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): June 20, 2000
Frontline Communications Corporation
(Exact name of registrant as specified in its charter)
Delaware 000-24223 13-3950283
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
One Blue Hill Plaza, Suite 1548, Pearl River, New York 10965
(Address of principal executive offices) (zip code)
Registrant's Telephone Number, including Area Code: (914) 623-8553
N/A
(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets.
On June 20, 2000 (the "Closing Date"), Registrant consummated the
acquisition (the "Acquisition") of substantially all of the assets (the
"Assets") of DelaNET, Inc., a Delaware corporation ("Seller"), subject to the
assumption of certain liabilities of the Seller totaling $646,930.23, of which
$223,302 is subject to dispute. The Acquisition was consummated pursuant to the
terms and provisions of an Asset Purchase Agreement dated June 20, 2000 (the
"Agreement") among Registrant, Seller, Michael Brown and Donald McIntire, each a
45.05% shareholder in the Seller (the "Shareholders").
The consideration for the Assets is $3,050,000 (the "Purchase Price"),
subject to adjustment as set forth below, payable as follows: (1) $1,750,000
cash was paid to Seller on the Closing Date (the "Cash Consideration"); (2)
$250,000 in cash was placed in escrow on the Closing Date (the "Escrowed
Amount") to be distributed in accordance with the Escrow Agreement dated June
20, 2000 by and among Seller, Registrant and Richards, Layton & Finger, P.A., as
escrow agent; (3) 200,000 shares of unregistered Common Stock, par value $0.01
per share, of the Registrant (the "Share Consideration") valued at $321,400; and
(4) a convertible promissory note in the principal amount of $728,600 (the
"Note"). The Purchase Price was determined pursuant to negotiation between
Registrant and Seller. The source of funds used to pay the Purchase Price was
available funds of Registrant.
The principal amount of the Note is payable in full on June 20, 2003 with
the right of early repayment, and bears interest at a rate of 4% per annum,
payable semi-annually commencing on December 20, 2000. Pursuant to the Note,
Registrant will have the option to convert the principal amount of and interest
payable on the Note into unregistered shares of Common Stock of the Registrant,
at a conversion rate of $8.00 per share ("Conversion Shares"), if, at any time
during the term of the Note, the closing price of the Common Stock of the
Registrant equals or exceeds $10 per share.
Pursuant to a Pledge and Security Agreement, in order to secure the
obligations of Registrant under the Note, Registrant granted to the Seller a
security interest in the Assets.
Pursuant to the Escrow Agreement, to the extent that on the 90th day
following the Closing Date the number of internet service subscribers
attributable to the Assets is less than the number of subscribers specified in
the Escrow Agreement, the Escrow Agent will pay to Registrant out of the
Escrowed Amount $150 for each internet subscriber less than the specified
number. On the 91st day the Escrow Agent will deliver to Seller all amounts
remaining in the Escrow Fund.
Pursuant to a Registration Rights Agreement executed on the Closing Date,
Registrant granted certain "piggyback" registration rights to the Seller for a
period 90 days after the issuance of any Conversion Shares. Registrant also
granted certain demand registration rights to the Seller pursuant to which
Seller may demand, at any time after the 91st day following any issuance of the
Conversion Shares, the filing of a registration statement to register Seller's
Conversion Shares.
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On the Closing Date, Registrant entered into Consulting Agreements with
Michael Brown (and Environmental Energy Services Corp.), and Donald McIntire
(and DMAC Engineering). The Consulting Agreements provide for Messrs. Brown and
McIntire to serve the Registrant, as consultants, for a two-year period
commencing June 21, 2000, in consideration of $40,000 annually plus a bonus in
the form of stock options that is dependent on the consultant's contribution to
the operating profits of the Registrant. The maximum bonus that may be received
by each is options to purchase 50,000 shares of Registrant's Common Stock at an
exercise price of $3 per share. Registrant is also obligated to pay an
additional bonus in connection with acquisitions negotiated by the consultant on
behalf of the Registrant under certain circumstances. The Consulting Agreements
contain certain non-competition provisions for a period of one-year following
termination of such Agreements.
Pursuant to a Lock-Up Agreement executed on the Closing Date, Seller agreed
that the Share Consideration may not be sold until the first anniversary of
issuance; 50% of the Share Consideration may be sold at any time after the first
anniversary of the date of their issuance; and the balance of the Share
Consideration may be sold at any time after 18 months after the date of their
issuance, in each case subject to Rule 144 under the Securities Act of 1933, as
amended.
Pursuant to the Agreement, Seller and the Shareholders have agreed to
certain non-competition provisions for a period of two years following the
Closing Date.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired.
The required financial information for the business acquired will be filed
under cover of Form 8 within 60 days of the date this Form 8-K was required to
be filed.
(b) Pro forma financial information.
The required pro forma financial information will be filed under cover of
Form 8 within 60 days of the date this Form 8-K was required to be filed.
(c) Exhibits.
10.1 Asset Purchase Agreement dated June 20, 2000 among Frontline
Communications Corp., DelaNET, Inc., Michael Brown and Donald McIntire.
Schedules and attachments are listed in the Exhibit Index to this Report.
All Schedules and Exhibits I, J, K and L and have been omitted pursuant to
Item 601(b)(2) of Regulation S-B.
10.2 Pledge and Security Agreement dated June 20, 2000 made by
Frontline Communications Corp.
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10.3 Escrow Agreement dated June 20, 2000 among Frontline
Communications Corp., DelaNET, Inc. and Richards, Layton & Finger, P.A.
10.4 Lock-Up Agreement dated June 20, 2000 between Frontline
Communications Corp. and DelaNET, Inc.
10.5 Convertible Promissory Note dated June 20, 2000 made by Frontline
Communications Corp.
10.6 Consulting Agreement dated June 20, 2000 among Frontline
Communications Corp., Michael Brown and Environmental Energy Services Corp.
10.7 Consulting Agreement dated June 20, 2000 among Frontline
Communications Corp., Donald McIntire and DMAC Engineering
10.8 Registration Rights Agreement dated June 20, 2000 among Frontline
Communications Corp., DelaNET, Inc. and the stockholders of DelaNET, Inc.
10.9 Closing Side Letter dated June 20, 2000 between Frontline
Communications Corp. and DelaNET, Inc.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
FRONTLINE COMMUNICATIONS CORP.
(Registrant)
Dated: July 5, 2000 By: /s/ Stephen J. Cole-Hatchard
----------------------------
Stephen J. Cole-Hatchard
Chief Executive Officer,
President and Director
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EXHIBIT INDEX
Exhibit Description
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10.1 Asset Purchase Agreement dated June 20, 2000 among Frontline
Communications Corp., DelaNET, Inc., Michael Brown and Donald
McIntire.
List of Omitted Exhibits and Schedules
Schedule 1.1 Permitted Liens
Schedule 1.2 Equipment
Schedule 1.3 Assumed Liabilities
Schedule 1.4 Allocation of Purchase Price
Schedule 1.7 Accounts Payable
Schedule 3.4 Consents
Schedule 3.6 Accounts and Notes Receivable
Schedule 3.7 Absence of Changes
Schedule 3.8 Litigation
Schedule 3.10(a) Real Property
Schedule 3.10(b) Personal Property
Schedule 3.11 Intangibles/Inventions
Schedule 3.12 Domain Names
Schedule 3.13 Systems and Software
Schedule 3.14 Certain Business Matters
Schedule 3.15 Approvals/Consents
Schedule 3.16 Suppliers
Schedule 3.17 Certain Contracts
Schedule 3.18 Guarantees
Schedule 3.19 Insurance
Schedule 3.20 Banks/Powers of Attorney
Schedule 3.21 Employee Arrangements
Schedule 3.25 Taxes
Schedule 6.4 Transition Employees
Exhibit A Consulting Agreements
Exhibit B Escrow Agreement
Exhibit C Lock-Up Agreement
Exhibit D Convertible Promissory Note
Exhibit E Consulting Agreement - Brown
Exhibit F Consulting Agreement - McIntire
Exhibit G Registration Rights Agreement
Exhibit H Closing Side Letter
Exhibit I Legal Opinion of Richards , Layton & Finger
Exhibit J Bill of Sale and Assignment
Exhibit K Seller's Certified Customer Count
Exhibit L Transition Employee Agreement
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10.2 Pledge and Security Agreement dated June 20, 2000 made by Frontline
Communications Corp.
10.3 Escrow Agreement dated June 20, 2000 among Frontline Communications
Corp., DelaNET, Inc. and Richards, Layton & Finger, P.A.
10.4 Lock-Up Agreement dated June 20, 2000 between Frontline Communications
Corp. and DelaNET, Inc.
10.5 Convertible Promissory Note dated June 20, 2000 made by Frontline
Communications Corp.
10.6 Consulting Agreement dated June 20, 2000 among Frontline
Communications Corp., Michael Brown and Environmental Energy Services
Corp.
10.7 Consulting Agreement dated June 20, 2000 among Frontline
Communications Corp., Donald McIntire and DMAC Engineering
10.8 Registration Rights Agreement dated June 20, 2000 among Frontline
Communications Corp., DelaNET, Inc. and the stockholders of DelaNET,
Inc.
10.9 Closing Side Letter dated June 20, 2000 between Frontline
Communications Corp. and DelaNET, Inc.
