the aggregate on the
face or faces thereof for the number of Membership Units called for on
the face or faces of the Warrant or Warrants so surrendered.
7. Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and, in the case of any such loss, theft or
destruction of any Warrant, on delivery of an indemnity agreement or
security reasonably satisfactory in form and amount to the Company or,
in the case of any such mutilation, on surrender and cancellation of
such Warrant, the Company at its expense will execute and deliver, in
lieu thereof, a new Warrant of like tenor.
<PAGE> 11
8. Remedies. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened
default by the Company in the performance of or compliance with any of
the terms of this Warrant are not and will not be adequate, and that
such terms may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
9. Negotiability, etc. This Warrant is issued upon the following terms,
to all of which each holder or owner hereof by the taking hereof
consents and agrees:
9.1 (a) title to this Warrant may be transferred by
endorsement (by the holder hereof executing the form of assignment at the end
hereof) and delivery in the same manner as in the case of a negotiable
instrument transferable by endorsement and delivery;
9.1 (b) any person in possession of this Warrant properly
endorsed is authorized to represent himself as absolute owner hereof and is
empowered to transfer absolute title hereto by endorsement and delivery hereof
to a bona fide purchaser hereof for value; each prior taker or owner waives and
renounces all of his equities or rights in this Warrant in favor of each such
bona fide purchaser, and each such bona fide purchaser shall acquire absolute
title hereto and to all rights represented hereby; and
9.1 (c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the contrary.
10. Notice, etc. All notices and other communications shall be mailed
by first class registered or certified mail, postage prepaid, as
follows: (i) if to the Holder, to the address for the Holder as shown
on the signature page hereof, or (ii) if to the Company, to Didax
On-Line L.C., 4501 Daly Drive, Suite 103, Chantilly, Virginia 20151,
Attn: Vice President, Finance.
11. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver,
discharge or termination is sought. This Warrant is being delivered in
the State of Virginia and shall be construed and enforced in accordance
with and governed by its laws. Possession of this Warrant shall not
cause the Holder to be a member of the Company and such Holder shall
not be entitled to any of the rights conferred upon members of the
Company, including without limitation, voting rights, notice of record
date, change in corporate structure or the like. The headings in this
Warrant are for purposes of reference only, and shall not limit or
otherwise affect any of the terms hereof. This Warrant is being
executed as an instrument under seal. All nouns and pronouns used
herein shall be deemed to refer to the masculine, feminine or neuter,
as the identity of the person or persons to whom reference is made
herein may require.
12. Expiration. The right to exercise this Warrant shall expire at 5:00
PM, Eastern Standard time, on December 31, 2006.
<PAGE> 12
Dated: October 30, 1996 DIDAX ON-LINE L.C.
By: /s/ Gary Struzik
-------------------------
Title: V.P. Finance
-------------------------
Attest:
HOLDER:
By: /s/ Bruce Edgington
------------------------
Title:
------------------------
Address:
------------------------
------------------------
------------------------
<PAGE> 13
APPENDIX "C"
WARRANT GRANT SLIDING SIX MONTH SCALE
Six month note will receive 50% warrant @ $4 = Total aggregate of 375,000 Units
per $3,000,000 in Notes
<TABLE>
<CAPTION>
July Aug Sept Oct Nov Dec
or Month 1 or Month 2 or Month 3 or Month 4 or Month 5 or Month 6 Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
% of Warrant Earned 21.7% 20.0% 18.3% 13.3% 13.3% 13.3% 100.0%
</TABLE>
If note is liquidated prior to six months, the percentage of the total amount
earned will cease in the month note is liquidated. The portion of the month that
the note is open in the month liquidated will be granted proportionally.
Each $100,000 debt outstanding after six months will earn 2,000 warrants for
membership units per month.
For example, if note is liquidated on October 10, or the tenth day of month
four), Holder would be granted 64.3% of the total six month warrant potential,
equivalent to the month one through three earned value plus 10/31 of the 13.3%
month four earned value.
<PAGE> 1
[Logo] Exhibit 10.9
Mr. Bruce E. Edgington November 13, 1996
8443 Lee Alan Dr.
Fairfax Station, Va. 22039
Dear Mr. Edgington:
Pursuant to events which have occurred since the time of your subscription
agreement dated July 30, 1996 for Note in the amount of $125,000 with 15,625
Warrants, most specifically, the signing of a letter of intent with an
underwriter toward an Initial Public Offering, your concurrence is sought below
to the following changes in the Note and Warrants, therein subscribed:
Given the extensive expense the Company anticipates in operations and in
preparation of a potential IPO, your concurrence is requested to extend the
maturity date of the Note dated July 30, 1996 from January 30, 1997 to July 30,
1997 or earlier, at the discretion of the Company. Interest on these Notes will
continue to accrue at 9.75% over the extended period.
Warrant No. W-J30E which describes the warrants that you are entitled to
for the value received in the Note dated July 10, 1996 is herein adjusted in
recognition of this extension. An additional 2,604 membership units in DIDAX
ON-LINE L.C. will be added to the original total of 15,625 membership units, for
each month the Note is outstanding during the extension period. These additional
warrants will be exercisable under the same terms of the original warrants. Upon
or prior to the successful completion of an IPO, the LLC will be reorganized in
a series of nontaxable reorganizations, the result of which shall convert the
LLC to a newly organized C corporation meaning in turn that equity interest in
the surviving Company will be represented by shares of common stock rather than
membership units. The IPO will, thusly entail the distribution of Shares and not
membership units.
Finally, in Section 1.1.1(c) of the Warrant documents described above,
which defines the term "Qualified Public Offering", is removed in completion and
replaced with the following:
The term "Qualified Public Offering" shall mean the closing of an
underwritten public offering pursuant to an effective registration
statement on Form S1 or successor form under the Securities Act covering
the offering and sale of Common Stock for the account of the Company.
You are also herein advised that this private placement offering was closed
without meeting the originally desired funding of $3,000,000. The total amount
received was $623,000, as of October 30, 1996, the closing date of the offering.
4501 Daly Drive, Suite 103 - Chantilly, Virginia 20151
Phone: (703) 968-4808 - Fax: (703) 968-4819
<PAGE> 2
Please indicate your concurrence with these changes in the space provided
below, and with your signature, it is also understood that you are willing to
allow DIDAX ON-LINE L.C. to retain your Note under the conditions so specified
in this memorandum, with full knowledge that the funding level requested in the
private placement was not received. Your flexibility in this regard is
appreciated.
Sincerely,
/s/ Gary A. Struzik
- --------------------
Gary A. Struzik
Vice President Finance
Concur, 11/29/96
/s/ Bruce E. Edgington
------------------------------
Bruce E. Edgington Date
<PAGE> 1
EXHIBIT 10.10
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. IT MAY NOT BE SOLD,
OFFERED FOR SALE OR OTHERWISE TRANSFERRED UNLESS REGISTERED UNDER SUCH ACT OR IN
COMPLIANCE WITH ANY EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT,
EACH CASE IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS.
THIS COMPANY IS A RELIGIOUS ORGANIZATION. ALL MEMBERS OF THIS COMPANY ARE
SUBJECT TO THE TERMS OF A MEMBER'S AGREEMENT AS SET FORTH IN THE OPERATING
AGREEMENT OF THE COMPANY WHICH LIMITS THE AMENDMENT OR DELETION OF THAT SECTION
OF THE OPERATING AGREEMENT AND WHICH PRESCRIBES A COMPANY STATEMENT OF FAITH IN
THE LORD JESUS CHRIST AND DIRECTS OR PROHIBITS CERTAIN COMPANY ACTIONS ON THE
BASIS OF THAT STATEMENT OF FAITH.
THIS PROMISSORY NOTE IS SUBJECT TO THE TERMS OF A SUBSCRIPTION AGREEMENT DATED
AS OF JANUARY 9, 1997 BETWEEN DIDAX ON-LINE L.C AND HOLDER, WHICH AGREEMENT IS
INCORPORATED HEREIN BY REFERENCE.
Promissory Note
$300,000 Chantilly, Virginia
January 9, 1997
FOR VALUE RECEIVED, the undersigned, DIDAX ON-LINE L.C., a
Virginia Limited Liability Company (the "Maker"), hereby conditionally promises
to pay to the order of JOHN J. AND HOLLI MEINDL (the "Holder") at its offices in
Chantilly Va., or such other place as the Holder of this Promissory Note may
from time to time designate, THREE HUNDRED THOUSAND DOLLARS ($300,000). The
repayment of this debt is conditional upon the proceeds of an initial public
offering for the Company's stock. The Principal amount of this Promissory Note
thereon is payable, without interest, in lawful money of the United States of
America, to the Holder. In return for the use of the Holder's funds, the Company
will issue to the Holder, at the time the note is repaid from initial public
offering proceeds, non registered membership units at no par value per unit
(the "Units", collectively with the Note, the "Securities"), of DIDAX ON-LINE,
L.C., a Virginia limited liability company (the "Company") or it's successor
Company should it revert to a C Corporation under Section 422 of the Internal
Revenue Code. These membership units (or Shares) will be restricted from resale
or transfer for a two year period. If an initial public offering is not made
until two years or longer subsequent to the subscription for the Promissory
Note, then this holding period is abolished. The number of units will be
predicated on the price per unit established at the time of a potential initial
public offering. This price will be divided into the amount of the Holder's note
to derive the exact number of units to be issued. However, no more than 300,000
units, equivalent to a per unit price of $5.00 per unit will be provided at the
time of the public offering. If an initial public offering is not made within
three years from the date of the Subscription Agreement, the Holder has the
option of converting the note to units at $4.00 per unit, or receiving repayment
of the note in four quarterly payments
<PAGE> 2
commencing one day after the three year anniversary of the signing of the
Subscription Agreement. However, if it is determined that the Company's
securities cannot be listed on NASDAQ as a result of the terms of this offering,
the terms of this agreement and the related execution documents may be amended
and superceded in order to immediately address and correct the concerns as
presented.
No delay on the part of the Holder in exercising any rights
hereunder or failure to exercise the same shall operate as a waiver of such
rights; the remedies provided herein are cumulative and not exclusive of any
remedies provided by law; no notice to or demand on the undersigned shall be
deemed to be a waiver of the obligation of the undersigned or of the right of
the Holder to take further action without notice or demand as provided herein;
nor in any event shall any waiver be effective unless in writing and then the
same shall be applicable only in the specific instance for which given.
The Company shall pay to the Holder, on demand, all costs and
expenses (including attorney's fees and expenses) incurred to collect any
indebtedness evidenced hereby. Demand, presentment, protest and notice of
nonpayment, dishonor, and protest are hereby waived by the Company. In the event
of any litigation with respect to any matter connected with this Promissory
Note, the Company hereby waives the right to trial by jury and all defenses,
rights of setoff and rights to interpose counterclaims of any nature.
THIS PROMISSORY NOTE HAS BEEN DELIVERED AND ACCEPTED AT
CHANTILLY, VIRGINIA AND SHALL BE INTERPRETED, GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF VIRGINIA.
DIDAX ON-LINE L.C.
By: GARY A. STRUZIK
-----------------------------
Vice President Finance
<PAGE> 1
EXHIBIT 10.11
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. IT MAY NOT BE SOLD,
OFFERED FOR SALE OR OTHERWISE TRANSFERRED UNLESS REGISTERED UNDER SUCH ACT OR
IN COMPLIANCE WITH ANY EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH
ACT, EACH CASE IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS.
THIS COMPANY IS A RELIGIOUS ORGANIZATION. ALL MEMBERS OF THIS COMPANY ARE
SUBJECT TO THE TERMS OF A MEMBER'S AGREEMENT AS SET FORTH IN THE OPERATING
AGREEMENT OF THE COMPANY WHICH LIMITS THE AMENDMENT OR DELETION OF THAT SECTION
OF THE OPERATING AGREEMENT AND WHICH PRESCRIBES A COMPANY STATEMENT OF FAITH IN
THE LORD JESUS CHRIST AND DIRECTS OR PROHIBITS CERTAIN COMPANY ACTIONS ON THE
BASIS OF THAT STATEMENT OF FAITH.
THIS PROMISSORY NOTE IS SUBJECT TO THE TERMS OF A SUBSCRIPTION AGREEMENT DATED
AS OF ___________ ___, 199__ BETWEEN DIDAX ON-LINE L.C AND HOLDER, WHICH
AGREEMENT IS INCORPORATED HEREIN BY REFERENCE.
Form of Promissory Note
$__________ Chantilly, Virginia
__________ ___, 199__
FOR VALUE RECEIVED, the undersigned, DIDAX ON-LINE L.C., a
Virginia Limited Liability Company (the "Maker"), hereby conditionally promises
to pay to the order of ___________________________(the "Holder") at its offices
in Chantilly Va., or such other place as the Holder of this Promissory Note may
from time to time designate, __________________________DOLLARS ($__________).
The repayment of this debt is conditional upon the proceeds of an initial
public offering for the Company's stock. The Principal amount of this
Promissory Note thereon is payable, without interest, in lawful money of the
United States of America, to the Holder. In return for the use of the Holder's
funds, the Company will issue to the Holder, at the time the note is repaid
from initial public offering proceeds , non registered membership units at no
par value per unit (the "Units", collectively with the Note, the "Securities"),
of DIDAX ON-LINE, L.C., a Virginia limited liability company (the "Company")
or it's successor Company should it revert to a C Corporation under Section 422
of the Internal Revenue Code. These membership units (or Shares) will be
restricted from resale or transfer for a two year period. If an initial public
offering is not made until two years or longer subsequent to the subscription
for the Promissory Note, then this holding period is abolished. The number of
units will be predicated on the price per unit established at the time of a
potential initial public offering. This price will be divided into the amount
of the Holder's note to derive the exact number of units to be issued.
However, no more than 300,000 units, equivalent to a per unit price of $5.00
per unit will be provided at the time of the public offering. If an initial
public offering is not made within three years from the date of the
Subscription Agreement , the Holder has the option of converting the note to
units at $4.00 per unit, or receiving repayment of the note in four
<PAGE> 2
quarterly payments commencing one day after the three year anniversary of the
signing of the Subscription Agreement. However, if it is determined that the
Company's securities cannot be listed on NASDAQ as a result of the terms of
this offering, the terms of this agreement and the related execution documents
may be amended and superceded in order to immediately address and correct the
concerns as presented.
No delay on the part of the Holder in exercising any rights
hereunder or failure to exercise the same shall operate as a waiver of such
rights; the remedies provided herein are cumulative and not exclusive of any
remedies provided by law; no notice to or demand on the undersigned shall be
deemed to be a waiver of the obligation of the undersigned or of the right of
the Holder to take further action without notice or demand as provided herein;
nor in any event shall any waiver be effective unless in writing and then the
same shall be applicable only in the specific instance for which given.
The Company shall pay to the Holder, on demand, all costs and
expenses (including attorney's fees and expenses) incurred to collect any
indebtedness evidenced hereby. Demand, presentment, protest and notice of
nonpayment, dishonor, and protest are hereby waived by the Company. In the event
of any litigation with respect to any matter connected with this Promissory
Note, the Company hereby waives the right to trial by jury and all defenses,
rights of setoff and rights to interpose counterclaims of any nature.
THIS PROMISSORY NOTE HAS BEEN DELIVERED AND ACCEPTED AT CHANTILLY,
VIRGINIA AND SHALL BE INTERPRETED, GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF VIRGINIA.
DIDAX ON-LINE L.C.
By:
---------------------------
Vice President Finance
<PAGE> 1
Exhibit 10.12
AGREEMENT FOR PROVISION OF INTERNET AUDIO SERVICES
This Agreement for Provision of Internet Audio Services ("Agreement") is
executed this 21 day of June, 1996 (the "Effective Date"), by and between DIDAX
ON-LINE, L.C. ("DIDAX"), a Virginia limited liability company established as a
religious organization, having a place of business at 4501 Daly Drive, Suite
103, Chantilly, Virginia 22021, and NETRADIO Corporation, a Nevada corporation
("NETRADIO"), having a place of business at 43 Main Street S.E., Suite 149,
Minneapolis, Minnesota 55414. DIDAX and NETRADIO may be referred to
individually as a "Party" and collectively as "Parties."
1. RECITALS
1.1. WHEREAS, NETRADIO develops World Wide Web-based audio transmitting
networks, a service that it desires to offer DIDAX; and
1.2. WHEREAS, DIDAX desires to obtain the services of NETRADIO; and
1.3. WHEREAS, both Parties envision this Agreement as the first phase
(Phase I) in a mutually beneficial relationship that they intend to more
definitively embody in a subsequent written agreement addressing more fully
their partnership with particular regard to the "BroadVision One-to- One(TM)"
technology and the "Net Companion(TM)" technology (Phase II); and
1.4. WHEREAS, both Parties desire to execute this Agreement on the terms
and conditions set forth herein; and
1.5. NOW THEREFORE, in consideration of the mutual promises contained
herein, the Parties hereby agree as follows:
2. DEFINITIONS
2.1. "CHRISTIAN RADIO FORMAT" shall mean the transmission via the Internet
of Christian audio content and/or audio content aimed at or oriented towards
Christian individuals and organizations or those with or serving a Biblical
world view.
2.2. "CONFIDENTIAL INFORMATION" shall mean any information relating to or
disclosed in the course of this Agreement that is or should reasonably be
understood to be confidential or proprietary to the disclosing Party, including
but not limited to the material terms of this Agreement; technical processes
and formulas; source code; product designs; sales, cost and other financial
information; product and business plans; projections; and marketing data.
"Confidential Information" shall not include information (1) already lawfully
known to or independently developed by the receiving Party; (2) disclosed in
published materials; (3)generally known to the public; (4)lawfully obtained
from any third party (provided that such third party also lawfully obtained
such information); or (5)required to be disclosed by law.
THIS AGREEMENT IS SUBJECT TO BINDING ARBITRATION
Page 1 of 12
<PAGE> 2
2.3. "DIDAX(TM) WEB SITE(S)" shall mean the "home page(s)" and site(s) on
the World Wide Web that DIDAX will design, develop, and/or implement for its
own use and for use in aggregating Christian content and information, as well
as content of interest to individuals and organizations with or serving a
Biblical world view, located at the specific URL(s) identified in writing by
DIDAX to NETRADIO from time to time (currently "www.christcom.net").
2.4. "INTERNET" shall mean the wide area cooperative network of university,
corporate, government and private computer networks communicating through
Transmission Control Protocol/Internet Protocol ("TCP/IP") that is commonly
referred to as the Internet.
2.5. "NETRADIO AUDIO SOLUTION" shall mean the software, hardware, and other
technology that permits the transmission and reception of real-time and/or
on-demand audio content via the Internet that NETRADIO currently employs in the
transmission of its own audio content via the Internet. (As of the Effective
Date, the NETRADIO Audio Solution is comprised of the REALAUDIO(R) Software and
related hardware and technology. The Parties mutually understand that NETRADIO
may change its audio streaming technology from the REALAUDIO(R) Software and
related hardware and technology to another technology solution at its own
discretion.)
2.6. "NETRADIO(R) WEB SITE(S)" shall mean the "home page(s)" and site(s) on
the World Wide Web where NETRADIO makes available its audio transmissions,
currently using, but not necessarily limited to, the REALAUDIO(R) Software,
located at the specific URL(s) identified in writing by NETRADIO to DIDAX from
time to time (currently "www.netradio.net").
2.7. "REALAUDIO(R) SOFTWARE" shall mean the most current commercially
available version of the computer-executable software developed and distributed
by Progressive Networks that permits the transmission and reception of
real-time and on-demand audio content via the Internet.
2.8. "REASONABLE HARD COSTS" shall mean NETRADIO's actual costs of
providing products or services to DIDAX under this Agreement, composed of (1)
NETRADIO's reasonable internal labor costs for any labor actually performed
that is reasonably necessary to NETRADIO's performance of such services or
provision of such products, and (2) the invoiced amount that NETRADIO is
actually charged, including tax, shipping, and handling, for any hardware or
software that NETRADIO provides to DIDAX or the allocated portion thereof it
reasonably requires to perform its services to DIDAX under this Agreement..
2.9. "STATION" shall mean a distinct flow of audio content being
transmitted over the Internet that is distinguished by its unique content or
its unique source.
2.10. "STREAM" shall mean a point-to-point flow of data over the Internet or
a computer network.
2.11. "UNIVERSAL RESOURCE LOCATOR" OR "URL" shall mean the standard
addressing method that identifies information or resources on the Internet and
that is used when navigating the World Wide Web.
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<PAGE> 3
2.12. "WORLD WIDE WEB" shall mean the Internet service bearing such name
that provides the users thereof with access to selected information databases
and to selected services on the Internet through the use of Universal Resource
Locators ("URLs").
3. NETRADIO SERVICES
In consideration for DIDAX' payment of fees and expenses in accordance with
Section4 below, NETRADIO shall perform the following services for DIDAX
(collectively referred to hereinafter as "Services"):
3.1. DIGI-LINK(S). NETRADIO shall obtain one or more Digi-link devices
from Digi-key Corporation (the "Digi-link"), sufficient to enable NETRADIO to
transmit all Stations and all DIDAX Audio Content (as defined herein) requested
by DIDAX under this Agreement. During the Term of this Agreement, NETRADIO
shall use the Digi-link(s) to convert and transmit DIDAX Audio Content via the
Internet as directed by DIDAX. NETRADIO shall have all right, title, and
ownership in and to such Digi-link(s).
3.1.1. TERMINATION BY DIDAX DURING EVALUATION PERIOD. In the event
that DIDAX terminates this Agreement for breach by NETRADIO pursuant
to Section 8.2 below during the first sixty (60) days after the date
on which a particular Digi-link becomes fully operational (the
"Evaluation Period"), NETRADIO shall return to DIDAX all Station
Set-up Fees for such Digi-link that DIDAX has paid pursuant to
Section4.1 below.
3.1.2. TERMINATION BY NETRADIO DURING EVALUATION PERIOD. In the
event that NETRADIO terminates this Agreement for breach by DIDAX
pursuant to Section 8.2 below during the Evaluation period for a
particular Digi-link, NETRADIO shall retain as liquidated damages all
Station Set-up Fees for such Digi-link that DIDAX has paid pursuant to
Section4.1 below.
3.1.3. TERMINATION FOLLOWING EVALUATION PERIOD. In the event that
either Party terminates this Agreement for breach pursuant to Section
8.2 below after the conclusion of the Evaluation Period for a
particular Digi-link, NETRADIO shall re-pay to DIDAX the fair market
value of such Digi-link as of the date of such termination, as
determined by a neutral third party appraiser familiar with such
technology and mutally selected by both Parties.
3.2. CONVERSION AND STORAGE OF DIDAX AUDIO CONTENT. NETRADIO shall receive
audio content provided in various formats by or on behalf of DIDAX
("Unprocessed DIDAX Audio Content"), and using the Digi-link(s) shall convert
such Unprocessed DIDAX Audio Content into forms in which it can be stored for
transmission via the Internet to listeners.
3.3. PROCESSING OF DIDAX AUDIO CONTENT. NETRADIO shall master, program,
and otherwise process such Unprocessed DIDAX Audio Content for transmission via
the Internet ("Processed DIDAX Audio Content"), without any alteration to such
Content except as expressly
Page 3 of 12
<PAGE> 4
authorized by DIDAX. (The Processed DIDAX Audio Content and the Unprocessed
DIDAX Audio Content are referred to collectively hereinafter as "DIDAX Audio
Content.")
3.4. PROVISION OF ADDITIONAL AUDIO CONTENT. NETRADIO shall provide to
DIDAX additional audio content prepared by or on behalf of NETRADIO, such as
InfoBahn news, etc. ("Provided Audio Content"), and shall include such
additional audio content in the Processed DIDAX Audio Content for transmission
via the Internet. All Provided Audio Content to be included in DIDAX Audio
Content shall be mutually agreed to between the Parties from time to time, but
DIDAX shall retain final authority, discretion, and control over all DIDAX
Audio Content.
3.5. TRANSMISSION OF PROCESSED DIDAX AUDIO CONTENT. At all times during
the Term of this Agreement, NETRADIO shall transmit such Processed DIDAX Audio
Content via the Internet using the NETRADIO Audio Solution in such a manner as
to make such Processed DIDAX Audio Content available in as many concurrent data
streams and to as many concurrent Internet users as is possible using the
NETRADIO Audio Solution. (The Processed DIDAX Audio Content transmitted via
the Internet by NETRADIO using the NETRADIO Audio Solution is referred to
hereinafter as "DIDAX Audio Transmission.")
3.6. LIVE EVENT TRANSMISSIONS. From time to time, DIDAX may elect to
transmit a "live event" in which the Unprocessed DIDAX Audio Content will be
provided by DIDAX to NETRADIO on a "live" or "real-time" basis, and NETRADIO
will convert, process, and transmit such DIDAX Audio Content essentially
simultaneously with its receipt of the same (hereinafter "Live Event").
3.7. ARCHIVING. From time to time, DIDAX may request that NETRADIO record
and store DIDAX Audio Transmissions or Content originating from a Live Event
onto "real-time" audio servers ("Archiving").
3.8. PASS-THROUGH OF NETRADIO AUDIO SOLUTION TECHNOLOGY. During the Term
of this Agreement, NETRADIO shall provide to DIDAX all of the licensing and
technological advantages relating to the NETRADIO Audio Solution that are
available to and implemented by NETRADIO, including but not limited to those
advantages relating to the REALAUDIO(R) Software pursuant to NETRADIO's
agreement(s) with Progressive Networks at a cost to DIDAX not to exceed
NETRADIO's Reasonable Hard Costs of providing such advantages to DIDAX.
3.9. PASS-THROUGH OF BROADVISION ONE-TO-ONE(TM) TECHNOLOGY. During the
Term of this Agreement, NETRADIO shall provide to DIDAX all of the licensing
and technological advantages relating to the BroadVision One-to-One(TM)
technology that are currently available to and implemented by NETRADIO, on a
price-per-user basis to be negotiated and mutually agreed upon in writing by
the Parties. During the Term of this Agreement, NETRADIO shall also train
DIDAX personnel at the DIDAX headquarters in Chantilly, Virginia in the
implementation of the BroadVision One-to-One(TM) technology and shall provide
consulting services relating to the implementation of the BroadVision
One-to-One(TM) technology, at a cost to DIDAX not to exceed NETRADIO's
Reasonable Hard Costs of providing such training and consulting services to
DIDAX.
Page 4 of 12
<PAGE> 5
3.10. PASS-THROUGH OF NET COMPANION(TM) TECHNOLOGY. During the Term of this
Agreement, NETRADIO shall provide to DIDAX all of the licensing and
technological advantages relating to the Net Companion that are currently
available to and implemented by NETRADIO at a cost to DIDAX not to exceed
NETRADIO's Reasonable Hard Costs of providing such advantages to DIDAX.
3.11. PASS-THROUGH OF OTHER NETRADIO TECHNOLOGY. During the Term of this
Agreement, NETRADIO shall provide to DIDAX all other licensing and
technological advantages relating to the transmission of audio content via the
Internet that are available to and implemented by NETRADIO at a cost to DIDAX
not to exceed NETRADIO's Reasonable Hard Costs of providing such advantages to
DIDAX.
3.12. DISTRIBUTION RIGHTS. During the Term of this Agreement, NETRADIO
grants to DIDAX a non-transferable right and license to use the NETRADIO Audio
Solution for the purpose of transmitting, via the Internet, Christian Radio
Format(s) and content of interest to individuals and organizations with or
serving a Biblical world view.
4. DIDAX OBLIGATIONS.
In consideration for NETRADIO's provision of Services to DIDAX under Section3
above, DIDAX shall pay to NETRADIO the following fees and expenses and shall
perform the following obligations, in accordance with the following terms and
conditions:
4.1. STATION SET-UP FEES.
4.1.1. INITIAL STATION SET-UP FEE. In consideration for NETRADIO's
setting up, within sixty (60) days of the Effective Date, the first
DIDAX' Station (including NETRADIO's purchase and set-up of a Digi-link
and related hardware and peripheral devices), DIDAX shall pay to NETRADIO
an Initial Station Set-up Fee, equal to NETRADIO's Reasonable Hard Costs
of setting up such a Station (including the acquisition and setting up of
one Digi-link and related hardware and software), in the amount of
thirty-one thousand dollars ($31,000), which DIDAX shall pay to NETRADIO
within seven (7) days of the Effective Date.
4.1.2. ADDITIONAL STATION(S) SET-UP FEE(S). For each additional
Station that DIDAX requests in writing that NETRADIO set up, DIDAX shall
pay to NETRADIO an Additional Station Set-up Fee equal to NETRADIO's
Reasonable Hard Costs of purchasing and setting up such Station, which
expenses shall be pre-approved by DIDAX in writing.
4.2. LIVE EVENT FEES. In the event that DIDAX elects to transmit a Live
Event under Section3.6 above, DIDAX shall pay NETRADIO a fee equal to
NETRADIO's Reasonable Hard Costs of transmitting such a Live Event (including
NETRADIO's reasonable labor charges for any labor necessary to transmission of
a Live Event at or below NETRADIO's general commercial rates). Any archiving
of Live Events by NETRADIO shall be performed without any additional fees
except for applicable Archiving Fees under Section4.3 below.
Page 5 of 12
<PAGE> 6
4.3. ARCHIVING FEES. In the event that DIDAX requests under Section3.7 that
NETRADIO archive onto a real-time audio server DIDAX Audio Content originating
from a Live Event, DIDAX shall pay NETRADIO:
4.3.1. a one-time fee not to exceed NETRADIO's reasonable expenses
of setting up an audio server for such archiving purposes (the "One-time
Archiving Set-up Fee "), which expenses shall be pre-approved by DIDAX in
writing; and
4.3.2. NETRADIO's reasonable labor charges for its performance of
such archiving Services at a rate of $10.00 per person per hour (the
"Real-time Archiving Charges").
4.4. TRAVEL EXPENSES. DIDAX shall pay the ordinary and reasonable expenses
of travel incurred by NETRADIO staff (to include coach airfare, one hotel room
per person, three meals per day per person, transportation to and from
airports, and parking) incurred under this Agreement for all travel that is
previously requested and approved in writing by DIDAX.
4.5. SELECTION OF AUDIO CONTENT PROVIDER. In the event that DIDAX desires
to have certain audio content included in DIDAX Audio Transmissions, DIDAX may
enter into a separate agreement with a provider of such audio content ("Audio
Content Provider"). Audio Content Provider(s) shall be selected by DIDAX from
time to time in its sole discretion.
4.6. REVENUE SHARING. During the term of this Agreement, DIDAX may sell
audio advertisements to be included in DIDAX Audio Transmissions (hereinafter
"Audio Spots"). All Audio Spots shall be mutually acceptable to both Parties,
but DIDAX shall retain final authority, discretion, and control over all Audio
Spots. DIDAX shall pay to NETRADIO a share of DIDAX' net revenues collected
from sales of such Audio Spots (hereinafter "Audio Spot Revenues"), calculated
on the following percentage basis. For purposes of this calculation, "Accrued
Hard Costs" shall mean NETRADIO's initial and recurring hard costs to set up
and operate a particular Station for or on behalf of DIDAX, as such costs are
passed on to DIDAX in the form of flat and/or periodic fees pursuant to
Sections 4.1, 4.2, and4.3 above during the first six months that such Station
is operational.
<TABLE>
<S> <C>
============================================================================================================
AUDIO SPOT REVENUES FOR A STATION COMPARED TO PERCENTAGE OF AUDIO SPOT REVENUES FOR THAT STATION
ACCRUED HARD COSTS FOR THAT STATION TO BE PAID TO NETRADIO BY DIDAX
- ------------------------------------------------------------------------------------------------------------
Audio Spot Revenues equal to 0% to 50% of Accrued 20% of Audio Spot Revenues
Hard Costs
- ------------------------------------------------------------------------------------------------------------
Audio Spot Revenues equal to 50% to 75% of Accrued 30% of Audio Spot Revenues
Hard Costs
- ------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 7
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------
Audio Spot Revenues equal to 75% to 100% of Accrued 40% of Audio Spot Revenues
Hard Costs
- ------------------------------------------------------------------------------------------------------------
Audio Spot Revenues equal to 101% or more of Accrued 50% of Audio Spot Revenues
Hard Costs
- ------------------------------------------------------------------------------------------------------------
</TABLE>
In the event that DIDAX elects to include NETRADIO Provided Audio Content in
DIDAX Audio Content during any applicable billing cycle, DIDAX shall pay to
NETRADIO an additional five percent (5%) of Audio Spot Revenues that DIDAX has
collected during such billing cycle.
DIDAX shall pay NETRADIO its share of such Audio Spot Revenues within sixty
(60) days of the end of the billing cycle during which DIDAX has collected such
Audio Spot Revenues. Upon termination of this Agreement, DIDAX shall continue
to pay NETRADIO its share of Audio Spot Revenues in accordance with this
Sectionfor ninety (90) days after the date of such termination, after which all
revenue sharing obligations under this Agreement shall forever cease.
5. MUTUAL OBLIGATIONS
5.1. LICENSE TO USE TRADEMARK AND TRADE NAME. Any and all trademarks,
trade names, and/or service marks that NETRADIO uses in connection with its
services and products (including but not limited to "NETRADIO(TM)") are, and
shall remain, the exclusive property of NETRADIO. Any and all trademarks,
trade names, and/or service marks that DIDAX uses in connection with its
services and products (including but not limited to "DIDAX(TM)") are, and shall
remain, the exclusive property of DIDAX. This Agreement gives DIDAX and
NETRADIO no right therein except a limited license to reproduce (with proper
trademark notice and attribution) one another's trademarks, service marks, and
trade names as necessary for the sole purpose of allowing DIDAX and NETRADIO to
promote the Christian Radio Format(s) and other content transmitted under this
Agreement.
5.2. RECIPROCAL HYPERTEXT LINKS. DIDAX shall provide on the DIDAX(TM) Web
Site(s) a HyperText link to the DIDAX Audio Transmission(s) provided by
NETRADIO using the URL(s) specified in writing by NETRADIO to DIDAX from time
to time. This HyperText link shall be provided by using an aliasing mechanism
that identifies the host address to the user as a DIDAX URL, such as
"radio.christcom.net", rather than as a NETRADIO URL. NETRADIO shall provide
on the NETRADIO(R) Web Site(s) a HyperText link to the DIDAX(TM) Web Site(s)
using the URL(s) specified in writing by DIDAX to NETRADIO from time to time.
These HyperText links shall use artwork and identifying information mutually
agreed upon by the Parties from time to time.
5.3. EXCLUSIVITY. During the Term of this Agreement, NETRADIO agrees that
it will provide Services relating to the transmission via the Internet of
Christian Radio Format(s) exclusively to DIDAX, and that it will not provide
such Services relating to Christian Radio Format(s) to any other person or
entity. During the Term of this Agreement, DIDAX agrees that it will use
NETRADIO as its exclusive provider of real-time and on-demand transmission of
Christian Radio Format(s) via the Internet.
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<PAGE> 8
6. INTELLECTUAL PROPERTY
6.1. INTELLECTUAL PROPERTY RIGHTS. DIDAX acknowledges and agrees that the
NETRADIO Audio Solution licensed under this Agreement constitutes valuable
intellectual property of NETRADIO and/or its licensors (such as Progressive
Networks). Except as specifically set forth in this Agreement, no title to or
ownership of the NETRADIO Audio Solution and no rights or licenses to any
patents, copyrights, trademarks, or other intellectual property rights therein
are granted. DIDAX shall not sublicense, sell, transfer, rent, lease, assign,
or otherwise disclose the NETRADIO Audio Solution except as set forth in this
Agreement.
6.2. UNAUTHORIZED ACTIVITIES. DIDAX agrees that it will not reverse
engineer, decompile, disassemble, modify, translate, attempt to discover the
source code, or create a derivative work from the NETRADIO Audio Solution.
6.3. RIGHTS IN CONTENT. Title, ownership rights, and all intellectual
property rights in and to the DIDAX Audio Content provided to NETRADIO and/or
transmitted via the Internet are the property of DIDAX and/or the applicable
DIDAX content provider(s), and may be protected by applicable copyright or
other law. This Agreement does not give NETRADIO, its licensors (such as
Progressive Networks), and/or any customers, end-users, or other persons or
entities accessing such DIDAX Audio Content any rights or licenses to such
Content. NETRADIO agrees to take reasonable efforts to protect the rights of
DIDAX and its content providers in such DIDAX Audio Content.
7. WARRANTIES; DISCLAIMER; INDEMNIFICATION
7.1. NO CONFLICTING OBLIGATIONS. Each Party represents and warrants that
it is under no obligation or restriction, nor will it assume any such
obligation or restriction, that does or would in any way violate, interfere, or
conflict with the performance to be rendered under this Agreement or any rights
and licenses such Party may grant to the other Party under this Agreement.
Further, each Party represents and warrants that it shall comply with any
applicable governmental law, statute, ordinance, administrative order, rule, or
regulation relating to its duties under this Agreement and shall procure all
licenses and pay all fees, taxes, and other charges required by such regulatory
authority.
7.2. RIGHTS TO NETRADIO AUDIO SOLUTION. NETRADIO represents and warrants:
(1) that it has all necessary right, title, interest, and license in and to the
NETRADIO Audio Solution and full and sufficient right and authority to grant
the licenses and other rights granted to DIDAX under this Agreement; (2)that
the NETRADIO Audio Solution does not infringe any United States patent,
copyright, or any other intellectual property rights of any third party; and
(3)that the NETRADIO Audio Solution is not subject to any other limitations,
restrictions, and/or obligations than those expressly set forth in this
Agreement.
7.3. PERFORMANCE ACCORDING TO SPECIFICATIONS. NETRADIO shall use its best
efforts to ensure that the NETRADIO Audio Solution shall operate in conformity
with the most current specifications and performance criteria for such software
published or promulgated by
Page 8 of 12
<PAGE> 9
NETRADIO and/or its licensors (such as Progressive Networks) from time to time.
If material defects are found in the NETRADIO Audio Solution by DIDAX or an
end-user, NETRADIO shall immediately replace the NETRADIO Audio Solution free
of charge.
7.4. AUDIO CONTENT. DIDAX represents and warrants that any original DIDAX
Audio Content provided by DIDAX to NETRADIO for transmission via the Internet
under this Agreement will be free and clear for such transmission and will not
infringe any United States copyright or other intellectual property right of
any third party. NETRADIO represents and warrants that any original content
provided by NETRADIO for inclusion in DIDAX Audio Transmissions will be free
and clear for such transmission and will not infringe any United States
copyright or other intellectual property right of any third party.
7.5. DISCLAIMER OF WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, NEITHER PARTY MAKES, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS,
ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF
PERFORMANCE.
7.6. INDEMNIFICATION. Either Party will defend, indemnify, save, and hold
harmless the other Party and the officers, directors, agents, volunteers,
affiliates, distributors, franchisees, and employees of the other Party from
any and all third party claims, demands, liabilities, costs, or expenses,
including reasonable attorneys' fees ("Liabilities"), resulting from the
indemnifying Party's breach of any duty, representation, or warranty of this
Agreement, except where Liabilities result from the gross negligence or knowing
and willful misconduct of the other Party. This obligation of indemnity is
conditioned on the non-indemnifying Party giving prompt notice of any claim to
be indemnified, providing reasonable information and other assistance to the
indemnifying Party, and mitigating damages as feasible.
8. TERM AND TERMINATION
8.1. TERM. The Term of this Agreement shall be three (3) years, commencing
on the Effective Date (the "Initial Term"), unless sooner terminated by either
Party as permitted herein or superseded by a subsequent written agreement
(including but not limited to the "Phase II" agreement that the Parties
envision). At the conclusion of this three-year Initial Term, this Agreement
shall be automatically renewed for subsequent one (1) year Term(s) commencing
on each anniversary of the Effective Date (the "Anniversary Date"); provided,
however, that either Party may, by written notice to the other Party not less
than ninety (90) days prior to the Anniversary Date, terminate this Agreement
with or without cause.
8.2. TERMINATION FOR BREACH. Either Party may terminate this Agreement at
any time upon thirty (30) days written notice to the other Party specifying the
breach if the other Party (1)materially breaches this Agreement and (2)fails to
cure the specified breach within this thirty (30) day notice period.
Notwithstanding the preceding sentence or any other provision of this
Agreement, at any time during the Term of this Agreement, if NETRADIO changes
the
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<PAGE> 10
NETRADIO Audio Solution (as defined in Section2.5 above) and/or its audio
streaming technology from the REALAUDIO(R) Software and related hardware and
technology to another technology solution, NETRADIO shall formally notify DIDAX
in writing of this change in accordance with Section9.8 below, and DIDAX shall
have the right, for sixty (60) days from its receipt of such written notice, to
terminate this Agreement in its sole discretion by transmitting written notice
of termination to NETRADIO.
8.3. TERMINATION AT WILL. Following the conclusion of the Initial Term,
either Party may terminate this Agreement at any time, with or without cause,
upon ninety (90) days prior written notice to the other Party.
8.4. DUTIES UPON TERMINATION. Upon termination of this Agreement for any
reason, the Parties agree to continue their cooperation to affect an orderly
termination of their relationship. Upon termination, DIDAX shall immediately
cease transmitting on the NETRADIO server, and all DIDAX' payment obligations
under Section4 above shall immediately cease.
8.5. SURVIVAL. The following sections of this Agreement shall survive the
termination of this Agreement for a period of ten (10) years: Sections6, 7.6,
8.4, 9.1, 9.5, 9.6, and 9.7.
9. GENERAL.
9.1. CONFIDENTIAL INFORMATION. NETRADIO and DIDAX each acknowledge that
Confidential Information may be disclosed to the other Party during the course
of this Agreement. Each Party agrees to fully respect and protect the other
Party's (1)Confidential Information; (2)trade secrets and intellectual property
rights; and (3)confidentiality and/or intellectual property obligations to
third parties. During the Term of this Agreement, and for a period of no less
than five (5) years following expiration or termination of this Agreement, each
Party further agrees to take reasonable measures, including at least the
measures the Party normally takes to protect its own Confidential Information,
to preserve the confidentiality of any Confidential Information received from
the other Party. Neither Party will convey any Confidential Information of the
other Party to any third party without the prior written consent of the
disclosing Party. Upon termination of this Agreement, unless superseded by a
subsequent written agreement, each Party, at the discretion of the disclosing
Party, shall return or destroy all documents, computer files, and other items
that contain or embody Confidential Information of the other Party, except as
expressly provided herein.
9.2. FORCE MAJEURE. Neither Party shall be liable or deemed to be in
default for any delay or failure in performance under this Agreement or
interruption of service resulting directly or indirectly from acts of God;
civil or military authority; acts of public enemy; war; riots; civil
disturbances; insurrections; accidents; fire; explosions; earthquakes; floods;
the elements; strikes; labor disputes; shortages of essential parts, materials,
labor, or transportation; or any material cause beyond the reasonable control
of such Party.
9.3. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the Parties with respect to the subject matter hereof and supersedes
all previous proposals, both oral and written, negotiations, representations,
commitments, writings, and all other communications
Page 10 of 12
<PAGE> 11
between the Parties. This Agreement may not be changed or modified except by
an instrument in writing signed and accepted by both Parties, and no change,
termination, or attempted waiver of any of the provisions hereof shall be
binding unless in writing and signed by the Parties against whom the same is
sought to be enforced.
9.4. INDEPENDENT CONTRACTORS. It is expressly agreed that NETRADIO and
DIDAX are acting hereunder as independent contractors and under no
circumstances shall any of the employees of one Party be deemed the employees
of the other for any purpose. This Agreement shall not be construed as
authority for either Party to act for the other Party in any agency or other
capacity, or to make commitments of any kind for the account of or on behalf of
the other Party except to the extent and for the purposes expressly provided
for and set forth herein.
9.5. DISPUTE RESOLUTION. Both Parties desire to avoid dissipating
resources on wasteful litigation and therefore agree to resolve disputes
privately by good faith negotiation where at all possible. Any dispute that
the Parties cannot resolve by negotiation shall be submitted to Christian
mediation, and if mediation fails, arbitration, under the rules of the
Institute for Christian Conciliation, or any comparable entity agreed upon in
writing from time to time by the Parties. Any arbitration award issued by the
mediator shall be final, binding, and enforceable in any court of competent
jurisdiction.
9.6. JURISDICTION AND VENUE. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Virginia. Venue
for arbitration or litigation of any dispute, controversy, or claim arising out
of, in connection with, or in relation to this Agreement, or the breach
thereof, shall be proper only in a court of competent jurisdiction within the
Commonwealth of Virginia.
9.7. ATTORNEY'S FEES. In any action between the Parties to enforce any of
the terms of this Agreement, the prevailing Party shall be entitled to recover
reasonable expenses, including reasonable attorney's fees.
9.8. NOTICE. Notices under this Agreement shall be sufficient if in
writing and if personally delivered, delivered by a major commercial overnight
delivery courier service, sent by facsimile, or mailed by U.S. mail, to a Party
at its address set forth below or as amended by notice pursuant to this
Section. Unless actually received earlier, notices shall be deemed received
five (5) days after deposit in the U.S. mail or one (1) day after being
transmitted by overnight delivery courier service or by facsimile.
if to NETRADIO: NETRADIO Corporation
43 Main Street S.E., Suite 149
Minneapolis, MN 55414
Attention: Chief Executive Officer
Fax No.: 612-378-9540
Page 11 of 12
<PAGE> 12
Copy to: Mahoney, Hagberg, and Rice
333 South 7th
Suite 1500
Minneapolis, MN 55414
Attention: Michael Mahoney
Fax No.: 623-332-8066
if to DIDAX: DIDAX ON-LINE, L.C.
4501 Daly Drive, Suite 103
Chantilly, VA 22021
Attention: Chief Executive Officer
Fax No.: 703-968-4819
Copy to: Gammon & Grange, P.C.
8280 Greensboro Drive, 7th Floor
McLean, Virginia 22102
Attention: George R. Grange II, Esq.
Fax No.: 703-761-5023
9.9. ASSIGNMENT. This Agreement is not assignable by either Party without
the written consent of the other. This Agreement shall be binding upon and
shall inure to the benefits of the Parties and their respective successors.
9.10. SEVERABILITY. If any provision of this Agreement is determined by a
court of competent jurisdiction to be invalid or unenforceable, such
determination shall not affect the validity, or enforceability of any other
part or provision of this Agreement.
9.11. WAIVER. No waiver by any Party of any breach of any provision hereof
shall constitute a waiver of any other breach of that or any other provision
hereof.
9.12. HEADINGS / COUNTERPARTS. The headings and captions in this Agreement
are for convenience of reference only and shall not define, limit, or expand
any of the terms or provisions hereof. This Agreement may be signed in
counterparts, and each counterpart shall be a part of the same whole.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement by a duly
authorized representative as of the Effective Date set forth above.
NETRADIO CORPORATION DIDAX ON-LINE, L.C.
By: /s/ MARK HEMPEL By: /s/ MICHAEL G. BRUCE
---------------------------- -------------------------------
Mark Hempel Michael G. Bruce
Chief Operating Officer Director of Technical Marketing
Page 12 of 12
<PAGE> 1
Exhibit 10.13
[Logo]
digitalNATION
5515 Cherokee Ave. Alexandria VA 22312
Phone:(703) 642-2800 Fax (703) 642-0516 email: [email protected]
http://www.dn.net
SERVICES AGREEMENT
This Service Agreement is entered into between digitalNATION (dN) and DIDAX
On-Line. (DIDAX.com)
SPECIFICATIONS
TERM: Minimum one (1) year
ACTIVATION: Signature date of contract
TYPE OF SERVICE: World Wide Web Service Hosting
SUPPORT: Telephone support during normal business hours
EMAIL SUPPORT: [email protected]
TERM AND CONDITIONS. (WORLD WIDE WEB SERVICE TERMS)
dN will supply 2000 mb of disk storage space on a dedicated Sparc server
Didax will be responsible for the maintenance of the Didax page content.
This contract does not include any additional services including but not
limited to additional HTML programming or gateway programming. Such
services may be purchased from dN and will not be performed without written
approval of DIDAX. All service activations and or changes must be
accompanied by a signed written proposal.
This account does not include, mail, news or other services. We would be
happy to help with any additional services, but they are neither implied
nor included with the agreement.
This agreement will be reviewed on a quarterly basis, at which point the
bandwidth consumption on the server will be examined by both parties.
Should additional bandwidth be required, dN will provide DIDAX with a
written proposal that will guarantee the required bandwidth. dN will give
DIDAX sixty (60) days notice of intent to increase prices for any reason.
<PAGE> 2
COST DETAIL FOR THE FOLLOWING
NON-RECURRING COST: $800.00
Includes
- setup of a dedicated Sparc cpu with 128mb ram, 2000mb of storage
- setup or transfer of DNS from current ISP to dn.net
- setup of IP server address (i.e. www.didax.com)
- Installation of http server and dn.net firewall configuration
QUARTERLY RECURRING
WWW SERVICE PER MONTH PAID QUARTERLY $ 800.00
Includes
- - Rental and upkeep of a dedicated internet server
- - weekly backup of website
- - Battery Backup unit
- - software license compliance.
- - Up to 25 private full domains on a server (i.p addresses)
START-UP COST $ 800.00
TOTAL QUARTERLY BILLING $2,400.00
- ---------------------------------------------------
TOTAL $ 3200.00
TOTAL DUE AT SERVICE START-UP $ 3200.00
OPTIONAL SERVICES -
all are billed hourly with a one hour minimum.
HTML Programming $65.00
Use our HTML savvy staff to make changes or spruce up your site
CGI - Or Perl programming $95.00
Fast and knowledgeable - and is ready to help you create an exciting site
Unix System Admin Services $125.00
Ready to help on the fly with UNIX system issues
<PAGE> 3
TERMS
The total initial cost plus the first quarter of service is due at the
commencement of the contract. The quarterly billing cycle then commences with
the beginning of the following month. Following the initial setup and month,
DIDAX will be billed 30 days prior to the commencement of the quarter and
payment will be due by the beginning of the month. dN accepts all major credit
cards for payment. Accounts that are past due by more then fifteen (15) calendar
days, are subject to disconnection of services. A $100.00 reinstatement fee will
apply. Please address all accounting issues to [email protected]
SERVICES AGREEMENT TERMINATION
Each individual service in this contract can be terminated by DIDAX with the
understanding that payment made for each service within QUARTERLY billing cycle
is non-refundable. digitalNATION will give DIDAX at least 60 days written notice
of any exercise by digitalNATION of its right to terminate the Agreement.
PAYMENT INFORMATION. (PLEASE SELECT FROM THE BELOW OPTIONS)
Our firm will be paying for products and services rendered in the following
method
1) CORPORATE OR PERSONAL CREDIT CARD.
Card Type __________________ Name as on card__________________
Card # __________________ Expiration date__________________
2) CORPORATE P.O. - REQUIRES APPROVED CREDIT, PLEASE REQUEST AN APPLICATION.
P.O.# __________________ Approved by __________________
Signature __________________ Date __________________
3) CHECK ENCLOSED WITH CONTRACT
Check.# 1462 Amount $3200.00
__________________ __________________
<PAGE> 4
PLEASE COMPLETE THE FOLLOWING: THESE ARE THE INDIVIDUALS THAT YOU ARE
DESIGNATING TO MAKE CHANGES ON YOUR SERVER. PLEASE NOTE THAT WE WILL NOT
TAKE ANY DIRECTION FROM INDIVIDUALS NOT LISTED HERE.
TECHNICAL CONTACT INFORMATION.
Name: Steve Sedlmeyer
----------------------------------------------------------------
Phone: 703 968 4808 Fax: 703 968 4819
--------------------------- ----------------------
Email: Steve @ didax.com
-----------------------------------------------------------------
PLEASE LIST ALL PERSONAL WITH THE AUTHORITY TO AUTHORIZE CHANGES --TO THIS WWW
SITE.
Name: Steve Sedlmeyer Position: Senior Scientist
------------------------------- -----------------------------
Name: William Bowers Position: Chief Technical Director
------------------------------- -----------------------------
Name: Michael Bruce Position: Director Technical Marketing
------------------------------- -----------------------------
ADMINISTRATIVE - BILLING CONTACT INFORMATION.
Name: Kate New
-----------------------
Phone: 703 968 4808 Fax: 703 968 4819
---------------------- -----------------------
Email: Kate @ didax.com
---------------------------------------------------------------
<PAGE> 5
CO-PARTY AGREEMENT OF SPECIFICATIONS, TERMS, AND CONDITIONS
OFFERED BY: ACCEPTED BY:
digitalNATION DIDAX On-Line
5515 Cherokee Ave. 4501 Daly Drive Suite 103
Alexandria, VA 22312 Chantilly, VA 20151
ph: 703.968.4808
fax: 703.968.4819
Sign [Signature] Sign William H. Bowers
----------------- -------------------------------
Founder\Chief Technical Officer
Print [Signature] Print William H. Bowers
------------------ -------------------------------
Date 11/12/96 Date 11/12/96
----------------- --------------------
(Please read and initial the below terms and agreements.)
<PAGE> 6
digitalNATION STANDARD TERMS AND CONDITIONS
(1) Term of Service: digitalNATION will give DIDAX at least 30 days written
notice of any exercise by digitalNATION of its right to terminate the Agreement.
(2) Service Activation: Minimum time to activate services from the date of
contract execution is 7 calendar days. Under this agreement service begins as of
the beginning date shown on the face of this agreement, shall continue for a
period of one year and expire one year from this date, unless otherwise
specified in the on the face of this agreement.
(3) System-Level Support -- Not Covered: digitaINATION is not responsible for
repairs necessitated by customer alteration of equipment or for the repair of
unspecified accessories which may be attached to the equipment. digitalNATION
and DIDAX shall not be liable for delay in furnishing or failure to furnish
service if such delay is caused by forces beyond the reasonable control of
digitalNATION or DIDAX. Warranty terms shall terminate in the event the system
is serviced or modified by any other person other than authorized Computer
Services Group, Inc. personnel.
(4) Limitations of Liability: In no event shall digita1NATION be liable for
damages resulting from loss of data, profits, or for any incidental or
consequential damages, even if advised of the possibility of such damage. This
agreement shall be interpreted under and pursuant to the laws of the State of
Virgina.
(5) Best Efforts: DIDAX and digitalNATION agree to use their best efforts and
cooperate in the performance of this Agreement.
(6) Agency: DIDAX and digita1NATION agree that this Agreement is not intended to
create any agency relationships of any kind; and both agree not to contract any
obligations in the name of the other party and not to use each other's credit in
conducting any activities under this Agreement.
(7) Trademarks: digitalNATION may include DIDAX's name and contact information
in directories of digitalNATION service subscribers for the purpose promoting
the use of the service by additional potential trading partners. However,
digitalNATION is not authorized to use Print DIDAX's name, trademarks or other
identifying information in any other advertising or promotional materials
without the prior written consent of DIDAX.
<PAGE> 7
(8) Indemnification: digitalNATION agrees to indemnify and hold DIDAX harmless
from any and all claims, losses, damages, liabilities, judgments, or
settlements, including reasonable attorney's fees, costs, and other expenses
incurred by DIDAX as a result of any activities conducted by DIDAX and
digitalNATION will promptly notify each other upon receipt of any claim or legal
action arising out of activities conducted pursuant to this Agreement. The
rights and responsibilities established in this paragraph shall survive
indefinitely the termination of this Agreement.
(9) Waiver: Either party's waiver of, or failure to exercise, any right provided
for in this Agreement shall not be deemed a waiver of any future right of this
agreement.
10) Successors and Assigns: This Agreement shall be binding on the parties, and
on their successors and assigns, without regard to whether it is expressly
acknowledged in any instrument of succession or assignment.
(11) Captions: The captions of each paragraph of this Agreement are inserted
solely for the reader's convenience, and are not to be construed as part of
the agreement.
(12) Amendment: This Agreement constitutes the entire Agreement between the
parties, and supersedes all prior writings or oral agreements. This Agreement
may be amended only by a writing clearly setting forth the amendments and signed
by the party against whom enforcement is sought.
(13) Notices: Notices required by this Agreement shall be in writing and shall
be delivered either by personal delivery or by mail. If delivered by mail,
notices shall be sent by any express mail service; or by certified or registered
mail, return receipt requested; with all postage and charges prepaid. All
notices and other written communications under this Agreement shall be addressed
to the individuals in the capacities indicated below, or as specified by
subsequent written notice delivered by the party whose address has changed.
(14) Severability: Should one or more clauses of this agreement be held invalid
under the laws of Virginia or the United States, the remaining clauses shall
remain in effect as a whole and binding contract.
<PAGE> 8
Please initial W H B
---------
<PAGE> 9
[LOGO]
digitalNATION
5515 CHEROKEE AVE. ALEXANDRIA, VA 22312
Phone: (703) 642-2800 Fax:(703) 642-0516 email:[email protected]
http://www.dn.net
SERVICES AGREEMENT This Service Agreement is entered into between digitalNATION
(dN) and DIDAX INC. (DIDAX.com)
SPECIFICATIONS
TERM: Minimum one (1) year
ACTIVATION: Signature date of contract
TYPE OF SERVICE: World Wide Web Service Hosting
SUPPORT: Telephone support during normal business hours
EMAIL SUPPORT: [email protected]
TERMS AND CONDITIONS (WORLD WIDE WEB SERVICE TERMS)
dn will supply 2 dedicated servera Didax will be responsible for the maintenance
of the Didax page content.
This contract does not include any additional services including but not limited
to additional HTML programming or gateway programming. Such services may be
purchased from dN and will not be performed without written approval of DIDAX.
All service activations and or changes must be accompanied by a signed written
proposal.
This account does not include, mail, news or other services. We would be happy
to help with any additional services, but they are neither implied nor included
with the agreement.
This agreement will be reviewed on a quarterly basis, at which point the
bandwidth consumption on the server will be examined by both parties. Should
additional bandwidth be required, dN will provide DIDAX with a written proposal
that will guarantee the required bandwidth. dN will give DIDAX sixty (60) days
notice of intent to increase prices for any reason.
<PAGE> 10
COST DETAIL FOR THE FOLLOWING
NON-RECURRING COST: $1345.00
Includes
- 1 setup of a dedicated Pentium cpu with 64mb ram, 2 x 1000mb of storage
- setup or transfer of DNS from current ISP to dn.net
- setup of IP server address (i.e. www.didax.com)
- Installation of http server and dn.net firewall configuration
- Up to 3 private full domains on a server (i.p addresses)
- Each 10 additional IP addresses runs $50 a month.
- 1 setup of dedicated Dual P166 cpu with 128mb ram, 4 x 1000mb of storage
- setup or transfer of DNS from current ISP to dn.net
- setup of IP server address (i.e. www.didax.com)
- Installation of http server and dn.net firewall configuration
- Up to 128 private full domains on a server (i.p addresses)
- Each 10 additional IP addresses runs $50 a month.
QUARTERLY RECURRING
WWW SERVICE PER MONTH PAID QUARTERLY $1345.00
Includes
- Rental and upkeep of a dedicated internet server
- Battery Backup unit
- software license compliance
<TABLE>
<CAPTION>
<S> <C>
START-UP COST $1,345.00
TOTAL QUARTERLY BILLING $4,035.00
- --------------------------------------------------
TOTAL $5380.00
</TABLE>
OPTIONAL SERVICES -
all are billed hourly with a one hour minimum.
HTML Programming $65.00
Use our HTML savvy staff to make changes or spruce up your site
CGI - Or Perl programming $95.00
Fast and knowledgeable - and is ready to help you create an exciting site
Unix System Admin Services $125.00
Ready to help on the fly with UNIX system issues
<PAGE> 11
TERMS
The total initial cost plus the first quarter of service is due at the
commencement of the contract. The QUARTERLY billing cycle then commences with
the beginning of the following month. Following the initial setup and month,
DIDAX will be billed 30 days prior to the commencement of the quarter and
payment will be due by the beginning of the month. dN accepts all major credit
cards for payment. Accounts that are past due by more than fifteen (15)
calendar days, are subject to disconnection of services. A $100.00 reinstatement
fee will apply. Please address all accounting issues to [email protected]
SERVICES AGREEMENT TERMINATION
Each individual service in this contract can be terminated by DIDAX with the
understanding that payment made for each service within QUARTERLY billing cycle
is non-refundable. digitalNATION will give DIDAX at least 60 days written notice
of any exercise by digitalNATION of its right to terminate the Agreement.
PAYMENT INFORMATION. (PLEASE SELECT FROM THE BELOW OPTIONS)
Our firm will be paying for products and services rendered in the following
method
1) CORPORATE OR PERSONAL CREDIT CARD.
Card Type ________________________ Name as on card_________________________
Card # ________________________ Expiration date_________________________
2) CORPORATE P.O. - REQUIRES APPROVED CREDIT, PLEASE REQUEST AN APPLICATION.
P.O.# ________________________ Approved by_____________________________
Signature ________________________ Date____________________________________
3) CHECK ENCLOSED WITH CONTRACT
Check.# ________________________ Amount__________________________________
<PAGE> 12
PLEASE COMPLETE THE FOLLOWING: THESE ARE THE INDIVIDUALS THAT YOU ARE
DESIGNATING TO MAKE CHANGES ON YOUR SERVER. PLEASE NOTE THAT WE WILL NOT TAKE
ANY DIRECTION FROM INDIVIDUALS NOT LISTED HERE.
TECHNICAL CONTACT INFORMATION.
Name: /s/ Steve Sedlmeyer
__________________________________________________________________________
Phone: 703-968-4808 Fax: 703-968-4819
_______________________________ _______________________________
Email: Steve @ didax.com
_________________________________________________________________________
PLEASE LIST ALL PERSONNEL WITH THE AUTHORITY TO AUTHORIZE CHANGES TO THIS WWW
SITE.
Name: /s/ William H. Bowers Position: CTO
_______________________________ __________________________
Name: /s/ Chuck Baldi Position: Engineer
_______________________________ __________________________
Name: /s/ Allen Michalski Position: Engineer
_______________________________ __________________________
ADMINISTRATIVE - BILLING CONTACT INFORMATION.
Name: Kate New
__________________________________________________________________________
Phone: 703-968-4808 FAX: 703-968-4819
__________________________________ _______________________________
EMAIL: KATE @ DIDAX.COM
_________________________________________________________________________
<PAGE> 13
CO-PARTY AGREEMENT OF SPECIFICATIONS, TERMS, AND CONDITIONS
OFFERED BY: ACCEPTED BY:
digitalNATION DIDAX On-Line
5515 Cherokee Ave. 4501 Daly Drive Suite 103
ALEXANDRIA, VA 22312 Chantilly, VA 20151
ph: 703.968.4808
FAX: 703.968.4819
Sign__________________________________
Print Bruce Waldack
Print_________________________________
Date__________________________________
<PAGE> 14
CO-PARTY AGREEMENT OF SPECIFICATIONS, TERMS, AND CONDITIONS
OFFERED BY: ACCEPTED BY:
digitalNATION DIDAX Inc.
5515 Cherokee Ave. 4501 Daly Drive Suite 103
Alexandria, VA 22312 Chantilly, VA 20151
ph: 703.968.4808
fax: 703.968.4819
Sign Sign /s/ William H. Bowers
______________________________ ________________________________
Print Print /s/ William H. Bowers
______________________________ ________________________________
Date Date 3/19/97
______________________________ ________________________________
(Please read and initial the below terms and agreements.)
<PAGE> 15
digitalNATION STANDARD TERMS AND CONDITIONS
(1) Term of Service: digitalNATION will give DIDAX at least 30 days written
notice of any exercise by digitalNATION of its right to terminate the Agreement.
(2) Service Activation: Minimum time to activate services from the date of
contract execution is 7 calendar days. Under this agreement service begins as of
the beginning date shown on the face of this agreement, shall continue for a
period of one year and expire one year from this date, unless otherwise
specified in the on the face of this agreement.
(3) System-Level Support if Not Covered: digitalNATION is not responsible for
repairs necessitated by customer alteration of equipment or for the repair of
unspecified accessories which may be attached to the equipment. digitalNATION
and DIDAX shall not be liable for delay in furnishing or failure to furnish
service if such delay is caused by forces beyond the reasonable control of
digitalNATION or DIDAX. Warranty terms shall terminate in the event the system
is serviced or modified by any other person other than authorized Computer
Services Group, Inc. personnel.
(4) Limitations of Liability: In no event shall digitalNATION be liable for
damages resulting from loss of data, profits, or for any incidental or
consequential damages, even if advised of the possibility of such damage. This
agreement shall be interpreted under and pursuant to the laws of the State of
Virginia.
(5) Best Efforts: DIDAX and digitalNATION agree to use their best efforts and
cooperate in the performance of this Agreement
(6) Agency: DIDAX and digitalNATION agree that this Agreement is not intended to
create any agency relationships of any kind; and both agree not to contract any
obligations in the name of the other party and not to use each other's credit in
conducting any activities under this Agreement.
(7) Trademarks: digitalNATION may include DIDAX's name and contact information
in directories of digitalNATION service subscribers for the purpose promoting
the use of the service by additional potential trading partners. However,
digitalNATION is not authorized to use Print DIDAX's name, trademarks or other
identifying information in any other advertising or promotional materials
without the prior written consent of DIDAX.
<PAGE> 16
(8) Indemnification: digitalNATION agrees to indemnify and hold DIDAX harmless
from any and all claims, losses, damages, liabilities, judgments, or
settlements, including reasonable attorney's fees, costs, and other expenses
incurred by DIDAX as a result of any activities conducted by DIDAX and
digitalNATION will promptly notify each other upon receipt of any claim or legal
action arising out of activities conducted pursuant to this Agreement. The
rights and responsibilities established in this paragraph shall survive
indefinitely the termination of this Agreement.
(9) Waiver: Either party's waiver of, or failure to exercise, any right provided
for in this Agreement shall not be deemed a waiver of any future right of this
agreement.
10) Successors and Assigns: This Agreement shall be binding on the parties, and
on their successors and assigns, without regard to whether it is expressly
acknowledged in any instrument of succession or assignment.
(11) Captions: The captions of each paragraph of this Agreement are inserted
solely for the reader's convenience, and are not to be construed as part of the
agreement.
(12) Amendment: This Agreement constitutes the entire Agreement between the
parties, and supersedes all prior writings or oral agreements. This Agreement
may be amended only by a writing clearly setting forth the amendments and signed
by the party against whom enforcement is sought.
(13) Notices: Notices required by this Agreement shall be in writing and shall
be delivered either by personal delivery or by mail. If delivered by mail,
notices shall be sent by any express mail service; or by certified or registered
mail, return receipt requested; with all postage and charges prepaid. All
notices and other written communications under this Agreement shall be addressed
to the individuals in the capacities indicated below, or as specified by
subsequent, written notice delivered by the party whose address has changed.
(14) Severability: Should one or more clauses of this agreement be held invalid
under the laws of Virginia or the United States, the remaining clauses shall
remain in effect as a whole and binding contract.
Please initial /s/ WHB
__________________
<PAGE> 1
Exhibit 10.14
AGREEMENT FOR PROVISION OF
WORLD WIDE WEB HOSTING AND DEVELOPMENT AND RELATED SERVICES
BETWEEN PROMISE KEEPERS, INC. AND DIDAX, L.C.
This Agreement for Provision of World Wide Web Hosting and Development and
Related Services (hereinafter "Agreement"), is executed this 13th day of March,
1996, between Promise Keepers, Inc. (hereinafter "PK"), a Colorado nonprofit
corporation with tax-exempt status under Internal Revenue Code Section
501(c)(3), and DIDAX, L.C. (hereinafter "DIDAX"), a Virginia limited liability
corporation established as a religious organization.
1. RECITALS
1.1. WHEREAS, DIDAX provides certain services relating to World
Wide Web design, development, implementation, hosting,
refreshment, and management, and Internet access, as well as
certain services relating to electronic communications and
information sharing development and implementation, and has in
the past provided such services relating to electronic
communications and information sharing to PK in connection
with the Letter of Intent between the parties executed
February 2, 1995 (hereinafter "Letter of Intent"); and
1.2. WHEREAS, PK desires that DIDAX provide such services to PK and
PK's constituents, and DIDAX desires to provide such services;
and
1.3. WHEREAS, both parties desire to execute this Agreement for
DIDAX to provide such services to PK in consideration for PK's
payment of certain rates and fees and fulfillment of certain
obligations, all on the terms and conditions set forth herein;
and
1.4. WHEREAS, PK and DIDAX share a common ministry and mission to
serve the Lord Jesus Christ by, among other things, advancing
the Kingdom of God, and particularly this present movement of
God among men utilizing electronic communication media and
technology;
1.5. WHEREAS, PK and DIDAX desire to conclude and supersede the
Letter of Intent;
1.6. NOW, THEREFORE, in consideration of the mutual promises
contained in this Agreement, the Parties agree as follows:
2. DEFINITIONS
The following definitions are set forth in alphabetical order.
2.1. "BASE MONTHLY ACCESS FEES" shall mean the flat monthly fees
paid by Subscribers for a specified number of hours of
Internet access. "Base monthly access fees" shall not
Page 1 of 20 Promise Keepers/DIDAX Agreement
Gammon & Grange 703-761-5000 March 13, 1996
<PAGE> 2
include any fees or charges for access by a Subscriber in
excess of the specified number of hours of Internet access.
2.2. "CHRISTIAN COMMUNITY WEB SITE" shall mean the World Wide Web
"home page" and site that DIDAX will design, develop, and
implement for use in aggregation of Christian content and
information as well as for its own use, located at the
specific URL identified in writing by DIDAX to PK from time to
time.
2.3. "DIDAX THIRD PARTY AGREEMENTS" shall mean any agreements that
DIDAX enters into with parties other than PK (including but
not limited to computer hardware and software vendors and
Internet access providers) to fulfill its obligations to PK
under this Agreement and/or to provide additional services to
PK.
2.4. "FULL TIME EQUIVALENT" OR "FTE" shall mean the functional
equivalent of the services of a single DIDAX employee working
on a full-time basis. For purposes of this Agreement, a Full
Time Equivalent shall be calculated on a monthly basis, and is
an employee or group of employees who collectively performs
services for a number of hours equivalent to no more than the
number of hours that would be performed by an individual
working eight (8) hours per day on all business days in a
given month, not including any holidays observed by PK, and
allowing two weeks per year of vacation allocated
proportionally during each month. Travel time shall not be
included in the measurement of hours performed by an FTE.
2.5. "INITIAL TERM" shall mean the period of time beginning upon
the Date of Execution set forth above, and concluding on the
Conclusion Date specified in Section 16.12 of this Agreement,
no less than nine (9) calendar months from such Date of
Execution.
2.6. "INTERNET" shall mean the wide area cooperative network of
university, corporate, government, and private computer
networks communicating through Transmission Control
Protocol/Internet Protocol ("TCP/IP") that is commonly
referred to as the Internet.
2.7. "PK APPLICATIONS" shall mean software applications, programs,
or other computer- executable code developed or programmed by
DIDAX for or on behalf of PK for use on or in connection with
the PK System. A comprehensive listing of the PK Applications
as of the Date of Execution of this Agreement is attached
hereto as Exhibit A.
2.8. "PK CONSTITUENTS" shall mean individuals who (1) are on PK's
mailing list; (2) participate in a PK-sponsored event; or (3)
purchase products from PK.
2.9. "PK SYSTEM" shall mean the internal electronic communication
and information sharing system utilizing the Lotus Notes(TM)
platform that DIDAX has designed, developed, and implemented
for PK in connection with the Letter of Intent and as
continued under this Agreement.
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2.10. "PK WEB SITE" shall mean the World Wide Web "home page" and
site that DIDAX will design, develop, and implement for PK
under this Agreement, using content and information created or
provided by PK.
2.11. "SUBSCRIBERS" shall mean PK Constituents who obtain access to
the Internet through services provided by DIDAX.
2.12. "UNIVERSAL RESOURCE LOCATOR" OR "URL" shall mean the standard
addressing method that identifies information or resources on
the Internet, and that is used when navigating the World Wide
Web.
2.13. "WORLD WIDE WEB" shall mean the Internet service bearing such
name that provides the users thereof with access to selected
information databases and to selected services on the Internet
through the use of Universal Resource Locators ("URLs").
3. COMPLETE AGREEMENT
This Agreement sets forth the complete agreement between the parties and
supersedes and hereby terminates the Letter of Intent between the parties
executed February 2, 1995. The parties hereby acknowledge that their
respective obligations under that Letter of Intent have been completely and
finally satisfied, and that all such obligations, except for the parties'
respective obligations under Section 2.8 and 2.14 of the Letter of Intent, are
now and forever completely extinguished.
4. TERM AND TERMINATION
4.1. TERM. This Agreement shall remain in effect from the Date of
Execution stated above until superseded by a subsequent
written agreement executed by both parties, or terminated as
permitted herein.
4.2. INITIAL TERM. To give the project a fair opportunity to
succeed, the parties agree to continue performance of this
Agreement for at least the entire Initial Term, as defined in
Section 2.4 above, in the absence of uncured material breach
by the other party.
4.3. TERMINATION FOR BREACH. Either party may terminate this
Agreement at any time upon thirty (30) days after written
notice to the other party specifying the breach if the other
party (1) materially breaches this Agreement and (2) fails to
cure the breach within the thirty (30) day notice period.
4.4. TERMINATION AT WILL. At any time following the conclusion of
the Initial Term, either party may terminate this Agreement
without cause upon sixty (60) days prior written notice.
5. WORLD WIDE WEB DEVELOPMENT
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5.1. WORLD WIDE WEB DEVELOPMENT SERVICES. In consideration for
PK's payment of fees under the following Section 5.2 of this
Agreement, DIDAX shall provide PK, upon request, with
services to design, develop, implement, manage, and refresh a
World Wide Web "home page" and site for PK (hereinafter the
"PK Web Site"), using content and information created or
provided by PK. Such services are collectively referred to
hereinafter as "Web development services." These shall include
but are not limited to using DIDAX' personnel and/or third
party personnel as needed (1) to convert PK content or
information into HyperText Mark-up Language ("HTML") for
inclusion in the PK Web Site; and (2) to manage and refresh
the PK Web Site using additional content or information
provided by PK from time to time.
5.2. FEES FOR WEB DEVELOPMENT SERVICES. In consideration for
DIDAX' provision of Web development services under the
preceding Section 5.1 of this Agreement, PK agrees to pay
DIDAX fees for such services (plus reasonable travel expenses
as approved by PK) in accordance with the following rate
schedule:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Service Rate / Fee
------- ----------
- ----------------------------------------------------------------------------------------------------
<S> <C>
Development and implementation of PK Web Site $95.00 per person per hour
- ----------------------------------------------------------------------------------------------------
Graphics design for PK Web Site $65.00 per person per hour
- ----------------------------------------------------------------------------------------------------
HTML coding or conversion of PK content / information $45.00 per person per hour
- ----------------------------------------------------------------------------------------------------
Refreshment and/or management of PK Web Site $75.00 per person per hour
- ----------------------------------------------------------------------------------------------------
</TABLE>
5.3. CHARITABLE CONTRIBUTION OF CERTAIN WEB DEVELOPMENT SERVICES.
At the conclusion of the Initial Term, unless this Agreement
is previously terminated by PK without cause or by DIDAX with
cause, DIDAX agrees that as a charitable contribution to PK's
ministry and charitable activities, DIDAX will not charge PK
for the first fifty thousand dollars ($50,000) of such Web
development services performed during the Initial Term by
DIDAX pursuant to Sections 5.1 and 5.2, as specifically
directed in writing by PK. If this Agreement is terminated by
PK with cause or by DIDAX without cause prior to the
conclusion of the Initial Term, DIDAX will not charge PK for
such Web development services performed as of the Date of
Termination by DIDAX pursuant to Sections 5.1 and 5.2, as
specifically directed in writing by PK, up to a total of fifty
thousand dollars ($50,000) of such Web development services.
6. WORLD WIDE WEB HOSTING
6.1. PROVISION OF WORLD WIDE WEB HOSTING SERVICES. In
consideration for PK's payment of fees under the following
Section 6.2 of this Agreement, DIDAX shall provide PK with
World Wide Web hosting services for the PK Web Site and the PK
content and information provided thereon, via the IBM Global
Network / Advantis Service, or via UUNet or such other
comparable World Wide Web hosting provider as DIDAX may from
time to time select.
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6.2. FEES FOR PROVISION OF WORLD WIDE WEB HOSTING SERVICES. In
consideration for DIDAX' provision of such World Wide Web
hosting services to PK under Section 6.1, PK shall pay DIDAX:
6.2.1. a one-time fee of one thousand dollars (U.S. $1,000)
for initial set-up of the PK Web Site (the "Initial
Set-Up Fee"), and
6.2.2. an ongoing monthly fee (the "Monthly Hosting Fee"),
independent of the amount of server activity on the
file servers where the PK Web Site is located, and
independent of the number of "hits" on and megabytes
of data transferred to and from the PK Web Site, not
to exceed one thousand dollars (U.S. $1,000) per
month during the Initial Term of this Agreement.
6.3. CHARITABLE CONTRIBUTION OF CERTAIN WEB HOSTING SERVICES. As a
charitable contribution to PK's ministry and charitable
activities, DIDAX will not charge PK the Initial Set-Up Fee or
the Monthly Hosting Fee during the Initial Term of this
Agreement. This charitable contribution will be made
regardless of any determination of its tax deductibility to
DIDAX.
6.4. TRANSACTION PROCESSING FEES. In consideration for DIDAX'
processing of specific financial transactions between PK and
PK Constituents by means of the PK Web Site, PK shall pay
DIDAX a fee for each such transaction to cover DIDAX'
reasonable expenses of processing such transactions (the
"Transaction Processing Fee"). The amount of the Transaction
Processing Fee for any transaction shall be one-and-one-half
percent (1.5%) of the total amount (in dollars) of that
transaction, but in any event shall be no less than fifty
cents ($0.50) per transaction. DIDAX agrees, upon written
request by PK, to integrate all transactions into or with the
PK System. In such a case, the amount of the Transaction
Processing fee for such transaction shall increase to two
percent (2%) of the total amount (in dollars) of that
transaction, but in any event shall be no less than fifty
cents ($0.50) per transaction. Both parties agree that this
Transaction Processing Fee does not include any third party
charges, including but not limited to bank charges, credit
card company charges, and electronic funds transfer charges,
which may be applicable to such transactions, and that DIDAX
shall have no liability or responsibility for any such
charges.
7. LOTUS NOTES(TM) IMPLEMENTATION
7.1. PROVISION OF TWO (2) FULL-TIME EQUIVALENTS ("FTES"). During
the Initial Term, DIDAX shall provide two (2) full-time
equivalents ("FTEs"), as defined in Section 2.3 of this
Agreement, to perform the following consulting services for
and on behalf of PK:
7.1.1. administration of the internal Lotus Notes(TM) system
and servers located at PK's national headquarters
building that DIDAX has previously designed,
developed, and implemented for PK (the "PK System")
under the Letter of Intent, including
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but not limited to the PK Applications identified in
Attachment A to this Agreement;
7.1.2. project management of the PK System;
7.1.3. development of additional PK Applications and
enhancements to PK Applications listed in Exhibit A
for use in the PK System; and
7.1.4. development, implementation, management, and
refreshment of the PK Web Site.
These FTEs shall be selected from time to time by DIDAX in its
sole discretion, shall at all times be employees of DIDAX, not
of PK, and shall at all times operate under the complete
direction and control of DIDAX in its sole discretion. Any
specific project or assignment to be performed by these FTEs
must be requested in writing by PK and must be approved by
both the DIDAX Project Manager and the PK Project Manager
supervising the PK System. DIDAX shall provide a monthly
report to PK, itemizing the hours and giving a detailed
description of the activities of the FTEs. DIDAX shall notify
PK in advance or as soon as reasonably possible when a work
order is expected to exceed the FTEs' time allowance under
this Section 7.1 by more than ten percent (10%) for a given
month.
7.2. CONSULTING FEES FOR PROVISION OF TWO (2) FTES. Unless this
Agreement is terminated by PK without cause or by DIDAX for
cause either party prior to the conclusion of the Initial
Term, DIDAX agrees that as a charitable contribution to PK's
ministry and charitable activities, DIDAX will not charge PK
consulting fees for the services performed by the two (2) FTEs
pursuant to Section 7.1.
7.3. CONSULTING FEES FOR ADDITIONAL DIDAX CONSULTANTS. Upon
written request by PK, DIDAX shall provide PK with the
services of one (1) or more DIDAX consultants (in addition to
the two FTEs provided during the Initial Term, as set forth in
Section 7.1 above) to develop, implement, manage, and support
the PK System, in exchange for payment by PK of consulting
fees of five hundred dollars (US $500) per consultant per
eight (8) hour workday, or seventy-five dollars (US $75) per
consultant per hour.
7.4. PAYMENT OF TRAVEL EXPENSES OF DIDAX FTES AND CONSULTANTS. PK
shall pay the ordinary and reasonable expenses of travel
incurred by DIDAX FTEs and consultants provided under this
Agreement for all travel that is requested, initiated, or
otherwise approved by PK. PK shall have no responsibility for
any expenses for travel by DIDAX FTEs or consultants that is
not requested, initiated, or otherwise approved by PK.
8. PK PARTICIPATION IN THE DIDAX CHRISTIAN COMMUNITY WEB SITE.
In consideration for DIDAX' provision of services under this Agreement, PK
shall participate as a "Charter Organization" in DIDAX' Christian Community Web
Site. Such participation shall not impose any obligations upon PK other than
those identified herein or approved by PK from time to time in its sole and
absolute discretion.
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9. LOTUS NOTES(TM) SYSTEM USER FEES
9.1. MONTHLY SYSTEM USER FEES. In consideration for DIDAX'
provision and operation of the PK System, PK shall pay DIDAX a
monthly fee for each person using or accessing the PK System
(the "Monthly System User Fee") on the terms and conditions
set forth below. Each such person using or accessing the PK
System for whom PK is to pay the Monthly System User Fee is
referred to hereinafter as a "PK User."
9.1.1. LEASED SOFTWARE OPTION. In consideration for payment
by PK of a Monthly System User Fee in the amount of
four dollars and ninety-five cents (US $4.95) per PK
User, DIDAX shall provide PK with a sublicense for
each PK User to use the Lotus Notes(TM) application
to access and use the PK System and shall provide PK
with Lotus Notes(TM) Servers and Lotus Notes(TM)
Server Software in accordance with Section 9.2 below.
DIDAX will not charge PK for licenses received from
third party vendors without any charge to DIDAX.
9.1.2. PURCHASED SOFTWARE OPTION. In consideration for
payment by PK of a Monthly System User Fee in the
amount of two dollars and ninety-five cents (US
$2.95) per PK User, DIDAX shall provide PK with Lotus
Notes(TM) Servers and Lotus Notes(TM) Server Software
in accordance with Section 9.2 below. Payment of the
Monthly System User Fee under this Section does not
convey to PK any license or sublicense for a PK User
to use the Lotus Notes(TM) application; PK shall be
solely responsible to obtain appropriate licenses or
sublicenses from Lotus Development Corporation and/or
other third parties to use the Lotus Notes(TM)
end-user application for each such PK User. DIDAX
shall make reasonable efforts to assist PK in
obtaining such licenses.
9.1.3. MONTHLY SYSTEM USER FEES EXCLUSIVE OF
TELECOMMUNICATIONS, HARDWARE, SOFTWARE, AND NETWORK
EXPENSES. All expenses of telecommunications,
including but not limited to the purchase or lease
and the maintenance of telecommunications hardware
such as routers and payments for local,
long-distance, and other telephone services, shall be
the exclusive responsibility of PK. All expenses for
network and user hardware and software other than the
individual Lotus Notes(TM) Servers (provided pursuant
to Section 9.2 below) and any Lotus Notes(TM)
application sublicenses (provided pursuant to Section
9.1.1 above, including but not limited to expenses
for the purchase or lease and maintenance of network
servers, individual computers for PK Users, network
software, operating systems, and network wiring and
connections) shall be the exclusive responsibility of
PK.
9.2. PROVISION OF LOTUS NOTES(TM) SERVERS AND SERVER SOFTWARE. In
consideration for PK's payment of the Monthly System User Fees
pursuant to Section 9.1 above, DIDAX shall lease to PK and
shall install on PK's existing local area or wide area network
at PK's main headquarters two (2) Lotus Notes(TM) servers
running licensed copies of the Lotus Notes(TM)
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server software (the "Lotus Notes(TM) Server") for the first
five hundred (500) PK Users for whom PK has paid the Monthly
System User Fees. DIDAX shall lease to PK and shall install
on PK's existing network one (1) additional Lotus Notes(TM)
Server for every additional five hundred (500) PK Users, upon
payment by PK of a monthly fee of five hundred dollars (US
$500) per Lotus Notes(TM) Server per month (the "Monthly Lotus
Notes(TM) Server Fee"). PK may lease additional Lotus
Notes(TM) Servers from DIDAX by payment of this Monthly Lotus
Notes(TM) Server Fee for each additional Lotus Notes(TM)
Server. Once installed, any equipment relocation requested by
PK shall be provided by DIDAX at the fees set forth in Section
7.3 above, if such relocation involves labor beyond the FTE s
described in Section 7.2 above. In the event of termination
of this Agreement for any reason, PK shall have the right to
purchase any Lotus Notes Servers currently in use within the
PK System for their current depreciated value, as computed
under a straight line three year depreciation schedule.
10. INTERNET ACCESS
10.1. DIDAX' PROVISION OF INTERNET ACCESS. In consideration for
PK's performance of its obligations under this Section 10, and
subject to PK's approval of DIDAX' initial rate structure for
such access, DIDAX shall make available to PK Constituents
access to the Internet via the IBM Global Network / Advantis
Service, or via UUNet, or such other comparable Internet
access provider as DIDAX may from time to time select.
10.2. DONATION OF PERCENTAGE OF QUARTERLY REVENUE GENERATED BY PK
MARKETING. During the Term of this Agreement, as
consideration for PK's good faith efforts to market and
promote, pursuant to Section 12 of this Agreement, the
Internet access offered by DIDAX under this Agreement, DIDAX,
at the conclusion of each quarter during which DIDAX has net
profits, but in any event without regard to profitability by
the end of the Initial Term, shall make a charitable donation
to PK on the following basis: For each Subscriber who became
a Subscriber for the first time as a direct result of PK's
marketing and promotion of the DIDAX Internet Access, which
shall be determined by an invitation to all Subscribers to
identify the source relationship through a PK marketing
channel at the time of online registration for the DIDAX
Internet Access, DIDAX shall make a donation to PK during each
of the first four (4) quarters that such person is a
Subscriber, in an amount equal to five percent (5%) of DIDAX'
gross revenues from the Base Monthly Access Fees paid by all
such Subscribers during that quarter. If this Agreement is
terminated by PK with cause during the Initial Term, by PK
with or without cause subsequent to the Initial Term, or by
DIDAX without cause at any time, this donation shall be
unaffected for a period of twelve (12) months following
termination, after which it shall cease. If this Agreement is
terminated by DIDAX with cause at any time, or by PK without
cause during the Initial Term, this donation shall immediately
cease.
10.3. DONATION OF DIDAX STOCK. As a charitable contribution to PK's
ministry and charitable activities, DIDAX shall donate shares
of DIDAX' common stock to PK.
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10.3.1. Upon satisfactory completion of PK's marketing and
promotional commitments in connection with the
"special kick-off effort" described in Section 12.6
below, DIDAX shall donate ten thousand (10,000)
shares of DIDAX' common stock to PK.
10.3.2. Upon completion of nine (9) calendar months from the
Date of Execution of this Agreement, unless this
Agreement is previously terminated by DIDAX for cause
or by PK with or without cause, DIDAX shall donate
forty thousand (40,000) additional shares of DIDAX'
common stock to PK.
11. EXCLUSIVITY COMMITMENT
11.1. EXCLUSIVE WORLD WIDE WEB SERVICES. In consideration for
DIDAX' provision of services to PK under Sections 5.1 and 5.2
of this Agreement, and in recognition of the substantial
uncompensated design, development, and implementation services
that DIDAX is providing to PK, PK shall use DIDAX during the
Initial Term of this Agreement, as PK's sole source for and
provider of World Wide Web development, implementation,
hosting, refreshment, and management services, and as PK's
exclusive multi-user electronic communication,
information-sharing, and publishing provider. During the
Initial Term, PK shall not utilize Web hosting services
provided by any person or entity other than DIDAX and shall
not publish or otherwise make PK content or information
available on any other site on the World Wide Web and/or the
Internet. Notwithstanding, PK shall have no obligation to
attempt to control the activities of any persons other than PK
employees. This section shall not be construed to limit PK's
right to publish any material of any kind via non-Internet-
related CD-ROMs, audio, video, broadcast, or any other
non-Internet-related medium not specified herein.
11.2. EXCLUSIVE INTERNET ACCESS. In consideration for DIDAX'
provision of Internet access to PK Constituents under Section
10.1 on or before July 1, 1996, and in recognition of the
substantial donations by DIDAX to PK under Sections 10.2 and
10.3, during the Term of this Agreement, PK: (1) shall not
promote or endorse any other Internet access provider,
service, or vendor or any competitive online services
(hereinafter collectively "Competitive Services); (2) shall
not market PK data and databases to any such Competitive
Services; (3) shall not promote subscriptions to any such
Competitive Services; and (4) shall use DIDAX as PK's
exclusive provider of Internet access for PK Constituents in
any and all area codes in which DIDAX is able to provide such
access via a local telephone number. In all such area codes,
PK shall not utilize any Competitive Services for networking
among its staff and/or user base, except that PK staff may
maintain personal subscriptions to other services for
informational purposes and uses.
12. PK PROMOTIONAL COMMITMENTS
In consideration for DIDAX' provision of services to PK under Sections 5.1 and
5.2 of this Agreement, and of Internet access to PK Constituents under Section
10.1 of this Agreement, PK
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agrees that it will use its existing communication channels and its good faith
efforts, as defined herein, to endorse and promote to varying degrees (1) the
PK Web Site, (2) the Christian Community Web Site, and (3) the Internet access
provided to PK Constituents by DIDAX pursuant to Section 10 of this Agreement
(hereinafter the "DIDAX Internet Access"). PK's endorsement and promotion
commitments include at least the following:
12.1. ENDORSEMENT. PK shall provide to DIDAX written statements for
public distribution endorsing the PK Web Site, the Christian
Community Web Site, and the DIDAX Internet Access. PK's
endorsement shall not indicate that DIDAX is superior to any
other provider, but only that DIDAX is a Christian-controlled
company that can provide access to the Internet.
12.2. LIMITED TRADEMARK LICENSE. While DIDAX hereby acknowledges
the importance of preserving the integrity of PK's names,
marks, and goodwill, PK authorizes DIDAX to reproduce and use,
and hereby grants DIDAX a royalty-free license to reproduce
and use, subject to PK approval (which shall not unreasonably
be withheld) under this Section 12.2, the Promise Keepers'
logo, trademark(s), and trade name(s) in DIDAX marketing
materials and literature (including but not limited to
electronic forms of the same) for the purpose of publicizing
DIDAX' provision of internal communication and Web development
services, the PK Web Site, the Christian Community Web Site,
and the DIDAX Internet Access.
To obtain PK approval hereunder, DIDAX shall submit a written
request for such approval via electronic mail and/or facsimile
(the "Initial Request") to Pete Richardson of PK or such other
PK employee as PK shall identify to DIDAX in writing from time
to time pursuant to Section 16.6 (the "PK Reviewer"). Within
seventy-two (72) hours of DIDAX's transmission of this Initial
Request, PK shall notify DIDAX in writing via electronic mail
and/or facsimile of its approval or disapproval of such a
request. In the event that DIDAX has not received such
written notice of approval or disapproval within this
seventy-two (72) hour period, DIDAX shall so notify PK in
writing via electronic mail and facsimile (the "Final
Request") to the PK Reviewer. If, within twenty-four (24)
hours of DIDAX' transmission of this Final Request, the PK
Reviewer has not notified DIDAX in writing via electronic mail
and facsimile of PK's approval or disapproval of DIDAX'
Initial Request, DIDAX' Initial Request shall automatically be
deemed "approved" by PK under this Section 12.2. Whenever PK
disapproves such a request, PK's written notice of such
disapproval to DIDAX shall specify PK's reasons for
disapproval and PK's suggestions for modifying the particular
DIDAX marketing materials and literature so as to obtain PK
approval.
12.3. PK WEB SITE. PK agrees that during the Term of this
Agreement, the PK Web Site developed by DIDAX under this
Agreement shall be the exclusive official PK site on the World
Wide Web and the Internet, and that DIDAX may identify itself
in promotional and marketing materials as the developer and
provider of the exclusive official PK Web Site.
12.4. EXCLUSIVE INTERNET ACCESS PROVIDER. PK agrees that during the
Term of this Agreement, it shall endorse no other Internet
access provider, that DIDAX shall be the exclusive
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<PAGE> 11
endorsed provider of Internet access to PK Constituents, and
that DIDAX may identify itself in promotional and marketing
materials as PK's exclusive Internet access provider.
12.5. SPECIAL KICK-OFF EFFORT FOR PK WEB SITE. PK shall participate
in a "special kick-off effort" to introduce the PK Web Site to
PK Constituents once the PK Web Site is operational. PK's
participation in this special kick-off effort shall include at
least (1) PK's issuance of an official PK press release
endorsing the PK Web Site; (2) PK's issuance of an on-line
news release endorsing the PK Web Site; (3) PK's promotion of
the PK Web Site in available mailings to Constituents to be
determined at PK's sole discretion following the PK Web Site
becoming operational; (4) PK's publication of an article, news
feature, or announcement endorsing the PK Web Site in the
first issues of New Man magazine and of PK's Men of Action
newsletter published after the PK Web Site is operational; (5)
the making of an official PK announcement endorsing the PK Web
Site from the main platform podium at the first PK conference
held after the PK Web Site is operational; (6) the making of
further official PK announcements endorsing the PK Web Site
from the main platform podium at no fewer than four (4)
additional PK conferences during the Initial Term; and (7) the
provision to DIDAX of no less than one-quarter (1/4) of a full
printed page in the 1996 PK syllabus distributed to those
attending PK conferences and clergy conferences.
12.6. SPECIAL KICK-OFF EFFORT FOR INTERNET ACCESS. PK shall
participate in a "special kick-off effort" to introduce the
DIDAX Internet Access to PK Constituents, promptly after PK's
approval of DIDAX' rate structure for such access. PK's
participation in this special kick-off effort shall be similar
to and shall include at least the elements listed above in
Section 12.5.
12.7. CONTINUING MARKETING. PK shall engage in ongoing marketing
activities promoting the PK Web Site and the DIDAX Internet
Access to PK Constituents. These ongoing marketing activities
include at least (1) PK's periodic issuance of official PK
press releases highlighting developments in and enhancements
to the PK Web Site and the DIDAX Internet Access; (2) PK's
regular mention of the PK Web Site and the DIDAX Internet
Access in PK newsletters directed at PK's different
constituent groups; and (3) PK's announcement and promotion of
the PK Web Site and the DIDAX Internet Access at appropriate
times during PK conferences and other PK events, with the
frequency and extent of all three activities to be determined
in PK's sole discretion.
12.8. EXHIBIT SPACE. PK shall provide DIDAX with favorable booth
space comparable to that utilized by New Man Magazine in each
product tent or exhibit area set up at each PK conference, at
the same rates that PK charges other organizations for such
space and without any royalty obligations, for DIDAX to
promote, market, and sell the PK Web Site and the DIDAX
Internet Access to PK Constituents. Such booth shall be
operated by DIDAX personnel and at DIDAX' expense.
13. ALLOCATION OF LICENSES
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13.1. UPON CONCLUSION OF INITIAL TERM.
13.1.1. At the conclusion of the Initial Term of this
Agreement, unless this Agreement is previously
terminated by PK or by DIDAX, and upon payment in
full by PK of all fees due to DIDAX under Sections 5
and 7 of this Agreement, DIDAX shall grant to PK, to
the extent permitted by applicable agreements between
DIDAX and third parties, a perpetual,
non-transferable license to possess and to use (1)
any World Wide Web "page" form, any HTML "pages", and
any CGI scripts designed and/or developed by DIDAX,
as specifically directed in writing by PK and paid
for under Section 5 of this Agreement, for inclusion
in the PK Web Site during the Initial Term; and (2)
any PK Applications designed, developed, and/or
implemented by DIDAX, as specifically directed in
writing by PK and paid for under Section 7 of this
Agreement, during the Initial Term.
13.1.2. In the event that DIDAX terminates this Agreement
without cause prior to the conclusion of the Initial
Term, DIDAX shall grant to PK all of the rights
enumerated in Section 13.1.1 above without additional
consideration from PK.
13.2. UPON COMPLETION OF NINE (9) MONTHS FROM DATE OF EXECUTION OF
AGREEMENT. In addition to the donation of DIDAX' stock
provided for in Section 10.3 above, upon the completion of
nine (9) calendar months from the Date of Execution of this
Agreement, unless this Agreement is previously terminated by
PK without cause or by DIDAX with cause:
13.2.1. DIDAX agrees that as a charitable contribution to
PK's ministry and charitable activities, DIDAX will
not charge PK consulting fees for DIDAX' services in
designing, developing, and implementing the PK System
(including but not limited to DIDAX' design,
development, and implementation of the PK
Applications identified in Attachment A to this
Agreement), that have been incurred prior to the Date
of Execution of this Agreement. DIDAX estimates that
these fees total substantially more than
two-hundred-fifty-thousand dollars (US $250,000).
13.2.2. DIDAX shall grant to PK, to the extent permitted by
applicable agreements between DIDAX and third
parties, a perpetual, non-transferable license to
possess and to use the PK Applications identified in
Exhibit A to this Agreement.
13.3. UPON TERMINATION OF AGREEMENT PRIOR TO COMPLETION OF NINE (9)
MONTHS FROM DATE OF EXECUTION OF AGREEMENT. In the event
that, prior to the completion of nine (9) calendar months from
the Date of Execution of this Agreement, this Agreement is
terminated by PK without cause or by DIDAX for cause:
13.3.1. DIDAX shall not make the charitable contribution to
PK described in Section 13.2.1, and PK shall promptly
reimburse DIDAX in the amount of two-hundred-fifty-
thousand dollars (US $250,000) if it wishes to retain
the Applications identified in Exhibit A, except as
provided in Section 13.3.2 below.
Page 12 of 20 Promise Keepers/DIDAX Agreement
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<PAGE> 13
13.3.2. Upon payment to DIDAX by PK of the
two-hundred-fifty-thousand dollars (US $250,000) in
consulting fees described in Section 13.2.1, DIDAX
shall grant to PK, to the extent permitted by
applicable agreements between DIDAX and third parties
(including but not limited to Lotus Development
Corporation), a perpetual, non- transferable license
to possess and to use the PK Applications identified
in Exhibit A to this Agreement. In the event that PK
elects not to pay this $250,000 in consulting fees,
all licenses to the PK Applications that DIDAX has
granted to PK shall immediately terminate, and PK
shall promptly return all such PK applications to
DIDAX in accordance with Section 13.5.
13.3.3. In the event that PK terminates this Agreement for
cause or DIDAX terminates this Agreement without
cause prior to the completion of nine (9) calendar
months from the Date of Execution of this Agreement,
DIDAX shall grant to PK without further
consideration, to the extent permitted by applicable
agreements between DIDAX and third parties, a
perpetual, non-transferable license to possess and to
use the PK Applications identified in Attachment A to
this Agreement, and DIDAX shall forgo and release all
claims arising from its development services noted
under Section 13.2.1 above.
13.4. UPON TERMINATION OF AGREEMENT PRIOR TO CONCLUSION OF INITIAL
TERM. In the event that, prior to the conclusion of the
Initial Term, this Agreement is terminated by PK without cause
or by DIDAX for cause:
13.4.1. DIDAX shall not make the charitable contributions to
PK of Web development services specified in Section
5.3, and of not charging consulting fees for the
services performed by the two (2) FTEs pursuant to
Sections 7.1 and 7.2, and PK shall promptly reimburse
DIDAX for those services and associated costs, except
as provided in Section 13.4.2 below.
13.4.2. DIDAX shall grant to PK, to the extent permitted by
applicable agreements between DIDAX and third parties
(including but not limited to Lotus Development
Corporation), a perpetual, non-transferable license
to possess and to use (1) only such World Wide Web
"page" forms, HTML "pages", and CGI scripts designed
and/or developed by DIDAX, as specifically directed
in writing by PK, for inclusion in the PK Web Site on
or before the date upon which such termination
becomes effective, for which PK has already paid or
immediately pays DIDAX in full, and (2) only such PK
Applications as have been developed, implemented, or
managed by DIDAX FTEs and/or consultants providing
services pursuant to Sections 7.1, 7.2, and 7.3 of
this Agreement for which PK has already paid or
immediately pays DIDAX in full.
13.4.3. All World Wide Web "page" forms, HTML "pages", CGI
scripts, software, applications, and other
computer-executable code developed, enhanced,
implemented, and/or deployed by DIDAX for inclusion
or use in or in connection with the PK Web Site shall
remain the intellectual property of DIDAX and shall
Page 13 of 20 Promise Keepers/DIDAX Agreement
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<PAGE> 14
be returned to DIDAX by PK, except as specifically
provided in Section 13.4.2 of this Agreement.
13.4.4. All software, applications, and other
computer-executable code developed, enhanced,
implemented, and/or deployed by DIDAX, as
specifically directed in writing by PK, during the
Initial Term shall remain the intellectual property
of DIDAX and shall be returned to DIDAX by PK, except
as specifically provided in 13.4.2.
13.4.5. All other licenses and rights granted to PK under
this Agreement shall terminate in accordance with and
except as provided in Section 13.5.
13.5. TERMINATION OF LICENSES. Upon termination of this Agreement
at any time by either party, with or without cause, unless
superseded by a subsequent written agreement executed by both
parties:
13.5.1. all software licenses granted to PK under this
Agreement and/or the Letter of Intent shall
terminate, except as specifically provided in
Sections 13.1 through 13.4;
13.5.2. all software, applications, and other
computer-executable code developed, enhanced,
implemented, and/or deployed by DIDAX as specifically
directed in writing by PK, including but not limited
to the PK Applications, shall remain the intellectual
property of DIDAX and shall be returned to DIDAX by
PK, except as specifically provided in Sections 13.1
through 13.4;
13.5.3. neither party shall have any further obligation to
the other party under this Agreement, except for the
confidentiality obligations established by Section
14.8 of this Agreement; and
13.5.4. any software licenses that PK has obtained directly
from third parties, and not through DIDAX, including
but not limited to any software licenses that PK has
obtained directly from Lotus Development Corporation,
shall not be affected by this Section 13.5.
13.6. TERMINATION OF LICENSES FOR VIOLATION OF SECTION 14.8
REGARDING CONFIDENTIAL INFORMATION. Notwithstanding any of
the foregoing provisions of this Section 13, if at any time PK
violates Section 14.8 of this Agreement regarding Confidential
Information, DIDAX' donations to PK pursuant to Section 10.2
of this Agreement shall cease for one (1) quarter, after which
such donations shall resume. Upon the third violation of
Section 14.8 by PK, DIDAX may, at its option, terminate all
licenses granted to PK under this Agreement.
13.7 WARRANTY; DIDAX THIRD PARTY AGREEMENTS. DIDAX warrants and
represents that any licenses and rights that it conveys to PK
under this Section 13 shall be as extensive as DIDAX' own
licenses to the same, and shall be subject only to such
applicable DIDAX
Page 14 of 20 Promise Keepers/DIDAX Agreement
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<PAGE> 15
Third Party Agreements as DIDAX has previously identified
under this Section 13.7. DIDAX shall identify in writing to
PK (1) any such DIDAX Third Party Agreements that will apply
to a particular project, service, or work order that DIDAX is
to perform for PK pursuant to this Agreement and that may be
conveyed to PK under this Section 13 (hereinafter "Work
Order"), and (2) the specific limitations that will be imposed
upon any licenses to be conveyed to PK under this Section 13,
at the commencement of such Work Order or as soon thereafter
as reasonably possible. Upon receiving such written notice
from DIDAX, PK shall select one of the following options and
shall so notify DIDAX in writing:
13.7.1 PK may agree that any licenses to such Work Order
that PK may receive under this Section 13 shall be
subject to such DIDAX Third Party Agreements and the
limitations imposed thereby.
13.7.2 PK may specifically request that DIDAX immediately
discontinue such Work Order, in which case PK shall
have no further rights or licenses to such Work Order
under this Agreement and shall not be charged under
this Agreement for DIDAX' services in performing such
Work Order after the date of the written notice. The
foregoing sentence shall not in any way operate to
prevent DIDAX from continuing to perform such Work
Order after the date of the written notice. The
foregoing sentence shall not in any way operate to
prevent DIDAX from continuing to perform such Work
Order for its own purposes and at its own expense,
and possessing all rights, interests, and ownership
therein.
13.7.3 PK may specifically request that DIDAX perform the
Work Order in such a way that any licenses or rights
to such Work Order that PK may receive under this
Section 13 will not be subject to the limitations of
such DIDAX Third Party Agreements, in which case
DIDAX and PK shall negotiate in good faith to execute
a new Work Order that will satisfy PK's request and
under which PK shall assume all additional costs and
liabilities of DIDAX performing such Work Order so as
to satisfy PK's request.
14. LICENSES AND PROPRIETARY RIGHTS
14.1. SOFTWARE LICENSE. DIDAX grants PK, to the extent permitted by
applicable agreements, a nonexclusive, nontransferable license
to use, during the Term of this Agreement, all software that
DIDAX develops for use in connection with the PK Web Site
and/or the PK System (other than individual user software and
client software which shall be licensed separately and
directly to Subscribers under the DIDAX subscriber agreement).
Such software may be used only as part of the PK System and/or
the PK Web Site, and may only be installed and executed on
computer equipment owned or controlled by DIDAX, located at
Data Centers maintained by DIDAX, and/or otherwise approved in
writing by DIDAX, except that such software as applicable may
be installed on desktop workstations and laptop computers of
PK directors and paid staff.
Page 15 of 20 Promise Keepers/DIDAX Agreement
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<PAGE> 16
14.2. THIRD PARTY SOFTWARE. DIDAX grants PK, to the extent
permitted by applicable agreements, a nonexclusive,
nontransferable license to use, during the Term of this
Agreement, any third party software that is incorporated into
the PK Web Site and/or the PK System.
14.3. PROMISE KEEPERS DATA. PK grants DIDAX a license, during the
Term of this Agreement, to upload, reformat, copy, provide
access to, distribute to Subscribers, and otherwise use any
databases, programs, or other data provided or developed by
Promise Keepers and submitted to DIDAX for inclusion in the PK
Web Site and/or the PK System (hereinafter "PK Data"). Use of
such data shall be limited to the extent necessary to achieve
the purposes of the PK Web Site and/or the PK System.
14.4. DIDAX DATA. PK recognizes that, apart from the services
provided by DIDAX to PK under this Agreement, DIDAX may from
time to time make available on or through the PK Web Site, as
approved by PK, databases, programs, and/or other data,
information, or content created, provided, licensed, and/or
developed by DIDAX (hereinafter "DIDAX Data"). PK agrees that
such DIDAX Data shall remain the property of DIDAX and/or its
licensors, and that DIDAX' provision of such DIDAX Data on or
through the PK Web Site does not in any way confer upon PK any
proprietary or possessory rights in such DIDAX Data, except as
specifically granted in other sections of this Agreement.
14.5. PK EDITORIAL CONTROL OVER PK WEB SITE. PK shall retain final
control over and complete responsibility for all substantive
content of the PK Web Page and the PK System.
14.6. RESERVATION OF RIGHTS. Apart from the licenses granted
expressly herein, each party reserves to itself all ownership,
copyrights, patents, trade secrets, and other rights in any
data, information, programs, or other items it provides or
makes available to the other party in connection with the
relationship established by this Agreement. No grant or other
transfer of rights shall be implied from the terms of this
Agreement. PK shall retain all rights, title, and interest
(including but not limited to any copyrights, patent rights,
or other intellectual property rights) in the data,
information, and other items that it provides to DIDAX for
inclusion in the PK Web Site. DIDAX shall retain all rights,
title, and interest (including but not limited to any
copyrights, patent rights or other intellectual property
rights) in the data, information, programs, and other items
that it provides to PK and/or PK Constituents, or includes in
the PK Web Site, the DIDAX Web Site, and/or the Christian
Community Web Site, under this Agreement. DIDAX shall retain
all rights, title, and interest (including but not limited to
any copyrights, patent rights or other intellectual property
rights) in any derivative works that it prepares for or on
behalf of PK using data, information, and/or other items
provided by PK, unless and until PK shall have fully
compensated DIDAX pursuant to this Agreement for DIDAX'
services in preparing such derivative works.
14.7. SOFTWARE REUSE. PK acknowledges that any software developed
by DIDAX under this Agreement may be reused by DIDAX in any
manner which does not disclose confidential
Page 16 of 20 Promise Keepers/DIDAX Agreement
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<PAGE> 17
information of PK or imply sponsorship of other DIDAX products
by PK without prior written authorization.
14.8. CONFIDENTIAL INFORMATION. PK and DIDAX agree to fully respect
and protect each parties' respective (1) confidential,
proprietary, and/or trade secret information, including but
not limited to DIDAX' pricing information; (2) intellectual
property rights; and (3) confidentiality and/or intellectual
property obligations to third parties. Each party agrees to
take reasonable measures, including at least the measures the
party normally takes to protect its own confidential
information, to preserve the confidentiality of any
confidential information received from the other party.
Neither party will convey any confidential, proprietary,
and/or trade secret information of the other party to any
third party without the prior written consent of the
proprietor party.
Each party shall make every reasonable effort to identify
information as confidential or non- confidential at the time
of disclosure to the other party. Notwithstanding the
foregoing sentence, each party shall treat all information
disclosed by the other party, unless such information is
provided by PK for inclusion in the PK Web Site, as
Confidential Information under this Agreement for no less than
sixty (60) days following the completion of any project during
which one party has disclosed information to the other party.
Within this sixty (60) day period, the proprietor party shall
identify in writing to the recipient party the information
that is Confidential Information. After this sixty (60) day
period has expired, any information not identified as
Confidential Information under the preceding sentence shall no
longer be considered Confidential Information under this
Section 14.8.
Upon termination of this Agreement, unless superseded by a
subsequent written agreement, each party, at the discretion of
the proprietor party, shall return or destroy all documents,
computer files, and other items that contain or embody
confidential information of the other party, except as
expressly provided herein. The parties hereby agree that
information regarding the pricing and rates offered to PK by
DIDAX under this Agreement is included in the confidential
information protected under this Section.
15. WARRANTIES; INDEMNIFICATION
15.1. SOFTWARE WARRANTIES. DIDAX warrants that all software
developed by DIDAX as part of the PK System, in the form
installed by DIDAX: (1) will not infringe any U.S. copyrights,
patents, or trade secrets of any third party; and (2) will not
contain any undocumented code, such as a virus, worm or Trojan
horse, designed to disable, erase, or otherwise harm programs,
data, or equipment. DIDAX represents, and PK hereby
acknowledges, that the PK System developed and provided by
DIDAX includes Lotus Notes(TM), that Lotus Notes(TM) may be
used only to access the PK System and PK Web Site, and does
not constitute the complete Lotus Notes(TM) product, and that
Lotus Notes(TM) is subject to the copyright and other
proprietary rights of Lotus Development Corporation and its
licensors.
Page 17 of 20 Promise Keepers/DIDAX Agreement
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<PAGE> 18
15.2. DISCLAIMER. OTHER THAN THE WARRANTIES STATED IN THE PRECEDING
PARAGRAPH, DIDAX DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE.
15.3. EXCLUSIVE REMEDIES. As PK's exclusive remedies for any breach
of warranty under this Agreement, DIDAX agrees to act as
promptly as commercially reasonable to provide a revised
version of the software that cures the breach, or to acquire
rights that permit continued use of a version that would
otherwise infringe, and also to indemnify PK against any third
party claims or suits alleging infringement in breach of the
foregoing infringement warranty. DIDAX' obligation of
indemnity is conditioned on PK's giving prompt notice of any
claim to be indemnified, providing reasonable information and
other assistance to DIDAX, permitting DIDAX to control the
defense of the claim, and mitigating damages as feasible.
15.4. MUTUAL INDEMNIFICATION. DIDAX shall defend, indemnify, and
hold harmless PK and its officers, directors, agents,
affiliates, distributors, franchisees, and employees from any
and all third party claims, demands, liabilities, costs, or
expenses, including reasonable attorneys' fees, where it is
alleged that DIDAX' inclusion of DIDAX Data in the PK Web Site
pursuant to Section 14.4 of this Agreement infringes the
proprietary rights of a third party. PK shall defend,
indemnify, and hold harmless DIDAX and its officers,
directors, agents, affiliates, distributors, franchisees, and
employees from any and all third party claims, demands,
liabilities, costs, or expenses, including reasonable
attorneys' fees, where it is alleged that PK's provision of PK
Data to DIDAX for inclusion in the PK Web Site or the
Christian Community Web Site pursuant to Section 14.3 of this
Agreement infringes the proprietary rights of a third party.
This obligation of indemnity is conditioned on the
non-indemnifying Party giving prompt notice of any claim to be
indemnified, providing reasonable information and other
assistance to the indemnifying Party, and mitigating damages
as feasible.
16. MISCELLANEOUS
16.1. DISPUTE RESOLUTION. Both parties desire to avoid dissipating
resources on wasteful litigation and therefore agree to
resolve disputes privately by good faith negotiation where at
all possible. Any dispute which the parties cannot resolve by
negotiation shall be submitted to Christian mediation, and if
mediation fails, arbitration, under the rules of the Institute
for Christian Conciliation, or any comparable entity agreed
upon in writing by the parties. Any arbitration award issued
by the mediator shall be final, binding, and enforceable in
any court of competent jurisdiction.
16.2. NO CONSEQUENTIAL DAMAGES. As a further incentive to avoid
litigation, the parties agree that neither party shall be
liable to the other party for consequential, indirect,
special, or incidental damages in connection with the
transaction contemplated by this Agreement, even if advised of
the possibility of such damages.
Page 18 of 20 Promise Keepers/DIDAX Agreement
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<PAGE> 19
16.3. NON-ASSIGNMENT. PK and DIDAX acknowledge that under this
Agreement, neither party's benefits nor its responsibilities
are assignable or delegable without the prior written consent
of the other party.
16.4. TAX STATUS. DIDAX acknowledges that Promise Keepers is a
tax-exempt entity and agrees to consider in good faith any
reasonable modification to this Agreement that is appropriate
to maintain Promise Keepers' tax-exempt status.
16.5. FORCE MAJEURE. The parties shall not be liable for any delay
or failure to carry out their respective obligations if such
delay or failure is due to any cause beyond the control of the
parties, including without limitation restrictions of law or
regulations, labor disputes, acts of God, or mechanical or
electronic breakdowns.
16.6. NOTICES. Notices under this Agreement shall be sufficient if
personally delivered, delivered by a major commercial
overnight delivery courier service, sent by facsimile, or
mailed by U.S. mail, to a party at its address set forth below
or as amended by notice pursuant to this Section. Unless
actually received earlier, notices shall be deemed received
five (5) days after deposit in the U.S. mail or one (1) day
after being transmitted by overnight delivery courier service
or by facsimile.
Notices to DIDAX: DIDAX, L.C.
4501 Daly Drive, Suite 103
Chantilly, Virginia 22021
Attn: Chief Executive Officer and
Vice President of Finance
Fax No.: 703-968-4819
Gammon & Grange, P.C.
Copy to: 8280 Greensboro Drive, 7th Floor
McLean, Virginia 22102
Attn: George R. Grange II, Esq.
Fax No.: 703-761-5023
Notices to Promise Keepers: Promise Keepers, Inc.
Post Office Box 103001
Denver, CO 80250-3001
Attn: Mr. David Teraberry
Vice President for Administration
Fax No.: 303-757-5216
Promise Keepers, Inc.
Copy to: Post Office Box 103001
Denver, CO 80250-3001
Attn: Patrick Clowes, Esq.
In-house Counsel
Page 19 of 20 Promise Keepers/DIDAX Agreement
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<PAGE> 20
Fax No.: 303-433-1036 or 303-561-0554
16.7. INDEPENDENT CONTRACTORS. Nothing in this Agreement shall be
construed to make either party an agent, joint venturer, or
partner of or with the other party, and no party shall have
the right or authority to legally bind the other party in any
manner.
16.8. GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of Virginia.
16.9. AMENDMENTS. This Agreement may be amended only by a writing
executed by both parties.
16.10. HEADINGS. The headings and captions in this Agreement are for
convenience of reference only and shall not define, limit, or
expand any of the terms or provisions hereof.
16.11. COUNTERPARTS. This Agreement may be signed in counterparts,
and each counterpart shall be a part of the same whole.
16.12. CONCLUSION DATE OF INITIAL TERM. The parties mutually agree
that the Initial Term, as defined in Section 2.4 of this
Agreement, shall conclude on __________________________ (the
"Conclusion Date").
NOW, THEREFORE, THE PARTIES HERETO ACKNOWLEDGE THAT THEY HAVE READ THIS
AGREEMENT, UNDERSTAND IT, AND AGREE TO BE BOUND BY ITS TERMS. IN WITNESS
WHEREOF, THE PARTIES HAVE CAUSED THIS AGREEMENT TO BE EXECUTED BY THEIR DULY
AUTHORIZED REPRESENTATIVES.
PROMISE KEEPERS, INC. DIDAX, L.C.
By: /s/ DAVID TERABERRY By: /s/ ROBERT C. VARNEY
------------------------------ ------------------------------
Mr. David Teraberry Dr. Robert C. Varney
Vice President for Administration Chairman / Chief Executive Officer
Page 20 of 20 Promise Keepers/DIDAX Agreement
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<PAGE> 21
EXHIBIT/ATTACHMENT A
TO AGREEMENT FOR PROVISION OF
WORLD WIDE WEB HOSTING AND DEVELOPMENT AND RELATED SERVICES
BETWEEN PROMISE KEEPERS, INC. AND DIDAX, L.C.
(EXECUTED MARCH ___, 1996)
For purposes of Section 2.7, Section 7, and Section 13 of the Agreement for
Provision of World Wide Web Hosting and Development and Related Services
Between Promise Keepers, Inc. and DIDAX, L.C. executed March ___, 1996
(hereinafter "Agreement"), the PK Applications, as defined in Section 2.7 of
the Agreement, as of the Date of Execution of the Agreement, shall consist of
the following operational applications, templates, and databases in the form in
which they exist and have been approved by Promise Keepers, Inc. ("PK") as of
this ______________ day of March, 1996 (the "Operative Date").
- PK Mail template
- PK Discussion template
- PK Name and Address Book template
- PK Volunteer Tracking template
- PK Volunteer Conference Manual database
- PK Prayer/Praise/Encouragement database
- PK Lost and Found database
- PK Classified Ads database
- PK Internal Job Posting database
- PK Automated Budget System application
Copies of these PK Applications, in the form in which they exist and have been
approved by PK as of the Operative Date, have been deposited, and shall be
stored for one (1) year following termination of the Agreement, in
computer-readable format in the possession of the following:
Patrick S. Clowes, Esq. George R. Grange II, Esq.
Promise Keepers, Inc. Gammon & Grange, P.C.
Post Office Box 103001 8280 Greensboro Drive, 7th Floor
Denver, CO 80250-3001 McLean, Virginia 22102
303-964-7828 (telephone) 703-761-5000 (telephone)
303-433-1036 (facsimile) 703-761-5023 (facsimile)
303-561-0554 (facsimile)
<PAGE> 22
[PROMISE KEEPERS LETTERHEAD]
VIA FAX (703)968-4819 AND FIRST CLASS U.S. MAIL
February 10, 1997
Dr. Robert C. Varney
Chairman & CEO
Didax
4501 Daly Drive, Suite 103
Chantilly, VA 20151
RE: PK/DIDAX CONTRACT MODIFICATION
Dear Bob:
This is in response to your letter of February 3, 1997 and confirms our
agreement with respect to the modification of the PK/Didax contract, Section
11.2 as set forth in your letter, a copy of which is attached hereto.
Sincerely,
/s/ RICARDO QUINTANA
Ricardo Quintana
Vice President
cc: Don Clarke
Edward O'Brien
George Grange
<PAGE> 23
[DIDAX LETTERHEAD]
February 3, 1997
Mr. Ricardo Quintana
Vice President
Promise Keepers
4045 Pecos
Denver, Colorado 80211
Dear Rick,
This letter is in response to your request to remove the exclusivity of DIDAX
providing Promise Keepers employees with internet access. For the benefit of
the ministry in its desire to move from individual dial-up accounts to an
overall corporate account, we agree to remove the exclusivity regarding
internet access for PK employees.
Regarding the PK/DIDAX contract, this requires a modification to the last
sentence of Section 11.2 as follows:
CURRENT SENTENCE:
"In all such area codes, PK shall not utilize any Competitive Services for
networking among its STAFF AND/OR user base, EXCEPT THAT PK STAFF MAY MAINTAIN
PERSONAL SUBSCRIPTIONS TO OTHER SERVICES FOR INFORMATIONAL PURPOSES OR USES."
MODIFIED SENTENCE:
"In all such area codes, PK shall not utilize any Competitive Services for
networking among its user base."
PLEASE NOTE THIS DOES NOT CHANGE THE EXCLUSIVITY AGREEMENT AS IT RELATES TO PK
CONSTITUENTS OR ANY OTHER TERMS OF THE CONTRACT.
If you agree with the above modification to the last sentence in Section 11.2
of the contract, please respond in writing to confirm we are in agreement.
As always, it is our privilege to serve PK. As the new conference season
approaches, we are excited to see how the Lord will work through PK this year.
Please call me at (703)968-4808 if you have any questions.
Sincerely,
/s/ ROBERT C. VARNEY
Dr. Robert C. Varney
Chairman & CEO
RCV:cm
cc:Don Clark
<PAGE> 1
Exhibit 10.15
PROFESSIONAL SERVICES AGREEMENT
This AGREEMENT, made this 17th day of October 1996, by and between DIDAX ONLINE,
L.C., with its principal office at 4501 Daly Drive, Chantilly, Virginia 20151,
facsimile 703-968-4819 (hereinafter called "DIDAX") and WORLD VISION UNITED
STATES, with its principal office at P.O. Box 9716, Federal Way, Washington
98063, facsimile 206-815-3340 (hereinafter called "World Vision").
WHEREAS, DIDAX represents itself to be qualified and equipped to provide
professional services related to the Internet.
WHEREAS, DIDAX and World Vision desire to enter into this Agreement for the
purpose of setting forth the general terms under which DIDAX will perform
professional services in connection with programs being conducted by World
Vision.
NOW, THEREFORE, in consideration of the promises and of the work to be performed
and the payments made as hereinafter provided, the parties agree as follows:
Unless otherwise specified or agreed, DIDAX shall furnish in a competent and
professional manner all work as may hereafter be let by World Vision, in the
manner hereinafter set forth and subject to the conditions following:
1. SCOPE OF WORK
Whenever World Vision desires to let a job of work contemplated under
this Agreement, it will give written notice ("Task Order") in the form
of Exhibit A to DIDAX which Task Order among other things shall
include:
a. A description of the work to be performed;
b. The date or timetable by which the work is to be completed;
c. The basis of compensation for the work (i.e., time and
materials or fixed price). If fixed price, the schedule of
payments shall be listed.
When such Task Order is given by World Vision to DIDAX, then, unless
some other time limit is fixed by the notice, DIDAX shall within ten
(10) working days advise World Vision of its acceptance or rejection.
When the work specified in such Task Order is accepted by DIDAX, then
the work shall be performed in accordance with the terms of this
Agreement; provided that, if there should be any conflict between the
general terms of this Agreement and the terms of the Task Order under
which the job is let, then the general terms of this Agreement shall
control in all instances, except those wherein the Task Order under
which said work is let specifically states that the terms contained in
said Task Order shall be controlling in the event of conflict between
the terms of the Task Order and the terms of this Agreement.
2. WARRANTY
DIDAX warrants that all work performed under this Agreement shall
comply with the requirements of the Task Order and DIDAX's personnel
shall use due professional care in performance of the work.
Additionally, DIDAX shall comply with applicable federal, state, and
local laws, regulations and ordinances as in effect and construed at
the time the work is performed. DIDAX shall at its expense promptly
correct or reperform any non-conforming work, or, at World Vision's
option, shall refund the amount paid for the non-conforming work.
Non-conforming shall be understood to a mean work effort which can be
specifically identified as incomplete or in clear violation of tasks to
be performed in order to be compliant with the statement of work.
Page 1 of 4
<PAGE> 2
3. PAYMENT
World Vision will pay DIDAX as set forth in Exhibit A attached hereto
and made a part hereof, and upon submission of properly prepared
invoices. Time and Material invoices shall typically include items such
as employees' names, hourly rates, time spent in respect to services,
and other reimbursable expenses. For time and materials projects,
invoices will be submitted on a monthly basis.
For fixed-price projects, World Vision will pay DIDAX pursuant to the
schedule in the Task Order.
DIDAX shall maintain accurate records to support all billings and shall
allow World Vision to inspect such records (at all reasonable times
during normal business hours). DIDAX shall maintain such records open
to inspection for a period of three months following completion of each
scope of work.
4. TAXES
All federal, state or local taxes, if any, levied against the services
furnished by DIDAX pursuant to this Agreement, except for taxes
measured by the income of DIDAX, shall be the sole responsibility and
liability of World Vision.
5. TERM AND TERMINATION
This Agreement shall be effective as of the date hereof and shall
continue in effect for one (1) year thereafter. Either party may
terminate this Agreement without cause by giving 30 days' written
notice to the other party. Upon termination, DIDAX shall discontinue
work on the job as promptly as is reasonable, and shall attempt to
minimize charges to World Vision under the contract. DIDAX shall submit
to World Vision a full written report of all findings up to the date of
termination, along with copies of all pertinent work papers. If the job
is let on a lump-sum price basis, World Vision shall reimburse DIDAX on
a percentage of completion basis. In the event of termination by DIDAX,
any assignment which has been accepted by DIDAX will be completed if
desired by World Vision.
6. DISPUTE RESOLUTION
Both parties desire to avoid dissipating resources on wasteful
litigation and therefore agree to resolve disputes privately by good
faith negotiation where at all possible. Any dispute that the parties
cannot resolve by negotiation shall be submitted to Christian
mediation, and if mediation fails, arbitration under the rules of the
Institute for Christian Conciliation, or any comparable entity agreed
upon in writing from time to time by the parties. Any arbitration award
issued by the mediator shall be final, binding, and enforceable in any
court of competent jurisdiction.
7. PUBLICITY AND CONFIDENTIALITY
Neither party shall publish or make known to others any information
which is proprietary or confidential to the other party which is
obtained in connection with or as a result of its work hereunder and
which is not in the public domain. It is the responsibility of each
party to identify to the other in writing what information is
considered by them to be proprietary and confidential, upon the
provision of such information. This obligation of nondisclosure shall
survive the termination of this Agreement.
8. INDEMNIFICATION
Either party will defend, indemnify, save, and hold harmless the other
party and the officers, directors, agents, affiliates, distributors,
franchisees, and employees of the other party from any and all third
party claims, demands, liabilities, costs or expenses, including
reasonable attorneys' fees, resulting from the indemnifying party's
breach of any duty, representation, or warranty of this Agreement,
except where such liabilities result from the gross negligence or
knowing and willful misconduct of the other party. Prompt notice of any
claim is a condition of the obligation of indemnity.
Page 2 of 4
<PAGE> 3
9. LIMITATION OF LIABILITY
World Vision agrees that DIDAX shall not be liable for any indirect,
special or consequential damages, even if DIDAX has been advised of the
possibility of such damages. DIDAX shall have no liability whatsoever
for any loss or damage to third parties resulting from DIDAX's
performance pursuant to this agreement.
10. NOTICE
Any notice, communication, or statement required or permitted to be
given hereunder shall be in writing and deemed to have been
sufficiently given when delivered in person or delivered by telex,
wire, facsimile or by certified mail, return receipt required, postage
prepaid, to the address of the respective party set forth in the
opening paragraph of this agreement, or to such other address for
either party as that party may by written notice designate.
11. APPLICABLE LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of Virginia. If any of the provisions of this
Agreement are held illegal, invalid, or unenforceable, the
enforceability of the remaining provisions will not be impaired.
12. WAIVER OF TERMS AND CONDITIONS
The failure of either World Vision or DIDAX in any one or more
instances to enforce one or more of the terms or conditions of this
Agreement or to exercise any right or privilege in this Agreement or
the waiver by World Vision or DIDAX of any breach of the terms or
conditions of this Agreement shall not be construed as thereafter
waiving any such terms, conditions, rights, or privileges, and the same
shall continue and remain in force and effect as if no such failure to
enforce had occurred.
13. ENTIRE AGREEMENT
The terms and conditions set forth herein constitute the entire
understanding of the parties relating to the provision of services by
DIDAX to World Vision and shall be deemed incorporated in all Task
Orders and other authorizations unless otherwise so stated therein.
This Agreement may be amended only by a written instrument signed by
both parties.
IN WITNESS WHEREOF, World Vision and DIDAX have caused this Agreement
to be executed by their respective duly authorized representatives as
of the effective date set forth above.
World Vision United States
By: [/s/ illegible]
----------------------------------
Title: Director, Acctg & Fin. Systems
----------------------------------
Date: 10-17-96
----------------------------------
DIDAX Online, L.C.
By: [/s/ illegible]
----------------------------------
Title: Director of Technical Marketing
----------------------------------
Date: 10-17-96
----------------------------------
Page 3 of 4
<PAGE> 4
EXHIBIT A
TASK ORDER NO.1
Professional Services Agreement effective as of October 17, 1996 between DIDAX
ONLINE, L.C. and WORLD VISION UNITED STATES.
SCOPE OF SERVICES:
Reference DIDAX Proposal to World Vision United States dated August 9,
1996.
COMPLETION SCHEDULE:
Reference DIDAX Proposal to World Vision United States dated August 9,
1996.
COMPENSATION:
Reference DIDAX Proposal to World Vision United States dated August 9,
1996.
TERMS AND CONDITIONS:
As set forth in the Professional Services Agreement effective as of
October 17, 1996.
DIDAX, L.C. WORLD VISION UNITED STATES
By: [SIGNATURE] By: [SIGNATURE]
----------------------------------- ------------------------------
Title: [TITLE] Title: [TITLE]
------------------------------- ------------------------------
Date: 10-17-96 Date: 10-17-96
------------------------------ -------------------------------
Page 4 of 4
<PAGE> 5
TASK ORDER NO.2
Professional Services Agreement effective as of October 17, 1996 between DIDAX
ON-LINE, L.C. and WORLD VISION UNITED STATES.
SCOPE OF SERVICES:
Reference DIDAX Proposal to World Vision United States dated January
24, 1997 with the following exceptions:
COMPLETION SCHEDULE:
Reference DIDAX Proposal to World Vision United States dated January
24, 1997.
COMPENSATION:
Reference DIDAX Proposal to World Vision United States dated January
24, 1997.
TERMS AND CONDITIONS:
As set forth in the Professional Services Agreement effective as of
October 17, 1996.
DIDAX, INC. WORLD VISION UNITED STATES
By: /s/ Gary Struyel By: /s/ Douglas K. R.
--------------------------- -----------------------------
Title: V. P. Finance Title: Director, Accounting & Fin.
--------------------------- Systems
-----------------------------
Date: January 24, 1997 Date: 2-11-97
--------------------------- -----------------------------
<PAGE> 6
[DIDAX LOGO]
January 24, 1997
Ms. Lisa Primising
World Vision United States
P.O. Box 9716
Federal Way, WA 98063-9716
Subject: Proposal for World Vision Web Site - Phase I
Dear Ms. Primising:
DIDAX has been honored to serve World Vision during the development of its
Internet strategy, and is pleased to submit this proposal for the Phase I
implementation of that strategy. Since you are somewhat familiar with DIDAX, the
enclosed proposal does not address experience and qualifications. If you would
like information on DIDAX qualifications and experience, please call or e-mail
me or David.
I will serve as the DIDAX Project Manager for World Vision. I am responsible for
assuring that the Web development work is done to your satisfaction and in
accordance with our proposal. I am personally eager to work with you and the
World Vision organization to try to help, in some small way, to accomplish the
mission that the Lord has given to World Vision.
We at DIDAX look forward to continuing to serve World Vision. If you have any
questions on the proposal, please feel free to call me at 703-968-4808 or send
e-mail to me at [email protected].
All for the King,
/s/ Benjamin Beasley
Benjamin Beasley
Enclosure
DIDAX, Inc.
4501 Daly Drive, Suite 103 - Chantilly, Virginia 20151
Phone: (703) 968-4808 - Fax: (703) 968-4819
<PAGE> 7
DIDAX, INC.
PROPOSAL
Submitted to
WORLD VISION UNITED STATES
JANUARY 24, 1997
[LOGO]
DIDAX, INC.
4501 DALY DRIVE SUITE 103
CHANTILLY, VIRGINIA 20151
703-968-4808
www.didax.com
<PAGE> 8
Proposal to for Phase I
World Vision United States Web Development
1.0 INTRODUCTION
World Vision United States has prepared a strategy for using the Internet to
further the mission of working with poor and oppressed people. DIDAX has been
honored to assist in the preparation of the Internet strategy. The strategy will
employ a phased development approach. The first phase of development as proposed
below will establish a strong Web presence with limited initial resources.
Subsequent phases will continue to develop the site and capitalize on the
technology to achieve the Lord's directive to care for the poor.
2.0 SCOPE OF WORK
Section 2.1 is a description of the Web development activities for Phase I and
Section 2.2 is a description of the promotional activities planned for Phase I.
Section 2.1 is arranged to be consistent with the resource planning spreadsheet
titled Web Site Applications Matrix presented to World Vision in November and
December. The Matrix has been reviewed and several adjustments have been made.
The adjustments include adding HTML coding time for site production which was
inadvertently omitted, increasing the labor for Web site promotion, other small
adjustments in time estimates, and adding search capability and surveys to the
Phase I scope.
Several of the Web site features discussed below will be provided to World
Vision as a Christian Community Network(TM) (CCN) affiliate. The features have
been developed as a service for the community and are provided at no charge or
for a nominal fee.
At the outset of each major project, a project plan is developed and reviewed
with the client. Periodic project review meetings and frequent communication
with the client are regarded as critical to project success. An acceptance
process is defined as part of the initial project plan, modified as necessary
during the course of the design and development phases, and used as the standard
throughout the project to assure satisfaction with the final work products.
Comprehensive files will be maintained of proposals, contracts, contract
modifications, billing and payment information, as well as project
correspondence and work products.
2.1 WEB SITE DEVELOPMENT
2.1.1 GENERAL
Site Design and Production
Coordination of the design of the complete structure of the site and
the publishing processes that will be used in this and subsequent
phases, including: creation of alternative templates for the home and
subsidiary pages; detailed site map diagram; oversight and contribution
to the navigational design process; development of infrastructure
components like basic statistics tracking; host server setup; file
directory structure design and implementation; process scheduling and
tracking systems development; web site map planning; coordination with
ISG on migration, legacy
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<PAGE> 9
Proposal to for Phase I
World Vision United States Web Development
systems, database connectivity (e.g. Notes), Internet access, e-mail
addresses; advice on development tools; etc.
Promotion (World Vision)
Promotion will entail the development of a written plan for promoting
the site to potential site visitors using World Vision resources like
print, direct-mail, and video. Promotion could also include the
development of materials and a promotion plan to be used in raising
awareness and understanding of the site among World Vision personnel.
World Vision High-Level Overview
This section will provide pages devoted to describing the fundamentals
of the organization: mission, history, personnel.
Guest book
The guest book, a form that visitors are encouraged to fill out and
submit, will allow World Vision to get answers to various demographic
and other questions, and to get the e-mail address of visitors,
allowing future direct contact. DIDAX will develop the form and the
back-end relational database that will house the data. The guest book
is incorporated as a CCN member service.
Links to Related Sites
This will be a page with links to other Relief & Development related
sites or non-Internet resources.
Surveys
Brief surveys will be incorporated at appropriate places in the site.
The surveys will collect interesting and useful information from
visitors. The survey results may be presented in the Web site for
visitor interaction and feedback. The surveys are incorporated as a CCN
member service.
2.1.2 MARKETING
"Child of the Week" and Sponsorship Information
The sponsorship section will describe sponsorship and present a "Child
of the Week" that serves as a representative example.
Donation Form
The donation form will allow the visitor to enter a donation via credit
card. DIDAX will develop a Internet-standard (SSL) secure form and
database to house the transactions, which will then be forwarded to
World Vision via secure method (e.g. fax or encrypted e-mail).
30-Hour Famine Link
This will be a simple 30HF promotion page with a link to the existing
KMA site.
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<PAGE> 10
Proposal to for Phase I
World Vision United States Web Development
Message Boards for 30HF
Message boards, or forums, accumulate visitor posted messages over an
extended period of time. A message board may contain up to 256
conferences, or topics. World Vision can choose to moderate traffic
(review all postings before they go public) on this board if desired;
otherwise, all messages will be posted immediately. A sample message
board can be found at http://forums.christcom.net/webboard/
guest.exe/~1/list. The message boards are incorporated as a CCN member
service.
A forum for the 30 hour famine will be developed. Since the World
Vision Web site will not be launched, the forum will be customized as a
World Vision forum but will be linked to the 30HF site and the CCN
Forums site. DIDAX will provide moderator training for World Vision
personnel for the 30HF forum.
Chat for 30HF
Chat displays user posted messages briefly, in a conversation-like
manner. The DIDAX chat areas contain filtering to minimize offensive
messages. An example can be found at http://www.christcom.net/chat. The
chat feature is incorporated as a CCN member service.
2.1.3 COMMUNICATIONS
Media Resources
A Press Releases page will contain all relevant World Vision Press
Releases.
Magazines: Cover Stories
DIDAX will work with the magazine staff to develop a layout that is
appropriate to present magazine cover stories on the Web. Included in
this section will be subscription information for the magazine.
2.1.4 DEVELOPMENT
Internet Appeal of the Month
A page that will outline a timely or urgent appeal. Included will be
response mechanisms like a special toll-free number, response form,
targeted donation form, e-mail address for questions, etc.
Donor Success Stories
This section will include a page with several donor testimonies and
accounts of the donor-child or donor-project relationship. The section
will include salient photographs, and provisions for visitor action,
such as toll-free numbers or a fill in form to request mailings.
Women of Vision
This section will be composed of about six pages devoted to a
high-level overview of the WOV area. This section of the site will have
some unique design elements to give it a "look" that is pertinent to
it's special audience.
3
<PAGE> 11
Proposal to for Phase I
World Vision United States Web Development
Gift Planning Area
This section will contain from one to four pages devoted to educating
visitors on the basics of Estate Planning and related World Vision
services and opportunities.
2.1.5 DONOR RELATIONS
Customer Support
The pages in this section will concisely summarize all relevant World
Vision phone numbers, postal addresses, and e-mail addresses. There
will also be links to salient pages within the site.
2.1.6 US FIELD OPERATIONS
US Field Operations Overview
This overview section will contain up to five pages devoted to
summarizing US Field Operations at a high level.
What's Going on Near Me? Map
To find out about US Field Operations programs or partnerships taking
place in their state, visitors will be able to select their state from
a graphical or tabular state matrix.
Human Resources
The job openings listing will be a single page listing by category,
with a category index at the top of the page.
2.1.7 WVRD
GIK Overview
This section will devote one page to a high-level overview of GIK,
including examples of recent notable GIK contributions, and
opportunities for feedback to World Vision GIK personnel.
2.2 WEB SITE PROMOTION
DIDAX follows a dual promotion strategy, an external and an internal, to help
organizations effectively raise public awareness of their web site. External
promotion utilizes Internet channels to inform potential visitors of the
existence and features of a site, while internal promotion capitalizes on
traditional marketing vehicles already in use by the organization.
External promotion is broken into indirect and direct means. Indirect promotion
announces the site in a general public area, relying on large traffic volume to
generate significant responses to the marketing placement. Direct promotion
involves targeting specific user groups on the Internet and crafting messages to
attract them to the site. This second method often requires significant
resources, both in terms of personnel and technology. Phase I promotion efforts
are
4
<PAGE> 12
Proposal to for Phase I
World Vision United States Web Development
primarily indirect, allowing for the site development and refreshment
process to mature and stabilize before making more costly, directed promotions.
Phase II involves significant direct marketing tactics, typically highlighting a
particular web site event or theme.
Internal promotion involves a review and analysis of the current methods World
Vision uses to communicate with its existing and potential donor base. Following
this review, DIDAX will provide a list of suggestions on how to publicize the
World Vision site address using these channels. Examples include placing the
site address on all World Vision's business cards, announcing the URL on-air
during radio spots, and modifying the 800-number recording to mention the web
site.
The final piece of the promotion plan is the critical ability to track and
measure the effectiveness both of the plan and the site itself. The Internet
lends itself to active and passive measurements of user interaction. Active
tools include site surveys, "quick polls", and guest book entries while passive
measures include analysis tools which analyze the actions of site visitors via
server log files.
2.2.1 EXTERNAL PROMOTION
DIDAX will perform the following promotion services during Phase I:
- Site submission to the Internet's most popular search engines
- Site submission to general and specialty directories
- Recommendation to award sites and site-of-the-day pages
- Announcements to industry-related mailing lists and newsgroups
- Link exchanges with related sites and indices
- Banner advertisement suggestions for search engines,
directories, and other relevant sites
2.2.2 INTERNAL PROMOTION
Phase I services include:
- Analysis of current World Vision marketing and communication
material/channels
- Recommendations for using these channels to publicize the
World Vision web site
- Guide of internal education and awareness resources
2.2.3 EFFECTIVENESS MEASUREMENTS
Phase I services include:
- Site statistics reporting
- Guest book updates and refinements
- Ongoing site surveys
These services will provide the necessary data to extract information such as:
- Which visitors are current supporters?
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<PAGE> 13
Proposal to for Phase I
World Vision United States Web Development
- What is the visitor's name, e-mail address, and World Vision
affiliation?
- Which pages of the site are the most popular?
- What time of day is the most popular?
- Was there a rise in traffic due to a crisis situation?
Special event or promotion?
- How long is the average visit?
- How often do visitors return?
3.0 COMMERCIAL TERMS
DIDAX estimates a schedule of approximately three months to develop and launch
the Phase I Web site. A project plan with a detailed scheduled will be developed
at the initiation of the Phase I effort. Accomplishing the Phase I development
in accordance with the schedule will be dependent on both DIDAX and World Vision
meeting individual task due dates.
Expenses are affected by compliance with schedule commitments. The estimated
prices below assume that the project proceeds in accordance with the schedule
jointly developed at the beginning of the project.
3.1 PHASE I DEVELOPMENT
DIDAX proposes to assist World Vision with the Phase I Web site on a time and
materials basis. The total estimated price for Phase I assistance is $49,500. As
a time and materials project, World Vision will only be billed for the work
performed. This price includes $39,600 for labor expenses, $4,000 for travel
expenses, $1,400 for community service fees, and $4,500 for other direct, costs
such as postage and communications.
The labor adjustments in the Web Site Applications Matrix discussed in Section
2.0 resulted in a $1,300 increase in the labor price estimate. Direct costs of
$2,500 have been included for contracting a promotion service. There is no
administrative markup for the travel and other direct costs. Invoices will be
submitted monthly for the previous month's expenses and are due and payable upon
receipt by World Vision.
The community service fees are broken down as follows:
- - Search $100 setup fee
- - Guest Book No charge
- - Forums $200 setup fee
- - Chat $200 setup fee
- - Surveys $250 per survey, $200 surcharge for real time results
posting
The search feature will allow visitors to the site to search the entire site for
words or phrases. The community guest book is provided at no charge. Time has
been included in the price estimate to customize the guest book with World
Vision specific questions and features.
6
<PAGE> 14
Proposal to for Phase I
World Vision United States Web Development
Moderator training is provided for the forum and the chat. The forum and chat
are also branded with the World Vision logo.
The total community service fee quoted in the first paragraph of this section
assumes two surveys with real time posting of results to the Web site. For real
time results posting, the surveys are limited to 20 questions and are multiple
choice, single answer questions. If for any survey World Vision does not want to
display results on the Web site, the surcharge would not be applied.
As discussed previously, DIDAX will work closely with World Vision to assure
that the project proceeds according to plan. If at any time DIDAX projects that
the total estimated price will be exceeded by more that 10%, DIDAX will
immediately notify the primary World Vision contact to request direction.
The Phase I development work can be performed as Task Order 2 under the
Professional Services Agreement dated October 17, 1996. Two signed original task
orders are provided in Appendix A. Please return one executed original to DIDAX
after the proposal is accepted by World Vision.
3.2 WEB SITE HOSTING
DIDAX provides cost competitive, corporate quality hosting services. For the
World Vision site, DIDAX recommends the Premium level of service with Domain
Name Service. The features of the Premium Hosting package and a la carte
services are listed below.
Premium Hosting - $175 per month, $200 initial setup
Shared address (e.g. www.christcom.net/yourname/)
RISC based Unix servers
Daily backup
7 day a week x 24 hours a day facility staffing
Ultra high bandwidth connections to the Internet backbone
Substantial uninterruptible power supply
15 megabytes of storage
500 megabytes per month of traffic
FTP account for maintaining site (automatic posting of updates)
Telnet account for maintaining site
Includes weekly traffic reports accessible on a controlled access Web
page
Web promotion on two or more free search engines
One hour per month of technical support by telephone
Unlimited e-mail support
Anonymous FTP download area
CGI access: forms, image maps, perl
Five e-mail accounts for mail or auto responders
A la carte prices
Domain Name Service and Custom Host Name: $22 per month, $115 setup
7
<PAGE> 15
Proposal to for Phase I
World Vision United States Web Development
Includes IP number and registration
InterNIC billing will be directed to customer ($50 per year, 2 years
due initially)
Custom traffic reporting: time and materials basis at DIDAX standard
rates
Additional storage: $1.50 / megabyte
Additional traffic: $1.25 / megabyte
Additional technical support: $75 per hour
Since the domain name www.worldvision.org is already registered for World
Vision, the $115 Domain Name Service setup fee will be waived. In addition,
DIDAX will provide an IP address for www.worldvision.org, which means that the
address will NOT be shared as stated under Premium Hosting. Hosting fees are
invoiced on a quarterly basis.
Two signed copies of the standard DIDAX hosting agreement are provided in
Appendix B. Please date, sign and return to DIDAX one original of the hosting
agreement prior to initial launch of the Web site.
3.3 PROPOSAL EXPIRATION
The prices and this proposal are valid for sixty days from the issue date.
8
<PAGE> 16
APPENDIX A
TASK ORDER NO. 2
<PAGE> 17
TASK ORDER NO. 2
Professional Services Agreement effective as of October 17, 1996 between DIDAX
ON-LINE, L.C. and WORLD VISION UNITED STATES.
SCOPE OF SERVICES:
Reference DIDAX Proposal to World Vision United States dated January
24, 1997 with the following exceptions:
COMPLETION SCHEDULE:
Reference DIDAX Proposal to World Vision United States dated January
24, 1997.
COMPENSATION:
Reference DIDAX Proposal to World Vision United States dated January
24, 1997.
TERMS AND CONDITIONS:
As set forth in the Professional Services Agreement effective as of
October 17, 1996.
DIDAX, INC. WORLD VISION UNITED STATES
By: /s/ Gary Struzik By: [SIGNATURE]
--------------------------------- -------------------------
Title: V.P. FINANCE Title: Director, Accounting & Fin.
Systems
--------------------------------- -------------------------
Date: JANUARY 24,1997 Date: 2-11-97
--------------------------------- -------------------------
<PAGE> 18
APPENDIX B
AGREEMENT
FOR HOSTING DATA ON THE
WORLD WIDE WEB
<PAGE> 19
AGREEMENT FOR HOSTING DATA ON THE WORLD WIDE WEB
This Agreement for hosting data on the World Wide Web is effective this day
of , 1997, ( the "Effective Date") between World Vision United
States, (hereinafter "Customer") and DIDAX, Inc. (hereinafter "DIDAX"), a
Delaware corporation established as a religious organization.
1. TERM AND TERMINATION. This Agreement shall remain in force from the Effective
Date stated above for a period of one year (the "Initial Term"), or until
superseded by a subsequent written agreement executed by both parties. Following
the expiration of the Initial Term, this Agreement shall automatically renew for
additional three (3) month periods ("Renewal Periods") unless either party
terminates this Agreement by providing the other party written notice at least
thirty (30) days prior to the expiration of any Renewal Period.
2. COMMITMENTS. The Customer agrees to provide data, information, and other
content, including any component portions thereof, (hereinafter collectively
"Data") to DIDAX in digital format(s). DIDAX shall provide storage space for
such Data on computer file servers with Internet server capabilities which shall
allow users on the World Wide Web to access this Data ("hosting"). DIDAX shall
use its best efforts to keep to a minimum the amount of time that Customer's
Data is not accessible on the World Wide Web. In consideration for DIDAX'
provision of hosting for Customer's Data, Customer shall pay DIDAX monthly Web
hosting fees in accordance with the attached DIDAX Fee Schedule which may be
updated and provided to Customer by DIDAX from time to time. Customer expressly
recognizes that all Internet users may have access to view Customer's Data, and
that it may be possible for these users to breech security measures and gain
unauthorized access into the server where Customer's Data resides.
3. LICENSES. The Customer grants to DIDAX a worldwide license to upload,
download, copy, transfer, store, host, reformat, provide access to, distribute,
and otherwise use such Data in connection with hosting such Data for access via
the World Wide Web.
4. WARRANTIES. The Customer shall be solely responsible for all Data, including
its accuracy, and DIDAX shall have no responsibility and/or liability for such
Data. Customer represents and warrants 1) that the Customer has full right,
title, and interest sufficient to grant the rights and licenses provided to
DIDAX, 2) that Data provided to DIDAX will not infringe on or violate any
copyright, patent or any other proprietary right of any third party, 3) that
such Data, including any component portions thereof, will not violate any
applicable law, regulation, or third party right, 4) that such Data does not
contain any material that is in any way libelous, defamatory, obscene, indecent,
harmful to minors, pornographic, classified, trade secret, or otherwise
confidential and/or proprietary information of any third party, 5), that such
Data does not contain any information known by Customer to be incorrect or
incomplete, or undocumented code, such as a virus, worm, or "Trojan horse",
designed to disable, erase, or otherwise harm programs, data, or equipment, and
6) that any item(s) sold or advertised in connection with Customer's Data
complies with all local, state, federal, and international safety and labeling
requirements and all other relevant treaties, regulations, ordinances, and the
like.
5. INDEMNITY. Either party will defend, indemnify, save, and hold harmless the
other party and the officers, directors, agents, affiliates, distributors,
franchisees, and employees of the other party from
DIDAX, Inc. Page 1
Hosting Agreement
<PAGE> 20
DIDAX FEE SCHEDULE
FOR WORLD WIDE WEB HOSTING
<TABLE>
<CAPTION>
SERVICE SETUP FEE MONTHLY FEE
<S> <C> <C>
Standard Hosting $ 50 $ 20
Premium Hosting $ 200 $ 175
Corporate Virtual Host $1,000 $ 795
FTP account for maintaining site $ 40 $ 5
FTP/Telnet account for maintaining site $ 80 $ 10
Domain Name Service and Custom Host $ 115 $ 22
Name
Additional storage $1.50 / megabyte
Additional traffic $1.25 / megabyte
Additional technical support $75 per hour
Custom corporate e-mail domain $ 500 $ 20
</TABLE>
DIDAX Inc.
Hosting Agreement Page 3
<PAGE> 21
any and all third party claims, demands, liabilities, costs or expenses,
including reasonable attorneys' fees, resulting from the indemnifying party's
breach of any duty, representation, or warranty of this Agreement, except where
such liabilities result from the gross negligence or knowing and willful
misconduct of the other party. Without limiting the generality of the foregoing,
the Customer will defend, indemnify, save and hold harmless DIDAX against any
liabilities arising out of 1) any injury to person or property caused by any
Data provided to DIDAX by the Customer (including but not limited to any item
sold or advertised in connection with Customer's Data), 2) any defamatory,
libelous or illegal or allegedly defamatory, libelous or illegal Data provided
to DIDAX by the Customer, and 3) any Data infringing or allegedly infringing the
proprietary rights (including but not limited to any intellectual property
rights) of a third party, 4) any claim that any item(s) sold or advertised in
connection with Customer's Data does not comply with all local, state, federal
and international safety and labeling requirements and all other relevant
treaties, regulations, ordinances and the like, 5) any third party claim arising
out of third party access or use of Customer's Data, and 6) any claim by
Customer that Customer's Data was compromised because of a failure to provide
adequate security. Prompt notice of any claim is a condition of the obligation
of indemnity.
6. LIMITATION OF LIABILITY. Customer agrees that DIDAX shall not be liable for
any indirect, special or consequential damages, even if DIDAX has been advised
of the possibility of such damages. DIDAX shall have no liability whatsoever for
any loss or damage to third parties resulting from DIDAX's performance pursuant
to this agreement.
7. DISPUTE RESOLUTION. Both parties desire to avoid dissipating resources on
wasteful litigation and therefore agree to resolve disputes privately by good
faith negotiation where at all possible. Any dispute that the parties cannot
resolve by negotiation shall be submitted to Christian mediation, and if
mediation fails, arbitration under the rules of the Institute for Christian
Conciliation, or any comparable entity agreed upon in writing from time to time
by the parties. Any arbitration award issued by the mediator shall be final,
binding, and enforceable in any court of competent jurisdiction.
8. GOVERNING LAW. This Agreement shall be governed and construed in accordance
with the laws of the State of Virginia.
9. TAXES. All Federal, state or local taxes, if any, levied against the services
furnished by DIDAX pursuant to this Agreement, except for taxes measured by the
income of DIDAX, shall be the sole responsibility and liability of Customer.
10. ENTIRE AGREEMENT. This Agreement sets forth the complete agreement between
the parties as it relates to providing World Wide Web hosting for Customer Data.
No other agreement, whether verbal or written, is expressed or implied.
WORLD VISION UNITED STATES DIDAX, INC.
By: By: /s/ Gary Stuzik
----------------------- -------------------
Title: Title: V.P. Finance
--------------------- ----------------
Date: Date: January 24, 1997
--------------------- -----------------
DIDAX, Inc.
Hosting Agreement
<PAGE> 1
DIDAX ON-LINE, L.C.
COMPUTATION OF EARNINGS PER SHARE
3/31/96
<TABLE>
<CAPTION>
PRIMARY EARNINGS PER SHARE: THREE MONTHS ENDED MARCH 31, 1996 04/01/96
Common Exercise Assumed Estimated Assumed Net Shares Grant/Purch. Days Weighted
Shares Price Proceeds IPO Price Treas. Stk. Added Date Outstanding Shares
------ ----- -------- --------- ----------- ----- ---- ----------- ------
<S> <C> <C> <C> <C>
Common Stock
Assumed issued and outstanding - beginning of period 852,193 01/01/96 91 77,549,563
Stock sold during the year:
Napier, Thomas 2,500 01/23/96 69 172,500
Macres 10,000 01/24/96 68 680,000
Grace 1,000 01/26/96 66 66,000
Napier, David 2,500 02/13/96 48 120,000
Allgauer 6,250 02/14/96 47 293,750
Howard 2,500 02/15/96 46 115,000
Rabil 2,500 02/15/96 46 115,000
Deslaurier 5,000 02/16/96 45 225,000
Rafferty 5,000 02/16/96 45 225,000
Madsen 35,000 02/16/96 45 1,575,000
Monahan 10,000 02/20/96 41 410,000
Turner, Mark 7,000 02/21/96 40 280,000
Turner, Robert 12,500 02/21/96 40 500,000
Caito 3,750 02/22/96 39 146,250
DiBiasio 25,000 02/22/96 39 975,000
McMenamin 4,850 02/22/96 39 189,150
Turkekul 2,500 02/22/96 39 97,500
Mitchell 6,250 02/23/96 38 237,500
Hirsh 12,500 02/23/96 38 475,000
Richard Yetman Family 6,250 02/26/96 35 218,750
Lesher & Russell Inc 50,000 02/26/96 35 1,750,000
Crisp 1,250 02/27/96 34 42,500
Burlingame 2,500 02/27/96 34 85,000
Prime 5,500 02/27/96 34 187,000
Schuler 2,500 02/28/96 33 82,500
Hulen 10,000 02/28/96 33 330,000
Wirth 1,000 03/01/96 31 31,000
Spencer, Douglas 2,500 03/01/96 31 77,500
Spencer, Christopher 12,500 03/01/96 31 387,500
Cappello 10,000 03/01/96 31 310,000
Harding 3,000 03/04/96 28 84,000
Harper 8,333 03/05/96 27 224,991
Merrick 15,000 03/05/96 27 405,000
Russell, Randy 10,000 03/11/96 21 210,000
Varney 6,250 03/15/96 17 106,250
Napier, David 5,000 03/20/96 12 60,000
----------
89,039,204
91
----------
<CAPTION>
<S> <C> <C> <C>
End of period 03/31/96 Weighted average share outstanding 978,453
Net loss (529,737)
----------
Net loss per share ($0.54)
==========
</TABLE>
<PAGE> 2
DIDAX ON-LINE, L.C.
COMPUTATION OF EARNINGS PER SHARE
3/31/97
<TABLE>
<CAPTION>
PRIMARY EARNINGS PER SHARE: THREE MONTHS ENDED MARCH 31, 1997 04/01/97
Common Exercise Assumed Estimated Assumed Net Shares Grant/Purch. Days Weighted
Shares Price Proceeds IPO Price Treas. Stk. Added Date Outstanding Shares
------ ----- -------- --------- ----------- ----- ---- ----------- ------
<S> <C> <C> <C> <C>
Common Stock
Assumed issued and outstanding - beginning of period 1,160,376 01/01/97 90 104,433,840
Stock sold during the year:
Grant/Exercise of warrants:
Assumed issued and outstanding - beginning of period 46,962 01/01/97 90 4,226,580
Duncan 2000 $5.00 $10,000 $5.00 2000 0 03/03/97 29 0
Bone 20000 $5.00 $100,000 $5.00 20000 0 03/10/97 22 0
-----------
108,660,420
90
-----------
<CAPTION>
<S> <C> <C> <C>
End of period 03/31/97 Weighted average share outstanding 1,207,338
Net loss (470,578)
-----------
Net loss per share ($0.39)
===========
</TABLE>
<PAGE> 3
DIDAX ON-LINE, L.C.
COMPUTATION OF EARNINGS PER SHARE
31-Dec-95
<TABLE>
<CAPTION>
PRIMARY EARNINGS PER SHARE: TWELVE MONTHS ENDED DECEMBER 31, 1995 01/01/96
Common Exercise Assumed Estimated Assumed Net Shares Grant/Purch. Days Weighted
Shares Price Proceeds IPO Price Treas. Stk. Added Date Outstanding Shares
------ ----- -------- --------- ----------- ----- ---- ----------- ------
<S> <C> <C> <C> <C>
Common Stock
Assumed issued and outstanding - beginning of period 366,193 01/01/95 365 133,660,445
Stock sold during
the year:
Edgington 25,000 01/04/95 362 9,050,000
DiBiasio 12,500 02/13/95 322 4,025,000
Edgington 12,500 03/07/95 300 3,750,000
Webb 25,000 05/15/95 231 5,775,000
Edgington 50,000 06/10/95 205 10,250,000
Edgington 100,000 07/27/95 158 15,800,000
Turner, Robert 50,000 08/29/95 125 6,250,000
Turner, Mark 25,000 08/29/95 125 3,125,000
Williams 25,000 09/01/95 122 3,050,000
Varney 1,000 09/05/95 118 118,000
Cappello 5,000 09/08/95 115 575,000
Edgington 25,000 09/12/95 111 2,775,000
Hirsh 75,000 09/12/95 111 8,325,000
Napier 5,000 10/05/95 88 440,000
Pensco 50,000 10/12/95 81 4,050,000
--------- -----------
852,193 211,018,445
========= 365
-----------
<CAPTION>
<S> <C> <C> <C>
End of period 12/31/95 Weighted average share outstanding 578,133
Net loss (706,564)
-----------
Net loss per share ($1.22)
===========
</TABLE>
<PAGE> 4
DIDAX ON-LINE, L.C.
COMPUTATION OF EARNINGS PER SHARE
31-Dec-96
<TABLE>
<CAPTION>
PRIMARY EARNINGS PER SHARE: TWELVE MONTHS ENDED DECEMBER 31, 1996 01/01/97
Common Exercise Assumed Estimated Assumed Net Shares Grant/Purch. Days Weighted
Shares Price Proceeds IPO Price Treas. Stk. Added Date Outstanding Shares
------ ----- -------- --------- ----------- ----- ---- ----------- ------
<S> <C> <C> <C> <C>
Common Stock
Assumed issued and outstanding - beginning of period 852,193 01/01/96 366 311,902,638
Stock sold
during the year:
Napier, Thomas 2,500 01/23/96 344 860,000
Macres 10,000 01/24/96 343 3,430,000
Grace 1,000 01/26/96 341 341,000
Napier, David 2,500 02/13/96 323 807,500
Allgauer 6,250 02/14/96 322 2,012,500
Howard 2,500 02/15/96 321 802,500
Rabil 2,500 02/15/96 321 802,500
Deslaurier 5,000 02/16/96 320 1,600,000
Rafferty 5,000 02/16/96 320 1,600,000
Madsen 35,000 02/16/96 320 11,200,000
Monahan 10,000 02/20/96 316 3,160,000
Turner, Mark 7,000 02/21/96 315 2,205,000
Turner, Robert 12,500 02/21/96 315 3,937,500
Caito 3,750 02/22/96 314 1,177,500
DiBiasio 25,000 02/22/96 314 7,850,000
McMenamin 4,850 02/22/96 314 1,522,900
Turkekul 2,500 02/22/96 314 785,000
Mitchell 6,250 02/23/96 313 1,956,250
Hirsh 12,500 02/23/96 313 3,912,500
Richard Yetman Family 6,250 02/26/96 310 1,937,500
Lesher & Russell Inc 50,000 02/26/96 310 15,500,000
Crisp 1,250 02/27/96 309 386,250
Burlingame 2,500 02/27/96 309 772,500
Prime 5,500 02/27/96 309 1,699,500
Schuler 2,500 02/28/96 308 770,000
Hulen 10,000 02/28/96 308 3,080,000
Wirth 1,000 03/01/96 306 306,000
Spencer, Douglas 2,500 03/01/96 306 765,000
Spencer, Christopher 12,500 03/01/96 306 3,825,000
Cappello 10,000 03/01/96 306 3,060,000
Harding 3,000 03/04/96 303 909,000
Harper 8,333 03/05/96 302 2,516,566
Merrick 15,000 03/05/96 302 4,530,000
Russell, Randy 10,000 03/11/96 296 2,960,000
Varney 6,250 03/15/96 292 1,825,000
Napier, David 5,000 03/20/96 287 1,435,000
----------
1,160,376
==========
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Grant/Exercise of
warrants:
Edgington 2500 $4.00 $10,000 $5.00 2000 500 06/30/96 185 92,500
Kennedy 2019 $4.00 $8,076 $5.00 1615 404 06/30/96 185 74,703
West 750 $4.00 $3,000 $5.00 600 150 06/30/96 185 27,750
Clark 2750 $4.00 $11,000 $5.00 2200 550 06/30/96 185 101,750
Walker 2750 $4.00 $11,000 $5.00 2200 550 06/30/96 185 101,750
CTi 5000 $4.00 $20,000 $5.00 4000 1,000 06/30/96 185 185,000
Parriah 250 $4.00 $1,000 $5.00 200 50 08/16/96 138 6,900
Avery 2000 $4.00 $8,000 $5.00 1600 400 08/16/96 138 55,200
Detachable Warrants 150379 $4.00 $601,516 $5.00 120303 30,076 08/16/96 138 4,150,460
West 171312 $5.00 $856,560 $5.00 171312 0 09/30/96 93 0
Bowers 164312 $5.00 $821,560 $5.00 164312 0 09/30/96 93 0
Varney 145312 $5.00 $726,560 $5.00 145312 0 09/30/96 93 0
Edgington 160314 $5.00 $801,570 $5.00 160314 0 09/30/96 93 0
Struzik 71250 $5.00 $356,250 $5.00 71250 0 09/30/96 93 0
Kennedy 2019 $4.00 $8,076 $5.00 1615 404 09/30/96 93 37,553
West 750 $4.00 $3,000 $5.00 600 150 09/30/96 93 13,950
West 5191 $4.00 $20,764 $5.00 4153 1,038 12/31/96 1 1,038
Bowers 10385 $4.00 $41,540 $5.00 8308 2,077 12/31/96 1 2,077
Varney 17524 $4.00 $70,096 $5.00 14019 3,505 12/31/96 1 3,505
Sedimeyer 446 $4.00 $1,784 $5.00 357 89 12/31/96 1 89
Swearingan 1600 $4.00 $6,400 $5.00 1280 320 12/31/96 1 320
Kennedy 1013 $4.00 $4,052 $5.00 810 203 12/31/96 1 203
Kirsh 1066 $4.00 $4,264 $5.00 853 213 12/31/96 1 213
Cerutti 2263 $4.00 $9,052 $5.00 1810 453 12/31/96 1 453
Beasley 965 $4.00 $3,860 $5.00 772 193 12/31/96 1 193
Simpson 1095 $4.00 $4,380 $5.00 876 219 12/31/96 1 219
Michalaki 888 $4.00 $3,552 $5.00 710 178 12/31/96 1 178
Byera 1350 $4.00 $5,400 $5.00 1080 270 12/31/96 1 270
Baldi 1830 $4.00 $7,320 $5.00 1464 366 12/31/96 1 366
Struzik 6331 $4.00 $25,324 $5.00 5065 1,266 12/31/96 1 1,266
Smith 1278 $4.00 $5,112 $5.00 1022 256 12/31/96 1 256
Bruce 1930 $4.00 $7,720 $5.00 1544 386 12/31/96 1 386
Hicks 788 $4.00 $3,152 $5.00 630 158 12/31/96 1 158
New 2091 $4.00 $8,364 $5.00 1673 418 12/31/96 1 418
Mitchell 2600 $4.00 $10,400 $5.00 2080 520 12/31/96 1 520
Larson 100 $4.00 $400 $5.00 80 20 12/31/96 1 20
Minter 2808 $4.00 $11,232 $5.00 2246 562 12/31/96 1 562
Avery 100 $4.00 $400 $5.00 80 20 12/31/96 1 20
----------- -----------
46,962 413,002,849
=========== 366
-----------
<CAPTION>
<S> <C> <C> <C>
End of period 12/31/96 Weighted average share outstanding 1,128,423
Net loss (2,464,904)
-----------
Net loss per share ($2.18)
===========
</TABLE>
<PAGE> 1
EXHIBIT 23.2
Consent of Hoffman, Morrison & Fitzgerald, P.C., Independent Auditors
We hereby consent to the use in this Registration Statement on Form SB-2 of our
report included herein dated January 30, 1997, relating to the combined
financial statements of DIDAX ON-LINE, L.C. AND AFFILIATE and to the reference
to our Firm under the caption "Experts" in the Prospectus.
HOFFMAN, MORRISON & FITZGERALD, P.C.
McLean, VA
April 22, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 DEC-31-1996
<CASH> 768437 1932
<SECURITIES> 0 0
<RECEIVABLES> 89370 46450
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 906586 98549
<PP&E> 241835 248342
<DEPRECIATION> 90558 81419
<TOTAL-ASSETS> 1195633 282274
<CURRENT-LIABILITIES> 882997 1199060
<BONDS> 1700000 0
0 0
0 0
<COMMON> 2472256 2472256
<OTHER-SE> 111187 111187
<TOTAL-LIABILITY-AND-EQUITY> 1195633 282274
<SALES> 1461 8834
<TOTAL-REVENUES> 92737 180776
<CGS> 1242 5932
<TOTAL-COSTS> 42518 220288
<OTHER-EXPENSES> 484631 2356897
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 44326 77815
<INCOME-PRETAX> (470578) (2464904)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (470578) (2464904)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (470578) (2464904)
<EPS-PRIMARY> (.39) (2.18)
<EPS-DILUTED> (.39) (2.18)
</TABLE>
