<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 17, 1997
REGISTRATION NO. 333-25937
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DIDAX INC.
(Name of small business issuer in its charter)
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<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:
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<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)
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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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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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(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 Company, 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(SM), 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 or persons related 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 anti-dilution 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 or persons related 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 anti-dilution 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.
* All of which has been previously paid.
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 JUNE 17, 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") may be purchased separately and 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 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(SM) ("Nasdaq SmallCap"), 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, Inc. (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 Company has applied to have the Common Stock
and the Purchase Warrants listed on Nasdaq SmallCap 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 [6] AND [20].
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.
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PRICE TO PROCEEDS TO
PUBLIC UNDERWRITING DISCOUNT(1) COMPANY(2)
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Per Share...................................... $5.00 $.50 $4.50
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Per Warrant.................................... $.125 $.0125 $.1125
------------------------------------------------------
Total(3)....................................... $10,250,000 $1,025,000 $9,225,000
- --------------------------------------------------------------------------------------------------------
</TABLE>
See footnotes on the following page
------------------------
[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."
[Diagram illustrating the Company's CCN network system.]
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 SmallCap. 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 The Nasdaq Stock Market, Inc., 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 SMALLCAP
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 may be purchased separately and 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 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
under the Securities Act of 1933, as amended
("Securities Act") 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 SmallCap, 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 exercised in full) will be used for
product development and approxi-
4
<PAGE> 7
mately $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
PROPOSED NASDAQ SMALLCAP
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 1,749,733 shares, including options (the "Officer Note Options")
to acquire an aggregate of 133,751 shares of Common Stock, which options are
issuable to a director and an officer 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 SmallCap 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 $3,900,000. 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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<PAGE> 9
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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<PAGE> 10
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. Computer viruses
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."
SIGNIFICANT FLEXIBILITY IN APPLYING NET PROCEEDS INCLUDING UNSPECIFIED
ACQUISITIONS
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 and approximately 30%
($2,567,500) of the Net Proceeds of the Offering for working capital, 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. Working capital will be allocated in
the judgment of the Board of Directors. 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
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<PAGE> 11
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."
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 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.
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<PAGE> 12
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 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."
PROCEEDS TO REPAY INDEBTEDNESS; BENEFITS TO AFFILIATES
The Company will use a portion of the Net Proceeds of this Offering to
repay (i) $623,000 principal amount of the Officer Notes, including interest
payable thereon, of which $201,000 (approximately 2.3% of the Net Proceeds of
this Offering) is payable to Robert C. Varney Ph.D., the Chairman of the Board
of Directors and Chief Executive Officer of the Company and $422,000
(approximately 4.9% of the Net Proceeds of this Offering) is payable to Bruce E.
Edgington, a director of the Company; and (ii) $1,700,000 principal amount of
non-interest bearing Junior Notes, including $300,000 (approximately 3.5% of the
Net Proceeds of this Offering), payable to John J. Meindl Jr., a director of the
Company. See "USE OF PROCEEDS" and "MANAGEMENT."
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<PAGE> 13
IMMEDIATE AND SUBSTANTIAL DILUTION
New investors will incur an immediate and substantial dilution of
approximately $3.22 per share (64.4%) (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 and Common Stock subject to rescission is rescinded; if not
rescinded, dilution is approximately $3.02 per share representing 60.4% of the
public offering price of the shares) 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 to the Company services and products consisting of Internet
access, networking, filtering, hosting, radio and chat technology, market
research and transaction processing capability.
The following table provides information pertinent to the material
relationships:
<TABLE>
<CAPTION>
NAME SERVICE PROVIDED TERM CONSIDERATION
- -------------- ------------------------- -------------------- ---------------------------------
<S> <C> <C> <C>
digitalNATION Hosting Two contracts, one Company pays quarterly fixed rate
through November
1997, the other to
March 1998,
thereafter month
through month
netradio Software infrastructure Exclusive for Company paid one time license
for Internet radio, audio Christian format fee; shares advertising revenue
archiving and simulcast through June 1999, in 20% to 50% range based on
with renewable one- extent of exposure of advertising
year terms spot relative to netradio cost
for providing spot; other
services paid for on a quotation
case-by-case basis
ichat Chat technology Annual renewal Company pays annual license fee
Cybercash Internet secure Month to month Company pays fee per transaction
transaction capability
Spring Arbor Fulfillment of retail Through September Company pays wholesale cost of
sales from the Company's 1998 the product plus a shipping cost
Internet bookstore per transaction
Intermind Internet publishing Cancellable with Company receives commission for
software ninety day notice introducing Intermind to other
users
</TABLE>
The average amount expended by the Company monthly in connection with these
relationships is between $4,000 and $10,000.
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 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 June
30, 1999. 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
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<PAGE> 14
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."
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
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<PAGE> 15
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. Article XIII of the Company's Bylaws
cannot be amended or superseded except by a super majority vote of the Company's
stockholders at a meeting. See "PROPOSED BUSINESS -- Christian Statement of
Faith; the Company's Policy" and "LEGAL MATTERS."
INTENDED USE OF NET PROFITS
The Company intends generally to act in accordance with the policy, stated
in Article XIII of its Bylaws, that, to the extent permitted by law, the Company
will expend approximately 10% of the amount that would otherwise be the net
profits of the Company, if any, for each accounting period, or such other sums
as are deemed prudent by the Board of Directors of the Company, "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 . . .
without regard to the tax status or nonprofit status of the recipient." Article
XIII cannot be amended or superseded except by a super majority vote of the
Company's stockholders at a meeting. Accordingly, there can be no assurance that
the financial condition and results of operations of the Company will not be
adversely affected by these expenditures. 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 closed between December 1994 and April
1996 at a per share price ranging from $1.66 to $4.00, 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. 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 84% 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 Waivers and bring an action for rescission within the
applicable limitations period, which amount would be paid from the Net Proceeds
of this Offering. If the Waivers are not deemed valid, the Company could be
obligated to refund up to $1,788,399 in connection with the rescission. As of
the date of this Prospectus, the Company has not been made aware of the
institution by any state, federal or regulatory authority of any proceeding
against the Company for securities laws violations. The Company's financial
statements do not include a reserve for any amounts the Company may be required
to deliver in connection with a rescission of the prior offerings. The 607,433
shares subject to possible rescission, however, are reflected in the Company's
balance sheets as Common Stock Subject to Possible Rescission.
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
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<PAGE> 16
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."
SHARES ELIGIBLE FOR FUTURE SALE
All of the 3,292,321 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
1,749,733 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 at least 18 months (and, in the case of the holders of Junior Notes, 24
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."
CONTROL BY OFFICERS
Upon the Closing, the directors and officers of the Company will own
beneficially 919,650 shares of Common Stock, or approximately 23.3% of the
Company's then outstanding shares of Common Stock, and will have the right to
acquire 884,500 additional shares more than 60 days after the Effective Date
pursuant to outstanding stock options. By virtue of this ownership, such
directors and officers may be in a position to have a significant impact on the
outcome of substantially all matters on which shareholders are entitled to vote,
including the election of directors. See "PRINCIPAL STOCKHOLDERS" and
"DESCRIPTION OF SECURITIES."
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.
14
<PAGE> 17
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 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 SMALLCAP ELIGIBILITY AND MAINTENANCE; POSSIBLE DELISTING OF SECURITIES
FROM NASDAQ SMALLCAP
Under the current rules relating to the listing of securities on Nasdaq
SmallCap, 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,
among other requirements. 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.
Under the proposed listing criteria for Nasdaq SmallCap, a company must
have (a) at least $4,000,000 in net tangible assets, or $750,000 in net income
in two of the last three years, or a market capitalization of at least
$50,000,000, (b) public float of at least 1,000,000 shares, (c) market value of
public float of at least $5,000,000, and (d) a minimum bid price of $4.00 per
share, among other requirements. For continued listing under the proposed
criteria, a company must maintain (a) at least $2,000,000 in net tangible
assets, or $500,000 in net income in two of the last three years, or a market
capitalization of at least $35,000,000, (b) public float of at least 500,000
shares, (c) market value of public float of at least $1,000,000, and (d) a
minimum bid price of $1.00 per share; among other requirements.
The Common Stock and the Purchase Warrants (the "Listed Securities") are
expected to be eligible for initial listing on Nasdaq SmallCap under both the
current and proposed rules upon the Closing. If at any time after issuance the
Common Stock and Purchase Warrants are not listed on Nasdaq SmallCap, 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 SmallCap. 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
SmallCap 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 AND PENNY STOCK
If the Listed Securities were delisted from Nasdaq SmallCap, 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
15
<PAGE> 18
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 SmallCap, 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 SmallCap, 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. 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."
16
<PAGE> 19
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 held by Robert C. Varney, Ph.D., the Chairman of the Board of
Directors, Chief Executive Officer and a director and Bruce E. Edgington, a
director of the Company, including interest payable thereon; and (ii) the
satisfaction of $1,700,000 principal amount of the Junior Notes. 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 47,570 shares and 86,181 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 Company will also recognize interest expense of
approximately $15,000 relating to the notes payable and $42,000 of
amortization of the discount (which represents an effective rate of interest
of 17.8 percent) accrued for the period March 31, 1997 to the time of the
repayment of the Officer Notes.
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. At
that time the Company will also record a $1,700,000 interest expense for the
use of these funds, representing an effective rate of interest of
approximately 200%. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION."
(4) Includes payment of salaries to executive officers of $360,000 per annum
over the next two years. See "MANAGEMENT -- Employment Agreements,
Termination of Employment and Change-in-Control Arrangements."
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 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.
17
<PAGE> 20
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.
18
<PAGE> 21
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; (iii) the repayment of the
Officer Notes and (iv) the issuance of 2,212 shares of Common Stock to a
consultant in lieu of a cash payment and the donation of 40,000 shares of Common
Stock to Promise Keepers. 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 --
Common Stock Subject to Possible Rescission, $.01 par value,
607,433 shares issued......................................... 1,788,399 1,788,399
Stockholders Equity
(Net Capital Deficiency):
Common Stock, $.01 par value, 20,000,000 shares authorized,
552,943 shares issued and 2,935,155 shares issued (pro forma
as adjusted)(1)............................................... $ 5,530 29,352
Additional paid-in capital...................................... 673,327 11,254,255
Common Stock Warrants........................................... 111,187 --
Accumulated Deficit(2).......................................... (3,970,807) (6,071,414)
----------- -----------
Total stockholders' equity (net capital deficiency)........ $(3,175,763) $ 5,212,193
</TABLE>
- ---------------
(1) Excludes (i) 1,749,733 shares of Common Stock issuable upon exercise of
Outstanding Stock Options (including the Officer Note Options) of which
options to purchase 672,886 shares are currently exercisable, including
options to acquire 30,000 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."
(2) The difference between As Adjusted and Outstanding consists of (i) a
$1,700,000 interest expense associated with the Junior Notes to be repaid at
the Closing; (ii) Common Stock with a market value of $200,000 donated to
Promise Keepers; (iii) $132,407 of private placement costs to be expensed in
connection with the payment at the Closing of the Officer Notes and the
Junior Notes; (iv) $42,000 remaining amortization of the discount for
proceeds allocated to the Officer Note Options and $15,138 for related
interest expense; and (v) Common Stock with a market value of $11,062 paid
to a consultant in lieu of cash compensation.
19
<PAGE> 22
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
$(3,175,763) or approximately $(5.74) per share of Common Stock of the Company
(based upon 552,943 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 donation of 40,000 shares of Common
Stock to Promise Keepers, and the Company's issuance of 2,212 shares of Common
Stock to a consultant in consideration for services rendered, the pro forma net
tangible book value of the Company at March 31, 1997 would have been $5,212,193
or approximately $1.78 per share, representing an immediate increase in net
tangible book value of $8,387,956 or $7.52 per share to existing stockholders
and an immediate dilution of $3.22 per share to new investors (which represents
64.4% 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(1):
<TABLE>
<S> <C> <C>
Initial public offering price per Share............................. $5.00
Net tangible book value per share of Common Stock, before this
Offering.......................................................... $(5.74)
Increase per share of Common Stock attributable to payment
by new investors.................................................. 7.52
------
Pro forma adjusted net tangible book value per share of Common Stock
after this Offering............................................... 1.78
-----
Net tangible book value dilution to new investors per Share of
Common Stock...................................................... 3.22
=====
</TABLE>
- ---------------
(1) If the Common Stock subject to rescission was included in the dilution
calculation, the net tangible book value of the Company would be
$(1,387,364) or approximately $(1.15) per share and pro forma net tangible
book value would be $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.)
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
20
<PAGE> 23
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 $10,591,277 and the percentage of outstanding Common Stock
owned by new investors would decrease to 84.0%. 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.
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
21
<PAGE> 24
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."
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, which were recognized ratably over the period that
such services were provided, $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
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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,
which were recognized ratably over the period that such services were provided,
$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.
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.
With regard to the equity securities, in December 1996, the Company
solicited waivers from fifty investors, of rescission rights 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 affiliated
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from liability associated with such possible breaches of the law (the
"Waivers"). Shareholders representing approximately 84% 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 and bring an action for rescission within the
applicable limitations period. If the Waivers are not deemed valid, the possible
rescission totals $1,788,399. The Company's financial statements do not include
a reserve for any amounts the Company may be required to deliver in connection
with a rescission of the prior offerings, however the 607,433 shares subject to
possible rescission are reflected in the Company's balance sheets as Common
Stock Subject to Possible Rescission. See "FINANCIAL STATEMENTS."
The Officer Notes consist of four promissory notes aggregating $623,000
principal amount of debt owed by the Company to Robert C. Varney, Ph.D.
($201,000) and Mr. Bruce E. 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 47,570 shares and 86,181 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 Company will also recognize interest expense of approximately $15,000
relating to the notes payable and $42,000 of amortization of the discount (which
represents an effective rate of interest of 17.8 percent) accrued for the period
March 31, 1997 to the time of the repayment of the Officer Notes.
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. At that time, the Company will also record a $1,700,000
interest expense for the use of these funds, representing an effective rate of
interest of approximately 200%.
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.
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 increases in salaries for executive officers totaling at a minimum
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$14,000 and at a maximum $24,000 per month if the Company achieves certain
revenues, 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.
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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
"-- Strategic Relationships" and "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 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
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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 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
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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 material revenue from sales of
advertising on CCN. See "-- The DIDAX Plan."
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
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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.
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.
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STRATEGIC ALLIANCES
The most significant sources of the Company's revenues to date have been
derived from the Company providing website development and other technology
consulting services to Promise Keepers and World Vision. The consulting services
that the Company provides to these ministries are labor intensive and are billed
at hourly rates along with other direct costs. From March 1996 through March
1997 payments to the Company by Promise Keepers totalled $74,500. The monthly
amounts paid ranged from $2,000 to $10,000. The first $250,000 of services
rendered by the Company to Promise Keepers in 1995 were completed at no charge.
In addition, from March 1996 through March 1997, the Company has provided
internal system maintenance, software and certain web development services
amounting to $211,000 at no charge. The Company has also donated to Promise
Keepers 40,000 shares of the Company's Common Stock. After June 15, 1997, the
contract between the Company and Promise Keepers is cancellable by either party
without cause upon 60 days prior notice. The services provided to World Vision
in creating www.worldvision.org continue under a one year cancellable contract
which expires in October of 1997. Contract inception through March 1997, the
total payments to the Company by World Vision were $33,200, consisting of a one
time charge of $12,000 for consulting and two monthly billings of approximately
$10,000 each. For a discussion of the Company's material relationships with
vendors, see "RISK FACTORS -- Dependence on Strategic Relationships."
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 believes that it currently competes favorably with
respect to such factors, there can be no assurance that the
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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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<PAGE> 34
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
32
<PAGE> 35
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.
33
<PAGE> 36
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, 11 engineering
employees, four marketing and sales employees, four editors and two
administration employees. The employees are not represented by a labor union,
and no work stoppages have occurred.
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.
34
<PAGE> 37
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
William Russell 'Max' Carey, Jr. 49 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 Pennsylvania 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.
35
<PAGE> 38
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 Lemon & Co., a securities broker-dealer, where his
responsibilities include the management of retail securities accounts and
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.
WILLIAM RUSSELL 'MAX' CAREY, JR. has been a director of the Company since
June 1997. Since 1981, he has been Chairman and Chief Executive Officer of
Corporate Resource Development Inc., a sales and marketing consulting and
training firm based in Atlanta. He currently is also a member of the Board of
Directors of Outback Steakhouse, Inc., a restaurant franchiser and ROMAC
International, a leading specialty staffing services firm, both public
companies.
Each director serves until the next annual meeting of stockholders and the
election and qualification of their successors. In February 1997, the Company
agreed that an advisor to the Company's Board of Directors appointed by the
Representative would be invited to attend all meetings of the Board of
Directors. Executive officers are elected by the Board of Directors annually and
serve at the discretion of the Board.
36
<PAGE> 39
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In June 1997 the Company entered into employment agreements, to be
effective as of the date of the Closing, with Robert C. Varney, Ph.D., Dane B.
West, William H. Bowers, and Gary A. Struzik for terms expiring on June 30, 1999
for Dr. Varney and Messrs. West and Bowers and on June 30, 1998 for Mr. Struzik.
The employment agreements provide annual base salaries of $90,000 for each of
them, with increases up to a maximum salary of $130,000, $120,000, $120,000 and
$110,000 for Dr. Varney and Messrs. West, Bowers and Struzik, respectively, if
the Company achieves one or more performance thresholds contemplated to be
determined by the Board of Directors not later than January 1, 1998. If at any
time during the term of his employment agreement, a change in ownership of more
than 33% of the outstanding voting shares of the Company occurs, or within two
years after a transaction involving the Company or a contested election of a
director, or a tender or exchange offer for voting securities of the Company,
the individuals who were directors of the Company immediately prior thereto
cease to constitute a majority of the Company's Board of Directors, ("Change in
Control"), then employee has the option to terminate his employment agreement
(the "Change in Control Termination"). In the event of a Change in Control
Termination, the Company is obligated to pay to the employee a lump sum equal to
24 times the compensation (base salary plus bonus) paid to such employee for the
month prior to the Change in Control. Further, pursuant to the employment
agreements, each of Dr. Varney and Messrs. West, Bowers, and Struzik have
agreed, during the term of his respective employment with the Company and for
six months after his voluntary withdrawal from employment with the Company or
the Company's termination of his employment for cause, not to compete with the
Company wherever the Company has revenue-producing customers or activities, and
for one year after his voluntary withdrawal from employment with the Company or
the Company's termination of his employment for cause not to interfere with the
Company's relationships with its stockholders, lenders, directors, officers,
employees, agents, lessors or other persons that have had a business
relationship with the Company within 12 months before the incident in question
(or within six months, in the case of employment of the Company's agent or
employee), except in the event of a Change in Control Termination.
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 then current monthly compensation (base salary plus
bonus) for a minimum of 18 months, or the number of months remaining in the term
of his employment under the agreement, whichever is greater, and all applicable
allowances and reimbursements to the date of termination and in Dr. Varney's
case, he shall be entitled to receive accident and health insurance for himself
and his family until his death subject to Dr. Varney's eligibility to receive
such insurance coverage from another employer.
In addition to their employment agreements, executive officers of the
Company may participate in the Option Plan. Other than the Option Plan, as
defined below, 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 $100,000 during any of the fiscal years 1994, 1995 and 1996. The
following Summary Compensation Table sets forth all
37
<PAGE> 40
compensation awarded to, earned by or paid for services rendered to the Company
in all capacities during 1996 by the Company's Chief Executive Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
ANNUAL COMPENSATION ------------
----------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
COMPENSATION OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) SARS(#)(2) ($)(3)
- ------------------------------- ----- --------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert C. Varney, Ph.D., 1996 38,203 0 4,271 162,839 140
Chairman of the Board of
Directors
and Chief Executive Officer
</TABLE>
- ---------------
(1) Other Annual Compensation represents medical insurance premiums paid by the
Company for Dr. Varney.
(2) See "OPTION GRANTS IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES."
(3) All Other Compensation represents term life insurance premiums paid by the
Company for Dr. Varney.
The following table sets forth information concerning stock option grants
made during 1996 to the executive officer of the Company named in the Summary
Compensation Table, and the fiscal year-end value of unexercised options. No
options were exercised during 1996 by Dr. Varney.
OPTION GRANTS IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE
OPTIONS IN FISCAL OR BASE PRICE
NAME GRANTED(1)(3) YEAR PER SHARE ($/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 1,749,733 shares of the Company's
Common Stock will have been granted and will be outstanding under the Option
Plan of which options to purchase 672,886 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
38
<PAGE> 41
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 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 222,000 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.
39
<PAGE> 42
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% 333,681 (5) 9.2%
7857 Heritage Drive
Annandale, VA 22003
Robert C. Varney, Ph.D. 171,924 (6) 12.7% 219,494 (7) 5.9%
4501 Daly Drive
Chantilly, VA 20151
Dane B. West 130,032 (8) 10.5% 130,032 (8) 3.6%
4501 Daly Drive
Chantilly, VA 20151
William H. Bowers 124,417 (9) 10.2% 124,417 (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
Max Carey -- -- 5,000 (18) .1%
665 River Knoll Drive
Marietta, GA 30067
All officers and directors 700,899 50.3% 919,650 23.3%
as a group (10 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.
40
<PAGE> 43
(2) Based upon 1,202,588 shares of Common Stock outstanding as of the date
hereof.
(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 91,181 shares of Common Stock issuable to Mr. Edgington upon
exercise of stock options exercisable at the Closing of the Offering.
(6) Includes 149,674 shares of Common Stock issuable to Dr. Varney upon
exercise of currently exercisable stock options.
(7) Includes 197,244 shares of Common Stock issuable to Dr. Varney upon
exercise of stock options exercisable at the Closing of the Offering.
(8) Includes 40,031 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 19,225 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.
(18) Represents 5,000 shares of Common Stock issuable to Mr. Carey upon exercise
of stock options exercisable at the Closing of the Offering.
CERTAIN TRANSACTIONS
During 1996, Mr. Edgington and Dr. Varney advanced $212,000 to the Company
to cover operating costs for certain periods, which advances bear interest in
the amount of 9.75% and were repaid from the proceeds of the Company's most
recent private placement offering closed in February 1997.
For a description of the Officer Notes issued during the second half of
1996 to Mr. Edgington and Dr. Varney and the Junior Note issued to Mr. Meindl,
see "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION."
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.
41
<PAGE> 44
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.
Transactions by the Company with its officers, directors and shareholders,
and with their affiliates, were made, and the Company intends that in the
future, they will be made on terms no less favorable to the Company than those
available from unaffiliated parties.
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.
42
<PAGE> 45
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.
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.
43
<PAGE> 46
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
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 5,292,321 shares of Common
Stock outstanding including the issuance of 340,000 shares upon satisfaction of
the Junior Notes and an aggregate of 1,749,733 shares of Common Stock issuable
upon the exercise of the Outstanding Stock Options, and 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
44
<PAGE> 47
Securities Act, except for any such shares purchased by an "affiliate" of the
Company. The 1,202,588 shares currently outstanding and the 1,749,733 shares
issuable upon exercise of the Outstanding Stock Options (collectively, the
"Current Shares") and, as well as the 340,000 shares issuable upon satisfaction
of the Junior Notes (the "Junior Note 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 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 and the holders of the
Junior Notes, with respect to the Junior Note Shares, have agreed not to sell
any shares of Common Stock for a period of 18 months and 24 months,
respectively, 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.
45
<PAGE> 48
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"), 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, no shares have been reserved for these purchases and 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. 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 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.
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
46
<PAGE> 49
the Company's request, advice to the Company concerning potential merger and
acquisition and financing 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.
47
<PAGE> 50
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. Gammon & Grange, P.C.,
McLean, Virginia, has acted as counsel to the Company on matters relating to the
Company's use of religious criteria in employment practices. 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.
48
<PAGE> 51
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.
49
<PAGE> 52
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' 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> 53
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, and cash flows for the years
ended December 31, 1996 and 1995, and stockholders' equity (deficit) 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 their operations and their combined cash flows for the years then
ended 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> 54
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............................. -- 46,450 89,370
Advances due from officer........................ 43,560 10,000 10,000
Prepaid expenses................................. -- 10,800 --
Deferred costs, net.............................. -- 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.............................. -- 7,249 128,217
---------- ---------- --------
Total other assets.......................... 9,553 16,802 137,770
---------- ---------- --------
$ 360,814 $ 282,274 $1,195,633
========== ========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C> <C>
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...................... $ -- $ 553,203 $581,000
Advances due to officer and director............. 30,000 212,000 --
Accounts payable................................. 4,894 258,897 75,121
Accrued liabilities.............................. 82,797 170,835 224,277
Deferred revenue................................. -- 4,125 2,599
---------- ---------- ----------
Total current liabilities................... 117,691 1,199,060 882,997
LONG-TERM DEBT........................................ -- -- 1,700,000
---------- ---------- ----------
Total liabilities........................... 117,691 1,199,060 2,582,997
COMMITMENTS AND CONTINGENCIES......................... -- -- --
COMMON STOCK SUBJECT TO POSSIBLE RESCISSION, $.01 par
value, 305,500 and 607,433 shares issued and
outstanding at December 31, 1995; and December 31,
1996 and March 31, 1997, respectively............... 600,000 1,788,399 1,788,399
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value, 20,000,000 shares
authorized; 546,693 and 552,943 issued and
outstanding at December 31, 1995; and December
31, 1996 and March 31, 1997, respectively...... 5,467 5,530 5,530
Common stock warrants............................ 111,187 111,187
Additional paid-in capital....................... 672,981 678,327 678,327
Deficit accumulated during development stage..... (1,035,325) (3,500,229) (3,970,807)
---------- ---------- ----------
Total stockholders' and members' equity
(deficit)................................. (356,897) (2,705,185) (3,175,763)
---------- ---------- ----------
$ 360,814 $ 282,274 $1,195,633
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 55
DIDAX ON-LINE, L.C. AND AFFILIATE
(DEVELOPMENT STAGE COMPANIES)
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS CUMULATIVE
YEAR ENDED DECEMBER 31, 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>
OPERATING REVENUES:
Consulting services......... $ -- $ 81,371 $ -- $ 62,435 $ 143,806
Internet access............. -- 90,571 -- 28,841 119,412
Retail sales................ -- 8,834 -- 1,461 10,295
--------- ----------- --------- --------- ------------
Total revenues......... -- 180,776 -- 92,737 273,513
OPERATING EXPENSES:
Cost of goods and
services.................. -- 226,220 -- 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.................... -- 3,091 -- -- 3,091
Miscellaneous income........ -- 749 -- 113 862
Interest expense............ -- (77,815) -- (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 common share........ $ (1.58) $(4.35) $(0.97) $(0.78)
========= =========== ========= =========
Weighted average number of common
shares and common share
equivalents outstanding........ 447,557 564,959 574,861 599,905
========= =========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 56
DIDAX ON-LINE, L.C. AND AFFILIATE
(DEVELOPMENT STAGE COMPANIES)
COMBINED STATEMENTS OF STOCKHOLDERS' 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>
COMMON STOCK
----------------
DEFICIT
(ROUNDED TO ACCUMULATED
WHOLE SHARE) ADDITIONAL COMMON DURING TOTAL
---------------- PAID-IN STOCK DEVELOPMENT EQUITY
SHARES AMOUNT CAPITAL WARRANTS STAGE (DEFICIT)
------- ------ ------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock to founders on
May 12, 1993............................ 180,000 $1,800 $ -- $ -- $ 1,800
Issuance of common stock to founders in
May 1993 in consideration of costs paid
on behalf of DIDAX, INC................. 17,000 170 22,520 -- 22,690
Issuance of common stock throughout
1993.................................... 81,000 810 134,190 -- 135,000
Net loss.................................. -- -- -- (104,002) (104,002)
-------- ------ -------- ----------- -----------
BALANCE, DECEMBER 31, 1993................ 278,000 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............ 13,200 132 21,826 -- 21,958
Issuance of common stock throughout
1994.................................... 41,993 420 69,579 -- 69,999
Net loss.................................. -- -- -- (224,759) (224,759)
-------- ------ --------- ----------- -----------
BALANCE, DECEMBER 31, 1994................ 333,193 3,332 248,115 (328,761) (77,314)
Issuance of common stock throughout
1995.................................... 213,500 2,135 424,865 -- 427,000
Net loss.................................. -- -- -- -- (706,564) (706,564)
-------- ------ -------- ----------- -----------
BALANCE, DECEMBER 31, 1995................ 546,693 5,467 672,980 -- (1,035,325) (356,878)
Issuance of common stock throughout 1996,
net of offering costs of $19,591........ 6,250 63 5,347 -- -- 5,410
Issuance of common stock warrants......... 111,187 111,187
Net loss.................................. -- -- -- -- (2,464,904) (2,464,904)
-------- ------ -------- -------- ----------- -----------
BALANCE, DECEMBER 31, 1996................ 552,943 5,530 678,327 111,187 (3,500,229) (2,705,185)
Net loss.................................. -- -- -- -- (470,578) (470,578)
-------- ------ -------- -------- ----------- -----------
BALANCE, MARCH 31, 1997 (UNAUDITED)....... 552,943 $5,530 $678,327 $111,187 $(3,970,807) $(3,175,763)
======== ====== ======== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 57
DIDAX ON-LINE, L.C. AND AFFILIATE
(DEVELOPMENT STAGE COMPANIES)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED FOR THE THREE MONTHS CUMULATIVE
DECEMBER 31, 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 issuance of common
stock................................. 972,000 1,193,808 1,213,399 0 2,447,256
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:
Common Stock totaling $2,000 was 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> 58
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"). Stockholders' Equity
has been restated to give retroactive recognition of the merger for all periods
presented by reclassifying from membership units to common stock and additional
paid in capital for the exchange of units for shares in DIDAX INC. In addition,
all references to number of shares, per share amounts, stock option data, and
market prices of Common Stock have been restated to reflect the merger. 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.
F-7
<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)
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.
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 ratably over the
period that such access is provided.
Net loss per common share -- Net loss per common share is based on the
weighted average number of common shares and dilutive common share 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
F-8
<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)
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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, 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,
1995 1996 1997
------- -------- -------
(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> 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)
D. SHORT-TERM DEBT, OFFICER AND DIRECTOR
Short-term debt to an officer and a director consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
1996 1997
-------- -------
(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 common shares of the Company at
$4.00 per 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> 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)
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' 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, at an
effective rate of 17.8%, 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. The Company will also recognize approximately
$15,000 of interest expense relating to the notes payable and $42,000 of
amortization of the discount accrued for the period March 31, 1997 to the time
the notes are repaid at the expected closing of the proposed IPO.
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 and the
$1,700,000 returned to the investor from the proceeds of the IPO. The issuance
of the 340,000 shares will be recognized at the closing of the IPO, as interest
expense at the fair value of the shares issued which is $1,700,000 representing
an effective rate of interest of approximately 200%.
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 $211,000, $250,000, and $22,000 worth of
products and services to Promise Keepers, Inc.,
F-11
<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)
F. SERVICES PROVIDED WITHOUT CHARGE -- (CONTINUED)
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 shares of the Company to them as a donation.
The Company will recognize the donation of these shares as marketing expense at
the fair value of the shares at the time of donation. See Notes H and 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>
F-12
<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)
H. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
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 closed between December 1994 and April 1996 at a per share price
ranging from $1.66 to $4.00, 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 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. The common stock subject to possible
rescission are reflected in the accompanying balance sheets as "Common Stock
Subject to Possible Rescission."
Other
50,000 common 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 common shares will be donated. The remaining
10,000 common 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.
F-13
<PAGE> 65
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)
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>
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 49,500 shares of common stock to various outside
consultants and a ministry 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> 66
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......................................... 941,759 $3.00-$5.00
Options exercised....................................... -- --
Options expired......................................... 40,400 $2.00-$5.00
--------- ------------
Outstanding, December 31, 1996............................... 1,220,062 $1.50-$5.00
Options granted......................................... 22,000 $5.00
Options exercised....................................... -- --
Options expired......................................... -- --
--------- ------------
Outstanding, March 31, 1997 (unaudited)...................... 1,242,062 $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........................................ $ (1.58) $ (4.35) $ (0.78)
Proforma........................................... $ (1.96) $ (4.79) $ (0.82)
</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> 67
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 common 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 share 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
common shares after July, 1998 at $4.00 per 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 the anticipated
public offering price), to purchase 200,000 shares of common stock, for the
right to purchase
F-16
<PAGE> 68
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)
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> 69
[COPY OF COMPANY'S WEBSITE HOMEPAGE.]
<PAGE> 70
======================================================
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....................... 17
Capitalization........................ 19
Dilution.............................. 20
Management's Discussion and Analysis
or Plan of Operation................ 21
Proposed Business..................... 26
Management............................ 35
Principal Stockholders................ 40
Description of Securities............. 42
Underwriting.......................... 46
Legal Proceedings..................... 48
Legal Matters......................... 48
Experts............................... 48
Additional Information................ 49
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> 71
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> 72
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> 73
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 of Common Stock on April 11,
1997 in reliance upon Section 4(2) of the Securities Act, to Dr. J.C. Lasmanis
for consulting services, which the Board of Directors has determined had a value
of $11,062. Dr. Lasmanis has agreed not to sell any shares of Common Stock for a
II-3
<PAGE> 74
period of 18 months from the Effective Date. Dr. Lasmanis has been involved with
the Company from inception as an informal advisor and contracted consultant in
assisting the Company to market to home schooling ministries and to develop
Internet content. Because he is considered, therefore, an "insider"
substantially familiar with the information an investor needs to know in order
to make an informed investment decision in the Company, the Company relied on
the exemption in Section 4(2) of the Securities Act.
In December of 1996, the Company solicited from fifty investors, a waiver
of rescission rights and other remedies, in connection with any past omissions
or violations of federal or state securities laws or regulations by the Company
relating to certain previously completed private offerings of equity securities
and a further release of 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 and bring an action for rescission within the applicable
limitations period. If the Waivers are not deemed valid, the possible rescission
totals $1,788,399. 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. To the extent the solicitation of waivers is
deemed the offering of a new security, as to which the Company expresses no
opinion, the Company relies upon Section 4(2) of the Securities Act.
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 133,751 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> 75
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> 76
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 is a record of the options to purchase shares of Common Stock
granted to officers, directors, consultants, ministry partners and employees of
the Company within the past three years. These non-qualified options were not
issued for the purposes of raising capital and have been granted solely to
persons deemed "insiders," i.e. persons considered sufficiently familiar with
the Company so that registration under Section 5 of the Securities Act was
deemed not necessary under Section 4(2) of the Securities Act. The Company also
relied on rule 701 of the Commission.
<TABLE>
<CAPTION>
DATE OF GRANT
CLASS OF -------------------------------------------------------------------------
PERSONS 12/31/94 6/29/95 08/29/95 12/31/95 1/15/96 3/31/96 5/26/96 6/30/96
- --------------- -------- ------- ------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EXECUTIVES
Dane West
Bill Bowers
Bob Varney 116,000
Gary Struzik 30,000
BOARD
Bruce Edgington 2,500 2,500
John Meindl
Jim Buick
Earl Gjelde
Tom Whitehead
Max Carey
Consultant 4,000
Consultant 14,000
Consultant 4,500
Consultant 250
Consultant 500
Consultant 500
Consultant 250
Consultant 500
Consultant
Consultant
Ministry
Partner 25,000
Employee
Employee 10,000 10,000 7,638
Employee 10,000 10,000 2,792
Employee 7,600
Employee 18,773 2,019 2,019
Employee 12,100
Employee 10,850
Employee 10,100
Employee 10,000
Employee 2,600
Employee 12,500
Employee 5,000
Employee 50,000
<CAPTION>
CLASS OF
PERSONS 8/16/96 9/30/96 9/30/96 12/31/96 3/31/97 4/09/97 4/30/97 6/10/97
- --------------- -------- ------- ------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EXECUTIVES
Dane West 171,312 5,191 2,420 2,420
Bill Bowers 164,312 10,385 2,420 2,420
Bob Varney 145,312 17,524 8,075 8,075
Gary Struzik 71,250 6,331 1,405 1,290
BOARD
Bruce Edgington 160,314
John Meindl 37,000
Jim Buick 37,000
Earl Gjelde 37,000
Tom Whitehead 37,000
Max Carey 37,000
Consultant
Consultant
Consultant
Consultant
Consultant
Consultant
Consultant
Consultant
Consultant 37,000
Consultant 4,000
Ministry
Partner
Employee
Employee 446 325 15,325
Employee (7,500)
Employee 1,600 405 5,405
Employee 2,019 1,013 805 8,305
Employee 1,066 565 5,565
Employee 2,263 805 1,805
Employee 965 405 5,405
Employee 1,095 405 10,405
Employee 888 1,000
Employee 1,350 1,000
Employee 1,830 805 1,805
Employee (18,000)
</TABLE>
II-6
<PAGE> 77
<TABLE>
<CAPTION>
DATE OF GRANT
CLASS OF -------------------------------------------------------------------------
PERSONS 12/31/94 6/29/95 08/29/95 12/31/95 1/15/96 3/31/96 5/26/96 6/30/96
- --------------- -------- ------- ------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Employee 2,660
Employee 10,000 (10,000)
Employee 3,600 (700)
Employee 6,250
Employee 2,500
Employee 3,600 (2,700)
Employee 2,000
Employee 1,740 750 750
Employee 1,000 250
Employee 1,950
Employee 3,000 (750)
Employee 2,000
Employee 3,000 (250)
Employee 3,000 (250)
Employee 3,000 (250)
Employee
Employee 2,000
Employee
Employee
Employee
Total
Options
Granted 38,500 120,000 22,500 103,703 88,250 36,079 25,000 6,269
-------- ------- ------- -------- -------- ------- ------- -------
Option Exercise
Price Per
Share $1.667 $ 2.00 $ 2.00 $ 2.00 $ 3.00 $ 4.00 $ 4.00 $ 4.00
<CAPTION>
CLASS OF
PERSONS 8/16/96 9/30/96 9/30/96 12/31/96 3/31/97 4/09/97 4/30/97 6/10/97
- --------------- -------- ------- ------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Employee 1,278 7,500
Employee
Employee
Employee 1,930 1,250 27,605
Employee 788 1,000
Employee
Employee 2,091 6,000
Employee 750
Employee
Employee 2,600 7,500
Employee
Employee 100 1,000
Employee
Employee
Employee
Employee 2,808 1,000
Employee 100 5,000
Employee 2,000
Employee 20,000
Employee 1,000
Total
Options
Granted (20,650) 712,500 2,769 56,142 22,000 185,000 24,090 164,830
-------- ------- ------- -------- ------- ------- ------- -------
Option Exercise
Price Per
Share $ 4.00 $ 5.00 $4.00 $ 4.00 $ 5.00 $ 5.00 $ 6.00 $ 5.00
</TABLE>
II-7
<PAGE> 78
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------ -----------------------------------------------------------------------------------
<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
4.1 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
4.6 Form of Warrant Agreement between the Registrant and American Stock Transfer &
Trust Company
5.1 Opinion of Berman Wolfe & Rennert, P.A.
5.2 Opinion of Gammon & Grange, P.C.
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 digitalNATION 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
June 6, 1997
</TABLE>
II-8
<PAGE> 79
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------ -----------------------------------------------------------------------------------
<S> <C>
10.17@ Employment Agreement between the Registrant and Dane West dated as of June 6, 1997
10.18@ Employment Agreement between the Registrant and William Bowers dated as of June 6,
1997
10.19@ Employment Agreement between the Registrant and Gary Struzik dated as of June 6,
1997
10.20 Agreement between the Registrant and ichat, Inc. dated February 28, 1997
10.21 Agreement between the Registrant and Spring Arbor Distribution Company dated
October 1, 1996
10.22 Agreement between the Registrant and Intermind Corporation dated January 19, 1997
10.23 Agreement between the Registrant and CyberCash, Inc. dated February 11, 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.
23.3 Consent of Gammon & Grange, 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>
- ---------------
* Filed previously.
@ Contracts with Executive Officers
(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
II-9
<PAGE> 80
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-10
<PAGE> 81
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 16th day of
June, 1997.
DIDAX INC.
June 16, 1997 By: /s/ ROBERT C. VARNEY, PH.D.
------------------------------------
Robert C. Varney, Ph.D.
Chairman of the Board of Directors
and
Chief Executive Officer, and
Principal Executive Officer
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>
June 16, 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
June 16, 1997 By: /s/ GARY A. STRUZIK
-------------------------------------------
Gary A. Struzik, Chief Financial Officer,
Chief Operating Officer and Secretary, and
Principal Financial and Chief Accounting
Officer
June 16, 1997 By: /s/ DANE B. WEST
-------------------------------------------
Dane B. West, President and director
June 16, 1997 By: /s/ WILLIAM H. BOWERS
-------------------------------------------
William H. Bowers, Chief Technical Officer
and director
June 16, 1997 By: /s/ BRUCE E. EDGINGTON
-------------------------------------------
Bruce E. Edgington, director
June 16, 1997 By: /s/ JOHN J. MEINDL, JR.
-------------------------------------------
John J. Meindl, Jr., director
June 16, 1997 By: /s/ CLAY T. WHITEHEAD, PH.D.
-------------------------------------------
Clay T. Whitehead, Ph.D., director
</TABLE>
II-11
<PAGE> 82
<TABLE>
<S> <C>
June 16, 1997 By: /s/ JAMES G. BUICK
-----------------------------------------------
James G. Buick, director
June 16, 1997 By: /s/ EARL E. GJELDE
-------------------------------------------
Earl E. Gjelde, director
June 16, 1997 By: /s/ W.R. 'MAX' CAREY
-------------------------------------------
W.R. 'Max' Carey
</TABLE>
II-12
<PAGE> 83
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ ------------------------------------------------------------------------------------
<S> <C> <C>
4.1 Form of certificate evidencing shares of Common Stock..................
4.2 Form of certificate evidencing Purchase Warrant........................
4.5 Form of Stock Option Agreement.........................................
4.6 Form of Warrant Agreement between the Registrant and American Stock
Transfer & Trust Company...............................................
5.1 Opinion of Berman Wolfe & Rennert, P.A.
5.2 Opinion of Gammon & Grange, P.C........................................
10.16@ Employment Agreement between the Registrant and Robert Varney, Ph.D.
dated as of June 6, 1997...............................................
10.17@ Employment Agreement between the Registrant and Dane West dated as of
June 6, 1997...........................................................
10.18@ Employment Agreement between the Registrant and William Bowers dated as
of June 6, 1997........................................................
10.19@ Employment Agreement between the Registrant and Gary Struzik dated as
of June 6, 1997........................................................
10.20 Agreement between the Registrant and ichat, Inc. dated February 28,
1997...................................................................
10.21 Agreement between the Registrant and Spring Arbor Distribution Company
dated October 1, 1996..................................................
10.22 Agreement between the Registrant and Intermind Corporation dated
January 19, 1997.......................................................
10.23 Agreement between the Registrant and CyberCash, Inc. dated February 11,
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.........................
23.3 Consent of Gammon & Grange, 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>
- ---------------
* Filed previously.
@ Contracts with Executive Officers
<PAGE> 1
EXHIBIT 4.1
<TABLE>
<S> <C> <C>
NUMBER [CHRISTIAN COMMUNITY NETWORK LOGO] SHARES
CHRISTIAN COMMUNITY NETWORK
CS CCN(TM)
DIDAX, INC.
COMMON STOCK INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 253624 10 0
THIS
CERTIFIES
that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE $.01 PAR VALUE COMMON STOCK OF
DIDAX, INC.
transferable only on the books of the corporation by the holder hereof in person or by a duly authorized attorney upon surrender of
this certificate properly endorsed. This certificate is not valid until countersigned by the Transfer Agent. This certificate and
the shares represented hereby are issued and shall be held subject to all of the provisions of the Certificate of Incorporation and
By-Laws of the Corporation and all amendments thereto, copies of which are on file with the Transfer Agent, to all of whicih the
holder of this certificate, by acceptance hereof, assents.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by the facsimile signatures of its duly
authorized officers and to be sealed with the facsimile seal of the Corporation.
[SIG] [SIG]
CHAIRMAN AND CHIEF EXECUTIVE OFFICER DIDAX, INC. SECRETARY
CORPORATE
SEAL
1997
DELAWARE
</TABLE>
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.
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, NY)
TRANSFER AGENT AND REGISTRAR
AUTHORIZED SIGNATURE
<PAGE> 2
DIDAX, INC.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties ----------- ----------------
JT TEN - as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform Gifts to Minors
in common Act
--------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, hereby sell, assign and transfer unto
--------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE,
OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the common stock represented by the within Certificate and do hereby
irrevocably constitute and appoint
Attorney
- -----------------------------------------------------------------------
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated
--------------------------
------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- --------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 4.2
NUMBER
PW
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.
---------------------
WARRANT TO PURCHASE SHARES OF COMMON STOCK WARRANTS
---------------------
VOID AFTER 5:00 P.M.,
NEW YORK CITY TIME, ON TBD, 2002
CUSIP 253624 11 8
DIDAX, INC.
This certifies that, for value received
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Common Stock Purchase Warrants (the "Warrants") specified above.
Each Warrant initially entitles the Registered Holder to purchase, subject to
the terms and conditions set forth in the Certificate and the Warrant Agreement
(as hereinafter defined), one fully paid and nonassessable share of Common
Stock, $.01 par value, of DIDAX, INC., a Delaware corporation (the "Company"),
of the Company at any time prior to the Expiration Date (as hereinafter
defined), upon the presentation and surrender of this Warrant Certificate with
the Purchase Form on the reverse hereof duly executed, at the corporate office
of American Stock Transfer & Trust Company as Warrant Agent, or its successor
(the "Warrant Agent"), accompanied by payment of $5.75 (the "Purchase Price")
in lawful money of the United States of America in cash or by official bank or
certified check made payable to the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated TBD between the
Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject
to modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued.
In the case of the exercise of less than all the Warrants represented hereby,
the Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York City time) on
, 2002, or such earlier date as stated in a notice advising that the Warrants
shall be redeemed. If such date shall in the State of New York be a holiday
or a day on which the banks are authorized to close, then the Expiration Date
shall mean 5:00 P.M. (New York City time) the next following day which in the
State of New York is not a holiday or a day on which banks are authorized to
close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective, unless the Company receives an opinion of counsel, satisfactory to
the Company's counsel, that an exemption from registration is available. The
Company has covenanted and agreed that it will file a registration statement
and will use its best efforts to cause the same to become effective and to keep
such registration statement current while any of the Warrants are outstanding.
This Warrant shall not be exercisable by a Registered Holder in any state where
such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any tax or other governmental
charge imposed in connection therewith, for registration of transfer of this
Warrant Certificate at such office, a new Warrant Certificate or Warrant
Certificates representing an equal aggregate number of Warrants will be issued
to the transferee in exchange therefor, subject to the limitations provided in
the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
This Warrant may be redeemed at the option of the Company, at a
redemption price of $5.25 per Warrant, provided the market price (as defined in
the Warrant Agreement) for the securities issuable upon exercise of such Warrant
shall average in excess of $10.00 per share for thirty consecutive trading days,
ending within ten days of the day on which notice is given, as reported on the
Nasdaq Stock Market, Inc. or such other primary exchange upon which the Common
Stock is traded. Notice of redemption shall be given not later than the
thirteenth day before the date fixed for redemption, all as provided in the
Warrant Agreement. On and after the date fixed for redemption, the Registered
Holder shall have no rights with respect to this Warrant except to receive the
$.25 per Warrant upon surrrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations or writing hereon made by anyone other than a duly authorized officer
of the Company or the Warrant Agent) for all purposes and shall not be affected
by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
<TABLE>
<S> <C> <C>
Dated: DIDAX INC.
----------- ATTEST: By:
DIDAX INC.
CORPORATE
COUNTERSIGNED: SEAL
AMERICAN STOCK TRANSFER & TRUST COMPANY 1997
(NEW YORK, NY) DELAWARE
WARRANT AGENT -----------
*
BY [SIG] [SIG]
CHAIRMAN AND
AUTHORIZED SIGNATURE SECRETARY CHIEF EXECUTIVE OFFICER
</TABLE>
<PAGE> 2
EXERCISE AGREEMENT
To Be Executed by the Registered Holder in Order to Exercise Warrants
The undersigned Registered Holder, pursuant to the provisions of the within
Warrant, hereby subscribes for and purchases _______________ shares of Common
Stock covered by such Warrant and herewith makes full cash payment of
$______________ for such Warrant Stock at the Exercise Price per share provided
by such Warrant.
Dated:
--------------------------------- ----------------------------------
(Address for Delivery)
--------------------------------- ----------------------------------
(Address for Delivery) (Print or type name)
--------------------------------- ----------------------------------
---------------------------------
ASSIGNMENT FORM
To Be Executed by the Registered Holder in Order to Transfer Warrants
FOR VALUE RECEIVED, the undersigned Registered Holder hereby sells, assigns and
transfers all of the rights of the undersigned under and to the within Warrant
with respect to the number of shares of Common Stock covered thereby set forth
below, unto the Assignee identified below, and does hereby irrevocably
constitute and appoint __________________ to effect such transfer of rights on
the books of the Company, with full power of substitution.
Name of Assignee Address of Assignee No. of Warrants
Dated:
--------------------------------- ----------------------------------
(Signature of Registered Holder)
----------------------------------
(Print or type name)
----------------------------------
NOTICE: The signature(s) of the Registered Holder above must correspond with
the name as written upon the face of the within Warrant, or upon the Assignment
there of if applicable, in every particular, without alteration, enlargement or
any change whatsoever, and must be guaranteed by an Eligible Guarantor
Institution which is a participant in a securities transfer association
recognized program, having an office or correspondent in New York, New York.
SIGNATURE GUARANTEE
(Required for each Exercise or Assignment)
Authorized Signature:
----------------------------------------------------------
Name of Bank or Firm:
----------------------------------------------------------
Dated:
-------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 4.5
DIDAX INC.
STOCK OPTION AGREEMENT
For value received, and subject to all the provisions hereof and to all of the
terms and conditions of the 1997 Stock Option Plan ("The Plan"), incorporated by
this reference herein, DIDAX INC., a Delaware corporation (the "Company"),
hereby grants to the Optionee named below (the "Optionee") a Non-Qualified Stock
Option ("option") to purchase shares of its Common Stock, par value $.01 per
share (the "Common Stock"), at the option price set forth as follows:
Optionee
------------------------------
Number of shares of Common Stock
as to which the option is granted
------------------------------
Option Price per Share of Common Stock
------------------------------
Date of option grant
------------------------------
Expiration of option
------------------------------
Date of Exercise:
Number of shares of Common Stock and dates exercisable under the option as
determined by the Compensation Committee of the Board of Directors are as
follows:
% of shares commencing .
- ------------- -----------------------------
% of shares commencing .
- ------------- -----------------------------
% of shares commencing .
- ------------- -----------------------------
% of shares commencing .
- ------------- -----------------------------
1. Relationship to Plan: This option is granted pursuant to the Company's 1997
Stock Option Plan effective April 11, 1997, and is in all respects subject to
the terms, conditions and definitions of the Plan (including, but not limited
to, provisions concerning exercise, restrictions on options, termination,
nontransferability and adjustment of the number of shares subject to this option
and the exercise price thereof). The Optionee hereby accepts this option subject
to all the terms and provisions of the Plan. The Optionee further agrees that
all decisions under and interpretations of the Plan by the Board of Directors
(the "Board") or the Compensation Committee (the "Committee") established under
the Plan shall be final, binding and conclusive upon the Optionee and his or her
heirs.
2. Time of Exercise. This option may be exercised on or after the Date of
Exercise from time to time in full or in part and shall remain exercisable
(subject to the provisions of the Plan) until the earlier of (i) the date as of
which the Optionee has exercised the option as to all shares subject hereto, or
(ii) the expiration of 10 years following the Option Date. Notwithstanding the
foregoing, this option shall first become exercisable in any calendar year only
to the extent that the shares with respect to which this option becomes
exercisable, together with any shares subject to any other incentive stock
options that first become exercisable in such calendar year, would have an
aggregate value (determined as of the date of grant of such options) not in
excess of $100,000.
3. Methods of Exercise. This option shall be exercisable, in whole or in part,
by a written notice to the Company that specifies the date of grant of the
option being exercised, and the number of shares to be purchased. The notice
shall be accompanied by payment of the full amount of the option price by either
(i) cash or check payable to the Company, or (ii) by the delivery to the Company
of shares of the Company's stock having a value equal to the exercise price and
having been owned by the optionee for a minimum of six months. Upon receipt of
such payment, the Company will thereafter deliver or cause to be delivered to
the Optionee (or if any other individual or individuals are exercising this
option, to such individual or individuals) at the office of the Company, a
certificate or certificates for the number of
<PAGE> 2
shares with respect to which this option is being exercised, registered in the
name or names of the individual or individuals exercising the option; provided,
however, that if any law or regulation or order of the Securities and Exchange
Commission or other body having jurisdiction in the premises shall require the
Company or Optionee (or other individual or individuals exercising this option)
to take any action in connection with the shares being purchased, the delivery
of the certificate or certificates for such shares shall be delayed until such
action has been taken.
4. Purchase For Investment. This option is granted on the condition that the
purchase of shares of Common Stock hereunder shall be for the account of the
Optionee (or other individual or individuals exercising this option) for
investment purposes and not with a view to the resale or distribution thereof,
except that such condition shall be inoperative if the offering and sale of
shares subject to the option is registered under the Securities Act of 1933, as
amended, or if in the opinion of counsel for the Company such shares may be
resold without registration. At the time of any exercise of the option, the
Optionee (or other individual or individuals exercising this option) will
execute such further agreements as the Company may require to implement the
foregoing condition and to acknowledge the Optionee's (or such other
individual's) familiarity with restrictions on the resale of the shares under
applicable securities laws.
5. Nontransferability of Option. Except as provided in Section 9(g) of the Plan,
options shall not be transferable by the Optionee otherwise than by will or the
laws of descent or distribution, and options shall be exercisable during the
Optionee's lifetime only by him or her.
6. Termination. Except as provided in the Plan, this option shall terminate and
may no longer be exercised if the Optionee ceases for any reason to be an
employee of the Company.
7. Governing Law and Interpretation. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware. It shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors, assigns and legal representatives.
8. Miscellaneous. The Optionee shall have no rights as a stockholder with
respect to the shares subject to this option until the exercise of the option
and the issuance of a stock certificate for the shares with respect to which the
option shall have been exercised. Nothing herein contained shall impose any
obligation on the Company or the Optionee with respect to the Optionee's
employment by the Company. Nothing herein contained shall impose any obligation
upon the Optionee to exercise the option.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in
duplicate by its duly authorized representative and Optionee has accepted the
terms described herein and executes this Agreement in duplicate.
DIDAX INC.
By
-------------------
Title
-----------------
OPTIONEE
----------------------
Signature
----------------------
Social Security Number
----------------------------------------------------
Optionee Address
<PAGE> 1
EXHIBIT 4.6
WARRANT AGREEMENT
Agreement made as of ______________, 1997, between DIDAX INC., a
Delaware corporation, with offices at 4501 Daly Drive, Suite 103, Chantilly,
Virginia 20151 (the "Company"), and American Stock Transfer & Trust Company, a
New York corporation, with offices at 40 Wall Street, New York, New York 10005
(herein called, the"Warrant Agent").
WHEREAS, the Company has determined to issue and deliver up to
2,300,000 Redeemable Common Stock Purchase Warrants ( the "Warrants")
evidencing the right of the holders thereof to purchase an aggregate of
2,300,000 shares of common stock, $.01 par value per share, of the Company
("Common Stock"), which Warrants are to be issued and delivered in connection
with the Company's initial public offering ("IPO") of Common Stock and
Redeemable Common Stock Purchase Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange, redemption and exercise of the
Warrants; and
WHEREAS, the Company desires to provide for the form and provisions of
the Warrants, the terms upon which they shall be issued and exercised, and the
respective rights, limitation of rights, and immunities of the Company, the
Warrant Agent, and the holders of the Warrants; and
WHEREAS, all acts and things have been done and performed which are
necessary to make the Warrants, when executed on behalf of the Company and
countersigned by or on behalf of the Warrant Agent, as provided herein, the
valid, binding and legal obligations of the Company, and to authorize the
execution and delivery of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto agree as follows:
1. Appointment of Warrant Agent. The Company hereby appoints the
Warrant Agent to act as agent for the Company for the Warrants, and the Warrant
Agent hereby accepts such appointment and agrees to perform the same in
accordance with the terms and conditions set forth in this Agreement.
2. Warrants.
2.1. Form of Warrant. Each Warrant shall be issued in registered form
only, shall be in substantially the form of Exhibit "A" hereto, the provisions
of which are incorporated herein and shall be signed by, or bear the facsimile
signature of, the Chairman or President and Secretary or Assistant
<PAGE> 2
Secretary of the Company and shall bear a facsimile of the Company's seal. In
the event the person whose facsimile signature has been placed upon any Warrant
shall have ceased to be Chairman or President and Secretary or Assistant
Secretary of the Company before such Warrant is issued, it may be issued with
the same effect as if he had not ceased to be such at the date of issuance. No
Warrant may be exercised until it has been countersigned by the Warrant Agent
as provided in Section 2.3 hereof.
2.2. Effect of Countersignature. Unless and until countersigned by the
Warrant Agent pursuant to this Agreement, a Warrant shall be invalid and of no
effect.
2.3. Events for Countersignature. The Warrant Agent shall countersign
a Warrant only upon the occurrence of either of the following events:
(i) if the Warrant is to be issued in exchange or substitution for one
or more previously countersigned Warrants, as hereinafter provided, or
(ii) if the Company instructs the Warrant Agent to do so.
2.4. Registration.
2.4.1. Warrant Register. The Warrant Agent shall maintain books
("Warrant Register"), for the registration of original issuance and the
registration of transfer of the Warrants. Upon the initial issuance of the
Warrants, the Warrant Agent shall issue and register the Warrants in the names
of the respective holders thereof in such denominations and otherwise in
accordance with instructions delivered to the Warrant Agent by the Company.
2.4.2. Registered Holder. Prior to due presentment for registration
of transfer of any Warrant, the Company and the Warrant Agent may deem and
treat the person in whose name such Warrant shall be registered upon the
Warrant Register ("Registered Holder"), as the absolute owner of such Warrant
and of each Warrant represented thereby (notwithstanding any notation of
ownership or other writing on the Warrant Certificate made by anyone other than
the Company or the Warrant Agent), for the purpose of any exercise thereof, and
for all other purposes, and neither the Company nor the Warrant Agent shall be
affected by any notice to the contrary.
2.5. Detachabilitv of Warrants. The Warrant Agent understands that the
Warrants may be traded separately.
3. Terms and Exercise of Warrants.
3.1. Warrant Price. Each Warrant shall, when countersigned by the
Warrant Agent, entitle the registered holder thereof, subject to the provisions
of such Warrant and of this Warrant Agreement, to purchase from the Company one
share of Common Stock for $5.75 per whole share, subject to the adjustments
provided in Section 4 hereof. The term "Warrant Price" as used in this
2
<PAGE> 3
Warrant Agreement refers to the price per share at which Common Stock may be
purchased at the time a Warrant is exercised.
3.2. Duration of Warrants. A Warrant may be exercised only during the
period ("Exercise Period") commencing on ___________, 1997 and terminating at
4:00 p.m., New York, New York time, on ____________, 2002; provided, however,
that the Exercise Period of the Warrants shall terminate earlier on the date
fixed for redemption of such Warrants as provided in Section 6 of this
Agreement ("Expiration Date"). Each Warrant not exercised on or before the
Expiration Date shall become void, and all rights thereunder and all rights in
respect thereof under this Agreement shall cease at the close of business on
the Expiration Date. The Company has the right, in its sole discretion, to
extend the expiration date of the Warrants on five business days' prior written
notice to the holders of the Warrants.
3.3. Exercise of Warrants.
3.3.1. Payment. A Warrant, when countersigned by the Warrant Agent,
may be exercised by the registered holder thereof by surrendering it, at the
office of the Warrant Agent, or at the office of its successor as Warrant
Agent, in the Borough of Manhattan, City and State of New York, with the
purchase form, as set forth in the Warrant and in substantially the form of
Exhibit "A" hereto, duly executed, and by paying in full, in lawful money of
the United States, the Warrant Price for each full share of Common Stock as to
which the Warrant is exercised and any and all applicable taxes due in
connection with the exercise of the Warrant, the exchange of the Warrant for
the Common Stock, and the issuance of the Common Stock. Upon exercise of any
Warrant, the Warrant Agent shall promptly remit the payment received for the
Warrant to the Company or its agent, as the Company may direct in writing.
3.3.2. Issuance of Certificates. As soon as practicable after the
exercise of any Warrant, the Company shall issue to the registered holder of
such Warrant a certificate or certificates for the number of full shares of
Common Stock to which he is entitled, registered in such name or names as may
be directed by him, and if such Warrant shall not have been exercised in full,
a new countersigned Warrant for the number of shares as to which such Warrant
shall not have been exercised. Notwithstanding the foregoing, the Company shall
not be obligated to deliver any securities pursuant to the exercise of a
Warrant unless a registration statement under the Securities Act of 1933 with
respect to the securities is effective. Warrants may not be exercised by, or
securities issued to, any registered holder in any state in which such exercise
would be unlawful.
3.3.3. Valid Issuance. All shares of Common Stock issued upon the
proper exercise of a Warrant in conformity with this Agreement shall be validly
issued.
3.3.4. Date of Issuance. Each person in whose name any such
certificate for shares of Common Stock is issued shall for all purposes be
deemed to have become the registered holder of record of such shares on the
date on which the Warrant was surrendered, and payment of the Warrant
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<PAGE> 4
Price was made, irrespective of the date of delivery of such certificate,
except that, if the date of such surrender and payment is a date when the stock
transfer books of the Company are closed, such person shall be deemed to have
become the holder of such shares at the close of business on the next
succeeding date on which the stock transfer books are open.
4. Adjustments.
4.1. Stock Dividends - Split-Ups. If after the date hereof, and
subject to the provisions of Section 4.5 below, the number of outstanding
shares of Common Stock is increased by a stock dividend payable in shares of
Common Stock or by a split-up of shares of Common Stock or other similar event,
then, on the effective date of such stock dividend or split-up, the number of
shares issuable on exercise of each Warrant shall be increased in proportion to
such increase in outstanding shares and the then applicable Warrant Price shall
be correspondingly decreased.
4.2. Aggregation of Shares. If after the date hereof, and subject to
the provisions of Section 4.5, the number of outstanding shares of Common Stock
is decreased by a consolidation, combination or reclassification of shares of
Common Stock or other similar event, then, upon the effective date of such
consolidation, combination or reclassification, the number of shares issuable
on exercise of each Warrant shall be decreased in proportion to such decrease
in outstanding shares and the then applicable Warrant Price shall be
correspondingly increased.
4.3. Reorganization, etc. If after the date hereof any capital
reorganization or reclassification of the Common Stock of the Company, or
consolidation or merger of the Company with another corporation, or the sale of
all or substantially all of its assets to another corporation or other similar
event shall be effected, then, as a condition of such reorganization,
reclassification, consolidation, merger, or sale, lawful and fair provision
shall be made whereby the Warrant holders shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and conditions
specified in the Warrants and in lieu of the shares of Common Stock of the
Company immediately theretofore purchasable and receivable upon the exercise of
the rights represented thereby, such shares of stock, securities, or assets as
may be issued or payable with respect to or in exchange for the number of
outstanding shares of such Common Stock equal to the number of shares of such
stock immediately theretofore purchasable and receivable upon the exercise of
the rights represented by the Warrants, had such reorganization,
reclassification, consolidation, merger, or sale not taken place and in such
event appropriate provision shall be made with respect to the rights and
interests of the Warrant holders to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the Warrant Price
and of the number of shares purchasable upon the exercise of the Warrants)
shall thereafter be applicable, as nearly as may be in relation to any share of
stock, securities, or assets thereafter deliverable upon the exercise hereof.
The Company shall not effect any such consolidation, merger, or sale
unless prior to the consummation thereof the successor corporation (if other
than the Company) resulting from such consolidation or merger, or the
corporation purchasing such assets, shall assume by written instrument executed
and delivered to the Warrant Agent the obligation to deliver to the Warrant
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<PAGE> 5
holders such shares of stock, securities, or assets as, in accordance with the
foregoing provisions, such holders may be entitled to purchase.
4.4. Notices of Changes in Warrant. Upon every adjustment of the
Warrant Price or the number of shares issuable on exercise of a Warrant, the
Company shall give written notice thereof to the Warrant Agent, which notice
shall state the Warrant Price resulting from such adjustment and the increase
or decrease, if any, in the number of shares purchasable at such price upon the
exercise of a Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based. Upon the
occurrence of any event specified in Sections 4.1., 4.2., or 4.3., then, in any
such event, the Company shall give written notice in the manner set forth above
on the record date for such event, or the effective date of such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, winding up or issuance of shares. Such notice shall also specify
the date as of which the holders of Common Stock of record shall participate in
such dividend, distribution, or subscription rights, or shall be entitled to
exchange their Common Stock for stock, securities, or other assets deliverable
upon such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, winding up or issuance. Failure to give such notice,
or any defect therein, shall not affect the legality or validity of such
event.
4.5. No Fractional Shares. Notwithstanding any provision contained in
this Warrant Agreement to the contrary, the Company shall not issue fractional
shares upon exercise of Warrants. If, by reason of any adjustment made pursuant
to this Section 4, the holder of any Warrant would be entitled, upon the
exercise of such Warrant, to receive a fractional interest in a share, the
Company shall, upon such exercise, purchase such fractional interest,
determined as follows:
(i) If the Common Stock is listed on a National Securities Exchange or
admitted to unlisted trading privileges on such exchange or listed for trading
on the Nasdaq National Market or Nasdaq SmallCap Market, the current value
shall be the last reported sale price of the Common Stock on such exchange on
the last business day prior to the date of exercise of the Warrant or if no
such sale is made on such day, the average of the closing bid and asked prices
for such day on such exchange; or
(ii) If the Common Stock is not listed or admitted to unlisted trading
privileges, the current value shall be the mean of the last reported bid and
asked prices reported by the National Quotation Bureau, Inc. on the last
business day prior to the date of the exercise of the Warrant; or;
(iii) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
value shall be an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
4.6. Form of Warrant. The form of Warrant need not be changed because
of any adjustment pursuant to this Section 4, and Warrants issued after such
adjustment may state the same Warrant Price and the same number of shares as is
stated in the Warrants initially issued pursuant to this Agreement. However,
the Company may at any time in its sole discretion make any change in the
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<PAGE> 6
form of Warrant that the Company may deem appropriate and that does not affect
the substance thereof, and any Warrant hereafter issued or countersigned,
whether in exchange or substitution for an outstanding Warrant or otherwise,
may be in the form as so changed.
5. Transfer and Exchange of Warrants.
5.1. Registration of Transfer. The Warrant Agent shall register the
transfer, from time to time, of any outstanding Warrant upon the Warrant
Register, upon surrender of such Warrant for transfer, properly endorsed with
signatures properly guaranteed and accompanied by appropriate instructions for
transfer. Upon any such transfer, a new Warrant representing an equal
aggregate number of Warrants shall be issued and the old Warrant shall be
cancelled by the Warrant Agent. The Warrants so cancelled shall be delivered by
the Warrant Agent to the Company from time to time upon request.
5.2. Procedure for Surrender of Warrants. Warrants may be surrendered
to the Warrant Agent, together with a written request for exchange or transfer,
and thereupon the Warrant Agent shall issue in exchange therefor one or more
new Warrants as requested by the registered holder of the Warrants so
surrendered, representing an equal aggregate number of Warrants; provided,
however, that in the event that a Warrant surrendered for transfer bears a
restrictive legend, the Warrant Agent shall not cancel such Warrant and issue
new Warrants in exchange therefor until the Warrant Agent has received an
opinion of counsel for the Company stating that such transfer may be made and
indicating whether the new Warrants must also bear a restrictive legend.
5.3. Fractional Warrants. The Warrant Agent shall not be required to
effect any registration of transfer or exchange which will result in the
issuance of a Warrant for a fraction of a Warrant.
5.4. Service Charges. No service charge shall be made for any
exchange or registration of transfer of Warrants.
5.5. Warrant Execution and Countersignature. The Warrant Agent is
hereby authorized to countersign and to deliver, in accordance with the terms
of this Agreement, the Warrants required to be issued pursuant to the
provisions of this Section 5, and the Company, whenever required by the Warrant
Agent, will supply the Warrant Agent with Warrants duly executed on behalf of
the Company for such purpose.
6. Redemption.
6.1. Redemption. The Warrants may be redeemed, at the option of the
Company, as a whole at any time or in part from time to time, after _______,
1997, and prior to their expiration, in any proportion as the Company in its
sole discretion may determine, at the office of the Warrant Agent, upon the
notice referred to in Section 6.2., at the price of $.25 per Warrant
("Redemption Price"), provided that the closing bid price of the Common Stock
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
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<PAGE> 7
Common Stock for 30 consecutive trading days ending within 10 days of the
notice of redemption of the Warrants averages in excess of $10.00 per share,
subject to adjustment, and further provided that the Company shall give written
notice of the Company's intent to redeem the Warrants at least five business
days prior to the date of the notice of redemption. Prior to the ________,
1998, the Warrants will not be redeemable by the Company without the written
consent of Barron Chase Securities, Inc.("Barron"). The provisions of this
Section 6.1 shall not be modified, amended or deleted without the prior written
consent of Barron.
6.2. Date Fixed for, and Notice of, Redemption. In the event the
Company shall elect to redeem all or any part of the Warrants, the Company
shall fix a date for the redemption. Notice of redemption shall be mailed by
first class mail, postage prepaid, by the Company or the Company's agent at its
direction not less than 30 days from the date fixed for redemption to the
registered holders of the Warrants to be redeemed at their last addresses as
they shall appear on the registration books. Any notice mailed in the manner
herein provided shall be conclusively presumed to have been duly given whether
or not the registered holder received such notice.
6.3. Exercise After Notice of Redemption. The Warrants may be
exercised in accordance with Section 3 of this Agreement at any time after
notice of redemption shall have been given by the Company pursuant to Section
6.2. hereof and prior to the date fixed for redemption. On and after the
redemption date, the record holder of the Warrants shall have no further rights
except to receive, upon surrender of the Warrants, the redemption price.
7. Other Provisions Relating to Rights of Holders of Warrants.
7.1. No Rights as Stockholder. A Warrant does not entitle the
registered holder thereof to any of the rights of a stockholder of the Company,
including, without limitation, the right to receive dividends, or other
distributions, exercise any preemptive rights or rights to vote or to consent
or to receive notice as stockholders in respect of the meetings of stockholders
or the election of directors of the Company or any other matter.
7.2. Lost, Stolen, Mutilated, or Destroyed Warrants. If any Warrant
is lost, stolen, mutilated, or destroyed, the Company and the Warrant Agent may
on such terms as to indemnity or otherwise as they may in their discretion
impose (which shall, in the case of a mutilated Warrant, include the surrender
thereof, issue a new Warrant of like denomination, tenor, and date as the
Warrant so lost, stolen, mutilated, or destroyed. Any such new Warrant shall
constitute a substitute contractual obligation of the Company, whether or not
the allegedly lost, stolen, mutilated, or destroyed Warrant shall be at any
time enforceable by anyone.
7.3. Reservation of Common Stock. The Company shall at all times
reserve and keep available a number of its authorized but unissued shares of
Common Stock that will be sufficient to permit the exercise in full of all
outstanding Warrants issued pursuant to this Agreement.
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<PAGE> 8
7.4. Registration Statement. The Company has filed with the
Securities and Exchange Commission a Registration Statement No. 333-25937
("Registration Statement") on Form SB-2 for the registration, under the
Securities Act of 1933, of, among others, the Warrants and the Common Stock
issuable upon exercise of the Warrants.
7.5. Registration of Common Stock. The Company will use its best
efforts to cause the Registration Statement to become effective and to maintain
the effectiveness of such Registration Statement or another registration
statement with respect to such Common Stock underlying the Warrants until the
expiration or redemption of the Warrants in accordance with the provisions of
this Agreement.
8. Concerning the Warrant Agent and Other Matters.
8.1. Payment of Taxes. The Company will from time to time promptly pay
all taxes and charges that may be imposed upon the Company or the Warrant Agent
in respect of the issuance or delivery of shares of Common Stock upon the
exercise of Warrants, but the Company shall not be obligated to pay any
transfer taxes in respect of the Warrants or such shares.
8.2. Resignation, Consolidation, or Merger of Warrant Agent.
8.2.1. Appointment of Successor Warrant Agent. The Warrant Agent, or
any successor to it hereafter appointed, may resign its duties and be
discharged from all further duties and liabilities (other than those incurred
prior to such resignation or discharge) hereunder after giving sixty (60) days'
notice in writing to the Company and may be removed by the Company upon sixty
(60) days' notice. If the office of the Warrant Agent becomes vacant by
resignation or incapacity to act or otherwise, the Company shall appoint in
writing a successor Warrant Agent in place of the Warrant Agent. If the Company
shall fail to make such appointment within a period of 30 days after it has
been notified in writing of such resignation or incapacity by the Warrant
Agent, then the holder of any Warrant may apply to the Supreme Court of the
State of New York for the County of New York for the appointment of a successor
Warrant Agent. Any successor Warrant Agent, whether appointed by the Company or
by such court, shall be a corporation in good standing and having its principal
office in the Borough of Manhattan, City and State of New York, and authorized
under such laws to exercise corporate trust powers and subject to supervision
or examination by federal or state authority. After appointment, any successor
Warrant Agent shall be vested with all the authority, powers, rights,
immunities, duties, and obligations of its predecessor Warrant Agent with like
effect as if originally named as Warrant Agent hereunder, without any further
act or deed; but if for any reason it becomes necessary or appropriate, the
predecessor Warrant Agent shall execute and deliver, at the expense of the
Company, an instrument transferring to such successor Warrant Agent all the
authority, powers, and rights of such predecessor Warrant Agent hereunder; and
upon request of any successor Warrant Agent the Company shall make, execute,
acknowledge, and deliver any and all instruments in writing for more fully and
effectually vesting in and confirming to such successor Warrant Agent all such
authority, powers, rights, immunities, duties, and obligations.
8
<PAGE> 9
8.2.2. Notice of Successor Warrant Agent. In the event a successor
Warrant Agent shall be appointed, the Company shall give notice thereof to the
predecessor Warrant Agent and the transfer agent for the Common Stock not later
than the effective date of any such appointment.
8.2.3. Merger or Consolidation of Warrant Agent. Any corporation into
which the Warrant Agent may be merged or with which it may be consolidated or
any corporation resulting from any merger or consolidation to which the Warrant
Agent shall be a party shall be the successor Warrant Agent under this
Agreement without any further act.
8.2.4. Records. The Warrant Agent shall, upon request by the Company,
deliver to the Company a copy of the transfer records relating to the Warrants
subject to the payment of any amounts required to be paid pursuant to Section
8.3.1.
8.3. Fees and Expenses of Warrant Agent.
8.3.1. Remuneration. The Company agrees to pay the Warrant Agent the
aggregate sum of $500 per month for (i) its services as Warrant Agent hereunder
and (ii) its services as transfer agent to the Company, and to reimburse the
Warrant Agent, upon demand and presentation of appropriate vouchers or
receipts, for the reasonable costs incurred by the Warrant Agent in connection
with its services as Warrant Agent hereunder.
8.3.2. Further Assurances. The Company and the Warrant Agent agree
to perform, execute, acknowledge, and deliver or cause to be performed,
executed, acknowledged, and delivered all such further and other acts,
instruments, and assurances as may reasonably be required by the Warrant Agent
or the Company for the carrying out or performing of the provisions of this
Agreement.
8.4. Liability of Warrant Agent.
8.4.1. Reliance on Company Statement. Whenever in the performance of
its duties under this Warrant Agreement, the Warrant Agent shall deem it
necessary or desirable that any fact or matter be proved or established by the
Company prior to taking or suffering any action hereunder, such fact or matter
(unless other evidence in respect thereof be herein specifically prescribed)
may be deemed to be conclusively proved and established by a statement signed
by the Chairman or President of the Company and delivered to the Warrant Agent.
The Warrant Agent may rely upon such statement for any action taken or suffered
in good faith by it pursuant to the provisions of this Agreement.
8.4.2. Indemnity. The Warrant Agent shall be liable hereunder only
for its own negligence or willful misconduct or any actions taken in bad faith.
The Company agrees to indemnify the Warrant Agent and save it harmless against
any and all liabilities, including judgments, costs and reasonable counsel
fees, for anything done or omitted by the Warrant Agent in the execution of
this Agreement except as a result of the Warrant Agent's negligence, willful
misconduct, or bad faith.
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<PAGE> 10
8.4.3. Exclusions. The Warrant Agent shall have no responsibility
with respect to the validity or execution of any Warrant (except its
countersignature thereof; nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any
Warrant; nor shall it be responsible to make any adjustments required under the
provisions of Section 4. hereof or responsible for the manner, method, or
amount of any such adjustment or the ascertaining of the existence of facts
that would require any such adjustment; nor shall it by any act hereunder be
deemed to make any representation or warranty as to the authorization or
reservation of any shares of Common Stock to be issued pursuant to this
Agreement or any Warrant or as to whether any shares of Common Stock will when
issued be valid and fully paid and nonassessable.
8.5. Acceptance of Agency. The Warrant Agent hereby accepts the
agency established by this Agreement and agrees to perform the same upon the
terms and conditions herein set forth and among other things, shall account
promptly to the Company with respect to Warrants exercised and concurrently
account for, and pay to the Company, all moneys received by the Warrant Agent
for the purchase of shares of the Company's Common Stock through the exercise
of Warrants.
8.6. Right to Consult Counsel. The Warrant Agent may at any time
consult with legal counsel of its selection satisfactory to it (who may be
legal counsel for the Company), and the Warrant Agent shall incur no liability
or responsibility to the Company or to any registered holder for any action
taken, suffered or omitted by it in good faith in accordance with the opinion
or advice of such counsel.
9. Miscellaneous Provisions.
9.1. Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Warrant Agent shall bind and inure
to the benefit of their respective successors and assigns.
9.2. Notices. Any notice, statement or demand authorized by this
Warrant Agreement to be given or made by the Warrant Agent or by the holder of
any Warrant to or on the Company shall be sufficiently given or made if sent by
certified mail, or private courier service, postage prepaid, addressed to the
address as set forth above (until another address is filed in writing by the
Company with the Warrant Agent). Any notice, statement or demand authorized by
this Agreement to be given or made by the holder of any Warrant or by the
Company to or on the Warrant Agent shall be sufficiently given or made if sent
by certified mail or private courier service, postage prepaid, addressed to the
address as set forth above (until another address is filed in writing by the
Warrant Agent with the Company).
9.3. Applicable Law. The validity, interpretation, and performance of
this Agreement and of the Warrants shall be governed in all respects by the
laws of the State of New York.
9.4. Persons Having Rights under this Agreement. Nothing in this
Agreement expressed and nothing that may be implied from any of the provisions
hereof is intended, or shall be construed, to
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confer upon, or give to, any person or corporation other than the parties
hereto and the registered holders of the Warrants and, for the purposes of
Sections 6 hereof, Barron. Barron shall be deemed to be a third party
beneficiary of this Agreement with respect to Sections 6.1 hereof. All
covenants, conditions, stipulations, promises, and agreements contained in this
Warrant Agreement shall be for the sole and exclusive benefit of the parties
hereto (and Barron to the extent set forth above) and their successors and
assigns and of the registered holders of the Warrants.
9.5. Examination of the Warrant Agreement. A copy of this Agreement
shall be available at all reasonable times at the offices of the Warrant Agent
in the Borough of Manhattan, City and State of New York, for inspection by the
registered holder of any Warrant. The Warrant Agent may require any such holder
to submit his or her Warrant for inspection by it.
9.6. 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 all such counterparts shall together constitute but one and
the same instrument.
9.7. Effect of Headings. The Section headings herein are for
convenience only and are not part of this Warrant Agreement and shall not
affect the interpretation thereof.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto under their respective corporate seals as of the day and year
first above written.
DIDAX INC.
By:
---------------------------
Authorized Representative
AMERICAN STOCK TRANSFER &
TRUST COMPANY
By:
---------------------------
Authorized Representative
11
<PAGE> 12
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. W______ ______Warrants
Cusip No. 253624 11 8
VOID AFTER _______, 2002
REDEEMABLE COMMON STOCK PURCHASE WARRANT CERTIFICATE TO
PURCHASE COMMON STOCK OF
DIDAX INC.
This Warrant Certificate certifies that ____________________________
or registered assigns thereof, is the registered holder of Warrants (the
"Warrants") to purchase shares of common stock, $.001 par value per share (the
"Shares") of DIDAX INC., a Delaware corporation (the"Company"). Each Warrant
evidenced hereby entities the holder to purchase from the Company on or before
4:00 p.m., Eastern Time, on ___________, 2002 (the "Expiration Date") one fully
paid and nonassesable Share at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $5.75 per share upon
surrender of this Warrant Certificate and payment of the Exercise Price at the
office or agency of the Warrant Agent in New York, New York, but only subject
to the conditions set forth herein and in the Warrant Agreement, dates as of
the Effective Date (the "Warrant Agreement") between the Company and American
Stock Transfer & Trust Company, as Warrant Agent (the"Warrant Agent"). All
capitalized terms used but not defined herein have the meanings set forth in
the Warrant Agreement. Payment of the Exercise Price may be made in cash or by
certified or official bank check payable to the order of the Company. Reference
is hereby made to the further provisions of this Warrant Certificate,
including, without limitation, those set forth on the reverse hereof, and such
further provisions are incorporated herein by reference and will for all
purposes have the same effect as though fully set forth herein. This Warrant
Certificate shall not be valid unless countersigned by the Warrant Agent. This
Warrant Certificate is negotiable. The Warrants may be redeemed as provided in
the Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
DIDAX INC.
Dated: By:
----------------------- ----------------------
Dated: By:
----------------------- ----------------------
[seal]
[Continued on next page]
12
<PAGE> 13
Countersigned:
AMERICAN STOCK TRANSFER &
TRUST COMPANY, as Warrant Agent
By:
------------------------------
Authorized Officer
13
<PAGE> 14
[FORM OF REVERSE OF REDEEMABLE COMMON STOCK PURCHASE WARRANTS]
ELECTION TO PURCHASE
(To Be Executed Upon Exercise of the Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase Shares and herewith
tenders in payment for such Shares cash or a certified or official bank check
payable to the order of the Company in the amount of $___________ all in
accordance with the terms hereof. The undersigned requests that a certificate
for such Shares be registered in the name of ___________ whose address is
___________ and that such certificate be delivered to whose address is
____________. If said number of Shares is less than all the Shares purchasable
hereunder, the undersigned requests that a new Warrant Certificate representing
Warrants to purchase the remaining balance of the Shares be registered in the
name of whose address is and that such certificate be delivered to ____________
whose address is ___________.
The undersigned represents that the exercise of the within Warrant was
solicited by a member of the National Association of Securities Dealers, Inc.
If not solicited by an NASD member, please write "unsolicited" in the space
below. Unless otherwise indicated by listing the name of an NASD member firm,
it will be assumed that the exercise was "unsolicited."
- -------------------------
Dated: X
--------------------- --------------------------------
Signature
X
--------------------------------
---------------------------------
---------------------------------
Address
---------------------------------
Taxpayer Identification Number(s)
---------------------------------
Signature(s) Guaranteed
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<PAGE> 15
ASSIGNMENT
To Be Executed by the Registered Holder
If Such Holder desires to transfer the Warrant Certificate
FOR VALUE RECEIVED, ____________hereby sells, assigns and transfers unto
----------------------------------
----------------------------------
----------------------------------
----------------------------------
[please print or type name and address]
-----------------------------------------------------------
[please insert social security or other identifying number]
(all)_________ of the Warrants evidenced by this Warrant Certificate, together
with all right, title and interest therein, and does hereby irrevocably
constitute and appoint _____________________________________________Attorney,
to transfer this Warrant Certificate on the books of the Company, with full
power of substitution.
Dated: X
------------------- ------------------------------
X
------------------------------
Signature(s) Guaranteed
X
------------------------------
15
<PAGE> 1
EXHIBIT 5.1
BERMAN WOLFE & RENNERT, P.A.
ATTORNEYS AND COUNSELORS
NATIONSBANK TOWER AT INTERNATIONAL PLACE
100 SOUTHEAST SECOND STREET, 35TH FLOOR
MIAMI, FLORIDA 33131-2130
CHARLES J. RENNERT PHONE (305) 577-4177
FAX (305) 373-6036
DIDAX INC.
4501 Daly Drive, Suite 103
Chantilly, VA 20151
Re: DIDAX INC.
SEC File No. 333-25937
Gentlemen:
We have acted as counsel to DIDAX INC., a Delaware corporation (the
"Company"), in connection with the proposed issuance and sale of the following
securities registered on a Form SB-2 Registration Statement, SEC File No. 333-
25937 (the "Registration Statement"), filed with the U.S. Securities and
Exchange Commission (the "Commission") pursuant to the Securities Act of 1933,
as amended (the "Act"):
1. 2,000,000 shares of Common Stock, $.01 par value;
2. 2,000,000 Purchase Warrants;
3. 2,000,000 shares of Common Stock, to be issued upon exercise
of the Purchase Warrants;
4. 300,000 shares of Common Stock, to be issued upon exercise of
the over-allotment option;
<PAGE> 2
DIDAX INC
June 6, 1997
Page 2
5. 300,000 Purchase Warrants, to be issued upon exercise of the
over-allotment option;
6. 300,000 shares of Common Stock, to be issued upon exercise of
the Purchase Warrants issuable upon exercise of the
over-allotment option;
7. 200,000 Common Stock Representative Warrants ("RPCs"), to be
issued and sold to Barron Chase Securities, Inc. (the
"Representative"), each RPC entitling the holder thereof to
purchase one share of Common Stock;
8. 200,000 shares of Common Stock to be issued upon exercise of
the RPCs;
9. 200,000 Warrant Representative Warrants ("RPWs"), to be issued
and sold to the Representative, each RPW entitling the holder
thereof to purchase one Purchase Warrant;
10. 200,000 Representative Underlying Warrants ("RUPWs") to be
issued upon exercise of the RPWs; and
11. 200,000 shares of Common Stock to be issued upon exercise of
the RUPWs.
In rendering the opinion expressed herein, we have examined the
following documents and instruments:
1. The Registration Statement, the exhibits filed in connection
therewith, and the form of Prospectus contained therein;
2. The Company's Certificate of Incorporation, as amended, as
certified by the Secretary of State of the state of Delaware;
3. The Company's Bylaws, as amended, as certified by the
Secretary of the Company; and
4. The Unanimous Written Consent of the Board of Directors of the
Company dated as of April 25, 1997 authorizing the issuance
and sale of the Company's securities pursuant to the terms
contained in the Registration Statement.
<PAGE> 3
DIDAX INC
June 6, 1997
Page 3
We have examined originals or copies, identified to our satisfaction,
of such certificates, agreements and assurances as we considered necessary for
the purposes of rendering the opinion hereinafter expressed.
We have also consulted with officers and directors of the Company and
have obtained such representations with respect to the matters of fact as we
have deemed necessary or advisable for purposes of rendering the opinion
hereinafter expressed. We have not independently verified the factual statements
made to us in connection therewith, nor the veracity of such representations.
Based on the foregoing, it is our opinion that:
After the Commission has declared the Registration Statement to be
effective (such Registration Statement as is finally declared effective and the
form of Prospectus contained therein being hereinafter referred to as the
"Registration Statement" and the "Prospectus," respectively) and when the
applicable provisions of the "Blue Sky" or other state securities laws shall
have been complied with, the Company's securities covered by the Registration
Statement, upon receipt of payment therefor, will constitute legally issued
securities of the Company, fully paid and non-assessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference of this law firm in the Prospectus
under the heading "Legal Matters." In giving this consent, we do not hereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Commission promulgated
thereunder.
Very truly yours,
BERMAN WOLFE & RENNERT, P.A.
By:/s/ CHARLES J. RENNERT
-------------------------
Charles J. Rennert
CJR:ss
<PAGE> 1
EXHIBIT 5.2
[GAMMON & GRANGE, P.C. LETTERHEAD]
April 7, 1997
Board of Directors -- VIA FACSIMILE--
DIDAX INC. 703-968-4819
4501 Daly Drive, Suite 103 AND COURIER
Chantilly, Virginia 22021
Re: DIDAX INC. (0201-1)
Dear Sirs:
This letter is in response to your request for a legal opinion regarding the
establishment of DIDAX INC. as a "religious" corporation.
As set forth in Article XIII of its Bylaws, DIDAX INC. ("DIDAX") has
purposefully been established as a "religious corporation." Section 702(a) of
Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. ss.2000e-1(a),
creates an exemption from the employment requirements of Title VII for "a
religious corporation, association, educational institution, or society with
respect to the employment of individuals of a particular religion to perform
work connected with the carrying on by such corporation, association,
educational institution, or society of its activities." DIDAX has been
established as a religious corporation in order to implement its religious
faith criteria in selecting employees and other agents to serve most
effectively its target market of religious constituencies. Therefore, in our
opinion, the fact that DIDAX is established as a religious corporation does not
violate Title VII.
Please contact us if you have further questions.
With kindest regards,
/s/ G.R. GRANGE
George R. Grange II
Scott J. Ward
<PAGE> 1
EXHIBIT 10.16
DIDAX INC.
EMPLOYMENT AGREEMENT
(CHIEF EXECUTIVE OFFICER)
Agreement made as of this 10th day of June 1997, by and among Dr. Robert C.
Varney of Reston, Virginia ("Employee") and DIDAX INC. (the "Company"), but
effective as of the date of the closing of the Initial Public Offering of the
Company's securities.
PREAMBLE
The Board of Directors of the Company recognizes Employee's potential
contribution to the growth and success of the Company and desires to assure the
Company of Employee's employment in an executive capacity as Chief Executive
Officer and to compensate him therefor. Employee wants to be employed by the
Company and to commit himself to serve the Company on the terms herein
provided.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties, the parties agree as follows:
1. Definitions
"Benefits" shall mean all the fringe benefits approved by the Board
from time to time and established by the Company for the benefit of employees
generally and/or for key employees of the Company as a class, including, but
not limited to, regular holidays, vacations, absences resulting from illness or
accident, health insurance, disability and medical plans (including dental and
prescription drug), group life insurance, and pension, profit-sharing and stock
bonus plans or their equivalent.
"Board" shall mean the Board of Directors of the Company, together with
an executive committee thereof (if any), as same shall be constituted from time
to time.
"Cause" for termination shall mean (i) Employee's final conviction of a
felony involving a crime of moral turpitude, (ii) acts of Employee which, in
the judgment of the Board, constitute willful fraud on the part of Employee in
connection with his duties under this Agreement, including but not limited to
misappropriation or embezzlement in the performance of duties as an employee of
the Company, or willfully engaging in conduct materially injurious to the
Company and in violation of the covenants contained in this Agreement, or (iii)
gross misconduct, including but not limited to the willful failure of Employee
either to (a) continue to obey lawful written instruction of the Board after
thirty (30) days notice in writing of Employee's failure to do so and the
Board's intention to terminate Employee if such failure is not corrected, or
(b) correct any conduct of Employee which constitutes a material breach of this
Agreement after thirty (30) days notice in writing of Employee's failure to do
so and the Board's intention to terminate Employee if such failure is not
corrected.
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<PAGE> 2
"Chairman" shall mean the individual designated by the Board from time
to time as its chairman.
"Change of Control" shall mean the occurrence of one or more of the
following three events:
(1) After the effective date of this Agreement, any person becomes a
beneficial owner (as such term is defined in Rule 13d3 promulgated under
the Securities Exchange Act of 1934) directly or indirectly of securities
representing 33% or more of the total number of votes that may be cast for
the election of directors of the Company;
(2) Within two years after a merger, consolidation, liquidation or sale
of assets involving the Company, or a contested election of a Company
director, or any combination of the foregoing, the individuals who were
directors of the Company immediately prior thereto shall cease to
constitute a majority of the Board; or
(3) Within two years after a tender offer or exchange offer for voting
securities of the Company, the individuals who were directors of the
Company immediately prior thereto shall cease to constitute a majority of
the Board.
"Chief Executive Officer" shall mean the individual having
responsibility to the Board for direction and management of the executive and
operational affairs of the Company and who reports and is accountable only to
the Board.
"Disability" shall mean a written determination by a physician mutually
agreeable to the Company and Employee (or, in the event of Employee's total
physical or mental disability, Employee's legal representative) that Employee
is physically or mentally unable to perform his duties of Chief Executive
Officer under this Agreement and that such disability can reasonably be
expected to continue for a period of six (6) consecutive months or for shorter
periods aggregating one hundred and eighty (180) days in any twelve-(12)-month
period.
"Employee" shall mean Dr. Robert C. Varney and, if the context
requires, his heirs, personal representatives, and permitted successors and
assigns.
"Person" shall mean any natural person, incorporated entity, limited or
general partnership, business trust, association, agency (governmental or
private), division, political sovereign, or subdivision or instrumentality,
including those groups identified as "persons" in ss.ss. 13(d)(3) and 14(d)(2)
of the Securities Exchange Act of 1934.
"Reorganization" shall mean any transaction, or any series of
transactions consummated in a 12-month period, pursuant to which any Person
acquires (by merger, acquisition, or otherwise) all or substantially all of the
assets of the Company or the then outstanding equity securities of the Company
and the Company is not the surviving entity, the Company being deemed surviving
if and only if the majority of the Board of Directors of the ultimate parent of
the surviving entity were directors of the Company prior to its organization.
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<PAGE> 3
"Territory" shall mean any state of the United States, and any
equivalent section or area of any country, in which the Company has
revenue-producing customers or activities.
"Company" shall mean DIDAX INC., a Delaware corporation, together with
such subsidiaries of the Company as may from time to time exist.
2. Position, Responsibilities, and Term of Employment.
2.01 Position. Employee shall serve as Chief Executive Officer and in
such additional management position(s) as the Board shall designate. In this
capacity Employee shall, subject to the bylaws of the Company, and to the
direction of the Board, serve the Company by performing such duties and
carrying out such responsibilities as are normally related to the position of
Chief Executive Officer in accordance with the standards of the industry. As a
bona fide occupational qualification, the Employee will, upon request,
subscribe to the Statement of Faith as stated in Article XIII, Section 2 of the
bylaws of the Company. The Board shall either vote, or recommend to the
shareholders of the Company, as appropriate, that during the term of employment
pursuant to this Agreement: (i) Employee be nominated for election as a
director at each meeting of shareholders held for the election of directors;
(ii) Employee be elected to and continued on the Board of each subsidiary of
the Company, (iii) if the Board of the Company or any of its subsidiaries shall
appoint an executive committee (or similar committee authorized to exercise the
general powers of the Board), Employee be elected to and continued on such
committee; and (iv) neither the Company nor any of its subsidiaries shall
confer on any other officer or employee authority, responsibility, powers or
prerogatives superior or equal to the authority, responsibility, prerogatives
and powers vested in Employee hereunder.
2.02 Best Efforts Covenant. Employee will, to the best of his ability,
primarily devote his professional and business time and best efforts to the
performance of his duties for the Company and its subsidiaries and affiliates.
2.03 Protective Covenant. Employee agrees not to acquire, assume, or
participate in, directly or indirectly, any position, investment, or interest
in the Territory adverse or antagonistic to the Company, its business or
prospects, financial or otherwise, or take any action towards any of the
foregoing. The provisions of this Section shall not prevent Employee from
owning shares of any competitor of the Company so long as such shares (i) do
not constitute more than [1%] of the outstanding equity of such competitor, and
(ii) are regularly traded on a recognized exchange or listed for trading by
NASDAQ in the over-the-counter market.
2.04 Post-Employment Noncompetition Covenant. Except with the prior
written consent of the Board, Employee shall not engage in activities in the
Territory either on Employee's own behalf or that of any other business
organization, which are in direct competition with the Company, or solicit
customers, or clients, of the Company or any of its affiliates for a period of
six (6) months subsequent to Employee's voluntary withdrawal from employment
with the Company (except for a Change in Control Termination in which case this
Noncompetition Covenant does not apply), or the Company's termination of
Employee's employment for Cause. In accordance with the foregoing limits,
Employee will not willfully canvas, solicit nor accept any such business in
competition with the business of the Company from any customers of the Company
with whom Employee had contact during, or of which Employee had knowledge
solely as a result of, his performance of services for the Company pursuant to
this Agreement, and Employee will not directly or indirectly request, induce or
advise any customers of the Company with whom Employee had contact during the
term of this Agreement to withdraw, curtail or cancel their business with the
Company. Employee and the Company expressly declare that the territorial and
time limitations contained in this Section and the definition of "Territory"
are entirely reasonable at this time and are
3
<PAGE> 4
properly and necessarily required for the adequate protection of the business
and intellectual property of the Company. If such territorial or time
limitations, or any portions thereof, are deemed to be unreasonable by a
mediator, arbitrator or a court of competent jurisdiction, whether due to
passage of time, change of circumstances or otherwise, Employee and the Company
agree to a reduction of said territorial and/or time limitations to such areas
and/or periods of time as said court shall deem reasonable. The duration of the
covenant as noted herein will be extended if its enforcement is delayed by
mediation, arbitration or litigation.
For a period of one year subsequent to Employee's voluntary withdrawal
from employment with the Company (except for a Change in Control Termination in
which case this Noncompetition Covenant does not apply), or the Company's
termination of Employee's employment for Cause, Employee will not without the
express prior written approval of the Board (i) in one or a series of
transactions, recruit, solicit or otherwise induce or influence any proprietor,
partner, stockholder, lender, director, officer, employee, sales agent, joint
venturer, investor, lessor, agent, representative or any other person which has
a business relationship with the Company or had a business relationship with
the Company within the twelve-(12) month period preceding the date of the
incident in question, to discontinue, reduce, or modify such employment, agency
or business relationship with the Company, or (ii) employ or seek to employ or
cause any business organization in direct competition with the Company to
employ or seek to employ any person or agent who is then (or was at any time
within six months prior to the date the Employee or the competitive business
employs or seeks to employ such person) employed or retained by the Company.
Notwithstanding the foregoing, nothing herein shall prevent the Employee from
providing a letter of recommendation to an employee with respect to a future
employment opportunity. However, employee will not induce or attempt to induce
any employee of the Company to terminate his/her employment with the Company.
2.05 Confidential Information. Employee recognizes and acknowledges
that the Company's trade secrets and proprietary information and know-how, as
they may exist from time to time ("Confidential Information"), are valuable,
special and unique assets of the Company's business, access to and knowledge of
which are essential to the performance of Employee's duties hereunder. Employee
will not, during or after the term of his employment by the Company, in whole
or in part, disclose such secrets, information or know-how to any Person for
any reason or purpose whatsoever, nor shall Employee make use of any such
property for his own purposes or for the benefit of any Person (except the
Company) under any circumstances during or after the term of his employment,
provided that after the term of his employment these restrictions shall not
apply to such secrets, information and know-how which are then in the public
domain (provided that Employee was not directly responsible for such secrets,
information or processes entering the public domain without the Company's
consent). Employee shall have no obligation hereunder to keep confidential any
Confidential Information if and to the extent disclosure of any thereof is
specifically required by law; provided, however, that in the event disclosure
is required by applicable law, the Employee shall provide the Company with
prompt notice of such requirement, prior to making any disclosure, so that the
Company may seek an appropriate protective order. Employee agrees to hold as
the Company's property all memoranda, books, papers, letters, customer lists,
processes, computer software, records, financial information, policy and
procedure manuals, training and recruiting procedures and other data, and all
copies thereof and therefrom, in any way relating to the Company's business and
affairs, whether made by him or otherwise coming into his possession, and on
termination of his
4
<PAGE> 5
employment, or on demand of the Company at any time, to deliver the same to the
Company. Employee agrees that he will not use or disclose to other employees of
the Company, during the term of this Agreement, confidential information
belonging to his former employers.
Employee shall use his best efforts to prevent the removal of any
Confidential Information from the premises of the Company, except as required
in his normal course of employment by the Company. Employee shall use his best
efforts to cause all persons or entities to whom any Confidential Information
shall be disclosed by him hereunder to observe the terms and conditions set
forth herein as though each such person or entity was bound hereby.
2.06 Records, Files. All records, files, drawings, documents, equipment
and the like relating to the business of the Company which are created by
Employee only during the term of his employment under this Agreement shall be
and shall remain the sole property of the Company.
2.07 Hired to Invent. Employee agrees that every improvement,
invention, process, apparatus, method, design, and any other creation that
Employee may invent, discover, conceive, or originate by himself or in
conjunction with any other Person during the term of Employee's employment
under this Agreement, that relates to the business carried on by the Company
during the term of Employee's employment under this Agreement, shall be the
exclusive property of the Company. Employee agrees to disclose to the Company
every patent application, notice of copyright, or other action taken by
Employee or any affiliate or assignee to protect intellectual property during
the twelve -(12) months following Employee's termination of employment at the
Company, for whatever reason, so that the Company may determine whether to
assert a claim under this Section or any other provision of this Agreement.
3. Compensation.
3.01 Annual Compensation. The Company shall pay to Employee for the
services to be rendered hereunder a base salary at an annual rate of One
Hundred Thirty Thousand dollars ($130,000). It is understood that this
salary will be abated to Ninety Thousand dollars ($90,000) ("Minimum Annual
Compensation") per annum with the understanding that the Board will establish
by January 1, 1998, specific reasonable and measurable criteria for decreasing
or eliminating this abatement. There shall also be an annual review for merit
by the Board and an increase as deemed appropriate to reflect the value of
services by Employee. At no time during the term of this Agreement shall
Employee's annual base salary fall below the Minimum Annual Compensation.
5
<PAGE> 6
Employee's salary shall be payable in periodic installments in
accordance with the Company's usual practice for similarly situated employees
of the Company.
3.02 Incentive Compensation. In addition to the Annual Compensation,
Employee shall be entitled to receive payments under the Company's incentive
compensation and/or bonus program(s) (as in effect from time to time), if any,
in such amounts as are determined by the Board to be appropriate. Any
incentive compensation which is not deductible in the opinion of the Company's
counsel, under Section 162(m) of the Internal Revenue Code shall be deferred
and paid, without interest, in the first year or years when and to the extent
such payment may be deducted, Employee's right to such payment being absolute.
3.03 Participating in Benefits. Employee shall be entitled to all
Benefits for as long as such Benefits may remain in effect and/or any
substitute or additional Benefits made available in the future to similarly
situated employees of the Company, subject to and on a basis consistent with
the terms, conditions and overall administration of such Benefits adopted by
the Company. Benefits paid to Employee shall not be deemed to be in lieu of
other compensation to Employee hereunder as described in this Section 3.
3.04 Specific Benefits.
During the term of this Agreement (and thereafter to the extent this
Agreement shall require):
(a) Employee shall be entitled to four (4) weeks of paid vacation time
per year, to be taken at times mutually acceptable to the Company and Employee.
(b) The Company shall provide fully paid accident and health insurance
for Employee and his family.
(c) The Company shall obtain at its expense (subject to Employee's
insurability) an insurance policy on the life of Employee, adjusted at policy
anniversary date, subject to the last sentence of this Section 3.04(c), in the
minimum face amount of employee's
6
<PAGE> 7
current annual base salary. Employee shall have the exclusive right to
designate the beneficiaries of such policy and change such beneficiaries from
time to time. Such policy and the proceeds and cash value thereof shall be the
sole property of Employee and the Company shall not retain any benefit therein.
(d) Employee shall be entitled to sick leave benefits during the
employment period in accordance with the customary policies of the Company for
its executive officers, but in no event less than one (1) month per year. In
the event of Employee's Disability, disability insurance shall provide for the
payment of the Employee's annualized salary at the time of the disability for a
period of not less than one (1) year from the date of Disability.
(e) In addition to the vacation provided pursuant to Section 3.04(a)
hereof, Employee shall be entitled to not less than ten (10) paid holidays
(other than weekends) per year, generally on such days consistent with the
Company's policy manual.
(f) Employee shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by him (in accordance with the policies and
procedures established by the Company or the Board for the similarly situated
employees of the Company) in performing services hereunder.
(g) Employee shall be eligible to participate during the Employment
Period in Benefits not inconsistent or duplicative of those set forth in this
Section 3.04 as the Company shall establish or maintain for its employees or
executives generally.
(h) Employee shall be entitled to personal leave during the employment
period of one (1) day per week. After the $130,000 salary level has been
achieved, this entitlement, if exercised will be treated as unpaid time off.
4. Termination.
4.01 Termination by Company for Other Than Cause. If during the term of
this Agreement, the Company terminates the employment of Employee and such
termination is not for Cause, then, the Company shall pay to Employee an amount
equal to the Employees then current monthly compensation level multiplied by
the minimum of eighteen (18) or the number of months remaining in the term of
this Agreement (the "Severance Period") until such time as Employee shall
become reemployed in a position consistent with Employee's experience and
stature. If Employee obtains such a position but Employee's annual compensation
shall be less than the compensation upon termination, then the difference shall
be paid to Employee for the balance of the Severance Period. Such difference
shall be calculated as follows: The difference between Employee's ending
biweekly compensation annualized and the annualized compensation payable to
Employee in his new position during such period shall be payable in the same
manner as the Employee was paid prior to termination over the period of such
reemployment during such period. If the Employee's employment in a new position
shall terminate, then for the purposes of this Paragraph 4.01 Employee shall be
entitled to continuation of the ending monthly compensation until he shall
again become reemployed, in which case only
7
<PAGE> 8
the difference shall be payable as aforesaid, over the time of the Severance
Period. Should the Employee not be reemployed, all benefits included in Section
3.04(b) herein, will also be paid post termination, until the Employees' death.
This benefits coverage will cease upon the date the Employee is eligibile for
coverage by a succeeding employer.
4.02 Constructive Discharge. If the Company fails to reappoint Employee
to (or rejects Employee for) the position or positions listed in Section 2.01,
fails to comply with the provisions of Section 3, or engages in any other
material breach of the terms of this Agreement, Employee may at his option
terminate his employment and such termination shall be considered to be a
termination of Employee's employment by the Company for reasons other than
"Cause."
4.03 Termination by the Company for Cause. The Company shall have the
right to terminate the employment of Employee for Cause. Effective as of the
date that the employment of Employee terminates by reason of Cause, this
Agreement, except for Sections 2.04 through 2.08, shall terminate and no
further payments of the Compensation described in Section 3 (except for such
remaining payments of compensation under Section 3.01 relating to periods
during which Employee was employed by the Company, Benefits which are required
by applicable law to be continued, and reimbursement of prior expenses under
Section 3.04) shall be made.
4.04 Change in Control Termination. If at any time during the term of
this Agreement there is a termination due to Change of Control, the Company
shall pay to Employee an amount equal to the monthly portion of Employee's then
current monthly compensation as in effect on the date Employee's employment
terminated multiplied by twenty four (24). This amount shall be paid to
Employee in one lump sum as soon as practicable, but in no event later than
sixty (60) days, after the date of the termination due to Change in Control.
4.05 Termination on Account of Employee's Disability. If Employee
ceases to perform services for the Company because he is suffering from a
medically determinable disability and is therefore incapable of performing such
services, the Company shall continue to pay Employee an amount equal to the
Employee's then current compensation level as in effect on the date of
Employee's cessation of services by reason of disability less any amounts paid
to Employee as Workers Compensation, Social Security Disability benefits (or
any other disability benefits paid to Employee as federal, state, or local
disability benefits) and any amounts paid to Employee as disability payments
under any disability plan or program for a period ending on the earlier of: (a)
the date that Employee again becomes employed in a significant manner and on a
substantially full-time basis; (b) the date that Employee attains normal
retirement age, as such age is defined in a retirement plan maintained by the
Company; or (c) Employee begins to receive retirement benefits from a
retirement plan maintained by the Company.
4.06 Termination on Account of Employee's Death.
(a) In the event of Employee's death during the term of this
Agreement:
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<PAGE> 9
(1) This Agreement shall terminate except as provided in this
Section; and
(2) The Company shall continue to retain benefits coverage on
behalf of the Employee's beneficiary or beneficiaries in the
manner indicted in Section 3.04(b) herein.
(b) Employee may designate one or more beneficiaries for the
purposes of this Section by making a written designation and delivering such
designation to the President or the Secretary of the Company. If Employee makes
more than one such written designation, the designation last received before
Employee's death shall control.
5. Stock Options.
5.01 Amount of Stock. In accordance with the provisions of the
Company's 1997 Incentive Stock Option Plan (the "Plan") and the specific
authorization of the Board, the Company hereby grants to Employee, subject to
all of the terms and conditions of the Plan and this Agreement, an option to
acquire shares of the Company's outstanding common stock ("Option Stock") in an
amount as indicated in Attachment "A" of this document.
5.02 Vesting. The Option to acquire the shares of common stock granted
in Section 5.01 vest per the schedule provided in Attachment "A" of this
document. Notwithstanding anything to the contrary contained in this Agreement,
all Options to acquire Option Stock shall irrevocably vest thirty (30) calendar
days prior to the scheduled consummation of a Change of Control.
5.03 Tax Changes. If any change(s) in the Federal income tax laws
materially affect the tax treatment of Employee with respect to the Option or
the Option Stock, the parties agree to negotiate in good faith to reach an
agreement which will take advantage of, or minimize the disadvantages of, such
changes.
5.04 Notwithstanding the type of termination described in Section 4
herein, Employee has the right to retain all granted options and warrants, even
those which are not vested, available for option exercise upon vesting, until
their natural expiration.
6. Miscellaneous.
6.01 Assignment. This Agreement and the rights and obligations of the
parties hereto shall bind and inure to the benefit of each of the parties
hereto and shall also bind and inure to the benefit of any successor or
successors of the Company in a reorganization, merger or consolidation and any
assignee of all or substantially all of the Company's business and properties,
but, except as to any such successor of the Company, neither this Agreement nor
any rights or benefits hereunder may be assigned by the Company or Employee.
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<PAGE> 10
6.02 Initial Term and Extensions. Except as otherwise provided, the
term of this Agreement shall be in effect until June 30, 1999 and commencing
with the effective date hereof. On June 30, 1999, and on each subsequent annual
anniversary of this date thereafter, the term of the Agreement shall be
automatically extended for an additional year unless either party notifies the
other in writing more than 90 days prior to the relevant anniversary date that
the Agreement is no longer to be extended. If, prior to June 30, 2009, Company
notifies Employee of its desire not to extend this agreement, this will be
considered termination by the Company other than by cause as described in
Section 4.01.
6.03 Governing Law. This Agreement shall be construed in accordance
with and governed for all purposes by the laws of the State of Virginia.
6.04 Interpretation. In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, but
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
6.05 Notice. Any notice required or permitted to be given hereunder
shall be effective when received and shall be sufficient if in writing and if
personally delivered or sent by prepaid cable, telex or registered air mail,
return receipt requested, to the party to receive such notice at its address
set forth at the end of this Agreement or at such other address as a party may
by notice specify to the other.
6.06 Amendment and Waiver. This Agreement may not be amended,
supplemented or waived except by a writing signed by the party against which
such amendment or waiver is to be enforced. The waiver by any party of a breach
of any provision of this Agreement shall not operate to, or be construed as a
waiver of, any other breach of that provision nor as a waiver of any breach of
another provision.
6.07 Binding Effect. Subject to the provisions of Section 4 hereof,
this Agreement shall be binding on the successors and assigns of the parties
hereto.
6.08 Survival of Rights and Obligations. All rights and obligations of
Employee or the Company arising during the term of this Agreement shall
continue to have full force and effect after the termination of this Agreement
unless otherwise provided herein.
6.09 Christian Conciliation. Employee and the Company 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 cannot be resolved 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 both the Employee and the Company. Any arbitration award issued by the
mediator shall be final, binding, and enforceable in any court of competent
jurisdiction.
The Company
By
--------------------------
----------------------------
Employee
----------------------------
Spouse
10
<PAGE> 11
ATTACHMENT "A"
Robert Varney
<TABLE>
<CAPTION>
Exercise Expiration
Shares Price Vesting Date
- ------------------------------------------------------------------------
<S> <C> <C> <C>
116,000 $2.00 Fully Vested 06/29/05
145,312 $5.00 $.125 EPS For Quater OR $.50 EPS For Year 09/30/06
17,524 $4.00 Fully Vested 12/31/06
8,075 $5.00 Fully Vested 03/31/07
8,075 $5.00 Fully Vested 06/30/07
</TABLE>
<PAGE> 1
EXHIBIT 10.17
DIDAX INC.
EMPLOYMENT AGREEMENT
(PRESIDENT)
Agreement made as of this 10th day of June 1997, by and among Dane B.
West of Purcellville, Virginia ("Employee") and DIDAX INC. (the "Company"), but
effective as of the closing of the Initial Public Offering of the Company's
securities.
PREAMBLE
The Board of Directors of the Company recognizes Employee's
potential contribution to the growth and success of the Company and desires to
assure the Company of Employee's employment in an executive capacity as
President and to compensate him therefor. Employee wants to be employed by the
Company and to commit himself to serve the Company on the terms herein
provided.
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements of the parties, the parties agree as
follows:
1. Definitions
"Benefits" shall mean all the fringe benefits approved by the
Board from time to time and established by the Company for the benefit of
employees generally and/or for key employees of the Company as a class,
including, but not limited to, regular holidays, vacations, absences resulting
from illness or accident, health insurance, disability and medical plans
(including dental and prescription drug), group life insurance, and pension,
profit-sharing and stock bonus plans or their equivalent.
"Board" shall mean the Board of Directors of the Company,
together with an executive committee thereof (if any), as same shall be
constituted from time to time.
"Cause" for termination shall mean (i) Employee's final
conviction of a felony involving a crime of moral turpitude, (ii) acts of
Employee which, in the judgment of the Board, constitute willful fraud on the
part of Employee in connection with his duties under this Agreement, including
but not limited to misappropriation or embezzlement in the performance of
duties as an employee of the Company, or willfully engaging in conduct
materially injurious to the Company and in violation of the covenants contained
in this Agreement, or (iii) gross misconduct, including but not limited to the
willful failure of Employee either to (a) continue to obey lawful written
instruction of the Board after thirty (30) days notice in writing of Employee's
failure to do so and the Board's intention to terminate Employee if such
failure is not corrected, or (b) correct any conduct of Employee which
constitutes a material breach of this Agreement after thirty (30) days notice
in writing of Employee's failure to do so and the Board's intention to
terminate Employee if such failure is not corrected.
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"Chairman" shall mean the individual designated by the Board from
time to time as its chairman.
"Change of Control" shall mean the occurrence of one or more of
the following three events:
(1) After the effective date of this Agreement, any person
becomes a beneficial owner (as such term is defined in Rule 13d3
promulgated under the Securities Exchange Act of 1934) directly or
indirectly of securities representing 33% or more of the total number
of votes that may be cast for the election of directors of the
Company;
(2) Within two years after a merger, consolidation, liquidation
or sale of assets involving the Company, or a contested election of a
Company director, or any combination of the foregoing, the individuals
who were directors of the Company immediately prior thereto shall
cease to constitute a majority of the Board; or
(3) Within two years after a tender offer or exchange offer for
voting securities of the Company, the individuals who were directors
of the Company immediately prior thereto shall cease to constitute a
majority of the Board.
"President" shall mean the individual having responsibility to
the Board and the Chief Executive Officer, as the principle authorized agent of
the Company, carrying out the direction and management of the operational
affairs of the Company and who reports and is accountable to the Board and the
Chief Executive Officer.
"Disability" shall mean a written determination by a physician
mutually agreeable to the Company and Employee (or, in the event of Employee's
total physical or mental disability, Employee's legal representative) that
Employee is physically or mentally unable to perform his duties of President
under this Agreement and that such disability can reasonably be expected to
continue for a period of six (6) consecutive months or for shorter periods
aggregating one hundred and eighty (180) days in any twelve-(12)-month period.
"Employee" shall mean Dane B. West and, if the context requires,
his heirs, personal representatives, and permitted successors and assigns.
"Person" shall mean any natural person, incorporated entity,
limited or general partnership, business trust, association, agency
(governmental or private), division, political sovereign, or subdivision or
instrumentality, including those groups identified as "persons" in Sections
13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934.
"Reorganization" shall mean any transaction, or any series of
transactions consummated in a 12-month period, pursuant to which any Person
acquires (by merger, acquisition, or otherwise) all or substantially all of the
assets of the Company or the then outstanding equity securities of the Company
and the Company is not the surviving entity, the Company being deemed surviving
if and only if the majority of the Board of Directors of the ultimate parent of
the surviving entity were directors of the Company prior to its organization.
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"Territory" shall mean any state of the United States, and any
equivalent section or area of any country, in which the Company has
revenue-producing customers or activities.
"Company" shall mean DIDAX INC., a Delaware corporation, together
with such subsidiaries of the Company as may from time to time exist.
2. Position, Responsibilities, and Term of Employment.
2.01 Position. Employee shall serve as President and in such
additional management position(s) as the Board shall designate. In this
capacity Employee shall, subject to the bylaws of the Company, and to the
direction of the Board, serve the Company by performing such duties and
carrying out such responsibilities as are normally related to the position of
President in accordance with the standards of the industry. As a bona fide
occupational qualification, the Employee will, upon request, subscribe to the
Statement of Faith as stated in Article XIII, Section 2 of the bylaws of the
Company. The Board shall either vote, or recommend to the shareholders of the
Company, as appropriate, that during the term of employment pursuant to this
Agreement: (i) Employee be nominated for election as a director at each meeting
of shareholders held for the election of directors; (ii) Employee be elected to
and continued on the Board of each subsidiary of the Company, (iii) if the
Board of the Company or any of its subsidiaries shall appoint an executive
committee (or similar committee authorized to exercise the general powers of
the Board), Employee be elected to and continued on such committee; and (iv)
neither the Company nor any of its subsidiaries shall confer on any other
officer or employee authority, responsibility, powers or prerogatives superior
or equal to the authority, responsibility, prerogatives and powers vested in
Employee hereunder.
2.02 Best Efforts Covenant. Employee will, to the best of his
ability, devote his full professional and business time and best efforts to the
performance of his duties for the Company and its subsidiaries and affiliates.
2.03 Protective Covenant. Employee agrees not to acquire, assume,
or participate in, directly or indirectly, any position, investment, or
interest in the Territory adverse or antagonistic to the Company, its business
or prospects, financial or otherwise, or take any action towards any of the
foregoing. The provisions of this Section shall not prevent Employee from
owning shares of any competitor of the Company so long as such shares (i) do
not constitute more than [1%] of the outstanding equity of such competitor, and
(ii) are regularly traded on a recognized exchange or listed for trading by
NASDAQ in the over-the-counter market.
2.04 Post-Employment Noncompetition Covenant. Except with the
prior written consent of the Board, Employee shall not engage in activities in
the Territory either on Employee's own behalf or that of any other business
organization, which are in direct competition with the Company, or solicit
customers, or clients, of the Company or any of its affiliates for a period of
six (6) months subsequent to Employee's voluntary withdrawal from employment
with the Company (except for a Change in Control Termination in which case this
Noncompetition Covenant does not apply), or the Company's termination of
Employee's employment for Cause. In accordance with the foregoing limits,
Employee will not willfully canvas, solicit nor accept any such business in
competition with the business of the Company from any customers of the Company
with whom Employee had contact during, or of which Employee had knowledge
solely as a result of, his performance of services for the Company pursuant to
this Agreement, and Employee will not directly or indirectly request, induce or
advise any customers of the Company with whom Employee had contact during the
term of this Agreement to withdraw, curtail or cancel their business with the
Company. Employee and the Company expressly declare that the territorial and
time limitations contained in this Section and the definition of "Territory"
are entirely reasonable at this time and are
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<PAGE> 4
properly and necessarily required for the adequate protection of the business
and intellectual property of the Company. If such territorial or time
limitations, or any portions thereof, are deemed to be unreasonable by a
mediator, arbitrator or a court of competent jurisdiction, whether due to
passage of time, change of circumstances or otherwise, Employee and the Company
agree to a reduction of said territorial and/or time limitations to such areas
and/or periods of time as said court shall deem reasonable. The duration of the
covenant as noted herein will be extended if its enforcement is delayed by
mediation, arbitration or litigation.
For a period of one year subsequent to Employee's voluntary withdrawal
from employment with the Company (except for a Change in Control Termination in
which case this Noncompetition Covenant does not apply), or the Company's
termination of Employee's employment for Cause, Employee will not without the
express prior written approval of the Board (i) in one or a series of
transactions, recruit, solicit or otherwise induce or influence any proprietor,
partner, stockholder, lender, director, officer, employee, sales agent, joint
venturer, investor, lessor, agent, representative or any other person which has
a business relationship with the Company or had a business relationship with
the Company within the twelve-(12) month period preceding the date of the
incident in question, to discontinue, reduce, or modify such employment, agency
or business relationship with the Company, or (ii) employ or seek to employ or
cause any business organization in direct competition with the Company to
employ or seek to employ any person or agent who is then (or was at any time
within six months prior to the date the Employee or the competitive business
employs or seeks to employ such person) employed or retained by the Company.
Notwithstanding the foregoing, nothing herein shall prevent the Employee from
providing a letter of recommendation to an employee with respect to a future
employment opportunity. However, employee will not induce or attempt to induce
any employee of the Company to terminate his/her employment with the Company.
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employment, or on demand of the Company at any time, to deliver the same to the
Company. Employee agrees that he will not use or disclose to other employees of
the Company, during the term of this Agreement, confidential information
belonging to his former employers.
Employee shall use his best efforts to prevent the removal of any
Confidential Information from the premises of the Company, except as required
in his normal course of employment by the Company. Employee shall use his best
efforts to cause all persons or entities to whom any Confidential Information
shall be disclosed by him hereunder to observe the terms and conditions set
forth herein as though each such person or entity was bound hereby.
2.06 Records, Files. All records, files, drawings, documents,
equipment and the like relating to the business of the Company which are
created by Employee only during the term of his employment under this Agreement
shall be and shall remain the sole property of the Company.
2.07 Hired to Invent. Employee agrees that every improvement,
invention, process, apparatus, method, design, and any other creation that
Employee may invent, discover, conceive, or originate by himself or in
conjunction with any other Person during the term of Employee's employment
under this Agreement, that relates to the business carried on by the Company
during the term of Employee's employment under this Agreement, shall be the
exclusive property of the Company. Employee agrees to disclose to the Company
every patent application, notice of copyright, or other action taken by
Employee or any affiliate or assignee to protect intellectual property during
the twelve -(12) months following Employee's termination of employment at the
Company, for whatever reason, so that the Company may determine whether to
assert a claim under this Section or any other provision of this Agreement.
3. Compensation.
3.01 Annual Compensation. The Company shall pay to Employee for
the services to be rendered hereunder a base salary at an annual rate of
One Hundred Twenty Thousand dollars ($120,000). It is understood that this
salary will be abated to Ninety Thousand dollars ($90,000) ("Minimum Annual
Compensation") per annum with the understanding that the Board will establish
by January 1, 1998, specific reasonable and measurable criteria for decreasing
or eliminating this abatement. There shall also be an annual review for merit
by the Board and an increase as deemed appropriate to reflect the value of
services by Employee. At no time during the term of this Agreement shall
Employee's annual base salary fall below the Minimum Annual Compensation.
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<PAGE> 6
Employee's salary shall be payable in periodic installments in
accordance with the Company's usual practice for similarly situated employees
of the Company.
3.02 Incentive Compensation. In addition to the Annual
Compensation, Employee shall be entitled to receive payments under the
Company's incentive compensation and/or bonus program(s) (as in effect from
time to time), if any, in such amounts as are determined by the Board to be
appropriate. Any incentive compensation which is not deductible in the opinion
of the Company's counsel, under Section 162(m) of the Internal Revenue Code
shall be deferred and paid, without interest, in the first year or years when
and to the extent such payment may be deducted, Employee's right to such
payment being absolute.
3.03 Participating in Benefits. Employee shall be entitled to all
Benefits for as long as such Benefits may remain in effect and/or any
substitute or additional Benefits made available in the future to similarly
situated employees of the Company, subject to and on a basis consistent with
the terms, conditions and overall administration of such Benefits adopted by
the Company. Benefits paid to Employee shall not be deemed to be in lieu of
other compensation to Employee hereunder as described in this Section 3.
3.04 Specific Benefits.
During the term of this Agreement (and thereafter to the extent
this Agreement shall require):
(a) Employee shall be entitled to four (4) weeks of paid vacation
time per year, to be taken at times mutually acceptable to the Company and
Employee.
(b) The Company shall provide fully paid accident and health
insurance for Employee and his family.
(c) The Company shall obtain at its expense (subject to
Employee's insurability) an insurance policy on the life of Employee, adjusted
at policy anniversary date, subject to the last sentence of this Section
3.04(c), in the minimum face amount of employee's
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<PAGE> 7
current annual base salary. Employee shall have the exclusive right to
designate the beneficiaries of such policy and change such beneficiaries from
time to time. Such policy and the proceeds and cash value thereof shall be the
sole property of Employee and the Company shall not retain any benefit therein.
(d) Employee shall be entitled to sick leave benefits during the
employment period in accordance with the customary policies of the Company for
its executive officers, but in no event less than one (1) month per year. In
the event of Employee's Disability, disability insurance shall provide for the
payment of Employee's annualized salary at the time of the disability, for a
period of not less than one (1) year from the date of Disability.
(e) In addition to the vacation provided pursuant to Section
3.04(a) hereof, Employee shall be entitled to not less than ten (10) paid
holidays (other than weekends) per year, generally on such days consistent with
the Company's policy manual.
(f) Employee shall be entitled to receive prompt reimbursement
for all reasonable expenses incurred by him (in accordance with the policies
and procedures established by the Company or the Board for the similarly
situated employees of the Company) in performing services hereunder.
(g) Employee shall be eligible to participate during the
Employment Period in Benefits not inconsistent or duplicative of those set
forth in this Section 3.04 as the Company shall establish or maintain for its
employees or executives generally.
4. Termination.
4.01 Termination by Company for Other Than Cause. If during the
term of this Agreement, the Company terminates the employment of Employee and
such termination is not for Cause, then, the Company shall pay to Employee an
amount equal to the Employees then current monthly compensation level
multiplied by the minimum of eighteen (18) or the number of months remaining in
the term of this Agreement (the "Severance Period") until such time as Employee
shall become reemployed in a position consistent with Employee's experience and
stature. If Employee obtains such a position but Employee's annual compensation
shall be less than the compensation upon termination, then the difference shall
be paid to Employee for the balance of the Severance Period. Such difference
shall be calculated as follows: The difference between Employee's ending
biweekly compensation annualized and the annualized compensation payable to
Employee in his new position during such period shall be payable in the same
manner as the Employee was paid prior to termination over the period of such
reemployment during such period. If the Employee's employment in a new position
shall terminate, then for the purposes of this Paragraph 4.01 Employee shall be
entitled to continuation of the ending monthly compensation until he shall
again become reemployed, in which case only the difference shall be payable as
aforesaid, over the time of the Severance Period.
4.02 Constructive Discharge. If the Company fails to reappoint
Employee to (or rejects Employee for) the position or positions listed in
Section 2.01, fails to comply with the
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<PAGE> 8
provisions of Section 3, or engages in any other material breach of the terms
of this Agreement, Employee may at his option terminate his employment and such
termination shall be considered to be a termination of Employee's employment by
the Company for reasons other than "Cause."
4.03 Termination by the Company for Cause. The Company shall have
the right to terminate the employment of Employee for Cause. Effective as of
the date that the employment of Employee terminates by reason of Cause, this
Agreement, except for Sections 2.04 through 2.08, shall terminate and no
further payments of the Compensation described in Section 3 (except for such
remaining payments of compensation under Section 3.01 relating to periods
during which Employee was employed by the Company, Benefits which are required
by applicable law to be continued, and reimbursement of prior expenses under
Section 3.04) shall be made.
4.04 Change in Control Termination. If at any time during the
term of this Agreement there is a Change of Control Termination, the Company
shall pay to Employee an amount equal to the monthly portion of Employee's then
current monthly compensation as in effect on the date Employee's employment
terminated multiplied by twenty four (24). This amount shall be paid to
Employee in one lump sum as soon as practicable, but in no event later than
sixty (60) days, after the date of the Change in Control Termination.
4.05 Termination on Account of Employee's Disability. If Employee
ceases to perform services for the Company because he is suffering from a
medically determinable disability and is therefore incapable of performing such
services, the Company shall continue to pay Employee an amount equal to the
Employee's then current compensation level as in effect on the date of
Employee's cessation of services by reason of disability less any amounts paid
to Employee as Workers Compensation, Social Security Disability benefits (or
any other disability benefits paid to Employee as federal, state, or local
disability benefits) and any amounts paid to Employee as disability payments
under any disability plan or program for a period ending on the earlier of: (a)
the date that Employee again becomes employed in a significant manner and on a
substantially full-time basis; (b) the date that Employee attains normal
retirement age, as such age is defined in a retirement plan maintained by the
Company; or (c) Employee begins to receive retirement benefits from a
retirement plan maintained by the Company.
4.06 Termination on Account of Employee's Death.
(a) In the event of Employee's death during the term of this
Agreement:
(1) This Agreement shall terminate except as provided
in this Section; and
(2) The Company shall continue to retain
benefits coverage on behalf of the Employee's
beneficiary or beneficiaries in the manner indicted
in Section 3.04(b) herein.
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(b) Employee may designate one or more beneficiaries for the
purposes of this Section by making a written designation and delivering such
designation to the President or the Secretary of the Company. If Employee makes
more than one such written designation, the designation last received before
Employee's death shall control.
5. Stock Options.
5.01 Amount of Stock. In accordance with the provisions of the
Company's 1997 Incentive Stock Option Plan (the "Plan") and the specific
authorization of the Board, the Company hereby grants to Employee, subject to
all of the terms and conditions of the Plan and this Agreement, an option to
acquire shares of the Company's outstanding common stock ("Option Stock") in an
amount as indicated in Attachment "A" of this document.
5.02 Vesting. The Option to acquire the shares of common stock
granted in Section 5.01 vest per the schedule provided in Attachment "A" of
this document. Notwithstanding anything to the contrary contained in this
Agreement, all Options to acquire Option Stock shall irrevocably vest thirty
(30) calendar days prior to the scheduled consummation of a Change of Control.
5.03 Tax Changes. If any change(s) in the Federal income tax laws
materially affect the tax treatment of Employee with respect to the Option or
the Option Stock, the parties agree to negotiate in good faith to reach an
agreement which will take advantage of, or minimize the disadvantages of, such
changes.
5.04 Notwithstanding the type of termination described in Section
4 herein, Employee has the right to retain all granted options and warrants,
even those which are not vested, available for option exercise upon vesting,
until their natural expiration.
6. Miscellaneous.
6.01 Assignment. This Agreement and the rights and obligations of
the parties hereto shall bind and inure to the benefit of each of the parties
hereto and shall also bind and inure to the benefit of any successor or
successors of the Company in a reorganization, merger or consolidation and any
assignee of all or substantially all of the Company's business and properties,
but, except as to any such successor of the Company, neither this Agreement nor
any rights or benefits hereunder may be assigned by the Company or Employee.
6.02 Initial Term and Extensions. Except as otherwise provided,
the term of this Agreement shall be in effect until June 30, 1999 and
commencing with the effective date hereof. On June 30, 1999, and on each
subsequent annual anniversary of this date thereafter, the term of the
Agreement shall be automatically extended for an additional year unless either
party notifies the other in writing more than 90 days prior to the relevant
anniversary date that the Agreement is no longer to be extended. If, prior to
June 30, 2009, Company notifies Employee of its desire not to extend this
agreement, this will be considered termination by the Company other than by
cause as described in Section 4.01.
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6.03 Governing Law. This Agreement shall be construed in
accordance with and governed for all purposes by the laws of the State of
Virginia.
6.04 Interpretation. In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, but
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
6.05 Notice. Any notice required or permitted to be given
hereunder shall be effective when received and shall be sufficient if in
writing and if personally delivered or sent by prepaid cable, telex or
registered air mail, return receipt requested, to the party to receive such
notice at its address set forth at the end of this Agreement or at such other
address as a party may by notice specify to the other.
6.06 Amendment and Waiver. This Agreement may not be amended,
supplemented or waived except by a writing signed by the party against which
such amendment or waiver is to be enforced. The waiver by any party of a breach
of any provision of this Agreement shall not operate to, or be construed as a
waiver of, any other breach of that provision nor as a waiver of any breach of
another provision.
6.07 Binding Effect. Subject to the provisions of Section 4
hereof, this Agreement shall be binding on the successors and assigns of the
parties hereto.
6.08 Survival of Rights and Obligations. All rights and
obligations of Employee or the Company arising during the term of this
Agreement shall continue to have full force and effect after the termination of
this Agreement unless otherwise provided herein.
6.09 Christian Conciliation. Employee and the Company desire to
avoid dissipating resources on wasteful ligitation and therefore agreee to
resolve disputes privately by good faith negotiation where at all possible.
Any dispute which cannot be resolved 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 both the Employee and the Company. Any arbitration award issued by
the mediator shall be final, binding, and enforceable in any court of competent
jurisdiction.
The Company
By
------------------------
--------------------------
Employee
--------------------------
Spouse
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ATTACHMENT "A"
Dane West
<TABLE>
<CAPTION>
Exercise Expiration
Shares Price Vesting Date
- -----------------------------------------------------------------------
<S> <C> <C> <C>
30,000 $1.50 Fully Vested 06/30/03
171,312 $5.00 $.125 EPS For Quarter OR $.50 EPS For Year 09/30/06
5,191 $4.00 Fully Vested 12/31/06
2,420 $5.00 Fully Vested 03/31/07
2,420 $5.00 Fully Vested 06/30/07
</TABLE>
<PAGE> 1
EXHIBIT 10.18
DIDAX INC.
EMPLOYMENT AGREEMENT
(CHIEF TECHNICAL OFFICER)
Agreement made as of this 10th day of June 1997, by and among
William H. Bowers of Chantilly, Virginia ("Employee") and DIDAX INC. (the
"Company"), but effective as of the closing of the Initial Public Offering of
the Company's securities.
PREAMBLE
The Board of Directors of the Company recognizes Employee's
potential contribution to the growth and success of the Company and desires to
assure the Company of Employee's employment in an executive capacity as Chief
Technical Officer and to compensate him therefor. Employee wants to be employed
by the Company and to commit himself to serve the Company on the terms herein
provided.
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements of the parties, the parties agree as
follows:
1. Definitions
"Benefits" shall mean all the fringe benefits approved by the
Board from time to time and established by the Company for the benefit of
employees generally and/or for key employees of the Company as a class,
including, but not limited to, regular holidays, vacations, absences resulting
from illness or accident, health insurance, disability and medical plans
(including dental and prescription drug), group life insurance, and pension,
profit-sharing and stock bonus plans or their equivalent.
"Board" shall mean the Board of Directors of the Company,
together with an executive committee thereof (if any), as same shall be
constituted from time to time.
"Cause" for termination shall mean (i) Employee's final
conviction of a felony involving a crime of moral turpitude, (ii) acts of
Employee which, in the judgment of the Board, constitute willful fraud on the
part of Employee in connection with his duties under this Agreement, including
but not limited to misappropriation or embezzlement in the performance of
duties as an employee of the Company, or willfully engaging in conduct
materially injurious to the Company and in violation of the covenants contained
in this Agreement, or (iii) gross misconduct, including but not limited to the
willful failure of Employee either to (a) continue to obey lawful written
instruction of the Board after thirty (30) days notice in writing of Employee's
failure to do so and the Board's intention to terminate Employee if such
failure is not corrected, or (b) correct any conduct of Employee which
constitutes a material breach of this Agreement after thirty (30) days notice
in writing of Employee's failure to do so and the Board's intention to
terminate Employee if such failure is not corrected.
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<PAGE> 2
"Chairman" shall mean the individual designated by the Board
from time to time as its chairman.
"Change of Control" shall mean the occurrence of one or more
of the following three events:
(1) After the effective date of this Agreement, any person
becomes a beneficial owner (as such term is defined in Rule 13d3
promulgated under the Securities Exchange Act of 1934) directly or
indirectly of securities representing 33% or more of the total number
of votes that may be cast for the election of directors of the
Company;
(2) Within two years after a merger, consolidation,
liquidation or sale of assets involving the Company, or a contested
election of a Company director, or any combination of the foregoing,
the individuals who were directors of the Company immediately prior
thereto shall cease to constitute a majority of the Board; or
(3) Within two years after a tender offer or exchange offer
for voting securities of the Company, the individuals who were
directors of the Company immediately prior thereto shall cease to
constitute a majority of the Board.
"Chief Technical Officer" shall mean the individual having
responsibility to the Board for direction and management of the technical
staffing and technology direction of the Company and who reports and is
accountable to the Chief Executive Officer.
"Disability" shall mean a written determination by a physician
mutually agreeable to the Company and Employee (or, in the event of Employee's
total physical or mental disability, Employee's legal representative) that
Employee is physically or mentally unable to perform his duties of Chief
Technical Officer under this Agreement and that such disability can reasonably
be expected to continue for a period of six (6) consecutive months or for
shorter periods aggregating one hundred and eighty (180) days in any
twelve-(12)-month period.
"Employee" shall mean William H. Bowers and, if the context
requires, his heirs, personal representatives, and permitted successors and
assigns.
"Person" shall mean any natural person, incorporated entity,
limited or general partnership, business trust, association, agency
(governmental or private), division, political sovereign, or subdivision or
instrumentality, including those groups identified as "persons" in Sections
13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934.
"Reorganization" shall mean any transaction, or any series
of transactions consummated in a 12-month period, pursuant to which any Person
acquires (by merger, acquisition, or otherwise) all or substantially all of the
assets of the Company or the then outstanding equity securities of the Company
and the Company is not the surviving entity, the Company being deemed surviving
if and only if the majority of the Board of Directors of the ultimate parent of
the surviving entity were directors of the Company prior to its organization.
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"Territory" shall mean any state of the United States, and any
equivalent section or area of any country, in which the Company has
revenue-producing customers or activities.
"Company" shall mean DIDAX INC., a Delaware corporation,
together with such subsidiaries of the Company as may from time to time exist.
2. Position, Responsibilities, and Term of Employment.
2.01 Position. Employee shall serve as Chief Technical Officer
and in such additional management position(s) as the Board shall designate. In
this capacity Employee shall, subject to the bylaws of the Company, and to the
direction of the Board, serve the Company by performing such duties and
carrying out such responsibilities as are normally related to the position of
Chief Technical Officer in accordance with the standards of the industry. As a
bona fide occupational qualification, the Employee will, upon request,
subscribe to the Statement of Faith as stated in Article XIII, Section 2 of the
bylaws of the Company. The Board shall either vote, or recommend to the
shareholders of the Company, as appropriate, that during the term of employment
pursuant to this Agreement: (i) Employee be nominated for election as a
director at each meeting of shareholders held for the election of directors;
(ii) Employee be elected to and continued on the Board of each subsidiary of
the Company, (iii) if the Board of the Company or any of its subsidiaries shall
appoint an executive committee (or similar committee authorized to exercise the
general powers of the Board), Employee be elected to and continued on such
committee; and (iv) neither the Company nor any of its subsidiaries shall
confer on any other officer or employee authority, responsibility, powers or
prerogatives superior or equal to the authority, responsibility, prerogatives
and powers vested in Employee hereunder.
2.02 Best Efforts Covenant. Employee will, to the best of his
ability, devote his full professional and business time and best efforts to the
performance of his duties for the Company and its subsidiaries and affiliates.
2.03 Protective Covenant. Employee agrees not to acquire,
assume, or participate in, directly or indirectly, any position, investment, or
interest in the Territory adverse or antagonistic to the Company, its business
or prospects, financial or otherwise, or take any action towards any of the
foregoing. The provisions of this Section shall not prevent Employee from
owning shares of any competitor of the Company so long as such shares (i) do
not constitute more than [1%] of the outstanding equity of such competitor, and
(ii) are regularly traded on a recognized exchange or listed for trading by
NASDAQ in the over-the-counter market.
2.04 Post-Employment Noncompetition Covenant. Except with the prior
written consent of the Board, Employee shall not engage in activities in the
Territory either on Employee's own behalf or that of any other business
organization, which are in direct competition with the Company, or solicit
customers, or clients, of the Company or any of its affiliates for a period of
six (6) months subsequent to Employee's voluntary withdrawal from employment
with the Company (except for a Change in Control Termination in which case this
Noncompetition Covenant does not apply), or the Company's termination of
Employee's employment for Cause. In accordance with the foregoing limits,
Employee will not willfully canvas, solicit nor accept any such business in
competition with the business of the Company from any customers of the Company
with whom Employee had contact during, or of which Employee had knowledge
solely as a result of, his performance of services for the Company pursuant to
this Agreement, and Employee will not directly or indirectly request, induce or
advise any customers of the Company with whom Employee had contact during the
term of this Agreement to withdraw, curtail or cancel their business with the
Company. Employee and the Company expressly declare that the territorial and
time limitations contained in this Section and the definition of "Territory"
are entirely reasonable at this time and are
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<PAGE> 4
properly and necessarily required for the adequate protection of the business
and intellectual property of the Company. If such territorial or time
limitations, or any portions thereof, are deemed to be unreasonable by a
mediator, arbitrator or a court of competent jurisdiction, whether due to
passage of time, change of circumstances or otherwise, Employee and the Company
agree to a reduction of said territorial and/or time limitations to such areas
and/or periods of time as said court shall deem reasonable. The duration of the
covenant as noted herein will be extended if its enforcement is delayed by
mediation, arbitration or litigation.
For a period of one year subsequent to Employee's voluntary withdrawal
from employment with the Company (except for a Change in Control Termination in
which case this Noncompetition Covenant does not apply), or the Company's
termination of Employee's employment for Cause, Employee will not without the
express prior written approval of the Board (i) in one or a series of
transactions, recruit, solicit or otherwise induce or influence any proprietor,
partner, stockholder, lender, director, officer, employee, sales agent, joint
venturer, investor, lessor, agent, representative or any other person which has
a business relationship with the Company or had a business relationship with
the Company within the twelve-(12) month period preceding the date of the
incident in question, to discontinue, reduce, or modify such employment, agency
or business relationship with the Company, or (ii) employ or seek to employ or
cause any business organization in direct competition with the Company to
employ or seek to employ any person or agent who is then (or was at any time
within six months prior to the date the Employee or the competitive business
employs or seeks to employ such person) employed or retained by the Company.
Notwithstanding the foregoing, nothing herein shall prevent the Employee from
providing a letter of recommendation to an employee with respect to a future
employment opportunity. However, employee will not induce or attempt to induce
any employee of the Company to terminate his/her employment with the Company.
2.05 Confidential Information. Employee recognizes and
acknowledges that the Company's trade secrets and proprietary information and
know-how, as they may exist from time to time ("Confidential Information"), are
valuable, special and unique assets of the Company's business, access to and
knowledge of which are essential to the performance of Employee's duties
hereunder. Employee will not, during or after the term of his employment by the
Company, in whole or in part, disclose such secrets, information or know-how to
any Person for any reason or purpose whatsoever, nor shall Employee make use of
any such property for his own purposes or for the benefit of any Person (except
the Company) under any circumstances during or after the term of his
employment, provided that after the term of his employment these restrictions
shall not apply to such secrets, information and know-how which are then in the
public domain (provided that Employee was not directly responsible for such
secrets, information or processes entering the public domain without the
Company's consent). Employee shall have no obligation hereunder to keep
confidential any Confidential Information if and to the extent disclosure of
any thereof is specifically required by law; provided, however, that in the
event disclosure is required by applicable law, the Employee shall provide the
Company with prompt notice of such requirement, prior to making any disclosure,
so that the Company may seek an appropriate protective order. Employee agrees
to hold as the Company's property all memoranda, books, papers, letters,
customer lists, processes, computer software, records, financial information,
policy and procedure manuals, training and recruiting procedures and other
data, and all copies thereof and therefrom, in any way relating to the
Company's business and affairs, whether made by him or otherwise coming into
his possession, and on termination of his
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<PAGE> 5
employment, or on demand of the Company at any time, to deliver the same to the
Company. Employee agrees that he will not use or disclose to other employees of
the Company, during the term of this Agreement, confidential information
belonging to his former employers.
Employee shall use his best efforts to prevent the removal of
any Confidential Information from the premises of the Company, except as
required in his normal course of employment by the Company. Employee shall use
his best efforts to cause all persons or entities to whom any Confidential
Information shall be disclosed by him hereunder to observe the terms and
conditions set forth herein as though each such person or entity was bound
hereby.
2.06 Records, Files. All records, files, drawings, documents,
equipment and the like relating to the business of the Company which are
created by Employee only during the term of his employment under this Agreement
shall be and shall remain the sole property of the Company.
2.07 Hired to Invent. Employee agrees that every improvement,
invention, process, apparatus, method, design, and any other creation that
Employee may invent, discover, conceive, or originate by himself or in
conjunction with any other Person during the term of Employee's employment
under this Agreement, that relates to the business carried on by the Company
during the term of Employee's employment under this Agreement, shall be the
exclusive property of the Company. Employee agrees to disclose to the Company
every patent application, notice of copyright, or other action taken by
Employee or any affiliate or assignee to protect intellectual property during
the twelve -(12) months following Employee's termination of employment at the
Company, for whatever reason, so that the Company may determine whether to
assert a claim under this Section or any other provision of this Agreement.
3. Compensation.
3.01 Annual Compensation. The Company shall pay to Employee
for the services to be rendered hereunder a base salary at an annual rate of
One Hundred Twenty Thousand dollars ($120,000). It is understood that this
salary will be abated to Ninety Thousand dollars ($90,000) ("Minimum Annual
Compensation") per annum with the understanding that the Board will establish
by January 1, 1998, specific reasonable and measurable criteria for decreasing
or eliminating this abatement. There shall also be an annual review for merit
by the Board and an increase as deemed appropriate to reflect the value of
services by Employee. At no time during the term of this Agreement shall
Employee's annual base salary fall below the Minimum Annual Compensation.
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<PAGE> 6
Employee's salary shall be payable in periodic installments in
accordance with the Company's usual practice for similarly situated employees
of the Company.
3.02 Incentive Compensation. In addition to the Annual
Compensation, Employee shall be entitled to receive payments under the
Company's incentive compensation and/or bonus program(s) (as in effect from
time to time), if any, in such amounts as are determined by the Board to be
appropriate. Any incentive compensation which is not deductible in the opinion
of the Company's counsel, under Section 162(m) of the Internal Revenue Code
shall be deferred and paid, without interest, in the first year or years when
and to the extent such payment may be deducted, Employee's right to such
payment being absolute.
3.03 Participating in Benefits. Employee shall be entitled to
all Benefits for as long as such Benefits may remain in effect and/or any
substitute or additional Benefits made available in the future to similarly
situated employees of the Company, subject to and on a basis consistent with
the terms, conditions and overall administration of such Benefits adopted by
the Company. Benefits paid to Employee shall not be deemed to be in lieu of
other compensation to Employee hereunder as described in this Section 3.
3.04 Specific Benefits.
During the term of this Agreement (and thereafter to the
extent this Agreement shall require):
(a) Employee shall be entitled to four (4) weeks of paid
vacation time per year, to be taken at times mutually acceptable to the Company
and Employee.
(b) The Company shall provide fully paid accident and health
insurance for Employee and his family.
(c) The Company shall obtain at its expense (subject to
Employee's insurability) an insurance policy on the life of Employee, adjusted
at policy anniversary date, subject to the last sentence of this Section
3.04(c), in the minimum face amount of employee's
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<PAGE> 7
current annual base salary. Employee shall have the exclusive right to
designate the beneficiaries of such policy and change such beneficiaries from
time to time. Such policy and the proceeds and cash value thereof shall be the
sole property of Employee and the Company shall not retain any benefit therein.
(d) Employee shall be entitled to sick leave benefits during
the employment period in accordance with the customary policies of the Company
for its executive officers, but in no event less than one (1) month per year.
In the event of Employee's Disability, disability insurance shall provide for
the payment of Employee's annualized salary at the time of the disability a
period of not less than one (1) year from the date of Disability.
(e) In addition to the vacation provided pursuant to Section
3.04(a) hereof, Employee shall be entitled to not less than ten (10) paid
holidays (other than weekends) per year, generally on such days consistent with
the Company's policy manual.
(f) Employee shall be entitled to receive prompt reimbursement
for all reasonable expenses incurred by him (in accordance with the policies
and procedures established by the Company or the Board for the similarly
situated employees of the Company) in performing services hereunder.
(g) Employee shall be eligible to participate during the
Employment Period in Benefits not inconsistent or duplicative of those set
forth in this Section 3.04 as the Company shall establish or maintain for its
employees or executives generally.
4. Termination.
4.01 Termination by Company for Other Than Cause. If during
the term of this Agreement, the Company terminates the employment of Employee
and such termination is not for Cause, then, the Company shall pay to Employee
an amount equal to the Employees then current monthly compensation level
multiplied by the minimum of eighteen (18) or the number of months remaining in
the term of this Agreement (the "Severance Period") until such time as Employee
shall become reemployed in a position consistent with Employee's experience and
stature. If Employee obtains such a position but Employee's annual compensation
shall be less than the compensation upon termination, then the difference shall
be paid to Employee for the balance of the Severance Period. Such difference
shall be calculated as follows: The difference between Employee's ending
biweekly compensation annualized and the annualized compensation payable to
Employee in his new position during such period shall be payable in the same
manner as the Employee was paid prior to termination over the period of such
reemployment during such period. If the Employee's employment in a new position
shall terminate, then for the purposes of this Paragraph 4.01 Employee shall be
entitled to continuation of the ending monthly compensation until he shall
again become reemployed, in which case only the difference shall be payable as
aforesaid, over the time of the Severance Period.
4.02 Constructive Discharge. If the Company fails to reappoint
Employee to (or rejects Employee for) the position or positions listed in
Section 2.01, fails to comply with the
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<PAGE> 8
provisions of Section 3, or engages in any other material breach of the terms
of this Agreement, Employee may at his option terminate his employment and such
termination shall be considered to be a termination of Employee's employment by
the Company for reasons other than "Cause."
4.03 Termination by the Company for Cause. The Company shall
have the right to terminate the employment of Employee for Cause. Effective as
of the date that the employment of Employee terminates by reason of Cause, this
Agreement, except for Sections 2.04 through 2.08, shall terminate and no
further payments of the Compensation described in Section 3 (except for such
remaining payments of compensation under Section 3.01 relating to periods
during which Employee was employed by the Company, Benefits which are required
by applicable law to be continued, and reimbursement of prior expenses under
Section 3.04) shall be made.
4.04 Change in Control Termination. If at any time during the
term of this Agreement there is a Change of Control Termination, the Company
shall pay to Employee an amount equal to the monthly portion of Employee's then
current monthly compensation as in effect on the date Employee's employment
terminated multiplied by twenty four (24). This amount shall be paid to
Employee in one lump sum as soon as practicable, but in no event later than
sixty (60) days, after the date of the Change in Control Termination.
4.05 Termination on Account of Employee's Disability. If
Employee ceases to perform services for the Company because he is suffering
from a medically determinable disability and is therefore incapable of
performing such services, the Company shall continue to pay Employee an amount
equal to the Employee's then current compensation level as in effect on the
date of Employee's cessation of services by reason of disability less any
amounts paid to Employee as Workers Compensation, Social Security Disability
benefits (or any other disability benefits paid to Employee as federal, state,
or local disability benefits) and any amounts paid to Employee as disability
payments under any disability plan or program for a period ending on the
earlier of: (a) the date that Employee again becomes employed in a significant
manner and on a substantially full-time basis; (b) the date that Employee
attains normal retirement age, as such age is defined in a retirement plan
maintained by the Company; or (c) Employee begins to receive retirement
benefits from a retirement plan maintained by the Company.
4.06 Termination on Account of Employee's Death.
(a) In the event of Employee's death during the term of
this Agreement:
(1) This Agreement shall terminate except as
provided in this Section; and
(2) The Company shall continue to retain
benefits coverage on behalf of the Employee's
beneficiary or beneficiaries in the manner indicted
in Section 3.04(b) herein.
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<PAGE> 9
(b) Employee may designate one or more beneficiaries for the
purposes of this Section by making a written designation and delivering such
designation to the President or the Secretary of the Company. If Employee makes
more than one such written designation, the designation last received before
Employee's death shall control.
5. Stock Options.
5.01 Amount of Stock. In accordance with the provisions of the
Company's 1997 Incentive Stock Option Plan (the "Plan") and the specific
authorization of the Board, the Company hereby grants to Employee, subject to
all of the terms and conditions of the Plan and this Agreement, an option to
acquire shares of the Company's outstanding common stock ("Option Stock") in an
amount as indicated in Attachment "A" of this document.
5.02 Vesting. The Option to acquire the shares of common stock
granted in Section 5.01 vest per the schedule provided in Attachment "A" of
this document. Notwithstanding anything to the contrary contained in this
Agreement, all Options to acquire Option Stock shall irrevocably vest thirty
(30) calendar days prior to the scheduled consummation of a Change of Control.
5.03 Tax Changes. If any change(s) in the Federal income tax
laws materially affect the tax treatment of Employee with respect to the Option
or the Option Stock, the parties agree to negotiate in good faith to reach an
agreement which will take advantage of, or minimize the disadvantages of, such
changes.
5.04 Notwithstanding the type of termination described in
Section 4 herein, Employee has the right to retain all granted options and
warrants, even those which are not vested, available for option exercise upon
vesting, until their natural expiration.
6. Miscellaneous.
6.01 Assignment. This Agreement and the rights and obligations
of the parties hereto shall bind and inure to the benefit of each of the
parties hereto and shall also bind and inure to the benefit of any successor or
successors of the Company in a reorganization, merger or consolidation and any
assignee of all or substantially all of the Company's business and properties,
but, except as to any such successor of the Company, neither this Agreement nor
any rights or benefits hereunder may be assigned by the Company or Employee.
6.02 Initial Term and Extensions. Except as otherwise
provided, the term of this Agreement shall be in effect until June 30, 1999 and
commencing with the effective date hereof. On June 30, 1999, and on each
subsequent annual anniversary of this date thereafter, the term of the
Agreement shall be automatically extended for an additional year unless either
party notifies the other in writing more than 90 days prior to the relevant
anniversary date that the Agreement is no longer to be extended. If, prior to
June 30, 2009, Company notifies Employee of its desire not to extend this
agreement, this will be considered termination by the Company other than by
cause as described in Section 4.01.
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<PAGE> 10
6.03 Governing Law. This Agreement shall be construed in
accordance with and governed for all purposes by the laws of the State of
Virginia.
6.04 Interpretation. In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, but
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
6.05 Notice. Any notice required or permitted to be given
hereunder shall be effective when received and shall be sufficient if in
writing and if personally delivered or sent by prepaid cable, telex or
registered air mail, return receipt requested, to the party to receive such
notice at its address set forth at the end of this Agreement or at such other
address as a party may by notice specify to the other.
6.06 Amendment and Waiver. This Agreement may not be amended,
supplemented or waived except by a writing signed by the party against which
such amendment or waiver is to be enforced. The waiver by any party of a breach
of any provision of this Agreement shall not operate to, or be construed as a
waiver of, any other breach of that provision nor as a waiver of any breach of
another provision.
6.07 Binding Effect. Subject to the provisions of Section 4
hereof, this Agreement shall be binding on the successors and assigns of the
parties hereto.
6.08 Survival of Rights and Obligations. All rights and
obligations of Employee or the Company arising during the term of this
Agreement shall continue to have full force and effect after the termination of
this Agreement unless otherwise provided herein.
6.09 Christian Conciliation. Employee and the Company desire
to avoid dissipating resources on wasteful ligitation and therefore agreee to
resolve disputes privately by good faith negotiation where at all possible.
Any dispute which cannot be resolved 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 both the Employee and the Company. Any arbitration award issued by
the mediator shall be final, binding, and enforceable in any court of competent
jurisdiction.
The Company
By
------------------------
--------------------------
Employee
--------------------------
Spouse
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<PAGE> 11
ATTACHMENT "A"
William Bowers
<TABLE>
<CAPTION>
Exercise Expiration
Shares Price Vesting Date
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
4,000 $1.50 Fully Vested 06/30/03
164,312 $5.00 $.125 EPS For Quarter OR $.50 EPS For Year 09/30/06
10,385 $4.00 Fully Vested 12/31/06
2,420 $5.00 Fully Vested 03/31/07
2,420 $5.00 Fully Vested 06/30/07
</TABLE>
<PAGE> 1
EXHIBIT 10.19
DIDAX INC.
EMPLOYMENT AGREEMENT
(CHIEF FINANCIAL OFFICER)
Agreement made as of this 10th day of June 1997, by and among Gary A.
Struzik of Sterling, Virginia ("Employee") and DIDAX INC. (the "Company"), but
effective as of the closing of the Initial Public Offering of the Company's
securities.
PREAMBLE
The Board of Directors of the Company recognizes Employee's potential
contribution to the growth and success of the Company and desires to assure the
Company of Employee's employment in an executive capacity as Chief Financial
Officer and to compensate him therefor. Employee wants to be employed by the
Company and to commit himself to serve the Company on the terms herein
provided.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties, the parties agree as follows:
1. Definitions
"Benefits" shall mean all the fringe benefits approved by the Board
from time to time and established by the Company for the benefit of employees
generally and/or for key employees of the Company as a class, including, but
not limited to, regular holidays, vacations, absences resulting from illness or
accident, health insurance, disability and medical plans (including dental and
prescription drug), group life insurance, and pension, profit-sharing and stock
bonus plans or their equivalent.
"Board" shall mean the Board of Directors of the Company, together
with an executive committee thereof (if any), as same shall be constituted from
time to time.
"Cause" for termination shall mean (i) Employee's final conviction
of a felony involving a crime of moral turpitude, (ii) acts of Employee which,
in the judgment of the Board, constitute willful fraud on the part of Employee
in connection with his duties under this Agreement, including but not limited
to misappropriation or embezzlement in the performance of duties as an employee
of the Company, or willfully engaging in conduct materially injurious to the
Company and in violation of the covenants contained in this Agreement, or (iii)
gross misconduct, including but not limited to the willful failure of Employee
either to (a) continue to obey lawful written instruction of the Board after
thirty (30) days notice in writing of Employee's failure to do so and the
Board's intention to terminate Employee if such failure is not corrected, or
(b) correct any conduct of Employee which constitutes a material breach of this
Agreement after thirty (30) days notice in writing of Employee's failure to do
so and the Board's intention to terminate Employee if such failure is not
corrected.
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<PAGE> 2
"Chairman" shall mean the individual designated by the Board from
time to time as its chairman.
"Change of Control" shall mean the occurrence of one or more of the
following three events:
(1) After the effective date of this Agreement, any person becomes a
beneficial owner (as such term is defined in Rule 13d3 promulgated
under the Securities Exchange Act of 1934) directly or indirectly of
securities representing 33% or more of the total number of votes that
may be cast for the election of directors of the Company;
(2) Within two years after a merger, consolidation, liquidation or
sale of assets involving the Company, or a contested election of a
Company director, or any combination of the foregoing, the individuals
who were directors of the Company immediately prior thereto shall
cease to constitute a majority of the Board; or
(3) Within two years after a tender offer or exchange offer for
voting securities of the Company, the individuals who were directors
of the Company immediately prior thereto shall cease to constitute a
majority of the Board.
"Chief Financial Officer" shall mean the individual having
responsibility to the Chief Executive Officer and the Board for proper
recordation of all financial transactions of the Company, coordination of
banking relationships, financial administration, budgeting and communication to
the Board of risk associated with the financial condition of the Company.
"Disability" shall mean a written determination by a physician
mutually agreeable to the Company and Employee (or, in the event of Employee's
total physical or mental disability, Employee's legal representative) that
Employee is physically or mentally unable to perform his duties of Chief
Financial Officer under this Agreement and that such disability can reasonably
be expected to continue for a period of six (6) consecutive months or for
shorter periods aggregating one hundred and eighty (180) days in any
twelve-(12)-month period.
"Employee" shall mean Gary A. Struzik and, if the context requires,
his heirs, personal representatives, and permitted successors and assigns.
"Person" shall mean any natural person, incorporated entity, limited
or general partnership, business trust, association, agency (governmental or
private), division, political sovereign, or subdivision or instrumentality,
including those groups identified as "persons" in ss.ss. 13(d)(3) and 14(d)(2)
of the Securities Exchange Act of 1934.
"Reorganization" shall mean any transaction, or any series of
transactions consummated in a 12-month period, pursuant to which any Person
acquires (by merger, acquisition, or otherwise) all or substantially all of the
assets of the Company or the then outstanding equity securities of the Company
and the Company is not the surviving entity, the Company being deemed surviving
if and only if the majority of the Board of Directors of the ultimate parent of
the surviving entity were directors of the Company prior to its organization.
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<PAGE> 3
"Territory" shall mean any state of the United States, and any
equivalent section or area of any country, in which the Company has
revenue-producing customers or activities.
"Company" shall mean DIDAX INC., a Delaware corporation, together
with such subsidiaries of the Company as may from time to time exist.
2. Position, Responsibilities, and Term of Employment.
2.01 Position. Employee shall serve as Chief Financial Officer and
in such additional management position(s) as the Board shall designate. In this
capacity Employee shall, subject to the bylaws of the Company, and to the
direction of the Board, serve the Company by performing such duties and
carrying out such responsibilities as are normally related to the position of
Chief Financial Officer in accordance with the standards of the industry. As a
bona fide occupational qualification, the Employee will, upon request,
subscribe to the Statement of Faith as stated in Article XIII, Section 2 of the
bylaws of the Company.
2.02 Best Efforts Covenant. Employee will, to the best of his
ability, devote his full professional and business time and best efforts to the
performance of his duties for the Company and its subsidiaries and affiliates.
2.03 Protective Covenant. Employee agrees not to acquire, assume, or
participate in, directly or indirectly, any position, investment, or interest
in the Territory adverse or antagonistic to the Company, its business or
prospects, financial or otherwise, or take any action towards any of the
foregoing. The provisions of this Section shall not prevent Employee from
owning shares of any competitor of the Company so long as such shares (i) do
not constitute more than [1%] of the outstanding equity of such competitor, and
(ii) are regularly traded on a recognized exchange or listed for trading by
NASDAQ in the over-the-counter market.
2.04 Post-Employment Noncompetition Covenant, Except with the prior
written consent of the Board, Employee shall not engage In activities in the
Territory either on ployee's own behalf or that of any other business
organization, which are in direct petition with the Company, or solicit
customers, or clients, of the Company or any of its affiliates for a period of
six (6) months subsequent to Employee's voluntary withdrawal from employment
with the Company (except for a Change in Control Termination in which case this
Noncompetition Covenant does not apply), or the Company's termination of
Employee's employment for Cause. In accordance with the foregoing limits,
Employee will not willfully canvas, solicit nor accept any such business in
competition with the business of the Company from any customers of the Company
with whom Employee had contact during, or of which Employee had knowledge
solely as a result of, his performance of services for the Company pursuant to
this Agreement, and Employee will not directly or indirectly request, induce or
advise any customers of the Company with whom Employee had contact during the
term of this Agreement to withdraw, curtail or cancel their business with the
Company. Employee and the Company expressly declare that the territorial and
time limitations contained in this Section and the definition of "Territory"
are entirely reasonable at this time and are
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<PAGE> 4
properly and necessarily required for the adequate protection of the business
and intellectual property of the Company. If such territorial or time
limitations, or any portions thereof, are deemed to be unreasonable by a
mediator, arbitrator or a court of competent jurisdiction, whether due to
passage of time, change of circumstances or otherwise, Employee and the Company
agree to a reduction of said territorial and/or time limitations to such areas
and/or periods of time as said court shall doom reasonable. The duration of the
covenant as noted herein will be extended if its enforcement is delayed by
mediation, arbitration or litigation.
For a period of one year subsequent to Employee's voluntary withdrawal
from employment with the Company (except for a Change in Control Termination in
which case this Noncompetition Covenant does not apply), or the Company's
termination of Employee's employment for Cause, Employee will not without the
express prior written approval of the Board (i) in one or a series of
transactions, recruit, solicit or otherwise induce or influence any proprietor,
partner, stockholder, lender, director, officer, employee, sales agent, joint
venturer, investor, lessor, agent, representative or any other person which has
a business relationship with the Company or had a business relationship with
the Company within the twelve-(12) month period preceding the date of the
incident in question, to discontinue, reduce, or modify such employment, agency
or business relationship with the Company, or (ii) employ or seek to employ or
cause any business organization in direct competition with the Company to
employ or seek to employ any person or agent who is then (or was at any time
within six months prior to the date the Employee or the competitive business
employs or seeks to employ such person) employed or retained by the Company.
Notwithstanding the foregoing, nothing herein shall prevent the Employee from
providing a letter of recommendation to an employee with respect to a future
employment opportunity. However, employee will not induce or attempt to induce
any employee of the Company to terminate his/her employment with the Company.
2.05 Confidential Information. Employee recognizes and acknowledges
that the Company's trade secrets and proprietary information and know-how, as
they may exist from time to time ("Confidential Information"), are valuable,
special and unique assets of the Company's business, access to and knowledge of
which are essential to the performance of Employee's duties hereunder. Employee
will not, during or after the term of his employment by the Company, in whole
or in part, disclose such secrets, information or know-how to any Person for
any reason or purpose whatsoever, nor shall Employee make use of any such
property for his own purposes or for the benefit of any Person (except the
Company) under any circumstances during or after the term of his employment,
provided that after the term of his employment these restrictions shall not
apply to such secrets, information and know-how which are then in the public
domain (provided that Employee was not directly responsible for such secrets,
information or processes entering the public domain without the Company's
consent). Employee shall have no obligation hereunder to keep confidential any
Confidential Information if and to the extent disclosure of any thereof is
specifically required by law; provided, however, that in the event disclosure
is required by applicable law, the Employee shall provide the Company with
prompt notice of such requirement, prior to making any disclosure, so that the
Company may seek an appropriate protective order. Employee agrees to hold as
the Company's property all memoranda, books, papers, letters, customer lists,
processes, computer software, records, financial information, policy and
procedure manuals, training and recruiting procedures and other data, and all
copies thereof and therefrom, in any way relating to the Company's business and
affairs, whether made by him or otherwise coming into his possession, and on
termination of his
4
<PAGE> 5
employment, or on demand of the Company at any time, to deliver the same to the
Company. Employee agrees that he will not use or disclose to other employees of
the Company, during the term of this Agreement, confidential information
belonging to his former employers.
Employee shall use his best efforts to prevent the removal of any
Confidential Information from the premises of the Company, except as required
in his normal course of employment by the Company. Employee shall use his best
efforts to cause all persons or entities to whom any Confidential Information
shall be disclosed by him hereunder to observe the terms and conditions set
forth herein as though each such person or entity was bound hereby.
2.06 Records, Files. All records, files, drawings, documents,
equipment and the like relating to the business of the Company which are
created by Employee only during the term of his employment under this Agreement
shall be and shall remain the sole property of the Company.
2.07 Hired to Invent. Employee agrees that every improvement,
invention, process, apparatus, method, design, and any other creation that
Employee may invent, discover, conceive, or originate by himself or in
conjunction with any other Person during the term of Employee's employment
under this Agreement, that relates to the business carried on by the Company
during the term of Employee's employment under this Agreement, shall be the
exclusive property of the Company. Employee agrees to disclose to the Company
every patent application, notice of copyright, or other action taken by
Employee or any affiliate or assignee to protect intellectual property during
the twelve -(12) months following Employee's termination of employment at the
Company, for whatever reason, so that the Company may determine whether to
assert a claim under this Section or any other provision of this Agreement.
3. Compensation.
3.01 Annual Compensation. The Company shall pay to Employee for the
services to be rendered hereunder a base salary at an annual rate of One
Hundred Ten Thousand dollars ($110,000). It is understood that this salary
will be abated to Ninety Thousand dollars ($90,000) ("Minimum Annual
Compensation") per annum with the understanding that the Board will establish
by January 1, 1998, specific reasonable and measurable criteria for decreasing
or eliminating this abatement. There shall also be an annual review for merit
by the Board and an increase as deemed appropriate to reflect the value of
services by Employee. At no time during the term of this Agreement shall
Employee's annual base salary fall below the Minimum Annual Compensation.
5
<PAGE> 6
Employee's salary shall be payable in periodic installments in
accordance with the Company's usual practice for similarly situated employees
of the Company.
3.02 Incentive Compensation. In addition to the Annual Compensation,
Employee shall be entitled to receive payments under the Company's incentive
compensation and/or bonus program(s) (as in effect from time to time), if any,
in such amounts as are determined by the Board to be appropriate. Any
incentive compensation which is not deductible in the opinion of the Company's
counsel, under Section 162(m) of the Internal Revenue Code shall be deferred
and paid, without interest, in the first year or years when and to the extent
such payment may be deducted, Employee's right to such payment being absolute.
3.03 Participating in Benefits. Employee shall be entitled to all
Benefits for as long as such Benefits may remain in effect and/or any
substitute or additional Benefits made available in the future to similarly
situated employees of the Company, subject to and on a basis consistent with
the terms, conditions and overall administration of such Benefits adopted by
the Company. Benefits paid to Employee shall not be deemed to be in lieu of
other compensation to Employee hereunder as described in this Section 3.
3.04 Specific Benefits.
During the term of this Agreement (and thereafter to the extent this
Agreement shall require):
(a) Employee shall be entitled to four (4) weeks of paid vacation
time per year, to be taken at times mutually acceptable to the Company and
Employee.
(b) The Company shall provide fully paid accident and health
insurance for Employee and his family.
(c) The Company shall obtain at its expense (subject to Employee's
insurability) an insurance policy on the life of Employee, adjusted at policy
anniversary date, subject to the last sentence of this Section 3.04(c), in the
minimum face amount of employee's
6
<PAGE> 7
current annual base salary. Employee shall have the exclusive right to
designate the beneficiaries of such policy and change such beneficiaries from
time to time. Such policy and the proceeds and cash value thereof shall be the
sole property of Employee and the Company shall not retain any benefit therein.
(d) Employee shall be entitled to sick leave benefits during the
employment period in accordance with the customary policies of the Company for
its executive officers, but in no event less than one (1) month per year. In
the event of Employee's Disability, disability insurance shall provide for the
payment of Employee's annualized salary at the time of the disability a period
of not less than one (1) year from the date of Disability.
(e) In addition to the vacation provided pursuant to Section 3.04(a)
hereof, Employee shall be entitled to not less than ten (10) paid holidays
(other than weekends) per year, generally on such days consistent with the
Company's policy manual.
(f) Employee shall be entitled to receive prompt reimbursement for
all reasonable expenses incurred by him (in accordance with the policies and
procedures established by the Company or the Board for the similarly situated
employees of the Company) in performing services hereunder.
(g) Employee shall be eligible to participate during the Employment
Period in Benefits not inconsistent or duplicative of those set forth in this
Section 3.04 as the Company shall establish or maintain for its employees or
executives generally.
4. Termination.
4.01 Termination by Company for Other Than Cause. If during the term
of this Agreement, the Company terminates the employment of Employee and such
termination is not for Cause, then, the Company shall pay to Employee an amount
equal to the Employees then current monthly compensation level multiplied by
the minimum of eighteen (18) or the number of months remaining in the term of
this Agreement (the "Severance Period") until such time as Employee shall
become reemployed in a position consistent with Employee's experience and
stature. If Employee obtains such a position but Employee's annual compensation
shall be less than the compensation upon termination, then the difference shall
be paid to Employee for the balance of the Severance Period. Such difference
shall be calculated as follows: The difference between Employee's ending
biweekly compensation annualized and the annualized compensation payable to
Employee in his new position during such period shall be payable in the same
manner as the Employee was paid prior to termination over the period of such
reemployment during such period. If the Employee's employment in a new position
shall terminate, then for the purposes of this Paragraph 4.01 Employee shall be
entitled to continuation of the ending monthly compensation until he shall
again become reemployed, in which case only the difference shall be payable as
aforesaid, over the time of the Severance Period.
4.02 Constructive Discharge. If the Company fails to reappoint
Employee to (or rejects Employee for) the position or positions listed in
Section 2.01, fails to comply with the
7
<PAGE> 8
provisions of Section 3, or engages in any other material breach of the terms
of this Agreement, Employee may at his option terminate his employment and such
termination shall be considered to be a termination of Employee's employment by
the Company for reasons other than "Cause."
4.03 Termination by the Company for Cause. The Company shall have
the right to terminate the employment of Employee for Cause. Effective as of
the date that the employment of Employee terminates by reason of Cause, this
Agreement, except for Sections 2.04 through 2.08, shall terminate and no
further payments of the Compensation described in Section 3 (except for such
remaining payments of Compensation under Section 3.01 relating to periods
during which Employee was employed by the Company, Benefits which are required
by applicable law to be continued, and reimbursement of prior expenses under
Section 3.04) shall be made.
4.04 Change in Control Termination. If at any time during the term
of this Agreement there is a Change of Control Termination, the Company shall
pay to Employee an amount equal to the monthly portion of Employee's then
current monthly compensation as in effect on the date Employee's employment
terminated multiplied by twenty four (24). This amount shall be paid to
Employee in one lump sum as soon as practicable, but in no event later than
sixty (60) days, after the date of the Change in Control Termination.
4.05 Termination on Account of Employee's Disability. If Employee
ceases to perform services for the Company because he is suffering from a
medically determinable disability and is therefore incapable of performing such
services, the Company shall continue to pay Employee an amount equal to the
Employee's then current compensation level as in effect on the date of
Employee's cessation of services by reason of disability less any amounts paid
to Employee as Workers Compensation, Social Security Disability benefits (or
any other disability benefits paid to Employee as federal, state, or local
disability benefits) and any amounts paid to Employee as disability payments
under any disability plan or program for a period ending on the earlier of: (a)
the date that Employee again becomes employed in a significant manner and on a
substantially full-time basis; (b) the date that Employee attains normal
retirement age, as such age is defined in a retirement plan maintained by the
Company; or (c) Employee begins to receive retirement benefits from a
retirement plan maintained by the Company.
4.06 Termination on Account of Employee's Death.
(a) In the event of Employee's death during the term of this
Agreement:
(1) This Agreement shall terminate except as provided
in this Section; and
(2) The Company shall continue to retain benefits
coverage on behalf of the Employee's beneficiary or
beneficiaries in the manner indicted in Section 3.04(b) herein.
8
<PAGE> 9
(b) Employee may designate one or more beneficiaries for the
purposes of this Section by making a written designation and delivering such
designation to the President or the Secretary of the Company. If Employee makes
more than one such written designation, the designation last received before
Employee's death shall control.
5. Stock Options.
5.01 Amount of Stock. In accordance with the provisions of the
Company's 1997 Incentive Stock Option Plan (the "Plan") and the specific
authorization of the Board, the Company hereby grants to Employee, subject to
all of the terms and conditions of the Plan and this Agreement, an option to
acquire shares of the Company's outstanding common stock ("Option Stock") in an
amount as indicated in Attachment "A" of this document.
5.02 Vesting. The Option to acquire the shares of common stock
granted in Section 5.01 vest per the schedule provided in Attachment "A" of
this document. Notwithstanding anything to the contrary contained in this
Agreement, all Options to acquire Option Stock shall irrevocably vest thirty
(30) calendar days prior to the scheduled consummation of a Change of Control.
5.03 Tax Changes. If any change(s) in the Federal income tax laws
materially affect the tax treatment of Employee with respect to the Option or
the Option Stock, the parties agree to negotiate in good faith to reach an
agreement which will take advantage of, or minimize the disadvantages of, such
changes.
5.04 Notwithstanding the type of termination described in Section 4
herein, Employee has the right to retain all granted options and warrants, even
those which are not vested, available for option exercise upon vesting, until
their natural expiration.
6. Miscellaneous.
6.01 Assignment. This Agreement and the rights and obligations of
the parties hereto shall bind and inure to the benefit of each of the parties
hereto and shall also bind and inure to the benefit of any successor or
successors of the Company in a reorganization, merger or consolidation and any
assignee of all or substantially all of the Company's business and properties,
but, except as to any such successor of the Company, neither this Agreement nor
any rights or benefits hereunder may be assigned by the Company or Employee.
6.02 Initial Term and Extensions. Except as otherwise provided, the
term of this Agreement shall be in effect until June 30, 1998 and commencing
with the effective date hereof. On June 30, 1998, and on each subsequent annual
anniversary of this date thereafter, the term of the Agreement shall be
automatically extended for an additional year unless either party notifies the
other in writing more than 90 days prior to the relevant anniversary date that
the Agreement is no longer to be extended. If, prior to June 30, 2009, Company
notifies Employee of its desire not to extend this agreement, this will be
considered termination by the Company other than by cause as described in
Section 4.01.
9
<PAGE> 10
6.03 Governing Law. This Agreement shall be construed in
accordance with and governed for all purposes by the laws of the State of
Virginia.
6.04 Interpretation. In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, but
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
6.05 Notice. Any notice required or permitted to be given hereunder
shall be effective when received and shall be sufficient if in writing and if
personally delivered or sent by prepaid cable, telex or registered air mail,
return receipt requested, to the party to receive such notice at its address
set forth at the end of this Agreement or at such other address as a party may
by notice specify to the other.
6.06 Amendment and Waiver. This Agreement may not be amended,
supplemented or waived except by a writing signed by the party against which
such amendment or waiver is to be enforced. The waiver by any party of a breach
of any provision of this Agreement shall not operate to, or be construed as a
waiver of, any other breach of that provision nor as a waiver of any breach of
another provision.
6.07 Binding Effect. Subject to the provisions of Section 4 hereof,
this Agreement shall be binding on the successors and assigns of the parties
hereto.
6.08 Survival of Rights and Obligations. All rights and obligations
of Employee or the Company arising during the term of this Agreement shall
continue to have full force and effect after the termination of this Agreement
unless otherwise provided herein.
6.09 Christian Conciliation. Employee and the Company desire to
avoid dissipating resources on wasteful ligitation and therefore agreee to
resolve disputes privately by good faith negotiation where at all possible.
Any dispute which cannot be resolved 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 both the Employee and the Company. Any arbitration award issued by
the mediator shall be final, binding, and enforceable in any court of competent
jurisdiction.
The Company
By
------------------------
--------------------------
Employee
--------------------------
Spouse
10
<PAGE> 11
ATTACHMENT "A"
Gary Struzik
<TABLE>
<CAPTION>
Exercise Expiration
Shares Price Vesting Date
- ---------------------------------------------------------------------
<S> <C> <C> <C>
30,000 $3.00 One Third at end of 1996, 1997, 1998 03/31/06
71,250 $5.00 $.125 EPS For Quarter OR $.50 EPS For Year 09/30/06
6,331 $4.00 Fully Vested 12/31/06
1,405 $5.00 Fully Vested 03/31/07
1,290 $5.00 Fully Vested 06/30/07
</TABLE>
<PAGE> 1
EXHIBIT 10.20
ICHAT, INC.
SOFTWARE LICENSE AGREEMENT
THIS IS A LICENSE AGREEMENT AND NOT AN AGREEMENT FOR SALE.
This Software License Agreement ("Agreement") is entered into as of 2/28,
1997, between ichat, Inc., a Texas corporation, with its principal place of
business at 8303 North Mopac Expressway, Suite A114, Austin, Texas 78759
("ichat, Inc."), and DIDAX INC. 4501 Daly Drive Suite 103 Chantilly, VA 20151
Whereas, ichat, Inc. owns, or has licensed from the owner(s), copyrights and
other rights in ichat, Inc.'s software products ("Software") and associated
documentation provided by ichat, Inc. under this Agreement and listed on
Attachment A hereto; whereas, Licensee desires to receive a non-exclusive
license to use such Software as provided below; and whereas, ichat, Inc. is
willing to grant such non-exclusive license to Licensee on the terms and
conditions set forth below; the parties agree as follows:
1. License Grant. Subject to the terms of this Agreement, ichat, Inc.
grants Licensee a non-transferable, non-sublicensable, non-exclusive license
to use the Software (i) on multiple file servers at the Licensed Site specified
on Attachment A and (ii) only in accordance with the applicable user
documentation provided by ichat, Inc., for access by persons who are authorized
to directly access that server through Licensee's Web site. This license and
the terms and conditions of this Agreement shall extend to any upgrades or new
versions of the Software provided to Licensee.
2. Restrictions. Under no circumstances shall Licensee (a), (b), (c) make
any copies of the Software, except for one copy solely for back-up purposes,
(d) modify, or create a derivative work of the Software, (e) provide, rent, or
lease the Software to any third party, (f) reverse engineer, decompile,
disassemble or otherwise attempt to reconstruct or discover any source code,
underlying ideas, algorithms, file formats or programming interfaces of the
Software or allow any other party to do the same, or (g) remove any product
identification, copyright or other notices from the Software or associated
documentation. Any copies of the Software made in violation of this Agreement
shall be deemed copyright infringement.
3. Ownership of Software. As between the parties to this Agreement,
ichat, Inc. retains title to and ownership of and all proprietary rights with
respect to the Software, any accompanying printed materials and all copies and
portions thereof. The Software and accompanying printed materials are protected
by copyright, trademark and trade secret laws and international treaty
provisions. The Software is licensed and not sold.
4. Payment. Upon execution of this Agreement or commencement of any
renewal term, Licensee shall pay the annual license fees for the Software set
forth in Attachment A hereto. All payments shall be made in U.S. dollars in the
United States. All such license fees are exclusive of shipping, taxes, duties
and the like, which shall be paid by Licensee. All late payments shall be
assessed a service charge of 1.5% per month, to the extent allowed by law.
5. Customer Support. ichat, Inc. shall provide telephone and email
support service to Licensee during ichat, Inc.'s normal business hours (8am to
6pm CST, Monday through Friday) for answering questions regarding the Software.
Support shall include at no additional charge to Licensee improvements and
upgrades to the Software that ichat, Inc. regularly provides to its other
customers. Licensee shall designate an individual employee of Licensee as
license administrator in connection with this Agreement ("License
Administrator"). All telephone or written contact with ichat, Inc. shall be
performed by the License Administrator. Licensee shall notify ichat, Inc. in
writing promptly upon a change of the designated License Administrator.
6. Confidentiality. Licensee agrees that the Software and all code,
inventions, algorithms, know-how and ideas it obtains from ichat. Inc. and all
other business, technical and financial information it obtains from ichat, Inc.
are the confidential property of ichat, Inc. and its licensors ("Proprietary
Information"). Except as expressly and unambiguously allowed herein, Licensee
will hold in confidence and not use or disclose any Proprietary Information and
shall similarly bind its employees in writing. Licensee's nondisclosure
obligation shall not apply to information it can document is generally
available to the public (other than through breach of this Agreement).
7. Term and Termination.
a. Term of Agreement. This Agreement and the license granted herein
shall be effective from the date of this Agreement. The term of this Agreement
and the license shall run for one (1) year after ichat, Inc. first ships the
Software, unless and until terminated as provided in this Section. The term may
be extended annually for additional one (1) year periods upon payment by
Licensee of the appropriate, then current annual license fees, unless ichat,
Inc. gives Licensee notice of termination thirty (30) days
<PAGE> 2
before expiration of the current term. In addition, the license may be
terminated as provided below in this Section; however, upon termination, the
terms of this Agreement, except for Sections 1 and 5, will otherwise survive
and remain in effect.
b. Termination by Licensee. Upon termination by Licensee for any
reason, Licensee will cease all use of the Software and destroy or return to
ichat, Inc. the Software and all documentation and copies thereof to ichat,
Inc. along with a signed written statement expressing Licensee's desire to
terminate the license and certifying that Licensee has destroyed or returned to
ichat, Inc., and is no longer in possession of, any Software, related
documentation or any copies, portions or derivatives of any of the foregoing.
c. Termination by ichat, Inc.. ichat, Inc. may immediately terminate
this Agreement immediately upon the occurrence of any of the following events:
(1) if Licensee ceases to do business, or otherwise terminates its
business operations; or
(2) if Licensee shall fail to promptly secure or renew any license,
registration, permit, authorization or approval necessary for the conduct of
its business in the manner contemplated by this Agreement, or if any such
license, registration, permit, authorization or approval is revoked or
suspended and not reinstated within thirty (30) days; or
(3) if Licensee materially breaches any material provision of this
Agreement and fails to fully cure such breach within thirty (30) days (ten (10)
days in the case of a failure to pay and immediately in the case of a breach of
Sections 2 or 6 of written notice describing the breach; or
(4) if Licensee shall seek protection under any bankruptcy,
receivership, trust deed, creditors arrangement, composition or comparable
proceeding, or if any such proceeding is instituted against the other (and not
dismissed within ninety (90) days).
Upon such termination by ichat, Inc., Licensee will cease all use of the
Software and destroy or return to ichat, Inc. the Software and all
documentation and copies thereof to ichat, Inc. along with a signed written
statement certifying that Licensee has destroyed or returned to ichat, Inc.,
and is no longer in possession of, any Software, related documentation or any
copies, portions or derivatives of any of the foregoing.
d. Neither party shall incur any liability whatsoever for any damage,
loss or expenses of any kind suffered or incurred by the other (or for any
compensation to the other) arising from or incident to any termination of this
Agreement by such party which complies with the terms of the Agreement whether
or not such party is aware of any such damage, loss or expenses.
8. Limited Warranty and Disclaimer. ichat, Inc. warrants that for a
period of ninety (90) days from the date of Licensee's receipt of the Software
(i) the Software will perform substantially in accordance with the accompanying
printed materials and (ii) the medium upon which the Software is provided by
ichat, Inc. to Licensee shall be free from defects in material and workmanship
under normal use. This warranty covers only problems reported to ichat, Inc.
during the warranty period. WARRANTY DISCLAIMER: EXCEPT AS EXPRESSLY STATED
HEREIN, THE SOFTWARE IS PROVIDED "AS IS" WITHOUT WARRANTY OF ANY KIND, EXPRESS
OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF PERFORMANCE OR
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR NONINFRINGEMENT. LICENSEE
BEARS ALL RISK RELATING TO QUALITY AND PERFORMANCE OF THE SOFTWARE. The
performance of the Software varies with various manufacturers' equipment with
which it is used. ichat, Inc. does not warrant that the Software or the
functions contained in the Software will meet Licensee's requirements, operate
without interruption or be error free. Licensee's exclusive remedy for breach
by ichat, Inc. of its limited warranty set forth above shall be replacement of
any defective Software or medium upon its return to ichat, Inc. within the
warranty period, or if ichat, Inc. is unable to provide a replacement which is
free of defect, a pro rata refund of the license fee paid by Licensee.
9. Limitation of Liability. ANY LIABILITY OF ichat, Inc. WILL BE LIMITED
TO PRODUCT REPLACEMENT OR, IF REPLACEMENT IS INADEQUATE OR IN ichat, Inc.'s
OPINION IMPRACTICAL, TO REFUND OF THE LICENSE FEE. IN NO EVENT SHALL ichat,
Inc. BE LIABLE UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR THEORY FOR
ANY INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, LOSS OF
PROFITS, BUSINESS INTERRUPTION, LOSS OR INACCURACY OF INFORMATION OR COST OR
PROCUREMENT), ARISING OUT OF THE USE OF OR INABILITY TO USE THE SOFTWARE, EVEN
IF ichat, Inc. HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT
WILL ichat, Inc.'s LIABILITY EXCEED THE AMOUNT PAID BY LICENSEE FOR THE
SOFTWARE.
10. Government Use. If Licensee is a unit or agency of the government, or
acquiring the Software with government funds, the software and documentation
are provided subject to ichat, Inc.'s standard commercial license; provided,
however, that any
2.
<PAGE> 3
contracts with non-defense agencies subject to the FAR, the Government shall
have the rights set forth in subparagraph (c) of FAR 52.227-19, "Commercial
Computer Software-Restricted Rights," as applicable.
11. Miscellaneous. This Agreement is not assignable, transferable or
sublicensable by Licensee without the prior written consent of ichat, Inc.; any
attempt to do so shall be void. Any notice, report, approval or consent
required or permitted hereunder shall be in writing and will be deemed to have
been effectively given: (i) immediately upon personal delivery or facsimile
transmission to the parties to be notified, (ii) one (1) day after deposit with
a commercial overnight courier with tracking capabilities, or (iii) three (3)
days after deposit with the United States Postal Service, by registered or
certified mail, postage prepaid to the respective addresses of the parties as
set forth above. The waiver by either party of a breach of this Agreement or
any right hereunder shall not constitute a waiver of any subsequent breach of
this Agreement; nor shall any delay by either party to exercise any right under
this Agreement operate as a waiver of any such right. If any provision of this
Agreement shall be adjudged by any court of competent jurisdiction to be
unenforceable or invalid, that provision shall be limited or eliminated to the
minimum extent necessary so that this Agreement shall otherwise remain in full
force and effect and enforceable. This Agreement shall be construed pursuant to
the laws of the State of Texas and the United States without regard to
conflicts of laws provisions thereof and without regard to the United Nations
Convention on Contracts for the Sale of Goods. To the extent that EC law is
applicable, the restriction on reverse engineering is limited to prohibit such
activity to the maximum extent without violating the EC Directive on the legal
protection on computer programs. The prevailing party in any action to enforce
this Agreement shall be entitled to recover costs and expenses including,
without limitation, attorneys' fees. The parties agree that a material breach
of this Agreement adversely affecting ichat, Inc.'s proprietary rights in the
Software would cause irreparable injury to ichat, Inc. for which monetary
damages would not be an adequate remedy and that ichat, Inc. shall entitled to
equitable relief in addition to any remedies it may have hereunder or at law.
Both parties agree that this Agreement is the complete and exclusive statement
of the mutual understanding of the parties and supercedes and cancels all
previous written and oral agreements and communications relating to the
subject matter of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first written above.
ichat, Inc.: LICENSEE: DIDAX INC.
----------------------------
By: [SIG] By: [SIG]
--------------------------- -----------------------------------
Title: CFO Title: Director of Technical Marketing
------------------------ -------------------------------
3.
<PAGE> 4
ATTACHMENT A Page 1 of 2
ICHAT, INC., SOFTWARE AND LICENSE FEES
PROPOSAL TO DIDAX INC.
FEBRUARY 28, 1997
ANNUAL SOFTWARE LICENSE FEE
ichat, Inc. ROOMS 2.2 SERVER web-integrated, real-time communications server
with Event Moderation (EM) package built in, including threaded message boards
when available.
ANNUAL LICENSE FEES:
SIMULTANEOUS
USERS YEAR 1 YEAR 2
1000 $7,500 $7,500
As part of the Annual License Fee DIDAX will split ad revenue with ichat, Inc.
at a rate of 50% to ichat and 50% to DIDAX after expenses with a cap payment of
$20,000 in each year.
MODERATED EVENT RENTAL PRICING:
For large moderated events ichat, Inc. will open up the number of users at a
rate of $1.00 per user with a minimum rental of 1000 users. Example 2000 users
= $2000.
The ROOMS server software will be opened up for the Event one week before the
event then closed down one day after the event.
As a promotions incentive to sign a License Agreement in February this pricing
offer expires 2/28/97. This pricing will not be extended beyond this date.
PAYMENT TERMS
Net 30 Days. Delivery; Fedex ASAP
TRAINING
1 Day Class, Our Fast Start Training program is available on site to DIDAX INC.
at $1,500 per day plus travel expenses. At that time ichat will train how to
set up and configuration of the ROOMS server and how to run online moderated
events per DIDAX INC.'s specifications.
4.
<PAGE> 5
ATTACHMENT A Page 2 of 2
ICHAT, INC., SOFTWARE AND LICENSE FEES
TECHNICAL SUPPORT. MAINTENANCE & UPGRADES
In exchange for an annual fee, DIDAX INC. will receive technical support under
ichat, Inc.'s standard support program 8:00am to 6:00pm M-F Central Standard
Time through phone in 800 # or e-mail. Access to software maintenance, upgrades
and enhancements to ROOMS server and client technology for the period of the
License Agreement.
LICENSE FOR DISTRIBUTION OF CLIENT TECHNOLOGY
ichat, Inc. will provide DIDAX INC. with the right to distribute to DIDAX
INC.'s customers and employees the ichat, Inc. client product line through
downloads or CD's at no additional charge. ichat, Inc.'s robust client product
line ensures that every potential customer can join an event using at least one
of our seven different clients available for Windows 3.1, NT, 95, Mac OS 68K,
PPC, UNIX, Netscape Navigator, Microsoft Explorer and Java. ichat, Inc.
maintains these clients with new enhancements and new releases of which DIDAX
INC. will be entitled to over the term of the license agreement.
SHOWCASE CLIENT
In exchange for the discounted pricing, DIDAX INC. will agree to appear as a
showcase client for ichat, Inc.. The duties of a showcase client include
issuing a joint press release with ichat, Inc. announcing the relationship.
Participating in an ichat, Inc., DIDAX INC. created "Success Story" after
implementation to be published by ichat, Inc. Acting as a reference site for
prospective ichat, Inc. customers.
NON-DISCLOSURE
DIDAX INC. will agree not to disclose any of the pricing terms of this proposal
or the final agreement.
5.
<PAGE> 1
EXHIBIT 10.21
LETTER OF AGREEMENT
(Distribution and Credit Card Processing, No SA Database)
Agreement made this 1st day of October, 1996, by and between SPRING ARBOR
DISTRIBUTION COMPANY, a Michigan corporation, (hereinafter referred to as
"Spring Arbor"), and Didax On-Line, L.C., a Virginia limited liability company,
(hereinafter referred to as "Didax").
RECITALS
A. Spring Arbor is in the business of distributing books, Bibles, music
and gift products (Christian products) to retailers. Spring Arbor
from time to time acts in the capacity of a fulfillment services
contractor for various clients. Clients provide service
specifications and Spring Arbor performs said service specifications
for the client.
B. Spring Arbor has a comprehensive data base of items typically found in
a Christian retail store
C. Didax seeks to establish and operate a Christian products business via
the Internet through a Didax designed electronic on-line service. For
this agreement this concept hereinafter shall be referred to as
"on-line retail outlet."
D. Didax seeks to attract a customer base of individuals interested in
Christian products and is attempting to build and serve this customer
base through the on-line retail outlet.
NOW, THEREFORE, in consideration of the mutual covenants and conditions herein
contained, and intending to be bound hereby, the parties agree as follows:
1. Spring Arbor agrees to furnish Didax with products on an non-exclusive
basis for Didax customers who order product through on-line retail
outlet. Products will be selected jointly by Spring Arbor and Didax.
Spring Arbor will be responsible for maintaining its inventory file
(Product Description, ISBN or SPCN number, Subject Category and other
fields currently contained in Spring Arbor's corporate inventory
file), and the current manufacturer's suggested retail pricing (MSRP).
Spring Arbor, may, from time to time, suggest certain product specials
for products listed in the on-line retail outlet.
Spring Arbor agrees to furnish Didax with its Christian Resource
Center database (CRC db) on a non-exclusive basis for Didax use in its
on-line retail outlet. In the CRC db, Spring Arbor will provide data
in electronic form as described in the September 3, 1996 letter from
Doug Weatherston (attached). The fee for the CRC db is $1,000 per
month beginning January 1997.
2. Spring Arbor agrees to pick, pack and ship products for Didax to Didax
customers in a timely manner that corresponds to Spring Arbor's
current business practices. These shipments will be referred to as
drop shipments. Spring Arbor will decide which warehousing facility
to use.
3. Didax agrees to be wholly responsible for the operation of the on-line
retail outlet. It further agrees to hold Spring Arbor harmless in the
event of any suit or action taken by customers with respect to Didax's
electronic on-line service to sell Christian products. Provided,
however, this section shall not apply to any lawsuits or actions
arising from or related to any activities of Spring Arbor or Spring
Arbor distributed products.
Spring Arbor shall hold Didax harmless regarding credit card theft by
any Spring Arbor employee. Spring Arbor shall also warrant any
product delivered to a Didax customer to the extent of the product
manufacturer's stated warranty. The remedy for damaged or defective
product(s) shall be limited to product replacement or other stated
terms specifically from manufacturer.
1
<PAGE> 2
4. It is understood by both parties that Spring Arbor is acting as a
fulfillment contractor for Didax, Spring Arbor's role is to provide
fulfillment services, including but not limited to picking product
orders, packing product orders, shipping product orders, customer
service, helping in the choosing of products offered, providing and
maintaining the CRC db. Spring Arbor is acting on behalf of Didax,
for Didax's customers. Didax assumes full responsibility to market to
their customers. Didax is solely responsible to collect and pay any
and all sales or use taxes due as a result of the on-line retail
outlet service. Didax agrees it is following customary business
practices as they pertain to the on-line retail outlet and collecting
and paying sales or use taxes where Didax has liability as described
by current commercial law as part of those customary business
practices.
5. Spring Arbor will invoice Didax for products purchased at the
discount, from MSRP as reflected in Spring Arbor's inventory file.
All invoices for product purchases by Didax or its customers will be
under normal Spring Arbor terms and conditions. Spring Arbor, for the
above described services, will charge Didax a $2.00 per order drop
shipment fee, any credit card processing fees and outbound freight.
6. Returns will be managed by Spring Arbor at the warehouse facility of
its choice. Didax will be charged a $2.00 per order restocking fee on
any returns from its customers unless returns are for damaged
products. Damaged products will receive no restocking fee unless it
can be determined that the damage was due to customer or freight
carrier mishandling.
7. The term of this agreement shall be for two (2) years. Either party
to this Agreement shall have the right to terminate this Agreement
upon giving the other party ninety (90) days written notice setting
forth therein the performance criteria alleged to have been breached,
if the other party fails or refuses to make any nondisputed payment or
to render any nondisputed statement or report when due under this
Agreement, and such default is not remedied within thirty (30) days
after receipt of written notice thereof. In the event any nondisputed
payment, report, or statement is not made or rendered when due twice
during any calendar year, the party to whom the payment, report, or
statement is due may terminate this Agreement on ten (10) days written
notice, subject to remedy within those ten (10) days by the other
party.
(a) The following provisions shall be in effect upon and
after the effective date of the termination,
cancellation or expiration of this agreement;
(i.) Spring Arbor shall immediately discontinue
the fulfillment services described herein.
(ii) Spring Arbor shall continue to make reports
and payments as required herein except that Spring
Arbor may withhold an amount in reserve for
anticipated returns from Didax customers. As of the
date of written notice or six months prior to
expiration, Spring Arbor will start to build up a
reserve to offset anticipated returns from On-Line
Retail customers, which reserve shall be liquidated
by Spring Arbor on a monthly basis over the six (6)
months following termination. The amount of such
reserve shall be based on and shall not exceed the
greater of: (a) the amount of the returns percentage
from On-Line Retail Outlet Customers during the
twelve (12) month period immediately preceding the
date of notification of termination, cancellation, or
expiration multiplied by the sales from On-Line
Retail Outlet Customers after notice of termination
or six months prior to expiration; or (b) ten (10%)
per cent of net sales calculated in the same manner.
This reserved amount shall be held for six (6) months
by Spring Arbor in a separate account. As On-Line
Retail Outlet Customers products are returned to
Spring Arbor this account will be liquidated during
the six-month period after termination and reconciled
with Didax month-by-month. For example, reserves
held in January will be repaid to Didax in July to
the extent that the reserves have not been offset by
actual returns.
8. Didax agrees that any products advertised by either themselves or
others must, if they are a part of Spring Arbor's CRC db, be offered
for on-line sale soley through the on-line retail outlet supplied by
2
<PAGE> 3
Spring Arbor and not directly from the vendor or manufacturer.
Nevertheless, Didax is free to negotiate special discounts or
arrangements directly with other vendors or manufacturers provided
only that shipping be through Spring Arbor. In such cases Spring
Arbor agrees to pass through to Didax the benefits derived from such
negotiations.
9. From time to time, Spring Arbor will make available to Didax
opportunities to participate in extra margin opportunities where
Spring Arbor vendors have made available promotional items at a better
than listed (or system) discount. Didax shall also receive, from time
to time, notification of other market specials.
When annual purchase volume of the on-line retail outlet reaches
$1,000,000 rate, Spring Arbor will negotiate extra discounts for Didax
products sold via on-line retail outlet. Extra discount will not
exceed any current customer classification already in place. Spring
Arbor reserves the right to restrict the extra discount provision for
certain product types, i.e. items with a retail less than $4.95, or
other types.
When monthly volume exceeds $50,000, Spring Arbor will discuss and
negotiate opportunities for labeling Didax shipments with Didax
supplied naming, for guaranteed same day packing and shipping, and for
similar service oriented value.
10. Either party may not transfer or assign its rights or obligations
under this agreement without the expressed written consent of the
other party.
The parties execute this agreement on the date and year first above written.
Spring Arbor Distribution Company The Didax On-Line, L.C.
By: /s/ WAYNE A. HASTINGS By: /s/ R.C. VARNEY
--------------------------------- ---------------------------------
Wayne A. Hastings R.C. Varney
Its Vice President, Vendor Services Its Chairman and CEO
3
<PAGE> 1
EXHIBIT 10.22
[INTERMIND LOGO]
INTERMIND WEB SOLUTION PARTNER AGREEMENT
- -------------------------------------------------------------------------------
Intermind Corporation agrees with you, the undersigned Web Solution Partner,
as follows:
If you fulfill all your obligations under this Agreement, you will
have:
- Free use of Intermind(TM) Global Publisher on your Web design division's
Internet website.
- Free use of Intermind Intranet Publisher on your Intranet website
(up to 100 seats).
- Free use of Intermind Communicator(TM) for your pro bono charity customers,
with prior Intermind approval of such customers.
- A special phone number and special email address for priority technical
support.
- Free education or training programs as determined by Intermind.
- Designated use of the "Intermind Web Solution Partner" logo, subject to
Intermind's then current trademark usage guidelines.
- The right to be included on appropriate lists, profiles, or links on a
special Intermind web page.
- Invitations to participate with Intermind at selected trade shows.
- The opportunity to participate in cooperative press releases.
- The ability to use Intermind's "JumpStart" training kit with your customers
for training purposes.
- The opportunity to use Intermind sales force support for joint sales calls.
In order to gain the benefits under this Agreement you must:
- Have at least two employees trained on Intermind Communicator within one
month after this Agreement is executed.
- Place and maintain at least one Hyperconnector(TM) on your web site.
- Set-up at least 6 sales calls introducing Intermind's technology to at least
3 different customers in the first 3 months.
- Pursue Hyperconnectors implementation in at least 3 customer web sites
during the first year.
- Designate one technical support contact.
- Provide initial technical support to all your customers
If you fulfill all your obligations under this Agreement, you shall also
receive 20% of the Intermind Communicator(TM) license fee we actually receive
from a customer for the Hyperconnectors designed and/or implemented by you for
such customer, subject to the following requirements:
- In order to receive a commission from amounts received during the first year
of our license with the customer:
- In Intermind's agreement with the customer, the customer must designate
you as their Web Solution Partner of choice (there is only one such
designation per customer).
- You must have designed and/or implemented the customer's Hyperconnectors.
- You must be able to provide the customer with consulting/training on the
implementation of Intermind Communicator(TM).
- - In order to receive a commission from amounts received during the second year
of our license with the customer and beyond:
- In Intermind's agreement with the customer, the customer must continue to
designate you as their Web Solution Partner of choice (there is only one
such designation per customer).
- You must provide the customer with one day of consulting for each $5000 in
annual Intermind Communicator(TM) revenue received by you from Intermind
(e.g. upon collection of $100,000 in applicable fees you will receive a
$20,000 commission. $20,000/$5,000=4 days of consulting required).
<PAGE> 2
INTERMIND WEB SOLUTION PARTNER AGREEMENT
Page Two
You acknowledge and agree that: (a) you shall not make any enhancements,
modifications, improvements, copies, or derivative works of or to Intermind's
software (collectively, "Enhancements") without the prior approval of
Intermind, and you shall not decompile, reverse engineer, disassemble, reverse
translate, or in any way derive any source code from Intermind's software; (b)
all right, title and interest in and to Intermind's software and any
Enhancements thereto shall be owned and controlled by Intermind, and you hereby
transfer and assign any rights you may have therein to Intermind; and (c) you
are an independent contractor, not an Intermind partner or employee, and you
shall not have the authority to bind Intermind in any manner and shall not
attempt to do so.
INTERMIND EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING, BUT NOT
LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. IN NO EVENT SHALL INTERMIND BE LIABLE IN TORT, CONTRACT, OR
UNDER ANY OTHER LEGAL THEORY FOR ANY INCIDENTAL, CONSEQUENTIAL, SPECIAL OR
INDIRECT DAMAGES REGARDLESS OF WHETHER INTERMIND HAS BEEN WARNED OF THE
POSSIBILITY OF SUCH DAMAGES.
You acknowledge and agree that the Intermind software and any other information
relating to Intermind's business, products, or methods of operation, which are
not generally known to the public, are confidential and proprietary and trade
secrets owned by Intermind, and you shall not disclose such information or use
such information except to perform your obligations under this Agreement.
This Agreement shall enter into full force and effect on the date it is
executed by both parties, and it shall remain in effect until terminated by
either party. Either party may terminate this Agreement immediately if the
other party breaches this Agreement and does not cure such breach within 10 ten
days of receiving notice thereof.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT WHICH MAY BE CONSTRUED TO THE
CONTRARY, EITHER PARTY MAY TERMINATE THIS AGREEMENT, WITHOUT CAUSE AND IN ITS
SOLE DISCRETION, UPON PROVIDING THE OTHER PARTY NOTICE IN WRITING AT LEAST 90
DAYS BEFORE THE REQUESTED DATE OF TERMINATION.
If any part of this Agreement shall be held invalid or unenforceable, this
Agreement shall be construed as if it did not contain such portion, and the
rights and obligations of the parties shall be construed and enforced
accordingly. This Agreement is the complete and exclusive agreement and
understanding between the parties concerning the subject matter hereof, and
supersedes all previous or contemporaneous understandings, negotiations and
proposals, whether oral or written. No waiver, modification, amendment, consent
or discharge in connection with this Agreement shall be binding upon either
party unless in writing and signed by authorized representatives of both
parties. Failure or delay on the part of any party to exercise any right,
remedy, power or privilege hereunder will not operate as a waiver. This
Agreement shall be governed by and interpreted under the laws of the State of
Washington without reference to that body of law known as conflicts of law.
Name of Web Solution Partner:
INTERMIND CORPORATION DIDAX Inc.
-------------------------------------
By By /s/ MICHAEL BRUCE (Michael Bruce)
------------------------------- -----------------------------------
Its Its Director of Technical Marketing
------------------------------ ----------------------------------
Date Date Jan. 17, 1997
----------------------------- ---------------------------------
<PAGE> 1
EXHIBIT 10.23
[CYBERCASH LOGO]
SERVICE AGREEMENT
SECURE INTERNET CREDIT CARD SERVICE
CDSO12397.004CCh
In consideration of the mutual promises herein made and the mutual benefits to
be derived from this Agreement, you (referred to herein as the "Merchant",
"you", or "your") and CyberCash, Inc., a Delaware Corporation (referred to as
"CyberCash," "we," "our" or "us") agree to provide to you the CyberCash Secure
Internet Payment Service (the "Service") subject to the following terms and
conditions:
1. Secure Internet Payment Service
(a) Service Standard. CyberCash will transmit data necessary for authorizing
and executing credit card transactions, securely and accurately, between your
customers and you, and between you and your credit card processor or financial
institution. In the event of an interruption of the Service, CyberCash shall
use commercially reasonable efforts to restore the Service to the extent that
the cause of such failure is within CyberCash's reasonable control.
(b) Conditions of Use. To use the Service for sales transactions, (i) you must
have established a relationship with a bank or processor that has an agreement
with CyberCash to accept Service transactions; (ii) you must have either agreed
to the terms of the license for use of the CyberCash Merchant Payment Software
(the "Software") and have installed such Software on your Internet World Wide
Web server (or equivalent on a private network), or have an agreement with a
third party to host the Software for you; (iii) CyberCash must have received
from your processor or bank your Merchant and Terminal ID numbers; and (iv) you
must comply with operating procedures issued from time to time by CyberCash.
(c) Billing Rights Information. Use and acceptance of credit cards is governed
by the financial institutions which issue them and provide credit card services
to merchants. CyberCash is not a financial institution, and only provides
transport and communications services. You agree to address questions about
your credit card transactions to your financial institution, and not to
CyberCash.
(d) Transaction Data. You agree that CyberCash may provide, or assist in
providing transaction data to financial institutions and credit card processors
for the purpose of processing credit card transactions and resolving disputes,
or upon order of a government agency. Protection of transaction data stored on
your server or server of your host is your responsibility.
(e) Graphical Displays. CyberCash agrees to acknowledge on its Web site that
you are a user of the Service. You agree to acknowledge on your Web site that
you are using the Service. In addition, if at any time you elect to receive
credit card transactions from customer software that uses CyberCash's
transaction protocols (sometimes referred to as an electronic wallet), you
agree that on the Web page on which customers are asked to select a payment
option you will at all times display a CyberCash "pay button" in the form of a
HyperText Markup Language ("HTML") anchor reference (or such other technology
as selected by CyberCash). The form of the logo and one or more pay
<PAGE> 2
Page 2 of 5
buttons, which may be revised from time-to-time by CyberCash, are available at
http://www.cybercash.com/cybercash/merchant.
2. Your Remedies Under This Agreement
(a) Generally. Subject to paragraph (c), if CyberCash fails to provide the
Service in accordance with the standard described in Section 1(a), you may take
either or both of the following actions:
(i) Terminate this Agreement on written notice to CyberCash, such notice to be
provided in accordance with Section 4 hereof and to include a concise statement
of the basis for such termination; and (ii) institute pursuant to Section 8 a
claim for any direct damages caused by a breach by CyberCash of its obligations
under this Agreement.
(b) Infringement Claims. You rights and remedies for claims based on
infringement are provided in Section 6.
(c) Limitations
(i)CyberCash is not responsible for the actions of any bank or other financial
institution in authorizing, refusing to authorize or otherwise responding to an
authorization request transmitted by the CyberCash service. You waive any claim
that you might otherwise have against CyberCash for damages, indemnity,
contribution or the like arising from the foregoing so long as CyberCash
securely and accurately transmits credit card transaction data and responses to
transaction authorization requests.
(ii) CyberCash is not liable for carrying out any instruction which originated
from your server, the server of a host selected by you, or the server of a
financial institution, credit card processor, or other third party to whom you
provide information regarding your credit card transactions.
(iii) CyberCash will not be liable for (A) any failure or delay in performing
its obligations if such failure or delay is caused by your act or omission or
under circumstances where CyberCash reasonably believed that its failure or
delay was necessary to avoid violating a law, guideline, rule or regulation of
any governmental authority or (B) any delay caused by circumstances beyond the
reasonable control of CyberCash.
(iv) IN NO EVENT WILL CYBERCASH OR ITS VENDORS, THEIR OFFICERS, DIRECTORS,
EMPLOYEES OR AGENTS BE LIABLE TO YOU FOR ANY CONSEQUENTIAL, INCIDENTAL OR
INDIRECT DAMAGES ARISING OUT OF THE USE OR INABILITY TO USE THE SOFTWARE OR
SERVICE, OR LOSS OF DATA, EVEN IF CYBERCASH HAS BEEN INFORMED OF THE
POSSIBILITY OF SUCH DAMAGES. CyberCash's liability to you for actual damages
from any cause whatsoever, regardless of the form of the action (whether
contract, tort, negligence or otherwise) will be LIMITED TO $10,000, provided
that such limitation shall not apply to any indemnity or covenant defend
expressly provided in this AgreemeNt. You further agree to waive any claim to
seek punitive or exemplary damages from CyberCash, regardless of the cause.
SOME STATES DO NOT ALLOW THE LIMITATION OR EXCLUSION OF LIABILITY FOR
INCIDENTAL OR CONSEQUENTIAL DAMAGES SO THE ABOVE LIMITATION OR EXCLUSION MAY
NOT APPLY TO YOU.
3. Warranty
Except as otherwise expressly provided, CYBERCASH AND ITS VENDORS DISCLAIM ALL
WARRANTIES, EXPRESS OR IMPLIED, WRITTEN OR ORAL, INCLUDING BUT NOT LIMITED TO
THOSE OF MERCHANTABILITY, NON-INFRINGEMENT, AND FITNESS FOR A PARTICULAR
PURPOSE. YOU
<PAGE> 3
ACKNOWLEDGE THAT THE SERVICE MAY NOT BE UNINTERRUPTED OR ERROR FREE. SOME
STATES DO NOT ALLOW THE EXCLUSION OF IMPLIED WARRANTIES, SO THE ABOVE MAY NOT
APPLY TO YOU. THIS WARRANTY GIVES YOU SPECIFIC LEGAL RIGHTS. YOU MAY HAVE OTHER
RIGHTS, WHICH VARY FROM STATE TO STATE.
THE SERVICE IS NOT INTENDED FOR HIGH RISK ACTIVITIES OR CRITICAL TRANSACTIONS
AND YOU ASSUME ALL RISKS OF UNTIMELY PAYMENT.
4. Notices
You agree that legal notices shall be given in writing in compliance with laws
or rules as may apply to the particular legal notice being given. All other
notices shall be given electronically, with notices to you being sent to the
electronic mail address which you furnish at the time you install the Software
and notices to CyberCash going to [email protected].
5. Trademarks
(a) CyberCash hereby grants you a non-exclusive, royalty-free limited license
to use the trademarks, service marks and logos (herein, "Trademarks) of
CyberCash solely in conjunction with your use of the Service; provided that you
use the Trademarks in the form provided by CyberCash and in conformity to any
guidelines or policies promulgated by CyberCash from time to time.
(b) For as long as this Agreement is in effect, CyberCash may identify Merchant
as a user of CyberCash Services on the WEB and in printed media. Merchant
hereby grants CyberCash a non-exclusive, royalty-free limited license to use
Merchant's trademark and logo solely in conjunction with such identification;
provided that CyberCash shall use the Merchant's Trademarks in the form as
provided by Merchant and in conformity to any guidelines or policies
promulgated provided by Merchant from time to time.
6. Patent, Copyright And Trademark Indemnity
(a) Subject to the provisions of this Section 6, CyberCash shall at its
expense, defend any action against Merchant to the extent such action is based
on a claim that the Software or a component of the Software provided by
CyberCash to Merchant pursuant to this Agreement infringes a United States
patent, copyright, trademark or other intellectual property right, and
CyberCash shall pay those damages or costs finally awarded against Merchant in
such action which are attributable to such claim, provided that Merchant
notifies CyberCash promptly in writing of such action, Merchant gives CyberCash
sole control of the defense thereof (and any negotiations for settlement or
compromise thereof), and Merchant cooperates in the defense thereof at
CyberCash's expense. If the Software or any component of the Software becomes,
or in CyberCash's opinion is likely to become, the subject of a claim of
infringement, then Merchant shall permit CyberCash, at its option and expense,
either (i) procure for Merchant the right to continue using the Software or the
infringing component of the Software, (ii) replace or modify Software or the
infringing component of the Software so that it becomes non-infringing, or
(iii) terminate this Agreement. Merchant shall not incur any costs or expenses
for the account of CyberCash under or pursuant to this Section 6(a) without
CyberCash's prior written consent.
(b) CyberCash shall have no obligation to defend any action against Merchant to
the extent such action is based upon a claim of infringement arising from (i)
the use of the Software or a component of the Software by Merchant in a manner
other than as specified or permitted by CyberCash, (ii) the use of the Software
or a component of the Software by Merchant in combination with other products,
equipment, devices or software (including without limitation any application
software produced by Merchant for use with the Software or a component of the
Software) not supplied by Cybercash if
<PAGE> 4
such infringement charge would have been avoided in the absence of such
combination, or (iii) the alteration or modification of the Software or a
component of the Software by Merchant (or by CyberCash in compliance with
specifications provided by Merchant) if such infringement charge would have
been avoided in the absence of such alteration or modification.
(c) In the event an infringement action or claim is brought against CyberCash
which is based on the conduct of Merchant described in paragraph (b) above,
Merchant shall (i) at its own expense, defend such action or claim, and (ii)
shall pay any and all damages and costs finally awarded against CyberCash in
connection with such action or claim, provided that CyberCash notifies Merchant
promptly, in writing, of such action or claim, CyberCash gives Merchant sole
control of the defense thereof (and any negotiations for settlement or
compromise thereof), and CyberCash cooperates in the defense thereof, at
Merchant's expense.
7. Term and Termination
(a) This Agreement shall remain in effect unless terminated pursuant to the
terms hereof.
(b) Either party may terminate this Agreement on 30 days written notice for
material breach by the other party of its obligations hereunder unless such
breach is cured within such 30-day period.
(c) In addition to any other termination rights granted herein, either party
may terminate this Agreement on 90 days notice.
(d) Upon termination of this Agreement, you will return or destroy all Software
in your possession and lease using the Service.
8. Dispute Resolution
In the event of a dispute between you and CyberCash, the complaining party
shall give the other party at least sixty days written notice of the specific
nature of the dispute and the parties shall use their best efforts to resolve
such dispute in good faith prior to initiating any other action. In the event
that the dispute cannot be resolved by mutual agreement, you agree that it will
be resolved by binding arbitration before a single arbitrator located in the
United States in accordance with the rules of the American Arbitration
Association or any generally recognized arbitral tribunal established expressly
to facilitate arbitration of disputes related to Internet commerce; and the
arbitrator shall, subject to any mandatory rules of law, apply such
generally-accepted principles of law as the arbitrator determines to be
appropriate to the resolution of disputes involving Internet commerce and
consistent with the reasonable expectations of the parties. The arbitrator
shall have no authority to award punitive or exemplary damages.
9. Entire Agreement
This Agreement constitutes the entire agreement between you and CyberCash
pertaining to the subject matter hereof and supersedes in their entirety any
and all prior written or oral agreements pertaining to that subject matter.
If the terms of this Agreement are acceptable and you wish to agree to them
and be legally bound, click on "I Accept" below.
----------
I Accept
----------
If you do not wish to be bound to the terms of this Agreement, click on
"I Do Not Accept" below.
<PAGE> 5
[MERCHANTS LOGO]
SOFTWARE LICENSE
CYBERCASH(TM) MERCHANT PAYMENT, SERVER SOFTWARE
MLA012397.003CCh
1. Grant of Software License: By installing the Merchant Payment Server
Software (the "Software") or by using it for any purpose, you accept all the
terms and conditions of this License. Please read this License in its entirety
carefully before installing or using the Software. Subject to your acceptance
of the terms of this License, CyberCash, Inc. hereby grants to you, the
Licensee, a nonexclusive license to use the Software as follows:
(a) Use. To copy and use the Software for sending and/or receiving user
messages and payment authorizations for ultimate delivery and processing
through an authorized payment gateway.
(b) Hosting. To copy the Software on to one or more servers owned and operated
by you to permit access and use of the Software through electronic means by
end-user, provided that such server(s) shall be configured so as to prevent
third parties from copying or modifying such software. As a condition of this
license, you agree that you will not represent that you are an agent of
CyberCash or that you have been endorsed, certified, or otherwise approved by
CyberCash unless you have a written agreement with CyberCash to do so. Use of
the Software by end-users shall be pursuant to an agreement which shall
contain, at a minimum, all of the limitations of rights and the protections
afforded CyberCash and its vendors which are contained in Sections 2, 5, and 6
of this License.
(c) Installing. To install the copy of the Software obtained by a third party
pursuant to a license from CyberCash or its authorized distributor for use by
such third party. As a condition of this license, you agree that you will not
represent that you are an agent of CyberCash or that you have been endorsed,
certified, or otherwise approved by CyberCash unless you have a written
agreement with CyberCash to do so.
2. LIMITATIONS:
(a) Copyright Protection. The Software is owned by CyberCash, Inc.
and/or its vendors and is subject to protection under the copyright, patent and
trademark laws of the United States and other countries. You may not remove
any of the copyright notices, CyberCash identifiers, or other proprietary
labels, or modify, reverse engineer, decompile, or disassemble the binary
components of the Software, or assign or transfer your rights under this
License.
(b) Single Product. The Software is licensed as a single product and it may
not be separated into its component files nor shall its component files be used
for any purpose separate from the operation of the Software.
(c) Distribution and Copying. You may not distribute the Software, or
incorporate the Software or any portion of it into any other products or
software or create derivative works from it without the prior written consent
of CyberCash. You may install the Software on more than one computer and use
such copies simultaneously so long as you do not distribute it outside your
organization.
<PAGE> 6
(d) Changes and Updates. As a condition of continued use of the Software, you
agree that upon issuance of updates, corrections, and new releases (a "Change")
to the Software, you will promptly install and use them, cease using prior
releases, and destroy all copies thereof. You accept that failure to do so may
cause the Software to become obsolete and that CyberCash is not liable for any
losses or expenses incurred by you or any person to whom you distribute, or
otherwise provide access to, the Software as a result of the issuance of a
Change. If CyberCash chooses to issue a Change, the terms of this License
shall apply to such Change and the same shall be treated as Software hereunder.
Updates may require that you agree to additional or revised terms and
conditions as a condition of continued use of the Software. CyberCash shall
have no obligation to provide Changes, maintenance, or support to you or any
person to whom you provide access to the Software.
3. Government Use: Use, duplication or disclosure by or on behalf of U.S.
Government entities is subject to restrictions set forth in subparagraphs (a)
through (d) of the Commercial Computer-Restricted Rights clause at FAR
52.227-19 when applicable, or in subparagraph (c)(1)(ii) of the Rights in
Technical Data and Computer Software clause at DFARS 252.227-7013, and in
similar clauses in the NASA AR Supplement. The contractor/manufacturer is
CyberCash, Inc., 2100 Reston Parkway, Suite 430, Reston, VA 20191.
4. Restrictions on Export: You may not download or otherwise export or
re-export the Software or any of its components, data, code or technology
except in full compliance with all United States and other applicable laws and
regulations. In particular, but without limitation, none of the Software or
its components, data, code or technology may be downloaded or otherwise
exported or re-exported (i) into (or to a national resident of) Cuba, Iraq,
Libya, Sudan, North Korea, Iran, or Syria, or (ii) to anyone on the U.S.
Treasury Department's list of Specially Designated nationals or the U.S.
Commerce Department's Table of Deny Orders. By downloading the Software, you
are agreeing to the preceding terms and are representing and warranting that
you are not located in, under the control of, or a national or resident of any
such country or on any such list.
5. Limited Warranty: CyberCash warrants that if your copy of the Software is
inoperable or defective, it will make commercially reasonable efforts to make
available to you at no charge replacement software which is operable.
Notwithstanding any other portion of this Agreement to the contrary, you agree
that CyberCash's sole obligation regarding defective or inoperable Software is
to make commercially reasonable efforts to replace it. THE SOFTWARE IS NOT
INTENDED FOR TIME CRITICAL TRANSACTIONS AND YOU ASSUME ALL RISK OF UNTIMELY
PAYMENT EXCEPT AS OTHERWISE PROVIDED, CYBERCASH AND ITS VENDORS DISCLAIM ALL
WARRANTIES, EXPRESSED OR IMPLIED, WRITTEN OR ORAL, INCLUDING BUT NOT LIMITED
TO THOSE OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. YOU
ACKNOWLEDGE THAT OPERATION OF THE SOFTWARE MAY NOT BE UNINTERRUPTED OR ERROR
FREE. SOME STATES AND COUNTRIES DO NOT ALLOW THE EXCLUSION OF IMPLIED
WARRANTIES, SO THE ABOVE MAY NOT APPLY TO YOU. THIS WARRANTY GIVES YOU
SPECIFIC LEGAL RIGHTS. YOU MAY HAVE OTHER RIGHTS, WHICH VARY FROM STATE TO
STATE AND COUNTRY TO COUNTRY.
6. Limitation of Damages: IN NO EVENT WILL CYBERCASH OR ITS VENDORS, THEIR
OFFICERS, DIRECTORS, EMPLOYEES OR AGENTS BE LIABLE TO YOU FOR ANY
CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES ARISING OUT OF THE USE OR
INABILITY TO USE THE SOFTWARE, PROBLEMS WITH THE USE OF YOUR COMPUTER, OR LOSS
OF DATA, EVEN IF CYBERCASH HAS BEEN INFORMED OF THE POSSIBILITY OF SUCH
DAMAGES. CyberCash's liability to you for actual damages from any cause
whatsoever
<PAGE> 7
arising from your use of the Software, regardless of the form of the action
(whether contract, tort, negligence or otherwise) shall be limited to the
greater of $1000 or the amount of all transaction fees received from you over
the twelve month period preceding the event or events giving rise to such
actual damages, provided that such limitation shall not apply to any indemnity
or covenant to defend expressly provided in this Agreement. You further agree
to waive any claim to seek punitive or exemplary damages from CyberCash,
regardless of the cause. SOME STATES AND COUNTRIES DO NOT ALLOW THE LIMITATION
OR EXCLUSION OF LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES SO THE ABOVE
LIMITATION OR EXCLUSION MAY NOT APPLY TO YOU.
7. Term and Termination:
(a) This License shall remain in effect unless terminated pursuant to the
terms hereof.
(b) Either party may terminate this License on 30 days written notice for
material breach by the other party of its obligations hereunder unless such
breach is cured within such 30-day period.
(c) In addition to other termination rights granted herein, either party may
terminate this License on 90 days notice.
(d) Upon termination of this License, you will return or destroy all Software
in your possession and cease using the Service.
8. Notices: You agree that legal notices shall be given in writing in
compliance with laws or rules as may apply to the particular legal notice being
given. All other notices shall be given electronically, with notices to you
being sent to the electronic mail address which you furnish at the time you
install the Software and notices to CyberCash going to [email protected].
9. Trademarks: CyberCash, the CyberCash logo, CyberCoin, and Secure Internet
Payment Service are trademarks of CyberCash, Inc. CyberCash grants you a
license to use those trademarks in displaying payment options on your web
site.
10. Patent, Copyright And Trademark Indemnity
(a) Subject to the provisions of this Section, CyberCash shall at its expense,
defend any action against you to the extent such action is based on a claim
that the Software or a component of the Software provided by CyberCash to you
pursuant to this Agreement infringes a United States patent, copyright,
trademark or other intellectual property right, and CyberCash shall pay those
damages or costs finally awarded against you in such action which are
attributable to such claim, provided that You notify CyberCash promptly in
writing of such action, you give CyberCash sole control of the defense thereof
(and any negotiations for settlement or compromise thereof), and you cooperate
in the defense thereof at CyberCash's expense. If the Software or any
component of the Software becomes, or in CyberCash's opinion is likely to
become, the subject of a claim of infringement, then you shall permit
CyberCash, at its option and expense, either (i) procure for you the right to
continue using the Software or the infringing component of the Software, (ii)
replace or modify Software or the infringing component of the Software so that
it becomes noninfringing, or (iii) terminate this Agreement. You shall not
incur any costs or expenses for the account of CyberCash under or pursuant to
this Section without CyberCash's prior written consent.
(b) CyberCash shall have no obligation to defend any action against you to the
extent such action is based upon a claim of infringement arising from (i) the
use of the Software or a component of the Software by you in a manner other
than as specified or permitted by CyberCash, (ii) the use of the Software or a
component of the Software by you in combination with other products, equipment,
devices or software (including
<PAGE> 8
without limitation any application software produced by you for use with the
Software or a component of the Software) not supplied by CyberCash if such
infringement charge would have been avoided in the absence of such combination,
or (iii) the alteration or modification of the Software or a component of the
Software by you (or by CyberCash in compliance with specifications provided by
you) if such infringement charge would have been avoided in the absence of such
alteration or modification.
(c) In the event an infringement action or claim is brought against CyberCash
which is based on your conduct as described in paragraph (b) above, you shall
(i) at your own expense, defend such action or claim, and (ii) shall pay any
and all damages and costs finally awarded against CyberCash in connection with
such action or claim, provided that CyberCash notifies you promptly, in
writing, of such action or claim, CyberCash gives you sole control of the
defense thereof (and any negotiations for settlement or compromise thereof),
and CyberCash cooperates in the defense thereof, at your expense.
11. Entire Agreement: This License constitutes the entire agreement between
you and CyberCash pertaining to the subject matter hereof, and supersedes in
their entirety any and all written or oral agreements pertaining to the
Software and its use between the parties. This License is not an agreement to
provide service and does not obligate CyberCash to provide any services.
If the terms of this License are acceptable and you wish to agree to them
and be legally bound, click on "I Accept" below.
------------
| I Accept |
------------
If you do not wish to be bound to the terms of this license, click on "I Do
Not Accept".
-----------------
| Do Not Accept |
-----------------
Benefits | How to Get Started | Merchant List | Merchant Development Partners |
Financial Institutions | Support
[INDEX BAR]
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Shopping | Help Desk | Search
CyberCash is a trademark of CyberCash, Inc. and the CyberCash logo is a
registered trademark.
All other trademarks are the property of the respective companies.
Telephone:(703) 620-4200 - Fax:(703) 620-4215
[email protected]
<PAGE> 1
EXHIBIT 11
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
Common Exercise Assumed Estimated Assumed
Shares Price Proceeds IPO Price Treas. Stk.
------ -------- -------- --------- -----------
<S> <C>
Common Stock
Assumed issued and outstanding - beginning of period
Stock sold during the year:
Napier, Thomas
Macres
Grace
Napier, David
Allgauer
Howard
Rabil
Deslaurier
Rafferty
Madsen
Monahan
Turner, Mark
Turner, Robert
Caito
DiBiasio
McMenamin
Turkekul
Mitchell
Hirsh
Richard Yetman Family
Lesher & Russell Inc
Crisp
Burlingame
Prime
Schuler
Hulen
Wirth
Spencer, Douglas
Spencer, Christopher
Cappello
Harding
Harper
Merrick
Russell, Randy
Varney
Napier, David
End of period 3/31/96
<CAPTION>
PRIMARY EARNINGS PER SHARE: THREE MONTHS ENDED MARCH 31, 1996
Net Shares Shares subject Total Grant/Purch. Days Weighted
Added to Recission Shares Date Outstanding Shares
---------- -------------- ------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Common Stock
Assumed issued and outstanding
- beginning of period 852,193 305,500 546,693 1/1/96 91 49,749,063
Stock sold during the year:
Napier, Thomas 2,500 2,500 0 1/23/96 69 0
Macres 10,0000 10,000 0 1/24/96 68 0
Grace 1,000 1,000 0 1/26/96 66 0
Napier, David 2,500 2,500 0 2/13/96 48 0
Allgauer 6,250 6,250 0 2/14/96 47 0
Howard 2,500 2,500 0 2/15/96 46 0
Rabil 2,500 2,500 0 2/15/96 46 0
Deslaurier 5,000 5,000 0 2/16/96 45 0
Rafferty 5,000 5,000 0 2/16/96 45 0
Madsen 35,0000 35,000 0 2/16/96 45 0
Monahan 10,0000 10,000 0 2/20/96 41 0
Turner, Mark 7,000 7,000 0 2/21/96 40 0
Turner, Robert 12,5000 12,500 0 2/21/96 40 0
Caito 3,750 3,750 0 2/22/96 39 0
DiBiasio 25,0000 25,000 0 2/22/96 39 0
McMenamin 4,850 4,850 0 2/22/96 39 0
Turkekul 2,500 2,500 0 2/22/96 39 0
Mitchell 6,250 6,250 0 2/23/96 38 0
Hirsh 12,5000 12,500 0 2/23/96 38 0
Richard Yetman Family 6,250 6,250 0 2/26/96 35 0
Lesher & Russell Inc 50,0000 50,000 0 2/26/96 35 0
Crisp 1,250 1,250 0 2/27/96 34 0
Burlingame 2,500 2,500 0 2/27/96 34 0
Prime 5,500 5,500 0 2/27/96 34 0
Schuler 2,500 2,500 0 2/28/96 33 0
Hulen 10,0000 10,000 0 2/28/96 33 0
Wirth 1,000 1,000 0 3/01/96 31 0
Spencer, Douglas 2,500 2,500 0 3/01/96 31 0
Spencer, Christopher 12,5000 12,500 0 3/01/96 31 0
Cappello 10,0000 10,000 0 3/01/96 31 0
Harding 3,000 3,000 0 3/04/96 28 0
Harper 8,333 8,333 0 3/05/96 27 0
Merrick 15,0000 15,000 0 3/05/96 27 0
Russell, Randy 10,0000 10,000 0 3/11/96 21 0
Varney 6,2500 6,250 3/15/96 17 106,250
Napier, David 5,000 5,000 0 3/20/96 12 0
----------------------------------------- -----------
1,160,376 607,433 552,943 49,855,313
========================================= 91
-------------
End of period 3/31/96 Weighted average share outstanding 547,861
Net loss (529,737)
-------------
Net loss per share ($0.97)
=============
</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
Common Exercise Assumed Estimated Assumed Net Shares Shares subject
Shares Price Proceeds IPO Price Treas. Stk. Added to Recission
------ -------- -------- --------- ----------- ----------- --------------
<S> <C> <C> <C>
Common Stock
Assumed issued and outstanding - beginning of period 1,160,376 607,433
Stock sold during the year:
Grant/Exercise of warrants:
Assumed issued and outstanding - beginning of period 46,962
Duncan 2000 $5.00 $10,000 $5.00 2000 0
Bone 20000 $5.00 $100,000 $5.00 20000 0
End of period 03/31/97 Weighted average share outstanding
Net loss
Net loss per share
<CAPTION>
PRIMARY EARNINGS PER SHARE: THREE MONTHS ENDED MARCH 31, 1997 04/01/97
Total Grant/Purch. Days Weighted
Shares Date Outstanding Shares
------ ------------ ----------- --------
<S> <C> <C> <C> <C>
Common Stock
Assumed issued and outstanding - beginning of period 552,943 01/01/97 90 49,764,870
Stock sold during the year:
Grant/Exercise of warrants:
Assumed issued and outstanding - beginning of period 01/01/97 90 4,226,580
Duncan 03/03/97 29 0
Bone 03/10/97 22 0
------------
53,991,450
90
------------
End of period 03/31/97 Weighted average share outstanding 599,905
Net loss (470,578)
------------
Net loss per share ($0.78)
============
</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 Shares Subject
Shares Price Proceeds IPO Price Treas. Stk. Added to Recission
------ -------- -------- --------- ----------- ---------- -------------
<S> <C> <C>
Common Stock
Assumed issued and outstanding - beginning of period 366,193 33,000
Stock sold during the year:
Edgington 25,000
DiBiasio 12,500 12,500
Edgington 12,500
Webb 25,000 25,000
Edgington 50,000
Edgington 100,000
Turner, Robert 50,000 50,000
Turner, Mark 25,000 25,000
Williams 25,000 25,000
Varney 1,000
Cappello 5,000 5,000
Edgington 25,000
Hirsh 75,000 75,000
Napier 5,000 5,000
Pensco 50,000 50,000
-------------------------
852,193 305,500
=========================
End of period 12/31/95 Weighted average share outstanding
Net loss
Net loss per share
<CAPTION>
PRIMARY EARNINGS PER SHARE: TWELVE MONTHS ENDED DECEMBER 31, 1995 01.01.96
Total Grant/Purch. Days Weighted
Shares Date Outstanding Shares
------ ------------- ----------- --------
<S> <C> <C> <C> <C>
Common Stock
Assumed issued and outstanding - beginning of period 333,193 01/01/95 365 121,615,445
Stock sold during the year:
Edgington 25,000 01/04/95 362 9,050,000
DiBiasio 0 02/13/95 322 0
Edgington 12,500 03/07/95 300 3,750,000
Webb 0 05/15/95 231 0
Edgington 50,000 06/10/95 205 10,250,000
Edgington 100,000 07/27/95 158 15,800,000
Turner, Robert 0 08/29/95 125 0
Turner, Mark 0 08/29/95 125 0
Williams 0 09/01/95 122 0
Varney 1,000 09/05/95 118 118,000
Cappello 0 09/08/95 115 0
Edgington 25,000 09/12/95 111 2,775,000
Hirsh 0 09/12/95 111 0
Napier 0 10/05/95 88 0
Pensco 0 10/12/95 81 0
--------
546,693 163,358,445
======== 365
------------
End of period 12/31/95 Weighted average share outstanding 447,557
Net loss (706,564)
------------
Net loss per share ($1.58)
============
</TABLE>
<PAGE> 4
EXHIBIT 11
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 Shares subject
Shares Price Proceeds IPO Price Treas. Stk. Added to Recission
------ -------- -------- --------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
Common Stock
Assumed issued and outstanding - beginning of period 852,193 305,500
Stock sold during the year:
Napier, Thomas 2,500 2,500
Macres 10,000 10,000
Grace 1,000 1,000
Napier, David 2,500 2,500
Allgauer 6,250 6,250
Howard 2,500 2,500
Rabil 2,500 2,500
Deslaurier 5,000 5,000
Rafferty 5,000 5,000
Madsen 35,000 35,000
Monahan 10,000 10,000
Turner, Mark 7,000 7,000
Turner, Robert 12,500 12,500
Caito 3,750 3,750
DiBiasio 25,000 25,000
McMenamin 4,850 4,850
Turkekul 2,500 2,500
Mitchell 6,250 6,250
Hirsh 12,500 12,500
Richard Yetman Family 6,250 6,250
Lesher & Russell Inc 50,000 50,000
Crisp 1,250 1,250
Burlingame 2,500 2,500
Prime 5,500 5,500
Schuler 2,500 2,500
Hulen 10,000 10,000
Wirth 1,000 1,000
Spencer, Douglas 2,500 2,500
Spencer, Christopher 12,500 12,500
Cappello 10,000 10,000
Harding 3,000 3,000
Harper 8,333 8,333
Merrick 15,000 15,000
Russell, Randy 10,000 10,000
Varney 6,250
Napier, David 5,000 5,000
---------------------------
1,160,376 607,433
===========================
Grant/Exercise of warrants:
Edgington 2500 $4.00 $10,000 $5.00 2000 500
Kennedy 2019 $4.00 $8,076 $5.00 1615 404
West 750 $4.00 $3,000 $5.00 600 150
Clark 2750 $4.00 $11,000 $5.00 2200 550
Walker 2750 $4.00 $11,000 $5.00 2200 550
CTi 25000 $4.00 $100,000 $5.00 20000 5,000
Parriah 250 $4.00 $1,000 $5.00 200 50
Avery 2000 $4.00 $8,000 $5.00 1600 400
Detachable Warrants 150379 $4.00 $601,516 $5.00 120303 30,076
West 171312 $5.00 $856,560 $5.00 171312 0
Bowers 164312 $5.00 $821,560 $5.00 164312 0
Varney 145312 $5.00 $726,560 $5.00 145312 0
Edgington 160314 $5.00 $801,570 $5.00 160314 0
Struzik 71250 $5.00 $356,250 $5.00 71250 0
Kennedy 2019 $4.00 $8,076 $5.00 1615 404
West 750 $4.00 $3,000 $5.00 600 150
West 5191 $4.00 $20,764 $5.00 4153 1,038
Bowers 10385 $4.00 $41,540 $5.00 8308 2,077
Varney 17524 $4.00 $70,096 $5.00 14019 3,505
Sedimeyer 446 $4.00 $1,784 $5.00 357 89
Swearingan 1600 $4.00 $6,400 $5.00 1280 320
Kennedy 1013 $4.00 $4,052 $5.00 810 203
Kirsh 1066 $4.00 $4,264 $5.00 853 213
Cerutti 2263 $4.00 $9,052 $5.00 1810 453
Beasley 965 $4.00 $3,860 $5.00 772 193
Simpson 1095 $4.00 $4,380 $5.00 876 219
Michalaki 888 $4.00 $3,552 $5.00 710 178
Byera 1350 $4.00 $5,400 $5.00 1080 270
Baldi 1830 $4.00 $7,320 $5.00 1464 366
Struzik 6331 $4.00 $25,324 $5.00 5065 1,266
Smith 1278 $4.00 $5,112 $5.00 1022 256
Bruce 1930 $4.00 $7,720 $5.00 1544 386
Hicks 788 $4.00 $3,152 $5.00 630 158
New 2091 $4.00 $8,364 $5.00 1673 418
Mitchell 2600 $4.00 $10,400 $5.00 2080 520
Larson 100 $4.00 $400 $5.00 80 20
Minter 2808 $4.00 $11,232 $5.00 2246 562
Avery 100 $4.00 $400 $5.00 80 20
-----------
967309 50,962
===========
End of period 12/31/96 Weighted average share outstanding
Net loss
Net loss per share
<CAPTION>
PRIMARY EARNINGS PER SHARE: TWELVE MONTHS ENDED DECEMBER 31, 1996 01/01/97
Total Grant/Purch. Days Weighted
Shares Date Outstanding Shares
------ ------------ ----------- --------
<S> <C> <C> <C> <C>
Common Stock
Assumed issued and outstanding - beginning of period 546,693 01/01/96 366 200,089,638
Stock sold during the year:
Napier, Thomas 0 01/23/96 344 0
Macres 0 01/24/96 343 0
Grace 0 01/26/96 341 0
Napier, David 0 02/13/96 323 0
Allgauer 0 02/14/96 322 0
Howard 0 02/15/96 321 0
Rabil 0 02/15/96 321 0
Deslaurier 0 02/16/96 320 0
Rafferty 0 02/16/96 320 0
Madsen 0 02/16/96 320 0
Monahan 0 02/20/96 316 0
Turner, Mark 0 02/21/96 315 0
Turner, Robert 0 02/21/96 315 0
Caito 0 02/22/96 314 0
DiBiasio 0 02/22/96 314 0
McMenamin 0 02/22/96 314 0
Turkekul 0 02/22/96 314 0
Mitchell 0 02/23/96 313 0
Hirsh 0 02/23/96 313 0
Richard Yetman Family 0 02/26/96 310 0
Lesher & Russell Inc 0 02/26/96 310 0
Crisp 0 02/27/96 309 0
Burlingame 0 02/27/96 309 0
Prime 0 02/27/96 309 0
Schuler 0 02/28/96 308 0
Hulen 0 02/28/96 308 0
Wirth 0 03/01/96 306 0
Spencer, Douglas 0 03/01/96 306 0
Spencer, Christopher 0 03/01/96 306 0
Cappello 0 03/01/96 306 0
Harding 0 03/04/96 303 0
Harper 0 03/05/96 302 0
Merrick 0 03/05/96 302 0
Russell, Randy 0 03/11/96 296 0
Varney 6,250 03/15/96 292 1,825,000
Napier, David 0 03/20/96 287 0
-------
552,943
=======
Grant/Exercise of warrants:
Edgington 06/30/96 185 92,500
Kennedy 06/30/96 185 74,703
West 06/30/96 185 27,750
Clark 06/30/96 185 101,750
Walker 06/30/96 185 101,750
CTi 06/30/96 185 925,000
Parriah 08/16/96 138 6,900
Avery 08/16/96 138 55,200
Detachable Warrants 08/16/96 138 4,150,460
West 09/30/96 93 0
Bowers 09/30/96 93 0
Varney 09/30/96 93 0
Edgington 09/30/96 93 0
Struzik 09/30/96 93 0
Kennedy 09/30/96 93 37,553
West 09/30/96 93 13,950
West 12/31/96 1 1,038
Bowers 12/31/96 1 2,077
Varney 12/31/96 1 3,505
Sedimeyer 12/31/96 1 89
Swearingan 12/31/96 1 320
Kennedy 12/31/96 1 203
Kirsh 12/31/96 1 213
Cerutti 12/31/96 1 453
Beasley 12/31/96 1 193
Simpson 12/31/96 1 219
Michalaki 12/31/96 1 178
Byera 12/31/96 1 270
Baldi 12/31/96 1 366
Struzik 12/31/96 1 1,266
Smith 12/31/96 1 256
Bruce 12/31/96 1 386
Hicks 12/31/96 1 158
New 12/31/96 1 418
Mitchell 12/31/96 1 520
Larson 12/31/96 1 20
Minter 12/31/96 1 562
Avery 12/31/96 1 20
------------
207,514,883
366
------------
End of period Weighted average share outstanding 566,981
Net loss (2,464,904)
------------
Net loss per share ($4.35)
============
</TABLE>
<PAGE> 1
EXHIBIT 23.2
[LETTERHEAD]
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.
/s/ HOFFMAN, MORRISON & FITZGERALD, P.C.
HOFFMAN, MORRISON & FITZGERALD, P.C.
McLean, VA
June 16, 1997
[LETTERHEAD]
<PAGE> 1
EXHIBIT 23.3
CONSENT OF GAMMON & GRANGE, P.C.
The undersigned consents to the use of its opinion as Exhibit 5.2 to
the Registration Statement on Form SB-2 (SEC File No. 333-25937), and to the
reference to its name in the Prospectus included in the Registration Statement
under the heading "Legal Matters."
/s/ Gammon & Grange, P.C.
GAMMON & GRANGE, P.C.
June 16, 1997
