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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): October 9, 1998
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FRONTLINE COMMUNICATIONS CORP.
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(Exact name of registrant as specified in its charter)
Delaware 0-24223 13-3950283
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
One Blue Hill Plaza, Pearl River, New York 10965
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914)623-8553
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Not Applicable
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Former name or former address, if changed since last report
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Item 2. Acquisition of Assets.
Acquisition of WOWFactor, Inc.
On October 9, 1998, the Company acquired all of the issued and
outstanding capital stock of WOWFactor, Inc. ("WOWFactor"), a New Jersey
corporation engaged in the business of promoting e-commerce through its web
sites primarily for womens' businesses. The Company issued to the stockholders
of WOWFactor ten shares of newly created Series A Preferred Stock, which is
convertible on July 15, 1999 into Common Stock with a market value of
$1,000,000, subject to a maximum issuance of 250,000 shares. In addition, to the
extent that the Company's Common Stock has a market value on July 15, 1999 of
(i) less than $3.00 per share or (ii) greater than $3.00 per share but less than
$4.00 per share, the Company agreed to issue to the WOWFactor stockholders
options to purchase up to an aggregate of 100,000 or 50,000 shares,
respectively.
The Company also entered into a three-year employment
agreement with Margaret M. McGillin pursuant to which Ms. McGillin agreed to
serve as Vice President of Sales of the Company, and granted to the WOWFactor
stockholders certain "piggyback" registration rights with respect to the shares
issuable upon exercise of the Series A Preferred Stock.
Acquisition of Roxy Systems, Inc. d/b/a Magic Carpet
On October 9, 1998, the Company acquired substantially all of
the assets used in the business of Roxy Systems, Inc. d/b/a Magic Carpet in
consideration of $75,000 in cash and the assumption of approximately $61,000 of
liabilities. Magic Carpet is an internet service provider with approximately
1,000 individual and business subscribers in Orange County, New York.
The source of the consideration paid in the foregoing
transactions was authorized but unissued shares of Common Stock of the Company
and cash on hand. The amount of consideration paid by the Company in connection
with the transactions was determined by arm's-length negotiations.
The descriptions of the agreements discussed above are
qualified in their entirety by reference to such agreements, which are attached
as exhibits and are incorporated herein by reference.
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Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
(a) Financial Statements of the Business Acquired.
Audited financial statements relating to the acquisitions will
be filed by amendment within 60 days of the date this Report was required to be
filed.
(b) Pro Forma Financial Information and Exhibits.
Pro Forma financial information relating to the acquisitions
will be filed by amendment within 60 days of the date this report was required
to be filed.
(c) Exhibits
Exhibit 1 - Stock Purchase Agreement dated as of
October 1, 1998 by and among the Company, WOWFactor,
Inc. and the WOWFactor stockholders
Exhibit 2 - Form of Registration Rights Agreement among
the Company and the WOWFactor stockholders
Exhibit 3 - Employment Agreement between the Company
and Margaret McGillin
Exhibit 4 - Certificate of Designation of Series A
Preferred Stock
Exhibit 5 - Asset Purchase Agreement dated as of
October 9, 1998 by and between the Company and Roxy
Systems, Inc. d/b/a Magic Carpet
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Dated: October 13, 1998
FRONTLINE COMMUNICATIONS CORP.
By/s/ Stephen J. Cole-Hatchard
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Name: Stephen J. Cole-Hatchard
Title: Chief Executive Officer
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STOCK PURCHASE AGREEMENT
AGREEMENT dated as of October 1, 1998 (the "Agreement"), by
and among Frontline Communications Corporation, a Delaware corporation having an
address at One Blue Hill Plaza, Suite 1548, Pearl River, New York 10965
("Frontline"); WOWFactor, Inc., a New Jersey corporation having an address at 41
Watchung Plaza, Suite 310, Montclair, New Jersey 07042 ("WOWFactor"); and each
of the individuals set forth on Schedule 1, each a stockholder of WOWFactor
(collectively, the "Stockholders").
W I T N E S S E T H :
WHEREAS, the Stockholders are the owners of all of the issued
and outstanding shares of capital stock of WOWFactor (the "WOWFactor Stock");
and
WHEREAS, WOWFactor is in the business of promoting the goods
and services of others through its online marketplace and services. WOWFactor
provides traffic, tools and services required for ecommerce to merchants.
WOWFactor also publishes advertisements and other content in this marketplace
(the "Business"); and
WHEREAS, Frontline wishes to purchase all of the WOWFactor
Stock from the Stockholders, upon the terms and subject to the conditions set
forth herein.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, the parties hereto do hereby agree as follows:
1. Purchase and Sale of WOWFactor Stock.
Subject to the terms and conditions set forth in this
Agreement and in reliance upon the representations, warranties, covenants and
conditions herein contained, on the Closing Date (as defined in Section 8
hereof) the Stockholders shall sell, convey, assign, transfer and deliver to
Frontline all of the WOWFactor Stock, free and clear of any and all liens,
adverse claims, security interests, pledges, mortgages, charges and encumbrances
of any nature whatsoever.
2. Purchase Price
The purchase price for the purchase of the WOWFactor Stock by
Frontline shall be, as follows:
a) Ten (10) shares of Series A Convertible
Preferred Stock of Frontline ("Series A Preferred"), convertible on July 15,
1999 into common stock, par value $.01 per share, of Frontline ("Frontline
Common Stock") with an aggregate Market Value (as defined herein) of $1,000,000,
to be delivered to the Stockholders in accordance with Schedule 2(b) on July 15,
1999.
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For purposes of this Agreement, "market value" shall mean the average closing
price of Frontline Common Stock on the Nasdaq SmallCap Market for the thirty
(30) trading days immediately prior to July 15, 1999; provided, however, that in
no event shall the Series A Preferred be convertible into Frontline Common Stock
aggregating more than 250,000 shares. The aggregate amount of shares of
Frontline Common Stock to be issued upon conversion of the Series A Preferred
Stock in accordance herewith shall be referred to herein collectively as the
"Share Consideration."
b) Stock Options (the "Options") granted
pursuant to the terms and conditions of Frontline's 1997 Stock Option Plan, to
be delivered to the Stockholders in accordance with Schedule 2(b) on July 15,
1999, as follows:
(i) to the extent that the Frontline
Common Stock has a Market Value on July 15, 1999 of less than $3.00 per share,
Options to purchase up to 100,000 shares of Frontline Common Stock; or
(ii) to the extent that the Frontline
Common Stock has a Market Value on July 15, 1999 of less than $4.00 per share
but greater than $3.00 per share, Options to purchase up to 50,000 shares of
Frontline Common Stock.
3. Representations and Warranties as to WOWFactor. Each of the
Stockholders and WOWFactor, jointly and severally, represents and warrants to
Frontline as follows:
3.1 Organization, Standing and Power. WOWFactor is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New Jersey, with full corporate power and corporate authority to
(i) own, lease and operate its properties, (ii) carry on the Business as
currently conducted by it and (iii) execute and deliver, and perform under this
Agreement and each other agreement and instrument to be executed and delivered
by it pursuant hereto. There are no states or jurisdictions in which the
character and location of any of the properties owned or leased by WOWFactor, or
the conduct of the Business makes it necessary for WOWFactor to qualify to do
business as a foreign corporation, except for those jurisdictions in which the
failure to so qualify would not have a materially adverse effect on the Business
or operations of WOWFactor. True and complete copies of the Certificate of
Incorporation of WOWFactor and all amendments thereof, and of the By-Laws of
WOWFactor, as amended to date, have heretofore been furnished to Frontline.
WOWFactor's minute books made available to Frontline contain complete and
accurate records of all meetings and other corporate actions of WOWFactor's
stockholders and Board of Directors (including committees of its Board of
Directors).
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3.2 Capitalization. The authorized capital stock of
WOWFactor consists of: 100 shares of common stock, no par value, (the "WOWFactor
Common Stock"), all of which are outstanding. All of the WOWFactor Common Stock
is duly authorized, validly issued, fully paid and nonassessable. Schedule 3.2
sets forth a true and complete list of the holders of all outstanding shares of
WOWFactor Common Stock, and the holders of all outstanding options and warrants
issued by WOWFactor, which shares, options and warrants are held by them in the
amounts set forth on Schedule 3.2. Except as contemplated by this Agreement and
except as set forth on Schedule 3.2, there are no options, warrants or other
rights, agreements, arrangements or commitments of any character relating to the
issued or unissued capital stock of WOWFactor or obligating WOWFactor to issue
or sell any shares of capital stock of or other equity interests in WOWFactor.
There is no personal liability, and there are no preemptive rights with regard
to the capital stock of WOWFactor, and no right-of-first refusal or similar
catch-up rights with regard to such capital stock. Except as set forth on
Schedule 3.2 and except for the transactions contemplated by this Agreement,
there are no outstanding contractual obligations or other commitments or
arrangements of WOWFactor to (A) repurchase, redeem or otherwise acquire any
shares of WOWFactor Common Stock (or any interest therein) or (B) to provide
funds to or make any investment (in the form of a loan, capital contribution or
otherwise) in any other entity, or (C) issue or distribute to any person any
capital stock of WOWFactor, or (D) issue or distribute to holders of any of the
capital stock of WOWFactor any evidences of indebtedness or assets of WOWFactor.
All of the outstanding securities of WOWFactor have been issued and sold by
WOWFactor in full compliance with applicable federal and state securities laws.
3.3 Ownership of WOWFactor Common Stock. The Stockholders
have good and marketable title to all of the issued and outstanding shares of
WOWFactor Common Stock, free and clear of any and all liens, adverse claims,
security interests, pledges, mortgages, charges and encumbrances of any nature
whatsoever (the "Liens"), and on the Closing Date (as defined in Section 8
hereof) will own all of such WOWFactor Common Stock, free and clear of any and
all Liens, including, but not limited to, any claims by any present or former
stockholders of WOWFactor.
3.4 Interests in Other Entities.
(a) Schedule 3.4 sets forth a true and complete list
of all direct or indirect subsidiaries ofWOWFactor, together with the
jurisdiction of incorporation of each such subsidiary and the percentage of each
such subsidiary's outstanding capital stock owned by WOWFactor or another of
WOWFactor's subsidiaries. Each such subsidiary is a duly organized corporation,
validly existing and in good standing
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under the laws of the jurisdiction of its incorporation (as well as all
applicable foreign jurisdictions necessary to its business operations) and has
the requisite corporate power and authority and governmental authority to own,
operate or lease the properties that it purports to own, operate or lease and to
carry on its business as it is now being conducted.
(b) None of the Stockholders (individually or
jointly) own, directly or indirectly, of record or beneficially, any shares of
voting stock or other equity securities of any other corporation engaged in the
same or similar business to that business engaged in by WOWFactor at the Closing
Date (other than not more than one percent (1%) of the publicly-traded capital
stock of corporations engaged in such business held solely for investment
purposes); (i) have any ownership interest, direct or indirect, of record or
beneficially, in any unincorporated entity engaged in the same or similar
business to that business engaged in by WOWFactor at the Closing Date; and (ii)
have any obligation, direct or indirect, present or contingent, (A) to purchase
or subscribe for any interest in, advance or loan monies to, or in any way make
investments in, any other person or entity engaged in the same or similar
business to that business engaged in by WOWFactor at the Closing Date, or (B) to
share any profits or capital investments or both from an entity engaged in the
same or similar business to that business engaged in by WOWFactor at the Closing
Date.
3.5 Authority. The execution and delivery by WOWFactor of
this Agreement and of all of the agreements to be executed and delivered by
WOWFactor pursuant hereto (collectively, the "WOWFactor Documents"), the
performance by WOWFactor of its obligations hereunder and thereunder, and the
consummation of the transactions contemplated hereby and thereby, have been duly
and validly authorized by all necessary corporate action on the part of
WOWFactor (including, but not limited to, the unanimous consents of the Board of
Directors of WOWFactor and of the Stockholders) and WOWFactor has all necessary
corporate power and corporate authority with respect thereto. The Stockholders
are individuals having all necessary capacity, power and authority to execute
and deliver this Agreement and such other agreements to be executed and
delivered by either of them pursuant hereto (collectively, the "Shareholder
Documents") and to consummate the transactions contemplated hereby and thereby.
This Agreement is, and when executed and delivered by WOWFactor and the
Stockholders, each of the other agreements to be delivered by either or both of
them pursuant hereto will be, the valid and binding obligations of WOWFactor and
the Stockholders, to the extent they are parties thereto, in accordance with
their respective terms, except as the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting the rights of
creditors generally and subject to the rules of law governing (and all
limitations on) specific performance, injunctive relief, and other equitable
remedies.
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3.6 Noncontravention. Except as set forth on
Schedule 3.6, neither the execution and delivery by WOWFactor or the
Stockholders of this Agreement or of any other WOWFactor Documents or
Shareholder Documents to be executed and delivered by either or both of them,
nor the consummation of any of the transactions contemplated hereby or thereby,
nor the performance by either or both of them of any of their respective
obligations hereunder or thereunder, will (nor with the giving of notice or the
lapse of time or both would) (a) conflict with or result in a breach of any
provision of the Certificate of Incorporation, ByLaws or other constituent
documents of WOWFactor, each as amended to date, or (b) give rise to a default,
or any right of termination, cancellation or acceleration, or otherwise be in
conflict with or result in a loss of contractual benefits to any of them, under
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, agreement or other instrument or obligation to which either
or both of them is a party or by which either or both of them or any of their
respective assets may be bound, or require any consent, approval or notice under
the terms of any such document or instrument, or (c) violate any order, writ,
injunction, decree, law, statute, rule or regulation of any court or
governmental authority which is applicable to either or both of them, or (d)
result in the creation or imposition of any lien, adverse claim, restriction,
charge or encumbrance upon any of the assets of WOWFactor (the "Assets") or the
WOWFactor Common Stock, or (e) interfere with or otherwise adversely affect the
ability of WOWFactor to carry on the Business after the Closing Date on
substantially the same basis as is now conducted by WOWFactor.
3.7 Financial Statements. WOWFactor has heretofore
delivered to Frontline (a) its financial statements consisting of the unaudited
balance sheets for the last two fiscal years ended December 31, 1996 and 1997,
and the related statements of income, stockholders' equity and cash flows for
the two years then ended, and (b) its unaudited balance sheet at June 30, 1998
(the "Balance Sheet") statements of income, stockholders' equity and cash flows
for the four months ended June 30, 1998 (collectively, the "WOWFactor Financial
Statements"). The WOWFactor Financial Statements were prepared in accordance
with generally accepted accounting principles ("GAAP"), consistently applied,
and present fairly the financial position of WOWFactor as at the dates thereof
and the results of operations for the periods and the cash flow indicated. The
books and records of WOWFactor are complete and correct, have been maintained in
accordance with good business practices, and accurately reflect the basis for
the financial condition, results of operations and cash flow of WOWFactor as set
forth in the WOWFactor Financial Statements.
3.8 Absence of Undisclosed Liabilities. WOWFactor has no
liabilities or obligations of any nature whatsoever, whether accrued, matured,
unmatured, absolute,
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contingent, direct or indirect or otherwise, which have not been (a) in the case
of liabilities and obligations of a type customarily reflected on a corporate
balance sheet, prepared in accordance with GAAP, set forth on the Balance Sheet,
or (b) incurred in the ordinary course of business since June 30, 1998, or (c)
in the case of other types of liabilities and obligations, expressly described
in Schedule 3.8, or (d) incurred, consistent with past practice, in the ordinary
course of business of WOWFactor (in the case of liabilities and obligations of
the type referred to in clause (a) above).
3.9 Accounts Receivable. The accounts receivable which
are reflected on the Balance Sheet are good and collectible in the ordinary
course of business at the aggregate recorded amounts thereof, less the
respective amount of the allowances for doubtful accounts receivable, if any,
reflected thereon, and are not subject to offsets other than in the ordinary
course of business. The accounts receivable of WOWFactor which were added after
June 30, 1998, are good and collectible in the ordinary course of business, less
the amount of the allowance(s) for doubtful notes receivable, if any, reflected
thereon (which allowances were established on a basis consistent with prior
practice), and are not subject to offsets other than in the ordinary course of
business. The intangible assets reflected on the Balance Sheet and thereafter
added consist of items which have been written down to net realizable value or
adequately reserved against on the books and records of WOWFactor.
3.10 Absence of Changes. Since June 30, 1998, there have
not been (a) any adverse change (other than as is normal in the ordinary course
of business) in the condition (financial or otherwise), assets, liabilities,
business, prospects, results of operations or cash flows of WOWFactor
(including, without limitation, any such adverse change resulting from damage,
destruction or other casualty loss, whether or not covered by insurance), (b)
any waivers by WOWFactor of any right, or cancellation of any debt or claim, of
substantial value, (c) any declarations, set asides or payments of any dividend
or other distributions or payments in respect of the WOWFactor Common Stock, or
(d) any changes in the accounting principles or methods which are utilized by
WOWFactor.
3.11 Litigation. Except as set forth in Schedule 3.11,
there are no claims, suits or actions, or administrative, arbitration or other
proceedings or governmental investigations, pending or, to the best knowledge of
WOWFactor and the Stockholders, threatened, against or relating to WOWFactor or
the Stockholders, the transactions contemplated hereby or any of the Assets.
There are no judgments, orders, stipulations, injunctions, decrees or awards in
effect which relate to WOWFactor, this Agreement, the transactions contemplated,
the Business or any of the Assets, the effect of which is (a) to limit,
restrict, regulate, enjoin or prohibit any business
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practice of WOWFactor in any area, or the acquisition by WOWFactor of any
properties, assets or businesses, or (b) otherwise adverse to the Business, any
of the Assets or WOWFactor Common Stock.
3.12 No Violation of Law. WOWFactor is not engaging in any
activity or omitting to take any action as a result of which it is in violation
of any law, rule, regulation, zoning or other ordinance, statute, order,
injunction or decree, or any other requirement of any court or governmental or
administrative body or agency, applicable to WOWFactor, the Business or any of
the Assets, including, but not limited to, those relating to: occupational
safety and health matters; issues of environmental and ecological protection
(e.g., the use, storage, handling, transport or disposal of pollutants,
contaminants or hazardous or toxic materials or wastes, and the exposure of
persons thereto); business practices and operations; labor practices; employee
benefits; and zoning and other land use laws and regulations, the effect of
which would be to materially adversely effect the Business, any of the Assets or
the WOWFactor Common Stock.
3.13 Properties. All plants, structures and equipment
which are utilized in the Business, or are material to the condition (financial
or otherwise) of WOWFactor are owned or leased by WOWFactor and are in good
operating condition and repair (ordinary wear and tear excepted), and are
adequate and suitable for the purposes for which they are used. Schedule 3.13
sets forth all (a) real property which is owned, leased (whether as lessor or
lessee) or subject to contract or commitment of purchase or sale or lease
(whether as lessor or lessee) by WOWFactor, or which is subject to a title
retention or conditional sales agreement or other security device, and (b)
tangible personal property which is owned, leased (whether as lessor or lessee)
or subject to contract or commitment of purchase or sale or lease (whether as
lessor or lessee) by WOWFactor.
3.14 Intangibles/Inventions. Schedule 3.14 identifies
(by a summary description) the Intangibles (as defined below) the ownership
thereof and, if applicable, WOWFactor's authority for use of the same, which
Schedule is complete and correct and encompasses: (A) all United States and
foreign patents, trademark and trade name registrations, trademarks and trade
names, brandmarks and brand name registrations, servicemarks and servicemark
registrations, assumed names and copyrights and copyright registrations, owned
in whole or in part or used by WOWFactor, and all applications therefor
(collectively, the "Marks"), (B) all inventions, discoveries, improvements,
processes, formulae, technology, know-how, processes and other intellectual
property, proprietary rights and trade secrets relating to the Business
(collectively, the "Inventions") and (C) all licenses and other agreements to
which
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WOWFactor is a party or otherwise bound which relate to any of the Intangibles
or the Inventions or WOWFactor's use thereof in connection with the Business
(collectively, the "Licenses, and together with the Marks and the Inventions,
the "Intangibles"). Neither WOWFactor nor any of the Stockholders has knowledge
that any violation(s) of the terms of any of the aforesaid licenses and/or
agreements has occurred. Except as disclosed on Schedule 3.14, (A) WOWFactor
owns or is authorized to use in connection with the Business all of the
Intangibles; (B) no proceedings have been instituted, are pending, or to the
best knowledge of the Stockholders, are threatened which challenge the rights of
WOWFactor with respect to the Intangibles or its use thereof in connection with
the Business and/or the Assets or the validity thereof and, there is no valid
basis for any such proceedings; (C) neither WOWFactor's ownership of the
Intangibles nor their use thereof in connection with the Business and/or the
Assets violates any laws, statutes, ordinances or regulations, or, to the best
knowledge of the Stockholders or WOWFactor, has at any time infringed upon or
violated any rights of others, or is being infringed by others; (D) none of the
Intangibles, or WOWFactor's use thereof in connection with the Business and/or
the Assets is subject to any outstanding order, decree, judgment, stipulation or
any lien, security interest or other encumbrance; and (E) WOWFactor has not
granted any license to third parties with regard to its Intangibles.
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3.15 Systems and Software. WOWFactor and its subsidiaries
owns or has the right to use pursuant to lease, license, sublicense, agreement,
or permission all computer hardware, software and information systems necessary
for the operation of the businesses of WOWFactor and its subsidiaries as
presently conducted (collectively, "Systems"). Each System owned or used by
WOWFactor or its subsidiaries immediately prior to the Closing Date will be
owned or available for use by WOWFactor or its subsidiaries on identical terms
and conditions immediately subsequent to the Closing Date. With respect to each
System owned by a third party and used by WOWFactor or its subsidiaries pursuant
to lease, license, sublicense, agreement or permission: (a) the lease, license,
sublicense, agreement or permission covering the System is legal, valid,
binding, enforceable, and in full force and effect; (b) the lease, license,
sublicense, agreement or permission will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
Closing Date; (c) no party to any such lease, license, sublicense, agreement or
permission is in breach or default, and no event has occurred which with notice
or lapse of time would constitute a breach or default, and permit termination,
modification or acceleration thereunder; (d) no party to any such lease,
license, sublicense, agreement or permission has repudiated any provision
thereof; (e) neither WOWFactor nor its subsidiaries have granted any sublicense,
sublease or similar right with respect to any such lease, license, sublicense,
agreement or permission; (f) to the best knowledge of the Stockholders and
WOWFactor, WOWFactor's or its subsidiaries' use and continued use of such
Systems does not and will not interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any intellectual property rights of third
parties as a result of the continued operation of the Business.
3.16 Tax Matters. WOWFactor has filed with the appropriate
governmental agencies all tax returns and reports required to be filed by it,
and has paid in full or contested in good faith or made adequate provision for
the payment of, Taxes (as defined herein) shown to be due or claimed to be due
on such tax returns and reports. The provisions for Taxes which are set forth on
the Balance Sheet are adequate for all accrued and unpaid taxes of WOWFactor as
of June 30, 1998, whether (i) incurred in respect of or measured by income of
WOWFactor for any periods prior to the close of business on that date, or (ii)
arising out of transactions entered into, or any state of facts existing, on or
prior to such date. WOWFactor has duly withheld all payroll taxes, FICA and
other federal, state and local taxes and other items requiring to be withheld by
it from employer wages, and has duly deposited the same in trust for or paid
over to the proper taxing authorities. WOWFactor has not executed or filed with
any taxing authority any agreement extending the periods for the assessment or
collection of any Taxes, and is not a party to any pending or, to the best
knowledge of the
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Stockholders, threatened, action or proceeding by any governmental authority for
the assessment or collection of Taxes. Within the past three years, the United
States federal income tax returns of WOWFactor have not been examined by the
Internal Revenue Service ("the IRS"), nor has any state taxing authority
examined any merchandise, personal property, sales or use tax returns of
WOWFactor. As used herein, the term "Taxes" means all federal, state, county,
local and other taxes and governmental assessments, including but not limited to
income taxes, estimated taxes, withholding taxes, excise taxes, ad valorem
taxes, payroll related taxes (including but not limited to premiums for worker's
compensation insurance and statutory disability insurance), employment taxes,
franchise taxes and import duties, together with any related liabilities,
penalties, fines, additions to tax or interest.
3.17 Insurance. Schedule 3.17 is a complete and correct
list and summary description of all contracts and policies of insurance relating
to any of the Assets, the Business or the Stockholders in which WOWFactor is an
insured party, beneficiary or loss payable payee. Such policies are in full
force and effect, all premiums due and payable with respect thereto have been
paid, and no notice of cancellation or termination has been received by
WOWFactor with respect to any such policy.
3.18 Banks; Powers of Attorney. Schedule 3.18 is a
complete and correct list showing (a) the names of each bank in which WOWFactor
has an account or safe deposit box and the names of all persons authorized to
draw thereon or who have access thereto, and (b) the names of all persons, if
any, holding powers of attorney from WOWFactor.
3.19 Employee Arrangements. Schedule 3.19 is a complete
and correct list and summary description of all (a) union, collective
bargaining, employment, management, termination and consulting agreements to
which WOWFactor is a party or otherwise bound, and (b) compensation plans and
arrangements; bonus and incentive plans and arrangements; deferred compensation
plans and arrangements; pension and retirement plans and arrangements;
profit-sharing and thrift plans and arrangements; stock purchase and stock
option plans and arrangements; hospitalization and other life, health or
disability insurance or reimbursement programs; holiday, sick leave, severance,
vacation, tuition reimbursement, personal loan and product purchase discount
policies and arrangements; and other plans or arrangements providing for
benefits for employees of WOWFactor. Said Schedule also lists the names and
compensation of all employees of WOWFactor whose earnings during the last fiscal
year were $25,000 or more (including bonuses and other incentive compensation),
and all employees who are expected to receive at least said amount in respect of
the current fiscal year.
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3.20 ERISA. Except as listed on Schedule 3.20, WOWFactor
neither maintains nor is obligated to contribute to an "employee pension benefit
plan" ("WOWFactor Pension Plan"), as such term is defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
WOWFactor's "welfare benefit plan" (collectively called "WOWFactor Welfare
Plans") as such term is defined in Section 3(1) of ERISA.
3.21 Environmental Matters. WOWFactor has obtained and is
in compliance with the terms and conditions of all required permits, licenses,
registrations and other authorizations required under Environmental Laws (as
hereinafter defined). No asbestos in a friable condition, equipment containing
polychlorinated biphenyls, leaking underground or above-ground storage tanks are
contained in or located at any facility currently, or was contained or located
at any facility previously owned, leased or controlled by WOWFactor. WOWFactor
has not released, discharged or disposed of on, under or about any facility
currently or previously owned, leased or controlled by WOWFactor, any Hazardous
Substance (as hereinafter defined), and to the best of WOWFactor's knowledge, no
third party has released, discharged or disposed of on, under or about any
facility currently or previously owned, leased or controlled by WOWFactor, and
Hazardous Substances (as hereinafter defined). WOWFactor is in compliance with
all applicable Environmental Laws. WOWFactor has fully disclosed to Frontline
all past and present noncompliance with, or liability under, Environmental Laws,
and all past discharges, emissions, leaks, releases or disposals by it of any
substance or waste regulated under or defined by Environmental Laws that have
formed or could reasonably be expected to form the basis of any claim, action,
suit, proceeding, hearing or investigation under any applicable Environmental
Laws. WOWFactor has not received notice of any past or present events,
conditions, circumstances, activities, practices, incidents, actions or plans of
WOWFactor that have resulted in or threaten to result in any common law or legal
liability, or otherwise form the basis of any claim, action, suit, proceeding,
hearing or investigation under, any applicable Environmental Laws. For purposes
of this Section 2.22, (a) "Environmental Laws: mean applicable federal, state,
local and foreign laws, regulations and codes relating in any respect to
pollution or protection of the environment and (b) "Hazardous Substances" means
any toxic, caustic or otherwise dangerous substance (whether or not regulated
under federal, state or local environmental statutes, rules, ordinances, or
orders), including (i) "hazardous substance" as defined in 42 U.S.C. Section
9601, and (ii) petroleum products, derivatives, byproducts and other
hydrocarbons.
3.22 Certain Business Matters. Except as is set forth in
Schedule 3.22, (a) WOWFactor is not a party to or bound by any publishing,
distributorship, dealership, sales agency, franchise or similar agreement which
relates to the sale or
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distribution of any of the products and services of the Business, (b) WOWFactor
has no sole-source supplier of significant goods or services (other than
utilities) with respect to which practical alternative sources are not available
on comparable terms and conditions, (c) there are no pending or, to the best
knowledge of the Stockholders, threatened labor negotiations, work stoppages or
work slowdowns involving or affecting the Business, and no union representation
questions exist, and there are no organizing activities, in respect of any of
the employees of WOWFactor, (d) the product and service warranties given by
WOWFactor or by which it is bound (complete and correct copies or descriptions
of which have heretofore been delivered by WOWFactor to Frontline) entail no
greater obligations than are customary in the Business, (e) neither WOWFactor
nor the Stockholders is a party to or bound by any agreement which limits its or
his, as the case may be, freedom to compete in any line of business or with any
person, or which is otherwise materially burdensome to WOWFactor or the
Stockholders, and (f) WOWFactor is not a party to or bound by any agreement in
which any officer, director or stockholder of WOWFactor (or any affiliate of any
such person) has, or had when made, a direct or indirect material interest.
3.23 Certain Contracts. Schedule 3.23 is a complete and
correct list of all material contracts, commitments, obligations and
understandings which are not set forth in any other Schedule delivered hereunder
and to which WOWFactor is a party or otherwise bound, except for (a) purchase
orders from vendors or customers and (b) each of those which (i) were made in
the ordinary course of business and (ii) either (A) are terminable by WOWFactor
(and will be terminable by WOWFactor) without liability, expense or other
obligation on 30 days' notice or less, or (B) may be anticipated to involve
aggregate payments to or by WOWFactor of $5,000 (or the equivalent) or less
calculated over the full term thereof, and (C) are not otherwise material to the
Business. Complete and correct copies of all contracts, commitments, obligations
and undertakings set forth on any of the Schedules delivered pursuant to this
Agreement have been furnished by WOWFactor to Frontline. Except as expressly
stated on any of such Schedules, (1) each of the agreements listed on Schedule
3.23 is in full force and effect, no person or entity which is a party thereto
or otherwise bound thereby is in material default thereunder, and no event,
occurrence, condition or act exists which does (or which with the giving of
notice or the lapse of time or both would) give rise to a material default or
right of cancellation, acceleration or loss of contractual benefits thereunder;
(2) there has been no threatened cancellations thereof, and there are no
outstanding disputes thereunder; (3) none of them is materially burdensome to
WOWFactor; and (4) each of them is fully assignable without the consent,
approval, order or any waiver by, or any other action of or with any individual
or individuals, without the payment of any penalty, the incurrence of any
additional debt, liability or obligation of any nature whatsoever or the change
of any term.
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3.24 Customers and Suppliers. WOWFactor has previously
provided to Frontline a complete and correct list setting forth, as of June 30,
1998, (a) the 10 largest customers of the Business and the amount for which each
such customer was invoiced, and (b) the 10 largest suppliers of the Business and
the amount of goods and services purchased from each such supplier. There are no
(i) threatened cancellations by the aforesaid customers or suppliers with
respect to the Business, (ii) outstanding disputes by such customers or
suppliers with WOWFactor and the Business, or (iii) adverse changes in the
business relationship between the Business and any such customer or supplier.
Neither the Stockholders nor WOWFactor has reason to believe that the aforesaid
suppliers and customers will not continue their respective relationships with
the Business after the Closing Date on substantially the same basis as now
exists.
3.25 Approvals/Consents. Except as set forth on
Schedule 3.25, WOWFactor currently holds all governmental and administrative
consents, permits, appointments, approvals, licenses, certificates and
franchises which are necessary for the operation of the Business, all of which
are in full force and effect and are transferable pursuant to the transaction
contemplated hereby without the payment of any penalty or the incurrence of any
additional debt, liability or obligation of any nature whatsoever or the change
of any term. Schedule 3.25 is a complete and correct list of all such
governmental and administrative consents, permits, appointments, approvals,
licenses, certificates and franchises. No material violations of the terms
thereof have heretofore occurred or are known by the Stockholders to exist as of
the date of this Agreement.
3.26 Information as to WOWFactor. None of the
representations or warranties made by WOWFactor or the Stockholders in this
Agreement is, or contained in any of the WOWFactor Documents to be executed and
delivered hereto will be, false or misleading with respect to any material fact,
or omits to state any material fact necessary in order to make the statements
therein contained not misleading.
3.27 Securities Act Representation. Each Stockholder is
acquiring the Frontline Common Stock solely for investment purposes, with no
intention of distributing or reselling any such stock or any interest therein.
Each Stockholder is aware that the Frontline Common Stock will not be registered
under the Securities Act of 1933, as amended (the "Securities Act"), and that
neither the Frontline Common Stock nor any interest therein may be sold,
pledged, or otherwise transferred unless the Frontline Common Stock is
registered under the Securities Act or qualifies for an exemption under the
Securities Act.
3.28 Guarantees. Schedule 3.28 hereto is a complete and
accurate list and summary description of all written
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guarantees currently in effect heretofore issued by the Stockholders or
WOWFactor to any bank or other lender in connection with any credit facilities
extended by such creditors to WOWFactor or issued by the Stockholders in
connection with any other contracts or agreements (collectively, the
"Guarantees"), including the name of such creditor and the amount of the
indebtedness, together with any interest and fees currently owing and expected
to be outstanding as of the Closing.
4. Representations and Warranties as to Frontline. Frontline
represents and warrants to WOWFactor and the Stockholders, as follows:
4.1 Organization, Standing and Power. Frontline is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, with full corporate power and corporate authority to
(i) own, lease and operate its properties, (ii) carry on its business as
currently conducted by it and (iii) execute and deliver, and perform under this
Agreement and each other agreement and instrument to be executed and delivered
by it pursuant hereto. To the best knowledge of Frontline, there are no states
or jurisdictions in which the character and location of any of the properties
owned or leased by WOWFactor, or the conduct of the Business makes it necessary
for WOWFactor to qualify to do business as a foreign corporation, except for
those jurisdictions in which the failure to so qualify would not have a
materially adverse effect on the Business or operations of WOWFactor. True and
correct copies of the Certificate of Incorporation of Frontline, and all
amendments thereto, and of the By-Laws of Frontline, as amended to date, have
heretofore been furnished to WOWFactor.
4.2 Capitalization. The authorized capital stock of
Frontline consists of 1,000,000 shares of preferred stock (none of which are
outstanding at this time) and 10,000,000 shares of Frontline Common Stock,
3,016,480 shares of Frontline Common Stock are issued and outstanding, all of
which are duly authorized, validly issued, fully paid and nonassessable, (ii)
[_______________] shares of Frontline Common Stock are issuable upon exercise of
options and (iii) 2,460,000 shares of Frontline Common Stock are reserved for
future issuance upon exercise of outstanding common stock purchase warrants.
4.3 Authority. The execution and delivery by Frontline of
this Agreement and of each agreement to be executed and delivered by it pursuant
hereto (collectively, the "Frontline Documents"), the performance by Frontline
of its obligations hereunder and thereunder, and the consummation of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by all necessary corporate action on the part of Frontline, and
Frontline has all necessary corporate power and corporate authority with respect
thereto. This Agreement is, and when executed and delivered by Frontline each
other Frontline
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Document will be, the valid and binding obligation of Frontline, in accordance
with the respective terms thereof, except as the same may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws affecting the
rights of creditors generally and subject to the rules of law governing (and all
limitations on) specific performance, injunctive relief, and other equitable
remedies.
4.4 Stock Issuable in Transaction. The Frontline Stock
issuable pursuant to the purchase price, when issued, will be duly authorized
and validly issued, fully paid and non-assessable, will be delivered hereunder
free and clear of any Liens, except that such shares of Frontline Common Stock
will be "restricted securities", as such term is defined in the rules and
regulations of the SEC promulgated under the Securities Act, and will be subject
to restrictions on transfers pursuant to such rules and regulations.
4.5 Information as to Frontline. None of the
representations or warranties made by Frontline in this Agreement, or contained
in any of the Frontline Documents, to be executed and delivered hereto, is or
will be, false or misleading with respect to any material fact, or omits to
state any material fact necessary in order to make the statements therein
contained not misleading.
4.6 Securities and Exchange Commission Filings; Financial
Statements.
(a) Frontline has filed on EDGAR all forms, reports,
statements and documents required to be filed with the Securities and Exchange
Commission ("SEC") (collectively, the "SEC Reports"), each of which has complied
in form in all material respects with the applicable requirements of the
Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as applicable, each as in effect on the date so filed. None of such
reports (including but not limited to any financial statements or schedules
included or incorporated by reference therein) filed by Frontline, when filed
(except to the extent revised or superseded by a subsequent filing with the SEC)
contained any untrue statement of a material fact.
(b) Each of the consolidated financial statements
contained in the SEC Reports has been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved (except as may otherwise be indicated in the notes thereto) and
each presents fairly, in all material respects, the financial position of
Frontline as at the respective dates thereof and the results of its operations
and cash flow position for the periods indicated.
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(c) Except as and to the extent set forth on the
balance sheet of Frontline [as at June 30, 1998,] including the notes thereto,
Frontline does not have any liabilities or obligations, whether or not accrued,
contingent or otherwise, that would be required to be included on a balance
sheet prepared in accordance with GAAP, except for liabilities or obligations
incurred in the ordinary course of business since [June 30, 1998,] none of which
would, individually or in the aggregate, have a material adverse effect on the
financial condition, or results of the operations or cash flows of Frontline.
4.7 Noncontravention. Except as set forth in the
SEC Reports, neither the execution and delivery by Frontline of this Agreement
or of any other Frontline Documents to be executed and delivered by Frontline,
nor the consummation of any of the transactions contemplated hereby or thereby,
nor the performance by Frontline any of its obligations hereunder or thereunder,
will (nor with the giving of notice or the lapse of time or both would) (a)
conflict with or result in a breach of any provision of the Certificate of
Incorporation, By-Laws or other constituent documents of Frontline, each as
amended to date, or (b) give rise to a default, or any right of termination,
cancellation or acceleration, or otherwise be in conflict with or result in a
loss of contractual benefits to Frontline, under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation to which Frontline is a party or by it or any of its
assets may be bound, or require any consent, approval or notice under the terms
of any such document or instrument, or (c) violate any order, writ, injunction,
decree, law, statute, rule or regulation of any court or governmental authority
which is applicable to Frontline, or (d) result in the creation or imposition of
any lien, adverse claim, restriction, charge or encumbrance upon the Series A
Preferred or Frontline Common Stock, or (e) interfere with or otherwise
adversely affect the ability of Frontline to carry on its business after the
Closing Date on substantially the same basis as is now conducted by Frontline.
4.8 Absence of Changes. Since June 30, 1998, there have
not been (a) any adverse change (other than as is normal in the ordinary course
of business) in the condition (financial or otherwise), assets, liabilities,
business, prospects, results of operations or cash flows of Frontline
(including, without limitation, any such adverse change resulting from damage,
destruction or other casualty loss, whether or not covered by insurance), (b)
any waivers by Frontline of any right, or cancellation of any debt or claim, of
substantial value, (c) any declarations, set asides or payments of any dividend
or other distributions or payments in respect of the Frontline Common Stock, or
(d) any changes in the accounting principles or methods which are utilized by
Frontline.
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4.9 Litigation. Except as set forth in Schedule 4.9,
there are no claims, suits or actions, or administrative, arbitration or other
proceedings or governmental investigations, pending or, to the best knowledge of
Frontline, threatened, against or relating to Frontline, the transactions
contemplated hereby or any of the assets of Frontline. There are no judgments,
orders, stipulations, injunctions, decrees or awards in effect which relate to
Frontline, this Agreement, the transactions contemplated, the business
operations or any of the assets of Frontline, the effect of which is (a) to
limit, restrict, regulate, enjoin or prohibit any business practice of Frontline
in any area, or the acquisition by Frontline of any properties, assets or
businesses, or (b) otherwise adverse to the business operations or any of the
assets of Frontline or the Frontline Common Stock.
4.10 No Violation of Law. Frontline is not engaging in any
activity or omitting to take any action as a result of which it is in violation
of any law, rule, regulation, zoning or other ordinance, statute, order,
injunction or decree, or any other requirement of any court or governmental or
administrative body or agency, applicable to Frontline, its business operations
or any of its assets, including, but not limited to, those relating to:
occupational safety and health matters; issues of environmental and ecological
protection (e.g., the use, storage, handling, transport or disposal of
pollutants, contaminants or hazardous or toxic materials or wastes, and the
exposure of persons thereto); business practices and operations; labor
practices; employee benefits; and zoning and other land use laws and
regulations, the effect of which would be to materially adversely effect the
business operations or any of the assets of Frontline or the Frontline Common
Stock.
4.11 Tax Matters. Frontline has filed with the appropriate
governmental agencies all tax returns and reports required to be filed by it,
and has paid in full or contested in good faith or made adequate provision for
the payment of, Taxes shown to be due or claimed to be due on such tax returns
and reports. The provisions for Taxes which are set forth on the consolidated
financial statements contained in the SEC Reports are adequate for all accrued
and unpaid taxes of Frontline as of [June 30, 1998,] whether (i) incurred in
respect of or measured by income of Frontline for any periods prior to the close
of business on that date, or (ii) arising out of transactions entered into, or
any state of facts existing, on or prior to such date. Frontline has duly
withheld all payroll taxes, FICA and other federal, state and local taxes and
other items requiring to be withheld by it from employer wages, and has duly
deposited the same in trust for or paid over to the proper taxing authorities.
Frontline has not executed or filed with any taxing authority any agreement
extending the periods for the assessment or collection of any Taxes, and is not
a party to any pending or, to the best knowledge of Frontline, threatened,
action or proceeding by any
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governmental authority for the assessment or collection of Taxes. Within the
past three years, the United States federal income tax returns of Frontline have
not been examined by the Internal Revenue Service ("the IRS"), nor has any state
taxing authority examined any merchandise, personal property, sales or use tax
returns of WOWFactor.
5. Indemnification.
5.1 Indemnification by the Stockholders.
a) Subject to subparagraph (b) hereof, each of the
Stockholders, jointly and severally, hereby indemnifies and agrees to defend and
hold harmless Frontline from and against any and all losses, obligations,
deficiencies, liabilities, claims, damages, costs and expenses (including,
without limitation, the amount of any settlement entered into pursuant hereto,
and all reasonable legal and other expenses incurred in connection with the
investigation, prosecution or defense of any matter indemnified pursuant hereto)
which Frontline may sustain, suffer or incur and which arise out of, are caused
by, relate to, or result or occur from or in connection with (i) any
misrepresentation of a material fact contained in any representation of
WOWFactor and/or the Stockholders contained in, or the breach by WOWFactor or
the Stockholders of any warranty or covenant made by any one or all of them in,
any WOWFactor Document and/or any Shareholder Document or (ii) any finder's or
broker's fees, commissions or like payments, owing or allegedly owing to
LePercq, deNeuflize, & Co., Inc. The foregoing indemnification provisions shall
also apply to direct claims by Frontline against the Stockholders, which direct
claims are finally resolved in favor of Frontline.
b) In no event, however, (i) shall the obligation of
the Minority Stockholders (as defined in Schedule 2(b) hereof) to indemnify
Frontline exceed their respective pro rata share of the Share Consideration or
(ii) shall the obligation of the Majority Stockholders (as defined in Schedule
2(b) hereof) to indemnify Frontline exceed the greater of (1) the aggregate of
the Market Value of the Share Consideration or (2) $1,000,000.
5.2 Indemnification by Frontline. Frontline indemnifies
and agrees to defend and hold harmless each of WOWFactor (before the Closing
Date) and the Stockholders from and against any and all losses, obligations,
deficiencies, liabilities, claims, damages, costs and expenses (including,
without limitation, the amount of any settlement entered into pursuant hereto,
and all reasonable legal and other expenses incurred in connection with the
investigation, prosecution or defense of any matter indemnified pursuant
hereto), which it or he may sustain, suffer or incur and which arise out of, are
caused by, relate to, or result or occur from or in connection
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with any misrepresentation of a material fact contained in any representation of
Frontline contained in, or the breach by Frontline of any warranty or covenant
made by it in any Frontline Document. The foregoing indemnification shall also
apply to direct claims by WOWFactor or the Stockholders against Frontline, which
direct claims are finally resolved in favor of WOWFactor or the Stockholders, as
the case may be.
5.3 Third Party Claims. If a claim by a third party is
made against any party or parties hereto and the party or parties against whom
said claim is made intends to seek indemnification with respect thereto under
Subsections 5.1 or 5.2, the party or parties seeking such indemnification shall
promptly notify the indemnifying party or parties, in writing, of such claim;
provided, however, that the failure to give such notice shall not affect the
rights of the indemnified party or parties hereunder except to the extent that
such failure materially and adversely affects the indemnifying party or parties
due to the inability to timely defend such action. The indemnifying party or
parties shall have 10 business days after said notice is given to elect, by
written notice given to the indemnified party or parties, to undertake, conduct
and control, through counsel of their own choosing (subject to the consent of
the indemnified party or parties, such consent not to be unreasonably withheld)
and at their sole risk and expense, the good faith settlement or defense of such
claim, and the indemnified party or parties shall cooperate with the
indemnifying parties in connection therewith; provided: (a) all settlements
require the prior reasonable consultation with the indemnified party and the
prior written consent of the indemnified party, which consent shall not be
unreasonably withheld, and (b) the indemnified party or parties shall be
entitled to participate in such settlement or defense through counsel chosen by
the indemnified party or parties, provided that the fees and expenses of such
counsel shall be borne by the indemnified party or parties. So long as the
indemnifying party or parties are contesting any such claim in good faith, the
indemnified party or parties shall not pay or settle any such claim; provided,
however, that notwithstanding the foregoing, the indemnified party or parties
shall have the right to pay or settle any such claim at any time, provided that
in such event they shall waive any right of indemnification therefor by the
indemnifying party or parties. If the indemnifying party or parties do not make
a timely election to undertake the good faith defense or settlement of the claim
as aforesaid, or if the indemnifying parties fail to proceed with the good faith
defense or settlement of the matter after making such election, then, in either
such event, the indemnified party or parties shall have the right to contest,
settle or compromise (provided that all settlements or compromises require the
prior reasonable consultation with the indemnifying party and the prior written
consent of the indemnifying party, which consent shall not be
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unreasonably withheld) the claim at their exclusive discretion, at the risk and
expense of the indemnifying parties.
5.4 Assistance. Regardless of which party is controlling
the defense of any claim, each party shall act in good faith and shall provide
reasonable documents and cooperation to the party handling the defense.
6. Covenants
6.1 Confidentiality.
(a) The parties hereto hereby agree that all
confidential information of a party to which the other parties hereto obtain
access shall be deemed "confidential information." As used in this Section, the
term "Confidential Information" shall mean any and all information (verbal and
written) relating to the Business, including, but not limited to, information
relating to: identity and description of goods and services used; purchasing;
costs; pricing; sources; machinery and equipment; technology; research, test
procedures and results; customers and prospects; marketing; and selling and
servicing;
(b) After the Closing Date each of the Stockholders
agrees not to, at any time, directly or indirectly, use, communicate, disclose
or disseminate any Confidential Information in any manner whatsoever.
6.2 Noncompete Covenant.
(a) In addition to any restrictive covenants
contained in the Employment Agreement, Margaret McGillin hereby agrees after the
Closing Date not to, until the second anniversary of the Closing Date directly
or indirectly (A) engage or become interested in any business (whether as owner,
manager, operator, licensor, licensee, lender, partner, stockholder, joint
venturer, employee, consultant or otherwise) engaged in any business then
engaged in by Frontline or WOWFactor in any of the areas in which Frontline or
WOWFactor then conducts business, other than ownership, directly or indirectly,
of record or beneficially, of not more than one percent (1%) of the
publicly-traded capital stock held solely for investment purposes of any other
corporation engaged in the same or similar business to that business engaged in
by Frontline or WOWFactor or (B) take any other action which constitutes an
interference with or a disruption of WOWFactor's operation of the Business or
WOWFactor's use, ownership and enjoyment of the Assets.
(b) For purposes of clarification, but not
of limitation, each Stockholder acknowledges and agrees that the provisions of
subsection 6.2 above shall serve as a prohibition against him, during the period
described therein, directly or indirectly, hiring, offering to hire, enticing
away or in any
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other manner persuading or attempting to persuade any officer, employee, agent,
lessor, lessee, licensor, licensee, customer, prospective customer or supplier
of the Business to discontinue or alter his or its relationship with the
Business.
(c) The parties hereto hereby acknowledge and agree
that (i) Frontline would be irreparably injured in the event of a breach by any
of the Stockholders of any of their obligations under this Section 6, (ii)
monetary damages would not be an adequate remedy for any such breach, and (iii)
WOWFactor and/or Frontline shall be entitled to injunctive relief, in addition
to any other remedy which it may have, in the event of any such breach. It is
hereby also agreed that the existence of any claims which Stockholders may have
against Frontline, whether under this Agreement or otherwise, shall not be a
defense to the enforcement by WOWFactor and/or Frontline of any of the rights
under this Section 6.
(d) It is the intent of the parties hereto that the
covenants contained in this Agreement shall be enforced to the fullest extent
permissible under the laws of and public policies of each jurisdiction in which
enforcement is sought (the Stockholders hereby acknowledge that said
restrictions are reasonably necessary for the protection of Frontline).
Accordingly, it is hereby agreed that if any one or more of the provisions of
Section 6 shall be adjudicated to be invalid or unenforceable for any reason
whatsoever, said provision shall be (only with respect to the operation thereof
in the particular jurisdiction in which such adjudication is made) construed by
limiting and reducing it so as to be enforceable to the extent permissible.
(e) The provisions of this Section 6.2 shall be in
addition to, and not in lieu of, any other obligations with respect to the
subject matter hereof, whether arising as a matter of contract, by law or
otherwise, including, but not limited to, any obligations which may be contained
in any employment or consulting agreements between WOWFactor and the
Stockholders.
6.3 Cooperation/Further Assurances.
(a) Each of the parties hereto hereby agrees (i) to
fully cooperate with the other parties hereto in preparing and filing any
notices, applications, reports and other instruments and documents and (ii) to
execute, acknowledge, deliver, file and/or record, or cause such other parties
to the extent permitted by law to execute, acknowledge, deliver, file and/or
record such other documents, which may be required by this Agreement or which
are desirable in the reasonable opinion of any of the parties hereto, or their
respective legal counsel, in respect of, any statute, rule, regulation or order
of any governmental or administrative body in connection with the transactions
contemplated by this Agreement.
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(b) WOWFactor hereby further agrees to make
available, at Frontline's request, personnel to provide reasonable assistance,
without compensation, in the orderly transfer of customer accounts from
WOWFactor to Frontline, including without limitation administrative services
with respect to billing.
6.4 Broker. Each of Frontline, WOWFactor, and the
Stockholders represents and warrants to the other parties that no broker or
finder was engaged or dealt with in connection with any of the transactions
contemplated by this Agreement, and each of the parties shall indemnify and hold
the other harmless from and against any and all claims or liabilities asserted
by or on behalf of any alleged broker or finder for broker's fees, finder's
fees, commissions or like payments. Notwithstanding any of the foregoing, it is
hereby acknowledged that LePercq, deNeuflize, & Co., Inc. has acted as a
financial advisor to WOWFactor and the Stockholders in connection with this
transaction, and shall, in consideration of its services, be entitled to receive
from the Stockholders a percentage of the Frontline Common Shares issued to the
Stockholders upon the conversion of the Series A Preferred.
6.5 Registration Rights Agreement. Frontline and
Stockholders shall enter into a registration rights agreement substantially in
the form of Exhibit A hereto (the "Registration Rights Agreement"), whereby
Frontline would grant the Stockholders certain "piggyback" registration rights
with respect to the Share Consideration.
6.6 Employment Agreement. WOWFactor shall execute an
employment agreement with Margaret M. McGillin ("McGillin") substantially in the
form of Exhibit B hereto (the "Employment Agreement"), upon on terms and
conditions acceptable to Frontline and WOWFactor.
6.7 Post-Closing Audit. WOWFactor and each of the
Stockholders agree to make all information available to, and to cooperate fully
with, Frontline and its accountants, legal counsel or other authorized
representatives, with respect to the preparation and submission, at Frontline's
cost, of audited financial statements for WOWFactor, in accordance with GAAP and
Regulation S-X, as may be required by any government or regulatory agency
following the transactions contemplated hereby.
6.8 Financing. The parties intend that Frontline shall
from time to time provide advances to WOWFactor, in accordance with the Business
Plan (as defined below), up to $500,000 in cash with respect to the working
capital and the investments in property and equipment of WOWFactor, provided
that WOWFactor achieves certain projected revenues and profits in its business
operations, as set forth in the Business Plan attached as Exhibit C hereto, as a
precondition to any such advance.
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Notwithstanding the foregoing, all requests by WOWFactor for advances of funds
in excess of $50,000 must be approved by the board of directors of Frontline at
the time of the request.
6.9 Consents and Approvals. WOWFactor and/or the
Stockholders, as the case may be, shall obtain all consents, waivers, approvals,
licenses and authorizations by third parties and governmental and administrative
authorities (and all amendments or modifications to existing agreements with
third parties) required to perform their respective obligations hereunder and
under any agreement delivered pursuant hereto, or which in Frontline's
reasonable judgment are necessary to continue unimpaired, subsequent to the
Closing Date, any rights in and to the Assets and/or the Business which could be
impaired by the consummation of this transaction, shall have been duly obtained
and shall be in full force and effect (collectively, the "Consents").
6.10 Section 338(h)(10) Election. To the extent that the
Stockholders are eligible to make an election under Sections 338(g) and
338(h)(10) of the Internal Revenue Code of 1986, as amended (the "Code"), and
any corresponding election available under state or local tax law provisions of
each state in which the Stockholders file an income or franchise tax return,
with respect to the sale and purchase of the Frontline Common Stock, Frontline
and the Stockholders shall take all steps necessary to make a timely election
under Sections 338(g) and 338(h)(10) of the Code and any comparable election
under state, local or foreign tax law (collectively, the "Section 338(h)(10)
Election") with respect to the transaction contemplated in this Agreement. The
Stockholders shall pay all taxes attributable to the making of the Section
338(h)(10) Election. In particular and not by way of limitation, in order to
effect the Section 338(h)(10) Election, Frontline and the Stockholders shall
jointly execute all necessary copies of Internal Revenue Service Form 8023 and
all attachments required to be filed therewith pursuant to applicable Treasury
Regulations.
7. Conditions of Closing. [Intentionally omitted]
8. The Closing. Unless this Agreement shall have been
terminated and the transactions herein contemplated shall have been abandoned
pursuant to Section 9, the closing of the transactions contemplated by this
Agreement (the "Closing") will take place at the offices of Tenzer Greenblatt
LLP as promptly as practicable (and in any event within five business days)
after satisfaction or waiver of the conditions set forth in Section 7 but in no
event later than October 2, 1998 (the "Closing Date"); or such later date as
shall have been fixed by a written instrument signed by the parties.
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<PAGE>
8.1 Deliveries by Frontline at the Closing. Except as
otherwise provided, at the Closing, Frontline shall deliver the following:
(a) stock certificate(s), representing the Share
Consideration registered in the names of the Stockholders, deliverable on July
15, 1999;
(b) Options, if any, in the names of the
Stockholders, deliverable on July 15, 1999;
(c) copies of (A) resolutions adopted by the Board of
Directors of Frontline authorizing Frontline to execute and deliver the
Frontline Documents to which it is a party and to perform its obligations
thereunder, upon the terms and subject to the conditions set forth therein, duly
certified by the Secretary or Assistant Secretary of Frontline;
(d) certificates of the Secretary or Assistant
Secretary of Frontline certifying as to the incumbency and specimen signatures
of the officers of Frontline executing the Frontline Documents on behalf of such
corporation;
(e) certificates executed by an authorized officer of
Frontline, to the effect that all the representations and warranties of
Frontline are true and complete in all material respects, that all covenants to
be performed by Frontline at or as of the Closing have been performed in all
material respects and that the performance of all covenants to be performed by
WOWFactor or the Stockholders at or as of the Closing have been waived or
satisfied in all material respects;
(f) an opinion of Tenzer Greenblatt LLP, counsel for
Frontline, dated as of the Closing Date, in substantially the form of Exhibit D
hereto; and
(g) the Registration Rights Agreement duly executed
by Frontline.
8.2 Deliveries by WOWFactor and/or the Stockholders at the
Closing. At the Closing, WOWFactor and/or the Stockholders, as applicable, shall
deliver to Frontline, the following:
(a) stock certificate(s) representing the WOWFactor
Common Stock, duly executed by the Stockholders;
(b) a copy of the resolutions of the Board of
Directors of WOWFactor, and the written consent of the Stockholders, authorizing
WOWFactor to execute and deliver the WOWFactor Documents, to perform its
obligations thereunder and to consummate the transaction contemplated in this
Agreement, duly certified by the Secretary or assistant Secretary of WOWFactor;
-24-
<PAGE>
(c) certificates of the Secretary or Assistant
Secretary of WOWFactor certifying as to the incumbency and specimen signatures
of the officers of WOWFactor executing the WOWFactor Documents on behalf of such
corporation;
(d) certificates executed by an authorized officer of
WOWFactor and each of the Stockholders, to the effect that their respective
representations and warranties are true and complete in all material respects,
that the respective covenants to be performed by WOWFactor and the Stockholders,
as applicable, at or as of the Closing have been performed in all material
respects and that performance of all covenants to be performed by Frontline at
or as of the Closing have been waived or satisfied in all material respects;
(e) opinion of Reed Smith Shaw & McClay, LLP, counsel
for WOWFactor and the Stockholders, dated the Closing Date, in substantially the
form of Exhibit E hereto;
(f) financial statements with respect to WOWFactors
as at the Closing Date, prepared by WOWFactor's accountants in accordance with
GAAP, evidencing that WOWFactor's indebtedness at the Closing Date is not in
excess of $78,000;
(g) assignments with respect to any Intangibles
necessary to the Business but not held in the name of WOWFactor;
(h) any and all Consents;
(i) the Employment Agreement, duly executed by
McGillin; and
(j) the Registration Rights Agreement duly executed
by the Stockholders.
8.3 Other Deliveries. In addition, the parties shall
execute and deliver such other documents as may be required by this Agreement
and as either of them or their respective counsel may reasonably require in
order to document and carry out the transactions contemplated by this Agreement.
9. Survival of Representations and Warranties.
Each of the parties hereto hereby agrees that: (i)
representations and warranties made by or on behalf of him or it in this
Agreement or in any document or instrument delivered pursuant hereto with
respect to tax matters, environmental compliance and ERISA matters shall survive
the respective statutes of limitations for such matters; and (ii) all other
representations or warranties made herein shall survive the Closing Date for a
period of (y) one (1) year after the Closing Date with respect to
representations and warranties made by the
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<PAGE>
Majority Stockholders and (z) six (6) months with respect to representations and
warranties made by the Minority Stockholders.
10. General Provisions.
10.1 Notices. All notices and other communications given
or made pursuant hereto shall be in writing and shall be deemed to have been
duly given or made as of the earlier of the date delivered or mailed if
delivered personally, by overnight courier or mailed by express, registered or
certified mail (postage prepaid, return receipt requested) or by facsimile
transmittal, confirmed by express, certified or registered mail, to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice, except that notices of changes of address shall be
effective upon receipt):
If to Frontline: Frontline Communications Corp.
One Blue Hill Plaza
Suite 1548
Pearl River, New York 10965
Attn: Stephen J. Cole-Hatchard
with a copy to: Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attn: Kenneth Selterman, Esq.
If to WOWFactor or
the Stockholders: WOWFactor, Inc.
41 Watchung Plaza
Suite 310
Montclair, New Jersey 07042
Attn: Margaret McGillin
with a copy to: Reed Smith Shaw & McClay
Princeton Forrestal Village
136 Main Street, Suite 250
Princeton, New Jersey 08540
Attn: Michael P. Weiner, Esq.
10.2 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the
-26-
<PAGE>
end that transactions contemplated hereby are fulfilled to the
greatest extent possible.
10.3 Fees and Expenses. Frontline, on the one hand, and
the Stockholders, on the other hand, shall bear their own expenses in connection
with the transactions contemplated hereby.
10.4 Amendment. This Agreement may not be amended except
by an instrument in writing signed by each of the parties hereto.
10.5 Waiver. At any time prior to the Closing Date, any
party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any such extension or waiver shall be
valid if set forth in an instrument in writing signed by the party or parties to
be bound thereby.
10.6 Entire Agreement. This Agreement and the agreements
referred to herein constitute the entire agreement, and supersede all prior
agreements and undertakings, both written and oral, among the parties, or any of
them, with respect to the subject matter hereof.
10.7 No Assignment. This Agreement shall not be assigned
by operation of law or otherwise, and any assignment shall be null and void.
Notwithstanding the foregoing, in the event of the death of any of the
Stockholders prior to July 15, 1999, the estate of the deceased Stockholder
shall succeed to all of such deceased Stockholder's rights to receive the Share
Consideration, and cash, if any, as described in Section 2(b) above.
10.8 Headings. Headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
10.9 Governing Law. This Agreement shall be governed by,
and construed in accordance with, the law of the State of New York without
regard to its choice of law principles. Each of Frontline, WOWFactor and the
Stockholders hereby irrevocably and unconditionally consents to submit to the
jurisdiction of the courts of the State of New York and of the United States
located in the County of New York, State of New York for any litigation arising
out of or relating to this Agreement and the transactions contemplated hereby
(and agrees not to commence any litigation relating thereto except in such
courts), waives any objection to the laying of venue of any such litigation in
such courts and agrees not to plead or claim that
-27-
<PAGE>
such litigation brought in any such courts has been brought in an inconvenient
forum.
10.10 Counterparts. This Agreement may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original,
but all of which taken together shall constitute one and the same agreement.
[END OF PAGE - SIGNATURE PAGE TO FOLLOW]
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<PAGE>
IN WITNESS WHEREOF, each of Frontline and WOWFactor, by their
respective officers thereunto duly authorized, and the Stockholders,
individually, have caused this Agreement to be executed as of the date first
written above.
FRONTLINE COMMUNICATIONS CORP.
By:/s/ Stephen J. Cole-Hatchard
----------------------------------------------
Name: Stephen J. Cole-Hatchard
Title: President/CEO
WOWFactor, Inc.
By:/s/ Margaret M. McGillin
----------------------------------------------
Name: Margaret M. McGillin
Title: President
Majority Stockholders: /s/Margaret McGillin
------------------------------------------
MARGARET McGILLIN
------------------------------------------
/s/Kathleen Valkovic
------------------------------------------
KATHLEEN VALKOVIC
/s/ Eleanor McGillin
------------------------------------------
ELEANOR McGILLIN
/s/ Patrick Murphy
------------------------------------------
PATRICK MURPHY
Minority Stockholders: /s/ Heather Murray
------------------------------------------
HEATHER KOROSTOFF MURRAY
/s/ Rosemary Murphy
------------------------------------------
ROSEMARY MURPHY
/s/ Gregory Hill
------------------------------------------
GREGORY HILL
/s/ Chuck Ogle
------------------------------------------
CHUCK OGLE
/s/ Brian McGillin
------------------------------------------
BRIAN McGILLIN
/s/ Patricia Slaby
------------------------------------------
PATRICIA SLABY
-29-
<PAGE>
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement ("Agreement") dated as of
October 1, 1998, among Frontline Communications Corp., a Delaware corporation
(the "Company"), and the stockholders listed on the signature pages (each a
"Holder" and collectively, the "Holders").
RECITALS
For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby agree
as follows:
WHEREAS, the Company issued to the Holders on even date
herewith an aggregate of ten (10) shares of the Company's Preferred Stock (the
"Preferred Stock"), convertible into up to an aggregate number of shares of the
common stock, par value $.01 per share, of the Company having a market value of
$1,000,000 but not to exceed an aggregate of 250,000 shares of common stock (the
"Conversion Shares"), as more particularly provided for in the Stock Purchase
Agreement of even date herewith among the Company, WOWFactor, Inc. and each of
the Holders (the "Purchase Agreements"); and
WHEREAS, it is a condition to the performance of the Holders'
obligations under the Purchase Agreement that the Company enter into this
Agreement with the Holders with respect to the Conversion Stock held by the
Holders.
NOW, THEREFORE, in consideration of the foregoing recitals and
mutual covenants herein contained, the parties hereto do hereby agree as
follows:
1. Piggyback Registration.
(a) If, at any time during the period commencing
July 15, 1999 and ending July 15, 2000, the Company proposes to prepare and file
with the Securities and Exchange Commission (the "Commission") a registration
statement on Form S-3 covering equity or debt securities of the Company, or any
such securities of the Company held by its shareholders, other than in
connection with a merger, acquisition or pursuant to a registration statement on
Form S-4 or Form S-8 or any successor form (for purposes of this Article 1, a
"Registration Statement"), the Company will give written notice of its intention
to do so by certified mail ("Notice"), at least fifteen (15) days prior to the
filing of each such Registration Statement, to the Holder. Upon the written
request of the Holder, made within ten (10) days after receipt of the Notice,
that the Company include any of the Holder's Conversion Shares in the proposed
Registration Statement,
<PAGE>
the Company shall, as to the Holder, use reasonable efforts to effect the
registration under the Securities Act of the Conversion Shares which it has been
so requested to register ("Piggyback Registration"), at the Company's sole cost
and expense and at no cost or expense to the Holder (other than any commission,
discounts or counsel fees payable by the Holder, as further provided in Section
3(c) hereof); provided, however, that if, the Piggyback Registration is in
connection with an underwritten public offering and in the written opinion of
the Company's underwriter or managing underwriter of the underwriting group, if
any, for such offering, the inclusion of all or a portion of the Conversion
Shares requested to be registered, when added to the securities being registered
by the Company or the selling shareholder(s), if any, will exceed the maximum
amount of the Company's securities which can be marketed (i) at a price
reasonably related to their then current market value, or (ii) without otherwise
having an adverse effect on the offering, then the Company may exclude from such
offering all or a portion of the Conversion Shares which it has been requested
to register.
(b) Notwithstanding the preceding provisions of
this Section, the Company shall have the right at any time after it shall have
given written notice pursuant to this Section (irrespective of whether any
written request for inclusion of such securities shall have already been made)
to elect not to file any proposed Registration Statement, or to withdraw the
same after the filing but prior to the effective date thereof.
(c) Notwithstanding anything contained herein to
the contrary, the Company shall have no obligation under this Section 1 to
register the Conversion Shares if the Company receives an opinion of counsel
that Rule 144 promulgated under the Securities Act is available to the Holder.
2. Covenants of the Company With Respect to
Registration. The Company hereby covenants and agrees as follows:
(a) The Company shall use reasonable efforts to
cause the Registration Statement to become effective as promptly as possible
under the circumstances at the time prevailing and, if any stop order shall be
issued by the Commission in connection therewith, to use its reasonable efforts
to obtain the removal of such order.
(b) Following the effective date of a
Registration Statement, the Company shall, upon the request of the Holder,
forthwith supply such reasonable number of copies of the Registration Statement,
preliminary prospectus and prospectus meeting the requirements of the Securities
Act, and other documents necessary or incidental to the public offering of the
Conversion Shares as shall be reasonably requested by the Holder to permit the
Holder to make a public distribution of the
-2-
<PAGE>
Holder's Conversion Shares. The obligations of the Company hereunder with
respect to the Holder's Conversion Shares are expressly conditioned on the
Holder's furnishing to the Company such appropriate information concerning the
Holder, the Holder's Conversion Shares and the terms of the Holder's offering of
such shares as the Company may request.
(c) The Company will pay all costs, fees and
expenses in connection with all Registration Statements filed pursuant to
Section 1 hereof, including, without limitation, the Company's legal and
accounting fees, printing expenses and blue sky fees and expenses; provided,
however, that the Holder shall be solely responsible for the fees of any counsel
retained by the Holder in connection with such registration and any transfer
taxes or underwriting discounts, selling commissions or selling fees applicable
to the Conversion Shares sold by the Holder pursuant thereto.
(d) The Company will use reasonable efforts to
qualify or register the Conversion Shares included in a Registration Statement
for offering and sale under the securities or blue sky laws of such states as
are requested by the Holder, provided that the Company shall not be obligated to
execute or file any general consent to service of process (unless the Company is
already then subject to service in such jurisdiction) or to qualify as a foreign
corporation to do business under the laws of any such jurisdiction, except as
may be required by the Securities Act and its rules and regulations.
3. Covenant of the Holder.
The Holder, upon receipt of notice from the
Company that an event has occurred which requires a post-effective amendment to
the Registration Statement or a supplement to the prospectus included therein,
shall promptly discontinue the sale of Conversion Shares until the Holder
receives a copy of a supplemented or amended prospectus from the Company, which
the Company shall provide as soon as practicable after such notice.
4. Indemnification.
(a) The Company shall indemnify, defend and hold
harmless the Holder and such person who controls such Holder within the meaning
of Section 15 of the Securities Act or Section 20(a) of the Securities Exchange
Act of 1934, as amended, from and against any and all losses, claims, damages
and liabilities caused by or arising out of any untrue statement of a material
fact contained in the Registration Statement, or caused by or arising out of any
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission based upon information furnished or required to be
-3-
<PAGE>
furnished in writing to the Company by the Holder or the trustees thereof
expressly for use therein; provided, however, that the indemnification in this
Section shall not inure to the benefit of the Holder on account of any such
loss, claim, damage or liability arising from the sale of Conversion Shares by
the Holder, if a copy of a subsequent prospectus correcting the untrue statement
or omission in such earlier prospectus was provided to the Holder by the Company
prior to the subject sale and the subsequent prospectus was not delivered or
sent by the Holder to the purchaser prior to such sale. The Holder(s) and their
successors and assigns shall at the same time, severally and jointly, indemnify
the Company, its directors, each officer signing the Registration Statement and
each person, if any, who controls the Company within the meaning of the
Securities Act, from and against any and all losses, claims, damages and
liabilities caused by any untrue statement of a material fact contained in the
Registration Statement, or any prospectus included therein, or caused by any
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but solely with respect
to such losses, claims, damages or liabilities caused by any untrue statement or
omissions based upon information furnished or required to be furnished in
writing to the Company by the Holder expressly for use in the Registration
Statement.
5. Governing Law.
(a) This Agreement shall be governed as to
validity, interpretation, construction, effect and in all other respects by the
internal substantive laws of the State of New York, without giving effect to the
choice of law rules thereof.
(b) Each of the Company and the Holder hereby
irrevocably and unconditionally consents to submit to the exclusive jurisdiction
of the courts of the State of New York and of the United States located in the
County of New York, State of New York (the "New York Courts") for any litigation
arising out of or relating to this Agreement and the transactions contemplated
hereby (and agrees not to commence any litigation relating thereto except in
such courts), waives any objection to the laying of venue of any such litigation
in the New York Courts and agrees not to plead or claim that such litigation
brought in any New York Courts has been brought in an inconvenient forum.
6. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed duly given when
delivered by hand or mailed by express,
-4-
<PAGE>
registered or certified mail, postage prepaid, return receipt requested, as
follows:
If to the Company, at:
Frontline Communications Corp.
One Blue Hill Plaza, Suite 1548
Pearl River, New York 10965
with a copy of the same to:
Tenzer Greenblatt L.L.P.
405 Lexington Avenue
23rd Floor
New York, NY 10174
Attn: Kenneth Selterman, Esq.
If to the Holder(s), at that address set forth under their
name on the signature page.
with a copy of the same to:
Reed Smith Shaw & McClay, LLP
Princeton Forrestal Village
136 Main Street, Suite 250
Princeton, NJ 08543
Attn: Michael P. Weiner, Esq.
Or such other address as has been indicated by either party in
accordance with a notice duly given in accordance with the provisions of this
Section.
7. Amendment. This Agreement may only be amended by a written
instrument executed by the Company and the Holders.
8. Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof, and
supersedes all prior agreements and understandings of the parties, oral and
written, with respect to the subject matter hereof.
9. Assignment; Binding Effect; Benefits. The Holder may not
assign the Holder's rights hereunder without the prior written consent of the
Company, which consent may be given or withheld for any reason and any attempted
assignment without having obtained such prior written notice shall be void and
of no force and effect. This Agreement shall inure to the benefit of, and be
binding upon, the parties hereto and the permitted assigns, heirs and legal
representatives of the Holder and the Company and its successors. Nothing herein
contained, express or implied, is intended to confer upon any person other than
the parties hereto and their respective heirs, legal representatives
-5-
<PAGE>
and successors, any rights or remedies under or by reason of this Agreement.
10. Headings. The headings contained herein are for the sole
purpose of convenience of reference, and shall not in any way limit or affect
the meaning or interpretation of any of the terms or provisions of this
Agreement.
11. Severability. Any provision of this Agreement which is
held by a court of competent jurisdiction to be prohibited or unenforceable in
any jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
12. Execution in Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same document.
[signature page to follow]
-6-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties hereto as of the date first above written.
Company: FRONTLINE COMMUNICATIONS CORP.
By:_________________________________________________
Name:
Title:
Holders: MARGARET McGILLIN
Address:____________________________________________
____________________________________________
Number of shares of Preferred
Stock:______________________________________________
KATHLEEN VALKOVIC
Address:____________________________________________
____________________________________________
Number of shares of Preferred
Stock:______________________________________________
ELEANOR McGILLIN
Address:____________________________________________
____________________________________________
Number of shares of Preferred
Stock:______________________________________________
PATRICK MURPHY
Address:____________________________________________
____________________________________________
Number of shares of Preferred
Stock:______________________________________________
HEATHER KOROSTOFF MURRAY
Address:____________________________________________
____________________________________________
Number of shares of Preferred
Stock:______________________________________________
ROSEMARY MURPHY
Address:____________________________________________
____________________________________________
Number of shares of Preferred
Stock:______________________________________________
-7-
<PAGE>
GREGORY HILL
Address:____________________________________________
____________________________________________
Number of shares of Preferred
Stock:______________________________________________
CHUCK OGLE
Address:____________________________________________
____________________________________________
Number of shares of Preferred
Stock:______________________________________________
BRIAN McGILLIN
Address:____________________________________________
____________________________________________
Number of shares of Preferred
Stock:______________________________________________
PATRICIA SLABY
Address:____________________________________________
____________________________________________
Number of shares of Preferred
Stock:______________________________________________
-8-
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT dated as of October 1, 1998 between Frontline
Communications Corporation, Inc., a New Jersey corporation (the "Employer" or
the "Company"), and Margaret M. McGillin (the "Employee").
W I T N E S S E T H :
WHEREAS, the Employer desires to employ the Employee in an
executive capacity as its Vice President of Sales and Marketing and to be
assured of her services as such on the terms and conditions hereinafter set
forth; and
WHEREAS, the Employee is willing to accept such
employment on such terms and conditions; and
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, and intending to be legally bound hereby, the
Employer and the Employee hereby agree as follows:
1. Term. Employer hereby agrees to employ Employee, and
Employee hereby agrees to serve Employer for a three-year period commencing as
of the date of this Agreement (the "Effective Date") (any year commencing on the
Effective Date or any anniversary of the Effective Date being hereinafter
referred to as an "Employment Year") unless earlier terminated pursuant to
Section 7. The term of this Agreement shall automatically renew for successive
one-year periods unless either party hereto gives notice to the other, no less
than ninety (90) days in advance of the expiration of the then current term, of
such party's intention not to renew.
2. Employee Duties.
(a) During the term of this Agreement, the
Employee shall, in her executive capacity, have the duties and responsibilities
of Vice President of Sales and Marketing of the Employer, reporting directly to
the Chief Executive Officer and the Board of Directors of the Employer (the
"Board"). It is understood that such duties and responsibilities shall be
reasonably related to the Employee's position.
(b) The Employee shall devote substantially all
of her business time, attention, knowledge and skills faithfully, diligently and
to the best of her ability in furtherance of the business and activities of the
Company. The principal place of performance by the Employee of her duties
hereunder shall be the Company's principal executive offices or such other place
as the Board shall determine, although the Employee may be required to travel
outside of the area where the Company's principal
<PAGE>
executive offices are located in connection with the business operations of the
Company.
3. Compensation.
(a) During the term of this Agreement, the
Employer shall pay the Employee a salary (the "Salary") at a rate of $82,000 per
annum in respect of the first Employment Year and $98,000 per annum in respect
of the second Employment Year, payable in equal installments bi-weekly, or at
such other times as may mutually be agreed upon between the Employer and the
Employee. Commencing the third Employment Year and any subsequent Employment
Year thereafter, the Salary may be increased from time to time at the discretion
of the Board; provided, however, that the Salary shall be increased during any
given Employment Year during such time by no less than the dollar amount of any
increase in salary granted to the Chairman of the Board or Chief Executive
Officer or Chief Financial Officer of the Parent, whichever is least.
(b) In addition to the foregoing, the Employee
shall be paid (i) a one-time signing bonus of $25,000 payable upon the execution
of this Agreement and (ii) such additional bonuses from time to time at the
discretion of the Board; provided, however, that the Employee shall be entitled
to bonuses from time to time no less than the dollar amount of any bonuses
granted to the Chairman of the Board or Chief Executive Officer or Chief
Financial Officer of the Company, whichever is least.
4. Benefits.
(a) During the term of this Agreement, the
Employee shall have the right to receive or participate in all benefits and
plans which the Company may from time to time institute during such period for
its employees and for which the Employee is eligible, including, but not limited
to, the Company's 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. Notwithstanding
the foregoing, it is acknowledged and agreed that the Employee may elect to
substitute medical benefit allowances for any of the other benefits described
herein, on terms and conditions as may be agreed upon by the Company and the
Employee. In all events, however, any such allowances shall have an aggregate
value at least equivalent to the value of the benefits for which they are
substituted, and a value of no less than $500.00 per month. Nothing paid to the
Employee under any plan or arrangement presently in effect or made available in
the future shall be deemed to be in lieu of the salary payable to the Employee
pursuant to this Agreement.
(b) During the term of this Agreement, the
Employee shall also be entitled to receive an automobile
-2-
<PAGE>
allowance of $400.00 per month payable in accordance with Section 3(a) above.
(c) During each Employment Year, the Employee
will be entitled to twenty (20) vacation days and the number of paid holidays,
personal days off and sick leave days in each calendar year as are determined
pursuant to the Company's Vacation Policies as in effect from time to time. Such
vacation may be taken in the Employee's discretion with the prior approval of
the Employer, and at such time or times as are not inconsistent with the
reasonable business needs of the Company.
5. Travel Expenses. All travel and other expenses incident to
the rendering of services reasonably incurred on behalf of the Company by the
Employee during the term of this Agreement shall be paid by the Employer in
accordance with the Policy and Procedure Manual of the Company (the "Manual").
Except as otherwise provided for in the Manual, if any such expenses are paid in
the first instance by the Employee, the Employer shall reimburse her therefor on
presentation of appropriate receipts for any such expenses.
6. Stock Options. Subject to the terms and conditions of the
Company's incentive stock option plan, a copy of which is annexed hereto and
made a part hereof and the receipt of which is hereby acknowledged by the
Employee, the Company hereby grants to the Employee as a matter of separate
agreement and not in lieu of salary, or any other compensation for services, the
right and option (the "Option") to purchase all or any part of an aggregate of
thirty thousand (30,000) shares of the authorized but unissued common stock of
the Company (the "Shares"), at the exercise price of $2.50 per Share,
exercisable during the three year (3) period commencing as of the date hereof
and terminating on the close of business on October 1, 2001, as follows: (i)
10,000 of the Shares are immediately vested and may be purchased as of the date
hereof; (ii) an additional 10,000 of the Shares may be purchased commencing on
the first anniversary hereof; and (iii) an additional 10,000 of the Shares may
be purchased commencing on the second anniversary hereof, and then, only
provided that the Employee is employed at the date of vesting by the Company or
any subsidiary of the Company. Notwithstanding the foregoing, in the event that
the Employee's employment hereunder is terminated "without cause", as defined in
Section 7(d) below, or as the result of a "change in control" as defined in
Section 7(e) below, or the Employee resigns as a result of a material reduction
of her title or responsibility, all unvested or unexercised options shall be
immediately vested and exercisable by Employee. In the event the Employee's
employment hereunder is terminated by reason of death or disability (as defined
in Section 7(b) below) all vested but unexercised options shall be exercisable
by the Employee's estate, or guardian, as the case may be, in accordance with
the terms and conditions of the Company's incentive stock option plan.
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<PAGE>
7. Termination. Notwithstanding the provisions of
Section 1 hereof, the Employee's employment with the Employer may
be earlier terminated as follows:
(a) By action taken by the Board, the Employee
may be discharged for cause (as hereinafter defined), effective as of such time
as the Board shall determine. Upon discharge of the Employee pursuant to this
Section 7(a), the Employer shall have no further obligation or duties to the
Employee, except for payment of Salary and such incentive compensation, if any,
having accrued to the Employee pursuant to Section 3 hereof through the
effective date of termination, and as provided in Section 5 hereof, and the
Employee shall have no further obligations or duties to the Employer, except as
provided in Section 8 hereof.
(b) In the event of (i) the death of the Employee
or (ii) by action of the Board and the inability of the Employee, by reason of
physical or mental disability, to continue substantially to perform her duties
hereunder for a period of 90 consecutive days (the "Disability Period"), during
which Disability Period Salary and any other benefits hereunder shall not be
suspended or diminished. Upon any termination of the Employee's employment under
this Section 7(b), the Employer shall have no further obligations or duties to
the Employee, except payment of Salary and such incentive compensation, if any,
having accrued to the Employee as provided in Section 3 hereof through the date
of death or the expiration of the Disability Period, as applicable, and as
provided in Section 5 hereof.
(c) Except as otherwise set forth in Section 7(e)
below, in the event that Employee's employment with the Employer is terminated
by action taken by the Board without cause, then the Employer shall have no
further obligation or duties to Employee, except for payment of Salary and such
incentive compensation, if any, having accrued to the Employee as provided in
Section 3 hereof through the date of termination and as provided in Section 5
hereof, and Employee shall have no further obligations or duties to the
Employer, except as provided in Section 8 hereof.
(d) For purposes of this Agreement, the Company
shall have "cause" to terminate the Employee's employment under this Agreement
upon (i) the failure by the Employee to substantially perform her duties under
this Agreement, (ii) the engaging by the Employee in criminal misconduct
(including embezzlement and criminal fraud) which is materially injurious to the
Company, monetarily or otherwise, (iii) the conviction of the Employee of a
felony, (iv) gross negligence on the part of the Employee or (v) other willful
misconduct of the Employee in the performance of her duties hereunder which is
materially injurious to the Company, monetarily or otherwise. Prior to any
termination by the Company under the provisions of (i) or (iv) herein, the
Company shall provide written notice to Employee, and Employee
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<PAGE>
shall have thirty (30) days to correct the situation to the reasonable
satisfaction of the Company.
(e) If the Company terminates the Employee's
employment hereunder other than for cause, or if the Employee resigns as a
result of a material reduction in her title or responsibility, or if there is a
"change in control" of the Company, the Company will be obligated to pay to the
Employee, in addition to any payments due and owing under the terms of Section
7(c) above, an amount equal to (i) two times the Employee's base salary at the
rate then in effect in the event of any such termination during the first
Employment Year or (ii) balance of the Employee's base salary becoming due and
owing during the remainder of the term in the event of any such termination
during any subsequent Employment Year. For the purposes of this Agreement,
"change in control" shall mean the acquisition of thirty-five percent (35%) or
more of the issued and outstanding securities of the Company, or of
substantially all of the assets of the Company by an individual or entity, or
the merger or consolidation of the Company into or with another entity (other
than the Parent or affiliate of the Company). To the extent that the Employee
receives any payments upon a change in control of the Company which are subject
to the excise tax of Section 4999 of the Internal Revenue Code of 1986, as
amended, the Company shall pay to Employee an amount equivalent to such tax.
8. Confidentiality; Noncompetition. In addition to and
supplementing the covenants contained in Sections 6.1 and 6.2 of the Stock
Purchase Agreement (the "Purchase Agreement"), dated October 1, 1998, among the
Company, WOWFactor, Inc. ("WOW") and Employee, the Employer and Employee agree
as follows:
(a) The Employer and the Employee acknowledge
that the services to be performed by the Employee under this Agreement are
unique and extraordinary and, as a result of such employment, the Employee will
be in possession of confidential information relating to the business practices
of the Company and WOW. The term "confidential information" shall mean any and
all information (verbal and written) relating to the Company, WOW or any of
their respective affiliates, or any of their respective activities, other than
such information which can be shown by the Employee to be in the public domain
(such information not being deemed to be in the public domain merely because it
is embraced by more general information which is in the public domain) other
than as the result of breach of the provisions of this Section 8(a), including,
but not limited to, information relating to: existing and proposed projects,
source codes, object codes, forecasts, assumptions, trade secrets, personnel
lists, financial information, research projects, services, pricing, customers,
customer lists and prospects, product sourcing, marketing and selling and
servicing. The Employee agrees that she will not, at any time during or after
the termination of her employment, directly or indirectly, use, communicate,
disclose or disseminate
-5-
<PAGE>
to any person, firm or corporation any confidential information regarding the
clients, customers or business practices of the Company or WOW and that Employee
agrees that all confidential information shall be the sole property of the
Company.
(b) The Employee hereby agrees that she shall
not, during the period of her employment and for a period of two (2) years
following the termination of such employment either pursuant to Section 7(a)
hereof or as a result of a voluntary termination by the Employee other than
pursuant to Section 7(e) hereof, directly or indirectly, within any State within
the United States or territory outside the United States in which the Company or
Parent is engaged in business during the period of the Employee's employment or
on the date of termination of the Employee's employment, engage, have an
interest in or render any services to any business (whether as owner, manager,
operator, licensor, licensee, lender, partner, stockholder, joint venturer,
employee, consultant or otherwise) competitive with the Company's and WOW's
Business Activities (as defined herein). For the purposes of this Agreement, the
"Company's and WOW's Business Activities" shall be defined as the promotion of
goods and services of others through online marketplaces; the provision of
traffic, tools and services required for e-commerce to merchants; and publishing
advertisements and other content in online marketplaces. Nothing herein shall
prohibit the Employee from being a holder of five (5%) percent or less of the
securities of a Corporation whose securities are listed on a national securities
exchange.
(c) The Employee hereby agrees that she shall
not, during the period of her employment and for a period of two (2) years
following such employment, directly or indirectly, take any action which
constitutes an interference with or a disruption of any of the Company's or
WOW's Business Activities, including, without limitation, the solicitations of
the Company's or WOW's customers, or persons listed on the personnel lists of
the Company or WOW. At no time during the term of this Agreement, or thereafter
shall the Employee directly or indirectly, disparage the commercial, business or
financial reputation of the Company or WOW.
(d) For purposes of clarification, but not of
limitation, the Employee hereby acknowledges and agrees that the provisions of
subparagraphs 8(b) and (c) above shall serve as a prohibition against her,
during the period referred to therein, directly or indirectly, hiring, offering
to hire, enticing, soliciting or in any other manner persuading or attempting to
persuade any officer, employee, agent, lessor, lessee, licensor, licensee or
customer who has been previously contacted by either a representative of the
Company or WOW, including the Employee, to discontinue or alter her or its
relationship with the Company or WOW.
-6-
<PAGE>
(e) Upon the termination of the Employee's
employment for any reason whatsoever, all documents, records, notebooks,
equipment, price lists, specifications, programs, customer and prospective
customer lists and other materials which refer or relate to any aspect of the
business of the Company or Parent which are in the possession of the Employee
including all copies thereof, shall be promptly returned to the Company.
(f) (i) The Employee agrees that all processes,
intellectual property rights, technologies and inventions ("Inventions"),
including new contributions, improvements, ideas and discoveries, whether
patentable or not, relating to the business of the Company or WOW, or conceived,
developed, invented or made by her during her employment by Employer shall
belong to the Company. The Employee shall further: (a) promptly disclose such
Inventions to the Company; (b) assign to the Company, without additional
compensation, all patent, copyright, trademark and other rights to such
Inventions for the United States and foreign countries; (c) sign all papers
necessary to carry out the foregoing; and (d) give testimony in support of her
inventorship;
(ii) If any Invention is described in a
patent or copyright application or is disclosed to third parties, directly or
indirectly, by the Employee within one (1) year after the termination of her
employment by the Company, it is to be presumed that the Invention was conceived
or made during the period of the Employee's employment by the Company; and
(iii) The Employee agrees that she will not
assert any rights to any Invention as having been made or acquired by her prior
to the date of this Agreement.
(g) The Company shall be the sole owner of all
products and proceeds of the Employee's services hereunder, including, but not
limited to, all materials, ideas, concepts, formats, suggestions, developments,
arrangements, packages, programs and other intellectual properties that the
Employee may acquire, obtain, develop or create in connection with and during
the term of the Employee's employment hereunder, free and clear of any claims by
the Employee (or anyone claiming under the Employee) of any kind or character
whatsoever (other than the Employee's right to receive payments hereunder). The
Employee shall, at the request of the Company, execute such assignments,
certificates or other instruments as the Company may from time to time deem
necessary or desirable to evidence, establish, maintain, perfect, protect,
enforce or defend its right, or title and interest in or to any such properties.
(h) The parties hereto hereby acknowledge and
agree that (i) the Company would be irreparably injured in the event of a breach
by the Employee of any of her obligations under this Section 8, (ii) monetary
damages would not be an adequate remedy for any such breach, and (iii) the
Company shall be
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<PAGE>
entitled to injunctive relief, in addition to any other remedy which it may
have, in the event of any such breach.
(i) The parties hereto hereby acknowledge that,
in addition to any other remedies the Company may have under Section 8(h)
hereof, the Company shall have the right and remedy to require the Employee to
account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits (collectively, "Benefits") derived or
received by the Employee as the result of any transactions constituting a breach
of any of the provisions of this Section 8, and the Employee hereby agrees to
account for any pay over such Benefits to the Company.
(j) Each of the rights and remedies enumerated in
Section 8(h) and 8(i) shall be independent of the other, and shall be severally
enforceable, and all of such rights and remedies shall be in addition to, and
not in lieu of, any other rights and remedies available to the Company under law
or in equity.
(k) It is the intent of the parties hereto that
the covenants contained in this Section 8 shall be enforced to the fullest
extent permissible under the laws and public policies of each jurisdiction in
which enforcement is sought (the Employee hereby acknowledging that said
restrictions are reasonably necessary for the protection of the Company).
Accordingly, it is hereby agreed that if any of the provisions of this Section 8
shall be adjudicated to be invalid or unenforceable for any reason whatsoever,
said provision shall be (only with respect to the operation thereof in the
particular jurisdiction in which such adjudication is made) construed by
limiting and reducing it so as to be enforceable to the extent permissible,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of said provision in any other jurisdiction.
9. General. This Agreement is further governed by the
following provisions:
(a) Notices. All notices relating to this
Agreement shall be in writing and shall be either personally delivered, sent by
telecopy (receipt confirmed) or mailed by certified mail, return receipt
requested, to be delivered at such address as is indicated below, or at such
other address or to the attention of such other person as the recipient has
specified by prior written notice to the sending party. Notice shall be
effective when so personally delivered, one business day after being sent by
telecopy or five days after being mailed.
-8-
<PAGE>
To the Employer:
Frontline Communications Corp.
One Blue Hill Plaza
Suite 1548
Pearl River, New York 10965
Attention: Mr. Stephen J. Cole-Hatchard
With copies to:
Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attention: Kenneth Selterman, Esq.
To the Employee:
Margaret M. McGillin
18 Prescott Avenue
Montclair, New Jersey 07042
With a copy to:
Reed Smith Shaw & McClay, LLP
Princeton Forrestal Village
136 Main Street, Suite 250
Princeton, NJ 08543
Attn: Michael P. Weiner, Esq.
(b) Parties in Interest. Employee may not
delegate her duties or assign her rights hereunder. This Agreement shall inure
to the benefit of, and be binding upon, the parties hereto and their respective
heirs, legal representatives, successors and permitted assigns.
(c) Entire Agreement. This Agreement supersedes
any and all other agreements, either oral or in writing, between the parties
hereto with respect to the employment of the Employee by the Employer and
contains all of the covenants and agreements between the parties with respect to
such employment in any manner whatsoever; provided that the provisions of
Sections 6.1 and 6.2 of the Purchase Agreement shall also apply to Employee. Any
modification or termination of this Agreement will be effective only if it is in
writing signed by the party to be charged.
(d) Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York.
Employee agrees to and hereby does submit to jurisdiction before any state or
federal court of record in New York City, New York, or in the state and county
in which such violation may occur, at Employer's election.
(e) Warranty. Employee hereby warrants and
represents as follows:
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<PAGE>
(i) That the execution of this Agreement
and the discharge of Employee's obligations hereunder will not breach or
conflict with any other contract, agreement, or understanding between Employee
and any other party or parties.
(ii) Employee has ideas, information and
know-how relating to the type of business conducted by Employer, and Employee's
disclosure of such ideas, information and know-how to Employer will not conflict
with or violate the rights of any third party or parties.
(f) Severability. In the event that any term or
condition in this Agreement shall for any reason be held by a court of competent
jurisdiction to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other term or
condition of this Agreement, but this Agreement shall be construed as if such
invalid or illegal or unenforceable term or condition had never been contained
herein.
(g) Execution in Counterparts. This Agreement
may be executed by the parties in one or more counterparts, each of which shall
be deemed to be an original but all of which taken together shall constitute one
and the same agreement, and shall become effective when one or more counterparts
has been signed by each of the parties hereto and delivered to each of the other
parties hereto.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
Frontline Communications Corporation
By:/s/ Stephen J. Cole-Hatchard
-------------------------------------
Name: Stephen J. Cole-Hatchard
Title: President/CEO
/s/ Margaret M. McGillin
-------------------------------------
Margaret M. McGillin
<PAGE>
CERTIFICATE OF DESIGNATION
OF
FRONTLINE COMMUNICATIONS CORPORATION
Certificate Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
The undersigned, being the President of Frontline
Communications Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), DOES
HEREBY CERTIFY:
Pursuant to authority expressly vested in the Board of
Directors of said Corporation by the provisions of its Certificate of
Incorporation, said Board of Directors duly adopted the following resolution on
October 1, 1998:
RESOLVED, that the Board of Directors, pursuant to authority
expressly vested in it by the provisions of the Certificate of Incorporation of
the Corporation, hereby authorizes the issue from time to time of a series of
Preferred Stock, $.01 par value, of the Corporation and hereby fixes the
designation, preferences and relative, participating, optional or other rights,
and the qualifications, limitations or restrictions thereof, as follows:
Section 1. Designation. The series of Preferred Stock shall be
designated and known as "Series A Convertible Preferred Stock" (the "Series A
Preferred Stock"). The number of shares constituting such series shall be 10.
Section 2. Conversion. The holders of the Series A Preferred
Stock shall have conversion rights as follows:
(a) Automatic Conversion. On July 15, 1999 (the
"Conversion Date"), the outstanding shares of Series A Preferred Stock shall be
converted into fully paid and nonassessable shares of the Corporation's Common
Stock in the manner hereinafter provided. No fractional shares of Common Stock
shall be issued as a result of conversion, but in lieu thereof such fractional
interest will be rounded off to the nearest whole share of Common Stock, subject
to the Maximum Conversion Amount (as defined in paragraph (c) below).
(b) Conversion Ratio. Subject to the Maximum
Conversion Amount, each share of the Series A Preferred Stock shall be
convertible into that number of shares of the Corporation's Common Stock having
an aggregate Current Market Value (as defined herein) of $100,000 on the
Conversion Date. For purposes hereof, "Current Market Value" shall mean the
average "closing price" of
<PAGE>
the Corporation's Common Stock for the thirty (30) trading days immediately
prior to the Conversion Date. The "closing price" for each day shall be the last
quoted sale price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System or such other
system then in use, or, on any such date the Common Stock or such other
securities are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Common Stock or such other securities selected by the Board of Directors
of the Corporation. If the Common Stock is listed or admitted to trading on a
national securities exchange, the closing price shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Common
Stock on such other securities are not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Common Stock or such other securities are
listed or admitted to trading. If the Common Stock or such other securities are
not publicly held or so listed or publicly traded, "Current Market Price" shall
mean the fair market value per share of Common Stock or of such other securities
as determined in good faith by the Board of Directors of the Corporation based
on an opinion of an independent investment banking firm with an established
national reputation as a valuer of securities, which opinion may be based on
such assumptions as such firm shall deem to be necessary and appropriate.
(c) Maximum Conversion Amount. Anything contained
herein to the contrary notwithstanding, in no event shall the Series A Preferred
be convertible into Common Stock aggregating more than 250,000 shares (the
"Maximum Conversion Amount").
(d) Mechanics of Conversion. The right of the holders
of the Series A Preferred Stock to convert their shares shall be exercised by
transmitting to the Corporation or its agent, a notice of such conversion
together with certificates representing shares of the Series A Preferred Stock
to be converted, duly endorsed in blank. If the shares issuable upon conversion
are to be issued in a name other than the name in which the shares of Series A
Preferred Stock to be converted are then registered, such notice and the
certificates representing shares of the Series A Preferred Stock to be converted
shall be accompanied by such evidence of payment transfer taxes and such proper
instruments of transfer as may be reasonably requested by the Corporation. The
Corporation shall promptly after receipt of the foregoing issue to the holder of
the Series A Preferred Stock the appropriate number of shares of the
Corporation's Common Stock. The Series A Preferred Stock
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<PAGE>
shall be convertible on the basis of the first Series A Preferred Stock received
by the Corporation for conversion.
(e) No Impairment. The Corporation shall not, by
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation but will at all times in good faith assist in the carrying out of
all the provisions of this Section 2 and in the taking of all such action as may
be necessary or appropriate in order to protect the conversion rights of the
holders of the Series A Preferred Stock against impairment.
(f) Common Stock Reserved. The Corporation shall
reserve and keep available out of its authorized but unissued Common Stock such
number of shares of Common Stock as shall from time to time be sufficient to
effect the conversion of the Series A Preferred Stock.
(g) Common Stock Listing. Prior to delivery of any
securities which the Corporation is obligated to deliver upon payment of any
dividend, upon any liquidation, dissolution, or winding up of the Corporation,
or upon conversion of the Series A Preferred Stock, the Corporation shall use
all reasonable efforts to list such securities on any exchange or inter-dealer
quotation system on which such securities are principally traded or authorized
to be quoted.
(h) Transfer Taxes. The Corporation shall pay all
documentary stamp or similar issue or transfer taxes payable with respect to the
issue or delivery of shares of Common Stock upon conversion of the Series A
Preferred Stock pursuant hereto, provided that such shares of Common Stock are
issued int he name of the then registered holder of the Series A Preferred Stock
to be converted.
Section 3. Stock Option Contingency. At the Conversion Date,
each share of the Series A Preferred Stock shall be entitled to receive, and the
Corporation shall grant to the holder of each such share, stock options to
purchase up to the aggregate number of the Corporation's Common Stock (the
"Option Shares"), as follows:
(1) options to purchase up to 5,000 Option Shares in the
event that the Current Market Value at the Conversion
Date is less than $4.00 per share but greater than
$3.00 per share; or
(2) options to purchase up to 10,000 Option Shares in the
event that the Current Market Value at the Conversion
Date is equal to or less than $3.00 per share.
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<PAGE>
No stock options shall be granted pursuant hereto in the event
that the Current Market Value at the Conversion Time is equal to or greater than
$4.00 per share.
Section 4. Covenants. So long as any of the Series A Preferred
Stock shall be outstanding (as adjusted for all subdivisions and combinations),
the Corporation shall not, without first obtaining the affirmative vote or
written consent of not less than fifty-one percent (51%) of such outstanding
shares of Series A Preferred Stock amend or repeal, whether by merger,
consolidation, or otherwise, any provision of, or add any provision to, the
Corporation's Certificate of Incorporation or By-Laws if such action would alter
or change the rights, privileges or powers of, or the restrictions provided for
the benefit of the Series A Preferred Stock, or the number of authorized shares
of Series A Preferred Stock.
Section 5. Residual Rights. All rights accruing to the
outstanding shares of the Corporation not expressly provided for to the contrary
herein shall be vested in the Common Stock.
Section 6. Preemptive Rights. The holders of the Series A
Preferred Stock are not entitled to any preemptive rights.
IN WITNESS WHEREOF, this Certificate has been signed by the
President of Frontline Communications Corporation this 1st day of October, 1998.
FRONTLINE COMMUNICATIONS CORPORATION
By: /s/ Stephen Cole-Hatchard
-------------------------------------
Name: Stephen Cole-Hatchard
Title: President
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<PAGE>
ASSET PURCHASE AGREEMENT
AGREEMENT dated as of October 9th, 1998 (the "Agreement"), by and among
Frontline Communications Corp. ("Frontline" or "Purchaser") a Delaware
Corporation, having an address at One Blue Hill Plaza, Suite 1548, Pearl River,
New York; Roxy Systems, Inc. ("Roxy Systems" or "Seller"), d/b/a Magic Carpet, a
New York Corporation having an address at 244 West Main Street, Goshen, New York
and Ali Davachi, the sole stockholder of Roxy Systems, Inc.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Stockholder is the sole owner of all of the
issued and outstanding shares of capital stock of Roxy Systems (the "Roxy
Systems"); and
WHEREAS, Roxy Systems is in the business of providing internet
service to individuals and businesses in the Orange County, New York region (the
"Business"); and
WHEREAS, Roxy Systems wishes to sell to Frontline, and
Frontline wishes to purchase from Roxy Systems, substantially all of the
properties and assets of Roxy Systems, upon the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, the parties hereto do hereby agree as follows:
1. Purchase and Sale.
1.1 Purchase and Sale Agreement. Subject to
the terms and conditions set forth in this Agreement and in reliance upon the
representations, warranties, covenants and conditions herein contained, on the
Closing Date (as defined in Section 8 hereof) Roxy Systems shall sell, convey,
assign, transfer and deliver to Subsidiary shall purchase from Roxy Systems the
Purchased Assets (as defined in Section 1.2 hereof), free and clear of any and
all liens, claims, security interests, pledges, mortgages, charges and
encumbrances of any nature whatsoever.
1.2 Assets to Be Purchased
The assets of ROXY SYSTEMS INC. to be transferred pursuant to
this and subsequent agreements include: 1) all assets, trademarks, service
marks, patents, contracts, and other similar rights; 2) all dial up, dedicated,
leased line, corporate and like accounts (including approximately 1,000 internet
service subscribers, and an annualized revenue base of approximately $50,000 in
other web and communication services); 3) all other customer and client bases;
4) all rights and interest to all potential and actual future dial up and
dedicated subscribers, including those contacting Roxy Systems for the
1
<PAGE>
purpose of obtaining internet dial up Access and web development and hosting; 5)
all hardware, software and related assets, including E-Mail servers, systems and
addresses; 6) all web servers, systems and addresses; 7) all telephone numbers,
services and contracts; 8) all rights and interest in the relationship with the
Galleria at Crystal Run, including the rights to the mall booth space, ads, web
development and hosting, and other activities; 9) all rights and interest in all
current marketing and advertising contracts, materials and efforts, including
the current telephone yellow page ads; 10) all rights to the "Magic Carpet" and
"Roxy Systems" names and logos; 11) the "magiccarpet.com" domain name; and 12)
two year non-compete agreements executed by Roxy Systems, Inc., and all
stockholders, partners, owners, officers and directors of Roxy Systems, as
relating to the ownership, operations of, or employment in an ISP or other web
services company directly competing with Frontline.
1.3 Assumed Liabilities. Subject to the terms
and conditions set forth in this Agreement and in reliance upon the
representations, warranties, covenants and conditions herein contained, on the
Closing Date, Frontline shall assume, and shall only assume Roxy Systems's
obligations up to a maximum of $60,348.17 in past due obligations of Magic
Carpet, as set forth on Schedule 1.3 (the "Assumed Liabilities"); provided,
however, that anything in this Agreement contained to the contrary
notwithstanding, the following shall not constitute Assumed Liabilities: (i)
liabilities and obligations of Roxy Systems, the existence of which constitutes
a breach of any of the representations or warranties made by Roxy Systems in
this Agreement or in any document delivered by it pursuant hereto, including,
without limitation, any liability for income or other taxes, penalties and
interest thereon, accrued or assessed against the Company by any governmental
authority prior the Closing Date, and (ii) liabilities and obligations of Roxy
Systems for environmental and ecological matters, including those relating to
the use, transport, disposal, handling or storage of hazardous or toxic
materials, pollutants, contaminants or wastes, or to the exposure of persons
thereto. All liabilities of Roxy Systems which are not Assumed Liabilities are
deemed to be "Retained Liabilities". Schedule 1.3 expressly designates which
liabilities are assumed and which are retained.
1.4 Consideration
Total consideration to be paid by FRONTLINE COMMUNICATIONS CORP., shall
be $75,000, to be paid at closing.
2. The Closing. Unless this Agreement shall have been
terminated and the transactions herein contemplated shall have been abandoned
pursuant to Section 8, the closing of the transactions contemplated by this
Agreement (the "Closing") will take place at the offices of Frontline
Communications Corporation as promptly as practicable (and in any event within
five business days) after satisfaction or waiver of the conditions set forth in
Section 7 but in no event later than October 9, 1998 (the "Closing Date"); or
such later date as shall have been fixed by a written instrument signed by the
parties.
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2.1 Deliveries by Frontline at the Closing. At
the Closing, Frontline shall deliver the following:
(a) copies of resolutions adopted by
the Board of Directors of Frontline authorizing Frontline to execute and deliver
the Frontline Documents (defined herein) to which it is a party and to perform
its obligations thereunder, upon the terms and subject to the conditions set
forth therein, duly certified by the Secretary or Assistant Secretary of
Frontline;
(b) certificate of the Secretary or
Assistant Secretary of Frontline certifying as to the incumbency and specimen
signatures of the officers of Frontline executing the Frontline Documents on
behalf of such corporation.
(c) the Total Cash Consideration as set
forth in Section 1.4.
2.2 Deliveries by Roxy Systems and/or the
Stockholder at the Closing. At the Closing, Roxy Systems and/or the Stockholder,
as applicable, shall deliver to Frontline, the following:
(a) a Certification on behalf of Ali
Davachi, certifying that he is the sole shareholder of Roxy Systems, that there
is no formal Board of Directors of the company, that he has the full authority
to execute and deliver this Agreement on behalf of Roxy Systems, to perform its
obligations thereunder and to consummate the transaction contemplated in this
Agreement.
2.3 Other Deliveries. In addition, the parties
shall execute and deliver such other documents as may be required by this
Agreement and as either of them or their respective counsel may reasonably
require in order to document and carry out the transactions contemplated by this
Agreement.
3. Representations and Warranties as to Roxy Systems. Each of
the Stockholder and Roxy Systems, jointly and severally, represents and warrants
to Frontline as follows:
3.1 Organization, Standing and Power. Roxy
Systems is a corporation duly organized, validly existing and in good standing
under the laws of the State of New York, with full corporate power and corporate
authority to (i) own, lease and operate its properties, (ii) carry on the
Business as currently conducted by it and (iii) execute and deliver, and perform
under this Agreement and each other agreement and instrument to be executed and
delivered by it pursuant hereto. There are no states or jurisdictions in which
the character and location of any of the properties owned or leased by Roxy
Systems, or the conduct of the Business makes it necessary for Roxy Systems to
qualify to do business as a foreign corporation. True and complete copies of the
Certificate of Incorporation of Roxy Systems and all amendments thereof, and of
the By-Laws of Roxy Systems, as amended to date, have heretofore been furnished
to Frontline.
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3.2 Capitalization. The authorized capital stock
of Roxy Systems consists of 100 shares of common stock, no par value (the "Roxy
Systems Common Stock"), of which 100 shares of Common Stock are outstanding. All
of the Roxy Systems Common Stock is duly authorized, validly issued, fully paid
and nonassessable. Schedule 3.2 sets forth a true and complete list of the
holders of all outstanding shares of Roxy Systems Common Stock, and the holders
of all outstanding options and warrants issued by Roxy Systems, which shares,
options and warrants are held by them in the amounts set forth on Schedule 3.2.
Except as contemplated by this Agreement and except as set forth on Schedule
3.2, there are no options, warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock of
Roxy Systems or obligating Roxy Systems to issue or sell any shares of capital
stock of or other equity interests in Roxy Systems. There is no personal
liability, and there are no preemptive rights with regard to the capital stock
of Roxy Systems, and no right-of-first refusal or similar catch-up rights with
regard to such capital stock. Except as set forth on Schedule 3.2 and except for
the transactions contemplated by this Agreement, there are no outstanding
contractual obligations or other commitments or arrangements of Roxy Systems to
(A) repurchase, redeem or otherwise acquire any shares of Roxy Systems Common
Stock (or any interest therein) or (B) to provide funds to or make any
investment (in the form of a loan, capital contribution or otherwise) in any
other entity, or (C) issue or distribute to any person any capital stock of Roxy
Systems, or (D) issue or distribute to holders of any of the capital stock of
Roxy Systems any evidences of indebtedness or assets of Roxy Systems. All of the
outstanding securities of Roxy Systems have been issued and sold by Roxy Systems
in full compliance with applicable federal and state securities laws.
3.3 Ownership of Roxy Systems Common Stock. The
Stockholder has good and marketable title to all of the issued and outstanding
shares of Roxy Systems Common Stock, free and clear of any and all liens,
adverse claims, security interests, pledges, mortgages, charges and encumbrances
of any nature whatsoever (the "Liens"), and on the Closing Date (as defined in
Section 8 hereof) will own all of such Roxy Systems Common Stock, free and clear
of any and all Liens, including, but not limited to, any claims by any present
or former Stockholder of Roxy Systems.
3.4 Interests in Other Entities.
(a) There are no direct or indirect
subsidiaries of Roxy Systems.
(b) The Stockholder does not (individually
or jointly) own, directly or indirectly, of record or beneficially, any shares
of voting stock or other equity securities of any other corporation engaged in
the same or similar business to that business engaged in by Roxy Systems at the
Closing Date (other than not more than one percent (1%) of the publicly-traded
capital stock of corporations engaged in such business held solely for
investment purposes); nor does he have any ownership interest,
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direct or indirect, of record or beneficially, in any unincorporated entity
engaged in the same or similar business to that business engaged in by Roxy
Systems at the Closing Date.
3.5 Authority. The execution and delivery by
Roxy Systems of this Agreement and of all of the agreements to be executed and
delivered by Roxy Systems pursuant hereto (collectively, the "Roxy Systems
Documents"), the performance by Roxy Systems of its obligations hereunder and
thereunder, and the consummation of the transactions contemplated hereby and
thereby, have been duly and validly authorized by all necessary corporate action
on the part of Roxy Systems (including, but not limited to, the unanimous
consents of the Board of Directors of Roxy Systems and of the Stockholder) and
Roxy Systems has all necessary corporate power and corporate authority with
respect thereto. The Stockholder is an individual having all necessary capacity,
power and authority to execute and deliver this Agreement and such other
agreements to be executed and delivered by either of them pursuant hereto
(collectively, the "Shareholder Documents") and to consummate the transactions
contemplated hereby and thereby.
3.6 Noncontravention. Neither the execution and
delivery by Roxy Systems or the Stockholder of this Agreement or of any other
Roxy Systems Documents or Shareholder Documents to be executed and delivered by
either or both of them, nor the consummation of any of the transactions
contemplated hereby or thereby, nor the performance by either or both of them of
any of their respective obligations hereunder or thereunder, will (nor with the
giving of notice or the lapse of time or both would) (a) conflict with or result
in a breach of any provision of the Certificate of Incorporation, By-Laws or
other constituent documents of Roxy Systems, each as amended to date, or (b)
give rise to a default, or any right of termination, cancellation or
acceleration, or otherwise be in conflict with or result in a loss of
contractual benefits to any of them, under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation to which either or both of them is a party or by which
either or both of them or any of their respective assets may be bound, or
require any consent, approval or notice under the terms of any such document or
instrument, or (c) violate any order, writ, injunction, decree, law, statute,
rule or regulation of any court or governmental authority which is applicable to
either or both of them, or (d) result in the creation or imposition of any lien,
adverse claim, restriction, charge or encumbrance upon any of the assets of Roxy
Systems (the "Assets") or the Roxy Systems Common Stock, or (e) interfere with
or otherwise adversely affect the ability of Roxy Systems to carry on the
Business after the Closing Date on substantially the same basis as is now
conducted by Roxy Systems.
3.7 Financial Statements. Roxy Systems has
heretofore delivered to Frontline (a) its financial statements consisting of the
unaudited balance sheets for the last two fiscal years ended June 30, 1997 and
1998, and the related statements of income, Stockholder equity and cash flows
for the two years then ended, which have been compiled by James Brennan, and (b)
its unaudited balance sheet at September 30, 1998 (the "Balance Sheet")
statements of income, Stockholder' equity and cash flows for the one month ended
September 30, 1998 (collectively, the "Roxy Systems Financial
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Statements"). The Roxy Systems Financial Statements were prepared in accordance
with generally accepted accounting principles ("GAAP"), consistently applied,
and present fairly the financial position of Roxy Systems as at the dates
thereof and the results of operations for the periods and the cash flow
indicated. The books and records of Roxy Systems are complete and correct, have
been maintained in accordance with good business practices, and accurately
reflect the basis for the financial condition, results of operations and cash
flow of Roxy Systems as set forth in the Roxy Systems Financial Statements.
3.8 Absence of Undisclosed Liabilities. Roxy
Systems has no liabilities or obligations of any nature whatsoever, whether
accrued, matured, unmatured, absolute, contingent, direct or indirect or
otherwise, which have not been (a) in the case of liabilities and obligations of
a type customarily reflected on a corporate balance sheet, prepared in
accordance with GAAP, set forth on the Balance Sheet, or (b) incurred in the
ordinary course of business since September 30, 1998, or (c) in the case of
other types of liabilities and obligations, expressly described in Schedule 3.8,
or (d) incurred, consistent with past practice, in the ordinary course of
business of Roxy Systems (in the case of liabilities and obligations of the type
referred to in clause (a) above).
3.9 Accounts Receivable. The accounts receivable
set forth on Schedule 3.9 are good and collectible in the ordinary course of
business at the aggregate recorded amounts thereof, less the respective amount
of the allowances for doubtful accounts receivable, if any, reflected thereon,
and are not subject to offsets other than in the ordinary course of business.
The accounts receivable of Roxy Systems which were added after September 30,
1998, are good and collectible in the ordinary course of business, less the
amount of the allowance(s) for doubtful notes receivable, if any, reflected
thereon (which allowances were established on a basis consistent with prior
practice), and are not subject to offsets other than in the ordinary course of
business. The intangible assets reflected on the Balance Sheet and thereafter
added consist of items which have been written down to net realizable value or
adequately reserved against on the books and records of Roxy Systems.
3.10 Absence of Changes. Since September 30,
1998, there have not been (a) any adverse change (other than as is normal in the
ordinary course of business) in the condition (financial or otherwise), assets,
liabilities, business, prospects, results of operations or cash flows of Roxy
Systems (including, without limitation, any such adverse change resulting from
damage, destruction or other casualty loss, whether or not covered by
insurance), (b) any waivers by Roxy Systems of any right, or cancellation of any
debt or claim, of substantial value, (c) any declarations, set asides or
payments of any dividend or other distributions or payments in respect of the
Roxy Systems Common Stock, or (d) any changes in the accounting principles or
methods which are utilized by Roxy Systems.
3.11 Litigation. Except as set forth in
Schedule 3.11, there are no claims, suits or actions, or administrative,
arbitration or other proceedings or
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governmental investigations, pending or, to the best knowledge of Roxy Systems
and the Stockholder, threatened, against or relating to Roxy Systems or the
Stockholder, the transactions contemplated hereby or any of the Assets. There
are no judgments, orders, stipulations, injunctions, decrees or awards in effect
which relate to Roxy Systems, this Agreement, the transactions contemplated, the
Business or any of the Assets, the effect of which is (a) to limit, restrict,
regulate, enjoin or prohibit any business practice of Roxy Systems in any area,
or the acquisition by Roxy Systems of any properties, assets or businesses, or
(b) otherwise adverse to the Business, any of the Assets or Roxy Systems Common
Stock.
3.12 No Violation of Law. Roxy Systems is not
engaging in any activity or omitting to take any action as a result of which it
is in violation of any law, rule, regulation, zoning or other ordinance,
statute, order, injunction or decree, or any other requirement of any court or
governmental or administrative body or agency, applicable to Roxy Systems, the
Business or any of the Assets.
3.13 Properties. All plants, structures and
equipment which are utilized in the Business, or are material to the condition
(financial or otherwise) of Roxy Systems are owned or leased by Roxy Systems and
are in good operating condition and repair (ordinary wear and tear excepted),
and are adequate and suitable for the purposes for which they are used. Schedule
3.13 sets forth all (a) real property which is owned, leased (whether as lessor
or lessee) or subject to contract or commitment of purchase or sale or lease
(whether as lessor or lessee) by Roxy Systems, or which is subject to a title
retention or conditional sales agreement or other security device, and (b)
tangible personal property which is owned, leased (whether as lessor or lessee)
or subject to contract or commitment of purchase or sale or lease (whether as
lessor or lessee) by Roxy Systems.
3.14 Intangibles/Inventions. Schedule 3.14
identifies (by a summary description) the Intangibles (as defined below) the
ownership thereof and, if applicable, Roxy Systems's authority for use of the
same, which Schedule is complete and correct and encompasses: (A) all United
States and foreign patents, trademark and trade name registrations, trademarks
and trade names, brandmarks and brand name registrations, servicemarks and
servicemark registrations, assumed names and copyrights and copyright
registrations, owned in whole or in part or used by Roxy Systems, and all
applications therefor (collectively, the "Marks"), (B) all inventions,
discoveries, improvements, processes, formulae, technology, know-how, processes
and other intellectual property, proprietary rights and trade secrets relating
to the Business (collectively, the "Inventions") and (C) all licenses and other
agreements to which Roxy Systems is a party or otherwise bound which relate to
any of the Intangibles or the Inventions or Roxy Systems's use thereof in
connection with the Business (collectively, the "Licenses, and together with the
Marks and the Inventions, the "Intangibles"). No violations of the terms of any
of the aforesaid licenses and/or agreements have occurred. Except as disclosed
on Schedule 3.14, (A) Roxy Systems owns or is authorized to use in connection
with the Business all of the Intangibles; (B) no proceedings have been
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instituted, are pending, or to the best knowledge of the Stockholder, are
threatened which challenge the rights of Roxy Systems with respect to the
Intangibles or its use thereof in connection with the Business and/or the Assets
or the validity thereof and, there is no valid basis for any such proceedings;
(C) neither Roxy Systems's ownership of the Intangibles nor their use thereof in
connection with the Business and/or the Assets violates any laws, statutes,
ordinances or regulations, or has at any time infringed upon or violated any
rights of others, or is being infringed by others; (D) none of the Intangibles,
or Roxy Systems's use thereof in connection with the Business and/or the Assets
is subject to any outstanding order, decree, judgment, stipulation or any lien,
security interest or other encumbrance; and (E) Roxy Systems has not granted any
license to third parties with regard to its Intangibles.
3.15 Systems and Software. Roxy Systems owns or
has the right to use pursuant to lease, license, sublicense, agreement, or
permission all computer hardware, software and information systems necessary for
the operation of the businesses of Roxy Systems as presently conducted
(collectively, "Systems"). Except as set forth in Schedule 3.15, each System
owned or used by Roxy Systems immediately prior to the Closing Date will be
owned or available for use by Frontline or its subsidiaries on identical terms
and conditions immediately subsequent to the Closing Date. With respect to the
software described in Schedule 3.15, i.e., the I-Bill software, Stockholder will
retain ownership rights to the software however Stockholder expressly grants
Frontline a perpetual license to utilize the software. With respect to each
System owned by a third party and used by Roxy Systems or its subsidiaries
pursuant to lease, license, sublicense, agreement or permission: (a) the lease,
license, sublicense, agreement or permission covering the System is legal,
valid, binding, enforceable, and in full force and effect; (b) the lease,
license, sublicense, agreement or permission will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following
the Closing Date; (c) no party to any such lease, license, sublicense, agreement
or permission is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default, and permit
termination, modification or acceleration thereunder; (d) no party to any such
lease, license, sublicense, agreement or permission has repudiated any provision
thereof; (e) Roxy Systems has not granted any sublicense, sublease or similar
right with respect to any such lease, license, sublicense, agreement or
permission; (f) Roxy Systems's use and continued use of such Systems does not
and will not interfere with, infringe upon, misappropriate, or otherwise come
into conflict with, any intellectual property rights of third parties as a
result of the continued operation of the Business.
3.16 Tax Matters. Roxy Systems has filed with the
appropriate governmental agencies all tax returns and reports required to be
filed by it, and has paid in full or contested in good faith or made adequate
provision for the payment of, Taxes (as defined herein) shown to be due or
claimed to be due on such tax returns and reports. The provisions for Taxes
which are set forth on the Balance Sheet are adequate for all accrued and unpaid
taxes of Roxy Systems as of September 30, 1998, whether (i) incurred in respect
of or measured by income of Roxy Systems for any periods prior to
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the close of business on that date, or (ii) arising out of transactions entered
into, or any state of facts existing, on or prior to such date. Roxy Systems has
duly withheld all payroll taxes, FICA and other federal, state and local taxes
and other items requiring to be withheld by it from employer wages, and has duly
deposited the same in trust for or paid over to the proper taxing authorities.
Roxy Systems has not executed or filed with any taxing authority any agreement
extending the periods for the assessment or collection of any Taxes, and is not
a party to any pending or, to the best knowledge of the Stockholder, threatened,
action or proceeding by any governmental authority for the assessment or
collection of Taxes. Except as set forth herein, within the past three years,
the United States federal income tax returns of Roxy Systems have not been
examined by the Internal Revenue Service ("the IRS"), nor has any state taxing
authority examined any merchandise, personal property, sales or use tax returns
of Roxy Systems.
3.17 Insurance. Schedule 3.17 is a complete and
correct list and summary description of all contracts and policies of insurance
relating to any of the Assets, the Business or the Stockholder in which Roxy
Systems is an insured party, beneficiary or loss payable payee. Such policies
are in full force and effect, all premiums due and payable with respect thereto
have been paid, and no notice of cancellation or termination has been received
by Roxy Systems with respect to any such policy.
3.18 Banks; Powers of Attorney. Schedule 3.18 is
a complete and correct list showing (a) the names of each bank in which Roxy
Systems has an account or safe deposit box and the names of all persons
authorized to draw thereon or who have access thereto, and (b) the names of all
persons, if any, holding powers of attorney from Roxy Systems.
3.19 Employee Arrangements. Schedule 3.19 is a
complete and correct list and summary description of all current employees of
the Company together with title and salary information. Except as disclosed in
Schedule 3.19, there are no (a) union, collective bargaining, employment,
management, termination and consulting agreements to which Roxy Systems is a
party or otherwise bound, and (b) compensation plans and arrangements; bonus and
incentive plans and arrangements; deferred compensation plans and arrangements;
pension and retirement plans and arrangements; profit-sharing and thrift plans
and arrangements; stock purchase and stock option plans and arrangements;
hospitalization and other life, health or disability insurance or reimbursement
programs; holiday, sick leave, severance, vacation, tuition reimbursement,
personal loan and product purchase discount policies and arrangements; and other
plans or arrangements providing for benefits for employees of Roxy Systems.
3.20 ERISA. Except as listed on Schedule 3.20,
Roxy Systems neither maintains nor is obligated to contribute to an "employee
pension benefit plan" ("Roxy Systems Pension Plan"), as such term is defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Roxy Systems's "welfare benefit plan" (collectively called "Roxy
Systems Welfare Plans") as such term is defined in Section 3(1) of ERISA.
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3.22 Certain Business Matters. Except as is set
forth in Schedule 3.22, (a) Roxy Systems is not a party to or bound by any
publishing, distributorship, dealership, sales agency, franchise or similar
agreement which relates to the sale or distribution of any of the products and
services of the Business, (b) Roxy Systems has no sole-source supplier of
significant goods or services (other than utilities) with respect to which
practical alternative sources are not available on comparable terms and
conditions, (c) there are no pending or, to the best knowledge of the
Stockholder, threatened labor negotiations, work stoppages or work slowdowns
involving or affecting the Business, and no union representation questions
exist, and there are no organizing activities, in respect of any of the
employees of Roxy Systems, (d) the product and service warranties given by Roxy
Systems or by which it is bound (complete and correct copies or descriptions of
which have heretofore been delivered by Roxy Systems to Frontline) entail no
greater obligations than are customary in the Business, (e) neither Roxy Systems
nor the Stockholder is a party to or bound by any agreement which limits its or
his, as the case may be, freedom to compete in any line of business or with any
person, or which is otherwise materially burdensome to Roxy Systems or the
Stockholder, and (f) Roxy Systems is not a party to or bound by any agreement in
which any officer, director or stockholder of Roxy Systems (or any affiliate of
any such person) has, or had when made, a direct or indirect material interest.
3.23 Certain Contracts. Frontline Communications
Corp. will not assume any of Roxy Systems' obligations under any contract or
agreement unless specifically set forth in Schedule 3.23.
3.24 Approvals/Consents. Except as set forth on
Schedule 3.24, Roxy Systems currently holds all governmental and administrative
consents, permits, appointments, approvals, licenses, certificates and
franchises which are necessary for the operation of the Business, all of which
are in full force and effect and are transferable pursuant to the transaction
contemplated hereby without the payment of any penalty or the incurrence of any
additional debt, liability or obligation of any nature whatsoever or the change
of any term. Schedule 3.24 is a complete and correct list of all such
governmental and administrative consents, permits, appointments, approvals,
licenses, certificates and franchises. No material violations of the terms
thereof have heretofore occurred or are known by the Stockholder to exist as of
the date of this Agreement.
3.25 Subscriber Base. As of the Closing Date,
Roxy Systems has an active subscriber base of at least 1,000 customers, as
indicated in Schedule 3.25.
3.26 Suppliers. Schedule 3.26 sets forth all
suppliers and vendors whose services are integral to the continued operation of
Magic Carpet. Neither Magic Carpet nor the Stockholder has any reason to believe
that the suppliers set forth in Schedule 3.26 will not continue to provide
service to Frontline on the same terms and conditions subsequent to the Closing
Date.
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3.27 Information as to Roxy Systems. None of the
representations or warranties made by Roxy Systems or the Stockholder in this
Agreement is, or contained in any of the Roxy Systems Documents to be executed
and delivered hereto will be, false or misleading with respect to any material
fact, or omits to state any material fact necessary in order to make the
statements therein contained not misleading.
4. Representations and Warranties as to Frontline. Frontline
represents and warrants to Roxy Systems and the Stockholder, as follows:
4.1 Organization, Standing and Power. Frontline
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, with full corporate power and corporate authority
to (i) own, lease and operate their properties, (ii) carry on their business as
currently conducted by them and (iii) execute and deliver, and perform under
this Agreement and each other agreement and instrument to be executed and
delivered by them pursuant hereto.
4.2 Authority of Frontline. The execution and
delivery by Frontline of this Agreement and of each agreement to be executed and
delivered by it pursuant hereto (collectively, the "Frontline Documents"), the
performance by Frontline of its obligations hereunder and thereunder, and the
consummation of the transactions contemplated hereby and thereby, have been duly
and validly authorized by all necessary corporate action on the part of
Frontline, and Frontline has all necessary corporate power and corporate
authority with respect thereto. This Agreement is, and when executed and
delivered by Frontline each of the other agreements to be delivered by Frontline
pursuant hereto will be, the valid and binding obligation of Frontline, to the
extent they are a party thereto, in accordance with their respective terms
except as the same may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws affecting the rights of creditors generally and subject
to the rules of law governing (and all limitations on) specific performance,
injunctive relief, and other equitable remedies.
4.3 Information as to Frontline. None of the
representations or warranties made by Frontline in this Agreement, or contained
in any of the Frontline Documents, to be executed and delivered hereto, is or
will be, false or misleading with respect to any material fact, or omits to
state any material fact necessary in order to make the statements therein
contained not misleading.
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5. Indemnification.
5.1 Indemnification by the Stockholder. The
Stockholder hereby indemnifies and agrees to defend and hold harmless Frontline
from and against any and all losses, obligations, deficiencies, liabilities,
claims, damages, costs and expenses (including, without limitation, the amount
of any settlement entered into pursuant hereto, and all reasonable legal and
other expenses incurred in connection with the investigation, prosecution or
defense of any matter indemnified pursuant hereto) which Frontline may sustain,
suffer or incur and which arise out of, are caused by, relate to, or result or
occur from or in connection any misrepresentation of a material fact contained
in any representation of Roxy Systems and/or the Stockholder contained in, or
the breach by Roxy Systems or the Stockholder of any warranty or covenant made
by any one or all of them in any Roxy Systems Document and/or any Shareholder
Document. The foregoing indemnification shall also apply to direct claims by
Frontline against the Stockholder.
5.2 Indemnification by Frontline. Frontline
hereby indemnifies and agrees to defend and hold harmless each of Roxy Systems
(before the Closing Date) and the Stockholder from and against any and all
losses, obligations, deficiencies, liabilities, claims, damages, costs and
expenses (including, without limitation, the amount of any settlement entered
into pursuant hereto, and all reasonable legal and other expenses incurred in
connection with the investigation, prosecution or defense of any matter
indemnified pursuant hereto), which it or he may sustain, suffer or incur and
which arise out of, are caused by, relate to, or result or occur from or in
connection with any misrepresentation of a material fact contained in any
representation of Frontline contained in, or the breach by Frontline of any
warranty or covenant made by it in any Frontline Documents. The foregoing
indemnification shall also apply to direct claims by Roxy Systems or the
Stockholder against Frontline.
5.3 Third Party Claims. If a claim by a third
party is made against any party or parties hereto and the party or parties
against whom said claim is made intends to seek indemnification with respect
thereto under Subsections 5.1 or 5.2, the party or parties seeking such
indemnification shall promptly notify the indemnifying party or parties, in
writing, of such claim; provided, however, that the failure to give such notice
shall not affect the rights of the indemnified party or parties hereunder except
to the extent that such failure materially and adversely affects the
indemnifying party or parties due to the inability to timely defend such action.
The indemnifying party or parties shall have 10 business days after said notice
is given to elect, by written notice given to the indemnified party or parties,
to undertake, conduct and control, through counsel of their own choosing
(subject to the consent of the indemnified party or parties, such consent not to
be unreasonably withheld) and at their sole risk and expense, the good faith
settlement or defense of such claim, and the indemnified party or parties shall
cooperate with the indemnifying parties in connection therewith; provided: (a)
all settlements require the prior reasonable consultation with the indemnified
party and the prior written consent of the indemnified party, which consent
shall not be unreasonably withheld, and (b) the
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indemnified party or parties shall be entitled to participate in such settlement
or defense through counsel chosen by the indemnified party or parties, provided
that the fees and expenses of such counsel shall be borne by the indemnified
party or parties. So long as the indemnifying party or parties are contesting
any such claim in good faith, the indemnified party or parties shall not pay or
settle any such claim; provided, however, that notwithstanding the foregoing,
the indemnified party or parties shall have the right to pay or settle any such
claim at any time, provided that in such event they shall waive any right of
indemnification therefor by the indemnifying party or parties. If the
indemnifying party or parties do not make a timely election to undertake the
good faith defense or settlement of the claim as aforesaid, or if the
indemnifying parties fail to proceed with the good faith defense or settlement
of the matter after making such election, then, in either such event, the
indemnified party or parties shall have the right to contest, settle or
compromise (provided that all settlements or compromises require the prior
reasonable consultation with the indemnifying party and the prior written
consent of the indemnifying party, which consent shall not be unreasonably
withheld) the claim at their exclusive discretion, at the risk and expense of
the indemnifying parties.
5.4 Assistance. Regardless of which party is
controlling the defense of any claim, each party shall act in good faith and
shall provide reasonable documents and cooperation to the party handling the
defense.
6. Covenants
6.1 Investigation.
(a) Between the date hereof and the
Closing Date, Frontline, on the one hand, and Roxy Systems and the Stockholder,
on the other hand, may, directly and through their representatives, make such
investigation of each other corporate party and their respective businesses and
assets of the other corporate party or parties as each deems necessary or
advisable (the entity and/or its representatives making such investigation being
the "Investigating Party"), but such investigation shall not affect any of the
representations and warranties contained herein or in any instrument or document
delivered pursuant hereto. In furtherance of the foregoing, the Investigating
Party shall have reasonable access, during normal business hours after the date
hereof, to all properties, books, contracts, commitments and records of each
other, and shall furnish to the other and their representatives such financial
and operating data and other information as may from time to time be reasonably
requested relating to the transactions contemplated by this Agreement.
Frontline, on the one hand, and Roxy Systems and the Stockholder, on the other,
and the respective management, employees, accountants and attorneys of the
corporate parties shall cooperate fully with the Investigating Party in
connection with such investigation.
(b) The parties hereto hereby agree
that all confidential information of a party to which an Investigating Party
obtains access shall be deemed "confidential information." As used in this
Section, the term "Confidential Information"
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shall mean any and all information (verbal and written) relating to the
Business, including, but not limited to, information relating to: identity and
description of goods and services used; purchasing; costs; pricing; sources;
machinery and equipment; technology; research, test procedures and results;
customers and prospects; marketing; and selling and servicing. (c) After the
Closing Date each of the Stockholder agrees not to, at any time, directly or
indirectly, use, communicate, disclose or disseminate any Confidential
Information in any manner whatsoever.
6.2 Noncompete Covenant.
(a) The Stockholder hereby agrees after
the Closing Date, not to, until the second anniversary of the Closing Date
directly or indirectly (A) engage or become interested in any business (whether
as owner, manager, operator, licensor, licensee, lender, partner, stockholder,
joint venturer, employee, consultant or otherwise) engaged in any business then
engaged in by Frontline or Roxy Systems in any of the areas in which Frontline
or Roxy Systems conducts business as of the Closing Date. For the purpose of
this provision, "the Business" is defined as the provision of internet service
to residential and commercial customers, web hosting services and leased line
services. Roxy Systems and Stockholder further agree not to take any other
action which constitutes an interference with or a disruption of the continued
operation of the Business or Frontline's use, ownership and enjoyment of the
Assets. Notwithstanding the foregoing, the parties agree that the Stockholder
may continue in his capacity as an employee of M.R. Weiser (or in the capacity
of Chief Executive Officer of any affiliate of M.R. Weiser), which provides
certain e-commerce and web services for its clients. However, Stockholder
expressly agrees not to solicit Magic Carpet or Frontline customers.
(b) For purposes of clarification, but
not of limitation, each Stockholder acknowledges and agrees that the provisions
of subsection 6.2 above shall serve as a prohibition against him, during the
period described therein, directly or indirectly, hiring, offering to hire,
enticing away or in any other manner persuading or attempting to persuade any
officer, employee, agent, lessor, lessee, licensor, licensee, customer,
prospective customer or supplier of the Business to discontinue or alter his or
its relationship with the Business.
(c) The parties hereto hereby
acknowledge and agree that (i) Frontline would be irreparably injured in the
event of a breach by the Stockholder of any of his obligations under this
Section 6, (ii) monetary damages would not be an adequate remedy for any such
breach, and (iii) Frontline shall be entitled to injunctive relief, in addition
to any other remedy which it may have, in the event of any such breach. It is
hereby also agreed that the existence of any claims which Stockholder may have
against Frontline, whether under this Agreement or otherwise, shall not be a
defense to the enforcement by Frontline of any of the rights under this Section
6.
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(d) It is the intent of the parties
hereto that the covenants contained in this Agreement shall be enforced to the
fullest extent permissible under the laws of and public policies of each
jurisdiction in which enforcement is sought, and the Stockholder hereby
acknowledges that said restrictions are reasonably necessary for the protection
of Frontline. Accordingly, it is hereby agreed that if any one or more of the
provisions of Section 6 shall be adjudicated to be invalid or unenforceable for
any reason whatsoever, said provision shall be (only with respect to the
operation thereof in the particular jurisdiction in which such adjudication is
made) construed by limiting and reducing it so as to be enforceable to the
extent permissible.
6.3 Consummation of Transaction. Each of the parties
hereto hereby agrees to use its best efforts to cause all conditions precedent
to his or its obligations (and to the obligations of the other parties hereto to
consummate the transactions contemplated hereby) to be satisfied, including, but
not limited to, using all reasonable efforts to obtain all required (if so
required by this Agreement) consents, waivers, amendments, modifications,
approvals, authorizations, novations and licenses; provided, however, that
nothing herein contained shall be deemed to modify any of the absolute
obligations imposed upon any of the parties hereto under this Agreement or any
agreement executed and delivered pursuant hereto.
6.4 Cooperation/Further Assurances.
(a) Each of the parties hereto hereby
agrees (i) to fully cooperate with the other parties hereto in preparing and
filing any notices, applications, reports and other instruments and documents
and (ii) to execute, acknowledge, deliver, file and/or record, or cause such
other parties to the extent permitted by law to execute, acknowledge, deliver,
file and/or record such other documents, which may be required by this Agreement
or which are desirable in the reasonable opinion of any of the parties hereto,
or their respective legal counsel, in respect of, any statute, rule, regulation
or order of any governmental or administrative body in connection with the
transactions contemplated by this Agreement.
(b) Roxy Systems hereby further agrees
to make available, at Frontline's request, personnel to provide reasonable
assistance, without compensation, in the orderly transfer of customer accounts
from Roxy Systems to Frontline, including without limitation administrative
services with respect to billing.
6.5 Accuracy of Representations. Each party hereto
agrees that prior to the Closing Date he or it will enter into no transaction
and take no action, and will use his or its best efforts to prevent the
occurrence of any event (but excluding events which occur in the ordinary course
of business and events over which such party has no control), which would result
in any of his or its representations, warranties or covenants contained in this
Agreement or in any agreement, document or instrument executed and delivered by
him or it pursuant hereto not to be true and correct, or not to be performed as
contemplated, at and as of the time immediately after the occurrence of such
transaction or event.
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6.6 Notification of Certain Matters. Roxy Systems
and the Stockholder shall give prompt notice to Frontline, and Frontline shall
give prompt notice to Roxy Systems and the Stockholder, as the case may be, of
(a) the occurrence, or nonoccurrence, or any event the occurrence, or
nonoccurrence, of which would be likely to cause any representation contained in
this Agreement to be untrue or inaccurate in any material respect at or prior to
the Closing Date and (b) any material failure of Roxy Systems and/or the
Stockholder, on the one hand, and of Frontline, on the other, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
him or it hereunder; provided, however, that the delivery of any notice pursuant
to this Subsection 6.6 shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
6.7 Broker. Each of Frontline, Subsidiary, Roxy
Systems, and the Stockholder represents and warrants to the other parties that
no broker or finder was engaged or dealt with in connection with any of the
transactions contemplated by this Agreement, and each of the parties shall
indemnify and hold the other harmless from and against any and all claims or
liabilities asserted by or on behalf of any alleged broker or finder for
broker's fees, finder's fees, commissions or like payments.
6.8 No Solicitation of Transactions. Prior to the
earlier of the Closing Date or the termination of this Agreement, neither Roxy
Systems nor the Stockholder will, directly or indirectly, through any director,
officer, employee, investment banker, financial advisor, attorney, accountant or
other agent or representative of Roxy Systems otherwise, solicit, initiate or
encourage the submission of proposals or offers from any person relating to any
acquisition or purchase of all or (other than in the ordinary course of
business) any portion of the Roxy Systems Common Stock, Assets or Business of,
or any equity interest in, Roxy Systems, or any business combination with Roxy
Systems and other than with Frontline, participate in any negotiations
regarding, or furnish to any other person any information with respect to, or
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person to do or seek any of the
foregoing. Roxy Systems and the Stockholder shall immediately cease and cause to
be terminated any existing discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing (other than in respect
of the transaction contemplated hereby). Roxy Systems and the Stockholder shall
promptly notify Frontline if any such proposal or offer, or any inquiry or
contact with any person with respect thereto is made in writing and shall, in
any such notice to Frontline, indicate in reasonable detail the identity of the
offeror and the terms and conditions of any proposal or offer.
6.9 Prohibited Conduct. Each of Roxy Systems and the
Stockholder, jointly and severally, covenants and agrees that, during the period
from the date hereof to the Closing Date, except pursuant to the terms hereof or
unless Frontline shall otherwise agree in writing, the Business shall be
conducted only, and Roxy Systems
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shall not take any action except, in the ordinary course of business and in a
manner consistent with past practice and in compliance with applicable laws; and
Roxy Systems shall use its best efforts to preserve intact its Assets, the
Business and the business organization of Roxy Systems, to keep available the
services of the present officers, employees and consultants of Roxy Systems, and
to preserve the present relationships of Roxy Systems with customers, suppliers
and other persons with whom Roxy Systems has business relations. By way of
illustration, and not limitation, neither Roxy Systems nor the Stockholder
shall, between the date of this Agreement and the Closing Date, directly or
indirectly do, or propose or commit to do, any of the following without the
prior written consent of Frontline:
(a) (i) declare, set aside or pay any
dividends on, or make any other distributions in respect of, any of the Roxy
Systems Common Stock, or (ii) split, combine or reclassify any of the Roxy
Systems Common Stock or issue or authorize the issuance of any other securities
in respect of, in lieu of or in substitution for shares of the Roxy Systems
Common Stock, or otherwise;
(b) authorize for issuance, issue,
deliver, sell or agree to commit to issue, sell or deliver (whether through the
issuance or granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise), pledge or otherwise encumber, any shares of Roxy Systems
Common Stock, any other voting securities or any securities convertible into, or
any rights, warrants or options to acquire, any such shares, voting securities
convertible securities or any other securities or equity equivalents;
(c) (i) increase the compensation payable
or to become payable to any officer, director, employees or consultant of Roxy
Systems, except pursuant to the terms of contracts, policies or benefit
arrangements in effect on the date hereof, or (ii) grant any severance or
termination pay to, or enter into any employment or severance agreement with,
any director, officer, other employee or consultant of Roxy Systems or any of
its subsidiaries, except pursuant to the terms of contracts, policies and
benefit arrangements in effect on the date hereof, or (iii) establish, adopt,
enter into or amend any collective bargaining (other than in accordance with
past practice), bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any directors, officers, employees or consultants
of Roxy Systems;
(d) amend the Certificate of
Incorporation, By-Laws or other comparable charter or organizational documents
of Roxy Systems or alter through merger, liquidation, reorganization,
restructuring, or in any other fashion, the corporate structure or ownership of
Roxy Systems;
(e) acquire, or agree to acquire, (i) by
merging or consolidating with, or by purchasing a substantial portion of the
stock or assets of, or by
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any other manner, any business or corporation, partnership, joint venture,
association or other business organization or division thereof, or (ii) any
assets that are material, individually or in the aggregate, to Roxy Systems,
except purchases consistent with past practice;
(f) sell, lease, license, mortgage or
otherwise encumber or subject to any lien, security interest, pledge or
encumbrance or otherwise dispose of any of the Assets, except sales in the
ordinary course of business consistent with past practice;
(g) permit Roxy Systems to incur any
indebtedness for borrowed money or guarantee any such indebtedness of another
person, issue or sell any debt securities or warrants or other rights to acquire
any debt securities of Roxy Systems, guarantee any debt securities of another
person, or enter into any arrangement having the economic effect of any of the
foregoing, except for short-term borrowings incurred in the ordinary course of
business consistent with past practice, or (ii) permit the Stockholder to issue
any guaranties of any indebtedness of Roxy Systems;
(h) except in the ordinary course of
business, enter into any agreement, contract, commitment, involving a commitment
on the part of Roxy Systems to purchase, sell, lease or otherwise dispose of
assets or require payment by Roxy Systems in excess of $5,000;
(i) make any capital expenditures;
(j) adopt a plan of complete or partial
liquidation of Roxy Systems or resolutions providing for or authorizing such a
liquidation or the dissolution, merger, consolidation, restructuring,
recapitalization or reorganization of Roxy Systems;
(k) change any accounting principles used
by Roxy Systems, unless required by the Financial Accounting Standards Board;
(l) make any tax election of, or settle,
compromise any income tax liability of, or file any federal income tax return
prior to the last day (including extensions) prescribed by law, in the case of
any of the foregoing, material to the business, financial condition or results
of the operations of Roxy Systems and its subsidiaries, if any, taken as a
whole;
(m) settle or compromise any litigation
in which Roxy Systems is a defendant (whether or not commenced prior to the date
of this Agreement) or settle, pay or compromise any claims not required to be
paid, which payments are individually in an amount in excess of $5,000 and in
the aggregate in an amount in excess of $25,000; and
(n) authorize any of, or commit or agree
to take any of, the foregoing actions.
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6.10 Post-Closing Audit. Roxy Systems and the
Stockholder agree to make all information available to, and to cooperate fully
with, Frontline and their accountants, legal counsel or other authorized
representatives, with respect to the preparation and submission, at Frontline's
cost, of audited financial statements for Roxy Systems, in accordance with GAAP
and Regulation S-X, as may be required by any government or regulatory agency
following the transactions contemplated hereby.
6.11 Maintenance of Business. Roxy Systems will use
its commercially reasonable efforts to carry on its businesses, keep available
the services of its officers and employees and preserve its relationships with
those of its suppliers, licensors, licensees and others having business
relationships with it that are material to its businesses in substantially the
same manner as they have prior to the date hereof. If Roxy Systems becomes aware
of a material deterioration or facts which are likely to result in a material
deterioration in the relationship with any material supplier, licensor, licensee
or others having business relationships with it, Roxy Systems will promptly
bring such information to the attention of Frontline in writing.
6.12 Roxy Systems Name. Unless Roxy Systems is
dissolved, Roxy Systems shall, immediately following the Closing Date, at its
cost and expense, (i) change its corporate name to a name bearing no resemblance
to "Roxy Systems", and (ii) take such other action as is necessary so that
Frontline will have full right, title and interest in and to, and use of, all of
the names, brands and marks used in connection with the business, including,
without limitation, the names "Roxy Systems" and "Magic Carpet". In furtherance
of the foregoing, Roxy Systems hereby agrees from and after the Closing Date it
shall not use or permit any of its subsidiaries or affiliates to use, directly
or indirectly, any of such words, names, brands, marks or expressions, or
anything so closely resembling any of the foregoing as to be likely confused
therewith, or as to be likely to detract from the value of any of the Purchased
Assets or the business of Roxy Systems/Magic Carpet.
7. Conditions to Close.
7.1 Conditions to Obligations of Frontline to Close.
The obligations of Frontline to consummate the transactions contemplated herein
shall be subject to the fulfillment at or prior to the Closing Date of the
following conditions:
(a) Accuracy of Representations and Warranties.
The representations and warranties of each of Roxy Systems and the Stockholder
contained in any Stockholder Document or Roxy Systems Document delivered by
either or both of them shall have been true when made, and, in addition, shall
be true in all material respects on and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date.
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(b) Performance of Agreements. Each of Roxy
Systems and the Stockholder, as the case may be, shall have performed, observed
and complied in all material respects with all of their obligations, covenants
and agreements, and shall have satisfied or fulfilled in all material respects
conditions contained in any Stockholder Document or Roxy Systems Document and
required to be performed, observed or complied with, or to be satisfied or
fulfilled, by Roxy Systems or the Stockholder at or prior to the Closing Date.
(c) Results of Investigation. Frontline shall be
satisfied with the results of any investigation of the business and affairs of
Roxy Systems undertaken by them pursuant to Subsection 6.1 hereof.
(d) Accounting Records. Frontline and their
accountants shall be satisfied that the accounting records of Roxy Systems are
auditable in accordance with Generally Accepted Accounting Principles.
(e) Litigation. No order of any court or
administrative agency shall be in effect which restrains or prohibits the
transactions contemplated hereby, and no claim, suit, action, inquiry,
investigation or proceeding in which it will be, or it is, sought to restrain,
prohibit or change the terms of or obtain damages or other relief in connection
with this Agreement or any of the transactions contemplated hereby, shall have
been instituted or threatened by any person or entity, and which, in the
reasonable judgment of Frontline (based on the likelihood of success and
material consequences of such claim, suit, action, inquiry or proceeding), makes
it inadvisable to proceed with the consummation of such transactions.
(f) Consents and Approvals. All consents,
waivers, approvals, licenses and authorizations by third parties and
governmental and administrative authorities (and all amendments or modifications
to existing agreements with third parties) required as a precondition to the
performance by Roxy Systems and the Stockholder of their respective obligations
hereunder and under any agreement delivered pursuant hereto, or which in
Frontline's reasonable judgment are necessary to continue unimpaired, subsequent
to the Closing Date, any rights in and to the Assets and/or the Business which
could be impaired by the consummation of this transaction, shall have been duly
obtained and shall be in full force and effect.
(g) Date of Consummation. The transactions
contemplated herein shall have been consummated on or prior to October 9, 1998,
or such later date as the parties shall agree by a written instrument signed by
all of them.
(h) Validity of Transactions. The validity of all
transactions contemplated hereby, as well as the form and substance of all
agreements, instruments,
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opinions, certificates and other documents delivered by Roxy Systems and the
Stockholder pursuant hereto, shall be satisfactory in all material respects to
Frontline and their counsel.
(i) No Material Adverse Change. Except as
otherwise provided by this Agreement, there shall not have occurred after the
date hereof, in the reasonable judgment of Frontline , a material adverse change
in the financial or business condition of Roxy Systems and its subsidiaries,
taken as a whole.
(j) Closing Certificate. The Stockholder shall
have furnished Frontline with certificates, all dated the Closing Date, to the
effect that all the representations and warranties of Roxy Systems and the
Stockholder are true and complete and all covenants to be performed by Roxy
Systems or the Stockholder at or as of the Closing have been performed and
conditions to be satisfied at or as of the Closing have been waived or
satisfied.
(k) Projected Balance Sheet. Frontline shall have
received a projected balance sheet, income statement and projected working
capital requirements for Roxy Systems covering the periods from October 1, 1998
through December 31, 1999 and January 1, 1998 through December 31, 1999. Such
projections shall be set forth in reasonable detail and shall include a detailed
list of all assumptions used in determining income, expense and cash flow.
7.2 Conditions to Obligations of Roxy Systems to
Close. The obligations of Roxy Systems to consummate the transactions
contemplated herein shall be subject to the fulfillment at or prior to the
Closing Date of the following conditions:
(a) Accuracy of Representations and Warranties.
The representations and warranties of Frontline contained in any Frontline
Documents delivered by either Frontline shall have been true when made, and, in
addition, shall be true in all material respects, on and as of the Closing Date
with the same force and effect as though made on and as of the Closing Date.
(b) Performance of Agreements. Frontline shall
have performed, observed and complied, in all material respects, with all
obligations, covenants and agreements, and shall have satisfied or fulfilled in
all material respects all conditions contained in any Frontline Document and
required to be performed, observed or complied with, or satisfied or fulfilled,
by either or both of them at or prior to the Closing Date.
(c) Consents and Approvals. All consents,
waivers, approvals, licenses and authorizations by third parties and
governmental and administrative authorities (and all amendments and
modifications to existing agreements with third parties) required as a
precondition to the performance by Frontline of its
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obligations hereunder and under any agreement delivered pursuant hereto, shall
have been duly obtained and shall be in full force and effect.
(d) Validity of Transactions. The validity of all
transactions contemplated hereby, as well as the form and substance of all
agreements, instruments, opinions, certificates and other documents delivered by
Frontline pursuant hereto, shall be satisfactory in all material respects to the
Stockholder and its counsel.
(e) Closing Certificate. Frontline shall have
furnished Roxy Systems with certificates executed by its president, dated the
Closing Date, to the effect that all the representations and warranties of
Frontline are true and complete in all material respects and all covenants to be
performed by Frontline at or as of the Closing have been performed in all
material respects and conditions to be satisfied at or as of the Closing have
been waived or satisfied in all material respects.
8. Termination, Amendment and Waiver.
8.1 Termination. This Agreement may be terminated at
any time prior to the Closing Date:
(a) By mutual consent of the Boards of Directors
of Frontline and Roxy Systems; or
(b) By Frontline, on the one hand, or Roxy
Systems and the Stockholder, on the other hand, if (i) the transactions
contemplated by this Agreement shall not have been consummated by October 9,
1998, or such later date as the parties shall have fixed by written instrument
signed by the parties hereto; provided, however, that the right to terminate
this Agreement under this subsection shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Closing Date to occur on or before such date or
(ii) a court of competent jurisdiction or governmental, regulatory or
administrative agency or commission shall have issued an order, decree or ruling
or taken any other action (which order, decree, ruling or other action the
parties hereto shall use their reasonable efforts to vacate), in each case
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement.
(c) By Frontline, on the one hand, or by Roxy
Systems and the Stockholder, on the other hand, if, in the reasonable judgment
of Frontline or Roxy Systems and the Stockholder, as the case may be, (and
provided such parties are not then in material breach of their respective
obligations hereunder), it shall have been determined that the transaction
contemplated by this Agreement has become inadvisable or impracticable by reason
of the institution or threat by state, local or federal governmental authorities
or by any other person of material litigation or proceedings against Frontline
or Roxy Systems.
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(d) By Frontline, on the one hand, or Roxy
Systems and the Stockholder, on the other hand, if, in the reasonable judgment
of Frontline or Roxy Systems or the Stockholder, as the case may be (and
provided such parties are not then in material breach of their respective
obligations hereunder), it shall be determined that the business or assets or
financial condition of the other unrelated corporate party hereto has been
materially and adversely affected since September 30, 1998, whether by reason of
changes, developments or operations in the normal course of business or
otherwise.
(e) By Frontline, if Citizens Telecom, Uunet Co.
or any other service provider integral to the continued operation of Roxy
Systems/Magic Carpet ceases to provide service to Roxy Systems.
8.2 Effect of Termination. In the event of the
termination of this Agreement as provided in this Section 9, this Agreement
shall, forthwith become null and void and there shall be no liability on the
part of any party hereto and nothing herein shall relieve any party from
liability for any wilful breach hereof. Such termination shall not, however,
affect the obligations of the parties with respect to the Confidential
Information.
8.3 Fees and Expenses. Frontline, on the one hand, and
the Stockholder, on the other hand, shall bear their own expenses in connection
with the transactions contemplated hereby.
8.4 Amendment. This Agreement may not be amended
except by an instrument in writing signed by each of the parties hereto.
8.5 Waiver. At any time prior to the Closing Date, any
party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any such extension or waiver shall be
valid if set forth in an instrument in writing signed by the party or parties to
be bound thereby.
9. Survival of Representations and Warranties.
Each of the parties hereto hereby agrees that: (i)
representations and warranties made by or on behalf of him or it in this
Agreement or in any document or instrument delivered pursuant hereto with
respect to tax matters, environmental compliance and ERISA matters shall survive
the respective statutes of limitations for such matters; and (ii) all other
representations or warranties made herein shall survive the Closing Date for a
period of two (2) years after the Closing Date.
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10. General Provisions.
10.1 Notices. All notices and other communications
given or made pursuant hereto shall be in writing and shall be deemed to have
been duly given or made as of the earlier of the date delivered or mailed if
delivered personally, by overnight courier or mailed by express, registered or
certified mail (postage prepaid, return receipt requested) or by facsimile
transmittal, confirmed by express, certified or registered mail, to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice, except that notices of changes of address shall be
effective upon receipt):
If to Frontline: Frontline Communications Corp.
One Blue Hill Plaza
Suite 1548
Pearl River, New York 10965
Attn: Mr. Stephen J. Cole-Hatchard
with a copy to: Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attn: Kenneth Selterman, Esq.
If to Roxy Systems or
the Stockholder: Roxy Systems, Inc.
Mr. Ali Davachi
574 Lenape Drive
Suffern, NY 10901
10.2 Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the greatest
extent possible.
10.3 Entire Agreement. This Agreement and the
agreements referred to herein constitute the entire agreement, and supersede all
prior agreements and undertakings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof.
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10.4 No Assignment. This Agreement shall not be
assigned by operation of law or otherwise, and any assignment shall be null and
void.
10.5 Headings. Headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
10.6 Governing Law. This Agreement shall be governed
by, and construed in accordance with, the law of the State of New York without
regard to its choice of law principles. Each of Frontline, Roxy Systems and the
Stockholder hereby irrevocably and unconditionally consents to submit to the
jurisdiction of the courts of the State of New York and of the United States
located in the County of New York, State of New York for any litigation arising
out of or relating to this Agreement and the transactions contemplated hereby
(and agrees not to commence any litigation relating thereto except in such
courts), waives any objection to the laying of venue of any such litigation in
such courts and agrees not to plead or claim that such litigation brought in any
such courts has been brought in an inconvenient forum.
10.7 Counterparts. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original,
but all of which taken together shall constitute one and the same agreement.
25
<PAGE>
AGREED TO AND ACCEPTED AS OF
THIS 9TH DAY OF OCTOBER, 1998
FRONTLINE COMMUNICATIONS CORP.
/s/ Stephen J. Cole-Hatchard
----------------------------
By: Stephen J. Cole-Hatchard
President & CEO
ROXY SYSTEMS, INC.
/s/ Ali Davachi
----------------------------
By: Ali Davachi, Shareholder
