<PAGE>
As filed with the Securities and Exchange Commission on October 8, 1997
Registration No. 333-34115
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------
Amendment No. 1
to
Form SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
FRONTLINE COMMUNICATIONS CORPORATION
(Exact name of small business issuer as specified in its charter)
<TABLE>
<CAPTION>
Delaware 7379 13-3950283
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification No.) Identification No.)
</TABLE>
One Blue Hill Plaza, 6th Floor
P.O. Box 1548
Pearl River, New York 10965
(914) 623-8553
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
----------------
Stephen J. Cole-Hatchard, Chairman
Frontline Communications Corporation
One Blue Hill Plaza, 6th Floor
P.O. Box 1548
Pearl River, New York 10965
(914) 623-8553
(Name, address and telephone number of agent for service)
----------------
Copies of all communications to:
ROBERT J. MITTMAN, ESQ. ROBERT H. COHEN, ESQ.
Tenzer Greenblatt LLP Morrison Cohen Singer
The Chrysler Building & Weinstein, LLP
405 Lexington Avenue 750 Lexington Avenue
New York, New York 10174 New York, New York 10022
Telephone: (212) 885-5000 Telephone: (212) 735-8680
Facsimile: (212) 885-5001 Facsimile: (212) 735-8708
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Secur-ities 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: / /
------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
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=======================================================================================================================
Proposed Proposed
Maximum Offering Maximum Amount of
Title of Each Class of Amount to Price Per Aggregate Offering Registration
Securities to be Registered be Registered Security (1) Price (1) Fee
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share .............................. 1,322,500(2) $5.00 $6,612,500.00 $ 2,003.78
- -----------------------------------------------------------------------------------------------------------------------
Warrants, each to purchase one
share of Common Stock ............ 1,322,500(2) $ .10 $ 132,250.00 $ 40.07
- -----------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per
share, issuable upon exercise of
the Warrants (3) .................. 1,322,500 $5.50 $7,273,750.00 $ 2,204.16
- -----------------------------------------------------------------------------------------------------------------------
Underwriter's Warrants, each to
purchase one share of Common
Stock (4) ........................ 115,000 $ .001 $ 115.00 (5)
- -----------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per
share, issuable upon exercise of
the Underwriter's Warrants (3) . 115,000 $5.50 $ 632,500.00 $ 191.66
- -----------------------------------------------------------------------------------------------------------------------
Underwriter's Warrants, each to
purchase one warrant (4) ......... 115,000 $ .001 $ 115.00 (5)
- -----------------------------------------------------------------------------------------------------------------------
Warrants issuable upon exercise of
the Underwriter's Warrants ......... 115,000 $ .11 $ 12,650.00 $ 3.83
- -----------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per
share, issuable upon exercise of
the warrants underlying the
Underwriter's Warrants (3) ......... 115,000 $5.50 $ 632,500.00 $ 191.66
- -----------------------------------------------------------------------------------------------------------------------
Total Registration Fee ........................................................................ $ 4,635.16(6)
=======================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Assumes the Underwriter's over-allotment option to purchase up to 172,500
additional shares of Common Stock and/or 172,500 Warrants is exercised in
full.
(3) Pursuant to Rule 416, there are also being registered such indeterminable
additional shares of Common Stock as may become issuable pursuant to
anti-dilution provisions contained in the Warrants, the Underwriter's
Warrants and the warrants underlying the Underwriter's Warrants.
(4) Represents warrants to be issued by the Company to the Underwriter at the
time of delivery and acceptance of the securities to be sold by the
Company to the public hereunder.
(5) None, pursuant to Rule 457(g).
(6) $1,665.34 paid herewith. $2,969.82 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 of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
===============================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration 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
jurisdiction in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such
jurisdiction.
PRELIMINARY PROSPECTUS DATED OCTOBER 8, 1997
SUBJECT TO COMPLETION
FRONTLINE COMMUNICATIONS CORPORATION
1,150,000 Shares of Common Stock and
Redeemable Warrants to Purchase
1,150,000 Shares of Common Stock
The Company is offering 1,150,000 shares of Common Stock (the "Common
Stock") and redeemable warrants to purchase 1,150,000 shares of Common Stock
(the "Warrants"). The Common Stock and Warrants may be purchased separately and
will be separately transferrable immediately upon issuance. Each Warrant
entitles the registered holder thereof to purchase one share of Common Stock at
a price of $5.50, subject to adjustment in certain circumstances, at any time
commencing , 1998 through and including , 2002. The Warrants are
redeemable by the Company at any time commencing , 1998, upon notice of not
less than 30 days, at a price of $.10 per Warrant, provided that (i) the
closing bid quotation of the Common Stock on all 20 trading days ending on the
third day prior to the day on which the Company gives notice (the "Call Date")
has been at least 150% (currently $8.25, subject to adjustment) of the then
effective exercise price of the Warrants and (ii) the Company obtains the
written approval of the Underwriter to such redemption prior to the Call Date.
See "Description of Securities."
Prior to this offering, there has been no public market for the Common
Stock or Warrants and there can be no assurance that any such market will
develop. It is anticipated that the Common Stock and Warrants will be quoted on
the Nasdaq SmallCap Market ("Nasdaq") under the symbols "FCCN" and "FCCNW,"
respectively. For a discussion of the factors considered in determining the
offering prices of the Common Stock and Warrants, see "Underwriting."
------------------
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND INVOLVE SUBSTANTIAL
RISKS AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY
INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK
FACTORS" COMMENCING ON PAGE 6 AND "DILUTION."
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
===========================================================================
Price Underwriting Proceeds
to Discounts and to
Public Commissions(1) Company (2)
- ---------------------------------------------------------------------------
Per Share ......... $5.00 $.50 $4.50
- ---------------------------------------------------------------------------
Per Warrant ...... $.10 $.01 $.09
- ---------------------------------------------------------------------------
Total (3) ......... $5,865,000 $586,500 $5,278,500
===========================================================================
(1) The Company has agreed to pay to the Underwriter a 3% nonaccountable
expense allowance, to sell to the Underwriter warrants (the "Underwriter's
Warrants") to purchase up to 115,000 shares of Common Stock and/or 115,000
warrants and to retain the Underwriter as a financial consultant. The
Company has also agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting expenses, including the nonaccountable expense allowance
in the amount of $175,950 ($202,342.50 if the Underwriter's over-allotment
option is exercised in full), estimated at $675,950, payable by the
Company.
(3) The Company has granted to the Underwriter an option, exercisable within 45
days from the date of this Prospectus, to purchase up to an additional
172,500 shares of Common Stock and/or 172,500 additional Warrants on the
same terms set forth above, solely for the purpose of covering
over-allotments, if any. If the Underwriter's over-allotment option is
exercised in full, the total price to public, underwriting discounts and
commissions and proceeds to Company will be $6,744,750, $674,475 and
$6,070,275, respectively. See "Underwriting."
The shares of Common Stock and Warrants are being offered, subject to
prior sale, when, as and if delivered to and accepted by the Underwriter and
subject to approval of certain legal matters by counsel and to certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify
the offering and to reject any order in whole or in part. It is expected that
delivery of certificates representing the Common Stock and Warrants will be
made against payment therefor at the offices of the Underwriter, 100 Quentin
Roosevelt Blvd., Garden City, New York, on or about , 1997.
------------------
Parker Bromley, Ltd.
The date of this Prospectus is , 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS, ON
NASDAQ, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE, WHICH STABILIZE, MAINTAIN
OR OTHERWISE AFFECT THE PRICES OF THE COMMON STOCK AND WARRANTS. SPECIFICALLY,
THE UNDERWRITER MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING AND MAY BID FOR
AND PURCHASE SHARES OF COMMON STOCK AND WARRANTS IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements appearing elsewhere in this
Prospectus. Each prospective investor is urged to read this Prospectus in its
entirety. Unless otherwise indicated, all information in this Prospectus gives
effect to a reorganization in May 1997 (the "Reorganization") pursuant to which
(i) each of Hobbes & Co., LLC ("Hobbes"), INET Communications Company, LLC
("INET") and Sara Girl & Co., LLC ("Sara Girl") (collectively, the "Predecessor
Companies") transferred all of its assets, subject to all of its liabilities,
to the Company, (ii) Messrs. Nicko Feinberg and Stephen J. Cole-Hatchard,
officers, directors and principal stockholders of the Company, and Mr. Michael
Char, a principal stockholder and former officer and director of the Company,
exchanged their respective interests in the Predecessor Companies for
promissory notes in the aggregate principal amount of $372,137 and (iii) each
of the Predecessor Companies dissolved, and assumes no exercise of the
Underwriter's over-allotment option to purchase an additional 172,500 shares of
Common Stock and/or 172,500 additional warrants. See "Certain Transactions" and
"Underwriting."
The Company
Frontline Communications Corporation (the "Company") is an Internet
service provider that offers "dial-up" Internet access primarily to individual
subscribers. The Company provides subscribers with direct access to a wide
range of Internet applications and resources, including electronic mail, world
wide web sites and regional and local information and data services. The
Company believes that its low subscriber to modem ratio, its technical and
customer support and ancillary services position the Company to capitalize on
the emerging and expanding markets for Internet services.
In recent years, the Internet has experienced a rapid increase in the
number of users. Industry sources estimate that the number of online households
in the United States was approximately 9.6 million at the end of 1995, 15.2
million at the end of 1996, and project that the number of online households
will exceed 40 million by the year 2000. The Company believes that increasing
penetration of computers and modems into households and businesses, the growth
of the informational, entertainment and commercial resources of the Internet
and the increasing availability of user-friendly navigational tools that enable
easier access to the Internet's resources will continue to contribute favorably
to the growth of the Internet.
The Company's telecommunications network is currently comprised of leased
high-speed data lines and ten points-of-presence ("POPs") serving suburban
areas in Rockland, Orange, Dutchess, Sullivan, Putnam, Ulster and Westchester
counties in New York and Bergen county in New Jersey. These POPs permit
subscribers in these areas to access the Internet through a local telephone
call. The Company currently supports 14.4, 28.8 and 36.6 Kbps modems at each of
its POPs and has X2 56K and ISDN technologies at most of its POPs. The Company
has approximately 1,310 subscribers as of the date of this Prospectus. Pursuant
to its currently proposed plan of operation, the Company will seek to establish
up to twenty-four additional POPs during the twelve months following the
consummation of this offering.
The Company's objective is to expand its network of POPs rapidly into
selected geographic markets. The Company currently anticipates that it will
initially seek to achieve significant penetration in suburban markets in the
greater New York metropolitan area, including Morris and Passaic counties in
New Jersey, and Fairfield and New Haven counties in Connecticut. The Company
intends to target suburban markets with attractive demographic characteristics
similar to the Company's existing POPs. To achieve its goal, the Company will
seek to cluster POPs for operational efficiency and to share certain marketing,
financial, customer service and management personnel. The Company will also
seek to capitalize on demand for Internet access by offering subscriber service
which combines the capabilities typically provided by large companies with the
flexibility and responsiveness of a small Internet service provider.
Since its inception, the Company has engaged in only limited operations
and has not yet generated meaningful revenues. The Company requires the
proceeds of this offering to fully implement its proposed
3
<PAGE>
plan of operation. The Company expects to incur substantial up-front expenses
in connection with establishing additional POPs, engaging in marketing
activities and hiring executive, technical, marketing and other personnel,
which will result in losses for the foreseeable future. There can be no
assurance the Company will be able to successfully implement its business
plans. See "Risk Factors."
The Company was incorporated under the laws of the State of Delaware in
February 1997 under the name Easy Street Online, Inc. as successor to the
business of the Predecessor Companies, limited liability companies organized in
May and August 1995 and July 1996 to own and operate POPs. Unless otherwise
indicated, all references in this Prospectus to the Company include the
Predecessor Companies. See "Certain Transactions."
The Company's executive offices are located at One Blue Hill Plaza, 6th
Floor, P.O. Box 1548, Pearl River, New York 10965, and its telephone number is
(914) 623-8553. The Company's home page is located on the World Wide Web at
www.fcc.net.
The Offering
Securities offered ...... 1,150,000 shares of Common Stock and Warrants to
purchase 1,150,000 shares of Common Stock. See
"Description of Securities."
Common Stock to be outstanding
after the offering(1)... 2,810,000 shares
Warrants
Number to be outstanding after the
offering(2)............. 1,150,000 Warrants
Exercise terms ......... Exercisable for a period of four years commencing
, 1998, each to purchase one share of Common
Stock at a price of $5.50, subject to adjustment in
certain circumstances. See "Description of
Securities -- Redeemable Warrants."
Expiration date .... , 2002.
Redemption ............ Redeemable by the Company at any time commencing
, 1998, upon notice of not less than 30 days, at
a price of $.10 per Warrant, provided that (i) the
closing bid quotation of the Common Stock on all 20
trading days ending on the third day prior to the
day on which the Company gives notice has been at
least 150% (currently $8.25, subject to adjustment)
of the then effective exercise price of the Warrants
and (ii) the Company obtains the written consent of
the Underwriter to such redemption prior to the Call
Date. The Warrants will be exercisable until the
close of business on the date fixed for redemption.
See "Description of Securities -- Redeemable
Warrants."
Use of Proceeds ...... The Company intends to use the net proceeds of
this offering for the acquisition of subscriber
bases; the establishment of additional POPs;
marketing and advertising; repayment of
indebtedness; and the balance for working capital
and general corporate purposes. See "Use of
Proceeds."
Risk Factors ......... The securities offered hereby are highly
speculative and involve substantial risks and
immediate substantial dilution and should not be
purchased by investors who cannot afford the loss of
their entire investment. See "Risk Factors" and
"Dilution."
4
<PAGE>
Proposed NASDAQ SmallCap
Market symbols ...... Common Stock -- FCCN
Warrants -- FCCNW
- ------------
(1) Does not include (i) 1,150,000 shares of Common Stock reserved for issuance
upon exercise of the Warrants; (ii) an aggregate of 230,000 shares of
Common Stock reserved for issuance upon exercise of the Underwriter's
Warrants and the warrants included therein; (iii) 260,000 shares of Common
Stock reserved for issuance upon exercise of outstanding options under the
Company's 1997 Stock Option Plan (the "Plan"); and (iv) 240,000 shares of
Common Stock reserved for issuance upon exercise of options available for
future grant under the Plan. See "Management -- 1997 Stock Option Plan,"
and "Underwriting."
(2) Does not include any Warrants referred to in clause (ii) of Note 1 above.
Summary Financial Information
The summary financial information set forth below is derived from and
should be read in conjunction with the financial statements, including the
notes thereto, appearing elsewhere in this Prospectus.
Statement of Operations Data:
<TABLE>
<CAPTION>
Six Months
ended June 30,
Year Ended ----------------------------------
December 31, 1996 1996 1997
------------------- ------------ -------------------
<S> <C> <C> <C>
Revenues ..................... $ 98,699 $ 24,998 $ 131,154
Net loss ..................... (54,206) (28,594) (289,898)(1)
Net loss per share ............ (.03) (.02) (.16)(1)
Weighted average number of shares
outstanding .................. 1,816,000 1,816,000 1,816,000
</TABLE>
Balance Sheet Data:
June 30, 1997
--------------------------------
Actual As Adjusted(2)
-------------- ---------------
Working capital (deficit) ............ $ (211,611) $4,390,939
Total assets ........................ 467,144 4,623,694
Total liabilities .................. 512,573 66,573
Accumulated deficit .................. (352,029) (352,029)
Stockholders' equity (deficit) ...... (45,429) 4,557,121
- ------------
(1) Includes non-cash compensation expense of $205,000. See Combined Financial
Statements.
(2) Gives effect to the sale of the Common Stock and Warrants offered hereby
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
Notice to California Investors. Each purchaser of Common Stock and Warrants
in California must be an "accredited investor" as that term is defined in Rule
501(a) of Regulation D promulgated under the Securities Act of 1933, as amended
(the "Securities Act") or satisfy one of the following suitability standards:
(i) minimum annual gross income of $50,000 and a net worth (exclusive of home,
home furnishings and automobiles) of $75,000; or (ii) minimum net worth
(exclusive of home, home furnishings and automobiles) of $150,000.
5
<PAGE>
RISK FACTORS
The securities offered hereby are highly speculative and involve
substantial risks. Prospective investors should carefully consider the
following risk factors before making an investment decision.
Recent Organization; Early Stage Company. The Company was organized in
February 1997 as successor to the business of the Predecessor Companies and is
in an early stage of development. Accordingly, the Company has a limited
operating history upon which an evaluation of its performance and prospects can
be made. The Company is subject to all of the risks, uncertainties, expenses,
delays, problems and difficulties frequently encountered in the establishment
of a new business in a rapidly evolving industry characterized by intense
competition and an increasing and substantial number of new market entrants and
new Internet products and services. See "Business."
Proposed Plan of Operation. The Company's proposed plan of operation and
prospects will be largely dependent upon the Company's ability to successfully
establish and equip additional POPs on a timely and cost effective basis; hire
and retain skilled management, technical, marketing and other personnel; and
attract and retain significant numbers of subscribers. The Company has limited
experience in commercializing new Internet products and services and there is
limited information available concerning the potential performance or market
acceptance of the Company's POPs. There can be no assurance that the Company
will be able to successfully implement its business plan or that unanticipated
expenses, problems or technical difficulties will not occur which would result
in material delays in its implementation. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Limited Revenues; Losses. The Company has not yet generated any meaningful
revenues, and will not generate any meaningful revenues until after the Company
establishes additional POPs and attracts and retains a significant number of
subscribers, which the Company does not anticipate will occur until several
months following the consummation of this offering, if at all. For the period
from May 1, 1995 (inception) to June 30, 1997, the Company incurred a
cumulative net loss of approximately $352,029. Since June 30, 1997, the Company
has incurred losses and anticipates that it will continue to incur significant
losses until, at the earliest, the Company generates sufficient revenues to
offset the substantial up-front expenditures and operating costs associated
with establishing additional POPs and attracting and retaining a significant
subscriber base. There can be no assurance that the Company will be able to
attract and retain a sufficient number of subscribers to generate meaningful
revenues or achieve profitable operations. See Combined Financial Statements.
Dependence on Offering Proceeds; Possible Need for Additional
Financing. The capital requirements relating to implementation of the Company's
business plan will be significant. The Company is dependent on the proceeds of
this offering or other financing in order to fully implement its proposed plan
of operation. Based on currently proposed plans and assumptions relating to the
implementation of its business plans (including the timetable of, and costs
associated with, establishing additional POPs), the Company believes that the
proceeds of this offering will be sufficient to satisfy its contemplated cash
requirements for at least twelve months following the consummation of this
offering. In the event that the Company's plans change, its assumptions change
or prove to be inaccurate or if the proceeds of this offering prove to be
insufficient to implement its business plans, the Company would be required to
seek additional financing sooner than currently anticipated. There can be no
assurance that the proceeds in this offering will be sufficient to permit the
Company to implement its proposed business plan or that any assumptions
relating to the implementation of such plan will prove to be accurate. To the
extent that the proceeds of this offering are not sufficient to enable the
Company to generate meaningful revenues or achieve profitable operations, the
inability to obtain additional financing will have a material adverse effect on
the Company. There can be no assurance that any such financing will be
available to the Company on commercially reasonable terms, or at all. See "Use
of Proceeds" and "Management's Discussion and Analysis of Financial Condition
and Results of Operation."
Limited Number of POPs; Geographic Concentration; Uncertainty of Network
Expansion. There are currently ten POPs in operation, only three of which have
been in operation for more than one year, and all of which are in the greater
New York metropolitan area. Consequently, the results achieved to date by the
Company's POPs may not be indicative of the prospects or market acceptance of a
larger number of POPs, particularly in
6
<PAGE>
wider and more geographically dispersed areas with varied demographic
characteristics. The process of identifying suitable sites and establishing
additional POPs is lengthy and network installation typically requires six to
eight weeks to complete from the time a lease for a new POP is entered into.
There can be no assurance that the Company will be successful in identifying
suitable sites or in establishing additional POPs. Unforeseen events, including
failure to obtain and install telephone lines and network equipment on a timely
and cost-effective basis, could materially delay the Company's plans in target
markets. The Company has relatively limited experience in establishing POPs and
has limited financial and other resources. There can be no assurance that the
Company will be able, for financial or other reasons, to successfully expand
its network or that any expansion will not be subject to unforeseen delays and
costs. See "Business -- Network Infrastructure."
Dependence on Sole Suppliers and Manufacturers; Possible Service
Interruptions and Equipment Failures. The Company is currently dependent on a
sole supplier to provide Internet access via leased telecommunications lines on
a cost-effective and continuous basis. The Company has not entered into an
interconnect agreement with such supplier. Although the Company believes that
it currently has sufficient access to telecommunications networks on favorable
terms and believes that its relationship with such supplier is satisfactory,
any increase in rates charged by such supplier would materially adversely
affect the Company's operating margins. Failure to obtain continuing access to
such networks would also have a material adverse effect on the Company,
including possibly requiring the Company to significantly curtail or cease its
operations. The Company also is dependent on third-party manufacturers of
hardware components. Certain components used by the Company in providing its
networking services are generally acquired from only one source, including high
performance routers manufactured by Cisco Systems, Inc. and remote access
servers manufactured by U.S. Robotics, Inc. The Company has not entered into
agreements with any equipment manufacturer and purchases equipment components
pursuant to purchase orders placed from time to time in the ordinary course of
business. Although the Company believes that network equipment is currently
available from numerous sources, failure by manufacturers to deliver quality
products on a timely basis or the inability to develop alternative sources if
and as required, could result in delays which could materially adversely affect
the Company's business and limit the Company's ability to expand its
operations.
In addition, the Company's operations require that its POPs and its
third-party telecommunications networks operate on a continuous basis. It is
possible that the Company's POPs and third-party telecommunications networks
may from time to time experience service interruptions or equipment failures.
Service interruptions and equipment failures resulting in material delays would
adversely affect subscriber confidence as well as the Company's business
operations and reputation. See "Business -- Internet Access Providers and
Suppliers."
New Industry; Uncertainty of Market Acceptance; Limited Marketing, Service
and Support Capabili-ties. The Internet connectivity services industry is
characterized by a limited operating history and a high rate of business
failures. Because the market is relatively new and current and future
competitors are likely to introduce competing Internet connectivity and/or
online services and products, it is difficult to predict the rate at which the
market will grow or at which new or increased competition will result in market
saturation. The novelty of the market for Internet access services may
adversely affect the Company's ability to retain new subscribers who may be
unfamiliar with the Internet and more likely to discontinue the Company's
services after an initial trial period. Any significant decline in demand for
Internet connectivity services or in the computer industry generally or in
particular target markets would have a material adverse effect on the Company's
business and prospects. The Company's success will be largely dependent upon
the Company's ability to continually attract and retain additional subscribers
and replace terminating subscribers. To date, the Company has relied entirely
on the efforts of its executive officers for the marketing of its services.
Full scale marketing of the Company's services to individuals may require
reliance on third party distribution channels, such as retail stores, catalogs,
book publishers and computer hardware and software vendors. There can be no
assurance that the Company will be able to successfully develop or maintain
relationships with these parties. The successful implementation of the
Company's business plans will also require the Company to expand customer
service and support capabilities necessary to satisfy customer requirements.
The Company currently has limited marketing experience and limited marketing,
service, customer support and other resources. There can be no assurance that
the Company will be able to successfully expand its marketing activities or
customer service or support capabilities, or that the Company's efforts will
result in initial or continued market acceptance for the Company's Internet
access services. See "Business -- Marketing and Sales."
7
<PAGE>
Subscriber Attrition. The Company's operating results will be
significantly affected by subscriber attrition rates. Subscribers may
discontinue service without penalty at any time, and there can be no assurance
that subscribers will continue to purchase services from the Company or that
the Company will not be subject to significant subscriber attrition. The
Company has historically experienced a subscriber attrition rate of less than
20%. Significant levels of subscriber attrition in the future would have a
material adverse effect on the Company's operating results. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Competition. The market for Internet access services is highly
competitive. There are no substantial barriers to entry, and the Company
expects that competition will intensify in the future. The Company believes
that its ability to compete successfully will be significantly affected by
numerous factors, including price, ease of use, reliability, customer support,
geographic coverage and industry and general economic trends (particularly
unfavorable economic conditions adversely affecting consumer discretionary
spending). The Company's competitors include many large companies that have
substantially greater market presence and financial, technical, marketing and
other resources than the Company, including (i) international, national and
regional commercial Internet service providers, such as Performance Systems
International, Inc., Bolt Beranek & Newman, Inc. and UUNET Technologies, Inc.;
(ii) established on-line services companies that currently offer Internet
access, such as America Online, Inc., CompuServe Incorporated, Prodigy Services
Company, Earthlink and Delphi Internet Services; (iii) computer hardware and
software and other technology companies, such as IBM and Microsoft Corp.; (iv)
national long distance carriers, such as AT&T Corp., MCI Communications Corp.
and Sprint Corp.; (v) regional telephone companies; and (vi) cable operators,
such as Tele-Communications, Inc. New competitors, including large computer
hardware and software, media, cable and telecommunications companies, have
increased their focus on the Internet access market. Increased competition has
resulted and could continue to result in significant price competition, which
in turn could result in significant price reductions. In addition, increased
competition for new subscribers could result in increased sales and marketing
expenses and related subscriber acquisition costs, which could materially
adversely affect the Company's potential profitability. There can be no
assurance that the Company will be able to offset the effects of any such
competition or resulting price reductions through an increase in the number of
its subscribers, higher revenue from enhanced services or cost reductions or
that the Company will have the financial resources, technical expertise or
marketing and support capabilities to compete successfully. See "Business --
Competition."
Capacity Constraints; System Failure and Security Risks. The Company's
operations will depend upon the capacity, reliability and security of its
network infrastructure. The Company currently has limited network capacity and
will be required to continually expand its network infrastructure to
accommodate significant numbers of users and increasing amounts of information
they may wish to access. Expansion of the Company's network infrastructure will
require significant financial, operational and management resources. There can
be no assurance that the Company will be able to expand its network
infrastructure to meet potential demand on a timely basis, at a commercially
reasonable cost, or at all. Failure by the Company to expand its network
infrastructure on a timely basis would have a material adverse effect on the
Company. The Company's operations will also be dependent on the Company's
ability to protect its computer equipment against damage from fire, power loss,
telecommunications failures and similar events. The Company's network
infrastructure will be vulnerable to computer viruses, break-ins and similar
disruptions from unauthorized tampering with the Company's computer systems.
Computer viruses or problems caused by third parties could lead to material
interruptions, delays or cessation in service to consumers. Inappropriate use
of the Internet by third parties could also potentially jeopardize the security
of confidential information stored in the computer systems of consumers.
Security and privacy concerns of consumers may limit the Company's ability to
develop a significant subscriber base. See "Business -- Network
Infrastructure."
Rapid Technological Change. The market for Internet access is
characterized by rapidly changing technology, evolving industry standards,
emerging competition and frequent new software and service introductions. There
can be no assurance that the Company can successfully identify new product and
service opportunities as they arise and develop and bring new products and
services to market in a timely manner or that software, services or
technologies developed by others will not render the Company's services or
technologies noncompetitive, obsolete or less marketable. The Company currently
does not have any proprietary applications software. The Company's business is
also subject to fundamental changes in the way Internet access services are
delivered. Currently, Internet services are accessed primarily by computers and
are delivered by telephone lines. To
8
<PAGE>
the extent that the Internet becomes increasingly accessible by screen-based
telephones, television or other consumer electronic devices or customer
requirements change the way Internet access is provided, the Company may be
required to acquire or develop new technology or modify its existing technology
to accommodate these developments. Technological advances include compression,
full-motion video, and integration of video, voice, data and graphics. The
pursuit of these technological advances may require substantial time and
expense, and there can be no assurance that the Company will succeed in
adapting its Internet service business to alternate access devices and
conduits. See "Business -- Network Infrastructure."
Risks Associated with Expansion and Acquisitions. The Company intends to
use the proceeds of this offering to expand its operations through internal
growth and acquisition. The Company plans to establish additional POPs, attract
significant numbers of additional subscribers, expand its work force and expand
its presence in selected geographic markets. To successfully manage growth, the
Company will be required to continue to implement and improve its operating
systems, train and manage its employees, monitor operations, control costs and
maintain effective quality controls. The Company has limited experience in
effectuating rapid expansion and in managing operations which are
geographically dispersed, and there can be no assurance that the Company will
be able to successfully expand its operations or manage growth. The Company
intends to pursue opportunities by making selective acquisitions of subscriber
bases. While the Company from time to time evaluates possible acquisition
opportunities, as of the date of this Prospectus, the Company has no plans,
agreements, commitments, understandings or arrangements with respect to any
such acquisition. There can be no assurance that the Company will ultimately
effect any acquisition, that it will be able to successfully integrate into its
operations any subscriber base which it may acquire or that the Company will
not incur significant amortization expense associated with attrition of newly
acquired subscriber bases.
The Company may determine, depending upon the opportunities available to
it, to seek additional debt or equity financing to fund the cost of acquiring
subscriber bases. To the extent that the Company finances an acquisition with
equity securities, any such issuance of equity securities would result in
dilution to the interests of the Company's stockholders. Additionally, to the
extent that the Company incurs indebtedness or issues debt securities in
connection with any acquisition, the Company will be subject to risks
associated with incurring substantial indebtedness, including the risks that
interest rates may fluctuate and cash flow may be insufficient to pay principal
and interest on any such indebtedness. See "Use of Proceeds" and "Business --
Company Strategy."
Broad Discretion in Application of Proceeds; Benefits to Related
Parties. Approximately $1,331,550 (28.9%) of the estimated net proceeds of this
offering has been allocated to working capital and general corporate purposes.
Accordingly, the Company's management will have broad discretion as to the
application of such proceeds. The Company also intends to use $163,537 (3.6%),
$141,800 (3.1%) and $126,800 (2.8%), respectively, of the net proceeds of this
offering to repay outstanding principal amount of indebtedness to Messrs. Char,
Feinberg and Cole-Hatchard. Additionally, a portion of the proceeds of this
offering allocated to working capital may be used to pay the salaries of
executive officers (which is anticipated to be approximately $316,000 (or 6.9%
of the net proceeds) during the twelve months following this offering) to the
extent operating cash flow is insufficient for such purpose. See "Use of
Proceeds" and "Certain Transactions."
Litigation. In June 1997, Michael Char, a founder, principal stockholder
and former officer and director of the Company, indicated that he disagreed
with other members of management with respect to various business matters. The
Company has been unsuccessful in resolving such disagreements or in negotiating
a settlement with Mr. Char and, after a prolonged absence, in August 1997, the
Company removed Mr. Char as a director and terminated his employment. In
October 1997, Mr. Char filed a complaint in the Supreme Court, County of
Rockland alleging that in addition to his 320,000 shares of Common Stock,
$163,537 of indebtedness and approximately $40,000 of approved Company charges
made on Mr. Char's personal credit card and included in accounts payable as of
June 30, 1997 the Company owed him: $23,000 of additional debt; $7,000 of
unpaid salary; $100,000 as a result of the Company's alleged failure to return
unspecified personal property; and $100,000 as a result of the Company's
alleged destruction and/or conversion of unspecified personal property. The
Company has previously acknowledged Mr. Char's stock ownership, the $163,537 of
indebtedness and the credit card
9
<PAGE>
indebtedness. While the Company does not believe that Mr. Char has any
meritorious claims against the Company or members of management and intends to
vigorously defend this action (including possibly filing counterclaims against
Mr. Char), there can be no assurance that such action will be resolved in a
manner favorable to the Company. Such action, with or without merit, can be
time consuming, costly and difficult to defend and, if successful, could have a
material adverse effect on the Company. See "Business -- Legal Proceedings."
Government Regulation; Potential Liability for Content. Recently enacted
federal, state and local legislation aimed at limiting the use of the Internet
to transmit certain content and materials could result in significant potential
liability to Internet service providers. These types of legislative actions
present the potential for increased focus and attempts to impose liability upon
Internet access providers for information disseminated through their systems.
The adoption or strict enforcement of any such laws or regulations may limit
the growth of the Internet, which could in turn decrease the demand for the
Company's services and increase the Company's cost of doing business. Inasmuch
as the applicability to the Internet of the existing laws governing issues such
as property ownership, libel and personal privacy is uncertain, any such new
legislation or regulation or the application of existing laws and regulations
to the Internet could have an adverse effect on the Company's business and
prospects. Changes in the regulatory environment relating to the Internet
connectivity industry, including regulatory changes which directly or
indirectly affect telecommunication costs or increase the likelihood or scope
of competition from local and regional telephone companies or others, could
also have an adverse effect on the Company's business and prospects. See
"Business."
Lack of Intellectual Property Protection. The Company relies on a
combination of copyright and trademark laws, trade secrets, software security
measures, license agreements and nondisclosure agreements to protect its
proprietary information. The Company currently has no registered copyrights or
patents or patent applications pending. It may be possible for unauthorized
third parties to copy aspects of, or otherwise obtain and use, the Company's
proprietary information without authorization. In addition, there can be no
assurance that any confidentiality agreements between the Company and its
employees or any license agreements with its customers will provide meaningful
protection for the Company's proprietary information in the event of any
unauthorized use or disclosure of such proprietary information. See "Business."
Dependence on Key Personnel; Limited Management; Need for Qualified
Management and Other Personnel; No Independent Directors. The success of the
Company will be dependent on the personal efforts of Nicko Feinberg, Chief
Information Officer and Vice President of Technology, Stephen J. Cole-Hatchard,
Chairman, Chief Executive Officer and President, and other key personnel.
Although the Company has entered into employment agreements with each of
Messrs. Feinberg and Cole-Hatchard, as well as Messrs. Michael Olbermann and
Peter Morris, Chief Operating Officer and Chief Financial Officer of the
Company, respectively, the loss of the services of such individuals could have
a material adverse effect on the Company's business and prospects. The Company
intends to obtain "key-man" insurance on the life of each of Messrs. Feinberg
and Cole-Hatchard in the amount of $1,000,000. Mr. Cole-Hatchard currently
serves on a part-time basis, and the Company has only four employees in
addition to its executive officers. The success of the Company is largely
dependent upon its ability to hire and retain additional qualified management,
marketing, technical, financial and other personnel, including a full-time
President. Competition for qualified personnel is intense, and there can be no
assurance that the Company will be able to hire or retain additional qualified
personnel. Any inability to attract and retain qualified management and other
personnel will have a material adverse effect on the Company. In addition, the
Company currently has no independent directors. See "Business -- Employees" and
"Management."
Control by Current Stockholders. Upon consummation of this offering, the
Company's current stockholders will beneficially own, in the aggregate,
approximately 59.1% of the outstanding shares of Common Stock (assuming no
exercise of the Warrants). Accordingly, such persons, acting together, will be
in a position to control the Company, elect all of the Company's directors,
cause an increase in the authorized capital or the dissolution, merger or sale
of the assets of the Company, and generally to direct the affairs of the
Company. See "Management" and "Principal Stockholders."
No Dividends. To date, the Company has not paid any cash dividends on its
Common Stock and does not expect to declare or pay dividends on the Common
Stock in the foreseeable future. See "Description of Securities -- Dividend
Policy."
Limitation on Liability. The Company's Certificate of Incorporation
includes provisions to limit, to the full extent permitted by Delaware Law, the
personal liability of directors of the Company for monetary damages
10
<PAGE>
arising from a breach of their fiduciary duties as directors. As a result of
such provisions in the Certificate of Incorporation, stockholders may be unable
to recover damages against the directors of the Company for actions taken by
them which constitute negligence, gross negligence or a violation of certain of
their fiduciary duties, which may reduce the likelihood of stockholders
instituting derivative litigation against directors and may discourage or deter
stockholders from suing directors for breaches of their duty of care, even
though such an action, if successful, might otherwise benefit the Company and
its stockholders. See "Management -- Indemnification of Directors and
Officers."
Immediate and Substantial Dilution. This offering involves an immediate
and substantial dilution of $3.38 per share (67.6%) between the net tangible
book value per share after the offering and the initial public offering price
per share. See "Dilution."
Shares Eligible for Future Sale. Upon consummation of this offering, the
Company will have 2,810,000 shares of Common Stock outstanding (assuming no
exercise of the Warrants or outstanding options), of which the 1,150,000 shares
of Common Stock offered hereby will be freely tradable without restriction or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"). All of the remaining 1,660,000 shares of Common Stock
outstanding are "restricted securities," as that term is defined under Rule 144
promulgated under the Securities Act and will become eligible for sale,
pursuant to Rule 144, on various dates commencing February 1998, subject to the
contractual restrictions described below. The holders of all of such shares,
other than 320,000 shares held by Michael Char and 200,000 shares issued in
connection with a private placement in May 1997, have agreed not to sell such
shares for a period of twelve months from the date of this Prospectus without
the Underwriter's prior written consent. The holders of 200,000 shares issued
in the private placement have agreed not to sell such shares for a period of
six months from the date of this Prospectus. The Company has granted certain
demand and "piggy-back" registration rights to the Underwriter with respect to
the securities issuable upon exercise of the Underwriter's Warrants. No
prediction can be made as to the effect, if any, that sales of shares of Common
Stock or even the availability of such shares for sale will have on the market
prices prevailing from time to time. The possibility that substantial amounts
of Common Stock may be sold in the public market may adversely affect the
prevailing market price for the Common Stock and could impair the Company's
ability to raise capital through the sale of its equity securities. See "Shares
Eligible for Future Sale" and "Underwriting."
Limited Experience of Underwriter. The Underwriter is recently organized,
has engaged in limited underwriting activities and has acted as principal
underwriter in only one public offering. There can be no assurance that the
Underwriter's lack of public offering experience will not affect the proposed
public offering of Common Stock and Warrants and subsequent development of a
trading market, if any. See "Underwriting."
Contractual Obligations to the Underwriter. The Company will have certain
ongoing contractual obligtions to the Underwriter following the consummation of
this offering. The Company has agreed to pay to the Underwriter a finder's fee
in the event the Underwriter originates a merger, acquisition or similar
transaction during a period of two years following the consummation of this
offering; to pay a fee of 5% of the exercise price for each Warrant exercised
(provided the Warrant exercise is solicited by the Underwriter and certain
other conditions are met) commencing one year after the date of this
Propsectus; to use its best efforts to elect a designee of the Underwriter as a
non-voting adviser to the Company's Board of Directors, if requested to do so
by the Underwriter, for a period of three years from the date of this
Prospectus; and subject to certain limitations and exclusions, to register, at
the Company's expense, the Underwriter's Warrants and the 230,000 shares of
Common Stock underlying such warrants under the Securities Act on one occasion
during their exercise term and to include such securities in any appropriate
registration statement which is filed by the Company during the seven years
following the date of this Prospectus. In addition, the Company will pay the
Underwriter a consulting fee upon the consummation of this offering, whether or
not any consulting services are performed. See "Underwriting."
Authorized Preferred Stock. The Company's Certificate of Incorporation
authorizes the Company's Board of Directors to issue 1,000,000 shares of "blank
check" Preferred Stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of these shares, without further
stockholder approval. The rights of the holders of Common Stock will be subject
to and may be adversely affected by the rights of holders of any Preferred
Stock that may be issued in the future. The ability to issue Preferred Stock
without stockholder approval could have the effect of making it more difficult
for a third party to acquire a majority of the voting
11
<PAGE>
stock of the Company, thereby delaying, deferring or preventing a change in
control of the Company. See "Description of Securities."
No Assurance of Public Market; Arbitrary Offering Price; Possible
Volatility of Market Price of Common Stock and Warrants; Underwriter's
Potential Influence on the Market. Prior to this offering, there has been no
public trading market for the Common Stock or Warrants. There can be no
assurance that a regular trading market for the Common Stock or Warrants will
develop after this offering or that, if developed, it will be sustained.
Moreover, the initial public offering prices of the Common Stock and the
Warrants and the exercise price of the Warrants have been determined by
negotiations between the Company and the Underwriter and, as such, are
arbitrary in that they do not necessarily bear any relationship to the assets,
book value or potential earnings of the Company or any other recognized
criteria of value and may not be indicative of the prices that may prevail in
the public market. The market prices of the Company's securities following this
offering may be highly volatile. Factors such as the Company's operating
results and announcements by the Company or its competitors may have a
significant impact on the market price of the Company's securities. In
addition, in recent years, the stock market has experienced a high level of
price and volume volatility and market prices for the stock of many companies
have experienced wide price fluctuations which have not necessarily been
related to the operating performance of such companies. Although it has no
obligation to do so, the Underwriter intends to make a market in the Common
Stock and Warrants and may otherwise effect transactions in the Common Stock
and Warrants. If the Underwriter makes a market in the Common Stock or
Warrants, such activities may exert a dominating influence on the market and
such activity may be discontinued at any time. The prices and liquidity of the
Common Stock and Warrants may be significantly affected to the extent, if any,
that the Underwriter participates in such market. See "Underwriting."
Possible Delisting of Securities from Nasdaq System; Risks Relating to
Penny Stocks. It is currently anticipated that the Company's Common Stock and
Warrants will be eligible for listing on the Nasdaq SmallCap Market upon the
completion of this offering based upon the Company having at least $4,000,000
in net tangible assets after giving effect to the receipt of the proceeds of
this offering. In order to continue to be listed on Nasdaq, however, the
Company must maintain $2,000,000 in net tangible assets, a $1,000,000 market
value of the public float and have two market makers and a minimum bid price of
$1.00 per share. Although the Company believes that it will be able to satisfy
these maintenance criteria, failure to do so in the future may result in the
delisting of the Company's securities from Nasdaq, and trading, if any, in the
Company's securities would thereafter be conducted in the non-Nasdaq
over-the-counter market. As a result of such delisting, an investor could find
it more difficult to dispose of, or to obtain accurate quotations as to the
market value of, the Company's securities. In addition, if the Common Stock
were to become delisted from trading on Nasdaq and the trading price of the
Common Stock were to fall below $5.00 per share on the date the Company's
securities were delisted, trading in such securities would also be subject to
the requirements of certain rules promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), which require additional disclosure
by broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally, any non-Nasdaq equity security that has a market price
of less than $5.00 per share, subject to certain exceptions). Such rules
require the delivery, prior to any penny stock transaction, of a disclosure
schedule explaining the penny stock market and the risks associated therewith,
and impose various sales practice requirements on broker-dealers who sell penny
stocks to persons other than established customers and accredited investors
(generally institutions). For these types of transactions, the broker-dealer
must make a special suitability determination for the purchaser and have
received the purchaser's written consent to the transaction prior to sale. The
additional burdens imposed upon broker-dealers by such requirements may
discourage broker-dealers from effecting transactions in the Company's
securities, which could severely limit the market price and liquidity of such
securities and the ability of purchasers in this offering to sell their
securities of the Company in the secondary market.
Potential Adverse Effect of Warrant Redemption. The Warrants are subject
to redemption by the Company at any time commencing on , 1998, upon notice
of not less than 30 days, at a price of $.10 per Warrant, provided that the
closing bid quotation of the Common Stock on all 20 trading days ending on the
third day prior to the day on which the Company gives notice has been at least
150% (currently $8.25, subject to adjustment) of the then effective exercise
price of the Warrants and the Company obtains the written consent of the
Underwriter to such redemption prior to the Call Date. Redemption of the
Warrants could force the holders to exercise the Warrants and pay the exercise
price at a time when it may be disadvantageous for the holders to
12
<PAGE>
do so, to sell the Warrants at the then current market price when they might
otherwise wish to hold the Warrants, or to accept the redemption price, which
is likely to be substantially less than the market value of the Warrants at the
time of redemption. See "Description of Securities -- Redeemable Warrants."
Possible Inability to Exercise Warrants. The Company intends to qualify
the sale of the securities offered hereby in a limited number of states.
Although certain exemptions in the securities laws of certain states might
permit the Warrants to be transferred to purchasers in states other that those
in which the Warrants were initially qualified, the Company will be prevented
from issuing Common Stock in such states upon the exercise of the Warrants
unless an exemption from qualification is available or unless the issuance of
Common Stock upon exercise of the Warrants is qualified. The Company may decide
not to seek or may not be able to obtainqualification of the issuance of such
Common Stock in all of the states in which the ultimate purchasers of the
Warrants reside. In such a case, the Warrants held by purchasers will expire
and have no value if such Warrants cannot be sold. Accordingly, the market for
the Warrants may be limited because of these restrictions. Further, a current
prospectus covering the Common Stock issuable upon exercise of the Warrants
must be in effect before the Company may accept Warrant exercises. There can be
no assurance the Company will be able to have a prospectus in effect when this
Prospectus is no longer current, notwithstanding the Company's commitment to
use its best efforts to do so. See "Description of Securities -- Redeemable
Warrants."
Unrelated Bankruptcy. Nicko Feinberg, Chief Information Officer and
director of the Company, owned and operated Creative Images, Inc., a pre-press
service business, from September 1989 to March 1991. Such entity filed for
protection under Chapter 7 of the United States Bankruptcy Code in 1991. See
"Management."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the securities offered
hereby are estimated to be $4,602,550 ($5,367,932 if the Underwriter's
over-allotment option is exercised in full). The Company expects to use the net
proceeds during the twelve months following this offering approximately as
follows:
<TABLE>
<CAPTION>
Approximate
Approximate Percentage of
Application of Proceeds Dollar Amount Dollar Amount
- ----------------------- --------------- --------------
<S> <C> <C>
Acquisition of subscriber bases(1) ..................... $1,475,000 32.1%
Establishment of additional POPs(2) ..................... 850,000 18.4
Marketing and advertising(3) ........................... 500,000 10.9
Repayment of indebtedness(4) ........................... 446,000 9.7
Working capital and general corporate purposes(5) ...... 1,331,550 28.9
----------- ------
Total ................................................ $4,602,550 100.0%
=========== ======
</TABLE>
- ------------
(1) Represents anticipated costs to acquire subscriber bases. As of the date of
this Prospectus, the Company has no plans, agreements, commitments,
understandings or arrangements with respect to any such acquisition. See
"Business -- Company Strategy."
(2) Represents anticipated costs associated with the establishment of up to
twenty-four additional POPs, including the cost of equipment, telephone
lines and initial rent, the cost of adding subscriber capacity to existing
POPs and salaries for up to ten additional technical and support
personnel. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Plan of Operation."
(3) Includes costs associated with advertising in local newspapers and trade
publications, fees for independent marketing consultants and the salaries
for up to three marketing and sales personnel. See "Business -- Marketing
and Sales."
(4) Represents aggregate amounts to be used to repay outstanding principal and
estimated accrued interest through November 1, 1997 to Messrs. Char,
Feinberg and Cole-Hatchard, principal stockholders of the Company.
Approximately $375,000 of such indebtedness is repayable on the earlier of
(i) the consummation of this offering or (ii) May 30, 1999 (May 1, 1998 in
the case of $163,537 principal amount of indebtedness payable to Mr.
Char), bears interest at the rate of 8% per annum and was incurred in
connection with the Reorganization in May 1997. Included in such
indebtedness is $21,737 and $35,000, respectively, of advances made to the
Company by Messrs. Char and Cole-Hatchard to establish additional POPs.
The balance of such indebtedness represents a $60,000 advance made by Mr.
Cole-Hatchard in August 1997 for the purchase of network equipment, which
bears interest at the rate of 9.25% per annum and is repayable on the
earlier of (i) the consummation of this offering or (ii) May 1, 1999. See
"Certain Transactions."
(5) Working capital may be used, among other things, to pay salaries of the
Company's executive officers (which is anticipated to be approximately
$316,000 during the twelve months following the offering), rent, trade
payables, professional fees and other operating expenses.
<PAGE>
If the Underwriter exercises its over-allotment option in full, the
Company will realize additional net proceeds of $765,382, which will be added
to the Company's working capital.
Based on currently proposed plans and assumptions relating to the
implementation of its business plans, the Company believes that the proceeds of
this offering will be sufficient to satisfy its contemplated cash requirements
for at least twelve months following the consummation of this offering. In the
event that the Company's plans change, its assumptions change or prove to be
inaccurate or if the proceeds of this offering otherwise prove to be
insufficient to implement its business plans, the Company may find it necessary
or desirable to reallocate a portion of the proceeds within the above described
categories, use proceeds for other purposes, seek additional financing or
curtail its operations. There can be no assurance that any additional financing
will be available to the Company on acceptable terms, or at all.
14
<PAGE>
Proceeds not immediately required for the purposes described above will be
invested principally in United States government securities, short-term
certificates of deposit, money market funds or other short-term interest
bearing investments.
DILUTION
The difference between the initial public offering price per share of
Common Stock and the net tangible book value per share after this offering
constitutes the dilution to investors in this offering. Net tangible book value
per share of Common Stock is determined by dividing the net tangible book value
of the Company (total tangible assets less total liabilities) by the number of
shares of Common Stock outstanding.
As of June 30, 1997, the Company had a negative net tangible book value of
($108,429) or ($.07) per share of Common Stock. After giving effect to the sale
of the securities offered hereby (less underwriting discounts and commissions
and estimated expenses of this offering), the pro forma net tangible book value
of the Company as of June 30, 1997 would have been $4,557,121 or $1.62 per
share, representing an immediate increase in net tangible book value of $1.69
per share of Common Stock to existing stockholders and an immediate dilution of
$3.38 per share to new investors. The following table illustrates this dilution
to new investors on a per share basis:
<TABLE>
<S> <C> <C>
Initial public offering price ................................. $5.00
Net tangible book value before offering .................. ($ .07)
Increase attributable to investors in this offering ...... 1.69
------
Net tangible book value after offering ........................ 1.62
-------
Dilution to new investors ....................................... $3.38
=======
</TABLE>
The following table sets forth, with respect to existing stockholders and
new investors in this offering, a comparison of the number of shares of Common
Stock issued by the Company, the percentage of ownership of such shares, the
total cash consideration paid, the percentage of total cash consideration paid
and the average price per share.
<TABLE>
<CAPTION>
Shares Purchased Total Cash Consideration
----------------------- ------------------------
Average
Price
Number Percent Amount Percent Per Share
----------- --------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders ...... 1,660,000 59.1% $ 414,600 6.7% $ .25
New Investors ............... 1,150,000 40.9 $5,750,000 93.3 5.00
--------- ------ ----------- ------
Total .................. 2,810,000 100.0% $6,164,600 100.0%
========= ====== =========== ======
</TABLE>
The above tables assume no exercise of the Underwriter's over-allotment
option. If such option is exercised in full, the new investors will have paid
$6,612,500 for 1,322,500 shares of Common Stock, representing approximately
94.1% of the total consideration for 44.3% of the total number of shares of
Common Stock outstanding.
The above tables assume no exercise of outstanding stock options or
warrants. As of the date of this Prospectus, there are outstanding stock
options to purchase an aggregate of 260,000 shares of Common Stock at an
exercise price of $2.00 per share. To the extent that stock options are
exercised, there will be further dilution to new investors. See "Management --
1997 Stock Option Plan," "Description of Securities" and "Underwriting."
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1997, on an actual basis, and as adjusted to give effect to the sale
of the securities offered hereby and the anticipated application of the
estimated net proceeds therefrom:
<TABLE>
<CAPTION>
June 30, 1997
----------------------------
Actual As Adjusted
------------- ------------
<S> <C> <C>
Short term debt ....................................... $ 372,137 $ --
========== ==========
Stockholders' equity (deficit):
Preferred Stock, $.01 par value, 1,000,000 shares
authorized, no shares issued and outstanding ...... $ -- $ --
Common stock, $.01 par value, 10,000,000 shares
authorized, 1,660,000 shares outstanding, 2,810,000
as adjusted(1) .................................... 16,600 28,100
Additional paid-in-capital ........................ 295,000 4,886,050
Stock subscriptions receivable ..................... (5,000) (5,000)
Accumulated deficit ................................. (352,029) (352,029)
---------- ----------
Total stockholders' equity (deficit) .................. (45,429) 4,557,121
---------- ----------
Total capitalization ................................. ($ 45,429) $4,557,121
========== ==========
</TABLE>
(1) Does not include (i) 1,150,000 shares of Common Stock reserved for issuance
upon exercise of the Warrants; (ii) an aggregate of 230,000 shares of
Common Stock reserved for issuance upon exercise of the Underwriter's
Warrants and the warrants included therein; (iii) 260,000 shares of Common
Stock reserved for issuance upon exercise of outstanding options under the
Plan; and (iv) 240,000 shares of Common Stock reserved for issuance upon
exercise of options available for future grant under the Plan. See
"Management -- 1997 Stock Option Plan," and "Underwriting."
16
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Overview
The Company was organized in February 1997 as successor to the business of
the Predecessor Companies and is in an early stage of development. The
Company's financial statements include the accounts of the Company and the
Predecessor Companies.
The Company's revenues are derived primarily from providing Internet
access services to individuals and to a lesser extent to business subscribers.
Revenues are comprised principally of recurring revenues from the Company's
customer base, non-recurring start-up fees for X2 56K and leased line
connections and from various ancillary services. The Company charges
subscription fees which are billed monthly or quarterly, in advance, typically
pursuant to pre-authorized credit card accounts. For the six months ended June
30, 1997, sales to individuals accounted for approximately 81.5% of the
Company's revenues. The Company's subscribers do not incur hourly usage fees.
Monthly subscription service revenue is recognized over the period in
which services are provided. Service revenues derived from dedicated access
services, which require the use of Company provided installation of equipment
at a subscriber's location, are recognized when the service is commenced. Fee
revenues for ancillary services are recognized as services are performed.
The Company has not yet generated any meaningful revenues, and will not
generate any meaningful revenues until after the Company establishes additional
POPs and attracts and retains a significant number of subscribers, which the
Company does not anticipate will occur until several months following the
consummation of this offering, if at all. For the period from May 1, 1995
(inception) to June 30, 1997, the Company incurred a cumulative net loss of
approximately $352,029 (after giving effect to non-cash compensation expense of
$205,000). Since June 30, 1997, the Company has incurred losses and anticipates
that it will continue to incur significant losses until, at the earliest, the
Company generates sufficient revenues to offset the substantial up-front
expenditures and operating costs associated with establishing additional POPs
and attracting and retaining a significant subscriber base. The Company
currently estimates, based on its projected expenses, including the payment of
executive and additional management salaries, that it should achieve
profitability with approximately 10,000 subscribers at its existing POPs. There
can be no assurance that the Company will be able to attract and retain a
sufficient number of subscribers to generate meaningful revenues or achieve
profitable operations.
The Company's operating results will be significantly affected by
subscriber attrition rates. Subscribers may discontinue service without penalty
at any time, and there can be no assurance that subscribers will continue to
purchase services from the Company or that the Company will not be subject to
significant subscriber attrition. The Company has historically experienced a
subscriber attrition rate of less than 20%. Significant levels of subscriber
attrition in the future would have a material adverse effect on the Company's
operating results.
Acceleration in the growth of the Company's subscriber base or changes in
usage patterns among subscribers may increase operating costs. Acceleration in
the growth of the subscriber base could require the Company to hire additional
personnel and increase the Company's expenses related to marketing, network
infrastructure and customer support sooner than anticipated. An increase in
peak time usage or an overall increase in usage by subscribers could adversely
affect the Company's ability to consistently meet the demand for its access
services. As a result, the Company may be required to hire additional personnel
and increase expenses related to network infrastructure capacity with minimal
corresponding increases in revenue on a per subscriber basis.
Plan of Operation
The Company's proposed plan of operation and prospects will be largely
dependent upon the Company's ability to successfully establish and equip
additional POPs on a timely and cost effective basis; hire and retain skilled
management, technical, marketing and other personnel; and attract and retain
significant numbers of subscribers.
The Company's telecommunications network is currently comprised of leased
high-speed data lines and ten POPs. Pursuant to its currently proposed plan of
operation, the Company will seek to establish up to twenty-four additional POPs
during the twelve months following the consummation of this offering. The
number of POPs
17
<PAGE>
will be dependent upon, among other things, market acceptance and demand in
target geographic markets and the technical effectiveness of alternative
delivery technologies. Certain new network services known as "display virtual
private networks" may permit the Company to establish a presence in particular
geographic markets without establishing additional POPs by permitting the
Company to connect its existing POPs to such networks. See "Business--Network
Infrastructure."
The Company anticipates that the average cost to acquire and install
equipment (consisting of a router, access server and communications hub) and
telephone lines in each POP will be approximately $13,000. The Company expects
to expand the capacity of its network through POP expansion at existing
locations. The Company's POPs, as initially configured, accommodate up to
approximately 160 subscribers. The Company expects that the average cost to
upgrade a POP to accommodate each additional 160 subscribers will be
approximately $8,500. The Company's existing network configuration has capacity
for up to approximately 3,000 subscribers.
The Company currently has four employees in addition to its executive
officers. The Company has entered into employment agreements with its executive
officers which provide for the payment of salaries in the aggregate amount of
$316,000 on an annual basis. Such salary expense could negatively affect future
operating results, and to the extent that the Company uses a portion of the
proceeds of this offering to pay such salaries, the Company will have less
resources available to it for other purposes. Depending upon the level of its
business activity, the Company anticipates that it will use a portion of the
proceeds of this offering to hire up to three additional employees over the
next twelve months to market the Company's access services to potential
subscribers. The Company also intends to hire up to ten additional technical
and support personnel during the twelve months following the offering. The
Company believes that it will be able to hire and retain additional personnel
to meet an expanding customer base.
Results of Operations
The Company commenced operations in late 1995 and established four POPs
during 1996. The Company had approximately 700 subscribers at December 31,
1996. Revenues for the six months ended June 30, 1997 were $131,154, compared
to $24,998 for the prior comparable period. The increase was primarily
attributable to "dial-up" customer growth at the Company's Nyack and Goshen,
New York POPs. At June 30, 1997 and June 30, 1996, the Company had ten and two
POPs, respectively. The Company had approximately 1,100 and 200 subscribers,
respectively, at June 30, 1997 and 1996. For the six months ended June 30,
1997, the Company's Nyack and Goshen, New York POPs accounted for approximately
92.5% of the Company's revenues. Six POPs were established in April and May
1997. Such POPs have not yet contributed significantly to revenue growth.
Cost of revenues for 1996 were $67,582, or approximately 68.5% of
revenues, approximately $42,000 of which related to communications expense for
the installation of customer dial-up lines and high speed T-1 line access to
the Internet. Cost of revenues for the six months ended June 30, 1997 were
$93,328, or approximately 71.2% of revenues, as compared to $21,312, or 85.3%,
for the prior comparable period. The increase in cost of revenues was due to
communications expense, depreciation and personnel costs for maintaining
equipment and were directly related to volume increases in revenue. The Company
expects these costs to increase in absolute dollars as additional POPs are
established.
Operating expenses for 1996 were $81,220, or 82.3% of revenues,
approximately $40,400 of which related to advertising and payroll. Operating
expenses for the six months ended June 30, 1997 (excluding a non-cash charge of
$205,000) were $118,440 or 90.3% of revenues, compared to $33,527 or 134.1% of
revenues, for the six months ended June 30, 1996. The increase in operating
expenses was attributable to payroll, rent and professional fees. Payroll
increases were directly related to volume increases in revenues. Rent increases
were attributable to the addition of new POPs and the establishment of larger
administrative space. Management anticipates future increases in operating
expenses for advertising, rent, payroll, depreciation and professional fees.
Interest expense for the six months ended June 30, 1997 was $3,784 or 2.9%
of revenues, as compared to $1,053, or 4.2% of revenues for the prior
comparable period. Interest expense relates primarily to financing the purchase
of computer hardware. Interest expense for the year ended December 31, 1996 was
$6,677.
For the year ended December 31, 1996 and the six months ended June 30,
1996 and 1997, the Company incurred net losses of $54,206, $28,594 and
$289,898, respectively.
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<PAGE>
Liquidity and Capital Resources
The Company's primary capital requirements have been and will continue to
be to fund the purchase and installation of network equipment at its POPs, as
well as for working capital, including the salaries of executive and other
personnel. To date, the Company has financed its capital requirements through
the issuance of debt and equity securities. At June 30, 1997, the Company had a
working capital deficit of $211,611.
In May 1997, the Company consummated a private placement pursuant to which
it issued 200,000 shares of Common Stock and received proceeds of $400,000. The
proceeds were used primarily for the purchase of network equipment, salaries
and expenses in connection with this offering. See "Certain Transactions."
In May 1997, the Company effected the Reorganization, pursuant to which it
issued promissory notes in the amounts of $141,800, $163,537 and $66,800,
respectively, to Messrs. Feinberg, Char and Cole-Hatchard, principal
stockholders of the Company. Such indebtedness bears interest at the rate of 8%
per annum and is repayable on the earlier of (i) the consummation of this
offering or (ii) May 30, 1999 (May 1, 1998 in the case of indebtedness owed to
Mr. Char). Included in such indebtedness is $21,737 and $35,000, respectively,
of advances made to the Company by Messrs. Char and Cole-Hatchard to establish
additional POPs. The promissory notes were issued to Messrs. Feinberg, Char and
Cole-Hatchard in partial consideration of their effort in founding the
Predecessor Companies. The Company intends to use a portion of the proceeds of
this offering to repay the entire principal amount of and accrued interest on
such indebtedness. See "Certain Transactions."
In August 1997, the Company borrowed $60,000 from Mr. Cole-Hatchard. Such
indebtedness bears interest at the rate of 9.25% per annum and is repayable on
the earlier of (i) the consummation of this offering or (ii) May 1, 1999. The
Company intends to use a portion of the proceeds of this offering to repay such
indebtedness. See "Certain Transactions."
The capital requirements relating to implementation of the Company's
business plan will be significant. During the twelve months following the
consummation of this offering, the Company intends to purchase computer
equipment in connection with the establishment of additional POPs, upgrade its
existing POPs and hire additional technical and support personnel. Other than
as described above, as of the date of this Prospectus, the Company has no
material commitments for capital expenditures.
The Company is dependent on the proceeds of this offering or other
financing in order to fully implement its proposed plan of operation. Based on
currently proposed plans and assumptions relating to the implementation of its
business plans (including the timetable of, and costs associated with,
establishing additional POPs), the Company believes that the proceeds of this
offering will be sufficient to satisfy its contemplated cash requirements for
at least twelve months following the consummation of this offering. In the
event that the Company's plans change, its assumptions change or prove to be
inaccurate or if the proceeds of this offering prove to be insufficient to
implement its business plans, the Company would be required to seek additional
financing sooner than currently anticipated. There can be no assurance that the
proceeds in this offering will be sufficient to permit the Company to implement
its proposed business plan or that any assumptions relating to the
implementation of such plan will prove to be accurate. To the extent that the
proceeds of this offering are not sufficient to enable the Company to generate
meaningful revenues or achieve profitable operations, the inability to obtain
additional financing will have a material adverse effect on the Company. There
can be no assurance that any such financing will be available to the Company on
commercially reasonable terms, or at all.
19
<PAGE>
BUSINESS
The Company is an Internet service provider that offers "dial-up" Internet
access primarily to individual subscribers. The Company provides subscribers
with direct access to a wide range of Internet applications and resources,
including electronic mail, world wide web sites and regional and local
information and data services. The Company believes that its low subscriber to
modem ratio, its technical and customer support and ancillary services position
the Company to capitalize on the emerging and expanding markets for Internet
services.
The Company was incorporated under the laws of the State of Delaware in
February 1997 as successor to the business of the Predecessor Companies,
Hobbes, INET and Sara Girl, limited liability companies organized in May and
August 1995 and July 1996, respectively, to own and operate POPs. In May 1997,
the Company effected the Reorganization, pursuant to which: (i) each of the
Predecessor Companies transferred all of its assets, subject to all of its
liabilities, to the Company; (ii) the members of the Predecessor Companies
exchanged their interests in the Predecessor Companies for promissory notes;
and (iii) each of the Predecessor Companies was dissolved. At the time of the
Reorganization, the Predecessor Companies operated an aggregate of four POPs.
See "Certain Transactions."
Market Trends
In recent years, the Internet has experienced a rapid increase in the
number of users. Industry sources estimate that the number of online households
in the United States was approximately 9.6 million at the end of 1995, 15.2
million at the end of 1996, and project that the number of online households
will exceed 40 million by the year 2000. The Company believes that the
following key trends will contribute favorably to expected continued popularity
of the Internet:
o Continuing Penetration of Computers and Modems in the Home: An increasing
percentage of computer owners also own modems, which are now pre-installed
in a growing number of new computers. According to Software Publishers
Association, more than 33.9 million or 34% of households in the United
States owned a personal computer at the end of 1995, of which
approximately 70% also owned a modem. The Company believes that this
growth is accompanied by increasing use of computers for communications
such as facsimile transmissions and electronic mail.
o Growth of the Informational, Entertainment and Commercial Applications of
the Internet: Use of the Internet has grown rapidly since its
commercialization in the early 1990s. An increasing number of servers and
websites are being connected to the Internet, making available text,
graphics, audio and video information which may be accessed by consumers.
Through an Internet connection, users can access commercial, educational
and governmental databases, entertainment software, photographs and
videos, newspapers, magazines, library card catalogs, industry
newsletters, weather updates and other information. Traditional and
emerging Internet applications, including electronic mail, the World Wide
Web and USENET news groups, are also increasing in popularity.
o Increasing Availability of User-friendly Navigational Tools: Internet use
is also being promoted by the development of software tools that simplify
access to the Internet's applications and resources. As users become more
familiar with the Internet and the Internet increasingly becomes a medium
for entertainment and personal communication, the Company believes that
demand by individuals for competitively priced, direct, high speed access
to personal home pages, interactive multimedia games and entertainment
will continue to grow.
Company Strategy
The Company's objective is to expand its network of POPs rapidly in
selected geographic markets. The Company's strategy is to aggressively build
its subscriber base by:
Providing Internet Access to Individuals. The Company is primarily focused
on providing access services to individual subscribers, one of the fastest
growing segments of the Internet market. The Company seeks to establish
brand identity by offering high speed access service and highly responsive
customer support.
20
<PAGE>
The Company believes that its low subscriber to modem ratio helps prevent
busy signals which is attractive to subscribers. The Company also offers
Internet access to business and other commercial users, many of which often
require access to a dedicated Internet connection to maintain a competitive
position.
Offering Competitive Pricing. The Company has established a simple pricing
structure of charging subscribers a flat monthly fee of $19.95 for
unlimited access. The Company believes that this structure encourages usage
by eliminating subscribers' concern about incurring significant hourly
charges, which may increase subscriber retention rates. The Company
believes that its pricing structure will help attract new subscribers and
facilitate continued market penetration. The Company also intends to
implement alternative price plans, permitting subscribers and customers to
select hourly or other special billing features.
Continuing Network Expansion. The Company is aggressively expanding its
high speed, digital network. The Company believes that rapid expansion is
necessary to build its subscriber base and to promote regional brand name
recognition. The Company plans to augment the capacity of existing POPs to
satisfy increased subscriber demand. The Company currently supports 14.4,
28.8 and 36.6 Kbps modems at each of its POPs and has introduced X2 56K and
ISDN technologies into its network for dial-up accounts. The Company
continually evaluates alternative technologies, including satellite
television delivery systems and cable modems.
Targeting Suburban Markets. The Company intends to target suburban markets
with attractive demographic characteristics similar to the Company's
existing POPs. To achieve its goal, the Company will seek to cluster POPs
for operational efficiency and to share certain marketing, financial,
customer service and management personnel. By targeting suburban markets
which will initially be subject to less intensive competition than in large
metropolitan areas, the Company believes it will be able to avoid
competition from large Internet service providers. The Company will also
seek to capitalize a demand for Internet access by offering subscriber
service which combines the capabilities typically provided by large
companies with the flexibility and responsiveness of a small Internet
service provider.
Pursuing Selective Acquisitions. Consistent with its strategy, the Company
intends to pursue opportunities by making selective acquisitions of
subscriber bases which the Company believes will enhance its prospects and
maximize revenues. The Company believes that it operates in a highly
fragmented segment of the Internet connectivity industry and that selective
acquisitions will enhance penetration in new and existing markets.
The Company's strategy and future marketing plans are subject to change as
a result of a number of factors, including progress or delays in the Company's
expansion efforts, changes in market conditions, the nature of possible
acquisitions which may become available to it in the future and technological
and competitive factors. There can be no assurance that the Company will be
able to successfully implement its business strategy or otherwise successfully
expand its operations.
Internet Services
The Company provides a variety of competitively priced Internet access
services. The Company's primary focus is on individuals who connect to the
Internet via a modem (referred to as "dial-up" accounts). Dial-up subscribers
can access the Internet by calling the Company's local POPs. The Company bills
its subscribers on a monthly or quarterly basis, in advance, typically through
pre-authorized credit card accounts.
Dial-Up Accounts: The Company believes that dial-up accounts present an
attractive opportunity for growth. A user can quickly activate an account
with the Company, obtain an Internet E-mail address, web space and
establish automatic billing to the user's credit card. Subscriber accounts
are priced at $19.95 per month for unlimited connections and $80 per month
for an unlimited ISDN use account. There is no connect fee, except for a
$20 start-up fee for X2 56K connections. Connections for ISDN services
require the customer to obtain an ISDN line from the local telephone
company. The Company's network supports connectivity software which
utilizes standard communication protocols such as TCP/IP, which enable a
user's computer to communicate with other computers over the Internet. As
of the date of this Prospectus, the Company had 1,210 individual and 100
business accounts.
21
<PAGE>
Dedicated Access: The Company also offers high speed, high bandwidth
dedicated leased lines principally for business users who desire to connect
internal computer networks to the Internet, 24 hours a day, seven days a
week. The Company offers leased line accounts to provide Internet services
to businesses at various speeds, including X2 56K circuits, fractional T-1
and full T-1 lines, depending on the customer's needs. The Company provides
its customers with dedicated leased lines and bills subscribers on a
monthly basis through a consolidated bill (which includes the phone
company's charges).
Web Design and Hosting Services: Without incurring the expense of setting
up and maintaining a web server, including in-house technical support to
design and maintain a web site, a subscriber can rent space on a server for
an Internet presence. The Company offers web site hosting services for a
24-hour interactive presence on the Internet. The Company's web servers
connect directly to the Internet via high speed T-1 lines providing maximum
bandwidth. This service includes domain name registration, 24-hour access,
file upload and/or download capability, and statistical logs. The Company
also offers web page design and development services and will seek to
expand the scope of such services in the future.
Co-Location Space: The Company provides a physical location at its facility
for a customer to install equipment and connect directly to the Internet.
This service provides customers with a low cost direct connection to the
Company's router. The Company provides this service under maintenance
agreements with pricing determined by the amount of space occupied.
Subscriber Applications
The Company provides its subscribers with access to the full range of
available Internet applications, including:
Electronic Mail: E-mail is an Internet application by which an Internet
user can exchange messages with any other user who has an E-mail address.
Messages can be sent almost instantly to designated individuals or groups
on a mailing list.
World Wide Web: The World Wide Web is a browsing and searching system
comprised of thousands of computer servers, referred to as home pages, each
linked by a special communications protocol. This open protocol allows
Internet users to view and access text, graphics, digital video and audio
resident on a home page or to connect instantaneously to related and linked
information on the same server or other home pages. Since the Internet is
an open system, any company can create a home page on the World Wide Web in
order to provide users with product or service information. Users can then
solicit more information and, in some cases, make purchases electronically.
Browsers such as Netscape, Mosaic and Microsoft Explorer, which
incorporates its own World Wide Web browser, have helped contribute to the
rapid growth of the World Wide Web. The Company expects the World Wide Web
to continue to grow rapidly as more businesses and consumers become aware
of the advantages of communications on the Internet. As part of its
service, the Company provides each subscriber with one megabyte of web
space on the Company's World Wide Web servers.
USENET News Groups: USENET is a network of thousands of computers attached
to the Internet that provide forums, or news groups, that allow users to
exchange information on a variety of topics of shared interest. Internet
users can seek or provide information on diverse topics ranging from sports
or other hobbies, to job opportunities, to restaurant and travel
suggestions.
Databases and Public Domain Software: An increasing number of host
computers are being connected to the Internet, which make available growing
amounts of text, graphics, audio and video information and public domain
software. For example, with an Internet connection, a user can access
commercial, educational and government databases, newspapers, magazines,
library card catalogs, industry newsletters, weather updates, and other
information.
File Transfer Protocol: The Internet can be easily used to move electronic
files (including data, programs or text) from one computer to another. This
can be very useful for parties in separate locations that collaborate on data
files. Data transferred over the Internet remains in digital format and does
not need to be re-entered by a receiving party; it can be manipulated and
then re-transmitted to other Internet users.
22
<PAGE>
Network Infrastructure
The Company's operations will depend upon the capacity, reliability and
security of its network infrastructure. The Company currently has limited
network capacity and will be required to continually expand its network
infrastructure to accommodate significant numbers of users and increasing
amounts of information they may wish to access. Expansion of the Company's
network infrastructure will require significant financial, operational and
management resources.
The Company maintains a telecommunications infrastructure that enables it
to provide digital Internet connectivity services to its subscribers. The
Company's network of POPs gives subscribers access to the Internet by means of
a local telephone call. The Company's network is currently comprised of
multiple T-1 lines which are connected directly to seven of the Company's POPs
(three of the Company's POPs are connected via T-1 to the Company's Nyack, New
York facility).
The Company closely monitors data traffic on its network and expects to
expand the capacity of its network by the addition of POPs and POP expansion at
existing locations as demand increases. POPs are monitored by management
software at the Company's computer facilities in Nyack and Pearl River, New
York. In order to build its subscriber base, the Company intends to continue to
expand the number of its POPs. As of the date of this Prospectus, the Company
had a total of ten POP locations in suburban areas servicing Rockland, Orange,
Dutchess, Sullivan, Putnam, Ulster and Westchester counties in New York and
Bergen County in New Jersey. The Company intends to continue its expansion of
POPs in the greater New York metropolitan area, including in Morris and Passaic
counties in New Jersey and New Haven and Fairfield counties in Connecticut.
The number of POPs will be dependent upon, among other things, market
acceptance and demand in target geographic markets and the technical
effectiveness of alternative delivery technologies. Certain new network
services known as "display virtual private networks" may permit the Company to
establish a presence in particular geographic markets without establishing
additional POPs by permitting the Company to connect its existing POPs to such
networks.
The Company maintains a telecommunications center at its Nyack facility
and Pearl River headquarters. Through these centers, the Company's technical
staff constantly monitors network utilization and security, including equipment
at individual POPs to ensure reliable Internet connectivity service. The
Company is subject to significant risks from a natural disaster or other
unanticipated event at these sites, and any damage or failure that causes
interruptions in the Company's operations could have a material adverse effect
on the Company. The Company currently maintains $1,000,000 of general liability
insurance which includes coverage for business interruption and property
damage. The Company plans to connect all of its POPs to its Pearl River
facility in the future.
Internet Access Providers and Suppliers
The Company currently relies on a sole supplier to provide Internet access
via leased telecommunications lines on a cost-effective and continuous basis.
The Company has not entered into an interconnect agreement with such supplier.
Although the Company believes that it currently has sufficient access to
telecommunications networks on favorable terms and believes that its
relationship with such supplier is satisfactory, any increase in rates charged
by such supplier would materially adversely affect the Company's operating
margins. Failure to obtain continuing access to such networks would also have a
material adverse effect on the Company, including possibly requiring the
Company to significantly curtail or cease its operations.
The Company also is dependent on third-party manufacturers of hardware
components. Certain components used by the Company in providing its networking
services are acquired from only one source, including high performance routers
manufactured by Cisco Systems, Inc. and remote access servers manufactured by
U.S. Robotics, Inc. The Company has not entered into agreements with any
equipment manufacturer and purchases equipment components pursuant to purchase
orders placed from time to time in the ordinary course of business. Although
the Company believes that network equipment is currently available from
numerous sources, failure by manufacturers to deliver quality products on a
timely basis or the inability to develop alternative sources if and as
required, could result in delays which could materially adversely affect the
Company's business and limit the Company's ability to expand its operations.
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Marketing and Sales
The Company's primary focus is on providing Internet services to
individuals who subscribe to the Company's dial-up service. The Company
currently sells its Internet access services through its executive officers
responding to inbound calls and E-mail, largely generated by referrals from
other subscribers. The Company anticipates that it will hire up to three sales
personnel during the twelve months following this offering to market the
Company's services and respond to subscription inquiries.
The Company is seeking to build its regional brand identity. The Company
engages in marketing and advertising activities, including advertising of its
services in specialty and regional publications, and participates in computer
trade shows. The Company also engages in various local promotional programs,
primarily to support newly opened POPs. The Company recently retained the
services of a marketing and advertising firm in order to develop a sales and
marketing program to complement the Company's planned expansion activities. The
agreement provides for payments of $1,500 per month and may be terminated upon
90 days' notice.
Customer Support
The Company believes that it is important to provide prompt and effective
assistance to its subscribers and customers. The Company provides network
monitoring and emergency subscriber assistance services 24 hours a day, seven
days a week. The Company provides regular support and technical assistance 12
hours per day Monday through Friday and 8 hours on Saturdays and Sundays. The
Company's two support personnel respond to telephone inquiries, and are
dedicated to responding to E-mail inquiries. The Company intends to increase
the number of its technical and customer support staff by hiring up to ten
additional persons over the next twelve months. There can be no assurance,
however, that the Company's customer support resources will be sufficient to
manage any expansion in the Company's subscriber base. Any failure to
adequately match customer support resources to projected increases in
subscribers could adversely affect the Company.
Competition
The market for Internet access services is highly competitive. There are
no substantial barriers to entry, and the Company expects that competition will
intensify in the future. The Company believes that its ability to compete
successfully will be significantly affected by numerous factors, including
price, ease of use, reliability, customer support, geographic coverage and
industry and general economic trends (particularly unfavorable economic
conditions adversely affecting consumer discretionary spending). The Company's
competitors include many large companies that have substantially greater market
presence and financial, technical, marketing and other resources than the
Company, including (i) international, national and regional commercial Internet
service providers, such as Performance Systems International, Inc., Bolt
Beranek & Newman, Inc. and UUNET Technologies, Inc. ("UUNET"); (ii) established
on-line services companies that currently offer Internet access, such as
America Online, Inc. ("AOL"), CompuServe Incorporated, Prodigy Services
Company, Earthlink, and Delphi Internet Services; (iii) computer hardware and
software and other technology companies, such as IBM and Microsoft Corp.
("Microsoft"); (iv) national long distance carriers, such as AT&T Corp., MCI
Communications Corp. and Sprint Corp.; (v) regional telephone companies; and
(vi) cable operators, such as Tele-Communications, Inc.
New competitors, including large computer hardware and software, media,
cable and telecommunications companies, have increased their focus on the
Internet access market, resulting in even greater competition for the Company.
Increased competition has resulted and could continue to result in significant
price competition, which in turn could result in significant reductions in the
average selling price of the Company's services. In addition, increased
competition for new subscribers could result in increased sales and marketing
expenses and related subscriber acquisition costs, which could materially
adversely affect the Company's potential profitability. There can be no
assurance that the Company will be able to offset the effects of any such
competition or resulting price reductions through an increase in the number of
its subscribers, higher revenue from enhanced services or cost reductions or
that the Company will have the financial resources, technical expertise or
marketing and support capabilities to compete successfully.
Most of the established on-line services companies and telecommunications
companies currently offer Internet access. In addition, new competitors,
including large computer hardware and software, media and telecommunications
companies, have increased their focus on the Internet access market, resulting
in even greater
24
<PAGE>
competition for the Company. In particular, Microsoft has introduced an
Internet access solution, including front-end software and an on-line service,
called "Microsoft Network." The application software for this on-line service
is bundled with Microsoft's Windows 95 operating system, which may give the
service a significant advantage over other on-line and Internet services.
Microsoft has undertaken a strategic alliance with UUNET that provides
Microsoft customers access to the Internet through UUNET's POPs. Microsoft has
also purchased an interest in Comcast, a leading cable operator, to converge
software and cable networks to deliver Internet access. In addition, IBM's most
recent version of its OS/2 operating system software includes Internet
utilities, and IBM offers Internet access through its own private
communications network. AOL is offering direct Internet access. The ability of
these competitors or others to bundle services and products with Internet
connectivity services could place the Company at a significant competitive
disadvantage.
The market for Internet access is characterized by rapidly changing
technology, evolving industry standards, emerging competition and frequent new
software and service introductions. There can be no assurance that the Company
can successfully identify new product and service opportunities as they arise
and develop and bring new products and services to market in a timely manner or
that software, services or technologies developed by others will not render the
Company's services or technologies noncompetitive, obsolete or less marketable.
The Company currently does not have any proprietary applications software.
Employees
As of September 30, 1997, the Company had four employees in addition to
its executive officers. Of such employees, two are engaged in customer support,
one in accounting and one in administration. The Company engages part-time
employees from time to time. None of the Company's employees is represented by
a union. The Company considers its employee relations to be good.
Properties
The Company's executive offices are located in Pearl River, New York,
where the Company leases approximately 5,525 square feet under a lease that
expires in June 2002. The annual rental is $96,000. The Company also leases
space (typically, less than 100 square feet) in various geographic locations to
house the telecommunications equipment for each of its POPs. Leased facilities
for POPs have various expiration dates ranging from November 1997 through April
2002. Aggregate annual rentals for POPs are approximately $28,000 over the next
twelve months. The Company does not anticipate difficulties in obtaining future
leased space for its POPs.
Legal Proceedings
In June 1997, Michael Char, a founder, principal stockholder and former
officer and director of the Company, indicated that he disagreed with other
members of management with respect to various business matters. The Company has
been unsuccessful in resolving such disagreements or in negotiating a settlement
with Mr. Char and, after a prolonged absence, in August 1997, the Company
removed Mr. Char as a director and terminated his employment. In October 1997,
Mr. Char filed a complaint in the Supreme Court, County of Rockland alleging
that in addition to his 320,000 shares of Common Stock, $163,537 of indebtedness
and approximately $40,000 of approved Company charges made on Mr. Char's
personal credit card and included in accounts payable as of June 30, 1997, the
Company owed him: $23,000 of additional debt; $7,000 of unpaid salary; $100,000
as a result of the Company's alleged failure to return unspecified personal
property; and $100,000 as a result of the Company's alleged destruction and/or
conversion of unspecified personal property. The Company has previously
acknowledged Mr. Char's stock ownership, the $163,537 of indebtedness and the
credit card indebtedness. While the Company does not believe that Mr. Char has
any meritorious claims against the Company or members of management and intends
to vigorously defend this action (including possibly filing counterclaims
against Mr. Char), there can be no assurance that such action will be resolved
in a manner favorable to the Company. Such action, with or without merit, can be
time consuming, costly and difficult to defend and, if successful, could have a
material adverse effect on the Company.
25
<PAGE>
MANAGEMENT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- ----- ---------
<S> <C> <C>
Stephen J. Cole-Hatchard ...... 40 Chairman of the Board, Chief Executive Officer and
President
Nicko Feinberg ............... 26 Chief Information Officer, Vice President of Technology
and Director
Peter Morris .................. 39 Chief Financial Officer, Vice President and Director
Michael Olbermann ............ 41 Chief Operating Officer, Vice President and Director
</TABLE>
Stephen J. Cole-Hatchard has been Chairman, Chief Executive Officer and
President of the Company since August 1997. Mr. Cole-Hatchard was Vice
President of Finance of the Company from February 1997 to August 1997 and has
been a director of the Company since February 1997. Mr. Cole-Hatchard currently
serves in these capacities on a part-time basis devoting approximately thirty
hours a week of his business time to the Company's affairs. Mr. Cole-Hatchard
has been a director and executive officer of Hudson Technologies, Inc., a
publicly-traded company engaged in providing refrigerant management services,
since January 1993. Mr. Cole-Hatchard is a member of the bar of the State of
New York and is employed as a detective with the Clarkstown, New York Police
Department, Legal Division.
Nicko Feinberg has been a director and Vice President of Technology of the
Company since November 1996 and Chief Information Officer since August 1997.
From April 1994 to October 1996, Mr. Feinberg was a Sales Manager and, from
April 1991 to April 1994, a Sales Account Executive for Microage Computer
Outlet, Inc., a company engaged in computer sales and training. From September
1989 to March 1991, Mr. Feinberg owned and operated Creative Images, Inc., a
pre-press service bureau. Creative Images, Inc. filed for protection under
Chapter 7 of the United States Bankruptcy Code in 1991.
Peter Morris has been Chief Financial Officer, Vice President and a
director of the Company since June 1997. From April 1986 to June 1997, Mr.
Morris was Vice President and Controller of Georgette Klinger, Inc., a company
engaged in providing cosmetic services. Mr. Morris is a New York State
Certified Public Accountant.
Michael Olbermann has been Chief Operating Officer since September 1997
and a director of the Company since February 1997. Mr. Olbermann was also Vice
President of Business Development from February 1997 until September 1997. Mr.
Olbermann has owned and operated Rock House Construction Co., Inc., a company
engaged in commercial and residential construction, since 1986.
All directors hold office until the next annual meeting of stockholders
for the ensuing year or until their successors have been duly elected and
qualified. Officers are elected annually by the Board of Directors and serve at
the discretion of the Board.
The Company has agreed, for a period of three years from the effective
date of this Prospectus, if so requested by the Underwriter, to recommend and
use its best efforts to elect a designee of the Underwriter as a non-voting
advisor to the Company's Board of Directors. The Underwriter has not yet
exercised its right to designate such a person.
The Company intends to obtain "key man" life insurance on the life of each
of Nicko Feinberg and Stephen J. Cole-Hatchard in the amount of $1,000,000.
Executive Compensation
The following table sets forth the compensation paid to Nicko Feinberg for
the fiscal year ended December 31, 1996. No executive officer of the Company
received aggregate compensation which exceeded $100,000 during such year.
26
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards($)(1)
--------------------------------------------- --------------------------
Securities
Restricted Underlying
Other Annual Stock Options/
Name and Principal Position Year Salary($) Bonus ($) Compensation($) Award SARs(#)
- --------------------------------------- ------ ----------- ----------- ----------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Nicko Feinberg, Vice President ...... 1996 $5,400 $-- $-- -- --
</TABLE>
- ------------
(1) The Company did not have any long-term incentive or option plans during the
fiscal year ended December 31, 1996.
Employment Agreements
The Company has entered into three-year employment agreements with each of
Messrs. Feinberg, Cole-Hatchard, Olbermann and Morris which provide for an
annual base compensation of $88,000, $45,000, $88,000 and $95,000,
respectively, and such bonuses as the Board of Directors may from time to time
determine. Mr. Morris is entitled to receive a cash bonus of $20,000 in the
event the Company achieves certain subscriber levels and profitable operations
after the first year of his employment. The employment agreements provide for
employment on a full-time basis (except for the Company's agreement with Mr.
Cole-Hatchard) and contain a provision that the employee will not compete or
engage in a business competitive with the current or anticipated business of
the Company during the term of the employment agreement and for a period of two
years thereafter (one year in the case of Mr. Morris). A state court may
determine not to enforce such provision or to partially enforce such provision.
Director Compensation
The Company does not currently pay its directors any fees for attending
Board meetings. The Company anticipates that following this offering it will
pay non-employee directors $3,000 per annum for attending Board Meetings.
Indemnification of Directors and Officers
The Company's Certificate of Incorporation provides for the Company to
indemnify each director and officer of the Company to the fullest extent
permitted by the Delaware General Corporation Law. The foregoing provision may
reduce the likelihood of derivative litigation against directors and may
discourage or deter stockholders or management from suing directors for
breaches of their duty of care, even though such an action, if successful,
might otherwise benefit the Company and its stockholders.
Liability Insurance
The Company intends to procure and maintain a policy of insurance under
which the directors and officers of the Company will be insured, subject to the
limits of the policy, against certain losses arising from claims made against
such directors and officers by reason of any acts or omissions covered under
such policy in their respective capacities as directors or officers, including
liabilities under the Securities Act.
1997 Stock Option Plan
In February 1997, the Board of Directors and stockholders of the Company
adopted the 1997 Stock Option Plan (the Plan ), pursuant to which 500,000
shares of Common Stock are reserved for issuance upon exercise of options. The
Plan is designed to serve as an incentive for retaining qualified and competent
employees, directors and consultants.
The Company's Board of Directors, or a committee thereof, administers the
Plan and is authorized, in its discretion, to grant options thereunder to all
eligible employees of the Company, including officers and directors (whether or
not employees) of, and consultants to, the Company. The Plan provides for the
granting of both "incentive stock options" (as defined in Section 422 of the
Internal Revenue Code of 1986, as amended) and non-qualified stock options.
Options can be granted under the Plan on such terms and at such prices as
determined by the Board of Directors, or a committee thereof, except that the
per share exercise price of options will not be less than the fair market value
of the Common Stock on the date of grant. In the case of an incentive stock
option granted to a stockholder who owns stock of the Company possessing more
than 10% of the total combined voting power of all classes of stock ("10%
stockholder"), the per share exercise price will not be less
27
<PAGE>
than 110% of such fair market value. The aggregate fair market value
(determined on the date of grant) of the shares covered by incentive stock
options granted under the Plan that become exercisable by a grantee for the
first time in any calendar year is subject to a $100,000 limit.
Options granted under the Plan will be exercisable during the period or
periods specified in each option agreement. Options granted under the Plan are
not exercisable after the expiration of ten years from the date of grant (five
years in the case of incentive stock options granted to a 10% stockholder) and
are not transferable other than by will or by the laws of descent and
distribution.
As of the date of this Prospectus, the Company has granted options to
purchase an aggregate of 260,000 shares of Common Stock (net of forfeitures)
under the Plan at an exercise price of $2.00 per share. Of such options,
options to purchase 40,000 shares were issued to each of Messrs. Feinberg,
Cole-Hatchard and Olbermann, and options to purchase 30,000 shares were issued
to Mr. Morris. Such options are exercisable as to one-third of the shares
covered thereby on the first, second and third anniversary of the date of
grant.
28
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of the date of this
Prospectus (based on information obtained from the persons named below),
relating to the beneficial ownership of shares of Common Stock by: (i) each
person or entity who is known by the Company to own beneficially five percent
or more of the outstanding Common Stock; (ii) each of the Company's directors;
and (iii) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Percentage of Shares
Beneficially Owned
----------------------------
Number of Shares
Name of Beneficially Before
Beneficial Owner Owned(1) Offering After Offering
- ------------------------------------ --------------------------- ---------- ---------------
<S> <C> <C> <C>
Nicko Feinberg .................. 320,000(2) 19.3% 11.4%
Michael Char ..................... 320,000 19.3 11.4
Stephen J. Cole-Hatchard ......... 320,000(3) 19.3 11.4
Michael Olbermann ............... 235,000(2) 14.2 8.4
Peter Morris ..................... 20,000(4) 1.2 *
All directors and executive officers
as a group (four persons) ...... 895,000(5) 54.0% 31.9%
</TABLE>
- ------------
* Less than 1%
(1) The Company believes that all persons named in the table have sole voting
and investment power with respect to all shares of Common Stock
beneficially owned by them.
(2) Does not include options to purchase 40,000 shares of Common Stock.
(3) Includes 180,000 shares held by the Cole-Hatchard Family Limited
Partnership, of which Mr. Cole-Hatchard is the general partner. Does not
include (i) options to purchase 40,000 shares of Common Stock and (ii)
25,000 shares held by Mr. Cole-Hatchard's mother and brother.
(4) Does not include options to purchase 30,000 shares of Common Stock.
(5) Does not include options to purchase 150,000 shares of Common Stock.
Messrs. Char, Feinberg and Cole-Hatchard may be deemed to be "promoters"
of the Company as such term is defined in federal securities laws.
29
<PAGE>
CERTAIN TRANSACTIONS
In February 1997, the Company issued 320,000 shares to each of Messrs.
Char, Feinberg and Cole-Hatchard, and issued 235,000 and 20,000 shares,
respectively, to Messrs. Olbermann and Morris, in each case in consideration of
$.01 per share.
During the year ended December 31, 1996, the Company borrowed $37,000 and
$15,000, respectively, from Messrs. Char and Cole-Hatchard. In January 1997,
the Company borrowed an additional $20,000 from Mr. Cole-Hatchard. Pursuant to
the Reorganization, Messrs. Feinberg, Char and Cole-Hatchard exchanged their
respective interests in the Predecessor Companies for promissory notes in the
principal amounts of $141,800 $163,537 and $66,800, respectively (inclusive of
previously outstanding indebtedness of $21,737 and $35,000, respectively, to
Messrs. Char and Cole-Hatchard described above). All of such indebtedness bears
interest at the rate of 8% per annum and is repayable upon the earlier of (i)
the consummation of this offering or (ii) May 30, 1999 (May 1, 1998 in the case
of indebtedness owed to Mr. Char). The Company intends to use a portion of the
proceeds of this offering to repay such indebtedness.
Mr. Cole-Hatchard's mother and brother purchased 15,000 shares and 10,000
shares, respectively, at $2.00 per share, pursuant to the Company's private
placement in May 1997.
In August 1997, the Company borrowed $60,000 from Mr. Cole-Hatchard. Such
indebtedness bears interest at the rate of 9.25% per annum (the rate at which
Mr. Cole-Hatchard borrowed such funds from an institutional lender) and is
repayable on the earlier of (i) the consummation of this offering or (ii) May
1, 1999. The Company intends to use a portion of the proceeds of this offering
to repay such indebtedness.
The Company believes that each of the foregoing transactions were on terms
no less favorable than those which could have been obtained from unaffiliated
third parties. All future transactions between the Company and its affiliates
will be on terms no less favorable than would be obtained from unaffiliated
third parties.
30
<PAGE>
DESCRIPTION OF SECURITIES
General
The Company is authorized to issue 10,000,000 shares of Common Stock, par
value $.01 per share, and 1,000,000 shares of Preferred Stock, par value $.01
per share. As of the date of this Prospectus, there are 1,660,000 shares of
Common Stock outstanding held of record by 32 persons, and no shares of
Preferred Stock outstanding.
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 voting for the election of directors can
elect all of the directors then up for election. The holders of Common Stock
are entitled to receive ratably such 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 which are 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 there are no redemption provisions
applicable to the Common Stock. All of the outstanding shares of Common Stock
are, and the shares of Common Stock offered hereby, when issued in exchange for
the consideration set forth in this Prospectus, will be, fully paid and
nonassessable.
Preferred Stock
The Company is authorized to issue 1,000,000 shares of Preferred Stock
from time to time in one or more series, in all cases ranking senior to the
Common Stock with respect to payment of dividends and in the event of the
liquidation, dissolution or winding-up of the Company. There are currently no
shares of Preferred Stock outstanding. The Board has the power, without
stockholder approval, to issue shares of one or more series of Preferred Stock,
at any time, for such consideration and with such relative rights, privileges,
preferences and other terms as the Board may determine (including, but not
limited to, terms relating to dividend rates, redemption rates, liquidation
preferences and voting, sinking fund and conversion or other rights). The
rights and terms relating to any new series of Preferred Stock could adversely
affect the voting power or other rights of the holders of the Common Stock or
could be utilized, under certain circumstances, as a method of discouraging,
delaying or preventing a change in control of the Company.
Redeemable Warrants
Each Warrant offered hereby entitles the registered holder thereof (the
"Warrant Holders") to purchase one share of Common Stock at a price of $5.50,
subject to adjustment in certain circumstances, at any time between , 1998
and 5:00 p.m., Eastern Time, on , 2002.
The Warrants are redeemable by the Company at any time commencing ,
1998, upon notice of not less than 30 days, at a price of $.10 per Warrant,
provided that the closing bid quotation of the Common Stock on all 20 trading
days ending on the third day prior to the day on which the Company gives notice
has been at least 150% (currently $8.25, subject to adjustment) of the then
effective exercise price of the Warrants and the Company obtains the written
approval of the Underwriter to such redemption prior to the Call Date. The
Warrant Holders shall have the right to exercise their Warrants until the close
of business on the date fixed for redemption. The Warrants will be issued in
registered form under a warrant agreement by and among the Company, Continental
Stock Transfer and Trust Company, as warrant agent, and the Underwriter (the
"Warrant Agreement"). The exercise price and number of shares of Common Stock
or other securities issuable on exercise of the Warrants are subject to
adjustment in certain circumstances, including in the event of a stock
dividend, recapitalization, reorganization, merger or consolidation of the
Company. However, the Warrants are not
31
<PAGE>
subject to adjustment for issuances of Common Stock at prices below the
exercise price of the Warrants. Reference is made to the Warrant Agreement
(which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part) for a complete description of the terms and conditions
therein (the description herein contained being qualified by reference
thereto).
The Warrants may be exercised upon surrender of the Warrant certificate
during the exercise period at the offices of the warrant agent, with the
exercise form on the reverse side of the Warrant certificate completed and
executed as indicated, accompanied by full payment of the exercise price (by
certified check or bank draft payable to the Company) to the warrant agent for
the number of Warrants being exercised. The Warrant Holders do not have the
rights or privileges of holders of Common Stock.
No Warrant will be exercisable unless at the time of exercise the Company
has filed a current registration statement with the Commission covering the
shares of Common Stock issuable upon exercise of such Warrant and such shares
have been registered or qualified or deemed to be exempt from registration or
qualification under the securities laws of the state of residence of the holder
of such Warrant. The Company will use its best efforts to have all such shares
so registered or qualified on or before the exercise date and to maintain a
current prospectus relating thereto until the expiration of the Warrants,
subject to the terms of the Warrant Agreement. While it is the Company's
intention to do so, there can be no assurance that it will be able to do so.
No fractional shares will be issued upon exercise of the Warrants.
However, if a Warrant Holder exercises all Warrants then owned of record by
him, the Company will pay to such Warrant Holder, in lieu of the issuance of
any fractional share which is otherwise issuable, an amount in cash based on
the market value of the Common Stock on the last trading day prior to the
exercise date.
Dividend Policy
To date, the Company has not declared or paid any dividends on its Common
Stock. The payment by the Company of dividends, if any, is within the
discretion of the Board of Directors and will depend on the Company's earnings,
if any, its capital requirements and financial condition, as well as other
relevant factors. The Board of Directors does not intend to declare any
dividends in the foreseeable future, but instead intends to retain earnings, if
any, for use in the Company's business operations.
Delaware Anti-Takeover Law
Upon the consummation of this offering, the Company will be governed by
the provisions of Section 203 of the DGCL. In general, the law prohibits a
public Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. "Business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the corporation's voting stock.
Transfer Agent and Warrant Agent
The transfer agent for the Common Stock and the warrant agent for the
Warrants is Continental Stock Transfer and Trust Company, 2 Broadway, New York,
New York 10004.
Reports to Stockholders
The Company intends to file a registration statement with the Securities
and Exchange Commission to register its Common Stock and Warrants under the
provisions of Section 12(g) of the Exchange Act prior to the date of this
Prospectus and has agreed with the Underwriter that it will use its best
efforts to continue to maintain such registration. Such registration will
require the Company to comply with periodic reporting, proxy solicitation and
certain other requirements of the Exchange Act.
32
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have 2,810,000
shares of Common Stock outstanding (assuming no exercise of Warrants). All
1,150,000 shares of Common Stock being offered hereby will be immediately
tradable without restriction or further registration under the Securities Act.
The remaining 1,660,000 shares of Common Stock outstanding are deemed to be
"restricted securities," as that term is defined under Rule 144 promulgated
under the Securities Act, in that such shares were acquired by the stockholders
of the Company in transactions not involving a public offering, and, as such,
may only be sold pursuant to a registration statement under the Securities Act,
in compliance with the exemption provisions of Rule 144, or pursuant to another
exemption under the Securities Act. The 1,660,000 restricted shares of Common
Stock will become eligible for sale under Rule 144, subject to the volume
limitations prescribed by the Rule and the contractual restrictions described
below on various dates commencing February 1998.
In general, under Rule 144 a person (or persons who may be deemed to be
"affiliates" of the Company as that term is defined under the Securities Act),
is entitled to sell within any three-month period a number of restricted shares
beneficially owned for at least one year that does not exceed the greater of
(i) 1% of the then outstanding Common Shares, or (ii) an amount equal to the
average weekly trading volume in the Common Shares during the four calendar
weeks preceding such sale. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice and the availability of current
public information about the Company. However, a person who is not deemed an
affiliate and has beneficially owned such shares for at least two years is
entitled to sell such shares without regard to the volume or other resale
requirements.
Under Rule 701 of the Securities Act, persons who purchase shares upon
exercise of options granted prior to the date of this Prospectus are entitled
to sell such shares after the 90th day following the date of this Prospectus in
reliance on Rule 144, without having to comply with the holding period
requirements of Rule 144 and, in the case of non-affiliates, without having to
comply with the public information, volume limitation or notice provisions of
Rule 144. Affiliates are subject to all Rule 144 restrictions after this 90-day
period, but without a holding period.
The Company's officers, directors and all of the Company's
securityholders, other than Michael Char who holds 320,000 shares, and the
holders of 200,000 shares purchased pursuant to the Company's private placement
in May 1997, have agreed not to sell or otherwise dispose of any securities of
the Company beneficially owned by them for a period of twelve months from the
date of this Prospectus, without the prior written consent of the Underwriter.
The holders of 200,000 shares issued in the private placement have agreed not
to sell such shares for a period of six months from the date of this
Prospectus.
Prior to this offering, there has been no market for the Common Stock and
no prediction can be made as to the effect, if any, that public sales of shares
of Common Stock or the availability of such shares for sale will have on the
market prices of the Common Stock and the Warrants prevailing from time to
time. Nevertheless, the possibility that substantial amounts of Common Stock
may be sold in the public market may adversely affect prevailing market prices
for the Common Stock and the Warrants and could impair the Company's ability in
the future to raise additional capital through the sale of its equity
securities.
33
<PAGE>
UNDERWRITING
Parker Bromley, Ltd. (the "Underwriter") has agreed, subject to the terms
and conditions contained in the Underwriting Agreement, to purchase 1,150,000
shares of Common Stock and 1,150,000 Warrants from the Company. The Underwriter
is committed to purchase and pay for all of the Common Stock and Warrants
offered hereby if any of such securities are purchased. The Common Stock and
Warrants are being offered by the Underwriter, subject to prior sale, when, as
and if delivered to and accepted by the Underwriter and subject to approval of
certain legal matters by counsel and to certain other conditions.
The Underwriter has advised the Company that it proposes to offer the
Common Stock and Warrants to the public at the public offering prices set forth
on the cover page of this Prospectus. The Underwriter may allow to certain
dealers who are members of the National Association of Securities Dealers, Inc.
(the "NASD") concessions, not in excess of $ per share of Common Stock and
$ per Warrant, of which not in excess of $ per share of Common Stock and
$ per Warrant may be reallowed to other dealers who are members of the NASD.
The offering prices, reallowances and concessions will not be changed until
after this offering has been completed.
The Company has granted to the Underwriter an option, exercisable for 45
days from the date of this Prospectus, to purchase up to 172,000 additional
shares of Common Stock and/or 172,000 additional Warrants at the public
offering prices set forth on the cover page of this Prospectus, less the
underwriting discounts and commissions. The Underwriter may exercise this
option in whole or, from time to time, in part, solely for the purpose of
covering over-allotments, if any, made in connection with the sale of the
shares of Common Stock and/or Warrants offered hereby.
The Company has agreed to pay the Underwriter a nonaccountable expense
allowance of 3% of the gross proceeds of this offering, of which $40,000 has
been paid as of the date of this Prospectus. Of such amount, $10,000 was paid
to Adams Stevens, Inc., an NASD member. The Company has also agreed to pay all
expenses in connection with qualifying the shares of Common Stock and Warrants
offered hereby for sale under the laws of such states as the Underwriter may
designate, including expenses of counsel retained for such purpose by the
Underwriter.
The Company has agreed to sell to the Underwriter and its designees for an
aggregate of $100, warrants (the "Underwriter's Warrants") to purchase up to
115,000 shares of Common Stock at an exercise price of $5.50 per share (110% of
the public offering price per share) and up to 115,000 Warrants (each
exercisable to purchase one share of Common Stock at a price of $5.50 per
share) at an exercise price of $.11 per Warrant (110% of the public offering
price per Warrant). The Underwriter's Warrants may not be sold, transferred,
assigned or hypothecated for one year from the date of this Prospectus, except
to the officers and partners of the Underwriter and members of the selling
group and are exercisable at any time and from time to time, in whole or in
part, during the five-year period commencing on the date of this Prospectus
(the "Warrant Exercise Term"). During the Warrant Exercise Term, the holders of
the Underwriter's Warrants are given, at nominal cost, the opportunity to
profit from a rise in the market price of the Common Stock. To the extent that
the Underwriter's Warrants are exercised, dilution to the interests of the
Company's stockholders will occur. Further, the terms upon which the Company
will be able to obtain additional equity capital may be adversely affected
since the holders of the Underwriter's Warrants can be expected to exercise
them at a time when the Company would, in all likelihood, be able to obtain any
needed capital on terms more favorable to the Company than those provided in
the Underwriter's Warrants. Any profit realized by the Underwriter on the sale
of the Underwriter's Warrants, the underlying shares of Common Stock or the
underlying warrants, or the shares of Common Stock issuable upon exercise of
such underlying warrants may be deemed additional underwriting compensation.
The Company has agreed, at the request of the holders of a majority of the
Underwriter's Warrants, at the Company's expense, to register the Underwriter's
Warrants, the shares of Common Stock and warrants underlying the Underwriter's
Warrants, and the shares of Common Stock issuable upon exercise of the
underlying warrants under the Securities Act on one occasion during the Warrant
Exercise Term and to include the Underwriter's Warrants and all such underlying
securities in any appropriate registration statement which is filed by the
Company during the seven years following the date of this Prospectus.
The Company has also agreed, for a period of three years from the date of
this Prospectus, if so requested by the Underwriter, to elect a designee of the
Underwriter as a non-voting advisor to the Company's Board of Directors. The
Underwriter has not yet exercised its right to designate such a person.
34
<PAGE>
In addition, the Company has agreed to enter into a consulting agreement
to retain the Underwriter as a financial consultant for a period of two years
from the consummation of this offering at an annual fee of $50,000, the entire
$100,000 payable in full, in advance. The consulting agreement will not require
the consultant to devote a specific amount of time to the performance of its
duties thereunder. In the event that the Underwriter originates a financing or
a merger, acquisition, joint venture or other transaction to which the Company
is a party, the Underwriter will be entitled to receive a finder's fee in
consideration for the origination of such transaction (based on a modified
Lehman formula commencing with 5% of the first $5,000,000 of consideration).
The Company has agreed, in connection with the exercise of the Warrants
pursuant to solicitation (commencing one year from the date of this
Prospectus), to pay to the Underwriter a fee of 5% of the exercise price for
each Warrant exercised; provided, however, that the Underwriter will not be
entitled to receive such compensation in Warrant exercise transactions in which
(i) the market price of Common Stock at the time of exercise is lower than the
exercise price of the Warrants; (ii) the Warrants are held in any discretionary
account; (iii) disclosure of compensation arrangements is not made, in addition
to the disclosure provided in this Prospectus, in documents provided to holders
of Warrants at the time of exercise; (iv) the exercise of the Warrants is
unsolicited by the Underwriter; or (v) the solicitation of exercise of the
Warrants was in violation of Regulation M promulgated under the Exchange Act.
The Underwriter has advised the Company that it does not expect sales made
to discretionary accounts to exceed 1% of the securities offered hereby.
The Company has agreed to indemnify the Underwriter against certain civil
liabilities, including liabilities under the Securities Act. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or controlling persons of the Company, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Prior to this offering, there has been no public trading market for the
Common Stock or Warrants. Consequently, the initial public offering price of
the Common Stock and Warrants and the exercise price of the Warrants have been
determined by negotiations between the Company and the Underwriter. Among the
factors considered in determining these prices were the Company's financial
condition and prospects, market prices of similar securities of comparable
publicly-traded companies and the general condition of the securities market.
In order to facilitate the offering, the Underwriter may engage in
transactions that stabilize, maintain or otherwise affect the prices of the
Common Stock and Warrants. Specifically, the Underwriter may over-allot in
connection with the offering, creating a short position in the Common Stock
and/or Warrants for its own account. In addition, to cover over-allotments or
to stabilize the price of the Common Stock and Warrants, the Underwriter may
bid for, and purchase, shares of Common Stock and Warrants in the open market.
The Underwriter may also reclaim selling concessions allowed to a dealer for
distributing the Common Stock and Warrants in the offering, if the Underwriter
repurchases previously distributed Common Stock and Warrants in transactions to
cover short positions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Common Stock and
Warrants above independent market levels. The Underwriter is not required to
engage in these activities, and may end any of these activities at any time.
The Underwriter is recently organized, has engaged in limited underwriting
activities and has acted as principal underwriter in only one public offering.
There can be no assurance that the Underwriter's lack of public offering
experience will not affect the proposed public offering of Common Stock and
Warrants and subsequent development of a trading market, if any.
EXPERTS
The financial statements of the Company included in this Prospectus have
been audited by BDO Seidman LLP, independent certified public accountants, to
the extent and for the periods set forth in their report appearing elsewhere
herein and is included in reliance upon such report given upon the authority of
said firm as experts in accounting and auditing.
35
<PAGE>
LEGAL MATTERS
The legality of the securities offered by this Prospectus will be passed
upon for the Company by Tenzer Greenblatt LLP, New York, New York. Morrison
Cohen Singer & Weinstein, LLP, New York, New York, has acted as counsel to the
Underwriter in connection with this offering.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (the "Registration
Statement") under the Securities Act with respect to the securities offered by
this Prospectus. This Prospectus, filed as a part of such Registration
Statement, does not contain all of the information set forth in, or annexed as
exhibits to, 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 inspected without charge at the Office of the Commission, 450 Fifth Street,
N.W., Washington D.C. 20549; and at the following regional offices: Midwest
Regional Office, Northwestern Atrium Center, 500 West Madison, Suite 1400,
Chicago, Illinois 60661-2511, and the Northeast Regional Office, 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of the Registration
Statement may be obtained from the Commission at its principal office upon
payment of prescribed fees. This Prospectus contains a complete summary of the
material terms of the contracts or other documents filed as exhibits to the
Registration Statement.
As of the date of this Prospectus, the Company will become subject to the
reporting requirements of the Exchange Act and, in accordance therewith, will
file reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities of the Commission set forth above, and copies
of such materials can be obtained from the Commission's Public Reference
Section at prescribed rates. The Company intends to furnish its stockholders
with annual reports containing audited financial statements and such other
periodic reports as the Company deems appropriate or as may be required by law.
The Registration Statement, including all exhibits, and such reports and other
information may also be accessed electronically by means of the Commission's
site on the World Wide Web at http://www.sec.gov.
36
<PAGE>
GLOSSARY
<TABLE>
<S> <C>
Dial-up Accounts ............... Accounts with an Internet connectivity provider that utilize
a telephone call to a modem rather than a dedicated data
line.
E-mail ........................ Electronic mail. An application that allows a user to send
or receive text messages to or from any other user with an
Internet address, commonly termed an E-mail address.
FTP ........................... File Transfer Protocol. A protocol that allows file transfer
between a host and a remote computer.
ISDN ........................... Integrated Services Digital Network. An information trans-
fer standard for transmitting digital voice and data over
telephone lines at speeds up to 128 Kbps.
Internet ........................ A worldwide network of computer networks that are inter-
connected at certain points and utilize a common commu-
nications protocol, TCP/IP.
Kbps ........................... Kilobits per second. A measure of digital information trans-
mission rates. One kilobit equals 1,000 bits of digital infor-
mation.
Mbps ........................... Megabits per second. A measure of digital information
transmission rates. One megabit equals 1,000 Kbps.
On-line Service Providers ...... Commercial information services that offer a computer user
access through a modem to a specified slate of information,
entertainment and communications menus. These services
are generally closed systems and many offer limited, if any,
Internet access.
OEM ........................... Original Equipment Manufacturer.
POP ........................... Point-of-Presence. An interlinked group of modems, rout-
ers and other computer equipment, located in a particular
city or metropolitan area, that allows a nearby subscriber to
access the Internet through a local telephone call.
T-1 ........................... A data communications line capable of transmission speeds
of 1.54 Mbps.
TCP/IP ........................ Transmission Control Protocol/Internet Protocol. A compi-
lation of network- and transport-level protocols that allow
computers with different architectures and operating sys-
tem software to communicate with other computers on the
Internet.
World Wide Web .................. A network of servers that uses a special communications
protocol to link different servers throughout the Internet
and permits communication of graphics, video and sound.
X2 56K ........................ A new transmission technique which supplies 56 Kbps
"downstream" for transmissions from service providers.
</TABLE>
37
<PAGE>
Frontline Communications Corporation
Contents
<TABLE>
<CAPTION>
Page
-----------
<S> <C>
Report of independent certified public accountants ....... F-2
Combined financial statements:
Balance sheets ....................................... F-3
Statements of operations .............................. F-4
Statements of stockholders' deficit .................. F-5
Statements of cash flows .............................. F-6
Notes to financial statements ........................ F-7 - F-12
</TABLE>
F-1
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors of
Frontline Communications Corporation
We have audited the accompanying combined balance sheet of Frontline
Communications Corporation (the "Company") as described in Note 1 to the
financial statements, as of December 31, 1996, and the related combined
statements of operations, stockholders' deficit and cash flows for the year
ended December 31, 1996 and the period from May 1, 1995 (inception) to December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1996, and the results of its operations and its cash flows for the
year ended December 31, 1996 and the period from May 1, 1995 (inception) to
December 31, 1995, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Valhalla, New York
July 27, 1997, except for note 9d),
for which the date is October 1, 1997
F-2
<PAGE>
Frontline Communications Corporation
Combined Balance Sheets
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
-------------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current:
Cash ......................................................... $ 2,303 $ 217,490
Accounts receivable .......................................... 506 10,767
Prepaid expenses and other ................................. 3,048 9,705
Deferred registration costs ................................. -- 63,000
--------- ----------
Total current assets .................................... 5,857 300,962
Equipment, net (Note 4) ....................................... 46,760 148,215
Deposits ...................................................... 1,613 17,967
--------- ----------
$ 54,230 $ 467,144
========= ==========
Liabilities and Stockholders' Deficit
Current:
Notes payable to stockholders (Note 5) ..................... $ -- $ 372,137
Accounts payable and accrued expenses (Note 3) ............... 58,358 140,436
Due to stockholders (Note 5) ................................. 15,266 --
--------- ----------
Total current liabilities ................................. 73,624 512,573
Due to stockholders (Note 5) .................................... 36,737 --
--------- ----------
Total liabilities ....................................... 110,361 512,573
--------- ----------
Commitments and contingencies (Notes 6 and 7)
Stockholders' deficit
Preferred stock, $.01 par value, 1,000,000 authorized, 0 issued
and outstanding ............................................. -- --
Common stock, $.01 par value, 10,000,000 shares authorized,
1,660,000 issued and outstanding ........................... -- 16,600
Additional paid-in capital ................................. 6,000 295,000
Accumulated deficit .......................................... (62,131) (352,029)
Stock subscriptions receivable .............................. -- (5,000)
--------- ----------
Total stockholders' deficit .............................. (56,131) (45,429)
--------- ----------
$ 54,230 $ 467,144
========= ==========
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE>
Frontline Communications Corporation
Combined Statements of Operations
<TABLE>
<CAPTION>
Period from Six Months Ended
May 1, 1995 -----------------------------
(Inception) to Year ended (Unaudited)
December December June 30, June 30,
31, 1995 31, 1996 1996 1997
---------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues ................................. $ 1,880 $ 98,699 $ 24,998 $ 131,154
Cost of revenues ........................... 3,347 67,582 21,312 93,328
---------- ---------- ---------- ----------
Gross (loss) profit ..................... (1,467) 31,117 3,686 37,826
Operating expenses:
Selling, general and administrative ...... 6,458 81,220 33,527 118,440
Special non-cash compensation charge
(Note 1) .............................. -- -- -- 205,000
---------- ---------- ---------- ----------
Loss from operations ..................... (7,925) (50,103) (29,841) (285,614)
Other income (expense):
Interest ................................. -- (6,677) (1,053) (3,784)
Other .................................... -- 2,574 2,300 (500)
---------- ---------- ---------- ----------
Net loss ................................. $ (7,925) $ (54,206) $ (28,594) $ (289,898)
========== ========== ========== ==========
Loss per share of common stock and com-
mon stock equivalents -- (.03) (.02) (.16)
========== ========== ========== ==========
Weighted average number of shares out-
standing 1,816,000 1,816,000 1,816,000 1,816,000
========== ========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE>
Frontline Communications Corporation
Combined Statements of Stockholders' Deficit
<TABLE>
<CAPTION>
Common Stock Additional Stock Total
---------------------- Paid-in Accumulated Subscriptions Stockholders'
Shares Amount Capital Deficit Receivable Deficit
----------- --------- ------------ ------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, May 1, 1995 (inception) . -- $ -- $ -- $ -- $ -- $ --
Net loss ........................... -- -- -- (7,925) -- (7,925)
---------- -------- ---------- ---------- -------- ----------
Balance, December 31, 1995 ......... -- -- -- (7,925) -- (7,925)
Officer salary contributed to capital
(See Note 5) ..................... -- -- 6,000 -- -- 6,000
Net loss ........................... -- -- -- (54,206) -- (54,206)
---------- -------- ---------- ---------- -------- ----------
Balance, December 31, 1996 ......... -- -- 6,000 (62,131) -- (56,131)
For six months ended June 30,
1997 (Unaudited):
Frontline reorganization
(See Note 2) ..................... 640,000 6,400 (325,000) -- -- (318,600)
Shares issued as compensation ...... 820,000 8,200 205,000 -- (5,000) 208,200
Officer salary contributed to capital
(See Note 5) ..................... -- -- 3,000 -- -- 3,000
Private placement of shares at $2
per share ........................ 200,000 2,000 398,000 -- -- 400,000
Common stock options issued for
services ........................... -- -- 8,000 -- -- 8,000
Net loss ........................... -- -- -- (289,898) -- (289,898)
---------- -------- ---------- ---------- -------- ----------
Balance, June 30, 1997
(Unaudited) ........................ 1,660,000 $16,600 $ 295,000 $ (352,029) $ (5,000) $ (45,429)
========== ======== ========== ========== ======== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE>
Frontline Communications Corporation
Combined Statements of Cash Flows
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
Period from Six Months Ended
May 1, 1995 ------------------------------
(Inception) Year ended (Unaudited)
to December 31, December 31, June 30, June 30,
1995 1996 1996 1997
----------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss .................................... $ (7,925) $ (54,206) $ (28,594) $ (289,898)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ............... -- 9,962 4,335 14,446
Officer salary contributed to capital ...... -- 6,000 3,000 3,000
Common stock options issued for services -- -- -- 8,000
Special non cash compensation charge ...... -- -- -- 205,000
Changes in assets and liabilities:
Accounts receivable ........................ (681) 175 (343) (10,261)
Prepaid expenses and other ............... -- (1,661) (1,163) (7,636)
Other assets .............................. -- (3,000) (3,000) (16,354)
Accounts payable and accrued expenses 3,109 55,249 27,874 82,078
Net cash provided by (used in) oper-
ating activities (5,497) 12,519 2,109 (11,625)
-------- --------- --------- ----------
Cash flows from investing activities:
Acquisitions of equipment ..................... (1,608) (55,114) (22,797) (114,922)
-------- --------- --------- ----------
Cash flows from financing activities:
Deferred financing costs ..................... -- -- -- (63,000)
Repayments of stockholder loans ............... -- (4,400) -- (15,266)
Proceeds from stockholder loans ............... 18,933 37,470 11,970 20,000
Proceeds from sale of common stock ............ -- -- -- 400,000
-------- --------- --------- ----------
Net cash provided by financing
activities .............................. 18,933 33,070 11,970 341,734
-------- --------- --------- ----------
Net increase (decrease) in cash ............... 11,828 (9,525) (8,718) 215,187
Cash, beginning of period ..................... -- 11,828 11,828 2,303
-------- --------- --------- ----------
Cash, end of period ........................... $ 11,828 $ 2,303 $ 3,110 $ 217,490
======== ========= ========= ==========
Supplemental disclosure of cash flow informa-
tion:
Cash paid for interest ........................ $ -- $ 6,600 $ 1,015 $ 4,185
Non-cash investing and financing activities:
Common stock issued for reduction of stock-
holder loans $ -- $ -- $ -- $ 9,600
Notes payable to stockholders issued as dis-
tributions $ -- $ -- $ -- $ 325,000
Common stock subscriptions .................. $ -- $ -- $ -- $ 5,000
======== ========= ========= ==========
</TABLE>
See accompanying notes to combined financial statements.
F-6
<PAGE>
Frontline Communications Corporation
Notes to Combined Financial Statements
(Amounts related to June 30, 1997 and for the six month
periods ended June 30, 1996 and 1997 are unaudited)
1. Summary of Significant Accounting Policies
Business
Frontline Communications Corporation ("Frontline" or the "Company") is an
internet service provider that provides subscribers with direct access to a
wide range of internet applications and resources including electronic mail,
world wide web sites and regional and local information and data services.
Reorganization and Principles of Combination
The financial statements include the accounts of Hobbes & Co., LLC
("Hobbes"), INET Communications Company, LLC ("INET") and Sara Girl & Co., LLC
("Sara Girl"), (collectively the "Predecessor Companies") and Frontline
Communications Corporation. As described more fully in Note 2, on May 30, 1997,
Frontline acquired the net assets of the Predecessor Companies. For accounting
purposes, the business combination has been accounted for as if the acquirer is
Hobbes. With respect to the acquisition of INET, the acquisition has been
accounted for as a combination of entities under common control in a manner
similar to a pooling of interests and reflects the combined financial position,
operating results and cash flows of Hobbes and INET as if they had been
combined for all periods presented. With respect to Sara Girl and Frontline,
the business combination has been accounted for using purchase accounting,
which resulted in the recording of a special non-cash charge of $205,000 at May
30, 1997. The non-cash charge represents the estimated fair market value of the
Company's 820,000 shares of common stock issued to certain founding
shareholders for current and future services. The Predecessor Companies were
dissolved and Frontline is the continuing legal entity. All intercompany
accounts and transactions have been eliminated.
Interim Financial Information
The financial statements as of June 30, 1997 and for the six months ended
June 30, 1996 and 1997 are unaudited but in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments and accruals)
which the Company considers necessary for the fair presentation of the
financial position, operating results and cash flows for that period. Results
of interim periods are not necessarily indicative of results for the entire
year.
<PAGE>
Equipment and Depreciation
Equipment is stated at cost, less accumulated depreciation. Depreciation
is computed over the estimated useful lives of the assets using the
straight-line method for book purposes and accelerated methods for income tax
purposes.
The following estimated useful lives are applied in the computation of
depreciation:
Years
------
Computer equipment ...... 3-5
===
Upon retirement or sale, the cost and related accumulated depreciation are
removed from the accounts and any resulting gains or losses are included in the
statement of operations.
Revenue Recognition
Online service revenues (including monthly subscription and dedicated
access service) are recognized over the period the services are provided. Other
revenues, consisting principally of data network services are recognized as
services are rendered.
F-7
<PAGE>
Frontline Communications Corporation
Notes to Combined Financial Statements -- (Continued)
(Amounts related to June 30, 1997 and for the six month
periods ended June 30, 1996 and 1997 are unaudited)
1. Summary of Significant Accounting Policies -- (Continued)
Income Taxes
Deferred income taxes are provided on differences between the financial
reporting and income tax bases of assets and liabilities based upon statutory
tax rates enacted for future periods.
Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and trade accounts receivable. The Company's cash investments are placed with
high credit quality financial institutions and may exceed the amount of federal
deposit insurance. Concentrations of credit risk with respect to trade
receivables are limited due to the large number of customers comprising the
Company's customer base.
Cash and cash equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Use of Estimates
In preparing the financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Financial Instruments
The carrying amounts of financial instruments including cash, accounts
receivable, due to stockholders and accounts payable approximated fair value as
of December 31, 1996, because of the relatively short maturity of these
instruments. The carrying value of notes payable to stockholders cannot be
determined because of the nature of their terms.
Loss Per Share of Common Stock
Loss per share of common stock is calculated by dividing net loss by the
weighted average number of shares of common stock and common stock equivalents,
if dilutive, outstanding during each of the periods presented. In addition,
when an initial public offering is contemplated, common stock and common stock
equivalents issued during and subsequent to the Frontline reorganization (see
Note 2) by the Company at a price less than the estimated initial public
offering price during the twelve months immediately preceding the anticipated
initial filing of the offering are treated as outstanding for all periods
presented, using the treasury stock method.
Deferred Registration Costs
Costs incurred in connection with the Company's anticipated public
offering are deferred and will be charged against stockholders' equity upon
successful completion of the offering. If the offering is not consummated,
deferred costs will be charged to expense.
Recent Accounting Pronouncements
During February, 1997 the FASB issued SFAS No. 128 "Earnings Per Share"
which replaces the presentation of primary earnings per share ("EPS") with
basic EPS. It also requires dual presentation of basic and diluted EPS. SFAS
No. 128 is effective for periods ending after December 15, 1997. The Company
believes the adoption of this pronouncement will not have a material effect on
the financial statements.
F-8
<PAGE>
Frontline Communications Corporation
Notes to Combined Financial Statements -- (Continued)
(Amounts related to June 30, 1997 and for the six month
periods ended June 30, 1996 and 1997 are unaudited)
1. Summary of Significant Accounting Policies -- (Continued)
During June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income", which establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions to owners.
Among other disclosures, SFAS 130 requires that all items that are required to
be recognized under current accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.
SFAS 130 is effective for financial statements for periods beginning after
December 15, 1997 and requires comparative information for earlier years to be
restated. Because of the recent issuance of this standard, management has been
unable to fully evaluate the impact, if any, the standard may have on future
financial statement disclosures. Results of operations and financial position,
however, will be unaffected by implementation of this standard.
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 121 "Accounting for Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of " ("SFAS No.
121"). SFAS No. 121 requires, among other things, impairment losses on assets
to be held and gains or losses from assets that are expected to be disposed of
be included as a component of income from continuing operations before taxes on
income. The Company adopted SFAS No. 121 as of January 1, 1996 and its
implementation did not have a material effect on the financial statements.
Stock-Based Compensation
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 establishes a fair value method for accounting for
stock-based compensation plans either through recognition or disclosure. The
Company adopted the employee stock-based compensation provisions of SFAS No.
123 by disclosing the pro forma net income and pro forma net income per share
amounts assuming the fair value method as of January 1, 1995. The adoption of
this standard did not impact the Company's results of operations, financial
position or cash flows. Stock arrangements with non-employees, if applicable,
are recorded at fair value.
Advertising
All costs associated with advertising services are expensed in the period
incurred. Advertising expense was approximately $1,000, $19,000, $10,000 and
$11,000 for the years ended December 31, 1995 and 1996, and the six month
periods ended June 30, 1996 and 1997, respectively.
2. Reorganization
On May 30, 1997, the Predecessor Companies were acquired by the Company by
issuing three notes aggregating $325,000 (excluding $47,137 of certain
advances) (See Note 5) for all the membership interest in the Predecessor
Companies. For accounting purposes Hobbes has been considered to be the
acquirer. As a result, the business combination of Hobbes and INET has been
accounted for as a combination of entities under common control in a manner
similar to a pooling of interests. The business combination with Sara Girl and
Frontline have been accounted for as purchases. The net assets and operations
of Sara Girl and Frontline are not material to the Company's financial
statements. Notes payable to the members of the Predecessor Companies are
accounted for as distributions in the accompanying statement of stockholders'
equity.
3. Accounts Payable and Accrued Expenses
Accrued expenses were approximately $13,000 and $30,000 at December 31,
1996 and June 30, 1997, respectively. Accrued expenses consisted of various
items including telephone charges, professional fees, rent and supplies.
F-9
<PAGE>
Frontline Communications Corporation
Notes to Combined Financial Statements -- (Continued)
(Amounts related to June 30, 1997 and for the six month
periods ended June 30, 1996 and 1997 are unaudited)
4. Equipment
Equipment consist of the following:
December 31, June 30,
1996 1997
-------------- ---------
Computer equipment .................. $56,722 $171,644
-------- ---------
Less accumulated depreciation ...... 9,962 23,429
-------- ---------
Equipment, net ..................... $46,760 $148,215
======== =========
5. Related Party Transactions
On May 30, 1997, the Company issued notes aggregating $372,137 to three of
its stockholders related to the reorganization discussed in Note 2, and certain
advances made to the Company since inception. The notes bear interest at 8% and
are payable at the earlier of an initial public offering or on May 30, 1999,
except for $163,537, which is due on the earlier of an initial public offering
or May 1, 1998. At December 31, 1996, due to stockholders represents advances
made to the Company for working capital purposes. On May 30, 1997, the Company
received $400,000 in connection with a private placement of shares at $2 per
share. Related parties of an affiliate purchased 12.50% of the shares.
The Company allocated $6,000 and $3,000 to officer's salaries contributed
to capital in 1996 and 1997, respectively, based upon the value of services
rendered.
6. Commitments and Contingencies
Leases
The Company rents office space and equipment under operating leases.
Future minimum rental payments required under operating leases as of June
30, 1997 are as follows:
1998 ...... $104,198
1999 ...... 114,842
2000 ...... 121,600
2001 ...... 117,545
2002 ...... 116,226
---------
Total ...... $574,411
=========
Rental expense was $0, $17,475, $7,583 and $19,719 for the years ended
December 31, 1995 and 1996 and the six month periods ended June 30, 1996 and
1997, respectively.
<PAGE>
7. Stock Options
Effective March 1, 1997, the Board of Directors (the "Board") approved the
1997 stock option plan (the "Plan"), which authorized the issuance of incentive
options and non-qualified options to purchase up to 500,000 shares of common
stock. The plan has a ten year term. The Board retained the authority to
determine the individuals to whom, and the times at which, stock options would
be made, along with the number of shares, vesting schedule and other provisions
related to the stock options.
For the period ended June 30, 1997, the Company issued incentive options
to purchase 220,000 shares of common stock to employees and non-qualified
options to purchase 40,000 shares of common stock to certain non-employees.
These options have a five year term and are exercisable at any time on or after
March 1, 1998 at $2 per share.
F-10
<PAGE>
Frontline Communications Corporation
Notes to Combined Financial Statements -- (Continued)
(Amounts related to June 30, 1997 and for the six month
periods ended June 30, 1996 and 1997 are unaudited)
7. Stock Options -- (Continued)
The Company applies Accounting Principles Board Opinion No. 25 "Accounting
for Stock Issued to Employees" and related interpretations by recording
compensation expense for the excess of fair market value over the exercise
price per share as of the date of the grant in accounting for its stock
options. Accordingly, no compensation costs have been recognized for its
issuance of 220,000 options to employees since the exercise price exceeded the
then fair market value on the date of the grant. In accordance with SFAS No.
123, the Company has recognized $8,000 as the fair value of services received
for the 40,000 options granted to non-employees.
SFAS No. 123 requires the Company to provide pro forma information
regarding net loss and net loss per share as if compensation cost for the
Company's stock options had been determined in accordance with the fair value
based method prescribed in SFAS No. 123. The Company estimates fair value of
each stock based option at the date of the grant using the Black Scholes
option-pricing model with the following weighted average assumptions used for
options in 1997:
Risk-free interest rate ...... 6.51%
Expected life ............... 5 Years
Expected volatility ......... 0.00%
Dividend yield ............... None
Had compensation cost for the issuance of options been determined based on
the fair value at the grant dates consistent with the fair value method of SFAS
No. 123, the Company's net loss would not have changed since options at the
grant date were considered to have no value.
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Remaining Exercise
Life Shares Price
------------ --------- ---------
<S> <C> <C> <C>
Outstanding, January 1, 1997 ........................... -- $ --
Granted ................................................ 260,000 2.00
-------- ------
Outstanding, June 30, 1997 ........................... 4.67 years 260,000 2.00
======== ======
Options exercisable at end of period .................. -- --
Weighted average fair value of options granted during the
period ................................................ $ --
======
</TABLE>
During the initial phase-in period of SFAS No. 123, the effects on pro
forma results are not likely to be representative of the effects on pro forma
results in future years since additional awards could be made each year.
8. Income Taxes
The Company had net operating loss carryforwards of approximately $59,000
and $95,000 at December 31, 1996 and June 30, 1997, respectively, which expire
in 2111 and 2112. A valuation allowance has been provided for these loss
carryforwards since their realization is not considered to be more likely than
not.
9. Subsequent Events
a) The Company has a letter of intent with Parker Bromley, Ltd. in
connection with a proposed offering and sale to the public of one million
shares of common stock of the Company at a price of $5 per share and 500,000
warrants at a price of $.10 per warrant. Each warrant will be exercisable to
purchase one share of common stock at $5.50 per share.
F-11
<PAGE>
Frontline Communications Corporation
Notes to Combined Financial Statements -- (Continued)
(Amounts related to June 30, 1997 and for the six month
periods ended June 30, 1996 and 1997 are unaudited)
9. Subsequent Events -- (Continued)
b) The Company has entered into employment contracts expiring on various
dates from June 2000 to August 2000 with four officers of the Company for
aggregate annual salaries of $316,000.
c) In August 1997, the Chairman advanced the Company $60,000 for working
capital purposes.
d) In June 1997, Michael Char, a founder and principal stockholder of the
Company, had disagreements with other members of management with respect to
various business matters. The Company has been unsuccessful in resolving such
disagreements or in negotiating a settlement with Mr. Char and, after a
prolonged absence, in August 1997, the Company removed Mr. Char as a director
and terminated his employment. In October 1997, Mr. Char filed a complaint in
the Supreme Court, County of Rockland seeking a total of $230,000 in damages,
alleging that the Company destroyed or converted $200,000 of unspecified
personal property and owed an additional $7,000 of unpaid wages and $23,000 of
additional debt. While the Company does not believe that Mr. Char has any
meritorious claims against the Company or members of management and intends to
vigorously defend this action (including possibly filing counter claims against
Mr. Char), there can be no assurance that such action will be resolved in a
manner favorable to the Company. Such action, with or without merit, can be time
consuming, costly and difficult to defend and, if successful, could have a
material adverse effect on the Company. At June 30, 1997, the Company owed
Michael Char approximately $164,000. In addition, Michael Char owns 320,000
shares of common stock at June 30, 1997.
F-12
<PAGE>
===============================================================================
No dealer, sales person or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or the Underwriter.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any security other than the securities offered by this Prospectus,
or an offer to sell or a solicitation of an offer to buy any securities by
anyone in any jurisdiction in which such offer or solicitation is not
authorized or is unlawful. The delivery of this Prospectus shall not, under any
circumstances, create any implication that the information contained herein is
correct as of any time subsequent to the date hereof.
--------------------------
TABLE OF CONTENTS
Page
-----------
Prospectus Summary .................. 3
Risk Factors ........................ 6
Use of Proceeds ..................... 14
Dilution .............................. 15
Capitalization ........................ 16
Management's Discussion and Analysis of
Financial Conditions and Results of
Operations ........................ 17
Business .............................. 20
Management ........................... 26
Principal Stockholders ............... 29
Certain Transactions .................. 30
Description of Securities ............ 31
Shares Eligible for Future Sale ...... 33
Underwriting ........................ 34
Experts .............................. 35
Legal Matters ........................ 36
Additional Information ............... 36
Glossary .............................. 37
Index to Financial Statements ......... F-1
--------------------------
Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities offered hereby,
whether or not participating in this distribution may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
===============================================================================
<PAGE>
===============================================================================
FRONTLINE
COMMUNICATIONS
CORPORATION
1,150,000 Shares of Common Stock
and
Redeemable Warrants to Purchase
1,150,000 Shares of Common Stock
-----------------------------------
PROSPECTUS
-----------------------------------
Parker Bromley, Ltd.
, 1997
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law (the "DGCL") contains
the provisions entitling the Registrant's directors and officers to
indemnification from judgments, fines, amounts paid in settlement, and
reasonable expenses (including attorney's fees) as the result of an action or
proceeding in which they may be involved by reason of having been a director or
officer of the Registrant. In its Certificate of Incorporation, the Registrant
has included a provision that limits, to the fullest extent now or hereafter
permitted by the DGCL, the personal liability of its directors to the
Registrant or its stockholders for monetary damages arising from a breach of
their fiduciary duties as directors. Under the DGCL as currently in effect,
this provision limits a director's liability except where such director (i)
breaches his duty of loyalty to the Registrant or its stockholders, (ii) fails
to act in good faith or engages in intentional misconduct or a knowing
violation of law, (iii) authorizes payment of an unlawful dividend or stock
purchase or redemption as provided in Section 174 of the DGCL, or (iv) obtains
an improper personal benefit. This provision does not prevent the Registrant or
its stockholders from seeking equitable remedies, such as injunctive relief or
rescission. If equitable remedies are found not to be available to stockholders
in any particular case, stockholders may not have any effective remedy against
actions taken by directors that constitute negligence or gross negligence.
The Certificate of Incorporation also includes provisions to the effect
that (subject to certain exceptions) the Registrant shall, to the maximum
extent permitted from time to time under the law of the State of Delaware,
indemnify, and upon request shall advance expenses to, any director or officer
to the extent that such indemnification and advancement of expenses is
permitted under such law, as may from time to time be in effect. In addition,
the By-Laws require the Registrant to indemnify, to the full extent permitted
by law, any director, officer, employee or agent of the Registrant for acts
which such person reasonably believes are not in violation of the Registrant's
corporate purposes as set forth in the Certificate of Incorporation. At
present, the DGCL provides that, in order to be entitled to indemnification, an
individual must have acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the Registrant's best interests.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to any charter provision, by-law, contract, arrangement,
statute or otherwise, 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. See Item 28.
Item 25. Other Expenses of Issuance and Distribution.
The estimated expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered (other than
underwriting discounts and commissions and the Underwriter's non-accountable
expense allowance) are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee ............... $ 4,635.16
NASD filing fee ................................................... 2,029.63
Nasdaq listing fee ................................................ 10,000.00
Underwriter's consulting fee ....................................... 100,000.00
Printing and engraving expenses .................................... 100,000.00
Legal fees and expenses ............................................. 150,000.00
Accounting fees and expenses ....................................... 75,000.00
Blue sky fees and expenses (including legal fees) .................. 40,000.00
Transfer agent, warrant agent and registrar fees and expenses ...... 3,500.00
Miscellaneous ...................................................... 14,835.21
------------
Total ............................................................ $500,000.00
</TABLE>
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities
In February 1997, the Company issued an aggregate of 1,460,000 shares of
Common Stock for consideration of $.01 per share to the following persons:
Nicko Feinberg, Michael Char, Stephen J. Cole-Hatchard, Stephen Cole-Hatchard
Family Limited Partnership, Michael Olbermann, Vestrco, Inc., Nino Fontana,
Michael Garvey, Jeffrey Cohen, Edward Anderson, Peter Morris and Jay Edward &
Partners, Ltd.
In February 1997, the Company issued options to purchase an aggregate of
260,000 shares of Common Stock (net of forfeitures) to: Nicko Feinberg, Stephen
Cole-Hatchard, Michael Olbermann, Michael Garvey,
Jeffrey Cohen, Brad Bogardis, Peter Morris, Sharon Baker, Ron Signore and Chris
Ann Stolecki.
In May 1997, the Company issued an aggregate of 200,000 shares of Common
Stock for consideration of $2.00 per share to the following persons: Allen
Markowitz, William A. Barron, The Rough Group, Robert E. Sullivan and Virginia
M. Sullivan, Richard Baker, William E. Stolecki and James W. Stolecki, Doris
Cole-Hatchard, Patrick Keenan, Douglas J. Cole-Hatchard Jr., James P. Quinn and
Deborah A. Quinn, William J. Collins, Lewis L. Prince, Michael J. Dooling,
Maureen T. Donoghue, Geraldine Garvey, Edwin Kahn and Wilma R. Kahn, Bruce G.
Tracy, Elizabeth M. Dooling, FKF Holding Company, L.P.
In connection with the above-referenced issuances, the Company relied on
Section 4(2) under the Securities Act of 1933, as amended, as transactions by
an issuer not involving any public offering.
Each of the above investors had full access to information relating to the
Company and represented to the Company that he or she had the required
investment intent. In addition, the above-referenced securities will bear
appropriate restrictive legends, and stop transfer orders will be placed
against such securities.
Item 27. Exhibits
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement.
*3.1 Certificate of Incorporation of the Registrant, as amended.
*3.2 Bylaws of the Registrant, as amended.
4.1 Form of Underwriter's Warrant Agreement, including Form of Warrant Certificate.
4.2 Form of Public Warrant Agreement among the Registrant, the Underwriter and Continental
Transfer & Trust Company as Warrant Agent.
*4.3 Form of Registrant's Public Warrant Certificate.
*5.1 Opinion of Tenzer Greenblatt LLP.
10.1 Exchange Agreement.
10.2 Promissory Note issued by Registrant to Mr. Feinberg, amended.
10.3 Promissory Note issued by Registrant to Mr. Cole-Hatchard, as amended.
10.4 Promissory Note issued by Registrant to Mr. Char.
10.5 1997 Stock Option Plan.
10.6 Office Lease between Registrant and Glorious Sun Robert Martin LLC.
*10.7 Employment Agreements with Messrs. Morris, Cole-Hatchard, Feinberg and Olbermann.
10.8 Promissory Note issued to Mr. Cole-Hatchard.
*10.9 Form of Lock-up Agreement.
*23.1 Consent of BDO Seidman LLP, Independent Certified Public Accountants.
*23.2 Consent of Tenzer Greenblatt LLP (will be contained in such firm's opinion filed as Exhibit
5.1).
24.1 A power of attorney relating to the signing of amendments hereto is incorporated in the signa-
ture pages of this Registration Statement.
27 Financial Data Schedule (SEC use only).
</TABLE>
- ------------
* Filed herewith.
II-2
<PAGE>
Item 28. Undertakings.
The undersigned registrant hereby undertakes to:
(1) file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the
Securities Act.
(ii) reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information set forth in
the Registration Statement;
(iii) include any additional or changed material information on the plan
of distribution;
(2) for determining liability under the Securities Act, treat each such
post-effective amendment as a new registration of the securities offered, and
the offering of such securities at that time to be initial bona fide offering;
and
(3) file a post-effective amendment to remove from registration any of the
securities that remain unsold at the termination of the offering.
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, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the standby under writing agreement
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser; (2) that for the
purpose of determining any liability under the Securities Act, treat 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 as part of this Registration Statement as of the time
the Securities and Exchange Commission declares it effective; and (3) that for
the purpose of determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of Prospectus as a new
Registration Statement for the securities offered in the Registration Statement
therein, and treat the offering of the securities at that time as the initial
bona fide offering of those securities.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized Amendment No. 1
to this Registration Statement to be signed on its behalf by the undersigned,
in the city of Pearl River, State of New York on October 7, 1997.
FRONTLINE COMMUNICATIONS CORPORATION
By: /s/ Stephen J. Cole-Hatchard
-------------------------------------
Stephen J. Cole-Hatchard, Chairman
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ----------------------------------- ----------------------------------------------- ----------------
<S> <C> <C>
/s/ Stephen J. Cole-Hatchard Chairman of the Board, President and October 7, 1997
- ------------------------- Secretary
Stephen J. Cole-Hatchard
* Chief Information Officer, Vice President of October , 1997
- ------------------------- Technology and Director
Nicko Feinberg
* Chief Financial Officer (Principal Accounting October , 1997
- ------------------------- Officer), Vice President, Treasurer and
Peter Morris Director
* Chief Operating Officer, Vice President and October , 1997
- ------------------------- Director
Michael Olbermann
*By: /s/ Stephen J. Cole-Hatchard
--------------------
Stephen J. Cole-Hatchard as
Attorney-In-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- ---------- -----------
<S> <C>
1.1 Form of Underwriting Agreement.
* 3.1 Certificate of Incorporation of the Registrant, as amended.
* 3.2 Bylaws of the Registrant, as amended.
4.1 Form of Underwriter's Warrant Agreement, including Form of Warrant Certificate.
4.2 Form of Public Warrant Agreement among the Registrant, the Underwriter and Continental Transfer
& Trust Company as Warrant Agent.
*4.3 Form of Registrant's Public Warrant Certificate.
*5.1 Opinion of Tenzer Greenblatt LLP.
10.1 Exchange Agreement.
10.2 Promissory Note issued by Registrant to Mr. Feinberg, amended.
10.3 Promissory Note issued by Registrant to Mr. Cole-Hatchard, as amended.
10.4 Promissory Note issued by Registrant to Mr. Char.
10.5 1997 Stock Option Plan.
10.6 Office Lease between Registrant and Glorious Sun Robert Martin LLC.
*10.7 Employment Agreements with Messrs. Morris, Cole-Hatchard, Feinberg and Olbermann.
10.8 Promissory Note issued to Mr. Cole-Hatchard.
*10.9 Form of Lock-up Agreement.
*23.1 Consent of BDO Seidman LLP, Independent Certified Public Accountants.
*23.2 Consent of Tenzer Greenblatt LLP (will be contained in such firm's opinion filed as Exhibit 5.1).
24.1 A power of attorney relating to the signing of amendments hereto is incorporated in the signature
pages of this Registration Statement.
27 Financial Data Schedule (SEC use only).
</TABLE>
- ------------
* Filed herewith.
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
EASY STREET ONLINE, INC.
-----------------------------------------
Adopted in accordance with the provisions
Of Section 242 of the General Corporation
Law of the State of Delaware
-----------------------------------------
The undersigned, being a Vice President of EASY STREET ONLINE, INC.
(the "Corporation"), a corporation existing under the laws of the State of
Delaware, does hereby certify as follows:
FIRST: The Certificate of Incorporation of the Corporation, has been
amended as follows by striking out the whole of Article FIRST thereof as it now
exists and inserting in lieu and instead thereof a new Article FIRST, reading as
follows:
"FIRST: The name of the corporation is:
Frontline Communications Corporation".
SECOND: Such amendment has been duly adopted by the written consent of
a majority of the stockholders entitled to vote in accordance with Sections 228
and 242 of the General Corporation Law of the State of Delaware. Prompt written
notice of the adoption of the amendment has been given to those stockholders who
have not consented in writing thereto.
IN WITNESS WHEREOF, I have signed this Certificate this 15th day of
July 1997.
EASY STREET ONLINE, INC.
By: Steven J. Cole-Hatchard
----------------------------------
Steven J. Cole-Hatchard
Vice President/Secretary
<PAGE>
FRONTLINE COMMUNICATIONS CORPORATION
BY-LAWS
ARTICLE I
OFFICES
1. The location of the registered office of the Corporation in
the State of Delaware is 1013 Centre Road, in the City of Wilmington, County of
New Castle, and the name of its registered agent at such address is The
Prentice-Hall Corporation System, Inc.
2. The Corporation shall in addition to its registered office
in the State of Delaware establish and maintain an office or offices at such
place or places as the Board of Directors may from time to time find necessary
or desirable.
ARTICLE II
CORPORATE SEAL
The corporate seal of the Corporation shall have inscribed
thereon the name of the Corporation and may be in such form as the Board of
Directors may determine. Such seal may be used by causing it or a facsimile
thereof to be impressed, affixed or otherwise reproduced.
ARTICLE III
MEETINGS OF STOCKHOLDERS
1. All meetings of the stockholders shall be held at the
registered office of the Corporation in the State of Delaware or at such other
place as shall be determined from time to time by the Board of Directors.
2. The annual meeting of stockholders shall be held on such
day and at such time as may be determined from time to time by
<PAGE>
resolution of the Board of Directors, when they shall elect by plurality vote, a
Board of Directors to hold office until the annual meeting of stockholders held
next after their election and their successors are respectively elected and
qualified or until their earlier resignation or removal. Any other proper
business may be transacted at the annual meeting.
3. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise expressly provided by statute, by
the Certificate of Incorporation or by these By-laws. If, however, such majority
shall not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting (except as otherwise provided by statute). At such
adjourned meeting at which the requisite amount of voting stock shall be
represented any business may be transacted which might have been transacted at
the meeting as originally notified.
4. At all meetings of the stockholders each stockholder having
the right to vote shall be entitled to vote in person, or by proxy appointed by
an instrument in writing subscribed by such stockholder and bearing a date not
more than three years prior to said meeting, unless such instrument provides for
a longer period.
5. At each meeting of the stockholders each stockholder
-2-
<PAGE>
shall have one vote for each share of capital stock having voting power,
registered in his name on the books of the Corporation at the record date fixed
in accordance with these By-law, or otherwise determined, with respect to such
meeting. Except as otherwise expressly provided by statute, by the Certificate
of Incorporation or by these By-laws, all matters coming before any meeting of
the stockholders shall be decided by the vote of a majority of the number of
shares of stock present in person or represented by proxy at such meeting and
entitled to vote thereat, a quorum being present.
6. Notice of each meeting of the stockholders shall be mailed
to each stockholder entitled to vote thereat not less than 10 nor more than 60
days before the date of the meeting. Such notice shall state the place, date and
hour of the meeting and, in the case of a special meeting, the purposes for
which the meeting is called.
7. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute, may be called by the President
or by the Board of Directors, and shall be called by the Secretary at the
request in writing of stockholders owning a majority of the amount of the entire
capital stock of the Corporation issued and outstanding and entitled to vote.
Such request by stockholders shall state the purpose or purposes of the proposed
meeting.
8. Business transacted at each special meeting shall be
confined to the purpose or purposes stated in the notice of such meeting.
-3-
<PAGE>
9. The order of business at each meeting of stockholders
shall be determined by the presiding officer.
ARTICLE IV
DIRECTORS
1. The business and affairs of the Corporation shall be
managed under the direction of a Board of Directors, which may exercise all such
powers and authority for and on behalf of the Corporation as shall be permitted
by law, the Certificate of Incorporation or these By-laws. Each of the directors
shall hold office until the next annual meeting of stockholders and until his
successor has been elected and qualified or until his earlier resignation or
removal.
2. The Board of Directors may hold their meetings within or
outside of the State of Delaware, at such place or places as it may from time to
time determine.
3. The number of directors comprising the Board of Directors
shall be such number as may be from time to time fixed by resolution of the
Board of Directors. In case of any increase, the Board shall have power to elect
each additional director to hold office until the next annual meeting of
stockholders and until his successor is elected and qualified or his earlier
resignation or removal. Any decrease in the number of directors shall take
effect at the time of such action by the Board only to the extent that vacancies
then exist; to the extent that such decrease exceeds the number of such
vacancies, the decrease shall not become effective,
-4-
<PAGE>
except as further vacancies may thereafter occur, until the time of and in
connection with the election of directors at the next succeeding annual meeting
of the stockholders.
4. If the office of any director becomes vacant, by reason of
death, resignation, disqualification or otherwise, a majority of the directors
then in office, although less than a quorum, may fill the vacancy by electing a
successor who shall hold office until the next annual meeting of stockholders
and until his successor is elected and qualified or his earlier resignation or
removal.
5. The directors shall elect from among their members
Co-Chairmen of the Board of Directors each of whom shall serve until the next
annual meeting of directors and until their respective successors have been duly
elected and qualify. The Co-Chairmen shall preside at the meetings of the Board
of Directors and at the meetings of stockholders and each shall perform such
other duties as from time may be assigned to him by the Board of Directors or
the Executive Committee.
6. Any director may resign at any time by giving written
notice of his resignation to the Board of Directors. Any such resignation shall
take effect upon receipt thereof by the Board, or at such later date as may be
specified therein. Any such notice to the Board shall be addressed to it in care
of the Secretary.
-5-
<PAGE>
ARTICLE V
COMMITTEES OF DIRECTORS
1. By resolutions adopted by a majority of the whole Board of
Directors, the Board may designate an Executive Committee and one or more other
committees, each such committee to consist of one or more directors of the
Corporation. The Executive Committee shall have and may exercise all the powers
and authority of the Board in the management of the business and affairs of the
Corporation (except as otherwise expressly limited by statute), including the
power and authority to declare dividends and to authorize the issuance of stock,
and may authorize the seal of the corporation to be affixed to all papers which
may require it. Each such committee shall have such of the powers and authority
of the Board as may be provided from time to time in resolutions adopted by a
majority of the whole Board.
2. The requirements with respect to the manner in which the
Executive Committee and each such other committee shall hold meetings and take
actions shall be set forth in the resolutions of the Board of Directors
designating the Executive Committee or such other committee.
ARTICLE VI
COMPENSATION OF DIRECTORS
The directors shall receive such compensation for their
services as may be authorized by resolution of the Board of Directors, which
compensation may include an annual fee and a fixed sum for expense of attendance
at regular or special meetings of the
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<PAGE>
Board or any committee thereof. Nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
ARTICLE VII
MEETINGS OF DIRECTORS; ACTION WITHOUT A MEETING
1. Regular meetings of the Board of Directors may be held
without notice at such time and place, either within or without the State of
Delaware, as may be determined from time to time by resolution of the Board.
2. Special meetings of the Board of Directors shall be held
whenever called by the President of the Corporation or the Board of Directors on
at least 24 hours' notice to each director. Except as may be otherwise
specifically provided by statute, by the Certificate of Incorporation or by
these By-laws, the purpose or purposes of any such special meeting need not be
stated in such notice, although the time and place of the meeting shall be
stated.
3. At all meetings of the Board of Directors, the presence in
person of a majority of the members of the Board of Directors shall be necessary
and sufficient to constitute a quorum for the transaction of business, and,
except as otherwise provided by statute, by the Certificate of Incorporation or
by these By-laws, if a quorum shall be present the act of a majority of the
directors present shall be the act of the Board.
4. Any action required or permitted to be taken at any meeting
of the Board of Directors or of any committee thereof may be taken without a
meeting if all the members of the Board or such
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<PAGE>
committee, as the case may be, consent thereto in writing and the writing or
writings are filed with the minutes of proceedings of the Board of committee.
Any director may participate in a meeting of the Board, or any committee
designated by the Board, by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
sentence shall constitute presence in person at such meeting.
ARTICLE VIII
OFFICERS
1. The officers of the Corporation shall be chosen by the
Board of Directors and shall be a President, one or more Vice Presidents, a
Secretary and a Treasurer. The Board may also choose one or more Assistant
Secretaries and Assistant Treasurers, and such other officers as it shall deem
necessary. Any number of offices may be held by the same person.
2. The salaries of all officers of the Corporation shall be
fixed by the Board of Directors, or in such manner as the
Board may prescribe.
3. The officers of the Corporation shall hold office until
their successors are elected and qualified, or until their earlier resignation
or removal. Any officer may be at any time removed from office by the Board of
Directors, with or without cause. If the office of any officer becomes vacant
for any reason, the vacancy may be filled by the Board of Directors.
4. Any officer may resign at any time by giving written
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<PAGE>
notice of his resignation to the Board of Directors. Any such resignation shall
take effect upon receipt thereof by the Board or at such later date as may be
specified therein. Any such notice to the Board shall be addressed to it in care
of the Secretary.
ARTICLE IX
PRESIDENT
The President shall be the chief executive and chief operating
officer of the Corporation. Subject to the supervision and direction of the
Board of Directors, he shall be responsible for managing the affairs of the
Corporation. He shall have supervision and direction of all of the other
officers of the Corporation and shall have the powers and duties usually and
customarily associated with the office of the President. In the absence or non
election of the Co-Chairman of the Board of Directors he shall preside at
meetings of the stockholders and of the Board of Directors.
ARTICLE X
VICE PRESIDENTS
The Vice Presidents shall have such powers and duties as may
be delegated to them by the President.
ARTICLE XI
SECRETARY AND ASSISTANT SECRETARY
1. The Secretary shall attend all meetings of the Board of
Directors and of the stockholders, and shall record the minutes of all
proceedings in a book to be kept for that purpose. He shall perform like duties
for the committees of the Board when required.
-9-
<PAGE>
2. The Secretary shall give, or cause to be given, notice of
meetings of the stockholders, of the Board of Directors and of the committees of
the Board. He shall keep in safe custody the seal of the Corporation, and when
authorized by the President, an Executive Vice President or a Vice President,
shall affix the same to any instrument requiring it, and when so affixed it
shall be attested by his signature or by the signature of an Assistant
Secretary. He shall have such other powers and duties as may be delegated to him
by the President.
3. The Assistant Secretary shall, in case of the absence of
the Secretary, perform the duties and exercise the powers of the Secretary, and
shall have such other powers and duties as may be delegated to them by the
President.
ARTICLE XII
TREASURER AND ASSISTANT TREASURER
1. The Treasurer shall have the custody of the corporate funds
and securities, and shall deposit or cause to be deposited under his direction
all moneys and other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of Directors
or pursuant to authority granted by it. He shall render to the President and the
Board whenever they may require it an account of all his transactions as
Treasurer and of the financial condition of the Corporation. He shall have such
other powers and duties as may be delegated to him by the President.
2. The Assistant Treasurer shall, in case of the
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<PAGE>
absence of the Treasurer, perform the duties and exercise the powers of the
Treasurer, and shall have such other powers and duties as may be delegated to
them by the President.
ARTICLE XIII
CERTIFICATES OF STOCK
The certificates of stock of the Corporation shall be numbered
and shall be entered in the books of the Corporation as they are issued. They
shall exhibit the holder's name and number of shares and shall be signed by the
President or an Executive Vice President or Vice President, and by the Treasurer
or an Assistant Treasurer, or the Secretary or an Assistant Secretary.
ARTICLE XIV
CHECKS
All checks, drafts and other orders for the payment of money
and all promissory notes and other evidences of indebtedness of the Corporation
shall be signed by such officer or officers or such other person as may be
designated by the Board of Directors or pursuant to authority granted by it.
ARTICLE XV
FISCAL YEAR
The fiscal year of the Corporation shall be as determined from
time to time by resolution duly adopted by the Board of Directors.
ARTICLE XVI
NOTICES AND WAIVERS
1. Whenever by statute, by the Certificate of
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<PAGE>
Incorporation or by these By-laws it is provided that notice shall be given to
any director or stockholder, such provision shall not be construed to require
personal notice, but such notice may be given in writing, by mail, by depositing
the same in the United States mail, postage prepaid, directed to such
stockholder or director at his address as it appears on the records of the
Corporation, and such notice shall be deemed to be given at the time when the
same shall be thus deposited. Notice of regular or special meetings of the Board
of Directors may also be given to any director by telephone or by telex,
telegraph or cable, and in the latter event the notice shall be deemed to be
given at the time such notice, addressed to such director at the address
hereinabove provided, is transmitted by telex (with confirmed answerback), or
delivered to and accepted by an authorized telegraph or cable office.
2. Whenever by statute, by the Certificate of Incorporation or
by these By-laws a notice is required to be given, a written waiver thereof,
signed by the person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of any stockholder or
director at any meeting thereof shall constitute a waiver of notice of such
meeting by such stockholder or director, as the case may be, except as otherwise
provided by statute.
ARTICLE XVII
INDEMNIFICATION
All persons who the Corporation is empowered to indemnify
pursuant to the provisions of Section 145 of the General
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<PAGE>
Corporation Law of the State of Delaware (or any similar provision or provisions
of applicable law at the time in effect) shall be indemnified by the Corporation
to the full extent permitted thereby. The foregoing right of indemnification
shall not be deemed to be exclusive of any other such rights to which those
seeking indemnification from the Corporation may be entitled, including, but not
limited to, any rights of indemnification to which they may be entitled pursuant
to any agreement, insurance policy, other by-law or charter provision, vote of
stockholders or directors, or otherwise. No repeal or amendment of this Article
XVIII shall adversely affect any rights of any person pursuant to this Article
XVIII which existed at the time of such repeal or amendment with respect to acts
or omissions occurring prior to such repeal or amendment.
ARTICLE XVIII
ALTERATION OF BY-LAWS
The By-laws of the Corporation may be altered, amended or
repealed, and new By-laws may be adopted, by the stockholders or by the Board of
Directors.
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<PAGE>
No. W _____________ Warrant
VOID AFTER ________ P.M., EASTERN TIME
ON ____________________________
REDEEMABLE WARRANT CERTIFICATE FOR
PURCHASE OF SHARES OF COMMON STOCK
CUSIP ______
FRONTLINE COMMUNICATIONS CORPORATION
THIS CERTIFIES THAT, for value received,
or registered assigns, is the owner of the number of warrants set forth above.
Each Warrant (subject to adjustments as hereinafter referred to) entitles the
owner hereof to purchase at any time from _____ until ____p.m. Eastern time on
______________ one fully paid and non-assessable share of common stock (the
"Common Stock") of Frontline Communications Corporation, a Delaware corporation
(the "Company") (such shares of Common Stock being hereinafter referred to as
"Shares" or a "Share"), upon payment of the warrant price (as hereinafter
described), provided, however, that under certain conditions set forth in the
Warrant Agreement hereinafter mentioned, the number of Shares purchasable upon
the exercise of this Warrant may be increased or reduced and the warrant price
may be adjusted. Subject to adjustment as aforesaid, the warrant price per Share
(hereinafter called the "Warrant Price") shall be $5.50 per Share if exercised
on or before _____ p.m. Eastern Time on __________. As provided in said Warrant
Agreement, the Warrant Price is payable upon the exercise of the Warrant, either
in cash or by certified check or bank draft to the order of the Company.
<PAGE>
Under certain conditions set forth, in the Warrant Agreement, this
Warrant may be called for redemption on or after _______, at a redemption price
of $0.10 per Warrant upon 30 days' written notice.
Upon the exercise of this Warrant, the form of election to purchase on
the reverse hereof must be properly completed and executed. In the event that
this Warrant is exercised in respect of not less than all of such Shares, a new
Warrant for the remaining number of Shares will be issued on such surrender.
This Warrant is issued under and the rights represented hereby are
subject to the terms and provisions contained in a Warrant Agreement dated as of
_____________, by and among the Company, Continental Stock Transfer and Trust
Company, as Warrant Agent (the "Warrant Agent") and __________, all upon the
terms and provisions of which the registered holder of this Warrant, by
acceptance hereof, assents. Reference is hereby made to said Warrant Agreement
for a more complete statement of the rights and limitations of rights of the
registered holders hereof, the rights and duties of the Warrant Agent and the
rights and obligations of the Company thereunder. Copies of said Warrant
Agreement are on file at the office of the Warrant Agent.
The Company shall not be required upon the exercise of this Warrant to
issue fractions of Shares, but shall make adjustment therefor in cash on the
basis of the current market value of any fractional interest as provided in the
Warrant Agreement.
This Warrant is transferable at the office of the Warrant Agent (or of
its successor as Warrant Agent) by the registered holder hereof in person or by
attorney duly authorized in writing, but only in the manner and subject to the
limitations provided in the Warrant Agreement and upon surrender of this Warrant
and the payment of any transfer taxes. Upon any such transfer, a new Warrant or
new Warrants of different denominations, of this tenor and representing in the
aggregate the right to purchase a like number of Shares will be issued to the
transferree in exchange for this Warrant.
This Warrant, when surrendered at the office of the Warrant Agent (or
its successor as Warrant Agent) by the registered holder hereof in person or by
attorney duly authorized in writing, may be exchanged in the manner and subject
to the limitations provided in the Warrant Agreement, for another Warrant, or
other Warrants of different denominations, of like tenor and representing in the
aggregate the right to purchase a like number of Shares equal to the number of
such Warrants.
If this Warrant Certificate shall be surrendered for exercise within
any period during which the transfer books for the Company's Common Stock or
other securities purchasable upon the exercise of the Warrants are closed for
<PAGE>
any purpose, the Company shall not be required to make delivery of certificates
for the securities purchasable upon exercise upon the date of the reopening of
said transfer books.
The holder of this Warrant shall not be entitled to any of the rights
of a shareholder of the Company prior to the exercise hereof.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.
WITNESS the facsimile seal of the Company and the facsimile signatures
of its duly authorized officers.
Dated FRONTLINE COMMUNICATIONS CORPORATION
By _______________________________ By ___________________________________
[SEAL]
CHIEF EXECUTIVE OFFICER
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER and TRUST COMPANY
(NEW YORK, N.Y.)
AS WARRANT AGENT
BY
AUTHORIZED SIGNATORY
<PAGE>
ELECTION TO PURCHASE
To Be Executed by the Registered Holder in Order to Exercise Warrants
To: Frontline Communications Corporation
c/o Continental Stock Transfer and Trust Company
2 Broadway
New York, New York 10004
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant(s) for and to purchase thereunder,
_________________ shares of Common Stock provided for therein and tenders
herewith payment of the purchase price in full to the order of the Corporation
and requests that certificates for such shares be issued in the name of
__________________.
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
________________________________________________________________________________
(Please Print or Typewrite)
and be delivered to ____________________________________________________________
(Name)
at _____________________________________________________________________________
(Street Address) (City) (State) (Zip Code)
and, if said number of shares shall not be all the shares purchasable
thereunder, that a new Warrant for the balance remaining of the shares
purchasable under the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below.
The undersigned represents that the exercise of the within Warrant was solicited
by a member of the National Association of Securities Dealers. If not solicited
by an NASD member, please write "unsolicited" in the space below. Unless
otherwise indicated by using the name of another NASD member firm, it will be
assumed that the exercise was solicited by ___________________.
Dated: ________________, 19__
Name: ___________________________ Signature: _______________________________
(Please Print or Typewrite) Note: The above signature must correspond
with the names as written upon the face of
this Warrant in every particular without
alteration or enlargement or any change
whatever.
Address: ________________________ Signature Guaranteed: ____________________
(Name) ____________________
PLEASE INSERT SOCIAL SECURITY
_________________________________ OR OTHER IDENTIFYING NUMBER
(City) (State) (Zip Code)
<PAGE>
ASSIGNMENT
For value received ___________________ hereby sell, assign, and
transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
________________________________________________________________________________
(Please print or typewrite name and address
including postal zip code of assignee)
________________________________________________________________________________
___________________________________________________________ (____) Warrants
represented by the within Warrant certificate, together with all right, title
and interest therein, and do hereby irrevocably constitute and appoint
__________________ attorney, to transfer said Warrant on the books of the within
named Corporation, with full power of substitution in the premises.
Dated: ________________, 19__
Signature: _______________________________
Note: The above signature must correspond
with the names as written upon the face of
this Warrant in every particular without
alteration or enlargement or any change
whatever.
Signature Guaranteed: ____________________
____________________
*In case of assignment, or if the Common Stock issued upon exercise is to be
registered in the name of a person other than the holder, the holder's
signature must be guaranted by a commercial bank, trust company or an NASD
member firm.
<PAGE>
October 3, 1997
Frontline Communications Corporation
One Blue Hill Plaza
Pearl River, New York 10965
Gentlemen:
You have requested our opinion with respect to the public offering and
sale by you, Frontline Communications Corporation, a Delaware corporation (the
"Company"), pursuant to a Registration Statement (the "Registration Statement")
on Form SB-2 (No. 33-34115), under the Securities Act of 1933, as amended (the
"Act"), of up to 1,322,500 shares of Common Stock, par value $.01 per share (the
"Shares"), of the Company, and redeemable warrants (the "Warrants") to purchase
up to 1,322,500 shares of Common Stock (the "Warrant Shares").
We have examined originals, or copies certified or otherwise identified
to our satisfaction, of such documents and corporate and public records as we
deem necessary as a basis for the opinion hereinafter expressed. With respect to
such examination, we have assumed the genuineness of all signatures appearing on
all documents presented to us as originals, and the conformity to the originals
of all documents presented to us as conformed or reproduced copies. Where
factual matters relevant to such opinion were not independently established, we
have relied upon certificates of appropriate state and local officials, and upon
certificates of executive officers and responsible employees and agents of the
Company.
Based upon the foregoing, it is our opinion that:
1. The Shares and the Warrants have been duly and validly authorized
and when sold, paid for and issued as contemplated by the
Registration Statement will be duly and validly issued and fully
paid and nonassessable.
<PAGE>
Frontline Communications Corporation
October 3, 1997
Page 2
2. The Warrant Shares have been duly and validly authorized and when
sold, paid for, and issued upon exercise of the Warrants in
accordance with the terms of the Warrants will be duly and
validly issued and fully paid and non-assessable.
We hereby consent to the use of this opinion as Exhibit 5 to the
Registration Statement, and to the use of our name as your counsel in connection
with the Registration Statement and in the Prospectus forming a part thereof. In
giving this consent, we do not thereby concede that we come within the
categories of persons whose consent is required by the Act or the General Rules
and Regulations promulgated thereunder.
Very truly yours,
TENZER GREENBLATT LLP
<PAGE>
EMPLOYMENT AGREEMENT
Easy Street Online, Inc.
This agreement is made as of the 16th day of June, 1997 by and between
Frontline Communications Corporation, (the "Company"), and Peter T. Morris, 7
Dickens Street, Stony Point, New York, 10980 ("Employee").
WHEREAS, the Employee acknowledges that his talents, knowledge and
services to the Company are of a special, unique, and extraordinary character
and are of particular and peculiar benefit and importance to the Company; and
WHEREAS, the Company desires to obtain assurances that the Employee will
devote his full time and best efforts to his employment with the Company and
that he will not solicit other employees of the Company to terminate their
relationships with the Company; and
WHEREAS, the continued availability of Employee's services is regarded
by the Company as vitally important to its continued corporate growth and
success, and Employee desires to formalize his employment with employer and to
maximize the security of his position.
NOW, THEREFORE, in consideration of the employment by the Company of the
Employee and mutual covenants and conditions contained herein, and for other
good and valuable consideration, receipt of which is hereby acknowledged, it is
agreed as follows:
1. EMPLOYMENT: The Company agrees to employ Employee in an executive
capacity, initially as the Company's Vice President and Chief Financial Officer,
and Employee accepts employment upon the terms and conditions set forth herein.
Employee shall also be appointed as a director of the Company contemporaneously
with the effective date of this contract, thereby filling a currently vacant
seat on the Board.
2. TERM: Subject to the provisions for termination as provided herein,
the term of this agreement shall begin on June 16, 1997 and shall terminate
on June 16, 2000. This agreement shall be automatically renewed for
successive one (1) year terms unless either party give notice of its intention
not to renew no less than one-hundred eighty (180) days prior to the expiration
of the existing term.
<PAGE>
3. COMPENSATION: As compensation for the services to be rendered by
Employee, the Company agrees to provide employee with a base salary at the
annual rate of not less than ninety five thousand dollars ($95,000). The Board
of Directors shall meet at least annually for the purpose of determining
employee's annual base salary based upon the apparent value of his services, and
in any event, shall provide to employee a minimum annual cost of living increase
of no less than 4% of the then applicable salary. The payment of the above
amount shall constitute full satisfaction and discharge of the obligations of
the Company under this agreement, but are without prejudice to Employee's rights
under any employee benefit plan heretofore or hereafter provided by the Company.
In addition hereto, upon execution of this
agreement, employee shall be issued thirty thousand (30,000) of the Company's
stock options, exercisable at two dollars ($2) per share, and shall receive
confirmation of the employees previously purchased twenty thousand (20,000)
shares of common stock, for which employee purchased for the sum of two hundred
dollars ($200), and other good and valuable consideration. Upon completion of
one year of employment with the Company, employee shall receive an additional
forty thousand (40,000) stock options pursuant to and in accordance with the
standard Company stock option plan.
4. DUTIES: Employee shall serve as Vice-President and Chief Financial
Officer of the Company, and shall assume other duties as the Board of Directors
may assign. The services to be performed by the Employee may be extended or
curtailed from time to time at the direction of the board of directors.
Employee agrees that he will at all times
faithfully, industriously and to the best of his ability, experience and
talents, perform all of the duties that may be required of and from him pursuant
to the express and implicit terms of this agreement, to the reasonable
satisfaction of the Company. Such duties shall be rendered at the Company's
facility located at Rockland County, New York and at such other place or places
within or without the State of New York as the Company shall in good faith
require or as the interest, needs, business, or opportunities of the Company
shall require.
5. EXPENSES: Employee is authorized to incur reasonable expenses on
behalf of the Company in performing his duties, including expenses for general
administration of the Company's office, travel, transportation, entertainment,
gifts and similar items, which expenses shall be paid, or reimbursed to
Employee, by the Company, provided that the Employee furnishes to the Company
appropriate supporting documentation of such expenses, and further provided that
this authorization to incur such expenses is not hereafter withdrawn or
otherwise restricted by the Board of Directors.
In addition hereto, employee shall also be
entitled to reimbursement of continuing education and related expenses, up to a
maximum of fifteen hundred dollars ($1,500) per year, and reimbursement for
tuition expenses related to participation in an MBA or related higher
education program, up to a maximum of six (6) credits per semester, commencing
after January 1, 1998.
6. VACATIONS: Employee shall be entitled each year to a vacation of
fifteen (15) weekdays, no two of which need be consecutive, during which time
compensation shall be paid in full. The Company shall not be required to
compensate Employee for Vacation days not taken by the Employee in any given
year, and the Employee cannot accrue or accumulate unused vacation days in
subsequent years. Employee shall endeavor in good faith to schedule such
vacation leave at times and in a manner which does not unreasonably impede the
operation of the Company.
7. BONUSES: The Company may, but shall not be obligated to, pay to the
Employee, in addition to his base salary, a cash bonus. Payment of any such
bonus, and the amount of any such bonus shall be at the sole discretion of the
Board of Directors. Notwithstanding and in addition the terms set forth in this
paragraph, employee shall, upon completion of employee's first year of
employment, be entitled to a cash bonus of $20,000 if at such time a) the
Company has a minimum subscriber base of twenty thousand (20,000), and b) the
fiscal quarters immediately preceding such event and in which such payment shall
be made, as reported to and accepted by the Board of Directors, was profitable,
and will remain profitable subsequent to such payment.
2
<PAGE>
8. EMPLOYEE MANUAL: The Company has established or will establish an
Employee Manual, which manual, as the same may from time to time be amended or
supplemented at the Company's sole discretion, is hereby incorporated in and
made a part of this agreement.
9. EMPLOYEE BENEFITS: The Employee shall be entitled to participate in
any qualified Stock Option Plan, Pension Plan, qualified Profit Sharing Plan,
Group Term Life Insurance Plan, Employee Health Plan, and any other employee
benefit plan currently in place or that may be established by the Company, such
participation being in accordance with the terms of any such plans, and such
participation shall be available only upon the Company having or establishing
such plans. In the event such plans are established, employee shall not be
required to contribute to his health plan premium, and shall receive a minimum
of two hundred thousand dollars ($200,000) of group term life insurance coverage
at no cost.
In addition hereto, employee shall be reimbursed
for the cost of continued family health coverage pursuant to COBRA or similar
benefits plans, after the first month of employment with the Company, until
Company coverage is in place and effective.
10. TERMINATION: A. The Company may at any time terminate the employment
of the Employee for cause upon written notice to Employee. Cause shall exist if
the act(s) or conduct of the Employee make it unreasonable to require the
Company to continue to retain Employee in its employment, such as, but not
limited to, improper disclosure of any information concerning any matter
affecting or relating to the Company or the business of the Company, dishonesty,
activities harmful to the reputation of the Company, refusal to perform or
neglect of the substantive duties assigned to Employee, or breach of any of the
provisions of this agreement. If Employee is terminated for cause, he shall be
entitled to no severance pay and shall be entitle to no bonus payment that might
otherwise be owed to him even if he worked for the entire year. In the event of
termination under this section, the Company shall pay Employee all amounts which
are then accrued but unpaid within thirty (30) days after the date of notice.
Employer shall have no further or additional liability to Employee.
B. Nothing contained herein to the contrary, in the event the Company
does not consummate its proposed initial public offering prior to October 31,
1997, the Company has the unilateral right to terminate the employee without
cause upon thirty days (30) written notice at any time thereafter. This
termination provision shall be null, void and of no force or effect immediately
upon the Company's closing of an initial public offering.
C. In the event employee's employment is terminated by death, employee's
estate shall be entitled to receive employees base pay for a period of ninety
(90) days following death.
3
<PAGE>
11. DISABILITY: If Employee is unable to perform his services by reason
of illness or incapacity for a period of more than eight (8) consecutive weeks
the compensation otherwise payable during the continued period of illness or
incapacity shall be reduced by fifty (50%) percent. Employee's full compensation
shall be reinstated upon his return to employment and the discharge of his full
duties. Notwithstanding the foregoing, the Company may terminate this agreement
at any time after Employee has been absent from employment, for whatever cause,
for a continuous period of more than ninety (90) calendar days and all
obligations of the Company shall cease upon that termination.
12. CONFIDENTIALITY: The Employee will not at any time during or after
his employment with the Company, directly or indirectly, divulge, disclose,
disseminate, sell, exchange or communicate to any person, firm, or corporation
in any manner whatsoever, other than in the normal course of performing his
duties for the Company, any information concerning any matter affecting or
relating to the Company or the business of the Company. The Employee
specifically agrees and recognizes that all information, whether written or
otherwise, regarding the Company's business, including but not limited to,
information regarding customers, customer lists, employees, employee salaries,
costs, prices, services, formulae, compositions, machines, equipment, apparatus,
systems, processes, manufacturing procedures, operating procedures, operations,
potential acquisitions, new location plans, prospective and executed contracts,
prospective projects and other business arrangements, and sources of supply, is
presumed to be important, material and confidential information of the Company
for purposes of this agreement, except to the extent that such information may
be otherwise lawfully and readily available to the general public. Employee
agrees that all of this information is a trade secret owned exclusively by the
Company which shall at all times be kept confidential. Employee will at no time,
either during his employment with the Company or at any time thereafter, employ
or make use of, for his own profit or the profit of any person, firm or
corporation other than the Company, any of the trade secrets acquired by him
during or as a result of his employment with the Company.
4
<PAGE>
The Employee agrees that any business
opportunity, any patentable device, apparatus, method, process or manner of
manufacturing, and any other invention, equipment, machinery, process or device,
that Employee discovers, develops, invents or becomes aware of
during the period of his employment with the Company, shall be the sole and
exclusive property of the Company, and shall be used solely and exclusively for
the benefit of the Company. The Employee agrees to promptly turn over, and to
make full and prompt disclosure of, all such information, devices, inventions,
processes, and methods to the Company. The Employee will not disclose to any
person or persons other than the proper officer of the Company any such
information, device, process, invention or method discovered while in the employ
of the Company. The above provision shall be applicable even though the
discovery is made by Employee outside working hours fixed by the Company and/or
outside the place of employment furnished by the Company.
13. NON-COMPETITION / NON-SOLICITATION: A. For a period of one (1) year
after termination of his employment with the Company, except in the case of the
exclusions set forth at paragraph B below, the Employee agrees that he shall not
directly or indirectly, without the prior written consent of the Company, and
whether as an individual, proprietor, stockholder, partner, officer, director,
employee or otherwise, or in any other capacity whatsoever:
(a) Engage in any business which is competitive with that of the
Company;
(b) Solicit or entice any officer, director, employee or other
individual to leave his or her employment with the Company, or to compete in any
way with the business of the Company, or to violate the terms of any employment,
non-competition, confidentiality or similar agreement with the Company.
B. The prohibitions and restrictions of
paragraph 13-A(a) above shall be waived by the Company in the event any of the
following events occur:
(a) The Company enters bankruptcy for any reason and under any
bankruptcy provision;
(b) The employee is terminated for financial reasons relating to Company
performance; or
(c) The Company reports two (2) or more successive quarters of losses
subsequent to the initial three (3) year term of this contract.
14. REMEDIES: Without limiting the rights of the Company to pursue any
and all other legal and equitable remedies that might be available to it as a
result of any violation by the Employee of the covenants in this agreement, it
is agreed that:
A. The services to be rendered by Employee under this agreement are of a
special, unique, unusual and extraordinary character which give them a peculiar
value, and the loss of those services cannot be reasonably and adequately
compensated in damages in an action at law; and
5
<PAGE>
B. Remedies other than injunctive relief cannot fully compensate the
Company for violation of paragraphs "12" and "13" of this Agreement.
Accordingly, the Company shall be entitled to
injunctive relief to prevent violations of such paragraphs or continuing
violations thereof. All of Employee's covenants in and obligations under
paragraphs "12" and "13" of this agreement shall continue in effect
notwithstanding any termination of Employee's employment, whether by the Company
or by the Employee, upon expiration or otherwise, and whether or not pursuant to
the terms of this agreement.
15. NOTICES: All notices required or permitted to be given under this
agreement shall be sufficient if in writing and if sent by certified mail,
return receipt requested, to the Employee at his residence as indicated in
Company personnel records, or at such other address designated by the Employee,
and to the Company at its principal office currently located at Rockland County,
New York.
16. SUCCESSORS AND ASSIGNS: This agreement shall be binding upon and
shall inure to the benefit of the parties, their successors, assigns and all
other successors in interest.
17. CHOICE OF LAW: This agreement shall be governed by and construed in
accordance with the laws of the State of New York.
18. ENTIRE AGREEMENT: This agreement contains the entire agreement of
the parties. It may not be changed orally but only by an agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification, extension, or discharge is sought.
19. WAIVER: The waiver of any breach of any provision of this agreement
by either party shall not operate or be construed as a subsequent waiver by
either party of any term or condition of this agreement.
20. HEADINGS: The headings in this agreement are inserted for
convenience of reference only and shall not affect the meaning or interpretation
of this agreement.
21. SEVERABILITY: The parties intend and agree that each covenant and
condition contained in this agreement shall be a separate and distinct covenant.
If any provision of this agreement is found to be invalid, illegal, or
unenforceable, the remaining provisions shall not be affected.
IN WITNESS THEREOF, the parties have executed this agreement as of the
date written above.
Frontline Communications Corporation
by: /s/ Michael Olbermann VP
-----------------------------
Michael Olbermann VP
/s/ Peter T. Morris
------------------------------
Peter T. Morris, Employee
6
<PAGE>
EMPLOYMENT AGREEMENT
This agreement is made as of the 18th day of August, 1997 by and between
Frontline Communications Corporation (the "Company"), and Stephen J.
Cole-Hatchard ("Employee").
WHEREAS, the Employee acknowledges that his talents, knowledge and
services to the Company are of a special, unique, and extraordinary character
and are of particular and peculiar benefit and importance to the Company; and
WHEREAS, the Company desires to obtain assurances that the Employee will
devote his best efforts to his employment with the Company and that he will not
solicit other employees of the Company to terminate their relationships with the
Company; and
WHEREAS, the continued availability of Employee's services is regarded
by the Company as vitally important to its continued corporate growth and
success, and Employee desires to formalize his employment with employer and to
maximize the security of his position.
NOW, THEREFORE, in consideration of the employment by the Company of the
Employee and mutual covenants and conditions contained herein, and for other
good and valuable consideration, receipt of which is hereby acknowledged, it is
agreed as follows:
1. EMPLOYMENT: The Company agrees to employ Employee in an executive
capacity, and Employee accepts employment upon the terms and conditions set
forth herein.
2. TERM: Subject to the provisions for termination as provided herein,
the term of this agreement shall begin on August 18, 1997 and shall terminate on
August 17, 2000. This agreement shall be automatically renewed for successive
one (1) year terms unless either party gives notice o its intention not to renew
no less than ninety (90) days prior to the expiration of the existing term.
3. COMPENSATION: As compensation for the services to be rendered by
Employee, subsequent to the consummation of an initial public offering of the
Company's common stock, the Company agrees to provide employee with a base
salary at the annual rate of not less than forty-five thousand dollars
($45,000), plus reasonable vehicle expenses including fuel and service, subject
to paragraph 4-a below. Prior to the consummation of the above described
offering, Employee shall receive only reimbursements for actual costs incurred
on behalf of the Company in accordance with its standard purchasing policy, and
no other salary. The Board of Directors shall meet at least annually for the
purpose of determining employee's annual base salary based upon the apparent
value of his services. The payment of the above amount shall constitute full
satisfaction and discharge of the obligations of the Company under this
agreement, but are without prejudice to Employee's rights under any employee
benefit plan heretofore or hereafter provided by the Company.
<PAGE>
4. DUTIES: Employee shall serve in an executive role with the Company,
and shall assume other duties as the Board of Directors may assign subject to
paragraph 4-a below, entitled "CHANGE IN DUTIES". The services to be performed
by the Employee may be extended or curtailed from time to time at the direction
of the board of directors.
Employee agrees that he will at all times
faithfully, industriously and to the best of his ability, experience and
talents, perform all of the duties that may be required of and from him pursuant
to the express and implicit terms of this agreement, to the reasonable
satisfaction of the Company. Such duties shall be rendered at the Company's
facility located at Rockland County, New York and at such other place or places
within or without the State of New York as the Company shall in good faith
require or as the interest, needs, business, or opportunities of the Company
shall require.
4-a. CHANGE IN DUTIES: The Company acknowledges and agrees that it has
offered and hereby does and continues to offer to Employee the full time
position of President and CEO, such position to be vacated by the then current
office holder upon 10 days written notice to the Company by employee of the
employee's acceptance thereof, at a base salary of no less than $98,000 per
annum, pursuant to the remaining terms, conditions, benefits and duration of
this agreement. Such offer shall be open to employee for the duration of this
agreement, and as extended or otherwise renewed. Payment of the salary described
herein continues to be contingent upon the Company successfully consummating an
initial public offering, as declared at paragraph 4 above.
5. EXPENSES: Employee is authorized to incur reasonable expenses on
behalf of the Company in performing his duties, including expenses for general
administration of the Company's office, travel, transportation, entertainment,
gifts and similar items, which expenses shall be paid, or reimbursed to
Employee, by the Company, provided that the Employee furnishes to the Company
appropriate supporting documentation of such expenses, and further provided that
this authorization to incur such expenses is not hereafter withdrawn or
otherwise restricted by the Board of Directors.
6. VACATIONS: Employee shall be entitled each year to a vacation of
fifteen (15) weekdays, no two of which need be consecutive, during which time
compensation shall be paid in full. The Company shall not be required to
compensate Employee for Vacation days not taken by the Employee in any given
year, and the Employee cannot accrued and accumulate unused vacation days in
subsequent years. Employee shall endeavor in good faith to schedule such
vacation leave at times and in a manner which does not unreasonably impede the
operation of the Company.
7. BONUSES: The Company may, but shall not be obligated to, pay to the
Employee, in addition to his base salary, a cash bonus. Payment of any such
bonus, and the amount of any such bonus shall be at the sole discretion of the
Board of Directors.
2
<PAGE>
8. EMPLOYEE MANUAL: The Company has established an Employee Manual,
receipt of which is hereby acknowledged by the Employee, which manual, as the
same may from time to time be amended or supplemented at the Company's sole
discretion, is hereby incorporated in and made a part of this agreement.
9. EMPLOYEE BENEFITS: The Employee shall be entitled to participate in
any qualified Stock Option Plan, Pension Plan, qualified Profit Sharing Plan,
Group Term Life Insurance Plan, Employee Health Plan, and any other employee
benefit plan currently in place or that may be established by the Company, such
participation being in accordance with the terms of any such plans, and such
participation shall be available only upon the Company having or establishing
such plans.
10. TERMINATION: A. The Company may at any time terminate the employment
of the Employee for cause upon five (5) days prior written notice to Employee.
Cause shall exist if the act(s) or conduct of the Employee make it unreasonable
to require the Company to continue to retain Employee in its employment, such
as, but not limited to, improper disclosure of any information concerning any
matter affecting or relating to the Company or the business of the Company,
dishonesty, activities harmful to the reputation of the Company, refusal to
perform or neglect of the substantive duties assigned to Employee, or breach of
any of the provisions of this agreement. If Employee is terminated for cause, he
shall be entitled to no severance pay and shall be entitled to no bonus payment
that might otherwise be owed to him even if he worked for the entire year. In
the event of termination under this section, the Company shall pay Employee all
amounts which are then accrued but unpaid within thirty (30) days after the date
of notice. Employer shall have no further or additional liability to Employee.
B. Nothing contained herein to the contrary, in the event the Company
does not consummate its proposed initial public offering prior to October 31,
1997, the Company has the unilateral right to terminate the employee without
cause upon thirty days (30) written notice at any time thereafter. This
termination provision shall be null, void and of no force or effect immediately
upon the Company's closing of an initial public offering.
3
<PAGE>
11. DISABILITY: If Employee is unable to perform his services by reason
of illness or incapacity for a period of more than eight (8) consecutive weeks
the compensation otherwise payable during the continued period of illness or
incapacity shall be reduced by twenty-five (25%) percent. Employee's full
compensation shall be reinstated upon his return to employment and the discharge
of his full duties. Notwithstanding the foregoing, the Company may terminate
this agreement at any time after Employee has been absent from employment, for
whatever cause, for a continuous period of more than 120 calendar days and all
obligations of the Company shall cease upon that termination.
12. CONFIDENTIALITY: The Employee will not at any time during or after
his employment with the Company, directly or indirectly, divulge, disclose,
disseminate, sell, exchange or communicate to any person, firm, or corporation
in any manner whatsoever, other than in the normal course of performing his
duties for the Company, any information concerning any matter affecting or
relating to the Company or the business of the Company. The Employee
specifically agrees and recognizes that all information, whether written or
otherwise, regarding the Company's business, including but not limited to,
information regarding customers, customer lists, employees, employee salaries,
costs, prices, services, formulae, compositions, machines, equipment, apparatus,
systems, processes, manufacturing procedures, operating procedures, operations,
potential acquisitions, new location plans, prospective and executed contracts,
prospective projects and other business arrangements, and sources of supply, is
presumed to be important, material and confidential information of the Company
for purposes of this agreement, except to the extent that such information may
be otherwise lawfully and readily available to the general public. Employee
agrees that all of this information is a trade secret owned exclusively by the
Company which shall at all times be kept confidential. Employee will at no time,
either during his employment with the Company or at any time thereafter, employ
or make use of, for his own profit or the profit of any person, firm or
corporation other than the Company, any of the trade secrets acquired by him
during or as a result of his employment with the Company.
4
<PAGE>
The Employee agrees that any business
opportunity, any patentable device, apparatus, method, process or manner of
manufacturing, and any other invention, equipment, machinery, process or device,
that Employee discovers, develops, invents or becomes aware of during the period
of his employment with the Company, shall be the sole and exclusive property of
the Company, and shall be used solely and exclusively for the benefit of the
Company. The Employee agrees to promptly turn over, and to make full and prompt
disclosure of, all such information, devices, inventions, processes, and methods
to the Company. The Employee will not disclose to any person or persons other
than the proper officer of the Company any such information, device, process,
invention or method discovered while in the employ of the Company. The above
provision shall be applicable even though the discovery is made by Employee
outside working hours fixed by the Company and/or outside the place of
employment furnished by the Company.
13. NON-COMPETITION / NON-SOLICITATION: For a period of two (2) years
after termination of his employment with the Company, the Employee agrees that
he shall not directly or indirectly, without the prior written consent of the
Company, and whether as an individual, proprietor, stockholder, partner,
officer, director, employee or otherwise, or in any other capacity whatsoever:
A. Engage in any business which is competitive with that of the Company;
B. Solicit or entice any officer, director, employee or other individual
to leave his or her employment with the Company, or to compete in any way with
the business of the Company, or to violate the terms of any employment,
non-competition, confidentiality or similar agreement with the Company.
14. REMEDIES: Without limiting the rights of the Company to pursue any
and all other legal and equitable remedies that might be available to it as a
result of any violation by the Employee of the covenants in this agreement, it
is agreed that :
A. The services to be rendered by Employee under this agreement are of a
special, unique, unusual and extraordinary character which give them a peculiar
value, and the loss of those services cannot be reasonably and adequately
compensated in damages in an action at law; and
B. Remedies other than injunctive relief cannot fully compensate the
Company for violation of paragraphs "12" and "13" of this Agreement.
Accordingly, the Company shall be entitled to injunctive relief to
prevent violations of such paragraphs or continuing violations thereof. All of
Employee's covenants in and obligations under paragraphs "12" and "13" of this
agreement shall continue in effect notwithstanding any termination of Employee's
employment, whether by the Company or by the Employee, upon expiration or
otherwise, and whether or not pursuant to the terms of this agreement.
5
<PAGE>
15. NOTICES: All notices required or permitted to be given under this
agreement shall be sufficient if in writing and if sent by certified mail,
return receipt requested, to the Employee at his residence as indicated in
Company personnel records, or at such other address designated by the Employee,
and to the Company at its principal office currently located at Rockland County,
New York.
16. SUCCESSORS AND ASSIGNS: This agreement shall be binding upon and
shall inure to the benefit of the parties, their successors, assigns and all
other successors in interest.
17. CHOICE OF LAW: This agreement shall be governed by and construed in
accordance with the laws of the State of New York.
18. ENTIRE AGREEMENT: This agreement contains the entire agreement of
the parties. It may not be changed orally but only by an agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification, extension, or discharge is sought.
19. WAIVER: The waiver of any breach of any provision of this agreement
by either party shall not operate or be construed as a subsequent waiver by
either party of any term or condition of this agreement.
20. HEADINGS: The headings in this agreement are inserted for
convenience of reference only and shall not affect the meaning or interpretation
of this agreement.
21. SEVERABILITY: The parties intend and agree that each covenant and
condition contained in this agreement shall be a separate and distinct covenant.
If any provision of this agreement is found to be invalid, illegal, or
unenforceable, the remaining provisions shall not be affected.
IN WITNESS THEREOF, the parties have executed this agreement as of the
date written above.
Frontline Communications Corporation
by: /s/ Peter Morris
-----------------------------
Peter Morris, VP/CFO/Director
/s/ Stephen J. Cole-Hatchard
-----------------------------
Stephen J. Cole-Hatchard
Employee
6
<PAGE>
EMPLOYMENT AGREEMENT
This agreement is made as of the 18th day of August, 1997 by and between
Frontline Communications Corporation (the "Company"), and Nicko Feinberg
("Employee").
WHEREAS, the Employee acknowledges that his talents, knowledge and
services to the Company are of a special, unique, and extraordinary character
and are of particular and peculiar benefit and importance to the Company; and
WHEREAS, the Company desires to obtain assurances that the Employee will
devote his best efforts to his employment with the Company and that he will not
solicit other employees of the Company to terminate their relationships with the
Company; and
WHEREAS, the continued availability of Employee's services is regarded
by the Company as vitally important to its continued corporate growth and
success, and Employee desires to formalize his employment with employer and to
maximize the security of his position.
NOW, THEREFORE, in consideration of the employment by the Company of the
Employee and mutual covenants and conditions contained herein, and for other
good and valuable consideration, receipt of which is hereby acknowledged, it is
agreed as follows:
1. EMPLOYMENT: The Company agrees to employ Employee in an executive
capacity, and Employee accepts employment upon the terms and conditions set
forth herein.
2. TERM: Subject to the provisions for termination as provided herein,
the term of this agreement shall begin on August 18th, 1997 and shall terminate
on August 17th, 2000. This agreement shall be automatically renewed for
successive one (1) year terms unless either party gives notice of its intention
not to renew no less than ninety (90) days prior to the expiration of the
existing term.
3. COMPENSATION: As compensation for the services to be rendered by
Employee, the Company agrees to provide employee with a base salary at the
annual rate of not less than fifty two thousand dollars ($52,000) prior to the
consummation of the Company's proposed public offering, and eighty eight
thousand dollars ($88,000) thereafter. The Board of Directors shall meet at
least annually for the purpose of determining employee's annual base salary
based upon the apparent value of his services. The payment of the above amount
shall constitute full satisfaction and discharge of the obligations of the
Company under this agreement, but are without prejudice to Employee's rights
under any employee benefit plan heretofore or hereafter provided by the Company.
4. DUTIES: Employee shall serve as Vice-President of the Company, and
shall assume other duties as the Board of Directors may assign. The services to
be performed by the Employee may be extended or curtailed from time to time at
the direction of the board of directors.
Employee agrees that he will at all times faithfully,
industriously and to the best of his ability, experience and talents, perform
all of the duties that may be required of and from him pursuant to the express
and implicit terms of this agreement, to the reasonable satisfaction of Company.
Such duties shall be rendered at the Company's facility located at Rockland
County, New York and at such other place or places within or without the State
of New York as the Company shall in good faith require or as the interest,
needs, business, or opportunities of the Company shall require.
<PAGE>
5. EXPENSES: Employee is authorized to incur reasonable expenses on
behalf of the Company in performing his duties, including expenses for general
administration of the Company's office, travel, transportation, entertainment,
gifts and similar items, which expenses shall be paid, or reimbursed to
Employee, by the Company, provided that the Employee furnishes to the Company
appropriate supporting documentation of such expenses, and further provided that
this authorization to incur such expenses is not hereafter withdrawn or
otherwise restricted by the Board of Directors.
6. VACATIONS: Employee shall be entitled each year to a vacation of
fifteen (15) weekdays, no two of which need be consecutive, during which time
compensation shall be paid in full. The Company shall not be required to
compensate Employee for Vacation days not taken by the Employee in any given
year, and the Employee cannot accrued and accumulate unused vacation days in
subsequent years. Employee shall endeavor in good faith to schedule such
vacation leave at times and in a manner which does not unreasonably impede the
operation of the Company.
7. BONUSES: The Company may, but shall not be obligated to, pay to the
Employee, in addition to his base salary, a cash bonus. Payment of any such
bonus, and the amount of any such bonus shall be at the sole discretion of the
Board of Directors.
8. EMPLOYEE MANUAL: The Company has established an Employee Manual,
receipt of which is hereby acknowledged by the Employee, which manual, as the
same may from time to time be amended or supplemented at the Company's sole
discretion, is hereby incorporated in and made a part of this agreement.
9. EMPLOYEE BENEFITS: The Employee shall be entitled to participate in
any qualified Stock Option Plan, Pension Plan, qualified Profit Sharing Plan,
Group Term Life Insurance Plan, Employee Health Plan, and any other employee
benefit plan currently in place or that may be established by the Company, such
participation being in accordance with the terms of any such plans, and such
participation shall be available only upon the Company having or establishing
such plans.
10. TERMINATION: A. The Company may at any time terminate the employment
of the Employee for cause upon five (5) days prior written notice to Employee.
Cause shall exist if the act(s) or conduct of the Employee make it unreasonable
to require the Company to continue to retain Employee in its employment, such
as, but not limited to, improper disclosure of any information concerning any
matter affecting or relating to the Company or the business of the Company,
dishonesty, activities harmful to the reputation of the Company, refusal to
perform or neglect of the substantive duties assigned to Employee, or breach of
any of the provisions of this agreement. If Employee is terminated for cause, he
shall be entitled to no severance pay and shall be entitle to no bonus payment
that might otherwise be owed to him even if he worked for the entire year. In
the event of termination under this section, the Company shall pay Employee all
amounts which are then accrued but unpaid within thirty (30) days after the date
of notice. Employer shall have no further or additional liability to Employee.
2
<PAGE>
B. Nothing contained herein to the contrary, in the event the Company
does not consummate its proposed initial public offering prior to October 31,
1997, the Company has the unilateral right to terminate the employee without
cause upon thirty days (30) written notice at any time thereafter. This
termination provision shall be null, void and of no force or effect immediately
upon the Company's closing of an initial public offering.
11. DISABILITY: If Employee is unable to perform his services by reason
of illness or incapacity for a period of more than eight (8) consecutive weeks
the compensation otherwise payable during the continued period of illness or
incapacity shall be reduced by twenty-five (25%) percent. Employee's full
compensation shall be reinstated upon his return to employment and the discharge
of his full duties. Notwithstanding the foregoing, \the Company may terminate
this agreement at any time after Employee has been absent from employment, for
whatever cause, for a continuous period of more than 120 calendar days and all
obligations of the Company shall cease upon that termination.
12. CONFIDENTIALITY: The Employee will not at any time during or after
his employment with the Company, directly or indirectly, divulge, disclose,
disseminate, sell, exchange or communicate to any person, firm, or corporation
in any manner whatsoever, other than in the normal course of performing his
3
<PAGE>
duties for the Company, any information concerning any matter affecting or
relating to the Company or the business of the Company. The Employee
specifically agrees and recognizes that all information, whether written or
otherwise, regarding the Company's business, including but not limited to,
information regarding customers, customer lists, employees, employee salaries,
costs, prices, services, formulae, compositions, machines, equipment, apparatus,
systems, processes, manufacturing procedures, operating procedures, operations,
potential acquisitions, new location plans, prospective and executed contracts,
prospective projects and other business arrangements, and sources of supply, is
presumed to be important, material and confidential information of the Company
for purposes of this agreement, except to the extent that such information may
be otherwise lawfully and readily available to the general public. Employee
agrees that all of this information is a trade secret owned exclusively by the
Company which shall at all times be kept confidential. Employee will at no time,
either during his employment with the Company or at any time thereafter, employ
or make use of, for his own profit or the profit of any person, firm or
corporation other than the Company, any of the trade secrets acquired by him
during or as a result of his employment with the Company.
The Employee agrees that any business opportunity, any
patentable device, apparatus, method, process or manner of manufacturing, and
any other invention, equipment, machinery, process or device, that Employee
discovers, develops, invents or becomes aware of during the period of his
employment with the Company, shall be the sole and exclusive property of the
Company, and shall be used solely and exclusively for the benefit of the
Company. The Employee agrees to promptly turn over, and to make full and prompt
disclosure of, all such information, devices, inventions, processes, and methods
to the Company. The Employee will not disclose to any person or persons other
than the proper officer of the Company any such information, device, process,
invention or method discovered while in the employ of the Company. The above
provision shall be applicable even though the discovery is made by Employee
outside working hours fixed by the Company and/or outside the place of
employment furnished by the Company.
13. NON-COMPETITION / NON-SOLICITATION: For a period of two (2) years
after termination of his employment with the Company, the Employee agrees that
he shall not directly or indirectly, without the prior written consent of the
Company, and whether as an individual, proprietor, stockholder, partner,
officer, director, employee or otherwise, or in any other capacity whatsoever:
A. Engage in any business which is competitive with that of the Company;
B. Solicit or entice any officer, director, employee or other individual
to leave his or her employment with the Company, or to compete in any way with
the business of the Company, or to violate the terms of any employment,
non-competition, confidentiality or similar agreement with the Company.
14. REMEDIES: Without limiting the rights of the Company to pursue any
and all other legal and equitable remedies that might be available to it as a
result of any violation by the Employee of the covenants in this agreement, it
is agreed that:
A. The services to be rendered by Employee under this agreement are of a
special, unique, unusual and extraordinary character which give them a peculiar
value, and the loss of those services cannot be reasonably and adequately
compensated in damages in an action at law; and
4
<PAGE>
B. Remedies other than injunctive relief cannot fully compensate the
Company for violation of paragraphs "12" and "13" of this Agreement.
Accordingly, the Company shall be entitled to injunctive relief
to prevent violations of such paragraphs or continuing violations thereof. All
of Employee's covenants in and obligations under paragraphs "12" and "13" of
this agreement shall continue in effect notwithstanding any termination of
Employee's employment, whether by the Company or by the Employee, upon
expiration or otherwise, and whether or not pursuant to the terms of this
agreement.
15. NOTICES: All notices required or permitted to be given under this
agreement shall be sufficient if in writing and if sent by certified mail,
return receipt requested, to the Employee at his residence as indicated in
Company personnel records, or at such other address designated by the Employee,
and to the Company at its principal office currently located at Rockland County,
New York.
16. SUCCESSORS AND ASSIGNS: This agreement shall be binding upon and
shall inure to the benefit of the parties, their successors, assigns and all
other successors in interest.
17. CHOICE OF LAW: This agreement shall be governed by and construed in
accordance with the laws of the State of New York.
18. ENTIRE AGREEMENT: This agreement contains the entire agreement of
the parties. It may not be changed orally but only by an agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification, extension, or discharge is sought.
19. WAIVER: The waiver of any breach of any provision of this agreement
by either party shall not operate or be construed as a subsequent waiver by
either party of any term or condition of this agreement.
20. HEADINGS: The headings in this agreement are inserted for
convenience of reference only and shall not affect the meaning or interpretation
of this agreement.
21. SEVERABILITY: The parties intend and agree that each covenant and
condition contained in this agreement shall be a separate and distinct covenant.
If any provision of this agreement is found to be invalid, illegal, or
unenforceable, the remaining provisions shall not be affected.
IN WITNESS THEREOF, the parties have executed this agreement as of the
date written above.
Frontline Communications Corporation
by: /s/ Peter Morris
--------------------------------
Peter Morris, VP/CFO/Director
/s/ Nicko Feinberg
-------------------------
Nicko Feinberg, Employee
5
<PAGE>
EMPLOYMENT AGREEMENT
This agreement is made as of the 18th day of August, 1997, by and
between Frontline Communications Corporation, (the "Company"), and Michael
Olbermann ("Employee").
WHEREAS, the Employee acknowledges that his talents, knowledge and
services to the Company are of a special, unique, and extraordinary character
and are of particular and peculiar benefit and importance to the Company; and
WHEREAS, the Company desires to obtain assurances that the Employee will
devote his best efforts to his employment with the Company and that he will not
solicit other employees of the Company to terminate their relationships with the
Company; and
WHEREAS, the continued availability of Employee's services is regarded
by the Company as vitally important to its continued corporate growth and
success, and Employee desires to formalize his employment with employer and to
maximize the security of his position.
NOW, THEREFORE, in consideration of the employment by the Company of the
Employee and mutual covenants and conditions contained herein, and for other
good and valuable consideration, receipt of which is hereby acknowledged, it is
agreed as follows:
1. EMPLOYMENT: The Company agrees to employ Employee in an executive
capacity, and Employee accepts employment upon the terms and conditions set
forth herein.
2. TERM: Subject to the provisions for termination as provided herein,
the term of this agreement shall begin on August 18th, 1997 and shall terminate
on August 17th,, 2000. This agreement shall be automatically renewed for
successive one (1) year terms unless either party g notice of its intention not
to renew no less than ninety (90) days prior to the expiration of the existing
term.
3. COMPENSATION: As compensation for the services to be rendered by
Employee, the Company agrees to provide employee with a base salary at the
annual rate of not less than eighty eight thousand dollars ($88,000). The Board
of Directors shall meet at least annually for the purpose of determining
employee's annual base salary based upon the apparent value of his services. The
payment of the above amount shall constitute full satisfaction and discharge of
the obligations of the Company under this agreement, but are without prejudice
to Employee's rights under any employee benefit plan heretofore or hereafter
provided by the Company.
4. DUTIES: Employee shall serve as Vice-President of the Company, and
shall assume other duties as the Board of Directors may assign. The services to
be performed by the Employee may be extended or curtailed from time to time at
the direction of the board of directors.
<PAGE>
Employee agrees that he will at all times faithfully,
industriously and to the best of his ability, experience and talents, perform
all of the duties that may be required of and from him pursuant to the express
and implicit terms of this agreement, to the reasonable satisfaction of Company.
Such duties shall be rendered at the Company's facility located at Rockland
County, New York and at such other place or places within or without the State
of New York as the Company shall in good faith require or as the interest,
needs, business, or opportunities of the Company shall require.
5. EXPENSES: Employee is authorized to incur reasonable expenses on
behalf of the Company in performing his duties, including expenses for general
administration of the Company's office, travel, transportation, entertainment,
gifts and similar items, which expenses shall be paid, or reimbursed to
Employee, by the Company, provided that the Employee furnishes to the Company
appropriate supporting documentation of such expenses, and further provided that
this authorization to incur such expenses is not hereafter withdrawn or
otherwise restricted by the Board of Directors.
6. VACATIONS: Employee shall be entitled each year to a vacation of
fifteen (15) weekdays, no two of which need be consecutive, during which time
compensation shall be paid in full. The Company shall not be required to
compensate Employee for Vacation days not taken by the Employee in any given
year, and the Employee cannot accrued and accumulate unused vacation days in
subsequent years. Employee shall endeavor in good faith to schedule such
vacation leave at times and in a manner which does not unreasonably impede the
operation of the Company.
7. BONUSES: The Company may, but shall not be obligated to, pay to the
Employee, in addition to his base salary, a cash bonus. Payment of any such
bonus, and the amount of any such bonus shall be at the sole discretion of the
Board of Directors.
8. EMPLOYEE MANUAL: The Company has established an Employee Manual,
receipt of which is hereby acknowledged by the Employee, which manual, as the
same may from time to time be amended or supplemented at the Company's sole
discretion, is hereby incorporated in and made a part of this agreement.
9. EMPLOYEE BENEFITS: The Employee shall be entitled to participate in
any qualified Stock Option Plan, Pension Plan, qualified Profit Sharing Plan,
Group Term Life Insurance Plan, Employee Health Plan, and any other employee
benefit plan currently in place or that may be established by the Company, such
participation being in accordance with the terms of any such plans, and such
participation shall be available only upon the Company having or establishing
such plans.
10. TERMINATION: A. The Company may at any time terminate the employment
of the Employee for cause. Cause shall exist if the act(s) or conduct of the
Employee make it unreasonable to require the Company to continue to retain
Employee in its employment, such as, but not limited to, improper disclosure of
any information concerning any matter affecting or relating to the Company or
the business of the Company, dishonesty, activities harmful to the reputation of
the Company, refusal to perform or neglect of the substantive duties assigned to
Employee, or breach of any of the provisions of this agreement. If Employee is
terminated for cause, he shall be entitled to no severance pay and shall be
entitle to no bonus payment that might otherwise be owed to him even if he
worked for the entire year. In the event of termination under this section, the
Company shall pay Employee all payroll amounts which are then accrued but unpaid
within thirty (30) days after the date of notice. Employer shall have no further
or additional liability to Employee.
2
<PAGE>
B. Nothing contained herein to the contrary, in the event the Company
does not consummate its proposed initial public offering prior to October 31,
1997, the Company has the unilateral right to terminate the employee without
cause upon thirty days (30) written notice at any time thereafter. This
termination provision shall be null, void and of no force or effect immediately
upon the Company's closing of an initial public offering.
11. DISABILITY: If Employee is unable to perform his services by reason
of illness or incapacity for a period of more than eight (8) consecutive weeks
the compensation otherwise payable during the continued period of illness or
incapacity shall be reduced by twenty-five (25%) percent. Employee's full
compensation shall be reinstated upon his return to employment and the discharge
of his full duties. Notwithstanding the foregoing, \the Company may terminate
this agreement at any time after Employee has been absent from employment, for
whatever cause, for a continuous period of more than 120 calendar days and all
obligations of the Company shall cease upon that termination.
12. CONFIDENTIALITY: The Employee will not at any time during or after
his employment with the Company, directly or indirectly, divulge, disclose,
disseminate, sell, exchange or communicate to any person, firm, or corporation
in any manner whatsoever, other than in the normal course of performing his
duties for the Company, any information concerning any matter affecting or
3
<PAGE>
relating to the Company or the business of the Company. The Employee
specifically agrees and recognizes that all information, whether written or
otherwise, regarding the Company's business, including but not limited to,
information regarding customers, customer lists, employees, employee salaries,
costs, prices, services, formulae, compositions, machines, equipment, apparatus,
systems, processes, manufacturing procedures, operating procedures, operations,
potential acquisitions, new location plans, prospective and executed contracts,
prospective projects and other business arrangements, and sources of supply, is
presumed to be important, material and confidential information of the Company
for purposes of this agreement, except to the extent that such information may
be otherwise lawfully and readily available to the general public. Employee
agrees that all of this information is a trade secret owned exclusively by the
Company which shall at all times be kept confidential. Employee will at no time,
either during his employment with the Company or at any time thereafter, employ
or make use of, for his own profit or the profit of any person, firm or
corporation other than the Company, any of the trade secrets acquired by him
during or as a result of his employment with the Company.
The Employee agrees that any business opportunity, any
patentable device, apparatus, method, process or manner of manufacturing, and
any other invention, equipment, machinery, process or device, that Employee
discovers, develops, invents or becomes aware of during the period of his
employment with the Company, shall be the sole and exclusive property of the
Company, and shall be used solely and exclusively for the benefit of the
Company. The Employee agrees to promptly turn over, and to make full and prompt
disclosure of, all such information, devices, inventions, processes, and methods
to the Company. The Employee will not disclose to any person or persons other
than the proper officer of the Company any such information, device, process,
invention or method discovered while in the employ of the Company. The above
provision shall be applicable even though the discovery is made by Employee
outside working hours fixed by the Company and/or outside the place of
employment furnished by the Company.
13. NON-COMPETITION / NON-SOLICITATION: For a period of two (2) years
after termination of his employment with the Company, the Employee agrees that
he shall not directly or indirectly, without the prior written consent of the
Company, and whether as an individual, proprietor, stockholder, partner,
officer, director, employee or otherwise, or in any other capacity whatsoever:
A. Engage in any business which is competitive with that of the Company;
B. Solicit or entice any officer, director, employee or other individual
to leave his or her employment with the Company, or to compete in any way with
the business of the Company, or to violate the terms of any employment,
non-competition, confidentiality or similar agreement with the Company.
14. REMEDIES: Without limiting the rights of the Company to pursue any
and all other legal and equitable remedies that might be available to it as a
result of any violation by the Employee of the covenants in this agreement, it
is agreed that:
A. The services to be rendered by Employee under this agreement are of a
special, unique, unusual and extraordinary character which give them a peculiar
value, and the loss of those services cannot be reasonably and adequately
compensated in damages in an action at law; and
4
<PAGE>
B. Remedies other than injunctive relief cannot fully compensate the
Company for violation of paragraphs "12" and "13" of this Agreement.
Accordingly, the Company shall be entitled to injunctive relief
to prevent violations of such paragraphs or continuing violations thereof. All
of Employee's covenants in and obligations under paragraphs "12" and "13" of
this agreement shall continue in effect notwithstanding any termination of
Employee's employment, whether by the Company or by the Employee, upon
expiration or otherwise, and whether or not pursuant to the terms of this
agreement.
15. NOTICES: All notices required or permitted to be given under this
agreement shall be sufficient if in writing and if sent by certified mail,
return receipt requested, to the Employee at his residence as indicated in
Company personnel records, or at such other address designated by the Employee,
and to the Company at its principal office currently located at Rockland County,
New York.
16. SUCCESSORS AND ASSIGNS: This agreement shall be binding upon and
shall inure to the benefit of the parties, their successors, assigns and all
other successors in interest.
17. CHOICE OF LAW: This agreement shall be governed by and construed in
accordance with the laws of the State of New York.
18. ENTIRE AGREEMENT: This agreement contains the entire agreement of
the parties. It may not be changed orally but only by an agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification, extension, or discharge is sought.
19. WAIVER: The waiver of any breach of any provision of this agreement
by either party shall not operate or be construed as a subsequent waiver by
either party of any term or condition of this agreement.
20. HEADINGS: The headings in this agreement are inserted for
convenience of reference only and shall not affect the meaning or interpretation
of this agreement.
21. SEVERABILITY: The parties intend and agree that each covenant and
condition contained in this agreement shall be a separate and distinct covenant.
If any provision of this agreement is found to be invalid, illegal, or
unenforceable, the remaining provisions shall not be affected.
IN WITNESS THEREOF, the parties have executed this agreement as of the
date written above.
Frontline Communications Corporation
by: /s/ Peter Morris
-------------------------------
Peter Morris, VP/CFO/Director
/s/ Michael Olbermann
-------------------------------
Michael Olbermann, Employee
5
<PAGE>
, 1997
_____________________________
_____________________________
_____________________________
Re: Frontline Communications Corporation
Dear Sir or Madam:
In order to induce _____________________ (the "Underwriter") to enter into
an underwriting agreement with Frontline Communications Corporation (the
"Company") in connection with the proposed public offering of shares of the
Company's Common Stock and contemplated by that certain letter of intent between
the Company and the Underwriter and as will be described in a registration
statement filed with the Securities and Exchange Commission (the "SEC") (such
registration statement, as it may subsequently be amended, referred to herein as
the "Registration Statement"), and as consideration for the Underwriter
participating in the proposed offering, the undersigned hereby agrees with the
Underwriter that:
1. Until 12 months after the date the Registration Statement is declared
effective by the SEC (the "Effective Date"), the undersigned securityholder
will not, without the prior written consent of the Underwriter:
(i) directly or indirectly, sell, offer for sale, transfer or otherwise
dispose of, any securities of the Company owned by the undersigned (other than
securities of the Company acquired by the undersigned after the Effective
Date), pursuant to Rule 144 promulgated under the Securities Act of 1933, as
amended (the "Act"), or otherwise, or
(ii) exercise any registration rights relating to any securities of the
Company; and
2. For the first year following the twelve-month lock-up period referred to
in paragraph (1) above, the undersigned securityholder will not, without the
prior written consent of the
<PAGE>
Underwriter, sell any of the shares of Common Stock owned by the undersigned,
during any three-month period, in excess of the aggregate amount of such shares
that such securityholder would be allowed to sell if it were deemed an
"affiliate" of the Company and its shares were deemed "restricted shares" (as
each of those terms is defined in Rule 144 promulgated under the Act) and sales
of such shares were subject to the volume limitations of paragraph (e)(1) of
Rule 144, which, in general, limits the number of restricted shares that may be
sold by an affiliate within any three-month period to the greater of (i) 1% of
the then outstanding shares of Common Stock and (ii) the average weekly trading
volume during the four calendar weeks preceding such sale.
Very truly yours,
SECURITYHOLDER:
_______________________________________
_______________________________________
Address:
_______________________________________
_______________________________________
Date:__________________________________
<PAGE>
EXHIBIT 23.1
Consent of Independent
Certified Public Accountants
Frontline Communications, Corp.
Pearl River, New York
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated July 27, 1997, except for note 9 d)
for which the date is October 1, 1997, relating to the combined financial
statements of Frontline Communications Corp., which is contained in the
Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
-------------------------
BDO Seidman, LLP
Valhalla, New York
October 7, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM SB-2 AT
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 217,490
<SECURITIES> 0
<RECEIVABLES> 10,815
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 300,962
<PP&E> 171,644
<DEPRECIATION> 23,429
<TOTAL-ASSETS> 467,144
<CURRENT-LIABILITIES> 512,573
<BONDS> 0
0
0
<COMMON> 16,600
<OTHER-SE> (62,029)
<TOTAL-LIABILITY-AND-EQUITY> 467,144
<SALES> 0
<TOTAL-REVENUES> 131,154
<CGS> 93,328
<TOTAL-COSTS> 93,328
<OTHER-EXPENSES> 323,940
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,784
<INCOME-PRETAX> (289,898)
<INCOME-TAX> 0
<INCOME-CONTINUING> (289,898)
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<EPS-DILUTED> (.16)
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