<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1999
REGISTRATION NO. 333-74403
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
INTERLIANT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7379 13-397-8980
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
215 FIRST STREET
CAMBRIDGE, MASSACHUSETTS 02142
(617) 374-4700
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
BRADLEY A. FELD
CO-CHAIRMAN OF THE BOARD
INTERLIANT, INC.
215 FIRST STREET
CAMBRIDGE, MASSACHUSETTS 02142
(617) 374-4700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
E. ANN GILL, ESQ. DAVID C. DRUMMOND, ESQ.
JONATHAN L. FREEDMAN, ESQ. WILSON SONSINI GOODRICH & ROSATI,
DEWEY BALLANTINE LLP PROFESSIONAL CORPORATION
1301 AVENUE OF THE AMERICAS 650 PAGE MILL ROAD
NEW YORK, NEW YORK 10019 PALO ALTO, CALIFORNIA 94304-1050
(212) 259-8000 (650) 493-9300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]
If this Form is filed to register additional securities for an Offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same Offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same Offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same Offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock
($.01 par value)................................. $77,000,000 $21,406(2)
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o).
(2) Of this amount, $20,850 was paid on March 15, 1998 and $556 is being paid
concurrently with the filing of this Amendment No. 1.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
EXPLANATORY NOTE
THIS REGISTRATION STATEMENT CONTAINS TWO SEPARATE PROSPECTUSES. THE FIRST
PROSPECTUS RELATES TO A PUBLIC OFFERING OF SHARES OF COMMON STOCK OF INTERLIANT,
INC. IN THE UNITED STATES AND CANADA (THE "U.S. OFFERING"). THE SECOND
PROSPECTUS RELATES TO A CONCURRENT OFFERING OF COMMON STOCK OUTSIDE THE UNITED
STATES AND CANADA (THE "INTERNATIONAL OFFERING"). THE PROSPECTUSES FOR THE U.S.
OFFERING AND THE INTERNATIONAL OFFERING WILL BE IDENTICAL IN ALL RESPECTS, OTHER
THAN THE FRONT COVER PAGE, THE "UNDERWRITING" SECTION AND THE BACK COVER PAGE
RELATING TO THE INTERNATIONAL OFFERING. SUCH ALTERNATE PAGES APPEAR IN THIS
REGISTRATION STATEMENT IMMEDIATELY FOLLOWING THE COMPLETE PROSPECTUS FOR THE
U.S. OFFERING.
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 30, 1999
PROSPECTUS
7,000,000 SHARES
[INTERLIANT LOGO]
COMMON STOCK
------------------------
This is Interliant's initial public offering of common stock. The U.S.
underwriters are offering 6,125,000 shares in the United States and Canada and
the international managers are offering 875,000 shares outside the United States
and Canada.
We expect the public offering price to be between $9.00 and $11.00 per
share. After pricing this offering, we expect that the common stock will be
quoted on the Nasdaq National Market under the symbol "INIT."
INVESTING IN THE COMMON STOCK INVOLVES MATERIAL RISKS WHICH ARE DESCRIBED
IN THE "RISK FACTORS" SECTION BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price...................................... $ $
Underwriting Discount...................................... $ $
Proceeds, before expenses, to Interliant, Inc.............. $ $
</TABLE>
The U.S. underwriters may also purchase up to an additional 920,000 shares
from Interliant at the public offering price, less the underwriting discount,
within 30 days from the date of this prospectus to cover over-allotments. The
international managers may similarly purchase up to an additional 130,000 shares
from Interliant.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares of common stock will be ready for delivery in New York, New York
on or about , 1999.
------------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
CIBC WORLD MARKETS
------------------------
The date of this prospectus is , 1999.
<PAGE> 4
[GRAPHICS]
Interliant(R) is a registered trademark of Interliant, Inc.
<PAGE> 5
TABLE OF CONTENTS
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PAGE
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<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 6
Use of Proceeds............................................. 18
Dividend Policy............................................. 18
Capitalization.............................................. 19
Dilution.................................................... 20
Selected Consolidated Financial Data........................ 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Business.................................................... 31
Management.................................................. 54
Related Party Transactions.................................. 63
Principal Stockholders...................................... 65
Description of Capital Stock................................ 67
Shares Eligible for Future Sale............................. 72
Underwriting................................................ 74
Legal Matters............................................... 77
Experts..................................................... 77
Available Information....................................... 78
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted.
All references to "we," "us," "our" or "Interliant" in this prospectus
means Interliant, Inc.
i
<PAGE> 6
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
It is not complete and may not contain all the information that you should
consider before investing in the common stock. You should read the entire
prospectus carefully, including the "Risk Factors" section and the financial
statements and the notes to these statements. Except as otherwise indicated, the
information in this prospectus (1) assumes that the underwriters' over-allotment
option has not been exercised, (2) assumes conversion of all outstanding shares
of redeemable convertible preferred stock and (3) gives retroactive effect to a
three-for-one stock split on July 28, 1998.
OUR COMPANY
We are a provider of a comprehensive suite of hosting and enhanced Internet
services that enable our customers to deploy and manage their Web sites and
network-based applications more effectively than internally developed solutions.
Our hosting services store our customers' Web sites, software applications, and
data on servers typically housed in our data centers so that others on the
Internet can access and interact with our customers' Web sites and network-based
applications. Our Web hosting services provide a variety of hosting solutions to
meet the needs of businesses of all sizes, as their Web sites develop from
low-end marketing brochures to more complex, interactive Web sites and finally
to applications integral to their businesses, or mission-critical. Our
application hosting services provide our customers remote access to
mission-critical software applications and data 24 hours a day, 7 days a week,
365 days a year or 24x7.
Since our inception in December 1997, we have grown rapidly through the
acquisition of 16 hosting and related Internet service businesses. We provide
Web hosting solutions to more than 37,000 customers, representing more than
65,000 registered Web sites that are actively maintained and used. We also host
more than 10,000 customized Lotus Notes/Domino based applications for more than
1,300 customers and believe that we are the leading provider of Lotus
Notes/Domino hosting solutions. Our pro forma revenues for the year ended
December 31, 1998 were $41.3 million.
The number of businesses using the Internet is growing rapidly. Many of
these businesses outsource the hosting of their Web sites and software
applications, rather than incur the cost of in-house operations and maintenance.
IDC estimates that the worldwide market for Web hosting services will grow from
$696 million in 1998 to $10.7 billion by 2002, a 98.0% compounded annual growth
rate. In addition, Forrester Research, Inc. reports that the worldwide market
for outsourcing application software products will grow from approximately $1.0
billion in 1997 to over $21.0 billion by 2001, a 111.1% compounded annual growth
rate. Today, the hosting market is fragmented, consisting for the most part of:
- small local and regional providers who do not have the capital, resources
or capabilities to provide quality services at competitive prices;
- large national providers who focus on Internet connectivity rather than
on hosting; and
- consulting and Web design firms for which hosting is not their core
competency.
We believe that a significant market opportunity exists for a
nationally-recognized hosting solutions provider with the scale and expertise to
offer a wide range of value-priced services to businesses of all sizes. Through
the acquisition and consolidation of hosting and enhanced Internet service
businesses, we believe we can offer a full range of hosting services that enable
businesses to deploy, use, expand and update their Web sites and applications
infrastructures more rapidly and cost-effectively than internally developed
solutions.
Our service offerings comprise three main areas: Web hosting, application
hosting and consulting.
1
<PAGE> 7
Web Hosting. Our Web hosting services include the following product offerings:
Virtual Hosting. Our virtual hosting solution provides Web site hosting on
a server that is owned, managed and housed by us for multiple customers.
This is an economical solution for customers with simple or moderately
accessed sites.
Dedicated Hosting. Our dedicated hosting solution provides Web site
hosting on a server that is managed, housed and typically owned by us for a
single customer. Dedicated server Web hosting enables a customer to host
complex Web sites and applications without the need to incur significant
infrastructure and overhead costs. This solution provides greater server
and network resources for our customers than virtual hosting and allows
them to configure their hardware to optimize site performance. Companies
with increasing levels of complexity, traffic or reliance on their Web
sites may prefer dedicated hosting.
Co-located Hosting. Our co-located hosting solution provides Web site
hosting to customers who prefer to own and have physical access to their
servers, but require the high performance, reliability and security of our
data centers.
Application Hosting. Our application hosting solution, through which we manage
software applications for our customers, is designed to support our customers'
Internet, intranet and extranet projects through a variety of service and
support options, with our primary platform being Lotus Notes/Domino. In
addition, through our strategic alliances with software vendors such as Lotus
and Microsoft, we host applications such as legal automation, sales automation
and distributed learning. We recently began offering ready-made, network-based
software applications that run on a remote server hosted by us, or Internet
rental applications, which allow anyone with a Web browser and an Internet
connection to use sophisticated server-based applications. Our application
hosting services consist of the following solutions:
Groupware Hosting. Groupware software applications allow people to work
more closely together while located remotely from each other. We offer a
range of groupware hosting solutions for the Lotus Notes/Domino platform
which provides our customers with the infrastructure needed to support the
following:
- e-mail and other messaging methods for internal and external
communication;
- project team collaboration and document sharing;
- business process automation and workflow; and
- document libraries.
Application Outsourcing. We offer a range of application outsourcing
services which provide our customers with the ability to capitalize on the
latest Internet-enabled technologies while outsourcing information
technology operations such as deployment strategies and maintenance and
upgrades of software to a third party. Our application outsourcing
offerings include:
- Legal Automation. Our legal automation solutions package offers our
customers a suite of collaborative applications that assist corporate
legal departments and their outside counsel in managing cases,
budgets, intellectual property and workflow in a secure, reliable
environment.
- Sales Automation. Our sales automation solutions package provides
geographically distributed sales and marketing organizations with all
the elements needed to quickly deploy a sales automation solution at a
reasonable cost.
- Distributed Learning. Our distributed learning solutions offer our
customers opportunities to deliver online training solutions.
Consulting Services. We provide consulting services to our customers for
intranet, extranet and application hosting solutions, as well as for internal
networking implementations and back-end Web development projects. Consulting
services that we provide include:
- desktop and network server support;
- network architecture and design;
2
<PAGE> 8
- strategic technology planning; and
- application development and implementation.
We have two state-of-the-art primary data centers in Atlanta, Georgia and
Houston, Texas and a recently leased facility in Tysons Corner, Virginia. We
house co-located servers in separate limited-access rooms in our Atlanta and
Virginia data centers. In addition, we provide application hosting to our
customers primarily through our Houston data center. Our Atlanta and Houston
data centers are monitored on a 24x7 basis and include:
- sophisticated monitoring and diagnosis;
- 24x7 customer support;
- multiple and high-speed network connections to the Internet; and
- uninterruptible power supply.
We seek to become the industry leader in hosting by providing businesses
with cost-effective, innovative solutions that will allow them to capitalize on
the potential of the Internet. To achieve this objective, our strategy includes
the following key elements:
- Build the Interliant Brand. We intend to continue to build the
Interliant brand and strengthen brand recognition by marketing our full
range of services through an integrated marketing communications program
including public relations, print and online advertising campaigns and
other strategic initiatives as well as cooperative promotions with key
hardware and software vendors.
- Continue Acquisition Program. By integrating acquired companies, we
believe we can achieve substantial economies of scale and operating
efficiencies which will allow us to service customers of all sizes.
Further, we intend to capitalize on business practices of acquired
companies that we believe will best maintain our competitive advantage
and ensure ongoing delivery of high quality hosting services to our
customers.
- Expand Multiple Sales Channels. We currently use a variety of sales
channels to reach our customers including our recently launched business
partner program. We expect to increase our inbound and outbound telesales
efforts, which are targeted primarily toward virtual and dedicated
hosting customers as well as direct sales, which is targeted primarily
toward co-located hosting customers.
- Leverage the Interliant Customer Base. We intend to capitalize on the
enhanced revenue potential of the combined customer bases of our acquired
companies by leveraging the numerous cross-selling opportunities that our
expanded line of branded service offerings provides. In this regard, we
seek to coordinate the selling efforts of our Web hosting, application
hosting and consulting sales force to increase customer leads and
referrals.
- Develop Strategic Relationships. We have established and continue to
seek strategic relationships that enable us to provide complete, scalable
and reliable hosting solutions to our customers, resellers and referral
partners.
On March 10, 1999, we completed the acquisition of substantially all the
assets of Interliant, Inc. In connection with that acquisition, we changed our
name from Sage Networks, Inc. to Interliant, Inc. For purposes of this document
the acquired business of Interliant, Inc. is referred to as Interliant Texas.
Interliant Texas had revenues in 1998 of $21.2 million.
Upon completion of this offering, Web Hosting Organization LLC will control
approximately 60.9% of our common stock.
Our principal executive offices are located at 215 First Street, Cambridge,
Massachusetts 02142, (617) 374-4700.
3
<PAGE> 9
THE OFFERING
Common stock offered by us:
U.S. Offering........................ 6,125,000 shares
International Offering............... 875,000 shares
Total.............................. 7,000,000 shares
Common stock outstanding after this
offering............................. 41,396,085 shares
Use of proceeds...................... We currently intend to use the net
proceeds from the offering for:
- acquisitions;
- capital expenditures, including
completing and equipping our data
centers;
- repayment of a promissory note assumed
in connection with the acquisition of
Interliant Texas; and
- working capital and general corporate
purposes.
See "Use of Proceeds."
Proposed Nasdaq National Market
Symbol............................... INIT
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------------------------------------ ----------------------------
PERIOD FROM
DECEMBER 8,
1997
(INCEPTION) THREE MONTHS THREE MONTHS THREE MONTHS
TO YEAR ENDED ENDED ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31, DECEMBER 31, MARCH 31,
1997 1998 1998 1999 1998 1999
------------ --------------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................. $ -- $ 4,905 $ 13 $ 5,434 $ 41,291 $ 10,341
--------- --------- --------- ---------- --------- ----------
Operating loss............ (158) (9,848) (553) (7,258) (28,982) (11,247)
--------- --------- --------- ---------- --------- ----------
Net loss.................. $ (158) $ (9,710) $ (539) $ (7,245) $ (29,411) $ (11,385)
========= ========= ========= ========== ========= ==========
Net loss per share --basic
and diluted............. $ (0.05) $ (1.10) $ (0.18) $ (0.29)
Weighted average shares
used in computing net
loss per share -- basic
and
diluted................. 3,000,000 8,799,432 3,000,000 24,769,890
Pro forma net loss per
share -- basic and
diluted................. $ (1.86) $ (0.40)
Shares used in computing
pro forma net loss per
share -- basic and
diluted................. 15,829,762 28,626,240
</TABLE>
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<PAGE> 10
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<CAPTION>
AS OF MARCH 31, 1999
-------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
------------ ------------ -------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 4,376 $ 9,376 $ 65,652
Working capital........................................... (5,462) (462) 63,814
Total assets.............................................. 102,432 107,432 163,132
Debt and capital lease obligations, less current
portion................................................. 914 914 914
Redeemable convertible preferred stock.................... 13,000 -- --
Total stockholders' equity................................ 71,062 89,062 152,762
</TABLE>
The unaudited pro forma statement of operations data gives effect to the
acquisitions completed in 1998 and 1999 as if they occurred on January 1, 1998.
The unaudited pro forma balance sheet data gives effect to the exercise in
April 1999 of warrants to purchase 749,625 shares of common stock for gross
proceeds of $5.0 million and to the conversion of all of the preferred stock
into common stock upon completion of this offering. See "Description of Capital
Stock -- The SOFTBANK Investment."
The unaudited pro forma as adjusted balance sheet data gives effect to the
sale of 7,000,000 shares of common stock offered hereby for net proceeds of
$63.7 million after deducting underwriting discounts and commissions and
estimated offering expenses.
5
<PAGE> 11
RISK FACTORS
Investing in our common stock involves risk. You should carefully consider
the risks and uncertainties described below and elsewhere in this prospectus
before making an investment decision. If any of the following risks or
uncertainties actually occur, our business could be adversely affected. In this
event, the trading price of our common stock could decline, and you could lose
all or a part of your investment.
WE HAVE A LIMITED OPERATING HISTORY AND MAY NOT SUCCESSFULLY IMPLEMENT OUR
BUSINESS PLAN.
We have a very limited operating history. We were incorporated in December
1997 and began offering Web hosting services in February 1998. We only recently
completed the acquisition of the application hosting business of Interliant
Texas. As a result, our business model is still in development. Our business and
prospects must be considered in light of the risks frequently encountered by
companies in their early stages of development, particularly companies in the
new and rapidly evolving hosting and enhanced Internet services market. Some of
these risks relate to our ability to:
- build a more comprehensive sales structure to support our business;
- provide reliable and cost-effective services to our customers;
- continue to build our operations and accounting infrastructure to
accommodate additional customers;
- respond to technological developments or service offerings by our
competitors;
- develop and offer new, successful products and services or differentiate
such products and services from those offered by our competitors;
- enter into strategic relationships with application software vendors;
- build, maintain and expand distribution channels; and
- attract and retain qualified personnel.
We may not be successful in addressing these risks, and if we are not
successful, our business could be adversely affected.
WE HAVE A HISTORY OF SIGNIFICANT LOSSES AND THESE LOSSES MAY INCREASE IN THE
FUTURE.
Since our inception in December 1997, we have experienced operating losses
and negative cash flows for each quarterly and annual period. As of December 31,
1998 and March 31, 1999, we had an accumulated deficit of approximately $9.9
million and $17.1 million, respectively. We experienced net losses of
approximately $9.7 million in the year ended December 31, 1998 and $7.2 million
in the three months ended March 31, 1999. The revenues and income potential of
our business is unproven, and our limited operating history makes it difficult
to evaluate our prospects. We anticipate increased expenses as we expand our
sales and marketing initiatives to continue to grow the Interliant brand, fund
greater levels of product development, continue to build out our data centers,
implement centralized billing, accounting and customer service systems and
continue our acquisition program.
In addition, we have experienced growth in revenues, primarily attributable
to acquisitions, and we do not believe that this growth rate is necessarily
indicative of future operating results which will depend not only on continuing
our acquisition strategy but also on internal growth. We expect that future
acquisitions will increase our operating expenses and operating losses. As a
result, we expect to incur operating losses for the foreseeable future. We
cannot give any assurance that we will ever achieve profitability on a quarterly
or annual basis, or, if we achieve profitability, that it will be sustainable.
6
<PAGE> 12
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS. AS A
RESULT, PERIOD-TO-PERIOD COMPARISONS OF OUR RESULTS OF OPERATIONS ARE NOT
NECESSARILY MEANINGFUL AND SHOULD NOT BE RELIED UPON AS INDICATIONS OF FUTURE
PERFORMANCE.
Our quarterly operating results may fluctuate significantly in the future
as a result of a variety of factors, some of which are outside of our control.
These factors include:
- the demand for and market acceptance of our hosting and enhanced Internet
services;
- our ability to identify, complete and integrate acquisitions to sustain
growth;
- downward price adjustments by our competitors on services and products
they offer which are similar to ours;
- changes in the mix of products and services sold by our competitors;
- technical difficulties or system downtime affecting the Internet
generally or our hosting operations;
- the ability to meet any increased technological demands of our customers;
- the amount and timing of our costs related to our marketing efforts and
service introductions by us or reseller or referral partners; and
- economic conditions specific to the hosting industry.
Therefore, our operating results for any particular quarter may differ
materially from our expectations or those of security analysts and may not be
indicative of future operating results which may adversely impact the price of
our common stock.
THE SUCCESS OF OUR BUSINESS PLAN DEPENDS ON OUR ABILITY TO MAKE ADDITIONAL
ACQUISITIONS.
We intend to pursue opportunities to expand our business through the
acquisition of selected companies in targeted markets. Although we expect to
finance future acquisitions, in part, with some of the proceeds from this
offering and, at a future date with the issuance of additional shares of our
common stock or other debt or equity securities, we cannot guarantee that:
- we will be able to identify appropriate acquisition candidates or
negotiate acquisitions on favorable terms;
- we will be able to obtain the financing necessary to complete future
acquisitions; or
- the issuance of our common stock or other securities in connection with
any future acquisition will not result in a substantial dilution in the
ownership interests of holders of our common stock.
THE SUCCESS OF OUR BUSINESS PLAN DEPENDS ON THE SUCCESSFUL INTEGRATION OF
ACQUISITIONS.
Since February 1998, we have acquired 16 businesses, and we are currently
pursuing additional acquisitions. Our future success will depend in large part
on our ability to integrate these businesses or any future acquired businesses
with our existing operations. To integrate these businesses, we will need to:
- consolidate their billing and accounting systems into our systems and
implement financial and other control systems;
- relocate the servers of acquired companies and other equipment to an
Interliant facility;
- migrate the operations of acquired companies onto our technology
platforms;
- integrate the customer accounts of acquired companies into our customer
service system;
- integrate the service offerings of acquired companies into the Interliant
brand; and
- identify resellers and referral partners of the services of acquired
companies and migrate them to our business partner program.
7
<PAGE> 13
The 16 businesses we acquired are in various stages of the integration
process. Our integration plan is constantly changing as a result of our business
activities as well as future acquisitions. We are not able to estimate when, if
at all, all acquired companies will be fully integrated.
RISKS ASSOCIATED WITH THE INTEGRATION OF ACQUISITIONS WE MAKE AND INTERNAL
CONTROLS WITH RESPECT TO THOSE ACQUIRED BUSINESSES MAY ADVERSELY AFFECT OUR
BUSINESS.
We may not be able to successfully integrate acquired businesses with
existing operations without substantial costs, delays or other problems, if at
all. As we integrate acquired businesses:
- we may lose certain customers of acquired companies due to difficulties
during the integration process;
- we may not be able to bill customers of the acquired companies accurately
due to potential deficiencies in the internal controls of the acquired
Web hosting companies such as inadequate back-office systems of the
acquired companies and potential difficulties in migrating records onto
our own systems;
- we may experience difficulty in collecting accounts receivable of
acquired companies due to inaccurate record keeping of the acquired
companies;
- key employees of the acquired companies whom we wish to retain may
resign;
- management's attention and resources could be diverted from our ongoing
business concerns; and/or
- we may not be able to integrate newly acquired technologies with our
existing technologies.
Acquisitions also involve a number of other risks, including adverse
effects on our operating results from increases in amortization of intangible
assets, increased compensation expense associated with newly hired employees and
unforeseen liabilities. In addition, any acquired company could significantly
underperform relative to our expectations. In particular, acquired companies
have often experienced modest revenue declines immediately following the closing
of the acquisition. Because we have only recently completed many of our
acquisitions, we are currently facing all of these challenges, and we have not
established our ability to meet them over the long term. As a result of all of
the foregoing, our pursuit of an acquisition strategy could adversely affect our
business.
WE FACE RISKS IN CONNECTION WITH THE INTEGRATION OF OUR RECENT ACQUISITION OF
INTERLIANT TEXAS.
In March 1999, we purchased, through a wholly-owned subsidiary,
substantially all the assets, and assumed certain liabilities, of Interliant
Texas, which had revenues of $21.2 million for the year ended December 31, 1998.
Our acquisition of the business of Interliant Texas has been our largest
acquisition to date, and we expect that it will have a continuing, significant
impact on our business. Although we do not currently intend to integrate all the
operations of Interliant Texas into our operations, we still expect to incur
significant integration costs. In addition, the following factors could increase
the costs of integration:
- unexpected employee turnover;
- delays in addressing duplicate operations; and
- additional fees and charges to obtain consents, regulatory approvals or
permits.
Further, we cannot guarantee that we will realize the benefits or strategic
objectives we are seeking to obtain by acquiring Interliant Texas. Costs
associated with this acquisition that exceed our expectations would have an
adverse effect on our business.
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OUR APPLICATION HOSTING SOLUTIONS DEPEND ON SOFTWARE APPLICATIONS PROVIDED TO US
UNDER AGREEMENTS WE HAVE WITH APPLICATION SOFTWARE VENDORS.
We obtain software products pursuant to agreements with Lotus and Microsoft
and package them as part of our application hosting solutions. The agreements
are typically for terms ranging from one to three years. If these agreements
were terminated or not renewed, we might have to discontinue products or
services that are central to our business strategy or delay their introduction
unless we could find, license and package equivalent technology. Our business
strategy also depends on obtaining additional application software. We cannot be
sure, however, that we will be able to obtain the new and enhanced applications
we may need to keep our solutions competitive. If we cannot obtain these
applications and as a result must discontinue, delay or reduce the availability
of our solutions or other products and services, our business may be adversely
affected.
OUR AGREEMENTS WITH APPLICATION SOFTWARE VENDORS ARE NOT EXCLUSIVE AND MAY NOT
PROVIDE US WITH ANY COMPETITIVE ADVANTAGE.
None of our third-party agreements are exclusive. Our competitors may also
license and utilize the same technology in competition with us. We cannot be
sure that the vendors of technology used in our products will continue to
support this technology in its current form. Nor can we be sure that we will be
able to adapt our own products to changes in this technology. In addition, we
cannot be sure that the financial or other difficulties of third party vendors
will not have an adverse affect on the technologies incorporated in our
products, or that, if these technologies become unavailable, we will be able to
find suitable alternatives.
WE DEPEND ON OUR RESELLER SALES CHANNEL TO MARKET AND SELL MANY OF OUR SERVICES.
We rely significantly on resellers to market and sell our services. We
estimate that as of December 31, 1998 approximately 16% of our active hosted
domains were maintained by resellers. For this purpose, we include as resellers
any entity which has three or more active domains hosted by us. Our failure to
maintain and grow our reseller sales channel may adversely affect our business.
Our agreements with resellers generally do not require that the resellers sell
any minimum level of our services and do not restrict the resellers' development
or sale of competitive services. We have very little control over whether these
resellers will dedicate resources or give priority to selling our services.
We will need to continue to deliver reliable service and keep our reseller
pricing and support programs competitive. If we succeed in increasing our sales
through resellers, we may lose brand identification and brand loyalty, since our
services may not be identified by the Interliant brand or may be marketed
differently by our resellers.
WE ONLY RECENTLY BEGAN TO OFFER MANY OF OUR PRODUCTS AND SERVICES. IF THEY ARE
NOT ACCEPTED BY THE MARKET OR HAVE RELIABILITY OR QUALITY PROBLEMS OUR BUSINESS
MAY SUFFER.
We have recently introduced new hosting solutions such as providing our
customers with integrated text, graphics, video, information and sound
capabilities on their Web sites, or multimedia hosting and providing our
customers with the ability to rent software applications instead of purchasing
them as well as enhanced Internet services such as e-commerce and consulting
services. If these and other new hosting solutions and enhanced Internet
services fail to gain market acceptance, our business could be adversely
affected. In addition, if these newly introduced hosting solutions and enhanced
Internet services have reliability, quality or compatibility problems, market
acceptance of these products could be greatly hindered and our ability to
attract new customers could be adversely affected. We cannot offer any assurance
that these new solutions and services are free from any reliability, quality or
compatibility problems.
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THE EXPECTED CONTINUED GROWTH IN THE MARKET FOR OUR PRODUCTS AND SERVICES MAY
NOT MATERIALIZE.
Our market is new and rapidly evolving. Whether the market for our products
and services will continue to grow is uncertain. Our business would be adversely
affected if the hosting market does not continue to grow or if businesses prove
to be unwilling to outsource their hosting business.
Our success depends in part on continued growth in the use of the Internet.
Our business would be adversely affected if Web usage does not continue to grow.
Web usage may be inhibited for a number of reasons, such as:
- security and privacy concerns;
- uncertainty of legal and regulatory issues concerning the use of the
Internet;
- inconsistent quality of service; and
- lack of availability of cost-effective, high-speed connectivity.
OUR RAPID GROWTH AND EXPANSION HAS AND MAY CONTINUE TO SIGNIFICANTLY STRAIN OUR
RESOURCES.
We are currently experiencing rapid growth, primarily due to our
acquisition of 16 businesses since February 1998. In addition, from inception we
have grown to 489 employees, which includes 19 employees on a contract basis.
This rapid growth of our business and our product and service offerings has
placed, and is likely to continue to place, a significant strain on our
operating and financial resources. Our future performance will partly depend on
our ability to manage our growth effectively, which will require that we further
develop our operating and financial system capabilities and controls. We have
invested, and intend to continue to invest, significant amounts in billing,
accounts receivable, customer service and financial systems which we believe,
once implemented, will be able to produce timely, accurate and consistent
information as our business continues to grow. However, because we employ a
strategy that includes a high level of acquisition activity, at any time there
are likely to be one or more operating businesses that have not been fully
integrated into our core systems and continue to produce financial and other
information from their existing systems. As a result, our ability to record,
process, summarize and report financial data could be adversely affected.
WE DEPEND ON THE GROWTH AND STABILITY OF THE INTERNET INFRASTRUCTURE.
If the use of the Internet continues to grow, its infrastructure may not be
able to support the demands placed on it by such growth and its performance or
reliability may decline. In addition, Web sites have experienced interruptions
in their service as a result of outages and other delays occurring throughout
the Internet network infrastructure. If these outages or delays occur
frequently, use of the Internet as a commercial or business medium could, in the
future, grow more slowly or decline which would adversely affect our business.
WE DEPEND ON OUR NETWORK INFRASTRUCTURE. IF WE DO NOT HAVE CONTINUED ACCESS TO A
RELIABLE NETWORK, OUR BUSINESS WILL SUFFER.
Our success partly depends upon the capacity, scalability, reliability and
security of our network infrastructure, including the capacity leased from our
telecommunications network suppliers such as UUNET Technologies, Inc. We depend
on these companies to provide uninterrupted and "bug free" service and would be
adversely affected if such services were not provided. In addition, we would be
adversely affected if such companies greatly increased the prices of their
services or if the telecommunications capacity available to us was insufficient
for our business purposes and we were unable to use alternative networks or pass
along any increased costs to our customers.
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OUR BUSINESS AND EXPANSION MODELS ASSUME THAT WE WILL BE ABLE TO EASILY SCALE
OUR NETWORK INFRASTRUCTURE TO SUPPORT INCREASING NUMBERS OF CUSTOMERS AND
INCREASED TRAFFIC. HOWEVER, THE SCALABILITY OF OUR NETWORK IS UNPROVEN.
We must continue to develop and expand our network infrastructure as the
number of users and the amount of information they wish to transport as well as
the number of products and services we offer increases and to meet changing
customer requirements. Our expansion and adaptation of our telecommunications
and hosting facility infrastructure will require substantial financial,
operational and management resources. If we are required to expand our network
significantly and rapidly due to increased usage, additional stress will be
placed upon our network hardware, traffic management systems and hosting
facilities. Due to the limited deployment of our services to date, the ability
of our network to connect and manage a substantially larger number of customers
at high transmission speeds while maintaining superior performance is unknown.
As our customers' bandwidth usage increases, we will need to make
additional investments in our infrastructure to maintain adequate data
transmission speeds, the availability of which may be limited and the cost of
which may be significant. Additional network capacity may not be available from
third-party suppliers as it is needed by us. As a result, our network may not be
able to achieve or maintain a sufficiently high capacity of data transmission,
especially if customers' usage increases. Any failure on our part to achieve or
maintain high-capacity data transmission could significantly reduce consumer
demand for our services and adversely affect our business.
WE COULD EXPERIENCE SYSTEM FAILURES AND CAPACITY CONSTRAINTS, WHICH COULD AFFECT
OUR ABILITY TO COMPETE.
To succeed, we must be able to operate our network infrastructure on a 24x7
basis without interruption. Our operations depend upon our ability to protect
our network infrastructure, equipment and customer files against damage from:
- human error;
- various natural disasters;
- power loss or telecommunications failures; and
- sabotage or other intentional acts of vandalism.
However, even if we take precautions, the occurrence of a natural disaster
or other unanticipated problems at our data centers could result in
interruptions in the services we provide to our customers.
At this time, we do not have a formal disaster recovery plan. Although we
believe that our Atlanta and Houston data centers are state-of-the-art and have
sufficient system protections in place to ensure high quality service with
minimal interruptions, we estimate that currently only approximately 34% of our
customers are hosted in these data centers. In addition, we may not integrate
into our Network Operations Centers all the data centers of companies we
acquire. Therefore, in some instances, our network reliability may be
compromised. Although we have attempted to build redundancy into our network and
hosting facilities, our data centers are currently subject to various single
points of failure. As a result, a problem with one of our routers, switches or
fiber paths could cause an interruption in the services we provide to some of
our customers. We have experienced interruptions in service in the past. Any
future interruptions could:
- require us to spend substantial amounts of money replacing existing
equipment or adding redundant facilities;
- damage our reputation for reliable service;
- cause existing end users, resellers and referral partners to cancel their
contracts;
- cause end users to seek damages for losses incurred; or
- make it more difficult for us to attract new end users, resellers and
referral partners.
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Any of these occurrences could adversely affect our business.
We have entered into service level agreements with some of our customers,
and we anticipate that we will offer service level agreements to a larger group
of customers in the future. In that case, we could incur significant liability
to our customers in connection with any system downtime and those obligations
may adversely affect our business.
IF WE DO NOT RESPOND EFFECTIVELY AND ON A TIMELY BASIS TO RAPID TECHNOLOGICAL
CHANGE, OUR BUSINESS COULD SUFFER.
The Internet industry is characterized by rapidly changing technology,
industry standards, customer needs and competition, as well as by frequent new
product and service introductions. Our future success will depend, in part, on
our ability to accomplish all of the following in a timely and cost-effective
manner, all while continuing to develop our business model and roll-out our
services on a national level:
- effectively use and integrate leading technologies;
- continue to develop our technical expertise;
- enhance our products and current networking services;
- develop new products and services that meet changing customer needs;
- advertise and market our products and services; and
- influence and respond to emerging industry standards and other changes.
We cannot assure you that we will successfully use or develop new
technologies, introduce new services or enhance our existing services on a
timely basis, or that new technologies or enhancements used or developed by us
will achieve market acceptance. Our pursuit of necessary technological advances
may require substantial time and expense.
OUR FAILURE TO DEVELOP BRAND RECOGNITION FOR THE INTERLIANT BRAND COULD HURT OUR
BUSINESS.
Upon acquiring Interliant Texas and its application hosting business, we
began the process of offering the full range of our hosting products and
enhanced Internet services under the Interliant brand. We are currently
marketing and expect to continue to market many of our products and services
under the Sage Networks brand and the brand names of acquired companies. Our
sales and marketing expenses were $2.6 million in the year ended December 31,
1998 and $1.9 million in the three months ended March 31, 1999. A key component
of our strategy is to significantly increase our sales and marketing activities.
This will include the expansion of our sales force, development of reseller and
referral partner channels and increased marketing efforts. As a result, sales
and marketing expenses will increase substantially in future periods. We expect
sales and marketing expenses for the year ending December 31, 1999 to exceed
$20.0 million. Our business could be adversely affected if the Interliant brand
is not well received by our customers, our marketing efforts are not productive
or we are otherwise unsuccessful in increasing our brand awareness.
WE OPERATE IN AN EXTREMELY COMPETITIVE MARKET AND MAY NOT BE ABLE TO COMPETE
EFFECTIVELY.
Our current and prospective competitors are numerous. Many of our
competitors have substantially greater financial, technical and marketing
resources, larger customer bases, longer operating histories, greater name
recognition and more established relationships in the industry than we do. Our
current and prospective competitors generally may be divided into the following
groups:
- other Web hosting and Internet services companies such as AboveNet
Communications, Inc., Exodus Communications, Inc., Frontier GlobalCenter,
Globix Corporation and local and regional hosting providers;
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- national and regional Internet service providers such as Concentric
Network Corporation, MindSpring Enterprises, Inc., UUNET Technologies,
Inc., PSINet Inc. and Verio Inc.;
- global telecommunications companies including AT&T Corp., British
Telecommunications plc, Telecom Italia SpA and Nippon Telegraph and
Telephone Corp.;
- regional and local telecommunications companies, including the regional
Bell operating companies such as Bell Atlantic Corporation and US West,
Inc.;
- companies that focus on application hosting such as USinternetworking,
Inc. and IBM Global Services; and
- multimedia hosting companies such as broadcast.com.
WE DEPEND ON THE SKILLS OF KEY PERSONNEL.
We are dependent on the continued service of our key personnel, including:
- Leonard J. Fassler and Bradley A. Feld, our Co-Chairmen;
- Stephen W. Maggs, our Chief Executive Officer and President;
- James M. Lidestri, our Executive Vice President;
- Rajat Bhargava, our Senior Vice President, Strategic Planning and
Integration; and
- William A. Wilson, our Chief Financial Officer.
We recently entered into one-year employment agreements with Messrs.
Fassler, Maggs and Bhargava and a one-year consulting agreement with Mr. Feld
through Intensity Ventures, Inc. In addition, in connection with our acquisition
of Interliant Texas, we entered into a two-year employment agreement with Mr.
Lidestri. The loss of the services of one or more of these people could
adversely affect our business.
Our Co-Chairmen, Bradley A. Feld and Leonard J. Fassler, are each currently
active in, and serve as directors and/or executive officers of, a number of
businesses other than Interliant. Although Mr. Feld spends approximately half of
his time and Mr. Fassler spends substantially all of his time at Interliant, and
both are active in its management, neither is contractually committed to spend
any specific amount of time at Interliant. If Mr. Feld or Mr. Fassler were to
significantly reduce the time they devoted to Interliant, our business may be
adversely affected.
WE OPERATE IN AN INDUSTRY WHERE IT IS DIFFICULT TO ATTRACT AND RETAIN QUALIFIED
PERSONNEL.
We expect that we will need to hire additional personnel in all areas of
our business. The competition for personnel throughout our industry is intense.
At times, we have experienced difficulty in attracting qualified new personnel.
If we do not succeed in attracting new, qualified personnel or retaining and
motivating our current personnel, our business could suffer.
WE MAY NEED ADDITIONAL FUNDS WHICH, IF AVAILABLE COULD RESULT IN AN INCREASE IN
OUR INTEREST EXPENSE OR DILUTION OF YOUR SHAREHOLDINGS. IF THESE FUNDS ARE NOT
AVAILABLE, OUR BUSINESS COULD BE HURT.
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to fund our acquisition
program, the expansion of our sales and marketing program, completion of our
data centers and our other operating needs through the end of 1999. Thereafter,
we expect to require additional financing. At this time, we do not have any
credit facility or other working capital credit line under which we may borrow
funds for working capital or other general corporate purposes. If our plans or
assumptions change or are inaccurate, we may be required to seek additional
capital or seek capital sooner than anticipated. We may need to raise funds
through public or private debt or equity financing.
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If funds are raised through the issuance of equity securities, the
percentage ownership of our then current stockholders may be reduced and such
equity securities may have rights, preferences or privileges senior to those of
the holders of our common stock. If additional funds are raised through the
issuance of debt securities, such securities would have certain rights,
preferences and privileges senior to those of the holders of our common stock
and the terms of such debt could impose restrictions on our operations. If
additional funds become necessary, additional financing may not be available on
terms favorable to us, or at all. If adequate funds are not available on
acceptable terms, we may not be able to continue to fund our operations and
growth or to continue our acquisition program. Our inability to raise capital
could adversely affect our business.
WE FACE RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION AND OPERATIONS.
Approximately 13% of our dollar amount of billings were to customers
located outside of the United States, primarily in Europe and Asia. Our success
may depend in part on expanding our international presence. Because our sales
overseas are denominated in U.S. dollars, currency fluctuations may inhibit us
from marketing our services to potential foreign customers or collecting for
services rendered to current foreign customers. In addition different privacy,
censorship and service provider liability standards and regulations and
different intellectual property laws in non-U.S. countries may adversely affect
our business.
WE FACE RISKS ASSOCIATED WITH THE SECURITY OF OUR SYSTEMS.
A significant barrier to the growth of e-commerce and communications over
the Internet has been the need for secure transmission of confidential
information. Despite our design and implementation of a variety of network
security measures, unauthorized access, computer viruses, accidental or
intentional actions and other disruptions could occur. We may incur significant
costs to protect against the threat of security breaches or to alleviate
problems caused by such breaches. If a third person were able to misappropriate
our users' personal or proprietary information or credit card information, we
could be subject to claims, litigation or other potential liabilities.
WE OPERATE IN AN UNCERTAIN REGULATORY AND LEGAL ENVIRONMENT. NEW LAWS AND
REGULATIONS COULD HARM OUR BUSINESS.
We are not currently subject to direct regulation by the Federal
Communications Commission or any other governmental agency, other than
regulations applicable to businesses in general. However, in the future, we may
become subject to regulation by the FCC or another regulatory agency. Our
business could suffer depending on the extent to which our activities are
regulated or proposed to be regulated.
While there are currently few laws or regulations which specifically
regulate Internet communications, laws and regulations directly applicable to
online commerce or Internet communications are becoming more prevalent. There is
much uncertainty regarding the marketplace impact of these laws. In addition,
various jurisdictions already have enacted laws covering intellectual property,
privacy, libel and taxation that could affect our business by virtue of their
impact on online commerce. Further, the growth of the Internet, coupled with
publicity regarding Internet fraud, may lead to the enactment of more stringent
consumer protection laws. If we become subject to claims that we have violated
any laws, even if we successfully defend against these claims, our business
could suffer. Moreover, new laws that impose restrictions on our ability to
follow current business practices or increase our costs of doing business could
hurt our business.
We currently do not collect sales or other taxes with respect to the sale
of services or products in states and countries where we believe we are not
required to do so. We do collect sales and other taxes in the states and
countries in which we have offices and are required by law to do so. One or more
jurisdictions have sought to impose sales or other tax obligations on companies
that engage in online commerce within their jurisdictions. A successful
assertion by one or more jurisdictions that we should collect sales or other
taxes on our products and services, or remit payment of sales or other taxes for
prior periods, could have an adverse effect on our business.
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WE COULD FACE LIABILITY FOR INFORMATION DISSEMINATED THROUGH OUR NETWORK.
It is possible that claims could be made against online services companies
and Internet service providers in connection with the nature and content of the
materials disseminated through their networks. Several private lawsuits are
pending against other entities which seek to impose liability upon online
services companies and Internet service providers as a result of the nature and
content of materials disseminated over the Internet. If any of these actions
succeed, we might be required to respond by investing substantial resources or
discontinuing some of our service or product offerings. The increased attention
focused upon liability issues as a result of these lawsuits and legislative
proposals could impact the growth of Internet use. Although we carry
professional liability insurance, it may not be adequate to compensate or may
not cover us in the event we become liable for information carried on or
disseminated through our networks. Any costs not covered by insurance incurred
as a result of such liability or asserted liability could adversely affect our
business.
WE DEPEND ON THE PROTECTION AND ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS.
Trademarks and other proprietary rights are important to our success and
our competitive position. We do not have any patented technology that would
prevent competitors from entering our market. Although we seek to protect our
trademarks, copyrights and other proprietary rights, these actions may be
inadequate to protect them or to prevent others from claiming violations of
their trademarks, copyrights and other proprietary rights.
We currently license and may in the future license certain technologies
from third parties, which may subject us to infringement actions based upon the
technologies licensed from these third parties. Any of these claims, with or
without merit, could subject us to costly litigation and divert the attention of
our technical and management personnel. These third-party technology licenses
may not continue to be available to Interliant on commercially reasonable terms.
The loss of the ability to use such technology could require Interliant to
obtain the rights to use substitute technology, which could be more expensive or
offer lower quality or performance, and therefore have a material adverse effect
on Interliant's business.
OUR COMPUTER SYSTEMS AND THOSE OF THIRD PARTIES WITH WHOM WE DO BUSINESS MAY NOT
BE YEAR 2000 COMPLIANT, WHICH MAY CAUSE SYSTEM FAILURES AND DISRUPTIONS OF
OPERATIONS.
Currently, many computer and software products are coded to accept
two-digit entries in the date code field. These date code fields will need to
accept four-digit entries to distinguish 21st century dates from 20th century
dates. As a result, many companies' software and computer systems, including
ours, may need to be upgraded or replaced in order to comply with Year 2000
requirements. We recognize the need to ensure that our operations will not be
adversely impacted by Year 2000 software and computer system failures.
We have made a preliminary assessment of the Year 2000 readiness of our
information technology systems. In addition, we are currently seeking assurances
from our material hardware and software vendors that their products are Year
2000 compliant. Until such process is complete, we will not be able to
completely evaluate whether our information technology systems will need to be
revised or replaced. Although we have not incurred any material expenditures in
connection with identifying or evaluating Year 2000 compliance issues to date,
we do not at this time possess the information necessary to estimate the
potential costs of revisions or replacements to our software and systems or
third party software, hardware or services that are determined not to be Year
2000 compliant. Such expenses, if higher than anticipated, could have a material
adverse effect on our business.
Although we are not currently aware of any Year 2000 compliance problems
relating to our information technology systems that would have a material
adverse effect on our business, there is no assurance that we will not discover
any such compliance problems. Our failure to fix or replace our software,
hardware or services on a timely basis could result in lost revenues, increased
operating costs and the loss of customers and other business interruptions, any
of which could have a material adverse effect on our business. Moreover, the
failure to adequately address Year 2000 compliance issues in our
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information technology systems could result in claims of mismanagement,
misrepresentation or breach of contract and related litigation, which could be
costly and time-consuming to defend.
OUR STOCK PRICE MAY BE VOLATILE.
There has not been a public market for our common stock. We cannot predict
the extent to which investor interest in Interliant will lead to the development
of a trading market or how liquid that market might become. Further, we cannot
guarantee that the price of our common stock will not decline below the initial
public offering price. Stock prices of technology companies, especially
Internet-related companies, have been highly volatile. The initial public
offering price may not be indicative of prices that will prevail in the trading
market. Various factors could cause the market price of our common stock to
fluctuate substantially. These factors may include:
- variations in our revenue, earnings and cash flow;
- announcements of new service offerings, technological innovations or
price reductions by us, or our competitors or providers of alternative
services; and
- changes in analysts' recommendations or projections and general economic
and market conditions.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against such a company. Such litigation could result in substantial
costs and a diversion of management's attention and resources and could have a
material adverse effect on our business.
WEB HOSTING ORGANIZATION LLC WILL CONTROL APPROXIMATELY 60.9% OF OUR COMMON
STOCK AFTER THIS OFFERING, AND ITS INTERESTS MAY BE IN CONFLICT WITH THOSE OF
INTERLIANT AND THE OTHER STOCKHOLDERS.
Immediately following this offering, Web Hosting Organization LLC will
control approximately 60.9% of our outstanding common stock. Accordingly, Web
Hosting Organization LLC will be able to control any stockholder vote, including
any vote on the election of directors. The members of Web Hosting Organization
LLC are affiliates of Charterhouse Group International, Inc. and the WHO
Management LLC, of which Interliant's Co-Chairmen, Leonard J. Fassler and
Bradley A. Feld, are the member managers. Web Hosting Organization LLC's
interests could conflict with the interests of our other stockholders. See
"Description of Capital Stock -- The WEB Hosting Organization Investment" and
"Related Party Transactions."
Charterhouse Equity Partners III, L.P., which is an affiliate of
Charterhouse Group International, Inc., has the ability to control our direction
and future operations through its significant equity ownership of Web Hosting
Organization LLC. Certain decisions concerning our operations or financial
structure may present conflicts of interest between Charterhouse and our other
stockholders. In addition to its investments in us, Charterhouse or its
affiliates may in the future invest in other entities engaged in the hosting
business or other Internet-related business. As a result, Charterhouse or its
affiliates have, and may develop, relationships with businesses that are or may
be competitive with us. Conflicts may also arise in the negotiation or
enforcement of arrangements entered into by us and entities in which
Charterhouse has an interest. Such conflicts of interest could cause
Charterhouse to use its significant ownership interest to force us to act in a
manner adverse to the interests of our other stockholders.
OUR STOCK PRICE MAY BE AFFECTED BY THE AVAILABILITY OF SHARES FOR SALE IN THE
NEAR FUTURE. THE FUTURE SALE OF LARGE AMOUNTS OF OUR STOCK, OR THE PERCEPTION
THAT SUCH SALES COULD OCCUR, COULD NEGATIVELY AFFECT OUR STOCK PRICE.
The market price of the common stock could drop as a result of sales of a
large number of shares of common stock in the market after this offering. There
will be 41,396,085 shares of common stock outstanding immediately after this
offering. The 7,000,000 shares of common stock sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act of 1933, as amended,
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unless such shares are held by "affiliates" of Interliant, as that term is
defined in Rule 144 under the Securities Act.
The remaining 34,396,085 shares of common stock are subject to restrictions
under Rule 144 of the Securities Act. Holders of 32,320,790 restricted shares
have registration rights with respect to such shares. However, such shares are
subject to lock-up agreements pursuant to which the holders of these shares have
agreed, subject to certain limited exceptions, not to sell or otherwise dispose
of any of their shares for a period of 180 days after the date of this
prospectus, or exercise their registration rights, without the prior written
consent of Merrill Lynch & Co., Inc. See "Shares Eligible for Future Sale."
At the time of this offering, 3,691,994 shares of common stock issuable
upon exercise of options issued as compensation will also become available for
resale in the public market at prescribed times. We also intend to register
under the Securities Act the shares of common stock reserved for issuance under
our stock option plan. See "Shares Eligible for Future Sale."
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS.
This prospectus contains certain forward-looking statements, relating to,
among other things, future results of operations, growth plans, sales, gross
margin and expense trends, capital requirements and general industry and
business conditions applicable to Interliant. These forward-looking statements
are based largely on Interliant's current expectations and are subject to a
number of risks and uncertainties. When used in this prospectus, the words
"anticipate," "believe," "estimate" and similar expressions are generally
intended to identify forward-looking statements. Actual results could differ
materially from these forward-looking statements. In addition to the other risks
described elsewhere in this "Risk Factors" discussion, important factors to
consider in evaluating such forward-looking statements include changes in
external competitive market factors, changes in Interliant's business strategy
or an inability to execute its strategy due to unanticipated changes in the
hosting industry or the economy in general and various other competitive factors
that may prevent Interliant from competing successfully in existing or future
markets. In light of these risks and uncertainties, there can be no assurance
that the forward-looking statements contained in this prospectus will be in fact
realized.
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USE OF PROCEEDS
We estimate that we will receive net proceeds from the sale of 7,000,000
shares in this offering of approximately $63.7 million assuming an initial
public offering price of $10.00 and, after deduction of underwriting discounts
and commissions and expenses payable by us, estimated at $6.3 million.
We currently intend to use approximately $40.0 million of the net proceeds
of this offering for acquisitions. We are currently engaged in discussions with
respect to several acquisitions. See "Business -- Strategy" and "-- Acquisition
Program." We also expect to use the net proceeds as follows:
- approximately $9.0 million for capital expenditures including completing
and equipping our data centers; and
- $8.0 million for repayment of a 9% promissory note issued in favor of
Matthew Wolf in connection with the acquisition of Interliant Texas,
which will be paid in full on the consummation of this offering.
See "Business -- Technology and Network Operations -- Network Operations" and
"-- Facilities."
The balance of the net proceeds of this offering will be used for working
capital and general corporate purposes. Pending use of the net proceeds for the
above purposes, we intend to invest such funds in short-term investment grade
interest-bearing securities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
DIVIDEND POLICY
We have never paid or declared any cash dividends on our common stock. We
currently intend to retain any future earnings for our business and, therefore,
do not anticipate paying cash dividends in the foreseeable future. Future
dividends, if any, will depend on, among other things, our results of
operations, capital requirements, restrictions in loan agreements and on such
other factors as our Board of Directors may, in its discretion, consider
relevant.
18
<PAGE> 24
CAPITALIZATION
The following table sets forth at March 31, 1999 (1) our actual
capitalization, (2) capitalization on a pro forma basis to reflect (a) the
amendment of our Restated Certificate of Incorporation to provide for authorized
capital stock of 200,000,000 shares of common stock and 1,000,000 shares of
undesignated preferred stock, (b) the exercise in April 1999 of warrants to
purchase 749,625 shares of common stock for gross proceeds of $5.0 million and
(c) the conversion of 2,647,658 shares of Series A Redeemable Convertible
Preferred Stock into shares of common stock upon the consummation of this
offering (see "Description of Capital Stock -- The SOFTBANK Investment") and (3)
the pro forma capitalization adjusted to reflect this offering, assuming an
initial public offering price of $10.00 per share and after deducting the
estimated underwriting discounts and commissions and offering expenses. You
should read this table in conjunction with the Selected Consolidated Financial
Data, the Unaudited Pro Forma Consolidated Financial Statements and Interliant's
Consolidated Financial Statements and Notes thereto included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Notes payable, less current portion....................... $ 914 $ 914 $ 914
======== ======== ========
Series A Redeemable Convertible Preferred Stock, $0.01 par
value; 2,647,658 shares authorized and outstanding,
actual; 0 shares outstanding pro forma and pro forma as
adjusted................................................ 13,000 --
Stockholders' equity:
Preferred stock, 0 shares authorized, actual; 1,000,000
shares authorized, 0 shares issued and outstanding,
pro forma and pro forma as adjusted.................. -- --
Common stock, $0.01 par value; 100,000,000 shares
authorized, 30,998,802 shares issued and outstanding,
actual; 200,000,000 shares authorized, 34,396,085
shares issued and outstanding, pro forma; 200,000,000
shares authorized, 41,396,085 shares issued and
outstanding, pro forma as adjusted(1)................ 310 343 414
Additional paid-in capital.............................. 89,067 107,034 170,663
Deferred compensation................................... (1,202) (1,202) (1,202)
Accumulated deficit..................................... (17,113) (17,113) (17,113)
-------- -------- --------
Total stockholders' equity.............................. 71,062 89,062 152,762
-------- -------- --------
Total capitalization............................ $ 84,976 $ 89,976 $153,676
======== ======== ========
</TABLE>
- ---------------
(1) Excludes 3,322,994 shares of common stock issuable upon exercise of options
outstanding under our 1998 Stock Option Plan at a weighted average exercise
price of $1.76. See "Management."
19
<PAGE> 25
DILUTION
Our pro forma net tangible book value as of March 31, 1999 was $10.1
million or $0.29 per share of common stock. The pro forma net tangible book
value per share of common stock is determined by subtracting our total
liabilities from the total book value of our tangible assets and dividing the
difference by the number of shares of common stock deemed to be outstanding on
the date as of which such book value is determined, after giving effect to the
pro forma events listed in the introductory paragraph of "Capitalization." After
giving effect to receipt of net proceeds from the sale of the 7,000,000 shares
of common stock in this offering, assuming an initial public offering price of
$10.00 per share and after deducting the estimated underwriting discounts and
commissions and offering expenses, the pro forma net tangible book value of
Interliant as of March 31, 1999 would have been $73.8 million, or $1.78 per
share. This represents an immediate increase in net tangible book value of $1.49
per share to existing stockholders and an immediate dilution of $8.22 per share
to new investors purchasing shares at the initial public offering price.
Dilution is defined as the reduction in the proportion of income, or earnings
per share, to which each share is entitled due to the issuance of additional
shares. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.00
Pro forma net tangible book value per share as of March
31, 1999............................................... 0.29
Increase per share attributable to new investors.......... 1.49
----
Pro forma net tangible book value per share after this
offering.................................................. 1.78
------
Dilution per share to new investors......................... $ 8.22
======
</TABLE>
The following table summarizes on a pro forma basis, as of March 31, 1999,
the number of shares of common stock purchased from us, the total consideration
paid to us and the average price per share paid by the existing stockholders and
by the investors purchasing shares of common stock in this offering (before
deducting the estimated underwriting discounts and commissions and offering
expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- -------------------------
NUMBER PERCENT AMOUNT PERCENT AVERAGE PRICE PER SHARE
-------------- ------- -------------- ------- -----------------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 28,597 80.3 $ 60,000 46.2 $ 2.10
New investors............. 7,000 19.7 70,000 53.8 10.00
------ ----- -------- -----
Total........... 35,597 100.0 $130,000 100.0
====== ===== ======== =====
</TABLE>
The foregoing table assumes no exercise of stock options outstanding. As of
the date hereof there are options outstanding to purchase a total of 3,691,994
shares of common stock at a weighted average per share exercise price of $2.39.
To the extent that any of these options are exercised, there will be further
dilution to new investors. See "Capitalization," "Management -- Stock Option
Plan," "Description of Capital Stock" and Note 7 of Notes to Consolidated
Financial Statements.
20
<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The following selected consolidated financial data should be read in
conjunction with Interliant's (formerly Sage Networks, Inc.) Consolidated
Financial Statements and Notes thereto, the Unaudited Pro Forma Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus. The
statement of operations data for the period ended December 31, 1997 and the year
ended December 31, 1998, and the balance sheet data as of December 31, 1997 and
1998, are derived from the consolidated financial statements of Interliant that
have been audited by Ernst & Young LLP, independent auditors, whose report with
respect thereto is included elsewhere in this prospectus. The statement of
operations data for the three months ended March 31, 1998 and 1999 and the
balance sheet data as of March 31, 1999 have been derived from the unaudited
financial statements included in this prospectus. We believe that the unaudited
historical financial statements contain all adjustments needed to present fairly
the information in those statements, and that the adjustments made consist only
of recurring adjustments.
The unaudited pro forma statement of operations data for the year ended
December 31, 1998 and for the three months ended March 31, 1999 assumes that the
acquisitions completed in 1998 and 1999 had occurred on January 1, 1998, and
includes the historical consolidated statements of operations of Interliant,
adjusted for the pro forma effects of such acquisitions. The unaudited pro forma
balance sheet data gives effect to the exercise in April 1999 of warrants to
purchase 749,625 shares of common stock for gross proceeds of $5.0 million and
to the conversion of all of the preferred stock into common stock upon
completion of this offering. See "Description of Capital Stock -- The SOFTBANK
Investment."
Results of operations for the period from inception to December 31, 1997
and for the year ended December 31, 1998 and for the three months ended March
31, 1999 are not necessarily indicative of results of operations for future
periods. Interliant's development and expansion activities, including
acquisitions, during the periods shown below may significantly affect the
comparability of this data from one period to another. The unaudited pro forma
statement of operations data is not necessarily indicative of the results of
operations that would actually have occurred if the transactions had been
consummated as of January 1, 1998 and is not intended to indicate the expected
results for any future period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------------------------------------------- ---------------------------
PERIOD FROM
DECEMBER 8,
1997 THREE MONTHS THREE MONTHS THREE MONTHS
(INCEPTION) TO YEAR ENDED ENDED ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31, DECEMBER 31, MARCH 31,
1997 1998 1998 1999 1998 1999
-------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $ -- $ 4,905 $ 13 $ 5,434 $ 41,291 $ 10,340
Costs and expenses:
Cost of revenues............ -- 3,236 54 3,251 20,291 5,976
Sales and marketing......... -- 2,555 111 1,896 9,394 3,487
General and
administrative............ 156 5,121 256 3,700 20,575 5,558
Depreciation................ 2 696 9 700 3,820 1,279
Amortization of
intangibles............... -- 1,417 2 2,082 14,465 4,224
Start-up and acquisition
integration costs......... -- 1,728 134 1,063 1,728 1,063
---------- ---------- ---------- ----------- ----------- -----------
Operating loss................ (158) (9,848) (553) (7,258) (28,982) (11,247)
Interest income and other non-
operating expense........... -- 138 14 13 (429) (138)
---------- ---------- ---------- ----------- ----------- -----------
Net loss...................... $ (158) $ (9,710) $ (539) $ (7,245) $ (29,411) $ (11,385)
========== ========== ========== =========== =========== ===========
Net loss per share -- basic
and diluted................. $ (0.05) $ (1.10) $ (0.18) $ (0.29)
Weighted average shares used
in computing net loss per
share -- basic and
diluted..................... 3,000,000 8,799,432 3,000,000 24,769,890
Pro forma net loss per
share -- basic and
diluted..................... $ (1.86) $ (0.40)
Shares used in computing pro
forma net loss per share --
basic and diluted........... 15,829,762 28,626,240
</TABLE>
21
<PAGE> 27
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
AS OF AS OF ----------------------------------
DECEMBER 31, DECEMBER 31, PRO FORMA
1997 1998 ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ -------- --------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 912 $ 6,813 $ 4,376 $ 9,376 $ 65,652
Working capital.............................. 815 3,755 (5,462) (462) 63,814
Total assets................................. 953 27,219 102,432 107,432 163,132
Debt and capital lease obligations, less
current portion............................ -- -- 914 914 914
Redeemable, convertible preferred stock...... -- -- 13,000 --
Total stockholders' equity................... 842 22,716 71,062 89,062 152,762
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------------------------- ----------------------------
PERIOD FROM
DECEMBER 8,
1997
(INCEPTION) THREE MONTHS THREE MONTHS
TO YEAR ENDED ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31,
1997 1998 1999 1998 1999
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(1).......................... $ (156) $ (7,735) $ (4,476) $ (10,697) $ (5,744)
Net cash flows from operating
activities....................... (59) (6,001) (4,210)
Net cash flows from investing
activities....................... (29) (17,919) (21,807)
Net cash flows from financing
activities....................... 1,000 29,821 23,580
Net capital expenditures........... 29 4,322 984
</TABLE>
- ---------------
(1) EBITDA represents earnings before net interest expense, income taxes,
depreciation and amortization and other income (expense). EBITDA is
presented because it is a widely accepted financial indicator used by
certain investors and analysts to analyze and compare companies on the basis
of operating performance and because our management believes that EBITDA is
an additional meaningful measure of performance and liquidity. EBITDA is not
intended to present cash flows for the period, nor has it been presented as
an alternative to operating income (loss) as an indicator of operating
performance and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles. The items excluded from the calculation of EBITDA are
significant components in understanding and assessing our financial
performance. Our computation of EBITDA may not be comparable to the
computation of similarly titled measures of other companies. EBITDA does not
represent funds available for discretionary uses. See Interliant's (formerly
Sage Networks, Inc.) Consolidated Financial Statements and Notes thereto
appearing elsewhere in this prospectus.
22
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following description of our financial condition and
results of operations in conjunction with the Consolidated Financial Statements
and the Notes thereto and the Unaudited Pro Forma Consolidated Financial
Statements included elsewhere in this prospectus. This discussion contains
forward-looking statements based upon current expectations that involve risks
and uncertainties. Any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Our actual
results and the timing of certain events may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a discrepancy include, but are not limited to, those discussed in "Risk
Factors," "Business" and elsewhere in this prospectus.
OVERVIEW
We are a provider of a comprehensive suite of hosting and enhanced Internet
services that enable our customers to deploy and manage their Web sites and
network-based applications more effectively than internally developed solutions.
Our Web hosting services provide virtual, dedicated and co-located hosting
solutions to meet the needs of businesses of all sizes, as their Web sites
develop from low-end marketing brochures to more complex, interactive Web sites
and finally to Web sites that are integral to the operating, marketing and sales
and customer support functions, or mission-critical, of a business. Our
application hosting services consist of groupware hosting and application
outsourcing solutions that can provide our customers with 24x7 remote access to
mission-critical applications and data required by their businesses.
During 1998 and 1999, our strategy has been to rapidly acquire operating
companies in the Web hosting and application hosting services businesses, to
build or acquire data centers, and to integrate the acquired operations into
those data centers. We acquired 16 operating businesses during 1998 and 1999 for
total consideration of approximately $80.5 million, including transaction costs.
We have accounted for all acquisitions using the purchase method of accounting
which has resulted in the inclusion of substantial intangible assets on our
balance sheet. Of the total consideration, we paid $7.9 million of assumed
seller debt and have or will allocate approximately $(9.2) million to tangible
net assets and $81.8 million to intangible assets. During 1998, we charged
approximately $1.4 million of amortization of the intangible assets to
operations. Additionally, during 1998 we issued stock valued at approximately
$2.6 million as compensation in connection with agreements entered into with
sellers of acquired operating businesses. During 1998, we amortized and charged
to operations approximately $0.8 million of deferred compensation. The purchase
consideration for the acquisitions was in the form of cash, stock or a
combination of cash and stock. See "Business -- Acquisition Program."
Most of the operating businesses we acquired in 1998 have been small and
entrepreneurial in nature and highly dependent on the focus and attention of the
owners. It has been our experience that during the negotiation period prior to
an acquisition, the attention of the owners has been diverted from the operation
of the business. The result of this has often been a modest revenue decline
immediately following the closing of the acquisition. In most cases, the owner
continued to have direct responsibility for the acquired business, but in some
instances, we re-assigned the owner to take advantage of unique skill sets that
have broad application within our operations. In those cases, the operating
businesses have experienced a modest decline in revenues due to loss of
customers. These factors resulted in minimal aggregate internal growth in 1998
for us and the businesses we acquired.
Since our inception in December 1997, we have experienced operating losses
and negative cash flows from operating activities for each quarterly and annual
period. As of December 31, 1998, we had an accumulated deficit of approximately
$9.9 million. Had the companies acquired to date been included since January 1,
1998, our accumulated deficit would have been $29.5 million. The revenue and
income potential of our business is unproven and its limited operating history
makes an evaluation of us and our prospects difficult. We anticipate increased
operating expenses as we:
- expand our sales and marketing initiatives to continue to grow our
brands;
23
<PAGE> 29
- fund greater levels of product development;
- continue to build-out our data centers;
- implement centralized billing, accounting and customer service systems;
and
- continue our acquisition program.
Although we have experienced revenue growth, primarily attributable to
acquisitions, we do not believe that this growth is necessarily indicative of
future operating results. Future acquisitions are expected to increase operating
expenses and operating losses and as a result, we expect to incur operating
losses for the foreseeable future. We cannot assure you that we will ever
achieve profitability on a quarterly or annual basis, or, if achieved, that we
will sustain profitability. See "Risk Factors -- We have a history of
significant losses and these losses may increase in the future."
RESULTS OF OPERATIONS
We derive our revenues from Web hosting, enhanced Internet services and
consulting services. In March 1999, we acquired Interliant Texas to enter the
application hosting market. Revenues for our Web hosting business consist
primarily of hosting fees and setup fees, which cover costs incurred by us to
establish a customer's Web site. We provide virtual, dedicated and co-located
hosting. We charge our Web hosting customers a fixed amount for bandwidth
availability and incremental fees if those fixed amounts are exceeded. In
addition, our virtual Web hosting customers are also charged for disk space on a
server, dedicated hosting customers are charged for use of one or more dedicated
servers and our co-located customers are charged for the amount of physical
space such co-located customers' servers occupy. We charge flat rates for our
enhanced Internet services. For application hosting, our revenues are comprised
primarily of a one-time implementation fee and monthly usage fees per number of
end users, including bandwidth fees. For our consulting services, we charge
either a fixed fee or a fee based on time and materials.
Our contracts with our Web hosting customers typically range in length from
month-to-month to one year, a large proportion of which are cancellable by
either us or our customers with 30 days notice. Our contracts with our
application hosting customers typically range in length from one year to three
years. Revenues derived from hosting are recognized ratably over the applicable
contractual period. Payments received and billings in advance of providing
services are deferred until such services are provided. Revenues from consulting
services are recognized as the services are rendered. Substantially all of our
consulting contracts call for billings on a time and materials basis.
Cost of revenues consists primarily of salaries and related expenses
associated with consulting and network operations personnel as well as data
communications expenses, including one-time fees for circuit installation and
variable recurring circuit payments to network providers. Monthly circuit
charges vary based upon circuit type, distance and usage, as well as the term of
the contract with the carrier.
Sales and marketing expense consists of personnel costs associated with the
direct sales force, the internal telesales group and product marketing
employees, as well as costs associated with marketing programs, product
literature, external telemarketing costs and corporate marketing activities,
including public relations.
Start-up and acquisition integration costs consist primarily of salaries
for our acquisition and integration team as well as related travel expenses.
General and administrative expense includes the cost of customer service
functions including:
- finance;
- accounting;
- human resources;
- legal and executive salaries; and
24
<PAGE> 30
- fees paid for professional services and corporate overhead.
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Revenues
Revenues were $5.4 million for the three months ended March 31, 1999
representing an increase of $5.4 million from the comparable 1998 period. The
increase in revenues was due primarily to the 15 acquisitions consummated during
the last three quarters of 1998 and the first quarter of 1999.
On a pro forma basis, giving effect to acquisitions completed to date,
revenues for the quarter ended March 31, 1999 were $10.3 million. Interliant
Texas accounted for 44.8% of such revenues. Revenues for Interliant Texas were
$4.6 million for the quarter ended March 31, 1999 compared to $4.8 million for
the quarter ended March 31, 1998. This decrease was due to lower bandwidth
charges to our customers in 1999.
Cost of Revenues
Cost of revenues increased by $3.2 million for the three months ended March
31, 1999. This increase was attributable to the 15 acquisitions consummated
during the last three quarters of 1998 and the first quarter of 1999. In the
future, cost of revenues may fluctuate due to capacity utilization, the timing
of investments in data centers, changes in the mix of services, fluctuations in
bandwidth costs and increased levels of staffing.
On a pro forma basis, giving effect to acquisitions completed to date, cost
of revenues for the quarter ended March 31, 1999 were $6.0 million. Interliant
Texas accounted for 46.7% of such costs of revenues. Cost of revenues for
Interliant Texas were $2.8 million for the quarter ended March 31, 1999,
approximately the same as the amount for the quarter ended March 31, 1998.
Sales and Marketing
Sales and marketing expense increased by $1.8 million for the three months
ended March 31, 1999. This increase was attributable to the 15 acquisitions
consummated during the last three quarters of 1998 and the first quarter of
1999. A key component of our strategy is to significantly increase our sales and
marketing activities for application hosting and Web hosting products. This will
include the expansion of our sales force, development of reseller and referral
partner channels and increased marketing efforts to grow recognition of our
brands. As a result, sales and marketing expenses will increase substantially in
future periods. We expect sales and marketing expenses for the year ending
December 31, 1999 to exceed $20.0 million.
On a pro forma basis, giving effect to acquisitions completed to date,
sales and marketing expense for the three months ended March 31, 1999 was $3.5
million. Interliant Texas accounted for 53.2% of such sales and marketing
expense. Sales and marketing expense for Interliant Texas were $1.9 million for
the three months ended March 31, 1999 compared to $1.5 million for the three
months ended March 31, 1998. This increase was attributable to increased
personnel in the sales force and the marketing staff.
General and Administrative
General and administrative expense increased by $3.4 million for the three
months ended March 31, 1999. This increase in general and administrative expense
was attributable to the 15 acquisitions consummated during the last three
quarters of 1998 and the first quarter of 1999 and increased investments in
infrastructure and levels of staffing to implement centralized billing,
accounting and customer service systems to integrate the operations of acquired
companies. Substantial staffing increases are expected to continue in future
periods.
On a pro forma basis, giving effect to acquisitions completed to date,
general and administrative expense for the three months ended March 31, 1999 was
$5.6 million. Interliant Texas accounted for 28%
25
<PAGE> 31
of such general and administrative expense. General and administrative expense
of Interliant Texas was $1.6 million for the three months ended March 31, 1999
compared to $1.3 million for the three months ended March 31, 1998. This
increase was attributable to higher professional fees and training expenses.
Depreciation
Depreciation expense increased by $0.7 million for the three months ended
March 31, 1999. This increase in depreciation expense was attributable to the 15
acquisitions consummated during the last three quarters of 1998 and the first
quarter of 1999 and investment in plant and equipment by us to complete our data
center in Atlanta. We expect depreciation expense to increase in the future as
we continue to invest in data centers and systems to integrate future
acquisitions and support future growth.
On a pro forma basis, giving effect to acquisitions completed to date,
depreciation expense for the three month period ended March 31, 1999 was $1.3
million. Interliant Texas accounted for 53.8% of such depreciation expense.
Depreciation expense of Interliant Texas was $0.7 million compared to $0.5
million for the three month period ended March 31, 1998. This increase was due
to an increase in investment in computer hardware, primarily servers.
Amortization
Amortization expense increased by $2.1 million for the three months ended
March 31, 1999. This increase in amortization expense was attributable to the 15
acquisitions consummated during the last three quarters of 1998 and the first
quarter of 1999. We expect amortization expense to increase in future periods as
we continue to make additional acquisitions as well as reflect amortization of
intangibles associated with acquisitions consummated to date.
On a pro forma basis, giving effect to acquisitions completed to date,
amortization expense for the three month period ended March 31, 1999 was $4.2
million. Amortization expense related to the acquisition of Interliant Texas
represented 42.8% of such amortization expense.
Start-up and Acquisition Integration Costs
Start-up and acquisition integration costs increased by $0.9 million for
the three months ended March 31, 1999. This increase was attributable to our
continuing acquisition program and our expanded acquisition integration team,
including salaries and travel expenses, and the amortization of deferred stock
compensation costs.
YEAR ENDED DECEMBER 31, 1998 AND 1997
Revenues
Our revenues increased by $4.9 million for the year ended December 31,
1998. This increase in revenues was primarily attributable to the 12
acquisitions consummated during 1998.
On a pro forma basis, giving effect to acquisitions completed to date,
revenues for the year ended December 31, 1998 were $41.3 million. Interliant
Texas accounted for 51% of such revenues. Revenues for Interliant Texas were
$21.2 million for the year ended December 31, 1998 compared to $16.9 million for
the year ended December 31, 1997. This increase was primarily due to an increase
in the number of higher revenue generating customers.
Cost of Revenues
Cost of revenues increased by $3.2 million for the year ended December 31,
1998. This increase in cost of revenues was attributable to the 12 acquisitions
consummated during 1998. In the future, cost of revenues may fluctuate due to
capacity utilization, the timing of investments in data centers, changes in the
mix of services, fluctuations in bandwidth costs and increased levels of
staffing.
26
<PAGE> 32
On a pro forma basis, giving effect to acquisitions completed to date, cost
of revenues for the year ended December 31, 1998 were $20.3 million. Interliant
Texas accounted for 58.5% of such cost of revenues. Cost of revenues for
Interliant Texas were $11.9 million for the year ended December 31, 1998
compared to $9.4 million for the year ended December 31, 1997. This increase was
primarily due to an increase in staffing, a change in mix of staff to higher
paid employees, including technical engineers, and increased connectivity costs
associated with network upgrades.
Sales and Marketing
Sales and marketing expense increased by $2.6 million for the year ended
December 31, 1998. This increase in sales and marketing expense was attributable
to the 12 acquisitions consummated during 1998. A key component of our strategy
is to significantly increase our sales and marketing activities for application
hosting and Web hosting products. See "Business -- Strategy" and "-- Marketing."
This will include the expansion of our sales force, development of reseller and
referral partner channels and increased marketing efforts to grow recognition of
our brands. As a result, sales and marketing expenses will increase
substantially in future periods.
On a pro forma basis, giving effect to acquisitions completed to date,
sales and marketing expense for the year ended December 31, 1998 was $9.4
million. Interliant Texas accounted for 71.6% of such sales and marketing
expense. Sales and marketing expense for Interliant Texas were $6.7 million for
the year ended December 31, 1998 compared to $4.4 million for the year ended
December 31, 1997. This increase was primarily due to an increase in staffing, a
change in mix of staff to higher paid employees and increased external marketing
costs.
General and Administrative
General and administrative expense increased to $5.1 million for the year
ended December 31, 1998 as compared to $0.2 million for the period from December
8, 1997 (inception) to December 31, 1997. This increase in general and
administrative expense was attributable to the 12 acquisitions consummated
during 1998 and increased investments in infrastructure and levels of staffing
to implement centralized billing, accounting and customer service systems to
integrate the operations of acquired companies. Staffing for general and
administrative functions increased substantially late in 1998 and is expected to
continue to increase during 1999 and as a result, general and administrative
expense will increase substantially in future periods.
On a pro forma basis, giving effect to acquisitions completed to date,
general and administrative expense for the year ended December 31, 1998 was
$20.6 million. Interliant Texas accounted for 20.1% of such general and
administrative expense. General and administrative expense of Interliant Texas
was $4.1 million for the year ended December 31, 1998 compared to $2.9 million
for the year ended December 31, 1997. This increase was primarily due to an
increase in staffing, a change in mix of staff to higher paid employees,
increased training costs and increased telecommunications costs.
Depreciation
Depreciation expense increased by approximately $0.7 million for 1998. This
increase was due to the acquisition of approximately $5.7 million of furniture,
fixtures and equipment. This amount includes approximately $1.4 million acquired
with operating businesses we acquired during 1998. Investments included the
build-out and acquisition of equipment for our Web hosting facilities to ensure
high levels of service to our customers and capacity for future growth and of
technology and infrastructure to implement centralized billing, accounting and
customer service systems to integrate the operations of acquired companies. We
expect depreciation expense to increase in the future as we continue to invest
in data centers and systems to integrate future acquisitions and support future
growth.
On a pro forma basis, giving effect to acquisitions completed to date,
depreciation expense for the year ended December 31, 1998 was $3.8 million.
Interliant Texas accounted for 66.1% of such depreciation expense. Depreciation
expense of Interliant Texas was $2.5 million for the year ended December 31,
1998
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compared to $1.6 million for the year ended December 31, 1997. This increase was
due to an increase in investment in computer hardware, primarily servers.
Amortization
Amortization expense increased by approximately $1.4 million in 1998. The
amortization expense was attributable to intangible assets associated with the
12 acquisitions consummated during 1998. On a pro forma basis, giving effect to
acquisitions completed to date, amortization expense for the year ended December
31, 1998 was $14.5 million. Amortization expenses related to the acquisition of
Interliant Texas represented $7.4 million of such amortization expense. We
expect amortization expense to increase in the future as we continue to acquire
businesses.
Start-up and Acquisition Integration Costs
Start-up and acquisition integration costs increased by $1.7 million for
the year ended December 31, 1998. This increase was primarily attributable to
the 12 acquisitions consummated during 1998. We expect start-up and acquisition
integration costs to remain relatively constant in future periods.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed our operations and acquisitions primarily
from private placements of equity. Net cash used in operations for the three
months ended March 31, 1999 was $4.2 million. This reflects primarily the net
loss for the period of $7.2 million along with changes in operating assets and
liabilities. Net cash used for investing activities for the three month period
ended March 31, 1999 was $21.8 million, of which $1.0 million was for purchases
of furniture, fixtures and equipment, and $18.9 was for acquisitions of
businesses. Net cash from financing activities for the three month period ended
March 31, 1999 was $23.6 million, reflecting $24.0 million of proceeds from
issuance of common stock and preferred stock less issuance costs and repayment
of debt under equipment financing facilities.
We had $4.4 million in cash and cash equivalents at March 31, 1999. In
April 1999 the Company received $5.0 million for the issuance of common stock
upon the exercise of a warrant by SOFTBANK.
In connection with our acquisition of Interliant Texas, we assumed a
promissory note in favor of Mathew Wolf in the amount of $8.0 million and a
promissory note in favor of Erving Wolf in the amount of $7.9 million. Upon the
closing of this acquisition, we paid in full the note in favor of Erving Wolf,
and we canceled the note in favor of Mathew Wolf and replaced it with a note
issued by us for the same principal amount (the "Wolf Note") which bears
interest at a rate of 9% per annum and is payable in full upon the completion of
this offering.
In addition to funding ongoing operations and capital expenditures
including, without limitation, $4.0 million of expenditures planned to be made
in connection with the application hosting business, our principal commitments
consist of non-cancelable operating leases and contingent payments of earnouts
to certain sellers of operating companies acquired by us. If all earnout targets
are achieved in full, total payments pursuant to all earnouts will be $1.8
million in cash and 37,481 shares of common stock in 1999 and $1.3 million in
cash and 37,481 shares of common stock in 2000.
During 1998, we constructed a data center in Atlanta into which the
majority of the operating businesses we acquired have been or are being
integrated. We believe that this facility has the capacity to service a larger
number of customers than are currently serviced there. The cost of constructing
and equipping this facility was approximately $2.0 million. We intend to invest
approximately $5.0 million to construct and equip our data centers as more
operating businesses are acquired and integrated into these facilities, and as
sales and marketing efforts generate internal growth, requiring additional
servers, routers and related equipment. We may decide to construct one or more
additional facilities in 1999, dependent upon acquisition activity. Our current
anticipated level of capital expenditures for 1999 is expected to be
approximately $15.0 million, but may vary from that amount depending upon
acquisitions and changes in operating plans.
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At March 31, 1999, restricted cash totaled $1.4 million. In connection with
our acquisition of Interliant Texas, we entered into an Assignment and
Assumption Agreement, dated March 10, 1999, pursuant to which we were assigned
all right, title and interest in and to, and assumed all obligations under, the
lease for the Houston data center. In connection with receiving the landlord's
consent to assignment of the lease, we were required to issue letters of credit
in favor of the landlord totaling approximately $0.7 million to replace the
letters of credit issued by Interliant Texas. The aggregate dollar amount which
may be drawn upon by the landlord under these letters of credit shall be reduced
at specified dates in specified amounts such that by August 8, 2000 all of the
letters of credit shall have lapsed. In addition, restricted cash includes
approximately $0.5 million held in escrow in connection with one of our
acquisitions and approximately $0.2 million held to secure outstanding letters
of credit used as deposits on our facilities.
We believe that our existing cash and cash equivalents together with the
net proceeds of this offering will be adequate to meet operating needs through
the end of 1999 and will provide enough funds to continue our acquisition
program through 1999. Thereafter, we expect to require additional financing. If
our plans or assumptions change or prove to be inaccurate, we may be required to
seek additional sources of capital or seek additional capital sooner than
currently anticipated. We may also seek to raise additional capital to take
advantage of favorable conditions in the capital markets. We have no credit
facility or other working capital credit line under which it may borrow funds
for working capital or other general corporate purposes.
YEAR 2000 COMPLIANCE
Currently, many computer and software products are coded to accept
two-digit entries in the date code field. These date code fields will need to
accept four-digit entries to distinguish 21st century dates from 20th century
dates. As a result, many companies' software and computer systems, including our
own, may need to be upgraded or replaced in order to comply with Year 2000
requirements. We recognize the need to ensure that our operations will not be
adversely impacted by Year 2000 software and computer system failures.
State of Readiness. We have made a preliminary assessment of the Year 2000
readiness of our information technology, or IT, systems, including the hardware
and software that enable us to provide and deliver our solutions, and our non-IT
systems. Our plan consists of:
- quality assurance testing of our internally developed proprietary
software and systems;
- contacting third-party suppliers, vendors and licensors of material
hardware, software and services that are both directly and indirectly
related to the delivery of our solutions to our customers;
- contacting vendors of material non-IT systems;
- assessment of repair or replacement requirements;
- repair or replacement;
- implementation; and
- creation of contingency plans in the event of Year 2000 failures.
We have been informed by our vendors of material hardware and software
components of our IT systems that their products used by us are currently Year
2000 compliant. We are currently assessing the materiality of our non-IT systems
and will seek assurances of Year 2000 compliance from providers of material
non-IT systems. Until such testing is complete and such vendors and providers
are contacted, we will not be able to completely evaluate whether our IT systems
or non-IT systems will need to be revised or replaced. We plan to complete our
Year 2000 evaluation during the second half of 1999.
Costs. To date, we have not incurred any material expenditures in
connection with identifying or evaluating Year 2000 compliance issues. Most of
our expenses have related to our internal staffing costs associated with the
evaluation process and Year 2000 compliance matters generally. This trend is
expected
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to continue in the future. At this time, we do not possess the information
necessary to estimate the potential costs of revisions to our software and
systems should such revisions be required or the replacement of third party
software, hardware or services that are determined not to be Year 2000
compliant. Although we do not anticipate that such expenses will be material,
such expenses, if higher than anticipated, could have an adverse effect on our
business.
Risks. We are not currently aware of any Year 2000 compliance problems
relating to our IT or non-IT systems that would have a material adverse effect
on our business, results of operations and financial condition. We cannot give
you any assurance that we will not discover Year 2000 compliance problems in our
software and systems that will require substantial revisions. In addition, we
cannot give you any assurance that third party software, hardware or services
incorporated into our material IT and non-IT systems will not need to be revised
or replaced, all of which could be time consuming and expensive. Our failure to
fix or replace our software, hardware or services on a timely basis could result
in lost revenues, increased operating costs and the loss of customers and other
business interruptions, any of which could have an adverse effect on our
business. Moreover, the failure to adequately address Year 2000 compliance
issues in our IT and non-IT systems could result in claims of mismanagement,
misrepresentation or breach of contract and related litigation, which could be
costly and time-consuming to defend. In addition, we cannot give you any
assurance that governmental agencies, utility companies, telecommunication
companies, other Internet service providers, third party service providers,
hardware and software manufacturers and others outside our control will be Year
2000 compliant. The failure by such entities to be Year 2000 compliant could
result in a systemic failure beyond our control, such as a prolonged Internet,
telecommunications or electrical failure, which could also prevent us from
delivering our services to our customers, decrease the use of the Internet or
prevent users from accessing the Web sites of our customers. Any of these
occurrences could have an adverse effect on our business.
Contingency Plan. As discussed above, we are engaged in an ongoing Year
2000 assessment and have not yet developed any contingency plans. The responses
received from third-party vendors and service providers will be taken into
account in determining the nature and extent of any contingency plans.
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BUSINESS
OUR COMPANY
We are a provider of a comprehensive suite of hosting and enhanced Internet
services that enable our customers to deploy and manage their Web sites and
network-based applications more effectively than internally developed solutions.
Hosting services we provide include:
- Virtual hosting, or shared server hosting, which allows customers to
store their databases, applications or Web sites on a shared server which
is owned and maintained by us;
- Dedicated hosting, which allows customers to store their databases,
applications or Web sites on a server typically owned and maintained by
us that is dedicated solely to that customer;
- Co-located hosting, which allows customers to store their databases,
applications or Web sites on servers that they own but which are
maintained by us and are located in our data centers;
- Groupware hosting, which allows customers to store groupware applications
such as email, discussion forums and document libraries on computers
which we own and manage in our data centers; and
- Application outsourcing, which combines hosting services with prepackaged
applications that can be sold directly to our customers. By doing so, our
customers can quickly deploy a software application solution without
having to purchase hardware, software or network connections.
Since our inception in December 1997, we have grown rapidly through the
acquisition of 16 hosting and related Internet service businesses. We provide
Web hosting solutions to more than 37,000 customers, representing more than
65,000 active domains. We also host more than 10,000 customized Lotus Notes/
Domino based applications for more than 1,300 customers and believe that we are
the leading provider of Lotus Notes/Domino hosting solutions. We have two
state-of-the-art primary data centers in Atlanta and Houston and a recently
leased facility in the Tysons Corner, Virginia. Our Atlanta and Houston data
centers are monitored on a 24x7 basis and include sophisticated monitoring and
diagnosis, 24x7 customer support, redundant and high-speed network connectivity
and uninterruptible power supply.
INDUSTRY BACKGROUND
Growth of the Internet. The Internet is experiencing significant growth
and is emerging as a global medium for communications and commerce.
International Data Corporation or IDC estimates that the number of Web users
worldwide will increase from approximately 97.3 million at the end of 1998 to
319.8 million by the end of 2002, a 34.6% compounded annual growth rate. IDC
also estimates that the number of Web users in the United States will increase
from approximately 51.6 million at the end of 1998 to 135.9 million by the end
of 2002, a 27.4% compounded annual growth rate. During this same period, the
number of business Web sites in the United States is projected by Forrester
Research, Inc. to increase from approximately 650,000 in 1998 to approximately
2.6 million in 2002, a 41.1% compounded annual growth rate. This growth in the
number of Web users and number of Web sites is being driven by a number of
factors including:
- the large and growing installed base of personal computers;
- easier and less expensive alternatives for Internet access;
- improvements in the speed, reliability and security of the Internet;
- commerce-enabling technologies;
- higher quality and more diverse content;
- an increase in the number of networked applications; and
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- the proliferation of broadband technologies that promise consumers
faster, more convenient access to the Internet.
Growth in Business Use of the Internet. The dramatic growth in usage
combined with enhanced functionality and accessibility have made the Internet an
increasingly attractive medium for businesses to:
- disseminate information;
- engage in e-commerce;
- build customer relationships;
- streamline and automate data-intensive processes; and
- communicate more efficiently with dispersed employees.
We believe that more than 108 million employees worldwide will regularly
work outside of the traditional office setting by 2002. As a result of the
development of alternative workplaces, an increasing number of businesses are
relying on the Internet to enable fast and efficient communication, not just
with employees, but with all of their constituencies.
In the last several years, businesses have emerged with operating models
that are exclusively dependent on the Internet, while traditional businesses of
all sizes are working quickly to establish a Web presence. Many of these
businesses establish their initial online presence with a simple, static
brochure for marketing purposes. As they become more familiar with the Internet
as a communications platform, an increasing number of businesses are
implementing more complex, mission-critical applications on the Web including
sales, customer service, customer acquisition and retention, employee
communications and e-commerce between suppliers and business partners.
Trend Toward Outsourcing. According to Forrester Research, Inc., U.S.
firms are now spending approximately 25% of their overall IT budgets on
outsourcing services. These services include packaged application software
implementation and support, customer support and network development and
maintenance. Reasons for the growth in outsourcing include:
- the desire of companies to focus on their core businesses;
- the increased costs that businesses experience in developing and
maintaining their networks and software applications;
- the fast pace of technological change that shortens time to obsolescence
and increases capital expenditures as companies attempt to capitalize on
leading-edge technologies;
- the challenges faced by companies in hiring, motivating and retaining
qualified application engineers and IT employees; and
- the desire of companies to reduce deployment time and risk.
Trend Toward Web Hosting Outsourcing. Many businesses, both small and
large, lack the resources and expertise to cost-effectively develop and
continually enhance their Web sites with evolving technologies while maintaining
a network infrastructure that remains operational in the event of a hardware or
software failure as well as supports increased bandwidth capability as their
business grows. Small- to medium-sized businesses typically lack the IT
resources, capital and scale to design their own Web sites and install, maintain
and monitor their own Web servers and Internet connectivity. Large businesses
typically require state-of-the-art facilities and networks that are monitored
and managed on a 24x7 basis by experts in Internet technology and that can be
upgraded and scaled to meet the needs of mission-critical Internet applications
that may be integral to their businesses. As a result, we believe enterprises of
all sizes are seeking outsourcing arrangements to help:
- build effective Web sites;
- improve their sites' reliability and performance;
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- provide continuous monitoring of their Internet operations; and
- reduce costs.
Trend Toward Application Hosting Outsourcing. Businesses increasingly face
competitive demands to automate business processes. This problem has been
exacerbated by a shortage of IT professionals. Until recently, implementation of
Internet applications required development of in-house software applications or
the customization of existing packages. This made each implementation unique and
costly. It also made implementation time frames and costs unpredictable. We
believe that businesses of all sizes have a significant need to outsource the
hosting of these and other software applications to improve core business
processes, reduce costs and enhance their global competitive position.
OUR OPPORTUNITY
Today the hosting market is fragmented, consisting for the most part of:
- small local and regional providers who do not have the capital, resources
or capabilities to provide quality services at competitive prices;
- large national providers who focus on Internet connectivity rather than
on hosting; and
- consulting and Web design firms for which hosting is not their core
competency.
We believe that a significant market opportunity exists for a
nationally-recognized hosting solutions provider with the scale and expertise to
offer a wide range of value-priced services to businesses of all sizes.
Interliant believes that through the acquisition and consolidation of hosting
and enhanced Internet service businesses, a hosting provider can offer a full
range of services that enable businesses to deploy, use, expand and update their
Web sites and applications infrastructures more rapidly and cost-effectively
than internally developed solutions.
Web Hosting Opportunity. IDC estimates that the worldwide market for Web
hosting services will grow from $696 million in 1998 to $10.7 billion by 2002, a
98.0% compounded annual growth rate. The market for Web hosting services can be
segmented into virtual, dedicated and co-located hosting. Virtual hosting
primarily addresses the needs of small- to medium-sized businesses and includes
such services as disk space, shared connectivity and certain value-added
services such as e-mail hosting, e-commerce tools and other specialized
offerings. Dedicated and co-located hosting services primarily address the needs
of medium- to large-sized businesses and include:
- dedicated server equipment owned by either the hosting provider or the
customer, with an emphasis on network reliability;
- 24x7 monitoring;
- dedicated and redundant bandwidth;
- flexibility to scale rapidly; and
- high-end, value-added services such as consulting services, systems
integration and links to legacy systems.
We believe we are well positioned to take advantage of the opportunities
which exist for a nationally-recognized Web hosting solutions provider with the
scale and expertise to offer a wide range of value-priced services to businesses
of all sizes.
Application Hosting Opportunity. Forrester Research, Inc. reports that the
worldwide market for outsourcing application software products will grow from
approximately $1.0 billion in 1997 to over $21.0 billion by 2001, a 111.1%
compounded annual growth rate. Traditionally, enterprises faced with the issues
of internal development and maintenance of application hosting capabilities have
sought solutions from a variety of information technology providers including
system integrators, Internet service providers, hardware and software vendors
and telecommunication companies. Thus, these companies have had to
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work with at least three independent suppliers: a software applications
provider, a systems integrator and a site hosting provider, or have had to
support implementation with in-house resources. There are inherent conflicts and
difficulties with this approach, as each supplier is dedicated to providing its
own specific product or service with only limited knowledge of the bundle of
products and services required to provide the complete business solution. We
believe that these trends create a substantial market opportunity for a
single-source solution that combines software from multiple vendors, hardware,
systems integration and Internet-based communications in an integrated service
offering. Interliant believes it is well-positioned to take advantage of these
opportunities as companies realize the value a single-source hosting service
provider can offer in facilitating deployment and improving management of their
corporate intranet and extranet solutions as well as mission-critical
applications.
OUR SOLUTION
We are a provider of hosting solutions that enable our customers to deploy
and manage their Web sites and network-based applications more effectively than
internally developed solutions and to take advantage of a single-source solution
for their Internet-enabled application software needs. We offer a unique blend
of technological expertise, partnering ability and understanding of the business
and licensing models which it believes are essential to succeed in the hosting
marketplace. We believe we have developed the infrastructure, resources,
application management expertise and industry relationships required to
capitalize on this emerging market opportunity.
We provide the following advantages to our customers:
Comprehensive Hosting Solutions. We are able to provide Web hosting
services that meet our customers' needs as their Web sites evolve from low-end
marketing brochures to more complex, interactive Web sites and finally to
applications that are integral to their businesses. In addition, our application
hosting services such as groupware hosting and application outsourcing can
provide our customers with continuously available remote access to applications
and data which are mission-critical. Finally, we offer consulting services and a
broad range of enhanced Internet services such as e-commerce capabilities,
multimedia hosting and community hosting.
Performance and Reliability. Our hosting solutions help to ensure that our
customers' Web sites and networking applications are continuously online and
deliver data rapidly to users. Our state-of-the-art data centers in Atlanta and
Houston provide high-quality performance and reliability through features such
as a redundant, high-speed, secure network architecture, continuous monitoring,
alternate power sources, environmental controls, regular data back-ups and a
fault tolerant hosting platform. Interliant's Network Operations Centers or NOCs
monitor Interliant's network on a 24x7 basis and allow its staff to minimize
service interruptions.
Cost Savings. Our customers benefit from our focus on hosting and the
capital and labor investments that we have made to support hosting and enhanced
Internet services. For customers to replicate our performance and reliability
would require them to make significant expenditures for equipment, personnel and
dedicated bandwidth. We believe that our hosting solutions are significantly
more cost-effective and reliable than in-house solutions, both for businesses
with low-end application requirements as well as for those businesses whose
Internet operations are mission-critical and require sophisticated application
support.
Customer Service. We are dedicated to providing the highest quality
customer service. We endeavor to provide rapid and accurate responses through
customer service personnel who can answer questions over the telephone or via
e-mail. In addition, Interliant's customer service organizations in Atlanta and
Houston can address technical problems on a 24x7 basis. Interliant has invested
in advanced customer service software and call routing technology to streamline
the customer service process. Interliant also offers customers who are hosted in
its Atlanta data center a self-service customer support alternative which
provides online access to account and billing data and site statistics such as
disk storage capacity and bandwidth utilization.
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STRATEGY
Our objective is to become the industry benchmark in the hosting services
market by providing businesses with cost-effective, innovative solutions that
will allow them to capitalize on the potential of the Internet. To achieve this
objective, our strategy includes the following key elements:
Build the Interliant Brand. We believe we have established a strong brand
identity within the application hosting industry under the Interliant brand. Our
brand will be enhanced as we begin marketing Web hosting products under the
Interliant brand and will be further enhanced as acquired companies are
assimilated under our brands. We intend to continue to build name recognition
for our brand and strengthen our brand recognition by marketing our full range
of services through an integrated marketing communications program using public
relations, print and online advertising campaigns and other strategic
initiatives as well as cooperative promotions with key hardware and software
vendors.
Continue Acquisition Program. We intend to continue our acquisition
program to capitalize on consolidation opportunities in the hosting and enhanced
Internet services market in the United States and overseas. We expect that these
acquisitions will also result in substantial operating synergies, greater
internal growth and cost savings. Further, we plan to capitalize on best
practices we may identify within acquired companies to maintain our competitive
advantage and to ensure ongoing delivery of high quality hosting services to our
customers.
Expand Multiple Sales Channels. We reach our customers through multiple
sales channels including a direct sales force, indirect sales through numerous
resellers and referral partners, inbound and outbound telesales and Web
marketing programs. We intend to continue expanding these channels to further
enhance our ability to attract customers of all sizes. As an example, we
recently launched our business partner program, creating standard incentives
across our entire product line to foster growth of our business partner network.
Leverage the Interliant Customer Base. We intend to capitalize on the
enhanced revenue potential of the customer bases of our acquired companies,
leveraging the numerous cross-selling opportunities of our expanded line of
branded service offerings. We will use our multiple sales channels, including
our direct sales force, to target specific customer segments within our diverse
customer base with relevant new product offerings to realize increased revenues.
For example, we believe that we can grow our revenues by cross-selling existing
Web hosting customers with application hosting and consulting services. Further,
we believe that by coordinating the sales efforts of our combined Web hosting,
application hosting and consulting sales forces, we can increase customer leads
and referrals. Finally, we intend to assimilate the customer bases of our
acquired companies into a unified customer information management system to
facilitate sophisticated analysis and segmentation of our total customer base
and thus enable us to maximize marketing and sales opportunities.
Develop Strategic Relationships. We have established and continue to seek
strategic relationships that enhance our infrastructure and distribution
capabilities and broaden our product offerings. We believe that our strategic
alliances with companies such as IBM Corporation, Lotus Development Corporation,
Microsoft Corporation, UUNET Technologies, Inc., Equant, N.V., Allaire
Corporation, Elemental Software, Inc. and iMall, Inc. enable us to provide
complete, scalable and reliable hosting solutions to our customers, resellers
and referral partners.
SERVICES
Our service offerings comprise three main areas: Web hosting, application
hosting and consulting.
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WEB HOSTING SERVICES
We offer a comprehensive suite of solutions to meet the current and future
Web hosting needs of our customers. We provide virtual, dedicated and co-located
hosting services.
<TABLE>
<CAPTION>
HOSTING WEB SITE CUSTOMER
SERVICES PRICE* PROFILE KEY FEATURES BENEFITS
- -------- ------------ ---------------- ----------------- --------------
<S> <C> <C> <C> <C>
Virtual $25-$350 Static Web Shared space on Economical
per month pages, Interliant-owned
moderately server
accessed sites
Dedicated $100-$5,000 Dynamic Web Dedicated Greater server
per month content, heavily Interliant-owned resources
accessed sites server in shared requiring
rack minimal
customer
maintenance
Co-Located $500-$40,000 Mission-critical Secure cabinet Greater
per month applications for customer- customer
owned server control/access
to hardware
</TABLE>
- ---------------
* Prices are representative for products marketed under the Sage Networks and
Interliant brands and may not be representative for our products marketed
under other brand names.
All product offerings hosted in the Atlanta and Houston data centers are
designed to achieve optimal performance through features such as:
- sophisticated monitoring, notification and diagnosis;
- 24x7 customer support through the NOCs and customer service centers;
- remote access management and reporting tools;
- a high-speed network designed to continue operating in the case of any
software or hardware failure;
- uninterruptible power supply, including back-up generators capable of
sustaining server operations for more than one week;
- firewall, intrusion monitoring and site security auditing;
- full daily back-ups with off-site storage;
- air-conditioned, static and humidity controlled environment; and
- high level of physical security.
It is our intention that all product offerings marketed under our brands and
hosted at data centers other than Atlanta and Houston also have the above
features. Customers generally pay monthly, quarterly or annual fees for the
services used, as well as one-time fees for installation and any equipment
purchased by the customer.
On a pro forma basis, giving effect to acquisitions completed to date, Web
hosting revenues comprised 28.0% of our revenues in the year ended December 31,
1998 and 31.4% of our revenues for the three months ended March 31, 1999.
Virtual Hosting. Our virtual hosting solution provides customers with all
the elements needed to establish a basic presence on the Web at a reasonable
cost. This entry-level service is known as virtual hosting because the
customer's home page has its own domain name, www.mycompany.com, and appears
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to exist as a stand-alone server. It operates with the speed and efficiency of
Interliant's high-speed connections and its location at our facility remains
invisible to Web site visitors. Customers are able to have their own Web site
with a domain name at a fraction of the cost of maintaining it themselves. As a
result, virtual hosting is an economical solution for relatively simple or
moderately accessed Web sites. Because customers do not need to invest in costly
hardware or personnel to accommodate future growth, we believe this solution
also maximizes the customers' flexibility.
For these accounts, we host the site on a UNIX or Windows NT server that is
shared by multiple customers. Prices for virtual hosting products marketed under
the Sage Networks and Interliant brands range from $25 to $350 a month,
depending on the data transfer limit, storage capacity, number of e-mail
accounts provided and additional functionality requested such as e-commerce
capabilities, multimedia hosting and community hosting. For certain customers of
acquired businesses, the price range may be lower depending upon the
functionality of the services and reflecting a lower level of services requested
by such customers. In 1998, our average virtual hosting customer paid
approximately $20 per month. We derive a substantial majority of our revenues
from virtual hosting.
Dedicated Hosting. As companies increase the complexity, level of traffic
or reliance on their Web sites, they may prefer to host their Web site on a
dedicated server, which is typically owned and maintained by us. A dedicated
server provides greater server and network resources to our customers than
virtual hosting and allows them to configure their hardware to optimize site
performance. Customers receive a high level of site security, maintenance, and
technical support without the prohibitive costs of setting up and maintaining
their own server and Internet connection. We support most leading Internet
hardware and software system vendor platforms, including Solaris which operates
on a Sun Microsystems, Inc. platform, Microsoft Windows NT which operates on a
Intel/PC platform and Linux which operates on a Cobalt Networks, Inc. platform.
Prices for dedicated hosting products marketed under the Sage Networks and
Interliant brands range from $100 to $5,000 a month, depending upon the hardware
configuration, bandwidth requirements and additional features that may be
requested by our customers. For certain customers of acquired businesses, the
price range may be lower. In 1998, our average dedicated hosting customer paid
$1,000 per month.
Co-located Hosting. We currently provide co-located hosting services in
our Atlanta and Washington, D.C. area data centers for customers with
sophisticated, mission-critical applications. This solution allows the customer
to own and access their servers on a 24x7 basis while delegating the day-to-day
management of their Web site to our IT specialists. In addition, co-located
servers are housed in separate, limited-access rooms in our data center. Prices
for co-located products marketed under our Sage Networks and Interliant brands
range from $500 to $40,000 a month, which incorporates fees such as bandwidth
charges and space. Bandwidth is the capacity of a telecommunications network to
carry voice, data and video information. For certain customers of acquired
businesses, the price range may be lower. In 1998, our average co-located
customer paid $750 per month.
We also provide the following enhanced Internet services to our Web hosting
customers:
E-commerce Capabilities. Through our reseller relationships, we offer a
variety of e-commerce solutions to help businesses create and maintain a
successful Web storefront. E-commerce provides businesses the ability to sell
products and services on the Internet. The e-commerce capability can be added to
an existing Web site or it can be the basis for a Web site, starting with the
customer's product catalog. Representative e-commerce offerings include:
- a full suite of Internet payment solutions offered by CyberCash, Inc.,
including payment services for credit card, micropayment and Internet
check transactions;
- ShopSite from Open Market, Inc. which allows users to build quickly a
simple catalog and begin taking orders; and
- SoftCart from Mercantec which allows users to create sophisticated
e-commerce Web sites that includes order taking, credit card processing
and order fulfillment.
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Multimedia Hosting. We allow our customers to include various multimedia
capabilities in their Web sites, including integrated text, graphics, video,
information and sound capabilities. With the acquisition of Telephonetics
International, Inc., we have added audio production and hosting capabilities to
the suite of Internet services available to our customers. In addition, we
provide our customers with the ability to include Real Networks and Microsoft
NetShow content within their Web sites.
Community Hosting. We allow customers of all sizes to include
community-building features such as e-mail and chat hosting. We provide POP or
Post Office Protocol e-mail boxes that can be used to send and receive e-mail
from any connection to the Internet and include unlimited aliases, forwarding
and auto-responders. We also offer chat hosting through our relationship with
eShare Technologies.
APPLICATION HOSTING SERVICES
We offer application hosting services which consist of groupware hosting
and application outsourcing solutions that provide its customers with 24x7
remote access to applications and data that are integral to their businesses.
On a pro forma basis, giving effect to acquisitions completed to date,
application hosting revenues comprised 51.3% of our revenues in the year ended
December 31, 1998 and 44.8% of our revenues for the three months ended March 31,
1999.
Groupware Hosting. We offer our customers a broad spectrum of groupware
hosting solutions for Lotus Notes/Domino, the industry-leading groupware
platform. Our groupware hosting solutions allow our customers who want to work
together collectively while located remotely from each other to store software
applications that facilitate this type of work environment on a computer that we
own and manage for them. Our groupware hosting services provide support for the
following:
- feature-rich e-mail and other types of messaging for internal and
external communication;
- workgroup and project team collaboration and document sharing;
- business process automation and workflow; and
- proprietary or custom applications built for the groupware platform.
We also can provide our customers with sophisticated, collaborative
Web-based intranets and extranet. An intranet is an Internet network which
usually belongs to a corporation and is accessible only by employees, or others
who have authorized access. An extranet is basically an intranet that provides
various levels of accessibility to outsiders who through a user name and
password can access selected parts of the extranet. We seek to provide the
following benefits to our customers hosting their groupware implementations with
us:
- reduced deployment time and risk;
- reduced day-to-day operational responsibility, allowing in-house IT
departments to focus on creating strategic value;
- lower ongoing cost;
- no capital investment in servers, facilities and other infrastructure;
- access to emerging technologies and improved responsiveness to change;
and
- 24x7 operations, high availability, rapid scalability and robust
security.
Customers generally pay monthly fees for the services offered, as well as
one-time fees for installation and deployment services. Customers typically sign
one- to three-year service contracts. Our customers have the option of using
shared or dedicated servers in one of our data centers for their groupware
hosting services, or can have their on-premise server managed by our
customer-managed server offering. Prices for our groupware hosting services
range from $1,500 to over $100,000 a month.
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We provide hosting for groupware applications that are specifically
tailored for a Lotus Notes/Domino operating environment on both shared and
dedicated servers at one of our data centers or on the customer's premises. The
hosted servers support connections to:
- geographically dispersed Lotus Domino servers for messaging and
replication;
- Lotus Notes clients for remote access to e-mail and Lotus Notes
applications; and
- Web browsers for intranets and extranets.
Customers can connect to our servers using the Internet or a variety of
private network options, including frame relay, dedicated lines and local dialup
access in more than 160 countries. We provide messaging gateway services for
Lotus Domino, including:
- Internet e-mail;
- X.400 mail;
- Lotus cc:Mail;
- fax; and
- a variety of pager networks.
In addition, we and certain customers have established a Lotus
Domino/Microsoft Exchange messaging interoperability technology pilot program
which will allow users of both systems to communicate electronically, and we are
considering further expansion of this program to enhance our Microsoft Exchange
hosting offering.
As part of our groupware hosting implementation process, we start with what
we believe to be the best available system configurations and work with our
customers to modify them to the customer's specific needs. Customers may choose
from a wide variety of hardware capacity and availability options, including
RAID, or Redundant Array of Inexpensive Disks, storage and full server
clustering. Once installed, we not only monitor server hardware, operating
system and application-level system performance, but also can provide full
server administration services including adding or deleting users, database
installation, access control changes and other required server administration
tasks.
This groupware hosting service is also available for custom implementations
in conjunction with Interliant's consulting service offerings.
Application Outsourcing. Our application outsourcing offers customers an
integrated solution that combines packaged application software with managed
hosting services. We believe it is an industry leader in forging strategic
relationships with leading application developers and other key partners to
deliver these best-of-breed solutions. Through such strategic relationships, we
enable businesses of all sizes to capitalize on the latest Internet-enabled
technologies while outsourcing non-core business operations such as deployment
and migration strategies and maintenance or software upgrades to a third party.
Our branded application hosting services address the following major business
process areas:
- Legal Automation. Our legal automation solutions offer customers a suite
of collaborative applications that assist attorneys in securely and
reliably managing litigation, intellectual property matters and general
workflow within corporate legal departments and law firms. These
applications can be customized, deployed, supported and fully managed on
dedicated or shared servers at our data centers. We have entered into
referral partner relationships with application providers such as
Caseworks, Tripoint Systems Development Corp., Occam's Razor Technologies
and First Use Registration, L.L.C. to deliver a variety of legal
automation solutions to the marketplace. We provide these referral
partners with a royalty payment for each customer lead that is passed on
to us which results in a signed agreement with that customer. We believe
that these solutions provide an effective and secure extranet for
lawyers, including those who already have other applications in place.
The legal automation suite of applications currently encompasses both
Web-based and client
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server applications that are priced from $100 to $300 per user per month, as
well as Internet rental applications that are priced as low as $20 per user per
month.
- Sales Automation. Our sales automation services provide geographically
distributed sales and marketing organizations with all the elements
needed to quickly deploy a sales automation solution at a reasonable
cost. These solutions include modules for
- opportunity management;
- contact and account management;
- revenue forecasting reports;
- an integrated group calendar;
- automated proposal generator;
- pricing information;
- telesales campaign management; and
- correspondence and fulfillment in a shared hosting environment.
We believe that selling application outsourcing as part of a package of
hosting services rather than as a product to be installed and managed by
the customer, reduces the customer's initial capital investment, thereby
making it easier to minimize the customer's technology risk. Accordingly,
it also allows us to engage clients in long-term contracts with fixed
monthly payments. The application solution is customized, deployed, and
fully managed and supported by us, providing a single-source solution to
customers. We partner with leading packaged commercial software vendors,
hardware vendors and system integrators to deliver these solutions.
Our sales automation services can be accessed through our secure network
using a variety of dial-up or dedicated access methods on a 24x7 basis,
leading to more efficient practices and effective communications. The
solution can be easily configured to the customer's selling methodology
and can be deployed within 30 days. The solutions range in price from $100
to $200 per user per month depending upon the application features,
hardware configuration and amount of disk storage needed.
- Distributed Learning. Distributed Learning over the Web represents a
broad, horizontal market for us, with opportunities to deliver online
training in virtually all market segments. Working with leading software
technology vendors, best-of-breed content providers and business
partners, we offer comprehensive solutions for corporate, academic, and
non-profit customers. These solutions encompass:
- browser based, asynchronous or any time, any place learning
technologies;
- browser based, synchronous or same time, any place learning
technologies;
- sophisticated course and student management systems;
- online facilitation; and
- application sharing.
In addition, our distributed learning solutions leverage our core
competencies: Web hosting, multimedia technology and e-commerce, to
deliver a complete package to our customers.
Layering distributed learning know-how and functionality on top of its
existing infrastructure services allows us to quickly deliver
cost-effective solutions. Our Distributed Learning services are priced on
a "per user, per course," or a "per person, per year" basis, with the
typical cost of instruction per user per course in the range of $20 to
$75. Costs are driven largely by the course's duration and complexity, as
well as by the range of application level services that the customer
desires. Deployment of existing courses is very rapid, with students
typically able to access courses within a few days following registration.
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- Rental Applications. We are is working to create a new generation of
100% Web-based application solutions that are designed to be delivered as
services over the Internet. No installation is required as users need
only a Web browser and an Internet connection to select, set up,
configure and use a rental application. Pricing models vary based on
application usage models, but are all inclusive of the fees for
application licensing, hosting, and basic support. We establish
partnerships with software vendors to create these application services,
many of which will be based on Lotus Domino Instant!Host, a platform for
application hosting service providers co-developed by us and Lotus. We
have established a portal site, www.appsonline.com, that contains a
catalog for these Internet rental applications.
Our first Internet rental application is Lotus Instant!TEAMROOM, a
"teamware" collaboration tool available for a $14.95 monthly fee per end
user which allows distributed teams to discuss issues, share documents,
and track action items. Additional rental application services in
development include teamware for specific vertical market segments, an
application which allows companies to hold private auctions online, and
more sophisticated collaboration tools for project management,
calendaring and scheduling and document management.
CONSULTING SERVICES
We provide consulting services for Intranet, extranet and application
hosting solutions, as well as for internal networking implementations and
back-end Web development projects. In addition, we provide support for our
customers' enterprise networking needs. Our consulting services are scaled to
meet each client's needs. We address the complete spectrum of services,
including:
- desktop and network server support;
- network architecture and design;
- local area network, wide area network and virtual private network design;
- strategic technology planning;
- application development and implementation; and
- Web hosting.
On a pro forma basis, giving effect to acquisitions completed to date,
consulting services revenues comprised 14.0% of our revenues in the year ended
December 31, 1998 and 16.0% of our revenues for the three months ended March 31,
1999.
ACQUISITION PROGRAM
Since inception, we have acquired 16 companies and intend to continue its
acquisition program. Specifically, we seek to identify businesses which will
generate a positive return on investment and:
- expand its customer base;
- complement and expand its product and service offerings;
- enhance its engineering and technical capabilities;
- strengthen its reseller and referral partner relationships; and/or
- broaden its management team.
We believe that the integration of acquired companies will create economies of
scale and generate significant operating efficiencies. Because of our ongoing
acquisition strategy, we expect that at all times some portion of its acquired
companies will be in various stages of integration. We seek to identify areas in
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which acquired companies outperform its competitors and adopt their best
practices. Once we acquire a company, a multi-disciplinary team begins the
four-step integration process:
Technical Integration. Technical integration begins with the physical move
of the acquired company's equipment into one of our facilities. Generally, the
customers of the acquired company are then migrated onto the our hosting
platforms. Migration entails duplicating the server contents onto a new server,
which runs in parallel for a test period, before being switched over. For Web
sites with real-time databases or customized applications, the process can
become significantly more complex. Our platform is typically more robust than
that of the acquired company and standardization allows us to manage the servers
more efficiently. In certain circumstances, however, Interliant finds that it is
not strategic or cost-effective to migrate customers to our platform.
Customer Service Integration. We integrate our customer service operations
for our acquired Web hosting customers at our data center in Atlanta and for our
application hosting customers in Houston. By centralizing hosting customer
service, we believe that it can improve performance while reducing costs. In
Atlanta, we have implemented the Vantive Support system, a customer/asset
management tracking application, which enables a customer service representative
to view a customer's entire account, including past and recent interactions with
the customer. Further, the Vantive Support system provides a resolution database
that recognizes and documents support records into a central repository that can
be accessed by all customer service personnel.
Business Systems Integration. Many of the businesses we acquire do not
have adequate back-office systems or procedures. As a result, we are in the
process of transitioning acquired companies onto the PORTAL Infranet billing
system. With PORTAL Infranet, our resellers, referral partners and customers
will be able to obtain monthly statements delivered electronically which we
believe will provide them with easy access to and accurate tracking of our
hosting expenditures. In particular, we believe that PORTAL will allow resellers
and referral partners to add new products and services, as well as pricing
discounts and incentive programs, in a timely and cost-effective manner.
Product Integration. We expect to integrate the majority of its acquired
companies into our product line, with uniform branding, pricing strategies and
distribution channels. In certain cases, however, where an acquired company's
brand is already established, we may for a period of time continue to market
certain products and services under the existing brand in order to capitalize on
the competitive advantages the acquired brand name may bring to us. Our
long-term goal, however, is to migrate most product offerings to our brand.
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The following chart identifies the 16 hosting and Internet-related service
companies acquired by Interliant, or from which we have acquired significant
assets.
<TABLE>
<CAPTION>
DATE NAME PRIMARY FOCUS LOCATION
- ---- ---- ------------- --------
<S> <C> <C> <C>
February 13, 1998.... Omnetrix, Inc. (dba "DirectNet") Web hosting Los Angeles, CA
April 7, 1998........ Clever Computers, Inc. Web hosting Atlanta, GA
April 30, 1998....... Server and Network connectivity Web hosting McLean, VA
assets from Knowledgelink
Interactive, Inc.
May 1, 1998.......... Tri-Star Web Creations, Inc. Web hosting New York, NY
June 10, 1998........ HostAmerica, a division of HomeCom Web hosting Atlanta, GA
Communications, Inc.
June 29, 1998........ All Information Systems, Inc. Web hosting Dallas, TX
July 1, 1998......... Software Business Technologies, Inc. Web hosting San Rafael, CA
Web Hosting Business Unit
July 1, 1998......... DevCom (division of Nextron, Inc.) Web hosting San Jose, CA
July 30, 1998........ BestWare, Inc. (dba "Maikon") Web hosting Dallas, TX
August 31, 1998...... B.N. Technologies, Inc. (dba "ICOM") Web hosting Los Angeles, CA
September 16, 1998... GEN International Inc. Web hosting St. Petersburg, FL
(Global Entrepreneur's Network, Inc.)
December 17, 1998.... Dialtone, Inc. Web hosting Pembroke Pines, FL
February 4, 1999..... Digiweb, Inc. Web hosting College Park, MD
February 4, 1999..... Telephonetics International, Inc. Multimedia Miami, FL
February 17, 1999.... Net Daemons Associates, Inc. Consulting Woburn, MA,
Burlingame, CA
and Boulder, CO
March 10, 1999....... Interliant Texas Application Houston, TX and
hosting London, England
</TABLE>
We are currently engaged in discussions with respect to several
acquisitions. With respect to three of those acquisitions, we have entered or
are about to enter into non-binding letters of intent. We cannot assure you that
any of such transactions will be consummated, or if consummated as to the terms
of the transaction. The following is a summary of the three potential
acquisitions:
- All three are engaged in the virtual hosting business.
- Together, the three acquisitions had unaudited revenues and (loss) for
the year ended December 31, 1998 of $6.2 million and ($5.7 million),
respectively.
- The estimated consideration to be paid for the three businesses may
include up to 2,600,000 shares of common stock, cash of $3.0 million plus
earnout consideration of $0.4 million in cash and 500,000 shares of
common stock assuming certain earnings targets are met.
- One of the acquisitions mentioned above represents the substantial
majority of the revenue, loss and purchase price consideration.
CUSTOMERS
We have established a diversified customer base across our service
offerings. Our customers include a variety of business types, ranging from small
office/home office companies through Fortune 500 companies. In addition, our
customers also include resellers of our services such as Web consulting firms,
Internet service providers, network integration companies and system integrators
who sell our services to their customers.
Web Hosting Customers. Our contracts with our Web hosting customers
generally cover services for a period ranging from one month to two years. We
provide hosting solutions to more than 37,000
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customers, representing more than 65,000 active domains. The following is a list
of selected Web hosting customers:
Adtronics
Atlanta Public Schools
Cadin.com
Gy Digital
Net.Capitol
Powerize.com
Searchtech
The Audio Works Group
Application Hosting Customers. Our contracts with our application hosting
customers generally cover services for a period ranging from one to three years.
We host more than 10,000 customized Lotus Notes/ Domino based applications for
more than 1,300 customers, including:
Abbott Laboratories
NationsBanc Services, Inc.
Four Seasons Hotels Limited
Jones, Day, Reavis & Pogue
Panasonic
Swiss Reinsurance Company
SmithKline Beecham Pharmaceuticals R&D
The Rank Group Plc
Consulting Customers. Our contracts with our consulting customers
generally cover services on a project-by-project basis, with project periods
typically ranging from six months to one year. We provide consulting services to
more than 200 customers, including:
Hitachi Computer Products America Inc.
TMP Worldwide, Inc.
O'Reilly and Associates, Inc.
Phoenix Technologies Ltd.
Forrester Research, Inc.
Edify, Inc.
Solbright, Inc.
Stratus Computer, Inc./Ascend
Communications, Inc.
STRATEGIC RELATIONSHIPS
Interliant's strategic relationships and partnerships with leading
technology companies allow it to provide a wide range of services to meet its
customers' needs. The following is a list of selected companies with whom
Interliant has a strategic relationship:
IBM Corporation. We are an IBM BESTeam partner and began offering the IBM
Net.Commerce Hosting Server product in January 1999. IBM currently lists
Interliant on its Web site as one of a select group of partners that are able to
offer this product. Interliant intends to introduce Net.Commerce hosting
services to our large reseller community as a world-class end-to-end e-commerce
solution. Interliant is also hosting IBM Net.Commerce Pro solutions for
dedicated server customers who maintain large e-stores and require large scale
implementations. There is no written contract that governs this relationship
with IBM and either of us can terminate this relationship at any time. We have
no financial commitments to IBM as a result of this relationship.
Lotus Development Corporation. We believe we are a leading partner of
IBM's Lotus software division and are a Lotus Net Service Provider, Lotus Net
Service Provider/Alliance Partner, as well as a Lotus Premier Business Partner.
We provide a variety of messaging and hosting services for Lotus Notes/ Domino
Internet, intranet and extranet applications. We are currently listed by Lotus
on several sections of Lotus' Web site as one of a select group of partners that
provide hosting services for Lotus Notes/Domino and other Lotus application
solutions and have twice been recognized with Lotus' highest recognition, the
Lotus Beacon Award, most recently in January 1999.
We are parties to a Joint Development Agreement with Lotus Development
Corporation, dated April 27, 1998, which is scheduled to expire on April 27,
2000, but will be automatically renewed for additional one year terms unless
terminated by either party upon prior written notice. Under this agreement,
together with Lotus we co-developed Lotus' Domino Instant! Host platform, which
enables application developers to deploy and offer Web-based collaborative
applications. In consideration for our development contributions to the Instant!
Host product and the licenses we have granted to Lotus, Lotus is obligated to
make payments to us. Lotus has the exclusive rights to determine the rates under
which it will license Instant! Host to third parties. We are required to pay
Lotus for Instant! Host licenses at the
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current standard service provider rate for non-Lotus developed Instant!
applications offered for subscription to users via Instant! Host.
Microsoft Corporation. We are a Microsoft Certified Solution Partner
(MCSP) and are currently engaged in several strategic initiatives with
Microsoft. We have entered into a co-marketing and promotion agreement whereby
Microsoft will include our advertisements in a catalog that is inserted into
every FrontPage 2000 product box that is packaged for retail sale. Microsoft has
also agreed that it will issue a press release on its Web site highlighting our
joint involvement in the promotion of FrontPage 2000. In return, we have agreed
to feature Front Page 2000 on our Web site with greater frequency and visibility
than any competing product and have agreed to offer either free Web hosting with
a value of up to $105 or free or reduced registration and set-up fees with a
value of up to $500, in order to induce the public to host a FrontPage 2000 Web
site. This agreement remains in effect until the earlier of the initial release
of the next version of FrontPage, Microsoft ceasing to produce FrontPage, or
December 31, 2000.
We are also participating in a Microsoft initiative called the Complete
Commerce program. In conjunction with selected other MCSP's, we will incent
customers seeking to engage in e-commerce activities on the Web to enter into
this program by offering a specially priced, all inclusive storefront hosting
package integrating shipping, credit card processing and tax elements. The
service will also include consulting and development of the storefront
application Web site, back-end integration and hosting activities. Microsoft
will provide resources to help us market this program, including promotional
activities, marketing activities and participation in the customer engagement
activities. Our marketing activities for the Complete Commerce program commenced
in April 1999. This relationship may be terminated at any time by either party.
We have no material financial commitments under either of these agreements.
UUNET Technologies, Inc. On February 17, 1999 we entered into an agreement
with UUNET to be our primary connectivity provider on a worldwide basis. The
agreement is scheduled to expire on February 19, 2002, but will be renewed
automatically for an additional year unless either party notifies the other of
its intent not to renew. UUNET has agreed to provide minimum levels of
connectivity from 100 Mbps to 600 Mbps of bandwidth. UUNET has agreed to
significant discounts and competitive pricing assurances over the term of the
agreement. The connectivity may range in capacity from T-1 to DS-3 to OC-12
which are the technical names of the physical telecommunications connections or
pipelines that will be used to transport data. A larger pipeline can carry a
greater volume of data at a greater speed. For example, a T-1 can carry 1.544
megabytes per second. An OC-12 can carry 622 megabytes per second. At our
Atlanta data center, we are currently installing four OC-3 connections to
diverse hubs in UUNET's network utilizing diverse fiber for redundancy. We may
be subject to certain penalties under our agreement with UUNET if certain usage
requirements are not met. In addition to the connectivity provisions, our
companies have agreed to develop and implement a joint marketing program
including:
- allowing us to resell UUNET services through our network of resellers;
- cooperating on mutually beneficial hosting and co-located remarketing
agreements; and
- cooperating on international co-location facilities agreement.
Equant, N.V. We have entered into a Network Services agreement in which
Equant, N.V. provides worldwide local dialup (X.25 and PPP) and dedicated (frame
relay) connectivity from more than 160 countries. The original agreement expired
on December 31, 1997, and since then we have continually renewed it for
successive three month terms. The current term expires on June 30, 1999. Equant,
N.V. provides significant discounts to us and competitive pricing assurances. In
addition, Equant, N.V. has entered into a distribution agreement with us, in
which Equant, N.V.'s worldwide sales force is able to offer our groupware and
application hosting services to its customers. The distribution agreement
terminates on December 19, 1999 unless the parties agree to renew the agreement
by June 19, 1999. We have no material financial commitments under either of
these agreements.
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Allaire Corporation. Allaire markets and distributes proprietary
commercial computer software products such as Cold Fusion Enterprise Application
Server, Cold Fusion Professional Application Server and Home Site. We have a
worldwide non-exclusive fee-bearing license to:
- reproduce exact copies of these software products onto its servers and to
allow its customers to use these products;
- reproduce exact object code copies of the products; and
- market and distribute the products as stand-alone products or bundled
with our other product offerings.
This one-year agreement commenced February 2, 1999 and will be automatically
renewed for another year unless either party notifies the other that it elects
not to renew within sixty days of the original termination date. Upon execution
of the agreement we paid Allaire an aggregate of $66,552.50 covering product
user and subscription fees, distribution copies, training fees and annual
support fees. We are also obligated to purchase five additional hosted copies,
products and subscriptions during each of the last three calendar quarters of
the original term of the agreement.
In addition to the fees we pay for these licenses, we have agreed to
promote and market actively Allaire's products. We have also agreed to
participate in certain joint marketing and promotional activities.
Elemental Software, Inc. We have been granted a non-exclusive,
royalty-free license to market and resell Drumbeat(TM) 2000. By working with a
Drumbeat(TM) 2000 ISP Hosting Partner such as our company, organizations will be
able to publish data-driven Active Server Pages (ASP) applications without the
need to set up and administer Web servers locally. As an ISP Hosting Partner, we
also provides hosting accounts for trial Drumbeat(TM) 2000 users. Under this
agreement, we are a Drumbeat(TM) 2000 reseller which means our customers receive
preferred pricing on each sale of Drumbeat(TM) 2000 generated through the
Elemental Software/Interliant e-commerce Web site. We have agreed to undertake
certain cross marketing activities to promote the launch of our partnership,
including press releases, Web advertising and a special promotion by us of
Drumbeat(TM) 2000. In addition, we have been given the opportunity to provide an
insert card to be included in the Drumbeat(TM) 2000 product packaging promoting
our services. This agreement which is dated December 13, 1998 may be terminated
by either Elemental or us with thirty days prior notice to the other.
iMALL, Inc. iMALL operates an Internet shopping mall and has created a
suite of e-commerce tools labeled iSTORE(TM) and Bolt-on e-commerce(TM).
Interliant and iMALL have agreed to use iMALL's experience and technical
infrastructure to create a mall where our customers can sell their products and
services online. Under the terms of the agreement, we pay iMALL for the use of
the Bolt-on e-commerce(TM) solution and iSTORE(TM) at various discounted rates
based on the number of iMALL accounts created by us. The aggregate amount of
fees payable under this agreement are not material. Our agreement with iMALL
states that it is intended to establish a long-term relationship between us and
iMALL and as such has a three-year term which commenced on October 23, 1998.
Revenues and expenses generated by these strategic relationships are
recognized on an accrual basis. Where appropriate, revenue and expenses are
matched.
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SALES AND DISTRIBUTION
We sell our hosting services to our customers through a variety of sales
channels. The following schematic represents our sales approach. The prices set
forth below are for product offerings marketed under our brand.
[FLOW CHART]
<TABLE>
<S> <C> <C>
SMALL - MEDIUM MEDIUM -LARGE
TARGET BUSINESSES BUSINESSES
CUSTOMER ---------------------------------------- ----------------------------------------
MAINSTREAM RESELLERS VERY COMPLEX
WEB DEVELOPERS HOSTING SOLUTIONS
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SERVICES WEB-HOSTING & APPLICATION HOSTING &
OFFERED CONSULTING CONSULTING
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
PRICING $25/MONTH $1,000 - 2,000/MONTH $100,000/MONTH
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
SALES INTERNET TELESALES/ DIRECT
STRATEGY MARKETING INDIRECT SALES SALES
</TABLE>
We have historically used a variety of marketing and sales techniques,
including Internet marketing, telesales, indirect sales channels, such as
resellers and referral partners, and direct sales in order to increase its
market share. Our acquisition strategy has facilitated the integration of
different indirect and direct distribution channel models used by acquired
companies and has enabled us to customize them to fit the needs of specific
markets in which we compete.
Internet Marketing. Our Internet marketing sales program offers an
automated online sales interface to our customers that enables them to purchase
hosting services on a 24x7 basis from our Web site at www.interliant.com and
www.sagenetworks.com or purchase Internet rental application services at
www.appsonline.com.
Telesales. In the telesales area, we currently acquire, and plan to
develop further, our hosting accounts through inbound calls generated through
traditional media and outbound telesales to pre-qualified potential customers.
Indirect Sales. In the indirect sales channel area, our goal is to develop
the leading reseller and referral partner program in the industry through our
recently introduced business partner program. Our target partners include
reseller and referral partners, such as Web consulting firms, Internet service
providers, independent software vendors, network integration companies and
system integrators that have an established relationship with our prospective
customer base as well as a sales force capable of selling Internet services. The
benefits to us of using these indirect sales channels include greater market
reach without fixed overhead costs and the ability to use the partners to assist
in the delivery of complete
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solutions to meet customer needs. We offer our partners a discount from our
retail price on both products and services.
We believe that our business partner program offers its reseller and
referral partners a wide variety of benefits such as:
- financial incentives including volume discounts and/or royalties, waived
set up fees and advantageous software leasing opportunities;
- access to our hosting services and applications;
- advanced technical support;
- sales and marketing support services; and
- training and support programs.
Direct Sales. We have a sales group dedicated to selling hosting and
consulting solutions to large enterprises and other businesses whose Internet
operations are mission-critical.
As of the date hereof, we have 52 employees engaged in distribution and
sales.
MARKETING
We market our full range of hosting solutions under the SageNetworks and
Interliant brands via a marketing program that seeks to use a variety of media
and channels. We will continue to invest in building greater equity of the
Interliant brand worldwide, using a variety of marketing techniques including
print advertisements in key industry publications, broadcast advertising, direct
marketing and online advertising, such as general rotation and keyword-specific
Web banner advertisements. The focus of these branding efforts is primarily to
reinforce our position as a full service hosting provider. In addition, we will
also employ a number of other marketing tactics and communications vehicles,
such as product literature, trade shows, promotions with key hardware and
software vendors, direct response programs and our Web site to generate greater
numbers of qualified leads and to further increase awareness of our brand.
When an acquired company's brand is already well-established, we may for a
period of time continue to market certain products and services under that brand
to capitalize on the competitive advantages the acquired brand may bring to us.
Our long-term goal, however, is to migrate most of our acquired product
offerings to our brands. Our products are available from our primary Web site at
www.interliant.com as well as at www.appsonline.com.
We expect to increase our marketing expenditures in order to support our
brand marketing and lead-generation efforts. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
CUSTOMER SERVICE
We view customer service as a critical part of our business strategy. Our
customer service group has 129 employees who are mainly located in our Atlanta
and Houston data centers. The customer service group is responsible for
providing customer service to all of our customers as well as our resellers and
referral partners, including helping customers to initially set up their Web
sites, answering technical questions or helping customers use our application
hosting solutions and other enhanced offerings. Through our customer service
systems, customer service representatives can generally resolve any issues in a
timely manner via e-mail or our toll-free number.
Web Hosting Customer Service. Our Web hosting customers are primarily
serviced through our Atlanta data center. To ensure that each Web hosting
customer is connected with the customer service representative best able to
address its needs, our call center routing system, provided by Aspect
Communications, directs calls based on the phone number dialed or the menu
choice selected. In addition, the Vantive Support system, a customer/asset
management tracking application, enables a customer
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service representative to view a customer's entire account, including past and
recent interactions with such customer. Further, the Vantive Support system
provides a resolution database that recognizes and documents support records
into a central repository that can be accessed by all customer service
personnel. This database categorizes all reported problems so that if a
particular problem recurs, customer service representatives can view its prior
resolution and provide timely and accurate customer service. The Vantive Support
system is also linked to the Vantive Sales Force Automation module which helps
sales staff get current information on the status of accounts, recent problems
or account issues prior to calling customers to pursue new business
opportunities.
In addition to the Aspect and Vantive systems, we are in the process of
implementing the PORTAL Infranet billing system. With PORTAL Infranet,
Interliant's resellers, referral partners and customers will be able to obtain
monthly statements delivered electronically which we believe will provide them
with easily accessible and accurate tracking of their hosting expenditures. In
particular, we believe that PORTAL will allow resellers and referral partners to
add new products and services, as well as pricing discounts and incentive
programs, in a timely and cost-effective manner.
Application Hosting Customer Service. Our application hosting customers
are primarily serviced through our Houston data center. Customers serviced in
Houston can contact a Technical Support Engineer on a 24x7 basis to address
issues including registration, mail routing, connectivity or enhancements to a
customer account such as rolling out new databases and changing access control
lists. Certain customer accounts also have access to dedicated support engineers
who are familiar with each unique configuration or requirement a larger customer
may have. A focused support team handles all the application hosting support
requirements via several mechanisms including a facilitated discussion database
environment available over the Internet where customers, application developers
and support technicians can discuss pertinent issues and build a relevant
knowledge base. Customers may also access support staff through e-mail as well
as through a toll-free number.
On-line Customer Service. We also provide resellers and customers who are
hosted in its Atlanta data center the opportunity to access an online control
panel which serves as a personalized, virtual customer service representative.
When fully implemented through PORTAL, this online control panel will enable
customers to find information they need such as billing histories, orders and
account profiles in a timely manner. In addition, at that time, the online
control panel will offer viewing of real-time billing statements and invoices,
the ability to order new or additional services, access to an online Web
development library, free applications and step-by-step guidance through common
Web publishing procedures. Thus, our resellers, referral partners and end users
hosted in Atlanta will have the option of accessing account and services
information themselves online or by calling the customer service centers.
TECHNOLOGY AND NETWORK OPERATIONS
We have developed a secure, reliable, high-performance, and scalable
hosting solution, which we believe provides a significant competitive advantage
in the market. This solution is comprised of multiple hosting platforms that
incorporate automated functionality and a network infrastructure that includes
multiple Internet data centers and is monitored on a 24x7 basis by our personnel
in Atlanta and Houston. our strategy in developing our hosting solution focuses
on utilizing internally created technological innovations that we integrate with
leading software and hardware providers.
Web Hosting Platform. Although industry-standard Web servers are adequate
for basic Web hosting, we believe that efficiently managing large numbers of Web
sites and users on a single server requires significant technological
innovations. Accordingly, we have focused our technology development efforts on
creating various operating system level tools to facilitate a high customer to
server ratio. We have developed multiple Web hosting platforms that permit
efficient hosting of more than 5,000 Web sites on a Sun Microsystems, Inc.
Solaris server. We have also developed Web server applications designed to
improve performance in a virtual server environment and implemented resource
monitoring tools designed to report and address scarcity of shared computer
processing units and memory resources. Our solution is scalable, allowing
servers to be added while being monitored centrally independent of where they
are
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located. To address the diverse requirements of our customers, we offer Web
hosting services on a range of operating systems and computing platforms
including Solaris which operates on a Sun Microsystems, Inc. platform, Microsoft
Windows NT which operates on an Intel/PC platform and Linux which operates on a
Cobalt Networks, Inc. platform.
Application Hosting Platform. We maintain a state-of-the-art data center
in Houston from which we manage our application hosting services. This facility
features separate, redundant fiber and power connections, diesel generators,
cooling systems and uninterruptible power supplies designed to provide on site
power for up to four weeks. Quality and security are paramount concerns for our
customer base. Consequently, we employ several security measures including:
- 24x7 building guards;
- electronic surveillance;
- limited access electronic card key measures; as well as
- the physical separation of servers from administrative workstations.
The Houston facility includes high-end Compaq servers equipped with
multiple power supplies and RAID technology. Other strategic providers include
Sun Microsystems, Microsoft, and Lotus. We offer connectivity to our systems
from virtually anywhere in the world, enabling customers to deploy global
solutions. Customers can access us:
- via the Internet;
- through X.28 connections provided by Compuserve and Equant, N.V. in more
than 160 countries;
- over Frame Relay through AT&T Corp., Sprint Corporation and MCI Worldcom,
Inc.; or
- domestically via a toll-free number.
We use two DS-3 connections to the Internet provisioned directly off a
SONET ring. Internally developed management and monitoring systems provide
insight into the performance of our entire network, as well as consistency of
security measures across all of our current hosting platforms.
Network Operations. In order to provide its customers with high-quality
service, we have invested substantial resources in building our network
infrastructure. We have designed our network to minimize the effect of any
interruptions. We have also implemented security measures and monitoring systems
to ensure that our network is protected, identify potential sources of failure,
limit downtime and notify staff of any problems. Although we have attempted to
build redundancy into our network and hosting facilities, our data centers are
currently subject to various single points of failure, and a problem with one of
our routers or switches could cause an interruption in the services we provide
to some of our customers.
Our NOCs are responsible for monitoring our entire network on a 24x7 basis.
We monitor each piece of equipment, including routers, switches and servers. The
NOCs also monitor all Internet and telecommunications connections and ensures
that they are functional and properly loaded. The design of the NOCs enables
systems administrators and support staff to be promptly alerted to problems, and
we have established procedures for rapidly resolving any technical problems that
arise. The NOCs are fully integrated into our customer service facilities.
We currently have two primary data centers located in Atlanta and Houston.
These data centers are fitted with continuous monitoring capabilities, back-up
generators and environmental controls to ensure high-quality service with
minimal interruptions. The Atlanta data center is our primary Web hosting
facility and the Houston data center is our primary groupware and application
outsourcing facility. The customer service and network monitoring
infrastructures are based in Atlanta and Houston.
Our Virginia data center currently serves as a co-location facility. We
have recently entered into a ten-year lease for approximately 13,000 square feet
of space in Tysons Corner, Virginia. We intend to use a portion of the proceeds
from this offering to complete construction of this space and create a third
state-
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of-the-art data center for hosting and providing customer service. Once the
construction of this new space is completed, all of our Washington, D.C. area
operations will be moved into the new space. See " -- Facilities" and "Use of
Proceeds."
COMPETITION
The market served by us is highly competitive. Although barriers to entry
and continued growth are increasing, there are still few substantial barriers to
entry, particularly with respect to virtual hosting, and we expect that we will
face additional competition from existing competitors and new market entrants in
the future. The principal competitive factors in this market include:
- quality of service, including network capability, scalability,
reliability and functionality;
- customer service and support;
- variety of services and products offered;
- price;
- brand name;
- Internet system engineering and technical expertise;
- timing of introductions of additional value services and products;
- network security;
- financial resources; and
- conformity with industry standards.
We may not have the resources, expertise or other competitive factors to
compete successfully in the future.
Our current and potential competitors include:
- other Web hosting and Internet services companies such as AboveNet
Communications, Inc., Exodus Communications, Inc., Frontier GlobalCenter,
Globix Corporation and local and regional hosting providers;
- national and regional Internet service providers such as Concentric
Network Corporation, MindSpring Enterprises, Inc., UUNET Technologies,
Inc., PSINet Inc. and Verio Inc.;
- global telecommunications companies including AT&T Corp., British
Telecommunications plc, Telecom Italia SpA and Nippon Telegraph and
Telephone Corp.;
- regional and local telecommunications companies, including the regional
Bell operating companies such as Bell Atlantic Corporation and US West,
Inc.;
- companies that focus on application hosting such as USinternetworking,
Inc. and IBM Global Services; and
- audio and video content hosting companies such as broadcast.com.
Many of our competitors have substantially greater financial, technical and
marketing resources, larger customer bases, longer operating histories, greater
name recognition and more established relationships in the industry than us. As
a result, certain of these competitors may be able to develop and expand their
network infrastructures and service offerings more rapidly, adapt to new or
emerging technologies and changes in customer requirements more quickly, take
advantage of acquisition and other opportunities more readily, devote greater
resources to the marketing and sale of their services and adopt more aggressive
pricing policies than can we. In addition, these competitors have entered and
will likely continue to enter into joint ventures or consortia to provide
additional services competitive with those provided by us.
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In an effort to gain market share, certain of our competitors have offered
hosting services similar to those of us at lower prices than those of us or with
incentives not matched by us. In addition, certain of our competitors may be
able to provide customers with additional benefits, which could reduce the
overall costs of their services relative to those of us. We may not be able to
reduce the pricing of its services or offer incentives in response to the
actions of its competitors without a material adverse impact on its operating
results. We also believe that the market in which we compete is likely to
encounter consolidation in the near future, which could result in increased
price and other competition that could have an adverse effect on our business.
INTELLECTUAL PROPERTY RIGHTS
We rely on a combination of copyright, trademark, service mark, trade
secret laws and contractual restrictions to establish and protect certain
proprietary rights in its services. We have no patented technology that would
preclude or inhibit competitors from entering our market. The steps taken by us
to protect its intellectual property may not prove sufficient to prevent
misappropriation of our technology or to deter independent third-party
development of similar technologies. The laws of certain foreign countries may
not protect our services or intellectual property rights to the same extent as
do the laws of the United States. We also rely on certain technologies that it
licenses from third parties. These third-party technology licenses may not
continue to be available to us on commercially reasonable terms. The loss of the
ability to use such technology could require us to obtain the rights to use
substitute technology, which could be more expensive or offer lower quality or
performance, and therefore have an adverse effect on our business.
To date, we have not been notified that its services infringe on the
proprietary rights of third parties, but third parties could claim infringement
by us with respect to current or future services. From time to time, we are
notified that the content of one of our customer's sites infringes on a third
party's trademark or copyright. In response, we inform the customer of such
claim and, if necessary, will terminate a customer's service. We expect that
participants in our markets will be increasingly subject to infringement claims
as the number of services and competitors in our industry segment grows. Any
such claim, whether meritorious or not, could be time-consuming, result in
costly litigation, cause service installation delays or require us to enter into
royalty or licensing agreements. Such royalty or licensing agreements might not
be available on terms acceptable to us or at all. As a result, any such claim
could have an adverse effect upon our business.
GOVERNMENT REGULATION
We are not currently subject to direct federal, state or local government
regulation, other than regulations that apply to businesses generally. Only a
small body of laws and regulations currently applies specifically to hosting and
commerce activities, or access to the Internet. Due to the increasing popularity
and use of the Internet, however, it is possible that laws and regulations with
respect to the Internet may be adopted at international, federal, state and
local levels, covering issues such as user privacy, freedom of expression,
pricing, characteristics and quality of products and services, taxation,
advertising, intellectual property rights, information security and the
convergence of traditional telecommunications services with Internet
communications. Although sections of the Communication Decency Act of 1996 (the
"CDA") that, among other things, proposed to impose criminal penalties on anyone
distributing "indecent" material to minors over the Internet were held to be
unconstitutional by the U.S. Supreme Court, similar laws may be proposed,
adopted and upheld. The nature of future legislation and the manner in which it
may be interpreted and enforced cannot be fully determined and, therefore,
legislation similar to the CDA could subject us and/or its customers to
potential liability, which in turn could have a material adverse effect on our
business, results of operations and financial condition. The adoption of any
such laws or regulations might decrease the growth of the Internet, which in
turn could decrease the demand for the services of us or increase the cost of
doing business or in some other manner have an adverse effect on our business.
We currently do not collect sales or other taxes with respect to the sale
of services or products in states and countries where we believe we are not
required to do so. We do collect sales and other taxes in the states we have
offices and are required by law to do so. One or more jurisdictions have sought
to
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impose sales or other tax obligations on companies that engage in online
commerce within their jurisdictions. A successful assertion by one or more
jurisdictions that we should collect sales or other taxes on our products and
services, or remit payment of sales or other taxes for prior periods, could have
an adverse effect on our business.
In addition, applicability to the Internet of existing laws governing
issues such as property ownership, copyright and other intellectual property
issues, taxation, libel, obscenity and personal privacy is uncertain. The vast
majority of such laws were adopted prior to the advent of the Internet and
related technologies and, as a result, do not contemplate or address the unique
issues of the Internet and related technologies. Changes to such laws intended
to address these issues could create uncertainty in the marketplace that could
reduce demand for the services of Interliant or increase the cost of doing
business as a result of costs of litigation or increased service delivery costs,
or could in some other manner have an adverse effect on our business.
Any new legislation or regulation, or the application of laws or
regulations from jurisdictions whose laws do not currently apply to our
business, could have an adverse effect on our business.
EMPLOYEES
As of the date hereof, we have 489 employees (including 19 on a contract
basis), of which 86 are in sales, distribution and marketing, 174 are in
engineering and service development, 129 are in customer service and technical
support, 92 are in finance and administration and 8 in acquisition integration.
We believe that our future success will depend in part upon our continued
ability to attract, hire and retain qualified personnel. Although we believe we
have thus far been successful in this endeavor (including a high retention rate
of key employees from acquired companies), the competition for such personnel is
intense, and we may not be able to identify, attract and retain such personnel
in the future. None of our employees are represented by a labor union, and
management believes that our employee relations are good.
FACILITIES
Our executive offices are located in Cambridge, Massachusetts and consist
of approximately 7,800 square feet that are leased pursuant to an agreement that
expires in June 1999. Although we have not yet entered into a definitive
agreement, we are in negotiations for the lease of office space in Purchase, New
York. We intend to relocate our executive offices to such space as soon as
possible after execution of a lease. We also lease approximately 15,740 square
feet in Atlanta, Georgia under an agreement that expires in June 2003 and
approximately 1,000 square feet of space in McLean, Virginia area under a lease
that expires in July 2001. We also lease 59,885 square feet of space in Houston,
Texas under an agreement that expires in August 2001 and office space in London,
England. In addition, we have recently leased approximately 13,000 square feet
of space in Tysons Corner, Virginia under a lease that expires in 2009. A
portion of the proceeds of this offering will be used by us to complete and
equip this space. Once the construction of this space is completed, all of our
McLean, Virginia operations will be moved into this space. See "Use of Proceeds"
and "Business -- Technology and Network Operations."
LEGAL PROCEEDINGS
In the ordinary course of business, we may be involved in legal proceedings
from time to time. As of the date of this prospectus, there are no material
legal proceedings pending against us.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of Interliant are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Leonard J. Fassler......................... 67 Co-Chairman, Director
Bradley A. Feld............................ 33 Co-Chairman, Director
Stephen W. Maggs........................... 45 Chief Executive Officer, President,
Treasurer and Director
James M. Lidestri.......................... 38 Executive Vice President
Francis J. Alfano.......................... 37 Senior Vice President, Mergers and
Acquisitions
Rajat Bhargava............................. 26 Senior Vice President, Strategic Planning
and Integration
Jesse J. Bornfreund........................ 43 Senior Vice President, Business Development
Edward A. Cavazos.......................... 30 Senior Vice President, Legal and Business
Affairs and Assistant Secretary
Paul E. Chollett........................... 39 Senior Vice President, Finance and
Administration
Bruce S. Klein............................. 39 Senior Vice President, General Counsel and
Secretary
Jennifer J. Lawton......................... 35 Senior Vice President, Consulting and
Technology
Kristian Nelson............................ 35 Senior Vice President, Service Development
and Delivery
William A. Wilson.......................... 53 Chief Financial Officer
Merril M. Halpern.......................... 64 Director
Thomas C. Dircks........................... 41 Director
Patricia A. M. Riley....................... 57 Director
Jay M. Gates............................... 34 Director
Charles R. Lax............................. 39 Director
</TABLE>
Each director holds office for a one-year term or until a successor has
been duly elected and qualifies, or until his or her earlier death, resignation
or removal. Our executive officers are appointed annually by our Board of
Directors and serve at the discretion of the Board of Directors. Mr. Lax has
been elected to the Board of Directors pursuant to a contractual arrangement.
See "Description of Capital Stock -- The SOFTBANK Investment."
Leonard J. Fassler is one of our co-founders and has been one of our
Co-Chairmen and a Director since our formation in December 1997. Mr. Fassler was
also our Secretary from December 1997 through April 1999. From 1992 to 1996, Mr.
Fassler was a Co-Chairman of AmeriData Technologies, Inc. ("AmeriData"), a New
York Stock Exchange-listed reseller of computer equipment and provider of
computer consulting and other services that was acquired by General Electric
Capital Corporation in 1996. Mr. Fassler was a co-founder of AmeriData which
grew to a company with sales in excess of two billion dollars a year and
locations in ten countries at the time that it was acquired. Mr. Fassler holds a
bachelor's degree in business administration from City College of New York and a
law degree from Fordham Law School.
Bradley A. Feld is one of our co-founders and has been one of our
Co-Chairmen and a Director since our formation in December 1997. Since 1995, Mr.
Feld has been the President of Intensity Ventures Inc., a company that helps to
establish, advise and operate software companies. From 1993 to 1995, Mr. Feld
was the chief technology officer of AmeriData. From 1985 to 1993, he was
president of Feld Technologies, Inc., a computer consulting firm founded by Mr.
Feld to develop and implement information technology solutions for a wide
variety of businesses, which was acquired by AmeriData in 1993. Mr. Feld earned
a
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bachelor of science degree and a master of science degree from Massachusetts
Institute of Technology. Since 1997, Mr. Feld has been a General Partner of
SOFTBANK Technology Ventures IV, L.P. and SOFTBANK Technology Advisors Fund,
L.P., venture capital funds. Mr. Feld is a director and co-chairman of Message
Media, Inc., and director of a number of privately held companies.
Stephen W. Maggs is one of our co-founders has been our Chief Executive
Officer, President, Treasurer and a Director since our formation in December
1997. From December 1993 to December 1996, Mr. Maggs held a variety of senior
management positions with AmeriData, including serving as an executive vice
president of operations of AmeriData and Chairman of AmeriData Canada. From
February 1992 to December 1993, he was the owner of Mericom Systems Inc., a
reseller of computer equipment and provider of computer consulting and other
services, which was acquired by AmeriData in 1993. From 1984 to 1991, he held
various executive positions at Inacom Information Systems, a provider of
information technology products and services. Mr. Maggs received a bachelor of
science degree from Hillsdale College, Hillsdale, Michigan and is a Certified
Public Accountant.
James M. Lidestri has served as our Executive Vice President since March
1999. From March 1996 to March 1999, Mr. Lidestri was the President and Chief
Executive Officer of Interliant Texas. From February 1995 to March 1996, Mr.
Lidestri was employed at IBM Corporation, a vendor of technology systems,
products, services and software and financing where he served as Group Manager
of the Collaborative Services Division. As Group Manager, Mr. Lidestri was
responsible for developing market and product strategies for network-based
collaborative services, with a primary focus on Lotus Notes. From November 1990
to February 1995, Mr. Lidestri served in a number of executive positions at
Sprint Corporation, a global communications company, including Director of
Business Operations. Mr. Lidestri holds a bachelor of science degree in computer
science from Rensselaer Polytechnic Institute and a masters degree in business
administration from New York University.
Francis J. Alfano has served as our Senior Vice President, Mergers and
Acquisitions since December 1998. From January 1997 to November 1998, Mr. Alfano
was Vice President of Business Development at GE Capital Information Technology
Solutions, Inc., formerly AmeriData. From July 1994 to December 1996, Mr. Alfano
was Director of Taxes at GE Capital Information Technology Solutions, Inc. From
January 1991 to June 1994, Mr. Alfano was employed by Ernst & Young, an
accounting, tax and consulting firm, and was a senior manager in the tax
department at the time of his departure. From 1984 to 1990, Mr. Alfano was
employed as a Certified Public Accountant with various public accounting firms.
Mr. Alfano holds a bachelor of science degree in business administration from
the University of Arizona and is a Certified Public Accountant.
Rajat Bhargava is one of our co-founders and has been our Senior Vice
President, Strategic Planning and Integration since March 1999. He was our Chief
Operating Officer from our formation in December 1997 through March 1999. During
the period from January 1994 to June 1997, he served as Chairman, President and
Chief Executive Officer of Net.Genesis Corp., an Internet software company which
he founded. From 1991 to 1993, he worked in various engineering positions at
Intel Corporation, a manufacturer of computer networking and communications
technologies. Mr. Bhargava received a bachelor of science degree in electrical
engineering and computer science from Massachusetts Institute of Technology in
1995.
Jesse J. Bornfreund has served as our Senior Vice President, Business
Development since March 1999. From July 1996 until he joined us, Mr. Bornfreund
was Senior Vice President, Strategic Alliances of Interliant Texas. In such
position, Mr. Bornfreund was responsible for managing the strategic alliances of
Interliant Texas and the development of its business. From February 1996 through
June 1996, Mr. Bornfreund served as a Corporate Strategy Consultant at IBM
Corporation with primary responsibilities that included the development of
corporate business and technology strategies and recommendations. From February
1994 to February 1996, Mr. Bornfreund was a Program Manager for the
Collaborative Services Group of IBM Corporation. As Program Manager, Mr.
Bornfreund was responsible for strategic planning, business and market
development activities and development and management of
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partner relationships. Mr. Bornfreund holds a bachelor of science degree in
biology from Stockton State College.
Edward A. Cavazos has served as Senior Vice President, Legal and Business
Affairs of Interliant since March 1999. In April 1999, he became our Assistant
Secretary. From March 1997 until he joined Interliant, Mr. Cavazos was Senior
Vice President, General Counsel of Interliant Texas. From May 1994 until March
1997, Mr. Cavazos was an associate attorney at the law firm of Andrews & Kurth,
L.L.P. In addition, Mr. Cavazos served as an Adjunct Professor at the University
of Texas School of Law from January 1998 through May 1998 and as an Adjunct
Professor at the University of Houston Law Center from September 1996 through
December 1996 and September 1997 through December 1997. Mr. Cavazos holds a
bachelor of arts degree in philosophy from the University of Texas and a law
degree from the University of Texas.
Paul E. Chollett has served as Senior Vice President, Finance and
Administration of Interliant since March 1999. From July 1996 until he joined
Interliant, Mr. Chollett was Senior Vice President and Chief Financial Officer
of Interliant Texas. From July 1993 to July 1996, Mr. Chollett was the Director
of Finance and Administration in the Audit Division of the accounting firm of
Arthur Andersen, LLP. In this role, Mr. Chollett was responsible for managing
the financial, risk management and quality control aspects of the firm's audit
practice. Mr. Chollett holds a bachelor of science degree in accounting from the
University of Houston at Clear Lake City. Mr. Chollett is a Certified Public
Accountant.
Bruce S. Klein has served as our Senior Vice President, General Counsel
since December 1998. In April 1999, Mr. Klein became our Secretary. From April
1998 to November 1998, he was our General Counsel, Vice President. In addition,
from June 1998 to present, Mr. Klein has been of counsel to the law firm of
McCarthy, Fingar, Donovan, Drazen & Smith, L.L.P. From January 1996 through
March 1998, Mr. Klein was of counsel to the law firm of Spitzer & Feldman P.C.,
prior to which he was partner at the law firm of Halperin Klein & Halperin, in
each case engaged in the general practice of law, with experience in mergers and
acquisitions and general corporate and business law. Mr. Klein is admitted to
practice law in New York and Massachusetts and holds a bachelor's degree in
business administration from Rutgers University and a law degree from Western
New England College School of Law.
Jennifer J. Lawton has served as our Senior Vice President, Consulting and
Technology since February 1999. From May 1992 until she joined us, Ms. Lawton
was the Chief Executive Officer of Net Daemons Associates, Inc., a provider of
Web development and system integration activity for Internet and IT Networks
which was acquired by Interliant in February 1999. Ms. Lawton is a co-founder of
Net Daemons Associates, Inc. Ms. Lawton holds a bachelor of science degree in
applied mathematics from Union College.
Kristian Nelson has served as our Senior Vice President, Service
Development and Delivery since March 1999. From July 1997 until he joined us,
Mr. Nelson was Senior Vice President, Operations of Interliant Texas and was
responsible for the direction and control of all operational aspects of
Interliant Texas's business including product development, customer service and
application and data center services. From June 1996 through May 1997, Mr.
Nelson served as Vice President, Operations at GST Telecommunications, a
full-service telecommunications provider. In this role, Mr. Nelson was
responsible for the oversight and control of such company's Internet subsidiary,
GST Internet Inc. From June 1995 to January 1996, Mr. Nelson was a Senior
Management Consultant in the Technology Strategy Practice area at Gartner Group,
Inc., a company which provides IT advisory services and consulting where his
responsibilities included providing technical consulting services to Fortune 500
companies. From May 1986 to May 1995, Mr. Nelson was the Product Assurance
Information Technology Director at Lockheed Martin Corporation, a diversified
technology company. As such, Mr. Nelson was responsible for developing and
implementing information technology strategic planning for the Product Assurance
Group. Mr. Nelson holds a bachelor of science degree in management science from
Orlando College.
William A. Wilson has served as our Chief Financial Officer since September
1998. During the period from February 1998 to July 1998, Mr. Wilson served as
Vice President, Finance and Chief Financial Officer at XCOM Technologies, Inc.,
a competitive local exchange carrier. From October 1997 to
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February 1998, Mr. Wilson served as a consultant to several private companies.
From June 1997 to October 1997, Mr. Wilson served as Senior Vice President,
Finance and Chief Financial Officer of Computervision Corporation, a software
publishing and development company. Prior thereto, Mr. Wilson was Executive Vice
President and Chief Financial Officer of Arch Communications Group, Inc., a
wireless messaging company, from June 1996 to June 1997 and was Vice President,
Finance and Chief Financial Officer of Arch Communications Group, Inc. from
January 1989 to June 1996. Mr. Wilson received a bachelor of arts degree from
Luther College, a master of science degree from Northeastern University and a
masters degree in business administration from Babson College. Mr. Wilson is a
Certified Public Accountant.
Merril M. Halpern has been one of our Directors since our formation in
December 1997 and is Chairman and Chief Executive of Charterhouse Group
International, Inc. ("Charterhouse"), which he founded in 1973. Mr. Halpern is a
director of Microwave Power Devices, Inc., and United Road Services, Inc., as
well as several private companies. He received a bachelor of science degree from
Rutgers University and a masters degree in business administration from Harvard
University.
Thomas C. Dircks has been one of our Directors since our formation in
December 1997 and is a Managing Director of Charterhouse. Mr. Dircks has been
employed as an officer of Charterhouse since 1983. He was previously employed as
a Certified Public Accountant at a predecessor of PricewaterhouseCoopers LLP. He
holds a bachelor of science degree in accounting and a masters degree in
business administration from Fordham University. He is a director of a number of
privately-held companies.
Patricia A. M. Riley has been one of our Directors since our formation in
December 1997 and is a Managing Director of Charterhouse and has been an
executive officer with the firm since 1977. She is a graduate of the Advanced
Management Program at Harvard Graduate School of Business Administration and
received a bachelor of arts degree from Hunter College.
Jay M. Gates has been one of our Directors since our formation in December
1997 and is a Vice President of Charterhouse. He joined Charterhouse in 1994 as
an Analyst. Mr. Gates was previously employed as a Senior Analyst in the
Financial Consulting Advisory Group of the accounting firm of Arthur Andersen
LLP. Prior to that he was an Assistant Treasurer at Bankers Trust Corporation.
He holds a bachelor of arts degree from the State University of New York at
Binghamton and a masters degree in business administration from New York
University, Leonard N. Stern School of Business. He is also a director of a
number of privately-held companies.
Charles R. Lax has been one of our Directors since January 1999. He has
been a General Partner of SOFTBANK Technology Ventures IV, L.P. since November
1997. From March 1996 to November 1997, Mr. Lax was a Vice President of SOFTBANK
Holdings Inc. He was previously a venture partner at Vimac Partners LLC, a
venture capital firm specializing in investments in the information technology
and Internet-related industry. Mr. Lax holds a bachelor of science degree from
Boston University. He is a director of a number of privately-held companies.
DIRECTOR COMPENSATION
Directors receive no remuneration for serving on our Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
Our Board of Directors has standing Audit and Compensation Committees. The
Audit Committee consists of Mr. Thomas C. Dircks and Ms. Patricia A. M. Riley.
Among other functions, the Audit Committee makes recommendations to our Board of
Directors regarding the selection of independent auditors, reviews the results
and scope of the audit and other services provided by our independent auditors,
reviews our financial statements and reviews and evaluates our internal control
functions. The Compensation Committee consists of Mr. Thomas C. Dircks, Ms.
Patricia A. M. Riley and Mr. Charles R. Lax. The Compensation Committee
determines executive compensation and stock option
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<PAGE> 63
grants and makes recommendations to our Board of Directors concerning salaries
and incentive compensation for our employees and consultants.
EXECUTIVE COMPENSATION
Effective January 1, 1999, we entered into one-year employment agreements
with each of Messrs. Fassler, Maggs and Bhargava pursuant to which they each
will receive a salary of $180,000 for the period ending December 31, 1999.
Effective January 1, 1999, we also entered into a one-year consulting agreement
with Mr. Feld through Intensity Ventures, Inc. pursuant to which he will receive
a consulting fee of $180,000. On March 10, 1999, we entered into an employment
agreement with Mr. Lidestri for a term commencing on that date and terminating
on March 1, 2001 unless either of us exercises our rights to terminate the
agreement sooner. The agreement provides for a $150,000 signing bonus,
two-thirds of which was paid in April 1999 and the balance of which is payable
on March 10, 2000, an annual base salary of $180,000 and a performance-based
annual bonus of up to $70,000. See "-- Employment Agreements." We also have
employment agreements with certain other senior officers.
The following table sets forth the total compensation for fiscal 1998 of
our Chief Executive Officer and each of the other four most highly compensated
executive officers whose total salary and bonus for fiscal 1998 is estimated to
exceed $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
---------------------------------- NUMBER OF
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME OF EXECUTIVE OFFICER AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
- ------------------------------------------------ ---- -------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Stephen W. Maggs........................... 1998 $130,232(1)
Chief Executive Officer,................. -- -- -- --
President, Treasurer and Director
Francis J. Alfano.......................... 1998 $ 12,500(2) -- -- -- --
Senior Vice President,
Mergers and Acquisitions
Rajat Bhargava............................. 1998 $120,152
Senior Vice President,................... -- -- -- --
Strategic Planning and Integration
Bruce S. Klein............................. 1998 $116,667(3) -- $15,635(4) -- --
Senior Vice President,
General Counsel and Secretary
William A. Wilson.......................... 1998 $ 48,894(5) -- -- -- --
Chief Financial Officer
</TABLE>
- ---------------
(1) Although Mr. Maggs commenced employment with us on December 8, 1997, he was
not put on our payroll until January 1, 1998. As a result, Mr. Maggs was
paid $10,000 in 1998 as compensation for his employment in 1997.
(2) Reflects salary received by Mr. Alfano from the commencement of his
employment with us on December 1, 1998 through December 31, 1998.
(3) Reflects salary received by Mr. Klein from the commencement of his
employment with us in April 1998 through December 31, 1998.
(4) Reflects income received by Mr. Klein in his capacity as an independent
consultant prior to becoming our employee.
(5) Reflects salary received by Mr. Wilson from the commencement of his
employment with us on September 22, 1998 through December 31, 1998.
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<PAGE> 64
OPTION GRANTS IN LAST FISCAL YEAR
None of the named executive officers were granted options in the last
fiscal year. On April 15, 1999, our Compensation Committee granted an aggregate
of 375,000 options to senior management, including:
- options to purchase 30,000 shares of common stock at an exercise price of
$8.00 per share to Stephen W. Maggs;
- options to purchase 30,000 shares of common stock at an exercise prices
of $8.00 per share to
Rajat Bhargava;
- options to purchase 25,000 shares of common stock at an exercise price of
$8.00 per share to Francis J. Alfano;
- options to purchase 25,000 shares of common stock at an exercise price of
$8.00 per share to
Bruce S. Klein; and
- options to purchase 25,000 shares of common stock at an exercise price of
$8.00 per share to William A. Wilson.
STOCK OPTION PLAN
Our Board of Directors has adopted and our stockholders have approved the
Interliant 1998 Stock Option Plan, under which stock options may be granted to
our officers, employees and consultants and to officers, employees and
consultants of our subsidiaries. Our stock option plan allows our Board of
Directors to award up to an aggregate of 3,800,000 options to purchase an
identical number of shares of our common stock to qualified recipients. As of
the date of this prospectus, our Board has granted a total of 3,697,994 options.
Any options which have been granted but which expire or terminate unexercised
are returned to the plan and may be granted at a later date to any qualified
recipient.
Our stock option plan is administered by the Compensation Committee of the
Board of Directors. The Committee has the authority to determine:
- the persons to whom options will be granted;
- when options will be granted;
- the number of shares subject to each option;
- the exercise price of each option;
- the time or times at which the options will become exercisable;
- the duration of the exercise period; and
- provide for the acceleration of the exercise period.
In addition, if we are involved in a merger, reorganization, stock split or
other type of corporate transaction that would diminish the value of our
outstanding options, the Compensation Committee may adjust the number of options
granted and/or the exercise price of such options in order to ensure that option
holders are treated equitably.
Our stock option plan also permits the grant of stock options that qualify
as incentive stock options ("ISOs") under Section 422 of the Internal Revenue
Code and nonqualified stock options ("NSOs"), which do not so qualify.
The exercise price of options granted under our stock option plan may not
be less than 100% of the fair market value of the common stock on the date of
grant. The maximum term of options granted under our stock option plan is 10
years from the date of grant. ISOs granted to any employee who is a 10%
shareholder of Interliant are subject to special limitations relating to the
exercise price and term of the options. The value of common stock subject to
ISOs that become exercisable by any one employee in any one year is limited by
the Internal Revenue Code to $100,000. For this purpose, the value of common
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<PAGE> 65
stock is determined at the time of grant. Options granted under our stock option
plan will generally become vested and exercisable over a four-year period in
equal annual installments. However, if any of the events listed below occurs and
provided that no written provision has been made, in connection with any such
event, for (1) the continuation of the stock option plan and/or the assumption
of all outstanding options by a successor corporation, or (2) the substitution
for such options of new options covering the stock of a successor corporation
then each option that was not then vested prior to such event will become fully
vested and immediately exercisable:
- An acquisition by any person or group of related individuals of
beneficial ownership of 30% or more of either the outstanding shares of
our common stock or the combined voting power of our outstanding voting
securities;
- A change in the composition of our Board of Directors during any period
of two consecutive years which results in the directors in office at the
beginning of such period plus any newly elected or nominated directors no
longer constituting at least a majority of our Board of Directors;
- The approval by our stockholders of a merger, consolidation or
reorganization in which outstanding shares of our common stock are
converted into:
- shares of stock of another company, unless our stockholders end up
owning 80% or more of the voting power of such other company;
- other securities of our company or another company unless our
stockholders hold at least 80% of the voting power of our company or
such other company; or
- cash or other property;
- The approval by our stockholders of the sale or other disposition of all
or substantially all of our assets or our liquidation of dissolution; or
- The adoption by our Board of Directors of a resolution to the effect that
any person has acquired effective control of our business and affairs.
All options granted under our stock option plan may not be transferred,
except upon the death of the optionholder in accordance with his will or
applicable law. In the event of an optionee's death or permanent and total
disability, outstanding options that have become exercisable will remain
exercisable for a period of one year, and the Committee will have the discretion
to determine the extent to which any unvested options shall become vested and
exercisable in connection with such death or disability. In the case of any
other termination of employment, except for a termination for cause as described
below, outstanding options that have previously become vested will remain
exercisable for a period of 90 days. All unexercised options will be immediately
forfeited by any employee who is terminated as a result of any of the following:
- embezzlement or misappropriation of corporate funds;
- conviction for a felony;
- misconduct resulting in material injury to us;
- significant activities harmful to our reputation of the reputation or any
of our subsidiaries;
- a significant violation of our corporate policies;
- willful refusal to perform, or substantial disregard of, the duties
properly assigned to the option holder;
- a significant violation of any contractual, statutory or common law duty
of loyalty to us or any of our subsidiaries.
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<PAGE> 66
Under our stock option plan, the exercise price of an option is payable in
cash or, in the discretion of the Committee, in common stock or a combination of
cash and common stock. An optionee must satisfy all applicable tax withholding
requirements at the time of exercise.
Our stock option plan has a term of 10 years, and all options granted under
the Plan prior to its termination remain outstanding until they have been
exercised or are terminated in accordance with their terms. Our Board of
Directors may amend the Plan at any time.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Dircks and Ms. Riley served as members of our Compensation Committee
during fiscal year 1998. During 1998, no committee member was an officer or
employee of ours. In addition, no interlocking relationship exists between our
Board of Directors or our Compensation Committee and the board of directors or
compensation committee of any other company, nor has any such interlocking
relationship existed in the past.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with Messrs. Fassler, Maggs and
Bhargava, pursuant to which each will receive annual compensation of $180,000.
The Agreements provide for a term of one year and will renew automatically for
additional one-year terms unless we or the employee deliver a notice of
non-renewal at least three months prior to termination of the term. Under the
Agreements, the employees are also entitled to participate in our employee
benefit plans which are generally available to our senior officers.
The Agreements include provisions that are effective upon the termination
of employment of the employees under certain circumstances. In general, the
employees are entitled to severance upon termination by us without "cause". The
severance shall be equal to the amount of the employee's base salary yet to be
paid for the unexpired portion of the term of the Agreement, discounted based on
a specified published interest rate. In the event of termination due to death or
disability for a specified period of time, the employee or the employee's
estate, as applicable, shall be entitled to receive one-year's base salary,
discounted based on a specified published interest rate and we shall continue to
provide the employee, his spouse and minor children, as applicable, with certain
medical and other benefits through the end of the term of the Agreement.
For our protection, the agreements prohibit Messrs. Fassler and Bhargava
during and for periods of twenty-four and twelve months, respectively after the
end of their individual employment, from:
- Soliciting any customers which are in any way related to our business;
- Competing with us in any way; or
- Disclosing or enabling anyone else to use any information he obtains
during his employment.
Each Agreement also prohibits Messrs. Fassler and Bhargava from:
- Interfering or attempting to disrupt our business relationship with
customers or suppliers; or
- Soliciting our employees.
The prohibitions contained in Mr. Maggs's contract are identical to those
contained in Mr. Fassler's contract, except Mr. Maggs is not prohibited from
engaging in Internet related business activities through Channel Reps, Inc. (and
its subsidiary or division to be known as Netwise) and Channel Force, Inc.
Mr. Feld, through Intensity Ventures, Inc., has entered into a one-year
consulting agreement with us with substantially identical terms to the
agreements described above, except that Mr. Feld is not prohibited from
competing with us and is not entitled to participate in our employee benefit
plans. His annual consulting fee of $180,000 will be paid to Intensity Ventures,
Inc. on a gross basis as an independent contractor.
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<PAGE> 67
We have also entered into a two-year employment agreement with Mr. Lidestri
which shall automatically be extended on a month-to-month basis from the end of
the term unless we or Mr. Lidestri deliver a notice stating a desire to
terminate the agreement. The agreement provides for an annual base salary of
$180,000 and an annual bonus of up to $70,000 based upon whether Mr. Lidestri
meets or exceeds specified performance objectives. In addition, under the
agreement, We are obligated to pay Mr. Lidestri a signing bonus of $150,000 with
$100,000 of such bonus having been paid in April 1999 and the remaining $50,000
of which is payable on the first anniversary of the agreement.
Under the agreement, Mr. Lidestri is entitled to participate in our
employee benefit plans which are generally available to our employees. The
agreement states that upon termination of Mr. Lidestri's employment by us
without cause or by Mr. Lidestri as allowed under the agreement, he shall be
entitled to severance comprised of the following components:
- any remaining unpaid portion of his signing bonus; plus
- the greater of (A) the unpaid portion of his annual base salary and
other compensation for the remainder of the term of the agreement,
including a pro rata portion of the performance-based bonus for the
year in which his employment is terminated, or (B) an amount equal
to six months of his annual base salary and other compensation for
the remainder of the term of the agreement plus a pro rata portion
of the performance-based bonus for the year in which his employment
is terminated.
In addition, Mr. Lidestri shall be entitled to participate in our benefit
programs for a minimum of six months from the date of termination.
If we terminate the agreement for cause, Mr. Lidestri shall be entitled to
receive only the unpaid portion of his base salary and all vested benefits under
any benefit programs, in each case, through the date of termination.
In the event of termination due to death or disability during the term of
the agreement, Mr. Lidestri or Mr. Lidestri's estate, as applicable, shall be
entitled to receive all accrued and unpaid portions of his annual base salary to
the date of his death or disability and all employee benefits accrued but unpaid
to the date of his death or disability.
Under the terms of the agreement for a period of time following termination
of Mr. Lidestri's employment with us, which shall be either one year from such
termination, one year following the expiration of the agreement or two years
following the date of the agreement depending upon the reason for termination,
Mr. Lidestri is prohibited from engaging in the following activities:
- Competing with us or any of our subsidiaries in any way, except as an
officer, director, shareholder or employee of ours or any of our
affiliates.
- Soliciting or interfering with, or attempting to hire:
- any person who was employed by us or one of our affiliates or
subsidiaries during the 12 months before the end of the agreement;
- any person who was a customer or client or requested or received a
proposal from us or one of our affiliates or subsidiaries during the
12 months before the end of the agreement; or
- Using, disclosing or publishing any confidential material related to our
business or the business of any of our subsidiaries or affiliates which
he acquired while employed with us, unless the material is publicly
available, otherwise lawfully obtained or must be disclosed by law.
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<PAGE> 68
RELATED PARTY TRANSACTIONS
Since our inception, Web Hosting Organization LLC, SOFTBANK Technology
Ventures and SOFTBANK Technology Advisors Fund L.P. have each purchased
securities from us.
SALE OF STOCK TO THE SOFTBANK PURCHASERS
In January 1999, the SOFTBANK Purchasers purchased from us an aggregate of
2,647,658 shares of our Redeemable Convertible Preferred Stock and 749,625
warrants to purchase shares of common stock for an aggregate purchase price of
$13.0 million. In April 1999, the SOFTBANK Purchasers exercised the 749,625
warrants for an identical number of shares of common stock at an aggregate
exercise price $5.0 million.
SALE OF STOCK TO WEB HOSTING ORGANIZATION LLC
WEB owns 25,200,000 shares of our common stock which were acquired from us
in a series of six transactions in December 1997, May 1998, June 1998, September
1998, December 1998 and February 1999, in each case at a price, giving effect to
the 3-for-1 stock split effected in July 1998, of $1.67 per share.
The principal members of WEB are Charterhouse Equity Partners III, L.P.
("CEP III") and WHO Management LLC. Leonard J. Fassler and Bradley A. Feld, our
Co-Chairmen, are the member managers of WHO. Bradley A. Feld is a general
partner of the SOFTBANK Purchasers. See "Description of Capital Stock -- The WEB
Hosting Investment" and " -- The SOFTBANK Investment."
DISTRIBUTIONS BY OUR SIGNIFICANT STOCKHOLDER
Pursuant to the terms of the Limited Liability Company Agreement of WEB
dated as of November 26, 1997, as amended by Amendment No. 1, dated as of March
4, 1998, the members of WEB shall be entitled to receive a distribution of all
cash funds or other property of WEB available from any source other than the
ordinary operations of its subsidiaries, after payment of all expenses of WEB
due at the time of such distribution ("Total Proceeds"). The Total Proceeds
shall be distributed to the members of WEB in tranches with priority given to
covering members' federal tax liability, followed by return of capital and then
as necessary to achieve specified internal rates of return. Thereafter, portions
of the Total Proceeds will be distributed to WHO for the benefit of our
co-founders and the members of our senior management, other senior employees,
employees who were hired shortly after our formation and consultants as
described below.
Of the management distributions to WHO, 70% are retained by WHO for
distribution to our co-founders, who are Messrs. Fassler, Feld, Maggs and
Bhargava, and 30% are distributed to SMI Fund LLC, a New York limited liability
company, for distribution to its members.
There are a total of 18 members of SMI, all of whom are either executive
officers, senior employees, employees who were hired shortly after our formation
or consultants. Following is a list of the six senior management members who are
members of SMI. The percentage next to each of their names indicates the
percentage of amounts distributed to SMI that flow through to such person:
<TABLE>
<S> <C>
Mr. Frank Alfano...................................... 5.0%
Mr. Edward A. Cavazos................................. 3.5%
Mr. Paul E. Chollett.................................. 3.5%
Mr. Bruce S. Klein.................................... 10.0%
Mr. James M. Lidestri................................. 10.0%
Mr. William A. Wilson................................. 6.7%
</TABLE>
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<PAGE> 69
The management distributions to WHO described above increase as the members
of WEB realize specified internal rates of return on their investment in WEB.
The following diagram depicts the flow of the distribution of Total Proceeds to
the members of WEB described above. No Total Proceeds have been distributed to
date.
[Flow Chart]
INTERLIANT INC.
WEB
HOSTING ORGANIZATION LLC
WHO
CEP III MANAGEMENT LLC
CO-FOUNDERS SMI FUND LLC
FEES PAID BY US TO OUR SIGNIFICANT STOCKHOLDERS
During 1999 and 1998, in connection with certain of our acquisitions, we
paid or accrued transaction fees of approximately $361,000 and $337,000,
respectively, to Charterhouse, which is an affiliate of CEP III. Such fees were
paid pursuant to the terms of the WEB LLC Agreement which require WEB or its
affiliates, which includes us, to pay Charterhouse two percent (2%) of the total
transaction costs of each acquisition or investment by WEB or its affiliates,
which includes us, in which Charterhouse or any of its affiliates directly or
indirectly provide all or a portion of the equity financing therefor.
Charterhouse will not receive any fees with respect to this arrangement in the
future.
CONSULTING AND EMPLOYMENTS AGREEMENTS WITH OUR CO-FOUNDERS
During 1998, we paid consulting fees of $120,000 to each of Sage Equities,
Inc. and Intensity Ventures Inc, whose principals are Messrs. Fassler and Feld,
respectively, pursuant to consulting agreements with each of them. Effective
January 1, 1999, we entered into employment agreements with Messrs. Fassler,
Maggs and Bhargava and a consulting agreement with Mr. Feld, through Intensity
Ventures, Inc., pursuant to which each will be paid annual compensation of
$180,000. See "Management -- Employment Agreements."
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<PAGE> 70
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the common stock as of April 30, 1999 and as adjusted to reflect
the sale of the shares of common stock offered hereby by (i) each person or
entity known to us to own beneficially more than 5% of the outstanding shares of
common stock, (ii) each of our directors, (iii) each of the named executive
officers and (iv) all directors and executive officers as a group. Unless
otherwise indicated below, to our knowledge, all persons listed below have sole
voting and investment power with respect to their shares of common stock, except
to the extent authority is shared by spouses under applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING(1) OFFERING(1)
--------------------- ---------------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ---------------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Web Hosting Organization LLC(2).................. 25,200,000 79.4 25,200,000 60.9
c/o Charterhouse Group International, Inc.
535 Madison Avenue
New York, NY 10022
Mathew Wolf(3)................................... 3,945,090 12.4 3,945,090 9.5
1001 Fannin Street
Suite 2000
Houston, TX 77002
SOFTBANK Technology Ventures IV, L.P.(4)......... 3,397,283 9.9 3,397,283 8.2
333 West San Carlos
Suite 1225
San Jose, CA
Leonard J. Fassler(5)............................ -- -- -- --
Bradley A. Feld(5)(6)............................ * * * *
Stephen W. Maggs(5).............................. -- -- -- --
Francis J. Alfano................................ -- -- -- --
Rajat Bhargava(5)................................ -- -- -- --
Bruce S. Klein................................... -- -- -- --
William A. Wilson................................ -- -- -- --
Merril M. Halpern(8)............................. -- -- -- --
Thomas C. Dircks(8)(9)(10)....................... -- -- -- --
Patricia A.M. Riley(8)(9)(10).................... -- -- -- --
Jay M. Gates(8).................................. -- -- -- --
Charles R. Lax(7)(9)............................. -- -- -- --
All Directors and Executive Officers as a Group
(6), (7) and (8) (18 persons).................. 873,884 2.7 873,884 2.1
</TABLE>
- ---------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, based on factors including voting and
investment power with respect to shares. Shares of common stock subject to
options currently exercisable within 60 days of April 30, 1999 are deemed
outstanding for the purpose of computing the percentage of ownership of the
person holding such options, but are not deemed outstanding for computing
the percentage ownership of any other person.
(2) The principal members of WEB are CEP III and WHO. Their respective ownership
interest in WEB are as follows: CEP III: 95.2% and WHO 4.8%. Leonard J.
Fassler and Bradley A. Feld are the member managers of WHO and Stephen W.
Maggs and Rajat Bhargava are among the members. The general partner of CEP
III is CHUSA Equity Investors III, L.P., whose general partner is
Charterhouse Equity III, Inc., a wholly-owned subsidiary of Charterhouse. As
a result of the foregoing, all of the shares of Common Stock of Interliant
held by the WEB would for purposes of
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<PAGE> 71
Section 13(d) of the Securities Exchange Act of 1934, as amended, be
considered to be beneficially owned by Charterhouse.
(3) Includes 398,845 shares of common stock owned by the Ann Weltchek Wolf 1995
Marital Trust, 797,690 shares of common stock owned by the Mathew D. Wolf
Childrens Trust and 350,000 shares of common stock held in escrow until
March 31, 2000. Mr. Wolf disclaims beneficial ownership of all the shares of
common stock owned by both of the trusts named above.
(4) Includes 2,647,658 shares of Series A Redeemable Convertible Preferred Stock
which will be converted into an equal number of shares of common stock upon
consummation of the offering. Of these shares, 49,776 are held by SOFTBANK
Technology Advisors Fund, L.P., an affiliated entity. Also includes 14,093
shares of common stock held by SOFTBANK Technology Advisors Fund, L.P.
(5) Excludes 25,200,000 shares held by WEB. Messrs. Fassler, Feld, Maggs and
Bhargava are members of WHO, which is a member of WEB. Each of Messrs.
Fassler, Feld, Maggs and Bhargava disclaim beneficial ownership of such
shares. Mr. Feld is a general partner of Kodiak Technology Ventures II LLP.
Kodiak received 5,176 shares of Common Stock in connection with our
acquisition of Net Daemons Associates, Inc. On April 26, 1999, Kodiak
distributed 2,288 shares of common stock to each of its general partners.
(6) Excludes 3,333,414 shares held by SOFTBANK Technology Ventures IV, L.P. and
63,869 shares held by SOFTBANK Technology Advisors Fund, L.P. Mr. Feld, a
Co-chairman and Director of Interliant, is a general partner of each of
SOFTBANK Technology Ventures IV, L.P. and SOFTBANK Technology Advisors Fund,
L.P. Mr. Feld disclaims beneficial ownership of such shares.
(7) Excludes 3,333,414 shares held by SOFTBANK Technology Ventures IV, L.P. and
63,869 shares held by SOFTBANK Technology Advisors Fund, L.P. Mr. Lax, a
director of Interliant, is a general partner of SOFTBANK Technology Ventures
IV, L.P. Mr. Lax disclaims beneficial ownership of such shares.
(8) Excludes 25,200,000 shares held by WEB. Messrs. Halpern, Dircks, Gates and
Ms. Riley are directors and/or officers of Charterhouse. Charterhouse is an
affiliate of CEP III which is a member of WEB. Each of Messrs. Halpern,
Dircks, Gates and Ms. Riley disclaim beneficial ownership of such shares.
(9) A member of the Compensation Committee of the Board of Directors.
(10) A member of the Audit Committee of the Board of Directors.
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<PAGE> 72
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED STOCK; ISSUED AND OUTSTANDING SHARES
Our authorized capital stock consists of 200,000,000 shares of common
stock, par value $0.01 per share, and 1,000,000 shares of undesignated preferred
stock, par value $0.01 per share.
COMMON STOCK
Following the offering 41,396,085 shares of common stock will be issued and
outstanding based on the number of shares of common stock outstanding as of
March 31, 1999 and assuming the issuance of 2,647,658 shares of common stock
upon the conversion of all outstanding Series A Redeemable Convertible Preferred
Stock (see "-- The SOFTBANK Investment"). All of the issued and outstanding
shares of common stock are, and the shares of common stock offered hereby will
upon completion of this offering be fully paid and nonassessable.
The following summarizes the rights of holders of our common stock:
- each holder of shares of common stock is entitled to one vote per share
on all matters to be voted on by stockholders generally, including the
election of directors;
- there are no cumulative voting rights;
- the holders of our common stock are entitled to dividends which may be
paid in cash, property or shares of our capital stock and other
distributions as may be declared from time to time by the board of
directors out of funds legally available for that purpose, if any;
- upon our liquidation, dissolution or winding up, the holders of shares of
common stock will be entitled to share ratably in the distribution of all
of our assets remaining available for distribution after satisfaction of
all our debts and liabilities and the payment of the liquidation
preference of any outstanding preferred stock; and
- upon completion of this offering, the holders of common stock have no
preemptive or other subscription rights to purchase shares of our stock,
nor will holders be entitled to the benefits of any redemption or sinking
fund provisions.
As of March 31, 1999, there were approximately 27 record owners of common
stock.
Certain stockholders of Interliant have been given the right to nominate
persons for election as directors. See "-- The SOFTBANK Investment" and "-- The
Interliant Acquisition."
PREFERRED STOCK
Our certificate of incorporation authorizes our board of directors to
create and issue one or more series of preferred stock and determine the rights
and preferences of each series within the limits set forth in our certificate of
incorporation and applicable law. Among other rights, the board of directors may
determine, without further vote or action by our stockholders:
- the number of shares constituting the series and the distinctive
designation of the series;
- the dividend rate on the shares of the series, whether dividends will be
cumulative, and if so, from which date or dates, and the relative rights
of priority, if any, of payment of dividends on shares of the series;
- whether the series will have voting rights in addition to the voting
rights provided by law and, if so, the terms of such voting rights;
- whether the series will have conversion privileges and, if so, the terms
and conditions of conversion;
- whether or not the shares of the series will be redeemable or
exchangeable, and if so, the dates, terms and conditions of redemption or
exchange, as the case may be;
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- whether the series will have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of
the sinking fund; and
- the rights of the shares of the series in the event of our voluntary or
involuntary liquidation, dissolution or winding up and the relative
rights or priority, if any, of payment of shares of the series.
Unless otherwise provided by our Board of Directors, the shares of all
series of preferred stock will rank on a parity with respect to the payment of
dividends and to the distribution of assets upon liquidation. Although we have
no present plans to issue any shares of preferred stock, any future issuance of
shares of preferred stock, or the issuance of rights to purchase preferred
shares, may have the effect of delaying, deferring or preventing a change of
control in our company or an unsolicited acquisition proposal. The issuance of
preferred stock also could decrease the amount of earnings and assets available
for distribution to the holders of common stock or could adversely affect the
rights and powers, including voting rights, of the holders of the common stock.
Accordingly, the issuance of shares of preferred stock may discourage bids for
the common stock at a premium or may otherwise adversely affect the market price
of the common stock.
Currently, excluding 2,647,658 shares of Series A Redeemable Convertible
Preferred Stock that will be converted into an equal number of shares of common
stock upon the consummation of this offering and which will then cease to exist
(see "Description of Capital Stock -- The SOFTBANK Investment"), there are no
shares of preferred stock issued or outstanding.
THE WEB HOSTING ORGANIZATION INVESTMENT
WEB owns 25,200,000 shares of our common stock, which will represent
approximately 60.9% of our outstanding common stock following consummation of
this offering. The shares were acquired for an aggregate purchase price of $42.0
million in a series of 6 transactions in December 1997, May 1998, June 1998,
September 1998, December 1998 and February 1999, in each case at a price, giving
effect to the 3-for-1 stock split effective in July 1998, of $1.67 per share.
The terms of the sale and purchase of these shares are set forth in a
subscription agreement dated December 8, 1997 between WEB and us. The principal
members of WEB are (1) CEP III, which is an affiliate of Charterhouse and (2)
WHO (collectively with CEP III, the "WEB Members"), of which Leonard J. Fassler
and Bradley A. Feld are the member managers. The WEB Members have agreed that
WEB shall be under the exclusive direction of a management committee comprised
of seven members and will vote such member's interest in WEB so that a majority
of the members of such management committee will be designees of Charterhouse.
WEB has certain demand and incidental registration rights under the terms of an
Investors Agreement dated as of January 28, 1999 and a Registration Rights
Agreement dated as of December 8, 1997. See "Description of Capital
Stock -- Registration Rights of Certain Holders."
THE SOFTBANK INVESTMENT
On January 28, 1999, the SOFTBANK Purchasers purchased from an aggregate of
2,647,658 shares of our Redeemable Convertible Preferred Stock and warrants to
purchase 749,625 shares of our common stock for an aggregate purchase price of
$13.0 million. On April 19, 1999, the SOFTBANK Purchasers exercised their
warrants at an aggregate exercise price of $5.0 million and now own 749,625
shares of our common stock. Upon the consummation of this offering, all of the
outstanding shares of Redeemable Convertible Preferred Stock will automatically
be converted into an equal number of shares of our common stock, and the
SOFTBANK Purchasers will own approximately 8.2% of our outstanding common stock.
Bradley A. Feld, our Co-Chairman and director, is a general partner of the
SOFTBANK Purchasers. See "Related Party Transactions." The SOFTBANK Purchasers
have certain demand and incidental registration rights under the terms of the
Investors Agreement. See "Registration Rights of Certain Holders." A majority in
interest of the SOFTBANK Purchasers also have the right, under the Investors
Agreement, to nominate one person for election to our Board of Directors and
have the Board cause that director to be a member of the Compensation Committee
and/or the Audit Committee of the
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Board. Such director will be subject to removal by the SOFTBANK Purchasers at
any time, with or without cause, and the SOFTBANK Purchasers will have the right
to call a special meeting of stockholders at any time for the sole purpose of
removing and replacing such director. WEB has agreed to vote its shares in a
manner consistent with these and the other terms of the Investors Agreement. Mr.
Charles R. Lax is currently serving as a director and a member of the
Compensation Committee of our Board of Directors pursuant to such provisions.
THE INTERLIANT ACQUISITION
On March 10, 1999, pursuant to an Asset Purchase Agreement with Interliant
Texas and the shareholders of Interliant Texas, we, partly through a
wholly-owned subsidiary, acquired substantially all of the assets and assumed
specified liabilities of Interliant Texas for $100,000 in cash, 4,091,642 shares
of common stock and the assumption of promissory notes in favor of Mathew Wolf
and Erving Wolf in the aggregate amount of $15.9 million. Upon the closing of
the acquisition, the $7.9 million note in favor of Erving Wolf was paid in full
and the $8.0 million note issued by Interliant Texas in favor of Mathew Wolf was
canceled and replaced by the Wolf Note. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
The 4,091,642 shares of common stock issued in connection with the
acquisition were delivered pursuant to an Agreement to Deliver Shares which
provided, among other things, for 3,608,863 shares of common stock to be
delivered at the closing of the acquisition to the shareholders of Interliant
Texas, 114,644 shares of common stock to be delivered at the closing of the
acquisition to Broadview Holdings LLP, 18,135 shares of common stock to be
delivered on the first business day following January 1, 2000 and 350,000 shares
of common stock to be placed in escrow to support the indemnification
obligations of Interliant Texas and its shareholders under the Purchase
Agreement. Unless we make a claim against the escrowed shares in accordance with
the provisions of the Purchase Agreement, the shares of common stock placed in
escrow will be distributed to Mathew Wolf, one of the shareholders of Interliant
Texas, on March 31, 2000.
In addition, under the Purchase Agreement, we issued 2,322,139 options to
purchase shares of our common stock at an exercise price of $0.13 per share. All
or a portion of such Interliant Options are fully vested and exercisable.
The Shareholders have certain incidental registration rights under the
terms of the Shareholders Agreement, dated as of March 10, 1999 by and among all
of our shareholders. See "-- Registration Rights of Certain Holders."
For so long as all of the parties who received shares of common stock
pursuant to the Agreement to Deliver Shares and certain holders of our options
own in the aggregate 5% of more of the issued and outstanding common stock, such
parties shall have the right to nominate one person for election to our Board of
Directors. To date, such parties have not exercised such rights.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
We have granted the holders of an aggregate of 32,320,790 shares of common
stock certain demand and incidental registration rights. The SOFTBANK Purchasers
have such registration rights under the Investors Agreement with respect to
2,647,658 shares of common stock to be received upon the consummation of this
offering from the conversion of an equal number of shares of Redeemable
Convertible Preferred Stock and 749,625 shares of common stock received on April
19, 1999 upon the exercise of warrants. WEB has such registration rights under
the terms of each of the Investors Agreement and the Registration Rights
Agreement with respect to 25,200,000 shares of common stock purchased. The
Seller Shareholders have incidental registration rights under the terms of the
Shareholders Agreement with respect to 3,608,863 shares of common stock received
as consideration for the sale of substantially all of the assets of Interliant
Texas and Broadview Holdings LLP has incidental registration rights with respect
to 114,644 shares owned by it. The Shareholders Agreement provides that it shall
be amended as
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necessary to include any additional shares of common stock issuable pursuant to
the provisions in the Purchase Agreement regarding adjustment of purchase price.
If we propose to file a registration statement under the Securities Act
covering our common stock or any securities exercisable or exchangeable for or
convertible into our common stock holders of piggyback registration rights may
require us to include a requested amount of their common stock in our registered
offering on the same terms and conditions applicable to the other equity
securities included in such registration statement. We may reduce the number of
shares to be registered if the managing underwriter determines that the
inclusion of such shares would materially and adversely affect the success of
this offering. These piggyback registration rights do not apply to the
registration of securities in connection with our employee benefit plans or
securities issuable in a merger, exchange offer or similar transaction.
Demand registration rights entitle the holder to require us to include a
requested amount of their common stock in a registration statement on Form S-1,
Form S-2 or Form S-3 and to use our best efforts to register such shares under
the Securities Act of 1933, as amended based on the advice of the managing
underwriter. A majority of the SOFTBANK Purchasers may exercise two demand
registration rights with respect to the registration of shares of common stock
on Form S-1, and twenty percent of the SOFTBANK Purchasers may exercise two
demand registration rights with respect to the registration of shares of common
stock on Form S-3 at any time we become eligible to use Form S-3. WEB may
exercise three demand registration rights with respect to the shares of common
stock that it owns. However, we are not required to register shares under demand
registration rights sooner than six months following the consummation of this
offering.
Each stockholder with the foregoing piggyback registration rights and
demand registration rights whose shares of common stock are included in a
registration statement must agree not to offer for public sale any shares of
common stock or securities exercisable or exchangeable for or convertible into
common stock, or effect any sale of securities pursuant to Rule 144 under the
Securities Act of 1933, as amended, during the ten days prior to and the 180
days after the closing date of any underwritten offering unless such shares are
covered by such registration statement or a shorter period is agreed to by the
managing underwriter. We are required to bear all related registration expenses
(excluding any underwriting discounts or commissions, if any), disbursements and
fees in connection with the exercise of Piggyback Registration Rights and Demand
Registration Rights.
In addition, in connection with the issuance to Mr. Steven C. Dabbs of
150,000 shares of common stock in connection with the acquisition of
substantially all of the assets of Clever Computers, Inc., we have agreed that
in the event we grant registration rights with respect to shares of common stock
to any other employee of Interliant or its affiliates, employed in a position
comparable or junior to Mr. Dabbs, identical registration rights shall be given
to Mr. Dabbs.
LIMITATIONS ON DIRECTOR LIABILITY
Our certificate of incorporation provides that, to the fullest extent
permitted by the Delaware General Corporation Law, none of our directors will be
personally liable to us or our stockholders for monetary damages. Section
102(b)(7) of the Delaware General Corporation Law currently provides that a
director's liability for breach of fiduciary duty to a corporation may be
eliminated, except for liability:
- for any breach of the director's duty of loyalty to the corporation or
its stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law, for unlawful
dividends or unlawful stock repurchases or redemptions; and
- for any transaction from which the director derives an improper personal
benefit.
Any amendment to these provisions of the Delaware General Corporation Law
will automatically be incorporated by reference into our certificate of
incorporation without any vote on the part of its
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stockholders unless otherwise required, including this provision in our Amended
and Restated Certificate may, however, discourage or deter stockholders or
management from bringing a lawsuit against directors for a breach of their
fiduciary duties, even though such an action, if successful, might otherwise
have benefit us and our stockholders.
The By-laws provide that we will indemnify our directors and officers to
the fullest extent permitted by Delaware law. Generally, we are required to
indemnify our directors and officers for all:
- judgments;
- fines;
- settlements;
- legal fees; and
- other expenses
incurred in connection with pending or threatened legal proceedings because of
the director's or officer's position with us.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Under Section 203, business combinations between a Delaware
corporation whose stock generally is publicly traded or held of record by more
than 2,000 stockholders and an interested stockholder are generally prohibited
for a three-year period following the date that such a stockholder became an
interested stockholder, unless:
- the corporation has elected in its original certificate of incorporation
not to be governed by Section 203. We did not make this election;
- the business combination was approved by the board of directors of the
corporation before the other party to the business combination became an
interested stockholder;
- upon consummation of the transaction that made it an interested
stockholder, the interested stockholder owned at least 85% of the voting
stock of the corporation outstanding at the commencement of the
transaction, excluding voting stock owned by directors who are also
officers or held in employee benefit plans in which the employees do not
have a confidential right to tender or vote stock held by the plan; or
- the business combination was approved by the board of directors of the
corporation and ratified by two-thirds of the voting stock not owned by
the interested stockholder.
The three-year prohibition also does not apply to some business
combinations proposed by an interested stockholder following the announcement or
notification of an extraordinary transaction involving the corporation and a
person who had not been an interested stockholder during the previous three
years or who became an interested stockholder with the approval of the majority
of the corporation's directors.
The term "business combination" is defined generally under Section 203 to
include mergers or consolidations between a Delaware corporation and an
interested stockholder, transactions with an interested stockholder involving
the assets or stock of the corporation or its majority-owned subsidiaries and
transactions which increase an interested stockholder's percentage ownership of
stock. The term "interested stockholder" is defined generally under Section 203
as a stockholder who, together with affiliates and associates, owns or within
three years prior did own 15% or more of a Delaware corporation's voting stock.
Section 203 could prohibit or delay a merger, takeover or other change in
control of us and therefore could discourage attempts to acquire us.
Our Board approved both the acquisition of common stock by WEB as part of
their approval of WEB Hosting Organization Investment and the acquisition of
preferred stock and warrants by the SOFTBANK
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Purchasers as part of their approval of the SOFTBANK Investment and,
accordingly, the prohibitions under Section 203 will not apply to any business
combination with either WEB or the SOFTBANK Purchasers.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services, L.L.C.
SHARES ELIGIBLE FOR FUTURE SALE
SHARES ELIGIBLE FOR FUTURE SALE
Immediately following this offering, there will be 41,396,085 shares of our
common stock issued and outstanding assuming that no option holder exercises any
outstanding stock options after April 29, 1999. Of these shares, the 7,000,000
shares of common stock to be sold in this offering will be immediately eligible
for sale in the public market. The remaining 34,396,085 issued and outstanding
shares will be restricted securities within the meaning of Rule 144 and may not
be publicly resold, except in compliance with the registration requirements of
the Securities Act pursuant to an exemption from registration, including that
provided by Rule 144. Of the restricted shares, 31,182,720 shares are subject to
the 180-day lock-up agreements described below.
RULE 144
In general, under Rule 144, a person, or persons whose shares are
aggregated, who has beneficially owned restricted securities for at least one
year, including a person who may be deemed an affiliate, is entitled to sell
within any three month period a number of our shares of common stock that does
not exceed the greater of:
- 1% of the then-outstanding shares of our common stock; or
- the average weekly trading volume of our common stock on the NASDAQ
National Market during the four calendar weeks preceding the date on
which notice of sale is filed with the Securities and Exchange
Commission.
Sales under Rule 144 are subject to restrictions relating to manner of sale,
notice and the availability of current public information about us. Commencing
90 days after the date of this prospectus, 3,150,000 shares of common stock will
be eligible for resale under Rule 144. All of such shares are subject to the
180-day Lock-up Agreements described below.
A person who is not deemed an affiliate of ours at any time during the 90
days preceding a sale and who has beneficially owned shares for at least two
years would be entitled to sell shares following this offering under Rule 144(k)
without regard to the volume limitations, manner of sale provisions or notice
requirements of Rule 144.
RULE 701
Our employees, directors, officers or consultants who purchase our shares
in connection with a written compensatory plan or contract may be entitled to
rely on the resale provisions of Rule 701. Rule 701 permits non-affiliates to
sell their Rule 701 shares without having to comply with the public information,
holding period, volume limitation or notice provisions of Rule 144. Affiliates
may sell their Rule 701 shares without having to comply with Rule 144's holding
period restrictions. In each of these cases Rule 701 allows the shareholders to
sell 90 days after the date of this prospectus.
OPTIONS
We intend to file one or more registration statements on Form S-8 under the
Securities Act to register all shares of Common Stock subject to outstanding
stock options and Common Stock issuable
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pursuant to our stock option plans. Shares covered by these registration
statements will thereupon be eligible for sale in the public markets, subject to
the 180-day Lock-up Agreements described below, to the extent applicable.
LOCK-UP AGREEMENTS
For a period of 180 days after the date of this prospectus, we, our
executive officers, directors and substantially all of our stockholders, have
agreed not to, without approval by Merrill Lynch:
- sell, dispose of or transfer any shares of common stock or securities
convertible into common stock;
- enter into any agreement that transfers any part of the economic
consequence of ownership of the common stock; or
- seek or exercise any right to register any share of common stock or
security convertible into common stock.
Our stockholders do, however, have the right to:
- transfer the securities as a gift, if the recipient agrees to be bound by
the provisions of the lock-up agreement; or
- pledge their securities to us in consideration for a loan from us.
In addition, we do have the right to transfer common stock in connection
with an acquisition, if any recipient of such shares agrees to be bound by the
provisions of the lock-up agreement.
EFFECT OF SALES OF SHARES
No prediction can be made as to the effect, if any, that future sales of
shares of common stock or the availability of shares for future sale will have
on the prevailing market price for the common stock. Sales of substantial
amounts of common stock, or the perception that such sales could occur, could
adversely affect prevailing market prices for the common stock and could impair
our future ability to raise capital through an offering of equity securities.
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UNDERWRITING
GENERAL
We intend to offer our common stock in the United States and Canada through
a number of U.S. underwriters as well as elsewhere through international
managers. Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin
& Jenrette and CIBC World Markets Corp. are acting as U.S. representatives of
each of the U.S. underwriters named below. Subject to the terms and conditions
set forth in a U.S. purchase agreement among us and the U.S. underwriters, and
concurrently with the sale of 875,000 shares of common stock to the
international managers, we have agreed to sell to the U.S. underwriters, and
each of the U.S. underwriters severally and not jointly has agreed to purchase
from us, the number of shares of common stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
OF SHARES
U.S. UNDERWRITER ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Donaldson, Lufkin & Jenrette................................
CIBC World Markets Corp.....................................
Total..........................................
</TABLE>
We have also entered into an international purchase agreement with certain
international managers outside the United States and Canada for whom Merrill
Lynch International, Donaldson, Lufkin & Jenrette International and CIBC World
Markets International Limited are acting as lead managers. Subject to the terms
and conditions set forth in the international purchase agreement, and
concurrently with the sale of 6,125,000 shares of common stock to the U.S.
underwriters pursuant to the U.S. purchase agreement, we have agreed to sell to
the international managers and the international managers severally have agreed
to purchase from us an aggregate of 875,000 shares of common stock. The initial
public offering price per share and the total underwriting discount per share of
common stock are identical under the U.S. purchase agreement and the
international purchase agreement.
In the U.S. purchase agreement and the international purchase agreement,
the several U.S. underwriters and the several international underwriters have
agreed, subject to the terms and conditions set forth therein, to purchase all
of the shares of common stock being sold pursuant to each such agreement if any
of the shares of common stock being sold pursuant to such agreement are
purchased. In the event of a default by an underwriter, the U.S. purchase
agreement and the international purchase agreement provide that, in certain
circumstances, the purchase commitments of the nondefaulting underwriters may be
increased or the purchase agreements may be terminated. The closings with
respect to the sale of shares of common stock to be purchased by the U.S.
underwriters and the international managers are conditioned upon one another.
We have agreed to indemnify the U.S. underwriters and the international
managers against some liabilities, including some liabilities under the
Securities Act, or to contribute to payments the U.S. underwriters and the
international managers may be required to make in respect of those liabilities.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the underwriters and certain
other conditions. The underwriters reserve the right to withdraw, cancel or
modify such offer and reject orders in whole or in part.
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COMMISSIONS AND DISCOUNTS
The U.S. representatives have advised us that the U.S. underwriters propose
initially to offer the shares of common stock to the public at the initial
public offering price set forth on the cover page of this prospectus, and to
certain dealers at such price less a concession not in excess of $ per share
of common stock. The U.S. underwriters may allow, and such dealers may reallow,
a discount not in excess of $ per share of common stock to certain other
dealers. After the initial public offering, the public offering price,
concession and discount may change.
The following table shows the per share and total public offering price,
underwriting discount to be paid by us to the U.S. underwriters and the
international managers and the proceeds before expenses to us. This information
is presented assuming either no exercise or full exercise by the U.S.
underwriters and the international managers of their over-allotment options.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public Offering Price.......................... $ $ $
Underwriting Discount.......................... $ $ $
Proceeds, before expenses, to Interliant....... $ $ $
</TABLE>
The expenses of the offerings (exclusive of the underwriting discount and
commissions) are estimated at $1.4 million and are payable by us.
INTERSYNDICATE AGREEMENT
The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the terms of the intersyndicate agreement, the U.S. underwriters and the
international managers are permitted to sell shares of our common stock to each
other for purposes of resale at the initial public offering price, less an
amount not greater than the selling concession. Under the terms of the
intersyndicate agreement, the U.S. underwriters and any dealer to whom they sell
shares of our common stock will not offer to sell or sell shares of our common
stock to persons who are non-U.S. or non-Canadian persons or to persons they
believe intend to resell to persons who are non-U.S. or non-Canadian persons,
and the international managers and any dealer to whom they sell shares of common
stock will not offer to sell or sell shares of common stock to U.S. persons or
to Canadian persons or to persons they believe intend to resell to U.S. or
Canadian persons, except in the case of transactions under the terms of the
intersyndicate agreement.
OVER-ALLOTMENT OPTION
We have granted options to the U.S. underwriters, exercisable for 30 days
after the date of this prospectus, to purchase up to an aggregate of 920,000
additional shares of common stock at the public offering price set forth on the
cover page of this prospectus, less the underwriting discount. The U.S.
underwriters may exercise this option solely to cover over-allotments, if any,
made on the sale of the common stock offered hereby. To the extent that the U.S.
underwriters exercise this option, each U.S. underwriter will be obligated,
subject to certain conditions, to purchase a number of additional shares of
common stock proportionate to such U.S. underwriter's initial amount reflected
in the foregoing table.
We also have granted an option to the international managers, exercisable
for 30 days after the date of this prospectus, to purchase up to an aggregate of
130,000 additional shares of common stock to cover over-allotments, if any, on
terms similar to those granted to the U.S. underwriters.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the underwriters and certain
other conditions. The underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part.
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RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 350,000 shares, or 5%, of the shares offered
hereby, to be sold to some of our directors, officers, employees, distributors,
dealers, business associates and related persons. The number of shares of common
stock available for sale to the general public will be reduced to the extent
those persons purchase such reserved shares. Any reserved shares which are not
orally confirmed for purchase within one day of the pricing of this offering
will be offered by the underwriters to the general public on the same terms as
the other shares offered in this prospectus.
NO SALES OF SIMILAR SECURITIES
For a period of 180 days after the date of this prospectus, we, our
executive officers, directors and substantially all of our stockholders, have
agreed not to directly or indirectly, without approval by Merrill Lynch on
behalf of the underwriters:
- Offer, pledge, sell, dispose of or transfer any shares of common stock or
securities convertible into common stock;
- Enter into any agreement that transfers any part of the economic
consequence of ownership of the common stock; or
- Seek or exercise any right to register any share of common stock or
security convertible into common stock.
Our stockholders do, however, have the right to:
- Transfer the securities as a gift, if the recipient agrees to be bound by
the provisions of the lock-up agreement; or
- Pledge their securities to us in consideration for a loan from us.
In addition, we have the right to transfer common stock in connection with
an acquisition, if any recipient of such shares agrees to be bound by the
provisions of the lock-up agreement.
QUOTATION ON THE NASDAQ NATIONAL MARKET
Our common stock has been approved for quotation on the Nasdaq National
Market, subject to official notice of issuance, under the symbol "INIT."
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations
between us and the U.S. representatives and the lead managers. The factors to be
considered in determining the initial public offering price, in addition to
prevailing market conditions, are expected to be the valuation multiples of
publicly traded companies that the U.S. representatives and the lead managers
believe to be comparable to us, certain of our financial information, the
history of, and the prospects for, our company and the industry in which we
compete, and an assessment of our management, its past and present operations,
the prospects for, and timing of, our future revenues, the present state of our
development and the above factors in relation to market values and various value
measures of other companies engaged in activities similar to ours. There can be
no assurance that an active trading market will develop for our common stock or
that our common stock will trade in the public market subsequent to this
offering at or above the initial public offering price.
The underwriters do not expect sales of the common stock to be made to any
accounts over which they exercise discretionary authority to exceed 5% of the
number of shares being offered in this offering.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
certain selling group members to bid for and
76
<PAGE> 82
purchase our common stock. As an exception to these rules, the U.S.
representatives are permitted to engage in certain transactions that stabilize
the price of our common stock. Such transactions consist of bids or purchases
for the purpose of pegging, fixing or maintaining the price of our common stock.
If the underwriters create a short position in our common stock in
connection with the offering contemplated hereby, i.e., if they sell more shares
of our common stock than are set forth on the cover page of this prospectus, the
U.S. representatives may reduce that short position by purchasing our common
stock in the open market. The U.S. representatives may also elect to reduce any
short position by exercising all or part of the over-allotment option described
above.
The U.S. representatives may also impose a penalty bid on our underwriters
and selling group members. This means that if the U.S. representatives purchase
shares of our common stock in the open market to reduce the underwriters' short
position or to stabilize the price of the our common stock, they may reclaim the
amount of the selling concession from the underwriters and selling group members
who sold those shares.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that it
discourages resales of our common stock.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
we nor any of the underwriters makes any representation that the U.S.
representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Dewey Ballantine LLP, New York, New York. Certain legal matters
in connection with the offering will be passed upon for the underwriters by
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California.
EXPERTS
The consolidated financial statements of Sage Networks, Inc. at December
31, 1997 and 1998, and for the period December 8, 1997 (inception) to December
31, 1997 and the year ended December 31, 1998, and the financial statements of
Interliant, Inc. at December 31, 1997 and 1998, and for each of the three years
in the period ended December 31, 1998, appearing in this prospectus and
registration statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon the authority of such firm as experts in
accounting and auditing.
The balance sheets of B.N. Technology, Inc. dba Internet Communications, as
of December 31, 1996 and 1997, and the related statements of operations and
accumulated deficit, and cash flows for the period April 15, 1996 (inception)
through December 31, 1996 and for the year ended December 31, 1997 included in
this prospectus have been so included in reliance on the report of Frankel,
Lodgen, Lacher, Golditch, Sardi & Howard, independent accountants given on the
authority of said firm as experts in auditing and accounting.
The balance sheet of Clever Computers, Inc., as of December 31, 1996 and
1997 and the related statements of income, retained earnings, and cash flows for
the years then ended included in this prospectus have been so included in
reliance on the report of BSC&E, independent accountants given on the authority
of said firm as experts in auditing and accounting.
77
<PAGE> 83
The statements of assets and liabilities as of December 31, 1996 and 1997,
and the statements of revenue and expenses and of cash flows for each of the
three years in the period ended December 31, 1997, of HostAmerica, a division of
HomeCom Communications, Inc., included in this prospectus, have been included
herein in reliance on the report, which includes an explanatory paragraph
regarding basis of presentation, of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The financial statements of Net Daemons Associates, Inc., for the years
ended December 31, 1997 and 1998 included in this prospectus and in the
registration statement have been audited by Deloitte & Touche LLP, independent
accountants as stated in their report appearing herein and elsewhere in the
registration statement and is included in reliance upon the report of such firm
given upon the authority of said firm as experts in auditing and accounting.
The financial statements of Telephonetics International, Inc. and Affiliate
included in this prospectus and registration statement have been audited by BDO
Seidman, LLP, independent certified accountants to the extent and for the
periods set forth in their report appearing elsewhere herein and in this
registration statement and are included in reliance on such reports given upon
the authority of said firm as experts in auditing and accounting.
The balance sheets of Tri Star Web as of December 31, 1996 and 1997 and the
related statements of operations, and changes in retained earnings, and cash
flows for the years then ended, and the consolidated balance sheets of GEN
International Inc. and subsidiaries as of December 31, 1995, 1996 and 1997, and
the related consolidated statements of operations, changes in stockholders'
deficiency, and cash flows for the period April 4, 1995 (inception) through
December 31, 1995 and the years ended December 31, 1996 and 1997 and the balance
sheets of Digiweb, Inc. as of December 31, 1997 and 1998 and the related
statements of income, cash flows and changes in stockholders' equity for the
years then ended included in this prospectus have been so included in reliance
on the reports of Urbach Kahn & Werlin PC, independent accountants given on the
authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
We have filed with the Commission, Washington, D.C. 20549, a Registration
Statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered hereby. This prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to us and the common
stock offered hereby, reference is made to the Registration Statement and the
exhibits and schedules filed therewith. Statements contained in this prospectus
as to the contents of any contract or any other document referred to are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. A copy of
the Registration Statement may be inspected without charge at the offices of the
Commission in Washington, D.C. 20549, and copies of all or any part of the
Registration Statement may be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549 upon the payment of the fees prescribed by
the Commission. The Commission maintains a Web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants, such as Interliant, that file electronically with the
Commission.
We provide Web hosting services to a customer whose primary residence is
located in Cuba, Mr. Osvaldo Martinez. This information is correct as of the
date of this prospectus. Current information concerning business between any
person located in Cuba or the government of Cuba and Interliant may be obtained
from the Florida Department of Banking and Finance, Plaza Level, The Capitol,
Tallahassee, Florida 32399-0350, telephone number (904) 488-6311.
78
<PAGE> 84
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SAGE NETWORKS, INC. (NOW KNOWN AS INTERLIANT, INC.)
Report of Independent Auditors.............................. F-3
Consolidated Balance Sheets as of December 31, 1997 and 1998
and March 31, 1999 (unaudited)............................ F-4
Consolidated Statements of Operations for the Period
December 8, 1997 (inception) to December 31, 1997 and the
Year Ended December 31, 1998 and for the three months
ended March 31, 1998 and 1999 (unaudited)................. F-5
Consolidated Statements of Stockholders' Equity for the
period December 8, 1997 (inception) to December 31, 1997
and the year ended December 31, 1998 and for the three
months ended March 31, 1999 (unaudited)................... F-6
Consolidated Statements of Cash Flows for the Period
December 8, 1997 (inception) to December 31, 1998 and the
Year Ended December 31, 1998 and for the three months
ended March 31, 1998 and 1999 (unaudited)................. F-7
Notes to Consolidated Financial Statements.................. F-8
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Consolidated Statement of Operations.............. F-18
Pro Forma Consolidated Balance Sheet........................ F-19
Notes to Pro Forma Consolidated Financial Statements........ F-20
ACQUIRED COMPANY (CLEVER COMPUTERS, INC.)
Independent Auditors' Report................................ F-21
Balance Sheets as of December 31, 1996 and 1997............. F-22
Statement of Income for the Years Ended December 31, 1996
and December 31, 1997..................................... F-23
Statement of Retained Earnings for the Years Ended December
31, 1996 and December 31, 1997............................ F-24
Statement of Cash Flows for the Years Ended December 31,
1996 and December 31, 1997................................ F-25
Notes to Financial Statements............................... F-26
ACQUIRED COMPANY (TRI STAR WEB CREATIONS, INC.)
Independent Auditor's Report................................ F-28
Balance Sheets as of December 31, 1996 and 1997............. F-29
Statement of Operations and Changes in Retained Earnings For
the Years Ended December 31, 1996 and 1997................ F-30
Statements of Cash Flows for the Years Ended December 31,
1996 and 1997............................................. F-31
Notes to Financial Statements............................... F-32
ACQUIRED COMPANY (HOSTAMERICA DIVISION OF HOMECOM
COMMUNICATIONS, INC.)
Report of Independent Accountants........................... F-34
Statements of Assets and Liabilities as of December 31, 1996
and 1997.................................................. F-35
Statements of Revenues and Expenses......................... F-36
Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997....................................... F-37
Notes to Financial Statements............................... F-38
ACQUIRED COMPANY (B.N. TECHNOLOGY, INC.)
Independent Auditor's Report................................ F-41
Balance Sheets as of December 31, 1996 and 1997............. F-42
Statements of Operations and Accumulated Deficit for the
Period from April 15, 1996 through December 21, 1996 and
the Year Ended December 31, 1997.......................... F-43
Statements of Cash Flows for the Period from April 15, 1996
through December 21, 1996 and the Year Ended December 31,
1997...................................................... F-44
Notes to Financial Statements............................... F-45
</TABLE>
F-1
<PAGE> 85
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ACQUIRED COMPANY (GEN INTERNATIONAL, INC. AND SUBSIDIARIES)
Independent Auditor's Report................................ F-48
Balance Sheets as of December 31, 1995, 1996 and 1997....... F-49
Statements of Operations for the Period April 4, 1995
(inception) through December 31, 1995 and the Years Ended
December 31, 1996 and 1997................................ F-50
Statements of Cash Flows for the Period April 4, 1995
(inception) through December 31, 1995 and the Years Ended
December 31, 1996 and 1997................................ F-51
Statements of Changes in Stockholders' Deficiency for the
Period April 4, 1995 (inception) through December 31, 1995
and the Years Ended December 31, 1996 and 1997............ F-52
Notes to Financial Statements............................... F-53
ACQUIRED COMPANY (DIGIWEB, INC.)
Independent Auditor's Report................................ F-56
Balance Sheets as of December 31, 1997 and 1998............. F-57
Statements of Income for the Years Ended December 31, 1997
and 1998.................................................. F-58
Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1997 and 1998.......................... F-59
Statements of Cash Flows for the Years Ended December 31,
1997 and 1998............................................. F-60
Notes to Financial Statements............................... F-61
ACQUIRED COMPANY (TELEPHONETICS INTERNATIONAL, INC. AND
STATE OF THE ART, INC.)
Report of Independent Certified Public Accountants.......... F-64
Combined Balance Sheet as of December 31, 1998.............. F-65
Combined Statements of Operations for the Years Ended
December 31, 1997 and 1998................................ F-66
Combined Statements of Capital Deficit for the Years Ended
December 31, 1997 and 1998................................ F-67
Combined Statements of Cash Flows for the Years Ended
December 31, 1997 and 1998................................ F-68
Summary of Significant Accounting Policies.................. F-69
Notes to Combined Financial Statements...................... F-71
ACQUIRED COMPANY (NET DAEMONS ASSOCIATES, INC.)
Independent Auditor's Report................................ F-74
Balance Sheets as of December 31, 1997 and 1998............. F-75
Statements of Income for the Years Ended December 31, 1997
and 1998.................................................. F-76
Statements of Stockholders' Deficit for the Years Ended
December 31, 1997 and 1998................................ F-77
Statements of Cash Flows for the Years Ended December 31,
1997 and 1998............................................. F-78
Notes to Financial Statements............................... F-79
ACQUIRED COMPANY (INTERLIANT, INC.)
Report of Independent Auditors.............................. F-84
Balance Sheets as of December 31, 1997 and 1998............. F-85
Statements of Operations for the Years Ended December 31,
1996, 1997 and 1998....................................... F-86
Statements of Shareholders' Deficit for the Years Ended
December 31, 1996, 1997 and 1998.......................... F-87
Statements of Cash Flows for the Years Ended December 31,
1996, 1997 and 1998....................................... F-88
Notes to Consolidated Financial Statements.................. F-89
</TABLE>
F-2
<PAGE> 86
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Sage Networks, Inc.
We have audited the accompanying consolidated balance sheets of Sage
Networks, Inc. (the Company) as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the period December 8, 1997 (inception) to December 31, 1997 and the year ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Sage Networks, Inc. at December 31, 1997 and 1998, and the consolidated results
of its operations and its cash flows for the period December 8, 1997 (inception)
to December 31, 1997 and the year ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
February 15, 1999, except for the last paragraph of Note 12,
as to which the date is March 10, 1999
F-3
<PAGE> 87
SAGE NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1997 1998 1999
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 912,085 $ 6,813,360 $ 4,376,478
Cash-restricted.................................. 1,392,371
Accounts receivable, net of allowance of $320,000
and $691,629 at December 31, 1998 and March
31, 1999, respectively........................ 806,322 5,097,716
Prepaid expenses and other current assets........ 14,000 639,662 1,126,435
----------- ----------- ------------
Total current assets..................... 926,085 8,259,344 11,993,000
----------- ----------- ------------
Furniture, fixtures and equipment, net........... 27,063 5,103,123 11,467,239
Intangibles, net................................. 13,634,772 78,395,596
Other assets..................................... 222,172 575,738
----------- ----------- ------------
Total assets............................. $ 953,148 $27,219,411 $102,431,573
=========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term
debt.......................................... $ 8,136,195
Accounts payable................................. $ 84,389 $ 787,412 2,587,651
Accrued expenses................................. 26,507 2,301,507 3,268,667
Deferred revenue................................. 1,414,969 3,462,214
----------- ----------- ------------
Total current liabilities................ 110,896 4,503,888 17,454,727
Long-term debt, less current portion............. 914,482
Series A, redeemable convertible preferred stock... 13,000,000
Stockholders' equity:
Common stock, par value $.01; 100,000,000 shares
authorized; 3,000,000, 19,217,197 and
30,998,802 shares issued and outstanding at
December 31, 1997, 1998 and March 31, 1999,
respectively.................................. 30,000 192,172 309,988
Additional paid-in capital....................... 4,970,000 34,160,334 89,067,255
Stock subscription receivable.................... (4,000,000)
Deferred compensation............................ (1,769,429) (1,201,867)
Accumulated deficit.............................. (157,748) (9,867,554) (17,113,012)
----------- ----------- ------------
Total stockholders' equity............... 842,252 22,715,523 71,062,364
----------- ----------- ------------
Total liabilities and stockholders'
equity................................. $ 953,148 $27,219,411 $102,431,573
=========== =========== ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 88
SAGE NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
DECEMBER 8,
1997 THREE MONTHS ENDED
(INCEPTION) TO YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, ----------------------------
1997 1998 1998 1999
-------------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Service revenues...................... $ 4,905,027 $ 13,126 $ 5,434,162
Costs and expenses:
Cost of service revenues............ 3,236,385 53,774 3,250,703
Sales and marketing................. 2,555,035 110,882 1,896,357
General and administrative.......... $ 155,898 5,120,595 256,019 3,699,847
Depreciation........................ 1,850 696,039 9,417 699,552
Amortization of intangibles......... 1,416,882 1,618 2,082,167
Start-up and acquisition integration
costs............................ 1,727,970 134,106 1,063,458
---------- ----------- ---------- -----------
157,748 14,752,906 565,816 12,692,084
---------- ----------- ---------- -----------
Operating loss........................ (157,748) (9,847,879) (552,690) (7,257,922)
Interest income....................... 138,073 13,645 53,912
Other income (expense)................ (41,448)
---------- ----------- ---------- -----------
Net loss.............................. $ (157,748) $(9,709,806) $ (539,045) $(7,245,458)
========== =========== ========== ===========
Net loss per share -- basic and
diluted............................. $ (0.05) $ (1.10) $ (0.18) $ (0.29)
========== =========== ========== ===========
Weighted average shares outstanding... 3,000,000 8,799,432 3,000,000 24,769,890
========== =========== ========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 89
SAGE NETWORKS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- ADDITIONAL STOCK TOTAL
PAR PAID-IN SUBSCRIPTION DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES VALUE CAPITAL RECEIVABLE COMPENSATION DEFICIT EQUITY
----------- --------- ----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales of common stock........ 3,000,000 $ 30,000 $ 4,970,000 $(4,000,000) $ 1,000,000
Net loss..................... $ (157,748) (157,748)
----------- -------- ----------- ----------- ----------- ------------ -----------
Balance as of December 31,
1997....................... 3,000,000 30,000 4,970,000 (4,000,000) (157,748) 842,252
Sales of common stock...... 15,600,000 156,000 25,884,000 4,000,000 30,040,000
Deferred compensation...... 475,000 4,750 2,600,750 $(2,602,250) 3,250
Amortization of deferred
compensation............. 832,821 832,821
Issuance of common stock in
connection with
acquisitions............. 142,197 1,422 705,584 707,006
Net loss................... (9,709,806) (9,709,806)
----------- -------- ----------- ----------- ----------- ------------ -----------
Balance as of December 31,
1998....................... 19,217,197 192,172 34,160,334 -- (1,769,429) (9,867,554) 22,715,523
Sales of common stock
(unaudited)................ 6,600,000 66,000 10,934,000 11,000,000
Amortization of deferred
compensation (unaudited)... 567,562 567,562
Issuance of common stock in
connection with
acquisitions (unaudited)... 5,181,605 51,816 34,009,486 34,061,302
Issuance of stock options in
connection with acquisition
(unaudited)................ 9,963,435 9,963,435
Net loss (unaudited)......... (7,245,458) (7,245,458)
----------- -------- ----------- ----------- ----------- ------------ -----------
Balance as of March 31, 1999
(unaudited)................ 30,998,802 $309,988 $89,067,255 $ -- $(1,201,867) $(17,113,012) $71,062,364
=========== ======== =========== =========== =========== ============ ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 90
SAGE NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD THREE MONTHS ENDED
DECEMBER 8, 1997 MARCH 31,
(INCEPTION) TO YEAR ENDED --------------------------
DECEMBER 31, 1997 DECEMBER 31, 1998 1998 1999
----------------- ----------------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss...................................... $ (157,748) $(9,709,806) $ (539,045) $ (7,245,458)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for uncollectible accounts........ 320,000 205,182
Depreciation and amortization............... 1,850 2,112,921 11,035 2,781,719
Amortization of deferred compensation....... 832,821 567,562
Changes in operating assets and liabilities:
Accounts receivable....................... (980,391) (11,678) 56,124
Prepaid expenses and other current
assets.................................. (14,000) (602,457) (51,497) (150,354)
Accounts payable.......................... 84,389 639,607 75,831 (999,180)
Accrued expenses.......................... 26,507 1,140,135 4,914 253,940
Deferred revenue.......................... 246,502 320,560
---------- ----------- ----------- ------------
Net cash used in operating activities......... (59,002) (6,000,668) (510,440) (4,209,905)
INVESTING ACTIVITIES
Purchases of furniture, fixtures and
equipment................................... (28,913) (4,321,577) (90,392) (984,320)
Payments issued in connection with non-compete
agreements.................................. (500,000)
Transfers to restricted cash.................. (1,392,371)
Acquisitions of businesses, net of cash
acquired.................................... (13,597,558) (92,059) (18,930,098)
---------- ----------- ----------- ------------
Net cash used in investing activities......... (28,913) (17,919,135) (182,451) (21,806,789)
FINANCING ACTIVITIES
Proceeds from sale of common stock............ 1,000,000 30,043,250 4,040,000 11,000,000
Proceeds from issuance of Series A, redeemable
convertible preferred stock................. 13,000,000
Repayment of debt............................. (66,621)
Offering costs................................ (222,172) (353,567)
---------- ----------- ----------- ------------
Net cash provided by financing activities..... 1,000,000 29,821,078 4,040,000 23,579,812
---------- ----------- ----------- ------------
Net increase in cash and cash equivalents..... 912,085 5,901,275 3,347,109 (2,436,882)
Cash and cash equivalents at beginning of
period...................................... -- 912,085 912,085 6,813,360
---------- ----------- ----------- ------------
Cash and cash equivalents at end of period.... $ 912,085 $ 6,813,360 $ 4,259,194 $ 4,376,478
========== =========== =========== ============
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Stock and options issued in acquisitions...... $ 707,006 $ 44,024,737
Stock issued for compensation agreements...... 2,602,250
Stock subscription receivable................. $4,000,000
</TABLE>
See accompanying notes.
F-7
<PAGE> 91
SAGE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM DECEMBER 8, 1997 (INCEPTION) TO DECEMBER 31, 1997, THE YEAR
ENDED DECEMBER 31, 1998 AND THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
1. BUSINESS
Sage Networks, Inc. (the Company) was organized under the laws of the State
of Delaware on December 8, 1997. Web Hosting Organization LLC (WEB), a Delaware
Limited Liability Company, is the majority and controlling shareholder of the
Company. WEB's investors are comprised of Charterhouse Equity Partners III, L.P.
and Chef Nominees Limited (collectively, CEP Members) and WHO Management, LLC
(WHO). As of December 31, 1998, CEP Members have invested $29,000,000, and WHO
has invested $2,000,000 in WEB. WEB has, in turn, invested $31,000,000 in the
Company. CEP Members have allocated an additional $11,000,000 to invest in WEB,
and have funded the remaining amount pursuant to a stock subscription agreement
(see Notes 7 and 12).
Since its formation, the Company has been in the process of developing a
Web hosting business. The Company continues to build its Web hosting business
primarily through the acquisition of the Web hosting assets of Internet service
providers, system integrators and Web hosting companies. The primary sources of
revenue are from recurring fees charged to customers for hosting their Web sites
on the Company's server systems. The Company focuses on delivering high-quality,
reliable and flexible Web hosting services.
Prior to 1998, the Company was in the development stage.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Unaudited Interim Financial Information
The interim financial information as of March 31, 1999 and for the three
months ended March 31, 1998 and 1999 is unaudited and has been prepared on the
same basis as the audited financial statements. In the opinion of management,
such unaudited information includes all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the interim
information. Operating results for the three months ended March 31, 1998 and
1999 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999.
Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity (at date of purchase) of three months or less to be the
equivalent of cash for the purpose of balance sheet and statement of cash flows
presentation. Cash equivalents, which consist primarily of money market
accounts, are carried at cost, which approximates market value.
Fair Value of Financial Instruments
Carrying amounts of financial instruments held by the Company, which
include cash equivalents, accounts receivable, accounts payable and accrued
expenses, approximate fair value due to their short duration.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk are comprised principally of cash, cash
equivalents and accounts receivable. As of December 31, 1998, the
F-8
<PAGE> 92
SAGE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's cash and cash equivalents are deposited with various domestic
financial institutions. With respect to accounts receivable, the Company's
customer base is dispersed across many geographic areas. The Company monitors
customer payment history, generally does not require collateral and establishes
reserves for uncollectible accounts as warranted. In addition to individual
customers, the Company also provides Web hosting services to resellers, who, in
turn, provide services to their own customers.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent liabilities, at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are stated at cost. Major additions and
betterments are capitalized, while replacements, maintenance and repairs that do
not improve or extend the life of the assets are charged to expense.
Depreciation has been provided using the straight-line method over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Network software and equipment............ 3 years
Furniture, fixtures and office
equipment............................... 3 years
Leasehold improvements.................... Lesser of remaining lease-term or useful
life
</TABLE>
Internally Developed Software
In 1998, the Company adopted Statement of Position 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use (SOP 98-1)
issued by the American Institute of Certified Public Accountants. SOP 98-1
permits the capitalization of certain internally developed costs related to the
development of internally used software. During 1998, the Company capitalized
approximately $650,000 of project costs related to software developed
internally.
Intangible Assets
Intangible assets consist primarily of customer lists, covenants not to
compete, other identifiable intangibles and goodwill, which arose from the
acquisitions of several Web hosting companies and are being amortized on a
straight-line basis over periods ranging from one to ten years (see Note 4).
Impairment of Long-Lived Assets
The Company continually reviews the carrying value of long-lived assets,
including furniture, fixtures and equipment, and intangible assets to determine
whether there are any indications of impairment losses. If indications of
impairment are present in long-lived assets, the estimated future undiscounted
cash flows associated with the corresponding assets would be compared to its
carrying amount to determine if a write-down to fair value is necessary.
Revenue Recognition
Revenues consist primarily of Web hosting and set-up fees. The Company
generally sells its Web hosting services for contractual periods ranging from
one to twelve months. Revenues from these services are recognized ratably over
the contractual period. Payments received and billings in advance of providing
F-9
<PAGE> 93
SAGE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
services are deferred until the period such services are provided. Set-up fees,
which cover costs incurred by the Company to establish a customer's web site and
are non-refundable, are recognized when the set-up services are performed and
the Company has no further obligation with respect to set-up fees. Incremental
fees for excess bandwidth and storage usage are billed and recorded as revenues
as customers utilize such services.
Advertising Expenses
All advertising costs are expensed as incurred. Advertising expenses for
the year ended December 31, 1998 amounted to $672,000. No advertising costs were
incurred in the period December 8, 1997 (inception) through December 31, 1997.
Start-Up and Acquisition Integration Costs
In connection with acquisitions made by the Company during the year ended
December 31, 1998 (see Note 4), the Company incurred payroll, consulting and
travel costs to start-up and integrate the acquisitions into the Company.
Income Taxes
The Company accounts for income taxes using the liability method under
which deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Net Loss Per Share
Net loss per share is presented in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, Earnings Per Share. Basic
net loss per share is computed based on the weighted average number of shares of
common stock outstanding. Diluted loss per share does not differ from basic loss
per share since potential common shares to be issued upon exercise of stock
options are anti-dilutive for the periods presented.
Stock-Based Compensation
The Company accounts for its stock-based compensation plan utilizing the
provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25). The Company has adopted the disclosure provisions
only of Statement of Financial Accounting Standards No. 123, Accounting For
Stock-Based Compensation (SFAS 123).
Reclassifications
Certain 1997 amounts have been reclassified to conform to the 1998
presentation.
F-10
<PAGE> 94
SAGE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1997 1998 1999
------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Network software and equipment.................. $18,073 $5,213,879 $10,056,274
Furniture, fixtures and office equipment........ 10,840 303,742 1,241,054
Leasehold improvements.......................... 283,391 1,596,724
------- ---------- -----------
28,913 5,801,012 12,894,052
Less accumulated depreciation and
amortization............................... 1,850 697,889 1,426,813
------- ---------- -----------
$27,063 $5,103,123 $11,467,239
======= ========== ===========
</TABLE>
Depreciation expense amounted to $1,850, $696,039, and $699,552 for the
years ended 1997 and 1998, and the three months ended March 31, 1999,
respectively.
4. INTANGIBLE ASSETS
The Company has allocated the purchase price of acquired companies to
identifiable tangible assets and liabilities and intangible assets based on the
nature and the terms of the various purchase agreements and evaluation of the
acquired businesses. Amounts not allocated to tangible assets and liabilities
and identifiable intangible assets have been recorded as goodwill.
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31, AMORTIZATION
1998 1999 PERIOD
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Covenants not to compete..................... $ 3,759,202 $10,880,510 1-5 Years
Customer lists............................... 3,295,369 12,129,003 10 Years
Assembled work force......................... 1,127,031 4,540,000 5 Years
Trade names.................................. 573,982 5,032,270 5 Years
Goodwill..................................... 6,296,070 49,312,861 10 Years
----------- -----------
15,051,654 81,894,644
Less accumulated amortization................ 1,416,882 3,499,048
----------- -----------
$13,634,772 $78,395,596
=========== ===========
</TABLE>
Amortization expense amounted to $1,416,882 in 1998 and $2,082,167 in the
three months ended March 31, 1999.
5. ACQUISITIONS
During the year ended December 31, 1998, the Company made the following
acquisitions, each of which was accounted for using the purchase method of
accounting. The operations of each of the acquired companies are included in the
operating results of the Company from the date of acquisition noted.
On February 13, 1998, the Company purchased certain Web hosting assets of
Omnetrix, Inc., dba DirectNet, a Web hosting provider, for cash of approximately
$78,000.
F-11
<PAGE> 95
SAGE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On April 7, 1998, the Company purchased the operating assets of Clever
Computers, Inc., a Web hosting company, for cash of approximately $2,500,000.
Pursuant to a three-year employment agreement, a shareholder of Clever received
150,000 shares of the Company's Common Stock, valued at $3.32 per share, which
vests and is being accounted for as compensation expense over the term of the
employment agreement.
On April 30, 1998, the Company purchased certain Web hosting assets from
KnowledgeLink Interactive, Inc. for cash of approximately $612,000.
On May 1, 1998, the Company purchased the operating assets of Tri Star Web
Creations, Inc., a Web hosting company, for cash of approximately $955,000 and
9,000 shares of the Company's Common Stock, having a valuation of $4.07 per
share.
On June 10, 1998, the Company purchased certain Web hosting assets of
HostAmerica, the Web hosting division of HomeCom Communications, Inc., for cash
of approximately $4,250,000.
On June 29, 1998, the Company purchased the operating assets of All
Information Systems, Inc., a Web hosting company, for cash of approximately
$171,000 and 115,707 shares of the Company's Common Stock, having a valuation of
$5.00 per share.
On July 1, 1998, the Company purchased certain Web hosting assets of
Software Business Technologies, Inc. for 12,000 shares of the Company's Common
Stock, having a valuation of $5.00 per share.
On July 1, 1998, the Company purchased certain Web hosting assets of
DevCom, the Web hosting division of Nextron, Inc., for cash of approximately
$600,000.
On July 30, 1998, the Company purchased certain Web hosting assets of
BestWare, Inc., dba Maikon, for cash of approximately $374,000 and 5,490 shares
of the Company's Common Stock, having a valuation of $5.38 per share.
On August 31, 1998, the Company purchased all of the outstanding stock of
B.N. Technology, Inc., dba ICOM, a Web hosting company, for cash of
approximately $2,000,000. The purchase agreement also provides for additional
payments of cash of up to $2,000,000 to the shareholders of ICOM if certain
earnings targets are achieved. As of December 31, 1998, the earnings targets for
periods then ended had been achieved and $1,000,000 has been accrued. This
amount has been recorded as an intangible asset and any future payments under
this agreement will be similarly recorded. Pursuant to one-year employment
agreements, two shareholders of ICOM received a total of 300,000 shares of the
Company's Common Stock valued at $6.47 per share, which vest and is being
accounted for as compensation expense over the terms of the agreements.
On September 16, 1998, the Company purchased certain Web hosting assets of
GEN International, Inc. (GEN) for cash of $455,000 and substantially all the
assets of Global Entrepreneurs Network, Inc. (a wholly-owned subsidiary of GEN)
for $295,000. Pursuant to a consulting agreement with a shareholder of GEN, the
Company issued 25,000 shares of the Company's Common Stock, having a valuation
of $6.66 per share, which vests and is being accounted for as compensation
expense over the term of the consulting agreement.
On December 17, 1998, the Company purchased certain Web hosting assets of
Dialtone, Inc. a Web hosting company for cash of $375,000.
F-12
<PAGE> 96
SAGE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following unaudited condensed pro forma information presents the
unaudited results of operations of the Company as if the above acquisitions had
occurred on January 1, 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1998
----------- ------------
<S> <C> <C>
Service revenues......................................... $ 5,891,222 $ 8,893,389
Net loss................................................. (6,255,102) (11,211,583)
Net loss per share -- basic and diluted.................. $ (1.73) $ (1.23)
</TABLE>
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1997 1998 MARCH 31, 1999
------- ---------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Amounts due to former owners under contingent
consideration arrangements (see Note 5)...... $1,000,000 $ 500,000
Compensation................................... 226,641 574,740
Communications costs........................... 121,000 224,866
Other.......................................... $26,507 953,866 1,969,061
------- ---------- ----------
$26,507 $2,301,507 $3,268,667
======= ========== ==========
</TABLE>
7. STOCKHOLDERS' EQUITY
Common Stock
Pursuant to a Stock Subscription Agreement dated December 8, 1997 between
the Company and WEB, WEB purchased 15,600,000 shares of the Company's Common
Stock during the year ended December 31, 1998 and 3,000,000 shares during the
period December 8, 1997 (inception) to December 31, 1997, all at $1.67 per
share. WEB is entitled to purchase an additional 6,600,000 shares at $1.67
pursuant to the Stock Subscription Agreement (see Note 12).
The Board of Directors approved a three-for-one stock split of the
Company's Common Stock on July 28, 1998. The accompanying financial statements
have been retroactively restated to give effect to the stock split.
Stock Option Plan
On February 1, 1998, the Company adopted the Sage Networks, Inc. 1998 Stock
Option Plan (the Plan), which is administered by the Board of Directors (the
Committee). Under the terms of the Plan, the Committee may grant stock options
to officers, employees and consultants of the Company. The Plan permits the
grant of incentive stock options (ISOs) and nonqualified stock options (NSOs).
As of December 31, 1998, the Company has reserved 1,500,000 shares of Common
Stock for issuance under the Plan. Stock options may not be granted at less than
100% of the fair market value of the Common Stock on the date of the grant and
may not expire more than ten years from the date of the grant. Options granted
under the Plan generally will become exercisable over a four-year period in
equal annual installments unless the Committee specifies a different vesting
schedule. In the event of a change in control of the Company, each option
becomes immediately vested and exercisable, provided that no written provision
has been made, in connection with any such event, for (1) the continuation of
the stock option plan and/or the assumption of all outstanding options by a
successor corporation or (2) the substitution for such options of new options
covering the stock of a successor corporation. The Plan has a term of ten
F-13
<PAGE> 97
SAGE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
years, subject to earlier termination or amendment by the Committee, and all
options under the Plan prior to its termination remain outstanding until they
have been exercised or terminated.
During the year ended December 31, 1998, the Company granted 440,500
options at prices ranging from $1.67 to $6.67 per share. The weighted-average
exercise price of the options granted was $4.11. No options were exercised,
canceled or forfeited during the year ended December 31, 1998. No options are
vested at December 31, 1998.
Stock-Based Compensation
As discussed in Note 2, the Company applies APB 25 and related
interpretations in accounting for its stock option plan. Accordingly, since the
Company grants stock options with exercise prices at least equal to fair value
at the date of grant, no compensation expense has been recognized relating to
option grants in 1998.
As required under FAS 123, the following pro forma net loss and net loss
per share presentations reflect the amortization of the option grant fair value
as expense. For purposes of this disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The Company's
pro forma information follows for the year ended December 31, 1998:
<TABLE>
<S> <C>
Pro forma net loss.......................................... $(9,756,000)
Pro forma net loss per share -- basic and diluted........... $ (1.11)
</TABLE>
The weighted average grant date value was $0.83 for stock options issued in
1998, and the weighted-average remaining contractual life for options
outstanding as of December 31, 1998 is 9.4 years. Significant assumptions used
in determining this value include a risk free interest rate of 5.6%, expected
life of the options of four years, and a dividend rate of zero.
The effects on pro forma disclosures of applying SFAS 123 are not likely to
be representative of the effects on pro forma disclosures in future years as the
period presented includes only one year of option grants under the Plan.
8. INCOME TAXES
As of December 31, 1998, the Company has federal and state net operating
loss carryforwards of approximately $7,700,000. The net operating loss
carryforwards will expire at various dates beginning in the years 2003 through
2018 if not utilized.
Significant components of the Company's deferred tax assets and liabilities
for federal and state income taxes consist of the following at December 31,
1998:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $3,063,000
Depreciation.............................................. (14,000)
Other, net................................................ 813,000
----------
Total deferred tax assets, net.............................. 3,862,000
Valuation allowance......................................... (3,862,000)
----------
Net deferred tax asset...................................... $ --
==========
</TABLE>
The Company believes that, based on a number of factors, the available
objective evidence creates sufficient uncertainty regarding the realization of
the deferred tax assets such that a full valuation
F-14
<PAGE> 98
SAGE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
allowance has been recorded. The Company will continue to assess the realization
of the deferred tax assets based on actual and forecasted operating results.
9. LEASES
The Company leases its data centers and certain office space under
noncancelable operating leases, which expire at various dates through June 2009.
Some of the leases contain renewal options. Total rent expense for all operating
leases was approximately $7,000 and $420,000 for the period December 8, 1997
(inception) to December 31, 1997 and the year ended December 31, 1998,
respectively. In connection with one of the leases, the Company has given the
landlord a standby letter of credit in the amount of approximately $100,000 in
lieu of a security deposit.
Future minimum lease commitments for noncancelable operating leases are as
follows at December 31, 1998:
<TABLE>
<S> <C>
1999........................................................ $ 956,764
2000........................................................ 877,488
2001........................................................ 847,484
2002........................................................ 816,334
2003........................................................ 569,958
Thereafter.................................................. 2,079,107
----------
Total minimum lease payments...................... $6,147,135
==========
</TABLE>
10. RELATED-PARTY TRANSACTIONS
In connection with the acquisitions of certain Web hosting assets of
various entities (see Note 5), the Company paid or accrued transaction fees of
approximately $319,000 to Charterhouse Group International, Inc., a related
party of WEB. These fees are included in the respective purchase price
allocations as capitalized transaction costs.
The Company receives consulting services from Sage Equities, Inc. and
Intensity Ventures, Inc., whose principals are the co-chairmen of the Company
and members of WHO, for the purpose of identifying and executing potential
acquisitions. Sage Equities, Inc. and Intensity Ventures, Inc. are each paid
fees of $10,000 (plus expenses) per month for such services. For the period
December 8, 1997 (inception) to December 31, 1997 and the year ended December
31, 1998, the Company incurred costs under these agreements of $25,000 and
$120,0000, respectively, for Sage Equities, Inc., and $17,000 and $232,000 (of
which $112,000 were expenses), respectively, for Intensity Ventures. At December
31, 1997, these entities were owed a total of $84,959 by the Company for such
consulting services, which was paid in 1998.
The Company also receives consulting services from one other member of WHO.
During the period December 8, 1997 (inception) to December 31, 1997 and the year
ended December 31, 1998, the Company incurred costs relating to these services
totaling approximately $8,000 and $44,000, respectively.
11. EMPLOYEE BENEFIT PLAN
In 1998, the Company instituted a 401k Plan for all employees who have
attained age 21 and have been employed by the Company or by an acquired business
for one month. Participating employees may make contributions to the plan up to
15% of their compensation. The Plan provides that the Company may make
discretionary contributions to the Plan on behalf of participating employees.
The Company did not make any such contributions for the year ended December 31,
1998.
F-15
<PAGE> 99
SAGE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SUBSEQUENT EVENTS
On January 28, 1999, the Company's Board of Directors and Stockholders
approved an amendment to the Company's certificate of incorporation (Charter) to
increase the number of authorized shares to 35,000,000 shares of Common Stock
and up to 2,647,658 shares of Preferred Stock, all of which is designated as
Series A Convertible Preferred Stock (Series A Preferred).
On January 28, 1999, pursuant to a Securities Purchase Agreement (the
Purchase Agreement) the Company sold to Softbank Technology Ventures IV L.P. and
one of its affiliates (the Series A Investors), 2,647,658 shares of its Series A
Preferred at a price of $4.91 per Series A Preferred share and issued 749,625
Common Stock warrants of the Company for cash of $13,000,000. The Series A
Preferred is convertible at any time, at the option of the holder, into the
Company's Common Stock, subject to anti-dilution provisions as set forth in the
Charter. In the event of a qualifying public offering (as defined in the
Charter), however, the Series A Preferred is automatically converted into Common
Stock. If the Series A Preferred is not converted before January 28, 2006, a
majority in interest of the holders thereof may request the Company to redeem
the Series A Preferred at $4.91 per share plus any accrued but unpaid dividends
on such shares. Because of the redemption features of the Series A Preferred, it
will not be reported as a component of stockholders' equity. The warrants are
immediately exercisable at a price of $6.67 per share. The warrants expire on
the earlier of three years subsequent to the consummation of the Company's
initial public offering or January 28, 2003. The Company, the Series A Investors
and WEB have entered into an Investors Agreement dated January 28, 1999, which
provides the Series A Investors to nominate a director to the Company's Board of
Directors and grants the Series A Investors preemptive rights and certain
registration rights.
On February 9, 1999, pursuant to its stock subscription agreement, WEB
purchased the remaining 6,600,000 shares of the Company's Common Stock for an
aggregate of $11,000,000 (see Note 7).
The Company consummated the following acquisitions in the early part of
February 1999, each of which will be accounted for using the purchase method of
accounting:
The purchase of certain assets of Telephonetics International, Inc., a
provider of customized music and messages on hold recording services to
businesses utilizing on-hold telephone equipment. The purchase price
consists of cash of $3,000,000 and 140,000 shares of the Company's Common
Stock valued at $6.67 per share.
The purchase of all of the outstanding stock of Net Daemons
Associates, Inc. (NDA), a provider of Web development and system
integration activity for Internet and IP Networks. The purchase price
consists of cash of $500,000 and 425,000 shares of the Company's Common
Stock valued at $6.67 per share. In addition, the Company has agreed to pay
certain officers of NDA $2,371,000 to induce them to enter into non-compete
agreements and to pay approximately $436,000 to cancel certain NDA stock
options. The agreement also provides for contingent purchase consideration
of $500,000 in cash and 74,963 shares of the Company's Common Stock if
specified gross revenue and gross margin targets are achieved in the
twelve-month period following the acquisition. The payment of contingent
consideration, if any, will be recorded as additional purchase price. The
shares of stock and cash to be paid for the contingent purchase
consideration have been deposited with an escrow agent.
The purchase of the Web hosting assets of Digiweb, Inc., a Web hosting
company. The purchase price consists of cash of approximately $5,000,000
and 450,000 shares of the Company's Common Stock valued at $6.67. The
agreement provides for contingent purchase consideration of $1,000,000 if
specified revenue and earnings targets are achieved in the year ending
December 31, 1999. The payment of contingent consideration, if any, will be
recorded as additional purchase price.
F-16
<PAGE> 100
SAGE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In March 1999, the Company's stockholders approved an amendment to the
Company's certificate of incorporation to increase the number of authorized
shares of Common Stock to 100,000,000, and, on March 10, 1999, the Company
acquired substantially all of the assets and assumed specified liabilities of
Interliant, Inc., a provider of groupware hosting and application outsourcing
services. The purchase price consisted of $100,000 in cash and 4,091,642 shares
of the Company's Common Stock valued at $6.67 per share, and options to purchase
up to 2,322,179 shares of the Company's Common Stock. In addition, the Company
paid $7,900,000 on an outstanding note payable of Interliant, Inc. at closing
and will pay the balance of the note ($8,000,000) at the earlier of the
completion of an initial public offering of the Company's Common Stock or
September 1999. The transaction will be accounted for using the purchase method
of accounting. In connection with this acquisition, the Company changed its name
to Interliant, Inc.
The purchase consideration for the acquisitions referred to above is as
follows:
<TABLE>
<S> <C>
Cash, including estimated transaction costs and payments of
$7,900,000 of seller's note............................... $20,287,000
Common stock (6,630,103 shares, including 1,523,461 shares
issuable upon exercise of substitute options issued in
connection with the acquisition of the net assets of
Interliant, Inc.) ........................................ 44,025,000
-----------
64,312,000
Seller debt paid............................................ 7,900,000
Allocated to intangible assets (see note 4)................. 65,967,000
-----------
Allocated to net tangible assets acquired................... $(9,555,000)
===========
</TABLE>
The following unaudited condensed pro forma information presents the
unaudited results of operations of the Company as if the acquisitions completed
in 1999 had occurred on January 1, 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH, 31, 1999
------------------
<S> <C>
Service revenues....................................... $ 10,340,535
Net loss............................................... (11,385,295)
Net loss per share -- basic and diluted................ $ (0.40)
</TABLE>
F-17
<PAGE> 101
INTERLIANT, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
During the period from inception through March 10, 1999, Interliant, Inc.
(formerly, Sage Networks, Inc.) ("Interliant" or the "Company") completed
numerous business combinations, whereby the Company acquired shares of common
stock, or certain net assets of entities operating in the Internet industry.
Business combinations are accounted for using the purchase method of accounting.
The unaudited pro forma consolidated statement of operations for the year
ended December 31, 1998 and the three months ended March 31, 1999 assumes that
the acquisitions completed in 1998 and 1999 had occurred on January 1, 1998, and
includes the historical consolidated statements of operations of Interliant,
adjusted for the pro forma effects of the acquisitions.
The unaudited pro forma consolidated statement of operations is not
necessarily indicative of the results of operations that would actually have
occurred if the transactions had been consummated as of January 1, 1998 and is
not intended to indicate the expected results for any future period. These
statements should be read in conjunction with the historical consolidated
financial statements and related notes thereto of Interliant, and of certain
acquired businesses, included elsewhere in this prospectus.
The unaudited pro forma adjustments are based upon preliminary estimates
and certain assumptions that management of Interliant believes are reasonable in
the circumstances. The actual adjustments may be revised upon completion of the
purchase price allocations. Except for additions to intangible assets on
contingent purchase price payments based on the underlying purchase agreements,
management of Interliant does not believe that actual adjustments will be
materially different from preliminary estimates.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended March 31, 1999
<TABLE>
<CAPTION>
ACQUISITIONS COMPLETED IN 1999(2)
INTERLIANT -------------------------------------------------- PRO FORMA
HISTORICAL TELEPHONICS NET DAEMONS DIGIWEB INTERLIANT ADJUSTMENTS PRO FORMA
------------ ----------- ----------- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Service revenues................ $ 5,434,162 $331,182 $836,289 $237,300 $ 3,501,602 $ 10,340,535
Costs and expenses:
Cost of service revenues...... 3,250,703 47,387 466,929 62,003 2,149,276 5,976,298
Sales and marketing........... 1,896,357 69,711 12,122 1,508,576 3,486,766
General and administrative.... 3,699,847 201,261 285,395 82,979 1,289,018 5,558,500
Depreciation.................. 699,552 6,000 16,206 25,000 532,192 1,278,950
Amortization of intangibles... 2,082,167 $ 2,141,822(5) 4,223,989
Start up and acquisition
costs....................... 1,063,458 1,063,458
------------ -------- -------- -------- ----------- ----------- ------------
Total costs and expenses........ 12,692,084 324,359 780,652 169,982 5,479,062 2,141,822 21,587,961
------------ -------- -------- -------- ----------- ----------- ------------
Operating income (loss)......... (7,257,922) 6,823 55,637 67,318 (1,977,460) (2,141,822) (11,247,426)
Interest income (expense)....... 53,912 (1,873) (148,460) (96,421)
Other income (expense).......... (41,448) (41,448)
Income (loss) before income
tax........................... (7,245,458) 6,823 53,764 67,318 (2,125,920) (2,141,822) (11,385,295)
Provision for income tax........ (13,313) 13,313(6) --
------------ -------- -------- -------- ----------- ----------- ------------
Net income (loss)............... $ (7,245,458) $ 6,823 $ 40,451 $ 67,318 $(2,125,920) $(2,128,509) $(11,385,295)
============ ======== ======== ======== =========== =========== ============
Net loss per share -- basic and
diluted....................... $ (0.29) $ (0.40)
Number of shares................ 24,769,890 28,626,240
</TABLE>
F-18
<PAGE> 102
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
ACQUISITIONS COMPLETED IN 1999 (2)
SAGE 1998 COMPLETED ------------------------------------------------------ PRO FORMA
HISTORICAL ACQUISITIONS(1) TELEPHONETICS NET DAEMONS DIGIWEB INTERLIANT ADJUSTMENTS
----------- --------------- ------------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Service revenues....... $ 4,905,027 $ 3,988,362 $2,769,606 $5,770,024 $2,685,676 $21,172,869
Costs and expenses:
Cost of service
revenues........... 3,236,385 1,266,435 823,161 3,211,532 923,310 11,880,983 $ (1,050,921)(3)
Sales and
marketing.......... 2,555,035 84,858 31,577 6,722,996
General and
administrative..... 5,120,595 3,473,637 2,605,725 2,161,094 578,993 4,137,668 2,497,463(3)(4)
Depreciation......... 696,039 142,099 74,758 135,129 246,329 2,525,530
Amortization of
intangibles........ 1,416,882 13,048,086(5)
Start up and
acquisition
costs.............. 1,727,970
----------- ----------- ---------- ---------- ---------- ----------- ------------
Total costs and
expenses............. 14,752,906 4,967,029 3,503,644 5,507,755 1,780,209 25,267,177 14,494,628
----------- ----------- ---------- ---------- ---------- ----------- ------------
Operating
income(loss)......... (9,847,879) (978,667) (734,038) 262,269 905,467 (4,094,308) (14,494,628)
Interest income
(expense)............ 138,073 (180,987) (7,369) (101,485) (16,829) (715,643)
Equity in loss of joint
venture.............. (144,735)
Gain on litigation
settlement........... 600,000
Income (loss) before
income tax........... (9,709,806) (1,159,654) (741,407) 160,784 888,638 (4,354,686) (14,494,628)
Provision for income
tax.................. 100,800 (100,800)(6)
----------- ----------- ---------- ---------- ---------- ----------- ------------
Net income(loss)....... $(9,709,806) $(1,159,654) $ (741,407) $ 59,984 $ 888,638 $(4,354,686) $(14,393,828)
=========== =========== ========== ========== ========== =========== ============
Net loss per share --
basic and diluted.... $ (1.10)
Number of shares....... 8,799,432
<CAPTION>
PRO FORMA
------------
<S> <C>
Service revenues....... $ 41,291,564
Costs and expenses:
Cost of service
revenues........... 20,290,885
Sales and
marketing.......... 9,394,466
General and
administrative..... 20,575,175
Depreciation......... 3,819,884
Amortization of
intangibles........ 14,464,968
Start up and
acquisition
costs.............. 1,727,970
------------
Total costs and
expenses............. 70,273,348
------------
Operating
income(loss)......... (28,981,784)
Interest income
(expense)............ (884,240)
Equity in loss of joint
venture.............. (144,735)
Gain on litigation
settlement........... 600,000
Income (loss) before
income tax........... (29,410,759)
Provision for income
tax.................. --
------------
Net income(loss)....... $(29,410,759)
============
Net loss per share --
basic and diluted.... $ (1.86)
Number of shares....... 15,829,762
</TABLE>
F-19
<PAGE> 103
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(1) Set forth below are the pre acquisition operations of acquired businesses
completed in 1998 from January 1, 1998 through the date of acquisition.
<TABLE>
<CAPTION>
HOST AMERICA,
DIVISION OF HOME-
CLEVER COMPUTERS TRISTAR WEB COME COMMUN- B.N. TECHNOLOGY, GEN INTERNATIONAL
INC. CREATIONS, INC. CATIONS, INC. DBA ICOM INC.
---------------- --------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Service revenues......... $554,020 $256,953 $ 533,159 $ 982,376 $ 776,503
-------- -------- --------- ---------- ---------
Cost of service
revenues............... 102,197 103,232 230,435 153,919 323,518
Sales and marketing...... 52,770 32,088
General and
administrative......... 387,236 183,521 629,727 984,223 785,972
Depreciation............. 9,557 63,642 10,817 26,496
-------- -------- --------- ---------- ---------
489,433 296,310 976,574 1,148,959 1,168,074
-------- -------- --------- ---------- ---------
Operating income(loss)... 64,587 (39,357) (443,415) (166,583) (391,571)
Interest income
(expense).............. (368) (156,399) (4,051) (12,557)
-------- -------- --------- ---------- ---------
Net income(loss)......... $ 64,587 $(39,725) $(599,814) $ (170,634) $(404,128)
======== ======== ========= ========== =========
<CAPTION>
OTHER TOTAL 1998
ACQUISITIONS ACQUISITIONS
------------------ ------------
<S> <C> <C>
Service revenues......... $885,351 $ 3,988,362
-------- -----------
Cost of service
revenues............... 353,134 1,266,435
Sales and marketing...... 84,858
General and
administrative......... 502,958 3,473,637
Depreciation............. 31,587 142,099
-------- -----------
887,679 4,967,029
-------- -----------
Operating income(loss)... (2,328) (978,667)
Interest income
(expense).............. (7,612) (180,987)
-------- -----------
Net income(loss)......... $ (9,940) $(1,159,654)
======== ===========
</TABLE>
(2) Represents the results of operations for businesses acquired in 1999 for
the year ended December 31, 1998 and from January 1, 1999 through the date
of acquisition.
(3) To reclassify Interliant Texas customer service costs to conform with
Registrant's presentation.
(4) To record amortization of stock based compensation awarded to employees
and owners of acquired businesses in connection with employment and/or
consulting agreements.
(5) To record amortization of intangibles arising as a result of acquisitions
for the period from January 1, 1998 to acquisition date based on
amortization periods ranging from two to ten years.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED
1998 MARCH 31, 1999
------------ --------------
<S> <C> <C>
Amortization:
1998 acquisitions from January 1, 1998 to
respective dates of acquisition,
(amortization period 2-10 years)......... $ 1,139,439 $ --
1999 acquisitions for the year ended
December 31, 1998 (amortization period 1
to 10 years)............................. 11,908,647 2,141,822
----------- ----------
$13,048,086 $2,141,822
=========== ==========
</TABLE>
(See Note 4 of Notes to Consolidated Financial Statements)
(6) To record elimination of income tax provision due to consolidated pre tax
loss.
F-20
<PAGE> 104
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder
Clever Computers, Inc.
Atlanta, Georgia
We have audited the accompanying balance sheet of Clever Computers, Inc. as
of December 31, 1996 and 1997 and the related statements of income, retained
earnings, and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Clever Computers, Inc. as of
December 31, 1996 and 1997 and the results of their operations and their cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
BSC & E
Atlanta, Georgia
March 19, 1998
F-21
<PAGE> 105
CLEVER COMPUTERS, INC.
ATLANTA, GEORGIA
BALANCE SHEET
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
--------- ---------
<S> <C> <C>
ASSETS
Current Assets
Cash -- operating......................................... $ 72,263 $ 50,425
Cash -- payroll........................................... 50,655 42,693
Accounts receivable, net of allowance for doubtful
accounts of $16,199 in 1997............................ 25,659 91,792
Prepaid expenses.......................................... 3,127 6,485
Prepaid income taxes...................................... 878
Deferred income taxes..................................... 4,050
--------- ---------
Total current assets.............................. 151,704 196,323
--------- ---------
Property and Equipment
Furniture................................................. 1,868 2,617
Computer equipment........................................ 231,871 422,105
Computer software......................................... 30,101 34,365
--------- ---------
263,840 479,087
Accumulated depreciation and amortization................. (115,387) (231,264)
--------- ---------
148,453 247,823
--------- ---------
Other Assets
Other assets.............................................. 14,782 4,668
Organization costs, net of accumulated amortization of
$292 and $391.......................................... 196 97
--------- ---------
14,978 4,765
--------- ---------
$ 315,135 $ 448,911
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable.......................................... $ 33,941 $ 66,808
Accrued consulting fee.................................... 34,000 100,000
Deferred revenues......................................... 95,536 127,324
Income taxes payable...................................... 15,906
Accrued payroll and payroll taxes......................... 42,363 35,249
Advances to stockholder................................... 22,520 2,358
--------- ---------
Total current liabilities......................... 244,266 331,739
--------- ---------
Stockholder's Equity
Common stock, no par value; 10,000 shares authorized;
1,000 shares issued and outstanding.................... 5,000 5,000
Retained earnings......................................... 65,869 112,172
--------- ---------
70,869 117,172
--------- ---------
$ 315,135 $ 448,911
========= =========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-22
<PAGE> 106
CLEVER COMPUTERS, INC.
STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Revenues.................................................... $1,128,108 $2,156,982
Operating expenses.......................................... 1,045,357 2,088,928
---------- ----------
Income from operations.................................... 82,751 68,054
Other income and (expense).................................. 185 (937)
---------- ----------
Income before provision for income taxes.................. 82,936 67,117
Provision for income taxes.................................. 15,906 20,814
---------- ----------
Net income................................................ $ 67,030 $ 46,303
========== ==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-23
<PAGE> 107
CLEVER COMPUTERS, INC.
STATEMENT OF RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<S> <C>
Balance, December 31, 1995.................................. $ (1,161)
Add net income............................................ 67,030
--------
Balance, December 31, 1996.................................. 65,869
Add net income............................................ 46,303
--------
Balance, December 31, 1997.................................. $112,172
========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-24
<PAGE> 108
CLEVER COMPUTERS, INC.
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 67,030 $ 46,303
Adjustments to reconcile net income to net cash provided
by operating activities:
Deferred income taxes.................................. (4,050)
Bad debts.............................................. 16,199
Gain on sale of assets................................. (1,426)
Depreciation and amortization.......................... 61,884 117,401
Changes in operating assets and liabilities:
Accounts receivable.................................. (24,218) (82,332)
Prepaid expenses..................................... (3,127) (3,358)
Prepaid income taxes................................. (878)
Other assets......................................... (11,217) 10,114
Accounts payable..................................... 11,931 16,961
Accrued consulting fees.............................. 34,000 66,000
Deferred revenues.................................... 90,536 31,788
Income taxes payable................................. 15,906
Accrued payroll and payroll taxes.................... 30,454 (7,115)
Advances to stockholder.............................. 12,436 (20,162)
--------- ---------
Net cash provided by operating activities......... 285,615 185,445
--------- ---------
Cash flows from investing activities:
Acquisition of property and equipment..................... (185,856) (219,206)
Proceeds from sale of assets.............................. 3,961
--------- ---------
Net cash used in investing activities............. (185,856) (215,245)
--------- ---------
Cash flows from financing activities........................ -- --
--------- ---------
Increase (decrease) in cash................................. 99,759 (29,800)
Cash, beginning of year..................................... 23,159 122,918
--------- ---------
Cash, end of year........................................... $ 122,918 $ 93,118
========= =========
Cash paid during the year for:
Interest.................................................. $ 51 $ 2,500
Income taxes.............................................. -- 36,931
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-25
<PAGE> 109
CLEVER COMPUTERS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Clever Computers, Inc. was incorporated October 25, 1993 in the State of
Georgia. The Company is engaged in the business of Internet Web hosting.
Property and equipment
Property and equipment are recorded at cost. Depreciation is provided over
the estimated useful lives of the assets by accelerated and straight line
methods.
Statement of cash flows
The Company considers instruments with a maturity of three months or less
to be cash equivalents for purposes of the statement of cash flows.
Income taxes
Income taxes are accounted for in accordance with provisions of Statement
of Financial Accounting Standards No. 109. Deferred income taxes have been
provided for the difference in bad debt expense for income tax and financial
statement reporting purposes.
Organization costs
Organization costs are being amortized on a straight line basis over five
years.
Deferred revenues
As part of their standard service agreements with customers, the Company
bills for all services for three months in advance. As a result, a portion of
revenues collected and billed for as of year end relates to services not yet
performed. The deferred revenue associated with these services is recognized on
the balance sheet as a current liability.
Estimates
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities, and
the reported revenues and expenses. Actual results could differ from those
estimates.
NOTE 2. LEASES
The Company leases office facilities and certain equipment. Renewal options
are available on some of these leases.
Future minimum lease payments required on noncancelable operating leases
having initial or remaining terms in excess of one year as of December 31, 1997,
are as follows:
<TABLE>
<S> <C>
1998...................................................... $175,923
1999...................................................... 33,555
2000...................................................... 1,600
--------
$211,078
========
</TABLE>
F-26
<PAGE> 110
CLEVER COMPUTERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense of $40,508 and $97,655 in 1996 and 1997, respectively, is
included in operating expenses in the accompanying statements of income.
NOTE 3. INCOME TAXES
The Company's provision for income taxes consisted of the following
amounts:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
------------------
1996 1997
------- -------
<S> <C> <C>
Current.................................................. $11,860 $24,864
Deferred benefit............................... (4,046) (4,050)
------- -------
Provision for income taxes..................... $15,906 $20,814
======= =======
</TABLE>
NOTE 4. SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the Company was approached by certain
parties regarding the potential sale of the Company. As of the report date, no
formal agreement was in place and negotiations were ongoing.
F-27
<PAGE> 111
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Sage Networks, Inc.
We have audited the accompanying balance sheets of Tri Star Web Creations,
Inc. as of December 31, 1996 and 1997, and the related statements of operations,
and changes in retained earnings, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Tri Star Web Creations, Inc.
as of December 31, 1996 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Urbach Kahn & Werlin PC
New York, New York
July 13, 1998
F-28
<PAGE> 112
TRI STAR WEB CREATIONS, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
------ --------
<S> <C> <C>
ASSETS
Current Assets
Cash...................................................... $ 391 $ 997
Accounts receivable, net of an allowance for doubtful
accounts of $6,000 and $9,747.......................... 9,125 41,770
Prepaid expenses.......................................... -- 3,365
------ --------
Total current assets.............................. 9,516 46,132
Other assets................................................ -- 4,182
Fixed assets, net of accumulated depreciation............... -- 95,036
------ --------
Total assets...................................... $9,516 $145,350
------ --------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Notes payable to related parties, current................. $ -- $ 18,510
Equipment purchase/obligations............................ -- 55,236
Accounts payable.......................................... 1,500 42,771
Deferred revenue.......................................... 2,420 26,131
------ --------
Total current liabilities......................... 3,920 142,648
------ --------
Long-term Liabilities
Note payable to related party, net of current portion..... -- 1,795
------ --------
Total liabilities................................. 3,920 144,443
------ --------
Stockholders' Equity
Capital stock, no par value; 100 shares authorized, 3
shares issued and outstanding.......................... 100 100
Retained earnings......................................... 5,496 807
------ --------
Total stockholder's equity........................ 5,596 907
------ --------
Total liabilities and stockholder's equity........ $9,516 $145,350
====== ========
</TABLE>
See Notes to Financial Statements
F-29
<PAGE> 113
TRI STAR WEB CREATIONS, INC.
STATEMENT OF OPERATIONS AND CHANGES IN RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Service revenues............................................ $51,492 $178,251
------- --------
Selling expenses............................................ 7,727 25,234
General and administrative expenses......................... 23,021 140,972
------- --------
30,748 166,206
------- --------
Operating income............................................ 20,744 12,045
Interest expense............................................ -- 1,424
------- --------
Net income........................................ 20,744 10,621
Retained earnings (accumulated deficit), beginning of
year...................................................... (420) 5,496
Distributions............................................... (14,828) (15,310)
------- --------
Retained earnings, end of year.............................. $ 5,496 $ 807
======= ========
</TABLE>
See Notes to Financial Statements
F-30
<PAGE> 114
TRI STAR WEB CREATIONS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 20,744 $ 10,621
Adjustments to reconcile net income to net cash provided
by operating activities:
Bad debts.............................................. 6,000 3,747
Depreciation........................................... -- 4,337
Changes in:
Accounts receivable.................................. (15,125) (36,392)
Prepaid expenses..................................... -- (3,365)
Other assets......................................... -- (4,182)
Accounts payable..................................... 180 41,271
Deferred revenue..................................... 2,420 23,711
-------- --------
Net cash provided by operating activities......... 14,219 39,748
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets.................................. -- (37,603)
-------- --------
Net cash used in investing activities............. -- (37,603)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from related party borrowings.................... -- 25,000
Principal payments on related party borrowings and
equipment purchase obligations......................... -- (11,229)
Cash distributions paid................................... (14,828) (15,310)
-------- --------
Net cash used in financing activities............. (14,828) (1,539)
-------- --------
Net increase (decrease) in cash................... (609) 606
Cash, beginning of year..................................... 1,000 391
-------- --------
Cash, end of year........................................... $ 391 $ 997
======== ========
Supplemental disclosures of cash flow information
Cash payments for:
Interest............................................... $ -- $ 1,424
-------- --------
Supplemental schedule of noncash investing and financing
activities
Equipment purchase obligations incurred for use of
equipment.............................................. $ -- $ 61,770
-------- --------
</TABLE>
See Notes to Financial Statements
F-31
<PAGE> 115
TRI STAR WEB CREATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1. DESCRIPTION OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Operations: Tri Star Web Creations, Inc. (the "Company") is
primarily engaged in the business of providing web hosting services for
companies and individuals nationwide placing websites on the Internet.
Summary of Significant Accounting Policies
Revenue Recognition: The Company recognizes service revenues ratably as
hosting services are provided.
Concentrations of Credit Risk: The Company extends credit based on an
evaluation of the customer's financial condition, generally without requiring
collateral. Exposure to losses on receivables is principally dependent on each
customer's financial condition. The Company monitors its exposure for credit
losses and maintains allowances for anticipated losses.
Fixed Assets: Fixed assets are carried at cost, less accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets which range from five to seven
years.
Income Taxes: The Company, with the consent of its stockholders, has
elected to be taxed under sections of the federal and state income tax laws
which provide that, in lieu of corporation income taxes, the stockholder
separately accounts for the Company's items of income, deduction, losses and
credits. Therefore, no provision or liability for Federal tax is reflected in
the financial statements. A provision for state taxes is included in operating
expenses.
Use of Estimates in the Preparation of Financial Statements: The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
NOTE 2. FIXED ASSETS
Fixed assets consist of the following at December 31:
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Computers.......................................... $98,369
Furniture and fixtures............................. 1,004
-------
99,373
Less accumulated depreciation...................... 4,337
-------
$95,036
=======
</TABLE>
NOTE 3. NOTES PAYABLE, RELATED PARTIES
Loans from related parties at December 31, 1997 are represented by a
$15,305 obligation secured by substantially all assets of the Company with
interest at 8.25% and an unsecured non-interest bearing obligation of $5,000.
F-32
<PAGE> 116
TRI STAR WEB CREATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Notes payable, related parties at December 31, 1997 mature as follows:
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Total.............................................. $20,305
Less amounts due currently......................... 18,510
-------
Amounts maturing in 1999........................... $ 1,795
=======
</TABLE>
NOTE 4. EQUIPMENT PURCHASE OBLIGATIONS
The Company finances a portion of its computer equipment under twelve month
equipment purchase obligations.
NOTE 5. OPERATING LEASE
The Company leases its office facility under an operating lease which
expires in January 2003. In addition to base rent, the leasing arrangements
obligate the Company to pay all taxes, insurance, utilities and maintenance
costs. The future minimum base rent payments under the lease are as follows:
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
1998.............................................. $ 21,281
1999.............................................. 22,961
2000.............................................. 23,556
2001.............................................. 24,169
2002.............................................. 25,936
--------
$117,903
========
</TABLE>
NOTE 6. SUBSEQUENT EVENT
In May 1998, the Company sold substantially all of its assets to Sage
Networks, Inc. ("Sage") for cash and assumption of certain of its liabilities
and common stock in Sage. The net consideration for this sale exceeded the
carrying amounts of the related assets at December 31, 1997.
F-33
<PAGE> 117
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
HomeCom Communications, Inc.
In our opinion, the accompanying statements of assets and liabilities and
the related statements of revenues and expenses and of cash flows present
fairly, in all material respects, the financial position of HostAmerica, a
division of HomeCom Communications, Inc., at December 31, 1996 and 1997, and the
results of its operations and its cash flows for the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
The accompanying financial statements have been carved out of the
historical financial statements of HomeCom Communications, Inc. As such, these
financial statements represent a lesser business component and are not intended
to be a complete presentation of the financial position or the results of
operations or cash flows of the Company were it to operate on a stand-alone
basis. A description of the significant assumptions used to prepare the
carve-out financial statements is included in Note 1 to the financial
statements.
As discussed in Note 1 to the financial statements, substantially all the
assets of HostAmerica were sold to Sage Acquisition Corp. on June 9, 1998.
PricewaterhouseCoopers LLP
Atlanta, Georgia
August 18, 1998
F-34
<PAGE> 118
HOMECOM COMMUNICATIONS, INC.
HOSTAMERICA DIVISION
STATEMENTS OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable, net of allowance for
uncollectibles......................................... $ 54,306 $ 55,421
-------- --------
Total current assets.............................. 54,306 55,421
Computer equipment, net..................................... 62,610 83,662
-------- --------
Total assets...................................... $116,916 $139,083
======== ========
LIABILITIES AND BUSINESS UNIT EQUITY (DEFICIT)
Current liabilities:
Deferred revenue.......................................... $ 62,063 $173,458
-------- --------
Total current liabilities......................... 62,063 173,458
-------- --------
Commitments and contingencies
Business unit equity (deficit).............................. 54,853 (34,375)
-------- --------
Total liabilities and business unit equity
(deficit)....................................... $116,916 $139,083
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-35
<PAGE> 119
HOMECOM COMMUNICATIONS, INC.
HOSTAMERICA DIVISION
STATEMENTS OF REVENUES AND EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
-------- --------- -----------
<S> <C> <C> <C>
Hosting revenues........................................ $ 26,191 $ 304,399 $ 692,140
Cost of hosting revenues................................ 32,298 163,767 407,785
-------- --------- -----------
Gross margin............................................ (6,107) 140,632 284,355
-------- --------- -----------
Operating expenses:
Sales and marketing................................... 7,187 99,005 407,375
General and administrative............................ 13,617 183,524 876,121
Depreciation.......................................... 23,877 83,586
-------- --------- -----------
Total operating expenses...................... 20,804 306,406 1,367,082
-------- --------- -----------
Operating loss.......................................... (26,911) (165,774) (1,082,727)
Other expenses (income):
Interest expense...................................... 278 6,789 130,660
Other expense (income), net........................... (868) (22,431)
-------- --------- -----------
Excess of expenses over revenues........................ $(27,189) $(171,695) $(1,190,956)
======== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-36
<PAGE> 120
HOMECOM COMMUNICATIONS, INC.
HOSTAMERICA DIVISION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
-------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Excess of expenses over revenues...................... $(27,189) $(171,695) $(1,190,956)
Adjustments to reconcile excess of expenses over
revenues to net cash used in operating activities:
Depreciation....................................... 23,877 83,586
Provision for bad debts............................ 1,014 26,090 198,364
Changes in assets and liabilities:
Accounts receivables............................. (6,032) (73,274) (201,583)
Unearned revenue................................. 4,899 57,164 111,396
-------- --------- -----------
Net cash used in operating activities......... (27,308) (137,838) (999,193)
-------- --------- -----------
Cash flows from investing activities:
Purchase of computer equipment........................ -- (77,147) (55,589)
-------- --------- -----------
Net cash used in investing activities......... -- (77,147) (55,589)
-------- --------- -----------
Cash flows from financing activities
Allocated charges paid by HomeCom Communications,
Inc., net of cash transferred...................... 27,308 214,985 1,054,782
-------- --------- -----------
Net cash provided by financing activities..... 27,308 214,985 1,054,782
-------- --------- -----------
Net increase (decrease) in cash......................... 0 0 0
Cash and cash equivalents at beginning of period........ 0 0 0
-------- --------- -----------
Cash and cash equivalents at end of period.............. $ 0 $ 0 $ 0
======== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-37
<PAGE> 121
HOMECOM COMMUNICATIONS, INC.
HOSTAMERICA DIVISION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
HostAmerica is a trade name of HomeCom Communications, Inc. ("HomeCom")
under which HomeCom provides full service Internet Web site hosting services.
The Web hosting operations of HomeCom conducted under the HostAmerica trade name
are herein referred to as "HostAmerica" or "the Division".
On June 9, 1998, HomeCom sold certain assets of the Division, consisting
principally of hosting contracts, equipment and the trade name "HostAmerica" to
Sage Acquisition Corp. for $4,500,000. Pursuant to the terms of the Asset
Purchase Agreement (the "Agreement"), HomeCom retained all of the accounts
receivable of HostAmerica existing as of May 31, 1998, and retained certain
hosting contracts, and the right to perform hosting services in the future for
companies in the financial services industry. The Agreement required the deposit
of $250,000 of the proceeds to be held in escrow until May 1, 1999, for the
purpose of indemnifying Sage Acquisition Corp. for representations and
warranties made by HomeCom under the Agreement.
Basis of Presentation
Historically, financial statements were not prepared for the Division. The
accompanying financial statements have been prepared in accordance with
generally accepted accounting principles and have been "carved out" of the
financial statements of HomeCom for each of the periods, and as of each of the
dates presented. As such, these statements represent a lesser business component
and are not intended to be a complete presentation of the financial position or
the results of operations or cash flows of the Division were it to operate on a
stand-alone basis.
The accompanying financial statements exclude the assets, liabilities and
revenues related to certain premium hosting accounts referred to as Excluded
Customers in the Agreement. The statements of revenues and expenses of the
Division include all revenues and costs directly attributable to the Division
and also include allocations of corporate overhead from HomeCom. Expenses have
been allocated based on a variety of methods depending on the nature of the
expense. Such allocation methods include proportional HostAmerica revenues to
total HomeCom revenues, headcount equivalents and management estimates. The cost
of providing hosting services represents direct payroll and related costs of
those employees involved in providing hosting services and an allocation of
Internet connection services. An allocation of corporate marketing expenses and
corporate administrative functions (including data services, employee benefits,
legal, insurance, accounting and other corporate overhead) has been included in
the selling and marketing and general and administrative operating expenses in
the statements of revenues and expenses. Depreciation has been computed based
upon a computation of the direct expenses related to the assets sold under the
terms of the Agreement plus an allocation of general corporate depreciation.
Management believes these allocations are reasonable. These allocations are not
necessarily indicative of the costs and expenses that would have resulted if the
Division had been operated as a separate entity.
Accounts Receivable, Net
Accounts receivable represent amounts receivable from the class of hosting
customer subject to the Agreement and are shown net of the allowance for
doubtful accounts. The allowance was approximately $27,000 and approximately
$90,000 at December 31, 1996 and 1997, respectively.
F-38
<PAGE> 122
HOMECOM COMMUNICATIONS, INC.
HOSTAMERICA DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Computer Equipment, Net
Computer equipment is recorded at cost less accumulated depreciation, which
is computed using the straight-line method over the estimated useful lives of
the related assets (three years). Maintenance and repairs are charged to expense
as incurred. Upon sale, retirement or other disposition of these assets, the
cost and the related accumulated depreciation are removed from the respective
accounts and any gain or loss on the disposition is included in income.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition
HostAmerica recognizes revenues ratably over the period for which the Web
site hosting services are provided. Deferred revenue, as reflected on the
accompanying statements of assets and liabilities, represents the amount of
billings recorded in advance of services being provided.
Advertising Expenses
All advertising costs are expensed when incurred. Advertising expenses
allocated to the Division were approximately $1,000, $32,000, and $384,000 for
the years ended December 31, 1995, 1996 and 1997, respectively.
Income Taxes
The Division is not a legal entity. The Division has been included in
HomeCom's consolidated federal income tax returns for all periods prior to June
9, 1998. The Division was not a party to any tax sharing agreement and,
accordingly, no benefit for income taxes has been reflected in the accompanying
statements of revenues and expenses.
2. COMPUTER EQUIPMENT
Computer equipment, net, represents the specific assets defined in the
agreement used in the provision of hosting services and is comprised of the
following as of:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Computer equipment......................... $ 77,147 $132,736
Less: accumulated depreciation............. (14,537) (49,074)
-------- --------
$ 62,610 $ 83,662
======== ========
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
The Division's software and equipment are vulnerable to computer viruses or
similar disruptive problems caused by customers or other Internet users.
Computer viruses or problems caused by third parties could lead to
interruptions, delays or cessation in service to the Division's customers.
Moreover,
F-39
<PAGE> 123
HOMECOM COMMUNICATIONS, INC.
HOSTAMERICA DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
customers of the Division could use computer files and information stored on or
transmitted to Web server computers maintained by the Division to engage in
illegal activities that may be unknown or undetectable by the Division,
including fraud and misrepresentation, and unauthorized access to computer
systems of others. Furthermore, inappropriate use of the Internet by third
parties could also jeopardize the security of customers' confidential
information that is stored in the Division's computer systems. Any such actions
could subject the Division to liability to third parties. The Division does not
have errors and omissions, product liability or other insurance to protect
against risks caused by computer viruses or other misuse of software or
equipment by third parties. Although the Division attempts to limit its
liability to customers for these types of risks through contractual provisions,
there can be no assurance that these provisions will be enforceable.
Various legal proceedings may arise in the normal course of business.
Management does not believe that there are currently any asserted or unasserted
claims that will have a material adverse effect on the statements of assets and
liabilities, statements of revenues and expenses or cash flows of the Division.
4. CONCENTRATION OF CREDIT RISKS
Financial instruments that potentially subject the Division to significant
concentrations of credit risk consist principally of accounts receivable.
Concentration of credit risk with respect to trade receivables is monitored
by the Division through ongoing credit evaluations of its customers' financial
condition. No customer accounted for more than 10% of the revenues of the
Division during 1995, 1996 or 1997.
F-40
<PAGE> 124
INDEPENDENT AUDITOR'S REPORT
Board of Directors
B.N. Technology, Inc.
dba Internet Communications
Los Angeles, California
We have audited the accompanying balance sheets of B.N. Technology, Inc.
dba Internet Communications as of December 31, 1996 and 1997, and the related
statements of operations and accumulated deficit, and cash flows for the period
April 15, 1996 (inception) through December 31, 1996 and for the year ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amount and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material aspects, the financial position of B.N. Technology, Inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash flows
for the period April 16, 1996 (inception) through December 31, 1996 and the year
ended December 31, 1997.
Encino, California
FRANKEL, LODGEN, LACHER, GOLDITCH, SARDI & HOWARD
September 11, 1998
F-41
<PAGE> 125
B.N. TECHNOLOGY, INC.
DBA INTERNET COMMUNICATIONS
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
-------- ---------
<S> <C> <C>
ASSETS
Cash........................................................ $ 6,138 $ 14,982
Property and equipment, net................................. 20,076 33,861
Deposit..................................................... 1,100 1,100
Organization costs, net..................................... 1,445 1,105
Intangible costs, net....................................... 14,000 7,000
-------- ---------
$ 42,759 $ 58,048
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deferred revenue............................................ $ 15,787 $ 102,417
Accounts payable and accrued expenses....................... 7,217 36,883
Accrued payroll............................................. 8,861
Contract payable............................................ 5,664 4,033
Shareholders' loans......................................... 13,051 10,551
-------- ---------
41,719 162,745
-------- ---------
Shareholders' equity (deficit):
Common stock; no par value; 100,000 shares authorized,
issued and outstanding................................. 50,100 50,100
Accumulated deficit....................................... (49,060) (154,797)
-------- ---------
1,040 (104,697)
-------- ---------
$ 42,759 $ 58,048
======== =========
</TABLE>
See accompanying notes to financial statements.
F-42
<PAGE> 126
B.N. TECHNOLOGY, INC.
dba INTERNET COMMUNICATIONS
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 15, 1996
(INCEPTION) THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------------- ------------
<S> <C> <C>
Revenue..................................................... $ 47,597 $ 497,445
Operating expenses.......................................... 94,974 601,278
-------- ---------
Loss from operations........................................ (47,377) (103,833)
-------- ---------
Interest expense............................................ (883) (1,104)
-------- ---------
Loss before provision for income tax........................ (48,260) (104,937)
Franchise tax............................................... (800) (800)
-------- ---------
Net loss.................................................... (49,060) (105,737)
Accumulated deficit, beginning of period.................... (49,060)
-------- ---------
Accumulated deficit, end of period.......................... $(49,060) $(154,797)
======== =========
</TABLE>
See accompanying notes to financial statements.
F-43
<PAGE> 127
B.N. TECHNOLOGY, INC.
dba INTERNET COMMUNICATIONS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 15,
1996 (INCEPTION)
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ----------------
<S> <C> <C>
Net loss.................................................... $(49,060) $(105,737)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation.............................................. 5,020 13,484
Amortization.............................................. 7,255 7,340
Increase (decrease) in cash due to changes in operating
assets and liabilities:
Deposits............................................... (1,100)
Deferred revenue....................................... 15,787 86,630
Accounts payable and accrued expense................... 7,217 29,666
Accrued payroll........................................ 8,861
-------- ---------
Net cash provided (used) by operating activities............ (14,881) 40,244
-------- ---------
Cash flows from investing activities:
Acquisition of property and equipment..................... (18,518) (27,269)
Purchase of customer list................................. (21,000)
Organizational costs...................................... (1,700)
-------- ---------
Net cash provided (used) by investing activities............ 21,933 (27,269)
-------- ---------
Cash flows from financing activities:
Repayment of contract payable............................. (914) (1,631)
Proceeds from issuance of common stock.................... 50,100
Proceeds from shareholder loan............................ 13,051
Repayment of shareholder loan............................. (2,500)
-------- ---------
Net cash provided (used) by financing activities:........... 62,237 (4,131)
-------- ---------
Net increase in cash........................................ 6,138 8,844
Cash, beginning of period................................... 6,138
-------- ---------
Cash, end of period......................................... $ 6,138 $ 14,982
======== =========
Supplemental disclosure:
Interest paid............................................. $ 883 $ 1,104
======== =========
Income tax paid........................................... $ $ 1,600
======== =========
Supplemental schedule of non-cash investing and financing
activities:
During 1996, a contract payable in the amount of $6,578
was incurred to purchase a vehicle.
</TABLE>
See accompanying notes to financial statements.
F-44
<PAGE> 128
B.N. TECHNOLOGY, INC.
dba INTERNET COMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies of B.N. Technology, Inc.
(the Company) is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of the
Company's management, which is responsible for their integrity and objectivity.
These accounting policies conform to generally accepted accounting principles
and have been consistently applied in the preparation of the financial
statements.
Business activity
The Company was incorporated on April 16, 1996, and is located in Los
Angeles, California. The Company is an Internet Web hosting service provider.
Revenue recognition
Revenue consists primarily of fees for hosting Web sites. Fees received are
earned according to the subscription period sold. Subscription periods are sold
on a monthly, quarterly and annual basis.
Deferred revenue represents fees received from quarterly and annual
subscriptions which extend beyond the current balance sheet date.
Property and equipment
Property and equipment is carried at cost. The cost is depreciated over the
estimated useful lives of the related assets. Depreciation is computed on the
straight-line method for financial reporting purposes and on the accelerated
cost recovery system method for income tax purposes.
Expenditures for major renewals and betterments that extend the useful
lives of property and equipment are capitalized. Expenditures for maintenance
and repairs are charged to expense as incurred.
Advertising
Advertising costs are expensed as incurred. Advertising expense was $8,818
and $98,484 for the period ended December 31, 1996 and the year ended December
31, 1997, respectively.
Use of estimates in preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that directly affect the results of reported assets, liabilities,
revenue and expenses. Actual results may differ from these estimates.
Income taxes
Current income taxes are based on the taxable income for the year, as
measured by the current year's tax returns. Deferred income taxes arise
primarily due to differences between the basis of deferred revenue used for
financial statements versus cash basis used for income tax reporting purposes.
F-45
<PAGE> 129
B.N. TECHNOLOGY, INC.
dba INTERNET COMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT
Major classes of fixed assets are as follows:
<TABLE>
<CAPTION>
ESTIMATED
LIVES 1996 1997
--------- ------- -------
<S> <C> <C> <C>
Equipment and software........................ 5 years $10,677 $34,774
Furniture................................... 5 years 850 4,022
Automobile.................................. 5 years 13,569 13,569
------- -------
25,096 52,365
Accumulated depreciation.................... (5,020) (18,504)
------- -------
$20,076 $33,861
======= =======
</TABLE>
Depreciation expense totaled $5,020 and $13,484 for 1996 and 1997,
respectively.
3. INTANGIBLE COSTS
In 1996, the Company purchased from the majority stockholder a customer
listing and goodwill for $21,000. The cost is being amortized over a three year
period.
4. CAPITAL STOCK TRANSACTIONS
Capital stock transactions in 1996 are as follows:
<TABLE>
<CAPTION>
ISSUED
SHARES AMOUNT
------- -------
<S> <C> <C>
Sale of common stock..................................... 100,000 $50,100
======= =======
</TABLE>
5. CONTRACT PAYABLE
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
The Company has a contract payable dated May 1996, payable
in monthly installments at $222, including interest at
20.98%, commencing May 1996 through October 1999. The
contract is secured by the Company automobile. ........... $5,664 $4,033
Less current portion........................................ 1,631 2,008
------ ------
$4,033 $2,025
====== ======
</TABLE>
The following are maturities of contract payable:
<TABLE>
<CAPTION>
DECEMBER 31:
- ------------
<S> <C>
1998...................................................... $2,008
1999...................................................... 2,025
------
$4,033
======
</TABLE>
6. RELATED PARTY TRANSACTIONS
The Company has transactions with certain shareholders and officers who
receive compensation in the form of wages from the Company. Officers' salaries
aggregated $0 and $84,591 for 1996 and 1997, respectively.
F-46
<PAGE> 130
B.N. TECHNOLOGY, INC.
dba INTERNET COMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In 1996, the Company entered into an agreement with the majority
shareholder to purchase certain equipment, goodwill, and a customer listing for
$25,000.
Shareholders' loans payable are unsecured, non-interest bearing and due on
demand.
7. COMMITMENTS
The Company leases its office and marketing sales office under an operating
lease, commencing April 16, 1996 and expiring June 15, 1998. Under the terms of
the lease agreement, the Company has the option to extend the lease for an
additional three years. The Company is responsible to pay property taxes.
The expected future minimum lease payments are as follows:
<TABLE>
<S> <C>
1998....................................................... $28,682
1999....................................................... 29,137
2000....................................................... 30,012
2001....................................................... 10,102
-------
$97,933
=======
</TABLE>
Rent expense totaled $6,295 and $15,346 for 1996 and 1997, respectively.
8. SALE OF SHAREHOLDERS' INTERESTS
On August 31, 1998, the Company's shareholders entered into an agreement to
sell their respective stock to Sage Networks, Inc.
9. INCOME TAXES
The Company has $12,538 of a net operating loss available to offset future
federal taxable income through 2012.
Valuation allowances are established to reduce deferred tax assets to the
amount expected to be realized.
Provision for income taxes are as follows:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Current................................................. $ 800 $ 800
Deferred benefit........................................ (2,368) (15,932)
Less valuation allowance................................ 2,368 15,932
------- --------
Total provision for income taxes........................ $ 800 $ 800
======= ========
</TABLE>
10. YEAR 2000 COMPLIANCE (UNAUDITED)
The Company's management believes that all information technology included
in the operating system, together with all products and services provided to its
customers or for internal use, in coordination with technology shared with
customers, suppliers or vendors, will accurately process transactions from 1999
and through the Twenty-First Century, including leap year calculations. Neither
performance nor functionality of such technology will be affected by the year
2000 issue.
F-47
<PAGE> 131
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
GEN International, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of GEN
International, Inc. and Subsidiaries (formerly Global Entrepreneurs Network,
Inc.) as of December 31, 1995, 1996 and 1997, and the related consolidated
statements of operations, changes in stockholders' deficiency, and cash flows
for the period April 4, 1995 (inception) through December 31, 1995, and the
years ended December 31, 1996 and 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GEN International, Inc. and
Subsidiaries as of December 31, 1995, 1996 and 1997, and the results of their
operations and their cash flows for the period April 4, 1995 (inception) to
December 31, 1995, and the years ended December 31, 1996, and 1997, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note 9 to
the financial statements, the Company has incurred net losses, and has a working
capital deficiency and a stockholders' deficiency as of December 31, 1997. In
March 1998, Global Entrepreneurs Network, Inc., a wholly-owned subsidiary filed
a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans with regard to these matters are
discussed in Note 9. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Urbach Kahn & Werlin PC
New York, New York September 4, 1998
F-48
<PAGE> 132
GEN INTERNATIONAL, INC. AND SUBSIDIARIES
(FORMERLY GLOBAL ENTREPRENEURS NETWORK, INC.)
BALANCE SHEETS
DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
-------- --------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash.................................................. $ 362 $ 888 $
Prepaid expenses and other current assets............. 3,080 10,471 687
-------- --------- -----------
Total current assets.......................... 3,442 11,359 687
-------- --------- -----------
Equipment, net of related depreciation.................. 23,243 271,649
-------- --------- -----------
Security deposit........................................ 2,252 4,154 5,834
-------- --------- -----------
$ 5,694 $ 38,756 $ 278,170
-------- --------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Line of credit........................................ $ 50,000
Capital lease obligations -- current portion.......... 76,421
Accounts payable...................................... $ 45,425 147,524
Advances from stockholder............................. 12,260 82,319
Deferred revenue...................................... $ 12,624 93,185 237,378
Accrued interest -- stockholder....................... 7,611
Accrued expenses and other current liabilities........ 12,355 53,368 174,380
-------- --------- -----------
Total current liabilities..................... 24,979 204,238 775,633
-------- --------- -----------
Capital lease obligations -- non-current portion........ 112,632
-------- --------- -----------
Commitments
Stockholders' deficiency
Common stock, no par value, 25,000,000 shares......... 4,000 20,000 409,545
authorized (1,000,000 -- 1995; 5,325,000 -- 1996
and 11,816,943 -- 1997) issued and outstanding
Accumulated deficit................................... (23,285) (185,482) (1,019,640)
-------- --------- -----------
(19,285) (165,482) (610,095)
-------- --------- -----------
$ 5,694 $ 38,756 $ 278,170
======== ========= ===========
</TABLE>
See Notes to Financial Statements
F-49
<PAGE> 133
GEN INTERNATIONAL, INC. AND SUBSIDIARIES
(FORMERLY GLOBAL ENTREPRENEURS NETWORK, INC.)
STATEMENTS OF OPERATIONS
PERIOD APRIL 4, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995
AND YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
PERIOD
APRIL 4, 1995
(INCEPTION) THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------------- ------------ -----------------
<S> <C> <C> <C>
Net revenues.................................. $198,503 $ 828,652 $1,130,764
Cost of revenues.............................. 68,558 345,502 914,093
-------- --------- ----------
Gross profit........................ 129,945 483,150 216,671
-------- --------- ----------
Operating expenses:
Selling, advertising and promotion.......... 76,741 301,978 425,621
General and administrative.................. 76,489 268,369 608,265
Interest expense............................ -- -- 16,943
Bad debt expense............................ -- 75,000 --
-------- --------- ----------
153,230 645,347 1,050,829
-------- --------- ----------
Net loss............................ $(23,285) $(162,197) $ (834,158)
======== ========= ==========
</TABLE>
See Notes to Financial Statements
F-50
<PAGE> 134
GEN INTERNATIONAL, AND SUBSIDIARIES
(FORMERLY GLOBAL ENTREPRENEURS NETWORK, INC.)
STATEMENTS OF CASH FLOWS
PERIOD APRIL 4, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995
AND YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
PERIOD
APRIL 4, 1995
(INCEPTION) THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss....................................... $(23,285) $(162,197) $(834,158)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Common stock issued for services provided... 6,000 45,834
Depreciation expense........................ 1,977 33,924
Bad debt expense............................ 75,000
Changes in assets and liabilities:
Due from related parties.................... (75,000)
Prepaid expenses and other current assets... (3,080) (7,391) 9,784
Accounts payable............................ 45,425 102,099
Deferred revenue............................ 12,624 80,561 144,193
Accrued interest stockholder............... 7,611
Accrued expenses and other current
liabilities............................... 12,355 41,013 121,012
-------- --------- ---------
Net cash provided by (used in)
operating activities................. (1,386) 5,388 (369,701)
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Security deposit............................... (2,252) (1,902) (1,680)
Purchase of equipment.......................... (25,220) (58,982)
-------- --------- ---------
Net cash used in investing
activities........................... (2,252) (27,122) (60,662)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings from line of credit............. 50,000
Payments on capital lease obligations.......... (34,295)
Proceeds from sale of common stock............. 4,000 10,000 343,711
Advances from stockholder...................... 12,260 70,059
-------- --------- ---------
Net cash provided by financing
activities........................... 4,000 22,260 429,475
-------- --------- ---------
Net increase (decrease) in cash........ 362 526 (888)
CASH
Beginning of period............................ 362 888
End of period.................................. $ 362 $ 888 $
======== ========= =========
</TABLE>
SUPPLEMENTAL CASH FLOW DISCLOSURES
In 1997, the Company entered into capital lease arrangements aggregating
$223,300 for the purchase of equipment.
Cash paid for interest was approximately $16,900 in 1997.
F-51
<PAGE> 135
GEN INTERNATIONAL, INC. AND SUBSIDIARIES
(FORMERLY GLOBAL ENTREPRENEURS NETWORK, INC.)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
PERIOD APRIL 4, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995
AND YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
April 4, 1995..............................
Sale of common stock for cash to founding
stockholder.............................. 1,000,000 $ 4,000 $ 4,000
Net loss -- 1995........................... $ (23,285) (23,285)
---------- -------- ----------- ---------
Balance, December 31, 1995................. 1,000,000 4,000 (23,285) (19,285)
Sale of common stock for cash.............. 5,000 10,000 10,000
Issuance of common stock for services...... 60,000 6,000 6,000
Additional shares of common stock in
connection with stock split.............. 4,260,000
Net loss -- 1996........................... (162,197) (162,197)
---------- -------- ----------- ---------
Balance, December 31, 1996................. 5,325,000 $ 20,000 $ (185,482) $(165,482)
Exchange of Global Entrepreneurs Network,
Inc. common stock -- Note 1.............. (2,662,500)
Sale of common stock for cash.............. 586,590 242,709 242,709
Issuance of common stock for services...... 557,853 45,834 45,834
Shares issued on exercise of options....... 1,010,000 101,000 101,000
Acquisition of GEN Events, Inc., GEN
Network Operations, Inc., and GEN Europe,
Inc...................................... 7,000,000 2 2
Net loss -- 1997........................... (834,158) (834,158)
---------- -------- ----------- ---------
Balance, December 31, 1997................. 11,816,943 $409,545 $(1,019,640) $(610,095)
========== ======== =========== =========
</TABLE>
See Notes to Financial Statements
F-52
<PAGE> 136
GEN INTERNATIONAL, INC. AND SUBSIDIARIES
(FORMERLY GLOBAL ENTREPRENEURS NETWORK, INC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1. ORGANIZATION, BUSINESS COMBINATIONS AND ACQUISITIONS, AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Organization: GEN International, Inc. (the "Company"), a successor entity
to Global Entrepreneurs Network, Inc. (Global), is located in St. Petersburg,
Florida and is a global network and information provider connected to the
Internet. The Company also offers storage, transfer, and Web hosting services to
its members worldwide, primarily small and medium sized businesses. The Company
was organized as a shell in June 1997. In this connection, Global, originally
incorporated in April 1995 exchanged its then outstanding common stock
(5,325,000 shares) for the common stock (2,662,500 shares) of the Company. The
Company also issued options to the former stockholders of Global. The financial
statements from inception (April 4, 1995) through the exchange in June 1997,
represent the accounts and activities of Global. In connection with this
exchange, Global became a wholly-owned subsidiary of the Company. The Company
also acquired in June 1997, the outstanding common stock of GEN Events, Inc.,
GEN Network Operations Center, Inc., and GEN Europe, Inc., shell entities with
no assets, liabilities or operations, whose shares were also substantially owned
by the principal shareholder of Global. Nominal consideration was assigned to
the 7,000,000 shares issued by the Company in this connection.
Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company, and its wholly-owned subsidiaries as follows:
- Global Entrepreneurs Network, Inc.
- GEN Network Operations Center, Inc.
- GEN Europe, Inc.
- GEN Events, Inc.
All significant intercompany balances and transactions have been eliminated
in the consolidated financial statements.
Revenue Recognition: Recurring revenues consist primarily of monthly fees
charged to members for Web hosting services and are recognized at the beginning
of each month for which services are rendered. Other revenues generally
represent one-time set up fees and are recorded as earned. Deferred revenue
consists primarily of the unexpired portion of annual prepaid membership fees.
Property and Equipment: Property and equipment is stated at cost and
depreciated using the straight-line method over the estimated useful life of the
assets, generally three years for computers and computer related equipment and
five years for other non-computer furniture and equipment. Leasehold
improvements are amortized over the term of the lease.
Capital Leases: The Company leases certain of its phone and other computer
related equipment under capital lease agreements. The assets and liabilities
under capital leases are recorded at the lesser of the present value of future
minimum lease payments, including estimated bargain purchase options, or the
fair value of the assets under lease. Assets under capital lease are amortized
over the lesser of their estimated useful lives of three to five years or the
term of the lease.
Income Taxes: Income taxes are computed using the asset and liability
method. Under this method, deferred tax assets and liabilities are determined
based on differences between the financial reporting and
F-53
<PAGE> 137
GEN INTERNATIONAL, INC. AND SUBSIDIARIES
(FORMERLY GLOBAL ENTREPRENEURS NETWORK, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
tax bases of assets and liabilities and are measured using the currently enacted
tax rates and laws. There were no deferred taxes in 1995, 1996 and 1997.
Advertising: The Company expenses advertising costs as they are incurred.
Use of Estimates in the Preparation of Financial Statements: The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1996 and
1997:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Furniture and fixtures.................................. $ 1,482 $ 2,472
Computer equipment...................................... 23,736 303,455
Leasehold improvements.................................. -- 1,623
------- --------
25,218 307,550
Less: accumulated depreciation.......................... 1,975 35,901
------- --------
$23,243 $271,649
======= ========
</TABLE>
NOTE 3. LINE OF CREDIT
The Company has a line of credit with a financial institution amounting to
$50,000. The line bears interest at 2% above the prime lending rate and is due
on demand.
NOTE 4. ADVANCES FROM STOCKHOLDER
Advances from stockholder originally due in September 1996, bear interest
at 18% per annum. Repayment of the advances was extended until such time as the
Company has sufficient resources to satisfy the obligations. Interest expense
for the year ended December 31, 1997 was $7,611. Interest in 1996 was not
material.
NOTE 5. STOCK-BASED COMPENSATION
During 1997, the Company issued options to purchase 3,715,000 shares of
common stock of the Company to certain officers, directors, stockholders and
employees at exercise prices ranging from $0.10 to $1.00. The options are
exercisable upon certain vesting requirements and/or in the event the Company
has a public offering.
During 1997, 1,010,000 options not subject to vesting requirements were
exercised for $101,000. Options to purchase 2,705,000 shares of common stock
were outstanding at December 31, 1997 at a weighted average exercise price of
approximately $1.00. All outstanding options were exercisable at December 31,
1997.
In accordance with Accounting Principles Board Statement No. 25 (APB 25),
no compensation cost has been recognized in accounting for the stock options
issued during 1997. Because the Company's stock options have characteristics
significantly different than those of traded options, compensation cost for the
Company's 1997 grants, based upon the fair value method consistent with
Financial Accounting Statement No. 123, is not determinable.
F-54
<PAGE> 138
GEN INTERNATIONAL, INC. AND SUBSIDIARIES
(FORMERLY GLOBAL ENTREPRENEURS NETWORK, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. COMMITMENT
Lease: The Company had an operating lease for its corporate office, which
expired in January 1998, and was renewed through October 1998. Rent expense for
the years ending December 31, 1997 and 1996, and for the period April 4, 1995
(inception) through December 31, 1995 was $27,000, $29,445 and $5,524,
respectively.
NOTE 7. INCOME TAXES
At December 31, 1997, the Company had net operating loss carryforwards of
approximately $1,020,000, which expire in 2010 through 2012. At December 31,
1997, the expected tax benefit from the future realization of this operating
loss carryforward of approximately $401,000 has been offset by an equivalent
valuation allowance, in view of the uncertainty as to ultimate realization.
NOTE 8. CAPITAL LEASES
During 1997, the Company entered into capital lease arrangements for
computer equipment and other office equipment. The leases, which expire in 1999
through 2000, require the Company to pay taxes, maintenance and insurance.
Annual minimum commitments under the lease arrangements are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------
<S> <C>
1998........................................................ $ 91,540
1999........................................................ 88,550
2000........................................................ 24,678
2001........................................................ 5,592
2002........................................................ 3,741
--------
Total minimum payments...................................... 214,101
Less amount representing interest at approximately 10%...... 25,048
Present value of future lease payments...................... 189,053
Less current portion........................................ 76,421
--------
$112,632
--------
</TABLE>
NOTE 9. GOING CONCERN
As indicated in the accompanying financial statements, the Company and its
wholly-owned subsidiaries, have incurred net operating losses, and as of
December 31, 1997, has a working capital deficiency of approximately $775,000
and a stockholders' deficiency of approximately $610,000. During March 1998,
Global Entrepreneurs Network, Inc. filed a voluntary petition for reorganization
under Chapter 11 of the Federal Bankruptcy Code, and was authorized to continue
managing and operating the business as debtor in possession subject to the
control and supervision of the Bankruptcy Court.
Management of the Company is aggressively seeking additional sources of
capital and financing, and in August, 1998, the Company entered into a contract
with Sage Networks, Inc. for the sale of certain of its assets for cash and
assumption of certain of its liabilities, which sale was subsequently
consummated in September 1998. The ability of the Company to continue as a going
concern is dependent upon obtaining additional capital and financing. The
consolidated financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
NOTE 10. SUBSEQUENT EVENTS
In March 1998, the Company effected a 2 for 1 stock split.
F-55
<PAGE> 139
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
Digiweb, Inc.
We have audited the accompanying balance sheets of Digiweb, Inc. as of
December 31, 1997 and 1998, and the related statements of income, cash flows,
and changes in stockholders' equity for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Digiweb, Inc. as of December
31, 1997 and 1998, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
Urbach Kahn & Werlin PC
New York, New York
January 24, 1999
F-56
<PAGE> 140
DIGIWEB, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash...................................................... $115,643 $134,343
Accounts receivable, net of allowance for doubtful
accounts of $12,075 and $43,431........................ 36,728 50,939
Prepaid expenses and other current assets................. -- 19,365
-------- --------
Total current assets.............................. 152,371 204,647
-------- --------
Equipment, net of related depreciation...................... 505,946 653,493
-------- --------
OTHER ASSETS
Restricted cash............................................. 50,000 50,000
Security deposit............................................ 3,376 9,685
Other assets, net of amortization of $462 and $219.......... 2,220 1,977
-------- --------
Total other assets................................ 55,596 61,662
-------- --------
$713,913 $919,802
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Note payable -- current portion........................... $ 17,411 $ 41,637
Capital lease obligations -- current portion.............. 2,910 13,030
Accounts payable.......................................... 44,834 121,673
Advances from stockholder................................. 4,966 4,966
Deferred revenue.......................................... 20,239 66,381
Accrued expenses and other current liabilities............ 12,344 6,087
-------- --------
Total current liabilities......................... 102,704 253,774
-------- --------
Note payable -- non-current portion......................... 83,627 42,605
Capital lease obligations -- non-current portion............ 30,661 55,232
-------- --------
Total long-term liabilities....................... 114,288 97,837
-------- --------
Commitments
Stockholders' equity
Common stock, no par value, 1,000 shares authorized,
issued and outstanding................................. 20,000 20,000
Retained earnings......................................... 476,921 548,191
-------- --------
496,921 568,191
-------- --------
$713,913 $919,802
======== ========
</TABLE>
See Notes to Financial Statements
F-57
<PAGE> 141
DIGIWEB, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Net revenues................................................ $1,768,322 $2,685,676
Cost of revenues............................................ 729,157 1,118,913
---------- ----------
Gross profit...................................... 1,039,165 1,566,763
---------- ----------
Operating expenses:
Selling, advertising and promotion........................ 17,997 31,577
General and administrative................................ 397,691 586,288
Interest expense.......................................... 10,020 16,829
Bad debt expense.......................................... 12,075 43,431
---------- ----------
437,783 678,125
---------- ----------
Net income........................................ $ 601,382 $ 888,638
========== ==========
</TABLE>
See Notes to Financial Statements
F-58
<PAGE> 142
DIGIWEB, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
COMMON STOCK
----------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------- --------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1996........................ 1,000 $20,000 $ 39,470 $ 59,470
Stockholder distributions......................... (163,931) (163,931)
Net income -- 1997................................ 601,382 601,382
----- ------- --------- ---------
Balance, December 31, 1997........................ 1,000 $20,000 $ 476,921 $ 496,921
Stockholder distributions......................... (817,368) (817,368)
Net income -- 1998................................ 888,638 888,638
----- ------- --------- ---------
Balance, December 31, 1998........................ 1,000 $20,000 $ 548,191 $ 568,191
===== ======= ========= =========
</TABLE>
See Notes to Financial Statements
F-59
<PAGE> 143
DIGIWEB, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 601,382 $ 888,638
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization expense.................. 138,210 246,329
Bad debt expense....................................... 12,075 31,356
Changes in assets and liabilities:
Accounts receivable.................................... (9,873) (45,567)
Prepaid expenses and other current assets.............. 9,308 (19,365)
Accounts payable....................................... (44,505) 76,839
Deferred revenue....................................... (23,821) 46,142
Accrued expenses and other current liabilities......... 14,337 (6,257)
--------- ----------
Net cash provided by operating activities......... 697,113 1,218,115
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Costs paid for trademark.................................. (1,655) --
Security deposits paid.................................... (1,981) (6,309)
Deposits into cash reserve................................ (50,000) --
Purchase of equipment..................................... (302,257) (347,394)
--------- ----------
Net cash used in investing activities............. (355,893) (353,703)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on shareholder loans................... (136,578) --
Principal payments on capital lease obligations........... (5,054) (11,548)
Principal payments on notes payable....................... (9,931) (16,796)
Shareholder distributions................................. (163,931) (817,368)
--------- ----------
Net cash used in financing activities............. (315,494) (845,712)
--------- ----------
Net increase in cash.............................. 25,726 18,700
CASH:
Beginning of period....................................... 89,917 115,643
--------- ----------
End of period............................................. $ 115,643 $ 134,343
========= ==========
Supplemental Disclosure of Cash Flow Information
Cash payments for interest................................ $ 10,020 $ 16,829
--------- ----------
Capital Lease Obligations Incurred for Purchase of
Equipment................................................. $ 39,303 $ 85,542
--------- ----------
Note Payable Incurred for Leasehold Improvements............ $ 76,444 $ --
--------- ----------
</TABLE>
F-60
<PAGE> 144
DIGIWEB, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
NOTE 1. ORGANIZATION, BUSINESS COMBINATIONS AND ACQUISITIONS, AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Organization: Digiweb, Inc. ("Digiweb" or the "Company") is a provider of
Web hosting and co-located services catering to small and medium sized
businesses. Based in College Park, Maryland, Digiweb offers three core services:
shared server Web hosting, dedicated server Web hosting and co-located.
Revenue Recognition: Recurring revenues consist primarily of monthly fees
charged to members for Web hosting services and are recognized ratably over the
periods for which services are rendered. Other revenues generally represent
one-time set up fees and are recorded as earned. Deferred revenue consists
primarily of the unexpired portion of annual prepaid membership fees.
Property and Equipment: Property and equipment is stated at cost and
depreciated using the straight-line method over the estimated useful life of the
assets, generally three to five years for computers and computer related
equipment and seven years for other non-computer furniture and equipment.
Leasehold improvements are amortized over the term of the lease.
Capital Leases: The Company leases certain of its autos and other computer
related equipment under capital lease agreements. The assets and liabilities
under capital leases are recorded at the lesser of the present value of future
minimum lease payments, including estimated bargain purchase options, or the
fair value of the assets under lease. Assets under capital lease are amortized
over the lesser of their estimated useful lives of three to five years or the
term of the lease.
Income Taxes: No provision for income taxes has been recorded in the
financial statements due to the Company's S Corporation status. Individual
stockholders are taxed on their respective shares of the entities' income and
receive the benefits of the entities' income tax credits.
Advertising: The Company expenses advertising costs as they are incurred.
Use of Estimates in the Preparation of Financial Statements: The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1997 and
1998:
<TABLE>
<CAPTION>
1997 1998
-------- ----------
<S> <C> <C>
Leasehold improvements............................... $ 76,444 $ 76,444
Office equipment..................................... 37,318 71,053
Furniture and fixtures............................... 11,006 13,703
Computer equipment................................... 488,363 799,325
Equipment under capital leases....................... 39,303 85,542
Auto................................................. 36,262 36,262
-------- ----------
686,696 1,082,329
Less: accumulated depreciation....................... 182,750 428,836
-------- ----------
$505,946 $ 653,493
======== ==========
</TABLE>
F-61
<PAGE> 145
DIGIWEB, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3. NOTE PAYABLE
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Note payable (auto) in 42 monthly payments of $615,
including interest at 11.15% and one balloon payment of
$22,142 maturing in December 1999. The loan is
collateralized by the automobile ......................... $30,753 $27,160
Note payable (leasehold improvements) in 60 monthly
installments of $1,596, including interest at 9.25%
maturing June 2002. ...................................... 70,285 57,082
------- -------
Total............................................. 101,038 84,242
Less amounts due currently........................ 17,411 41,637
------- -------
$83,627 $42,605
------- -------
</TABLE>
Future maturities of notes payable are as follows:
<TABLE>
<S> <C>
1999....................................................... $41,637
2000....................................................... 15,875
2001....................................................... 17,407
2002....................................................... 9,323
-------
$84,242
-------
</TABLE>
NOTE 4. CAPITAL LEASES
During 1996 and 1997, the Company entered into capital lease
arrangements for computer equipment and automobiles. These leases expire in
1999 through 2000. Annual minimum commitments under these arrangements are
as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
- ------------
<S> <C>
1999........................................................ $18,528
2000........................................................ 58,503
-------
Total minimum payments...................................... 77,031
Less amount representing interest at approximately 10%...... (8,769)
-------
Present value of future lease payments...................... 68,262
Less current portion........................................ 13,030
-------
$55,232
=======
</TABLE>
NOTE 5. COMMITMENT
Lease: The Company has an operating lease for its corporate office, which
expires in May 2004. Rent expense for the years ending December 31, 1997 and
1998, was $47,395 and $69,764, respectively, including tenant charges for
building improvements in 1998.
In January 1999, the Company executed an additional lease for office
expense which expires in December 2004.
The Company also has leases with two internet line service providers,
expiring in April 2000 and January 2002. Internet line service expense for the
years ending December 31, 1997 and 1998, was $199,746 and $325,787,
respectively.
F-62
<PAGE> 146
DIGIWEB, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum rental payments under these leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, AMOUNTS
- ------------ ----------
<S> <C>
1999..................................................... $ 301,645
2000..................................................... 216,808
2001..................................................... 191,209
2002..................................................... 139,668
2003..................................................... 143,859
Thereafter............................................... 148,174
----------
$1,141,363
==========
</TABLE>
Total rental expense was $47,395 and $69,764 for the years ending December
31, 1997 and 1998, respectively.
NOTE 6. SUBSEQUENT EVENTS
In January 1999, the Company entered into a non-binding Letter of Intent
with Sage Networks, Inc. (Sage) for the sale of certain of its assets, at
amounts in excess of their carrying values, and assumption of certain of its
liabilities, for cash and stock in Sage.
F-63
<PAGE> 147
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Telephonetics International, Inc. and
State of the Art, Inc.
Miami, Florida
We have audited the accompanying combined balance sheet of Telephonetics
International, Inc. and Affiliate as of December 31, 1998, and the related
combined statements of operations, capital deficit and cash flows for each of
the two years in the period then ended. These combined financial statements are
the responsibility of the Companies management. Our responsibility is to express
an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Telephonetics
International, Inc. and Affiliate as of December 31, 1998, and the results of
their operations and their cash flows for each of the two years in the period
then ended in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Miami, Florida
January 15, 1999
F-64
<PAGE> 148
TELEPHONETICS INTERNATIONAL, INC. AND AFFILIATE
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 106,812
Accounts receivable, net of $94,100 allowance for doubtful
accounts (Notes 2 and 5)............................... 538,845
Inventories............................................... 50,836
Prepaid expenses and other current assets................. 34,197
-----------
Total current assets.............................. 730,690
Property and equipment, net (Note 1)........................ 68,598
-----------
$ 799,288
===========
LIABILITIES AND CAPITAL DEFICIT
Current liabilities
Note payable to bank (Note 2)............................. $ 90,000
Note payable to shareholder (Note 3)...................... 50,000
Accounts payable and accrued expenses..................... 137,610
-----------
Total current liabilities......................... 277,610
Deferred income............................................. 1,583,570
-----------
Total liabilities................................. 1,861,180
-----------
Commitments and Subsequent Event (Notes 7 and 10)
CAPITAL DEFICIT (Note 9)
Common stock, $.001 par value; 15,000,000 shares
authorized; 6,000,000 shares issued and outstanding,
Telephonetics International, Inc....................... 6,000
Common stock, $1.00 par value; 1,000 shares authorized,
issued and outstanding, State of the Art, Inc.......... 1,000
Additional paid-in capital................................ 557,815
Deficit................................................... (1,626,707)
-----------
Total capital deficit............................. (1,061,892)
-----------
$ 799,288
===========
</TABLE>
See accompanying summary of accounting policies and notes to combined financial
statements.
F-65
<PAGE> 149
TELEPHONETICS INTERNATIONAL, INC. AND AFFILIATE
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
Revenues (Note 5)........................................... $2,991,849 $2,769,606
Cost of sales............................................... 1,023,946 823,161
---------- ----------
Gross profit................................................ 1,967,903 1,946,445
Selling, general and administrative (Notes 4 and 8)......... 2,561,887 2,687,852
---------- ----------
Net loss.................................................... $ (593,984) $ (741,407)
========== ==========
</TABLE>
See accompanying summary of accounting policies and notes to combined financial
statements.
F-66
<PAGE> 150
TELEPHONETICS INTERNATIONAL, INC. AND AFFILIATE
COMBINED STATEMENTS OF CAPITAL DEFICIT (NOTE 9)
<TABLE>
<CAPTION>
SUBSCRIBED ADDITIONAL TOTAL
COMMON COMMON PAID-IN TREASURY CAPITAL
STOCK STOCK CAPITAL DEFICIT STOCK DEFICIT
------- ---------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996... $ 8,375 $ -- $ 92,625 $ (71,139) $(31,185) $ (1,324)
Stock subscription............. -- 100 494,900 -- -- 495,000
Dividends -- cash.............. -- -- -- (220,177) -- (220,177)
Net loss....................... -- -- -- (593,984) -- (593,984)
------- ----- -------- ----------- -------- -----------
Balance at December 31, 1997... 8,375 100 587,525 (885,300) (31,185) (320,485)
Retirement of treasury stock,
1,475,000 shares at cost..... (1,475) -- (29,710) -- 31,185 --
Issuance of common stock....... 100 (100) -- -- -- --
Net loss....................... -- -- -- (741,407) -- (741,407)
------- ----- -------- ----------- -------- -----------
Balance at December 31, 1998... $ 7,000 $ -- $557,815 $(1,626,707) $ -- $(1,061,892)
======= ===== ======== =========== ======== ===========
</TABLE>
See accompanying summary of accounting policies and notes to combined financial
statements.
F-67
<PAGE> 151
TELEPHONETICS INTERNATIONAL, INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1997 1998
--------- ---------
<S> <C> <C>
Operating Activities:
Net loss.................................................. $(593,984) $(741,407)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provision for losses on accounts and notes
receivable............................................ 20,850 110,000
Depreciation and amortization.......................... 31,451 74,758
(Increase) decrease in:
Accounts receivable.................................. (128,543) (135,292)
Inventories.......................................... 21,276 88,164
Prepaid expenses and other current assets............ 5,639 (24,232)
Other assets......................................... (1,840) 1,840
Increase in:
Accounts payable and accrued expenses................ 52,096 (96,962)
Deferred income...................................... 224,400 552,511
--------- ---------
Net cash used in operating activities....................... (368,655) (170,620)
--------- ---------
Investing Activities:
Proceeds from disposition of investments.................. 161,523 --
Additions to property and equipment....................... (5,960) (4,943)
Issuance of note receivable............................... (110,000) --
--------- ---------
Net cash (used in) provided by investing activities......... 45,563 (4,943)
--------- ---------
Financing Activities:
Proceeds from stock subscription.......................... 495,000 --
Proceeds from notes payable............................... 45,000 209,690
Payment of notes payable.................................. (44,889) (70,000)
Dividends................................................. (220,177) --
--------- ---------
Net cash provided by financing activities................... 274,934 139,690
--------- ---------
Net decrease in cash and cash equivalents................... (48,158) (35,873)
Cash, and cash equivalents at beginning of year............. 190,843 142,685
--------- ---------
Cash, and cash equivalents at end of year................... $ 142,685 $ 106,812
========= =========
Supplemental information:
Cash paid for:
Interest............................................... $ 2,600 $ 7,400
========= =========
</TABLE>
See accompanying summary of accounting policies and notes to combined financial
statements.
F-68
<PAGE> 152
TELEPHONETICS INTERNATIONAL, INC. AND AFFILIATE
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Telephonetics International, Inc. (Telephonetics) and State of the Art,
Inc. were incorporated in the State of Florida in 1982 and 1980, respectively,
for the purpose of providing customized audio programming for telephone hold
lines and other telecommunication applications. Presently such applications
include automated attendant, voice mail, integrated voice response and
computer/telephone integration applications, which collectively comprise the
Companies' sole business segment. The Companies' principle administrative,
production and sales facility is located in Miami, Florida.
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of Telephonetics
International, Inc. and its substantially inactive affiliate corporation, State
of the Art, Inc., collectively, the Companies. Telephonetics' majority
shareholder owns 85% of State of the Art, Inc.'s common stock and substantially
controls its operations. Intercompany advances and transactions have been
eliminated.
CASH AND CASH EQUIVALENTS
For the purpose of the statements of cash flows, the Companies consider all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
REVENUE RECOGNITION
A typical sales agreement for services entitles a customer to receive and
requires the Companies to provide upon customer request specified programming
services over a one year period. Billings to customers for such services are
rendered at the date of the agreement and recognized as revenue on a
straight-line basis over the term of the agreement. Revenue from telephone
answering devices and accessory sales are recognized upon shipment to the
customer.
INVENTORIES
Inventories are stated at the lower of cost or market using the first in,
first-out method.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation and amortization
is computed by the straight line method based on the estimated useful lives of
the related assets. Leasehold improvements are amortized over the shorter of the
life of the asset or the lease.
INCOME TAXES
The Companies, with the consent of all of their shareholders, have elected
to be taxed under the provisions of Subchapter S of the Internal Revenue Code.
Under those provisions, the Companies do not provide for or pay Federal and
certain State corporate income taxes on their taxable income. Instead, the
stockholders are liable for individual Federal and State income taxes, if any,
on their share of the Companies taxable income.
PREPARATION OF COMBINED FINANCIAL STATEMENTS
The preparation of the combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the combined financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from estimated amounts.
F-69
<PAGE> 153
TELEPHONETICS INTERNATIONAL, INC. AND AFFILIATE
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
CONCENTRATION OF CREDIT RISK
The Companies' credit risk relates to cash and cash equivalents and
accounts receivable. Cash and cash equivalents are primarily held in bank
accounts and overnight investments. These banks are insured up to $100,000 by
the FDIC. Periodically, cash balances may exceed this amount. The credit risk
associated with accounts receivable is minimal due to the Companies' customer
base and ongoing control procedures which monitor the credit worthiness of
customers.
NEW ACCOUNTING PRONOUNCEMENT
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The statement applies to
all entities and is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The Companies did not engage in derivative instruments or
hedging activities in any periods presented in the financial statements.
F-70
<PAGE> 154
TELEPHONETICS INTERNATIONAL, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
1. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL DECEMBER 31,
LIFE(YEARS) 1998
----------- ------------
<S> <C> <C>
Office and other equipment................... 7 94,757
Studio and production equipment.............. 7 204,579
Furniture and fixtures....................... 7 82,120
Art work..................................... -- 5,475
---------
386,931
Less: accumulated depreciation and
amortization............................... (318,333)
---------
$ 68,598
=========
</TABLE>
2. NOTES PAYABLE
At December 31, 1998, the Companies have a financing agreement with a
financial institution which provides for a demand revolving line of credit with
maximum borrowings of $150,000. Outstanding amounts under this facility bear
annual interest at 1% over the prime rate (8.75% at December 31, 1998), payable
monthly. Amounts borrowed under this facility are collateralized by
Telephonetics International, Inc.'s accounts receivable and guaranteed by the
Company's President and principal shareholder. At December 31, 1998, amounts
outstanding under the line of credit aggregate $90,000.
The revolving line of credit agreement, requires the Companies to comply
with certain covenants, the most restrictive of which requires the Companies to
maintain tangible net worth (as defined) of at least $500,000. At December 31,
1998, the Companies were not in compliance with this covenant and accordingly,
the obligation could be called for repayment.
3. NOTE PAYABLE TO SHAREHOLDER
On May 28, 1998, the Companies' principal shareholder loaned $70,000 to the
Companies for working capital purposes. The note bears interest at 10% annually
payable in monthly principal installments of $3,000 beginning September 1998. At
December 31, 1998, outstanding amount due to the principal shareholder
aggregated $50,000.
4. RELATED PARTY TRANSACTIONS
During 1997 and 1998, the Companies paid rent to companies owned by the
Companies' principal officers in the amount of $38,500 and $104,000,
respectively.
5. SIGNIFICANT CUSTOMER
For the years ended December 31, 1997 and 1998, one customer accounted for
47% and 55% of revenues, respectively; at December 31, 1998, accounts receivable
from this customer amounted to approximately $337,600.
6. FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including certificates of
deposit, accounts receivable, accounts payable and debt approximated fair value
due to the relatively short maturity.
F-71
<PAGE> 155
TELEPHONETICS INTERNATIONAL, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS
The Companies rent office space and warehouse under non-cancelable leases.
The minimum future rental commitment for leases in effect at December 31, 1998,
including leases to related parties, approximates the following:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1999...................................................... $ 98,700
2000...................................................... 92,600
2001...................................................... 72,000
2002...................................................... 72,000
2003...................................................... 54,000
--------
$389,300
========
</TABLE>
Rent expense in 1997 and 1998 aggregated approximately $102,000 and
$160,000, including $38,500 and $104,000 to related parties, respectively.
The Companies are required to pay a fee for the use of custom audio
production. During 1997 and 1998, approximately $33,000 and $40,000 of royalties
were paid, respectively.
8. DEFERRED COMPENSATION PLAN
The Companies have a defined contribution plan established pursuant to
Section 401(k) of the Internal Revenue Code. Employees contribute to the plan a
percentage of their salaries, subject to certain dollar limitations and the
Companies match a portion of the employees' contributions. The Companies'
contributions to the plan for the years ended December 31, 1997 and 1998
aggregated $16,200 and $17,000, respectively.
9. CAPITAL DEFICIT
On December 15, 1997 at a special meeting of the stockholders, an action
was approved to recapitalize Telephonetics by reducing the par value of each
share of common stock from $1 per share to $.001 per share and increasing the
number of authorized shares of common stock from 100,000 shares to 15,000,000
shares. The then issued 100,000 shares of $1 par value common stock (comprised
of 80,000 outstanding shares and 20,000 shares of Treasury stock) were
subsequently exchanged (at a ratio of 73.75 to 1) for 7,375,000 shares of $.001
par value common stock, comprised of 5,900,000 outstanding shares and 1,475,000
shares of Treasury stock. All share and per share data in the accompanying
financial statements have been retroactively restated to give effect to the
recapitalization.
In July 1997, an investor subscribed for the purchase of 100,000 shares of
Telephonetics' recapitalized $.001 par value common stock for aggregate
consideration of $495,000. The shares were issued during 1998 following
consummation of the recapitalization.
During the year ended December 31, 1997, Telephonetics temporarily acquired
all of the outstanding shares of common stock of Quicklab Multimedia Centers,
Inc. in exchange for 2,950,000 shares of common stock. To facilitate the
transaction, for which the Company did not then have sufficient authorized and
unissued shares of common stock, the Company's then sole stockholder contributed
2,950,000 shares owned by him to the Company which were issued to the seller.
The acquisition was subsequently rescinded and the 2,950,000 shares of common
stock were returned to the stockholder. In connection with the rescinded
transaction, the Company loaned Quick Lab Multimedia Centers, Inc. $110,000
under the terms of an unsecured note receivable bearing interest at prime plus
1% (8.75% at
F-72
<PAGE> 156
TELEPHONETICS INTERNATIONAL, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1998). During the year ended December 31, 1998, the Company
recorded a $110,000 provision for possible losses on the note.
10. SUBSEQUENT EVENT
In January 1999, the Companies entered into a letter of intent with Sage
Networks, Inc. (Sage) for the sale of substantially all their assets and
assumption of substantially all of their liabilities in exchange for $3,000,000
in cash and 140,000 shares of Sage common stock.
11. YEAR 2000 ISSUES (UNAUDITED)
Like other companies, the Companies could be adversely affected if the
computer systems we, our suppliers or customers use do not properly process and
calculate date-related information and data from the period surrounding and
including January 1, 2000. This is commonly known as the "Year 2000" issue.
Additionally, this issue could impact non-computer systems and devices such as
production equipment, elevators, etc.
The Companies are implementing a plan to modify their business technologies
to be ready for the year 2000 and are in the process of converting critical data
processing systems. The project is expected to be substantially complete by
June, 1999 and to cost between $125,000 and $150,000. The Companies do not
expect this effort to have a significant effect on operations.
F-73
<PAGE> 157
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Net Daemons Associates, Inc.:
We have audited the accompanying balance sheets of Net Daemons Associates,
Inc. (the "Company") as of December 31, 1997 and 1998, and the related
statements of income, stockholders' deficit and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1997 and 1998,
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Boston, Massachusetts
Deloitte & Touche LLP
February 2, 1999 (February 17, 1999 as to Note 10)
F-74
<PAGE> 158
NET DAEMONS ASSOCIATES, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents...................................... $ 47,659 $ 274,100
Accounts receivable, net of allowance of $19,400 for 1997
and $36,500 for 1998................................... 804,290 882,664
Notes receivable.......................................... 9,988 4,979
Stockholders' receivable.................................. 35,759 5,936
Prepaid expenses and other................................ 11,071 20,901
Deferred income taxes..................................... 19,700 53,000
---------- ----------
Total current assets.............................. 928,467 1,241,580
Property and Equipment, Net................................. 310,200 222,749
Deposits.................................................... 39,419 38,650
---------- ----------
Total............................................. $1,278,086 $1,502,979
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Note payable -- bank...................................... $ 150,000 $ --
Accounts payable.......................................... 129,297 263,317
Accrued salaries, wages and related benefits.............. 76,137 189,291
Accrued profit sharing.................................... 26,000 30,000
Accrued expenses.......................................... 15,590 83,612
Current portion of long-term debt......................... 20,375 38,411
Current portion of subordinated stockholder debt.......... 135,960 --
Deferred revenue.......................................... 62,910 52,127
Accrued income taxes...................................... 84,552 102,955
---------- ----------
Total current liabilities......................... 700,821 759,713
---------- ----------
Long-Term Liabilities:
Long-term debt............................................ 91,855 107,998
Subordinated stockholder debt............................. 804,040 885,214
---------- ----------
Total long-term liabilities....................... 895,895 993,212
---------- ----------
Deferred Income Taxes....................................... 12,800 21,500
---------- ----------
Total liabilities................................. 1,609,516 1,774,425
---------- ----------
Commitments (Note 8)
Stockholders' Deficit:
Preferred stock, $.01 per share par value, 21,389 shares
authorized............................................. -- --
Common stock, $.01 per share par value, 2,500,000 shares
authorized for 1997 and 2,578,611 shares authorized for
1998; 2,062,500 shares issued (Note 6)................. 20,625 20,625
Additional paid-in capital................................ 149,267 149,267
Retained earnings......................................... 438,678 498,662
Treasury stock, at cost -- 855,000 shares................. (940,000) (940,000)
---------- ----------
Total stockholders' deficit....................... (331,430) (271,446)
---------- ----------
Total............................................. $1,278,086 $1,502,979
========== ==========
</TABLE>
See notes to financial statements.
F-75
<PAGE> 159
NET DAEMONS ASSOCIATES, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Revenues.................................................... $4,656,975 $5,770,024
Costs of revenues........................................... 2,457,264 3,211,532
---------- ----------
Gross profit................................................ 2,199,711 2,558,492
General and administrative expenses......................... 2,021,064 2,293,060
---------- ----------
Income from operations...................................... 178,647 265,432
Other income (expense):
Interest income........................................... 408 4,350
Loss on sale of equipment................................. (503) (3,163)
Interest expense.......................................... (31,708) (105,835)
---------- ----------
Earnings before provision for income taxes.................. 146,844 160,784
Provision for income taxes.................................. 69,510 100,800
---------- ----------
Net income.................................................. $ 77,334 $ 59,984
========== ==========
</TABLE>
See notes to financial statements.
F-76
<PAGE> 160
NET DAEMONS ASSOCIATES, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED TOTAL
------------------- ADDITIONAL OTHER TREASURY STOCK STOCKHOLDERS'
PAR PAID-IN RETAINED COMPREHENSIVE -------------------- EQUITY
SHARES VALUE CAPITAL EARNINGS INCOME SHARES COST (DEFICIT)
--------- ------- ---------- -------- ------------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997..... 2,000,000 $20,000 $ 24,892 $361,344 $ -- -- $ -- $ 406,236
--------- ------- -------- -------- -------- -------- --------- ---------
Comprehensive income -- net
income................... -- -- -- 77,334 -- -- -- 77,334
Issuance of common
shares................... 62,500 625 124,375 -- -- -- -- 125,000
Purchase of common stock... -- -- -- -- -- (855,000) (940,000) (940,000)
--------- ------- -------- -------- -------- -------- --------- ---------
Balance, December 31, 1997... 2,062,500 20,625 149,267 438,678 -- (855,000) (940,000) (331,430)
Comprehensive income -- net
income................... -- -- -- 59,984 -- -- -- 59,984
--------- ------- -------- -------- -------- -------- --------- ---------
Balance, December 31, 1998... 2,062,500 $20,625 $149,267 $498,662 $ -- (855,000) $(940,000) $(271,446)
========= ======= ======== ======== ======== ======== ========= =========
</TABLE>
See notes to financial statements.
F-77
<PAGE> 161
NET DAEMONS ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 77,334 $ 59,984
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization.......................... 104,245 135,129
Loss on sale of equipment.............................. 503 3,163
Accrued interest on subordinated stockholder debt...... -- 81,174
Deferred income taxes.................................. (10,390) (24,600)
Changes in assets and liabilities:
Accounts receivable.................................. (63,693) (78,374)
Prepaid expenses and other........................... 2,144 (9,830)
Accounts payable..................................... 61,626 134,020
Accrued salaries, wages and related benefits......... (33,863) 113,154
Accrued profit sharing............................... (39,000) 4,000
Accrued expenses..................................... (71,382) 68,022
Deferred revenue..................................... (30,270) (10,783)
Accrued income taxes................................. (18,528) 18,403
--------- ---------
Net cash provided by (used in) operating
activities...................................... (21,274) 493,462
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment.................................... (228,985) (51,792)
Proceeds from sale of equipment........................... 6,200 951
Deposits.................................................. (39,419) 769
--------- ---------
Net cash used in investing activities............. (262,204) (50,072)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings undernote payable -- bank..... 195,108 (150,000)
Notes and stockholder receivable.......................... (13,025) 34,832
Proceeds from long-term borrowings........................ -- 54,892
Repayments of subordinated stockholder and long-term
debt................................................... (4,138) (156,673)
Proceeds from issuance of common stock.................... 100,000 --
--------- ---------
Net cash (used in) provided by financing
activities...................................... 277,945 (216,949)
--------- ---------
Increase (decrease) in cash and equivalents................. (5,533) 226,441
Cash and equivalents, beginning of year..................... 53,192 47,659
--------- ---------
Cash and equivalents, end of year........................... $ 47,659 $ 274,100
========= =========
Supplemental disclosures:
Fiscal year 1997 noncash financing activities:
Issuance of 12,500 common shares for a $25,000 note
receivable from stockholder Repurchase of 855,000
common shares from stockholder for $940,000 note
payable
Cash paid during the year for:
Interest............................................... $ 31,708 $ 22,303
========= =========
Taxes.................................................. $ 98,428 $ 108,997
========= =========
</TABLE>
See notes to financial statements.
F-78
<PAGE> 162
NET DAEMONS ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1998
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net Daemons Associates, Inc. ("NDA" or the "Company") specializes in
providing business with team-based network and system administration solutions.
NDA network and system services include outsourced network/system
administration; LAN/WAN design and implementation; network growth and transition
planning; Internet connectivity; security consulting; and customized network
solutions. In addition, NDA provides Web site development and network consulting
services.
NEW ACCOUNTING PRONOUNCEMENTS -- During the year, the Company adopted
Financial Accounting Standards Board ("FASB") Statement No. 130, "Reporting
Comprehensive Income." Statement No. 130 requires the reporting of comprehensive
income in addition to net income from operations. Comprehensive income is a more
inclusive financial reporting methodology that includes disclosure of certain
financial information that historically has not been recognized in the
calculation of net income. Comprehensive income encompasses all changes in
stockholders' equity (except those arising from transactions with stockholders).
The Company had no other components of comprehensive income. As this new
standard only requires additional information in the financial statements, it
does not affect the Company's financial position or results of operations.
USE OF ESTIMATES -- The preparation of financial statements in accordance
with generally accepted accounting principles requires the use of estimates.
These estimates include the allowance for doubtful accounts and certain accruals
and are based upon assumptions developed by management about the appropriate
carrying value of assets and liabilities. Actual results could differ from these
estimates.
REVENUE RECOGNITION -- Revenue from consulting services is recognized as
the services are rendered, provided that no significant obligations remain and
collection of the receivable is considered probable. Generally, contracts call
for billings on a time and materials basis; however, in instances when a fixed
fee contract is signed, revenue is recognized on a percentage-of-completion
basis. At December 31, 1997 and 1998, NDA had $62,910 and $52,127 of deferred
revenue recorded, respectively.
CONCENTRATION OF CREDIT RISK -- The majority of NDA's revenue is from
customers in high technology industries, who are not required to provide
collateral. NDA's customers are dispersed over a wide geographic area and are
subject to periodic review under the Company's credit policies. The Company does
not believe that it is subject to any unusual credit risks, other than the
normal level of risk attendant to operating its business.
PROPERTY AND EQUIPMENT -- Property and equipment are recorded at cost and
depreciated using the straight-line method over their estimated useful lives
(three to seven years). Leasehold improvements are amortized over the life of
the lease.
INCOME TAXES -- Deferred income taxes are provided for the tax consequences
of differences in bases between assets and liabilities for book and tax
purposes. Deferred taxes are measured using currently enacted tax rates which
are expected to be in effect when such differences reverse.
STOCK-BASED COMPENSATION -- Compensation cost associated with awards of
stock or options to employees is measured using the intrinsic-value method
prescribed by Accounting Principles Board Opinion No. 25 (see Note 6).
RECLASSIFICATIONS -- Certain amounts in the financial statements have been
reclassified to conform with the 1998 presentation.
F-79
<PAGE> 163
NET DAEMONS ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. STOCKHOLDERS' RECEIVABLE
At December 31, 1998, stockholders' receivable consisted of $5,936 in notes
from NDA officers. The December 31, 1997 stockholders' receivable balance
consisted of a $25,000 note relating to the purchase of 12,500 shares of NDA's
common stock (paid on February 19, 1998) and $10,759 in notes from NDA officers.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Computer equipment and software...................... $ 329,241 $ 372,753
Furniture and fixtures............................... 50,632 54,194
Leasehold improvements............................... 13,939 13,939
Office equipment..................................... 28,405 33,124
Automobiles.......................................... 62,580 56,841
--------- ---------
Total...................................... 484,797 530,851
Less accumulated depreciation........................ (174,597) (308,102)
--------- ---------
Property and equipment, net.......................... $ 310,200 $ 222,749
========= =========
</TABLE>
4. NOTE PAYABLE -- BANK
Note payable -- bank represents the outstanding balance under a $400,000
working capital line of credit and a $100,000 line with a term conversion
feature ("the conversion line"). Interest on the lines are payable monthly based
on prime (7.75% at December 31, 1998). The lines are secured by and cross-
collateralized by substantially all assets of NDA, are personally guaranteed by
NDA's stockholders, and require the maintenance of customary financial covenants
including minimum retained earnings of $475,000. The lines are subject to
renewal annually and expires on July 1, 1999. The conversion line is to be
utilized to finance 80% of the purchase price of new equipment and converts to a
term loan in July 1999. After conversion, the loan will be payable in 48 equal
monthly installments of principal plus interest at the bank's then prime rate.
Amounts available under the lines were $500,000 at December 31, 1998.
5. LONG-TERM DEBT
EQUIPMENT LOAN -- The equipment loan requires monthly principal and
interest payments with principal payments based on a four-year straight-line
amortization schedule. Interest is based on prime (7.75% at December 31, 1998).
The equipment loan is secured by substantially all assets of NDA and is
personally guaranteed by NDA's stockholders.
TERM LOAN -- In connection with the acquisition of an automobile in June
1996, NDA entered into a term loan (the "term loan") with a bank for $23,504.
The term loan requires monthly payments of principal and interest (at 8.75%)
through May 2001.
STOCKHOLDER DEBT -- In connection with the repurchase of 855,000 shares of
common stock in December 1997, the Company entered into a $940,000 note payable
agreement (the "note payable"). This agreement calls for principal payments in
the amount of $125,333 to be made annually in 1999 through 2003 with a balloon
payment in 2004. However, NDA is only obligated to make payments, subject to
certain limitations, based on net profit as of the end of the fiscal year
preceding the relevant payment date. The note payable has an attached interest
rate of prime plus 1% (8.75% at December 31, 1998). The principal balance is
increased annually for the accrual of interest. The note payable is secured on a
pro
F-80
<PAGE> 164
NET DAEMONS ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
rata basis by a security interest in the noted stock. Principal payments due
under the equipment loan, term loan and stockholder debt are as follows:
<TABLE>
<CAPTION>
EQUIPMENT STOCKHOLDER
YEAR ENDING DECEMBER 31, LOAN TERM LOAN DEBT TOTAL
- ------------------------ --------- --------- ----------- ----------
<S> <C> <C> <C> <C>
1999......................... $ 33,453 $ 4,958 $ -- $ 38,411
2000......................... 33,453 5,376 125,333 164,162
2001......................... 33,453 2,264 125,333 161,050
2002......................... 33,452 -- 125,333 158,785
2003......................... -- -- 125,333 125,333
Thereafter................... -- -- 383,882 383,882
-------- ------- -------- ----------
Total.............. $133,811 $12,598 $885,214 $1,031,623
======== ======= ======== ==========
</TABLE>
6. STOCKHOLDERS' DEFICIT
COMMON STOCK -- During fiscal year 1997, NDA issued 62,500 common shares at
a price of $2.00 per share. Of the $125,000 in proceeds due from the sale of
these shares, $100,000 had been collected, leaving an outstanding balance of
$25,000 at December 31, 1997. On February 19, 1998, the outstanding balance was
collected.
TREASURY STOCK -- In December 1997, NDA purchased 855,000 shares of common
stock. NDA's purchases of shares of common stock are recorded as "Treasury
Stock" and result in a reduction of "Stockholders' Deficit."
STOCK OPTION PLAN -- NDA's Incentive Stock Option Plan (the "Plan"),
established in December 1996, provides for grants of options to purchase up to
200,000 shares of common stock. Grants may be in the form of incentive stock
options or nonqualified options. Exercise prices and vesting periods are
determined by the Board on the date of grant. Options generally vest ratably
over a four-year period. A summary of activity in the Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- ---------
<S> <C> <C>
Outstanding at January 1, 1997.............................. 77,900 $0.20
Granted..................................................... 106,100 2.00
Cancelled................................................... (41,000) 0.20
-------
Outstanding at December 31, 1997............................ 143,000 $1.54
Granted..................................................... 116,560 3.08
Cancelled................................................... (60,300) 1.96
-------
Outstanding at December 31, 1998............................ 199,260 $2.31
=======
</TABLE>
F-81
<PAGE> 165
NET DAEMONS ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth information regarding options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER NUMBER AVERAGE
OF EXERCISE CURRENTLY REMAINING
OPTIONS PRICE EXERCISABLE LIFE
- ------- -------- ----------- ---------
<C> <C> <C> <S>
32,900 $0.20 23,800 8.0 years
66,160 2.00 33,784 8.6
100,200 3.20 35,600 9.5
- ------- ------
199,260 93,184
======= ======
</TABLE>
PRO FORMA DISCLOSURE -- As described in Note 1, NDA uses the
intrinsic-value method to measure compensation for equity awards to employees.
Had NDA used the fair-value method to measure compensation, reported net income
would have been $64,577 in 1997 and $9,097 in 1998.
The minimum-value method was used to measure the fair value of equity
awards in this disclosure. Key assumptions used to apply this pricing model were
average risk-free rates of 6% and expected option lives of ten years. The
estimated fair value of awards made in 1997 and 1998 were $94,710 and $190,332,
respectively.
RESERVED SHARES -- At December 31, 1997 and 1998, 200,000 shares of common
stock were reserved for issuance upon exercise of options.
7. INCOME TAXES
The provision for income taxes consisted of the following for the years
ended December 31:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Current:
Federal.............................................. $ 58,900 $112,000
State................................................ 21,000 26,500
-------- --------
Total........................................ 79,900 138,500
-------- --------
Deferred:
Federal.............................................. (9,039) (28,800)
State................................................ (1,351) (8,900)
-------- --------
Total........................................ (10,390) (37,700)
-------- --------
Provision for income taxes............................. $ 69,510 $100,800
======== ========
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
at December 31 were as follows:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Deferred tax assets -- current:
Accrued vacation and benefits........................ $ 12,000 $ 38,000
Allowance for doubtful accounts...................... 7,700 15,000
-------- --------
Net deferred tax asset -- current...................... $ 19,700 $ 53,000
======== ========
Deferred tax liability -- noncurrent:
Depreciation......................................... $(12,800) $(21,500)
======== ========
</TABLE>
F-82
<PAGE> 166
NET DAEMONS ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation between the statutory and effective tax rates for the
years ended December 31 were as follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Statutory tax rate.......................................... 34.0% 34.0%
State income taxes -- net of federal benefit................ 6.2 6.2
Nondeductible expenses...................................... 7.1 6.4
Change in prior year's tax estimate......................... -- 16.1
---- ----
47.3% 62.7%
==== ====
</TABLE>
8. COMMITMENTS
OPERATING LEASES -- The Company leases its office facilities and certain
equipment under noncancelable operating leases. Total rent expense was $169,609
and $200,098 for the years ended December 31, 1997 and 1998, respectively.
Future minimum payments under noncancelable operating leases for the years
ending December 31 are as follows:
<TABLE>
<S> <C>
1999.............................................. $222,523
2000.............................................. 44,918
2001.............................................. 13,375
</TABLE>
9. PROFIT-SHARING PLAN
NDA has a profit-sharing plan (the "plan") pursuant to Section 401(k) of
the Internal Revenue Code (the "Code"). The plan allows participants to make
pretax contributions not in excess of the maximum allowed under the Code. The
plan does not provide matching contributions by the employer. The profit-sharing
portion of the plan consists of contributions made by NDA at the discretion of
the Board. Profit-sharing expense was approximately $26,000 in 1997 and $30,000
in 1998.
10. SUBSEQUENT EVENT
On February 12, 1999 Sage Networks, Inc. ("Sage") agreed to purchase all
the outstanding stock of the Company. The purchase price consists of cash of
$500,000 and 425,000 shares of Sage common stock. In addition Sage has agreed to
pay certain officers of the Company $2,417,000 for non-compete agreements and to
pay approximately $441,000 for outstanding stock options of the Company. The
Agreement also provides for contingent consideration of $500,000 in cash and
74,963 shares of Sage common stock if certain gross revenue and gross margin
targets are met in the twelve months period following the acquisition. The
transaction closed on February 17, 1999. As a result of the acquisition, on
February 12, 1999, the Company paid all of its outstanding bank debt. In
connection with the repayment, all bank credit facilities and borrowing
availability was cancelled.
The Company had service revenue from Sage of approximately $94,000 in 1998.
* * * * * *
F-83
<PAGE> 167
REPORT OF INDEPENDENT AUDITORS
Shareholder
Interliant, Inc.
We have audited the accompanying balance sheets of Interliant, Inc. (the
"Company") as of December 31, 1997 and 1998, and the related statements of
operations, shareholder's deficit and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Interliant, Inc. at December
31, 1997 and 1998, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
February 26, 1999,
except for Note 11, as to which the date is
March 10, 1999
F-84
<PAGE> 168
INTERLIANT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 917,566 $ 972,467
Accounts receivable, net of allowance of $103,940 in 1997
and $150,276 in 1998................................... 1,860,152 1,775,939
Unbilled revenue.......................................... 1,758,012 1,748,234
Prepaid expenses and other................................ 168,428 391,359
----------- -----------
Total current assets........................................ 4,704,158 4,887,999
Property and equipment, net................................. 5,693,201 5,661,351
Investment in and advances to joint venture................. 72,145 149,067
----------- -----------
Total assets................................................ $10,469,504 $10,698,417
=========== ===========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable and accrued expenses..................... $ 1,597,521 $ 1,909,514
Notes payable to shareholder and related party............ 10,825,000 15,125,000
Current portion of capital lease obligations.............. 30,083 27,919
----------- -----------
Total current liabilities................................... 12,452,604 17,062,433
Capital lease obligations................................... 136,238 110,009
Commitments and contingencies
Shareholder's deficit:
Common stock, $.01 par value; 40,000,000 shares
authorized; 10,000,000 shares issued and outstanding... 100,000 100,000
Additional paid-in capital................................ 400,000 400,000
Accumulated deficit....................................... (2,619,338) (6,974,025)
----------- -----------
Total shareholder's deficit................................. (2,119,338) (6,474,025)
----------- -----------
Total liabilities and shareholder's deficit................. $10,469,504 $10,698,417
=========== ===========
</TABLE>
See accompanying notes.
F-85
<PAGE> 169
INTERLIANT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Network service fees............................... $8,401,463 $15,316,756 $18,886,503
Consulting......................................... -- 1,423,071 2,020,598
Other.............................................. 4,504 136,037 265,768
---------- ----------- -----------
8,405,967 16,875,864 21,172,869
Costs and expenses:
Cost of service revenue............................ 5,056,552 9,414,476 11,880,983
General and administrative......................... 1,523,209 2,866,509 4,137,668
Sales and marketing................................ 1,697,214 4,408,597 6,722,997
Depreciation and amortization...................... 783,208 1,642,140 2,525,530
---------- ----------- -----------
9,060,183 18,331,722 25,267,178
---------- ----------- -----------
Operating loss....................................... (654,216) (1,455,858) (4,094,309)
Other income (expense):
Equity in losses of joint venture.................. (15,767) (214,735) (144,735)
Interest expense................................... (218,394) (469,817) (715,643)
Gain on settlement of litigation................... -- 1,351,630 600,000
---------- ----------- -----------
(234,161) 667,078 (260,378)
---------- ----------- -----------
Net loss............................................. $ (888,377) $ (788,780) $(4,354,687)
========== =========== ===========
</TABLE>
See accompanying notes.
F-86
<PAGE> 170
INTERLIANT, INC.
STATEMENTS OF SHAREHOLDER'S DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1995........................ 2,500,000 $ 25,000 $475,000 $ (942,181) $ (442,181)
Stock split effected as a
stock dividend........... 7,500,000 75,000 (75,000) -- --
Net loss.................... -- -- -- (888,377) (888,377)
---------- -------- -------- ----------- -----------
Balance at December 31,
1996........................ 10,000,000 100,000 400,000 (1,830,558) (1,330,558)
Net loss.................... -- -- -- (788,780) (788,780)
---------- -------- -------- ----------- -----------
Balance at December 31,
1997........................ 10,000,000 100,000 400,000 (2,619,338) (2,119,338)
Net loss.................... -- -- -- (4,354,687) (4,354,687)
---------- -------- -------- ----------- -----------
Balance at December 31,
1998........................ 10,000,000 $100,000 $400,000 $(6,974,025) $(6,474,025)
========== ======== ======== =========== ===========
</TABLE>
See accompanying notes.
F-87
<PAGE> 171
INTERLIANT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................ $ (888,377) $ (788,780) $(4,354,687)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation...................................... 734,331 1,403,842 1,952,629
Amortization...................................... 48,877 525,391 572,901
Loss on disposals of property and equipment....... 115,037 14,856 3,783
Provision for doubtful accounts................... 50,178 97,433 150,966
Equity in losses of joint ventures................ 15,767 214,735 144,735
Changes in operating assets and liabilities:
Accounts receivable and unbilled revenue....... (1,338,004) (1,660,351) (56,975)
Prepaid expenses and other..................... (207,233) 91,727 (222,931)
Accounts payable and accrued liabilities....... 1,378,521 (136,301) 311,993
----------- ----------- -----------
Net cash used in operating activities............... (90,903) (237,448) (1,497,586)
INVESTING ACTIVITIES
Proceeds from sale of property and equipment........ 16,889 8,281 4,000
Expenditures for property and equipment............. (4,082,093) (2,834,563) (2,501,463)
Investments in and advances to joint venture........ (55,561) (247,086) (221,657)
----------- ----------- -----------
Net cash used in investing activities............... (4,120,765) (3,073,368) (2,719,120)
FINANCING ACTIVITIES
Net proceeds from notes payable from shareholder and
related party..................................... 4,423,623 3,901,698 4,271,607
----------- ----------- -----------
Net cash provided by financing activities........... 4,423,623 3,901,698 4,271,607
----------- ----------- -----------
Increase in cash.................................... 211,955 590,882 54,901
Cash at beginning of year........................... 114,729 326,684 917,566
----------- ----------- -----------
Cash at end of year................................. $ 326,684 $ 917,566 $ 972,467
=========== =========== ===========
</TABLE>
See accompanying notes.
F-88
<PAGE> 172
INTERLIANT, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Interliant, Inc. (the "Company") was organized under the laws of the State
of Texas on July 12, 1993, under the name Wolf Communications Company. The
Company's name was changed to Interliant, Inc., effective January 20, 1997.
Interliant, Inc., is a privately owned company that provides secure
network-based hosting and messaging services on a Lotus Notes platform, enabling
worldwide continuously available remote access to business-critical applications
and data. The Company also provides vertical solutions for various markets
including distance learning, sales force automation, legal, and mortgage
banking. It is also developing hosting solutions for Microsoft Exchange and
Microsoft's Commercial Internet System, as well as a remote server management
solution.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments, except notes
payable to shareholder and related party and the capital lease obligation,
approximate fair value. The fair value of notes payable to shareholder and
related party and the capital lease obligation are not determinable as the
Company's borrowings are from the shareholder and a related party and the
capital lease obligation is guaranteed by the shareholder.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION
The Company grants stock options to employees for shares with an exercise
price no less than the value of the shares at the date of grant. The company
accounts for such stock option grants in accordance with Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25").
REVENUE RECOGNITION
Revenues consist primarily of network service and related fees for
services, generally provided under contractual periods ranging from one to
twelve months. Revenues from these services are generally recognized when the
services are performed. Revenues in excess of amounts billed are accrued and
presented as unbilled revenue in the accompanying balance sheets.
ADVERTISING EXPENSES
All advertising costs are expensed as incurred. Advertising expenses were
approximately $122,000, $415,000, and $571,000 for the years ended December 31,
1996, 1997, and 1998, respectively.
COST OF SERVICE REVENUE
Cost of service revenue includes internally-funded research and development
costs, which are expensed as incurred. Research and development costs were
approximately $600,000, $1,100,000, and $1,500,000 in 1996, 1997, and 1998,
respectively.
F-89
<PAGE> 173
INTERLIANT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Computer equipment and software............................. 3 years
Furniture, fixtures and office equipment.................... 5 to 7 years
</TABLE>
Amortization of leasehold improvements is provided using the straight-line
method over the shorter of the remaining estimated useful lives or the lease
terms. Depreciation expense in 1997 of approximately $287,000 is presented on
the statements of operations as an offset to the gain on settlement of
litigation.
The costs of ordinary maintenance and repairs are charged to expense while
renewals and replacements are capitalized.
INCOME TAXES
The shareholder has elected S corporation status for the Company for
federal income tax purposes. Under S corporation regulations, revenues and
expenses of the Company are reportable for federal income tax purposes in the
income tax return of the shareholder. Accordingly, no provision for federal
income tax is included in the accompanying financial statements.
CONCENTRATION OF CREDIT RISK
Financial instruments which subject the Company to concentrations of credit
risk consist principally of accounts receivable. The Company provides credit, in
the normal course of business, to a number of geographically dispersed
customers, primarily within the United States. Collateral is generally not
required on these receivables. The Company maintains allowances for potential
credit losses, and customers can be denied access to services in the event of
non-payment. During 1997 and 1998, the Company's largest customer represented
approximately 10% of total revenues.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS
130 establishes new rules for the reporting and display of comprehensive income
and its components. Certain items which were previously required to be reported
separately in shareholder's equity, such as unrealized gains or losses on
available-for-sale securities, minimum pension liability adjustments and foreign
currency translation adjustments, are now required to be included in other
comprehensive income. For 1996, 1997, and 1998 the Company's comprehensive
income was the same as net income, and the adoption of SFAS 130 had no impact on
the presentation of the financial statements.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("SFAS 131"). SFAS 131 requires disclosure of
certain information regarding operating segments, products, services, geographic
areas of operation and major customers. The disclosures prescribed by SFAS 131
are effective for the year ended December 31, 1998. The Company has determined
that it does not have separately reportable segments, as defined by SFAS 131,
and thus no segment disclosures have been presented.
In March 1998, the AICPA issued Statement of Position 98-1, Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use (SOP
98-1), which is effective for the financial statements for fiscal years
beginning after December 15, 1998. SOP 98-1 will result in the capitalization of
F-90
<PAGE> 174
INTERLIANT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
certain qualifying costs incurred in the development of software for internal
use; however, the adoption of SOP 98-1 is not expected to have a material impact
on the Company's earnings or financial position.
2. INVESTMENT IN AND ADVANCES TO JOINT VENTURE
The Company is a 50% partner in TITLELINK, L.L.C., a joint venture which
offers a network-based service to facilitate the closing of real estate
transactions within the financial community. The Company provides working
capital requirements as needed. The Company has provided an allowance against
its advances to the joint venture of approximately $30,000 and $114,000 at
December 31, 1997 and 1998, respectively, which is included in investment in and
advances to joint venture.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
---------- -----------
<S> <C> <C>
Computer equipment and software............................ $4,926,000 $ 7,298,000
Furniture, fixtures and office equipment................... 1,559,000 1,682,000
Leasehold improvements..................................... 2,659,000 2,665,000
---------- -----------
9,144,000 11,645,000
Less accumulated depreciation and amortization............. 3,451,000 5,984,000
---------- -----------
$5,693,000 $ 5,661,000
========== ===========
</TABLE>
4. NOTES PAYABLE TO SHAREHOLDER AND RELATED PARTY
Notes payable to shareholder and related party includes unsecured
borrowings from the Company's shareholder totaling $4,310,000 and $7,910,000 at
December 31, 1997 and 1998, respectively, and unsecured borrowings from a
related party totaling $6,515,000 and $7,215,000 at December 31, 1997 and 1998,
respectively. These advances have been used to fund the Company's operations.
These notes bear interest, payable monthly, at annual rates ranging from 5.5% to
6.1% in 1997, and 4.3% to 5.6% in 1998. The borrowings mature on March 31, 1999.
The Company paid interest associated with the notes payable to affiliates
of approximately $199,000, $449,000, and $696,000 in 1996, 1997, and 1998,
respectively.
5. RELATED PARTY TRANSACTIONS
The Company has an informal agreement with a related party whereby the
Company provides certain administrative services to the related party. The
related party compensates the Company for these services on a monthly basis,
which totaled $12,000, $48,000, and $48,000 in 1996, 1997, and 1998,
respectively. The amount due to the Company for these services totaled $12,000
at December 31, 1998, and there was no related amount due to the Company at
December 31, 1997.
6. EMPLOYEE BENEFIT PLAN
Substantially all of the Company's employees are participants in a
discretionary, defined contribution plan with salary deferral contributions as
provided under Section 401(k) of the Internal Revenue Code. Voluntary salary
deferral contributions are made by employees, subject to a maximum of 15% of
annual compensation and are matched 100% of the first 5% by Company
contributions. The charge to expense for the Company's contributions was
$109,000, $254,000, and $404,000 for the years ended December 31, 1996, 1997,
and 1998, respectively.
F-91
<PAGE> 175
INTERLIANT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCK SPLIT
Effective December 16, 1996, the Board of Directors approved a four-for-one
split of the Company's common stock effected in the form of a stock dividend,
resulting in a total of 10,000,000 shares outstanding. All references in the
financial statements which relate to the number of shares of Common Stock have
been restated to reflect the stock split.
8. EMPLOYEE STOCK OPTION PLAN
In 1995, the Company's sole director (the "Director") adopted the 1995
Employee Stock Option Plan (the "Option Plan"), pursuant to which options to
purchase up to an aggregate of 4,000,000 shares of the Company's common stock
may be granted. The Option Plan is administered by the Director. Among other
things, the Director determines which employees will receive options, the number
of shares covered by any option granted, and the exercise price and other terms
and conditions of each such option.
All options granted under the Option Plan are nontransferable except by the
laws of descent and distribution. All options also expire ten years after the
date of grant or upon earlier termination of employment unless due to death,
disability, or retirement, in which case the option remains exercisable for an
additional three months in the case for Incentive Options and one year for
Non-Qualified Options. Options granted vest over periods ranging from immediate
vesting to vesting in equal increments over four years from the date of grant.
The exercise price of the options approximated the fair value of the common
stock on the date of grant, and accordingly, no compensation expense has been
recorded. The weighted-average remaining contractual life of options at December
31, 1996, 1997, and 1998 was 9.7 years, 8.8 years, and 8.0 years, respectively.
A summary of the Option Plan as of December 31, 1996, 1997, and 1998 and
changes during the years ended on those dates are as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICES
--------- ---------
<S> <C> <C>
Options outstanding January 1, 1996......................... 340,000 $.05
Granted................................................... 2,242,000 $.05
Exercised................................................. -- --
Surrendered............................................... -- --
--------- ----
Options outstanding December 31, 1996....................... 2,582,000 $.05
Granted................................................... 646,100 $.05
Exercised................................................. -- --
Surrendered............................................... (214,000) $.05
--------- ----
Options outstanding December 31, 1997....................... 3,014,100 $.05
Granted................................................... 801,100 $.05
Exercised................................................. -- --
Surrendered............................................... (173,200) $.05
--------- ----
Options outstanding December 31, 1998....................... 3,642,000 $.05
========= ====
Exercisable at:
December 31, 1996......................................... 2,468,000 $.05
========= ====
December 31, 1997......................................... 2,620,000 $.05
========= ====
December 31, 1998......................................... 2,847,000 $.05
========= ====
</TABLE>
F-92
<PAGE> 176
INTERLIANT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1996, 1997, and 1998, the Company had reserved 4,000,000
shares of common stock for issuance in connection with the exercise of stock
options.
The Company has elected to follow APB 25 and related interpretations in
accounting for employee stock options. Accordingly, no compensation expense has
been recognized for these stock options. Pro forma information regarding net
income and earnings per share is required by FASB Statement No. 123, Accounting
for Stock-Based Compensation ("FAS 123"), which also requires that the
information be determined as if the Company had accounted for its employee stock
options under the fair value method of FAS 123. The fair value for these options
was estimated at the date of grant using a minimum value option pricing model
with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate................................. 6.5% 5.6% 4.8%
Dividend yield.......................................... 0.0% 0.0% 0.0%
Weighted-average expected life of options............... 5 years 5 years 5 years
</TABLE>
The minimum value method calculated the fair value of these options as
zero; therefore, pro forma net loss is the same as net loss for each year
presented.
9. COMMITMENTS AND CONTINGENCIES
The Company leases various office space and equipment under noncancelable
operating leases expiring on various dates through 2001, generally with options
to renew under terms consistent with the original leases. The gross balance of
assets recorded under capital leases which are included in property and
equipment at December 31, 1997 and 1998 was approximately $287,000 and $291,000,
respectively. Associated accumulated depreciation was approximately $95,000 and
$165,000 at December 31, 1997 and 1998, respectively. At December 31, 1998,
future lease payments are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ----------
<S> <C> <C>
1999........................................................ $ 41,000 $ 983,000
2000........................................................ 41,000 898,000
2001........................................................ 41,000 524,000
2002........................................................ 35,000 --
2003........................................................ -- --
-------- ----------
Total minimum lease payments................................ 158,000 $2,405,000
==========
Less amount representing interest........................... 20,000
--------
Present value of capital lease obligations.................. 138,000
Less current portion of capital lease obligations........... 28,000
--------
Long-term capital lease obligations......................... $110,000
========
</TABLE>
Total rent expense for operating leases for the years ended December 31,
1996, 1997, and 1998 was $797,000, $1,700,000, and $1,449,000, respectively.
The Company has a facility with a bank for letters of credit totaling
$541,000 at December 31, 1998 relating to the Company's data center operating
lease. There were no amounts outstanding under the letter of credit facility at
December 31, 1998.
F-93
<PAGE> 177
INTERLIANT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. LITIGATION
In 1997 and 1998, the Company received proceeds of $2,500,000 and $600,000,
respectively, from the settlement of legal claims relating to a trademark
dispute. These amounts are presented in the statements of operations net of
costs related to the settlement of $1,148,000 in 1997.
The Company is involved in various lawsuits and legal proceedings which
have arisen in the normal course of business. While the ultimate results of
these matters cannot be predicted with certainty, management does not expect
them to have a material adverse effect on the financial position of the Company.
11. SUBSEQUENT EVENT
In February 1999, the shareholder reached an agreement in principle to sell
substantially all of the assets and certain liabilities of the Company. The
transaction closed on March 10, 1999. The Company has obtained approval of the
proposed transaction with the holders of outstanding borrowings.
12. YEAR 2000 ISSUE (UNAUDITED)
Currently, many computer and software products are coded to accept
two-digit entries in the date code field. These date code fields will need to
accept four-digit entries to distinguish 21st century dates from 20th century
dates. As a result, many companies' software and computer systems, including the
Company's, may need to be upgraded or replaced in order to comply with Year 2000
requirements. We recognize the need to ensure that our operations will not be
adversely impacted by Year 2000 software and computer system failures.
State of Readiness
The Company has made a preliminary assessment of the Year 2000 readiness of
its information technology ("IT") systems, including the hardware and software
that enable it to provide and deliver its solutions, and its non-IT systems. The
Company's plan consists of (i) quality assurance testing of its internally
developed proprietary software and systems; (ii) contacting third-party
suppliers, vendors and licensors of material hardware, software and services
that are both directly and indirectly related to the delivery of the Company's
solutions to it customers; (iii) assessment of repair or replacement
requirements; (iv) repair or replacement; (v) implementation; and (vi) creation
of contingency plans in the event of Year 2000 failures. The Company is
currently assessing the materiality of its IT and non-IT systems and will seek
assurances of Year 2000 compliance from providers of material systems. Until
such testing is complete and such vendors and providers are contacted, the
Company will not be able to completely evaluate whether its IT systems or non-IT
systems will need to be revised or replaced. The Company plans to complete its
Year 2000 evaluation during the second half of 1999.
Costs
To date, the Company has not incurred any material expenditures in
connection with identifying or evaluating Year 2000 compliance issues. Most of
its expenses have related to, and are expected to continue to relate to, the
internal staffing costs associated with the evaluation process and Year 2000
compliance matters generally. At this time, the Company does not possess the
information necessary to estimate the potential costs of revisions to its
software and systems should such revisions be required or the replacement of
third party software, hardware or services that are determined not to be Year
2000 compliant. Although the Company does not anticipate that such expenses will
be material, such expenses if higher than anticipated, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
F-94
<PAGE> 178
INTERLIANT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Risks
The Company is not currently aware of any Year 2000 compliance problems
relating to its IT or non-IT systems that would have a material adverse effect
on the Company's business, results of operations and financial condition. There
is no assurance that the Company will not discover Year 2000 compliance problems
in its software and systems that will require substantial revisions. In
addition, there is no assurance that third party software, hardware or services
incorporated into the Company's material IT and non-IT systems will not need to
be revised or replaced, all of which could be time consuming and expensive. The
failure of the Company to fix or replace its software, hardware or services on a
timely basis could result in lost revenues, increased operating costs and the
loss of customers and other business interruptions, any of which could have a
material adverse effect on the Company's business, results of operations and
financial condition. Moreover, the failure to adequately address Year 2000
compliance issues in its IT and non-IT systems could result in claims of
mismanagement, misrepresentation or breach of contract and related litigation,
which could be costly and time-consuming to defend. In addition, there can be no
assurance that governmental agencies, utility companies, telecommunication
companies, other Internet service providers, third party service providers,
hardware and software manufacturers and others outside Interliant control will
be Year 2000 compliant. The failure by such entities to be Year 2000 compliant
could result in a systemic failure beyond the control of the Company such as a
prolonged Internet, telecommunications or electrical failure, which could also
prevent the Company from delivering its services to its customers, decrease the
use of the Internet or prevent users from accessing the Web sites of its
customers. Any of these occurrences could have a material adverse effect on the
Company's business, financial condition and results of operations.
Contingency Plan
As discussed above, the Company is engaged in an ongoing Year 2000
assessment and has not yet developed any contingency plans. The responses
received from third-party vendors and service providers will be taken into
account in determining the nature and extent of any contingency plans.
F-95
<PAGE> 179
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THROUGH AND INCLUDING , 1999 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
7,000,000 SHARES
[INTERLIANT LOGO]
COMMON STOCK
-----------------------
PROSPECTUS
-----------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
CIBC WORLD MARKETS
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 180
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 30, 1999
PROSPECTUS
7,000,000 SHARES
[INTERLIANT LOGO]
COMMON STOCK
------------------------
This is Interliant's initial public offering of common stock. The
international managers are offering 875,000 shares outside the United States and
Canada and the U.S. underwriters are offering 6,125,000 shares in the United
States and Canada.
We expect the public offering price to be between $9.00 and $11.00 per
share. After pricing this offering, we expect that the common stock will be
quoted on the Nasdaq National Market under the symbol "INIT."
INVESTING IN THE COMMON STOCK INVOLVES MATERIAL RISKS WHICH ARE DESCRIBED
IN THE "RISK FACTORS" SECTION BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price...................................... $ $
Underwriting Discount...................................... $ $
Proceeds, before expenses, to Interliant, Inc.............. $ $
</TABLE>
The international managers may also purchase up to an additional 130,000
shares from Interliant at the public offering price, less the underwriting
discount, within 30 days from the date of this prospectus to cover
over-allotments. The U.S. underwriters may similarly purchase up to an
additional 920,000 shares from Interliant.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares of common stock will be ready for delivery in New York, New York
on or about , 1999.
------------------------
MERRILL LYNCH INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE
CIBC WORLD MARKETS
------------------------
The date of this prospectus is , 1999.
[Alternative Page for International Prospectus]
<PAGE> 181
UNDERWRITING
GENERAL
We intend to offer our common stock outside the United States and Canada
through a number of international managers and in the United States and Canada
through a number of U.S. underwriters. Merrill Lynch International, Donaldson,
Lufkin & Jenrette International and CIBC World Markets International Limited are
acting as lead managers for each of the international managers named below.
Subject to the terms and conditions set forth in an international purchase
agreement among us and the international managers, and concurrently with the
sale of 6,125,000 shares of common stock to the U.S. underwriters, we have
agreed to sell to the international managers, and each of the international
managers severally and not jointly has agreed to purchase from us, the number of
shares of common stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
INTERNATIONAL MANAGER OF SHARES
- ------------------------------------------------------------ ---------
<S> <C>
Merrill Lynch International.................................
Donaldson, Lufkin & Jenrette International..................
CIBC World Markets International Limited....................
Total..........................................
</TABLE>
We have also entered into a U.S. purchase agreement with certain
underwriters in the United States and Canada for whom Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette and CIBC World Markets
Corp. are acting as U.S. representatives. Subject to the terms and conditions
set forth in the U.S. purchase agreement, and concurrently with the sale of
875,000 shares of common stock to the international managers pursuant to the
international purchase agreement, we have agreed to sell to the U.S.
underwriters and the U.S. underwriters severally have agreed to purchase from us
an aggregate of 6,125,000 shares of common stock. The initial public offering
price per share and the total underwriting discount per share of common stock
are identical under the U.S. purchase agreement and the international purchase
agreement.
In the international purchase agreement and the U.S. purchase agreement,
the several international managers and the several U.S. underwriters have
agreed, subject to the terms and conditions set forth therein, to purchase all
of the shares of common stock being sold pursuant to each such agreement if any
of the shares of common stock being sold pursuant to such agreement are
purchased. In the event of a default by an underwriter, the U.S. Purchase
Agreement and the international purchase agreement provide that, in certain
circumstances, the purchase commitments of the nondefaulting underwriters may be
increased or the purchase agreements may be terminated. The closings with
respect to the sale of shares of common stock to be purchased by the U.S.
underwriters and the international managers are conditioned upon one another.
We have agreed to indemnify the U.S. underwriters and the international
managers against some liabilities, including some liabilities under the
Securities Act, or to contribute to payments the U.S. underwriters and the
international managers may be required to make in respect of those liabilities.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the underwriters and certain
other conditions. The underwriters reserve the right to withdraw, cancel or
modify such offer and reject orders in whole or in part.
A-2
[Alternative Page for International Prospectus]
<PAGE> 182
COMMISSIONS AND DISCOUNTS
The lead managers have advised us that the lead managers propose initially
to offer the shares of common stock to the public at the initial public offering
price set forth on the cover page of this prospectus, and to certain dealers at
such price less a concession not in excess of $ per share of common stock.
The international managers may allow, and such dealers may reallow, a discount
not in excess of $ per share of common stock to certain other dealers. After
the initial public offering, the public offering price, concession and discount
may change.
The following table shows the per share and total public offering price,
underwriting discount to be paid by us to the U.S. underwriters and the
international managers and the proceeds before expenses to us. This information
is presented assuming either no exercise or full exercise by the U.S.
underwriters and the international managers of their over-allotment options.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public Offering Price.......................... $ $ $
Underwriting Discount.......................... $ $ $
Proceeds, before expenses, to Interliant....... $ $ $
</TABLE>
The expenses of the offerings (exclusive of the underwriting discount and
commissions) are estimated at $1.4 million and are payable by us.
INTERSYNDICATE AGREEMENT
The international managers and the U.S. underwriters have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the terms of the intersyndicate agreement, the international managers and
the U.S. underwriters are permitted to sell shares of our common stock to each
other for purposes of resale at the initial public offering price, less an
amount not greater than the selling concession. Under the terms of the
intersyndicate agreement, the U.S. underwriters and any dealer to whom they sell
shares of our common stock will not offer to sell or sell shares of our common
stock to persons who are non-U.S. or non-Canadian persons or to persons they
believe intend to resell to persons who are non-U.S. or non-Canadian persons,
and the international managers and any dealer to whom they sell shares of common
stock will not offer to sell or sell shares of common stock to U.S. persons or
to Canadian persons or to persons they believe intend to resell to U.S. or
Canadian persons, except in the case of transactions under the terms of the
intersyndicate agreement.
OVER-ALLOTMENT OPTION
We have granted options to the international managers, exercisable for 30
days after the date of this prospectus, to purchase up to an aggregate of
130,000 additional shares of common stock at the public offering price set forth
on the cover page of this prospectus, less the underwriting discount. The
international managers may exercise this option solely to cover over-allotments,
if any, made on the sale of the common stock offered hereby. To the extent that
the international managers exercise this option, each international managers
will be obligated, subject to certain conditions, to purchase a number of
additional shares of common stock proportionate to such international managers's
initial amount reflected in the foregoing table.
We also have granted an option to the U.S. underwriters, exercisable for 30
days after the date of this prospectus, to purchase up to an aggregate of
920,000 additional shares of common stock to cover over-allotments, if any, on
terms similar to those granted to the international managers.
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 350,000, or 5%, of the shares offered hereby to be
sold to some of our directors, officers, employees,
A-3
[Alternative Page for International Prospectus]
<PAGE> 183
distributors, dealers, business associates and related persons. The number of
shares of common stock available for sale to the general public will be reduced
to the extent those persons purchase such reserved shares. Any reserved shares
which are not orally confirmed for purchase within one day of the pricing of
this offering will be offered by the underwriters to the general public on the
same terms as the other shares offered in this prospectus.
NO SALES OF SIMILAR SECURITIES
For a period of 180 days after the date of this prospectus, we, our
executive officers, directors and stockholders, have agreed not to directly or
indirectly, without approval by Merrill Lynch on behalf of the underwriters:
- Offer, pledge, sell, dispose of or transfer any shares of common stock or
securities convertible into common stock;
- Enter into any agreement that transfers any part of the economic
consequence of ownership of the common stock; or
- Seek or exercise any right to register any share of common stock or
security convertible into common stock.
Our stockholders do, however, have the right to:
- Transfer the securities as a gift, if the recipient agrees to be bound by
the provisions of the lock-up agreement; or
- Pledge their securities to us in consideration for a loan from us.
In addition, we have the right to transfer common stock in connection with
an acquisition, if any recipient of such shares agrees to be bound by the
provisions of the lock-up agreement.
QUOTATION ON THE NASDAQ NATIONAL MARKET
Our common stock has been approved for quotation on the Nasdaq National
Market, subject to official notice of issuance, under the symbol "INIT."
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations
between us and the U.S. representatives and the lead managers. The factors to be
considered in determining the initial public offering price, in addition to
prevailing market conditions, are expected to be the valuation multiples of
publicly traded companies that the U.S. representatives and the lead managers
believe to be comparable to us, certain of our financial information, the
history of, and the prospects for, our company and the industry in which we
compete, and an assessment of our management, its past and present operations,
the prospects for, and timing of, our future revenues, the present state of our
development, and the above factors in relation to market values and various
value measures of other companies engaged in activities similar to ours. There
can be no assurance that an active trading market will develop for our common
stock or that our common stock will trade in the public market subsequent to
this offering at or above the initial public offering price.
The underwriters do not expect sales of the common stock to be made to any
accounts over which they exercise discretionary authority to exceed 5% of the
number of shares being offered in this offering.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
certain selling group members to bid for and purchase our common stock. As an
exception to these rules, the U.S. representatives are permitted to engage in
certain transactions that stabilize the price of our common stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of our common stock.
A-4
[Alternative Page for International Prospectus]
<PAGE> 184
If the underwriters create a short position in our common stock in
connection with the offering contemplated hereby, i.e., if they sell more shares
of our common stock than are set forth on the cover page of this prospectus, the
U.S. representatives may reduce that short position by purchasing our common
stock in the open market. The U.S. representatives may also elect to reduce any
short position by exercising all or part of the over-allotment option described
above.
The U.S. representatives may also impose a penalty bid on our underwriters
and selling group members. This means that if the U.S. representatives purchase
shares of our common stock in the open market to reduce the underwriters' short
position or to stabilize the price of the our common stock, they may reclaim the
amount of the selling concession from the underwriters and selling group members
who sold those shares.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that it
discourages resales of our common stock.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
we nor any of the underwriters makes any representation that the U.S.
representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued.
UK SELLING RESTRICTIONS
Each international manager has agreed that (1) it has not offered or sold
and, prior to the expiration of the period of six months from the closing date,
will not offer or sell any shares of common stock to persons in the United
Kingdom, except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which do not
constitute an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995; (2) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the common stock in, from or
otherwise involving the United Kingdom; and (3) it has only issued or passed on
and will only issue or pass on in the United Kingdom any document received by it
in connection with the issuance of common stock to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 as amended by the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1997 or is a person to whom
such document may otherwise lawfully be issued or passed on.
NO PUBLIC OFFERING OUTSIDE THE UNITED STATES
No action has been or will be taken in any jurisdiction, except in the
United States, that would permit a public offering of the shares of common
stock, or the possession, circulation or distribution of this prospectus or any
other material relating to us or shares of our common stock in any jurisdiction
where action for that purpose is required. Accordingly, the shares of our common
stock may not be offered or sold, directly or indirectly, and neither this
prospectus nor any other offering material or advertisements in connection with
the shares of common stock may be distributed or published, in or from any
country or jurisdiction except in compliance with any applicable rules and
regulations of any such country or jurisdiction.
Purchasers of the shares offered by this prospectus may be required to pay
stamp taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price set forth on the cover
page hereof.
A-5
[Alternative Page for International Prospectus]
<PAGE> 185
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Dewey Ballantine LLP, New York, New York. Certain legal matters
in connection with the offering will be passed upon for the underwriters by
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California.
EXPERTS
The consolidated financial statements of Sage Networks, Inc. at December
31, 1997 and 1998, and for the period December 8, 1997 (inception) to December
31, 1997 and the year ended December 31, 1998, and the financial statements of
Interliant, Inc. at December 31, 1997 and 1998, and for each of the three years
in the period ended December 31, 1998, appearing in this prospectus and
registration statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon the authority of such firm as experts in
accounting and auditing.
The balance sheets of B.N. Technology, Inc. dba Internet Communications, as
of December 31, 1996 and 1997, and the related statements of operations and
accumulated deficit, and cash flows for the period April 15, 1996 (inception)
through December 31, 1996 and for the year ended December 31, 1997 included in
this prospectus have been so included in reliance on the report of Frankel,
Lodgen, Lacher, Golditch, Sardi & Howard, independent accountants given on the
authority of said firm as experts in auditing and accounting.
The balance sheet of Clever Computers, Inc., as of December 31, 1996 and
1997 and the related statements of income, retained earnings, and cash flows for
the years then ended included in this prospectus have been so included in
reliance on the report of BSC&E, independent accountants given on the authority
of said firm as experts in auditing and accounting.
The statements of assets and liabilities as of December 31, 1996 and 1997,
and the statements of revenue and expenses and of cash flows for each of the
three years in the period ended December 31, 1997, of HostAmerica, a division of
HomeCom Communications, Inc., included in this prospectus, have been included
herein in reliance on the report, which includes an explanatory paragraph
regarding basis of presentation, of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The financial statements of Net Daemons Associates, Inc., for the years
ended December 31, 1997 and 1998 included in this prospectus and in the
registration statement have been audited by Deloitte & Touche LLP, independent
accountants as stated in their report appearing herein and elsewhere in the
registration statement and is included in reliance upon the report of such firm
given upon the authority of said firm as experts in auditing and accounting.
The financial statements of Telephonetics International, Inc. and Affiliate
included in this prospectus and registration statement have been audited by BDO
Seidman, LLP, independent certified accountants to the extent and for the
periods set forth in their report appearing elsewhere herein and in this
registration statement and are included in reliance on such reports given upon
the authority of said firm as experts in auditing and accounting.
The balance sheets of Tri Star Web as of December 31, 1996 and 1997 and the
related statements of operations, and changes in retained earnings, and cash
flows for the years then ended, and the consolidated balance sheets of GEN
International Inc. and subsidiaries as of December 31, 1995, 1996 and 1997, and
the related consolidated statements of operations, changes in stockholders'
deficiency, and cash flows for the period April 4, 1995 (inception) through
December 31, 1995 and the years ended December 31, 1996 and 1997 and the balance
sheets of Digiweb, Inc. as of December 31, 1997 and 1998 and the related
statements of income, cash flows and changes in stockholders' equity for the
years then ended included in
A-6
[Alternative Page for International Prospectus]
<PAGE> 186
this prospectus have been so included in reliance on the reports of Urbach Kahn
& Werlin PC, independent accountants given on the authority of said firm as
experts in auditing and accounting.
AVAILABLE INFORMATION
We have filed with the Commission, Washington, D.C. 20549, a Registration
Statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered hereby. This prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to us and the common
stock offered hereby, reference is made to the Registration Statement and the
exhibits and schedules filed therewith. Statements contained in this prospectus
as to the contents of any contract or any other document referred to are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. A copy of
the Registration Statement may be inspected without charge at the offices of the
Commission in Washington, D.C. 20549, and copies of all or any part of the
Registration Statement may be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549 upon the payment of the fees prescribed by
the Commission. The Commission maintains a Web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants, such as Interliant, that file electronically with the
Commission.
We provide Web hosting services to a customer whose primary residence is
located in Cuba, Mr. Osvaldo Martinez. This information is correct as of the
date of this prospectus. Current information concerning business between any
person located in Cuba or the government of Cuba and Interliant may be obtained
from the Florida Department of Banking and Finance, Plaza Level, The Capitol,
Tallahassee, Florida 32399-0350, telephone number (904) 488-6311.
A-7
[Alternative Page for International Prospectus]
<PAGE> 187
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THROUGH AND INCLUDING , 1999 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
7,000,000 SHARES
[INTERLIANT LOGO]
COMMON STOCK
-----------------------
PROSPECTUS
-----------------------
MERRILL LYNCH INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE
CIBC WORLD MARKETS
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 188
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of the estimated amounts of all
expenses payable by the Registrant in connection with the registration of the
common stock offered hereby, other than underwriting discounts and commissions:
<TABLE>
<S> <C>
Registration Fee -- Securities and Exchange Commission...... $ 21,375
NASD Filing Fee............................................. 9,125
Blue Sky fees and expenses.................................. 1,000
Accountants' fees and expenses.............................. 300,000
Legal fees and expenses..................................... 550,000
Printing and engraving expenses............................. 500,000
Transfer agent and registrar fees........................... 5,000
Miscellaneous............................................... 13,500
----------
Total............................................. $1,400,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a Delaware corporation may indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Section 145(b) of the DGCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted under similar standards, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless and
only to the extent that the court in which such action or suit was brought shall
determine that despite the adjudication of liability, such person is fairly and
reasonably entitled to be indemnified for such expenses which the court shall
deem proper.
Section 145 of the DGCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue, or matter therein, he shall be indemnified against any expenses
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that the
corporation may purchase and maintain insurance on behalf of a director,
officer, employee or agent of the corporation against any liability asserted
against him or incurred by him in any such capacity or arising out of his status
as such whether or not the corporation would have the power to indemnify him
against such liabilities under Section 145.
II-1
<PAGE> 189
Section 102(b)(7) of the DGCL provides that a corporation in its original
certificate of incorporation or an amendment thereto validly approved by
stockholders may eliminate or limit personal liability of members of its board
of directors or governing body for breach of a director's fiduciary duty.
However, no such provision may eliminate or limit the liability of a director
for breaching his duty of loyalty, failing to act on good faith, engaging in
intentional misconduct or knowingly violating a law, paying a dividend or
approving a stock repurchase which was illegal or obtaining an improper personal
benefit. A provision of this type has no effect on the availability of equitable
remedies, such as injunction or rescission, for breach of fiduciary duty.
Interliant's Restated Certificate of Incorporation contains such a provision.
Interliant's Certificate of Incorporation and By-Laws provide that
Interliant shall indemnify officers and directors and, to the extent permitted
by the Board of Directors, employees and agents of Interliant, to the full
extent permitted by and in the manner permissible under the laws of the State of
Delaware. In addition, the By-Laws permit the Board of Directors to authorize
Interliant to purchase and maintain insurance against any liability asserted
against any director, officer, employee or agent of Interliant arising out of
his capacity as such.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this Registration Statement,
Interliant has issued securities that were not registered under the Securities
Act of 1933, as amended (the "Securities Act") to a limited number of persons,
as described below.
Interliant believes that the transactions described below were exempt from
registration under the Securities Act pursuant to Section 4(2) of the Securities
Act, or Regulation D promulgated thereunder, as transactions by an issuer not
involving public offering, or pursuant to Rule 701 promulgated under Section
3(b) of the Securities Act, as transactions pursuant to compensatory benefit
plans and contracts relating to compensation. The recipients of securities in
each such transaction represented that they were acquiring the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates issued in such transactions. All recipients had adequate access,
through their relationships with Interliant, to information about Interliant, or
were given an adequate opportunity to review information about Interliant.
The following figures give effect to a three-for-one stock split of the
Common Stock of Interliant in July 1998.
(A) ISSUANCE OF CAPITAL STOCK.
Pursuant to a Stock Subscription Agreement dated December 8, 1997 between
Interliant and Web Hosting Organization LLC ("WEB"), Interliant issued to WEB,
for a purchase price of $5,000,000, 3,000,000 shares of common stock of
Interliant, $.01 par value and also granted WEB an option to purchase up to an
additional 6,600,000 shares of common stock at an exercise price of $1.67 per
share (the "Option").
On April 7, 1998, in connection with the acquisition of substantially all
of the assets of Clever Computers, Inc., ("Clever"), and as consideration for
entering into an employment agreement with Interliant, Interliant issued 150,000
shares of common stock to the former president and founder of Clever, Steven C.
Dabbs.
On July 10, 1998, Interliant issued 9,000 shares of common stock to Jab
Web, Inc. (formerly Tri-Star Web Creations, Inc.), as part of the purchase price
for substantially all of the assets of Tri-Star Web Creations, Inc.
On July 10, 1998, Interliant issued to WEB, for a purchase price of
$11,000,000, 6,600,000 shares of common stock.
On July 10, 1998, Interliant issued 115,707 shares of common stock to All
Information Systems, Inc., as part of the purchase price for substantially all
of the assets of All Information Systems, Inc.
II-2
<PAGE> 190
On July 10, 1998, Interliant issued 12,000 shares of common stock to
Software Business Technologies, Inc., as part of the purchase price for
substantially all of the Web hosting assets of Software Business Technologies,
Inc.
On July 30, 1998, Interliant issued 5,490 shares of common stock to
BestWare, Inc. (dba "Maikon"), as part of the purchase price for substantially
all of the assets of BestWare, Inc. (dba "Maikon").
On August 31, 1998, in connection with the acquisition of B.N. Technology,
Inc., and as consideration for entering into employment agreements with
Interliant, Interliant issued 240,000 shares of common stock to Mr. Bernd
Neumann and Andrea Neumann, his wife, and 60,000 shares of common stock to Mr.
Thomas Gorny.
On September 16, 1998, in connection with the acquisition of GEN
International Inc., and as consideration for entering into a consulting
agreement with Interliant, Interliant issued 25,000 shares of common stock to
Mr. Thomas Heimann and Patricia Karasy, his wife.
On September 18, 1998, Interliant issued to WEB, for a purchase price of
$7,500,000, 4,500,000 shares of common stock.
On December 4, 1998, Interliant issued to WEB, for a purchase price of
$7,500,000, 4,500,000 shares of common stock.
On January 28, 1999, Interliant issued 2,647,658 shares of Series A
Redeemable Convertible Preferred Stock, convertible into an equal amount of
shares of common stock, and warrants to purchase 749,625 shares of common stock
to SOFTBANK Technology Ventures IV L.P. and one of its affiliates, SOFTBANK
Technology Advisors Fund for a purchase price of $13,000,000.
On February 4, 1999, Interliant issued 450,000 shares of common stock to
Digiweb, Inc. as part of the purchase price for substantially all of the assets
of Digiweb, Inc.
On February 4, 1999, in connection with the acquisition of substantially
all of the assets of Telephonetics International, Inc., Interliant issued
140,000 shares of common stock to Telephonetics, International, Inc..
On February 4, 1999, Interliant issued to WEB, for a purchase price of
$11,000,000, 6,600,000 shares of common stock.
On February 17, 1999, in connection with the acquisition of Net Daemons
Associates, Inc., Interliant issued 425,000 shares of common stock to certain
stockholders of Net Daemons Associates, Inc.
On March 10, 1999, in connection with the acquisition of substantially all
of the assets of Interliant Texas Interliant issued 2,748,555 shares of common
stock to Mathew Wolf, 398,845 shares of common stock to the Ann Weltchek Wolf
1995 Marital Trust, 797,690 shares of common stock to the Mathew D. Wolf
Children's Trust, 31,908 shares of common stock to Michael August and 114,644
shares of common stock to Broadview Holdings LLP.
On April 19, 1999, SOFTBANK exercised its warrants to purchase 749,625
shares of the common stock of Interliant for an aggregate exercise price of
$5,000,000.
(B) GRANTS OF STOCK OPTIONS.
The Interliant, Inc. 1998 Stock Option Plan was adopted by Interliant's
Board of Directors on February 1, 1998. As of the date hereof, options to
purchase up to an aggregate 3,697,994 shares of common stock at prices ranging
from $0.13 to $8.00 per share, had been granted to employees of Interliant, of
which options to purchase up to an aggregate of 3,691,994 shares of common
stock, at a weighted average exercise price of $2.39 per share, were outstanding
as of such date. As of the date of the filing of this Registration Statement, no
options have been exercised.
II-3
<PAGE> 191
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1 -- Purchase Agreement.**
2.1 -- Asset Purchase Agreement among Sage Networks Acquisition
Corp., Sage Networks, Inc., Interliant, Inc. and the
shareholders of Interliant, Inc., dated March 8, 1999.*
2.2 -- Agreement to Deliver Shares between Interliant, Inc., Sage
Networks Acquisition Corp. and Sage Networks, Inc., dated as
of March 10, 1999.*
2.3 -- Agreement and Plan of Merger by and among Net Daemons, Inc.,
the Shareholders Party hereto and Sage Networks, Inc. and
Sage NDA Acquisition Corp., dated as of February 17, 1999.
2.4 -- Asset Purchase Agreement between Digiweb, Inc., a Delaware
corporation, Yi Wen Chung, Diane X. Chen and Digiweb, Inc.,
a Maryland corporation, dated February 4, 1999.
2.5 -- Asset Purchase Agreement between Telephonetics
International, Inc., Alan Kvares and Telephonetics, Inc.,
dated February 4, 1999.
2.6 -- Asset Purchase Agreement between Sage Networks Acquisition
Corp., Thomas Heimann and GEN International Inc., dated
September 16, 1998.
2.7 -- Asset Purchase Agreement between Global Entrepreneurs
Network, Inc. and Sage Networks Acquisition Corp., dated as
of September 16, 1998.
2.8 -- Stock Purchase Agreement among B.N. Technology, Inc., Bernd
Neumann, Annedore Sommer, and Sage Networks, Inc., dated
August 31, 1998.
2.9 -- Asset Purchase Agreement between Sage Networks, Inc. and
HomeCom Communications, Inc. dated June 10, 1998.*
2.10 -- Asset Purchase Agreement between Sage Networks Acquisition
Corp., Bonnie Shimel, William Nicholson and James Kucharski,
Alan Shimel and Tri-Star Web Creations, Inc., dated May 1,
1998.
2.11 -- Asset Purchase Agreement between Sage Networks Acquisition
Corp., Steven C. Dabbs and Clever Computers, Inc., dated
April 7, 1998.
3.1 -- Form of Amended and Restated Certificate of Incorporation of
the Registrant.
3.2 -- Form of Amended and Restated By-Laws of the Registrant.
4.1 -- Specimen Certificate for common stock of the Registrant.
4.2 -- Investors Agreement, dated as of January 28, 1999, by and
among Sage Networks, Inc., SOFTBANK Technology Ventures IV,
L.P. and SOFTBANK Technology Advisors Funds, L.P.*
4.3 -- Securities Purchase Agreement between Sage Networks, Inc.
and SOFTBANK Technology Ventures IV, L.P. and SOFTBANK
Technology Advisors Funds, L.P. dated January 28, 1999.*
4.4 -- Registration Rights Agreement, dated as of December 8, 1997,
by and between Interliant Networks, Inc. and Web Hosting
Organization LLC.*
4.5 -- Shareholders Agreement by and among Sage Networks, Inc. and
each of the Stockholders of Sage Networks, Inc., dated as of
March 10, 1999.*
4.6 -- Letter Agreement, dated November 26, 1997, between Leonard
J. Fassler, Bradley A. Feld, Chef Nominees Limited and
Charterhouse Equity Partners III L.P.* (Agreement has now
been terminated.)
5.1 -- Opinion of Dewey Ballantine LLP.**
10.1 -- Professional Services Agreement by and between Sage
Networks, Inc. and Portal Software, Inc., dated as of July
31, 1998.+*
10.2 -- Software License and Support Agreement by and between Sage
Networks, Inc. and Portal Software, Inc., dated as of July
31, 1998.+*
10.3 -- The Vantive Corporation Software License and Support
Agreement by and between Interliant Networks, Inc. and The
Vantive Corporation, dated as of September 29, 1998.*
</TABLE>
II-4
<PAGE> 192
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.4 -- Addendum to The Vantive Corporation Software License and
Support Agreement by and between Sage Networks, Inc. and The
Vantive Corporation, dated as of September 29, 1998.*
10.5 -- Master Discounted Internet Services Agreement by and between
UUNET Technologies, Inc. and Sage Networks, Inc., dated
February 17, 1999.+*
10.6 -- Joint Development Agreement between Lotus Development
Corporation and Interliant, Inc., dated as of April 27,
1998.+
10.7 -- Sage Networks, Inc. 1998 Stock Option Plan.*
10.8 -- Form of ISO Award Agreement.
10.9 -- Form of Incentive Stock Option Award Agreement between Sage
Networks, Inc. and the individual Optionee.*
10.10 -- Form of Nonqualified Stock Option Award Agreement between
Sage Networks, Inc. and the individual Optionee.*
10.11 -- Employment Agreement by and between Sage Networks, Inc., and
Leonard J. Fassler, dated January 1, 1999.*
10.12 -- Consulting Agreement by and between Sage Networks, Inc., and
Intensity Ventures, Inc., dated January 1, 1999.
10.13 -- Employment Agreement by and between Sage Networks, Inc., and
Stephen W. Maggs, dated January 1, 1999.
10.14 -- Employment Agreement by and between Sage Networks, Inc., and
Rajat Bhargava, dated January 1, 1999.
10.15 -- Employment Agreement between Sage Networks, Inc. and James
M. Lidestri, dated March 3, 1999.*
10.16 -- Deed of Lease by and between Westwood Center, LLC and Sage
Networks, Inc., dated February 11, 1999.*
10.17 -- Sublease Agreement by and between Southern Company Services,
Inc. and Sage Networks, Inc., dated May 29, 1998.*
10.18 -- First Amendment to Sublease Agreement by and between
Southern Company Services, Inc. and Sage Networks, Inc.,
dated December 15, 1998.*
10.19 -- Sublease Agreement by and between Leuko Site, Inc. and Sage
Networks, Inc., dated November 17, 1998.
10.20 -- Agreement for Terminal Facilities Collocation Space by and
between Comstor Corporation and Sage Networks, Inc., dated
as of July 2, 1998.+
10.21 -- Standard Lease Agreement, dated June 11, 1995, between
LaSalle Partners Management Limited (as agent for Fannin
Street Limited Partnership) and Wolf Communications
Company.*
10.22 -- First Amendment to Standard Lease, dated January 18, 1996,
between LaSalle Partners Management Limited (as agent for
Fannin Street Limited Partnership) and Wolf Communications
Company.*
10.23 -- Second Amendment to Standard Lease, dated August 8, 1996,
between LaSalle Partners Management Limited (as agent for
Fannin Street Limited Partnership) and Wolf Communications
Company.*
21.1 -- List of Subsidiaries.
23.1 -- Consent of Ernst & Young LLP with respect to the financial
statements of Sage Networks, Inc.
23.2 -- Consent of Ernst & Young LLP with respect to the financial
statements of Interliant, Inc.
23.3 -- Consent of Urbach Kahn & Werlin PC.
23.4 -- Consent of BSC&E.
23.5 -- Consent of PricewaterhouseCoopers LLC.
23.6 -- Consent of Frankel, Lodgen, Locher, Golditch, Sardi &
Howard.
23.7 -- Consent of BDO Seidman, LLP.
23.8 -- Consent of Deloitte & Touche LLP.
</TABLE>
II-5
<PAGE> 193
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
23.9 -- Consent of Dewey Ballantine LLP (contained in Exhibit
5.1).**
24.1 -- Power of Attorney (included on page II-5).*
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
+ Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission
simultaneously herewith.
(b) Consolidated Financial Statement Schedules
All schedules have been omitted because they are not required or because
the required information is given in the Consolidated Financial Statements or
Notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the
underwriters, at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and this offering of such securities at the
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 194
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on April 29, 1999.
INTERLIANT, INC.
By: /s/ WILLIAM A. WILSON
------------------------------------
William A. Wilson
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons on April
29, 1999 in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ LEONARD J. FASSLER* Co-Chairman of the Board April 29, 1999
- ----------------------------------
Leonard J. Fassler
/s/ BRADLEY A. FELD* Co-Chairman of the Board April 29, 1999
- ----------------------------------
Bradley A. Feld
/s/ STEPHEN W. MAGGS* Chief Executive Officer, April 29, 1999
- ---------------------------------- President, Treasurer and
Stephen W. Maggs Director (Chief Executive
Officer)
/s/ WILLIAM A. WILSON Chief Financial Officer (Chief April 29, 1999
- ---------------------------------- Financial and Accounting
William A. Wilson Officer)
/s/ MERRIL M. HALPERN* Director April 29, 1999
- ----------------------------------
Merril M. Halpern
/s/ THOMAS C. DIRCKS* Director April 29, 1999
- ----------------------------------
Thomas C. Dircks
/s/ PATRICIA A. M. RILEY* Director April 29, 1999
- ----------------------------------
Patricia A. M. Riley
/s/ JAY M. GATES* Director April 29, 1999
- ----------------------------------
Jay M. Gates
/s/ CHARLES R. LAX* Director April 29, 1999
- ----------------------------------
Charles R. Lax
</TABLE>
*By: /s/ WILLIAM A. WILSON
---------------------------------------------------------
William A. Wilson
(Attorney in fact)
II-7
<PAGE> 195
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<C> <C> <S> <C>
1.1 -- Purchase Agreement.**
2.1 -- Asset Purchase Agreement among Sage Networks Acquisition
Corp., Sage Networks, Inc., Interliant, Inc. and the
shareholders of Interliant, Inc., dated March 8, 1999.*
2.2 -- Agreement to Deliver Shares between Interliant, Inc., Sage
Networks Acquisition Corp. and Sage Networks, Inc., dated as
of March 10, 1999.*
2.3 -- Agreement and Plan of Merger by and among Net Daemons, Inc.,
the Shareholders Party hereto and Sage Networks, Inc. and
Sage NDA Acquisition Corp., dated as of February 17, 1999.
2.4 -- Asset Purchase Agreement between Digiweb, Inc., a Delaware
corporation, Yi Wen Chung, Diane X. Chen and Digiweb, Inc.,
a Maryland corporation, dated February 4, 1999.
2.5 -- Asset Purchase Agreement between Telephonetics
International, Inc., Alan Kvares and Telephonetics, Inc.,
dated February 4, 1999.
2.6 -- Asset Purchase Agreement between Sage Networks Acquisition
Corp., Thomas Heimann and GEN International Inc., dated
September 16, 1998.
2.7 -- Asset Purchase Agreement between Global Entrepreneurs
Network, Inc. and Sage Networks Acquisition Corp., dated as
of September 16, 1998.
2.8 -- Stock Purchase Agreement among B.N. Technology, Inc., Bernd
Neumann, Annedore Sommer, and Sage Networks, Inc., dated
August 31, 1998.
2.9 -- Asset Purchase Agreement between Sage Networks, Inc. and
HomeCom Communications, Inc. dated June 10, 1998.*
2.10 -- Asset Purchase Agreement between Sage Networks Acquisition
Corp., Bonnie Shimel, William Nicholson and James Kucharski,
Alan Shimel and Tri-Star Web Creations, Inc., dated May 1,
1998.
2.11 -- Asset Purchase Agreement between Sage Networks Acquisition
Corp., Steven C. Dabbs and Clever Computers, Inc., dated
April 7, 1998.
3.1 -- Form of Amended and Restated Certificate of Incorporation of
the Registrant.
3.2 -- Form of Amended and Restated By-Laws of the Registrant.
4.1 -- Specimen Certificate for common stock of the Registrant.
4.2 -- Investors Agreement, dated as of January 28, 1999, by and
among Sage Networks, Inc., SOFTBANK Technology Ventures IV,
L.P. and SOFTBANK Technology Advisors Funds, L.P.*
4.3 -- Securities Purchase Agreement between Sage Networks, Inc.
and SOFTBANK Technology Ventures IV, L.P. and SOFTBANK
Technology Advisors Funds, L.P. dated January 28, 1999.*
4.4 -- Registration Rights Agreement, dated as of December 8, 1997,
by and between Interliant Networks, Inc. and Web Hosting
Organization LLC.*
4.5 -- Shareholders Agreement by and among Sage Networks, Inc. and
each of the Stockholders of Sage Networks, Inc., dated as of
March 10, 1999.*
4.6 -- Letter Agreement, dated November 26, 1997, between Leonard
J. Fassler, Bradley A. Feld, Chef Nominees Limited and
Charterhouse Equity Partners III L.P.* (Agreement has now
been terminated.)
5.1 -- Opinion of Dewey Ballantine LLP.**
10.1 -- Professional Services Agreement by and between Sage
Networks, Inc. and Portal Software, Inc., dated as of July
31, 1998.+*
10.2 -- Software License and Support Agreement by and between Sage
Networks, Inc. and Portal Software, Inc., dated as of July
31, 1998.+*
10.3 -- The Vantive Corporation Software License and Support
Agreement by and between Interliant Networks, Inc. and The
Vantive Corporation, dated as of September 29, 1998.*
</TABLE>
<PAGE> 196
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<C> <C> <S> <C>
10.4 -- Addendum to The Vantive Corporation Software License and
Support Agreement by and between Sage Networks, Inc. and The
Vantive Corporation, dated as of September 29, 1998.*
10.5 -- Master Discounted Internet Services Agreement by and between
UUNET Technologies, Inc. and Sage Networks, Inc., dated
February 17, 1999.+*
10.6 -- Joint Development Agreement between Lotus Development
Corporation and Interliant, Inc., dated as of April 27,
1998.+
10.7 -- Sage Networks, Inc. 1998 Stock Option Plan.*
10.8 -- Form of ISO Award Agreement.
10.9 -- Form of Incentive Stock Option Award Agreement between Sage
Networks, Inc. and the individual Optionee.*
10.10 -- Form of Nonqualified Stock Option Award Agreement between
Sage Networks, Inc. and the individual Optionee.*
10.11 -- Employment Agreement by and between Sage Networks, Inc., and
Leonard J. Fassler, dated January 1, 1999.*
10.12 -- Consulting Agreement by and between Sage Networks, Inc., and
Intensity Ventures, Inc., dated January 1, 1999.
10.13 -- Employment Agreement by and between Sage Networks, Inc., and
Stephen W. Maggs, dated January 1, 1999.
10.14 -- Employment Agreement by and between Sage Networks, Inc., and
Rajat Bhargava, dated January 1, 1999.
10.15 -- Employment Agreement between Sage Networks, Inc. and James
M. Lidestri, dated March 3, 1999.*
10.16 -- Deed of Lease by and between Westwood Center, LLC and Sage
Networks, Inc., dated February 11, 1999.*
10.17 -- Sublease Agreement by and between Southern Company Services,
Inc. and Sage Networks, Inc., dated May 29, 1998.*
10.18 -- First Amendment to Sublease Agreement by and between
Southern Company Services, Inc. and Sage Networks, Inc.,
dated December 15, 1998.*
10.19 -- Sublease Agreement by and between Leuko Site, Inc. and Sage
Networks, Inc., dated November 17, 1998.
10.20 -- Agreement for Terminal Facilities Collocation Space by and
between Comstor Corporation and Sage Networks, Inc., dated
as of July 2, 1998.+
10.21 -- Standard Lease Agreement, dated June 11, 1995, between
LaSalle Partners Management Limited (as agent for Fannin
Street Limited Partnership) and Wolf Communications
Company.*
10.22 -- First Amendment to Standard Lease, dated January 18, 1996,
between LaSalle Partners Management Limited (as agent for
Fannin Street Limited Partnership) and Wolf Communications
Company.*
10.23 -- Second Amendment to Standard Lease, dated August 8, 1996,
between LaSalle Partners Management Limited (as agent for
Fannin Street Limited Partnership) and Wolf Communications
Company.*
21.1 -- List of Subsidiaries.
23.1 -- Consent of Ernst & Young LLP with respect to the financial
statements of Sage Networks, Inc.
23.2 -- Consent of Ernst & Young LLP with respect to the financial
statements of Interliant, Inc.
23.3 -- Consent of Urbach Kahn & Werlin PC.
23.4 -- Consent of BSC&E.
23.5 -- Consent of PricewaterhouseCoopers LLC.
23.6 -- Consent of Frankel, Lodgen, Locher, Golditch, Sardi &
Howard.
23.7 -- Consent of BDO Seidman, LLP.
23.8 -- Consent of Deloitte & Touche LLP.
</TABLE>
<PAGE> 197
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<C> <C> <S> <C>
23.9 -- Consent of Dewey Ballantine LLP (contained in Exhibit
5.1).**
24.1 -- Power of Attorney (included on page II-5).*
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
+ Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission
simultaneously herewith.
(b) Consolidated Financial Statement Schedules
All schedules have been omitted because they are not required or because
the required information is given in the Consolidated Financial Statements or
Notes thereto.
<PAGE> 1
Exhibit 2.3
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NET DAEMONS ASSOCIATES, INC., THE SHAREHOLDERS PARTY HERETO,
AND
SAGE NETWORKS, INC.
AND
SAGE NDA ACQUISITION CORP.
DATED AS OF FEBRUARY 17, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Article I. THE MERGER.......................................................................................2
Section 1.01 The Merger................................................................................2
Section 1.02 The Closing...............................................................................2
Section 1.03 Effective Time............................................................................2
Section 1.04 Purposes of Surviving Corporation.........................................................2
Section 1.05 Capitalization of the Surviving Corporation...............................................2
Section 1.06 Articles of Organization..................................................................3
Section 1.07 By-Laws...................................................................................3
Section 1.08 Directors of the Surviving Corporation....................................................3
Article II. CONVERSION AND EXCHANGE OF STOCK................................................................3
Section 2.01 Merger Sub Stock..........................................................................3
Section 2.02 Company Stock.............................................................................3
Article III. FURTHER COOPERATION............................................................................4
Section 3.01 Further Cooperation.......................................................................4
Article IV. REPRESENTATIONS AND WARRANTIES..................................................................4
Section 4.01 Representations and Warranties of the Primary Shareholders................................4
Section 4.02 Representations of Sage and Merger Sub...................................................13
Section 4.03 Representations and Warranties of the Shareholders.......................................15
Article V. CERTAIN COVENANTS...............................................................................16
Section 5.01 Survival of Representations and Warranties; Indemnification..............................16
Section 5.02 Company Audit............................................................................19
Section 5.03 Timeclock................................................................................19
Section 5.04 Cancellation of Company Stock Options....................................................19
Section 5.05 Certain Transaction Related Fees.........................................................19
Section 5.06 Sale of Company Motor Vehicles...........................................................19
Section 5.07 Conduct of Business Pending Closing......................................................20
Section 5.08 Post Closing Adjustment..................................................................20
Section 5.09 Closing of Company Bank Accounts.........................................................21
Article VI. CONDITIONS TO CLOSING; DELIVERIES AT CLOSING...................................................21
Section 6.01 Conditions of Sage and Merger Sub........................................................21
Section 6.02 Conditions of Shareholders...............................................................23
Article VII. OBLIGATIONS FOLLOWING CLOSING.................................................................24
Section 7.01 Taxes. 24
Article VIII. MISCELLANEOUS................................................................................24
Section 8.01 Governing Law; Jurisdiction..............................................................24
</TABLE>
1
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
Section 8.02 Counterparts.............................................................................25
Section 8.03 Confidentiality..........................................................................25
Section 8.04 Entire Agreement; Amendments.............................................................25
Section 8.05 Severability.............................................................................25
Section 8.06 Benefit; Assignment......................................................................25
Section 8.07 Construction.............................................................................25
Section 8.08 Imputed Knowledge........................................................................26
Section 8.09 Notices..................................................................................26
</TABLE>
2
<PAGE> 4
AGREEMENT AND PLAN OF MERGER
AGREEMENT made as of this 17th day of February, 1999 by and
among NET DAEMONS ASSOCIATES, INC., a Massachusetts corporation with a principal
place of business at 800 West Cummings Park, #2050, Woburn, MA 01801 (the
"Company"), each of the individuals identified under the caption "SHAREHOLDERS"
on the signature pages hereto (collectively, the "Shareholders"), SAGE NETWORKS,
INC., a Delaware corporation having an office at 215 First Street, Cambridge, MA
02142 ("Sage"), and Sage NDA Acquisition Corp., a Massachusetts corporation and
a wholly owned subsidiary of Sage having an office at 215 First Street,
Cambridge, MA 02142 ("Merger Sub").
W I T N E S S E T H :
WHEREAS, the Shareholders are the holders of all of the
outstanding shares of the authorized capital stock of the Company;
WHEREAS, the Company conducts an outsourced network services
and information technology consulting business (hereinafter, the "Business");
WHEREAS, the Company and Sage have determined that a business
combination between the Company and Sage is in the best interests of their
respective companies and shareholders and presents an opportunity for their
respective companies to achieve long-term strategic and financial benefits, and
accordingly have agreed to effect the merger provided for herein upon the terms
and subject to the conditions set forth herein;
WHEREAS, it is intended that for federal income tax purposes,
the merger provided for herein shall qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code");
WHEREAS, Merger Sub is a wholly owned subsidiary of Sage and
has been formed solely to facilitate the Merger (as defined herein) and has
conducted and will conduct no business or activity other than in connection with
the Merger;
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained in this Agreement, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged by all parties, the
parties hereto agree as follows:
<PAGE> 5
ARTICLE I.
THE MERGER
SECTION 1.01 THE MERGER.
Subject to the terms and conditions of this Agreement, at the
Effective Time (as defined in Section 1.03), Merger Sub shall be merged with and
into the Company in accordance with this Agreement, and the separate corporate
existence of Merger Sub shall thereupon cease (the "Merger"). The Company shall
be the surviving corporation in the Merger (sometimes hereinafter referred to as
the "Surviving Corporation") and will be a wholly owned subsidiary of Sage. The
Merger shall have the effects specified in the Massachusetts Business
Corporation Law (the "MBCL").
SECTION 1.02 THE CLOSING.
Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") shall take place on or before February 17,
1999 at the offices of Dewey Ballantine LLP, 1301 Avenue of the Americas, New
York, New York 10019 at 10:00 a.m. New York time, or as otherwise mutually
agreed upon by the parties (the "Closing Date").
SECTION 1.03 EFFECTIVE TIME.
If all the conditions set forth in Article VI shall have been
fulfilled or waived in accordance herewith, the parties hereto shall cause
Articles of Merger meeting the requirements of Section 78 of the MBCL to be
properly executed and filed in accordance with such Section on the Closing Date.
The Merger shall become effective at the time of filing of such Articles of
Merger with the Secretary of State of the Commonwealth of Massachusetts in
accordance with the MBCL or at such later time which the parties hereto shall
have agreed upon and designated in such filing as the effective time of the
Merger (the "Effective Time").
SECTION 1.04 PURPOSES OF SURVIVING CORPORATION.
The purposes of the Surviving Corporation shall be the
purposes set forth in the Articles of Organization of the Merger Sub in effect
immediately prior to the Effective Time.
SECTION 1.05 CAPITALIZATION OF THE SURVIVING CORPORATION.
The capitalization of the Surviving Corporation shall be as
set forth in the Articles of Organization of the Merger Sub in effect
immediately prior to the Effective Time.
2
<PAGE> 6
SECTION 1.06 ARTICLES OF ORGANIZATION.
After the Effective Time, the Articles of Organization of the
Surviving Corporation shall be amended and restated in their entirety to read as
the Articles of Organization of Merger Sub as in effect immediately prior to the
Effective Time, except that the Articles of Organization of the Surviving
Corporation shall provide that the name of the corporation be "Net Daemons
Associates, Inc.".
SECTION 1.07 BY-LAWS.
The By-laws of the Merger Sub, as in effect immediately prior
to the Effective Time, shall be the By-laws of the Surviving Corporation until
duly amended in accordance with applicable law.
SECTION 1.08 DIRECTORS OF THE SURVIVING CORPORATION.
The directors of Merger Sub immediately prior to the Effective
Time shall be the directors of the Surviving Corporation as of the Effective
Time and until their successors are duly appointed or elected in accordance with
applicable law.
ARTICLE II.
CONVERSION AND EXCHANGE OF STOCK
SECTION 2.01 MERGER SUB STOCK.
At the Effective Time, each share of common stock, $.01 par
value, of Merger Sub outstanding immediately prior to the Effective Time shall
be converted into and exchanged for 12,075 validly issued, fully paid and
non-assessable shares of common stock, $.01 par value, of the Surviving
Corporation.
SECTION 2.02 COMPANY STOCK.
(a) At the Effective Time, each share of common stock, $.01
par value of the Company Stock (the "Company Common Stock") issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive such number of shares of common stock, $.01 par value,
of Sage ("Sage Common Stock") and cash as set forth on Exhibit A hereto (the
"Exchange Consideration").
(b) As a result of the Merger and without any action on the
part of the holder thereof, at the Effective Time, all shares of Company Common
Stock outstanding immediately prior to the Effective Time shall cease to be
outstanding and shall cease to exist, and each holder of shares of Company
Common Stock thereafter cease to have any rights with respect of such shares of
Company Common Stock, except the right to receive the Exchange Consideration
upon the surrender of a certificate representing such shares of Company Common
Stock.
3
<PAGE> 7
(c) Each share of Company Common Stock issued and held in the
Company's treasury at the Effective Time shall, by virtue of the Merger, cease
to be outstanding and shall be canceled and retired and shall cease to exist
without payment of any consideration therefor.
(d) All options to purchase capital stock of the Company
outstanding, whether or not exercisable and whether or not vested under the
Company's stock option plan shall be cancelled by the Company on or prior to the
Closing Date.
ARTICLE III.
FURTHER COOPERATION
SECTION 3.01 FURTHER COOPERATION.
The parties agree that, at any time and from time to time
after the Closing Date, they will cooperate for purposes of carrying out the
transfer of the Company and the Business to Sage.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
SECTION 4.01 REPRESENTATIONS AND WARRANTIES OF THE PRIMARY SHAREHOLDERS.
Jennifer Lawton and Rudolph Ventresca (the "Primary
Shareholders"), jointly and severally, represent and warrant to Sage as follows:
(a) Organization; Good Standing; Stock Ownership;
Capitalization.
(i) The Company is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation as set forth on Exhibit A, and has the corporate power
and authority to own or lease its properties and to conduct its
business as currently conducted, and the Company is qualified and in
good standing as a foreign corporation authorized to do business in all
jurisdictions where failure to qualify would have a material adverse
effect on the Company or the conduct of the Business by the Company
after the Closing Date. The Company maintains offices only at the
site(s) listed on Exhibit A and has no operations other than from those
site(s).
(ii) Other than the Shareholders, no other person or
entity has ever been a shareholder of the Company.
(iii) The Company's authorized capital consists
exclusively of (a) 2,578,611 shares of common stock, $.01 par value,
1,207,500 shares of which are issued and outstanding, (b) 21,389 shares
of preferred stock, $.01 par value, none of which are issued and
outstanding, and (c) 855,000 shares of treasury stock. All of
4
<PAGE> 8
the outstanding shares of capital stock of the Company have been duly
authorized and are validly issued, fully paid and non-assessable. As of
the Closing Date, there will be no existing options, calls or
commitments of any character whatsoever, or agreements to grant the
same, relating to the Company's capital stock other than the treasury
stock that constitutes a portion of the collateral for the Company's
Subordinated Promissory Note to Christopher Caldwell dated December 19,
1997 and presently outstanding in the aggregate principal amount of
$855,214 (the "Caldwell Note"). The Company has no outstanding
securities convertible into or exchangeable or exercisable for any
shares of common stock or any options, calls or commitments of any
character whatsoever with respect to the issuance of such convertible
securities except the Company's employee stock options outstanding in
the aggregate amount of 199,260 (the "Employee Options") which will be
terminated prior to the Closing Date. The Company owns no equity
interests, convertible securities, marketable securities, notes or
other obligations evidenced by written instruments of any other firm or
entity. The Company has no subsidiaries.
(b) Corporate Authorization. The execution, delivery and
performance by the Company of this Agreement has been authorized and approved by
all requisite corporate and other action on the part of the Company, and no
other corporate or other approval or authorization is required on the part of
the Company, any trustee or any other person by law or otherwise in order to
make this Agreement the valid, binding and enforceable obligations of the
Company. This Agreement is enforceable against the Company in accordance with
its terms. Set forth on Exhibit 4.01(b) is a list of officers and directors of
the Company, all trade names used by the Business and all jurisdictions in which
the Business is conducted.
(c) The Company's Assets.
(i) All cash on hand of the Company as of the Closing
shall be referred to herein as the "Closing Cash". All of the
outstanding accounts receivable of the Company as of February 11, 1999,
shall be referred to herein collectively as the "Closing Accounts
Receivable". Set forth on Exhibit 4.01(c)(i)(1) is the amount of
Closing Cash. Attached hereto as Exhibit 4.01(c)(i)(2) is a true and
correct aged list of all Closing Accounts Receivable, and each of the
accounts listed is valid and arose in the ordinary course of the
Business and is fully collectible to the extent of 95% thereof, except
for the amount reserved as doubtful accounts on the Closing Balance
Sheet.
(ii) All vendor and customer contracts,
confidentiality agreements, purchase and sales orders, powers of
attorney, undertakings, commitments and other agreements currently in
effect to which the Company is a party, whether written or oral, shall
be referred to herein collectively as the "Business Agreements". The
Company has delivered to Sage, on or before the Closing Date, true and
correct copies of all written Business Agreements and detailed
summaries of all oral Business Agreements. Attached hereto as Exhibit
4.01(c)(ii)(1) are true and correct copies of the only forms of
agreements currently in effect which have been entered
5
<PAGE> 9
into between the Company and its Customers (as hereinafter defined).
Also attached as part of Exhibit 4.01(c)(ii)(1) is a schedule stating
the identity of the Customer to each of those agreements which are in
force and effect as of the Closing Date, together with a designation of
which form of agreement each such Customer has entered into. All
Customers have entered into one of the Company's forms of agreement,
except as disclosed on Exhibit 4.01(c)(ii)(1). Annexed as Exhibit
4.01(c)(ii)(2) is a detailed summary of all oral Business Agreements,
as well as a copy of all written Business Agreements of the Company
other than agreements with Customers and Business Agreements referred
to on other Exhibits hereto. None of the oral Business Agreements
listed in Exhibit 4.01(c)(ii)(2) imposes substantial liability upon the
Company and each may be terminated at will or upon notice of no greater
than 30 days. Listed on Exhibit 4.01(c)(ii)(3) is a description of each
and every real estate, equipment and personal property lease
(collectively, the "Leases") to which the Company is a party. The
Leases are also included within the definition of Business Agreements
as said term is used herein. The Company is not and, to the best of the
Primary Shareholders' knowledge, no other party is in default in any
material respect under any Business Agreement and no other party to any
Business Agreement has made any claim or given the Company notice of
any dispute under any Business Agreement, except as set forth on
Exhibit 4.01(c)(ii)(4). Each Business Agreement is in full force and
effect and the Company has obtained all required consents to permit the
Company to continue to be a party to and enforce the Business
Agreements after the Closing of the sale of the Company Common Stock to
Sage hereunder, except as set forth on Exhibit 4.01(c)(ii)(5). On the
Closing Date, the Company will not be the owner or lessee of any motor
vehicles. The Company does not own or lease any interest in any real
property or lease any equipment used, except as expressly stated on
Exhibit 4.01(c)(ii)(3).
(iii) All of the tangible assets of the Company,
including, without limitation, all machinery, office and other
equipment, furniture, computers and related equipment, business
machines and telephones, telephone systems, parts and accessories
presently utilized by the Company, shall be referred to herein
collectively as the "Tangible Assets". Attached hereto as Exhibit
4.01(c)(iii) is a true and correct list or description of the Tangible
Assets as of January 31, 1999. As of the Closing Date, each of the
material Tangible Assets is in good and operable condition, reasonable
wear and tear excepted.
(iv) All patents, trademarks, trade names, service
marks, service names, logos, designs, formulations, copyrights and
other trade rights and all registrations and applications therefor, all
know-how, trade secrets, technology or processes, research and
development, all telephone numbers, facsimile numbers, e-mail addresses
and Internet domain addresses, all Web sites and all computer programs,
control panels, surcharge calculators, data bases and software
documentation owned or used by the Company, if any, other than
off-the-shelf software licensed by the Company, shall be referred to
herein collectively as the "Intellectual Property". There are no
Internet domain addresses of Customers parked on the Company's servers.
The "Intellectual Property" comprises all intellectual
6
<PAGE> 10
property rights necessary for the conduct of the Business as currently
conducted. Attached hereto as Exhibit 4.01(c)(iv) is a true and correct
list of all of the Intellectual Property (and where practicable, a copy
thereof). Exhibit 4.01(c)(iv) also indicates which of such items have
been patented or registered or are in the process of application for
same. Except as otherwise set forth in Exhibit 4.01(c)(iv), the Company
is the sole owner, free of any lien or encumbrance, of all the
Intellectual Property listed in Exhibit 4.01(c)(iv). The Company has
taken, and will take up to the Closing Date, all necessary and
reasonable actions to protect its rights in Intellectual Property owned
by it. The Company's rights in the Intellectual Property are valid and
enforceable in the United States of America. Except as disclosed on
Exhibit 4.01(c)(iv), the Company has received no demand, claim, notice
or inquiry from any person in respect of the Intellectual Property
which challenges, threatens to challenge or inquires as to whether
there is any basis to challenge, the validity of, or the rights of the
Company in, the Intellectual Property, and the Primary Shareholders
know of no basis for any such challenge. To the best knowledge of the
Primary Shareholders, the Company is not in violation or infringement
of, and has not violated or infringed, any intellectual property rights
of any other person. To the best knowledge of the Primary Shareholders,
no third party is infringing on the rights of the Company in and to the
Intellectual Property. Except on an arm's-length basis for value and
other commercially reasonable terms, the Company has not granted any
license with respect to the Intellectual Property to any person. Also
attached to Exhibit 4.01(c)(iv) is a true and complete list of all
software licensed by the Company and used in operating and maintaining
the Business (collectively, the "Licensed Software"). The Company has
valid, royalty free and fully-paid licenses for all of the Licensed
Software.
(v) Set forth on Exhibit 4.01(c)(v) is a true and complete
copy of the Company's customer list as of the Closing Date which
includes, in the case of each customer, the name of the customer, its
billing address, identity and contact information of each relevant
contact person, a statement of the monthly or annual (as indicated)
service charges relating to such customer (the "Customer List"). All
files regarding each customer on the Customer List have been made
available to Sage. All customers of the Company, including, without
limitation, those customers included on the Customer List shall be
referred to herein as the "Customers".
(vi) As used herein, the term "the Company's Assets" shall be
defined as all assets of the Company, including without limitation all
classes of assets shown on the balance sheet included in the Company's
audited financial statements as of and for the period ended December
31, 1998 (annexed as Exhibit 4.01(c)(vi)(1)), the Closing Cash, the
Closing Accounts Receivable, the Business Agreements, the Tangible
Assets, the Intellectual Property, together with all goodwill
associated with and symbolized by the trademarks, trade names, service
marks, service names and logos included therein, the Customer List, the
Customers, the Software Licenses and all other assets of the Company
used in connection with the operation of the Business, together with
the good will and business opportunities of the Company as it relates
to the Business or otherwise, other than Timeclock (as
7
<PAGE> 11
defined below), wherever located, tangible or intangible, including,
without limitation, all rights the Company may have under any insurance
policies, and all books, records and files (whether in paper or
electronic format). The Company's Assets are not subject to any lien or
encumbrance of any character whatsoever except as set forth on Exhibit
4.01(c)(vi)(2) . Neither the Company nor any Primary Shareholder has
received any notice of any adverse claims by any third parties with
respect to the Company's Assets, nor to the best of the Primary
Shareholders' knowledge, are they aware of any such adverse claim. The
Company's Assets include all rights, properties, interests and assets
used by the Company and/or necessary to permit the Company to carry on
the Business as presently conducted by the Company.
(vii) The Company and the Primary Shareholders reasonably
expect that the business represented by the Business Agreements will
continue after the date hereof subject to normal customer turnover.
Neither the Primary Shareholders nor the Company has any knowledge that
any Customers, other than those listed on Exhibit 4.01(c)(vii), intend
to terminate their relationship with the Company or significantly
reduce the amount of business they presently do with the Company.
(viii) Not more than five percent of the revenues of the
Business are derived from business that is dependent on any portion of
the equity of the Company being owned by minorities or women.
(d) Financial Statements. The Company has delivered to Sage
copies of the Company's audited financial statements for the fiscal years of the
Company ended December 31, 1997 and 1998 (the "Financial Statements", which are
annexed as Exhibit 4.01(d)(1)), respectively, each of which reflect the assets,
liabilities, net worth, profit and loss, and cash flow of the Company at the
date of such statements and for the period then ended. The Financial Statements
are complete and correct in all material respects and present fairly the
financial condition and results of operations of the Company as at the dates of
such Financial Statements and have been prepared in accordance with generally
accepted accounting principles. Except as set forth in the Financial Statements
or incurred in the ordinary course of business since December 31, 1998, the
Company has no material liabilities or obligations of any kind (whether accrued,
absolute, direct, indirect, contingent or otherwise) which are not otherwise
disclosed in this Agreement. The books of account and records of the Company
have been maintained in accordance with good business practice and reflect
fairly all properties, assets, liabilities and transactions of the Company.
Except as set forth on Exhibit 4.01(d)(2), the Company has no bad debts as of
the Closing Date. Since the last day of the Company's last fiscal year, the
Company has conducted its business, including, without limitation, the Business,
only in the ordinary and usual course and has not experienced any material
adverse change in the Business or the financial condition of the Company. Since
December 31, 1998, there has not been any change in the number of shares of
capital stock of the Company issued or outstanding or any declaration, setting
aside, or payment of any dividend or other distribution (whether in cash,
securities, property or otherwise) in respect of the Company's capital stock.
8
<PAGE> 12
(e) Existing Employment Arrangements.
(i) Except as set forth on Exhibit 4.01(e) or in the Financial
Statements, the Company has no employment agreements, and there are no
employee benefit or compensation plans, agreements, arrangements or
commitments (including, but not limited to, "employee benefit plans,"
as defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")), maintained by the Company for any
employees of the Company or with respect to which the Company has
liability, or makes or has an obligation to make contributions
("Employee Plans").
(ii) Each Employee Plan that is an employee welfare benefit
plan as defined under Section 3(1) of ERISA is funded through an
insurance company contract. Each Employee Plan by its terms and
operation is in compliance with all applicable laws and all required
filings with respect to Employee Plans have been made. Neither the
Company nor any entity that is or was at any time treated as a single
employer with the Company under Section 414(b), (c) (m) or (o) of the
Code has at any time maintained, contributed to or been required to
contribute to, or has any liability with respect to, any plan subject
Title IV of ERISA. The events contemplated by this Agreement (either
alone or together with any other event) will not (w) entitle any
employees to severance pay, unemployment compensation, or other similar
payments under any Employee Plan or law, (x) accelerate the time of
payment or vesting or increase the amount of benefits due under any
Employee Plan or compensation to any Company employees except the
accelerated payments with respect to the stock options granted by the
Company to its employees ("Employee Stock Options") and with respect to
the acceleration of vesting under the Company's profit sharing plan or
(y) result in any payments (including parachute payments) under any
Employee Plan or law becoming due to any employee. Also set forth on
Exhibit 4.01(e) is a true and complete list of all employees of the
Company employed, which list provides, among other things, the name,
residence address, title, job description and salary information
concerning each employee.
(iii) The Company is in substantial compliance with all
applicable Federal, state and local and regulations respecting
employment and employment practices, and terms and conditions of
employment and wages and hours; no collective bargaining agreement
presently covers (nor has any, in the past five years, covered) any
employees of the Company in connection with their employment by the
Company, nor is any currently being negotiated with respect to the
Company; there is no unfair labor practice complaint against the
Company pending before the National Labor Relations Board or any
comparable state or local agency; there is no labor strike, dispute,
slowdown, stoppage or organizational effort actually pending or, to the
best knowledge of the Primary Shareholders, threatened against or
involving the Company and the Company is not delinquent in payments for
compensation or reimbursement for expenses or otherwise (including,
without limitation, salaries, commissions and bonuses) to any of its
employees, agents, representatives or consultants for any services
performed by them. There are no
9
<PAGE> 13
complaints, charges or claims against the Company pending, or, to the
Primary Shareholders' knowledge, threatened to be brought or filed,
with any governmental entity or arbitrator based on, arising out of, in
connection with, or otherwise relating to the employment or termination
of employment of any individual by the Company.
(iv) The Company provided Sage with (x) copies of all Employee
Benefit Plans or, in the case of an unwritten plan, a written
description thereof, (y) copies of the most current annual or financial
reports and (z) copies of the most current summary plan descriptions
relating to such Employee Benefit Plans.
(v) All contributions or payments owed with respect to any
periods prior to the Closing Date under any Employee Benefit Plan have
been made, or have been appropriately accrued.
(vi) There are no actions, suits or claims pending or
threatened (other than routine noncontested claims for benefits) or, to
the Primary Shareholders' knowledge, no set of circumstances exist
which may reasonably give rise to such a claim against any Employee
Benefit Plan or administrator or fiduciary of any such Employee Benefit
Plan.
(vii) Neither the Company nor any other person, including any
fiduciary, has engaged in any "prohibited transaction" (as defined in
Section 4975 of the Code or Section 406 of ERISA), which could subject
the Company to any tax or penalty imposed under Section 4975 of the
Code or Section 502 of ERISA.
(f) Claims, Litigation, Disclosure. Except as set forth on
Exhibit 4.01(f) there is no claim, litigation, tax audit, proceeding or
investigation pending or, to the Company's or any Primary Shareholder's
knowledge, threatened against the Company, with respect to the Business or any
of the assets of the Company (including, without limitation, any claims of
infringement or actions of opposition with respect to Intellectual Property),
nor does the Company nor any Primary Shareholder know of any facts which would
provide a basis for any such claim, litigation, audit, proceeding or
investigation.
(g) Taxes. Except as specifically set forth on Exhibit 4.01(g)
(the "Tax Liabilities"), the Company has correctly prepared and filed all
Federal, state and local tax returns, estimates and reports, and paid all such
taxes as and when due or past due with appropriate penalties and interest. For
purposes of this paragraph and Section 7.03, taxes shall mean all taxes,
charges, fees, levies or other assessments of any kind whatsoever (including,
without limitation, income, franchise, sales, use and withholding taxes). The
Company is not a party to any tax sharing agreement.
(h) No Other Agreements to Sell Assets or Business. Except for
the Employee Stock Options, the Existing Shareholders Agreements and the
Caldwell Note, the Company is not a party to any existing agreement which
obligates the Company or the Primary Shareholders to sell to any other person or
firm the Company's Assets (other than sales in the ordinary course of business
and except as provided in Sections 5.03 and 5.06), to issue or sell any capital
stock or any security convertible into or exchangeable for capital
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stock of the Company or to effect any merger, consolidation or other
reorganization of the Company or to enter into any agreement with respect
thereto.
(i) No Brokers. The only broker, leasing agent, finder or
similar person or entity with whom the Company has made contact or had any
dealings with or entered into any agreement, arrangement or understanding with
concerning this Agreement and to whom the Company is responsible to pay a
finder's fee, brokerage commission or similar payment in connection with the
transactions contemplated by this Agreement is the party or parties listed in
item 6 on Exhibit A, if any, and the Primary Shareholders shall be solely
responsible for the payment of any such fee, commission or payment.
(j) Environmental Compliance.
(i) To the best knowledge of the Primary
Shareholders, neither the Company nor any operator of the Company's
properties is in violation, or alleged to be in violation, of any
federal, state or local judgment, decree, order, consent agreement, law
(including common law), license, rule or regulation pertaining to
environmental health or safety matters, including, without limitation,
those arising under the Resource Conservation and Recovery Act, as
amended, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), the Superfund Amendments
and Reauthorization Act of 1986, as amended, Water Act, as amended, the
Federal Clean Air Act, as amended, the Toxic Substances Control Act, or
any state or local analogue (hereinafter "Environmental Laws").
(ii) Neither the Company nor any Primary Shareholder
has received a notice, complaint, order, directive, claim or citation
from any third party, including, without limitation, any federal, state
or local governmental authority, indicating or alleging that the
Company or any predecessor may have any liability or obligation under
any Environmental Law.
(iii) To the best of Primary Shareholders' knowledge
(A) no portion of the property of the Company has been used by any
person for the generation, handling, processing, treatment, storage or
disposal of Hazardous Materials except in accordance with applicable
Environmental Laws; (B) no underground tank or other underground
storage receptacle for Hazardous Materials, asbestos-containing
materials or polychlorinated biphenyls are located on any portion of
any location occupied by the Company each of which is listed as a Site
on Exhibit A; (C) in the course of any activities conducted by the
Company or its invitees, agents, contractors, licensees or employees in
connection with the Business of the Company, no Hazardous Materials
have been generated or are being used except in accordance with
applicable Environmental Laws; and (D) there have been no releases
(i.e., any past or present releasing, spilling, leaking, leaching,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
disposing or dumping) or threatened releases of Hazardous Materials on,
upon, into or from the property currently or formerly owned, operated
or leased by the Company, which releases
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<PAGE> 15
would have a material adverse effect on the value of any of the
property or adjacent properties or the environment.
(iv) The execution, delivery and performance of this
Agreement is not subject to any Environmental Laws which condition,
restrict or prohibit the sale, lease or other transfer of property or
operations, including, without limitation, any so-called "environmental
cleanup responsibility acts" or requirements for the transfer of
permits, approvals, or licenses. To the best of the Primary
Shareholders' knowledge, there have been no environmentally related
audits, studies, reports, analyses (including soil and groundwater
analyses), or investigations of any kind performed with respect to the
currently or previously owned, leased, or operated properties of the
Company.
For purposes of this Agreement, "Hazardous Material" shall
mean any hazardous waste, as defined by 42 U.S.C. Section 6903(5), any hazardous
substances or wastes as defined by 42 U.S.C. Section 9601(14), any pollutant or
contaminant as defined by 42 U.S.C. Section 9601(33) or any toxic substances or
wastes, oil or hazardous materials or other chemicals or substances regulated by
any public or governmental authority.
(k) [reserved].
(l) Credit Card and Bank Accounts. Set forth on Exhibit
4.01(l)(1), is a true and complete list of the Company's employees whom have
been issued a Company credit and/or debit card, including the type of card and
account number. Set forth on Exhibit 4.01(l)(2), is a true and complete list of
the Company's bank accounts and the authorized signatories for said accounts.
(m) Licenses and Compliance with Laws. Except as specifically
set forth on Exhibit 4.01(m), the Company holds no material governmental or
regulatory licenses, permits, consents or approvals in connection with the
Business or otherwise, and the Company is in compliance, in all material
respects, with all applicable laws and regulations.
(n) Tax Reorganization. There has been no action or omission
by the Company which would prevent the Merger from constituting a reorganization
within the meaning of Section 368(a) of the Code.
(o) Net Worth. The net worth of the Company as of the Closing
Date will be not less than negative $207,000. For purposes of this Section only,
any extraordinary accounting fees incurred by the Company related to obtaining
on an expedited basis for purposes of this Agreement only the audited financial
statements for the fiscal years 1997 or 1998 shall not be included in the
computation of net worth.
(p) True and Complete. No representation or warranty made by
the Company or the Primary Shareholders in this Agreement, nor any statement,
certificate or Exhibit furnished by or on behalf of Company pursuant to this
Agreement, nor any document or certificate delivered to Sage pursuant to this
Agreement, or in connection with the transactions contemplated hereby, contains
or shall contain any untrue statement of a
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<PAGE> 16
material fact, or omits or shall omit to state a material fact necessary to make
the statements contained therein not misleading. Neither the Company nor any
Primary Shareholder has failed to disclose to Sage any pending developments or
circumstances of which it is aware which are reasonably likely to have a
material adverse effect on the Business.
SECTION 4.02 REPRESENTATIONS OF SAGE AND MERGER SUB.
Sage and Merger Sub, jointly and severally, represent and
warrant to the Company as follows:
(a) Corporate Matters; No Conflict. Each of Merger Sub and
Sage is duly incorporated, validly existing and in good standing under the laws
of the jurisdiction of its incorporation. Each of Merger Sub and Sage is in good
standing in each other jurisdiction in which it is doing business, except where
failure to be in good standing would not have a material adverse effect on the
business of Merger Sub or Sage and each has the corporate power to enter into
this Agreement, to perform its obligations hereunder and to conduct its business
as currently conducted. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby by Merger Sub and Sage,
respectively, will not (i) conflict with or violate the provisions of any
applicable law, rule or order or Merger Sub's or Sage's respective
organizational documents or By-laws, (ii) conflict with or constitute a default
under any agreement or contract by which Merger Sub or Sage or any of their
respective assets is bound or (iii) require the consent or approval of, or
filing with, any governmental body or third party. On the Closing Date, the
execution, delivery and performance by Merger Sub and Sage, respectively, of
this Agreement will have been authorized and approved by all requisite corporate
action on the part of Merger Sub and Sage and this Agreement will be enforceable
against Sage and Merger Sub in accordance with its terms.
(b) Capitalization. The authorized capital stock of Sage
consists of 37,647,658 shares of capital stock of which 35,000,000 have been
designated common stock, $.01 par value, of which 26,407,197 shares are issued
and outstanding and 2,647,658 have been designated Series A Convertible
Preferred Stock, $.01 par value (the "Preferred Stock"), all of which is issued
and outstanding. Sage has issued Warrrants dated January 28, 1999 (the
"Warrants") for the purchase of 749,625 shares common stock. Sage has issued
options (the "Options") for the purchase of approximately 440,500 shares common
stock. Sage has reserved for issuance 1,500,000 shares of common stock upon
conversion of the Preferred Stock or exercise of the Warrants or the Options.
The authorized capital stock of Merger Sub consists of 100 shares of common
stock, $.01 par value, all of which shares are issued and outstanding and owned
by Sage. All of the outstanding shares of capital stock of Sage and Merger Sub
have been duly authorized and are validly issued, fully paid and non-assessable.
Upon issuance in accordance with this Agreement, the Sage common stock
constituting a portion of the Exchange Consideration will be duly authorized,
fully paid and non-assessable and free and clear of all liens and encumbrances.
Merger Sub has not engaged in any activities other than in connection with the
transactions contemplated by this Agreement.
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(c) Tax Reorganization. There has been no action or omission
by Sage or its subsidiaries which would prevent the Merger from constituting a
reorganization within the meaning of Section 368(a) of the Code.
(d) No Brokers. The only broker, leasing agent, finder or
similar person or entity with whom Merger Sub or Sage has made contact or had
any dealings with or entered into any agreement, arrangement or understanding
with concerning this Agreement and to whom Merger Sub and/or Sage is responsible
to pay a finder's fee, brokerage commission or similar payment to is the party
listed in item 7 on Exhibit A, if any, and Sage shall be solely responsible for
the payment of any such fee, commission or payment.
(e) Claims, Litigation, Disclosure. Except for investigations
by governmental and quasi governmental entities relating to the use by customers
of Web sites which are hosted by Sage or its subsidiaries, there is no claim,
litigation, tax audit, proceeding or investigation pending or, to Sage's
knowledge, threatened against the Sage or any of its assets (including, without
limitation, any claims of infringement or actions of opposition with respect to
Intellectual Property), nor does Sage know of any facts which would provide a
basis for any such claim, litigation, audit, proceeding or investigation.
(f) Licenses and Compliance with Laws. Sage holds no material
governmental or regulatory licenses, permits, consents or approvals in
connection with its business or otherwise, and the Company is in compliance, in
all material respects, with all applicable laws and regulations.
(g) Environmental Compliance.
(i) To the best knowledge of Sage, neither Sage nor
any operator of Sage's properties is in violation, or alleged to be in
violation, of any federal, state or local judgment, decree, order,
consent agreement, law (including common law), license, rule or
regulation pertaining to environmental health or safety matters,
including, without limitation, those arising under any Environmental
Laws.
(ii) Sage has not received a notice, complaint,
order, directive, claim or citation from any third party, including,
without limitation, any federal, state or local governmental authority,
indicating or alleging that Sage or any predecessor may have any
liability or obligation under any Environmental Law.
(iii) To the best of Sage's knowledge (A) no portion
of its property has been used by any person for the generation,
handling, processing, treatment, storage or disposal of Hazardous
Materials except in accordance with applicable Environmental Laws; (B)
no underground tank or other underground storage receptacle for
Hazardous Materials, asbestos-containing materials or polychlorinated
biphenyls are located on any portion of any location occupied by Sage;
(C) in the course of any activities conducted by Sage or its invitees,
agents, contractors, licensees or employees in connection with its
business, no Hazardous Materials have been generated or are being used
except in accordance with applicable Environmental Laws; and (D) there
have been no releases (i.e., any past or present
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<PAGE> 18
releasing, spilling, leaking, leaching, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, disposing or dumping) or
threatened releases of Hazardous Materials on, upon, into or from the
property currently or formerly owned, operated or leased by Sage, which
releases would have a material adverse effect on the value of any of
the property or adjacent properties or the environment.
(iv) The execution, delivery and performance of this
Agreement is not subject to any Environmental Laws which condition,
restrict or prohibit the sale, lease or other transfer of property or
operations, including, without limitation, any so-called "environmental
cleanup responsibility acts" or requirements for the transfer of
permits, approvals, or licenses. To the best of Sage's knowledge, there
have been no environmentally related audits, studies, reports, analyses
(including soil and groundwater analyses), or investigations of any
kind performed with respect to the currently or previously owned,
leased, or operated properties of Sage.
SECTION 4.03 REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.
Each Shareholder, severally as to itself, represents and
warrants to Sage as follows:
(a) Stock Ownership.
(i) The Shareholders are all the beneficial and/or
record owners of the issued and outstanding shares of capital stock of
the Company and the Shareholders own the number of shares of such stock
set forth opposite his or her name on Exhibit A. The Shareholders are
the beneficial and record owners of the Company's capital stock, free
and clear of any liens, encumbrances or restrictions on transfer of any
nature whatsoever other than the obligations of Shareholders arising
under this Agreement to sell the Company's capital stock to Sage and
other than the existing shareholders agreements (the "Existing
Shareholders Agreements") which will be terminated prior to the Closing
Date. Except for this Agreement and the transactions contemplated
hereby, no Shareholder has any legal obligation, absolute or
contingent, to any person or firm to sell the Company's capital stock
or to enter into any agreement with respect thereto except as
contemplated by the Existing Shareholders Agreements.
(b) Corporate Authorization. The execution, delivery and
performance by each Shareholder of this Agreement has been authorized and
approved by all requisite corporate and other action on the part of such
Shareholder, and no other corporate or other approval or authorization is
required on the part of any Shareholder, any trustee or any other person by law
or otherwise in order to make this Agreement the valid, binding and enforceable
obligations of such Shareholder. This Agreement is enforceable against each
Shareholder in accordance with its terms.
(c) No Brokers. There is no broker, leasing agent, finder or
similar person or entity with whom the Shareholders have made contact or had any
dealings or entered into any agreement, arrangement or understanding with
concerning this Agreement
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<PAGE> 19
and to whom any Shareholder is responsible to pay a finder's fee, brokerage
commission or similar payment in connection with the transactions contemplated
by this Agreement.
(d) Common Stock. Each Shareholders each acknowledges that he
has received and reviewed the Confidential Memorandum dated March 12, 1998, as
amended February 9, 1999 (the "Offering"), describing the offering by Sage of up
to 4,800,000 shares of Sage Common Stock to persons or entities who sell Web
hosting businesses to Sage or its affiliates. The Shareholders each understand
that the Sage Common Stock to be issued by Sage to the Shareholders hereunder as
part of the Exchange Consideration shall be subject to the terms of the
Offering, including, without limitation, that the Sage Common Stock shall be
issued subject to a Right of First Refusal Agreement, the form of which is
annexed as an exhibit to the Offering.
ARTICLE V.
CERTAIN COVENANTS
SECTION 5.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.
(a) The representations and warranties of the parties herein
contained shall survive the closing of the purchase contemplated by this
Agreement, notwithstanding any investigation at any time made by or on behalf of
the other party, provided that any claims for indemnification in accordance with
this Section 5.01 with respect to any representation or warranty must be made
(and will be null and void unless made) on or before the date eighteen (18)
months following the Closing Date (except in the case of representations
contained in Section 4.01(c)(v), (g), (i) and (j) and Section 4.02(d) and (g),
which must be made within six (6) months following the expiration of the
applicable statute of limitations).
(b) The Primary Shareholders, jointly and severally, hereby
agree to indemnify and hold Sage and its officers, directors, stockholders,
affiliates, employees, representatives and other agents harmless from and
against any and all claims, liabilities, losses, damages or injuries, together
with costs and expenses, including reasonable legal fees, arising out of or
resulting from (i) any breach, material misrepresentation or material omission
of the representations and warranties made by the Primary Shareholders in this
Agreement or in any Exhibit hereto or other documents delivered in connection
herewith (other than the Employment Agreements (hereafter defined)), (ii) any
breach in any material respect by the Company and/or the Shareholders, or any of
them, unless waived in writing by Sage, of any covenant or agreement contained
in or arising out of this Agreement, or any other agreement delivered in
connection herewith on the Closing Date (other than the Employment Agreements),
(iii) any and all liabilities of the Company arising prior to the Closing Date
except (x) as set forth on the audited financial statements of the Company as at
and for the period ended December 31, 1998, (y) as set forth on the Closing
Balance Sheet or (z) as otherwise disclosed in the Exhibits to this Agreement
and (iv) one-half of any and all liabilities in excess of an aggregate amount
equal to $75,000 of Sage or the Company with respect to or resulting from the
failure of the information technology used in the
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Business to accurately process date and time data (including, but not limited
to, calculating, comparing and sequencing) from, into and between the years 1999
and 2000 and the twentieth century and the twenty-first century, including leap
year CALCULATIONS. Each Shareholder, severally, hereby agrees to indemnify and
hold Sage and its officers, directors, stockholders, affiliates, employees,
representatives and other agents harmless from and against any and all claims,
liabilities, losses, damages or injuries, together with costs and expenses,
including reasonable legal fees, arising out of or resulting from any breach,
misrepresentation or omission of the representations and warranties made by such
Shareholder in Section 4.03. Each Primary Shareholder, severally, hereby agrees
to indemnify and hold Sage and its officers, directors, stockholders,
affiliates, employees, representatives and other agents harmless from and
against any and all claims, liabilities, losses, damages or injuries, together
with costs and expenses, including reasonable legal fees, arising out of or
resulting from any breach, material misrepresentation or material omission of
the representations and warranties made by such Primary Shareholder in, and any
breach in any material respect by such Primary Shareholder of any covenant or
agreement contained in or arising out of, Section 4 of such Primary
Shareholder's Employment Agreement.
(c) Sage hereby agrees to indemnify and hold the Shareholders
harmless from and against any and all claims, liabilities, losses, damages or
injuries, together with costs and expenses, including reasonable legal fees,
arising out of or resulting from (i) any breach, material misrepresentation or
material omission in the representations and warranties made by Sage or Merger
Sub in this Agreement, (ii) any breach in any material respect by Sage or Merger
Sub, unless waived in writing by the Shareholders, of any covenant or agreement
of Sage contained in or arising out of this Agreement or any other agreement
delivered in connection herewith on the Closing Date, including, without
limitation, the Employment Agreements or (iii) the guaranties by the Primary
Shareholders of (x) the Company's borrowings from Fleet National Bank after the
Closing Date to the extent authorized by Sage, (y) the Company's bid bond
outstanding on the Closing Date in the aggregate amount of $12,000 and (z) the
Company's computer leases with Dell Financial Services L.P.
(d) Any party claiming a right to indemnification hereunder
(the "Indemnified Party") shall give the other party from whom indemnification
is sought (the "Indemnifying Party") prompt written notice of any claim, demand,
action, suit, proceeding or discovery of fact upon which the Indemnified Party
intends to base a claim for indemnification under this Section 5.01, provided,
however, that no failure to give such notice shall excuse any Indemnifying Party
from any obligation hereunder except to the extent the Indemnifying Party is
prejudiced by such failure. The Indemnified Party shall have full responsibility
and authority with respect to the disposition of any action, suit or proceeding
brought against it; provided, however, that it will not settle any such action,
suit or proceeding without the prior written consent of the Indemnifying Party,
which will not be unreasonably withheld or delayed. In the event any action,
suit or proceeding is brought against the Indemnified Party with respect to
which the Indemnifying Party may have liability under the indemnity agreements
contained in Section 5.01(b) and (c), however, the Indemnifying Party shall have
the right, without prejudice to the Indemnified Party's rights
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<PAGE> 21
under this Agreement, at the Indemnifying Party's sole expense, to be
represented by counsel of its own choosing and with whom counsel for the
Indemnified Party shall confer in connection with the defense of any such
action, suit, or proceeding. The Indemnified Party shall make available to the
Indemnifying Party and its counsel and accountants, all books and records of the
Indemnified Party relating to such action, suit or proceeding and the parties
agree to render to each other such assistance as may reasonably be requested in
order to insure the proper and adequate defense of any such action, suit or
proceeding.
(e) On the Closing Date, each Shareholder will cause an amount
equal to 10% of each of the cash and shares of Sage Common Stock received by
such Shareholder as Exchange Consideration and Sage will cause the aggregate
Earn-Out Amount (as defined in Exhibit A) (together, the "Escrowed Property") to
be delivered to the escrow agent listed on Exhibit A (the "Escrow Agent") and
held in escrow in accordance with the terms of an escrow agreement to be entered
into between the parties (the "Escrow Agreement") on or prior to the Closing
Date. The Escrowed Property will be held in escrow by the Escrow Agent as
security for any indemnification obligation of the Shareholders to Sage pursuant
to the terms of Section 5.01(b). Indemnity claims by Sage pursuant to Section
5.01(b) shall be satisfied first by the reduction of the Escrowed Property to
the extent allocable to the Shareholder against whom indemnity is sought at its
then current market value until the termination of the Escrow Agreement and
thereafter by the Primary Shareholders, jointly and severally or the
Shareholders, severally, as the case may be. The market value of the Escrowed
Property shall not constitute a limit on the liability of the Shareholders to
Sage hereunder, it being understood and agreed that each of the Primary
Shareholders shall remain jointly and severally liable and each Shareholder
shall remain severally liable, as the case may be, to satisfy the amount of such
claims which exceed the then market value of the Escrowed Property allocable to
such Shareholder.
(f) The aggregate obligations with respect to indemnification
under this Section 5.01 of each of (i) the Shareholders', on the one hand, and
(ii) Sage, on the other hand, shall be limited to an amount equal to $6,334,750
plus the aggregate Earn-Out Amounts to the extent earned in accordance with this
Agreement. Neither the Shareholders' nor Sage shall make any claims for
indemnification under this Section 5.01 unless the aggregate amount of such
claims exceeds $100,000. Notwithstanding the provisions of this Section 5.01(f),
the Shareholders and Sage shall be liable for the full amount of any obligation
with respect to indemnification under this Section 5.01 arising as a result of
(w) any obligation of Sage pursuant to Section 5.01(c)(iii), (x) the willful
misconduct or fraud of the party obligated to provide such indemnification, (y)
a breach or misrepresentation contained in this Agreement by the party from whom
indemnification is sought with respect to tax or environmental matters or (z) a
failure by Sage to pay the Earn-Out Amounts or any amount payable at Closing by
Sage. Notwithstanding any other provision of this Section 5.01(f), the aggregate
liability of the Primary Shareholders under this Section 5.01 and Section 4 of
each Primary Shareholder's Employment Agreement shall not exceed $6,334,750 plus
such Primary Shareholder's Earn-Out Amount to the extent earned in accordance
with this Agreement.
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SECTION 5.02 COMPANY AUDIT.
The Shareholders agree to cause to be performed prior to the
Closing Date, an audit of the Company as at and for the years ended December 31,
1997 and 1998 by a firm of accountants acceptable to Sage. All audited financial
statements prepared in connection with such audit shall meet the requirements
for submission to the Securities and Exchange Commission, shall be prepared by
an accounting firm qualified for such submission and shall be accompanied by
such firm's audit report regarding such financial statements.
SECTION 5.03 TIMECLOCK.
Notwithstanding anything to the contrary contained in this
Agreement, the proprietary software product developed by the Company known as
"Timeclock" shall not be included in the Business or the Company's Assets. The
Shareholders shall cause the grant to Sage and its affiliates of an unrestricted
perpetual royalty free license to use Timeclock pursuant to a license agreement
(the "License Agreement"). After the Closing Date, the Company shall receive
from the owner of Timeclock and any transferee thereof all updates, revisions
and modifications to Timeclock at no charge and in accordance with the License
Agreement. The Shareholders agree that any management time spent on managing the
operations of Timeclock shall be billed to and paid by the owner of Timeclock to
the Company at the Company's normal full rates.
SECTION 5.04 CANCELLATION OF COMPANY STOCK OPTIONS.
Prior to the Closing Date, the Company shall enter into a
stock option cancellation and release agreement (the "Stock Option Cancellation
and Release Agreements") with each holder of options to purchase the capital
stock of the Company, whether or not exercisable and whether or not vested under
the Company's stock option plan, pursuant to which all such options shall be
cancelled by the Company. Sage agrees to pay by check to the holders of such
options as consideration for the cancellation thereof an aggregate amount of not
more than $440,730. At least five business days prior to the Closing Date, the
Company shall provide Sage with written instructions as to the names, amounts
and places to send such payments.
SECTION 5.05 CERTAIN TRANSACTION RELATED FEES.
On the Closing Date, Sage shall pay on behalf of the Company
to certain persons and in the amounts designated by the Company to Sage in
writing at least five business days prior to the Closing Date transaction fees
in an aggregate amount of $141,800.
SECTION 5.06 SALE OF COMPANY MOTOR VEHICLES.
On or prior to the Closing Date, the Company shall sell the
motor vehicles owned by it for a cash amount at least equal to their respective
book values as of December 31, 1998.
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SECTION 5.07 CONDUCT OF BUSINESS PENDING CLOSING.
From the date of this Agreement to the Closing Date, the
Primary Shareholders and the Company (i) will maintain the assets of the Company
and the Company and the Primary Shareholders will not withdraw, expend or apply
any cash or other assets of the Company, except (w) to fully fund the Company's
contributions to the Company 401(k) Plan accrued to the Closing Date, (x) as
provided in Sections 5.03 and 5.06, (y) in connection with this Agreement and
the transactions contemplated hereby (other than legal fees and expenses which
shall be paid by the Shareholders), and (z) in the ordinary course of operations
of the Business of the Company in accordance with past practices of the Company;
(ii) will perform in all material respects their respective obligations under
the contracts and agreements to which the Company is a party; (iii) except as
contemplated in this Agreement, will conduct the Business only in the ordinary
course; (iv) except as otherwise permitted by this Agreement or consented to in
writing by Sage, will not (1) fail to comply in all material respects with any
laws, ordinances, regulations or other governmental restrictions applicable in
any respect to the Business or any of the assets of the Company, (2) grant any
powers of attorney to act for the Business either before or after the Closing
Date, (3) mortgage or pledge or otherwise encumber any of the assets of the
Company except in the ordinary course of business, (4) cancel or terminate any
contract, agreement or other instrument relating to the Business except in the
ordinary course of business, (5) engage in or enter into any transaction with
respect to the Business of any nature not expressly provided for herein, except
for transactions in the ordinary course of business which do not individually or
in the aggregate adversely affect the Business, or (6) make any distribution,
payment or other transfer to the Shareholders other than regular salary and
expense payments consistent with Company's past practices; and (v) will from and
after the date hereof until the Closing Date (1) take such action as may
reasonably be necessary to preserve the assets of the Company wherever located,
(2) maintain inventory of the kinds and in the quantities maintained in the
ordinary course of the Business, (3) maintain its books and records in a manner
consistent with past practices and promptly advise Sage in writing of any
material adverse change in the condition (financial or otherwise) of the assets
of the Company or the Business and (4) except as contemplated in this Agreement
or as may result from the performance of this Agreement, use its best efforts
(at a reasonable cost) to preserve the organization of the Business intact and
continue its operations at its present levels.
SECTION 5.08 POST CLOSING ADJUSTMENT.
Within 30 days following the Closing Date, Sage will prepare a
balance sheet of the Company as of the Closing Date (the "Closing Balance
Sheet") and shall calculate the net worth of the Company as of the Closing Date
(the "Closing Net Worth"). Sage will provide a copy of the Closing Balance Sheet
and such calculation to the Primary Shareholders. If the Closing Net Worth is
less than negative $207,000 (the "Target"), the Shareholders shall pay to Sage
an amount equal to the amount by which the Closing Net Worth is less than the
Target. If the Closing Net Worth is greater than the Target, Sage shall pay to
the Shareholders, ratably in proportion to the number of shares of the Company
owned by such Shareholder on the Closing Date, an aggregate amount equal to the
amount
20
<PAGE> 24
by which the Closing Net Worth exceeds the Target. Any such payment shall be
made within 30 days following delivery of the Closing Balance Sheet and such
calculation to the Primary Shareholders. For purposes of this Section only, any
extraordinary accounting fees incurred by the Company related to obtaining on an
expedited basis for purposes of this Agreement only the audited financial
statements for the fiscal years 1997 or 1998 shall not be included in the
computation of Closing Net Worth.
SECTION 5.09 CLOSING OF COMPANY BANK ACCOUNTS.
Promptly following the Closing, the Primary Shareholders shall
provide to Sage evidence acceptable to Sage that the authority of the persons
authorized to sign on behalf of the Company's bank accounts as set forth on
Exhibit 4.01(l)(2) has been terminated or that such accounts have been closed.
ARTICLE VI.
CONDITIONS TO CLOSING; DELIVERIES AT CLOSING
SECTION 6.01 CONDITIONS OF SAGE AND MERGER SUB.
(a) On the Closing Date, the obligations of Sage and Merger
Sub under this Agreement shall be subject to the occurrence of the following
events and the delivery of the following documents, instruments and opinions:
(b) The Primary Shareholders shall have delivered or cause to
be delivered to Sage:
(i) A certificate of the Primary Shareholders to the
effect that (x) each of the representations and warranties of the
Primary Shareholders contained herein is true and correct on the
Closing Date as if such representations and warranties had been made on
the Closing Date and (y) the Company has complied with each of the
covenants of the Company contained in this Agreement.
(ii) A certificate of each Shareholder to the effect
that each of the representations and warranties of such Shareholder
contained herein is true and correct on the Closing Date as if such
representations and warranties had been made on the Closing Date.
(iii) Certificates evidencing the Company Common
Stock, free and clear of all liens and encumbrances of any nature
whatsoever, duly endorsed in blank for transfer or accompanied by stock
powers duly executed in blank and with all requisite documentary or
stock transfer tax stamps affixed.
(iv) The following corporate documentation:
(A) The Company's Articles of Organization,
including all amendments thereto, certified as of a date
within thirty (30) days prior to the
21
<PAGE> 25
Closing Date by the Secretary of State of the state of the
Company's organization;
(B) Good Standing Certificates as of date
within thirty (30) days prior to the Closing Date from the
Secretary of State of the state of the Company's organization
and each other state in which the Company is qualified to do
business;
(C) The Company's By-laws certified as of
the Closing Date by the President or Clerk of the Company as
being in full force and effect and unmodified; and
(D) Corporate Resolutions of the Company's
Board of Directors and the Shareholders (if required by the
Company's By-law's or applicable law), approving this
Agreement and all the transactions contemplated hereby,
certified by the President or Clerk of the Company as being in
full force and effect and unmodified.
(c) The legal opinions of counsel to the Company and the
Shareholders, in a form acceptable to Sage and its counsel.
(d) The Escrow Agreement duly executed by the Shareholders.
(e) Evidence satisfactory to Sage that each Existing
Shareholders Agreements has been terminated.
(f) Employment Agreements (collectively, the "Employment
Agreements") between the Company and each of Jennifer Lawton and Rudolph
Ventresca executed by Jennifer Lawton and Rudolph Ventresca, respectively,
together with Subscription Agreements (collectively, the "Subscription
Agreements") and Right of First Refusal Agreements (collectively, the "Right of
First Refusal Agreements") with respect to the shares of Sage Common Stock
delivered to each Shareholder.
(g) Resignations, in writing, of all the directors and
officers of the Company.
(h) Consents to assignments and change in control, if
required, with respect to all Business Agreements (including, without
limitation, Leases and Estoppel Certificates with respect to the Leases).
(i) Consent to a press release in form satisfactory to, and
pre-approved by, the Company and Sage relating to this Agreement and the
transactions contemplated hereby.
(j) Evidence that the motor vehicles owned by the Company have
been sold for a cash amount equal to at least their respective book values as of
December 31, 1998.
22
<PAGE> 26
(k) The Stock Option Cancellation and Release Agreements duly
executed by the Company and each holder of Employee Stock Options of the
Company.
(l) The License Agreement duly executed by the parties
thereto.
(m) Evidence that the principal of and interest on, and all
other amounts owing in respect of, the indebtedness of the Company outstanding
on the Closing Date (other than the Caldwell Note) shall have been (or shall be
simultaneously) paid in full, letters from each lender that is a party to any
commitments to extend credit under the agreements relating to such indebtedness
(other than the Caldwell Note) to the effect that there is no balance
outstanding under such commitment or evidence that such commitment shall have
been cancelled or terminated and that all guarantees in respect of, and all
liens securing, such indebtedness shall have been released.
(n) Evidence that the principal of and interest on, and all
other amounts owing in respect of, loans to or from the Company to or from its
directors, officers and employees (other than the Caldwell Note) outstanding on
the Closing Date shall have been (or shall be simultaneously) paid in full.
(o) Evidence that all equity investments by the Company in its
customers shall have been sold by the Company.
(p) Evidence that the Company 401(k) Plan has been terminated
by the Company.
SECTION 6.02 CONDITIONS OF SHAREHOLDERS.
(a) On the Closing Date, the obligations of the Shareholders
under this Agreement shall be subject to the occurrence of the following events
and the delivery of the following documents, instruments and opinions:
(b) Sage shall have delivered or cause to be delivered to the
Primary Shareholders a certificate of an authorized officer of Sage to the
effect that (x) each of the representations and warranties of Sage and Merger
Sub contained herein is true and correct on the Closing Date as if such
representations and warranties had been made on the Closing Date and (y) each of
Sage and Merger Sub has complied with each of the covenants of Sage and Merger
Sub contained in this Agreement to be performed on or before the Closing Date.
(c) The Exchange Consideration in accordance with Section
2.02.
(d) The Escrow Agreement duly executed by Sage and the Escrow
Agent.
(e) Resolutions of the Board of Directors of each of Merger
Sub and Sage, authorizing the execution of this Agreement and the transactions
contemplated hereby, certified by an officer of the Merger Sub and Sage,
respectively, as being in full force and effect and unmodified and a resolution
or unanimous consent of the shareholders of Merger
23
<PAGE> 27
Sub approving the merger contemplated by this Agreement certified by an officer
of the Merger Sub, as being in full force and effect and unmodified.
(f) The legal opinions of counsel to Sage, in a form
reasonably acceptable to the Company, Shareholders and their counsel.
(g) Consent to a press release in form satisfactory to, and
pre-approved by, the Company and Sage relating to this Agreement and the
transactions contemplated hereby.
(h) Unaudited financial statements of Sage as at and for the
period ended December 31, 1998, which financial statements shall be reasonably
satisfactory to the Company and the Shareholders.
(i) Evidence that all personal guaranties of the Primary
Shareholders in respect of indebtedness of the Company shall have been released.
ARTICLE VII.
OBLIGATIONS FOLLOWING CLOSING
SECTION 7.01 TAXES.
Sage will prepare or cause to be prepared and timely filed all
Federal, state and local tax returns, estimates and reports with respect to the
Company for all completed periods prior to the Closing Date with respect to
which such filings are not due on or prior to the Closing Date. The Primary
Shareholders, jointly and severally, hereby agree to indemnify and hold Sage and
its officers, directors, stockholders, affiliates, employees, representatives
and other agents harmless from and against any and all claims, liabilities,
losses, damages or injuries, together with costs and expenses, including
reasonable legal fees, arising out of any Federal, state and local tax
liabilities of the Company with respect to periods on and prior to the Closing
Date, except to the extent accrued on the financial statements of the Company as
at and for the period ended on the Closing Date.
ARTICLE VIII.
MISCELLANEOUS
SECTION 8.01 GOVERNING LAW; JURISDICTION.
This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts. The parties hereto submit and consent to the
jurisdiction of the state courts of the Commonwealth of Massachusetts and the
State of New York in the Counties of New York and/or Westchester and the federal
courts located therein with respect to any legal actions relating to this
Agreement, or any other agreements delivered in connection herewith, between the
Company and the Shareholders, on the one hand, and Sage, on the other hand, and
any transactions contemplated thereby.
24
<PAGE> 28
SECTION 8.02 COUNTERPARTS.
This Agreement may be executed in several counterparts, each
of which shall be an original and all of which together shall constitute one and
the same instrument.
SECTION 8.03 CONFIDENTIALITY.
The Company and the Shareholders, on the one hand, and Sage,
on the other hand, each agree not to disclose or use any information acquired by
it about the other party during the course of the negotiations of this Agreement
and the transactions to which it relates which is confidential in nature or not
otherwise generally available to the public without the prior written consent of
such other party unless required to do so by applicable law or regulation or by
order of a court of competent jurisdiction or an administrative agency. Each
party shall be liable for any breach by its respective employees, officers,
directives, shareholders, agents and/or contractors of the provisions of this
Section 8.03.
SECTION 8.04 ENTIRE AGREEMENT; AMENDMENTS.
This Agreement supersedes all prior discussions and agreements
between the parties with respect to the subject matter hereof, and this
Agreement contains the sole and entire agreement among the parties with respect
to the matters covered hereby. This Agreement cannot be changed, modified or
amended and no provision or requirement hereof may be waived without the consent
in writing of the parties hereto.
SECTION 8.05 SEVERABILITY.
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect. Each provision
of this Agreement shall be deemed to be the agreement of the parties hereto to
the full extent that the power to enter into such provisions shall have been
conferred on the parties by law.
SECTION 8.06 BENEFIT; ASSIGNMENT.
This Agreement is binding upon and inures to the benefit of
the parties, their successors and permitted assigns. This Agreement may not be
assigned or the duties of the parties hereunder delegated to others without the
prior written consent of all parties hereto, except that Sage may assign its
rights, duties and obligations hereunder without the Company's or the
Shareholders' consent; provided that the assignee shall have revenues and net
worth that are not less than the revenues and net worth of Sage at the time of
such assignment.
SECTION 8.07 CONSTRUCTION.
All exhibits annexed hereto are hereby incorporated herein by
reference and made a part of this Agreement. Whenever used in this Agreement and
the context so requires, the singular shall include the plural and the plural
shall include the singular.
25
<PAGE> 29
SECTION 8.08 IMPUTED KNOWLEDGE.
References in this Agreement to the "knowledge of" the Primary
Shareholders, or words of similar import, shall include the knowledge of any and
all of the Primary Shareholders and the officers of the Company which knowledge
shall be imputed to be the knowledge of the Primary Shareholders. References in
this Agreement to the "knowledge of" Sage, or words of similar import, shall
include the knowledge of Leonard J. Fassler or Bradley A. Feld which knowledge
shall be imputed to be the knowledge of Sage.
SECTION 8.09 NOTICES.
All notices and other communications hereunder shall be in
writing and deemed to have been duly given when delivered by hand, when received
by registered or certified mail, postage prepaid, return receipt requested, when
given by prepaid courier delivery services such as Federal Express, DHL or other
similar services on the day received, or when given by facsimile transmission
upon receipt by sender of confirmed answer-back, as follows:
(a) if to Sage, at
Sage Networks, Inc.
215 First Street
Cambridge, MA 02142
Attn: Rajat Bhargava, Chief Operating Officer
Telecopier No.: (617) 374-1600
with copies to:
Sage Networks, Inc.
11 Martine Avenue
White Plains, NY 10606-1934
Attn: Bruce S. Klein, General Counsel
Telecopier No.: (914) 289-1909
and
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019
Attn: E. Ann Gill, Esq.
Telecopier No.: (212) 259-6333
(b) if to the Company or the Shareholders, at:
Net Daemons Associates, Inc.
800 West Cummings Park, #2050
26
<PAGE> 30
Woburn, MA 01801
Attn: Jennifer Lawton
Telecopier No.: (781) 937-3775
with a copy to:
Landay & Leblang
85 Devonshire Street, Suite 1000
Boston, MA 02109
Attn: Russell D. Leblang, Esq.
Telecopier No.: (617) 742-9130
27
<PAGE> 31
[SIGNATURE PAGE OF AGREEMENT AND PLAN OF MERGER BY AND AMONG SAGE NETWORKS,
INC., NET DAEMONS ASSOCIATES, INC. AND CERTAIN OTHER PARTIES DATED AS OF
FEBRUARY ___, 1999]
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first above written.
SAGE NETWORKS, INC.
[SEAL]
By:/s/Leonard J. Fassler
------------------------------------------
Leonard J. Fassler, Co-Chairman
SAGE NDA ACQUISITION CORP.
[SEAL]
By:/s/Leonard J. Fassler
------------------------------------------
Leonard J. Fassler, President
NET DAEMONS ASSOCIATES, INC.
[SEAL]
By:/s/Rudolph A. Ventresca
------------------------------------------
Rudolph A. Ventresca, President and
Treasurer
SHAREHOLDERS:
By:/s/Jennifer Lawton
------------------------------------------
Jennifer Lawton
By:/s/Rudolph Ventresca
------------------------------------------
Rudolph Ventresca
By:/s/Jeffrey Osborn
------------------------------------------
Jeffrey Osborn
By:/s/Christopher Caldwell
------------------------------------------
Christopher Caldwell
28
<PAGE> 32
KODIAK TECHNOLOGY VENTURES II, LLP
By: /s/ Bradley A. Feld
------------------------------------------
Bradley A. Feld, its Managing Partner
29
<PAGE> 33
LIST OF EXHIBITS:
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit A - Basic Provisions
Exhibit 4.01(b) - Officers; Directors; Trade Names; Jurisdictions
Exhibit 4.01(c)(i)(1) - Closing Cash
Exhibit 4.01(c)(i)(2) - Closing Accounts Receivable
Exhibit 4.01(c)(ii)(1) - Forms of Business Agreements with Customers
Exhibit 4.01(c)(ii)(2) - Summary of Oral Business Agreements and Vendor/Service Provider and Other
Agreements
Exhibit 4.01(c)(ii)(3) - Leases
Exhibit 4.01(c)(ii)(4) - Claims of Disputes Under Business Agreements
Exhibit 4.01(c)(ii)(5) - Consents to Transfer or Assign Not Obtained
Exhibit 4.01(c)(iii) - Tangible Assets
Exhibit 4.01(c)(iv) - Intellectual Property
Exhibit 4.01(c)(v) - Customer List
Exhibit 4.01(c)(vi)(1) - Company's Assets as shown on Financial Statements
Exhibit 4.01(c)(vi)(2) - Liens; Encumbrances
Exhibit 4.01(c)(vii) - Customer Terminations
Exhibit 4.01(d)(1) - Financial Statements
Exhibit 4.01(d)(2) - Bad Debts
Exhibit 4.01(e) - Existing Employment Agreements, Labor or Collective
Bargaining Agreements, Employee
Benefit or Welfare Plans, Description of Employees
Exhibit 4.01(f) - Claims, Litigation and Disclosure
Exhibit 4.01(g) - Tax Liabilities of the Company
Exhibit 4.01(l)(1) - Company's Credit and Debit Cards
Exhibit 4.01(l)(2) - Company's Bank Accounts and Authorized Signatories
Exhibit 4.01(m) - Licenses and Compliance with Laws
Exhibit 5.01(b) - Liabilities
</TABLE>
In accordance with Item 601(b)(2) of Regulation S-K, all exhibits other than
Exhibit A have been omitted. The Company hereby agrees to furnish supplementally
a copy of any omitted exhibit to the Commission upon request.
30
<PAGE> 34
EXHIBIT A
TO
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
SAGE NETWORKS, INC.
AND
NET DAEMONS ASSOCIATES, INC.
CERTAIN OTHER PARTIES
BASIC PROVISIONS
1. Name of MERGER SUB: Sage NDA Acquisition Corp.
2. Name of PARENT of MERGER SUB: Sage Networks, Inc.
3. Name of COMPANY: Net Daemons Associates, Inc.
(a) Names, addresses and stock ownership of SHAREHOLDERS of COMPANY:
Name and Address Number of Shares (Type)
Jennifer Lawton 900,000
Rudolph Ventresca 200,000
Jeffrey Osborn 50,000
Christopher Caldwell 45,000
Kodiak Ventures 12,500
Total Outstanding Shares: 1,207,500 Shares Common Stock
<PAGE> 35
(b) STATE OF INCORPORATION OF COMPANY: Commonwealth of
Massachusetts
(c) FOREIGN QUALIFICATIONS OF THE COMPANY:
California
Colorado
(d) AUTHORIZED OFFICERS OF THE COMPANY:
Jennifer Lawton Chief Executive Officer, Clerk
Rudolph Ventresca President, Treasurer
Russell Leblang Assistant Clerk
(d) Address of each Site from which the Company conducts the
Business:
800 West Cummings Park, #2050
Woburn, MA 01801
1818 Gilbreth Road, #234
Burlingame, CA 94010
3080 Valmont Road
Boulder, CO 80301
4. RESIDENCE ADDRESS of each SHAREHOLDER:
Jennifer Lawton
Rudolph Ventresca
Jeffrey Osborn
Christopher Caldwell
2
<PAGE> 36
Kodiak Ventures
5. EXCHANGE CONSIDERATION:
Cash at Closing: $0.414 per share of Company Common Stock, by
certified or official bank check payable to the
order of the Shareholders, or by wire transfer
of federal funds to the account of the
Shareholders, as the Company and the
Shareholders shall direct in writing on or
before the Closing Date.
Stock at Closing: .352 shares of Sage Common Stock per share of
Company Common Stock.
Earn-Out Amount: Sage will transfer on a pro rata basis
to the Company's shareholders of record on the
Closing Date, additional shares of Sage Common
Stock and cash in the amounts set forth below
(the "Earn-Out Amount"):
<TABLE>
<CAPTION>
SHARES OF SAGE
COMMON STOCK PER CASH PER SHARE
SHARE OF COMPANY AGGREGATE SHARES OF OF COMPANY AGGREGATE CASH
SHAREHOLDER COMMON STOCK SAGE COMMON STOCK COMMON STOCK AMOUNT
----------- ---------------- ------------------- -------------- --------------
<S> <C> <C> <C> <C>
Jennifer Lawton .352 55,873 $0.414 $372,671
Rudolph Ventresca .352 12,416 $0.414 $82,815
Jeffrey Osborn .352 3,104 $0.414 $20,704
Chris Caldwell .352 2,794 $0.414 $18,634
Kodiak Ventures .352 776 $0.414 $5,176
</TABLE>
The Earn-Out Amount shall be held in escrow
pursuant to the Escrow Agreement and released to
the Shareholders as follows: (a) fifty percent
(50%) of the Earn-Out Amount will be released,
provided that for the period from the Closing
Date to August 31, 1999, the Revenues of the
Surviving Corporation are at least $3,010,000
and the gross margin revenues of the Surviving
Corporation are at least $1,366,000; and (b)
fifty percent (50%) of the Earn-Out Amount will
be released, provided that for the period from
the Closing Date to but not including March 1,
2000, the gross revenues of the Surviving
Corporation are at least $6,066,000 and the
gross margin revenues of the Surviving
Corporation are at least $2,722,000. The
Earn-Out Amount will be paid to the Shareholders
within 60 days after the end of the applicable
period. In the event that the Company does not
attain the target amounts for any of the periods
described above, then
3
<PAGE> 37
the Earn-Out Amount for the applicable
periods(s) will be returned to Sage. For
purposes of the calculation of the Earn-Out
Amount only, all internal information technology
consulting services provided by the Company to
Sage will be charged at the Company's normal
billing rates.
<TABLE>
<CAPTION>
SHAREHOLDER AT CLOSING EARN-OUT AMOUNT
----------- ----------------------------- -----------------------
NUMBER OF SHARES AMOUNT OF NUMBER OF AMOUNT OF
OF SAGE COMMON CASH SHARES OF CASH
STOCK SAGE COMMON
STOCK
----------- ---------------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Jennifer Lawton 316,770 $372,671 55,873 $372,671
Rudolph Ventresca 70,393 82,816 12,416 82,816
Jeffrey Osborn 17,598 20,704 3,104 20,704
Christopher 15,839 18,634 2,794 18,634
Caldwell
Kodiak Technology 4,400 5,176 776 5,176
Ventures II, LLP
------- -------- ------ --------
Total 425,000 $500,000 74,963 $500,000
======= ======== ====== ========
</TABLE>
6. COMPANY AND SHAREHOLDERS' BROKER: N/A
7. SAGE'S BROKER: None
8. ESCROW AGENT: Landay & Leblang
4
<PAGE> 1
EXHIBIT 2.4
ASSET PURCHASE AGREEMENT
AGREEMENT made as of this 4th day of February, 1999 between DIGIWEB,
INC., a Delaware corporation with a principal place of business at 4716 Pontiac
Street, Suite 306, College Park, MD 20740 (the "Company"), YI WEN CHUNG,
residing at 10103 Baltimore Avenue, #2202, College Park, MD 20740 ("Chung") and
DIANE X. CHEN, residing at 17721 Meadow Vista Way, Gaithersburg, MD 20877
(collectively, "Shareholders"), and DIGIWEB, INC., a Maryland corporation,
having an office at 215 First Street, Cambridge, Massachusetts 02142 ("Buyer").
W I T N E S S E T H :
WHEREAS, the Company desires to sell and the Buyer desires to
purchase on the date hereof (the "Closing Date") the Internet Web hosting and
related businesses of the Company as a going concern (the "Business") consisting
of the Purchased Assets (hereinafter defined), and the Assumed Liabilities (as
hereinafter defined), for a purchase price determined as set forth in Exhibit A
(the "Purchase Price") and for the assumption of the Assumed Liabilities;
WHEREAS, the Shareholders join in the execution of this Agreement as
the sole Shareholders, directors and officers of the Company and are familiar
with the material aspects of operations of the business of the Company,
including, without limitation, the Business.
NOW THEREFORE, in consideration of the mutual covenants and promises
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by all parties, the
parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE;
REPRESENTATIONS AND WARRANTIES
SECTION 1. PURCHASE AND SALE. Subject to the terms and conditions of
this Agreement, the Company hereby sells, assigns and transfers to the Buyer and
the Buyer hereby purchases and acquires from the Company, all of the right,
title and interest of the Company in and to the Purchased Assets for the
Purchase Price set forth herein.
SECTION 2. REPRESENTATIONS OF THE COMPANY AND SHAREHOLDERS. The
following
<PAGE> 2
agreements, representations and warranties are made by the Company and the
Shareholders, jointly and severally, to the Buyer.
(A) Organizational Matters; No Conflict. The Company is duly formed,
organized, and is a validly existing corporation in good standing under the laws
of the state of its incorporation, maintains offices only at the sites listed on
Exhibit A and has no other operations other than from those sites; is qualified
or authorized to transact business and is in good standing in each other
jurisdiction in which it is doing business, except where failure to be qualified
or be in good standing would not have a material adverse effect on the business
of the Company; and has the requisite power to enter into this Agreement, to
perform its obligations hereunder and to conduct its business as currently
conducted. The execution, delivery and performance of this Agreement and the
transactions contemplated hereby by the Company and by the Shareholders will not
(i) to the best knowledge of the Company and the Shareholders after due inquiry,
conflict with or violate the provisions of any applicable law (including,
without limitation, any bulk sales laws), rule or order or the Company's
Articles or Certificate of Incorporation, By-laws or any other organizational or
governing documents of the Company, (ii) conflict with or constitute a default
under any agreement or contract by which the Company or the Shareholders is
bound or (iii) require the consent or approval of, or filing with, any
governmental body or third party. The execution, delivery and performance by the
Company of this Agreement has been duly authorized and approved by all corporate
action on the part of the Company. The Shareholders are all the beneficial
and/or record owners of the issued and outstanding shares of capital stock of
the Company and the Shareholders own the number of shares of such stock set
forth opposite his or her name on Exhibit A. Also set forth on Exhibit A is the
total number and type of authorized shares and outstanding shares of capital
stock of the Company. Set forth on Exhibit B is a list of officers and directors
of the Company, all trade names used by the Company and all jurisdictions in
which the Company is doing business. This Agreement and the consummation of the
transactions contemplated hereby have been approved by the Shareholders (if
required by its By-Laws or applicable law) and by the board of directors of the
Company, and the authorized officers of the Company named on Exhibit A are
jointly and severally authorized and empowered by the Company to execute and
deliver this Agreement in the name and on behalf of the Company.
(B) Purchased Assets. (i) All vendor and customer contracts,
confidentiality agreements, purchase and sales orders, powers of attorney,
undertakings, commitments and other agreements to which the Company is a party
and which relate in any manner to the Business and/or the relationship between
the Company and the Customers (hereinafter defined), whether written or oral,
shall be referred to herein collectively as the "Business Agreements". The
Company has delivered to Buyer, on or before the Closing Date, true and correct
copies of all written Business Agreements (excluding Business Agreements with
Customers and excluding reseller agreements). Attached hereto as Exhibit C-1 are
true and correct copies of the only forms of agreements which have been entered
into between the Company and its Customers concerning the Business (collectively
the "Form Customer Agreements"). All Customers have either entered into a
written Form Customer Agreement with the Company or an oral agreement with the
Company on the same terms and conditions as the terms and conditions as set
forth in the Form Customer Agreements. Annexed as Exhibit C-2 is a list of all
written Business
-2-
<PAGE> 3
Agreements between the Company and others (excluding Customers), and vendors or
service providers, or which relate to any strategic partnerships, reselling
arrangements or joint ventures between the Company and others, concerning the
Business, copies of which (except for reseller agreements) have been provided to
Buyer prior to Closing. Also annexed as Exhibit C-2 are true and correct copies
of the only forms of reseller agreements between the Company and its resellers
(collectively, the "Form Reseller Agreements"). All resellers have entered into
a written Form Reseller Agreement on substantially similar terms and conditions
as the terms and conditions as set forth in the Form Reseller Agreement. The
Company represents that other than oral agreements with some of its Customers,
it has no oral Business Agreements which are material individually or in the
aggregate. Listed on Exhibit C-3 is a description of each and every real estate,
equipment and personal property lease (collectively, the "Leases") to which the
Company is a party and which relates to the Business. The Leases are also
included within the definition of Business Agreements as said term is used
herein. Neither the Company nor any other party, is in default under any
Business Agreement in any material respect whether individually or in the
aggregate, and no other party to any Business Agreement has made any claim or
given the Company notice of any dispute under any Business Agreement, except as
set forth on Exhibit C-4. Each Business Agreement is in full force and effect.
The Company has the right to assign the Business Agreements and the Company has
obtained all required consents to the assignment and transfer thereof, except as
set forth on Exhibit C-5. The Company is not the owner or lessee of any motor
vehicles which are used in the Business except as set forth on Exhibit C-3. The
Company does not own or lease any interest in any real property, or lease any
equipment used in the Business, except as expressly stated on Exhibit C-3.
(ii) All of the tangible assets of the Company used in the Business,
including, without limitation, all machinery, office and other equipment,
furniture, computers and related equipment, business machines, telephones and
telephone systems, parts and accessories, telephone numbers, facsimile numbers,
e-mail addresses and Internet domain addresses presently utilized by the Company
in the Business and all right, title and interest of the Company in Internet
domain addresses of third parties which are presently "parked" or located on
servers used by the Company in the Business, shall be referred to herein
collectively as the "Tangible Assets". Attached hereto as Exhibit E is a true
and correct list or description of the material Tangible Assets. As of the
Closing Date, except as provided on Exhibit E-1, each of the Tangible Assets is
in good and operable condition, reasonable wear and tear excepted.
(iii) All patents, trademarks, trade names (including, but not
limited to, those trade names listed on Exhibit B), service marks, service
names, logos, designs, formulations, copyrights and other trade rights and all
registrations and applications therefor, all know-how, trade secrets, technology
or processes, all Web sites and all computer programs, data bases and software
documentation owned or used by the Company in the Business, other than
off-the-shelf software licensed by the Company, shall be referred to herein
collectively as the "Intellectual Property". Attached hereto as Exhibit F is a
true and correct copy of all of the Intellectual Property. Such exhibit also
indicates which of such items have been patented or registered or are in the
process of application for same. To the best of its knowledge, the Company has
taken all necessary and reasonable actions to protect its rights in Intellectual
Property owned by it and to the knowledge of the Company, is not infringing on
the rights of any third parties to Intellectual
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<PAGE> 4
Property used, but not owned by, the Company. Included among the Intellectual
Property, among other things, are all trade names utilized by the Company in the
Business, including those trade names listed on Exhibit B. On the Closing Date,
the Company will deliver to Buyer a Certificate of Amendment of the Company's
Articles or Certificate of Incorporation ("Certificate of Amendment") changing
its corporate name so as to delete the word "Digiweb" and will cause the same to
be duly filed with the Secretary of State's Office for the State of its
incorporation within ten (10) days from the Closing Date. Promptly after such
filing, the Company will deliver proof of said filing to Buyer. Also attached to
Exhibit F is a true and complete list of all software licensed by the Company
and used in operating and maintaining the Business (collectively, the "Licensed
Software"). The Company has valid and fully-paid licenses for all of the
Licensed Software, except as set forth on Exhibit F-1. Included among the
Intellectual Property, among other things, are all trade names utilized by the
Company in the Business, including, but not limited to, those trade names listed
on Exhibit B. On the Closing Date, the Company will deliver to Buyer written
proof in form and substance reasonably satisfactory to Buyer and its counsel
that the Company will no longer do business under any of the trade names listed
on Exhibit B and further, at the Closing, the Company will deliver to the Buyer,
for filing with the applicable governmental or quasi-governmental offices, any
required instruments to terminate any previously filed assumed name or similar
certificates regarding such trade names.
(iv) The Company represents that a true and complete copy of the
Company's customer list relating to the Business as of the Closing Date (the
"Customer List") is in the Company's file cabinet and/or is maintained in the
Company's database on the Company's servers, all of which is included in the
Purchased Assets and is being acquired by Buyer hereunder. The Customer List
includes, in the case of each customer, the name of the customer, its billing
and domain addresses, identity and contact information of each relevant contact
person, a statement of the monthly or annual (as indicated) service charges
relating to such customer and the Company's files regarding such customer. All
customers of the Company relating to the Business, including without limitation,
those customers included on the Customer List, shall be referred to herein as
the "Customers."
(v) [INTENTIONALLY OMITTED]
(vi) As used herein, the term "Purchased Assets" shall be defined as
all classes of assets of the Company as shown on the Company's certified
financial statement as of December 31, 1998 (annexed as Exhibit H) including,
without limitation, the Business Agreements, the Tangible Assets, the
Intellectual Property, the Customer List, the Customers, together with the good
will and business opportunities of the Company as it relates to the Business,
the Software Licenses, and all other assets of the Company used in connection
with the operation of the Business, wherever located, tangible or intangible,
including without limitation, all data files, books and records regarding or
relating to the foregoing, whether in electronic, paper or other form of media
and all rights the Company may have under any insurance policies relating to the
Purchased Assets regarding policies which are assigned to the Buyer at Closing
(but excluding claims arising prior to Closing), excluding, however, Excluded
Assets (as defined below). The Purchased Assets are not subject to (i) any lien
or encumbrance of any character
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<PAGE> 5
whatsoever except as set forth on Exhibit M or (ii) any adverse claims by any
third parties. At the Closing upon consummation of the transactions contemplated
by this Agreement, Buyer will receive good and marketable title to the Purchased
Assets, free and clear of all liens, claims and encumbrances of any character
whatsoever. The Purchased Assets include all rights, properties, interests and
assets used by Company and/or necessary to permit Buyer to carry on the Business
as presently conducted by the Company except for Excluded Assets.
(vii) The Company and the Shareholders reasonably expect that the
business represented by the Business Agreements will continue after the date
hereof. Neither the Company nor the Shareholders have any knowledge that any
Customers, other than those listed on Exhibit G-1, intend to terminate or reduce
the amount of business they presently do with the Company, and they have no
knowledge of any state of facts which would lead them to believe that any of the
Customers will terminate their relationship with the Company or significantly
reduce the amount of business they presently do with the Company, except for a
reduction in business resulting from the devaluation of the Brazilian currency
prior to the Closing Date. Notwithstanding the foregoing, the Company and Chung,
jointly and severally, agree to indemnify the Buyer in an amount, if any, equal
to three times the difference between the "1999 Annualized Gross Revenue" of the
Buyer and $2,750,000. "1999 Annualized Gross Revenue" of the Buyer shall mean
the gross revenue, after adjusting for deferred revenue, of the Buyer for the 11
months beginning February 1, 1999 and ending December 31, 1999, divided by 11
and multiplied by 12. This indemnification obligation shall be in accordance
with the following terms:
(a) The indemnification recourse by Buyer shall be solely limited to
the value of 150,000 shares of the Common Stock, hereafter defined
(referred to herein as the "Escrowed Stock"), but not to exceed
$1,000,000 in any event.
(b) The Escrowed Stock shall be delivered to the escrow agent listed
on Exhibit A (the "Escrow Agent") to be held in escrow in accordance
with the terms of a separate escrow agreement to be entered into
between the parties (the "Revenue Shortfall Escrow Agreement") on or
prior to the Closing which shall include, among other things, the
terms and conditions set forth in subparagraphs (c) through (d)
below.
(c) In the event of any claim for indemnification by Buyer, Buyer
shall provide the Company with a notice of claim and a schedule
detailing the calculation of the Claim Amount, accompanied by
reasonable supporting documentation therefore prepared in accordance
with GAAP to the extent applicable. The notice of claim shall be
submitted by Buyer to the Company no later than January 31, 2000 for
any claim hereunder. The Company will then have thirty (30) days
from receipt of the notice of claim of Buyer to respond. If the
Company disputes such calculations of the Claim Amount, the Company
shall, within said thirty (30) day period, advise Buyer in writing
and submit supporting
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<PAGE> 6
documentation of its position. If the Company fails to respond and
submit such required supporting documentation within said thirty
(30) day period, then Buyer's submitted Claim Amount shall be deemed
accepted by the Company and shall be binding, final and conclusive.
(d) Any amount due to be paid to Buyer hereunder as a Claim Amount
shall be paid by the Escrow Agent out of the Escrowed Stock in the
number of shares thereof equal to amount of the Claim Amount as
ultimately determined divided by the then per share fair market
value of the Escrowed Stock. If the value of the Escrowed Stock is
less than One Million ($1,000,000) Dollars and is insufficient to
pay the Claim Amount, the Company and Chung, jointly and severally,
shall pay to Buyer the difference between the value of the Escrowed
Stock and the lesser of (i) the Claim Amount and (ii) One Million
($1,000,000) Dollars.
(viii) Excluded Assets. The Company is not selling and Purchaser is
not buying or acquiring hereunder the following items ("Excluded Assets") which,
notwithstanding anything to the contrary contained herein, are not included in
the defined term "Purchased Assets": (a) All cash and cash equivalents; (b) the
Company's corporate minute and stock books, tax returns and other records having
to do solely with the Company's organization and/or capitalization; (c) any
rights to any of the Company's claims for any federal, state or local tax
refunds; (d) any rights which accrue or will accrue to the Company under this
Agreement or the transactions contemplated hereby; (e) all assets, if any,
listed on Exhibit L hereto; and (f) accounts receivable of the Company.
(C) Financial Statements. The Company has delivered to the Buyer
copies of the Company's audited financial statements for the last two fiscal
years of the Company ended December 31, 1998 and 1997, respectively. Attached
hereto as Exhibit H is a certified audited balance sheet and profit and loss
statement for the fiscal year ended December 31,1998 which reflect the assets,
liabilities, net worth, profit and loss, and cash flow of the Company with
respect to the Business. All financial statements referred to herein are
complete and correct in all material respects, present fairly the financial
condition and results of operations of the Company as at the dates of such
statements, have been prepared in accordance with generally accepted accounting
principles meeting the requirements for submission to the Securities and
Exchange Commission and have been audited and certified by an accounting firm
qualified for such submission. The books of account and records of the Company
have been maintained in accordance with good business practice and reflect
fairly all properties, assets, liabilities and transactions of the Company. The
Company has no material liabilities or obligations of any kind (whether accrued,
absolute, direct, indirect, contingent or otherwise) which are not fully accrued
or reserved against in the Company's financial statements in accordance with
generally accepted accounting principles except obligations to perform after
December 31, 1998, under open sales contracts, supply contracts, purchase orders
and other commitments, incurred in the ordinary course of business and set forth
in the Business Agreements, and except for obligations reasonably incurred in
connection with this Agreement and the consummation of the transactions
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<PAGE> 7
contemplated hereby. Except as set forth on Exhibit I the Company has no bad
debts as of the Closing Date. Since the last day of the Company's last fiscal
year, the Company has conducted the Business only in the ordinary and usual
course and has not experienced any material adverse change in the Business or
the financial condition of the Company. Since December 31, 1998, the Company has
had no loss in net monthly recurring revenue from the Business except as
incurred as a result of the Brazilian currency devaluation which the Company
represents is approximately $10,000 for the month of January 1999. Between
December 31, 1998 and the Closing Date, the Company and the Shareholders warrant
and represent that they have not withdrawn, sold, assigned or transferred any
assets of the Company (other than cash), except in the ordinary course of
operations of the Business of the Company in accordance with past practices of
the Company.
(D) Assumed Liabilities. The Buyer shall not be liable for and is
not assuming any liabilities of the Company whatsoever, whether related or
unrelated to the Purchased Assets, or whether arising under the Business
Agreements or otherwise, unless specifically listed on Exhibit J hereto (the
"Assumed Liabilities"). The Company and the Shareholders understand and agree
that the Buyer is not assuming any liabilities of the Shareholders whatsoever.
The Company has no outstanding loans of any kind and none of the Company's
obligations have been guaranteed by any other person or entity.
(E) Existing Employment Arrangements. Except as set forth on Exhibit
K the Company has no employment agreements, labor or collective bargaining
agreements or employee benefit or welfare plans. All vacation pay, if any, due
to employees of the Company has been fully paid by the Company. No employees of
the Company are entitled to any sick pay. The Company has no retirement plans.
There are no pending or, to the knowledge of the Company, threatened strikes,
job actions or other labor disputes affecting the Company or its employees and
there have been no such disputes for the past three years, except as set forth
on Exhibit K. Also set forth on Exhibit K is a true and complete list of all
employees of the Company employed in connection with the Business, which list
provides, among other things, the name, residence address, title, job
description and salary information concerning each employee.
(F) Claims, Litigation, Disclosure. To the best of their knowledge,
after due inquiry, there is no claim, litigation, tax audit, proceeding or
investigation pending or, to the Company's or the Shareholders' knowledge,
threatened against the Company or any of the Shareholders, with respect to the
Business or any of the Purchased Assets of the Company (including, without
limitation, any claims of infringement or actions of opposition with respect to
Intellectual Property), nor does the Company nor the Shareholders know of any
facts which would provide a basis for any such claim, litigation, audit,
proceeding or investigation. To the best of their knowledge, the Order issued by
the United States District Court for the Northern District of Ohio, Eastern
Division, in the case of Nettis Environmental Ltd. v. IWI, Inc., et al., Case
No. 1:98CV 2549, has been fully complied with as it relates to the Company.
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<PAGE> 8
(G) Taxes. Except as specifically set forth on Exhibit I (the "Tax
Liabilities"), the Company has correctly prepared and timely filed all Federal,
state and local tax returns, estimates and reports, and paid all such taxes as
and when due for all such taxes arising from or in connection with the
operations of the business of the Company prior to the Closing. For purposes of
this paragraph, taxes shall mean all taxes, charges, fees, levies or other
assessments of any kind whatsoever (including, without limitation, income,
franchise, sales, use, employment and withholding taxes). On or before the
Closing, the Company shall pay off and satisfy any of the Tax Liabilities which
are then due and payable or payable for the period ending on the Closing Date
whether or not then due, and provide Buyer with evidence thereof in form
satisfactory to Buyer and its counsel. The Company is not a party to any tax
sharing agreement.
(H) No Other Agreements to Sell Assets or Business. Neither the
Company nor the Shareholders are not a party to any existing agreement which
obligates the Company or the Shareholders to sell to any other person or firm
the Purchased Assets (other than sales in the ordinary course of business), to
issue or sell any capital stock or any security convertible into or exchangeable
for capital stock of the Company or to effect any merger, consolidation or other
reorganization of the Company or to enter into any agreement with respect
thereto.
(I) No Brokers. The only broker, leasing agent, finder or similar
person or entity with whom the Company or the Shareholders have made contact or
had any dealings with or entered into any agreement, arrangement or
understanding with concerning this Agreement or the transactions contemplated is
the party or parties listed in item 6 on Exhibit A, if any, and the Company and
the Shareholders shall be solely responsible for any finder's fee, brokerage
commissions or similar payment which may be due to such party or parties, which
payment shall be made on or about the time of Closing.
(J) Environmental Compliance. (i) To the best of their knowledge,
neither the Company nor any operator of the Company's properties is in
violation, or alleged to be in violation, of any federal, state or local
judgment, decree, order, consent agreement, law (including common law), license,
rule or regulation pertaining to environmental health or safety matters,
including without limitation those arising under the Resource Conservation and
Recovery Act, as amended, the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986, as amended, Water Act, as amended, the Federal
Clean Air Act, as amended, the Toxic Substances Control Act, or any state or
local analogue (hereinafter "Environmental Laws").
(ii) Neither the Company nor the Shareholders have received a
notice, complaint, order, directive, claim or citation from any third party,
including without limitation any federal, state or local governmental authority,
indicating or alleging that the Company or any predecessor may have any
liability or obligation under any Environmental Law.
(iii) To the best of their knowledge: (A) No portion of the
property of the Company has been used by any person for the generation,
handling, processing, treatment,
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<PAGE> 9
storage or disposal of Hazardous Materials except in accordance with applicable
Environmental Laws; (B) no underground tank or other underground storage
receptacle for Hazardous Materials, asbestos-containing materials or
polychlorinated biphenyls are located on any portion of any location occupied by
the Company each of which is listed as a Site on Exhibit A; (C) in the course of
any activities conducted by the Company or its invitees, agents, contractors,
licensees or employees in connection with the Business of the Company, no
Hazardous Materials have been generated or are being used except in accordance
with applicable Environmental Laws; and (D) there have been no releases (i.e.,
any past or present releasing, spilling, leaking, leaching, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, disposing or dumping) or
threatened releases of Hazardous Materials on, upon, into or from the property
currently or formerly owned, operated or leased by the Company, which releases
would have a material adverse effect on the value of any of the property or
adjacent properties or the environment.
(iv) To the best of their knowledge, the execution, delivery
and performance of this Agreement is not subject to any Environmental Laws which
condition, restrict or prohibit the sale, lease or other transfer of property or
operations, including, without limitation, any so-called "environmental cleanup
responsibility acts" or requirements for the transfer of permits, approvals, or
licenses. There have been no environmentally related audits, studies, reports,
analyses (including soil and groundwater analyses), or investigations of any
kind performed with respect to the currently or previously owned, leased, or
operated properties of the Company.
For purposes of this Section, "Hazardous Material" shall mean any
hazardous waste, as defined by 42 U.S.C. Sec. 6903(5), any hazardous
substances or wastes as defined by 42 U.S.C. Sec. 9601(14), any pollutant or
contaminant as defined by 42 U.S.C. Sec. 9601(33) or any toxic substances or
wastes, oil or hazardous materials or other chemicals or substances regulated
by any public or governmental authority.
(K) Year 2000. Except as set forth on Exhibit J-1, all information
technology included in the Purchased Assets including, without limitation, in
all products and services (i) provided by the Business, whether to third parties
or for internal use or (ii) to the best of the Company's knowledge after
reasonable investigation, used in combination with any information technology of
its clients, customers, suppliers or vendors, accurately processes or will
process date and time data (including, but not limited to calculating, comparing
and sequencing) from, into and between the years 1999 and 2000 and the twentieth
century and the twenty-first century, including leap year calculations and
neither performance nor functionality of such technology will be affected by
dates prior to, during and after the year 2000. The Purchased Assets do not
include any obligations under warranty agreements, service agreements or
otherwise to remedy any information technology defect relating to the year 2000.
(L) Licenses and Compliance with Laws. The Company holds no material
governmental or regulatory licenses, permits, consents or approvals in
connection with the Business, and, to the best of the Company's and its
shareholders' knowledge, after due inquiry, the Company is in compliance with
all material laws and regulations applicable to the Business.
(M) Common Stock. The Company acknowledges that it has received and
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<PAGE> 10
reviewed the Confidential Memorandum dated March 12, 1998, as amended through
January 31, 1999 (the "Offering") describing the offering by Parent of up to
4,800,000 shares of its common stock, $.01 par value ("Common Stock"), to
persons or entities who sell Web hosting businesses to Parent or its affiliates.
The Company understands that the Common Stock to be issued by parent to the
Company hereunder as part of the Purchase Price shall be subject to the terms of
the Offering, including without limitation, that the Common Stock will be issued
subject to a Right of First Refusal Agreement, the form of which is annexed as
an exhibit to the Offering.
(N) True and Complete. No representation or warranty made by Company
or the Shareholders in this Agreement, nor any statement, certificate or exhibit
furnished by or on behalf of Company pursuant to this Agreement, nor any
document or certificate delivered to Buyer pursuant to this Agreement, or in
connection with the transactions contemplated hereby, contains or shall contain
any untrue statement of a material fact, or omits or shall omit to state a
material fact necessary to make the statements contained therein not misleading.
Neither the Company nor the Shareholders have failed to disclose to Buyer any
pending developments or circumstances of which any of them are aware which are
reasonably likely to have a material adverse effect on the Company or the
Business.
SECTION 3. REPRESENTATIONS OF THE BUYER AND THE PARENT. Buyer and
Parent represent and warrant to the Company as follows.
(A) Corporate Matters; No Conflict. Buyer is a wholly owned
subsidiary of Sage Networks, Inc. ("Parent"). Each of the Buyer and Parent is
duly incorporated, validly existing and in good standing under the laws of the
State of Maryland and Delaware, respectively, is in good standing in each other
jurisdiction in which it is doing business, except where failure to be in good
standing would not have a material adverse effect on the business of Buyer or
Parent, and has the corporate power to enter into this Agreement, to perform its
obligations hereunder and to conduct its business as currently conducted. The
execution, delivery and performance of this Agreement and the transactions
contemplated hereby (and thereby) by the Buyer and Parent, respectively, will
not (a) conflict with or violate the provisions of any applicable law, rule or
order or the Buyer's or the Parent's respective Certificate of Incorporation or
by-laws, (b) conflict with or constitute a default under any agreement or
contract by which the Buyer or Parent is bound or (c) require the consent or
approval of, or filing with, any governmental body or third party. The
execution, delivery and performance by the Buyer of this Agreement has been
authorized and approved by all requisite corporate action on the part of the
Buyer.
(B) Authorization of Common Stock. The issuance and delivery by
Parent of the Common Stock has been authorized and approved by all requisite
corporate action on the part of Parent. Upon issuance and delivery to the
Company or its designee(s) in accordance with the first paragraph of this
Agreement, the Common Stock will be duly authorized, validly issued, fully paid
and non-assessable.
(C) No Brokers. The only broker, leasing agent, finder or similar
person or entity with whom the Buyer or Parent have made contact or had dealings
with or entered into any agreement, arrangement or understanding with concerning
this Agreement or the transactions contemplated hereunder is the party or
parties listed in item 7 on Exhibit A, if any, and the Buyer and Parent shall be
solely responsible for any finder's fee, brokerage commissions or similar
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<PAGE> 11
payment which may be due to such party or parties, which payment shall be made
on or about the time of Closing.
(D) Stock Ownership; Title; and Status. (i) Parent has as of the
date hereof, good and marketable title to the Common Stock, free and clear of
all claims, liens and encumbrances, except that the Common Stock is subject to
the terms of the Articles of Incorporation of the Parent, the Offering and the
Right of First Refusal Agreement referenced in Article III Section 2(Q) hereof.
The Parent has full legal right, power and authority to sell, assign and
transfer the Common Stock to the Company.
(E) Claims, Litigation, Disclosure. To the best of the knowledge of
the Buyer and Parent, after due inquiry, there is no claim, litigation, tax
audit, proceeding or investigation pending or, to the Buyer's or Parent's
knowledge, threatened against the Buyer or Parent, nor does the Buyer or Parent
know of any facts which would provide a basis for any such claim, litigation,
audit, proceeding or investigation.
(F) True and Complete. No representation or warranty made by Buyer
or Parent in this Agreement, nor any statement, certificate or exhibit furnished
by or on behalf of Buyer or Parent pursuant to this Agreement, nor any document
or certificate delivered to the Company pursuant to this Agreement, or in
connection with the transactions contemplated hereby, contains or shall contain
any untrue statement of a material fact, or omits or shall omit to state a
material fact necessary to make the statements contained therein not misleading.
Neither the Buyer nor Parent have failed to disclose to the Company any pending
developments or circumstances of which any of them are aware which are
reasonably likely to have a material adverse effect on the Buyer or Parent.
(G) Registration Rights. Parent has not issued any registration
rights or "piggy-back" registration rights to any sellers of businesses acquired
by Parent to whom its common stock, issued under the Offering, was given as
partial or full consideration for such acquisition.
ARTICLE II.
CERTAIN COVENANTS OF THE PARTIES
SECTION 1. NON-COMPETITION; NON-SOLICITATION.
(A) For a period commencing on the Closing Date and ending on the
second anniversary of the Closing Date, neither the Company nor any of the
Shareholders shall, directly or indirectly, engage in any capacity in any
Internet Web hosting business in any state in the United States or throughout
the world which is similar to and/or in competition with the Business or the
business of Buyer or Parent or their respective affiliates.
(B) The Company and the Shareholders understand that pursuant to
this Agreement they have received confidential and proprietary information of
Buyer and Parent, including, without limitation, information contained in the
Offering and other trade secrets. Neither the Company nor the Shareholders, nor
any of its officers, directors, employees, agents
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<PAGE> 12
or contractors who received or learned of such confidential and proprietary
information shall at any time, either before or after the Closing Date, disclose
to any third party any such confidential or proprietary information of Buyer or
make use of any of such information except in evaluating whether to enter into
this Agreement. In connection with such evaluation, the Company and the
Shareholders may disclose such proprietary information to their legal and
financial consultants on a need to know basis on the condition that those
consultants are similarly prohibited from further disclosing such information as
provided herein.
(C) For a period commencing on the Closing Date and ending on the
second anniversary of the Closing Date, neither the Company, nor any of the
Shareholders, unless acting with the express written consent of the Buyer or
Parent, will, directly or indirectly, interfere with, solicit or endeavor to
entice away:
(i) any person who was an employee, subcontractor or
consultant of the Company, the Buyer, the Parent or any of their affiliates
during the twelve months immediately preceding the date of such solicitation,
interference or endeavor,
(ii) with respect to any Internet Web hosting business similar
to or in competition with the Business in which the Company, Buyer, Parent, or
any of their affiliates is or has been engaged on or after the date of this
Agreement (and in the case of Chung only, and during the "Agreement Term" as
defined in his Employment Agreement with Buyer), any person or entity who was or
is a customer or client of the Company or of the Buyer or of the Parent, or
their respective affiliates, or any person or entity who requested or received a
proposal from Buyer, Parent or the Company, or their respective affiliates.
THE COMPANY AND THE SHAREHOLDERS, AND EACH OF THEM, EXPRESSLY
ACKNOWLEDGES, UNDERSTANDS AND AGREES (i) THAT REMEDIES AT LAW FOR ANY BREACH OF
THIS ARTICLE II, SECTION 1 WILL BE INADEQUATE, (ii) THAT THE DAMAGES RESULTING
FROM SUCH BREACH ARE NOT READILY SUSCEPTIBLE TO MEASUREMENT IN MONETARY TERMS
AND (iii) THAT BUYER AND/OR PARENT SHALL BE ENTITLED TO IMMEDIATE INJUNCTIVE
RELIEF AND MAY OBTAIN TEMPORARY AND PERMANENT ORDERS RESTRAINING ANY THREATENED
OR FURTHER BREACH OF THIS ARTICLE II, SECTION 1 BY THE COMPANY AND/OR THE
SHAREHOLDERS. THE COMPANY AND THE SHAREHOLDERS HAVE BEEN ADVISED BY THEIR
RESPECTIVE COUNSEL WITH RESPECT TO THE MEANING AND EFFECT OF THIS ARTICLE II,
SECTION 1.
SECTION 2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION.
(A) The representations and warranties of the parties herein
contained shall survive the closing of the purchase contemplated by this
Agreement, notwithstanding any investigation at any time made by or on behalf of
the other party, provided that any claims for indemnification in accordance with
Article II, Section 2 below with respect to any representation
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<PAGE> 13
or warranty must be made (and will be null and void unless made) on or before
the date eighteen (18) months following the Closing Date (except in the case of
representations contained in Paragraphs (B)(vi), (G), (I) and (J) of Article I,
Section 2 hereof, which must be made within six (6) months following the
expiration of the applicable statute of limitations).
(B) The Company and the Shareholders, jointly and severally, hereby
agree to indemnify and hold Buyer, Parent, and their respective officers,
directors, stockholders, affiliates, employees, representatives and other agents
harmless from and against any and all claims, liabilities, losses, damages or
injuries, together with costs and expenses, including reasonable legal fees,
arising out of or resulting from (i) any breach, misrepresentation or material
omission of the representations and warranties made by the Company and/or the
Shareholders in this Agreement or in any Exhibit hereto or other documents
delivered in connection herewith, (ii) any breach in any material respect by the
Company and/or the Shareholders, or any of them, unless waived in writing by the
Buyer, of any covenant or agreement contained in or arising out of this
Agreement, or any other agreement delivered in connection herewith on the
Closing Date, including without limitation, the Employment Agreement to be
entered into at the Closing between Chung and Parent, (iii) the Business
conducted by the Company prior to the Closing Date and any actions or events
associated therewith, (iv) any and all liabilities of the Company, other than
the Assumed Liabilities, and (v) any failure by the Shareholders or the Company
to comply with any provisions of the bulk sales or similar laws of any
jurisdiction which are applicable to this Agreement or the transactions
contemplated hereby.
Notwithstanding the foregoing, neither Shareholder shall be
responsible for more than his or her pro rata share of such liability based on
their respective stock ownership of the Company as of the Closing as set forth
on Exhibit A hereto. The obligations of the Company and the Shareholders
pursuant to this Paragraph (B) of this Section shall be limited to an aggregate
amount not in excess of the Purchase Price. Neither the Buyer nor the Parent
shall make any claim hereunder unless and until the aggregate amount of such
claim exceeds $25,000; provided, however, that if the aggregate amount of claims
by the Buyer or the Parent exceeds $25,000, the obligations of the Company and
Shareholders hereunder shall be with respect to the entire amount of such
claims.
(C) Buyer and Parent hereby agree to indemnify and hold the Company
and the Shareholders harmless from and against any and all claims, liabilities,
losses, damages or injuries, together with costs and expenses, including
reasonable legal fees, arising out of or resulting from (i) any breach,
misrepresentation or material omission in the representations and warranties
made by the Buyer and/or Parent in this Agreement, (ii) any breach in any
material respect by Buyer and/or Parent, unless waived in writing by the
Company, of any covenant or agreement of Buyer and/or Parent contained in or
arising out of this Agreement, or (iii) the Business as conducted by Buyer
and/or Parent, after the Closing Date.
(D) Any party claiming a right to indemnification hereunder (the
"Indemnified Party") shall give the other party from whom indemnification is
sought (the "Indemnifying Party") prompt written notice of any claim, demand,
action, suit, proceeding or discovery of fact upon which the Indemnified Party
intends to base a claim for indemnification under this Section
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<PAGE> 14
2, provided, however, that no failure to give such notice shall excuse any
Indemnifying Party from any obligation hereunder except to the extent the
Indemnifying Party is materially prejudiced by such failure. The Indemnified
Party shall have full responsibility and authority with respect to the
disposition of any action, suit or proceeding brought against it; provided,
however, that it will not settle any such action, suit or proceeding without the
prior written consent of the Indemnifying Party, which will not be unreasonably
withheld or delayed. In the event any action, suit or proceeding is brought
against the Indemnified Party with respect to which the Indemnifying Party may
have liability under the indemnity agreements contained in Paragraphs (B) and
(C) of Article II, Section 2 hereof, the Indemnifying Party shall have the
right, without prejudice to the Indemnified Party's rights under this Agreement,
at the Indemnifying Party's sole expense, to be represented by counsel of its
own choosing and with whom counsel for the Indemnified Party shall confer in
connection with the defense of any such action, suit, or proceeding. The
Indemnified Party shall make available to the Indemnifying Party and its counsel
and accountants, all books and records of the Indemnified Party relating to such
action, suit or proceeding and the parties agree to render to each other such
assistance as may reasonably be requested in order to insure the proper and
adequate defense of any such action, suit or proceeding.
(E) On the Closing Date, one hundred twenty thousand (120,000) of
the four hundred fifty thousand (450,000) shares of the Common Stock which is
part of the Purchase Price (the "Escrowed Amount") shall be delivered to the
escrow agent listed on Exhibit A (the "Escrow Agent") to be held in escrow in
accordance with the terms of a separate escrow agreement to be entered into
between the parties (the "Indemnity Escrow Agreement") on or prior to the
Closing Date. The Escrowed Amount will be held in escrow by the Escrow Agent as
security for any indemnification obligation of the Company and the Shareholders,
or any of them, to Buyer pursuant to the terms of Article II, Section 2,
Paragraph (B) of this Agreement. Indemnity claims by Buyer pursuant to said
Paragraph (B) shall be satisfied first by the reduction of the Escrowed Amount
until the termination of the Indemnity Escrow Agreement and thereafter by the
Company and the Shareholders, jointly and severally. The Escrowed Amount does
not constitute a limit on the liability of the Company and the Shareholders to
Buyer hereunder, it being understood and agreed that the Company and each of the
Shareholders, shall remain jointly and severally liable to satisfy the amount of
such claims which exceed the Escrowed Amount. The Escrowed Amount shall be held
by the Escrow Agent pursuant to the terms of the Indemnity Escrow Agreement
which shall be agreed upon and entered into by the Escrow Agent, the Company,
the Shareholders and Buyer on or before the Closing Date. Among other things,
the Indemnity Escrow Agreement will provide that on March 31, 2000, the Escrow
Agent shall deliver to the Company or its designee the Common Stock then being
held by the Escrow Agent, if any, as has not previously been applied pursuant to
the terms of said Indemnity Escrow Agreement, unless an indemnification claim by
Buyer against the Company and/or the Shareholders is then pending.
SECTION 3. AUDIT FEES. If, as and when the Closing occurs, Buyer
will pay 50% of the accounting fees incurred by the Company in obtaining the
audited financial statements described in Article I, Section 2(C), in excess of
$40,000, inclusive of fees paid to Tai Sung, CPA and Urbach, Kahn & Worlin.
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<PAGE> 15
SECTION 4. COMPLIANCE WITH '34 ACT. If, as and when Parent closes on
an initial public offering of its common stock, Parent shall make all required
filings under the Securities and Exchange Act of 1934 with respect to the Common
Stock.
ARTICLE III
CLOSING AND DELIVERIES AT CLOSING
SECTION 1. CLOSING. The closing of the purchase and sale of the
transaction contemplated herein shall take place on February 4, 1999 (the
"Closing"), at the offices of Buyer's counsel, McCarthy, Fingar, Donovan, Drazen
and Smith, L.L.P., located at 11 Martine Avenue, 12th Floor, White Plains, NY
10606-1934 at 10:00 a.m. The deliveries described in Section 2 and 3 of this
Article III will take place at the Closing.
SECTION 2. DELIVERIES BY THE COMPANY AND THE SHAREHOLDERS. On the
Closing Date, the Company and the Shareholders will deliver, or cause to be
delivered, to the Buyer the following:
(A) Such instruments of assignment, transfer and/or conveyance
executed by the Company, and the Shareholder where applicable, as Buyer may
reasonably request in order to assign, convey and transfer to Buyer good and
marketable title to all of the Purchased Assets, free and clear of all liens,
claims, encumbrances and other charges, including, without limitation, a Bill of
Sale.
(B) Physical delivery of all Tangible Assets by making them
available at the Sites listed on Exhibit A, together with any and all
warranties, manuals, instructions, and other literature in the possession of the
Company or the Shareholders relating to the ownership or operation of the
Tangible Assets. In addition, such notices to telephone companies and others
required to transfer the Company's telephone and facsimile numbers, e-mail
addresses and domain addresses, used in the Business to Buyer and physical
delivery of all books, files and records concerning the Purchased Assets.
(C) Physical delivery of all original or certified copies of
documentation concerning the Intellectual Property, including, without
limitation, registrations and applications of any patents, trademarks or service
marks, original artwork, data bases, computer programs and software.
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<PAGE> 16
(D) The following corporate documentation:
(i) The Company's Articles or Certificate of Incorporation
certified as of a date within thirty (30) days prior to the Closing Date by the
Secretary of State of the state of the Company's organization;
(ii) Good Standing Certificates as of date within thirty (30)
days prior to the Closing Date from the Secretary of State of the state of the
Company's organization and each other state in which the Company is qualified to
do business;
(iii) The Company's By-Laws certified as of the Closing Date
by the President or Secretary of the Company as being in full force and effect
and unmodified; and
(iv) Corporate Resolutions of the Company's Board of Directors
and the Shareholders (if required by the Company's By-Law's or applicable law),
approving this Agreement and all the transactions contemplated hereby, certified
by the President or Secretary of the Company as being in full force and effect
and unmodified.
(E) The legal opinions of counsel to the Company and the
Shareholders, in a form acceptable to Buyer and its counsel.
(F) Evidence in form satisfactory to Buyer and its counsel that the
Tax Liabilities, if any, have been paid off and satisfied.
(G) The Indemnity Escrow Agreement duly executed by the Company and
the Revenue Shortfall Escrow Agreement executed by the Company and Chung.
(H) A copy of the Certificate of Amendment duly executed by the
President and Secretary of the Company which is to be filed in the Secretary of
State's Office for the State of the Company's incorporation pursuant to Article
I, Section 2, Paragraph (B) (iii) hereof.
(I) Copies of written proof in form and substance satisfactory to
Buyer and its counsel that the Company will no longer do business under any of
the trade names listed on Exhibit B as required pursuant to Article I, Section
2, Paragraph (B) (iii) hereof.
(J) The Company and the Shareholders shall use their reasonable best
efforts to deliver, in a timely fashion after the Closing, a Non-Disclosure and
Intellectual Property Agreement in a form to be provided by Buyer, executed by
each employee of the Company who will be employed by Buyer or its affiliate
after the Closing.
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<PAGE> 17
(K) Notices of termination of all employees of the Company employed
in connection with Business satisfactory to Buyer, which notices will be
delivered to the employees at such time as Buyer determines which employees to
retain.
(L) An employment agreement between Chung and Buyer ("Employment
Agreement") executed by Chung.
(M) Assignment and Assumption of Lease for the site listed on
Exhibit A.
(N) Keys to all entrances and possession of the Site listed on
Exhibit A.
(O) Estoppel Certificate and Consent to Assignment concerning the
Lease for the site listed on Exhibit A executed by Landlord and the Company.
(P) A Subscription Agreement duly executed by the Company covering
the issuance of the Common Stock (the "Subscription Agreement"), substantially
in the form as annexed to the Offering.
(Q) A Right of First Refusal Agreement duly executed by the Company
limiting the right of the Company to transfer the Common Stock (the "Right of
First Refusal Agreement"), substantially in the form as annexed to the Offering.
(R) Such notice or notices as Buyer may reasonably request in order
to notify the customers included on the Customer List that the Business has been
sold to Buyer.
(P) Consent to a press release in form satisfactory to the Company
and Buyer relating to this Agreement and the transactions contemplated hereby.
(Q) Stock Power executed in blank by the Company for the shares of
Common Stock to be held by the Escrow Agent.
(R) Trademark Assignment executed by the Company.
SECTION 3. DELIVERIES BY THE BUYER.
On the Closing Date, the Buyer will deliver, or cause to be
delivered, to the Company and the Shareholder the following:
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<PAGE> 18
(A) The Purchase Price by delivery of certificates for the four
hundred fifty thousand (450,000) shares of Common Stock and Four Million Nine
Hundred Eighty-four Thousand Five Hundred Sixteen Dollars ($4,984,516) as
calculated on Exhibit A hereto, by cash, or certified or official bank check
payable to the order of the Company, or by wire transfer of federal funds to the
account of the Company, as the Company and Shareholder shall direct in writing
on or before the Closing Date; provided, however, Buyer may, upon written
agreement of all parties hereto, deduct from the cash portion of the Purchase
Price and pay directly amounts due any creditor of the Company, including,
without limitation, the Tax Liabilities (but excluding any amounts due for any
of the Assumed Liabilities), in which event, evidence of such payment shall be
presented at the Closing. Notwithstanding the foregoing, one hundred twenty
thousand (120,000) of the four hundred fifty thousand (450,000) shares of Common
Stock shall be delivered to the Escrow Agent to be held in accordance with the
terms of the Indemnity Escrow Agreement, and one hundred fifty thousand
(150,000) shares of Common Stock shall be delivered to the Escrow Agent to be
held in accordance with the terms of the Revenue Shortfall Escrow Agreement.
(B) Such instruments of assignment and assumption executed by the
Buyer, as the parties hereto reasonably may determine necessary to effectuate
the assignment to the Buyer of the Business Agreements and the assumption by
Buyer of the Assumed Liabilities.
(C) The Indemnity Escrow Agreement and the Revenue Shortfall Escrow
Agreement, each duly executed by the Buyer and the Escrow Agent.
(D) The Employment Agreement executed by Buyer.
(E) Resolution of the Board of Directors of Buyer and Parent,
authorizing the execution of this Agreement and other documents contemplated
hereby and the transactions contemplated hereby.
(F) Certificates issued by Parent to the Company or its designee,
representing the Common Stock for that portion of the Purchase Price to be paid
in Common Stock, which certificate shall be properly legended to reflect that
the Common Stock represented thereby has not been registered under the
Securities Act of 1933, as amended, and are subject to the terms of the Right of
First Refusal Agreement.
(G) The Right of First Refusal Agreement duly executed by Parent.
(H) The Subscription Agreement duly executed by Parent.
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<PAGE> 19
(I) Articles of Incorporation of Buyer and Parent, together with any
amendments thereto through the Closing Date; copy of a Good Standing Certificate
as of a date within sixty (60) days prior to Closing from the Secretary of State
of Delaware; and a filing receipt from the Secretary of State of Maryland of
Buyer, evidencing that Buyer was duly organized under the laws of the State of
Maryland within thirty (30) days prior to the Closing.
(J) The By-Laws of Buyer and Parent certified as of the Closing Date
by their respective President or Secretary as being in full force and effect and
unmodified.
(K) Legal Opinion of Counsel to Buyer and Parent.
ARTICLE IV
OBLIGATIONS FOLLOWING CLOSING
SECTION 1. FURTHER COOPERATION. The Company and the Shareholders
will, at any time and from time to time after the Closing Date, execute and
deliver such further instruments of conveyance, transfer and license, and take
such additional actions as Buyer, Parent or its successor and/or assigns, may
reasonably request, to effect, consummate, confirm or evidence the transfer to
Buyer of the Purchased Assets pursuant to this Agreement.
SECTION 2. TRANSITION ASSISTANCE AND ADJUSTMENTS.
(A) The Company shall reasonably cooperate and provide assistance to
the Buyer as shall be reasonably appropriate during the transition of the
Business and the Purchased Assets from the Company to the Buyer, or its
successors and/or assigns, after the Closing Date. All assistance shall be made
promptly when available after any request by Buyer.
(B) Buyer and its successors and/or assigns shall have the right at
any time and from time to time upon reasonable notice and during normal business
hours to examine and make copies of all corporate books, records and other
documents of the Company relating to the Business and generated prior to the
Closing Date, which documents will be maintained by the Company and the
Shareholders for a period of three (3) years after the Closing Date.
(C) The Company and the Shareholders will reasonably cooperate with
Buyer in notifying the customers included on the Customer List that the Business
has been sold to Buyer, including, without limitation, executing any additional
notices after the Closing which Buyer may reasonably request. Neither the
Company nor the Shareholders will, directly or
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<PAGE> 20
indirectly, take any action which is designed or intended to have the effect of
discouraging customers, suppliers or vendors and other business associates of
the Business, from maintaining the same business relationships with Buyer or its
successors and/or assigns after the Closing Date as were maintained with the
Company and/or the Shareholders with respect to the Business prior to the
Closing Date.
(D) Following the Closing, the Company and the Shareholders or any
affiliate of the Company (as defined under federal securities laws), shall not
use the name "Digiweb" or any confusingly similar name to said trade name in any
trade or business, other than as an employee of Buyer or an affiliate of Buyer.
(E) Following the Closing, the Buyer will collect the accounts
receivable of the Company existing as of the Closing Date, and will remit all
collections to the Company without deducting a fee. Notwithstanding the
foregoing, if more than ordinary course of business efforts are required to
collect any accounts receivable over 90 days, Buyer may, with the prior approval
of the Company, expend such additional efforts and retain a fee equal to 25% of
the collections on such accounts. The Company agrees not to contact any
customers to whom the accounts receivable relate without the prior written
consent of Buyer. During the first 60 days after the Closing, receivables
collected with respect to a Customer shall first be applied to the Company's
receivables for that Customer only to the extent the Company's receivables with
respect to such Customer were less than 60 days old as of the Closing, next the
balance of such amount collected from such Customer, if any, shall be retained
by Buyer to be applied against receivables of such Customer arising after the
Closing, and then the balance remaining, if an, will be delivered to the Company
to be applied against any receivable of that Customer which was greater than 60
days old as of the Closing. All other receivables collected with respect to a
Customer shall, to the extent the Buyer has receivables with respect to such
Customer, first be applied against Buyer's receivables for that Customer and the
balance of such amount collected, if any, shall be applied to the Company's
outstanding receivables from such Customer.
(F) If Buyer or Parent determine that any additional audited
financial statements of the Company are required for any period prior to
Closing, the Company and Shareholders shall reasonably cooperate and provide
assistance in connection with the preparation and audits of such financial
statements of the Company conducted by Buyer and/or Parent after the Closing,
including, without limitation, making Company's internal accounting and auditing
personnel, as well as its external accounting personnel, available to Buyer, its
affiliate and/or its auditors upon request. The expense of any such audit shall
be paid by Buyer.
(G) Within thirty (30) days after the Closing Date, the parties will
make a determination of (i) the actual Deferred Revenue on an accrual basis as
at the Closing Date; and (ii) the Expenses allocable to periods prior to and
subsequent to the Closing Date. An adjustment shall be made between the parties
to the extent the Closing Date amount of the Deferred Revenue and Expenses is
more or less than the respective actual amounts thereof computed after the
Closing. The aforesaid adjustments shall be netted and the party owing the
netted amount shall
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<PAGE> 21
make payment to the other party of said amount within ten (10) days of such
agreed upon calculation.
ARTICLE V
MISCELLANEOUS
SECTION 1. GOVERNING LAW; JURISDICTION. This Agreement shall be
governed by the laws of the State of New York. The parties hereto submit and
consent to the exclusive jurisdiction of the state courts of the State of New
York in the Counties of New York and Westchester and the federal courts located
therein with respect to any legal actions relating to this Agreement, or any
other agreements delivered in connection herewith, between the Company and/or
the Shareholders, on the one hand, and the Buyer and/or Parent, on the other
hand, and any transactions contemplated thereby.
SECTION 2. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
SECTION 3. CONFIDENTIALITY. The Company and the Shareholders, on the
one hand, and the Buyer and Parent, on the other hand, each agree not to
disclose or use any information acquired by it about the other party during the
course of the negotiations of this Agreement and the transactions to which it
relates which is confidential in nature or not otherwise generally available to
the public without the prior written consent of such other party unless required
to do so by applicable law or by order of a court of competent jurisdiction.
Each party shall be liable for any breach by its respective employees, officers,
directives, shareholders, agents and/or contractors of the provisions of this
Section.
SECTION 4. AMENDMENTS. This Agreement supersedes any prior contracts
relating to the subject matter hereof between the Buyer, Parent, the Company and
the Shareholders. This Agreement cannot be changed, modified or amended and no
provision or requirement hereof may be waived without the consent in writing of
the parties hereto.
SECTION 5. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect. Each provision of this Agreement shall be
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<PAGE> 22
deemed to be the agreement of the parties hereto to the full extent that the
power to enter into such provisions shall have been conferred on the parties by
law.
SECTION 6. BENEFIT; ASSIGNMENT. This Agreement is binding upon and
inures to the benefit of the parties, their successors and permitted assigns.
This Agreement may not be assigned or the duties of the parties hereunder
delegated to others without the prior written consent of all parties hereto,
except that Buyer may assign its rights, duties and obligations hereunder to
Parent or an affiliate of Buyer or Parent without the Company's or the
Shareholders' consent.
SECTION 7. CONSTRUCTION. All exhibits annexed hereto are hereby
incorporated herein by reference and made a part of this Agreement. Whenever
used in this Agreement and the context so requires, the singular shall include
the plural and the plural shall include the singular.
SECTION 8. IMPUTED KNOWLEDGE. Anywhere in this Agreement where it
refers to the "knowledge of" the Company, or words of similar import, the
knowledge of any and all of the Shareholders shall be imputed to be the
knowledge of the Company. Anywhere in this Agreement where it refers to the
"knowledge of" the Buyer or the Parent, or words of similar import, the
knowledge of Leonard J. Fassler and Francis J. Alfano shall be imputed to be the
knowledge of the Buyer and the Parent, respectively.
SECTION 9. NOTICE. Any notice required or permitted to be given
hereunder shall be in writing and shall be deemed to have been duly given if
delivered or mailed by registered mail, postage prepaid: if to the Company at
its address set forth on the first page hereof, with a copy to Amy Mower, Esq.,
Cameron & Mittleman LLP, 56 Exchange Terrace, Providence, Rhode Island 02903, or
at such other address as the Company or any of the Shareholders shall designate
by notice to Buyer, and if to Buyer or Parent at 215 First Street, Cambridge, MA
02142, with a copy to Bruce S. Klein, General Counsel, Sage Networks, Inc., 11
Martine Avenue, 12th Floor, White Plains, NY 10606, or at such other address as
it shall designate by notice to the Company and the Shareholders.
(SIGNATURES APPEAR ON FOLLOWING PAGE)
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<PAGE> 23
[SIGNATURE PAGE OF ASSET PURCHASE AGREEMENT BETWEEN DIGIWEB,
INC. (A MARYLAND CORPORATION), AND DIGIWEB, INC. (A DELAWARE CORPORATION),
DATED AS OF FEBRUARY 4, 1999]
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
DIGIWEB, INC. (a MARYLAND CORPORATION)
By:/s/Leonard J. Fassler
_____________________________________
Leonard J. Fassler, Chairman and Vice President
SAGE NETWORKS, INC., only with respect to
Article I, Sections 3 and Article II, Section
2(C) and Section 3
By:/s/Leonard J. Fassler
_____________________________________
Leonard J. Fassler, Co-Chairman
DIGIWEB, INC. (a DELAWARE CORPORATION)
By: /s/Yi Wen Chung
_____________________________________
Yi Wen Chung, President
SHAREHOLDERS:
/s/ Yi Wen Chung
_____________________________________
Yi Wen Chung, Shareholder
/s/ Diane X. Chen
_________________________________________
Diane X. Chen, Shareholder
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<PAGE> 24
DESCRIPTION OF EXHIBITS:
Exhibit A - Basic Provisions
Exhibit B - Officers; Directors; Trade Names; Jurisdictions
Exhibit C-1 - Forms of Business Agreements with Customers
Exhibit C-2 - Oral Business Agreements; Business Agreements with
Vendor/Service Providers, Resellers, Etc.
Exhibit C-3 - Leases
Exhibit C-4 - Claims or Disputes Under Business Agreements
Exhibit C-5 - Consents to Transfer or Assign Not Obtained
Exhibit D - Accounts Receivable
Exhibit E - Tangible Assets
Exhibit E-1 - Exceptions to Condition of Tangible Assets
Exhibit F - Intellectual Property
Exhibit F-1 - Exceptions to valid and fully paid Licensed Software
Exhibit G - Customer List and Related Information
Exhibit G-1 - Customer Terminations
Exhibit H - Financial Statements
Exhibit I - Bad Debts and Tax Liabilities of the Company
Exhibit J - Assumed Liabilities
Exhibit J-1 - Year 2000 Issues
Exhibit K - Existing Employment Agreements, Labor or Collective
Bargaining Agreements, Employee Benefit or Welfare
Plans, Description of Employees
Exhibit L - Excluded Assets
Exhibit M - Liens; Encumbrances
In accordance with Item 601(b)(2) of Regulation S-K all exhibits other than
Exhibit A have been omitted. The Company hereby agrees to furnish supplementally
a copy of any omitted exhibit to the Commission upon request.
<PAGE> 25
EXHIBIT A
TO
ASSET PURCHASE AGREEMENT
BETWEEN
DIGIWEB, INC. (MARYLAND)
AND
DIGIWEB, INC. (DELAWARE)
BASIC PROVISIONS
1. NAME OF BUYER: Digiweb, Inc. (a Maryland Corporation)
2. NAME OF COMPANY: Digiweb, Inc. (a Delaware Corporation)
(a) NAMES, ADDRESSES AND STOCK OWNERSHIP OF SHAREHOLDERS OF COMPANY:
Name Number of Shares (Type)
---- -----------------------
Yi Wen Chung 700
Diane X. Chen 300
Total Outstanding Shares 1000
(b) STATE OF INCORPORATION of COMPANY: Delaware
(c) AUTHORIZED OFFICERS of the COMPANY: Yi Wen Chung, President
DianeX. Chen, Secretary,
Treasurer and Vice President
(d) ADDRESS OF EACH SITE FROM WHICH THE COMPANY CONDUCTS THE BUSINESS:
4716 Pontiac Street, Suite 206, 304-306 College
Park, MD 20740
3. RESIDENCE ADDRESSES of SHAREHOLDER: Yi Wen Chung
Diane X. Chen
<PAGE> 26
PURCHASE PRICE:
Cash at Closing: (i) $5,000,000; plus
(ii) $53,560.00, representing an amount paid by the Company
prior to the Closing for the capital improvements listed on
the schedule attached hereto which capital improvements are
physically in the Site listed in item 2(d) above on this
Exhibit A; plus
(iii) $14,307.00* for expense adjustments ("Expenses"); less
(iv) $66,351.00* representing the estimated amount for
deferred revenue of the Company as of the Closing ("Deferred
Revenue"); less
(v) $17,000 (Seller's contribution towards capital
improvements).
*Subject to post-closing adjustment in accordance with Article
IV, Section 2(G).
TOTAL CASH: $ 4,984,516
Stock at Closing: 450,000 shares of Common Stock
Ea Parent will pay to the Company an additional amount (the "Earn-Out Amount")
if both (i) the calendar year 1999 audited sales revenue of the Business ("'99
Sales Revenue") is at least $250,000 higher than the 1998 sales revenue of the
Business as stated on the Company's 1998 financial statement annexed hereto as
Exhibit H ("'98 Sales Revenue") and (ii) if the calendar year 1999 earnings of
the Business before interest, taxes, depreciation and amortization ("EBITDA") is
greater than or equal to 30% of the '99 Sales Revenue. In the event both
conditions set forth in clauses "(i)" and "(ii)" of the preceding sentence are
satisfied, then the Earn-Out Amount will be $250,000 if the '99 Sales Revenue is
at least $250,000 but less than $500,000 higher than the '98 Sales Revenue; the
Earn-Out Amount will be $500,000 if the '99 Sales Revenue is at least $500,000
but less than $750,000 higher than the '98 Sales Revenue; the Earn-Out Amount
will be $750,000 if the '99 Sales Revenue is at least $750,000 but less than
$1,000,000 higher than the '98 Sales Revenue; and the Earn-Out Amount will be
$1,000,000 if the '99 Sales Revenue is at least $1,000,000 higher than the '98
Sales Revenue. The Earn-Out Amount, if earned as provided above, will be paid to
the Company within 30 days of Parent releasing its 1999 audited year-end
financial statements. During the Earn-Out period (i.e, Closing Date through
December 31, 1999), Buyer and/or Parent, or an affiliate of Buyer or Parent,
shall operate the Business as a stand-alone entity, either as a division or
wholly owned subsidiary of Parent, as Parent may determine in its sole
discretion.
5. INTENTIONALLY OMITTED
6. COMPANY AND SHAREHOLDER'S BROKER: Daniels & Associates, L.P.
<PAGE> 27
7. BUYER'S BROKER: AmTech Associates
8. ESCROW AGENT: McCarthy, Fingar, Donovan,
Drazen & Smith, L.L.P.
<PAGE> 1
EXHIBIT 2.5
ASSET PURCHASE AGREEMENT
AGREEMENT made as of this 4th day of February, 1999 between
TELEPHONETICS INTERNATIONAL, INC., a Florida corporation with a principal place
of business at 4330 N.W. 207th Drive, Miami, Florida 33055 (the "Company"), ALAN
KVARES an individual residing at 1801 Heim Road, Mt. Dora, Florida, 32757,
("Shareholder") and TELEPHONETICS, INC., a Delaware corporation having an office
at 4330 N.W. 207th Drive, Miami, Florida 33055 ("Buyer").
W I T N E S S E T H :
WHEREAS, the Company desires to sell and the Buyer desires to purchase
on the date hereof (the "Closing Date") the business of the Company as a going
concern (the "Business") consisting of the Purchased Assets (hereinafter
defined), and the Assumed Liabilities (as hereinafter defined), for a purchase
price determined as set forth in Exhibit A (the "Purchase Price") and for the
assumption of the Assumed Liabilities (hereinafter defined); and
WHEREAS, the Shareholder is the owner of more than 97% of the common
stock of the Company; and
WHEREAS, the Shareholder joins in the execution of this Agreement as
the controlling Shareholder, director and officer of the Company and is familiar
with the material aspects of operations of the business of the Company,
including, without limitation, the Business.
WHEREAS, SAGE NETWORKS, INC., a Delaware corporation ("Parent") is the
owner of all of the capital stock of the Buyer.
NOW THEREFORE, in consideration of the mutual covenants and promises
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by all parties, the
parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE;
REPRESENTATIONS AND WARRANTIES
SECTION 1. PURCHASE AND SALE. Subject to the terms and conditions of
this Agreement, the Company hereby sells, assigns and transfers to the Buyer and
the Buyer hereby
<PAGE> 2
purchases and acquires from the Company, all of the right, title and interest of
the Company in and to the Purchased Assets (as hereinafter defined) for the
Purchase Price set forth herein.
SECTION 2. REPRESENTATIONS OF THE COMPANY AND SHAREHOLDER. The
following agreements, representations and warranties are made by the Company and
the Shareholder, jointly and severally, to the Buyer.
(A) Corporate Matters; No Conflict. The Company is duly formed,
organized, is validly existing and in good standing under the laws of its state
of incorporation as set forth in Exhibit A, maintains offices only at the sites
listed on Exhibit A and has no other operations other than from those sites, is
qualified or authorized to transact business and is in good standing in each
other jurisdiction in which it is doing business, except where failure to be
qualified or be in good standing would not have a material adverse effect on the
business of the Company, and has the corporate power to enter into this
Agreement, to perform its obligations hereunder and to conduct its business as
currently conducted. The execution, delivery and performance of this Agreement
and the transactions contemplated hereby by the Company and by the Shareholder
will not (i) conflict with or violate the provisions of any applicable law
(including, without limitation, any bulk sales laws), rule or order or the
Company's Articles or Certificate of Incorporation, By-laws or any other
organizational or governing documents of the Company, (ii) conflict with or
constitute a default under any agreement or contract by which the Company or the
Shareholder is bound or (iii) require the consent or approval of, or filing
with, any governmental body or third party except as set forth on Exhibit C-5.
The execution, delivery and performance by the Company of this Agreement has
been duly authorized and approved by all requisite corporate action on the part
of the Company. The Shareholder are all the beneficial and/or record owners of
the issued and outstanding shares of capital stock of the Company and the
Shareholder own the number of shares of such stock set forth opposite his or her
name on Exhibit A. Also set forth on Exhibit A is the total number and type of
authorized shares and outstanding shares of capital stock of the Company. Set
forth on Exhibit B is a list of officers and directors of the Company, all trade
names used by the Company and all jurisdictions in which the Company is doing
business. This Agreement and the consummation of the transactions contemplated
hereby have been approved by the Shareholder (if required by its By-Laws or
applicable law) and by the board of directors of the Company, and the authorized
officers of the Company named on Exhibit A are jointly and severally authorized
and empowered by the Company to execute and deliver this Agreement in the name
and on behalf of the Company.
(B) Purchased Assets. (i) All vendor and customer contracts,
confidentiality agreements, purchase and sales orders, powers of attorney,
undertakings, commitments and other agreements to which the Company is a party
and which relate in any manner to the Business and/or the relationship between
the Company and the Customers (hereinafter defined), whether written or oral,
shall be referred to herein collectively as the "Business Agreements". The
Company has delivered to Buyer, on or before the Closing Date, true and correct
copies of all written Business Agreements. Attached hereto as Exhibit C-1 are
true and correct copies of the only forms of agreements which have been entered
into between the Company and its Customers concerning the Business. Attached
hereto as Exhibit C-2 is a
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schedule of all agreements which have been entered into between the Company and
its Customers concerning the Business, copies of which have been delivered to
Buyer prior to the Closing. Annexed as Exhibit C-2 is a detailed summary of all
oral Business Agreements, as well as a list of all Business Agreements between
the Company and vendors or service providers, or which relate to any strategic
partnerships, reselling arrangements or joint ventures between the Company and
others, concerning the Business. Listed on Exhibit C-3 is a description of each
and every real estate, equipment and personal property lease (collectively, the
"Leases" to which the Company is a party and which relates to the Business. The
Leases are also included within the definition of Business Agreements as said
term is used herein. Neither the Company nor any other party, is in default
under any Business Agreement and no other party to any Business Agreement has
made any claim or given the Company notice of any dispute under any Business
Agreement, except as set forth on Exhibit C-4. Each Business Agreement is in
full force and effect. The Company has the right to assign the Business
Agreements and the Company has obtained all required consents to the assignment
and transfer thereof, except as set forth on Exhibit C-5. The Company is not the
owner or lessee of any motor vehicles which are used in the Business except for:
Alan Kvares's leased 1997 Jaguar for which the monthly lease payments of
approximately $1,400 each shall be paid in full at the Closing through June 30,
1999. The Company does not own or lease any interest in any real property, or
lease any equipment used in the Business, except as expressly stated on Exhibit
C-3.
(ii) All of the tangible assets of the Company used in the Business,
including, without limitation, all machinery, office and other equipment,
furniture, computers and related equipment, recording equipment, business
machines, telephones and telephone systems, parts and accessories, inventory,
telephone numbers, facsimile numbers, e-mail addresses and Internet domain
addresses presently utilized by the Company in the Business, shall be referred
to herein collectively as the "Tangible Assets". Attached hereto as Exhibit E is
a true and correct list or description of the material Tangible Assets. As of
the Closing Date, each Tangible Asset is in good and operable condition,
reasonable wear and tear excepted.
(iii) All patents, trademarks, trade names (including, but not limited
to, those trade names listed on Exhibit B), service marks, service names, logos,
designs, formulations, copyrights and other trade rights and all registrations
and applications therefor, all know-how, trade secrets, technology or processes,
all Web sites and all computer programs, data bases and software documentation
owned or used by the Company in the Business, other than off-the-shelf software
licensed by the Company, shall be referred to herein collectively as the
"Intellectual Property". Attached hereto as Exhibit F is a true and correct copy
of all of the Intellectual Property. Such exhibit also indicates which of such
items have been patented or registered or are in the process of application for
same. The Company has taken all necessary and reasonable actions to protect its
rights in Intellectual Property owned by it and to the knowledge of the Company,
is not infringing on the rights of any third parties to Intellectual Property
used, but not owned by, the Company. Except as set forth on Exhibit B, the
Company is not obligated to pay any royalty or other consideration to any person
in connection with the use of Intellectual Property. To the knowledge of the
Company and the
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Shareholder, no other person is infringing the rights of the Company in any of
its Intellectual Property. Included among the Intellectual Property, among other
things, are all trade names utilized by the Company in the Business, including
those trade names listed on Exhibit B. On the Closing Date, the Company will
deliver to Buyer a Certificate of Amendment of the Company's Articles or
Certificate of Incorporation ("Certificate of Amendment") changing its corporate
name so as to delete the words "Telephonetics" and will cause the same to be
duly filed with the Secretary of State's Office for the State of its
incorporation within three (3) business days from the Closing Date. Promptly
after such filing, the Company will deliver proof of said filing to Buyer. On
the Closing Date, the Company will further deliver to Buyer written proof in
form and substance satisfactory to Buyer and its counsel that the Company will
no longer do business under any of the trade names listed on Exhibit B and
further, within three (3) business days from the Closing, the Company will cause
to be filed in all applicable governmental or quasi-governmental offices, any
required instruments to terminate any previously filed assumed name or similar
certificates regarding such trade names. Promptly after such filing, the Company
will deliver proof of said filing to Buyer. Also attached to Exhibit F is a true
and complete list of all software licensed by the Company and used in operating
and maintaining the Business (collectively, the "Licensed Software"). The
Company has valid and fully-paid licenses for all of the Licensed Software.
The Company will deliver at the Closing a true and complete copy of the
Company's customers list as of the Closing Date ("Customer List") relating to
the Business which includes the name and address of each Customer. The Company's
files regarding the Customers shall be delivered to Buyer at the Closing. All
customers of the Company relating to the Business, including, without
limitation, those customers included on the Customer List, shall be referred to
herein as the "Customers". The Customer List is described on Exhibit G hereof.
(v) All cash on hand and cash equivalents at the Closing ("Cash"), all
of the outstanding accounts, notes and other receivables of the Company relating
to the Business, including, without limitation, the outstanding accounts
receivable and all unbilled fees for services rendered or products sold prior to
the Closing Date (including the name, address and contact at the account) of the
Company relating to the Business as of the Closing Date shall be referred to
herein collectively as the "Accounts Receivable" set forth in Exhibit D in the
amount of cash on the Closing Date. Attached hereto as Exhibit D is a true and
correct aged list of all of the Accounts Receivable as of the Closing Date. The
Accounts Receivable are valid and arose in the ordinary course of the Business,
and are fully collectible net of reserves shown on Exhibit D.
(vi) As used herein, the term "Purchased Assets" shall be defined as
all classes of assets of the Company as shown on the Company's certified
financial statement as of December 31, 1998 (annexed as Exhibit H) including,
without limitation, the Business Agreements, the Tangible Assets, the
Intellectual Property, the Cash, the Accounts Receivable, the Customer List, the
Customers, covenants not to compete and confidentiality agreements signed by
employees of the Company, together with the good will and business opportunities
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of the Company as it relates to the Business, the Software Licenses, and all
other assets of the Company used in connection with the operation of the
Business as of the Closing Date, wherever located, tangible or intangible,
including without limitation, all data files, books and records regarding or
relating to the foregoing, whether in electronic, paper or other form of media
and all rights the Company may have under any insurance policies relating to the
Purchased Assets, excluding, however, Excluded Assets (as defined below). The
Purchased Assets are not subject to (i) any lease, lien or encumbrance of any
character whatsoever except as set forth on Exhibit M or (ii) any adverse claims
by any third parties. At the Closing upon consummation of the transactions
contemplated by this Agreement, Buyer will receive good and marketable title to
the Purchased Assets, free and clear of all liens, claims and encumbrances of
any character whatsoever. The Purchased Assets include all rights, properties,
interests and assets used by Company and/or necessary to permit Buyer to carry
on the Business as presently conducted by the Company except for Excluded
Assets.
(vii) The Company and the Shareholder reasonably expect that the
business represented by the Business Agreements will continue after the date
hereof. The Company provides music on hold service directly to approximately
5,000 customer locations. Pizza Hut has about 1,500 locations and Enterprise
Rent-a-Car has about 2,000 locations ("Pizza Hut and Enterprise are herein
called "Major Customers"). The Company provides music on hold and other services
to approximately 15,000 Lucent Technologies, Inc. ("Lucent") customers pursuant
to agreements described on Exhibit C-1. The names and addresses of all Customers
are included in the Company's Production Data Base, including without limitation
the Major Customers and the Lucent customers, referred to in the preceding
sentence, who have purchased from or through the Company Non-Lucent products. In
the normal course of its business and with the knowledge and without the
objection of Lucent, the Company sells its products and services and those of
third parties (in addition to music on hold products and services) which are
non-competitive with Lucent products to Lucent customers directly and Lucent has
not shared in the revenue derived from such sales. Neither the Company nor the
Shareholder has any knowledge that Lucent customers or any Major Customers
intends to terminate or reduce the amount of business they presently do with the
Company, and they have no knowledge of any state of facts which would lead them
to believe that Lucent or any of the Major Customers will terminate their
relationship with the Company or significantly reduce the amount of business
they presently do with the Company.
(viii) Excluded Assets. The Company is not selling and Purchaser is not
buying or acquiring hereunder the following items ("Excluded Assets") which are
not included in the defined term "Purchased Assets": (a) the Company's corporate
minute and stock books, tax returns and other records having to do solely with
the Company's organization and/or capitalization; (b) any rights to any of the
Company's claims for any federal, state or local tax refunds; (c) any rights
which accrue or will accrue to the Company under this Agreement or the
transactions contemplated hereby; and (d) all assets, if any, listed on Exhibit
L hereto.
(C) Financial Statements. The Company has delivered to the Buyer copies
of
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the Company's audited financial statements for the last three fiscal years of
the Company ended December 31, 1998, 1997 and 1996, respectively. Attached
hereto as Exhibit H is a copy of the Company's certified, audited financial
statements for the calendar year ended December 31,1998 and unaudited financial
statements for the month ending January 31, 1999 all of which reflect the
assets, liabilities, net worth, profit and loss, and cash flow of the Company
with respect to the Business. All financial statements referred to herein are
complete and correct in all material respects, present fairly the financial
condition and results of operations of the Company as at the dates of such
statements and have been prepared in accordance with generally accepted
accounting principles. The books of account and records of the Company have been
maintained in accordance with good business practice and reflect fairly all
properties, assets, liabilities and transactions of the Company. The Company has
no material liabilities or obligations of any kind (whether accrued, absolute,
direct, indirect, contingent or otherwise) which are not fully accrued or
reserved against in the Company's financial statements in accordance with
generally accepted accounting principles. Except as set forth on Exhibit I the
Company has no material bad debts as of the Closing Date ("material" shall mean
over $5,000 per occurrence or over $10,000 in the aggregate). Since the last day
of the Company's last fiscal year, the Company has conducted the Business only
in the ordinary and usual course and has not experienced any material adverse
change in the Business or the financial condition of the Company. Since January
l, l999, the Company has had no loss in net monthly recurring revenue from the
Business. Between January 1, 1999 and the Closing Date, the Company and the
Shareholder warrant and represent that they have not withdrawn, expended or
applied any cash or other assets of the Company, except in the ordinary course
of operations of the Business of the Company in accordance with past practices
of the Company, and that during such period, no amounts have been paid to the
Shareholder except for his regular salary and as provided in this Agreement.
(D) Assumed Liabilities. The Buyer shall not be liable for and is not
assuming any liabilities of the Company whatsoever, whether related or unrelated
to the Purchased Assets, or whether arising under the Business Agreement or
otherwise, unless specifically listed on Exhibit J hereto (the "Assumed
Liabilities"). The Company and the Shareholder understand and agree that the
Buyer is not assuming any liabilities of the Shareholder whatsoever. The Company
has no outstanding loans of any kind (except as may be included in the Assumed
Liabilities) and none of the Company's obligations have been guaranteed by any
other person or entity except that Alan Kvares personally guaranteed the
Banker's Savings Bank loan.
(E) Existing Employment Arrangements. Except as set forth on Exhibit K
the Company has no employment agreements, labor or collective bargaining
agreements or employee benefit or welfare plans. The Company has no retirement
plans except for a 401K Plan. There are no pending or, to the knowledge of the
Company, threatened strikes, job actions or other labor disputes affecting the
Company or its employees and there have been no such disputes for the past three
years. Also set forth on Exhibit K is a true and complete list of all current
employees of the Company employed in connection with the Business, which list
provides, among other things, the name, title, job description and salary
information
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concerning each employee.
(F) Claims, Litigation, Disclosure. Except for the lawsuit entitled
Lynda Vannette McGlawn v. Greenwald, et al, pending in the civil division of the
Pasco County, Florida, Circuit Court of the Sixth Judicial Circuit. bearing
docket number 98-5574CH ("TVIG Litigation"), there is no claim, litigation, tax
audit, proceeding or investigation pending or, to the Company's or the
Shareholder' knowledge, threatened against the Company or any of the
Shareholder, with respect to the Business or any of the Purchased Assets of the
Company (including, without limitation, any claims of infringement or actions of
opposition with respect to Intellectual Property), nor does the Company nor the
Shareholder know of any facts which would provide a basis for any such claim,
litigation, audit, proceeding or investigation.
(G) Taxes. Except as specifically set forth on Exhibit I , the Company
has correctly prepared and timely filed all Federal, state and local tax
returns, estimates and reports ("Tax Liabilities"), and paid all such taxes as
and when due. For purposes of this paragraph, Taxes shall mean all taxes,
charges, fees, levies or other assessments of any kind whatsoever (including,
without limitation, income, employment, franchise, sales, use and withholding
taxes). On or before the Closing, the Company shall pay off and satisfy all
Taxes and any of the Tax Liabilities which are then due and payable or payable
with respect to the Purchased Assets for the period ending on the Closing Date
whether or not then due, and provide Buyer with evidence thereof in form
satisfactory to Buyer and its counsel. The Company is not a party to any tax
sharing agreement.
(H) No Other Agreements to Sell Assets or Business. Neither the Company
nor the Shareholder is a party to any existing agreement which obligates the
Company or the Shareholder to sell to any other person or firm the Purchased
Assets (other than sales in the ordinary course of business), to issue or sell
any capital stock or any security convertible into or exchangeable for capital
stock of the Company or to effect any merger, consolidation or other
reorganization of the Company or to enter into any agreement with respect
thereto.
(I) No Brokers. The only broker, leasing agent, finder or similar
person or entity with whom the Company or the Shareholder has made contact or
had any dealings with or entered into any agreement, arrangement or
understanding with concerning this Agreement and to whom the Company and/or the
Shareholder is responsible to pay a finder's fee, brokerage commission or
similar payment to is the party or parties listed in item 6 on Exhibit A, if
any, and the Company and the Shareholder shall be solely responsible for the
payment of same.
(J) Environmental Compliance. (i) Neither the Company nor any operator
of the Company's properties is in violation, or alleged to be in violation, of
any federal, state or local judgment, decree, order, consent agreement, law
(including common law), license, rule or regulation pertaining to environmental
health or safety matters, including without limitation those arising under the
Resource Conservation and Recovery Act, as amended, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, as
amended, Water Act, as amended, the Federal Clean Air Act, as amended, the
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Toxic Substances Control Act, or any state or local analogue (hereinafter
"Environmental Laws").
(ii) Neither the Company nor the Shareholder has received a notice,
complaint, order, directive, claim or citation from any third party, including
without limitation any federal, state or local governmental authority,
indicating or alleging that the Company or any predecessor may have any
liability or obligation under any Environmental Law.
(iii) (A) No portion of the property of the Company has been used by
any person for the generation, handling, processing, treatment, storage or
disposal of Hazardous Materials except in accordance with applicable
Environmental Laws; (B) no underground tank or other underground storage
receptacle for Hazardous Materials, asbestos-containing materials or
polychlorinated biphenyls are located on any portion of any location occupied by
the Company each of which is listed as a Site on Exhibit A; (C) in the course of
any activities conducted by the Company or its invitees, agents, contractors,
licensees or employees in connection with the Business of the Company, no
Hazardous Materials have been generated or are being used except in accordance
with applicable Environmental Laws; and (D) there have been no releases (i.e.,
any past or present releasing, spilling, leaking, leaching, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, disposing or dumping) or
threatened releases of Hazardous Materials on, upon, into or from the property
currently or formerly owned, operated or leased by the Company, which releases
would have a material adverse effect on the value of any of the property or
adjacent properties or the environment.
(iv) The execution, delivery and performance of this Agreement is not
subject to any Environmental Laws which condition, restrict or prohibit the
sale, lease or other transfer of property or operations, including, without
limitation, any so-called "environmental cleanup responsibility acts" or
requirements for the transfer of permits, approvals, or licenses. There have
been no environmentally related audits, studies, reports, analyses (including
soil and groundwater analyses), or investigations of any kind performed with
respect to the currently or previously owned, leased, or operated properties of
the Company.
For purposes of this Section, "Hazardous Material" shall mean any
hazardous waste, as defined by 42 U.S.C. Sec. 6903(5), any hazardous substances
or wastes as defined by 42 U.S.C. Sec. 9601(14), any pollutant or contaminant as
defined by 42 U.S.C. Sec. 9601(33) or any toxic substances or wastes, oil or
hazardous materials or other chemicals or substances regulated by any public or
governmental authority.
(K) Year 2000. All products and services provided by the Company to its
Customers in the regular course of the Business, to the best of the Company's
knowledge, accurately processes or will process date and time data (including,
but not limited to calculating, comparing and sequencing) from, into and between
the years 1999 and 2000 and
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the twentieth century and the twenty-first century, including leap year
calculations and neither performance nor functionality of such technology will
be affected by dates prior to, during and after the year 2000. The Purchased
Assets do not include any obligations under warranty agreements, service
agreements or otherwise to remedy any information technology defect relating to
the year 2000.
(L) Licenses and Compliance with Laws. The Company holds no material
governmental or regulatory licenses, permits, consents or approvals in
connection with the Business, and the Company is in compliance with all material
laws and regulations applicable to the Business.
(M) Transactions with Affiliates. Except as set forth on Schedule N, no
shareholder, officer, director or employee of the Company or immediate family
member thereof has since January 1, 1999 (a) borrowed money from or loaned money
to the Company which remains outstanding; (b) obtained any contractual or other
claim, express or implied, of any kind whatsoever against the Company; (c)
acquired or sold any interest in any property or assets used by the Company in
its business; (d) engaged in any other transaction with the Company or; (e)
owned, directly or indirectly, any interest in (except not more than two percent
(2%) stockholdings for investment purposes in securities of publicly held and
traded companies), or served as an officer, director, employee or consultant of
or otherwise received renumeration from any person which is, or has engaged in
business as, a competitor, lessor, lessee, customer or supplier of the Company.
(N) Defective Products. The Seller has no knowledge of any latent
defects in the design or manufacture of any of the products or Inventory
included in the Purchased Assets.
(O) Common Stock. The Company acknowledges that it has received and
reviewed the Confidential Memorandum dated March 12, 1998, as last amended
January 31, 1999 (the "Offering") describing the offering by the Parent of up to
4,800,000 shares of its common stock, $.01 par value, ("Common Stock") to
persons or entities who sell Web hosting businesses to Parent or its affiliates.
The Company understands that the Common Stock to be issued by Parent to the
Company hereunder as part of the Purchase Price shall be subject to the terms of
the Offering, including without limitation, that the Common Stock will be issued
subject to a Right of First Refusal Agreement, the form of which is annexed as
an exhibit to the Offering.
(P) True and Complete. No representation or warranty made by Company or
the Shareholder in this Agreement, nor any statement, certificate or exhibit
furnished by or on behalf of Company pursuant to this Agreement, nor any
document or certificate delivered to Buyer pursuant to this Agreement, or in
connection with the transactions contemplated hereby, contains or shall contain
any untrue statement of a material fact, or omits or shall omit to state a
material fact necessary to make the statements contained therein not misleading.
Neither the Company nor the Shareholder has not failed to disclose to Buyer any
pending developments or circumstances of which any of them are aware which are
reasonably likely to have a material adverse effect on the Company or the
Business.
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SECTION 3. REPRESENTATIONS OF THE BUYER. Buyer represents and warrants
to the Company and the Shareholder as follows.
(A) Corporate Matters; No Conflict. Buyer is a wholly owned subsidiary
of the Parent. Each of the Buyer and Parent is duly incorporated, validly
existing and in good standing under the laws of the State of Delaware, is in
good standing in each other jurisdiction in which it is doing business, except
where failure to be in good standing would not have a material adverse effect on
the business of Buyer or Parent, and has the corporate power to enter into this
Agreement, to perform its obligations hereunder and to conduct its business as
currently conducted. The execution, delivery and performance of this Agreement
and the transactions contemplated hereby (and thereby) by the Buyer and Parent,
respectively, will not (a) conflict with or violate the provisions of any
applicable law, rule or order or the Buyer's or the Parent's respective
Certificate of Incorporation or by-laws, (b) conflict with or constitute a
default under any agreement or contract by which the Buyer or Parent is bound or
(c) require the consent or approval of, or filing with, any governmental body or
third party. The execution, delivery and performance by the Buyer of this
Agreement has been authorized and approved by all requisite corporate action on
the part of the Buyer.
(B) No Brokers. The only broker, leasing agent, finder or similar
person or entity with whom the Buyer or Parent has made contact or had any
dealings with or entered into any agreement, arrangement or understanding with
concerning this Agreement and to whom the Buyer and/or the Parent is responsible
to pay a finder's fee, brokerage commission or similar payment to is the party
listed in item 7 on Exhibit A, if any, and the Buyer shall be solely responsible
for the payment of same.
(C) Authorization of Common Stock. The issuance and delivery by Parent
of the shares of Common Stock comprising part of the Purchase Price as described
in item 5 of Exhibit A has been authorized and approved by all requisite
corporate action on the part of Parent. Such shares of Common Stock are validly
issued, fully paid and non-assessable.
ARTICLE II.
CERTAIN COVENANTS OF THE COMPANY AND THE SHAREHOLDER
SECTION 1. NON-COMPETITION; NON-SOLICITATION.
(A) For a period commencing on the Closing Date and ending on the
second anniversary of the Closing Date, neither the Company nor the Shareholder
shall engage in any capacity in any Internet Web hosting business or in any
business which is similar to or in competition with the Business and which is
located or does business in any state in the United States or throughout the
World.
(B) The Company and the Shareholder understand that pursuant to this
Agreement they have received the following confidential and proprietary
information from Buyer: the Confidential memorandum dated March 12, 1998 as
amended. Neither the Company nor the Shareholder, nor any of its officers,
directors, employees, agents or
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contractors who received or learned of such confidential and proprietary
information shall at any time, either before or after the Closing Date, disclose
to any third party any such confidential or proprietary information of Buyer or
make use of any of such information except in evaluating whether to enter into
this Agreement. In connection with such evaluation, the Company and the
Shareholder may disclose such proprietary information to their legal and
financial consultants on a need to know basis on the condition that those
consultants are similarly prohibited from further disclosing such information as
provided herein. The Company and the Shareholder have received no other
confidential information regarding Parent.
(C) For a period commencing on the Closing Date and ending on the
second anniversary of the Closing Date, neither the Company, nor the
Shareholder, unless acting with the express written consent of the Buyer or
Parent, will, directly or indirectly, interfere with, solicit or endeavor to
entice away:
(i) any person who was an employee, subcontractor or
consultant of the Company, the Buyer, the Parent or any of their
affiliates during the twelve months immediately preceding the date of
such solicitation, interference or endeavor; or
(ii) with respect to any Internet Web hosting business or any
business similar to or in competition with the Business in which the
Company, Buyer, Parent, or any of their affiliates is or has been
engaged after the date of this Agreement, any person or entity who was
a customer or client of the Company or of the Buyer or of the Parent,
or any person or entity who requested or received a proposal from
Buyer, Parent or the Company.
THE COMPANY AND THE SHAREHOLDER, AND EACH OF THEM, EXPRESSLY ACKNOWLEDGES,
UNDERSTANDS AND AGREES (i) THAT REMEDIES AT LAW FOR ANY BREACH OF THIS ARTICLE
II, SECTION 1 WILL BE INADEQUATE, (ii) THAT THE DAMAGES RESULTING FROM SUCH
BREACH ARE NOT READILY SUSCEPTIBLE TO MEASUREMENT IN MONETARY TERMS AND (iii)
THAT BUYER AND/OR PARENT SHALL BE ENTITLED TO IMMEDIATE INJUNCTIVE RELIEF AND
MAY OBTAIN TEMPORARY AND PERMANENT ORDERS RESTRAINING ANY THREATENED OR FURTHER
BREACH OF THIS ARTICLE II, SECTION 1 BY THE COMPANY AND/OR THE SHAREHOLDER. THE
COMPANY AND THE SHAREHOLDER HAVE BEEN ADVISED BY THEIR RESPECTIVE COUNSEL WITH
RESPECT TO THE MEANING AND EFFECT OF THIS ARTICLE II, SECTION 1.
SECTION 2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.
(A) The representations and warranties of the parties herein
contained shall survive the closing of the purchase contemplated by this
Agreement, notwithstanding any investigation at any time made by or on behalf of
the other party, provided that any claims for indemnification in accordance with
Article II, Section 2 below with respect to any representation or warranty must
be made (and will be null and void unless made) on or before
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the date twenty-four (24) months following the Closing Date (except in the case
of representations contained in Paragraphs (B)(vi), (G), (I) and (J) of Article
I, Section 2 hereof, which must be made within six (6) months following the
expiration of the applicable statute of limitations).
(B) The Company and the Shareholder, jointly and severally,
hereby agree to indemnify and hold Buyer, Parent, and their respective officers,
directors, stockholders, affiliates, employees, representatives and other agents
harmless from and against any and all claims, liabilities, losses, damages or
injuries, together with costs and expenses, including reasonable legal fees,
arising out of or resulting from (i) any breach, misrepresentation or material
omission of the representations and warranties made by the Company and/or the
Shareholder in this Agreement or in any Exhibit hereto or other documents
delivered in connection herewith, (ii) any breach in any material respect by the
Company and/or the Shareholder, or any of them, unless waived in writing by the
Buyer, of any covenant or agreement contained in or arising out of this
Agreement, or any other agreement delivered in connection herewith on the
Closing Date, including without limitation, the Employment Agreement, (iii) the
Business conducted by the Company prior to the Closing Date and any actions or
events associated therewith, (iv) any and all liabilities of the Company, other
than the Assumed Liabilities, and (v) any failure by the Shareholder or the
Company to comply with any provisions of the bulk sales or similar laws of any
jurisdiction which are applicable to this Agreement or the transactions
contemplated hereby.
(C) Buyer and Parent hereby agrees to indemnify and hold the
Company and the Shareholder harmless from and against any and all claims,
liabilities, losses, damages or injuries, together with costs and expenses,
including reasonable legal fees, arising out of or resulting from (i) any
breach, misrepresentation or material omission in the representations and
warranties made by the Buyer in this Agreement, (ii) any breach in any material
respect by Buyer, unless waived in writing by the Company, of any covenant or
agreement of Buyer contained in or arising out of this Agreement, or (iii) the
Business as conducted by Buyer, after the Closing Date.
(D) Any party claiming a right to indemnification hereunder
(the "Indemnified Party") shall give the other party from whom indemnification
is sought (the "Indemnifying Party") prompt written notice of any claim, demand,
action, suit, proceeding or discovery of fact upon which the Indemnified Party
intends to base a claim for indemnification under this Section 2, provided,
however, that no failure to give such notice shall excuse any Indemnifying Party
from any obligation hereunder except to the extent the Indemnifying Party is
materially prejudiced by such failure. The Indemnified Party shall have full
responsibility and authority with respect to the disposition of any action, suit
or proceeding brought against it; provided, however, that it will not settle any
such action, suit or proceeding without the prior written consent of the
Indemnifying Party, which will not be unreasonably withheld or delayed. In the
event any action, suit or proceeding is brought against the Indemnified Party
with respect to which the Indemnifying Party may have liability under the
indemnity agreements contained in Paragraphs (B) and (C) of Article II, Section
2 hereof, however, the
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<PAGE> 13
Indemnifying Party shall have the right, without prejudice to the Indemnified
Party's rights under this Agreement, at the Indemnifying Party's sole expense,
to be represented by counsel of its own choosing and with whom counsel for the
Indemnified Party shall confer in connection with the defense of any such
action, suit, or proceeding. The Indemnified Party shall make available to the
Indemnifying Party and its counsel and accountants, all books and records of the
Indemnified Party relating to such action, suit or proceeding and the parties
agree to render to each other such assistance as may reasonably be requested in
order to insure the proper and adequate defense of any such action, suit or
proceeding.
(E) On the Closing Date 40,000 shares of Common Stock of
Parent which are part of the Purchase Price shall be delivered to the escrow
agent listed on Exhibit A (the "Escrow Agent") to be held in escrow in
accordance with the terms of an escrow agreement to be entered into between the
parties (the "Escrow Agreement") on or prior to the Closing Date. The Escrowed
Amount will be held in escrow by the Escrow Agent as security for any
indemnification obligation of the Company and the Shareholder, or any of them,
to Buyer pursuant to the terms of Article II, Section 2, Paragraph (B) of this
Agreement. Indemnity claims by Buyer pursuant to said Paragraph (B) shall be
satisfied by the reduction of the Escrowed Amount until the termination of the
Escrow Agreement and thereafter by the Company and the Shareholder, jointly and
severally. The Shareholder and the Company shall be afforded the opportunity to
settle any indemnification claim by a cash payment before the Common Stock held
in Escrow is taken by the Buyer. The Escrowed Amount does not constitute a limit
on the liability of the Company and the Shareholder to Buyer hereunder, it being
understood and agreed that the Company and each of the Shareholder, shall remain
jointly and severally liable to satisfy the amount of such claims which exceed
the Escrowed Amount. The Escrowed Amount shall be held by the Escrow Agent
pursuant to the terms of the Escrow Agreement which shall be agreed upon and
entered into by the Escrow Agent, the Company, the Shareholder and Buyer on or
before the Closing Date. Among other things, the Escrow Agreement will provide
that on March 31, 2000 , the Escrow Agent shall pay to the Company or its
designee such amount of the Escrow Amount then remaining, if any, as has not
previously been applied pursuant to the terms of said Escrow Agreement, unless
an indemnification claim by Buyer against the Company and/or the Shareholder is
then pending. The Shareholder shall have no liability under this Agreement in
excess of $3,000,000 plus the fair market value on the Closing Date of the
140,000 shares of . Common Stock which are delivered as part of the Purchase
Price.
ARTICLE III
CLOSING AND DELIVERIES AT CLOSING
SECTION 1. CLOSING. The closing of the purchase and sale of the
transaction contemplated herein shall take place on February 4, 1999, (the
"Closing"), at the offices of Parent, Sage Network, Inc., located at 11 Martine
Avenue, White Plains, New York l0606 at 12:00 p.m. The deliveries described in
Section 2 and 3 of this Article III will take
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<PAGE> 14
place at the Closing.
SECTION 2. DELIVERIES BY THE COMPANY AND THE SHAREHOLDER. On the
Closing Date, the Company and the Shareholder will deliver, or cause to be
delivered, to the Buyer the following:
(A) Such instruments of assignment, transfer and/or conveyance
executed by the Company, and the Shareholder where applicable, as Buyer may
reasonably request in order to assign, convey and transfer to Buyer good and
marketable title to all of the Purchased Assets, free and clear of all liens,
claims, encumbrances and other charges, including, without limitation, a Bill of
Sale.
(B) Physical delivery of all Tangible Assets, Customer Lists
and Customer Information by making them available at the Sites listed on Exhibit
A, together with any and all warranties, manuals, instructions, and other
literature in the possession of the Company or the Shareholder relating to the
ownership or operation of the Tangible Assets. In addition, such notices to
telephone companies and others required to transfer the Company's telephone and
facsimile numbers, e-mail addresses and domain addresses, used in the Business
to Buyer.
(C) Physical delivery of all original or certified copies of
documentation concerning the Intellectual Property, including, without
limitation, registrations and applications of any patents, trademarks or service
marks, original artwork, data bases, computer programs and software and physical
delivery of all books, files and records concerning the Purchased Assets.
(D) The following corporate documentation:
(i) The Company's Articles or Certificate of
Incorporation certified as of a date within thirty (30) days
prior to the Closing Date by the Secretary of State of the
state of the Company's organization;
(ii) Good Standing Certificates as of date within
thirty (30) days prior to the Closing Date from the Secretary
of State of the state of the Company's organization and each
other state in which the Company is qualified to do business;
(iii) The Company's By-Laws certified as of the
Closing Date by the President or Secretary of the Company as
being in full force and effect and unmodified; and
(iv) Corporate Resolutions of the Company's Board of
Directors and the Shareholder (if required by the Company's
By-Law's or applicable law),
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<PAGE> 15
approving this Agreement and all the transactions contemplated
hereby, certified by the President or Secretary of the Company
as being in full force and effect and unmodified.
(E) The legal opinions of counsel to the Company and the
Shareholder, in a form acceptable to Buyer and its counsel.
(F) Evidence in form satisfactory to Buyer and its counsel
that the Taxes and Tax Liabilities, if any, have been paid off and satisfied
except as disclosed in the BDO Seidman audit for 1998.
(G) The Escrow Agreement duly executed by the Company.
(H) A copy of the Certificate of Amendment duly executed by
the President and Secretary of the Company which is to be filed in the Secretary
of State's Office for the State of the Company's incorporation pursuant to
Article I, Section 2, Paragraph (B) (iii) hereof.
(I) Copies of written proof in form and substance satisfactory
to Buyer and its counsel that the Company will no longer do business under any
of the trade names listed on Exhibit B as required pursuant to Article I,
Section 2, Paragraph (B) (iii) hereof.
(J) The Company and the Shareholder shall use their reasonable
best efforts to deliver a Non-Competition, Non-Disclosure and Intellectual
Property Agreement in a form to be provided by Buyer after the Closing, executed
by each employee of the Company who will be employed by Buyer or its affiliate
after the Closing.
(K) Notices of termination of all employees of the Company
employed in connection with Business satisfactory to Buyer, which notices will
be delivered to the employees concurrently with the Closing.
(L) Employment Agreement ("Employment Agreement") and
Consulting Agreement ("Consulting Agreement") between Alan Kvares and Buyer
executed by Alan Kvares.
(M) Employment Agreement between Kathleen Fear and Buyer
executed by Kathleen Fear.
(N) An Estoppel, Consent to Assignment and Assignment of each
of the Leases in forms satisfactory to Buyer executed by the Company and the
Lessors/Landlords of the Leases.
(O) Keys to all entrances and possession of the Sites listed
on Exhibit A.
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<PAGE> 16
(P) Such notice or notices as Buyer may reasonably request in
order to notify the customers included on the Customer List that the Business
has been sold to Buyer.
(Q) Consent to a press release in form satisfactory to the
Company and Buyer relating to this Agreement and the transactions contemplated
hereby. Lucent will not be mentioned in such press release without its prior
consent.
(R) Execution and delivery of a Subscription Agreement and
Right of First Refusal Agreement in form satisfactory to Buyer signed by Alan
Kvares covering the shares of Common Stock which are a part of the Purchase
Price.
(S) Consent to the Assignment of the Agreements between
Company and Lucent in form satisfactory to Buyer.
(T) Delivery of audited financial statements for the Company
performed by BDO Seidman LLP for the year ending December 31, 1998.
(U) Proof of settlement or a plan of settlement of the TVIG
litigation and delivery of releases and Discontinuance with Prejudice.
(V) Delivery of third party consents from Nel-Tech Labs, Inc.
and Inter-Tel Integrated Systems, Inc.
(W) Delivery of new agreements between Broadcast Music, Inc.
("BMI") and Buyer in form satisfactory to Buyer, which will include cancellation
of existing agreement.
SECTION 3. DELIVERIES BY THE BUYER.
On the Closing Date, the Buyer will deliver, or cause to be delivered,
to the Company and the Shareholder the following:
(A) The cash portion of the Purchase Price by cash, or certified or
official bank check payable to the order of the Company, or by wire transfer of
federal funds to the account of the Company, as the Company and Shareholder
shall direct in writing on or before the Closing Date; provided, however, Buyer
may, upon written agreement of all parties hereto, deduct from the Purchase
Price and pay directly amounts due any creditor of the Company, including,
without limitation, the Tax Liabilities (but excluding any amounts due for any
of the Assumed Liabilities), in which event, evidence of such payment shall be
presented at the Closing. Notwithstanding the foregoing, 40,000 shares of Common
Stock described in Section 2(E) of Article II, shall be paid to the Escrow Agent
to be held in accordance with the terms of the Escrow Agreement.
(B) Such instruments of assignment and assumption executed by the
Buyer, as the parties hereto reasonably may determine necessary to effectuate
the assignment to the Buyer of the Business Agreements and the assumption by
Buyer of the Assumed Liabilities.
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<PAGE> 17
(C) The Escrow Agreement duly executed by the Buyer and the Escrow
Agent.
(D) The Employment Agreements and Consulting Agreement executed by
Buyer.
(E) Resolution of the Board of Directors of Buyer, authorizing the
execution of this Agreement and the transactions contemplated hereby.
(F) The Subscription Agreement executed by Parent.
(G) The Right of First Refusal Agreement executed by Parent.
(H) Certificates issued by Parent to the Company, representing the
shares of Common Stock for that portion of the Purchase Price to be paid in
Common Stock as set forth in item 5 of Exhibit A, which certificate shall be
properly legended to reflect that the Common Stock represented thereby has not
been registered under the Securities Act of 1933 as amended, and is subject to
the terms of the Right of First Refusal Agreement.
(I) Consent to a press release in form satisfactory to the Company and
Buyer relating to this Agreement and the transactions contemplated hereby.
ARTICLE IV
OBLIGATIONS FOLLOWING CLOSING
SECTION 1. FURTHER COOPERATION. The Company and the Shareholder will,
at any time and from time to time after the Closing Date, execute and deliver
such further instruments of conveyance, transfer and license, and take such
additional actions as Buyer, Parent or its successor and/or assigns, may
reasonably request, to effect, consummate, confirm or evidence the transfer to
Buyer of the Purchased Assets pursuant to this Agreement.
SECTION 2. TRANSITION ASSISTANCE AND ADJUSTMENTS.
(A) The Company shall reasonably cooperate and provide assistance to
the Buyer as shall be reasonably appropriate during the transition of the
Business and the Purchased Assets from the Company to the Buyer, or its
successors and/or assigns, after the Closing Date. All assistance shall be made
promptly when available after any request by Buyer. Buyer shall only reimburse
the Company for reasonable out-of-pocket expenses incurred in rendering such
assistance, but not for any time of any personnel.
(B) Buyer and its successors and/or assigns shall have the right at any
time and from time to time upon reasonable notice and during normal business
hours to examine and make copies of all corporate books, records and other
documents of the Company relating to the Business and generated prior to the
Closing Date which are not part of the Purchased Assets, which documents will be
maintained by the Company and the Shareholder for a period
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<PAGE> 18
of three (3) years after the Closing Date.
(C) The Company and the Shareholder will reasonably cooperate with
Buyer in notifying the customers included on the Customer List that the Business
has been sold to Buyer, including, without limitation, executing any additional
notices which Buyer may reasonably request. Neither the Company nor the
Shareholder will, directly or indirectly, take any action which is designed or
intended to have the effect of discouraging customers, suppliers or vendors and
other business associates of the Business, from maintaining the same business
relationships with Buyer or its successors and/or assigns after the Closing Date
as were maintained with the Company and/or the Shareholder with respect to the
Business prior to the Closing Date.
(D) Following the Closing, the Company and the Shareholder or any
affiliate of the Company (as defined under federal securities laws), shall not
use the name "Telephonetics" or any confusingly similar name to said trade name
in any trade or business, other than as an employee of Buyer or an affiliate of
Buyer.
(E) The Company shall have the right to dissolve after the Closing;
however, the Shareholder shall continue to be liable under this Agreement.
SECTION 3. COLLECTION OF RECEIVABLES.
(a) After the Closing Date, the Buyer shall endeavor to collect all
Accounts Receivables included in the Purchased Assets and will deliver to the
Seller for immediate endorsement to the Buyer any checks payable to the Seller
that are received by the Buyer on account of such Accounts Receivables. The
Seller agrees that it will promptly transfer or deliver to the Buyer from time
to time any payments that the Seller may receive with respect to any claims,
contracts, licenses, leases, commitments, sales, orders, purchase orders,
Accounts Receivables of any character or any other items included in the
Purchased Assets required to be transferred by it to the Buyer pursuant to the
provisions hereof.
(b) The parties acknowledge that the Seller's Accounts Receivable over
90 days at the closing are $194,358. The parties agree that 360 days after the
Closing Date, the Shareholder shall pay to the Buyer an amount of money equal to
$155,486 less the actual collection of the Sellers Accounts Receivable which
were over ninety (90) days at the Closing Date. Payment shall be made by the
Shareholder in cash within five (5) business days after presentation by Buyer of
a statement for the collection of such Accounts Receivable over 90 day. Payments
received from customers shall be credited to the oldest invoices first unless
the Customer directs otherwise.
ARTICLE V
MISCELLANEOUS
SECTION 1. GOVERNING LAW; JURISDICTION. This Agreement shall be
governed
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<PAGE> 19
by the laws of the State of New York. The parties hereto submit and consent to
the exclusive jurisdiction of the state courts of the State of New York in the
Counties of New York or West Chester and the federal courts located therein with
respect to any legal actions relating to this Agreement, or any other agreements
delivered in connection herewith, between the Company and/or the Shareholder, on
the one hand, and the Buyer and/or Parent, on the other hand, and any
transactions contemplated thereby whenever an action is commenced by the Company
or Shareholder. The parties hereto submit and consent to the exclusive
jurisdiction of the state courts of Florida and any federal court located in
Florida with respect to any legal actions relating to this Agreement or any
other agreement delivered in connection herewith between the Company and/or the
Shareholder on one hand and the Buyer or Parent on the other hand, whenever an
action is commenced by the Buyer or the Parent.
SECTION 2. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
SECTION 3. CONFIDENTIALITY. The Company and the Shareholder, on the one
hand, and the Buyer, on the other hand, each agree not to disclose or use any
information acquired by it about the other party during the course of the
negotiations of this Agreement and the transactions to which it relates which is
confidential in nature or not otherwise generally available to the public
without the prior written consent of such other party unless required to do so
by applicable law or by order of a court of competent jurisdiction. Each party
shall be liable for any breach by its respective employees, officers,
directives, Shareholder, agents and/or contractors of the provisions of this
Section.
SECTION 4. AMENDMENTS. This Agreement supersedes any prior contracts
relating to the subject matter hereof between the Buyer, Parent, the Company and
the Shareholder. This Agreement cannot be changed, modified or amended and no
provision or requirement hereof may be waived without the consent in writing of
the parties hereto.
SECTION 5. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect. Each provision of this Agreement shall be deemed to be the agreement of
the parties hereto to the full extent that the power to enter into such
provisions shall have been conferred on the parties by law.
SECTION 6. BENEFIT; ASSIGNMENT. This Agreement is binding upon and
inures to the benefit of the parties, their successors and permitted assigns.
This Agreement may not be assigned or the duties of the parties hereunder
delegated to others without the prior written consent of all parties hereto,
except that Buyer may assign its rights, duties and obligations
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<PAGE> 20
hereunder to Parent or an affiliate of Buyer or Parent without the Company's or
the Shareholder' consent; and further provided that the Company may assign its
rights, duties, and obligations hereunder to any entity or person formed in
connection with the winding down of its affairs, provided that Shareholder is
not relieved of any liability hereunder.
SECTION 7. CONSTRUCTION. All exhibits annexed hereto are hereby
incorporated herein by reference and made a part of this Agreement. Whenever
used in this Agreement and the context so requires, the singular shall include
the plural and the plural shall include the singular.
SECTION 8. IMPUTED KNOWLEDGE. Anywhere in this Agreement where it
refers to the "knowledge of" the Company, or words of similar import, the
knowledge of of the Shareholder shall be imputed to be the knowledge of the
Company. Anywhere in this Agreement where it refers to the "knowledge of" the
Buyer or the Parent, or words of similar import, the knowledge of Leonard J.
Fassler shall be imputed to be the knowledge of the Buyer and the Parent,
respectively.
SECTION 9. NOTICE. Any notice required or permitted to be given
hereunder shall be in writing and shall be deemed to have been duly given if
delivered or mailed by registered mail, postage prepaid: if to the Company at
its address set forth on the first page hereof, with copy to David Snyder, Esq.,
Snyder & Snyder, 6 Avery Court, White Plains, New York 10604 or at such other
address as the Company or any of the Shareholder shall designate by notice to
Buyer, and if to Buyer or Parent at 215 First Street, Cambridge, MA 02142, with
a copy to Bruce S. Klein, General Counsel, Sage Networks, Inc., 11 Martine
Avenue, 12th Floor, White Plains, NY 10606 and a copy to Brian O'Connor, Esq.,
Diserio Martin O'Connor & Castiglioni, One Atlantic Street, Stamford, CT 06901,
or at such other address as it shall designate by notice to the Company and the
Shareholder.
SECTION 10. EXPENSES. The Seller, the Company and the Shareholder shall
each pay their own expenses incurred in connection with the preparation,
execution and performance of this agreement including, without limitation all
fees, and expenses of agents, counsel, and accountants except that Buyer shall
assume the liability due of BDO Seidman, LLP to prepare the audited financial
statements of the Company for the year ending December 31, 1998 in an amount not
to exceed $40,000 only if and when the Closing takes place.
SECTION 11. TRANSFER TAXES. The Seller shall be solely responsible for
paying all transfer taxes which are due as a result of the consummation of the
transactions provided for in this Agreement.
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[SIGNATURE PAGE OF ASSET PURCHASE AGREEMENT BETWEEN TELEPHONETICS, INC.
AND TELEPHONETICS INTERNATIONAL, INC. DATED AS OF FEBRUARY 4, 1999.]
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
TELEPHONETICS, INC.
By: /s/ Leonard J. Fassler
----------------------------
Leonard J. Fassler
Its President
TELEPHONETICS INTERNATIONAL, INC.
By: /s/ Alan Kvares
----------------------------
Alan Kvares
Its President
AGREEMENT TO BE BOUND
Sage Networks, Inc. ("Parent") hereby agrees to be bound only by the
provisions of Article II, Section 2(C) of the foregoing Asset Purchase
Agreement.
SAGE NETWORK, INC.
By: /s/ Leonard J. Fassler
----------------------------
Leonard J. Fassler
Its Co-Chairman
21
<PAGE> 22
LIST OF EXHIBITS:
- -----------------
Exhibit A - Basic Provisions
Exhibit 4.01(b) - Officers; Directors; Trade Names; Jurisdictions
Exhibit 4.01(c)(i)(1) - Forms of Business Agreements with Customers
Exhibit 4.01(c)(i)(2) - Summary of Oral Business Agreements and Copy of
Vendor/Service Provider and Other Agreements
Exhibit 4.01(c)(i)(3) - Leases
Exhibit 4.01(c)(i)(4) - Claims of Disputes Under Business Agreements
Exhibit 4.01(c)(i)(5) - Consents to Transfer or Assign Not Obtained
Exhibit 4.01(c)(ii) - Tangible Assets
Exhibit 4.01(c)(iii) - Intellectual Property
Exhibit 4.01(c)(iv) Server Customers
Exhibit 4.01(c)(v)(1) - Company's Financial Statements
Exhibit 4.01(c)(v)(2) - Liens; Encumbrances
Exhibit 4.01(d) - Bad Debts
Exhibit 4.01(e) - Existing Employment Agreements, Labor or Collective
Bargaining Agreements, Employee Benefit or Welfare
Plans, Description of Employees
Exhibit 4.01(g) - Tax Liabilities of the Company
Exhibit 4.01(l)(1) - Company's Credit and Debit Cards
Exhibit 4.01(l)(2) - Company's Bank Accounts and Authorized Signatories
<PAGE> 23
DESCRIPTION OF EXHIBITS:
Exhibit A - Basic Provisions
Exhibit B - Ownership of Capital Stock of the Company; Description of
Capital Stock; Officers; Directors; Trade
Names; Jurisdictions
Exhibit C-1 - Forms of Business Agreements with Customers
Exhibit C-2 - Oral Business Agreements; Business Agreements with
Vendor/Service Providers, Resellers, Etc.
Exhibit C-3 - Leases
Exhibit C-4 - Claims of Disputes Under Business Agreements
Exhibit C-5 - Consents to Transfer or Assign Not Obtained
Exhibit D - Cash and Accounts Receivable
Exhibit E - Tangible Assets
Exhibit F - Intellectual Property and Software Licensing
Exhibit G - Customer List and Related Information
Exhibit H - Financial Statements
Exhibit I - Bad Debts and Tax Liabilities of the Company
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Exhibit J - Assumed Liabilities
Exhibit K - Existing Employment Agreements, Labor or Collective
Bargaining Agreements, Employee Benefit or Welfare
Plans, Description of Employees
Exhibit L - Excluded Assets
Exhibit M - Liens; Encumbrances
Exhibit N - Transactions with Affiliates
In accordance with Item 601(b)(2) of Regulation S-K all exhibits other than
Exhibit A have been omitted. The Company hereby agrees to furnish supplementally
a copy of any omitted exhibit to the Commission upon request.
23
<PAGE> 25
EXHIBIT A
TO
ASSET PURCHASE AGREEMENT
BETWEEN
TELEPHONETICS, INC.
and
TELEPHONETICS INTERNATIONAL, INC.
BASIC PROVISIONS
1. Name of Buyer: Telephonetics, Inc.
2. Name of Company: Telephonetics International, Inc.
(a) Names, addresses and stock ownership of shareholder of Company:
Name and Address Number of Shares (Type)
Alan Kvares 5,870,000- Common
Kathleen Fear 20,000- Common
Harry Gershenson 10,000- Common
Raymond Norton 100,000- Common
Total Outstanding Shares 6,000,000- Common
(b) State of incorporation of Company: Florida
(c) Authorized Officers of the Company:
President - Alan Kvares
Vice President/Treasurer - Parker Yates
Vice President/Secretary - Kathleen Fear
(d) Address of each Site from which the Company conducts the Business:
(i) 4330 N.W. 207th Drive, Miami, Florida 33055
(ii)
(iii) 512 Lake Dora Road, Mt. Dora, Florida
(iv)
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<PAGE> 26
3. Residence addresses of Shareholder:
4. Purchase Price: $3,000,0000 in cash plus 140,000 shares of Common Stock of
Sage Networks, Inc.
5. Company and Shareholder's Broker: None
6. Buyer's Broker: None
7. Escrow Agent: David Snyder, Esq.
Snyder & Snyder
6 Avery Court
White Plains, NY 10604
2
<PAGE> 1
Exhibit 2.6
ASSET PURCHASE AGREEMENT
AGREEMENT made as of this 16th day of September, 1998 between GEN
INTERNATIONAL, INC., a Florida corporation with a principal place of business at
1000 112th N. Circle Road, St. Petersburg, Florida (the "Company"), THOMAS
HEIMANN, residing at 17940 Gulf Boulevard, Apt. 11D, Redington Shores, Florida
(the "Shareholder"), and SAGE NETWORKS ACQUISITION CORP., a Delaware corporation
having an office at 215 First Street, Cambridge, Massachusetts 02142 ("Buyer").
W I T N E S S E T H :
WHEREAS, the Company desires to sell and the Buyer desires to
purchase on the date hereof (the "Closing Date") the Internet Web hosting
business of the Company as a going concern (the "Business") consisting of the
Purchased Assets (hereinafter defined), and the Assumed Liabilities (as
hereinafter defined), for a purchase price determined as set forth in Exhibit A
(the "Purchase Price") and for the assumption of the Assumed Liabilities
(hereinafter defined); and
WHEREAS, the Company has from time to time conducted certain
operations or administrative functions of the Business through Global
Entrepreneurs Network, Inc. ("Global"), Gen Network Operations Centers, Inc.
("Network") and International Management Agency, Inc. ("IMA"); and
WHEREAS, the Shareholder joins in the execution of this Agreement as
the controlling shareholder of Virtual Ventures, Ltd. ("Virtual"), the majority
shareholder of the Company, as well as a director and officer of the Company,
and is familiar with the material aspects of operations of the business of the
Company, including, without limitation, the Business.
WHEREAS, Global and the Buyers are concurrently with the execution
of this Agreement, entering into an Asset Purchase Agreement (the "Global
Agreement") whereby (i) Buyer agrees to purchase and Global agrees to sell to
Buyer all of the equipment presently leased or owned by Global and used in the
Business and (ii) Global agrees to transfer, sell and assign to Buyer all of its
rights, title and interest to the assets sold by Global to the Company under an
Agreement of Sale dated June 9, 1997 (the "Agreement of Sale"), all of which is
conditioned upon the issuance of an Order of a Court of Bankruptcy affirming the
sale and status of Buyers as provided hereinafter;
NOW THEREFORE, in consideration of the mutual covenants and promises
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by all parties, the
parties hereto agree as follows:
<PAGE> 2
ARTICLE I
AGREEMENT TO SELL
Section 1. Purchase and Sale. Subject to the terms and conditions of
this Agreement, the Company hereby sells, assigns and transfers to the Buyer and
the Buyer hereby purchases and acquires from the Company, all of the right,
title and interest of the Company in and to the Purchased Assets (as hereinafter
defined) for the Purchase Price set forth herein.
Section 2. Intentionally Deleted
Section 3. Payment of the Purchase Price. The Purchase Price
($455,000) shall be paid as follows:
(A) Downpayment. At the Closing, $150,000 of the Purchase Price (the
"Downpayment") will be paid by Buyer to Seller.
(B) Balance. The balance of the Purchase Price ($305,000) shall be
placed into escrow by the Buyer at the Closing and held by the Escrow
Agent listed on Exhibit A pursuant to the terms of an Escrow Agreement to
be entered into between the parties at the Closing ("Purchase Price Escrow
Agreement"). . The Purchase Price Escrow Agreement, among other things,
shall provide that the entire escrow amount, except for the amount that
will continue to be held in escrow pursuant to Paragraph (E) of Section 2
of Article III, shall be released from escrow and paid to the Company
within five business days after the receipt by the Buyer and Escrow Agent
of a final nonappealable Order issued by the United States Bankruptcy
Court for the Middle District of Florida, Tampa Division (the "Court"), in
form and substance satisfactory to Buyer and its counsel that the Court,
among other things, has approved the sale by Global to the Buyer of the
equipment presently owned by Global and/or covered by the Equipment Leases
and the transfer, sale and assignment by Global to the Buyer of its
rights, title and interest against the Company on account of the sale of
certain assets to the Company pursuant to the Agreement of Sale, as
provided in the Global Agreement (the "Bankruptcy Order").
Section 4. Reallocation of Purchase Price; Termination.
A. In the event the Bankruptcy Court overseeing the Global
bankruptcy indicates that it will not issue the Bankruptcy Order referred to in
Section 3, Paragraph (B) above, Buyer, in its sole discretion, may, but shall
not be obligated to, reallocate all or a portion of the balance of the Purchase
Price then held in escrow to the assets being acquired under the Global
Agreement, based upon the total amount of the allowed claims of the creditors in
the Global bankruptcy case in order to obtain an Order from the Bankruptcy Court
approving the Global Agreement, in form and substance satisfactory to Buyer and
its counsel. In such event, the Purchase Price Escrow Agreement shall require
the Escrow Agent to make such payments to the creditors of Global or
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the Court, as directed in writing by Buyer. Notwithstanding any other provision
of this Agreement, unless and until a final, nonappealable order is entered by
the Bankruptcy Court meeting the requirements of Section 5 of the Global
Agreement, neither the Seller nor Global, nor the Global bankrupt estate, nor
any third party, shall have any interest in the amount being held by the Escrow
Agent under the Purchase Price Escrow Agreement.
B. In the event the Bankruptcy Court overseeing the Global
bankruptcy indicates that it will not issue the Bankruptcy Order referred to in
Section 3, Paragraph (B) above, or if no such order is issued by December 31,
1998, and if Buyer elects not to reallocate the Purchase Price pursuant to
Paragraph A. of this Section 4 of Article I, then the parties agree that this
Agreement shall be null and void and the Purchase Price Escrow Agreement shall
require the Escrow Agent to return the entire amount being held in escrow to the
Buyer.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 1. Representations of the Company and the Shareholder. The
following agreements, representations and warranties are made by the Company and
the Shareholder, jointly and severally, to the Buyer.
(A) Corporate Matters; No Conflict. The Company, Global, Network and
IMA (collectively, the "GEN Companies"), each is duly formed, organized,
incorporated, is validly existing and in good standing under the laws of its
state of incorporation as set forth in Exhibit A, maintains offices only at the
sites listed on Exhibit A and has no other operations other than from those
sites, is qualified or authorized to transact business and is in good standing
in each other jurisdiction in which it is doing business, except where failure
to be qualified or be in good standing would not have a material adverse effect
on the Business, and the Company has the corporate power to enter into this
Agreement, to perform its obligations hereunder and to conduct its business as
currently conducted. The execution, delivery and performance of this Agreement
and the transactions contemplated hereby by the Company and by the Shareholder
will not (i) conflict with or violate the provisions of any applicable law
(including, without limitation, any bulk sales laws), rule or order or the
respective Articles or Certificate of Incorporation, by-laws or any other
organizational or governing documents of the GEN Companies, (ii) conflict with
or constitute a default under any agreement or contract by which any of the GEN
Companies, Virtual or the Shareholder is bound or (iii) require the consent or
approval of, or filing with, any governmental body or third party except as set
forth on Exhibit C-5. The execution, delivery and performance by the Company of
this Agreement has been duly authorized and approved by all requisite corporate
action on the part of the Company, and the authorized officers of the Company
named on Exhibit A are jointly and severally authorized and empowered by the
Company to execute and deliver this Agreement in the name and on behalf of the
Company. Virtual owns the number of shares of such stock set forth opposite its
name on Exhibit A. Also set forth on Exhibit A is the total number and type of
authorized shares and
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outstanding shares of capital stock of the Company. Set forth on Exhibit B is a
list of officers and directors of the Company, all trade names used by the
Company and all jurisdictions in which the Company is doing business.
(B) Purchased Assets. (i) All vendor and customer contracts,
confidentiality agreements, purchase and sales orders, powers of attorney,
undertakings, commitments and other agreements to which the Company or any of
the GEN Companies is a party and which relate in any manner to the Business
and/or the relationship between the Company or any of the GEN Companies and the
Customers (hereinafter defined), whether written or oral, shall be referred to
herein collectively as the "Business Agreements". The Company has delivered to
Buyer, on or before the Closing Date, true and correct copies of all written
Business Agreements and detailed summaries of all oral agreements. Attached
hereto as Exhibit C-1 are true and correct copies of the only forms of
agreements which have been entered into between any of the Companies and its
customers concerning the Business. Contained on a computer diskette provided by
the Company to Buyer is a true and complete copy of the Company's customer list
as of the Closing Date relating to the Business which includes, in the case of
each customer, the name of the customer, its billing and E-mail addresses, the
name of a contact person, with a designation of which form of agreement each
customer has entered into. Annexed as Exhibit C-2 is a detailed summary of all
oral Business Agreements, as well as all written Business Agreements between the
Company and vendors or service providers, or which relate to any strategic
partnerships or joint ventures between any of the Companies and others,
concerning the Business, including a schedule of all reselling agreements
entered into by the Company and in existence as of the Closing Date. Listed on
Exhibit C-3 is a description of each and every real estate, equipment and
personal property lease to which the Company is a party and which relates to the
Business. The Leases are also included within the definition of Business
Agreements as said term is used herein. Neither the Company nor any other party,
is in default under any Business Agreement and no other party to any Business
Agreement has made any claim or given the Company notice of any dispute under
any Business Agreement, except as set forth on Exhibit C-4. Each Business
Agreement is in full force and effect and the Company has the right to assign
the Business Agreements and the Company has obtained all required consents to
the assignment and transfer thereof, except as set forth on Exhibit C-5. The
Company is not the owner or lessee of any motor vehicles which are used in the
Business. None of the GEN Companies own or lease any interest in any real
property, or lease any equipment used in the Business, except as expressly
stated on Exhibit C-3.
(ii) All of the tangible assets of the GEN Companies used in
the Business, including, without limitation, all machinery, office and other
equipment, furniture, computers and related equipment, business machines,
telephones and telephone systems, parts and accessories, telephone numbers,
facsimile numbers, e-mail addresses, Internet domain addresses presently
utilized by the GEN Companies in the Business and all Internet domain addresses
of customers of the Company which are presently "parked" or located on the
Company's servers, shall be referred to herein collectively as the "Tangible
Assets". There are no assets used in the Business which are owned by any of the
following subsidiaries of the Company: Gen Europe, Inc.; Gen Events, Inc.; Gen
Networks Center, Inc.; Gen Service Center, Inc.; or IMA. Attached hereto as
Exhibit E is a true and correct list or description of the material
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Tangible Assets. As of the Closing Date, each of the Tangible Assets is in good
and operable condition, reasonable wear and tear excepted.
(iii) All patents, trademarks, trade names, service marks,
service names, logos, designs, formulations, copyrights and other trade rights
and all registrations and applications therefor, all know-how, trade secrets,
technology or processes, all Web sites, and all computer programs, data bases
and software documentation owned or used by any of the GEN Companies in the
Business, other than off-the-shelf software licensed by any of the GEN
Companies, shall be referred to herein collectively as the "Intellectual
Property". Attached hereto as Exhibit F is a true and correct copy of all of the
Intellectual Property. Such exhibit also indicates which of such items have been
patented or registered or are in the process of application for same. The
Company has taken all necessary and reasonable actions to protect its rights in
Intellectual Property owned by it and to the knowledge of the Company, is not
infringing on the rights of any third parties to Intellectual Property used, but
not owned by, the Company. Included among the Intellectual Property, among other
things, are all trade names utilized by the Company in the Business, including
those trade names listed on Exhibit B. Also attached to Exhibit F is a true and
complete list of all software licensed by the Company and used in operating and
maintaining the Business (collectively, the "Licensed Software"). The Company
has valid, royalty free and fully-paid licenses for all of the Licensed
Software. On the Closing Date, the Company will deliver to Buyer written proof
in form and substance satisfactory to Buyer and its counsel that the Company
will no longer do business under any of the trade names listed on Exhibit B and
further, within five (5) days from the Closing, Company will cause to be filed
in all applicable governmental or quasi-governmental offices, any required
instruments to terminate any previously filed assumed name or similar
certificates regarding such trade names. Promptly after such filing, the Company
will deliver proof of said filing to Buyer.
(iv) The Company will deliver at the Closing a diskette
containing a true and complete schedule of the Company's customer list as of the
Closing Date relating to the Business which includes, in the case of each
customer, the name of the customer, its billing and E-mail addresses, the
identity of a contact person, and the type of contract applicable to the
customer (the "Customer List"). All customers of the Company relating to the
Business, including without limitation, those customers included on the Customer
List, shall be referred to herein as the "Customers".
(v) As used herein, the term "Purchased Assets" shall be
defined as all classes of assets of the Company as shown on the Company's
certified financial statement as of December 31, 1997 (annexed as Exhibit H)
including, without limitation, the Business Agreements, the Tangible Assets, the
Intellectual Property, the Customer List, the Customers, the good will and
business opportunities of the Company as it relates to the Business, the
Software Licenses and all other assets of the Company used in connection with
the operation of the Business, wherever located, tangible or intangible,
including without limitation, all rights the Company may have under any
insurance policies relating to the Purchased Assets, together with all books,
records and files (whether in paper or electronic format) concerning any of the
above assets, excluding, however, Excluded Assets (as defined below) The
Purchased Assets are not subject to (i) any lien or encumbrance of any character
whatsoever except as set forth on Exhibit
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M or (ii) any adverse claims by any third parties. At the Closing upon
consummation of the transactions contemplated by this Agreement, subject to the
Court approval referred to in Section 3 (B) of Article I hereof, Buyer will
receive good and marketable title to the Purchased Assets, free and clear of all
liens, claims and encumbrances of any character whatsoever. The Purchased Assets
include all rights, properties, interests and assets used by Company and/or
necessary to permit Buyer to carry on the Business as presently conducted by the
Company except for Excluded Assets.
(vi) The Company and the Shareholder reasonably expect that
the business represented by the Business Agreements will continue after the date
hereof. Neither the Company nor the Shareholder has any knowledge that any
customers included on the Customer List, other than those listed on Exhibit G-1,
intend to terminate or reduce the amount of business they presently do with the
Company, and they have no knowledge of any state of facts which would lead them
to believe that any of the customers included on the Customer List will
terminate their relationship with the Company or significantly reduce the amount
of business they presently do with the Company.
(vii) Excluded Assets. The Company is not selling and
Purchaser is not buying or acquiring hereunder the following items ("Excluded
Assets") which are not included in the defined term "Purchased Assets": (a) All
cash and cash equivalents; (b) the Company's corporate minute and stock books,
tax returns and other records having to do solely with the Company's
organization and/or capitalization; (c) all outstanding billed receivables of
the Company including inter Company receivables; (d) any rights to any of the
Company's claims for any federal, state or local tax refunds; (e) any rights
which accrue or will accrue to the Company under this Agreement or the
transactions contemplated hereby; (f) all claims held or asserted by the Company
against third parties, as described on Exhibit L; (g) all office computers other
than computers used by technical support personnel of the Company used in the
Business; (h) the real estate lease listed in Schedule C-3 and the security
deposit related thereto; (i) all office furniture and furnishings; (j) all
employee advances ; (k) all investments of the Company listed on Exhibit L; and
(l) all assets, if any, listed on Exhibit L hereto.
(C) Financial Statements. The Company has delivered to the Buyer
copies of the Company's unaudited financial statements for the seven months
ended December 31, 1997, and for the eight month period beginning January 1,
1998 and ended August 31, 1998. The Company has also delivered to Buyer the
following unaudited financial statements for subsidiaries and a related a
related company: Global Entrepreneurs Networks, Inc. ("Global") for the years
ended December 31, 1995, 1996, and 1997 and for the five months ended May 31,
1998; Network for the nine months ended September 30, 1998; GEN '98 for the six
months ended June 30, 1998 (being Global's operations since Global filed under
the Bankruptcy Act); and International Management Agency, Inc. for the six
months ended June 30, 1998. Attached hereto as Exhibit H are the foregoing
financial statements all of which reflect the assets, liabilities, net worth,
profit and loss, and cash flow of the Company with respect to the Business. All
financial statements referred to herein are complete and correct in all material
respects, present fairly the financial condition and results of operations of
the Company as at the dates of
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such statements and have been prepared in accordance with generally accepted
accounting principles. The books of account and records of the Company have been
maintained in accordance with good business practice and reflect fairly all
properties, assets, liabilities and transactions of the Company. The Company has
no material liabilities or obligations of any kind (whether accrued, absolute,
direct, indirect, contingent or otherwise) which are not fully accrued or
reserved against in the Company's financial statements in accordance with
generally accepted accounting principles. Except as set forth on Exhibit I the
Company has no bad debts as of the Closing Date. Since the last day of the
Company's last fiscal year, the Company has conducted the Business only in the
ordinary and usual course and has not experienced any material adverse change in
the Business or the financial condition of the Company. Since August 31, 1998,
the Company has had no loss in net monthly recurring revenue from the Business.
Between August 31, 1998 and the Closing Date, the Company and the Shareholders
warrant and represent that they have not withdrawn, expended or applied any cash
or other assets of the Company, except in the ordinary course of operations of
the Business of the Company in accordance with past practices of the Company,
and that during such period, no amounts have been paid to the Shareholder except
for salaries of $ 1,000.
(D) Assumed Liabilities. The Buyer shall not be liable for and is
not assuming any liabilities of the Company whatsoever, whether related or
unrelated to the Purchased Assets, or whether arising under the Business
Agreements or otherwise, unless specifically listed on Exhibit J hereto (the
"Assumed Liabilities"). The Company and the Shareholder understand and agree
that the Buyer is not assuming any liabilities of the Shareholder, Virtual,
Global, Network, IMA or any other shareholder of Global, Network or IMA except
as specifically indicated herein. The Company has no outstanding loans of any
kind other than as set forth on Exhibit J and none of the Company's obligations
have been guaranteed by any other person or entity.
(E) Existing Employment Arrangements. Except as set forth on Exhibit
K the Company has no employment agreements, labor or collective bargaining
agreements or employee benefit or welfare plans. All vacation pay, if any, due
to employees of the Company has been fully paid by the Company. No employees of
the Company are entitled to any sick pay. The Company has no retirement plans.
There are no pending or, to the knowledge of the Company, threatened strikes,
job actions or other labor disputes affecting the Company or its employees and
there have been no such disputes for the past three years. Also set forth on
Exhibit K is a true and complete list of all employees of the Company employed
in connection with the Business, which list provides, among other things, the
name, residence address, title, job description and salary information
concerning each employee.
(F) Claims, Litigation, Disclosure. There is no claim, litigation,
tax audit, proceeding or investigation pending or, to the Company's or the
Shareholder's knowledge, threatened against any of the GEN Companies, Virtual,
the Shareholder or any other shareholder of the Company, with respect to the
Business or any of the Purchased Assets of the Company (including, without
limitation, any claims of infringement or actions of opposition with respect to
Intellectual Property), nor does the Company nor the Shareholder know of any
facts which would
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provide a basis for any such claim, litigation, audit, proceeding or
investigation.
(G) Taxes. Except as specifically set forth on Exhibit I (the "Tax
Liabilities"), the Company has correctly prepared and timely filed all Federal,
state and local tax returns, estimates and reports, and paid all such taxes as
and when due. For purposes of this paragraph, taxes shall mean all taxes,
charges, fees, levies or other assessments of any kind whatsoever (including,
without limitation, income, franchise, sales, use and withholding taxes). On or
before the Closing, the Company shall pay off and satisfy any of the Tax
Liabilities which are then due and payable or payable with respect to the
Purchased Assets for the period ending on the Closing Date whether or not then
due, and provide Buyer with evidence thereof in form satisfactory to Buyer and
its counsel. The Company is not a party to any tax sharing agreement.
(H) No Other Agreements to Sell Assets or Business. Neither the
Company, Virtual, the Shareholder nor any of the other Shareholders of the
Company are parties to any existing agreement which obligates the Company,
Virtual, the Shareholder or the other shareholders of the Company to sell to any
other person or firm the Purchased Assets (other than sales in the ordinary
course of business), to issue or sell any capital stock or any security
convertible into or exchangeable for capital stock of the Company or to effect
any merger, consolidation or other reorganization of the Company or to enter
into any agreement with respect thereto.
(I) No Brokers. The only broker, leasing agent, finder or similar
person or entity with whom the Company or the Shareholder have made contact or
had any dealings with or entered into any agreement, arrangement or
understanding with concerning this Agreement and to whom the Company and/or the
Shareholder are responsible to pay a finder's fee, brokerage commission or
similar payment to is the party or parties listed in item 6 on Exhibit A, if
any, and the Buyer shall be solely responsible for the payment of same.
(J) Environmental Compliance. (i) Neither the Company nor any
operator of the Company's properties is in violation, or alleged to be in
violation, of any federal, state or local judgment, decree, order, consent
agreement, law (including common law), license, rule or regulation pertaining to
environmental health or safety matters, including without limitation those
arising under the Resource Conservation and Recovery Act, as amended, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, as
amended, Water Act, as amended, the Federal Clean Air Act, as amended, the Toxic
Substances Control Act, or any state or local analogue (hereinafter
"Environmental Laws").
(ii) Neither the Company nor the Shareholder has received a
notice, complaint, order, directive, claim or citation from any third party,
including without limitation any federal, state or local governmental authority,
indicating or alleging that the Company or any predecessor may have any
liability or obligation under any Environmental Law.
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(iii) (A) No portion of the property of the Company has been
used by any person for the generation, handling, processing, treatment, storage
or disposal of Hazardous Materials except in accordance with applicable
Environmental Laws; (B) no underground tank or other underground storage
receptacle for Hazardous Materials, asbestos-containing materials or
polychlorinated biphenyls are located on any portion of any location occupied by
the Company each of which is listed as a Site on Exhibit A; (C) in the course of
any activities conducted by the Company or its invitees, agents, contractors,
licensees or employees in connection with the Business of the Company, no
Hazardous Materials have been generated or are being used except in accordance
with applicable Environmental Laws; and (D) there have been no releases (i.e.,
any past or present releasing, spilling, leaking, leaching, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, disposing or dumping) or
threatened releases of Hazardous Materials on, upon, into or from the property
currently or formerly owned, operated or leased by the Company, which releases
would have a material adverse effect on the value of any of the property or
adjacent properties or the environment.
(iv) The execution, delivery and performance of this Agreement
is not subject to any Environmental Laws which condition, restrict or prohibit
the sale, lease or other transfer of property or operations, including, without
limitation, any so-called "environmental cleanup responsibility acts" or
requirements for the transfer of permits, approvals, or licenses. There have
been no environmentally related audits, studies, reports, analyses (including
soil and groundwater analyses), or investigations of any kind performed with
respect to the currently or previously owned, leased, or operated properties of
the Company.
For purposes of this Section, "Hazardous Material" shall mean any
hazardous waste, as defined by 42 U.S.C. Sec. 6903(5), any hazardous substances
or wastes as defined by 42 U.S.C. Sec. 9601(14), any pollutant or contaminant as
defined by 42 U.S.C. Sec. 9601(33) or any toxic substances or wastes, oil or
hazardous materials or other chemicals or substances regulated by any public or
governmental authority.
(K) Year 2000. All information technology included in the Purchased
Assets including, without limitation, in all products and services (i) provided
by the Business, whether to third parties or for internal use or (ii) to the
best of the Company's knowledge after reasonable investigation, used in
combination with any information technology of its clients, customers, suppliers
or vendors, accurately processes or will process date and time data (including,
but not limited to calculating, comparing and sequencing) from, into and between
the years 1999 and 2000 and the twentieth century and the twenty-first century,
including leap year calculations and neither performance nor functionality of
such technology will be affected by dates prior to, during and after the year
2000. The Purchased Assets do not include any obligations under warranty
agreements, service agreements or otherwise to remedy any information technology
defect relating to the year 2000.
(L) Licenses and Compliance with Laws. The Company holds no material
governmental or regulatory licenses, permits, consents or approvals in
connection with the
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Business, and the Company is in compliance with all material laws and
regulations applicable to the Business.
(M) True and Complete. No representation or warranty made by Company
or the Shareholder in this Agreement, nor any statement, certificate or exhibit
furnished by or on behalf of Company pursuant to this Agreement, nor any
document or certificate delivered to Buyer pursuant to this Agreement, or in
connection with the transactions contemplated hereby, contains or shall contain
any untrue statement of a material fact, or omits or shall omit to state a
material fact necessary to make the statements contained therein not misleading.
Neither the Company nor the Shareholder has failed to disclose to Buyer any
pending developments or circumstances of which either of them are aware which
are reasonably likely to have a material adverse effect on the Company or the
Business.
Section 2. Representations of the Buyer. Buyer represents and
warrants to the Company and the Shareholder as follows.
(A) Corporate Matters; No Conflict. Buyer is a wholly owned
subsidiary of Sage Networks, Inc. ("Parent"). Each of the Buyer and Parent is
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware, is in good standing in each other jurisdiction in which it is
doing business, except where failure to be in good standing would not have a
material adverse effect on the business of Buyer or Parent, and has the
corporate power to enter into this Agreement, to perform its obligations
hereunder and to conduct its business as currently conducted. The execution,
delivery and performance of this Agreement and the transactions contemplated
hereby (and thereby) by the Buyer and Parent, respectively, will not (a)
conflict with or violate the provisions of any applicable law, rule or order or
the Buyer's or the Parent's respective Certificate of Incorporation or by-laws,
(b) conflict with or constitute a default under any agreement or contract by
which the Buyer or Parent is bound or (c) require the consent or approval of, or
filing with, any governmental body or third party. The execution, delivery and
performance by the Buyer of this Agreement has been authorized and approved by
all requisite corporate action on the part of the Buyer.
(B) No Brokers. The only broker, leasing agent, finder or similar
person or entity with whom the Buyer or Parent has made contact or had any
dealings with or entered into any agreement, arrangement or understanding with
concerning this Agreement and to whom the Buyer and/or the Parent is responsible
to pay a finder's fee, brokerage commission or similar payment to is the party
listed in item 7 on Exhibit A, if any, and the Buyer shall be solely responsible
for the payment of same.
ARTICLE III
CERTAIN COVENANTS OF THE COMPANY AND THE SHAREHOLDER
Section 1. Non-competition; non-solicitation.
(A) For a period commencing on the Closing Date and ending on the
second
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anniversary of the Closing Date, neither the Company nor the Shareholder shall
engage in any capacity in an Internet Web hosting business which is similar to
or in competition with the Business and is located or does business in any state
in the United States or in any other part of the World.
(B) The Company and the Shareholder understand that pursuant to this
Agreement they have received confidential and proprietary information of Buyer,
Parent and their respective affiliates, including, without limitation, customer
lists and other trade secrets. Neither the Company nor the Shareholder, nor any
of the Company's officers, directors, employees, agents or contractors who
received or learned of such confidential and proprietary information shall at
any time, either before or after the Closing Date, disclose to any third party
any such confidential or proprietary information of Buyer or make use of any of
such information except in evaluating whether to enter into this Agreement. In
connection with such evaluation, the Company and the Shareholder may disclose
such proprietary information to their legal and financial consultants on a need
to know basis on the condition that those consultants are similarly prohibited
from further disclosing such information as provided herein.
(C) For a period commencing on the Closing Date and ending on the
second anniversary of the Closing Date, neither the Company, nor the
Shareholder, unless acting with the express written consent of the Buyer or
Parent, will, directly or indirectly, interfere with, solicit or endeavor to
entice away:
(i) any person who was an employee, subcontractor or
consultant of the Company, the Buyer, the Parent or any of their
affiliates during the twelve months immediately preceding the date
of such solicitation, interference or endeavor,
(ii) with respect to any Internet Web hosting business similar
to or in competition with the Business in which the Company, Buyer,
Parent, or any of their affiliates is or has been engaged after the
date of this Agreement, any person or entity who was a customer or
client of the Company or of the Buyer or of the Parent, or any
person or entity who requested or received a proposal from Buyer,
Parent or the Company.
The Company and the Shareholder, and each of them, expressly acknowledges,
understands and agrees (i) that remedies at law for any breach of this Article
III, Section 1 will be inadequate, (ii) that the damages resulting from such
breach are not readily susceptible to measurement in monetary terms and (iii)
that Buyer and/or Parent shall be entitled to immediate injunctive relief and
may obtain temporary and permanent orders restraining any threatened or further
breach of this Article III, Section 1 by the Company and/or the Shareholder. The
Company and the Shareholder have been advised by their respective counsel with
respect to the meaning and effect of this Article III, Section 1.
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Section 2. Survival of Representations and Warranties;
Indemnification.
(A) The representations and warranties of the parties herein
contained shall survive the closing of the purchase contemplated by this
Agreement, notwithstanding any investigation at any time made by or on behalf of
the other party, provided that any claims for indemnification in accordance with
Article III, Section 2 below with respect to any representation or warranty must
be made (and will be null and void unless made) on or before the date
twenty-four (24) months following the Closing Date (except in the case of
representations contained in Paragraphs (B)(v), (G), (I) and (J) of Article II,
Section 1 hereof, which must be made within six (6) months following the
expiration of the applicable statute of limitations).
(B) The Company and the Shareholder, jointly and severally, hereby
agree to indemnify and hold Buyer, Parent, and their respective officers,
directors, stockholders, affiliates, employees, representatives and other agents
harmless from and against any and all claims, liabilities, losses, damages or
injuries, together with costs and expenses, including reasonable legal fees,
arising out of or resulting from (i) any breach, misrepresentation or material
omission of the representations and warranties made by the Company and/or the
Shareholder in this Agreement or in any Exhibit hereto or other documents
delivered in connection herewith, (ii) any breach in any material respect by the
Company and/or the Shareholder, unless waived in writing by the Buyer, of any
covenant or agreement contained in or arising out of this Agreement, or any
other agreement delivered in connection herewith on the Closing Date, including
without limitation, the Employment Agreements (hereafter defined), (iii) the
Business conducted by the Company prior to the Closing Date and any actions or
events associated therewith, (iv) any and all liabilities of the Company, other
than the Assumed Liabilities, and (v) any failure by Virtual, the Shareholder or
the Company to comply with any provisions of the bulk sales or similar laws of
any jurisdiction which are applicable to this Agreement or the transactions
contemplated hereby.
(C) Buyer hereby agrees to indemnify and hold the Company and the
Shareholder harmless from and against any and all claims, liabilities, losses,
damages or injuries, together with costs and expenses, including reasonable
legal fees, arising out of or resulting from (i) any breach, misrepresentation
or material omission in the representations and warranties made by the Buyer in
this Agreement, (ii) any breach in any material respect by Buyer, unless waived
in writing by the Company, of any covenant or agreement of Buyer contained in or
arising out of this Agreement, or (iii) the Business as conducted by Buyer,
after the Closing Date.
(D) Any party claiming a right to indemnification hereunder (the
"Indemnified Party") shall give the other party from whom indemnification is
sought (the "Indemnifying Party") prompt written notice of any claim, demand,
action, suit, proceeding or discovery of fact upon which the Indemnified Party
intends to base a claim for indemnification under this Section 2, provided,
however, that no failure to give such notice shall excuse any Indemnifying Party
from any obligation hereunder except to the extent the Indemnifying Party is
materially prejudiced by such failure. The Indemnifying Party after
acknowledgment in writing to the Indemnified Party of its liability and
obligation to indemnify hereunder, shall have full responsibility and authority
with respect to the disposition of any action, suit or proceeding
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<PAGE> 13
brought against it; provided, however, that it will not settle any such action,
suit or proceeding without the prior written consent of the Indemnified Party,
which will not be unreasonably withheld or delayed. In the event any action,
suit or proceeding is brought against the Indemnified Party with respect to
which the Indemnifying Party may have liability under the indemnity agreements
contained in Paragraphs (B) and (C) of Article III, Section 2 hereof, however,
the Indemnifying Party shall have the right, without prejudice to the
Indemnified Party's rights under this Agreement, at the Indemnifying Party's
sole expense, to be represented by counsel of its own choosing and with whom
counsel for the Indemnified Party shall confer in connection with the defense of
any such action, suit, or proceeding. The Indemnified Party shall make available
to the Indemnifying Party and its counsel and accountants, all books and records
of the Indemnified Party relating to such action, suit or proceeding and the
parties agree to render to each other such assistance as may reasonably be
requested in order to insure the proper and adequate defense of any such action,
suit or proceeding.
(E) Pursuant to the Purchase Price Escrow Agreement, upon receipt by
the Escrow Agent thereunder of the Bankruptcy Order, $70,000 from the Escrowed
Amount held thereunder (the "Indemnity Escrowed Amount") will be paid over and
held by the escrow agent listed on Exhibit A (the "Escrow Agent") in accordance
with the terms of an escrow agreement to be entered into between the parties
(the "Indemnity Escrow Agreement") on or prior to the Closing Date. The
Indemnity Escrowed Amount will be held in escrow by the Escrow Agent as security
for any indemnification obligation of the Company and/or the Shareholder to
Buyer pursuant to the terms of Article III, Section 2, Paragraph (B) of this
Agreement. Indemnity claims by Buyer pursuant to said Paragraph (B) shall be
satisfied first by the reduction of the Indemnity Escrowed Amount until the
termination of the Indemnity Escrow Agreement and thereafter by the Company
and/or the Shareholder. The Indemnity Escrowed Amount does not constitute a
limit on the liability of the Company or the Shareholders to Buyer hereunder, it
being understood and agreed that the Company and the Shareholder shall, subject
to the limitation provided for in Section 2, Paragraph (B) hereof, remain liable
to satisfy the amount of such claims which exceed the Indemnity Escrowed Amount.
Among other things, the Indemnity Escrow Agreement will provide that on the
first anniversary hereof, the Escrow Agent shall pay to the Company or its
designee such amount of the Indemnity Escrowed Amount then remaining, if any, as
has not previously been applied pursuant to the terms of said Escrow Agreement,
unless an indemnification claim by Buyer against the Company and/or the
Shareholder is then pending.
ARTICLE IV
CLOSING AND DELIVERIES AT CLOSING
Section 1. Closing. The closing of the purchase and sale of the
transaction contemplated herein shall take place on September 16, 1998 (the
"Closing"), at the offices of McCarthy, Fingar, Donovan, Drazen & Smith, L.L.P.,
Buyer's Counsel, located at 11 Martine Avenue, 12th Floor, White Plains, NY
10606 at 10:00 a.m. or as otherwise mutually agreed upon
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<PAGE> 14
by the parties. The deliveries described in Section 2 and 3 of this Article IV
will take place at the Closing.
Section 2. Deliveries by the Company and the Shareholder. On the
Closing Date, the Company and the Shareholder will deliver, or cause to be
delivered, to the Buyer the following:
(A) Such instruments of transfer or conveyance executed by the
Company, and the Shareholder where applicable, as Buyer may reasonably request
in order to convey and transfer to Buyer good and marketable title to all of the
Purchased Assets, free and clear of all liens, claims, encumbrances and other
charges, including, without limitation, a Bill of Sale.
(B) Physical delivery of all Tangible Assets by making them
available at the Sites listed on Exhibit A, together with any and all
warranties, manuals, instructions, and other literature in the possession of the
Company or the Shareholder relating to the ownership or operation of the
Tangible Assets. In addition, such notices to telephone companies and others
required to transfer the Company's telephone and facsimile numbers, e-mail
addresses and domain addresses, used or located in the Business to Buyer and
physical delivery of all books, files and records concerning the Purchased
Assets.
(C) Physical delivery of all original or certified copies of
documentation concerning the Intellectual Property, including, without
limitation, registrations and applications of any patents, trademarks or service
marks, original artwork, data bases, computer programs and software.
(D) The following corporate documentation:
(i) The Company's Articles or Certificate of Incorporation
certified as of a date within thirty (30) days prior to the Closing
Date by the Secretary of State of the state of the Company's
organization;
(ii) Good Standing Certificates as of date within thirty (30)
days prior to the Closing Date from the Secretary of State of the
state of the Company's organization and each other state in which
the Company is qualified to do business;
(iii) The Company's By-Laws certified as of the Closing Date
by the President or Secretary of the Company as being in full force
and effect and unmodified; and
(iv) Corporate Resolutions of the Company's Board of Directors
and the shareholders of the Company (if required by the Company's
By-Law's or applicable law), approving this Agreement and all the
transactions contemplated hereby, certified by the President or
Secretary of the Company as being in full force and effect and
unmodified.
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<PAGE> 15
(E) The legal opinions of counsel to the Company and the
Shareholder, in a form acceptable to Buyer and its counsel.
(F) Evidence in form satisfactory to Buyer and its counsel that the
Tax Liabilities, if any, have been paid off and satisfied.
(G) The Purchase Price Escrow Agreement and the Indemnity Escrow
Agreement duly executed by the Company.
(H) Copies of written proof in form and substance satisfactory to
Buyer and its counsel that the Company will no longer do business under any of
the trade names listed on Exhibit B as required pursuant to Article I, Section
2, Paragraph (B) (iii) hereof.
(I) The Company and the Shareholder shall use their reasonable best
efforts to deliver a Non-Competition, Non-Disclosure and Intellectual Property
Agreement in a form to be provided by Buyer prior to the Closing, executed by
each employee of the Company who will be employed by Buyer or its affiliate
after the Closing.
(J) Notices of termination of all employees of the Company employed
in connection with Business satisfactory to Buyer, which notices will be
delivered to the employees concurrently with the Closing.
(K) Consulting Agreement between Parent and Thomas Heimann (the
"Consulting Agreement"), executed by him
(L) Quitclaim conveyances executed by Network and IMA conveying to
Buyer any right, title and interest any of them may have in and to the Purchased
Assets in form and substance satisfactory to Buyer and its counsel.
(M) A Subscription Agreement duly executed by Thomas Heimann and
Pamela Karasy covering the issuance to them of 25,000 shares of common stock of
Parent (the "Common Stock") pursuant to the Consulting Agreement (the
"Subscription Agreement"), in the form to be provided by Parent.
(N) A Right of First Refusal Agreement duly executed by Thomas
Heimann and Pamela Karasy relating to the Common Stock (the "Right of First
Refusal Agreement"), in the form to be provided by Parent.
(O) Consent to a press release in form satisfactory to the Company
and Buyer relating to this Agreement and the transactions contemplated hereby.
(P) Such notice or notices as Buyer may reasonably request in order
to notify the customers included on the Customer List that the Business has been
sold to Buyer.
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<PAGE> 16
Section 3. Deliveries by the Buyer.
On the Closing Date, the Buyer will deliver, or cause to be
delivered, to the Company and the Shareholders the following:
(A) The Down Payment, by certified or official bank check payable to
the order of the Company, or by wire transfer of federal funds to the account of
the Company, as the Company and Shareholder shall direct in writing on or before
the Closing Date.
(B) Such instruments of assignment and assumption executed by the
Buyer, as the parties hereto reasonably may determine necessary to effectuate
the assignment to the Buyer of the Business Agreements and the assumption by
Buyer of the Assumed Liabilities.
(C) The Purchase Price Escrow Agreement and the Indemnity Escrow
Agreement duly executed by the Buyer and the Escrow Agent.
(D) The Consulting Agreement executed by Parent.
(E) Resolution of the Board of Directors of Buyer, authorizing the
execution of this Agreement and the transactions contemplated hereby.
(F) The Subscription Agreement executed by Parent.
(G) The Right of First Refusal Agreement executed by Parent.
(H) A certificate issued by Parent to Thoman Heimann and Pamela
Karasy representing the shares of Common Stock agreed to be delivered pursuant
to the Consulting Agreement, which certificate shall be properly legended to
reflect that the Common Stock represented thereby has not been registered under
the Securities Act of 1933 as amended, and is subject to the terms of the Right
of First Refusal Agreement.
(I) Consent to a press release in form satisfactory to the Company
and Buyer relating to this Agreement and the transactions contemplated hereby.
ARTICLE V
OBLIGATIONS FOLLOWING CLOSING
Section 1. Further Cooperation. The Company and the Shareholder
will, at any time and from time to time after the Closing Date, execute and
deliver such further instruments of conveyance, transfer and license, and take
such additional actions as Buyer,
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<PAGE> 17
Parent or its successor and/or assigns, may reasonably request, to effect,
consummate, confirm or evidence the transfer to Buyer of the Purchased Assets
pursuant to this Agreement.
Section 2. Transition Assistance and Adjustments.
(A) The Company shall reasonably cooperate and provide assistance to
the Buyer as shall be reasonably appropriate during the transition of the
Business and the Purchased Assets from the Company to the Buyer, or its
successors and/or assigns, after the Closing Date. All assistance shall be made
promptly when available after any request by Buyer. Buyer shall only reimburse
the Company for reasonable out-of-pocket expenses incurred in rendering such
assistance, but not for any time of any personnel.
(B) Buyer and its successors and/or assigns shall have the right at
any time and from time to time upon reasonable notice and during normal business
hours to examine and make copies of all corporate books, records and other
documents of the Company relating to the Business and generated prior to the
Closing Date, which documents will be maintained by the Company and the
Shareholder for a period of five (5) years after the Closing Date. The Company
and Shareholder shall reasonably cooperate and provide assistance in connection
with the preparation or revisions to and audits of the financial statements of
the Company conducted by Buyer after the Closing, including, without limitation,
making Company's internal accounting and auditing personnel, as well as its
external accounting personnel, available to Buyer, its affiliate and/or its
auditors upon request.
(C) The Company and the Shareholder will reasonably cooperate with
Buyer in notifying the customers included on the Customer List that the Business
has been sold to Buyer, including, without limitation, executing any additional
notices which Buyer may reasonably request. Neither the Company nor the
Shareholder will, directly or indirectly, take any action which is designed or
intended to have the effect of discouraging customers, suppliers or vendors and
other business associates of the Business, from maintaining the same business
relationships with Buyer or its successors and/or assigns after the Closing Date
as were maintained with the Company and/or the Shareholder with respect to the
Business prior to the Closing Date.
(D) The Buyer and/or its Parent shall have the right to use the
Company's existing facility at the Site listed on Exhibit C-3, for a period from
the Closing Date up to October 31, 1998, to operate and maintain the Business.
Buyer shall reimburse the Company, within 10 days of the receipt by Buyer of an
appropriate invoice, in an amount equal to the rent and additional operating
expenses paid by the Company for said facility during the period of such use
which the parties acknowledge to be approximately $21,000; consisting of $9,000
in rent, $9,000 in connectivity charges and $3,000 in electric charges.
Additionally, the Buyer or its Parent shall be billed by the Company for any
direct telephone charges allocable to Buyer's or Parent's use of telephones at
the site during said period of use as well as any unforeseen reasonable
operating expenses approved by Buyer.
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<PAGE> 18
(E) Following the Closing, the Company and the Shareholder or any
affiliate of the Company (as defined under federal securities laws), shall not
use the name "GEN International" or any confusingly similar name to said trade
name in any trade or business, other than as an employee of Buyer or an
affiliate of Buyer.
ARTICLE VI
MISCELLANEOUS
Section 1. Governing Law; Jurisdiction. This Agreement shall be
governed by the laws of the State of New York. The parties hereto submit and
consent to the exclusive jurisdiction of the state courts of the State of New
York in the Counties of New York and/or Westchester and the federal courts
located therein with respect to any legal actions relating to this Agreement, or
any other agreements delivered in connection herewith, between the Company
and/or the Shareholder, on the one hand, and the Buyer and/or Parent, on the
other hand, and any transactions contemplated thereby.
Section 2. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
Section 3. Confidentiality. The Company and the Shareholder, on the
one hand, and the Buyer, on the other hand, each agree not to disclose or use
any information acquired by it about the other party during the course of the
negotiations of this Agreement and the transactions to which it relates which is
confidential in nature or not otherwise generally available to the public
without the prior written consent of such other party unless required to do so
by applicable law or by order of a court of competent jurisdiction.
Section 4. Entire Agreement; Amendments. This Agreement supersedes
any prior discussions and agreements relating to the subject matter hereof
between the Buyer, Parent, the Company and the Shareholders, and this Agreement
contains the sole and entire agreement among the parties with respect to the
matters covered hereby. This Agreement cannot be changed, modified or amended
and no provision or requirement hereof may be waived without the consent in
writing of the parties hereto.
Section 5. Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect. Each provision of this Agreement shall be deemed to be the agreement of
the parties hereto to the full extent that the power to enter into such
provisions shall have been conferred on the parties by law.
Section 6. Benefit; Assignment. This Agreement is binding upon and
inures to the benefit of the parties, their successors and permitted assigns.
This Agreement may not be
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<PAGE> 19
assigned or the duties of the parties hereunder delegated to others without the
prior written consent of all parties hereto, except that Buyer may assign its
rights, duties and obligations hereunder to Parent or an affiliate of Buyer or
Parent without the Company's or the Shareholders' consent.
Section 7. Construction. All exhibits annexed hereto are hereby
incorporated herein by reference and made a part of this Agreement. Whenever
used in this Agreement and the context so requires, the singular shall include
the plural and the plural shall include the singular.
Section 8. Imputed Knowledge. Anywhere in this Agreement where it
refers to the "knowledge of" the Company, or words of similar import, the
knowledge of the Shareholder and the officers and directors of the Company shall
be imputed to be the knowledge of the Company. Anywhere in this Agreement where
it refers to the "knowledge of" the Buyer or the Parent, or words of similar
import, the knowledge of Leonard J. Fassler shall be imputed to be the knowledge
of the Buyer and the Parent, respectively.
Section 9. Notices. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to the Company: GEN International, Inc.
1000 112th N. Circle Road, Suite 800
St. Petersburg, Florida
Copy to:
Thomas P. McNamara, Esq.
2909 Bay to Bay Blvd., Suite 309
Tampa, Florida 33629
If to the Buyer: Sage Networks Acquisition Corp.
215 First Street
Cambridge, Massachusetts 02142
Copy to:
Bruce S. Klein, V.P. and General Counsel
11 Martine Avenue
White Plains, New York 10606
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<PAGE> 20
and
McCarthy, Fingar, Donovan, Drazen & Smith, L.L.P.
11 Martine Avenue
White Plains, New York 10606
Attn: Howell Bramson, Esq.
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
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<PAGE> 21
[SIGNATURE PAGE OF ASSET PURCHASE AGREEMENT BETWEEN SAGE
NETWORKS ACQUISITION CORP. AND GEN INTERNATIONAL, INC. DATED
SEPTEMBER 16, 1998]
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
SAGE NETWORKS ACQUISITION CORP.
By: /s/ Leonard J. Fassler
--------------------------------
Leonard J. Fassler, President
GEN INTERNATIONAL, INC.
By: /s/ Thomas Heimann
--------------------------------
Thomas Heimann, Chief Executive
Officer and Vice-President
SHAREHOLDER:
/s/ Thomas Heimann
-----------------------------------
Thomas Heimann
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<PAGE> 22
DESCRIPTION OF EXHIBITS:
Exhibit A -- Basic Provisions
Exhibit B -- Ownership of Capital Stock of the Company; Description of Capital
Stock; Officers; Directors; Trade Names; Jurisdictions
Exhibit C-1 -- Forms of Business Agreements with Customers
Exhibit C-2 -- Summary of Oral Business Agreements and Vendor/Service Provider
and Other Agreements
Exhibit C-3 -- Leases
Exhibit C-4 -- Claims of Disputes Under Business Agreements
Exhibit C-5 -- Consents to Transfer or Assign Not Obtained
Exhibit D -- [INTENTIONALLY DELETED]
Exhibit E -- Tangible Assets
Exhibit F -- Intellectual Property
Exhibit G -- Customer List and Related Information
Exhibit G-1 -- Customer Terminations
Exhibit H -- Financial Statements
Exhibit I -- Bad Debts and Tax Liabilities of the Company
Exhibit J -- Assumed Liabilities
Exhibit K -- Existing Employment Agreements, Labor or Collective Bargaining
Agreements, Employee Benefit or Welfare Plans, Description of
Employees
Exhibit L -- Excluded Assets
Exhibit M -- Liens; Encumbrances
In accordance with Item 601(b)(2) of Regulation S-K all exhibits other than
Exhibit A have been omitted. The Company hereby agrees to furnish supplementally
a copy of any omitted exhibit to the Commission upon request.
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<PAGE> 23
EXHIBIT A
TO
ASSET PURCHASE AGREEMENT
BETWEEN
SAGE NETWORKS ACQUISITION CORP.
AND
GEN INTERNATIONAL, INC.
BASIC PROVISIONS
1. Name of Buyer: Sage Networks Acquisition Corp.
2. Names of Companies and Jurisdictions of Incorporation:
<TABLE>
<CAPTION>
Jurisdiction of
Company Incorporation Offices
- ------- --------------- -------
<S> <C> <C>
a) GEN International, Inc. (the "Company") Florida 1000 112 N. Circle Rd.
Suite 800
St. Petersburg, FL 33716
b) Global Entrepreneurs Network, Inc. Florida 1000 112 N. Circle Rd.
Suite 800
St. Petersburg, FL 33716
c) Gen Network Operations Center, Inc. Florida N/A
d) International Management Agency, Inc. Florida 100 N. Tampa St.
Suite 1950
Tampa, Florida 33602
</TABLE>
3. Authorized Officers of the Company:
a) Thomas Heimann; Director, CEO, Vice-President and Treasurer
b) Brian McHugh; Director, President and COO
<PAGE> 24
EXHIBIT A (CONTINUED)
4. MAJORITY SHAREHOLDER OF THE COMPANY:
a) Virtual Ventures, Ltd. owns 24,100,000 shares
b) Address: 2-5 Old Bond Street, Suite 3-C
London, W1X3TB
UK
5. TOTAL AUTHORIZED SHARES OF THE COMPANY:
a) 50,000,000 shares of Common stock (no par value)
b) 10,000,000 shares of Preferred Stock--Series A Convertible
(non-voting)(no par value)
6. TOTAL OUTSTANDING SHARES OF THE COMPANY:
a) 37,589,706 shares of common stock
b) 175,000 shares of Preferred Stock (non-voting)
7. PURCHASE PRICE: $455,000
8. COMPANY AND SHAREHOLDER'S BROKER--None
9. BUYER'S BROKER: Am-Tech Associates
10. ESCROW AGENT: McCarthy, Fingar, Donovan, Drazen & Smith, L.L.P.
Attorneys for Buyer
11 Martine Ave.
White Plains, NY 10606
<PAGE> 1
Exhibit 2.7
ASSET PURCHASE AGREEMENT
Agreement made this 16th day of September 1998 between GLOBAL
ENTREPRENEURS NETWORK, INC., a Florida corporation, having an office at 1000 112
N. Circle Road, St. Petersburg, Florida (the "Seller") and SAGE NETWORKS
ACQUISITION CORP., a Delaware corporation, having an office at 215 First Street,
Cambridge, MA (the "Buyer").
W I T N E S S E T H:
WHEREAS, Seller is a wholly owned subsidiary of GEN International,
Inc. ("GEN") which is, concurrently with the execution of this Agreement,
entering into an agreement with the Buyer for the sale by GEN and the purchase
by Buyer of GEN's Internet web hosting business and substantially all the
operating assets of GEN related to said business; and
WHEREAS, Seller conveyed to GEN its GEN Membership Accounts and any
and all of it's rights to GEN Trade Marks, the GEN Logo(s) and any rights
arising directly or indirectly from the GEN name (collectively, the "GEN
Assets") pursuant to an agreement of sale dated June 9, 1997 (the "Agreement of
Sale"), a copy of which is attached hereto as Exhibit A; and
WHEREAS, after the sale to GEN pursuant to the Agreement of Sale,
Seller continued to be the lessee under certain equipment leases covering
equipment (the "Leased Equipment") used in connection with GEN's Internet web
hosting business, which leases are listed on Exhibit B attached hereto (the
"Equipment Leases"); and
WHEREAS, after the sale to GEN pursuant to the Agreement of Sale,
Seller continued to own certain equipment (the "Owned Equipment") used in
connection with GEN's Internet web hosting business, which equipment is listed
on Exhibit B-1 attached hereto (the Leased Equipment and the Owned Equipment is
collectively referred to as the "Equipment"); and
WHEREAS, Seller is currently the Debtor in a bankruptcy proceeding
in the United States Bankruptcy Court for the Middle District of Florida, Tampa
Division, docket No. 98-8645 8B1 (the "Bankruptcy Court"); and
WHEREAS, Buyer desires to acquire (i) ownership of the Equipment and
(ii) all right, title and interest that Seller may have in and to the assets
transferred to GEN pursuant to the Agreement of Sale.
NOW THEREFORE, in consideration of the mutual covenants and promises
contained in this Agreement, the parties agree as follows:
<PAGE> 2
1. Seller agrees to sell, convey and assign to Buyer free and clear
of all liens, leasehold interests and encumbrances of any kind whatsoever, all
of Seller's right, title and interest in and to (i) the Equipment and (ii) all
of the assets transferred by Seller to GEN pursuant to the Agreement of Sale,
including without limitation, the GEN Assets (collectively, the "Purchased
Assets").
2. The purchase price for the Purchased Assets is Two Hundred
Ninety-Five Thousand ($295,000.00) Dollars (the "Purchase Price").
3. Seller agrees to execute and deliver to McCarthy, Fingar,
Donovan, Drazen & Smith, L.L.P., 11 Martine Avenue, White Plains, New York
10606, as escrow agent (the "Escrow Agent") on the date hereof a bill of sale
and assignment satisfactory to Buyer (the "Bill of Sale") conveying to Buyer all
its right, title and interest in and to (i) the Purchased Assets free and clear
of all liens, leasehold interests and encumbrances of any kind whatsoever and
(ii) all claims and/or causes of action which Seller may have for recovery of
the Purchased Assets or the value thereof from GEN under Title 11 of the
Bankruptcy Code or any applicable non-bankruptcy law or cause of action.
4. Buyer agrees to deliver to the Escrow Agent by September 17, 1998
the amount of $295,000.00 by wire transfer. The Escrow Agent agrees to hold such
funds in an escrow account maintained by it at a bank located in Westchester
County, New York.
5. The Escrow Agent agrees to hold the Bill of Sale and said
$295,000.00 in escrow until such time as it receives (a) a verified, final, and
non-appealable order from the Bankruptcy Court in form and substance
satisfactory to Buyer and its counsel, whereby the Bankruptcy Court (i) makes a
finding that the Buyer is a good faith purchaser for value of the Purchased
Assets under Section 363 (m) of the Bankruptcy Code and (ii) it approves the
sale and conveyance of the Purchased Assets to Buyer pursuant to this Agreement
and (b) a copy of a bill of sale from the lessors of the Equipment to the Buyer,
or such other proof satisfactory to Buyer that Seller is vested with good and
marketable title to the Equipment. Upon receipt of said order and bill of sale
from the lessors (or other proof of title), the Escrow Agent shall deliver the
Bill of Sale to the Buyer and transmit the $295,000.00 to the Seller or the
Bankruptcy Court as instructed by the Bankruptcy Court. Notwithstanding the
foregoing, if directed by the Buyer in Buyer's sole discretion, Escrow Agent
shall pay such portion of the Purchase Price as is necessary to obtain title to
the Purchased Assets, including the Equipment free and clear of all liens,
leasehold interests and encumbrances directly to the creditors of the Seller,
including any lessors of the Leased Equipment.
6. Notwithstanding that the Bill of Sale will be held in escrow
pursuant to paragraph 5 of this Agreement, Buyer may immediately upon execution
of this Agreement, move and transfer the Purchased Assets, including the
Equipment, to its data center located in Atlanta, Georgia and use them in the
business of Buyer or of Buyer's successors and/or assigns.
7. Seller hereby represents and warrants that attached hereto as
Exhibit C is a true and correct schedule of the payoff amounts relating to the
Equipment Leases.
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<PAGE> 3
8. Escrow Agent assumes no liabilities under this Agreement except
that of a stakeholder. The duties of Escrow Agent are only such as are
specifically provided in this Agreement, being purely ministerial in nature, and
no implied duties or obligations may be read into this Agreement against Escrow
Agent. The Escrow Agent (a) shall not be liable for any error of judgment, any
mistake of fact or law or any act done or omitted by it in good faith, unless as
the result of its gross negligence or willful misconduct; (b) shall be entitled
to treat as genuine any letter or other document furnished to it by Seller or
Buyer and believed by it to be genuine and to have been signed and presented by
the proper party or parties; (c) shall be entitled to consult with counsel of
its own choosing with respect to any matter that arises hereunder and shall not
be liable for action taken or omitted to be taken by it in good faith, and in
accordance with the advise of such counsel; (d) shall be indemnified and held
harmless by Buyer and Seller, jointly and severally, against any and all
damages, expenses and liabilities incurred by it hereunder, including attorneys'
fees and costs, except for those incurred by it as a result of its own willful
misconduct or negligence, (e) in the event that a dispute shall arise as to the
disposition of the items held in escrow hereunder, Escrow Agent shall have the
right, at its option, to either hold the same or deposit the same with a court
of competent jurisdiction located in the County and State of New York pending
decision of such court, and Escrow Agent shall be entitled to rely upon the
decision of such court, and (f) notwithstanding any dispute concerning the items
held in escrow hereunder, Escrow Agent may represent Buyer as Buyer's legal
counsel in any matter, including such dispute.
9. Seller agrees to use the Purchase Price to pay to creditors of
the Seller, including without limitation the lessors under the Equipment Leases,
such amount as is necessary to obtain title to the Equipment, free and clear of
all liens, leasehold interests and encumbrances of any kind whatsoever.
10. The parties agree that if the order of the Bankruptcy Court is
not delivered to the Escrow Agent by December 31, 1998 then this Agreement shall
be null and void and the Escrow Agent shall be and is hereby directed by the
parties to return the $295,000.00 to the Buyer and to return the Bill of Sale to
the Seller.
11. Seller shall reasonably cooperate and provide assistance to the
Buyer as shall be reasonably appropriate during the transition of the Purchased
Assets from the Seller to the Buyer, or its successors and/or assigns, after the
Closing Date. All assistance shall be made promptly when available after any
request by Buyer. Buyer shall only reimburse the Seller for reasonable
out-of-pocket expenses incurred in rendering such assistance, but not for any
time of any personnel.
12. Notwithstanding any other provision of this Agreement, unless
and until a final, nonappealable order is entered by the Bankruptcy Court
meeting the requirements of Section 5 of this Agreement, neither the Seller nor
the Global bankrupt estate, nor any third party, shall have any interest in the
amount being held by the Escrow Agent pursuant to this Agreement.
-3-
<PAGE> 4
13. Seller will, at any time and from time to time after the Closing
Date, execute and deliver such further instruments of conveyance, transfer and
license, and take such additional actions as Buyer, or its successor and/or
assigns, may reasonably request, to effect, consummate, confirm or evidence the
transfer to Buyer of the Purchased Assets pursuant to this Agreement
14. This Agreement shall be governed by the laws of the State of New
York. The parties hereto submit and consent to the exclusive jurisdiction of the
state courts of the State of New York in the Counties of New York and/or
Westchester and the federal courts located therein with respect to any legal
actions relating to this Agreement.
15. This Agreement may be executed in several counterparts, each of
which shall be an original and all of which together shall constitute one and
the same instrument.
16. This Agreement supersedes any prior contracts relating to the
subject matter hereof between the Buyer and the Seller. This Agreement cannot be
changed, modified or amended and no provision or requirement hereof may be
waived without the consent in writing of the parties hereto.
17. This Agreement is binding upon and inures to the benefit of the
parties, their successors and permitted assigns. This Agreement may not be
assigned or the duties of the parties hereunder delegated to others without the
prior written consent of all parties hereto.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement on the date first above written.
GLOBAL ENTREPRENEURS NETWORK, INC.
By /s/ Thomas Heimann
--------------------------------
Thomas Heimann, President
SAGE NETWORKS ACQUISITION CORP.
By /s/ Leonard J. Fassler
--------------------------------
Leonard J. Fassler, President
Agreed to:
MCCARTHY, FINGAR, DONOVAN, DRAZEN & SMITH, L.L.P.
By /s/ Howell Bramson
-------------------------------
-4-
<PAGE> 1
EXHIBIT 2.8
STOCK PURCHASE AGREEMENT
AMONG
B.N. TECHNOLOGY, INC., BERND NEUMANN, ANNEDORE SOMMER,
AND
SAGE NETWORKS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Article I. PURCHASE AND SALE OF STOCK.......................................................................1
Section 1.01 Purchase and Sale.........................................................................1
Article II. PURCHASE PRICE..................................................................................2
Section 2.01 Purchase Price............................................................................2
Article III.................................................................................................2
Section 3.01 The Closing Date..........................................................................2
Section 3.02 Further Assurances........................................................................2
Article IV. REPRESENTATIONS AND WARRANTIES..................................................................2
Section 4.01 Representations and Warranties of the Primary Shareholder.................................2
Section 4.02 Representations of the Buyer.............................................................10
Article V. CERTAIN COVENANTS...............................................................................11
Section 5.01 Survival of Representations and Warranties; Indemnification..............................11
Section 5.02 Company Audit............................................................................12
Article VI. DELIVERIES AT CLOSING..........................................................................12
Section 6.01 Deliveries by the Company and the Shareholders...........................................12
Section 6.02 Deliveries by the Buyer..................................................................13
Article VII. OBLIGATIONS FOLLOWING CLOSING.................................................................14
Section 7.01 Further Cooperation......................................................................14
Section 7.02 Transition Assistance and Adjustments....................................................14
Section 7.03 Taxes. 14
Article VIII. MISCELLANEOUS................................................................................14
Section 8.01 Governing Law; Jurisdiction..............................................................14
Section 8.02 Counterparts.............................................................................15
Section 8.03 Confidentiality..........................................................................15
Section 8.04 Entire Agreement; Amendments.............................................................15
Section 8.05 Severability.............................................................................15
Section 8.06 Benefit; Assignment......................................................................15
Section 8.07 Construction.............................................................................15
Section 8.08 Imputed Knowledge........................................................................16
Section 8.09 Notices..................................................................................16
</TABLE>
<PAGE> 3
STOCK PURCHASE AGREEMENT
AGREEMENT made as of this 31st day of August, 1998 between
B.N. TECHNOLOGY, INC., a California corporation with a principal place of
business at 7787 Sunset Boulevard, #102, Los Angeles, CA 90046 (the "Company"),
BERND NEUMANN, an individual residing at the address set forth on Exhibit A,
ANNEDORE SOMMER, an individual residing at the address set forth on Exhibit A
(collectively, "Shareholders"), and SAGE NETWORKS, INC., a Delaware corporation
having an office at 215 First Street, Cambridge, MA 02142 ("Buyer").
W I T N E S S E T H:
WHEREAS, the Shareholders are the holders of all of the
outstanding shares of the authorized capital stock of the Company;
WHEREAS, the Company conducts an Internet Web hosting business
(hereinafter, the "Business");
WHEREAS, the Shareholders wish to sell to the Buyer and Buyer
wishes to purchase from Shareholders all of the outstanding shares of the
Company and all associated goodwill, all on the terms and subject to the
conditions provided herein.
NOW THEREFORE, in consideration of the mutual covenants and
promises contained in this Agreement, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged by all parties, the
parties hereto agree as follows:
ARTICLE I.
PURCHASE AND SALE OF STOCK
SECTION 1.01 PURCHASE AND SALE.
In reliance on the representations, warranties and covenants
herein and subject to the terms and conditions of this Agreement, on the Closing
Date the Shareholders will sell, convey, transfer and deliver to Buyer, and
Buyer will purchase from the Shareholders 100,000 shares of common stock, no par
value, of the Company, representing all of the issued and outstanding shares of
common stock of the Company (the "Company Common Stock").
<PAGE> 4
ARTICLE II.
PURCHASE PRICE
SECTION 2.01 PURCHASE PRICE.
In consideration of the sale and transfer of the Company
Common Stock by the Shareholders, subject to the terms and conditions of this
Agreement and on the basis of the representations and warranties of the Primary
Shareholder (as defined below) contained herein, on the Closing Date (as defined
below), Buyer shall pay to the Shareholders in cash the amount of $2,000,000
(Two Million Dollars) (the "Purchase Price"), by certified or official bank
check payable to the order of the Shareholders, or by wire transfer of federal
funds to the account of the Shareholders, as the Company and the Shareholders
shall direct in writing on or before the Closing Date.
ARTICLE III.
CLOSING
SECTION 3.01 THE CLOSING DATE.
The purchase and sale provided for in this Agreement (the
"Closing") shall take place on August 31, 1998 at the offices of Dewey
Ballantine, 1301 Avenue of the Americas, New York, New York 10019 at 10:00 a.m.
New York time, or as otherwise mutually agreed upon by the parties (the "Closing
Date").
SECTION 3.02 FURTHER ASSURANCES.
The Shareholders agree that, at any time and from time to time
after the Closing Date, they will, upon request, execute, acknowledge and
deliver, or cause to be executed, acknowledged or delivered, all such further
reasonable deeds, assignments, transfers, conveyances, powers of attorney and
assurances as may be reasonably required for the better assigning, transferring,
granting, conveying, assuring and confirming to Buyer the Company Common Stock
and any assets, properties or rights associated with the Business (including,
without limitation, the Company's internet address), or for defending or
compromising any of the liabilities and obligations of the Business.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
SECTION 4.01 REPRESENTATIONS AND WARRANTIES OF THE PRIMARY
SHAREHOLDER.
Bernd Neumann (the "Primary Shareholder") represents and
warrants to Buyer as follows:
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<PAGE> 5
(a) Organization; Good Standing; Stock Ownership; Capitalization.
(i) The Company is a corporation duly organized, validly
existing and in good standing under the laws of its state of
incorporation as set forth on Exhibit A, and has the corporate power
and authority to own or lease its properties and to conduct its
business as currently conducted. The Company maintains offices only at
the site(s) listed on Exhibit A and has no operations other than from
those site(s).
(ii) The Shareholders are all the beneficial and/or record
owners of the issued and outstanding shares of capital stock of the
Company and the Shareholders own the number of shares of such stock set
forth opposite his or her name on Exhibit A. The Shareholders are the
beneficial and record owners of the Company's capital stock, free and
clear of any liens, encumbrances or restrictions on transfer of any
nature whatsoever other than the obligations of Shareholders arising
under this Agreement to sell the Company's capital stock to Buyer.
Except for this Agreement and the transactions contemplated hereby, no
Shareholder has any legal obligation, absolute or contingent, to any
person or firm to sell the Company's capital stock or to enter into any
agreement with respect thereto. Other than the Shareholders, no other
person or entity has ever been a shareholder of the Company.
(iii) The Company's authorized capital consists exclusively of
100,000 shares of common stock, no par value, all of which are issued
and outstanding. All of the outstanding shares of capital stock of the
Company have been duly authorized and are validly issued, fully paid
and non-assessable. There are no existing options, calls or commitments
of any character whatsoever, or agreements to grant the same, relating
to the Company's capital stock. The Company has no outstanding
securities convertible into or exchangeable or exercisable for any
shares of common stock or any options, calls or commitments of any
character whatsoever with respect to the issuance of such convertible
securities. The Company owns no equity interests, convertible
securities, marketable securities, notes or other obligations evidenced
by written instruments of any other firm or entity. The Company has no
subsidiaries.
(b) Corporate Authorization. The execution, delivery and
performance by each Shareholder and the Company of this Agreement has been
authorized and approved by all requisite corporate and other action on the part
of such Shareholder and the Company, and no other corporate or other approval or
authorization is required on the part of any Shareholder, the Company, any
trustee or any other person by law or otherwise in order to make this Agreement
the valid, binding and enforceable obligations of such Shareholder and the
Company, respectively. This Agreement is enforceable against the Shareholders
and the Company in accordance with its terms. Set forth on Exhibit 4.01(b) is a
list of officers and directors of the Company, all trade names used by the
Business and all jurisdictions in which the Business is conducted.
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<PAGE> 6
(c) The Company's Assets.
(i) All vendor and customer contracts, confidentiality
agreements, purchase and sales orders, powers of attorney,
undertakings, commitments and other agreements to which the Company is
a party and which relate in any manner to the Business and/or the
relationship between the Company and the Customers (hereinafter
defined) or its vendors, whether written or oral, shall be referred to
herein collectively as the "Business Agreements". The Company has
delivered to Buyer, on or before the Closing Date, true and correct
copies of all written Business Agreements and detailed summaries of all
oral Business Agreements. Attached hereto as Exhibit 4.01(c)(i)(1) are
true and correct copies of the only forms of agreements which have been
entered into between the Company and its Customers concerning the
Business and each Customer has entered into an agreement with Company
in such form. Annexed as Exhibit 4.01(c)(i)(2) is a detailed summary of
all oral Business Agreements, as well as a copy of all written Business
Agreements between the Company and vendors or service providers, or
which relate to any strategic partnerships, reselling arrangements or
joint ventures between the Company and others, concerning the Business.
Listed on Exhibit 4.01(c)(i)(3) is a description of each and every real
estate, equipment and personal property lease (collectively, the
"Leases") to which the Company is a party and which relates to the
Business. The Leases are also included within the definition of
Business Agreements as said term is used herein. Neither the Company
nor any other party is in default under any Business Agreement and no
other party to any Business Agreement has made any claim or given the
Company notice of any dispute under any Business Agreement, except as
set forth on Exhibit 4.01(c)(i)(4). Each Business Agreement is in full
force and effect and the Company has obtained all required consents to
permit the Company to continue to be a party to and enforce the
Business Agreements after the Closing of the sale of the Company Common
Stock to Buyer hereunder, except as set forth on Exhibit 4.01(c)(i)(5).
The Company is not the owner or lessee of any motor vehicles which are
used in the Business. The Company does not own or lease any interest in
any real property or lease any equipment used in the Business, except
as expressly stated on Exhibit 4.01(c)(i)(3).
(ii) All of the tangible assets of the Company used in the
Business, including, without limitation, all machinery, office and
other equipment, furniture, computers and related equipment, business
machines and telephones, telephone systems, parts and accessories
presently utilized by the Company in the Business, shall be referred to
herein collectively as the "Tangible Assets". Attached hereto as
Exhibit 4.01(c)(ii) is a true and correct list or description of the
material Tangible Assets. As of the Closing Date, each of the Tangible
Assets is in good and operable condition, reasonable wear and tear
excepted.
(iii) All patents, trademarks, trade names, service marks,
service names, logos, designs, formulations, copyrights and other trade
rights and all registrations and applications therefor, all know-how,
trade secrets, technology or processes, research and development, all
telephone numbers, facsimile numbers, e-
4
<PAGE> 7
mail addresses and Internet domain addresses (including, without
limitation, all Internet domain addresses of Customers parked on the
Company's servers), all Web sites and all computer programs, control
panels, surcharge calculators, data bases and software documentation
owned or used by the Business, if any, other than off-the-shelf
software licensed by the Company, shall be referred to herein
collectively as the "Intellectual Property". The "Intellectual
Property" comprises all intellectual property rights necessary or
advisable for the conduct of the Business as currently conducted.
Attached hereto as Exhibit 4.01(c)(iii) is a true and correct list of
all of the Intellectual Property (and where practicable, a copy
thereof). Exhibit 4.01(c)(iii) also indicates which of such items have
been patented or registered or are in the process of application for
same. The Company is the sole owner, free of any lien or encumbrance,
of all the Intellectual Property listed in Exhibit 4.01(c)(iii). The
Company has taken all necessary and reasonable actions to protect its
rights in Intellectual Property owned by it. The Company's rights in
the Intellectual Property are valid and enforceable. Except as
disclosed on Exhibit 4.01(c)(iii), the Company has received no demand,
claim, notice or inquiry from any Person in respect of the Intellectual
Property which challenges, threatens to challenge or inquires as to
whether there is any basis to challenge, the validity of, or the rights
of the Company in, the Intellectual Property, and the Company knows of
no basis for any such challenge. The Company is not in violation or
infringement of, and has not violated or infringed, any Intellectual
Property Rights of any other Person. To the knowledge of the Company,
no third party is infringing on the rights of the Company in and to the
Intellectual Property. Except on an arm's-length basis for value and
other commercially reasonable terms, the Company has not granted any
license with respect to the Intellectual Property to any Person. Also
attached to Exhibit 4.01(c)(iii) is a true and complete list of all
software licensed by the Company and used in operating and maintaining
the Business (collectively, the "Licensed Software"). The Company has
valid, royalty free and fully-paid licenses for all of the Licensed
Software.
(iv) Contained on a computer diskette provided by the Company
to Buyer, is a true and complete copy of the Company's customer list as
of July 31, 1998 relating to the Business which includes, in the case
of each customer, the name of the customer, its billing and domain
addresses, identity and contact information of each relevant contact
person, a statement of the monthly or annual (as indicated) service
charges relating to such customer and the Company's files regarding
such Customer (the "Customer List"). The Customer List does not include
approximately 1,100 new customers added since July 31, 1998 and 300
server customers whose domain names are listed on Exhibit 4.01(c)(iv).
Approximately 500 to 1000 customers included on the Customer List have
terminated since the formation of the Company. All customers of the
Company relating to the Business, including without limitation, those
customers included on the Customer List, together with the good will
and business opportunities of the Company as it relates to the Business
shall be referred to herein as the "Customers".
5
<PAGE> 8
(v) As used herein, the term "the Company's Assets" shall be
defined as all classes of assets of the Company as shown on the
Company's unaudited financial statement as of December 31, 1997
(annexed as Exhibit 4.01(c)(v)(1)), including, without limitation, the
Business Agreements, the Tangible Assets, the Intellectual Property,
together with all goodwill associated with and symbolized by the
trademarks, trade names, service marks, service names and logos
included therein, the Customer List, the Customers, the Software
Licenses and all other assets of the Company used in connection with
the operation of the Business, wherever located, tangible or
intangible, including without limitation, all rights the Company may
have under any insurance policies, and all books, records and files
(whether in paper or electronic format). The Company's Assets are not
subject to (i) any lien or encumbrance of any character whatsoever
except as set forth on Exhibit 4.01(c)(v)(2) or (ii) any adverse claims
by any third parties. The Company's Assets include all rights,
properties, interests and assets used by the Company and/or necessary
to permit the Company to carry on the Business as presently conducted
by the Company.
(vi) The Company and the Shareholders reasonably expect that
the business represented by the Business Agreements will continue after
the date hereof subject to normal customer turnover. Neither the
Shareholders nor the Company has any knowledge that any customers
included on the Customer List intend to terminate their relationship
with the Company or significantly reduce the amount of business they
presently do with the Company.
(d) Financial Statements. The Company has delivered to the Buyer (see
Exhibit 4.01(c)(v)(i)) copies of the Company's unaudited financial statements
for the last two fiscal years of the Company ended December 31, 1997 and 1996,
respectively, and unaudited financial statements for the six months ending June
30, 1998, each of which reflect the assets, liabilities, net worth, profit and
loss, and cash flow of the Company with respect to the Business at the date of
such statements and for the period then ended and a cash basis unaudited
statement for the month ending July 31, 1998. All financial statements referred
to herein are complete and correct in all material respects, present fairly the
financial condition and results of operations of the Company as at the dates of
such statements and have been prepared in accordance with generally accepted
accounting principles. The books of account and records of the Company have been
maintained in accordance with good business practice and reflect fairly all
properties, assets, liabilities and transactions of the Company. The Company has
no material liabilities or obligations of any kind (whether accrued, absolute,
direct, indirect, contingent or otherwise) which are not fully accrued or
reserved against in the Company's financial statements in accordance with
generally accepted accounting principles. Except as set forth on Exhibit 4.01(d)
the Company has no bad debts as of the Closing Date. Since the last day of the
Company's last fiscal year, the Company has conducted the Business only in the
ordinary and usual course and has not experienced any material adverse change in
the Business or the financial condition of the Company. Since July 31, 1998, the
Company has had no loss in net monthly recurring revenue from the Business.
Since July 31, 1998, there has not been any change in the number of shares of
capital stock of the Company issued or outstanding or any
6
<PAGE> 9
declaration, setting aside, or payment of any dividend or other distribution
(whether in cash, securities, property or otherwise) in respect of the Company's
capital stock. Between July 31, 1998 and the Closing Date, the Company and the
Shareholders warrant and represent that they have not withdrawn, expended or
applied any cash or other assets of the Company, except in the ordinary course
of operations of the Business of the Company in accordance with past practices
of the Company, including amounts that have been paid to any officer, director
or shareholder for salaries.
(e) Existing Employment Arrangements. Except as set forth on Exhibit
4.01(e) the Company has no employment agreements, labor or collective bargaining
agreements and there are no employee benefit or compensation plans agreements,
arrangements or commitments (including, but not limited to, "employee benefit
plans," as defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")), maintained by the Company for any employees
of the Company or with respect to which the Company has liability, or makes or
has an obligation to make contributions ("Employee Plans").
Each Employee Plan that is an employee welfare benefit plan as
defined under Section 3(1) of ERISA is funded through an insurance company
contract. Each Employee Plan by its terms and operation is in compliance with
all applicable laws and all required filings with respect to Employee Plans have
been made. Neither the Company nor any entity that is or was at any time treated
as a single employer with the Company under Section 414(b), (c) (m) or (o) of
the Code has at any time maintained, contributed to or been required to
contribute to, or has any liability with respect to, any plan subject Title IV
of ERISA. The events contemplated by this Agreement (either alone or together
with any other event) will not (w) entitle any employees to severance pay,
unemployment compensation, or other similar payments under any Employee Plan or
law, (x) accelerate the time of payment or vesting or increase the amount of
benefits due under any Employee Plan or compensation to any Company employees or
(y) result in any payments (including parachute payments) under any Employee
Plan or law becoming due to any employee. There are no pending or, to the
knowledge of the Shareholders or the Company, threatened strikes, job actions or
other labor disputes affecting the Company or its employees and there have been
no such disputes for the past three years. Also set forth on Exhibit 4.01(e) is
a true and complete list of all employees of the Company employed in connection
with the Business, which list provides, among other things, the name, residence
address, title, job description and salary information concerning each employee.
(f) Claims, Litigation, Disclosure. There is no claim, litigation, tax
audit, proceeding or investigation pending or, to the Company's or any
Shareholder's knowledge, threatened against the Company, with respect to the
Business or any of the assets of the Company (including, without limitation, any
claims of infringement or actions of opposition with respect to Intellectual
Property), nor does the Company nor any Shareholder know of any facts which
would provide a basis for any such claim, litigation, audit, proceeding or
investigation.
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<PAGE> 10
(g) Taxes. Except as specifically set forth on Exhibit 4.01(g) (the
"Tax Liabilities"), the Company has correctly prepared and timely filed all
Federal, state and local tax returns, estimates and reports, and paid all such
taxes as and when due. For purposes of this paragraph and Section 7.03, taxes
shall mean all taxes, charges, fees, levies or other assessments of any kind
whatsoever (including, without limitation, income, franchise, sales, use and
withholding taxes). The Company is not a party to any tax sharing agreement.
(h) No Other Agreements to Sell Assets or Business. The Company is not
a party to any existing agreement which obligates the Company or the
Shareholders to sell to any other person or firm the Company's Assets (other
than sales in the ordinary course of business), to issue or sell any capital
stock or any security convertible into or exchangeable for capital stock of the
Company or to effect any merger, consolidation or other reorganization of the
Company or to enter into any agreement with respect thereto.
(i) No Brokers. The only broker, leasing agent, finder or similar
person or entity with whom the Company or the Shareholders have made contact or
had any dealings with or entered into any agreement, arrangement or
understanding with concerning this Agreement and to whom the Company and/or the
Shareholders are responsible to pay a finder's fee, brokerage commission or
similar payment in connection with the transactions contemplated by this
Agreement is the party or parties listed in item 6 on Exhibit A, if any, and the
Shareholders shall be solely responsible for the payment of any such fee,
commission or payment.
(j) Environmental Compliance.
(i) To the best of the Shareholders' and the Company's
knowledge, neither the Company nor any operator of the Company's
properties is in violation, or alleged to be in violation, of any
federal, state or local judgment, decree, order, consent agreement, law
(including common law), license, rule or regulation pertaining to
environmental health or safety matters, including without limitation
those arising under the Resource Conservation and Recovery Act, as
amended, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), the Superfund Amendments
and Reauthorization Act of 1986, as amended, Water Act, as amended, the
Federal Clean Air Act, as amended, the Toxic Substances Control Act, or
any state or local analogue (hereinafter "Environmental Laws").
(ii) Neither the Company nor any Shareholder has received a
notice, complaint, order, directive, claim or citation from any third
party, including without limitation any federal, state or local
governmental authority, indicating or alleging that the Company or any
predecessor may have any liability or obligation under any
Environmental Law.
(iii) (A) To the best of the Shareholders' and the Company's
knowledge, no portion of the property of the Company has been used by
any person for the generation, handling, processing, treatment, storage
or disposal of Hazardous Materials except in accordance with applicable
Environmental Laws; (B) no
8
<PAGE> 11
underground tank or other underground storage receptacle for Hazardous
Materials, asbestos-containing materials or polychlorinated biphenyls
are located on any portion of any location occupied by the Company each
of which is listed as a Site on Exhibit A; (C) in the course of any
activities conducted by the Company or its invitees, agents,
contractors, licensees or employees in connection with the Business of
the Company, no Hazardous Materials have been generated or are being
used except in accordance with applicable Environmental Laws; and (D)
there have been no releases (i.e., any past or present releasing,
spilling, leaking, leaching, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, disposing or dumping) or threatened
releases of Hazardous Materials on, upon, into or from the property
currently or formerly owned, operated or leased by the Company, which
releases would have a material adverse effect on the value of any of
the property or adjacent properties or the environment.
(iv) The execution, delivery and performance of this Agreement
is not subject to any Environmental Laws which condition, restrict or
prohibit the sale, lease or other transfer of property or operations,
including, without limitation, any so-called "environmental cleanup
responsibility acts" or requirements for the transfer of permits,
approvals, or licenses. There have been no environmentally related
audits, studies, reports, analyses (including soil and groundwater
analyses), or investigations of any kind performed with respect to the
currently or previously owned, leased, or operated properties of the
Company.
For purposes of this Section, "Hazardous Material" shall mean
any hazardous waste, as defined by 42 U.S.C. Section 6903(5), any hazardous
substances or wastes as defined by 42 U.S.C. Section 9601(14), any pollutant or
contaminant as defined by 42 U.S.C. Section 9601(33) or any toxic substances or
wastes, oil or hazardous materials or other chemicals or substances regulated by
any public or governmental authority.
(k) Year 2000. To the best of the Shareholders' and the
Company's knowledge, based upon the best computer industry information and
technology available at the time of the Closing, all information technology
included in the Company's Assets, including, without limitation, in all products
and services (i) provided by the Business, whether to third parties or for
internal use or (ii) to the best of the Shareholders' and the Company's
knowledge after reasonable investigation, used in combination with any
information technology of its clients, customers, suppliers or vendors,
accurately processes or will process date and time data (including, but not
limited to, calculating, comparing and sequencing) from, into and between the
years 1999 and 2000 and the twentieth century and the twenty-first century,
including leap year calculations and neither performance nor functionality of
such technology will be affected by dates prior to, during and after the year
2000. The Company has no obligations under warranty agreements, service
agreements or otherwise to remedy any information technology defect relating to
the year 2000.
(l) Credit Card and Bank Accounts. Set forth on Exhibit
4.01(l)(1), is a true and complete list of the Company's employees whom have
been issued a Company credit and/or debit card, including the type of card and
account number. Set forth on Exhibit
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<PAGE> 12
4.01(l)(2), is a true and complete list of the Company's bank accounts and the
authorized signatories for said accounts.
(m) Licenses and Compliance with Laws. The Company holds no
material governmental or regulatory licenses, permits, consents or approvals in
connection with the Business, and the Company is in compliance with all material
laws and regulations applicable to the Business.
(n) True and Complete. No representation or warranty made by
the Company or the Shareholders in this Agreement, nor any statement,
certificate or Exhibit furnished by or on behalf of Company pursuant to this
Agreement, nor any document or certificate delivered to Buyer pursuant to this
Agreement, or in connection with the transactions contemplated hereby, contains
or shall contain any untrue statement of a material fact, or omits or shall omit
to state a material fact necessary to make the statements contained therein not
misleading. Neither the Company nor any Shareholder has failed to disclose to
Buyer any pending developments or circumstances of which it is aware which are
reasonably likely to have a material adverse effect on the Business.
SECTION 4.02 REPRESENTATIONS OF THE BUYER.
Buyer represents and warrants to the Company as follows:
(a) Corporate Matters; No Conflict. The Buyer is duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware. Buyer is in good standing in each other jurisdiction in which it is
doing business, except where failure to be in good standing would not have a
material adverse effect on the business of Buyer and has the corporate power to
enter into this Agreement, to perform its obligations hereunder and to conduct
its business as currently conducted. The execution, delivery and performance of
this Agreement and the transactions contemplated hereby (and thereby) by the
Buyer will not (a) conflict with or violate the provisions of any applicable
law, rule or order or the Buyer's Certificate of Incorporation or by-laws, (b)
conflict with or constitute a default under any agreement or contract by which
the Buyer is bound or (c) require the consent or approval of, or filing with,
any governmental body or third party. The execution, delivery and performance by
the Buyer of this Agreement has been authorized and approved by all requisite
corporate action on the part of the Buyer.
(b) No Brokers. The only broker, leasing agent, finder or
similar person or entity with whom the Buyer has made contact or had any
dealings with or entered into any agreement, arrangement or understanding with
concerning this Agreement and to whom the Buyer is responsible to pay a finder's
fee, brokerage commission or similar payment to is the party listed in item 7 on
Exhibit A, if any, and the Buyer shall be solely responsible for the payment of
any such fee, commission or payment.
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<PAGE> 13
ARTICLE V.
CERTAIN COVENANTS
SECTION 5.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION.
(a) The representations and warranties of the parties herein
contained shall survive the closing of the purchase contemplated by this
Agreement, notwithstanding any investigation at any time made by or on behalf of
the other party, provided that any claims for indemnification in accordance with
this Section 5.01 with respect to any representation or warranty must be made
(and will be null and void unless made) on or before the date twenty-four (24)
months following the Closing Date (except in the case of representations
contained in Section 4.01(c)(v), (g), (i) and (j), which must be made within six
(6) months following the expiration of the applicable statute of limitations).
(b) The Shareholders, jointly and severally, hereby agree to
indemnify and hold Buyer and its officers, directors, stockholders, affiliates,
employees, representatives and other agents harmless from and against any and
all claims, liabilities, losses, damages or injuries, together with costs and
expenses, including reasonable legal fees, arising out of or resulting from (i)
any breach, misrepresentation or material omission of the representations and
warranties made by the Primary Shareholder in this Agreement or in any Exhibit
hereto or other documents delivered in connection herewith, (ii) any breach in
any material respect by the Company and/or the Shareholders, or any of them,
unless waived in writing by the Buyer, of any covenant or agreement contained in
or arising out of this Agreement, or any other agreement delivered in connection
herewith on the Closing Date, including without limitation, the Employment
Agreements (hereafter defined), and (iii) any and all liabilities of the Company
arising prior to the Closing Date.
(c) Buyer hereby agrees to indemnify and hold the Shareholders
harmless from and against any and all claims, liabilities, losses, damages or
injuries, together with costs and expenses, including reasonable legal fees,
arising out of or resulting from (i) any breach, misrepresentation or material
omission in the representations and warranties made by the Buyer in this
Agreement, (ii) any breach in any material respect by Buyer, unless waived in
writing by the Shareholders, of any covenant or agreement of Buyer contained in
or arising out of this Agreement or (iii) any claim by Card Service
International with respect to the personal guarantee by Bernd Neumann of account
#54334200579122 with respect to charges incurred after the Closing Date.
(d) Any party claiming a right to indemnification hereunder
(the "Indemnified Party") shall give the other party from whom indemnification
is sought (the "Indemnifying Party") prompt written notice of any claim, demand,
action, suit, proceeding or discovery of fact upon which the Indemnified Party
intends to base a claim for indemnification under this Section 5.01, provided,
however, that no failure to give such notice shall excuse any Indemnifying Party
from any obligation hereunder except to the extent the Indemnifying Party is
materially prejudiced by such failure. The Indemnified
11
<PAGE> 14
Party shall have full responsibility and authority with respect to the
disposition of any action, suit or proceeding brought against it; provided,
however, that it will not settle any such action, suit or proceeding without the
prior written consent of the Indemnifying Party, which will not be unreasonably
withheld or delayed. In the event any action, suit or proceeding is brought
against the Indemnified Party with respect to which the Indemnifying Party may
have liability under the indemnity agreements contained in Section 5.01(b) and
(c), however, the Indemnifying Party shall have the right, without prejudice to
the Indemnified Party's rights under this Agreement, at the Indemnifying Party's
sole expense, to be represented by counsel of its own choosing and with whom
counsel for the Indemnified Party shall confer in connection with the defense of
any such action, suit, or proceeding. The Indemnified Party shall make available
to the Indemnifying Party and its counsel and accountants, all books and records
of the Indemnified Party relating to such action, suit or proceeding and the
parties agree to render to each other such assistance as may reasonably be
requested in order to insure the proper and adequate defense of any such action,
suit or proceeding.
SECTION 5.02 COMPANY AUDIT.
The Shareholders agree to cause to be performed on or before
September 30, 1998, an audit of the Company as at and for the years ended
December 31, 1996 and 1997 and for the six month period ended June 30, 1998 by
Frankel, Lodgen, Lacher, Golditch, Sardi & Howard, certified public accountants.
The Shareholders shall cooperate and provide assistance in connection with the
preparation of the audited financial statements for the Company, including,
without limitation, making themselves available to Buyer, its affiliates and/or
its auditors upon request, and using their best efforts to assist the Company's
internal accounting and auditing personnel, as well as its external accounting
personnel in connection with the preparation of such audit.
ARTICLE VI.
DELIVERIES AT CLOSING
SECTION 6.01 DELIVERIES BY THE COMPANY AND THE SHAREHOLDERS.
On the Closing Date, the Company and the Shareholders will
deliver, or cause to be delivered, to the Buyer the following:
(a) Shareholders shall have delivered to Buyer certificates
evidencing the Company Common Stock, free and clear of all liens and
encumbrances of any nature whatsoever, duly endorsed in blank for transfer or
accompanied by stock powers duly executed in blank and with all requisite
documentary or stock transfer tax stamps affixed.
(b) The following corporate documentation:
(i) The Company's Articles or Certificate of Incorporation
certified as of a date within thirty (30) days prior to the Closing
Date by the Secretary of State of the state of the Company's
organization;
12
<PAGE> 15
(ii) Good Standing Certificates as of date within thirty (30)
days prior to the Closing Date from the Secretary of State of the state
of the Company's organization and each other state in which the Company
is qualified to do business;
(iii) The Company's By-Laws certified as of the Closing Date
by the President or Secretary of the Company as being in full force and
effect and unmodified; and
(iv) Corporate Resolutions of the Company's Board of Directors
and the Shareholders (if required by the Company's By-Law's or
applicable law), approving this Agreement and all the transactions
contemplated hereby, certified by the President or Secretary of the
Company as being in full force and effect and unmodified.
(c) The legal opinions of counsel to the Company and the Shareholders,
in a form acceptable to Buyer and its counsel.
(d) The Escrow Agreement duly executed by the Shareholders.
(e) Resignation, in writing, of all the directors and officers of the
Company.
(f) Consents to the change of control with respect to all Business
Agreements (including, without limitation, Leases and Estoppel Certificates with
respect to the Leases).
(g) Consent to a press release in form satisfactory to, and
pre-approved by, the Company and Buyer relating to this Agreement and the
transactions contemplated hereby.
SECTION 6.02 DELIVERIES BY THE BUYER.
On the Closing Date, the Buyer will deliver, or cause to be
delivered, to the Company and the Shareholders the following:
(a) The Purchase Price in accordance with Section 2.01.
(b) The Escrow Agreement duly executed by the Buyer and the Escrow
Agent.
(c) Resolutions of the Board of Directors of Buyer, authorizing the
execution of this Agreement and the transactions contemplated hereby.
(d) The legal opinions of counsel to the Buyer, in a form acceptable to
the Company, Shareholders and their counsel.
13
<PAGE> 16
(e) Consent to a press release in form satisfactory to, and
pre-approved by, the Company and Buyer relating to this Agreement and the
transactions contemplated hereby.
ARTICLE VII.
OBLIGATIONS FOLLOWING CLOSING
SECTION 7.01 FURTHER COOPERATION.
The Shareholders will, at any time and from time to time after
the Closing Date, execute and deliver such further instruments of conveyance,
transfer and license, and take such additional actions as Buyer or its successor
and/or assigns, may reasonably request, to effect, consummate, confirm or
evidence the transfer to Buyer of the Company Common Stock and/or the Company's
Assets pursuant to this Agreement.
SECTION 7.02 TRANSITION ASSISTANCE AND ADJUSTMENTS.
The Shareholders shall cooperate and provide assistance to the
Buyer as shall be reasonably necessary during the transition of the Business and
the Company's Assets from the Company to the Buyer, or its successors and/or
assigns, after the Closing Date.
SECTION 7.03 TAXES.
The Shareholders will correctly prepare or cause to be
correctly prepared and timely filed all Federal, state and local tax returns,
estimates and reports (a) with respect to the Company for all periods prior to
the Closing Date and (b) with respect to the Shareholders in connection with the
transaction contemplated by this Agreement, and pay all such taxes, if any, as
and when due. The Shareholders acknowledge such taxes and accept and assume all
responsibility for such taxes.
ARTICLE VIII.
MISCELLANEOUS
SECTION 8.01 GOVERNING LAW; JURISDICTION.
This Agreement shall be governed by the laws of the State of
New York. The parties hereto submit and consent to the exclusive jurisdiction of
the state courts of the State of New York in the County of New York and the
federal courts located therein with respect to any legal actions relating to
this Agreement, or any other agreements delivered in connection herewith,
between the Company and the Shareholders, on the one hand, and the Buyer, on the
other hand, and any transactions contemplated thereby.
14
<PAGE> 17
SECTION 8.02 COUNTERPARTS.
This Agreement may be executed in several counterparts, each
of which shall be an original and all of which together shall constitute one and
the same instrument.
SECTION 8.03 CONFIDENTIALITY.
The Company and the Shareholders, on the one hand, and the
Buyer, on the other hand, each agree not to disclose or use any information
acquired by it about the other party during the course of the negotiations of
this Agreement and the transactions to which it relates which is confidential in
nature or not otherwise generally available to the public without the prior
written consent of such other party unless required to do so by applicable law
or regulation or by order of a court of competent jurisdiction or an
administrative agency. Each party shall be liable for any breach by its
respective employees, officers, directives, shareholders, agents and/or
contractors of the provisions of this Section 8.03.
SECTION 8.04 ENTIRE AGREEMENT; AMENDMENTS.
This Agreement supersedes all prior discussions and agreements
between the parties with respect to the subject matter hereof, and this
Agreement contains the sole and entire agreement among the parties with respect
to the matters covered hereby. This Agreement cannot be changed, modified or
amended and no provision or requirement hereof may be waived without the consent
in writing of the parties hereto.
SECTION 8.05 SEVERABILITY.
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect. Each provision
of this Agreement shall be deemed to be the agreement of the parties hereto to
the full extent that the power to enter into such provisions shall have been
conferred on the parties by law.
SECTION 8.06 BENEFIT; ASSIGNMENT.
This Agreement is binding upon and inures to the benefit of
the parties, their successors and permitted assigns. This Agreement may not be
assigned or the duties of the parties hereunder delegated to others without the
prior written consent of all parties hereto, except that Buyer may assign its
rights, duties and obligations hereunder to an affiliate of Buyer without the
Company's or the Shareholders' consent.
SECTION 8.07 CONSTRUCTION.
All exhibits annexed hereto are hereby incorporated herein by
reference and made a part of this Agreement. Whenever used in this Agreement and
the context so requires, the singular shall include the plural and the plural
shall include the singular.
15
<PAGE> 18
SECTION 8.08 IMPUTED KNOWLEDGE.
References in this Agreement to the "knowledge of" the
Company, or words of similar import, shall include the knowledge of any and all
of the Shareholders which knowledge shall be imputed to be the knowledge of the
Company. References in this Agreement to the "knowledge of" the Buyer, or words
of similar import, shall include the knowledge of Leonard J. Fassler which
knowledge shall be imputed to be the knowledge of the Buyer.
SECTION 8.09 NOTICES.
All notices and other communications hereunder shall be in
writing and deemed to have been duly given when delivered by hand, when received
by registered or certified mail, postage prepaid, return receipt requested, when
given by prepaid courier delivery services such as Federal Express, DHL or other
similar services on the day received, or when given by facsimile transmission
upon receipt by sender of confirmed answer-back, as follows:
(a) if to Buyer, at
Sage Networks, Inc.
215 First Street
Cambridge, MA 02142
Attn: Rajat Bhargava, Chief Operating Officer
Telecopier No.: (617) 374-1600
with copies to:
Sage Networks, Inc.
11 Martine Avenue
White Plains, NY 10606-1934
Attn: Bruce S. Klein, General Counsel
Telecopier No.: (914) 289-1909
and
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019
Attention: E. Ann Gill, Esq.
Telecopier No.: (212) 259-6333
16
<PAGE> 19
(b) if to the Company or the Shareholders, at:
B.N. Technology, Inc.
7775 Sunset Boulevard, #102
Los Angeles, CA 90046
Attn: Bernd Neumann
Telecopier No.: (213) 436-0248
with copies to:
Law Offices of Christopher Gonzalez
101 North Brand Boulevard, Suite 1830
Glendale, CA 91203
Attn: Christopher Gonzalez, Esq.
Telecopier No.: (818) 956-1984
and
Law Offices of Vatche Chorbajian
101 N. Brand Boulevard, Suite 1830
Glendale, CA 91203
Attention: Vatche Chorbajian
Telecopier No.: (818) 507-1066
[Signature Pages Follow]
17
<PAGE> 20
[SIGNATURE PAGE OF STOCK PURCHASE AGREEMENT BETWEEN SAGE NETWORKS, INC.,
B.N. TECHNOLOGY, INC. AND CERTAIN OTHER PARTIES DATED AUGUST 31, 1998]
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first above written.
SAGE NETWORKS, INC.
By: \s\ Leonard J. Fassler
---------------------------------
Leonard J. Fassler, Co-Chairman
B.N. TECHNOLOGY, INC.
By: \s\ Bernd Neumann
---------------------------------
Bernd Neumann, President
SHAREHOLDERS:
By: \s\ Bernd Neumann
---------------------------------
Bernd Neumann
By: \s\ Bernd Neumann
---------------------------------
As Attorney-In-Fact for Annedore Sommer
The undersigned spouse of Bernd Neumann hereby consents to the
foregoing agreement pursuant to which my spouse agrees to convey all right,
title and interest in and to the common stock of B.N. Technology, Inc. to Sage
Networks, Inc. The undersigned further agrees that the undersigned's community
property interest, if any, in such common stock shall be subject to the
foregoing agreement and shall be transferred to Sage Networks, Inc. pursuant
thereto.
\s\ Andrea Neumann
-------------------
Andrea Neumann
18
<PAGE> 21
[SIGNATURE PAGE OF STOCK PURCHASE AGREEMENT BETWEEN SAGE NETWORKS, INC.,
B.N. TECHNOLOGY, INC. AND CERTAIN OTHER PARTIES DATED AUGUST 31, 1998]
The undersigned spouse of Annedore Sommer hereby consents the foregoing
agreement pursuant to which my spouse agrees to convey all right, title and
interest in and to the common stock of B.N. Technology, Inc. to Sage Networks,
Inc. The undersigned further agrees that the undersigned's community property
interest, if any, in such common stock shall be subject to the foregoing
agreement and shall be transferred to Sage Networks, Inc. pursuant thereto.
\s\ Detlef Sommer
----------------------------
Detlef Sommer
19
<PAGE> 22
LIST OF EXHIBITS:
- -----------------
Exhibit A - Basic Provisions
Exhibit 4.01(b) - Officers; Directors; Trade Names; Jurisdictions
Exhibit 4.01(c)(i)(1) - Forms of Business Agreements with Customers
Exhibit 4.01(c)(i)(2) - Summary of Oral Business Agreements and Copy of
Vendor/Service Provider and Other Agreements
Exhibit 4.01(c)(i)(3) - Leases
Exhibit 4.01(c)(i)(4) - Claims of Disputes Under Business Agreements
Exhibit 4.01(c)(i)(5) - Consents to Transfer or Assign Not Obtained
Exhibit 4.01(c)(ii) - Tangible Assets
Exhibit 4.01(c)(iii) - Intellectual Property
Exhibit 4.01(c)(iv) - Server Customers
Exhibit 4.01(c)(v)(1) - Company's Financial Statements
Exhibit 4.01(c)(v)(2) - Liens; Encumbrances
Exhibit 4.01(d) - Bad Debts
Exhibit 4.01(e) - Existing Employment Agreements, Labor or Collective
Bargaining Agreements, Employee Benefit or Welfare
Plans, Description of Employees
Exhibit 4.01(g) - Tax liabilities of the Company
Exhibit 4.01(l)(1) - Company's Credit and Debit Cards
Exhibit 4.01(l)(2) - Company's Bank Accounts and Authorized Signatories
In accordance with Item 601(b)(2) of Regulation S-K all exhibits have been
omitted. The Company hereby agrees to furnish supplementally a copy of any
omitted exhibit to the Commission upon request.
<PAGE> 1
Exhibit 2.10
ASSET PURCHASE AGREEMENT
AGREEMENT made as of this 1st day of May 1998 between TRI STAR WEB
CREATIONS, INC., a New York corporation (the "Company"), BONNIE SHIMEL, WILLIAM
NICHOLSON ("Nicholson") and JAMES KUCHARSKI ("Kucharski"; Bonnie Shimel,
Nicholson and Kucharski being hereinafter referred to collectively as
"Shareholders"), ALAN SHIMEL ("AS") and SAGE NETWORKS ACQUISITION CORP., a
Delaware corporation ("Buyer").
W I T N E S S E T H :
WHEREAS, the Company desires to sell and the Buyer desires to
purchase on the date hereof (the "Closing Date") the web hosting business of the
Company as a going concern (the "Business") consisting of the Purchased Assets
(hereinafter defined), and the Assumed Liabilities (as hereinafter defined), for
a purchase price determined as set forth in Exhibit A (the "Purchase Price") and
for the assumption of the Assumed Liabilities (hereinafter defined); and
WHEREAS, Shareholders and AS join in the execution of this Agreement
as the shareholders, directors and/or officers of the Company and they are
familiar with the material aspects of operations of the business of the Company,
including, without limitation, the Business.
NOW THEREFORE, in consideration of the mutual covenants and promises
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by all parties, the
parties hereto agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES
Section 1. Purchase and Sale. Subject to the terms and conditions of
this Agreement, the Company hereby sells, assigns and transfers to the Buyer and
the Buyer hereby purchases and acquires from the Company, all of the right,
title and interest of the Company in and to the Purchased Assets (as hereinafter
defined) for the Purchase Price set forth herein.
Section 2. Representations of the Company, Shareholders and AS. The
following agreements, representations and warranties are made by the Company,
Shareholders and AS, jointly and severally, to the Buyer.
(A) Corporate Matters; No Conflict. The Company is duly formed,
organized, incorporated, is validly existing and in good standing under the laws
of its state of incorporation as set forth in Exhibit A, maintains offices only
at the site listed on Exhibit A and has no other
<PAGE> 2
locus of operations other than from that site, is qualified or authorized to
transact business and is in good standing in each other jurisdiction in which it
is doing business, except where failure to be qualified or be in good standing
would not have a material adverse effect on the business of the Company, and has
the corporate power to enter into this Agreement, to perform its obligations
hereunder and to conduct its business as currently conducted. The execution,
delivery and performance of this Agreement and the transactions contemplated
hereby by the Company, Shareholders and/or AS will not (i) conflict with or
violate the provisions of any applicable law (including, without limitation, any
bulk sales laws), rule or order or the Company's Articles or Certificate of
Incorporation, by-laws or any other organizational or governing documents of the
Company, (ii) conflict with or constitute a default under any agreement or
contract by which the Company or any Shareholder or AS is bound or (iii) require
the consent or approval of, or filing with, any governmental body or third party
except as set forth on Exhibit C-5. The execution, delivery and performance by
the Company of this Agreement has been duly authorized and approved by all
requisite corporate action on the part of the Company. The Shareholders are all
the beneficial and/or record owners of the issued and outstanding shares of
capital stock of the Company and each Shareholder owns the number of shares of
such stock set forth opposite his name on Exhibit A. Also set forth on Exhibit A
is the total number and type of authorized shares and outstanding shares of
capital stock of the Company. Set forth on Exhibit B is a list of officers and
directors of the Company, all trade names used by the Company and all
jurisdictions in which the Company is doing business. This Agreement and the
consummation of the transactions contemplated hereby have been approved
unanimously by the Shareholders and board of directors of the Company, and the
authorized officers of the Company named on Exhibit A are jointly and severally
authorized and empowered by the Company to execute and deliver this Agreement in
the name and on behalf of the Company.
(B) Purchased Assets. (i) All vendor and customer contracts,
confidentiality agreements, purchase and sales orders, powers of attorney,
undertakings, commitments and other agreements to which the Company is a party
and which relate in any manner to the Business and/or the relationship between
the Company and the Customers (hereinafter defined), whether written or oral,
shall be referred to herein collectively as the "Business Agreements". The
Company has delivered to Buyer, on or before the Closing Date, true and correct
copies of all written Business Agreements and detailed summaries of all oral
agreements. Attached hereto as Exhibit C-1 are true and correct copies of the
only forms of agreements which have been entered into between the Company and
its Customers concerning the Business. Also attached as part of Exhibit C-1 is a
schedule stating the identity of the other party to each of those agreements
which are in force and effect as of the Closing Date. Annexed as Exhibit C-2 is
a detailed summary of all oral Business Agreements and all written Business
Agreements between the Company and vendors or service providers, or relating to
any strategic partnerships or joint ventures between the Company and others,
concerning the Business. Listed on Exhibit C-3 is a description of each and
every real estate, equipment and personal property lease (collectively, the
"Leases") to which the Company is a party and which relates to the Business. The
Leases are also included within the definition of Business Agreements as said
term is used herein. Neither the Company nor any other
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<PAGE> 3
party, is in default under any Business Agreement and no other party to any
Business Agreement has made any claim or given the Company notice of any dispute
under any Business Agreement, except as set forth on Exhibit C-4. Each Business
Agreement is in full force and effect and the Company has the right to assign
the Business Agreements and the Company has obtained all required consents to
the assignment and transfer thereof, except as set forth on Exhibit C-5. The
Company is not the owner or lessee of any motor vehicles which are used in the
Business. The Company does not own or lease any interest in any real property,
or lease any equipment used in the Business, except as expressly stated on
Exhibit C-3. Neither the Company nor any other party has made any modifications
to the Company's office space at 55 John Street, New York, New York which would
be required to be removed and/or restored at the expiration or termination of
the Lease thereof.
(ii) All of the tangible assets of the Company used in the
Business, including, without limitation, all machinery, office and other
equipment, furniture, computers and related equipment, business machines,
telephones and telephone systems, parts and accessories, telephone numbers,
facsimile numbers, e-mail addresses and Internet domain addresses presently
utilized by the Company in the Business, shall be referred to herein
collectively as the "Tangible Assets". Attached hereto as Exhibit E is a true
and correct list or description of the material Tangible Assets. As of the
Closing Date, each of the Tangible Assets is in good and operable condition,
reasonable wear and tear excepted.
(iii) All patents, trademarks, trade names, service marks,
service names, logos, designs, formulations, copyrights and other trade rights
and all registrations and applications therefor, all know-how, trade secrets,
technology or processes, and all computer programs, data bases and software
documentation owned or used by the Company in the Business, other than
off-the-shelf software licensed by the Company, shall be referred to herein
collectively as the "Intellectual Property." Attached hereto as Exhibit F is a
true and correct copy of all of the Intellectual Property. Such exhibit also
indicates which of such items have been patented or registered or are in the
process of application for same. The Company has taken all necessary and
reasonable actions to protect its rights in Intellectual Property owned by it
and to the knowledge of the Company, is not infringing on the rights of any
third parties to Intellectual Property used, but not owned by, the Company.
Included among the Intellectual Property, among other things, are all trade
names utilized by the Company in the Business, including those trade names
listed on Exhibit B. On the Closing Date, the Company will deliver to Buyer a
Certificate of Amendment of the Company's Articles or Certificate of
Incorporation ("Certificate of Amendment") changing its corporate name so as to
delete the words "Tri Star" and will cause the same to be duly filed with the
Secretary of State's Office for the State of its incorporation within ten days
from the Closing Date. Promptly after such filing, the Company will deliver
proof of said filing to Buyer. The Company has valid and fully-paid licenses for
all off-the-shelf software used by the Company in its operation of the Business.
(iv) The Company will deliver at the Closing a true and
complete copy of the Company's customer list as of the Closing Date relating to
the Business which includes, in
-3-
<PAGE> 4
the case of each customer, the name of the customer, its billing and domain
addresses, identity and contact information of each relevant contact person, a
statement of the monthly or annual (as indicated) service charges relating to
such customer and the Company's files regarding such Customer (the "Customer
List"). All customers of the Company relating to the Business, including without
limitation, those customers included on the Customer List, together with the
good will and business opportunities of the Company as it relates to the
Business shall be referred to herein as the "Customers."
(v) As used herein, the term "Purchased Assets" shall be
defined as all classes of assets of the Company as shown on the Company's
certified financial statement as of December 31, 1997 (annexed as Exhibit H)
including, without limitation, the Business Agreements, the Tangible Assets, the
Intellectual Property, the Customer List, the Customers and all other assets of
the Company used in connection with the operation of the Business, wherever
located, tangible or intangible, including without limitation, all rights the
Company may have under any insurance policies relating to the Purchased Assets,
excluding, however, Excluded Assets (as defined below). The Purchased Assets are
not subject to (i) any lien or encumbrance of any character whatsoever except as
set forth on Exhibit N or (ii) any adverse claims by any third parties. At the
Closing upon consummation of the transactions contemplated by this Agreement,
Buyer will receive good and marketable title to the Purchased Assets, free and
clear of all liens and encumbrances of any character whatsoever. The Purchased
Assets include all rights, properties, interests and assets used by Company
and/or necessary to permit Buyer to carry on the Business as presently conducted
by the Company except for Excluded Assets.
(vi) The Company, the Shareholders and AS reasonably expect
that the business represented by the Business Agreements will continue after the
date hereof. Neither the Company nor any Shareholder nor AS has any knowledge
that any customers included on the Customer List, other than those listed on
Exhibit G-1, intend to terminate or reduce the amount of business they presently
do with the Company, and they have no knowledge of any state of facts which
would lead them to believe that any of the customers included on the Customer
List will terminate their relationship with the Company or significantly reduce
the amount of business they presently do with the Company.
(vii) Excluded Assets. The Company is not selling and
Purchaser is not buying or acquiring hereunder the following items ("Excluded
Assets") which are not included in the defined term "Purchased Assets": (a) All
cash and cash equivalents; (b) the Company's corporate minute and stock books,
tax returns and other records having to do solely with the Company's
organization and/or capitalization; (c) all outstanding billed receivables of
the Company (the "Closing Accounts Receivable"); (d) any rights to any of the
Company's claims for any federal, state or local tax refunds; and (e) any rights
which accrue or will accrue to the Company under this Agreement or the
transactions contemplated hereby.
(C) Financial Statements. The Company has delivered to the Buyer
copies of the Company's audited financial statements for the last three fiscal
years of the Company ended
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December 31, 1997, 1996 and 1995, respectively. Attached hereto as Exhibit H is
a certified audited balance sheet and profit and loss statement for the fiscal
year ended December 31,1997 and unaudited financial statements for each of the
months ending January 31, 1998, February 28, 1998 and March 31, 1998, all of
which reflect the assets, liabilities, net worth, profit and loss, and cash flow
of the Company with respect to the Business. All financial statements referred
to herein are complete and correct in all material respects, present fairly the
financial condition and results of operations of the Company as at the dates of
such statements and have been prepared in accordance with generally accepted
accounting principles. The books of account and records of the Company have been
maintained in accordance with good business practice and reflect fairly all
properties, assets, liabilities and transactions of the Company. The Company has
no material liabilities or obligations of any kind (whether accrued, absolute,
direct, indirect, contingent or otherwise) which are not fully accrued or
reserved against in the Company's financial statements in accordance with
generally accepted accounting principles. Except as set forth on Exhibit I the
Company has no bad debts as of the Closing Date. Since the last day of the
Company's last fiscal year, the Company has conducted the Business only in the
ordinary and usual course and has not experienced any material adverse change in
the Business or the financial condition of the Company. Since March 31, 1998,
the Company has had no loss in net monthly recurring revenue from the Business.
Between March 31, 1998 and the Closing Date, the Company, Shareholders and AS
warrant and represent that they have not withdrawn, expended or applied any cash
or other assets of the Company, except in the ordinary course of operations of
the Business of the Company in accordance with past practices of the Company,
and that no amounts have been paid to any Shareholder or AS except for salary of
approximately $3,900.
(D) Assumed Liabilities. The Buyer shall not be liable for and is
not assuming any liabilities of the Company whatsoever, whether related or
unrelated to the Purchased Assets, or whether arising under the Business
Agreement or otherwise, unless specifically listed on Exhibit J hereto (the
"Assumed Liabilities"). The Company, Shareholders and AS understand and agree
that the Buyer is not assuming any liabilities of any Shareholder whatsoever.
The Company has no outstanding loans of any kind and none of the Company's
obligations have been guaranteed by any other person or entity.
(E) Existing Employment Arrangements. Except as set forth on Exhibit
K the Company has no employment agreements, labor or collective bargaining
agreements or employee benefit or welfare plans. All vacation pay, if any, due
to employees of the Company has been fully paid by the Company. No employees of
the Company are entitled to any sick pay. The Company has no retirement plans.
There are no pending or, to the knowledge of the Company, threatened strikes,
job actions or other labor disputes affecting the Company or its employees and
there have been no such disputes for the past three years. Also set forth on
Exhibit K is a true and complete list of all employees of the Company employed
in connection with the Business, which list provides, among other things, the
name, residence address, title, job description and salary information
concerning each employee.
(F) Claims, Litigation, Disclosure. There is no claim, litigation,
tax audit,
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proceeding or investigation pending or, to the Company's, Shareholders' or AS'
knowledge, threatened against the Company, any Shareholder or AS, with respect
to the Business or any of the Purchased Assets of the Company (including,
without limitation, any claims of infringement or actions of opposition with
respect to Intellectual Property), nor does the Company, any Shareholder nor AS
know of any facts which would provide a basis for any such claim, litigation,
audit, proceeding or investigation.
(G) Taxes. Except as specifically set forth on Exhibit I (the "Tax
Liabilities"), the Company has correctly prepared and timely filed all Federal,
state and local tax returns, estimates and reports, and paid all such taxes as
and when due. For purposes of this paragraph, taxes shall mean all taxes,
charges, fees, levies or other assessments of any kind whatsoever (including,
without limitation, income, franchise, sales, use and withholding taxes). On or
before the Closing, the Company shall pay off and satisfy any of the Tax
Liabilities which are then due and payable and provide Buyer with evidence
thereof in form satisfactory to Buyer and its counsel.
(H) No Other Agreements to Sell Assets or Business. None of the
Company, any Shareholder or AS is a party to any existing agreement which
obligates the Company to sell to any other person or firm the Purchased Assets
(other than sales in the ordinary course of business), to issue or sell any
capital stock or any security convertible into or exchangeable for capital stock
of the Company or to effect any merger, consolidation or other reorganization of
the Company or to enter into any agreement with respect thereto.
(I) No Brokers. The only broker, leasing agent, finder or similar
person or entity with whom the Company, Shareholders or AS have made contact or
had any dealings with or entered into any agreement, arrangement or
understanding with concerning this Agreement and to whom the Company and/or
Shareholders and/or AS are responsible to pay a finder's fee, brokerage
commission or similar payment to is the party or parties listed in item 6 on
Exhibit A, if any, and the Company, Shareholders and AS shall be solely
responsible for the payment of same.
(J) Environmental Compliance. (i) Neither the Company nor any
operator of the Company's properties is in violation, or alleged to be in
violation, of any federal, state or local judgment, decree, order, consent
agreement, law (including common law), license, rule or regulation pertaining to
environmental health or safety matters, including without limitation those
arising under the Resource Conservation and Recovery Act, as amended, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, as
amended, Water Act, as amended, the Federal Clean Air Act, as amended, the Toxic
Substances Control Act, or any state or local analogue (hereinafter
"Environmental Laws").
(ii) Neither the Company nor any Shareholder nor AS has
received a notice, complaint, order, directive, claim or citation from any third
party, including without limitation any federal, state or local governmental
authority, indicating or alleging that
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the Company or any predecessor may have any liability or obligation under any
Environmental Law.
(iii) (A) No portion of the property of the Company has been
used by any person for the generation, handling, processing, treatment, storage
or disposal of Hazardous Materials except in accordance with applicable
Environmental Laws; (B) no underground tank or other underground storage
receptacle for Hazardous Materials, asbestos-containing materials or
polychlorinated biphenyls are located on any portion of any location occupied by
the Company each of which is listed as a Site on Exhibit A; (C) in the course of
any activities conducted by the Company or its invitees, agents, contractors,
licensees or employees in connection with the Business of the Company, no
Hazardous Materials have been generated or are being used except in accordance
with applicable Environmental Laws; and (D) there have been no releases (i.e.,
any past or present releasing, spilling, leaking, leaching, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, disposing or dumping) or
threatened releases of Hazardous Materials on, upon, into or from the property
currently or formerly owned, operated or leased by the Company, which releases
would have a material adverse effect on the value of any of the property or
adjacent properties or the environment.
(iv) The execution, delivery and performance of this Agreement
is not subject to any Environmental Laws which condition, restrict or prohibit
the sale, lease or other transfer of property or operations, including, without
limitation, any so-called "environmental cleanup responsibility acts" or
requirements for the transfer of permits, approvals, or licenses. There have
been no environmentally related audits, studies, reports, analyses (including
soil and groundwater analyses), or investigations of any kind performed with
respect to the currently or previously owned, leased, or operated properties of
the Company.
For purposes of this Section, "Hazardous Material" shall mean any
hazardous waste, as defined by 42 U.S.C. ss. 6903(5), any hazardous substances
or wastes as defined by 42 U.S.C. ss. 9601(14), any pollutant or contaminant as
defined by 42 U.S.C. ss. 9601(33) or any toxic substances or wastes, oil or
hazardous materials or other chemicals or substances regulated by any public or
governmental authority.
(K) Year 2000. All hardware and software products owned by the
Company and used in the administration and the business operations of the
Company will be able to accurately process date data (including, but not limited
to calculating, comparing and sequencing) from the twentieth century (through
the year 1999) into, between and through the year 2000, including leap year
calculations, when used in accordance with the product documentation
accompanying such hardware and software products.
(L) Licenses and Compliance with Laws. The Company holds no material
governmental or regulatory licenses, permits, consents or approvals in
connection with the Business, and the Company is in compliance with all material
laws and regulations applicable to the Business.
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(M) True and Complete. No representation or warranty made by
Company, any Shareholder or AS in this Agreement, nor any statement, certificate
or exhibit furnished by or on behalf of Company pursuant to this Agreement, nor
any document or certificate delivered to Buyer pursuant to this Agreement, or in
connection with the transactions contemplated hereby, contains or shall contain
any untrue statement of a material fact, or omits or shall omit to state a
material fact necessary to make the statements contained therein not misleading.
Neither the Company nor any Shareholder nor AS has not failed to disclose to
Buyer any pending developments or circumstances of which any of them are aware
which are reasonably likely to have a material adverse effect on the Company or
the Business.
Section 3. Representations of the Buyer. Buyer represents and
warrants to the Company, Shareholders and AS as follows.
(A) Corporate Matters; No Conflict. Buyer is a wholly owned
subsidiary of Sage Networks, Inc. ("Parent"). Each of the Buyer and Parent is
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware, is in good standing in each other jurisdiction in which it is
doing business, except where failure to be in good standing would not have a
material adverse effect on the business of Buyer or Parent, and has the
corporate power to enter into this Agreement (and as to the Parent only, the
Employment Agreement (hereinafter defined)), to perform its obligations
hereunder (and as to the Parent only, the Employment Agreement) and to conduct
its business as currently conducted. The execution, delivery and performance of
this Agreement (and as to the Parent only, the Employment Agreement) and the
transactions contemplated hereby (and thereby) by the Buyer and Parent,
respectively, will not (a) conflict with or violate the provisions of any
applicable law, rule or order or the Buyer's or the Parent's respective
Certificate of Incorporation or by-laws, (b) conflict with or constitute a
default under any agreement or contract by which the Buyer or Parent is bound or
(c) require the consent or approval of, or filing with, any governmental body or
third party. The execution, delivery and performance by the Buyer of this
Agreement has been authorized and approved by all requisite corporate action on
the part of the Buyer.
(B) No Brokers. The only broker, leasing agent, finder or similar
person or entity with whom the Buyer or Parent has made contact or had any
dealings with or entered into any agreement, arrangement or understanding with
concerning this Agreement and to whom the Buyer and/or the Parent is responsible
to pay a finder's fee, brokerage commission or similar payment to is the party
listed in item 7 on Exhibit A, if any, and the Buyer shall be solely responsible
for the payment of same.
(C) Claims, Litigation, Disclosure. There is no claim, litigation,
tax audit, proceeding or investigation pending or threatened against the Buyer
or Parent.
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ARTICLE II.
CERTAIN COVENANTS OF THE COMPANY, SHAREHOLDERS AND AS
Section 1. Non-competition; non-solicitation.
(A) For a period commencing on the Closing Date and ending on the
second anniversary of the Closing Date (in the case of the Company) and for a
period commencing on the Closing Date and ending on the second anniversary of
the termination of the Employment Agreement in accordance with its terms (in the
case of the Nicholson, Kucharski and AS), neither the Company nor Shareholders
nor AS shall engage in any capacity in an Internet web hosting business which is
similar to or in competition with the Business and is located or does business
in any state in the United States. The Company, each Shareholder and AS
understand that pursuant to this Agreement they have received confidential and
proprietary information of Buyer, Parent and their respective affiliates,
including, without limitation, customer lists and other trade secrets. Neither
the Company nor any Shareholder nor AS, shall at any time, either before or
after the Closing Date, disclose to any third party any such confidential or
proprietary information of Buyer or make use of any of such information except
in evaluating whether to enter into this Agreement. In connection with such
evaluation, the Company, Shareholders and AS may disclose such proprietary
information to their legal and financial consultants on a need to know basis on
the condition that those consultants are similarly prohibited from further
disclosing such information as provided herein. The Company, Shareholders and
AS, and each of them, expressly acknowledges, understands and agrees (i) that
remedies at law for any breach of this Article II, Section 1 will be inadequate,
(ii) that the damages resulting from such breach are not readily susceptible to
measurement in monetary terms and (iii) that Buyer and/or Parent shall be
entitled to immediate injunctive relief and may obtain temporary and permanent
orders restraining any threatened or further breach of this Article II, Section
1 by the Company and/or any Shareholder and/or AS. The Company, each Shareholder
and AS have been advised by their respective counsel with respect to the meaning
and effect of this Article II, Section 1.
(B) For a period commencing on the Closing Date and ending on the
second anniversary of the Closing Date (in the case of the Company) and for a
period commencing on the Closing Date and ending on the second anniversary of
the termination of Nicholson, Kucharski or AS's Employment Agreement (as
hereinafter defined) in accordance with its terms, neither the Company nor any
Shareholder nor AS, unless acting with the express written consent of the Buyer
or Parent, will, directly or indirectly, interfere with, solicit or endeavor to
entice away:
(i) any person who was an employee, subcontractor or
consultant of the Company, the Buyer, the Parent or any of their
affiliates during the twelve months immediately preceding the date
of such solicitation, interference or endeavor,
(ii) with respect to any Internet web hosting business similar
to or in competition with the Business in which the Company, Buyer,
Parent, or any of
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their affiliates is or has been engaged after the date of this
Agreement, any person or entity who was a customer or client of the
Company or of the Buyer or of the Parent, or any person or entity
who requested or received a proposal from Buyer, Parent or the
Company.
Section 2. Survival of Representations and Warranties;
Indemnification.
(A) The representations and warranties of the parties herein
contained shall survive the closing of the purchase contemplated by this
Agreement, notwithstanding any investigation at any time made by or on behalf of
the other party, provided that any claims for indemnification in accordance with
Article II, Section 2 below with respect to any representation or warranty must
be made (and will be null and void unless made) on or before the date
twenty-four months following the Closing Date (except in the case of
representations contained in Paragraphs (B)(v), (G), (I) and (J) of Article I,
Section 2 hereof, which must be made within six months following the expiration
of the applicable statute of limitations).
(B) The Company, Shareholders and AS, jointly and severally, hereby
agree to indemnify and hold Buyer, Parent, and their respective officers,
directors, stockholders, affiliates, employees, representatives and other agents
harmless from and against any and all claims, liabilities, losses, damages or
injuries, together with costs and expenses, including reasonable legal fees,
arising out of or resulting from (i) any breach, misrepresentation or material
omission of the representations and warranties made by the Company and/or any
Shareholder and/or AS in this Agreement or in any Exhibit hereto or other
documents delivered in connection herewith, (ii) any breach in any material
respect by the Company and/or any Shareholder and/or AS, or any of them, unless
waived in writing by the Buyer, of any covenant or agreement contained in or
arising out of this Agreement, or any other agreement delivered in connection
herewith on the Closing Date, including without limitation, the Employment
Agreement, (iii) the Business conducted by the Company prior to the Closing Date
and any actions or events associated therewith, (iv) any and all liabilities of
the Company, other than the Assumed Liabilities, and (v) any failure by any
Shareholder or the Company to comply with any provisions of the bulk sales or
similar laws of any jurisdiction which are applicable to this Agreement or the
transactions contemplated hereby.
(C) Buyer hereby agrees to indemnify and hold the Company,
Shareholders and AS harmless from and against any and all claims, liabilities,
losses, damages or injuries, together with costs and expenses, including
reasonable legal fees, arising out of or resulting from (i) any breach,
misrepresentation or material omission in the representations and warranties
made by the Buyer in this Agreement, (ii) any breach in any material respect by
Buyer, unless waived in writing by the Company, of any covenant or agreement of
Buyer contained in or arising out of this Agreement, or (iii) the Business as
conducted by Buyer, after the Closing Date.
(D) Any party claiming a right to indemnification hereunder (the
"Indemnified Party") shall give the other party from whom indemnification is
sought (the "Indemnifying Party")
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prompt written notice of any claim, demand, action, suit, proceeding or
discovery of fact upon which the Indemnified Party intends to base a claim for
indemnification under this Section 2, provided, however, that no failure to give
such notice shall excuse any Indemnifying Party from any obligation hereunder
except to the extent the Indemnifying Party is materially prejudiced by such
failure. The Indemnified Party shall have full responsibility and authority with
respect to the disposition of any action, suit or proceeding brought against it;
provided, however, that it will not settle any such action, suit or proceeding
without the prior written consent of the Indemnifying Party, which will not be
unreasonably withheld or delayed. In the event any action, suit or proceeding is
brought against the Indemnified Party with respect to which the Indemnifying
Party may have liability under the indemnity agreements contained in Paragraphs
(B) and (C) of Article II, Section 2 hereof, however, the Indemnifying Party
shall have the right, without prejudice to the Indemnified Party's rights under
this Agreement, at the Indemnifying Party's sole expense, to be represented by
counsel of its own choosing and with whom counsel for the Indemnified Party
shall confer in connection with the defense of any such action, suit, or
proceeding. The Indemnified Party shall make available to the Indemnifying Party
and its counsel and accountants, all books and records of the Indemnified Party
relating to such action, suit or proceeding and the parties agree to render to
each other such assistance as may reasonably be requested in order to insure the
proper and adequate defense of any such action, suit or proceeding.
(E) On the Closing Date, ten (10%) percent of the Purchase Price
(the "Escrowed Amount") shall be paid to the escrow agent listed on Exhibit A
(the "Escrow Agent") to be held in escrow in accordance with the terms of an
escrow agreement to be entered into between the parties (the "Escrow Agreement")
on or prior to the Closing Date. The Escrowed Amount will be held in escrow by
the Escrow Agent as security for any indemnification obligation of the Company,
Shareholders and AS, or any of them, to Buyer pursuant to the terms of Article
II, Section 2, Paragraph (B) of this Agreement. Indemnity claims by Buyer
pursuant to said Paragraph (B) shall be satisfied first by the reduction of the
Escrowed Amount until the termination of the Escrow Agreement and thereafter by
the Company, Shareholders and AS, jointly and severally. The Escrowed Amount
does not constitute a limit on the liability of the Company, Shareholders or AS
to Buyer hereunder, it being understood and agreed that the Company,
Shareholders and AS, and each of them, shall remain jointly and severally liable
to satisfy the amount of such claims which exceed the Escrowed Amount. The
Escrowed Amount shall be held by the Escrow Agent pursuant to the terms of the
Escrow Agreement which shall be agreed upon and entered into by the Escrow
Agent, the Company, Shareholders, AS and Buyer on or before the Closing Date.
Among other things, the Escrow Agreement will provide that on the second
anniversary hereof, the Escrow Agent shall pay to the Company or its designee
such amount of the Escrow Amount then remaining, if any, as has not previously
been applied pursuant to the terms of said Escrow Agreement, unless an
indemnification claim by Buyer against the Company and/or any Shareholder and/or
AS is then pending.
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ARTICLE III
CLOSING AND DELIVERIES AT CLOSING
Section 1. Closing. The closing of the purchase and sale of the
transaction contemplated herein shall take place on May __, 1998 (the
"Closing"), at the offices of Buyer's counsel, Spitzer & Feldman P.C. located at
405 Park Avenue, 6th Floor, New York, New York at 10:00 a.m. The deliveries
described in Section 2 and 3 of this Article III will take place at the Closing.
Section 2. Deliveries by the Company, Shareholders and AS. On the
Closing Date, the Company, Shareholders and AS will deliver, or cause to be
delivered, to the Buyer the following:
(A) Such instruments of transfer or conveyance executed by the
Company, and each Shareholder where applicable, as Buyer may reasonably request
in order to convey and transfer to Buyer good and marketable title to all of the
Purchased Assets, free and clear of all liens, claims, encumbrances and other
charges, including, without limitation, a Bill of Sale.
(B) Physical delivery of all Tangible Assets by making them
available at the Sites listed on Exhibit A, together with any and all
warranties, manuals, instructions, and other literature in the possession of the
Company or any Shareholder relating to the ownership or operation of the
Tangible Assets. In addition, such notices to telephone companies and others
required to transfer the Company's telephone and facsimile numbers, e-mail
addresses and domain addresses, used in the Business to Buyer.
(C) Physical delivery of all original or certified copies of
documentation concerning the Intellectual Property, including, without
limitation, registrations and applications of any patents, trademarks or service
marks, original artwork, data bases, computer programs and software.
(D) The following corporate documentation:
(i) The Company's Articles or Certificate of Incorporation
certified as of a date within thirty days prior to the Closing Date
by the Secretary of State of the state of the Company's
organization;
(ii) Good Standing Certificates as of date within thirty days
prior to the Closing Date from the Secretary of State of the state
of the Company's organization and each other state in which the
Company is qualified to do business;
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(iii) The Company's By-Laws certified as of the Closing Date
by the President or Secretary of the Company as being in full force
and effect and unmodified; and
(iv) Corporate Resolutions of the Board of Directors and
Shareholders of the Company, approving this Agreement and all the
transactions contemplated hereby, certified by the President or
Secretary of the Company as being in full force and effect and
unmodified.
(E) The legal opinions of counsel to the Company, Shareholders and
AS, in a form acceptable to Buyer and its counsel.
(F) Evidence in form satisfactory to Buyer and its counsel that the
Tax Liabilities, if any, have been paid off and satisfied.
(G) The Escrow Agreement duly executed by the Company.
(H) A copy of the Certificate of Amendment duly executed by the
President and Secretary of the Company which is to be filed in the Secretary of
State's Office for the State of the Company's incorporation pursuant to Article
I, Section 2, Paragraph (B) (iii) hereof.
(I) The Company, Shareholders and AS shall use their reasonable best
efforts to deliver a Non-Competition, Non-Disclosure and Intellectual Property
Agreement in a form to be provided by Buyer prior to the Closing, executed by
each employee of the Company who will be employed by Buyer or its affiliate
after the Closing.
(J) Notices of termination of all employees of the Company employed
in connection with Business satisfactory to Buyer, which notices will be
delivered to the employees concurrently with the Closing.
(K) Employment Agreements ("Employment Agreements") between each of
Nicholson, Kucharski and AS and Parent executed by each of Nicholson, Kucharski
and AS.
(L) Keys to all entrances and possession of the Site listed on
Exhibit A.
(M) Such notice or notices as Buyer may reasonably request in order
to notify the customers included on the Customer List that the Business has been
sold to Buyer.
Section 3. Deliveries by the Buyer.
On the Closing Date, the Buyer will deliver, or cause to be
delivered, to the Company and Shareholders (and AS, where applicable) the
following:
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(A) The Purchase Price by cash, or certified or official bank check
payable to the order of the Company, or by wire transfer of federal funds to the
account of the Company, as the Company and Shareholders shall direct in writing
on or before the Closing Date; provided, however, Buyer may, upon written
agreement of all parties hereto, deduct from the Purchase Price and pay directly
amounts due any creditor of the Company, including, without limitation, the Tax
Liabilities (but excluding any amounts due for any of the Assumed Liabilities),
in which event, evidence of such payment shall be presented at the Closing.
(B) Such instruments of assignment and assumption executed by the
Buyer, as the parties hereto reasonably may determine necessary to effectuate
the assignment to the Buyer of the Business Agreements and the assumption by
Buyer of the Assumed Liabilities.
(C) The Escrow Agreement duly executed by the Buyer and the Escrow
Agent.
(D) The Employment Agreements executed by Parent.
(E) The legal opinion of counsel to the Buyer, in a form acceptable
to the Company and its counsel.
(F) Resolution of the Board of Directors of Buyer, authorizing the
execution of this Agreement and the transactions contemplated hereby.
ARTICLE IV
OBLIGATIONS FOLLOWING CLOSING
Section 1. Further Cooperation. The Company, Shareholders and AS
will, at any time and from time to time after the Closing Date, execute and
deliver such further instruments of conveyance, transfer and license, and take
such additional actions as Buyer, Parent or its successor and/or assigns, may
reasonably request, to effect, consummate, confirm or evidence the transfer to
Buyer of the Purchased Assets pursuant to this Agreement.
Section 2. Transition Assistance and Adjustments.
(A) The Company shall reasonably cooperate and provide assistance to
the Buyer as shall be reasonably appropriate during the transition of the
Business and the Purchased Assets from the Company to the Buyer, or its
successors and/or assigns, after the Closing Date. All assistance shall be made
promptly when available after any request by Buyer. Buyer shall only reimburse
the Company for reasonable out-of-pocket expenses incurred in rendering such
assistance, but not for any time of any personnel.
(B) Buyer and its successors and/or assigns shall have the right at
any time and
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from time to time upon reasonable notice and during normal business hours to
examine and make copies of all corporate books, records and other documents of
the Company relating to the Business and generated prior to the Closing Date,
which documents will be maintained by the Company and Shareholders for a period
of five (5) years after the Closing Date.
(C) The Company, Shareholders and AS will reasonably cooperate with
Buyer in notifying the customers included on the Customer List that the Business
has been sold to Buyer, including, without limitation, executing any additional
notices which Buyer may reasonably request. Neither the Company, Shareholders
nor AS, nor any of them, will, directly or indirectly, take any action which is
designed or intended to have the effect of discouraging customers, suppliers or
vendors and other business associates of the Business, from maintaining the same
business relationships with Buyer or its successors and/or assigns after the
Closing Date as were maintained with the Company and/or Shareholders and/or AS
with respect to the Business prior to the Closing Date.
(D) The Buyer will attempt, without out-of-pocket cost to Buyer, to
collect, on behalf of the Company, all Closing Accounts Receivable of the
Company. The Buyer will be entitled, as agreed reimbursement of Buyer's
overhead, to receive and retain 25% of all Closing Accounts Receivable received
by Buyer, Company, any Shareholder or AS. In the event payment of any Closing
Account Receivable is received by the Company, any Shareholder or AS, they shall
promptly forward to Buyer the full amount so received. Buyer will forward to the
Company by the 15th day after the month in which such amount is received, 75% of
any amounts it receives as payment for all or part of the Closing Accounts
Receivable from the Company, Shareholders, AS or any third party. The Company
shall provide a monthly report of collections to Shareholders. The Company,
Shareholders and AS will forward to Buyer any amounts any of them receive from
customers of the Business relating to any matter other than Excluded Assets.
(E) Following the Closing, the Company, Shareholders, and AS, and
each of them, or any affiliate of the Company (as defined under federal
securities laws), shall not use the name "Tri Star" or any confusingly similar
name to said trade name in any trade or business, other than as an employee of
Buyer or an affiliate of Buyer.
ARTICLE V
MISCELLANEOUS
Section 1. Governing Law; Jurisdiction. This Agreement shall be
governed by the laws of the State of New York. The parties hereto submit and
consent to the exclusive jurisdiction of the state courts of the State of New
York in the County of New York and the federal courts located therein with
respect to any legal actions relating to this Agreement, or any other agreements
delivered in connection herewith, between the Company, Shareholders and AS, or
any of them, on the one hand, and the Buyer and/or Parent, on the other hand,
and any
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transactions contemplated thereby.
Section 2. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
Section 3. Confidentiality. The Company, Shareholders and AS, and
each of them, on the one hand, and the Buyer, on the other hand, each agree not
to disclose or use any information acquired by it about the other party during
the course of the negotiations of this Agreement and the transactions to which
it relates which is confidential in nature or not otherwise generally available
to the public without the prior written consent of such other party unless
required to do so by applicable law or by order of a court of competent
jurisdiction.
Section 4. Amendments. This Agreement supersedes any prior contracts
relating to the subject matter hereof between the Buyer, Parent, the Company,
Shareholders and AS. This Agreement cannot be changed, modified or amended and
no provision or requirement hereof may be waived without the consent in writing
of the parties hereto.
Section 5. Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect. Each provision of this Agreement shall be deemed to be the agreement of
the parties hereto to the full extent that the power to enter into such
provisions shall have been conferred on the parties by law.
Section 6. Benefit; Assignment. This Agreement is binding upon and
inures to the benefit of the parties, their successors and permitted assigns.
This Agreement may not be assigned or the duties of the parties hereunder
delegated to others without the prior written consent of all parties hereto,
except that Buyer may assign its rights, duties and obligations hereunder to
Parent or an affiliate of Buyer or Parent without the Company's, Shareholders'
or AS's consent.
Section 7. Construction. All exhibits annexed hereto are hereby
incorporated herein by reference and made a part of this Agreement. Whenever
used in this Agreement and the context so requires, the singular shall include
the plural and the plural shall include the singular.
Section 8. Imputed Knowledge. Anywhere in this Agreement where it
refers to the "knowledge of" the Company, or words of similar import, the
knowledge of the
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<PAGE> 17
Shareholders and AS shall be imputed to be the knowledge of the Company.
Anywhere in this Agreement where it refers to the "knowledge of" the Buyer or
the Parent, or words of similar import, the knowledge of Leonard J. Fassler
shall be imputed to be the knowledge of the Buyer and the Parent, respectively.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
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<PAGE> 18
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
SAGE NETWORKS ACQUISITION CORP.
By: /s/ Leonard J. Fassler
----------------------------------------
Leonard J. Fassler, President
TRI STAR WEB CREATIONS, INC
By:
----------------------------------------
/s/ Bonnie Shimel
--------------------------------------------
BONNIE SHIMEL
William Nicholson
--------------------------------------------
WILLIAM NICHOLSON
James Kucharski
--------------------------------------------
JAMES KUCHARSKI
/s/ Alan Shimel
--------------------------------------------
ALAN SHIMEL
<PAGE> 19
DESCRIPTION OF EXHIBITS:
Exhibit A -- Basic Provisions
Exhibit B -- Ownership of Capital Stock of the Company; Description of Capital
Stock; Officers; Directors; Trade Names
Exhibit C-1 -- Forms of Business Agreements with Customers
Exhibit C-2 -- Summary of Oral Business Agreements and Vendor/Service Provider
Agreements
Exhibit C-3 -- Leases
Exhibit C-4 -- Claims of Disputes Under Business Agreements
Exhibit C-5 -- Consents to Transfer or Assign Not Obtained
Exhibit D -- [INTENTIONALLY DELETED]
Exhibit E -- Tangible Assets
Exhibit F -- Intellectual Property
Exhibit G -- Customer List and Related Information
Exhibit G-1 -- Customer Terminations
Exhibit H -- Financial Statements
Exhibit I -- Bad Debts and Tax Liabilities of the Company
Exhibit J -- Assumed Liabilities
Exhibit K -- Existing Employment Agreements, Labor or Collective Bargaining
Agreements, Employee Benefit or Welfare Plans, Description of
Employees
Exhibit L -- Excluded Assets
In accordance with Item 601(b)(2) of Regulation S-K all exhibits other than
Exhibit A have been omitted. The Company hereby agrees to furnish supplementally
a copy of any omitted exhibit to the Commission upon request.
<PAGE> 20
EXHIBIT A
TO
ASSET PURCHASE AGREEMENT
BETWEEN
SAGE NETWORKS ACQUISITION CORP.
and
TRI STAR WEB CREATIONS, INC.
BASIC PROVISIONS
1. Name of BUYER: Sage Networks Acquisition Corp.
2. Name of COMPANY: Tri Star Web Creations, Inc.
(a) Names, addresses and stock ownership of SHAREHOLDER of COMPANY:
Name and Address Number of Shares (Type)
---------------- -----------------------
Bonnie Shimel 1
William Nicholson 1
James Kucharski 1
Total Outstanding Shares 3 Common Shares
(b) STATE OF INCORPORATION of COMPANY: New York
(c) AUTHORIZED OFFICERS of the COMPANY:
William Nicholson - President and Treasurer
James Kucharski - Vice President and Secretary
(d) Address of each SITE from which the COMPANY conducts the Business:
55 John Street
New York, New York 10038
3. [INTENTIONALLY DELETED]
4. RESIDENCE ADDRESSES of SHAREHOLDERS: See above
5. PURCHASE PRICE: $955,000 plus 3,000 shares of
Common
<PAGE> 21
Stock of Sage Network, Inc.
6. COMPANY AND SHAREHOLDERS' BROKER: None
7. BUYER'S BROKER: Am-Tech Associates
8. ESCROW AGENT: Spitzer & Feldman P.C.
<PAGE> 1
Exhibit 2.11
ASSET PURCHASE AGREEMENT
AGREEMENT made as of this 7th day of April 1998 between CLEVER COMPUTERS,
INC., a Georgia corporation (the "Company"), STEVEN C. DABBS ("DABBS"), and SAGE
NETWORKS ACQUISITION CORP., a Delaware corporation ("Buyer").
W I T N E S S E T H:
WHEREAS, the Company desires to sell and the Buyer desires to purchase on
the date hereof (the "Closing Date") the web hosting business of the Company as
a going concern (the "Business") consisting of the Purchased Assets (hereinafter
defined), and the Assumed Liabilities (as hereinafter defined), for a purchase
price determined as set forth in Exhibit A (the "Purchase Price") and for the
assumption of the Assumed Liabilities (hereinafter defined); and
WHEREAS, Steven C. Dabbs ("Dabbs") joins in the execution of this
Agreement as he was the founder, sole shareholder, sole director and president
of the Company until he sold all of the capital stock of the Company to Optimum
Realty Corp., a Georgia Corporation ("Optimum") on April 6, 1998, and he is
familiar with the material aspects of operations of the business of the Company,
including, without limitation, the Business.
NOW THEREFORE, in consideration of the mutual covenants and promises
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged by all parties, the
Company, Shareholder, Buyer and Parent agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES
Section 1. Representations of the Company and Dabbs. The following
agreements, representations and warranties are made by the Company and Dabbs,
jointly and severally to the Buyer.
(A) Corporate Matters; No Conflict. The Company is duly formed,
organized
<PAGE> 2
or incorporated and is validly existing in good standing under the laws of its
state of incorporation as set forth in Exhibit A, maintains offices only in
Atlanta, Georgia at the sites listed on Exhibit A and has no other locus of
operations other than from those sites, is qualified or authorized to transact
business and is in good standing in each other jurisdiction in which it is doing
business, except where failure to be qualified or be in good standing would not
have a material adverse effect on the business of the Company, and has the
corporate power to enter into this Agreement, to perform its obligations
hereunder and to conduct its business as currently conducted. The execution,
delivery and performance of this Agreement and the transactions contemplated
hereby by the Company and by the Dabbs will not (i) conflict with or violate the
provisions of any applicable law (including, without limitation, any bulk sales
laws), rule or order of the Company's Articles or Certificate of Incorporation,
by-laws and any other organizational or governing documents of the Company, (ii)
conflict with or constitute a default under any agreement or contract by which
the Company or Dabbs are bound or (iii) require the consent or approval of, or
filing with, any governmental body or third party except as set forth on Exhibit
C-5. The execution, delivery and performance by the Company of this Agreement
has been authorized and approved by all requisite corporate action on the part
of the Company. As of the date hereof, Optimum is the sole beneficial or record
owner of all of the issued and outstanding shares of capital stock of the
Company and owns the number of shares of such stock set forth opposite its name
on Exhibit A. Also set forth on Exhibit A is the total number and type of
outstanding shares of capital stock of the Company. Set forth on Exhibit B is a
list of officers and directors of the Company, all trade names used by the
Company and all jurisdictions in which the Company is doing business. As the
sole shareholder of the Company, Optimum has approved this Agreement and the
consummation of the transactions contemplated hereby and the authorized officers
of the Company named on Exhibit A are jointly and severally authorized and
empowered by the Company to execute and deliver this Agreement in the name and
on behalf of the Company.
(B) Purchased Assets. (i) All vendor and customer contracts,
confidentiality agreements, purchase and sales orders, powers of attorney,
undertakings, commitments and other agreements to which the Company is a party
and which relate in any manner to the Business and/or the relationship between
the Company and the Customers (hereinafter defined), whether written or oral
shall be referred to herein collectively as the "Business Agreements". The
Company has delivered to Buyer, on or before the Closing Date, true and correct
copies of all written Business Agreements. Attached hereto as Exhibit C-1 are
true and correct copies of the only forms of agreements which have been entered
into between the Company and its Customers concerning the Business. Also
attached as part of Exhibit C-1 is a schedule stating the approximate number of
each of those agreements which are in force and effect as of the Closing Date.
Annexed as Exhibit C-2 are summaries of all oral Business Agreements and all
Business Agreements between the Company and vendors and service providers, as
well as a list of suppliers, concerning the Business. Listed on Exhibit C-3 is a
description of each and every real estate, equipment and personal property lease
(collectively, the "Leases") to which the Company is a party and which relates
to the Business. The Leases are also included within the definition of
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<PAGE> 3
Business Agreements as said term is used herein. Neither the Company, nor, to
the knowledge of the Company and Dabbs, any other party, is in default under any
Business Agreement and no other party to any Business Agreement has made any
claim or given the Company notice of any dispute under any Business Agreement,
except as set forth on Exhibit C-4. Each Business Agreement is in full force and
effect and the Company has the right to assign the Business Agreements and the
Company has obtained all required consents to the assignment and transfer
thereof, except as set forth on Exhibit C-5. The Company is not the owner or
lessee of any motor vehicles which are used in the Business. The Company does
not own or lease any interest in any real property, or lease any equipment used
in the Business, except as expressly stated on Exhibit C-3.
(ii) All of the outstanding accounts, notes and other
receivables of the Company relating to the Business, including, without
limitation, the outstanding accounts receivable and all unbilled fees for
services rendered or products sold prior to the Closing Date (including the
name, address and contact at the account) of the Company relating to the
Business as of the Closing Date shall be referred to herein collectively as the
"Accounts Receivable". Attached hereto as Exhibit D-1 is a true and correct aged
list of all of the Accounts Receivable as of March 28, 1998. The Accounts
Receivable are valid and arose in the ordinary course of the Business. Also
stated on Exhibit D-2 is the amount of cash on hand owned by the Company as of
the Closing Date ("Cash").
(iii) All of the tangible assets of the Company used in the
Business, including, without limitation, all machinery, office and other
equipment, furniture, computers and related equipment, business machines,
telephones and telephone systems, parts and accessories, telephone numbers,
facsimile numbers and Internet domain addresses presently utilized by the
Company in the Business, shall be referred to herein collectively as the
"Tangible Assets". Attached hereto as Exhibit E is a true and correct list or
description of the material Tangible Assets. As of the Closing Date, each of the
Tangible Assets is in good and operable condition, reasonable wear and tear
excepted.
(iv) All patents, trademarks, service marks, logos, designs,
formulations, copyrights and other trade rights and all registrations and
applications therefor, all trade secrets, technology or processes, and all
computer programs, data bases and software documentation owned or used by the
Company in the Business, other than off-the-shelf software licensed by the
Company, shall be referred to herein collectively as the "Intellectual
Property." Attached hereto as Exhibit F is a true and correct copy of all of the
Intellectual Property. Such exhibit also indicates which of such items have been
patented or registered or are in the process of application for same. The
Company has taken all necessary and reasonable actions to protect its rights in
Intellectual Property owned by it and to the knowledge of the Company, is not
infringing on the rights of any third parties to Intellectual Property used, but
not owned by, the Company. Included among the Intellectual Property, among other
things, are all trade names utilized by the Company in the Business, including
those trade names listed on Exhibit B. On the Closing Date, the Company will
deliver to Buyer a Certificate of Amendment of the Company's
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<PAGE> 4
Articles or Certificate of Incorporation ("Certificate of Amendment") changing
its corporate name so as to delete the words"Clever Computers" and will cause
the same to be duly filed with the Secretary of State's Office for the State of
Georgia within ten days from the Closing Date. Promptly after such filing, the
Company will deliver proof of said filing to Buyer. The Company has valid and
fully-paid licenses for all off-the-shelf software used by the Company in its
operation of the Business.
(v) The Company will deliver at the Closing a true and
complete copy of the Company's customer list as of the Closing Date relating to
the Business which includes, in the case of each customer, the name of the
customer, its billing and domain addresses, identity and contact information of
each relevant contact person and a statement of the monthly or annual (as
indicated) service charges relating to such customer (the "Customer List"). All
customers of the Company relating to the Business, including without limitation,
those customers included on the Customer List, together with the good will and
business opportunities of the Company as it relates to the Business shall be
referred to herein as the "Customers." Buyer acknowledges that a substantial
number of the Company's customers relating to the Business are resellers of
Internet services to other customers. The customers of such resellers are not
intended to and shall not be included in the term "Customers" for purposes of
this Agreement.
(vi) As used herein, the term "Purchased Assets" shall be
defined as all classes of assets of the Company as shown on the Company's
certified financial statement as of December 31, 1997 (annexed as Exhibit H)
(excluding, however, the organizational costs of the Company and any prepaid or
deferred income taxes), the Business Agreements, the Accounts Receivable, the
Cash, the Tangible Assets, the Intellectual Property, the Customers and all
other assets of the Company used in connection with the operation of the
Business, wherever located, tangible or intangible, including without
limitation, all rights the Company may have under any insurance policies
relating to the Purchased Assets, excluding, however, the assets listed on
Exhibit M (the "Excluded Assets"). The Purchased Assets are not subject to (i)
any lien or encumbrance of any character whatsoever except as set forth on
Exhibit N or (ii) any adverse claims by any third parties. At the Closing upon
consummation of the transactions contemplated by this Agreement, Buyer will
receive good and marketable title to the Purchased Assets, free and clear of all
liens and encumbrances of any character whatsoever, with the exception of the
Business Agreements which Buyer shall receive all of the Company's right, title
and interest in, and which shall be valid, binding and in full force and effect,
with no existing defaults, claims or setoffs. Notwithstanding the foregoing,
promptly after the Closing Date, Seller shall deliver the balance, if any, of
the Cash after all payables and accrued and other expenses set forth on the
Schedule annexed to Exhibit D-2 have been paid therefrom.
(vii) The Company and Dabbs reasonably expect that the
business represented by the Business Agreements will continue after the date
hereof. The Company and Dabbs have no actual knowledge that any customers
included on the Customer List, other than those listed on Exhibit G, intend to
terminate or reduce the amount of business they presently do with the Company,
and they have no knowledge of any state of facts which would lead them to
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<PAGE> 5
believe that a substantial number of the customers included on the Customer List
will terminate their relationship with the Company or significantly reduce the
amount of business they presently do with the Company.
(C) Financial Statements. The Company has delivered to the Buyer
copies of the Company's audited financial statements for the last fiscal year of
the Company ended December 31, 1997, and unaudited financial statements for the
fiscal years of the Company ended 1995 and 1996, respectively. Attached hereto
as Exhibit H is a certified audited balance sheet and profit and loss statement
for the fiscal year ended December 31,1997 and unaudited financial statements
for each of the months ending January 31, 1998, February 28, 1998 and March 31,
1998, all of which reflect the assets, liabilities, net worth, profit and loss,
and cash flow of the Company with respect to the Business. The Company and Dabbs
represent and warrant that the financial statements for the fiscal years of the
Company ended December 31, 1995 and 1996, respectively, while unaudited are
auditable. All financial statements referred to herein are complete and correct
in all material respects, present fairly the financial condition and results of
operations of the Company as at the dates of such statements and with respect to
the audited financial statements referred to above for the fiscal year of the
Company ended December 31, 1997 only, have been prepared in accordance with
generally accepted accounting principles. The books of account and records of
the Company have been maintained in accordance with good business practice and
reflect fairly all properties, assets, liabilities and transactions of the
Company. Except as set forth on Exhibit I the Company has no bad debts as of the
Closing Date. Since the last day of the Company's last fiscal year, there has
been no material adverse change in the Business. Since February 28, 1998, the
Company has had no loss in net monthly recurring revenue from the Business.
(D) Assumed Liabilities. The Buyer shall not be liable for and is
not assuming any liabilities of the Company whatsoever, whether related or
unrelated to the Purchased Assets, or whether arising under the Business
Agreement or otherwise, unless specifically listed on Exhibit J hereto (the
"Assumed Liabilities"). The Company and Dabbs understand and agree that the
Buyer is not assuming any liabilities of Optimum or Dabbs whatsoever, except
that Buyer agrees to indemnify and hold Dabbs harmless from and against any
liabilities arising under the equipment leases listed on Schedule C-3. The
Company has no outstanding loans of any kind and neither Optimum nor Dabbs has
personally guaranteed any obligations of the Company except certain equipment
leases as noted on Exhibit C.
(E) Existing Employment Arrangements. Except as set forth on Exhibit
K the Company has no employment agreements, labor or collective bargaining
agreements or employee benefit or welfare plans. All vacation pay, if any, due
to employees of the Company has been fully paid by the Company. No employees of
the Company are entitled to any sick pay. The Company has no retirement plans.
The Company is not aware of any strikes, job actions or other labor disputes
affecting its employees. Also set forth on Exhibit K is a true and complete list
of all employees of the Company employed in connection with the Business, which
list provides, among other things, the name, title, job description and salary
information concerning
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<PAGE> 6
each employee.
(F) Claims, Litigation, Disclosure. There is no claim, litigation,
tax audit, proceeding or investigation pending or, to the Company's or Dabbs'
knowledge, threatened against the Company or Dabbs, with respect to the Business
or any of the Purchased Assets of the Company (including, without limitation,
any claims of infringement or actions of opposition with respect to Intellectual
Property).
(G) Taxes. Except as specifically set forth on Exhibit I (the "Tax
Liabilities"), the Company has correctly prepared and timely filed all Federal,
state and local tax returns, estimates and reports, and paid all such taxes as
and when due. For purposes of this paragraph, taxes shall mean all taxes,
charges, fees, levies or other assessments of any kind whatsoever (including,
without limitation, income, franchise, sales, use and withholding taxes). On or
before the Closing, the Company shall pay off and satisfy any of the Tax
Liabilities which are then due and payable and provide Buyer with evidence
thereof in form satisfactory to Buyer and its counsel.
(H) No Other Agreements to Sell Assets or Business. Other than as
listed on Exhibit N, neither the Company nor Dabbs are parties to any existing
agreement which obligates the Company to sell to any other person or firm the
Purchased Assets (other than sales in the ordinary course of business), to issue
or sell any capital stock or any security convertible into or exchangeable for
capital stock of the Company or to effect any merger, consolidation or other
reorganization of the Company or to enter into any agreement with respect
thereto.
(I) Certificate of Incorporation and By-laws; Resolutions;
Incumbency Certificate. Attached hereto as Exhibit L are copies of (i) the
Company's Articles or Certificate of Incorporation or other organizational or
governing documents of the Company certified as of a date within 60 days from
the Closing Date by the Secretary of State or such other governmental office of
such State, (ii) a "good standing" or comparable certificate regarding the
Company issued as of a recent date by the Secretary of State of the State of the
Company's incorporation and each state in which the Company is qualified to do
business, showing the Company to be in good standing in each of those States (if
generally available in such States) and (iii) the By-laws of the Company, if any
(certified as of the date hereof by the secretary or other similar responsible
officer of the Company), which copies are complete and correct as of the date
hereof. Also attached as part of Exhibit L are true and correct copies of the
resolutions or minutes of the Board of Directors and shareholders of the
Company, in each case, approving this Agreement and all of the transactions
contemplated hereby. All such resolutions or minutes have not been amended,
rescinded or modified and are in full force and effect on the date hereof. In
addition, Exhibit L contains a certificate executed by the President and
Secretary of the Company (or two other responsible officers of the Company)
certifying the incumbency and sample signature of each of the officers and
executives of the Company.
(J) No Brokers. The only brokers, leasing agents, finders or similar
persons
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<PAGE> 7
or entities with whom the Company or Dabbs has made contact or had any dealings
with or entered into any agreement, arrangement or understanding with concerning
this Agreement and to whom the Company and/or Dabbs is responsible to pay a
finder's fee, brokerage commission or similar payment to are the parties listed
in item 6 on Exhibit A and the Company and Dabbs shall be solely responsible for
the payment of same.
(K) Environmental Compliance. (i) The Company and Dabbs, or either
of them, have not been notified and neither of them knows or suspects that the
Company or any operator of the Company's properties is in violation, or alleged
to be in violation, or is aware that it is in violation, of any federal, state
or local judgment, decree, order, consent agreement, law (including common law),
license, rule or regulation pertaining to environmental health or safety
matters, including without limitation those arising under the Resource
Conservation and Recovery Act, as amended, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986, as amended, Water Act, as
amended, the Federal Clean Air Act, as amended, the Toxic Substances Control
Act, or any state or local analogue (hereinafter "Environmental Laws"), which
violation would have a material adverse effect on the business, assets or
financial condition of the Company.
(ii) The Company and Dabbs, or either of them, have not
received a notice, complaint, order, directive, claim or citation from any third
party, including without limitation any federal, state or local governmental
authority, indicating or alleging that the Company or any predecessor may have
any liability or obligation under any Environmental Law.
(iii) To the extent such activity would have a material
adverse effect on the business, assets or financial condition of the Company:
(A) to the actual knowledge of the Company and Dabbs, or either of them, no
portion of the property of the Company has been used by any person for the
generation, handling, processing, treatment, storage or disposal of Hazardous
Materials except in accordance with applicable Environmental Laws; (B) to the
actual knowledge of the Company and Dabbs, or either of them, no underground
tank or other underground storage receptacle for Hazardous Materials,
asbestos-containing materials or polychlorinated biphenyls are located on any
portion of any location occupied by the Company each of which is listed as a
Site on Exhibit A; (C) in the course of any activities conducted by the Company
or its invitees, agents, contractors, licensees or employees in connection with
the Business of the Company, no Hazardous Materials have been generated or are
being used except in accordance with applicable Environmental Laws; and (D) to
the actual knowledge of the Company and Dabbs, or either of them, there have
been no releases (i.e., any past or present releasing, spilling, leaking,
leaching, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, disposing or dumping) or threatened releases of Hazardous Materials
on, upon, into or from the property currently or formerly owned, operated or
leased by the Company, which releases would have a material adverse effect on
the value of any of the property or adjacent properties or the environment.
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<PAGE> 8
(iv) The execution, delivery and performance of this Agreement
is not subject to any Environmental Laws which condition, restrict or prohibit
the sale, lease or other transfer of property or operations, including, without
limitation, any so-called "environmental cleanup responsibility acts" or
requirements for the transfer of permits, approvals, or licenses. There have
been no environmentally related audits, studies, reports, analyses (including
soil and groundwater analyses), or investigations of any kind performed by or at
the request of the Company or Dabbs with respect to the currently or previously
owned, leased, or operated properties of the Company.
For purposes of this Section, "Hazardous Material" shall mean any
hazardous waste, as defined by 42 U.S.C. ' 6903(5), any hazardous substances or
wastes as defined by 42 U.S.C. ' 9601(14), any pollutant or contaminant as
defined by 42 U.S.C. ' 9601(33) or any toxic substances or wastes, oil or
hazardous materials or other chemicals or substances regulated by any public or
governmental authority.
(L) Year 2000. All hardware and software products owned by the
Company and used in the administration and the business operations of the
Company will be able to accurately process date data (including, but not limited
to calculating, comparing and sequencing) from the twentieth century (through
the year 1999) into, between and through the year 2000, including leap year
calculations, when used in accordance with the product documentation
accompanying such hardware and software products.
(M) Purchased Net Worth. The value of the Purchased Assets less the
Assumed Liabilities ("Purchased Net Worth") as of the Closing Date will not be
less than the Purchased Net Worth as of December 31, 1997 as the same is
reflected on the Company's certified financial statement for said period annexed
hereto as Exhibit H.
Section 2. Representations of the Buyer. Buyer represents and
warrants to the Company and Dabbs as follows.
(A) Corporate Matters; No Conflict. Buyer is a wholly owned
subsidiary of Sage Networks, Inc. ("Parent"). Each of the Buyer and Parent is
duly incorporated and validly existing in good standing under the laws of the
State of Delaware, is in good standing in each other jurisdiction in which it is
doing business, except where failure to be in good standing would not have a
material adverse effect on the business of Buyer or Parent, and has the
corporate power to enter into this Agreement (and as to the Parent only, the
Employment Agreement (hereinafter defined)), to perform its obligations
hereunder (and as to the Parent only, the Employment Agreement) and to conduct
its business as currently conducted. The execution, delivery and performance of
this Agreement (and as to the Parent only, the Employment Agreement) and the
transactions contemplated hereby (and thereby) by the Buyer and Parent,
respectively, will not (a) conflict with or violate the provisions of any
applicable law, rule or order or the Buyer's or the Parent's respective
Certificate of Incorporation or by-laws, (b)
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<PAGE> 9
conflict with or constitute a default under any agreement or contract by which
the Buyer or Parent is bound or (c) require the consent or approval of, or
filing with, any governmental body or third party. The execution, delivery and
performance by the Buyer of this Agreement (and Parent to the extent as set
forth in Article II, Section 2, Paragraph (E) herein) has been authorized and
approved by all requisite corporate action on the part of the Buyer and Parent.
(B) No Brokers. The only broker, leasing agent, finder or similar
person or entity with whom the Buyer or Parent has made contact or had any
dealings with or entered into any agreement, arrangement or understanding with
concerning this Agreement and to whom the Buyer and/or the Parent is responsible
to pay a finder's fee, brokerage commission or similar payment to is the party
listed in item 7 on Exhibit A and the Buyer and Parent shall be solely
responsible for the payment of same.
(C) Claims, Litigation, Disclosure. There is no claim, litigation,
tax audit, proceeding or investigation pending or threatened against the Buyer
or Parent.
(D) Certificate of Incorporation and By-laws; Resolutions;
Incumbency Certificate. Attached hereto as Exhibit O are copies of (i) the
Buyer's Articles or Certificate of Incorporation, and any amendments thereto,
certified as of a recent date by the Secretary of State of the State of
Delaware, and (ii) the By-laws of the Buyer (certified as of the date hereof by
the secretary or other similar responsible officer of the Buyer), which copies
are complete and correct as of the date hereof. Also attached as part of Exhibit
O are true and correct copies of the resolutions or minutes of the Board of
Directors and shareholders of the Buyer and the Board of Directors of the
Parent, approving this Agreement (and with respect to the Parent only, the
Employment Agreement) and all of the transactions contemplated hereby (and
thereby). All such resolutions or minutes have not been amended, rescinded or
modified and are in full force and effect on the date hereof. In addition,
Exhibit O contains certificates executed by a responsible officer of the Buyer
and Parent certifying the incumbency and sample signature of the officer
executing this Agreement on behalf of the Buyer and the Parent, respectively.
Section 3. Representations of the Company and Optimum. The following
agreements, representations and warranties are made by the Company and Optimum,
jointly and severally to the Buyer.
(A) Corporate Matters; No Conflict. Optimum is duly formed,
organized or incorporated and is validly existing in good standing under the
laws the State of Georgia, is in good standing in the State of Georgia and each
other jurisdiction in which it is doing business, except where failure to be
qualified or be in good standing would not have a material adverse effect on the
business of Optimum, and has the corporate power to enter into this Agreement,
to perform its obligations hereunder and to conduct its business as currently
conducted. The execution, delivery and performance of this Agreement and the
transactions contemplated hereby by Optimum will not (i) conflict with or
violate the provisions of any applicable law (including, without limitation, any
bulk sales laws), rule or order of Optimum's Articles or Certificate of
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<PAGE> 10
Incorporation, by-laws and any other organizational or governing documents of
Optimum, (ii) conflict with or constitute a default under any agreement or
contract by which Optimum is bound or (iii) require the consent or approval of,
or filing with, any governmental body or third party. The execution, delivery
and performance by the Company and Optimum of this Agreement has been authorized
and approved by all requisite corporate action on the part of the Company and
Optimum. As of the date hereof, Optimum is the sole beneficial or record owner
of all of the issued and outstanding shares of capital stock of the Company. As
the sole shareholder of the Company, Optimum has approved this Agreement and the
consummation of the transactions contemplated hereby.
(B) Claims, Litigation, Disclosure. There is no claim, litigation,
tax audit, proceeding or investigation pending or, to Optimum's knowledge,
threatened against the Optimum.
(C) No Other Agreements to Sell Assets or Business. Optimum is not a
party to any existing agreement which obligates the Company and/or Optimum to
sell to any other person or firm the Purchased Assets (other than sales in the
ordinary course of business), to issue or sell any capital stock or any security
convertible into or exchangeable for capital stock of the Company or to effect
any merger, consolidation or other reorganization of the Company or to enter
into any agreement with respect thereto.
(D) Certificate of Incorporation and By-laws; Resolutions;
Incumbency Certificate. Attached hereto as Exhibit L-1 are copies of (i)
Optimum's Articles or Certificate of Incorporation or other organizational or
governing documents of Optimum certified as of a date within 30 days from the
Closing Date by the Secretary of State of the State of Georgia or such other
governmental office of such State, (ii) a "good standing" or comparable
certificate regarding Optimum issued as of a recent date by the Secretary of
State of the State of Georgia showing the Company to be in good standing in such
State and (iii) the By-laws of Optimum, if any (certified as of the date hereof
by the secretary or other similar responsible officer of Optimum), which copies
are complete and correct as of the date hereof. Also attached as part of Exhibit
L-1 are true and correct copies of the resolutions or minutes of the Board of
Directors and shareholders of Optimum, in each case, approving this Agreement
and all of obligations of Optimum stated herein. All such resolutions or minutes
have not been amended, rescinded or modified and are in full force and effect on
the date hereof. In addition, Exhibit L-1 contains a certificate executed by the
President and Secretary of the Optimum (or two other responsible officers of
Optimum) certifying the incumbency and sample signature of each of the officers
and executives of Optimum.
(E) No Brokers. The only broker, leasing agent, finder or similar
person or entity with whom the Company or Optimum has made contact or had any
dealings with or entered into any agreement, arrangement or understanding with
concerning this Agreement and to whom the Company is responsible to pay a
finder's fee, brokerage commission or similar payment to is the parties listed
in item 6 on Exhibit A.
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<PAGE> 11
ARTICLE II.
CERTAIN COVENANTS OF THE COMPANY, DABBS AND OPTIMUM
Section 1. Non-competition; non-solicitation.
(A) For a period ending on the second anniversary of the Closing
Date, the Company will not engage in any capacity in an Internet Web hosting
business substantially similar to or in competition with the Business that is
located or does business in any state in the United States except as an officer,
director, shareholder or employee of Buyer, Parent or their respective
affiliates. The Company and Dabbs each understands that pursuant to this
Agreement they have received confidential and proprietary information of Buyer,
Parent and their respective affiliates, including, without limitation, customer
lists and other trade secrets. Neither the Company (including its shareholders,
officers and directors) nor Dabbs, shall at any time, either before or after the
Closing Date, disclose to any third party any such confidential or proprietary
information of Buyer or make use of any of such information except in evaluating
entering into this Agreement. In connection with such evaluation, the Company
and Dabbs may disclose such proprietary information to its legal and financial
consultants on a need to know basis on the condition that those consultants are
similarly prohibited from further disclosing such information as provided
herein. The Company and Dabbs, and each of them, expressly acknowledges,
understands and agrees (i) that remedies at law for any breach of this Article
II, Section 1 will be inadequate, (ii) that the damages resulting from such
breach are not readily susceptible to measurement in monetary terms and (iii)
that Buyer and/or Parent shall be entitled to immediate injunctive relief and
may obtain temporary and permanent orders restraining any threatened or further
breach of this Article II, Section 1 by the Company and/or Dabbs. The Company
and Dabbs have each been advised by their respective counsel with respect to the
meaning and effect of this Article II, Section 1.
(B) For a period ending two years after the Closing Date, the
Company, unless acting with the express written consent of the Buyer or Parent,
will not directly or indirectly, solicit or endeavor to entice away:
(i) any person who was an employee, subcontractor or
consultant of the Company, the Buyer, the Parent or any of their
affiliates during the 12 months immediately preceding the date of
such solicitation, interference or endeavor,
(ii) with respect to any Internet Web hosting business
substantially similar to or in competition with the Business in
which the Company, Buyer or Parent, or any of their affiliates is or
has been engaged after the date of this Agreement, any person or
entity who was a customer or client of the Company or of the Buyer
or of the Parent (with whom the Company and Dabbs, or either of
them, have had business contact) or any person or entity who
requested or received a proposal from Buyer, Parent, the Company and
Dabbs, or any of them (if any of the Buyer,
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<PAGE> 12
Parent, the Company or Dabbs has had business contact with such
person or entity or expended efforts in the preparation of any such
proposal).
Section 2. Survival of Representations and Warranties; Indemnification.
(A) The representations and warranties of the parties herein
contained shall survive the closing of the purchase contemplated by this
Agreement, notwithstanding any investigation at any time made by or on behalf of
the other party, provided that any claims for indemnification in accordance with
Article II, Section 2 below with respect to any representation or warranty must
be made (and will be null and void unless made) on or before the date
twenty-four months following the Closing Date (except in the case of
representations contained in Paragraphs (B)(vi), (G), (J) and (K) of Article I,
Section 1 hereof, which must be made within six months following the expiration
of the applicable statute of limitations.
(B) The Company and Dabbs, jointly and severally (except that Dabbs
shall have no liability with respect to representations and warranties made in
Section 3 of Article I), hereby agree to indemnify and hold Buyer, Parent, and
their respective officers, directors, stockholders, affiliates, employees,
representatives and other agents harmless from and against any and all claims,
liabilities, losses, damages or injuries, together with costs and expenses,
including reasonable legal fees, arising out of or resulting from (i) any
breach, misrepresentation or material omission of the representations and
warranties made by the Company and Dabbs in this Agreement, (ii) any breach in
any material respect by the Company and Dabbs, or either of them, unless waived
in writing by the Buyer, of any covenant or agreement contained in or arising
out of this Agreement, or any other agreement delivered in connection herewith
on the Closing Date to which the Company is a party, (iii) the Business
conducted by the Company prior to the Closing Date, (iv) any and all liabilities
of the Company, other than the Assumed Liabilities, and (v) any failure by Dabbs
or the Company to comply with any provisions of the bulk sales or similar laws
of any jurisdiction which are applicable to this Agreement or the transactions
contemplated hereby.
(C) Notwithstanding anything to the contrary set forth above or
elsewhere in this Agreement, and except with respect to claims arising from, or
damages suffered by Buyer in connection with, a breach of the representations
contained in Paragraphs (B) (vi), (G), (J) and (K) of Article I, Section 1
hereof which are addressed below, the Company, Dabbs and Optimum in the
aggregate shall not have any obligation to indemnify Buyer for, nor pay to
Buyer, any amount for any claims or causes of action arising under this
Agreement that would cause the aggregate amounts theretofore paid or to be paid
by them to exceed the Aggregate Ceiling (as defined below), after which point
neither the Company, Dabbs nor Optimum will have any further obligation to
indemnify Buyer. For claims made prior to the first anniversary of the Closing
Date, the Aggregate Ceiling shall be $2,500,000. For claims made on or after the
first anniversary of the Closing Date and prior to the second anniversary of the
Closing Date, the Aggregate Ceiling shall be reduced to $1,250,000 minus fifty
(50%) percent of the amounts paid
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<PAGE> 13
to Buyer with respect to all claims made by Buyer in the first year following
the Closing Date, provided that if fifty (50%) of the amounts paid to Buyer on
claims made in such first year equal or exceed $1,250,000 in the aggregate, then
the Aggregate Ceiling for the second year shall be $0. A claim shall be deemed
to be made under this Agreement when written notice thereof (describing the
claim in reasonable detail and specificity) is received by the party to whom a
claim is made against. The joint and several indemnification obligations of the
Company and Dabbs for breaches of the representations contained in Paragraphs
(B) (vi), (G), (J) and (K) of Article I, Section 1 hereof shall not exceed
$2,500,000 in the aggregate. Notwithstanding anything to the contrary contained
in this Agreement, the total monetary liability of the Company, Dabbs and
Optimum for any claims or causes of action arising under or in connection with
this Agreement, shall not exceed $2,500,000 in the aggregate.
(D) Buyer hereby agrees to indemnify and hold the Company and Dabbs
harmless from and against any and all claims, liabilities, losses, damages or
injuries, together with costs and expenses, including reasonable legal fees,
arising out of or resulting from (i) any breach, misrepresentation or material
omission in the representations and warranties made by the Buyer in this
Agreement, (ii) any breach in any material respect by Buyer, unless waived in
writing by the Company, of any covenant or agreement of Buyer contained in or
arising out of this Agreement, or (iii) the Business as conducted by Buyer,
after the Closing Date.
(E) By joining in the execution of this Agreement, Parent, jointly
and severally with Buyer, hereby agrees to indemnify and hold the Company and
Dabbs harmless from and against any and all claims, liabilities, losses, damages
or injuries, together with costs and expenses, including reasonable legal fees,
arising out of or resulting from any breach, misrepresentation or material
omission in the representations and warranties made by Buyer in this Agreement
and the failure of Buyer to perform any covenant of or agreement in this
Agreement.
(F) By joining in the execution of this Agreement, Optimum, jointly
and severally with the Company, hereby agrees to indemnify and hold the Buyer
and Parent harmless from and against any and all claims, liabilities, losses,
damages or injuries, together with costs and expenses, including reasonable
legal fees, arising out of or resulting from any breach, misrepresentation or
material omission of the representations and warranties made by Optimum in
Article I, Section 3 of this Agreement.
(G) Each party shall retain its own counsel and defend itself,
subject to being reimbursed by the indemnifying party for reasonable legal fees
and expenses pursuant to Article II, Section 2 (whether such legal fees and
expenses are incurred in connection with an action among the parties hereto or
with third parties or otherwise). The indemnified party agrees to give the
indemnifying party prompt written notice of any claim, demand, action, suit,
proceeding or discovery of fact upon which the indemnified party intends to base
a claim for indemnification ("Claim") under this Section 2. With respect to any
issue involved in any such Claim, the indemnifying party shall have the sole
right to defend, settle or otherwise dispose of such Claim
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<PAGE> 14
on such terms as the indemnifying party, in its reasonable judgment, shall deem
appropriate, provided that such terms do not result in any expense to the
indemnified party. In addition, the parties agree to cooperate in any defense or
settlement and to give each other full access to all information relevant
thereto.
(H) On the Closing Date, $500,000 of the Purchase Price (the
"Escrowed Amount") shall be paid to the escrow agent listed on Exhibit A (the
"Escrow Agent") to be held in escrow in accordance with the terms of an escrow
agreement to be entered into between the parties (the "Escrow Agreement") on or
prior to the Closing Date. The Escrowed Amount will be held in escrow by the
Escrow Agent as security for any indemnification obligation of the Company,
Dabbs and Optimum, or any of them, to Buyer pursuant to the terms of Article II,
Section 2, Paragraphs (B) and/or (F) of this Agreement. The Escrowed Amount does
not constitute a limit on the liability of the Company, Dabbs and/or Optimum to
Buyer hereunder, it being understood that indemnity claims by Buyer pursuant to
said Paragraph (B) and/or (F) shall be satisfied first by the reduction of the
Escrowed Amount until the termination of the Escrow Agreement and thereafter by
the Company and Dabbs, jointly and severally, or the Company and Optimum,
jointly and severally, as the case may be, subject, however, to the terms of
Article II, Section 2, Paragraph (C) of this Agreement. The Escrowed Amount
shall be held by the Escrow Agent pursuant to the terms of the Escrow Agreement
which shall be agreed upon and entered into by the Escrow Agent, the Company,
Dabbs and Buyer on or before the Closing Date. Among other things, the Escrow
Agreement will provide that on the date one year following the Closing Date, the
Escrow Agent shall pay to the Company or its designee such amount of the Escrow
Amount then remaining, if any, as has not previously been applied pursuant to
the terms of said Escrow Agreement, unless an indemnification claim by Buyer
against the Company and/or Dabbs is then pending.
ARTICLE III
CLOSING AND DELIVERIES AT CLOSING
Section 1. Closing. The closing of the purchase and sale of the
transaction contemplated herein shall take place on April 7, 1998 (the
"Closing"), at the offices of Buyer's counsel, Spitzer & Feldman P.C. located at
405 Park Avenue, 6th Floor, New York, New York at 10:00 a.m. The deliveries
described in Section 2 and 3 of this Article III will take place at the Closing.
Section 2. Deliveries by the Company and Dabbs. On the Closing Date,
the Company and Dabbs will deliver, or cause to be delivered, to the Buyer the
following:
(A) Such instruments of transfer or conveyance executed by the
Company, and
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<PAGE> 15
Dabbs where applicable, as Buyer may reasonably request in order to convey and
transfer to Buyer good and marketable title to all of the Purchased Assets, free
and clear of all liens, claims, encumbrances and other charges, including,
without limitation, a Bill of Sale.
(B) Physical delivery of all Tangible Assets by having them
available at one of the two Sites listed on Exhibit A. Any and all warranties,
manuals, instructions, and other literature in the Company's and Dabbs', or
either of their, possession relating to the ownership or operation of the
Tangible Assets. In addition, such notices to telephone companies and others
required to transfer the Company's telephone and facsimile numbers, and domain
addresses, used in the Business to Buyer.
(C) Physical delivery of all original or certified copies of
documentation concerning the Intellectual Property in the Company's or Dabbs'
possession, including, without limitation, registrations and applications of any
patents, trademarks or service marks, original artwork, data bases, computer
programs and software.
(D) Such instruments of assignment and assumption executed by the
Company, as the parties hereto reasonably may determine necessary to effectuate
the assignment to Buyer of the Business Agreements and assumption by Buyer of
the Assumed Liabilities.
(E) The legal opinions of counsel to the Company and Optimum, each
in a form acceptable to Buyer and its counsel.
(F) Evidence in form satisfactory to Buyer and its counsel that the
Tax Liabilities, if any, have been paid off and satisfied.
(G) The Escrow Agreement duly executed by the Company.
(H) A copy of the Certificate of Amendment duly executed by the
President and Secretary of the Company which is to be filed in the Secretary of
State's Office for the State of Georgia pursuant to Article I, Section 1,
Paragraph (B) (iv) hereof.
(I) The Company and Dabbs shall use their reasonable best efforts to
deliver a Non-Disclosure and Intellectual Property Agreement in a form to be
provided by Buyer prior to the Closing, executed by each employee of the Company
who will be employed by Buyer or its affiliate after the Closing in form
satisfactory to Buyer.
(J) Notices of separation or similar termination notices as required
by the Georgia Department of Labor to all employees of the Company employed in
connection with Business, will be delivered to the employees promptly after the
Closing.
(K) Employment Agreement between Dabbs and Parent (the "Employment
Agreement") executed by Dabbs.
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<PAGE> 16
(L) Keys to all entrances and possession of the Sites listed on
Exhibit A.
(M) Physical delivery of all books of accounts and records of the
Business maintained by the Company . In lieu of the foregoing, the Company may
deliver such books and records to its accountants, BSC&E, CPA's, with offices
located at 750 Hammond Drive, Bldg. 3, Atlanta, Georgia 30328 (Tel:
404-256-3830), Attention: James A. Ellison, who will act as the custodian
thereof pursuant to the terms of an agreement to be entered into by the Company,
Buyer and said custodian, which agreement shall provide, among other things,
that such books and records shall be retained by said custodian until December
31, 2001, during which time, the Buyer and Parent shall be permitted unlimited
access thereto for examination and copying, at reasonable times upon request.
(N) Such notice or notices as Buyer, the Company and Dabbs may agree
upon in order to notify the customers included on the Customer List that the
Business has been sold to Buyer.
(O) All Cash remaining, if any, after payables and accrued expenses
set forth on Schedule D-2 are paid therefrom, said amount to be paid to Buyer
promptly after Closing, together with a written reconciliation of such Cash and
disbursements.
Section 3. Deliveries by the Buyer.
On the Closing Date, the Buyer will deliver, or cause to be
delivered, to the Company and Dabbs the following:
(A) The Purchase Price by cash, or certified or official bank check
payable to the order of the Company, or by wire transfer of federal funds to the
account of the Company, as the Company and Dabbs shall direct in writing on or
before the Closing Date; provided, however, Buyer may, upon written agreement of
all parties hereto, deduct from the Purchase Price and pay directly amounts due
any creditor of the Company, including, without limitation, the Tax Liabilities
(but excluding any amounts due for any of the Assumed Liabilities), in which
event, evidence of such payment shall be presented at the Closing.
(B) Such instruments of assignment and assumption executed by the
Buyer, as the parties hereto reasonably may determine necessary to effectuate
the assignment to the Buyer of the Business Agreements and the assumption by
Buyer of the Assumed Liabilities.
(C) The Escrow Agreement duly executed by the Buyer and the Escrow
Agent.
(D) The Employment Agreement executed by Parent.
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(E) The legal opinion of counsel to the Buyer and Parent, in a form
acceptable to the Company and its counsel.
(F) Payment in the form of a check made payable to the Company for
fifty (50%) of expenses paid by the Company to its landlords of the two Sites
listed on Exhibit A, or such landlords' respective attorneys or agents, in
connection with obtaining each of the Landlord's consent to the assignment to
Buyer of the respective real estate leases concerning such Sites.
(G) On or within thirty (30) days after the Closing Date, Buyer will
deliver to the Company a copy of a Certificate of Authority for the Buyer and
Parent, with proof of filing with the Secretary of State for the State of
Georgia if the same are required by law for the Buyer and/or Parent.
ARTICLE IV
OBLIGATIONS FOLLOWING CLOSING
Section 1. Further Cooperation. The Company and Dabbs will, at any
time and from time to time after the Closing Date, execute and deliver such
further instruments of conveyance, transfer and license, and take such
additional actions as Buyer, Parent or its successor and/or assigns, may
reasonably request, to effect, consummate, confirm or evidence the transfer to
Buyer of the Purchased Assets pursuant to this Agreement.
Section 2. Transition Assistance and Adjustments.
(A) The Company shall reasonably cooperate and provide assistance to
the Buyer as shall be reasonably appropriate during the transition of the
Business and the Purchased Assets from the Company to the Buyer, or its
successors and/or assigns, after the Closing Date. All assistance shall be made
promptly when available after any request by Buyer. Buyer shall only reimburse
the Company for reasonable out-of-pocket expenses incurred in rendering such
assistance, but not for any time of any personnel.
(B) The Company and Dabbs will reasonably cooperate with Buyer or
Parent in notifying the customers included on the Customer List that the
Business has been sold to Buyer, including, without limitation, executing any
additional notices other than those described in Section 2. Paragraph (N) of
this Article, which the Company, Dabbs and Buyer may agree upon.
(C) The Company will forward to Buyer promptly upon receipt, any
fees it receives after the Closing Date as payment for all or part of the
Accounts Receivable or from
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customers of the Business arising from services provided or products sold either
by the Company or by Buyer or its successors and/or assigns, on, prior to or
after February 28, 1998.
(D) Between February 28, 1998 and the Closing Date, the Company and
Dabbs warrant and represent that they have not withdrawn, expended or applied
any cash or other assets of the Company, except in the ordinary course of
operations of the Business of the Company in accordance with past practices of
the Company.
(E) Following the Closing, the Company and Dabbs, or either of them,
or any affiliate of the Company (as defined under federal securities laws), will
not use the name "Clever Computer" or "Digital Landlord" or any confusingly
similar name to either of said trade names in any trade or business, other than
as an employee of Buyer or an affiliate of Buyer.
(G) Following the Closing, the Company shall use its best efforts
and Buyer will cooperate, in obtaining the written consent to assignment of the
equipment leases listed on the Schedule annexed to Exhibit C-3 from the
respective equipment lessors (each an "Equipment Lessor"), as well as the
written consents of MCI and Goodnet to the assignment to Buyer of their
respective service provider agreements listed in items 1 and 2 on Exhibit C-2.
If any Equipment Lessor defaults the Company under its lease, or delivers
written notice of such default to the Company, due to a failure by the Company
to obtain prior consent to the assignment of such equipment lease to Buyer, then
Buyer's sole obligation shall be to pay up to the payoff amount of the subject
equipment lease as set forth on the Schedule annexed to Exhibit C-3, less any
payments made under such lease(s) from and after the date hereof. With respect
to the failure of the Company to obtain prior approval of the assignment of the
MCI and Goodnet agreements, Buyer's sole obligation shall be to pay any
termination fee to Goodnet which the Company may incur as a result thereof,
limited to four months of service fees to Goodnet under their existing agreement
described in Exhibit C-2.
ARTICLE V
MISCELLANEOUS
Section 1. Governing Law; Jurisdiction. This Agreement shall be
governed by the laws of the State of Georgia. The parties hereto submit and
consent to the exclusive jurisdiction of the state courts of the State of
Georgia in the County of DeKalb and to the federal courts located in the State
of Georgia and County of Fulton with respect to any legal actions relating to
this Agreement, or any other agreements delivered in connection herewith,
between the Company and Dabbs, or either of them, on the one hand, and the Buyer
and/or Parent, on the other hand, and any transactions contemplated thereby.
Section 2. Counterparts. This Agreement may be executed in several
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counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
Section 3. Confidentiality. The Company and Dabbs, and each of them,
on the one hand, and the Buyer, on the other hand, each agree not to disclose or
use any information acquired by it about the other party during the course of
the negotiations of this Agreement and the transactions to which it relates
which is confidential in nature or not otherwise generally available to the
public without the prior written consent of such other party unless required to
do so by applicable law or by order of a court of competent jurisdiction.
Section 4. Amendments. This Agreement supersedes any prior contracts
relating to the subject matter hereof between the Buyer, Parent, the Company and
Dabbs. This Agreement cannot be changed, modified or amended and no provision or
requirement hereof may be waived without the consent in writing of the parties
hereto.
Section 5. Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect. Each provision of this Agreement shall be deemed to be the agreement of
the parties hereto to the full extent that the power to enter into such
provisions shall have been conferred on the parties by law.
Section 6. Benefit; Assignment. This Agreement is binding upon and
inures to the benefit of the parties, their successors and permitted assigns.
This Agreement may not be assigned or the duties of the parties hereunder
delegated to others without the prior written consent of all parties hereto,
except that Buyer may assign its rights, duties and obligations hereunder to
Parent or an affiliate of Buyer or Parent without the Company's and Dabbs'
consent.
Section 7. Construction. All exhibits annexed hereto are hereby
incorporated herein by reference and made a part of this Agreement. Whenever
used in this Agreement and the context so requires, the singular shall include
the plural and the plural shall include the singular.
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Section 8. Imputed Knowledge. Anywhere in this Agreement where it
refers to the "knowledge of" the Company, or words of similar import, the
knowledge of Dabbs shall be imputed to be the knowledge of the Company. Anywhere
in this Agreement where it refers to the "knowledge of" the Optimum, or words of
similar import, the knowledge of John Lie-Nielsen, Optimum's sole shareholder,
officer and director, shall be imputed to be the knowledge of the Optimum.
Anywhere in this Agreement where it refers to the "knowledge of" the Buyer or
the Parent, or words of similar import, the knowledge of Leonard J. Fassler
shall be imputed to be the knowledge of the Buyer and the Parent, respectively.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
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This signature page is attached to and made a part of that certain Asset
Purchase Agreement made as of April 1, 1998 between the parties signing below.
IN WITNESSETH WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
SAGE NETWORKS ACQUISITION CORP.
By: /s/ Leonard J. Fassler
----------------------------------
Leonard J. Fassler, President
CLEVER COMPUTERS, INC.
By: /s/ Steven C. Dabbs
----------------------------------
Steven C. Dabbs, President
/s/ Steven C. Dabbs
----------------------------------
Steven C. Dabbs
AS TO ARTICLE II, SECTION 2
PARAGRAPH (E) ONLY:
SAGE NETWORKS, INC.
By: /s/ Leonard J. Fassler
---------------------------
Leonard J. Fassler, Co-Chairman
AS TO ARTICLE II, SECTION 2
PARAGRAPH (F) ONLY:
OPTIMUM REALTY CORP.
By: /s/ John Lie-Nielsen
---------------------------
John Lie-Nielsen, President
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DESCRIPTION OF EXHIBITS:
<TABLE>
<S> <C> <C>
Exhibit A - Basic Provisions
Exhibit B - Ownership of Capital Stock of the Company; Description of Capital
Stock; Officers; Directors; Trade Names
Exhibit C-1 - Forms of Business Agreements with Customers
Exhibit C-2 - Summary of Oral Business Agreements and Vendor/Service Provider
Agreements and List of Suppliers
Exhibit C-3 - Leases
Exhibit C-4 - Claims of Disputes Under Business Agreements
Exhibit C-5 - Consents to Transfer or Assign Not Obtained
Exhibit D-1 - Aged Accounts Receivable
Exhibit D-2 - Cash and Schedule of Expenses To Be Paid Therefrom
Exhibit E - Tangible Assets
Exhibit F - Intellectual Property
Exhibit G - Customer Terminations
Exhibit H - Financial Statements
Exhibit I - Bad Debts and Tax Liabilities of the Company
Exhibit J - Assumed Liabilities
Exhibit K - Existing Employment Agreements, Labor or Collective Bargaining
Agreements, Employee Benefit or Welfare Plans, Description of
Employees
Exhibit L - Organizational/Governing Documents of the Company,
Minutes/Resolutions, and Incumbency/Signature Certificates
Exhibit L-1 - Organizational/Governing Documents of Optimum, Minutes/Resolutions,
and Incumbency/Signature Certificates
Exhibit M - Excluded Assets
Exhibit N - Liens Affecting or Other Agreements Relating to Purchased Assets
</TABLE>
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<TABLE>
<S> <C> <C>
Exhibit O - Organizational/Governing Documents of the Buyer and Parent,
Minutes/Resolutions, and Incumbency/Signature Certificates
</TABLE>
In accordance with Item 601(b)(2) of Regulation S-K all exhibits other than
Exhibit A have been omitted. The Company hereby agrees to furnish supplementally
a copy of any omitted exhibit to the Commission upon request.
-22-
<PAGE> 24
EXHIBIT A
TO
ASSET PURCHASE AGREEMENT
BETWEEN
SAGE NETWORKS ACQUISITION CORP.
AND
CLEVER COMPUTERS, INC.
BASIC PROVISIONS
1. Name of BUYER: Sage Networks Acquisition Corp.
2. Name of COMPANY: Clever Computers, Inc.
(a) Names, addresses and stock ownership of SHAREHOLDER of COMPANY:
Name and Address Number of Shares (Type)
---------------- -----------------------
Optimum Realty Corp.
8097 Roswell Road, Building A
Suite 101
Atlanta, GA 30350 1,000
Total Outstanding Shares 1,000
(b) STATE OF INCORPORATION of COMPANY: Georgia
(c) AUTHORIZED OFFICERS of the COMPANY:
Steven C. Dabbs, President
Trezevant H. Dabbs, Secretary
(d) Address of each SITE from which the COMPANY conducts the Business:
18 Perimeter Park Drive 56 Marietta Street
Building 18, Suite 111 Suite 20
Atlanta, GA 30341 Atlanta, GA
3. [INTENTIONALLY DELETED]
4. RESIDENCE ADDRESS of STEVEN C. DABBS:
<PAGE> 25
EXHIBIT A (Cont'd)
5. PURCHASE PRICE: $2,500,000.00
6. SELLER AND SELLER'S REPRESENTATIVES' BROKERS:
Santa Fe Capital Group, Inc. and Broadway Realty Co.
7. BUYER'S BROKER: Am-Tech Associates, Inc.
8. ESCROW AGENT: Chicago Title Insurance Company
<PAGE> 1
EXHIBIT 3.1
FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
INTERLIANT, INC.
Interliant, Inc. (hereinafter called the "Corporation"), a
corporation organized and existing under the laws of the State of Delaware,
hereby certifies as follows:
The Corporation was originally incorporated under the name of Sage
Networks, Inc., and the original Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on December 8, 1997. An Amended and
Restated Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware on March 2, 1998. Such certificate
was amended pursuant to a Certificate of Amendment of Certificate of
Incorporation of the Corporation filed with the Secretary of State of the State
of Delaware on July 28, 1998, a Certificate of Amendment of Certificate of
Incorporation of the Corporation filed with the Secretary of State of the State
of Delaware on January 26, 1999, a Certificate of Amendment of Certificate of
Incorporation of the Corporation filed with the Secretary of State of the State
of Delaware on March 2, 1999 and a Certificate of Amendment of Certificate of
Incorporation of the Corporation filed with the Secretary of State of the State
of Delaware on March 11, 1999. The latter Certificate of Amendment changed the
name of the Corporation to Interliant, Inc.
1. Pursuant to Sections 242 and 245 of the Delaware General
Corporation Law, this Amended and Restated Certificate of Incorporation restates
and integrates and further amends the provisions of the Certificate of
Incorporation of the Corporation.
2. The text of the Certificate of Incorporation of the Corporation
is hereby restated, integrated and amended to read in its entirety as follows:
<PAGE> 2
FIRST: The name of the Corporation is Interliant, Inc.
SECOND: The address of the registered office and registered agent in
this state is Corporation Service Company, 1013 Centre Road in the City of
Wilmington, County of New Castle, and the name of the registered agent at said
address is Corporation Service Company.
THIRD: The nature of the business of the Corporation and its purpose
is to engage in any lawful act or activity for which corporations may be
organized under the Delaware General Corporation Law (the "DGCL").
FOURTH: The authorized capital stock of the Corporation shall
consist of [ ] shares of Common Stock, par value $.01 per share (the "Common
Stock"), and [ ] shares of preferred stock, par value $.01 per share (the
"Preferred Stock").
The rights, preferences, privileges and restrictions granted to or
imposed upon the Common Stock and the Preferred Stock or the holders thereof are
as follows:
A. COMMON STOCK
All shares of Common Stock will be identical and will entitle the
holders thereof to the same rights and privileges.
Section 1. Dividends. When, as and if dividends are declared
thereon, whether payable in cash, property or securities of the Corporation, the
holders of Common Stock will be entitled to share equally in and receive, in
accordance with the number of shares of Common Stock held by each such holder,
such dividends. Dividends payable under this Section 1 shall be paid to the
holders of record of the outstanding Common Stock as their names shall appear on
the stock register of the Corporation on the record date fixed by the Board of
Directors in advance of declaration and payment of each dividend. Any Common
Stock issued as a dividend pursuant to this Section 1 shall, when so issued, be
duly authorized, validly issued, fully paid and non-assessable, and free of all
liens and charges.
Notwithstanding anything contained herein to the contrary, no
dividends on Common Stock shall be declared by the Corporation's Board of
Directors or paid or set apart for payment by the Corporation at any time that
such declaration, payment, or setting apart is prohibited by applicable law.
Section 2. Voting Rights. Each holder of the Common Stock shall be
entitled to one vote for each share of Common Stock held on all matters
submitted to a vote of the stockholders.
Section 3. Other Rights. Except for and subject to those rights
expressly granted to the holders of Preferred Stock, or as otherwise provided
herein, and except as may be provided by the laws of the State of Delaware, the
holders of Common Stock shall have exclusively all other rights of stockholders,
including, without limitation, (a)
2
<PAGE> 3
the right to receive dividends, when, as and if declared by the Board of
Directors, out of assets lawfully available therefor, and (b) in the event of
any distribution of assets upon a liquidation, dissolution or winding up or
otherwise, the right to receive ratably and equally with all other holders of
Common Stock all of the assets and funds of the Corporation remaining after the
payment to the holders of Preferred Stock, of the specific amounts which they
are entitled to receive upon such liquidation, dissolution or winding up. For
the purposes of this Section 3, neither the consolidation, combination or merger
of the Corporation with or into any other corporation or corporations in which
the stockholders of the Corporation receive cash or capital stock and/or other
securities (including debt securities) of the acquiring corporation (or of the
direct or indirect parent corporation of the acquiring corporation), nor the
sale, lease, or transfer by the Corporation of all or any part of its assets,
nor the reduction of the capital stock of the Corporation, shall be deemed to be
a liquidation, dissolution or winding up of the Corporation.
B. PREFERRED STOCK
The Board of Directors (or a duly authorized committee thereof) is
hereby expressly authorized to provide for, designate and issue, out of the
authorized but unissued shares of Preferred Stock, one or more series of
Preferred Stock which shall have the powers, terms, conditions, designations,
preferences and privileges, the relative, participating, optional and other
special rights, and the qualifications, limitations and restrictions, if any, as
provided herein. Before any shares of any such series are issued, the Board of
Directors (or a duly authorized committee thereof) shall fix, and is hereby
expressly empowered to fix, as to the shares of any such series:
(a) the designation of such series, the number of shares to
constitute such series and the stated value thereof, if different from the par
value thereof;
(b) whether the shares of such series shall have voting rights or
powers, in addition to any voting rights required by law and, if so, the terms
of such voting rights or powers, which may be full or limited;
(c) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative and, if so, from what dates, the conditions and
dates upon which such dividends shall be payable, the preferences or relation
which such dividends shall bear to the dividends payable on any shares of stock
of any other class or any other series of this class;
(d) whether the shares of such series shall be subject to redemption
by the Corporation and, if so, the times, prices and other conditions of such
redemption;
(e) the amount or amounts payable upon shares of such series upon,
and the rights of the holders of such series in, the liquidation, dissolution or
winding up, or upon any distribution of the assets, of the Corporation;
3
<PAGE> 4
(f) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to which and
manner in which any such retirement or sinking fund shall be applied to the
purchase or redemption of the shares of such series for retirement or other
corporate purposes and the terms and provisions relative to the operation
thereof;
(g) whether the shares of such series shall be convertible into or
exchangeable for shares of stock of any other class or any other series of this
class or any other securities and, if so, the price or prices or the rate or
rates of conversion or exchange and the method, if any, of adjusting the same,
and any other terms and conditions of conversion or exchange;
(h) the limitations and restrictions, if any, to be effective while
any shares of such series are outstanding upon the payment of dividends or the
making of other distributions on, and upon the purchase, redemption or other
acquisition by the Corporation of, the Common Stock or shares of stock of any
other class or any other series of this class;
(i) the conditions or restrictions, if any, to be effective while
any shares of such series are outstanding upon the creation of indebtedness of
the Corporation or upon the issue of any additional stock, including additional
shares of such series or of any other series of this class or of any other
class; and
(j) any other powers, designations, preferences and relative,
participating, optional or other special rights, and any qualifications,
limitations, or restrictions thereof.
The powers, designations, preferences and relative, participating,
optional or other special rights of each series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding. The Board of
Directors is hereby expressly authorized from time to time to increase (but not
above the total number of shares thereof then outstanding) the number of shares
of Preferred Stock designated to any one or more series of Preferred Stock
pursuant to this Section B of this Paragraph Fourth.
FIFTH: A. Board of Directors. The number of directors of the
Corporation shall consist of not less than five (5) nor more than fifteen (15)
directors. The exact number of directors shall be determined from time to time
by a resolution or resolutions adopted by the affirmative vote of a majority of
the total number of directors which the Corporation would have if there were no
vacancies or by resolution adopted by the stockholders. Directors (whether
elected at an annual meeting or to fill a vacancy or otherwise) shall hold
office for a term expiring at the next annual meeting of stockholders of the
Corporation, at which meeting their successors will be elected. Directors shall
hold office until their successors are duly elected and qualified, subject,
however, to a director's prior death, resignation, disqualification or removal
from office. Any additional director elected to fill a vacancy resulting from an
increase in the number of
4
<PAGE> 5
directors shall hold office for a term that shall coincide with the remaining
term of the existing directors, but in no case shall a decrease in the number of
directors shorten the term of any incumbent directors.
B. Removal of Directors. A director may be removed from office,
either with or without cause, by the affirmative vote of the holders of a
majority of the combined voting power of all outstanding shares of stock then
entitled to vote generally in the election of directors, voting as a single
class.
SIXTH: The following provisions are inserted for the management of
the business and for the conduct of the affairs of the Corporation, and in
furtherance and, except as specifically set forth in this Paragraph, not in
limitation of the powers of the Corporation and of its directors and
stockholders conferred by statute:
(1) Subject to the provisions of Paragraph Eleventh hereof, the
Board of Directors shall have power without (except as provided by applicable
law) the assent or vote of the stockholders to make, alter, amend, change, add
to or repeal the By-laws of the Corporation; to authorize and cause to be
executed mortgages and liens upon all or any part of the property of the
Corporation; to determine the use and disposition of any surplus or net profits;
to fix the times for the declaration and payment of dividends; and to set apart
out of any of the funds of the Corporation available for dividends a reserve or
reserves for any proper purpose and to abolish any such reserve.
(2) In addition to the powers and authorities hereinbefore or by
statute expressly conferred upon them, the Board of Directors is hereby
empowered to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation; subject, nevertheless, to the provisions
of the laws of the state of Delaware, this Amended and Restated Certificate of
Incorporation and the Corporation's By-laws, as in effect from time to time.
SEVENTH: The books and records of the Corporation may be kept
(subject to any mandatory requirement of law) outside the State of Delaware at
such place or places as may be designated from time to time by the Board of
Directors or by the By-laws of the Corporation.
EIGHTH: No director shall be liable to the Corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that the foregoing does not eliminate or limit any liability that may
exist with respect to (1) a breach of the director's duty of loyalty to the
Corporation or its stockholders, (2) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3)
liability under Section 174 of the DGCL or (4) a transaction from which the
director derived an improper personal benefit, it being the intention of the
foregoing provision to eliminate the liability of the Corporation's directors to
the Corporation or its stockholders to the fullest extent permitted by Section
102(b)(7) of the DGCL, as in effect on the date hereof and as such Section may
be amended after the date hereof to the extent such amendment permits such
liability to be further eliminated or limited. No amendment, modification or
repeal of this Paragraph Eighth shall adversely
5
<PAGE> 6
affect any right or protection of a director that exists at the time of such
amendment, modification or repeal.
NINTH: The Corporation reserves the right to amend or repeal any
provision contained in this Amended and Restated Certificate of Incorporation in
the manner now or hereafter prescribed by the laws of the State of Delaware, and
all rights herein conferred upon stockholders or directors are granted subject
to this reservation.
TENTH: Following the consummation of an initial public offering of
Common Stock or any transaction or event as a result of which any Common Stock
is listed on a national securities exchange or registered under Section 12 of
the Securities Exchange Act of 1934, as amended, any action required or
permitted to be taken by the stockholders of the Corporation must be affected at
a duly called annual or special meeting of stockholders of the Corporation, or
by a consent in writing to the taking of such action if provision for such
consent is made in the Corporation's By-laws.
ELEVENTH: In furtherance and not in limitation of the power
conferred upon the Board of Directors by law, the Board of Directors shall have
the power to make, adopt, alter, amend and repeal from time to time the By-laws
of the Corporation, subject to the right of the stockholders entitled to vote
with respect thereto to alter, amend and repeal By-laws adopted by the Board of
Directors.
3. This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Sections 242 and 245 of the DGCL.
The Board of Directors adopted resolutions setting forth this Amended and
Restated Certificate of Incorporation, declaring its advisability and directing
its consideration by the stockholders of the Corporation. A majority of the
stockholders of the Corporation duly approved this Amended and Restated
Certificate of Incorporation in accordance with Section 242 of the DGCL by
executing a Waiver of Meeting of Stockholders and Majority Written Consent to
Adoption of Resolutions pursuant to Section 228 of the DGCL, and written notice
of such consent has been given to all stockholders who have not consented in
writing to said amendments.
6
<PAGE> 7
IN WITNESS WHEREOF, Interliant, Inc. has caused this Amended and
Restated Certificate of Incorporation to be signed by its __________________ and
attested to by its Secretary and caused the corporate seal of the Corporation to
be hereunto affixed this ____ day of April, 1999.
________________________________
Name:
Title:
Attest:
________________________________
Secretary
7
<PAGE> 1
Exhibit 3.2
INTERLIANT, INC.
FORM OF AMENDED AND RESTATED BY-LAWS
<PAGE> 2
INTERLIANT, INC.
FORM OF AMENDED AND RESTATED BY-LAWS
TABLE OF CONTENTS
SECTION PAGE
Article I STOCKHOLDERS ..................................................... 1
Section 1.01. Annual Meeting ............................................. 1
Section 1.02. Special Meetings ........................................... 1
Section 1.03. Notice of Meetings; Waiver ................................. 1
Section 1.04. Quorum ..................................................... 2
Section 1.05. Voting ..................................................... 2
Section 1.06. Voting by Ballot ........................................... 2
Section 1.07. Adjournment ................................................ 3
Section 1.08. Proxies .................................................... 3
Section 1.09. Organization; Procedure .................................... 3
Section 1.10. Action Without a Meeting ................................... 3
Article II BOARD OF DIRECTORS .............................................. 3
Section 2.01. General Powers ............................................. 3
Section 2.02. Number and Term of Office .................................. 4
Section 2.03. Annual and Regular Meetings ................................ 4
Section 2.04. Special Meetings; Notice ................................... 4
Section 2.05. Quorum; Voting ............................................. 5
Section 2.06. Adjournment ................................................ 5
Section 2.07. Action Without a Meeting ................................... 5
Section 2.08. Regulations; Manner of Acting .............................. 5
Section 2.09. Action by Telephonic Communications ........................ 5
Section 2.10. Resignations ............................................... 5
Section 2.11. Vacancies and Newly Created Directorships .................. 5
Section 2.12. Compensation ............................................... 6
Section 2.13. Reliance on Accounts and Reports, etc. ..................... 6
Article III COMMITTEES ..................................................... 6
Section 3.01. How Constituted ............................................ 6
Section 3.02. Powers ..................................................... 6
Section 3.03. Proceedings ................................................ 6
Section 3.04. Quorum and Manner of Acting ................................ 7
Section 3.05. Action by Telephonic Communications ........................ 7
Section 3.06. Resignations ............................................... 7
<PAGE> 3
Section 3.07. Removal .................................................... 7
Section 3.08. Vacancies .................................................. 7
Article IV OFFICERS ........................................................ 7
Section 4.01. Number ..................................................... 7
Section 4.02. Election ................................................... 8
Section 4.03. Removal and Resignation; Vacancies ......................... 8
Section 4.04. Authority and Duties of Officers ........................... 8
Section 4.05. Chairman of the Board ...................................... 8
Section 4.06. Vice-Chairman of the Board ................................. 8
Section 4.07. President .................................................. 8
Section 4.08. Chief Executive Officer .................................... 8
Section 4.09. The Secretary .............................................. 8
Section 4.10. The Treasurer .............................................. 9
Section 4.11. Additional Officers ........................................ 10
Article V CAPITAL STOCK .................................................... 10
Section 5.01. Certificates of Stock; Uncertificated Shares ............... 10
Section 5.02. Signatures; Facsimile ...................................... 10
Section 5.03. Lost, Stolen or Destroyed Certificates ..................... 11
Section 5.04. Transfer of Stock .......................................... 11
Section 5.05. Record Date ................................................ 11
Section 5.06. Registered Stockholders .................................... 12
Section 5.07. Transfer Agent and Registrar ............................... 12
Article VI INDEMNIFICATION ................................................. 12
Section 6.01. Nature of Indemnity ........................................ 12
Section 6.02. Successful Defense ......................................... 13
Section 6.03. Determination That Indemnification Is Proper ............... 13
Section 6.04. Advance Payment of Expenses ................................ 13
Section 6.05. Procedure for Indemnification of Directors and Officers .... 14
Section 6.06. Survival; Preservation of Other Rights ..................... 14
Section 6.07. Insurance .................................................. 15
Section 6.08. Severability ............................................... 15
Article VII GENERAL PROVISIONS ............................................. 15
Section 7.01. Dividends .................................................. 15
Section 7.02. Reserves ................................................... 15
Section 7.03. Execution of Instruments ................................... 15
Section 7.04. Corporate Indebtedness ..................................... 16
Section 7.05. Deposits ................................................... 16
Section 7.06. Checks ..................................................... 16
Section 7.07. Sale, Transfer, etc., of Securities ........................ 16
Section 7.08. Voting as Stockholder ...................................... 16
Section 7.09. Fiscal Year ................................................ 17
ii
<PAGE> 4
Section 7.10. Seal ....................................................... 17
Section 7.11. Books and Records .......................................... 17
Article VIII AMENDMENT OF BY-LAWS .......................................... 17
Section 8.01. Amendment .................................................. 17
Article IX CONSTRUCTION .................................................... 17
Section 9.01. Construction ............................................... 17
iii
<PAGE> 5
INTERLIANT, INC.
FORM OF AMENDED AND RESTATED BY-LAWS
ARTICLE I
STOCKHOLDERS
Section 1.01. Annual Meeting. An annual meeting of the stockholders,
for the election of Directors and for the transaction of such other business as
may properly come before the meeting, shall be held at such place, on such date
and at such time as the Board of Directors shall each year fix, which date shall
be within thirteen months subsequent to the date of the last annual meeting of
stockholders and shall be set forth in the notice and waiver of notice of the
meeting.
To be properly brought before an annual meeting, business must be
(a) specified in the notice of meeting (or any supplement thereto) given by or
at the direction of the Board of Directors, (b) otherwise properly brought
before the meeting by or at the direction of the Board of Directors or (c)
otherwise properly brought before the meeting by a stockholder of the
Corporation who was a stockholder of record on the record date fixed for such
meeting by the Board of Directors pursuant to Section 5.05 of these By-laws and
who is entitled to vote at the meeting. The Chairman of the meeting shall, if
the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 1.01, and if he should so determine, the Chairman shall declare to the
meeting that any such business not properly brought before the meeting shall not
be transacted.
Section 1.02. Special Meetings. Special meetings of the
stockholders, for any purpose or purposes, may be called at any time by the
Chairman of the Board or the President and shall be called by the Chairman, the
President or the Secretary at the request in writing of (1) a majority of the
members of the Board of Directors or (2) stockholders entitled to exercise at
least a majority of the voting power of the Corporation and entitled to vote on
matters to be submitted to stockholders of the Corporation. Any such written
request shall state a proper purpose or purposes of the meeting and shall be
delivered to the President or the Secretary or any Vice President.
Section 1.03. Notice of Meetings; Waiver. The Secretary or any
Assistant Secretary shall cause written notice of the place, date and hour of
each meeting of the stockholders and, in the case of a special meeting, the
purpose or purposes for which such meeting is called, to be given personally or
by mail, not less than 10 nor more than 60 days prior to the meeting, to each
stockholder of record entitled to vote at such meeting. If such notice is
mailed, it shall be deemed to have been given to a stockholder when deposited in
the United States mail, postage prepaid, or delivered to a nationally recognized
overnight delivery service for overnight delivery, in each case directed to the
stockholder at his or her address as it appears on the record of stockholders of
the Corporation, or, if he or she shall have filed with the
<PAGE> 6
Secretary a written request that notices to him or her be mailed to some other
address, then directed to him or her at such other address. Such further notice
shall be given as may be required by law.
No notice of any meeting of stockholders need be given to any
stockholder who submits a signed waiver of notice, whether before or after the
meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in a written
waiver of notice. The attendance of any stockholder at a meeting of stockholders
in person or by proxy shall constitute a waiver of notice of such meeting,
except when the stockholder attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
on the ground that the meeting is not lawfully called or convened.
Section 1.04. Quorum. A stockholders' meeting duly called shall not
be organized for the transaction of business unless a quorum is present. Except
as otherwise expressly provided by law, the Amended and Restated Certificate of
Incorporation, these By-laws, as amended (the "By-laws"), or any certificate
filed under Section 151(g) of the Delaware General Corporation Law (the "DGCL")
(or its successor statute as in effect from time to time) or in instances of a
separate class vote, the presence in person or by proxy of holders of record
entitled to exercise at least a majority of the voting power of the Corporation
shall constitute a quorum for such meeting. The stockholders present at a duly
organized meeting can continue to do business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. If a meeting
cannot be organized because a quorum has not attended, stockholders representing
a majority of the voting power of the stockholders present may adjourn or, in
the absence of a decision by the majority, any officer entitled to preside at
such meeting may adjourn, the meeting from time to time to such time (not more
than 30 days after the previously adjourned meeting) and place as such
stockholders or officer may determine, without notice other than by announcement
at the meeting of the time and place of the adjourned meeting.
Section 1.05. Voting. If, pursuant to Section 5.05 of these By-laws,
a record date has been fixed, every holder of record of shares entitled to vote
at a meeting of stockholders shall be entitled to one vote for each share
outstanding in his or her name on the books of the Corporation at the close of
business on such record date. If no record date has been fixed, then every
holder of record of shares entitled to vote at a meeting of stockholders shall
be entitled to one vote for each share of stock outstanding in his or her name
on the books of the Corporation at the close of business on the day next
preceding the day on which notice of the meeting is given. Except as otherwise
required by law, the Amended and Restated Certificate of Incorporation or these
By-laws, the vote of a majority of the shares represented in person or by proxy
at any meeting at which a quorum is present shall be sufficient for the
transaction of any business at such meeting.
Section 1.06. Voting by Ballot. No vote of the stockholders need be
taken by written ballot, unless otherwise required by law. Any vote which need
not be taken by ballot may be conducted in any manner approved by the meeting.
2
<PAGE> 7
Section 1.07. Adjournment. Notice of any adjourned meeting of the
stockholders of the Corporation need not be given if the place, date and hour
thereof are announced at the meeting at which the adjournment is taken, provided
that if the adjournment is for more than thirty days, or if after the
adjournment a new record date for the adjourned meeting is fixed pursuant to
Section 5.05 of these By-laws, a notice of the adjourned meeting, conforming to
the requirements of Section 1.03 hereof, shall be given to each stockholder of
record entitled to vote at such meeting. At any adjourned meeting at which a
quorum is present, any business may be transacted that might have been
transacted on the original date of the meeting.
Section 1.08. Proxies. Any stockholder entitled to vote at any
meeting of the stockholders may, by a written instrument signed by such
stockholder or his or her attorney-in-fact, authorize another person or persons
to vote at any such meeting for him or her by proxy. No such proxy shall be
voted after the expiration of three years from the date of such proxy, unless
such proxy provides for a longer period. Every proxy shall be revocable at the
pleasure of the stockholder executing it, except in those cases where applicable
law provides that a proxy shall be irrevocable. A stockholder may revoke any
proxy which is not irrevocable by attending the meeting and voting in person, by
filing an instrument in writing revoking the proxy or by filing another duly
executed proxy bearing a later date with the Secretary.
Section 1.09. Organization; Procedure. At every meeting of
stockholders the presiding officer shall be the Chairman of the Board or, in the
event of his or her absence or disability, a presiding officer chosen by the
Board of Directors. The Secretary, or in the event of his or her absence or
disability, an Assistant Secretary, if any, or if there be no Assistant
Secretary, in the absence of the Secretary, an appointee of the presiding
officer, shall act as Secretary of the meeting. The order of business and all
other matters of procedure at every meeting of stockholders may be determined by
the presiding officer.
Section 1.10. Action Without a Meeting. Any action which might have
been taken under these By-laws by a vote of the stockholders at a meeting
thereof may be taken without a meeting, without prior notice and without a vote,
if a consent in writing setting forth the action so taken shall be signed by the
holders of outstanding shares of stock of the Corporation having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted, provided that prompt notice shall be given to those stockholders who
have not so consented if less than unanimous written consent is obtained.
ARTICLE II
BOARD OF DIRECTORS
Section 2.01. General Powers. Except as may otherwise be provided by
law, the Amended and Restated Certificate of Incorporation or these By-laws, the
property, affairs and business of the Corporation shall be managed by or under
the direction of the Board of Directors and the Board of Directors may exercise
all the powers of the Corporation.
3
<PAGE> 8
Section 2.02. Number and Term of Office. Subject to the rights of
any holders of Preferred Stock of the Corporation, the Board of Directors shall
consist of not less than five (5) nor more than fifteen (15) Directors. The
exact number of Directors shall be determined from time to time by a resolution
or resolutions adopted by the affirmative vote of a majority of the total number
of Directors which the Corporation would have if there were no vacancies (the
"entire Board of Directors") or by resolution adopted by the stockholders.
Nominations of persons for election to the Board of Directors may be
made at any annual meeting of stockholders, or at any special meeting of
stockholders called as provided in Section 1.02 for the purpose of electing
Directors, (a) by or at the direction of the Board of Directors (or any duly
authorized committee thereof) or (b) by any stockholder of the Company who was a
stockholder of record on the record date fixed for such meeting by the Board of
Directors pursuant to Section 5.05 of these By-laws and who is entitled to vote
at the meeting. At each meeting of the stockholders for the election of
Directors, provided a quorum is present, the Directors nominated for election at
such meeting shall be elected by a plurality of the votes validly cast in such
election. The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedures, and if he should so determine, the Chairman shall declare
to the meeting that the nomination was defective and such defective nomination
shall be disregarded.
Section 2.03. Annual and Regular Meetings. An annual meeting of the
Board of Directors for the purpose of electing officers and for the transaction
of such other business as may come before the meeting shall be held each year at
the same place as, and immediately after, the annual meeting of stockholders, or
at such other place and time as shall theretofore have been determined by the
Board of Directors and notice thereof need not be given. The Board of Directors
from time to time may by resolution provide for the holding of regular meetings
and fix the place (which may be within or without the State of Delaware) and the
date and hour of such meetings. Notice of the annual meeting and regular
meetings need not be given, provided that if the Board of Directors shall fix or
change the time or place of any annual or regular meeting, written notice of
such action shall be given to each Director who shall not have been present at
the meeting at which such action was taken at least two days in advance thereof.
Any such notice shall be deemed given to a Director five days after it has been
sent by mail or immediately when sent by telecopy, e-mail, telegram, telex or
other electronic means of transmission addressed to him or her at his or her
address furnished to the Secretary. Notice of such action need not be given to
any Director who attends such annual or regular meeting without protesting the
lack of notice to him or her, prior to or at the commencement of such meeting,
or to any Director who submits a signed waiver of notice, whether before or
after such meeting.
Section 2.04. Special Meetings; Notice. Special meetings of the
Board of Directors shall be held whenever called by the Chairman of the Board
or, in the event of his or her absence or disability, by the President or by not
less than one-quarter of the Directors then in office, at such place (within or
without the State of Delaware), date and hour as may be specified in the
respective notices or waivers of notice of such meetings. Written notice of each
special meeting of the Board of Directors shall be given to each Director at
least one day in advance thereof. Such notice shall state in general terms the
purpose or purposes of the meeting. Any such notice for a special meeting shall
be deemed given to a Director five days after it has been
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sent by mail, or immediately when sent by telecopy, e-mail, telegram, telex or
other electronic means of transmission addressed to him or her at his or her
address furnished to the Secretary. Notice of any special meeting need not be
given to any Director who attends such meeting without protesting the lack of
notice to him or her, prior to or at the commencement of such meeting, or to any
Director who submits a signed waiver of notice, whether before or after such
meeting.
Section 2.05. Quorum; Voting. At all meetings of the Board of
Directors, the presence of not less than a majority of the entire Board of
Directors shall constitute a quorum for the transaction of business. Except as
otherwise required by law, the Amended and Restated Certificate of Incorporation
or these By-laws, the vote of a majority of the Directors present at any meeting
at which a quorum is present shall be the act of the Board of Directors. The
Directors present at a duly organized meeting can continue to do business until
adjournment, notwithstanding the withdrawal of enough Directors to leave less
than a quorum.
Section 2.06. Adjournment. A majority of the Directors present,
whether or not a quorum is present, may adjourn any meeting of the Board of
Directors to another time or place. No notice need be given of any adjourned
meeting unless the time and place of the adjourned meeting are not announced at
the time of adjournment, in which case notice conforming to the requirements of
Section 2.04 shall be given to each Director.
Section 2.07. Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all members of the Board of Directors consent thereto in
writing, and such writing or writings are filed with the minutes of proceedings
of the Board of Directors.
Section 2.08. Regulations; Manner of Acting. To the extent
consistent with applicable law, the Amended and Restated Certificate of
Incorporation and these By-laws, the Board of Directors may adopt such rules and
regulations for the conduct of meetings of the Board of Directors and for the
management of the property, affairs and business of the Corporation as the Board
of Directors may deem appropriate. The Directors shall act only as a Board, and
the individual Directors shall have no power as such.
Section 2.09. Action by Telephonic Communications. Members of the
Board of Directors may participate in a meeting of the Board of Directors by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this provision shall constitute presence
in person at such meeting.
Section 2.10. Resignations. Any Director may resign at any time by
delivering a written notice of resignation, signed by such Director, to the
President or the Secretary. Unless otherwise specified therein, such resignation
shall take effect upon delivery.
Section 2.11. Vacancies and Newly Created Directorships. Subject to
the rights of the holders of any series of Preferred Stock of the Corporation,
any vacancy on the Board of Directors that results from an increase in the
number of Directors and any other vacancy may be filled by a majority of the
Board of Directors then in office, although less than a quorum, or a
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sole remaining Director, except that the stockholders shall fill any vacancy
resulting from the removal of a Director by the stockholders. Any Director
elected to fill a vacancy not resulting from an increase in the number of
Directors shall have the same remaining term as that of his or her predecessor.
Section 2.12. Compensation. The amount, if any, which each Director
shall be entitled to receive as compensation for his or her services as such
shall be fixed from time to time by resolution of the Board of Directors.
Section 2.13. Reliance on Accounts and Reports, etc. A Director, or
a member of any Committee designated by the Board of Directors, shall, in the
performance of his or her duties, be fully protected in relying in good faith
upon the records of the Corporation and upon information, opinions, reports or
statements presented to the Corporation by any of the Corporation's officers or
employees, by Committees designated by the Board of Directors or by any other
person as to the matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
ARTICLE III
COMMITTEES
Section 3.01. How Constituted. The Board of Directors may, by
resolution adopted from time to time by a majority of the entire Board of
Directors, create one or more Committees and designate the Directors who are to
serve as members of each such Committee. Any member of a Committee may designate
in writing to the Board of Directors, and upon such designation the Board of
Directors shall appoint, one or more other Directors as an alternative member of
such Committee, who may replace such appointing Committee member at any meeting
of such Committee where such appointing member is absent or disqualified. Each
member (and each alternate member) of any such Committee (whether designated at
an annual meeting of the Board of Directors or to fill a vacancy or otherwise)
shall hold office until his or her successor shall have been designated or until
he or she shall cease to be a Director, or until his or her earlier death,
resignation or removal.
Section 3.02. Powers. Each Committee shall have and may exercise
powers of the Board of Directors as may be provided by resolution or resolutions
of the Board of Directors.
Any Committee may be granted by the Board of Directors power to
authorize the seal of the Corporation to be affixed to any or all papers which
may require it.
Section 3.03. Proceedings. Each such Committee may fix its own rules
of procedure consistent with these By-laws and may meet at such place (within or
without the State of Delaware), at such time and upon such notice, if any, as it
shall determine from time to time. Each such Committee shall keep minutes of its
proceedings and shall report such proceedings to the Board of Directors at the
meeting of the Board of Directors next following any such proceedings.
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Section 3.04. Quorum and Manner of Acting. Except as may be
otherwise provided in the resolution creating such Committee, at all meetings of
any Committee the presence of members (or alternate members) constituting a
majority of the total authorized membership of such Committee shall constitute a
quorum for the transaction of business. The members of the Committee present at
a duly organized meeting can continue to do business until adjournment,
notwithstanding the withdrawal of enough members of the Committee to leave less
than a quorum. The act of the majority of the members present at any meeting at
which a quorum is present shall be the act of such Committee. Any action
required or permitted to be taken at any meeting of any such Committee may be
taken without a meeting, if all members of such Committee shall consent to such
action in writing and such writing or writings are filed with the minutes of the
proceedings of the Committee. The members of any such Committee shall act only
as a Committee, and the individual members of such Committee shall have no power
as such.
Section 3.05. Action by Telephonic Communications. Members of any
Committee designated by the Board of Directors may participate in a meeting of
such Committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this provision shall
constitute presence in person at such meeting.
Section 3.06. Resignations. Any member (and any alternate member) of
any Committee may resign at any time by delivering a written notice of
resignation, signed by such member, to the Chairman of the Board or the
President. Unless otherwise specified therein, such resignation shall take
effect upon delivery.
Section 3.07. Removal. Any member (and any alternate member) of any
Committee may be removed at any time, with or without cause, by resolution
adopted by a majority of the entire Board of Directors.
Section 3.08. Vacancies. If any vacancy shall occur in any
Committee, by reason of disqualification, death, resignation, removal or
otherwise, the remaining members (and any alternate members) shall continue to
act, and any such vacancy may be filled by the Board of Directors.
ARTICLE IV
OFFICERS
Section 4.01. Number. The officers of the Corporation shall be
chosen by the Board of Directors and may include a Chairman of the Board and
Vice Chairman of the Board (who shall be chosen from among the Directors) and
shall include a President, one or more Vice Presidents, a Secretary, a Treasurer
and such other officers as the Board of Directors may determine. The Board of
Directors also may elect Assistant Secretaries and Assistant Treasurers in such
numbers as the Board of Directors may determine. Any number of offices may be
held by the same person, except that the President and the Secretary shall not
be the same person. Except as otherwise provided in these By-laws, no officer
need be a Director.
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Section 4.02. Election. Unless otherwise determined by the Board of
Directors, the officers of the Corporation shall be elected by the Board of
Directors at the annual meeting of the Board of Directors, and shall be elected
to hold office until the next succeeding annual meeting of the Board of
Directors. In the event of the failure to elect officers at such annual meeting,
officers may be elected at any regular or special meeting of the Board of
Directors. Each officer shall hold office until his or her successor has been
elected and qualified, or until his or her earlier death, resignation or
removal. All officers shall serve at the pleasure of the Board of Directors.
Section 4.03. Removal and Resignation; Vacancies. Any officer may be
removed for or without cause at any time by the Board of Directors. Any officer
may resign at any time by delivering a written notice of resignation, signed by
such officer, to the Board of Directors or the Chairman. Unless otherwise
specified therein, such resignation shall take effect upon delivery. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise, shall be filled by the Board of Directors.
Section 4.04. Authority and Duties of Officers. The officers of the
Corporation shall have such authority and shall exercise such powers and perform
such duties as may be specified in these By-laws, except that in any event each
officer shall exercise such powers and perform such duties as may be required by
law.
Section 4.05. Chairman of the Board. The Board of Directors may at a
regular or special meeting elect from among their number a Chairman of the
Board. The Chairman of the Board shall preside at all meetings of the Board of
Directors and also shall exercise such powers and perform such duties as may be
delegated or assigned to or required of him or her by or pursuant to these
By-laws or by or pursuant to authorization of the Board of Directors.
Section 4.06. Vice-Chairman of the Board. The Board of Directors may
at a regular or special meeting elect from among their number one or more
Vice-Chairmen of the Board. The Vice-Chairman of the Board shall exercise such
powers and perform such duties as may be delegated or assigned to or required of
him, her or them by or pursuant to these By-laws or by or pursuant to
authorization of the Board of Directors or by the Chairman of the Board.
Section 4.07. President. The Board of Directors shall at a regular
or special meeting elect a President. The President shall exercise such powers
and perform such duties as may be delegated or assigned to, or required of him
or her by or pursuant to these By-laws or by or pursuant to authorization of the
Board of Directors or (if the President is not the Chief Executive Officer) the
Chief Executive Officer.
Section 4.08. Chief Executive Officer. Subject to the control of the
Board of Directors, and to the extent not otherwise prescribed by these By-laws,
the Chief Executive Officer shall have plenary power over all departments,
officers, employees and agents of the Corporation, and shall be responsible for
the general management and direction of all the business and affairs of the
Corporation.
Section 4.09. The Secretary. The Secretary shall have the following
powers and duties:
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(a) He or she shall keep or cause to be kept a record of all the
proceedings of the meetings of the stockholders and of the Board of
Directors in books provided for that purpose.
(b) He or she shall cause all notices to be duly given in accordance
with the provisions of these By-laws and as required by law.
(c) Whenever any Committee shall be appointed pursuant to a
resolution or resolutions of the Board of Directors, he or she shall
furnish a copy of such resolution or resolutions to the members of such
Committee.
(d) He or she shall be the custodian of the records and of the seal
of the Corporation and shall cause such seal (or a facsimile thereof) to
be affixed to all certificates representing shares of the Corporation
prior to the issuance thereof and to all instruments the execution of
which on behalf of the Corporation under its seal shall have been duly
authorized in accordance with these By-laws, and when so affixed he or she
may attest the same.
(e) He or she shall properly maintain and file all books, reports,
statements, certificates and all other documents and records required by
law, the Amended and Restated Certificate of Incorporation or these
By-laws.
(f) He or she shall have charge of the stock books and ledgers of
the Corporation and shall cause the stock and transfer books to be kept in
such manner as to show at any time the number of shares of stock of the
Corporation of each class issued and outstanding, the names
(alphabetically arranged) and the addresses of the holders of record of
such shares, the number of shares held by each holder and the date as of
which each became such holder of record.
(g) He or she shall sign (unless the Treasurer, an Assistant
Treasurer or Assistant Secretary shall have signed) certificates
representing shares of the Corporation, the issuance of which shall have
been authorized by the Board of Directors.
(h) He or she shall perform, in general, all duties incident to the
office of secretary and such other duties as may be specified in these
By-laws or as may be assigned to him or her from time to time by the Board
of Directors or the Chief Executive Officer.
Section 4.10. The Treasurer. The Treasurer shall have the following
powers and duties:
(a) He or she shall have charge and supervision over and be
responsible for the moneys, securities, receipts and disbursements of the
Corporation and shall keep or cause to be kept full and accurate records
of all receipts of the Corporation.
(b) He or she shall cause the moneys and other valuable effects of
the Corporation to be deposited in the name and to the credit of the
Corporation in such
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banks or trust companies or with such bankers or other depositaries as
shall be selected in accordance with Section 7.05 of these By-laws.
(c) He or she shall cause the moneys of the Corporation to be
disbursed by checks or drafts (signed as provided in Section 7.06 of these
By-laws) upon the authorized depositaries of the Corporation and cause to
be taken and preserved proper vouchers for all moneys disbursed.
(d) He or she may sign (unless an Assistant Treasurer or the
Secretary or an Assistant Secretary shall have signed) certificates
representing stock of the Corporation, the issuance of which shall have
been duly authorized by the Board of Directors.
(e) He or she shall perform, in general, all duties incident to the
office of Treasurer and such other duties as may be specified in these
By-laws or as may be assigned to him or her from time to time by the Board
of Directors or the Chief Executive Officer.
Section 4.11. Additional Officers. The Board of Directors may
appoint such other officers and agents as it may deem appropriate, and such
other officers and agents shall hold their offices for such terms and shall
exercise such powers and perform such duties as may be determined from time to
time by the Board of Directors. The Board of Directors from time to time may
delegate to any officer or agent the power to appoint subordinate officers or
agents and to prescribe their respective rights, terms of office, authorities
and duties. Any such officer or agent may remove any such subordinate officer or
agent appointed by him or her, for or without cause.
ARTICLE V
CAPITAL STOCK
Section 5.01. Certificates of Stock; Uncertificated Shares. The
Shares of the Corporation shall be represented by certificates, provided that
the Board of Directors may provide by resolution or resolutions that some or all
of any or all classes or series of the stock of the Corporation shall be
uncertificated shares. Any such resolution shall not apply to shares represented
by a certificate until each certificate is surrendered to the Corporation.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock in the Corporation represented by certificates and upon
request every holder of uncertificated shares shall be entitled to have a
certificate signed by, or in the name of the Corporation by the Chairman of the
Board, or the President or a Vice President and by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary, representing the number of
shares registered in the certificate form. Such certificate shall be in such
form as the Board of Directors may determine, to the extent consistent with
applicable law, the Amended and Restated Certificate of Incorporation and these
By-laws.
Section 5.02. Signatures; Facsimile. All signatures on the
certificate may be a facsimile, engraved or printed, to the extent permitted by
law. In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall
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have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he or she were such officer, transfer agent or registrar at the date of
issue.
Section 5.03. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct that a new certificate be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon delivery to the Board of Directors of an affidavit of
the owner or owners of such certificate setting forth such allegation. The Board
of Directors may require the owner of such lost, stolen or destroyed
certificate, or his or her legal representative, to give the Corporation a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of any such new certificate.
Section 5.04. Transfer of Stock. Upon surrender to the Corporation
or the transfer agent of the Corporation of a certificate for shares, duly
endorsed or accompanied by appropriate evidence of succession, assignment or
authority to transfer, the Corporation shall issue a new certificate to the
person entitled thereto, cancel the old certificate and record the transaction
upon its books. Within a reasonable time after the transfer of uncertificated
stock, the Corporation shall send to the registered owner thereof a written
notice containing the information required to be set forth or stated on
certificates pursuant to Sections 151, 156, 202(a) or 218(a) of the DGCL.
Subject to the provisions of the Amended and Restated Certificate of
Incorporation and these By-laws, the Board of Directors may prescribe such
additional rules and regulations as it may deem appropriate relating to the
issue, transfer and registration of shares of the Corporation.
Section 5.05. Record Date. In order to determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date on which the resolution fixing the
record date is adopted by the Board of Directors, and which shall not be more
than 60 nor less than 10 days before the date of such meeting. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting, provided that the
Board of Directors may fix a new record date for the adjourned meeting.
In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than 60 days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted, and which record
date shall be not more than 10 days after the date upon which the
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resolution fixing the record date is adopted. If no record date is fixed, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by the DGCL, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by the DGCL, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
Section 5.06. Registered Stockholders. Prior to due surrender of a
certificate for registration of transfer, the Corporation may treat the
registered owner as the person exclusively entitled to receive dividends and
other distributions, to vote, to receive notice and otherwise to exercise all
the rights and powers of the owner of the shares represented by such certificate
and the Corporation shall not be bound to recognize any equitable or legal claim
to or interest in such shares on the part of any other person, whether or not
the Corporation shall have notice of such claim or interests. Whenever any
transfer of shares shall be made for collateral security, and not absolutely, it
shall be so expressed in the entry of the transfer if, when the certificates are
presented to the Corporation for transfer or uncertificated shares are requested
to be transferred, both the transferor and transferee request the Corporation to
do so.
Section 5.07. Transfer Agent and Registrar. The Board of Directors
may appoint one or more transfer agents and one or more registrars, and may
require all certificates representing shares to bear the signature of any such
transfer agents or registrars.
ARTICLE VI
INDEMNIFICATION
Section 6.01. Nature of Indemnity. The Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was or has agreed to become a Director or officer of the Corporation, is
or was serving or has agreed to serve at the request of the Corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, including an employee benefit plan, or by reason of any action
alleged to have been taken or omitted in such capacity, and may indemnify any
person who was or is a party or is threatened to be made a party to such an
action, suit or proceeding by reason of the fact that he or she is or was or has
agreed to become an employee or agent of the Corporation, or is or was serving
or has agreed to serve at the request of the Corporation as a director, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, including an employee benefit plan, or by reason of any action
alleged to have been taken or omitted in such capacity, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and
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reasonably incurred by him or her or on his or her behalf in connection with
such action, suit or proceeding and any appeal therefrom, if he or she acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the Corporation and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his or her conduct was
unlawful; except that in the case of an action or suit by or in the right of the
Corporation to procure a judgment in its favor (i) such indemnification shall be
limited to expenses (including attorneys' fees) actually and reasonably incurred
by such person in the defense or settlement of such action or suit and (ii) no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper.
The termination of any action, suit or proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he or she reasonably believed to be in
or not opposed to the best interests of the Corporation and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
Section 6.02. Successful Defense. To the extent that a Director,
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in Section
6.01 hereof or in defense of any claim, issue or matter therein, he or she shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith.
Section 6.03. Determination That Indemnification Is Proper. Any
indemnification of a Director or officer of the Corporation under Section 6.01
hereof (unless ordered by a court) shall be made by the Corporation unless a
determination is made that indemnification of the Director or officer is not
proper in the circumstances because he or she has not met the applicable
standard of conduct set forth in Section 6.01 hereof. Any indemnification of an
employee or agent of the Corporation under Section 6.01 hereof (unless ordered
by a court) may be made by the Corporation upon a determination that
indemnification of the employee or agent is proper in the circumstances because
he or she has met the applicable standard of conduct set forth in Section 6.01
hereof. Any such determination shall be made (i) by the Board of Directors by a
majority vote of a quorum consisting of Directors who were not parties to such
action, suit or proceeding, (ii) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested Directors so directs, by independent legal
counsel in a written opinion or (iii) by the stockholders.
Section 6.04. Advance Payment of Expenses. Expenses (including
attorneys' fees) incurred by a Director or officer in defending any civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the Director or
officer to repay such amount if it shall ultimately be determined that he or she
is
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not entitled to be indemnified by the Corporation as authorized in this Article
VI. Such expenses (including attorneys' fees) incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the Board of
Directors deems appropriate. The Board of Directors may authorize the
Corporation's counsel to represent such Director, officer, employee or agent in
any action, suit or proceeding, whether or not the Corporation is a party to
such action, suit or proceeding.
Section 6.05. Procedure for Indemnification of Directors and
Officers. Any indemnification of a Director or officer of the Corporation under
Sections 6.01 and 6.02 or advance of costs, charges and expenses to a Director
or officer under Section 6.04 shall be made promptly, and in any event within 30
days, upon the written request of the Director or officer. If a determination by
the Corporation that the Director or officer is entitled to indemnification
pursuant to this Article is required, and the Corporation fails to respond
within 60 days to a written request for indemnity, the Corporation shall be
deemed to have approved such request. If the Corporation denies a written
request for indemnity or advancement of expenses, in whole or in part, or if
payment in full pursuant to such request is not made within 30 days, the right
to indemnification or advances as granted by this Article VI shall be
enforceable by the Director or officer in any court of competent jurisdiction.
Such person's costs and expenses incurred in connection with successfully
establishing his or her right to indemnification, in whole or in part, in any
such action shall also be indemnified by the Corporation. It shall be a defense
to any such action (other than an action brought to enforce a claim for the
advance of costs, charges and expenses under Section 6.04 where the required
undertaking, if any, has been received by the Corporation) that the claimant has
not met the standard of conduct set forth in Section 6.01, but the burden of
providing such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, its independent legal counsel and
its stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in
Section 6.01, nor the fact that there has been an actual determination by the
Corporation (including its Board of Directors, its independent legal counsel and
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 6.06. Survival; Preservation of Other Rights. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each Director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the DGCL are in effect, and any repeal or modification thereof
shall not affect any right or obligation then existing with respect to any state
of facts then or previously existing or any action, suit or proceeding
previously or thereafter brought or threatened based in whole or in part upon
any such state of facts. Such a right may not be modified retroactively without
the consent of such Director, officer, employee or agent.
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any By-law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
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Section 6.07. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
Director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise, including an employee benefit plan,
against any liability asserted against him or her and incurred by him or her or
on his or her behalf in any such capacity, or arising out of his or her status
as such, whether or not the Corporation would have the power to indemnify him or
her against such liability under the provisions of this Article.
Section 6.08. Severability. If this Article or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each Director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article VI that shall not have been invalidated and to the
fullest extent permitted by applicable law.
ARTICLE VII
GENERAL PROVISIONS
Section 7.01. Dividends. Subject to any applicable provisions of law
and the Amended and Restated Certificate of Incorporation, dividends upon the
shares of the Corporation may be declared by the Board of Directors at any
regular or special meeting of the Board of Directors and any such dividend may
be paid in cash, property or shares of the Corporation's capital stock.
A member of the Board of Directors shall be fully protected in
relying in good faith upon the records of the Corporation and upon such
information, opinions, reports or statements presented to the Corporation by any
of its officers or employees, Committees of the Board of Directors, or any other
person as to matters the Director reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation, as to the value and amount
of the assets, liabilities and/or net profits of the Corporation, or any other
facts pertinent to the existence and amount of surplus or other funds from which
dividends might properly be declared and paid.
Section 7.02. Reserves. There may be set aside out of any funds of
the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, thinks proper as a
reserve or reserves to meet contingencies, for equalizing dividends or for
repairing or maintaining any property of the Corporation or for such other
purpose as the Board of Directors shall think conducive to the interests of the
Corporation, and the Board of Directors may similarly modify or abolish any such
reserve.
Section 7.03. Execution of Instruments. The Chairman of the Board,
any Vice-Chairman of the Board, the President, any Vice President, the Secretary
or the Treasurer may in the ordinary course of business enter into any contract
or execute and deliver any
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<PAGE> 20
instrument in the name and on behalf of the Corporation. The Board of Directors
may authorize any officer or agent to enter into any contract or execute and
deliver any instrument in the name and on behalf of the Corporation. Any such
authorization may be general or limited to specific contracts or instruments.
Section 7.04. Corporate Indebtedness. No loan shall be contracted on
behalf of the Corporation, and no evidence of indebtedness shall be issued in
its name, unless authorized by the Board of Directors or, to the extent
authorized by a resolution adopted by the Board of Directors, the Chief
Executive Officer. Such authorization may be general or confined to specific
instances. Loans so authorized may be effected at any time for the Corporation
from any bank, trust company or other institution or from any firm, corporation
or individual. All bonds, debentures, notes and other obligations or evidences
of indebtedness of the Corporation issued for such loans shall be made, executed
and delivered as the Board of Directors or (to the extent so authorized) the
Chief Executive Officer shall authorize. When authorized by the Board of
Directors, any part of all the properties, including contract rights, assets,
business or good will of the Corporation, whether then owned or thereafter
acquired, may be mortgaged, pledged, hypothecated or conveyed or assigned in
trust as security for the payment of such bonds, debentures, notes and other
obligations or evidences of indebtedness of the Corporation, and of the interest
thereon, by instruments executed and delivered in the name of the Corporation.
Section 7.05. Deposits. Any funds of the Corporation may be
deposited from time to time in such banks, trust companies or other depositaries
as may be determined by the Board of Directors, the Chairman of the Board or the
President or by such officers or agents as may be authorized by the Board of
Directors, the Chairman of the Board or the President to make such
determination.
Section 7.06. Checks. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such agent or
agents of the Corporation, and in such manner, as the Board of Directors, the
Chairman of the Board or the President from time to time may determine.
Section 7.07. Sale, Transfer, etc., of Securities. The Chairman of
the Board, the President, any Vice President, the Secretary, the Treasurer or
any other officers designated by the Board of Directors, may sell, transfer,
endorse, and assign, in each case in the ordinary course of business, any shares
of stock (other than stock of a subsidiary if such transaction has not been
approved by the Board of Directors), bonds or other securities owned by or held
in the name of the Corporation, and may make, execute and deliver in the name of
the Corporation, under its corporate seal, any instruments that may be
appropriate to effect any such sale, transfer, endorsement or assignment.
Section 7.08. Voting as Stockholder. The Chairman of the Board, the
President, any Vice President, the Secretary, the Treasurer or any other
officers designated by the Board of Directors, shall have full power and
authority on behalf of the Corporation to attend any meeting of stockholders of
any corporation in which the Corporation may hold stock, and to act, vote (or
execute proxies to vote) and exercise in person or by proxy all other rights,
powers and privileges incident to the ownership of such stock. Such officers
acting on behalf of the
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<PAGE> 21
Corporation shall have full power and authority to execute any instrument
expressing consent to or dissent from any action of any such corporation without
a meeting.
Section 7.09. Fiscal Year. The fiscal year of the Corporation shall
commence on the first day of January of each year and shall terminate in each
case on December 31.
Section 7.10. Seal. The seal of the Corporation shall be circular in
form and shall contain the name of the Corporation, the year of its
incorporation and the words "Corporate Seal" and "Delaware". The form of such
seal shall be subject to alteration by the Board of Directors. The seal may be
used by causing it or a facsimile thereof to be impressed, affixed or
reproduced, or may be used in any other lawful manner.
Section 7.11. Books and Records. Except to the extent otherwise
required by law, the books and records of the Corporation shall be kept at such
place or places within or without the State of Delaware as may be determined
from time to time by the Board of Directors.
ARTICLE VIII
AMENDMENT OF BY-LAWS
Section 8.01. Amendment. The Board of Directors shall have the
express power, without a vote of stockholders, to adopt any By-law, and to
amend, alter or repeal the By-laws of the Corporation, except to the extent that
the By-laws or the Amended and Restated Certificate of Incorporation otherwise
provide. Except as the Amended and Restated Certificate of Incorporation may
otherwise provide, stockholders may adopt any By-law, or amend, alter or repeal
the By-laws of the Corporation (1) at any annual or special meeting of the
stockholders held in accordance with the By-laws upon the affirmative vote of
the holders of at least a majority of the votes entitled to be cast by the
holders of all then outstanding voting shares of the Corporation, voting
together as a single class or (2) by a consent in writing pursuant to the
requirements of Section 1.10 of these By-laws.
ARTICLE IX
CONSTRUCTION
Section 9.01. Construction. In the event of any conflict between the
provisions of these By-laws as in effect from time to time and the provisions of
the Amended and Restated Certificate of Incorporation of the Corporation as in
effect from time to time, the provisions of such Amended and Restated
Certificate of Incorporation shall be controlling.
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<PAGE> 1
Exhibit 4.1
[DECORATIVE CERTIFICATE BORDER]
NUMBER SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
INTERLIANT, INC.
TOTAL AUTHORIZED ISSUE
100,000,000 SHARES PAR VALUE $.01 EACH
COMMON STOCK [See Reverse for
Certain Definitions]
SPECIMEN
This is to Certify that________________________________________is the owner of
________________________________________________________________fully paid and
non-assessable shares of the above Corporation transferable only on the books of
the Corporation by the holder hereof in person or by duly authorized Attorney
upon surrender of this Certificate properly endorsed.
Witness, the seal of the Corporation and the signatures of its duly authorized
officers.
Dated
<PAGE> 2
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - ________Custodian _________
(Cust) (Minor)
under Uniform Gifts to Minors
Act _________________________
(State)
Additional abbreviations may also be used though not in the above list
For value received __________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
/________________________/_______________________________________________
_________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS
INCLUDING POSTAL ZIP CODE OF ASSIGNEE)
_________________________________________________________________________
_________________________________________________________________________
_______________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably
constitute and appoint
________________________________________________________________Attorney
to transfer the said Shares on the books of the within named Corporation
with full power of substitution in the premises.
Dated ____________________ ___________
In presence of
______________________________
________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE> 1
** Indicates that information has been omitted herein pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission
simultaneously herewith.
Exhibit 10.6
JOINT DEVELOPMENT AGREEMENT
This Joint Development Agreement dated as of April 27, 1998 (this
"Agreement") is between Lotus Development Corporation, a Delaware corporation
with offices at 55 Cambridge Parkway, Cambridge, MA 02142 ("Lotus") and
Interliant, Inc., a Texas corporation with a place of business at 1301 Fannin,
Suite 700, Houston, Texas 77002 ("Interliant").
Background
Lotus has developed certain technology to be included in Louts Domino
Instant! Host ("Instant! Host") as a service provider hosting platform for
Lotus' Instant! Applications. The initial code implementing such technology is
currently included in Lotus Instant!TEAMROOM. Interliant, as a network service
provider of Lotus Notes and Lotus Domino services, is interested in developing a
set of service offerings based on Instant! Host technology that implements
Lotus' "Instant!" products and related strategies. Lotus and Interliant share a
common interest in reducing time to market for Lotus Instant! applications, and
in producing an Instant! Host platform that benefits from each party's knowledge
and expertise in producing quality Notes/Domino-based application hosting
platforms. Lotus and Interliant now wish jointly to develop commercial versions
of instant! Host on the terms and conditions set forth herein. Therefore, the
parties agree as follows:
1. Development.
(a) Joint Responsibility. Lotus and Interliant shall have joint
architectural design, product management and product development responsibility
for Lotus instant! Host, and have agreed on resources to be contributed,
timelines, project plans and contingencies. Each party agrees in good faith to
use diligent efforts to undertake and complete the development of a version of
Lotus Instant! Host as contemplated hereunder and in accordance with functional
specifications developed and agreed to by Lotus and Interliant (the "Work").
(b) Lotus Instant! Host Software Developer Kit, version 1.1. As agreed by
the parties, the first phase of development is the development of the Lotus
Instant! Host Developer Kit, version 1.x. This development kit will be made
available by Lotus or Interliant, as the case may be, to Lotus and Interliant
business partners at no charge. The parties acknowledge that version 1.0 of such
development kit is complete and was made available for shipment on or about July
20, 1997 and that version 1.1 is complete and was made available for shipment on
or about December 15, 1997.
(c) Functional Specifications and the Development Schedules. During the
course of development, Interliant shall implement changes to the functional
specifications made by Lotus from time to time. Lotus shall, in consultation
with Interliant and based on reasonable work estimates supplied by Interliant,
revise any relevant development schedules as reasonably necessary in Lotus'
reasonable judgment, to accommodate changes made in the functional
specification. Nothing herein shall require Lotus to revise development
schedules based on delays attributable to Interliant or on Interliant's failure
to meet the development schedules once revised to accommodate the changes to the
functional specification.
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(d) Product Development Review. Lotus shall appoint an employee to serve
as project manager ("Lotus Project Manager") and Interliant shall appoint an
employee to serve as development liaison ("Interliant Liaison") throughout the
course of development contemplated by this Agreement. Initially the Lotus
Project Manager shall be Corinne Acheson and the Interliant Liaison shall be
David Botello. The parties may, at their own option, each appoint other
employees to serve in such or other formal capacities during the term of this
Agreement. The Lotus Project Manager and the Interliant Liaison shall meet at
mutually agreed times and locations in order to discuss the status and progress
of the development work on Instant! Host.
(e) Lotus Personnel. Lotus will provide non-dedicated architectural and
product management assistance for Instant! Host, as well as qualified dedicated
development personnel to complete Instant! Host product development, pursuant to
the agreed upon development schedules.
(f) Interliant Personnel. Interliant will provide non-dedicated
architectural and product management assistance to Lotus for Instant! Host.
Interliant will provide qualified dedicated development personnel to work with
the Instant! Host product development team, pursuant to the agreed upon
development schedules.
(g) Documentation. The parties shall jointly write and produce any
necessary written end-user documentation and shall create the text for the
"op-screen" help and documentation for Instant! Host.
(h) Testing. The joint Lotus/Interliant development team shall conduct
interim evaluation and testing of Instant! Host on agreed upon dates. Upon
completion of the development of Instant! Host, such joint development team
shall deliver to Lotus and Interliant a final commercial release of Instant!
Host, in both source and object code form, as well as all programmer's notes and
technical documentation used or developed in performing the Work.
(i) Acceptance. Within ten (10) business days after the delivery by the
joint Lotus/Interliant development team to both Interliant and Lotus of each
development version and of the final release version of Instant! Host, each
party shall review and test the Instant! Host product and Lotus shall either
accept or reject the delivery. In the event of rejection, Lotus shall specify
the manner in which the version fails to meet the requirements of the agreed
upon functional specifications. After such notification, the joint development
team shall correct the aforesaid problems or deficiencies within ten (10)
business days (if practicable). Upon any redelivery, Lotus shall, in its
reasonable judgment, determine whether or not to accept such redelivered version
of Instant! Host or to require another iteration of the process.
2. Ownership; Licenses. (a) Lotus acknowledges that all code contributed or
developed by Interliant hereunder and identified as "Interliant Code" on
Schedule 1 attached hereto (the "Interliant Code") remains the sole property of
Interliant, and Interliant acknowledges that all code contributed or developed
by Lotus hereunder and identified as "Lotus Code" on Schedule 2 attached hereto
(the "Lotus Code") remains the sole property of Lotus. For the term of this
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<PAGE> 3
Agreement, Interliant may update Schedule 1 and Lotus may update Schedule 2 at
any time in a writing and by mutual agreement of the other Party. With respect
to any source code proprietary to the other party (to the extent such other
party supplies such source code), each party agrees to maintain such source code
in confidence, and to protect such source code using the same degree of care it
uses to protect its own proprietary and confidential information of like
importance.
(b) Subject to acceptance of Instant! Host by Lotus pursuant to Section
1(i) above, Lotus hereby grants Interliant a ** license to use and modify the
Lotus Code for the sole purpose of enhancing its Domino-based hosting services,
provided that if Interliant ceases jointly developing new versions of Instant!
Host. Interliant will receive updates to the source code for new versions
developed by Lotus only so long as Interliant is actively hosting the complete
Lotus family of Domino Instant! Applications and offering them to the
marketplace.
(c) Subject to acceptance of Instant! Host by Lotus pursuant to Section
1(i) above, Interliant hereby grants Lotus a perpetual, irrevocable license to
use, copy and modify, distribute, and sublicense the Interliant Code (as defined
in Section 2(a) hereof) as part of Instant! Host (or any successor product, or
product in which the Instant! Host code is incorporated), subject to the
nondisclosure requirements with respect the source code contained in said
Section 2(a). Additionally, Lotus shall have the irrevocable right to assign the
licenses granted hereunder in connection with any sale or transfer of the
Instant! Host product or the Louts Code or any exclusive licensing arrangement
with respect thereto.
(d) Subject to acceptance of Instant! Host by Lotus pursuant to Section 1,
Lotus will have the right, without ** of ** other than those set forth in
Section 3 thereof, independently to develop and market successor versions of
Instant! Host (whether or not such versions constitute derivative works) and
extensions to Instant! Host which add additional features and functionality, so
long as such extension do not constitute derivative works. Interliant agrees
that it shall not create either extensions or derivative works (within the
meaning of the U.S. Copyright Act of 1976, as amended) of Instant! Host or the
Interliant Code which offer similar functionality as Instant! Host as it applies
to Domino applications. Except as expressly permitted in Section 2(b),
Interliant may not create derivative works of the Lotus Code.
(e) As long as Instant! Host contains the Interliant Code, all derivative
works of the Interliant Code created by Interliant that apply to Lotus Domino
shall be deemed for all purposes to be subject to the licenses and other rights
granted to Lotus in Section 2(c) hereof herein with respect to Instant! Host.
(f) Interliant may host other service providers using Instant! Host.
Interliant shall not otherwise have the right to resell the Instant! Host
product, except as expressly provided in this Agreement. Interliant will
compensate Lotus for all such service provider hosting and related services or
sales of instant! Host at Lotus' published Instant! Host rates.
(g) Interliant has the right to make pre-release versions of Instant! Host
available to its business partners in connection with their application
development efforts with the prior written approval of Lotus, pursuant to the
terms and conditions of Lotus' standard beta agreement.
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(h) If, so long as ** is obligated to pay ** to ** hereunder, ** desires,
or is required, to sell or transfer all or substantially all of the ** product
or ** to an unaffiliated third party or to **, ** shall first offer to sell such
** to ** at the same price and upon the same terms (or terms as similar as
reasonably possible). Such right of first refusal shall be provided to ** by
written notice (the "Notice of Offer") given to ** of the proposed sale or
transfer. The Notice of Offer shall set forth with reasonable specificity the
price and other terms and conditions of the proposed sale or transfer. ** shall
then have the right, exercisable by written notice to ** (the "Notice of
Acceptance") delivered within fifteen (15) days following the receipt of the
Notice of Offer, to elect to purchase the ** at the price and on the terms set
forth in the Notice of Offer. Such purchase by ** shall be consummated within
ninety (90) days following delivery of the Notice of Acceptance unless otherwise
agreed by the parties. If ** elects not to purchase the **, then ** shall be
free to sell or transfer such ** to such third party.
(i) Interliant agrees that, during the Term hereof, it will not sell or
transfer the Interliant Code to any unaffiliated third party, except in
connection with an acquisition by a third party of a majority of the voting
securities of Interliant or all or substantially all of Interliant's assets.
3. **. (a) As full consideration for the satisfaction of Interliant's
development obligations in Section 1 hereof and for the ** granted by
Interliant's to Lotus in Section 2 hereof Lotus agrees to pay Interliant **
equal to ** of the ** (determined in accordance with generally accepted
accounting principles, consistently applied) received in connection with the **
of Instant! Host (or any successor product) by Lotus. The foregoing ** may be **
by Lotus in good faith based on the value of Interliant's overall contribution
to the Instant! Host development effort (including intellectual property and
expertise) as reflected in the then-current versions of Instant! Host and the
Domino Instant! Host software developers kit, provided that (i) there shall be
not more than ** such ** during the ** of the Term hereof, (ii) such ** may only
occur ** with respect to each new major release of Instant! Host, (iii) any such
** which results in a reduction of the ** payable to Interliant shall not **
such ** by more than ** of the ** that was payable with respect to the
immediately preceding major release of Instant! Host, and (iv) prior to any **,
Lotus informs Interliant of its decision and engages in good faith discussions
with regarding Lotus' justification for such **.
(b) Lotus will establish standard rates under which it will license
Instant! Host to third parties. Lotus reserves the right to modify its standard
rates and/or licensing model as it sees fit.
(c) Interliant will be required to pay Lotus for Instant! Host licenses at
Lotus' then applicable standard service provider rates for non-Lotus developed
Instant! applications offered for subscription to users via Instant! Host.
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<PAGE> 5
(d) Interliant will host all Domino Instant! Applications that Lotus
offers to the market on Lotus' then-standard terms and conditions.
(e) The ** set forth in Section ** hereof shall be due and payable
forty-five (45) days after each calendar quarter during the Term hereof.
(f) The ** payable hereunder do not include sales, use, withholding,
excise or other taxes, fees, duties or tariffs now or hereafter imposed on the
production, storage, transportation, import, export, licensing or use of
Instant! Host.
(g) Payments shall be sent to:
If to Interliant:
Interliant
Accounts Receivable Department
1301 Fannin, Suite 700
Houston, Texas 77002
If to Lotus:
Lotus Development Corporation
Accounts Receivable Department
55 Cambridge Parkway
Cambridge, MA 02142
(h) During the Term hereof, each party shall keep accurate records which
are sufficient for the computation of payments due to the other party under this
Agreement and, with reasonable advance notice and not more than once per
calendar year, shall make such records reasonably available to such other party
and its independent auditors and other representatives at the place or places
where such records are customarily kept, for inspection during normal business
hours, subject to appropriate nondisclosure obligations. Each party shall
reimburse the other for any reasonable, documented, out-of-pocket expenses if
such inspection reveals that the payments made by such party during the period
reviewed aggregated less than 90% of the payments required to be made by such
party during such period.
4. Marketing.
(a) Lotus will have sole worldwide sales, promotional and marketing rights
and responsibilities for Instant! Host, provided that, at the reasonable request
of Lotus, Interliant will reasonably participate in Lotus' promotional and
marketing efforts through participation in industry events, trade shows, press
releases and like events, as appropriate.
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(b) During the Term hereof, Lotus will provide a commercially reasonable
level of promotional and marketing resources for Instant! Host.
5. Support. Reference is made to the Support Services Agreement dated as of
November 1, 1997 between Lotus and Interliant (the "Support Agreement"). Support
for Interliant with respect to Instant! Host will be provided by Lotus in
accordance with the terms and conditions of the Support Agreement.
6. Representations and Warranties. Each party hereby represents and warrants to
the other party that (i) such party has full right, power and authority to enter
into this Agreement and to Carry out its obligations hereunder, (ii) all source
code, object code and other materials developed or written by such party or such
party's employees who are members of the joint development team are the original
work of such party, validly licensed from third parties for the purposes
contemplated by this Agreement or in the public domain; (iii) the Work will be
delivered free and clear of all liens, security interests, charges or
encumbrances by third parties; and (iv) the Work shall not infringe any U.S., EU
or Japanese patent, copyright, trademark, trade secret or other proprietary
rights, provided that neither party makes any representations or warranties with
respect to code supplied or developed by the other party. THE FOREGOING
WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES EXPRESS OR IMPLIED, INCLUDING,
BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
7. Indemnities. (a) Lotus shall indemnify and hold Interliant harmless from, and
defend any claim, suit or proceeding, and pay any settlement amounts or damages
awarded by a court of competent jurisdiction, arising out of claims by third
parties that any code contributed or developed by Lotus in Instant! Host
infringes any United States, Canadian, EU or Japanese copyright, patent, trade
secret or trademark of such third party or parties.
(b) Interliant shall indemnify and hold Lotus harmless from and defend any
claim, suit or proceeding, and pay any settlement amounts or damages awarded by
a court of competent jurisdiction, arising out of claims by third parties that
any code contributed or developed by Interliant in Instant! Host (including the
Interliant Code) infringes any United States, Canadian, EU or Japanese
copyright, parent, trade secret or trademark of such third party or parties.
(c) The obligations to defend and to provide indemnification under this
Section 7 are subject to the following conditions:
(i) The party claiming indemnification shall promptly notify the party
having the duty of indemnification in writing of any indemnifiable
claim or action for which indemnification is sought (provided that
any failure to so notify shall not limit the indemnifying party's
indemnification obligation except if and to the extent such failure
materially prejudiced the indemnifying party's ability to defend
against any claim, suit or other proceeding).
(ii) The indemnifying party shall, at its option, have sole control of
the defense of any such claim or action and all negotiations for any
settlement or compromise, provided that the party seeking
indemnification shall have the right to provide for its own,
separate defense at its own cost and expense.
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<PAGE> 7
(iii) Following notice of any action against the indemnified party based
on a claim that a indemnifying party's code is infringing, the
indemnifying party may at its option (A) procure for the indemnified
parry the right to continue using such indemnifying party's code,
(B) replace such code with non-infringing code of substantially
equivalent functionality, (C) modify such code to make it
non-infringing, or (D) terminate this Agreement and pay to the
indemnified party all amounts received from the indemnified party by
the indemnifying party under this Agreement.
(d) Neither party shall be liable for any claim of infringement based on
the other party's modification to its Software, the combination or use of its
software with any product, program or data not provided by it, if and to the
extent such claim would not have arisen absent such modification or combination;
or any claim would have been avoided by use of the most recent version of the
party's Software then licensed for use and distribution by the other party
8. LIMITATION OF LIABILITY. EXCEPT WITH RESPECT TO THIRD PARTY CLAIMS
INDEMNIFIED AGAINST PURSUANT TO SECTION 7 HEREOF. NEITHER PARTY SHALL BE LIABLE
FOR SPECIAL, INCIDENTAL, CONSEQUENTIAL OR TORT DAMAGES, INCLUDING, WITHOUT
LIMITATION, DAMAGES RESULTING FROM A DELAY OR FROM LOSS OF PROFITS, BUSINESS OR
GOODWILL, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OR IS AWARE OF THE
POSSIBILITY OF SUCH DAMAGES.
9. Term and Termination. (a) The initial term of this Agreement shall be two
years, commencing on the date first above written. Thereafter, this Agreement
shall automatically renew for successive one-year renewal terms, unless either
party terminates the agreement by giving the other party written notice thereof
at least ninety (90) days prior to the end of the then-current term. Such
initial term and each such renewal term are referred to collectively herein as
the "Term".
(b) Either party may terminate this Agreement by giving written notice to
the other party if such other party fails to perform or comply with this
Agreement or any provision hereof. Such termination shall be effective thirty
(30) days after written notice from the non-breaching party unless the
occurrence giving rise to the right of termination and its adverse effects have
been cured to the reasonable satisfaction of the non-breaching party prior to
the expiration of such thirty (30) day period.
(c) This Agreement shall terminate automatically if (i) a party files or
has filed against it a petition under the U.S. Bankruptcy Code or any other law
relating to insolvency or the protection of creditors, (ii) a party makes an
assignment for the benefit of creditors or (iii) a receiver or similar official
is appointed for all or a substantial portion of a party's assets.
(d) Notwithstanding anything contained herein, the expiration or earlier
termination of this Agreement shall have no effect on the licenses granted in
this Agreement or rights of licensees who have purchased the right to use
Instant! Host from Lotus prior to the effective date of such termination,
subject to payment of any applicable ** fees and to the other provisions of
this Agreement.
7
<PAGE> 8
(e) If, so long as ** is obligated to ** to ** hereunder, ** incorporates
all or substantially all of the ** in ** or in another ** at ** to ** (excluding
such beta, evaluation and promotional programs of limited duration, which, in
the case of evaluation and promotional programs, shall not exceed **, as are
customary in the software industry), this ** shall **, provided that in such
event ** agrees to ** an amount equal to ** multiplied by the ** (expressed as
**) set forth in ** hereof, less the aggregate ** pursuant to ** hereof through
the effective date of such **. For purposes of this provision, a ** shall not
include ** with ** at **. Should ** choose to ** in such a manner, then ** shall
** pursuant to ** of this Agreement for ** or ** following the end of any
permitted ** evaluation or promotional period, based on ** then ** or **. If, so
long as ** is obligated to ** to ** hereunder, ** one or more ** agrees to ** to
** multiplied by the ** (expressed as **) applicable to each such additional
major version **. In the event that ** elects to ** , the provisions of ** of **
of this agreement shall **, and ** will notify ** and will offer to either **
the ** contained in ** to ** on terms and conditions to be negotiated in good
faith, so that ** may continue to offer ** as an ** following any such **.
(f) Termination shall not limit or restrict any of the remedies otherwise
available to the parties hereunder.
10. Survival. In addition to the survival of the licenses as described in
Section 9(d) above, the provisions of Sections 2, 3 (but only so long as
Instant! Host contains the Interliant Code), 7, 8, 9(e), and 11 hereof shall
survive the expiration or earlier termination of this Agreement in accordance
with their respective terms.
11. Miscellaneous.
(a) Enforceability. It is the desire and intent of the parties hereto that
the provisions of this Agreement shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular provision to this
Agreement shall be adjudicated to be invalid or unenforceable, such provision
shall be deemed amended to delete therefrom the portion thus adjudicated to be
invalid or unenforceable and shall otherwise remain in full force and effect.
(b) Parties Independent. In making and performing this Agreement, the
parties act and shall act at all times as independent contractors and nothing
contained in this Agreement shall be construed or implied to create an agency,
partnership or employer and employee relationship
8
<PAGE> 9
between Lotus and Interliant or between any party hereto and any officer or
employee of the other party.
(c) Publicity. Subject to any applicable public disclosure obligations
imposed by securities laws, Lotus and Interliant agree that each of them shall
not, without the prior written consent of the others, disclose the contents of
this Agreement or make any public announcement concerning the subject matter
hereof without the prior written consent of the other party.
(d) Assignment. Except as otherwise expressly provided herein, neither
this Agreement nor any of the rights, interests or obligations hereunder may be
assigned, in whole or in part, by either party hereto without the prior written
consent of the other party hereto, which consent shall not be unreasonably
withheld
(e) Entire Agreement, Amendments. This Agreement and the Exhibits attached
thereto contain the entire agreement among the parties hereto with respect to
the subject matter hereof and supersede all prior agreements or understandings
among the parties hereto with respect thereto. This Agreement may be amended
only by an agreement in writing signed by the parties hereto.
(f) Notices. Any notice required or permitted to be given pursuant to this
Agreement shall be in writing and shall be personally delivered, delivered by
next-day air courier or mailed by registered or certified mail, return receipt
requested and postage prepaid or delivered by facsimile as follows:
if to Lotus:
Lotus Development Corporation
55 Cambridge Parkway
Cambridge, MA 02142
Attention: Steven Brand
with a copy to:
Lotus Development Corporation
55 Cambridge Parkway
Cambridge, MA 02142
Attention: General Counsel
if to Interliant:
Interliant, Inc.
1301 Fannin, Suite 700
Houston, Texas 77002
Attention: Jun Lidestri
with a copy to:
Interliant, Inc.
9
<PAGE> 10
1301 Fannin, Suite 700
Houston, Texas 77002
Attention: General Counsel
or to such other addresses as the party to whom notice is given may have
furnished to the other parties hereto in writing, in accordance herewith. Any
communication shall be deemed to have been given, in the case of personal
delivery, on the date of delivery; in the case of delivery by air courier, on
the business day after delivery to the applicable air-courier service; and in
the case of mailing, on the third business day following the day on which the
piece of mail containing such communication is posted.
(g) Waiver. No terms or provisions hereof shall be deemed waived and no
breach consented to or excused, unless such waiver, excuse or consent shall be
in writing and signed by the party claimed to have waived or consented. The
consent, waiver or excuse by either party of a breach of any provision of this
Agreement by the other party shall not operate or be construed as a waiver of
any subsequent breach by such other party.
(h) Governing Law. This Agreement will be governed by and construed in
accordance with, the laws of The Commonwealth of Massachusetts, excluding its
conflicts of laws rules.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
LOTUS DEVELOPMENT CORPORATION INTERLIANT
By: /s/ Steve Brand By: /s/ James M. Lidestri
------------------------- -----------------------
Title: General Manager Title: President and C.E.O.
---------------------- --------------------
10
<PAGE> 11
Schedule 1
Interliant Code
**
<PAGE> 12
Schedule 2
Lotus Code
**
<PAGE> 1
Exhibit 10.8
SAGE NETWORKS, INC.
Incentive Stock Option Award Agreement
Award Agreement, dated as of _____________, 199_ (the "Date of
Grant"), between Sage Networks, Inc., a Delaware corporation (the "Company"),
and __________________ (the "Optionee"), an employee of the Company. This Award
Agreement is pursuant to the terms of the Company's 1998 Stock Option Plan (the
"Plan"). The applicable terms of the Plan are incorporated herein by reference,
including the definition of terms contained in the Plan.
Section 1. Stock Option Award. The Company grants to the Optionee,
on the terms and conditions hereinafter set forth, an Option with respect to
______ shares of the Company's Common Stock (the "Option Shares"). The Option is
intended to qualify as an Incentive Stock Option under Section 422 of the Code.
Section 2. Exercise Price. The exercise price per share of the
Option shares shall be ______ per share.
Section 3. Vesting of Stock Option. Subject to Section 6 hereof, the
Option Shares shall become vested and exercisable in four equal annual
installments based on the passage of time according to the following vesting
schedule:
<TABLE>
<CAPTION>
================================================================================
Vesting Date Number of Shares
------------ ----------------
- --------------------------------------------------------------------------------
<S> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
Notwithstanding the foregoing, but subject to Section 6 hereof, all Option
Shares shall become fully and immediately vested and exercisable (i) to the
extent provided under Article IX of the Plan upon a "change in control" of the
Company or (ii) at the discretion of the Committee (as defined in Section 2(d)
of the Plan) as provided in Article VIII of the Plan, upon the death or
disability of the Optionee.
Section 4. Incentive Stock Option Limitation. Pursuant to Section
7.2 of the Plan and Section 422(d) of the Code, to the extent the aggregate fair
market value of stock with respect to which the Option (together with any other
incentive stock options of the Company and its subsidiaries) is exercisable for
the first time by the Optionee during any calendar year exceeds $100,000, the
portion of the Option representing such excess shall not
<PAGE> 2
be treated as an Incentive Stock Option and shall instead be treated as a
Nonqualified Option under the Plan.
Section 5. Option Term. Option Shares that become exercisable
pursuant to Section 3 hereof may be purchased at any time during the Option
Term. For purposes hereof, the "Option Term" shall commence on the Date of Grant
and shall expire on the tenth anniversary thereof, unless earlier terminated
upon the Optionee's termination from service as an employee as provided in
Section 6 hereof. Upon the expiration of the Option Term, any unexercised Option
Shares shall be cancelled and shall be of no further force or effect.
Section 6. Termination of Service. If Optionee's service as an
employee of the Company is terminated for any reason prior to the occurrence of
any otherwise applicable vesting date or event provided in Section 3 hereof, the
Optionee shall (i) forfeit his interest in any Option Shares that have not yet
become vested, which shall be cancelled and be of no further force or effect,
and (ii) retain the right to exercise any Option Shares that have previously
become vested until the expiration of three months after the effective date of
such termination of service or, in the event such termination of service is as a
result of disability or death (as provided in Article VIII of the Plan), until
the expiration of one year after the date of termination; provided, however,
that in the event of termination of service for "cause" (as defined in Section
8.3 of the Plan), the Optionee's right to exercise any unexercised portion of
his Option shall immediately terminate and all rights thereunder shall cease.
Section 7. Procedure for Exercise. The Option may be exercised, in
whole or part (for the purchase of whole shares only), by delivery of a written
notice (the "Notice") from the Optionee to the Secretary of the Company at the
Company's principal office, which Notice shall: (i) state the number of Option
Shares being exercised; (ii) state the method of payment for the Option Shares
and tax withholding pursuant to Section 8 hereof; (iii) include any
representation of the Optionee required pursuant to Section 9 hereof; (iv) in
the event that the Option shall be exercised by any person other than the
Optionee pursuant to Section 12 hereof, include appropriate proof of the right
of such person to exercise the Option; and (v) comply with such further
requirements consistent with the Plan as the Committee may from time to time
prescribe.
Section 8. Payment of Exercise Price and Tax Withholding. Payment of
the exercise price for the Option Shares shall be made (i) in cash or by
personal or certified check, (ii) by delivery of stock certificates (in
negotiable form) representing shares of Common Stock having a Fair Market Value
equal to the aggregate exercise price of the Option Shares or (iii) a
combination of the methods set forth in the foregoing clauses (i) and (ii). In
addition and at the time of exercise, as a condition of delivery of the Option
Shares, the Optionee shall remit to the Company all required federal, state and
local withholding tax amounts in any manner permitted for the payment of the
exercise price as provided above.
Section 9. Investment Representation. Upon the exercise of the
Option at a time when there is not in effect a registration statement under the
Securities Act of 1933
2
<PAGE> 3
relating to the Option Shares, the Optionee hereby represents and warrants, and
by virtue of such exercise shall be deemed to represent and warrant, to the
Company that the Option Shares shall be acquired for investment and not with a
view to the distribution thereof, and not with any present intention of
distributing the same, and the Optionee shall provide the Company with such
further representations and warranties as the Company may require in order to
ensure compliance with applicable federal and state securities, blue sky and
other laws. No Option Shares shall be purchased upon the exercise of the Option
unless and until the Company and/or the Optionee shall have complied with all
applicable federal or state registration, listing and/or qualification
requirements and all other requirements of law or of any regulatory agencies
having jurisdiction, unless the Committee has received evidence satisfactory to
it that a prospective Optionee may acquire such shares pursuant to an exemption
from registration under the applicable securities laws. Any determination in
this connection by the Committee shall be final, binding, and conclusive. The
Company reserves the right to legend any certificate for shares of Common Stock,
conditioning sales of such shares upon compliance with applicable federal and
state securities laws and regulations.
Section 10. No Rights as Stockholder or Employee.
(a) The Optionee shall not have any privileges of a stockholder of
the Company with respect to any Option Shares subject to (but not acquired upon
valid exercise of) the Option, nor shall the Company have any obligation to
issue any dividends or otherwise afford any rights to which shares of Common
Stock are entitled with respect to any such Option Shares, until the date of the
issuance to the Optionee of a stock certificate evidencing such shares.
(b) Nothing in this Award Agreement or the Option shall confer upon
the Optionee any right to continue as an employee of the Company or to interfere
in any way with the right of the Company to terminate the Optionee's employment
at any time.
Section 11. Adjustments. If at any time while the Option is
outstanding, the number of outstanding shares of Common Stock is changed by
reason of a reorganization, recapitalization, stock split or any of the other
events described in Section 5.2 of the Plan, the number and kind of Option
Shares and/or the exercise price of such Option Shares shall be adjusted in
accordance with the provisions of Section 5.2 of the Plan.
Section 12. Restriction on Transfer of Option. The Option may not be
transferred, pledged, assigned, hypothecated or otherwise disposed of in any way
by the Optionee, except by will or by the laws of descent and distribution. In
the event an Optionee becomes legally incapacitated, his Option shall be
exercisable by his legal guardian, committee or legal representative. If the
Optionee dies, the Option shall thereafter be exercisable by the Optionee's
executors or administrators. The Option shall not be subject to execution,
attachment or similar process. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of the Option contrary to the provisions
hereof, and the levy of any execution, attachment or similar process upon the
Option, shall be null and void and without effect.
3
<PAGE> 4
Section 13. Notices. Any notice hereunder by the Optionee shall be
given to the Company in writing and such notice shall be deemed duly given only
upon receipt thereof at the Company's office at ____________________________, or
at such other address as the Company may designate by notice to the Optionee.
Any notice hereunder by the Company shall be given to the Optionee in writing
and such notice shall be deemed duly given only upon receipt thereof at such
address as the Optionee may have on file with the Company.
Section 14. Construction. The construction of this Award Agreement
is vested in the Committee, and the Committee's construction shall be final and
conclusive.
Section 15. Governing Law. This Award Agreement shall be construed
and enforced in accordance with the laws of the State of Delaware, without
giving effect to the choice of law principles thereof.
SAGE NETWORKS, INC.
By:
-----------------------------------------------
Name:
Title:
OPTIONEE
Name:
<PAGE> 1
Exhibit 10.12
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") dated as of
January 1, 1999 is entered into by and between Sage Networks, Inc. (the
"Company"), and Intensity Ventures, Inc. (the "Consulting Company").
WHEREAS, the Company desires to engage the Consulting Company
to assist in the Company's business operations, and the Consulting Company
desires to provide its services to the Company in connection with its business
operations;
NOW, THEREFORE, in consideration of the mutual covenants set
forth herein, the Company and the Consulting Company hereby agree as follows:
1. Engagement.
The Company hereby engages the Consulting Company to serve as
an advisor and consultant to the Company as provided herein, and the Consulting
Company hereby accepts such engagement. The obligations of the Consulting
Company hereunder shall primarily be performed by Bradley A. Feld, the principal
of the Consulting Company (hereinafter, the "Principal"). During the time that
the Consulting Company is performing services for the Company pursuant to this
Agreement, and for all purposes hereunder, the Consulting Company's (and the
Principal's) status shall be that of an independent contractor of the Company.
2. Term.
The term of the Consulting Company's engagement under this
Agreement shall be for a period commencing on the date hereof through and
including December 31, 2000, unless sooner terminated as provided in Section 6
of this Agreement (the "Consulting Period"). The Agreement shall be
automatically extended from year to year thereafter unless either party gives
not less than three (3) months prior written notice to the other that such party
elects to have the Agreement terminated effective at the end of the initial or
then current renewal term. During the Consulting Period, the Consulting Company
and the Principal may engage in any business and perform any service for its or
his own account, provided that such business or service shall not prevent the
Consulting Company or the Principal from performing its or his duties to the
Company under Section 3 of this Agreement or violate the terms of the
restrictive covenants set forth in Section 8 hereof.
3. Consulting Services.
The Consulting Company shall advise and counsel the Company
and consult with its employees, representatives, agents and contractors as to
such matters and to perform such other services as the Company and the
Consulting Company may reasonably agree.
<PAGE> 2
During the term hereof, Principal shall serve as Co-Chairman of the Company and
shall perform such services as are customarily performed by persons holding such
office and shall be subject at all times to the direction of the Board of
Directors of the Company.
4. Consulting Fees.
(a) The Company shall pay to the Consulting Company, as
compensation for services rendered under this Agreement, an annual consulting
fee of ONE HUNDRED AND EIGHTY THOUSAND DOLLARS ($180,000), payable in
installments in accordance with the usual practice of the Company.
(b) The parties hereby acknowledge and agree that all amounts
paid to the Consulting Company during the Consulting Period shall represent fees
for its consulting services and shall therefore be paid without any deductions
or withholdings taken therefrom for taxes or any other purpose. The Consulting
Company further acknowledges that the Company makes no warranties as to any tax
consequences of such payments, and specifically agrees that the determination of
any tax liability or other consequences of the payment set forth above is the
sole and complete responsibility of the Consulting Company and the Principal.
5. Business Expenses.
During the Consulting Period, the Consulting Company may be
required to incur out-of-pocket business expenses in connection with the
performance of its duties under this Agreement. The Company shall reimburse in
full the Consulting Company for all such reasonable expenses upon presentation
by Consulting Company of the details of vouchers for such expenses in accordance
with customary practices of the Company.
6. Termination of Consulting Engagement.
(a) Anything to the contrary notwithstanding, this Agreement
shall terminate 30 days after the Principal's (i) death or (ii) disability for a
period of not less than twenty-six consecutive weeks; provided, however, that
the provisions of Section 7 hereof shall remain in full force and effect through
the end of the term hereof.
(b) Consulting Company's engagement hereunder may also be
terminated by the Company before the expiration of the term hereof only for
cause as herein defined. "Cause" shall mean only one or both of the following
occurrences.
(i) The Participant's or the Consulting Company's conviction
of a felony by a court of competent jurisdiction (which conviction,
through lapse of time or otherwise, is not subject to appeal); or
(ii) The Participant's or the Consulting Company's commission
of an act of fraud or embezzlement upon the Company.
<PAGE> 3
7. Severance.
In the event of termination of the services of the Consulting
Company by the Company before the expiration of the term hereof, except when
such termination is in accordance with the provisions of paragraph 6(a) or 6(b)
hereof, the Company will provide the Consulting Company with severance pay in an
amount equal to Consulting Company's base annual compensation through the end of
the term hereof, which shall be payable in a lump sum, discounted based on the
prime rate of Chase Bank then in effect, which lump sum shall be payable within
30 days of the date of termination. The Company shall also continue to provide
to Principal the retirement benefits, life insurance, medical insurance and
disability insurance pursuant to Section 4(b) through the end of the term
hereof.
In the event of termination of employment of the Consulting
Company before the expiration of the term hereof pursuant to the provisions of
paragraph 6(a) hereof, the Company will: (i ) provide the Consulting Company
with severance pay in an amount equal to one year's base annual compensation,
which shall be payable in a lump sum, discounted based on the prime rate of
Chase Bank then in effect, which lump sum shall be payable within 30 days of the
date of termination; (ii) continue to provide Principal the retirement benefits,
life insurance, medical insurance and disability insurance pursuant to Section
4(b) through the end of the term hereof; and (iii) continue to provide
Principal's spouse and minor children with medical benefits pursuant to Section
4(b) through the end of the term hereof.
8. Restrictive Covenants.
(a) Intellectual Property. The Consulting Company and the
Principal assign and agree to assign to the Company all of the Consulting
Company's and Principal's right, title and interest in and to all inventions,
discoveries, improvements, ideas, computer or other apparatus programs and
related documentation, and other works of authorship (hereinafter each
designated "Intellectual Property"), whether or not patentable, copyrightable or
subject to other forms of protection, made, created, developed, written or
conceived by the Consulting Company or the Principal during the Consulting
Period, whether during or outside of regular working hours, either solely or
jointly with another, in whole or in part, either:
(i) in the course of such consulting, or
(ii) relating to the actual or anticipated business or research or
development of the Company, or
(iii) with the use of the Company's time, material, private or
proprietary information, or facilities.
(b) Assignment. The Consulting Company and the Principal will,
without charge to the Company but at its expense, execute a specific assignment
of title to the Company and do anything else reasonably necessary to enable the
Company to
<PAGE> 4
secure a patent, copyright or other form of protection for said Intellectual
Property anywhere in the world.
(c) Confidential Information. During the Consulting Period and
at all times thereafter, the Consulting Company and the Principal will keep in
confidence and will not, except as required in the conduct of the Company's
business or as authorized in writing on behalf of the Company, publish, disclose
or use, any private or proprietary information that the Consulting Company or
the Principal may in any way acquire, learn, develop or create by reason of
consulting on behalf of the Company.
(d) Noncompetition: Nonsolicitation.
(i) During the Consulting Period and for a period of
twenty-four (24) months following the termination of the Consulting Period for
whatever reason, neither the Consulting Company nor the Principal will solicit
any customers who are presently or may hereafter become customers of the Company
unless such solicitation is entirely unrelated to Company's business.
(ii) Subsequent to the expiration of this Agreement,
neither the Consulting Company nor the Principal will interfere with or disrupt
or attempt to disrupt the Company's business relationship with its customers or
suppliers, or solicit the employees of the Company.
(iii) During the term of this Agreement and for a
period of twenty-four (24) months from the date of termination of the Consulting
Period for whatever reason, neither the Consulting Company nor the Principal
will disclose or use or enable anyone else to use any information or data which
may be obtained by it or him or available to it or him during the Consulting
Period.
(e) Enforcement. The Company shall be entitled to seek a
restraining order or injunction in any court of competent jurisdiction to
prevent any continuation of any violation of the provisions of this Section 8.
9. Notice.
All notices, requests and other communications pursuant to
this Agreement shall be in writing and shall be deemed to have been duly given,
if delivered in person or by courier, telegraphed, telexed or by facsimile
transmission or sent by express, registered or certified mail, postage prepaid,
addressed as follows:
If to the Consulting Company:
Intensity Ventures, Inc.
C/O Bradley A. Feld
P. O. Box E
Eldorado Springs, CO 80025
<PAGE> 5
Fed Ex: 1630 30th Street, #405
Boulder, CO 80301
If to the Company:
Sage Networks, Inc.
215 First Street
Cambridge, MA 02141
Either party may, by written notice to the other, change the address to which
notices to such party are to be delivered or mailed.
10. Waiver of Breach.
Any waiver of any breach of this Agreement shall not be
construed to be a continuing waiver or consent to any subsequent breach on the
part either of the Consulting Company or of the Company.
11. Non-Assignment; Successors.
Neither party hereto may assign his or its rights or delegate
his or its duties under this Agreement without the prior written consent of the
other party; provided, however, that (i) this Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the Company upon
any sale of all or substantially all of the Company's assets, or upon any
merger, consolidation or reorganization of the Company with or into any other
corporation, all as though such successors and assigns of the Company and their
respective successors and assigns were the Company; and (ii) this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
the Consulting Company to the extent of any payments due to them hereunder. As
used in this Agreement, the term "Company" shall be deemed to refer to any such
successor or assign of the Company referred to in the preceding sentence.
12. Severability.
To the extent any provision of this Agreement or portion
thereof shall be invalid or unenforceable, it shall be considered deleted
therefrom (except as provided in the following sentence) and the remainder of
such provision and of this Agreement shall be unaffected and shall continue in
full force and effect. In the event that any provision of Section 8 hereof is
found by a court of competent jurisdiction to be invalid or unenforceable, such
provision shall be deemed modified and shall be enforced to the maximum extent
permitted by law.
13. Counterparts.
<PAGE> 6
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
14. Governing Law.
This Agreement shall be construed, interpreted and enforced in
accordance with the laws of the State of New York, without giving effect to the
choice of law principles thereof.
15. Entire Agreement.
This Agreement constitutes the entire agreement by the Company
and the Consulting Company with respect to the subject matter hereof and
supersedes any and all prior agreements or understandings between the Consulting
Company and the Company with respect to the subject matter hereof, whether
written or oral. This Agreement may be amended or modified only by a written
instrument executed by the Consulting Company and the Company.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
SAGE NETWORKS, INC.
By:/s/ Leonard J. Fassler
________________________________
Leonard J. Fassler
Co-Chairman
INTENSITY VENTURES, INC.
By /s/ Bradley A. Feld
________________________________
Bradley A. Feld
Its President
_______________________________
<PAGE> 1
Exhibit 10.13
EMPLOYMENT AGREEMENT
This Agreement made and entered into as of the 1st day of January,
1999, by and between SAGE NETWORKS, INC., a Delaware corporation, having a place
of business at 215 First Street, Cambridge, MA 02142 ("Employer"), and, Stephen
Maggs, having an address at 9735 Summer Oaks Drive, Roswell, GA 30076
("Employee").
WITNESSETH:
WHEREAS, Employer is engaged in the Internet Web hosting and related
services business; and
WHEREAS, Employer desires to employ Employee as Chief Executive
Officer, President and Treasurer of Employer, and Employee desires to be so
employed by Employer, all pursuant to the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants herein contained, it is agreed as follows:
1. EMPLOYMENT: DUTIES
(a) Employer hereby agrees to employ Employee, and Employee
hereby agrees to accept employment during the term hereof as Chief Executive
Officer, President and Treasurer of Employer, and shall perform such services as
are customarily performed by persons holding such offices and shall be subject
at all times to the direction of the Board of Directors of Employer. Nothing
herein contained shall be construed as, including, but not limited to (i)
preventing Employee from devoting a portion of his business time to other
business ventures of Employee or preventing Employee from investing his personal
assets in any business, provided such business venture or business does not
compete with Employer or conflict with Employee's duties and obligations as an
officer and director of the Employer, or (ii) preventing Employee from
purchasing securities in any corporation whose securities are regularly publicly
traded, if such purchases shall not result in his owning beneficially at any
time 5% or more of the equity securities of any corporation engaged in a
business which is competitive to that of Employer.
2. TERM
Employee's employment hereunder shall be for a term commencing
January 1, 1999 and ending on December 31, 1999. The Agreement shall be
automatically extended from year to year thereafter unless either party gives
not less than
<PAGE> 2
three (3) months prior written notice to the other that such party elects to
have the Agreement terminated effective at the end of the initial or then
current renewal term.
3. COMPENSATION
(a) As compensation for the performance of his duties on
behalf of Employer, Employer shall pay Employee a salary at the rate of One
Hundred Eighty Thousand Dollars ($180,000.00) per annum, payable in installments
in accordance with the usual practice of the Employer.
(b) Employer shall reimburse Employee for the expenses
incurred by Employee in connection with his duties hereunder upon presentation
by Employee of the details of vouchers for such expenses in accordance with
customary Employer practice.
(c) Employee shall be entitled to participate in all
retirement, life insurance, medical insurance, disability insurance, vacation,
savings and other employee benefit plans generally available to the senior
officers of the Company, so long as such benefits comply with applicable law
(including without limitation the Internal Revenue Code of 1986, as amended, and
ERISA).
4. NON-COMPETITION
(a) During the term of this Agreement and for a period of
twelve (12) months from the date of termination of his employment hereunder for
whatever reason, Employee agrees that he will not solicit any customers who are
presently or may hereafter become customers of Employer unless such solicitation
is entirely unrelated to Employer's business, or compete in any way with
Employer alone or together with others in a business which Employer is engaged
in at the time of termination of employment, except that the foregoing shall not
restrict Employee from engaging in Internet related business activities through
Channel Reps, Inc. (and its subsidiary or division to be known as Netwise) and
Channel Force, Inc.
(b) Subsequent to the expiration or termination of this
Agreement, Employee will not interfere with or disrupt or attempt to disrupt
Employer's business relationship with its customers or suppliers or solicit the
employees or Employer.
(c) During the term of this Agreement and for a period of
twelve (12) months from the date of termination of his employment hereunder for
whatever reason, Employee will not disclose or use or enable anyone else to use
any information or data which may be obtained by him or available to him during
the term of employment except if such information is otherwise readily publicly
available or is required to be disclosed pursuant to a court order.
2
<PAGE> 3
(d) In the event that Employee breaches any provisions of this
paragraph or there is a threatened breach, then, in addition to any other rights
which Employer may have, Employer shall be entitled to injunctive relief to
enforce the restrictions contained herein. In the event that an actual
proceeding is brought in equity to enforce the provisions of this paragraph,
Employee shall not urge as a defense that there is an adequate remedy at law nor
shall Employer be prevented from seeking any other remedies which may be
available.
(e) The existence of any claim or cause of action by Employee
against Employer, whether predicated upon this Agreement or otherwise, shall not
constitute a defense to the enforcement by Employer of the foregoing restrictive
covenants but shall be litigated separately.
5. TERMINATION
(a) Anything to the contrary notwithstanding, this Agreement
shall terminate 30 days after the Employee's (i) death or (ii) disability for a
period of not less than twenty-six consecutive weeks; provided, however, that
the provisions of Section 6 hereof shall remain in full force and effect through
the end of the term hereof.
(b) Employee's employment hereunder may also be terminated by
the Employer before the expiration of the term hereof only for cause as herein
defined. "Cause" shall mean only one or both of the following occurrences:
(i) The Employee's conviction of a felony by a court
of competent jurisdiction (which conviction, through lapse of time or
otherwise, is not subject to appeal); or
(ii) The Employee's commission of an act of fraud or
embezzlement upon the Employer.
6. SEVERANCE
In the event of termination of employment of Employee by
Employer before the expiration of the term hereof, except when such termination
is in accordance with the provisions of paragraph 5(a) or 5(b) hereof, Employer
will provide Employee with severance pay in an amount equal to Employee's base
annual salary through the end of the term hereof, which shall be payable in a
lump sum, discounted based on the prime rate of Chase Bank then in effect, which
lump sum shall be payable within 30 days of the date of termination. Employer
shall also continue to provide to Employee the retirement benefits, life
insurance, medical insurance and disability insurance pursuant to Section 3(d)
through the end of the term hereof.
3
<PAGE> 4
In the event of termination of employment of Employee before
the expiration of the term hereof pursuant to the provisions of paragraph 5(a)
hereof, Employer will: (i) provide Employee (or Employee's estate) with
severance pay in an amount equal to one year's base annual salary, which shall
be payable in a lump sum, discounted based on the prime rate of Chase Bank then
in effect, which lump sum shall be payable within 30 days of the date of
termination; (ii) continue to provide to Employee the retirement benefits, life
insurance, medical insurance and disability insurance pursuant to Section 3(d)
through the end of the term hereof; and (iii) continue to provide Employee's
spouse and minor children with medical benefits pursuant to Section 3(d) through
the end of the term hereof.
7. NOTICES
All notices hereunder shall be in writing and shall be
delivered in person or given by registered or certified mail, postage prepaid,
and sent to the parties at the respective addresses above set forth. Either
party may designate any other address to which notice shall be given, by giving
notice to the other of such change of address in the manner herein provided.
8. SEVERABILITY OF PROVISIONS
If any provision of this Agreement shall be declared by a
court of competent jurisdiction to be invalid, illegal or incapable of being
enforced in whole or in part, the remaining conditions and provisions or
portions thereof shall nevertheless remain in full force and effect and
enforceable to the extent they are valid, legal and enforceable, and no
provision shall be deemed dependent upon any other covenant or provision unless
so expressed herein.
9. GOVERNING LAW
This Agreement shall be construed and governed by the laws of
the State of New York.
10. NON-WAIVER
The failure of either party to insist upon the strict performance of
any term or condition in this Agreement shall not be considered a waiver or
relinquishment of future compliance therewith.
4
<PAGE> 5
11. ENTIRE AGREEMENT; MODIFICATION
This Agreement contains the entire agreement between the
parties relating to the subject matter hereof. No modification of this Agreement
shall be valid unless it is made in writing and signed by the parties hereto.
12. NON-ASSIGNMENT; SUCCESSORS
Neither party hereto may assign his or its rights or delegate
his or its duties under this Agreement without the prior written consent of the
other party; provided, however, that (i) this Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the Employer upon
any sale of all or substantially all of the Employer's assets, or upon any
merger, consolidation or reorganization of the Employer with or into any other
corporation, all as though such successors and assigns of the Employer and their
respective successors and assigns were the Employer; and (ii) this Agreement
shall insure to the benefit of and be binding upon the heirs, assigns or
designees of the Employee to the extent of any payments due to them hereunder.
As used in this Agreement, the term "Employer" shall be deemed to refer to any
such successor or assign of the Employer referred to in the preceding sentence.
13. COUNTERPARTS
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
SAGE NETWORKS, INC.,
Employer
By: /s/ Leonard J. Fassler
------------------------
Leonard J. Fassler,
Co-Chairman
/s/ Stephen Maggs
------------------------
Stephen Maggs
5
<PAGE> 1
Exhibit 10.14
EMPLOYMENT AGREEMENT
This Agreement made and entered into as of the 1st day of January,
1999, by and between INTERLIANT, INC., a Delaware corporation, having a place of
business at 215 First Street, Cambridge, MA 02142 ("Employer"), and, Rajat
Bhargava, having an address at 124 Beacon Street, Apt 3F, Boston, MA 02116
("Employee").
WITNESSETH:
WHEREAS, Employer is engaged in the Internet Web hosting and related
services business; and
WHEREAS, Employer desires to employ Employee as Senior Vice President,
Chief Operating Officer Web Hosting of Employer, and Employee desires to be so
employed by Employer, all pursuant to the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants herein contained, it is agreed as follows:
1. EMPLOYMENT: DUTIES
(a) Employer hereby agrees to employ Employee, and Employee
hereby agrees to accept employment during the term hereof as Senior Vice
President, Chief Operating Officer Web Hosting of Employer, and shall perform
such services as are customarily performed by persons holding such offices and
shall be subject at all times to the direction of the Board of Directors of
Employer. Nothing herein contained shall be construed as, including, but not
limited to (i) preventing Employee from devoting a portion of his business time
to other business ventures of Employee provided such business venture does not
compete with Employer and does not distract from Employee's commitment to devote
substantially all of his time performing his duties hereunder, (ii) preventing
Employee from investing his personal assets in any business provided such
business does not compete with Employer and does not distract from Employee's
commitment to devote substantially all of his time performing his duties
hereunder, or (iii) preventing Employee from purchasing securities in any
corporation whose securities are regularly publicly traded, if such purchases
shall not result in his owning beneficially at any time 5% or more of the equity
securities of any corporation engaged in a business which is competitive to that
of Employer.
2. TERM
Employee's employment hereunder shall be for a term commencing
January 1, 1999 and ending on December 31, 1999. The Agreement shall be
<PAGE> 2
automatically extended from year to year thereafter unless either party gives
not less than three (3) months prior written notice to the other that such party
elects to have the Agreement terminated effective at the end of the initial or
then current renewal term.
3. COMPENSATION
(a) As compensation for the performance of his duties on
behalf of Employer, Employer shall pay Employee a salary at the rate of One
Hundred Eighty Thousand Dollars ($180,000.00) per annum, payable in installments
in accordance with the usual practice of the Employer.
(b) Employer shall reimburse Employee for the expenses
incurred by Employee in connection with his duties hereunder upon presentation
by Employee of the details of vouchers for such expenses in accordance with
customary Employer practice.
(c) Employee shall be entitled to participate in all
retirement, life insurance, medical insurance, disability insurance, vacation,
savings and other employee benefit plans generally available to the senior
officers of the Company, so long as such benefits comply with applicable law
(including without limitation the Internal Revenue Code of 1986, as amended, and
ERISA).
4. NON-COMPETITION
(a) During the term of this Agreement and for a period of
twelve (12) months from the date of termination of his employment hereunder for
whatever reason, Employee agrees that he will not solicit any customers who are
presently or may hereafter become customers of Employer unless such solicitation
is entirely unrelated to Employer's business, or compete in any way with
Employer alone or together with others in a business in which Employer is
engaged at the time of termination of employment.
(b) Subsequent to the expiration or termination of this
Agreement, Employee will not interfere with or disrupt or attempt to disrupt
Employer's business relationship with its customers or suppliers or, for a
period of twelve (12) months from the date of termination of his employment
hereunder, solicit the employees of Employer.
(c) During the term of this Agreement and for a period of
twelve (12) months from the date of termination of his employment hereunder for
whatever reason, Employee will not disclose or use or enable anyone else to use
any information or data which may be obtained by him or available to him during
the term of employment except if such information is otherwise readily publicly
available or is required to be disclosed pursuant to a court order.
(d) In the event that Employee breaches any provisions of this
paragraph or there is a threatened breach, then, in addition to any other rights
which
2
<PAGE> 3
Employer may have, Employer shall be entitled to injunctive relief to enforce
the restrictions contained herein. In the event that an actual proceeding is
brought in equity to enforce the provisions of this paragraph, Employee shall
not urge as a defense that there is an adequate remedy at law nor shall Employer
be prevented from seeking any other remedies which may be available.
(e) The existence of any claim or cause of action by Employee
against Employer, whether predicated upon this Agreement or otherwise, shall not
constitute a defense to the enforcement by Employer of the foregoing restrictive
covenants but shall be litigated separately.
5. TERMINATION
(a) Anything to the contrary notwithstanding, this Agreement
shall terminate 30 days after the Employee's (i) death or (ii) disability for a
period of not less than twenty-six consecutive weeks; provided, however, that
the provisions of Section 6 hereof shall remain in full force and effect through
the end of the term hereof.
(b) Employee's employment hereunder may also be terminated by
the Employer before the expiration of the term hereof only for cause as herein
defined. "Cause" shall mean only one or both of the following occurrences:
(i) The Employee's conviction of a felony by a court
of competent jurisdiction (which conviction, through lapse of time or
otherwise, is not subject to appeal); or
(ii) The Employee's commission of an act of fraud or
embezzlement upon the Employer.
6. SEVERANCE
In the event of termination of employment of Employee by
Employer before the expiration of the term hereof, except when such termination
is in accordance with the provisions of paragraph 5(a) or 5(b) hereof, Employer
will provide Employee with severance pay in an amount equal to Employee's base
annual salary through the end of the term hereof, which shall be payable in a
lump sum, discounted based on the prime rate of Chase Bank then in effect, which
lump sum shall be payable within 30 days of the date of termination. Employer
shall also continue to provide to Employee the retirement benefits, life
insurance, medical insurance and disability insurance pursuant to Section 3(d)
through the end of the term hereof.
In the event of termination of employment of Employee before
the expiration of the term hereof pursuant to the provisions of paragraph 5(a)
hereof,
3
<PAGE> 4
Employer will: (i) provide Employee (or Employee's estate) with severance pay in
an amount equal to one year's base annual salary, which shall be payable in a
lump sum, discounted based on the prime rate of Chase Bank then in effect, which
lump sum shall be payable within 30 days of the date of termination; (ii)
continue to provide to Employee the retirement benefits, life insurance, medical
insurance and disability insurance pursuant to Section 3(d) through the end of
the term hereof; and (iii) continue to provide Employee's spouse and minor
children with medical benefits pursuant to Section 3(d) through the end of the
term hereof.
7. NOTICES
All notices hereunder shall be in writing and shall be
delivered in person or given by registered or certified mail, postage prepaid,
and sent to the parties at the respective addresses above set forth. Either
party may designate any other address to which notice shall be given, by giving
notice to the other of such change of address in the manner herein provided.
8. SEVERABILITY OF PROVISIONS
If any provision of this Agreement shall be declared by a
court of competent jurisdiction to be invalid, illegal or incapable of being
enforced in whole or in part, the remaining conditions and provisions or
portions thereof shall nevertheless remain in full force and effect and
enforceable to the extent they are valid, legal and enforceable, and no
provision shall be deemed dependent upon any other covenant or provision unless
so expressed herein.
9. GOVERNING LAW
This Agreement shall be construed and governed by the laws of
the State of New York.
10. NON-WAIVER
The failure of either party to insist upon the strict performance of
any term or condition in this Agreement shall not be considered a waiver or
relinquishment of future compliance therewith.
4
<PAGE> 5
11. ENTIRE AGREEMENT; MODIFICATION
This Agreement contains the entire agreement between the
parties relating to the subject matter hereof. No modification of this Agreement
shall be valid unless it is made in writing and signed by the parties hereto.
12. NON-ASSIGNMENT; SUCCESSORS
Neither party hereto may assign his or its rights or delegate
his or its duties under this Agreement without the prior written consent of the
other party; provided, however, that (i) this Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the Employer upon
any sale of all or substantially all of the Employer's assets, or upon any
merger, consolidation or reorganization of the Employer with or into any other
corporation, all as though such successors and assigns of the Employer and their
respective successors and assigns were the Employer; and (ii) this Agreement
shall insure to the benefit of and be binding upon the heirs, assigns or
designees of the Employee to the extent of any payments due to them hereunder.
As used in this Agreement, the term "Employer" shall be deemed to refer to any
such successor or assign of the Employer referred to in the preceding sentence.
13. COUNTERPARTS
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to
be effective as of the day and year first above written.
INTERLIANT, INC.,
Employer
By: /s/ Leonard J. Fassler
--------------------------
Leonard J. Fassler,
Co-Chairman
/s/ Rajat Bhargava
------------------------------
Rajat Bhargava
5
<PAGE> 1
Exhibit 10.19
SUBLEASE
This SUBLEASE is entered into as of this 17th day of November 1998, by and
between LeukoSite, Inc., a Delaware corporation with an address at 215 First
Street, Cambridge, Massachusetts, ("Sublessor") and Sage Networks, Inc., a
Delaware corporation ("Sublessee").
Recitals:
A lease was made on June 8, 1994 by and between Cambridge Athenaeum, LLC, a
Delaware limited liability company, as successor in interest to Robert A. Jones
and K. George Najarian, as Trustees of Athenaeum Realty Nominee Trust, under a
Declaration of Trust dated October 3, 1990 ("Landlord") and Sublessor, as
amended by that certain First Addendum to Lease dated June 30, 1994, as further
amended by that certain Second Amendment to Lease dated October 16, 1997, as
further amended by that certain Third Amendment to Lease dated February 9, 1998,
as further amended by that certain Fourth Amendment to Lease dated June 20, 1998
(collectively, the "Prime Lease", a copy of which is attached hereto as Exhibit
A) for approximately 36,341 square feet located in the basement, first floor,
second floor and fifth floor of the building known as 215 First Street,
Cambridge, Massachusetts. (herein, the "Building").
Sublessee desires to sublease from Sublessor a portion of the premises located
on the fifth floor of the Building and containing approximately 7,800 rentable
square feet (the "Premises") (as more particularly described on the plan
attached hereto as Exhibit B), together with the right to use in common with
others entitled thereto, the hallways, stairways and elevators necessary for
access to said Premises and the lavatories nearest thereto (the "Common Areas")
in accordance with and subject to the terms and conditions of the Prime Lease
and this Sublease.
NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto agree as follows:
1. Sublease/Term. Subject to the terms and conditions stated herein,
Sublessor hereby subleases to Sublessee the Premises and Sublessee hereby
subleases from the Sublessor the Premises commencing on the earlier of:
(i) December 1, 1998, or (ii) the date that the tenant presently occupying
the Premises vacates the Premises (the "Commencement Date") and expiring
on June 30, 1999, unless sooner terminated as herein provided ("Sublease
Term"). Provided, however, if the Commencement Date shall not occur before
January 15, 1999, Sublessee shall have the right to terminate this Lease
upon written notice to Sublessor. Sublessee
<PAGE> 2
2
shall have rights to use the Common Areas, in common with others entitled
thereto and subject to the terms of the Prime Lease.
2. Consent of Landlord. Sublessee acknowledges and agrees that this Sublease
and the liability of both Sublessor and Sublessee hereunder are expressly
conditioned and predicated upon and shall not become effective unless and
until the Sublessor herein has obtained from Landlord such written consent
and approval of this Sublease as is required under the Prime Lease and has
forwarded same to Sublessee pursuant to the notice provision noted herein.
In case of any conflict between the provisions of the Consent and this
Sublease, the provisions of the Consent shall prevail unaffected by the
Sublease.
Sublessor shall not be required to give any consent required or
permitted under the terms hereof with respect to any matter on which the
Prime Lease requires the consent of Landlord until it has first obtained
Landlord's prior written consent.
3. Use. Sublessee will use the Premises for general office purposes and for
no other purpose.
4. Base Rental Payments.
<TABLE>
<CAPTION>
Dates Monthly Per Square Foot
----- ------- ---------------
<S> <C> <C>
Commencement Date -
06/30/1999 $18,850.00 $29.00
</TABLE>
Sublessee shall pay rent payable in monthly installments on the first day
of each month after the Commencement Date and such payments shall be paid
by Sublessee to:
LeukoSite, Inc.
215 First Street
Cambridge, MA 02142
or any such address as Sublessor may designate in writing to Sublessee. If
the date of this Sublease is other than the first day of a month, then
rent for such partial month shall be prorated on a per diem basis. Rent
for the first month or partial month, as the case may be, shall be due on
the Commencement Date. Sublessee shall pay all of the foregoing sums
without prior demand by Sublessor or setoff by Sublessee except as
otherwise provided herein.
<PAGE> 3
3
If any installment of Base Rent or any other sums due hereunder are not
paid when due, such delinquent sums shall bear interest at a rate equal to
eighteen percent (18%) per annum (the "Delinquency Rate") or, if such rate
is in excess of any maximum interest rate permissible under applicable
law, the Delinquency Rate shall be the maximum interest rate permissible
under applicable law, commencing with the due date and continuing through
the day preceding the date on which payment of such delinquent sum with
interest thereon is paid.
5. Additional Rent. In addition to the base rent, the Sublessee shall pay as
"additional rent," Sublessee's proportionate share of CAO Building
(operating expenses as defined in the Prime Lease) and Taxes (as defined
in the Prime Lease). Such Additional Rent to be paid in the manner set
forth in Section 6 of the Prime Lease. Sublessee's proportionate share
shall be 2.74% ("Proportionate Share").
6. Utilities: Upon the Commencement Date of this Sublease, Sublessee shall
pay for all gas, electricity, water and sewer and any other utilities
separately metered or sub-metered to the Premises. The Sublessee shall be
responsible for all utility company deposits applicable to the supply of
such services to the Premises. To the extent not separately metered,
Sublessee shall be responsible for the payment of its Proportionate Share
of all gas, electricity, water and sewer use and any other utilities not
separately metered or sub-metered to the Premises all as reasonably
determined by Sublessor and Landlord. Upon request by the Sublessor, the
Sublessee shall provide the Sublessor with evidence of payment of such
charges to the utility supplier. Sublessee shall defend, indemnify and
hold Sublessor harmless from and against any claim or liability
(including, but not limited to reasonable attorney's fees) arising from
such charges made by any such utility supplier for which Sublessee is
responsible.
7. Security Deposit. Sublessee has deposited a security deposit equivalent to
one months base rent in the amount of $18,850.00 (the "Security Deposit")
with Sublessor. Sublessor shall hold the Security Deposit as security for
the full and faithful payment or performance by Sublessee of its
obligations under this Sublease and not as prepayment of rent. Sublessor
shall not commingle the Security Deposit with other funds of Sublessor but
shall not be liable to Sublessee for the payment of interest thereon or
profits therefrom. Sublessor may expend such amounts from the Security
Deposit as may be necessary to cure an Event of Default and, in such case,
Sublessee shall pay to Sublessor the amount so expended, on demand. As
soon as reasonably practicable after the expiration of the Sublease Term,
Sublessor shall (i) inspect the Premises, (ii) make such
<PAGE> 4
4
payments from the Security Deposit as may be required to cure any
outstanding Events of Default hereunder and (iii) if no Event of Default
is then continuing, pay the balance of the Security Deposit to Sublessee.
8. Condition of Premises. Sublessee acknowledges that it has inspected the
Premises and is familiar with the physical condition thereof, and accepts
the Premises in its "As-Is" condition, free of all occupants. Sublessee
acknowledges that Sublessor has made no representations or warranties
regarding the Premises, and that it has relied on no such representations
or warranties in accepting the Premises. Sublessee acknowledges that
Sublessor shall have no obligation to do any work in or to the Premises or
to incur any expense in connection therewith, in order to make the
Premises suitable and ready for occupancy and use by Sublessee.
9. Default. The occurrence of any of the following shall constitute an Event
of Default under this Sublease:
(1) Delinquency in the payment when due of base rent and any additional
rent or any other amount payable by Sublessee under this Sublease,
or any part thereof and such delinquency or failure to pay shall
continue for five (5) days after written notice from Sublessor.
(ii) Delinquency by Sublessee in the performance or compliance with any
of the terms, covenants or agreements to be performed under this
Sublease or the Prime Lease, and failure to rectify or remove said
default(s) within fifteen (15) days after written notice from
Sublessor or Landlord of such default.
(iii) Filing by or against Sublessee in any court pursuant to any federal
or state statute or a petition in bankruptcy or insolvency, or for
reorganization or rearrangement, or for the appointment of a
receiver or trustee of all or a portion of Sublessee's property, or
any assignment of the property of Sublessee for the benefit of
creditors, and such filing, petition, appointment of receiver or
trustee or assignment for the benefit of creditors is not dismissed
within thirty (30) days.
(iv) Assignment or encumbrance of this Sublease or subletting of the
Premises other than in accordance with the terms of this Sublease.
(v) Sublessee shall abandon the Premises.
(vi) Any attachment is made of the Sublessee's leasehold interest in the
Premises.
<PAGE> 5
5
10. Right to Re-Enter. Upon an Event of Default, Sublessor shall have the
immediate right to re-enter and remove all persons and property within the
Premises. Such property may be removed and stored in a public warehouse or
elsewhere at the cost of, and for the account of Sublessee, all without
service of notice and without Sublessor being deemed guilty of trespass,
or liable for any loss or damage. All of the rights and remedies of
Sublessor under this Sublease are cumulative and shall be in addition to
any other rights or remedies accorded Sublessor by law. Sublessor shall
have all rights of Landlord in an Event of Default as set forth in Section
18 of the Prime Lease.
11. Right to Relet. Should Sublessor elect to reenter, or take possession by
summary proceeding or other appropriate legal action or proceedings, or
pursuant to notice provided for by law, it may either terminate this
Sublease or from time to time, without terminating this Sublease, make
such alterations and repairs necessary to relet, and relet the Premises or
any part thereof for such term or terms, and at such rental or rentals and
upon such other terms and conditions as Sublessor in its sole discretion
may deem advisable. Upon each such reletting, all rentals and other sums
received by Sublessor shall be applied;
(i) to the payment of any indebtedness other than rent due;
(ii) to the payment of any costs and expenses of reletting, including
brokerage and reasonable attorneys' fees, and costs of alterations
and repairs in order to restore the Premises to its condition as of
the Commencement Date, reasonable wear and tear excepted;
(iii) to the payment of rent and other charges due and unpaid hereunder.
12. Assignment And Subletting. Sublessee shall not assign its rights under the
Sublease in whole or in part or sublet all or any part of the Premises or
assign, transfer or hypothecate by operation of law or otherwise all or
any part of the Prime Lease or this Sublease without Sublessors' and
Landlords' express prior written consent which consent shall be given or
withheld at Sublessor's and Landlord's sole discretion.
13. Notices. Any notice, requests, demands and other communications between
the parties relating to the Sublease shall be in writing and addressed as
follows:
If to Sublessor:
LeukoSite, Inc.
215 First Street
Cambridge, MA 02142
<PAGE> 6
6
Attention: Mr. Robert Gallahue
If to Sublessee:
Sage Networks, Inc.
215 First Street
Cambridge, MA 02142
Attention: Controller
with a copy to:
Sage Networks, Inc.
11 Martine Avenue, 12th Floor
White Plains, NY 10606
Attention: Bruce Klein, Esq.
No notice from Sublessee to the Landlord shall be effective as to
Sublessor unless Sublessee delivers a copy of such notice in the manner
set forth in this section to Sublessor simultaneously with delivery of
such notice to Landlord. No notice from Sublessee to Sublessor shall be
effective as to Sublessor or Landlord unless Sublessee delivers a copy of
such notice in the manner set forth in this Section to Landlord
simultaneously with delivery of such notice to Sublessor. Any notice shall
be deemed duly given (i) when delivered by hand, if so delivered and a
receipt obtained, or (ii) the next day after being delivered to an
overnight courier with acceptance signature required.
14. Terms Subject to Prime Lease. This is a Sublease. Sublessor's interest in
the Premises is as a lessee under the Prime Lease and Sublessee's rights
pursuant to this Sublease are subject and subordinate at all times to the
Prime Lease and to all the covenants and agreements of the Prime Lease,
except as to those matters no longer applicable or superseded by this
Sublease. The rental payments required hereunder are substituted for the
rental payment requirements under Section 5 of the Prime Lease.
Sublessee acknowledges that it has read and understands the terms and
conditions of the Prime Lease and Sublessee expressly assumes and
covenants to Landlord and Sublessor to keep, perform and fulfill all of
the duties, obligations, terms and conditions which are to be kept,
performed and fulfilled by Sublessor as lessee under the Prime Lease as
the same relates to the Premises, whether or not expressly set forth in
this Sublease, and agrees to be bound by the terms of the Prime Lease as
the same relates to the Premises as fully and to the same extent as if
<PAGE> 7
7
Sublessee were lessee under the Prime Lease. Sublessee shall not do,
permit or tolerate anything to be done in, or in connection with
Sublessee's use or occupancy of the Premises which would violate any
covenant or agreement set forth in the Prime Lease. Sublessor shall have
the same rights against Sublessee with respect to the Sublease as the
Landlord has against the Sublessor as lessee pursuant to the Prime Lease
and Sublessee shall have the rights and obligations of lessee of the Prime
Lease, except where such rights and obligations are deleted, modified or
altered herein. In addition, if Sublessor receives an abatement of rent
under the Prime Lease which is applicable to the Premises, Sublessee shall
also receive a pro rata abatement of its rent hereunder.
The Landlord under the Prime Lease or Sublessor may enforce against
Sublessee, each in its own capacity, any of the rights granted to Landlord
pursuant to the Prime Lease, except as specifically provided in this
Sublease. Sublessor may not grant to Sublessee, and nothing in this
Sublease shall be construed or interpreted to grant, any greater rights
than Sublessor has received as lessee from Landlord pursuant to the Prime
Lease.
15. Sublessor's Covenants. Sublessor warrants and represents that Exhibit A is
a true, correct and accurate copy of the Prime Lease. Except for the
amendments (first through fourth) attached thereto, there have been no
modifications or amendments of or changes to the Prime Lease. The Prime
Lease is in full force and effect and to the best of Sublessor's
knowledge, there are no defaults or violations thereunder on the part of
either Sublessor or Landlord.
Sublessor shall (i) comply with the covenants and terms of the Prime Lease
and (ii) not do or cause to be done or suffer or permit any act or thing
to be done or fail to do any act which would or might cause a default by
Sublessor under the Prime Lease or would cause the rights of Sublessor as
lessee thereunder to be canceled, terminated or forfeited, and shall
promptly deliver to Sublessee as soon as possible copies of any notices it
receives from Landlord under the Prime Lease applicable to the Premises.
16. Limitations of Sublessor's Obligations. Sublessee hereby acknowledges that
Sublessee will look solely to Landlord for the performance of all the
Landlords' obligations under the Prime Lease and agrees and acknowledges
that Sublessor shall have no obligation or responsibility whatsoever to
provide or perform any service, repair, alteration or other similar
obligations which are the obligations of Landlord to provide or perform
pursuant to the terms of the Prime Lease, provided however Sublessee may
look to Sublessor for the prompt and
<PAGE> 8
8
proper payment to the Landlord of all rents received hereunder. Sublessee
may exercise in Sublessor's name, any rights of Sublessor as Lessee to
enforce obligations of Landlord under the Prime Lease.
17. Insurance and Indemnities. Sublessee hereby agrees to indemnify and hold
each of Landlord and Sublessor harmless with regard to its leasing and use
of the Premises, to the same extent that Sublessor as Lessee, is required
to indemnify and hold Landlord harmless with respect to the Premises. The
foregoing indemnity shall include, but not be limited to, any claim or
cause of action arising as a result of the installation of phone systems
and computer cabling as described in Section 31 below.
Likewise, Sublessee hereby agrees to obtain and provide evidence
satisfactory to Sublessor, on or before the date of this Sublease, that
Sublessee is carrying insurance in the same amounts and of the same types
required to be carried by Lessee under the Prime Lease with regard to the
Premises. Any insurance required to be carried by Sublessee pursuant to
the provisions of the Prime Lease shall name Landlord and Sublessor as
additional insured.
18. No Waiver. Failure of either party to complain of any act or omission on
the part of the other party, no matter how long the same may continue,
shall not be deemed to be a waiver by such party of any of its rights
hereunder. No waiver by any party at any time of any other provision of
this Sublease shall be deemed a waiver or breach of any other provision of
this Sublease or a consent to any subsequent breach of the same or any
other provision hereunder. If any act or omission by any party shall
require the consent or approval of another party, such consent or approval
of such act or omission shall not operate as consent or approval on the
same or any subsequent occasion.
19. Partial Invalidity. If any provision of this Sublease is held by a court
of competent jurisdiction to be invalid, void or unenforceable in any
manner, the remaining provisions of the Sublease shall nonetheless
continue in full force and effect without being impaired or invalidated in
any way. In addition, if any provision of this Sublease may be modified by
a court of competent jurisdiction such that it may be enforced, then said
provision shall be so modified and as modified shall be fully enforced.
20. Corporate Authority. Sublessee warrants that the person executing this
Sublease on behalf of Sublessee has authority to do so and fully obligate
Sublessee to all terms and provisions of this Sublease. Sublessor warrants
that the person executing this Sublease on behalf of Sublessor
<PAGE> 9
9
has authority to do so and fully obligate Sublessor to all terms and
provisions of this Sublease.
21. Governing Law. This Sublease is being executed and delivered in the
Commonwealth of Massachusetts and the laws of this commonwealth shall
govern the validity, construction, enforcement and interpretation of this
Sublease.
22. Entire Agreement. This Sublease contains the entire understanding of the
parties hereto with respect to the subject matter contained herein,
supersedes all prior and contemporaneous agreements, understandings, and
negotiations, and no parole evidence of prior or contemporaneous
agreements, understandings and negotiations shall govern or be used to
construe or modify this Sublease. No modification or alteration hereof
shall be deemed effective unless in writing and signed by the parties
hereto.
23. Brokerage. Sublessee and Sublessor represent and warrant that neither
party has dealt with any broker in connection with this transaction other
than Sublessee having dealt with Thompson Doyle & Company. Provided,
however, that in the event Sublessor or Sublessee enters into a
contractual relationship with a broker in connection with this Sublease,
Sublessor and Sublessee shall be responsible for all costs and brokerage
fees for such Broker with which they had a direct contractual
relationship. Furthermore, each of Sublessor and Sublessee shall indemnify
and hold the other party harmless from and against any liability and
expense (including reasonable attorneys' fees and disbursements) for any
other brokerage commission or finder's fee based on alleged actions of the
party making the indemnity or its agents or representatives. Each party's
liability hereunder shall survive any expiration or termination of this
Sublease.
24. Marginal Headings. The marginal headings hereof are inserted merely for
the convenience of the parties and shall not be used to construe or modify
the terms of this Sublease in any respect.
25. Terms. Capitalized terms used in this Sublease but not defined herein
shall have the meaning ascribed to them in the Prime Lease.
26. Holding Over. If Sublessee remains in possession of the Premises upon the
expiration or earlier termination of this Sublease, Sublessee will occupy
the Premises as a sublessee on a day-to-day basis at a rental rate of 200%
of then current rental rate plus all additional rent, subject to all
<PAGE> 10
10
conditions, provisions and obligations of this Sublease in effect on the
last day of the term.
27. Third Party Beneficiary. Sublessee acknowledges that the Landlord is a
third party beneficiary entitled to receive the benefits of the
representations, warranties and covenants made by, and the responsibility
of, Sublessee under this Sublease.
28. No Renewal. Sublessee shall have no renewal options.
29. Parties Bound. This Sublease shall be binding upon and inure to the
benefit of Sublessor and Sublessee and their respective heirs, personal
representatives, successors and assigns.
30. Covenant of Quiet Enjoyment. Sublessor covenants that, if Sublessee shall
timely perform all of its obligations hereunder, then, subject to the
provisions of this Sublease, Sublessee shall, during the term of this
Sublease, peaceably and quietly occupy and enjoy the full possession of
the Premises without hindrance by Sublessor or any party claiming through
or under Sublessor.
31. Parking. Sublessee shall have the right to use at the market rate charged
by Landlord to Sublessor under the Prime Lease and on a non-exclusive,
unreserved basis up to seven (7) unreserved parking spaces. Sublessee's
use of the parking spaces shall be subject to all reasonable rules and
regulations established by Landlord and Sublessor from time to time.
32. Early Access. Sublessor shall make reasonable efforts to make Premises
available in the event the tenant presently occupying the Premises vacates
early and gives possession of the Premises to Landlord. Provided, however,
that such early access and transfer of Premises to Sublessee shall be at
no additional cost to Landlord.
[THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE> 11
11
This SUBLEASE is executed as of the date set forth above.
SUBLESSOR:
LeukoSite, Inc.
By: /s/ [Illegible]
------------------------------------
Name: [Illegible]
-------------------------------
Title: VP
------------------------------
SUBLESSEE:
Sage Network, Inc.
By: /s/ Rajat Dharsava
------------------------------------
Name: Rajat Dharsava
-------------------------------
Title: COO
------------------------------
<PAGE> 12
Exhibit A
Prime Lease
<PAGE> 13
<TABLE>
<S> <C>
1 parties
2 lease premises
3.1 term
3.1.1 early occupancy
3.2 condition of the premises
3.3 completion of improvements
3.3.1 lessee's contractor
3.3.2 compliance with lease
3.3.3 first and second floor tenant improvement work
3.4 financing of tenant improvement work
4 rent
5 rent adjustments
5.1 rent adj - common area opt exp for buld
5.2 monthly payments
5.3 rent adj - taxes
5.3.1 lessor to pay taxes
5.3.2 lessess's share of taxes
5.3.3 rent adj - payment
5.3.4 tax adj
6 utilities and other services
7 use of leased premises
8 compliance with laws
9 risk of loss of personal effects
9a insurance - waiver of subrogation
10 maintenance of leased premises
11 alterations - addition
12 assignment - subletting
12a quiet enjoyment, convenant of title
13 subordination
14 lessor's access
15 indemnification and liability
16 holding over
16a further lessee covenants
17 fire, casualty
17.1 definition of "substantial damage" and "partial damage"
17.2 partial damage to the building
17.3 substantial damage to the building
17.4 abatement of rent
17a eminent domain
18 default and bankruptcy
18a default of landlord and mortgagee rights
18b bankruptcy or insolvency
19 rules and regulations
19a paragraph headings
20 broker
21 estoppel certificate
22 notice
23 surrender
24 option to extend
25 option to expand
26 hazardous waste indemnity
27 misc.
28 security deposit
Exhibit A map of space
Exhibit B map of camb.
Exhibit C Comdisco's landlord and mortgagee waiver and consent
Exhibit D lessee's equip eligible for removal
Exhibit E determination of fair market rent
</TABLE>
<PAGE> 14
LEASE
1. PARTIES. ROBERT A. JONES, and K. GEORGE NAJARIAN, as they are
Trustees of ATHENAEUM REALTY NOMINEE TRUST, under a Declaration of Trust dated
October 3, 1990 and not individually, ("LESSOR"), which expression shall include
their successors and assigns where the context so permits, do hereby lease to
LeukoSite, Inc., a Delaware corporation, ("LESSEE") which expression shall
include its successors and assigns, and the LESSEE hereby leases and shall
peaceably hold and enjoy the following described premises:
2. LEASED PREMISES. On the Commencement Date, or such earlier date
as LESSEE shall take occupancy thereof, the "Leased Premises" shall consist of a
portion of the basement, first, and second floor in the building located at 215
First Street, Cambridge, Massachusetts, (the "Building") which basement space
contains two hundred (200) rentable square feet more or less, which first floor
space contains twelve thousand eight hundred ninety eight (12,898) rentable
square feet, more or less, and which second floor space contains eleven thousand
three hundred seventy (11,370) rentable square feet, more or less, as outlined
on the sketch contained in Exhibit Al (herein called the "Leased Premises").
The Leased Premises shall have as appurtenant thereto: (a) the right
to use in common with others entitled thereto, the
<PAGE> 15
entrances, lobbies, hallways, stairways, walkways, sidewalks, driveways, loading
docks, elevators and other common facilities in the Building necessary for
access to and enjoyment of the Leased Premises, or portion, and (b) the pipes,
conduits, wires, and appurtenant equipment serving the Leased Premises, or
portion thereof, in common with other portions of the Building subject, however,
to the following rights which are expressly excepted and reserved by LESSOR: (i)
the right, from time to time, to install, maintain, use, repair, relocate, place
and replace utility lines, pipes, ducts, conduits, wires, gas, electric, or any
other meters and fixtures located on or passing through any portion of the
Leased Premises to serve other portions of the LESSOR's property of which the
Leased Premises, or a portion thereof, are a part; (ii) the right to enter into
upon and across any portion of the Leased Premises to exercise any reserved
right of LESSOR hereunder; and (iii) the right from time to time to make
alterations or additions to the Building, and to permit others to do so from
time to time all as LESSOR may determine in its sole discretion, and without
LESSEE's consent in any instance; any such alterations or additions or
construction being performed in a manner so as not unreasonably to interfere
with the LESSEE's use and occupancy of the Leased Premises with any
construction, alteration or addition of the Leased Premises to be, except in the
case of an emergency, performed after normal business hours.
Subject to LESSOR's reserved rights specified above, there shall be
appurtenant to the Leased Premises the right to park
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<PAGE> 16
two (2) passenger motor vehicles per 1,000 feet of occupied square feet in the
open, uncovered, parking areas as shown on Exhibit B. LESSOR reserves the right
to designate the locations of the spaces to be utilized for such parking rights
by written notice to LESSEE, and to change the location of any or all of such
spaces by notice to LESSEE at any time and from time to time as LESSOR shall
solely determine. The parking spaces provided hereunder need not be contiguous.
3.1 TERM. The term (the "term") of this Lease shall be for a period
of five (5) years following the "Commencement Date". The "Commencement Date"
shall be that date which is six months after the date upon which this Lease is
executed ("Lease Execution Date"), but, in no event later than December 1, 1994.
As soon as may be convenient after the Commencement Date has been
determined, the LESSOR and the LESSEE agree to join with each other in the
execution, in recordable form, of a written declaration in which the
Commencement Date shall be stated.
3.1.1. EARLY OCCUPANCY. In the event a portion of the Leased
Premises are substantially completed and ready for occupancy and LESSEE shall
have given notice to LESSOR thereof, then LESSEE shall have the right to
commence use and occupancy of such portion of the Leased Premises subject to the
terms and conditions of this Lease. During the period of such partial use and
occupancy, LESSEE shall perform, comply with and abide by all of its
obligations, undertakings and covenants as if, and to the same extent, as though
the term had commenced; however, no obligation to pay Base Rent or
-3-
<PAGE> 17
Rent Adjustments, including tax payments shall accrue until the Commencement
Date.
3.2 CONDITION OF THE PREMISES. The Premises shall be delivered to
the LESSEE in their present "as is" condition, broom clean and free of any
tenants on the Lease Execution Date. LESSOR makes no representations or
warranties concerning the suitability of the Leased Premises for LESSEE's
purposes.
3.3 COMPLETION OF IMPROVEMENTS. The Leased Premises shall be
considered "ready for occupancy" on the date upon which the improvements to be
constructed by the LESSEE with respect to 9,398 square feet of the first floor
and 7,870 square feet of the second floor of the Leased Premises (hereinafter
"Tenant Improvement Work") are substantially completed. The Leased Premises
shall be deemed substantially completed notwithstanding the completion of work
and adjustment of equipment and fixtures or minor items of uncompleted work
(so-called "punch list" work items) remain to be done, if such work can be
completed after occupancy has been taken without causing unreasonable
interference with LESSEE's use of the Leased Premises.
On or before July 15, 1994, LESSEE shall provide to LESSOR complete
design development drawings and specifications for all Tenant Improvement Work
(the "Plans"). The Plans shall include all alterations, additions, equipment and
fixtures to be performed, constructed and installed in the Leased Premises. The
Plans shall require use of new materials of good quality, and all construction
shall be in compliance with applicable laws, ordinances, orders and
-4-
<PAGE> 18
regulations of governmental authorities and with requirements of LESSOR's
insurance underwriters.
Within five (5) business days of receipt of the Plans, the LESSOR shall
either approve said plans, which approval shall not be unreasonably withheld or
shall indicate in writing to LESSEE the specific reasons for not approving
LESSEE's plans. Within the succeeding ten (10) business days, LESSEE shall
correct the deficiencies noted and return the revised Plans to LESSOR for
approval. Once approved, LESSEE's Plans may not be modified in any material
respect except with LESSOR'S further approval. LESSOR's approval of the Plans
shall not constitute an acknowledgment that work done in conformity therewith
will so comply, and LESSEE shall be solely responsible for modifications to the
Plans required by any governmental agency or LESSOR's insurance underwriters.
3.3.1 LESSEE'S CONTRACTOR. LESSEE shall arrange with its own general
contractor to perform the work shown on the approved LESSEE'S Plans. The
identity of LESSEE's contractor shall be subject to LESSOR'S prior approval
(approval not to be unreasonably withheld or delayed). LESSEE shall procure and
convey to LESSOR all necessary governmental approvals, including, without
limitation, building and occupancy permits and all applicable approvals relative
to electrical, gas, water, heating and cooling, and telephone work, before
undertaking any work. LESSEE shall perform all work at its risk in a good and
workmanlike manner in accordance with LESSEE'S approved Plans employing new
materials of good quality with interior finishes being at least equal to the
-5-
<PAGE> 19
other parts of the Leased Premises. LESSEE shall furnish all ramps, chutes,
coverings, and the like necessary to protect other parts of the Building from
damage during the performance of the Tenant Improvement Work shown on the Plans.
Any resulting damage to other parts of the Building shall be repaired by LESSOR
at LESSEE's expense, reimbursement to be made promptly and deemed additional
rent. The performance of the Tenant Improvement Work shown on the Plans shall be
coordinated with all reasonable regulations of LESSOR with respect to the
performance of other work in the Building and the requirements of other
occupants thereof.
When any LESSEE Tenant Improvement Work is in progress, LESSEE shall
maintain or cause its contractor to maintain workmen's compensation insurance
required by law covering all persons employed in such Tenant Improvement Work
and such other insurance as may be required by LESSOR covering the additional
hazards due to such Tenant Improvement Work, in each case for the benefit of
LESSOR and such additional parties as LESSOR shall require. It shall be a
condition of LESSOR's approval of any plans for LESSEE's Work that certificates
of such insurance shall have been deposited with LESSOR. Prior to performing any
work in the Building, LESSEE's contractor shall obtain and file a statutory lien
bond protecting the Building and all ownership interests therein against the
imposition of liens by contractors, subcontractors, material suppliers and
laborers.
3.3.2. COMPLIANCE WITH LEASE. Prior to the Commencement Date, LESSEE shall
cause its employees, agents, contractors,
-6-
<PAGE> 20
subcontractors, material suppliers and laborers to observe and perform all of
LESSEE'S obligations under this Lease excepting only the obligations to pay Base
Rent and additional rent and other charges and excepting further the other
obligations in the Lease, the performance of which would be clearly incompatible
with construction and the installation of furnishings fixtures and equipment
pursuant herein.
3.3.3 FIRST AND SECOND FLOOR TENANT IMPROVEMENT WORK. At least sixty
(60) days prior to occupying and at least thirty (30) days prior to commencing
construction in the Supplemental Space, LESSEE shall provide to LESSOR complete
construction drawings and specifications for all Tenant Improvement Work for the
three thousand five hundred square feet on the first floor and three thousand
five hundred square feet on the second floor shown crosshatched on Exhibit A1,
(hereinafter the "Supplemental Spaces" and the tenant improvement work
hereinafter defined as the "Supplemental Space Tenant Improvement Work"). The
provisions of Paragraph 3.3, relating to the definition of substantial
completion and the Plan approval mechanism and 3.3.1, as they relate to the
contractor for the Supplemental Space, shall also apply to the Supplemental
Space Tenant Improvement Work.
3.4 FINANCING OF TENANT IMPROVEMENT WORK. LESSOR has agreed to
finance two hundred fifty thousand ($250,000.00) dollars of the tenant
improvement work referenced in paragraph 3.3 (Lessor's Contribution). Any and
all other costs and expenses over and above $250,000.00 shall be the sole and
exclusive
-7-
<PAGE> 21
responsibility of LESSEE. LESSEE shall submit to LESSOR such reasonable
documentation, including financial statements, as LESSOR deems necessary to
assure LESSOR of LESSEE's ability to fund its portion of the tenant improvement
buildout costs.
Disbursement of Landlord's Contribution shall be subject to such
reasonable conditions, including but not limited to processing time and
inspections, which may be imposed by LESSOR's lender. Payment of LESSEE'S
contractors will be on a pro-rata basis, that is proportional between LESSOR and
LESSEE in the same percentage that Landlord's Contribution bears to the total
construction contract for the Tenant Improvement Work. In no event shall LESSOR
be responsible for contributing more than $250,000 toward the Tenant Improvement
Work. LESSOR shall not be obligated to make its pro-rata contribution unless and
until the contractor's invoice has been approved by LESSEE and LESSEE has
provided LESSOR with evidence of its payment to the contractor for its pro-rata
obligation.
4. RENT. LESSEE covenants and agrees to pay to LESSOR annual base
rent ("Base Rent") in the amounts set forth or provided for below, by equal
payments of one-twelfth of such annual rate on the first day of each calendar
month in advance, the first monthly payment to be made on the Commencement Date,
and by payment in advance of a pro-rata portion of a monthly payment for any
portion of a month at the beginning or end of the term; all payments to be made
to LESSOR or such agent, and at such place, as LESSOR shall from time to time in
writing designate, the following being now so
-8-
<PAGE> 22
designated:
ATHENAEUM REALTY NOMINEE TRUST
THE ATHENAEUM GROUP
215 First Street
Cambridge, MA 02142
During the first twenty one months of the Term the annual Base Rent shall
be $83.33 per month (calculated as 200 square feet in the basement multiplied by
$5.00 per square foot with no Base Rent for the first floor or second floor
space and no Outdoor Parking rent for the parking spaces otherwise available to
LESSEE under paragraph 2).
The Base Rent for the twenty second month of the Term shall be the sum of
the following:
(i) $12,458.73 (calculated as one twelfth of the Annual Base Rent for
9,398 square feet on the first floor and 7,870 square feet on the second floor
multiplied by $8.60 per square foot, and 200 square feet in the basement
multiplied by $5.00 per square foot, with no Base Rent for the Supplemental
Space); plus
(ii) the annual fair rental value of the parking spaces made available to
LESSEE, all to be reasonably determined by LESSOR ("Outdoor Parking"); it being
expressly understood and agreed to by the parties that the first five (5) spaces
taken by LESSEE shall be at no cost or charge to LESSEE.
The annual Base Rent for the twenty third and twenty fourth months of the
Term shall be the sum of the following:
(ii) $33,612.03 per month (calculated as one twelfth of the Annual Base
Rent for 9,398 square feet on the first floor and 7,870 square feet on the
second floor multiplied by $23.30 per square foot, and 200 square feet in the
basement multiplied by $5.00 per
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<PAGE> 23
square foot, with no Base Rent for the Supplemental Space; plus
(ii) the annual fair rental value of the parking spaces made available to
LESSEE, all to be reasonably determined by LESSOR ("Outdoor Parking"); it being
expressly understood and agreed by the parties that the first five (5) spaces
taken by LESSEE shall be at no cost or charge to LESSEE.
The annual Base Rent for the third year of the Term, shall be the sum of
the following:
(i) $420,612.40 per year; (calculated as 9,398 square feet on the
first floor and 7,870 square feet on the second floor multiplied by $24.30 per
square foot, with no Base Rent for the Supplemental Space, plus 200 square feet
in the basement multiplied by $5.00 per square foot; plus
(ii) the annual fair rental value of the parking spaces made
available to LESSEE, all to be reasonably determined by LESSOR ("Outdoor
Parking"); it being expressly understood and agreed to by the parties that the
first five (5) spaces taken shall be at no cost or charge to LESSEE.
The Annual Base Rent for the fourth and fifth years of the Term, shall be
the sum of the following:
(i) $572,050.40 per year (calculated as 9,398 square feet on the
first floor and 7,870 square feet on the second floor multiplied by $27.80 per
square foot, plus the 7,000 square feet of the Supplemental Space multiplied by
$13.00 per square foot, plus 200 square feet in the basement multiplied by $5.00
per square foot); plus
-10-
<PAGE> 24
(ii) the annual fair rental value of the parking space made
available to LESSEE, all to be reasonably determined by LESSOR ("Outdoor
Parking"), it being expressly understood and agreed to by the parties that the
first five (5) spaces taken shall be at no cost or charge to LESSEE.
Notwithstanding the foregoing, if LESSEE expands into the Supplemental
Space prior to the fourth year of the Lease Term, LESSEE shall pay Base Rent
equal to $11.00 per square foot on an annualized basis. As set forth herein,
LESSEE shall provide LESSOR with at least sixty days notice of its intention to
occupy the Supplemental Space and the Base Rent allocable to the Supplemental
Space shall be due and payable as of that date which is the earlier of (i) the
sixtieth day after LESSEE's notice to LESSOR or (ii) that date upon which the
Supplemental Space is ready for occupancy.
Further, LESSOR agrees that it shall employ only one announced fair rental
parking value at any particular time during the term of the Lease for the
tenants of the Building, exclusive of any rental concessions it may grant
tenants. LESSOR reserves the right to change the announced fair rental parking
value as it deems reasonably necessary.
5. RENT ADJUSTMENTS.
5.1. RENT ADJUSTMENT - COMMON AREA OPERATING EXPENSES FOR THE
BUILDING. Commencing as of the Commencement Date and with respect to any
calendar year falling within the term, or fraction of a calendar year at the
beginning or end of the term, the LESSEE shall pay to the LESSOR, as additional
rent, the "LESSEE'S
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<PAGE> 25
Proportionate Building Share" (defined below) of operating expenses attributable
to the Building ("CAO Building"). CAO Building shall include, but is not limited
to, the following: all costs and expenses incurred by the LESSOR in connection
with the insurance, operation, repair, maintenance and cleaning of or for the
Building and heating, plumbing, elevators, electrical, air-conditioning and
other systems, thereof, trash removal, janitorial services, security systems,
landscaping and lawn care services, walkway, driveway, parking and common
entryway upkeep, paving, snowplowing, snow and ice removal and general expenses
incurred by the LESSOR in connection with the insurance, operation and
maintenance of the Building, to keep the same in safe, secure condition but
excluding any management fee to affiliated entities or capital improvements
performed by LESSOR to the Building.
LESSEE'S Proportionate Building Share shall be that percentage, which is
equal to the ratio of the square footage of space constituting the Leased
Premises to the aggregate square footage of space in the Building. Provided
LESSEE is not then occupying the Supplemental Space, LESSEE'S Proportionate
Building Share during the first two years of the Lease Term shall be 6.04%. From
the earlier of (i) the Third Year of the Lease Term or (ii) LESSEE'S full
occupancy of the Supplemental Space, LESSEE's Proportionate Building Share shall
be 8.59%.
5.2 MONTHLY PAYMENTS. Beginning with the calendar year in which the
Commencement Date occurs, and in subsequent years during the term of this Lease,
the LESSEE shall pay to the LESSOR
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<PAGE> 26
pro rata monthly installments of amounts due under Paragraphs 5.1 on account of
projected CAO Building Expenses for such year, calculated by the LESSOR on the
basis of the best and most recent budget or data available. Appropriate
adjustments of estimated amounts shall be made between LESSOR and LESSEE
promptly after the close of each calendar year to account for actual CAO
Building Expenses for such year, except that LESSOR may at its option, credit
any amounts due from it to LESSEE as provided above against any sums then due
from LESSEE to LESSOR under this Lease. The balance of any amounts due shall be
paid within twenty (20) days after written notice thereof.
5.3. RENT ADJUSTMENT - TAXES.
5.3.1. LESSOR TO PAY TAXES. The LESSOR shall be responsible for the
payment, before the same becomes delinquent, of all general and special taxes of
every kind and nature, including assessments for local improvements, and other
governmental charges which may be lawfully charged, assessed or imposed (herein
collectively called the "Taxes") upon the Building.
If at any time during the term the present system of ad valorem
taxation of real property shall be changed to that in lieu of the whole or any
part of the ad valorem tax on real property, there shall be assessed on LESSOR a
capital levy or other tax on the gross rents received with respect to the
Building or a federal, state, county, municipal, or other local income,
franchise, excise or similar tax, assessment, levy or charge (distinct from any
now in effect) measured by or based, in whole or in part, upon any such
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gross rents, then any and all of such taxes, assessments, levies or charges to
the extent so measured or based, shall be deemed to be included within the term
"Taxes" but only to the extent that the same would be payable if the Building
were the only property of LESSOR.
5.3.2. LESSEE'S SHARE OF TAXES. Commencing as of the Commencement
Date, the LESSEE shall pay to the LESSOR, as additional rent, LESSEE'S
applicable Proportionate Building Share of that portion of the Taxes
attributable to the Building.
5.3.3. RENT ADJUSTMENT-PAYMENT. Beginning with the calendar year in
which the Commencement Date occurs and in subsequent years during the term of
this Lease, LESSEE shall pay to the LESSOR monthly installments of one-twelfth
of the amounts due to LESSOR under Paragraphs 5.3.1 and 5.3.2 on account of
projected Taxes for such year, calculated by the LESSOR on the basis of the best
and most recent data available as set forth in a statement from LESSOR (and,
when available, based upon the real estate tax bill covering any such period).
Appropriate adjustments of estimated amounts shall be made between LESSOR and
LESSEE promptly after LESSOR shall have received the tax bill covering any such
period.
5.3.4. TAX ADJUSTMENT. If the LESSOR or any other tenant (excluding
LESSEE) in the Building shall construct an addition to the Building, or
construct improvements within the Building of unusual value so as to result in
an increase in Taxes over the Taxes which would have been assessed to that
Building but
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for such construction, there shall not be included in Taxes for purposes of this
Lease the amount of such increase in Taxes unless such additions or improvements
directly benefit the LESSEE. If the LESSEE, or the LESSOR at the direction of
the LESSEE, shall construct improvements within the Leased Premises, or any part
thereof, of unusual value (other than the Tenant Improvement Work or
Supplemental Space Tenant Improvement Work) so as to result in an increase in
Taxes over the Taxes which would have been assessed to the Building, or part,
but for such unusually valuable improvements, the LESSEE shall be responsible
for the payment of the full amount of such increase.
6. UTILITIES AND OTHER SERVICES. (a) Commencing on the date of
execution of this Lease, the LESSEE shall pay for all gas, electricity, water
and sewer and any other utilities separately metered or sub-metered to the
Leased Premises. The LESSEE shall be responsible for all utility company
deposits applicable to the supply of such services to the Leased Premises. To
the extent not separately metered, LESSEE shall be responsible for the payment
of its proportionate share of all gas, electricity, water and sewer use and any
other utilities not separately metered or sub-metered to the Leased Premises all
as reasonably determined by LESSOR. Upon request by the LESSOR, the LESSEE shall
provide the LESSOR with evidence of payment of such charges to the utility
supplier. LESSEE shall defend, indemnify and hold LESSOR harmless from and
against any claim or liability arising from such charges made by any such
utility supplier for which LESSEE is responsible.
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(b) LESSOR agrees to furnish reasonable heat to the stairways,
elevators and other common areas in the Building, or portions thereof, as
necessary for comfortable occupancy and to provide lighting to passageways and
stairways and all parking areas and walkways providing access from the Building
to the parking area in the evening and to furnish ordinary repairs and cleaning
of the common areas and facilities of the Building and removal of snow and ice
reasonably promptly after snowfall and ice accumulation have ended to all
walkways, accessways and approaches to the Building and the parking facility as
is customary in or about similar buildings in Cambridge. LESSOR shall not be
liable to LESSEE for any compensation or reduction of rent by reason of
inconvenience or annoyance or for loss of business arising from the necessity of
LESSOR or its agents entering the Leased Premises, or for LESSEE'S repairing the
Leased Premises if such repair is not performed by LESSOR, or for making repairs
or renovations to any portion of the Building, however the necessity may occur.
In case LESSOR is prevented or delayed from making any such repairs or
alterations, or supplying the utilities or services provided for herein, or
performing any other covenant or duty to be performed on LESSOR's part, by
reason of any cause beyond LESSOR's control, LESSOR shall not be liable to
LESSEE therefor, nor shall LESSEE be entitled to any abatement or reduction of
rent by reason thereof, nor shall the same give rise to a claim in LESSEE's
favor that such failure constitutes actual or constructive, total or partial,
eviction from the Leased Premises, or any portion thereof. LESSOR reserves the
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right to stop any service or utility system, when necessary by reason of
accident or emergency, or until necessary repairs have been completed. LESSOR
agreeing to use reasonable due diligence to restore any such service or utility
service.
7. USE OF LEASED PREMISES. The LESSEE may use the Leased Premises
only for the purpose of general office, laboratory, research and development,
including pharmaceutical research and development and such other accessory uses
incidental thereto to the extent such accessory use is not otherwise violative
of the uses permitted under the Cambridge Zoning Act.
8. COMPLIANCE WITH LAWS. The LESSEE acknowledges that no trade or
occupation shall be conducted in the Leased Premises or use made thereof which
shall be unlawful, improper, noisy or offensive, or be contrary to any law or
any municipal by-law or ordinance in force in the City of Cambridge. LESSEE
shall keep the Leased Premises equipped with all safety appliances and shall
procure and keep in force all licenses and permits required by law or ordinance
of any public authority because of the uses made of the Leased Premises by
LESSEE and shall maintain in good condition on the Leased Premises all safety
and fire protection devices required by the Board of Fire Underwriters, or other
body having similar functions, and of every insurance company and policy by
which LESSOR or LESSEE is insured. If any use of the Leased Premises results in
the cancellation of any insurances carried by LESSOR, or increases the cost
thereof, the LESSEE shall on demand reimburse the LESSOR all extra insurance
premiums incurred as a
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result of such use of the Leased Premises by the LESSEE.
9. RISK OF LOSS OF PERSONAL EFFECTS. LESSEE acknowledges and agrees
that all of the furnishings, equipment, effects and property of LESSEE and of
all persons claiming by, through or under LESSEE which may be on the Leased
Premises or elsewhere in the Building, shall be at the sole risk and hazard of
LESSEE and if the whole or any part thereof shall be destroyed or damaged by
fire, water or otherwise, or by the leakage or bursting of water pipes, steam
pipes, or other pipes, by theft or from any other cause, no part of said loss or
damage is to be charged to or to be borne by LESSOR, unless arising from any
injury, loss, damage or liability caused by LESSOR's gross negligence or willful
misconduct.
9A. INSURANCE - WAIVER OF SUBROGATION. LESSOR agrees to keep the
Building and LESSEE agrees to keep the Leased Premises, and all equipment,
machinery and fixtures therein insured in amounts equal to the actual cash value
of the same, against fire and other perils included in a standard extended
coverage endorsement, and against breakdown of boilers and other machinery and
equipment, and LESSEE agrees to procure and keep in force comprehensive general
liability insurance indemnifying LESSEE against all claims and damages for any
injury to or death of person or damage to property which may be claimed to have
occurred upon or to have been caused by activities or conditions within the
Leased Premises and indemnifying LESSOR to the extent any such claims and
demands are the responsibility or obligation of LESSEE pursuant to
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this Lease or as a matter of law, in amounts not less than $1,000,000 for
property damage, $500,000 for injury or death of one person, and $1,000,000 for
injury or death of more than one person in a single accident. LESSOR agrees to
maintain insurance for the full replacement cost value of the Building.
All insurance required hereunder shall be written by insurance
carriers qualified to do business and in good standing in Massachusetts and
approved by LESSOR, which approval shall not be unreasonably withheld. All
policies of insurance shall name LESSOR and LESSEE as the insured parties. Each
required policy of insurance shall provide that, notwithstanding any act or
omission of LESSEE which might otherwise result in forfeiture of said insurance:
(A) it shall not be cancelled nor its coverage reduced without at least ten (10)
days prior written notice to each insured named therein, and (B) any proceeds
shall be first payable to LESSOR or to the holder of any mortgage encumbering
the Leased Premises as their respective interests may appear.
As of the commencement of the term hereof, and thereafter not less
than fifteen (15) days prior to the expiration dates of the expiring policies,
the original policies to be obtained by LESSEE hereto issued by the respective
insurers or certificates thereof including photocopies of the original policies,
shall be delivered to LESSOR.
Any insurance carried by either party with respect to the Leased
Premises or property therein or occurrences thereon shall include a clause or
endorsement denying to the insurer rights of
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subrogation against the other party to the extent rights have been waived by the
insured prior to occurrence of injury or loss. Each party notwithstanding any
provisions of this Lease to the contrary, hereby waives any rights of recovery
against the other for injury of loss due to hazards covered by such insurance to
the extent of the indemnification received thereunder.
10. MAINTENANCE OF LEASED PREMISES. The LESSEE agrees to maintain
the Leased Premises in the same condition as they are at the commencement of the
term or as they may be put in during the term of this Lease, reasonable wear and
tear, damage by fire, other casualty and eminent domain, and matters for which
the LESSOR is responsible hereunder only excepted, to provide its own interior
janitorial service, to install and maintain its own security system as it
considers appropriate and, whenever necessary, to replace plate glass and other
glass therein with that of the same quality as that damaged or injured. LESSEE
shall be responsible for the costs of maintaining the HVAC System servicing the
Leased Premises, and shall be responsible for all repairs and replacements to
said system. The LESSEE shall not permit the Leased Premises to be overloaded,
damaged, stripped, or defaced, nor suffer any waste. LESSEE shall obtain written
consent of LESSOR before erecting any sign on or about the Leased Premises,
which consent shall not be unreasonably withheld or delayed. LESSEE further
covenants and agrees: to take all reasonably necessary actions to insure that
smoke, fumes, vapors and odors will not permeate any building containing the
Leased Premises and will be removed only through the
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exhaust and ventilating system servicing the Leased Premises; to keep the Leased
Premises free of pests, roaches and vermin; to keep all trash garbage and debris
stored on the Leased Premises (and not in any other portions of the Building) in
adequate covered containers, approved by LESSOR and placed in locations or areas
approved by LESSOR in writing and to arrange for the regular removal thereof
once each day; to provide for the frequent and adequate cleaning of the Leased
Premises and all walls, floors, fixtures and equipment therein consistent with
its use. LESSOR shall maintain in good condition the structural elements and the
roof of the Building, the mechanical equipment and systems in the Building
(other than such equipment and systems which are located within or exclusively
serve the Leased Premises, and other than LESSEE's maintenance obligations
otherwise provided herein), and the common areas of the Building. LESSOR shall
provide for the benefit of LESSEE adequate internal signage identifying LESSEE's
location within the Building. LESSEE shall pay its proportionate share for these
expenses and services as set out in paragraph 5 above.
LESSEE shall be responsible for compliance with the Americans With
Disabilities Act within the Leased Premises. LESSOR shall be responsible for
compliance with the Americans With Disabilities Act in the common areas of the
Building.
11. ALTERATIONS - ADDITIONS. Other than the Tenant Improvement Work
and Supplemental Space Tenant Improvement Work governed by the applicable
provisions of Paragraph 3 of this Lease,
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the LESSEE shall not make structural alterations or additions to the Leased
Premises, but may make non-structural alterations and improvements, provided the
LESSOR consents thereto in advance in writing in each instance, which consent
shall not be unreasonably withheld or delayed provided that LESSOR is furnished
with detailed plans and specifications reasonably approved by LESSOR. All such
allowed alterations or additions shall be at LESSEE's expense and shall be in
quality at least equal to the present construction. LESSEE shall not permit any
mechanics' liens or similar liens, to remain upon the Leased Premises for labor
and materials furnished to LESSEE or claimed to have been furnished to LESSEE in
connection with the work of the any character performed or claimed to have been
performed at the direction of LESSEE, and shall cause any such lien to be
released of record forthwith without cost to LESSOR. Any alterations, additions
or improvements made by the LESSEE, except for moveable partitions and
furnishings, installed at the LESSEE'S cost, shall become the property of the
LESSOR at the termination of the Lease as provided herein.
With respect to all such LESSEE work, LESSEE further agrees as
follows: that such work shall commence only after all required municipal and
other governmental permits and authorizations have been obtained (the LESSOR
agreeing, if requested by LESSEE, to join in any application therefor at the
LESSEE's expense) and all such work shall be done in a good and workmanlike
manner in compliance with building and zoning laws and with all other laws,
ordinances, regulations and requirements of
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all federal, state and municipal agencies, and in accordance with the
requirements and policies issued by any insurer of LESSOR or LESSEE; that all
such work shall be prosecuted with reasonable dispatch to completion; that at
all times when any such work is in progress, LESSEE shall maintain or cause to
be maintained adequate workmen's compensation insurance for those employed in
connection therewith with respect to whom death or injury claims could be
asserted against LESSOR, the LESSEE or the Leased Premises and comprehensive
general liability or builder's risk insurance (for mutual benefit of LESSEE and
LESSOR) in coverages reasonably approved by LESSOR; and that all such work of
LESSEE shall be coordinated with any work being performed by LESSOR and other
tenants of the building in which the work is taking place in such manner as to
maintain harmonious labor relations and not to interfere with the operation of
the Building or the construction work of others.
12. ASSIGNMENT - SUBLETTING. The LESSEE shall not assign or sublet
the whole or any part of the Leased Premises without the LESSOR's prior written
consent, which consent shall not be unreasonably withheld or delayed. LESSEE
shall be entitled to assign this Lease to any entity controlled by, or under
common control with LESSEE, and to any entity acquiring substantially all of the
assets of LESSEE, in all such case without the consent of LESSOR.
Notwithstanding such consent or permitted assignment, LESSEE shall remain liable
to LESSOR for the payment of all rent and for the full performance of the
covenants and conditions of
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this Lease (which following assignment shall be joint and several with
assignee).
12A. QUIET ENJOYMENT, COVENANT OF TITLE. The LESSEE, on paying the
rent and other charges hereunder, as and when the same shall become due and
payable and observing and performing the covenants, conditions and agreements
contained in this Lease on the part of the LESSEE to be observed and performed,
all as herein provided, shall and may lawfully, peaceably and quietly have, hold
and enjoy the Leased Premises during the term, subject to all of the terms and
provisions hereof, without hindrance, ejection or disturbance by the LESSOR or
by any person or persons claiming by, through or under the LESSOR or by anyone
claiming paramount title.
13. SUBORDINATION. The Lease and LESSEE's interest hereunder,
subject to the provisions of this paragraph 13, shall be subordinate to the lien
of any present or future mortgage or mortgages upon the Leased Premises or any
property of which the Leased Premises are a part, irrespective of the time of
execution or the time of recording of any such mortgage or mortgages, and to
each advance made or to be made thereunder and to all renewals, modifications,
consolidations, and extensions thereof, and all substitutions therefor. Any
subordination of this Lease pursuant to the provisions of this Paragraph 13 is
made and granted upon the condition that, in the event of any entry by the
holder of any such mortgage to foreclose, a default under any such mortgage, a
foreclosure of any such mortgage of LESSOR'S interest under this Lease or in the
Leased Premises through foreclosure or otherwise,
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the LESSEE shall (provided the LESSEE is not then in default beyond any
applicable cure period) peaceably hold and enjoy the Leased Premises as a lessee
of such holder, during the term upon the terms, covenants and conditions as set
forth in this Lease without any hindrance or interruption from such holder. In
the event of such entry, foreclosure, acquisition or other action by such
holder, LESSEE shall recognize the holder of the mortgage with respect to which
such action is taken as the LESSOR under this Lease. As used in this Paragraph
13, the word "holder" includes any person claiming through or under any such
mortgage, including any purchaser at a foreclosure sale, and the word "LESSEE"
shall include LESSEE'S successors and assigns. The word "mortgage" as used in
this Paragraph shall mean mortgages, deeds of trust, and other similar
instruments held by any institutional lender and all modifications, extensions,
renewals and replacements thereof. This Paragraph 13 is self-operative, and no
further instrument of subordination shall be required.
Notwithstanding the self-operative effect of this Paragraph 13, the
LESSEE agrees to execute such further documents in recordable form as the LESSOR
or any lender may reasonably require, consistent with the terms of this
Paragraph 13 and 21. Should the LESSEE fail to execute and deliver to the LESSOR
any such document within twenty (20) days of a written notice requesting the
LESSEE to execute and deliver such document, (which request in order to be
effective must contain copies of all documents necessary for LESSEE to review in
order to execute such
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subordination document, including without limitation, copies of any security and
financing documents, appropriately redacted, which are the subject of such
subordination document), LESSEE shall pay to LESSOR (as liquidated damages and
not as a penalty) the sum of $500.00 per day for each day after such twentieth
(20th) day during which such failure to deliver such instrument continues.
14. LESSOR'S ACCESS. The LESSOR or agents of the LESSOR may, at
reasonable times and upon reasonable prior notice to the LESSEE, enter to view
the Leased Premises or any part thereof and may remove placards and signs not
approved and affixed as herein provided, and make repairs and alterations which
LESSOR may deem necessary or desirable and, at LESSEE's expense, to remove any
alterations, additions, signs, or other improvements made by LESSEE, and not
consented to by LESSOR; to show the Leased Premises to others with reasonable
prior notice, in a manner so as not to unreasonably interfere with the normal
conduct of the LESSEE'S business, at any time within the four (4) month period
prior to the expiration of the term.
15. INDEMNIFICATION AND LIABILITY. The LESSEE shall defend, save
harmless and indemnify LESSOR from any claims of liability for injury, loss,
accident or damage to any person or property while on the Leased Premises, if
not due to the negligence or willful misconduct of LESSOR, or LESSOR's employees
or agents, and to any person or property anywhere occasioned by any omission,
fault, negligence or other misconduct of LESSEE and persons for whose conduct
LESSEE is legally responsible.
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16. HOLDING OVER. LESSEE agrees to pay to LESSOR one and one-half
times the total of the Base rent set forth in Paragraph 4 in effect for the
period immediately prior to LESSEE's holding over and one and one-half times the
additional rent provided for under this Lease then applicable for each month or
portion thereof LESSEE shall retain possession of the Leased Premises or any
part thereof after the termination of this Lease, whether by lapse of time or
otherwise, and also to pay all damages sustained by LESSOR on account thereof;
the provisions of this paragraph shall not operate as a waiver by LESSOR of any
right of re-entry provided in this Lease.
16A. FURTHER LESSEE COVENANTS. LESSEE further covenants and agrees
during the term and such further time as LESSEE holds any part of the Leased
Premises:
(a) to pay when due all rent and other sums herein specified,
without offset, deduction or counterclaim except as otherwise specifically
provided in this Lease;
(b) not to obstruct in any manner any portion of any building not
hereby leased or the sidewalks or approaches to such building or any inside
windows or doors;
(c) that neither the original LESSOR nor any successor LESSOR who or
which is a trustee or a partnership, nor any beneficiary of the original LESSOR
or any successor LESSOR nor any partner, general or limited, of such partnership
shall be personally liable under any term, condition, covenant, obligation or
agreement expressed herein or implied hereunder or for any claim
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or damage or cause at law or in equity arising out of the occupancy of the
Leased Premises or the use or maintenance of the Building and LESSEE
specifically agrees to look solely to the LESSOR's interest in the Building for
the recovery of any judgment against LESSOR; and
(d) if any payment of rent or other sums due hereunder is not paid
when due, LESSEE shall pay to LESSOR a late charge equal to five (5%) percent of
the unpaid amount per month, or part thereof, that such amount remains unpaid.
17. FIRE, CASUALTY.
17.1 DEFINITION OF "SUBSTANTIAL DAMAGE" AND "PARTIAL DAMAGE". The
term "substantial damage", as used herein, shall refer to damage which is of
such a character that the same cannot, in ordinary course, be expected to be
repaired within ninety (90) calendar days from the time that such repair work
would commence. Any damage which is not "substantial damage" is "partial
damage". In the event of substantial damage to the Building, the LESSOR shall
notify the LESSEE as soon as is practicable and in no event later than thirty
(30) days after such damage of LESSOR'S estimated time for repair of such
damage.
17.2. PARTIAL DAMAGE TO THE BUILDING. If during the Lease Term there
shall be partial damage to the Building by fire or other casualty and if such
damage shall materially interfere with the LESSEE's use of the Leased Premises
as contemplated by this Lease, the LESSOR shall, to the extent insurance
proceeds are available to LESSOR, promptly proceed to restore the Building to
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substantially the condition in which it was immediately prior to the occurrence
of such damage. Notwithstanding the foregoing, if there shall be partial damage
to the Building, and if such damage shall materially interfere with LESSEE's use
of the Leased Premises as contemplated by this Lease occurring during the last
twelve (12) months of the Lease Term of such a character that the same cannot,
in ordinary course, be expected to be repaired within thirty (30) days from the
time such repair work would begin, the LESSOR may, within ten (10) days of the
date of such damage, elect to terminate this Lease. If such election is not
made, the LESSOR shall promptly proceed with such restoration.
17.3. SUBSTANTIAL DAMAGE TO THE BUILDING. If during the Lease Term
there shall be substantial damage to the Building by fire or other casualty and
if such damage shall materially interfere with the LESSEE'S use of the Leased
Premises as contemplated by this Lease, the LESSOR shall, to the extent
insurance proceeds are available to LESSOR, promptly restore the Building to an
architectural unit that is not less suitable than that which existed prior to
such fire or casualty, unless the LESSOR or the LESSEE, within thirty (30) days
after the occurrence of such damage, shall give notice to the other of its
election to terminate this Lease. If at any time during such thirty (30) day
period the LESSOR notifies the LESSEE of its intention to restore the Building,
the LESSEE must then give notice to the Lessor, within ten (10) days of its
receipt of the LESSOR'S notice of intention to restore the Building, as to
whether the LESSEE will
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elect to terminate the Lease. Should the LESSEE fail to elect to terminate the
Lease within such ten (10) day period, the LESSEE'S right to terminate under
this Paragraph 17.3 shall expire. If the LESSOR proceeds with the restoration of
the Building and if such damage shall not have been repaired to the extent
necessary for the LESSEE to resume its normal business operations at the Leased
Premises by the end of the 180th day following the date of such fire or
casualty, or if the Lessor shall fail diligently to cause such repair and
restoration work to be performed then the LESSEE may, at any time thereafter
while the damage remains unrepaired, terminate this Lease upon notice to the
LESSOR. If the LESSOR or the LESSEE shall give such notice of termination, then
this Lease shall terminate as of the date of such notice with the same force and
effect as if such date were the date originally established as the expiration
date hereof.
17.4. ABATEMENT OF RENT. If during the Lease Term the Building shall
be damaged by fire or casualty and if such damage shall materially interfere
with the LESSEE'S use of the Leased Premises as contemplated by this Lease, a
just proportionate amount of the rent and other charges payable by the LESSEE
hereunder shall abate proportionately for the period in which, by reason of such
damage, there is such interference with the LESSEE'S use of the Leased Premises.
17A. EMINENT DOMAIN. If the Building is totally taken by
condemnation or right of eminent domain, this Lease shall terminate as of the
date of such taking. If the Building, or such
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portion thereof as to render the balance (if reconstructed to the maximum extent
practicable in the circumstances) physically unsuitable in the LESSEE'S
reasonable judgment for the LESSEE'S purposes, shall be taken by condemnation or
right of eminent domain (including a temporary taking in excess of 180 days),
the LESSEE or the LESSOR shall have the right to terminate this Lease by notice
to the other of its desire to do so, provided that such notice is given not
later than ten (10) days after the LESSEE has been deprived of possession.
Should any part of the Building be so taken or condemned or receive
such damage and should this Lease not be terminated in accordance with the
foregoing provisions, the LESSOR shall, to the extent condemnation proceeds are
available to LESSOR, promptly restore the Leased Premises to an architectural
unit that is suitable to the uses of the LESSEE permitted hereunder.
In the event of a taking described in this Paragraph 17A, the rent
and other charges payable hereunder, or a fair and just proportion thereof
according to the nature and extent of the loss of use shall be suspended or
abated.
The LESSOR reserves, and the LESSEE grants to the LESSOR, all rights
which the LESSEE may have for damages or injury to the Leased Premises for any
taking by eminent domain, except for damage to the LESSEE'S trade fixtures,
personal property or equipment, if any, the LESSEE'S right to relocation
expenses, if any, and the LESSEE'S right for business interruption, if any.
18. DEFAULT AND BANKRUPTCY. In the event that:
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(a) The LESSEE, shall default in the payment of any installment of
rent or other sum herein specified continuing for five (5) days after written
notice from LESSOR to LESSEE; or
(b) The LESSEE shall default in the observance or performance of the
LESSEE's covenants, agreements, or obligations hereunder (except as provided in
Paragraph 18 (a) above) and the LESSEE shall not cure such default within thirty
(30) days after written notice thereof or if such default cannot be cured within
thirty (30) days, then if LESSEE shall not commence to cure the same within
thirty (30) days and diligently pursue the curing of the same; or
(c) LESSEE makes any assignment for the benefit of creditors,
commits any act of bankruptcy or files a petition under any bankruptcy or
insolvency law; or if such a petition is filed against LESSEE and is not
dismissed within ninety (90) days; or if a receiver or similar officer becomes
entitled to LESSEE's leasehold hereunder and it is not returned to LESSEE within
ninety (90) days, or if such leasehold is taken on execution or other process of
law in any action against LESSEE;
then in any such case the LESSOR shall have the right thereafter, while
such default continues, to re-enter and take complete possession of the Leased
Premises, to declare the term of this Lease ended, and remove the LESSEE'S
effects at LESSEE's sole cost and expense, without prejudice to any remedies
which might be otherwise used for arrears of rent or other default. The LESSEE
shall indemnify the LESSOR against all loss and reasonable payment
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of rent and other payments which the LESSOR may incur by reason of such
termination during the residue of the term. In the event of default, LESSOR
shall use its reasonable efforts to re-let the Leased Premises so as to mitigate
any damages to the LESSEE hereunder. If LESSOR re-lets the Leased Premises,
LESSEE may offset its payable rent by the amount of rent received by LESSOR.
If the LESSEE shall default, after written notice thereof as
provided herein, in the observance or performance of any conditions or covenants
on its part to be observed or performed under or by virtue of any of the
provisions of this Lease and after the expiration of any period within which the
LESSEE is entitled to cure such default as is provided above in this Paragraph
18, the LESSOR, without being under any obligation to do so and without thereby
waiving such default, may remedy such default for the account and at the expense
of the LESSEE. If the LESSOR makes any expenditures or incurs any obligations
for the payment of money in connection therewith, including, but not limited to,
reasonable attorney's fees (except for unsuccessful suits against the LESSEE) in
instituting, prosecuting or defending any action or proceeding, such sums paid
or obligations incurred, with interest at the rate of twelve (12%) per annum and
costs, shall be paid to the LESSOR by the LESSEE as additional rent.
Nothing contained in this Lease shall limit or prejudice the right
of LESSOR to claim and obtain in proceedings for bankruptcy, insolvency or like
proceedings by reason of the termination of this Lease, an amount equal to the
maximum allowed
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by any statute or rule of law in effect at the time when, and governing the
proceedings in which the damages are to be claimed or proved, whether or not the
amount be greater, equal to, or less than the amount of the loss or damages
referred to above.
18A. DEFAULT OF LANDLORD AND MORTGAGEE RIGHTS. LESSOR shall in no
event be in default in the performance of any of LESSOR's obligations hereunder
unless and until LESSOR shall have failed to perform such obligations within
thirty (30) days, or such additional time as is reasonably required to correct
any such default, after receipt of written notice by LESSEE to LESSOR properly
specifying wherein LESSOR has failed to perform any such obligation. LESSEE
agrees to give any mortgagee, by registered mail, a copy of any notice of
default served upon the LESSOR, provided that prior to such notice the LESSEE
has been notified in writing of the identity and address (by way of Notice of
Assignment of Rents and Leases or otherwise) of the address of such mortgagee.
The LESSEE further agrees that if the LESSOR shall have failed to cure such
default within the time provided for in this Lease, then the mortgagee shall
have an additional sixty (60) days within which to cure such default or if such
default cannot be cured within that time, then such additional time as may be
necessary if within sixty (60) days the mortgagee has commenced and is
diligently pursuing the remedies necessary to cure such default (including but
not limited to commencement of foreclosure proceedings, if necessary to effect
such cure) in which event this Lease shall not be terminated while such remedies
are being so diligently pursued.
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18B. BANKRUPTCY OR INSOLVENCY.
(a) LESSEE'S INTEREST NOT TRANSFERABLE. Neither LESSEE's interest in this
Lease nor any estate hereby created in LESSEE nor any interest herein or therein
shall pass to any trustee, except as may specifically be provided pursuant to
the Bankruptcy Code (11 USC Sec. 101 et seq.) or to any receiver or assignee for
the benefit of creditors or otherwise by operation of law.
(b) TERMINATION OF LEASE. Notwithstanding anything to the contrary
contained in this Lease, and to the extent enforceable under the Bankruptcy
Code, in the event the interest or estate created in LESSEE hereby shall be
taken in execution or by other process of law or if LESSEE or LESSEE's
executors, administrators or assigns, if any, shall be adjudicated insolvent or
bankrupt pursuant to the provisions of any state law or an order for the relief
of such entity shall be entered pursuant to the Bankruptcy Code, or if a
receiver or trustee of the property of LESSEE shall be appointed by reason of
the insolvency or inability of LESSEE to pay its debts or if any assignment
shall be made of the property of LESSEE or LESSEE's guarantor, if any, for the
benefit of creditors, then and in any such events this Lease and all rights of
LESSEE hereunder shall automatically cease and terminate with the same force and
effect as though the date of such event were the date originally established
herein and fixed for the expiration of the term and LESSEE shall vacate and
surrender the Leased Premises but shall remain liable as herein provided.
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<PAGE> 49
(c) LESSEE'S OBLIGATION TO AVOID CREDITORS' PROCEEDINGS. LESSEE shall not
cause or give cause for the appointment of a trustee or receiver of the assets
of LESSEE and shall not make any assignment for the benefit of creditors or
become or be adjudicated insolvent. The allowance of any petition under any
insolvency law, except under the Bankruptcy Code or the appointment of a trustee
or receiver of Lessee or Lessee's guarantor, if any, or of the assets of either
of them, shall be conclusive evidence that LESSEE caused or gave cause therefor,
unless such allowance of the petition or the appointment of a trustee or
receiver is vacated within ninety (90) days after such allowance or appointment.
Any act described in this paragraph shall be deemed a material breach of
LESSEE's obligations hereunder and this Lease shall thereupon automatically
terminate. LESSEE does, in addition, reserve any and all other remedies provided
in this Lease or in law.
(d) RIGHTS AND OBLIGATIONS UNDER THE BANKRUPTCY CODE. Upon the filing of a
petition by or against LESSEE under the Bankruptcy Code, LESSEE, as debtor and
as debtor-in-possession, and any trustee who may be appointed agree as follows:
(i) to perform each and every obligation of LESSEE under this Lease including,
but not limited to, the manner of operation of this Lease, until such time as
this Lease is either rejected or assumed by order of the United States
Bankruptcy Court; (ii) to pay monthly in advance, on the first day of each
month, as reasonable compensation for use and occupancy of the Leased Premises,
an amount equal to all fixed Annual Base Rent, Additional Rent and other charges
otherwise due
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<PAGE> 50
pursuant to this Lease; (iii) to reject or assume this Lease within sixty (60)
days of the appointment of such trustee under Chapter 7 of the Bankruptcy Code
or within one hundred twenty (120) days (or such shorter term as LESSOR, in its
sole discretion, may deem reasonable, so long as notice of such period is given)
of the filing of a petition under any other chapter; (iv) to give LESSOR at
least forty five (45) days' prior written notice of any proceeding relating to
any assumption of this Lease; (v) to give at least thirty (30) days' prior
written notice of any abandonment of the Leased Premises, with any such
abandonment to be deemed a rejection of this Lease and an abandonment of any
property not previously removed from the Leased Premises; (vi) to do all other
things of benefit to LESSOR otherwise required under the Bankruptcy Code; (vii)
to be deemed to have rejected this Lease in the event of the failure to comply
with any of the above; and (viii) to have consent to the entry of an order by an
appropriate United States Bankruptcy Court providing all of the above, waiving
notice and hearing of the entry of same.
No default of this Lease by LESSEE, either prior to or subsequent to the
filing of such a petition, shall be deemed to have been waived unless expressly
done so in writing by LESSOR.
Included within and in addition to any other conditions or obligations
imposed upon LESSEE or its successor in the event of assumption and/or
assignment are the following: (i) the cure of any monetary defaults and the
reimbursement of pecuniary loss immediately upon entry of a court order
providing for assumption
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<PAGE> 51
and/or assignment; (ii) the deposit of an additional sum equal to three (3)
months' Rent to be held as a security deposit; (iii) the use of the Leased
Premises as set forth in the reference date section of this Lease and the
quality, quantity and/or lines of merchandise of any goods or services required
to be offered for sale are unchanged; (iv) the payment of any sums which may
then be due or which may thereafter become due under the provisions of this
Lease; (v) the debtor, debtor-in-possession, trustee or assignee of such entity
demonstrates in writing that it has sufficient background, including, but not
limited to, substantial commercial experience in buildings of comparable size
and financial ability to operate a commercial establishment out of the Leased
Premises in the manner contemplated in this Lease, and meets all other
reasonable criteria of LESSOR as did LESSEE upon execution of this Lease; (vi)
the prior written consent of any mortgagee to which this Lease has been assigned
as collateral security; and (vii) the Leased Premises at all times remains a
single store (if retail) and no physical changes of any kind may be made to the
Leased Premises unless in compliance with the applicable provisions of this
Lease.
Any person or entity to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code shall be deemed without further act or deed to
have assumed all of the obligations arising under this Lease on and after the
date of such assignment. Any such assignee shall, upon demand, execute and
deliver to LESSOR an instrument confirming such assumption in accordance with
the terms of Paragraph 21 hereof.
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<PAGE> 52
19. RULES AND REGULATIONS. The LESSOR shall have the right to
institute and to change from time to time, rules and regulations for the use of
the Building by commercial office lessees, and by commercial retail lessees,
which shall be reasonable in all instances and shall be uniformly applicable to
all commercial lessees in the Building and the LESSEE agrees to abide thereby.
19A. PARAGRAPH HEADINGS. The paragraph headings throughout this
instrument are for convenience and reference only, and the words contained
therein shall in no way be held to explain, modify, amplify or aid in the
interpretation, construction or meaning of the provisions of this Lease.
20. BROKER. The LESSOR and LESSEE each represent and warrant to the
other that each has had no dealings with any Brokers concerning this Lease,
except LYNCH, MURPHY, WALSH & PARTNERS and FALLON, HINES & O'CONNOR and each
party agrees to indemnify and hold the other harmless for any damages occasioned
to the other by reason of a breach of this representation and warranty.
LESSOR shall be responsible for a leasing commission to each of such
brokers listed above, and for a commission, if any, due such listed brokers, if
LESSEE extends the term of this Lease as provided herein.
21. ESTOPPEL CERTIFICATE. LESSOR and LESSEE each agree at any time
from time to time, upon not less than ten (10) days prior notice to execute,
acknowledge and deliver to the other, a statement in writing, certifying to the
extent possible that this
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<PAGE> 53
Lease is unmodified and in full force and effect or if there have been
modifications. That the same is in full force and effect as modified and stating
such modifications and otherwise certifying if there exists any default under
the terms of this Lease and such other information as may be reasonably
requested concerning this Lease by the other party or any other third party with
a bona fide interest. Should either party fail to deliver to the other party any
such statement within ten (10) days of receipt of a written notice requesting
any such statement, the party failing to deliver any such statement shall pay to
the requesting party, the sum of $500.00 per day (as liquidated damages and not
as a penalty) for each day after such tenth (10th) day during which such failure
continues.
22. NOTICE. Any notice from the LESSOR to the LESSEE relating to the
Leased Premises or to the occupancy thereof shall be deemed duly served, if in
writing and mailed by registered or certified mail, return receipt requested,
postage prepaid, addressed to the LESSEE,
LeukoSite, Inc.
215 First Street
Cambridge, MA 02142
with a copy to:
Bingham, Dana & Gould
150 Federal Street
Boston, MA 02210
Attn: Douglas M. Henry
Any notice from the LESSEE to the LESSOR relating to the Leased Premises or to
the occupancy thereof, shall be deemed duly served, if in writing and mailed to
the LESSOR by registered or certified
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<PAGE> 54
mail, return receipt requested, postage prepaid, addressed to the LESSOR at such
address as the LESSOR may from time to time advise in writing, the following now
being designated:
Athenaeum Realty Nominee Trust
The Athenaeum Group
215 First Street
Cambridge, Massachusetts 02142
23. SURRENDER. Subject to the provisions of the Landlord's Waiver
and Consent, which LESSOR agrees to execute for the benefit of LESSEE's
equipment lessor, substantially in the form attached hereto as Exhibit __ , the
LESSEE shall at the expiration or other termination of this Lease yield up and
peaceably surrender all portions of the Leased Premises to LESSOR and shall
remove all LESSEE'S goods and effects therefrom (including, without hereby
limiting the generality of the foregoing, all signs and lettering affixed or
painted by the LESSEE, either inside or outside the Leased Premises). LESSEE
shall deliver to the LESSOR the Leased Premises and all keys, locks thereto, and
all fixtures, alterations and additions made to or upon the Leased Premises,
except for moveable partitions and furnishings installed at the LESSEE'S
expense, in the same condition as they were at the commencement of the term, or
as they were put in during the term hereof, reasonable wear and tear and damage
by fire, other casualty or eminent domain and matters for which the LESSOR is
responsible hereunder only excepted. All moveable partitions and furnishings,
and so long as LESSEE has expended $1.7 million dollars in Tenant Improvements,
those items specified on Exhibit __ attached to this Lease, installed in the
Leased Premises at the LESSEE's expense prior to
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or during the term of the Lease may be removed by the LESSEE at the expiration
or other termination of the Lease. The LESSEE shall, at its expense, promptly
repair any and all damage to the Leased Premises resulting from such removal. In
the event of the LESSEE'S failure to remove any of the LESSEE'S property from
the Leased Premises, LESSOR is hereby authorized, upon fifteen (15) days written
notice to the LESSEE without liability to LESSEE for loss or damage thereto, and
at the sole risk of LESSEE, to remove and store any of the property at LESSEE's
sole cost and expense. It is expressly acknowledged and understood by the
parties that the Tenant Improvements and built in equipment, such as fume hoods,
installed at the commencement of this Lease to the first and second floor of the
Leased Premises and the Supplemental Space Tenant Improvement Work, (as
distinguished from moveable partitions, personal property, or the capital
equipment listed on Exhibit __), shall become the property of the LESSOR at the
expiration or sooner termination of this Lease. Moreover, it is expressly
agreed, in the event of an uncured default, that the items on Exhibit __, may
not be removed by LESSEE, but shall become the property of the LESSOR.
24. OPTION TO EXTEND. If the LESSEE is not then in default, LESSOR
does hereby grant to LESSEE the option to extend this Lease for two (2)
additional five (5) year term, commencing on the expiration of the initial term
and the expiration of the first extended term, as the case may be, upon the same
terms and conditions as herein contained except the annual base rent set
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forth in paragraph 4 hereof shall be at the rate set forth below.
The annual rent for the first-extended term shall be the sum of the
following:
(i) $317,484.00 per year (calculated as 24,268 square feet of space
on the first and second floors at $13.00 per square foot plus 200
square feet of space in the basement at $10.00 per square foot);
plus
(ii) the annual fair value of the parking spaces made available to
LESSEE, all to be reasonably determined by LESSOR ("Outdoor
Parking"); it being expressly understood and agreed by the parties
that the first five (5) spaces taken by LESSEE shall be at no cost
or charge to LESSEE.
The annual rent for the second extended term (the "Second Extended Term")
shall be adjusted at the commencement of the Second Extended Term and shall be
ninety (90%) percent of the then fair market rental (the "Market Rent") of the
Leased Premises plus the annual fair value of LESSEE's Outdoor Parking spaces as
reasonably determined by LESSOR; it being expressly understood and agreed by the
parties that the first five (5) spaces taken by LESSEE shall be at no cost or
charge to LESSEE. Market Rent shall be determined as set forth on Exhibit E to
this Lease.
Notwithstanding the foregoing, in no event shall the annual base rent for
the second extended term be less than the annual base rent for the last year of
the first extended term.
The option shall be exercised by written notice from LESSEE and received
by LESSOR at least four (4) months prior to the
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expiration of the initial term or the first extended term, as the case may be.
25. OPTION TO EXPAND. Provided LESSEE is not then in default of the
terms of this Lease, LESSEE shall have the option to lease additional space on
the third floor in the Building, (15,383 square feet now occupied by Inscribe or
24,150 currently unoccupied - (hereinafter Option Space) on the terms and
conditions as set forth in this Lease except that the Base Rent shall be the
fair Market Rent for the Option Space. In the event LESSEE properly exercises
its option to lease the Option Space, the Option Space shall automatically be
included in and become a part of the Leased Premises from and after the date on
which the Option Space is included within the Leased Premises; all of the terms,
provisions, conditions and covenants contained in this lease shall apply
thereto, except with respect to Base Rent for the Option Space and further, all
of the terms defined in this Lease shall then be automatically adjusted
accordingly (including appropriate CAO calculations), so that, for example, the
term "Leased Premises" whenever used herein shall then and thereafter apply to
such Option space.
LESSEE acknowledges that some portion of the Option Space is currently
under written lease agreement and that the existing tenant has some rights with
respect to such Option Space (which rights are summarized on Exhibit F attached
hereto) and that LESSEE's rights hereunder are subject to the rights of tenants
currently occupying a portion of the Option Space.
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<PAGE> 58
If the current tenant does not exercise its rights with respect to a
portion of the Option Space, LESSOR agrees that prior to accepting any proposal
for lease of the now occupied portion of the Option Space or the remainder of
the Option Space, LESSOR shall give LESSEE written notice to LESSEE of the
proposed terms for rental of the then available Option Space. LESSEE shall have
fourteen (14) business days following receipt of LESSOR's notice, to elect by
written notice received by LESSOR within said fourteen (14) business days of the
receipt of such notice to add such space to the Leased Premises. In the event
LESSEE fails to properly exercise its option to lease the Option Space, such
option shall thereafter terminate and LESSOR shall thereafter be free to lease
the Option Space to other parties.
26. HAZARDOUS WASTE IDENTITY. LESSEE hereby agrees to indemnify and
hold LESSOR harmless from and against any and all demands, claims, actions,
losses, damages and liabilities (the "Claims"), which may be imposed on,
asserted against or incurred by LESSOR arising from or out of LESSEE's use and
occupancy of the demised premises, including, without limitation, any and all
liabilities pertaining to any present or future use (within the term of this
Lease) in violation of any Federal, state, local or other laws, relating to
pollution or protection of the environment, including, without limitation, laws
relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment (including, without
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<PAGE> 59
limitation, ambient air, surface, water, ground water, land surface or
subsurface strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.
If any action or proceeding is brought against LESSOR by reason of any
claim, LESSEE, upon notice from LESSOR, shall defend such action or proceeding
by counsel reasonably satisfactory to LESSOR, and LESSEE shall pay all
reasonable expenses incurred in connection with defending against such action or
proceeding.
27. MISCELLANEOUS.
(a) The LESSOR reserves the right to assign or transfer any and all of its
right, title and interest under the Lease, including but not limited to the
benefit of all covenants of the LESSEE hereunder. Notwithstanding anything
contained in this Lease to the contrary. It is specifically understood and
agreed that the obligations imposed upon The LESSOR hereunder shall be binding
upon the LESSOR and LESSOR's successors in interest only with respect to
breaches occurring during LESSOR's and LESSOR's successors' ownership of
LESSOR's interest hereunder and LESSOR and its said successors in interest shall
not be liable for acts and occurrences arising from and after the transfer of
their interest as LESSOR hereunder.
(b) Notwithstanding any other provision of this Lease to the
contrary, LESSOR shall have the right to sublet the Supplemental Space for a
short term rental to expire prior to the
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commencement of the fourth year of the initial term. To the extent as part of
such short term rental, LESSOR receives rental income from the short term
lessee, said rental income shall reduce LESSEE's required CAO reimbursements for
the Supplemental Space which would have otherwise been due as of the
commencement of the third year of the initial term. During any time when LESSOR
is unable to lease the Supplemental Space on a short term basis, LESSEE shall
have the right to use the Supplemental Space for storage; provided that LESSEE
pay any utility or operating costs associated with the use of the Supplemental
Space for storage.
(c) This Lease shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts, as the same may from time to time
exist.
(d) This Lease contains all of the agreements of the parties with
respect to the subject matter thereof and supersedes all prior oral and written
negotiations and dealings between them with respect to such subject matter. The
agreement of the parties contained in this Lease shall not be modified or
amended unless such modification or amendment is in writing and signed by the
parties.
(e) The LESSEE acknowledges that LESSEE has not been influenced to
enter into this Lease nor has it relied upon any warranties or representations
not set forth or incorporated in this Lease or previously made in writing.
The undersigned Trustees of Athenaeum Realty Nominee Trust do hereby
certify that they each were authorized by all of
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<PAGE> 61
the beneficiaries of said Trust to execute and acknowledge the within Lease
on behalf of the Trust.
IN WITNESS WHEREOF, the LESSOR and LESSEE have hereunto set their hands
and common seals this eighth day of June, 1994.
ATHENAEUM REALTY NOMINEE TRUST
/s/ Robert A. Jones /s/ Allan R. Jones
- ---------------------------- ----------------------------
ROBERT A. JONES, Trustee WITNESS
/s/ K. George Narjarian /s/ Allan R. Jones
- ---------------------------- ----------------------------
K. GEORGE NARJARIAN, Trustee WITNESS
LEUKOSITE, INC.
BY: /s/ C.S. Mirabelli
- ---------------------------- ----------------------------
PRESIDENT, duly authorized WITNESS
BY: /s/ Robert E. Gallahue
- ---------------------------- ----------------------------
duly authorized WITNESS
CONTROLLER
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<PAGE> 62
[LETTERHEAD OF AETNA]
EXHIBIT G
July 1, 1994
Allan Jones
The Athenaem Group
215 First Street
Cambridge, MA 02142
RE: AETNA LOAN NO. 197502
215 FIRST STREET
LEUKOSITE PROPOSED LEASE
Dear Allan:
As discussed, the attached Landlord and Mortgagee Waiver and Consent is
acceptable to Aetna, with the security deposit
Do not hesitate to contact me if you have any questions.
Sincerely,
/s/ Peter S. Atwood
Peter S. Atwood
Investment Officer
cc: T. Solecki
T. Stressinger
<PAGE> 63
Landlord and Mortgagee Waiver and Consent
THIS Waiver and Consent, dated as of the ________ day of _____, 19 __ made
by _____________ (the "Landlord"), and _________________ (the "Mortgagee");
WITNESSETH:
WHEREAS, Landlord and Mortgagee have an interest in the real property
commonly known as __________________________ and legally described in Schedule A
attached hereto, (the "Real Property"); and
WHEREAS, Comdisco, Inc. (the "Lessor") has leased those certain items of
equipment of the general type (the ("Equipment"), described in Schedule B
attached hereto, on the Real Property and pursuant to the Master Lease Agreement
dated as of ________ and associated Equipment Schedule No. VL-1 and associated
summary schedules (collectively the "Lease") by and between Lessor and
_____________ (the "Lessee"); and
WHEREAS, Lessor must provide this Waiver and Consent to its secured party
to assign and finance rentals of the Lease;
NOW, THEREFORE, for good and sufficient consideration, receipt of which is
hereby acknowledged, the Landlord and Mortgagee hereby agrees as follows:
1. The Landlord and Mortgagee consent to the installation of the
Equipment on the Real Property and shall permit Lessor or its
designee to enter upon the Real Property for the purposes of
exercising its rights it may have under the terms of the Lease, or
otherwise including, the right to remove Equipment pursuant to the
terms thereof.
2. The Equipment shall remain Personal Property and shall not be
considered part of the Real Property or a fixture regardless of
whether or by what means it is or may become attached or affixed to
the Real Property.
3. The Landlord and Mortgagee waives and relinquishes unto the Lessor
or its assignee all claims and demands of every kind or nature
whatsoever that the Landlord or Mortgagee may now have or may
hereafter acquire against the Equipment, under present or future
provisions of law or equity.
4. This Waiver and Consent shall be binding upon the Landlord and
Mortgagee and their respective heirs, personal representatives,
successors and assigns and shall enure to the benefit of Lessor, its
successors and assigns.
In addition to the Equipment to be installed upon the Real Property Lessor
shall be financing certain tenant improvements that Lessee shall be making to
the Real Property. In the event of a default by Lessee under the terms and
conditions of the lease of the Real
<PAGE> 64
Property, Landlord shall give Lessor and Landlord's mortgagee written notice of
such default. Within sixty days of receipt of such notice Lessor shall have the
option to assume the lease of the Real Property and pay from the date of
Landlord's written notice to Lessor, the same rent owed by Lessee under the same
terms and conditions as agreed to by Lessee under the lease of the Real
Property. Lessor's responsibility for payment of rent for the period before it
assumes the Real Property lease shall not exceed a period of the prior sixty
(60) days.
IN WITNESS WHEREOF, by execution hereof the undersigned have accepted and
agreed to this Waiver and Consent as of the date first written above.
_____________________________, the Landlord
By:_____________________________________
Title:__________________________________
_____________________________, the Mortgagee
By:_____________________________________
Title:__________________________________
<PAGE> 65
Schedule A to
Landlord and Mortgagee Waiver and Consent
dated as of ____________________
Legal Description of Real Property
Initialled:
______________Landlord
______________Mortgagee
<PAGE> 66
Schedule B to
Landlord and Mortgagee Waiver and Consent
dated as of____________________
Equipment on Real Property
<TABLE>
<CAPTION>
Item No. Machine Type Model/Feature Serial No. Description
- -------- ------------ ------------- ---------- -----------
<S> <C> <C> <C> <C>
</TABLE>
Initialled:
______________Landlord
______________Mortgagee
<PAGE> 67
[LOGO]
[LETTERHEAD OF THE ATHENAEUM GROUP]
June 30, 1994 VIA FAX 278-5910
AND U.S. MAIL
Mr. Robert Gallahue
Controller
LeukoSite Inc.
800 Huntington Avenue
Boston, MA 02115
RE: First Addendum to Lease Between LeukoSite Inc. ("LESSEE") and Athenaeum
Realty Nominee Trust ("LESSOR") at 215 First Street Cambridge,
Massachusetts.
Dear Bob,
Following up our discussions, this letter, when executed by the authorized
officers (President and Controller) of LeukoSite Inc. shall be the First
Amendment to the above-referenced lease. The following paragraph shall be
amended into the lease:
"28. SECURITY DEPOSIT. Upon execution of the equipment waiver by LESSOR and its
mortgagee, LESSEE shall deposit THIRTY-THREE THOUSAND ($33,000.00) DOLLARS with
the LESSOR as security for LESSEE'S payment of rent and performance of its other
obligations under this Lease and any renewals or extensions of this Lease, until
such time as the Tenant Improvement Line of Credit between LESSEE and its lender
has been fully repaid and Comdisco no longer has an option to assume this lease.
If LESSEE defaults in its payment of rent or performance of its other
obligations under this Lease, LESSOR may use all or part of the security deposit
for the payment of rent or any other amount in default, or for the payment of
any other amount
<PAGE> 68
[LOGO]
Page 2
Mr. Robert Gallahue
June 30, 1994
that LESSOR may spend or become obligated to spend by reason of LESSEE'S
default, or for the payment to LESSOR or any other loss or damage that LESSOR
may suffer by reason of LESSEE'S default. If LESSOR so uses any portion of the
security deposit, LESSEE will restore the security deposit to its original
amount within five (5) days after written demand from LESSOR. The security
deposit will not be a limitation on LESSOR'S damages or other rights under this
Lease, or a payment of liquidated damages, or an advance of the rent. If LESSEE
pays the rent and performs all of its other obligations under this Lease, LESSOR
will return the unused portion of the security deposit to LESSEE within thirty
(30) days after LESSEE'S surrender of the Leased Premises in accordance with the
terms of this Lease or such earlier time as provided for above, however, if
LESSOR has evidence that the security deposit has been assigned by LESSEE to an
assignee of the Lease, LESSOR will return the security deposit to the assignee.
LESSOR shall not pledge or otherwise encumber the security deposit except in
connection with an assignment of all LESSOR'S rights and obligations under this
lease and only then on the condition assignee agrees in writing to
<PAGE> 69
[LOGO]
Page 3
Mr. Robert Gallahue
June 30, 1994
recognize all rights and privileges of LESSEE under this Lease and to be bound
by all terms and conditions of this LEASE.
Said security deposit shall be held by LESSOR for the benefit of LESSEE in
an insured (for the full amount of the deposit), interest bearing account with
any interest thereon paid to LESSEE on a semi-annual basis."
Please have this letter executed and returned to me as soon as possible. I
will then get a signed counterpart back to you.
Thank you.
Sincerely,
/s/ Allan R. Jones
Allan R. Jones
Partner
ARJ:emg
AGREED TO BY:
LeukoSite Inc.:
BY: /s/ C.S. Mirabelli
--------------------------
President, Duly Authorized
/s/ Bob Gallahue
--------------------------
Controller, Duly Authorized
<PAGE> 70
[LOGO]
Page 4
Mr. Robert Gallahue
June 30, 1994
Athenaeum Realty Nominee Trust:
/s/ Robert A. Jones
- ---------------------------
Robert A. Jones, Trustee
/s/ K. George Najarian
- ---------------------------
K. George Najarian, Trustee
<PAGE> 71
EXHIBIT A
"LEASED PREMISES"
[GRAPHIC OMITTED]
THE ATHENAEUM HOUSE
215 First Street, Cambridge First Floor
<PAGE> 72
EXHIBIT A
"LEASED PREMISES"
[GRAPHIC OMITTED]
THE ATHENAEUM HOUSE
215 First Street, Cambridge Second Floor
<PAGE> 73
EXHIBIT A
"LEASED PREMISES"
[GRAPHIC OMITTED]
THE ATHENAEUM HOUSE
215 First Street, Cambridge Lower Level
<PAGE> 74
EXHIBIT B
"LOT"
[GRAPHIC OMITTED]
THE ATHENAEUM HOUSE
215 First Street, Cambridge First Floor
<PAGE> 75
EXHIBIT C
Landlord and Mortgagee Waiver and Consent
THIS Waiver and Consent; dated as of the _______ day of ______, 19___ made
by _____________ (the "Landlord"), and ________________ (the "Mortgagee");
WITNESSETH:
WHEREAS, Landlord and Mortgagee have an interest in the real property
commonly known as _____________________ and legally described in Schedule A
attached hereto, (the "Real Property"); and
WHEREAS, Comdisco, Inc. (the "Lessor") has leased those certain items of
equipment of the general type (the ("Equipment"), described in Schedule B
attached hereto, on the Real Property and pursuant to the Master Lease Agreement
dated as of ________ and associated Equipment Schedule No. VL-1 and associated
summary schedules (collectively the "Lease") by and between Lessor and
_____________ (the "Lessee"); and
WHEREAS, Lessor must provide this Waiver and Consent to its secured party
to assign and finance rentals of the Lease;
NOW, THEREFORE, for good and sufficient consideration, receipt of which is
hereby acknowledged, the Landlord and Mortgagee hereby agrees as follows:
1. The Landlord and Mortgagee consent to the installation of the
Equipment on the Real Property and shall permit Lessor or its
designee to enter upon the Real Property for the purposes of
exercising its rights it may have under the terms of the Lease, or
otherwise including, the right to remove Equipment pursuant to the
terms thereof.
2. The Equipment shall remain Personal Property and shall not be
considered part of the Real Property or a fixture regardless of
whether or by what means it is or may become attached or affixed to
the Real Property.
3. The Landlord and Mortgagee waives and relinquishes unto the Lessor
or its assignee all claims and demands of every kind or nature
whatsoever that the Landlord or Mortgagee may now have or may
hereafter acquire against the Equipment, under present or future
provisions of law or equity.
4. This Waiver and Consent shall be binding upon the Landlord and
Mortgagee and their respective heirs, personal representatives,
successors and assigns and shall enure to the benefit of Lessor, its
successors and assigns.
In addition to the Equipment to be installed upon the Real Property Lessor
shall be financing certain tenant improvements that Lessee shall be making to
the Real Property. In the event of a default by Lessee under the terms and
conditions of the lease of the Real
<PAGE> 76
Property, Landlord shall give Lessor and Landlord's mortgagee written notice of
such default. Within sixty days of receipt of such notice Lessor shall have the
option to assume the lease of the Real Property and pay from the date of
Landlord's written notice to Lessor, the same rent owed by Lessee under the same
terms and conditions as agreed to by Lessee under the lease of the Real
Property. Lessor's responsibility for payment of rent for the period before it
assumes the Real Property lease shall not exceed a period of the prior sixty
(60) days.
IN WITNESS WHEREOF, by execution hereof the undersigned have accepted and
agreed to this Waiver and Consent as of the date first written above.
_____________________________, the Landlord
By:_____________________________________
Title:__________________________________
_____________________________, the Mortgagee
By:_____________________________________
Title:__________________________________
<PAGE> 77
Schedule A to
Landlord and Mortgagee Waiver and Consent
dated as of____________________
Legal Description of Real Property
Initialed:
______________Landlord
______________Mortgagee
<PAGE> 78
Schedule B to
Landlord and Mortgagee Waiver and Consent
dated as of____________________
Equipment on Real Property
<TABLE>
<CAPTION>
Item No. Machine Type Model/Feature Serial No. Description
- -------- ------------ ------------- ---------- -----------
<S> <C> <C> <C> <C>
</TABLE>
Initialled:
______________Landlord
______________Mortgagee
<PAGE> 79
EXHIBIT D
LESSEE'S Equipment Eligible For Removal
<TABLE>
<S> <C>
Cage Washer $35,000.
Generator, Steam 8,000.
Glassware Washer 25,000.
Sterilizers (3) 112,000.
Ice Machine 3,000.
Dishwasher, Domestic 700.
Stove/Oven/Microwave 1,000.
Emergency Generator 35,000.
----------
Total $219,700.
==========
</TABLE>
<PAGE> 80
EXHIBIT E
DETERMINATION OF FAIR MARKET RENT
In the event LESSEE gives timely extension notice in accordance with the
provisions of Paragraph 24 hereof and the parties are unable to agree as to the
fair market rent within thirty (30) days after the receipt of LESSEE'S extension
notice, then LESSOR and LESSEE may initiate the appraisal process provided for
herein by giving notice to that effect to the other, and the party so initiating
the appraisal process (the "Initiating Party") shall specify in such notice the
name and address of the person designated to act as an appraiser on its behalf.
Within thirty (30) days after the designation of the appraiser, the other party
(the "Other Party") shall give notice to the Initiating Party specifying the
name and address of the person designated to act as an appraiser on its behalf.
The two appraisers as chosen shall meet within ten (10) days after the second
appraiser is appointed and shall exchange their determinations as to fair market
value rents. If the determinations are within ten percent (10%) of each other,
the fair market rent shall be the average of the two determinations. If, within
ten (10) days after the second appraiser is appointed, their determinations of
fair market rent are greater than ten percent and the two appraisers are unable
to agree on a fair market rent, then on the second Business Day following the
close of such ten (10) day period, the two appraisers shall, within thirty (30)
days after the second appraiser is appointed, together appoint a third
appraiser. In the event of their being unable to agree upon such appointment
within forty (40)
<PAGE> 81
days after the appointment of the second appraiser, the third appraiser shall be
selected by the parties themselves if they can agree thereon within a further
period of fifteen (15) days. If the parties do not so agree, then either party,
on behalf of both and on notice to the other, may request such appointment by
the President of the Greater Boston Real Estate Board (or organization successor
thereto) and request him to select an impartial third arbitrator. Within five
(5) days after the appointment of the third appraiser, the first appraiser and
second appraiser shall submit to such third appraiser their respective
determinations of the fair market rent as described in the immediately preceding
clause. Such third appraiser shall, within fifteen (15) days after the end of
such five (5) day period, choose a fair market rent specified which is not less
than the lowest fair market determination submitted by the other two appraisers
nor more than the highest fair market determination, submitted by the other two
appraisers. The fair market rent determined by the third appraiser in accordance
with the procedure set forth herein conclusively be deemed to be the fair market
rent.
Each party shall pay the fees and expenses of the appraiser selected by
it. The fees and expenses of the third appraiser shall be borne by the parties.
Under no circumstances may the appraisers modify or disregard any
provision of this Lease and the jurisdiction of the appraisers is restricted
accordingly. The appraisers shall include the fair market rent such cost
escalators as are then customary and appropriate. Fair Market Rental Value is
intended to be calculated
<PAGE> 82
in a fair and comprehensive manner so that Landlord shall achieve, and Tenant
shall pay based upon, an amount which is no less than the same net rental which
Landlord would actually receive upon a re-letting of the applicable space in an
arms' length transaction to an unrelated third party tenant where neither party
is under any compulsion or undue influence. In no event shall the Base Rent
payable for the Second Extended Term be less than the Base Rent payable for the
last year of the First Extended Term.
In the event LESSOR or LESSEE initiates the appraisal process pursuant to
this Paragraph and as of the commencement of the Extension Term the amount of
the fair market rent has not been determined, LESSEE shall pay the amount
specified by the LESSOR's appraiser, and when the final determination has been
made, it shall be retroactive as of the commencement date of the Extension Term
and any excess shall be credited by LESSOR to LESSEE as against the next monthly
Base Rent payment or payments.
<PAGE> 83
EXHIBIT F
Rights Of Existing Tenant With Respect To Option Space
Inscribe Inc. currently leases 15,383 RSF covered under LESSEE'S expansion
rights. Inscribe's current lease expiration date is 9/30/95, and it has one (1)
option to extend its lease for one (1) year upon three (3) months prior written
notice.
<PAGE> 84
[LOGO]
LETTERHEAD OF THE ATHENAEUM GROUP
February 26, 1997
Robert E. Gallahue, Controller
LeukoSite
215 First Street
Cambridge, MA 02142-1268
Re: ADDITIONAL BUILT OUT SPACE ON CURRENTLY-LEASED PREMISES
Dear Bob,
In accordance with Paragraph 4 of your existing lease, this letter is to notify
LeukoSite that rent commencement on the newly-built out conference space on the
first floor began as of November 24, 1996 (date the certificate of occupancy was
received). We have confirmed that the additional space contains 850 square feet.
Under the terms of your Lease, this commencement will increase your base rent by
$9,350.00 per annum or 3779.17 monthly and will increase your proportionate
building share from 8.59 percent to 8.88 percent. As a result, your monthly
payments will be as follows:
<TABLE>
<S> <C> <C>
Base Rent -- $35,830.20
Common Area -- 4,344.00
Real Estate Taxes -- 4,097.00
----------
Total 344.271.20
==========
</TABLE>
Therefore, due and payable immediately is $2,485.14, representing charges due
from November 24, 1996 through February 28, 1997.
<PAGE> 85
[LOGO]
Robert E. Gallahue, Controller
Page two
February 26, 1997
As of March 1, your new monthly rent shall be $44,271.20. This will subsequently
change again on April 1, 1997 in order to reflect recently-billed adjustments
for common area costs and real estate taxes. Please do not hesitate to contact
myself or Michael Reardon with any questions.
Sincerely,
/s/ Allan R. Jones
Allan R. Jones
Partner
ARJ:rmf
cc: Michael T. Reardon
<PAGE> 86
[GRAPHIC OMITTED]
<PAGE> 87
SECOND AMENDMENT TO LEASE
LESSOR: ATHENAEUM PROPERTY LLC
LESSEE: LEUKOSITE INC.
DATE OF LEASE: JUNE 8, 1994;
FIRST ADDENDUM TO LEASE JUNE 30, 1994
PREMISES: 215 FIRST STREET, CAMBRIDGE, MA
For Good and Valuable Consideration, the receipt and sufficiency of which
are hereby acknowledged, the Lease between ATHENAEUM PROPERTY LLC as LESSOR and
LEUKOSITE INC. as LESSEE dated June 8, 1994 is hereby amended for the second
time, as follows:
1. EXPANDED LEASED PREMISES.
Effective December 23, 1997 (the "Effective Date"), the premises
presently leased to LESSEE ("LEASED PREMISES") shall be expanded to
include approximately two thousand three hundred (2,300) rentable
square feet ("EXPANDED LEASED PREMISES") more or less, on the first
floor of the Building located at 215 First Street in Cambridge, MA
and as shown on Exhibit A.
2. TERM The term of the LEASE will remain unchanged.
3. RENT
The Base Rent for the LEASED PREMISES shall be increased as of the
Effective Date by $46,000 per annum (calculated as 2,300 square feet
times $20.00 per rentable square feet).
4. RENT ADJUSTMENT
As of the Effective Daze, the rent adjustment percentage in
Paragraph 5.1 of the Lease shall be increased for Real Estate Taxes
and Common Area Operating expenses to 9.39% (formerly 8.59%).
<PAGE> 88
5. TENANT UTILITIES
All LESSEE's utilities will be separately metered or billed on a
pro-rata basis.
6. CONDITION OF EXPANDED LEASED PREMISES.
LESSOR shall deliver the EXPANDED LEASED PREMISES to LESSEE in its
current "as is" condition.
7. LESSEE's RIGHT TO REDUCE LEASED PREMISES.
Provided LESSEE is not then in default beyond applicable notice and
grace periods, LESSEE shall have the right, upon ninety (90) days'
prior notice to LESSOR, to reduce the LEASED PREMISES to the
original LEASED PREMISES size (24,468 rentable square feet). Upon
said reduction, the Base Rent shall be reduced by $46,000 per annum
and the rent adjustment percentage with respect to Paragraph 5 of
the LEASE shall revert to 8.59%.
8. LESSOR's RIGHT TO REDUCE THE LEASED PREMISES.
LESSOR shall have the right, upon ninety (90) days' prior written
notice to LESSEE, to reduce the LEASED PREMISES to the ORIGINAL
LEASED PREMISES but in no event shall LESSOR cause the reduction to
occur prior to December 23, 1998. Upon said reduction, the Base Rent
shall be reduced by $46,000 per annum and the rent adjustment
percentage with respect to Paragraph 5 of the Lease shall revert to
8.59%.
9. LESSEE'S OPTION TO ELIMINATE THE LESSOR AND LESSEE's RIGHT TO REDUCE
LEASE PREMISES:
If LESSEE is not then in default, has not received written notice
from LESSOR (pursuant to Paragraph 8 above) that the EXPANDED LEASED
PREMISES will be returned to LESSOR and has not notified LESSOR that
it will give back the EXPANDED LEASED PREMISES (pursuant to
Paragraph 7 above), LESSEE shall have the right to eliminate both
the LESSOR and the LESSEE's right to reduce the LEASED PREMISES
(i.e. eliminate Paragraphs 7 and 8 above). Upon receipt in writing
of LESSEE's election of this option, LESSOR shall provide LESSEE
with a $10,000 tenant improvement allowance for work to be done on
the EXPANDED LEASED PREMISES. Once this election is made by LESSEE,
the EXPANDED LEASED PREMISES will permanently be part of the LEASED
PREMISES and part of LESSEE's LEASED PREMISES with respect to
elections to extend the LEASE. Under such an election, the Option
Base Rent on the
2
<PAGE> 89
EXPANDED LEASED PREMISES shall be Fair Market Value as reasonably
set by LESSOR but in no event less than $46,000 per annum.
10. BROKER
The LESSOR and LESSEE each represent and warrant to the other that
each has had no dealings with any Brokers concerning this lease
other than Robert A. Jones & Company and each party agrees to
indemnify and hold the other harmless for any damages occasioned to
the other by reason of a breach of this representation and warranty.
Except as herein expressly amended, the above-described LEASE shall remain
unaltered, in full force and effect, and is hereby reaffirmed.
WITNESS our hands and seals this 16th day of October, 1997.
LESSOR:
ATHENAEUM PROPERTY LLC
By: /s/ Allan R. Jones /s/ [ILLEGIBLE]
----------------------------- ---------------
Allan R. Jones, President WITNESS
Athenaeum F.A. Inc.
Managing Member
LESSEE:
LEUKOSITE INC.
By: /s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
----------------------------- ---------------
President WITNESS
(Duly Authorized)
By: /s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
----------------------------- ---------------
Treasurer WITNESS
(Duly Authorized)
3
<PAGE> 90
EXHIBIT [ILLEGIBLE]
"EXPANDED LEASED PREMISES"
[GRAPHIC OMITTED]
THE ATHENAEUM HOUSE
215 First Street, Cambridge First Floor
<PAGE> 91
THIRD AMENDMENT TO LEASE
LESSOR: ATHENAEUM PROPERTY LLC
LESSEE: LEUKOSITE INC.
DATE OF LEASE: JUNE 8, 1994;
FIRST ADDENDUM TO LEASE JUNE 30,1994
SECOND AMENDMENT TO LEASE OCTOBER 16, 1997
PREMISES: 215 FIRST STREET, CAMBRIDGE, MA
For Good and Valuable Consideration, the receipt and sufficiency of which are
hereby acknowledged, the Lease between ATHENAEUM PROPERTY LLC as LESSOR and
LEUKOSITE INC. as LESSEE dated June 8, 1994 is hereby amended for the third
time, as follows:
1. EXPANDED LEASED PREMISES.
Effective March 1, 1998 (the "Effective Date"), the premises
presently leased to LESSEE ("LEASED PREMISES") shall be expanded to
include approximately four thousand (4,000) rentable square feet
("EXPANDED LEASED PREMISES") more or less, on the second floor of
the Building located at 215 First Street in Cambridge, MA and as
shown on Exhibit A.
2. TERM
The term of the LEASE will remain unchanged.
3. RENT
The Base Rent for the LEASED PREMISES shall be increased as of the
Effective Date by $80,000 per annum (calculated as 4,000 square feet
times $20.O0 per rentable square feet).
<PAGE> 92
4. RENT ADJUSTMENT
As of the Effective Date, the rent adjustment percentage in
Paragraph 5.1 of the Lease shall be increased for Real Estate Taxes
and Common Area Operating expenses to 10.80% (formerly 9.39%).
5. TENANT UTILITIES.
All LESSEE'S utilities will be separately metered or billed on a
pro-rata basis.
6. CONDITION OF EXPANDED LEASED PREMISES.
LESSOR shall deliver the EXPANDED LEASED PREMISES to LESSEE in its
current "as is" condition.
7. OPTION RENT
The Base Rent on the EXPANDED LEASED PREMISES in the event LESSEE
elects to exercise any extension options under the LEASE shall be
Fair Market Value as reasonably set by LESSOR but in no event less
than $80,000 per annum.
8. BROKER
The LESSOR and LESSEE each represent and warrant to the other that
each has had no dealings with any Brokers concerning this lease
other than Fallon, Hines & O'Connor and Robert A. Jones & Company
and each party agrees to indemnify and hold the other harmless for
any damages occasioned to the other by reason of a breach of this
representation and warranty. LESSOR shall pay a commission to
Fallon, Hines & O'Connor.
2
<PAGE> 93
9. PARKING
LESSEE shall have the additional right to park four (4) cars in lots
as designated by LESSOR at fair market value as determined by
LESSOR.
Except as herein amended, the above-described LEASE shall remain unaltered, in
full force and effect, and is hereby reaffirmed.
WITNESS our hands and seals this 9th day of February 1998.
LESSOR:
ATHENAEUM PROPERTY LLC
By: /s/ Allan R. Jones /s/ [ILLEGIBLE]
----------------------------- ---------------
Allan R. Jones, President WITNESS
Athenaeum F.A. Inc.
Managing Member
LESSEE:
LEUKOSITE INC.
By: /s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
----------------------------- ---------------
President WITNESS
(Duly Authorized)
By: /s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
----------------------------- ---------------
Treasurer WITNESS
(Duly Authorized)
3
<PAGE> 94
EXHIBIT [ILLEGIBLE]
"EXPANDED LEASED PREMISES"
[GRAPHIC OMITTED]
THE ATHENAEUM HOUSE
215 First Street, Cambridge Second Floor
<PAGE> 95
THIRD AMENDMENT TO LEASE
LESSOR: ATHENAEUM PROPERTY LLC
LESSEE: LEUKOSITE INC.
DATE OF LEASE: JUNE 8, 1994;
FIRST ADDENDUM TO LEASE JUNE 30,1994
SECOND AMENDMENT TO LEASE OCTOBER 16, 1997
PREMISES: 215 FIRST STREET, CAMBRIDGE, MA
For Good and Valuable Consideration, the receipt and sufficiency of which are
hereby acknowledged, the Lease between ATHENAEUM PROPERTY LLC as LESSOR and
LEUKOSITE INC. as LESSEE dated June 8, 1994 is hereby amended for the third
time, as follows:
1. EXPANDED LEASED PREMISES.
Effective March 1, 1998 (the "Effective Date"), the premises
presently leased to LESSEE ("LEASED PREMISES") shall be expanded to
include approximately four thousand (4,000) rentable square feet
("EXPANDED LEASED PREMISES") more or less, on the second floor of
the Building located at 215 First Street in Cambridge, MA and as
shown on Exhibit A.
2. TERM
The term of the LEASE will remain unchanged.
3. RENT
The Base Rent for the LEASED PREMISES shall be increased as of the
Effective Date by $80,000 per annum (calculated as 4,000 square feet
times $20.O0 per rentable square feet).
<PAGE> 96
4. RENT ADJUSTMENT
As of the Effective Date, the rent adjustment percentage in
Paragraph 5.1 of the Lease shall be increased for Real Estate Taxes
and Common Area Operating expenses to 10.80% (formerly 9.39%).
5. TENANT UTILITIES.
All LESSEE's utilities will be separately metered or billed on a
pro-rata basis.
6. CONDITION OF EXPANDED LEASED PREMISES.
LESSOR shall deliver the EXPANDED LEASED PREMISES to LESSEE in its
current "as is" condition.
7. OPTION RENT
The Base Rent on the EXPANDED LEASED PREMISES in the event LESSEE
elects to exercise any extension options under the LEASE shall be
Fair Market Value as reasonably set by LESSOR but in no event less
than $80,000 per annum.
8. BROKER
The LESSOR and LESSEE each represent and warrant to the other that
each has had no dealings with any Brokers concerning this lease
other than Fallon, Hines & O'Connor and Robert A. Jones & Company
and each party agrees to indemnify and hold the other harmless for
any damages occasioned to the other by reason of a breach of this
representation and warranty. LESSOR shall pay a commission to
Fallon, Hines & O'Connor.
2
<PAGE> 97
9. PARKING
LESSEE shall have the additional right to park four (4) cars in lots
as designated by LESSOR at fair market value as determined by
LESSOR.
Except as herein amended, the above-described LEASE shall remain unaltered, in
full force and effect, and is hereby reaffirmed.
WITNESS our hands and seals this 9th day of February 1998.
LESSOR:
ATHENAEUM PROPERTY LLC
By: /s/ Allan R. Jones /s/ [ILLEGIBLE]
----------------------------- ---------------
Allan R. Jones, President WITNESS
Athenaeum F.A. Inc.
Managing Member
LESSEE:
LEUKOSITE INC.
By: /s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
----------------------------- ---------------
President WITNESS
(Duly Authorized)
By: /s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
----------------------------- ---------------
Treasurer WITNESS
(Duly Authorized)
3
<PAGE> 98
EXHIBIT A
"EXPANDED LEASED PREMISES"
[GRAPHIC OMITTED]
THE ATHENAEUM HOUSE
215 First Street, Cambridge Second Floor
<PAGE> 99
215 First Street
Cambridge, Massachusetts.
("the Building")
FOURTH AMENDMENT TO LEASE
Execution Date: September 1, 1998
LESSOR Cambridge Athenaeum, LLC, successor-in-interest to Robert A.
Jones and K. George Najarian, Trustees of Athenaeum Realty
Nominee Trust. Lessor is referred to in this Amendment as
"Lessor".
LESSEE: Leukosite, Inc. Lessee is referred to in this Amendment as
"Lessee".
LEASE EXECUTION DATE:
June 8, 1994
EXISTING PREMISES:
Original Premises:
Areas in the basement, first, and second floors of the Building,
substantially as shown on Exhibit A attached to the Lease
Second Amendment Premises:
An area on the first floor of the Building, substantially as shown
on Exhibit A attached to the Second Amendment to Lease
Third Amendment Premises:
An area on the second floor of the Building, substantially as shown
on Exhibit A attached to the Third Amendment to Lease
TERMINATION DATE:
November 30, 1999
PREVIOUS LEASE AMENDMENTS:
First Addendum to Lease dated June 30, 1994
Second Amendment to Lease dated October 16, 1997
Third Amendment to Lease dated February 9, 1998
FOURTH AMENDMENT PREMISES:
Suite 203:
An area on the second floor of the Building, containing
approximately 1,723 rentable square feet, substantially as shown on
Exhibit A, Fourth Amendment, Sheet 1
-1-
<PAGE> 100
Suite 501:
An area on the fifth floor of the Building, containing approximately
3,000 rentable square feet, substantially as shown on Exhibit A,
Fourth Amendment, Sheet 2
Suite 502:
An area on the fifth floor of the Building, containing approximately
7,800 rentable square feet, substantially as shown on Exhibit A,
Fourth Amendment, Sheet 2
WHEREAS, Lessee desires to extend the term of the Lease for an additional
five year period and to lease additional premises in the Building, to wit, the
Fourth Amendment Premises (i.e. in accordance with its first extension option as
set forth in Section 24 of the Lease);
WHEREAS, Lessor is willing to extend the term of the Lease and to lease
the Fourth Amendment Premises to Lessee on the terms and conditions hereinafter
set forth;
WHEREAS, the parties have agreed to waive Lessee's right to terminate the
term of the Lease in respect of the Expanded Leased Premises, as defined in
Paragraph 1 of the Second Amendment to Lease and as shown on Exhibit A to the
Second Amendment to Lease;
NOW THEREFORE, the above-referenced lease, as previously amended ("the
Lease") is hereby further amended as follows:
1. EXTENSION OF TERM OF LEASE
The term of the Lease is hereby extended for an additional period
commencing as of December 1, 1999 and expiring as of November 30, 2004. Said
additional term shall be upon the rental and terms set forth on Exhibit B
attached hereto and upon all of the same terms and conditions as are in effect
immediately preceding the commencement of such additional term, except to the
extent inconsistent with the provisions of this Fourth Amendment or Exhibit B.
2. DEMISE OF FOURTH AMENDMENT PREMISES
Lessor hereby demises and leases to Lessee, and Lessee hereby hires and
takes from the Lessor, the Fourth Amendment Premises. Said demise of the Fourth
Amendment Premises shall be upon all of the rental and terms set forth on
Exhibit B attached hereto and upon all of the same terms and conditions as are
applicable to the Existing Premises, except to the extent inconsistent with the
provisions of this Fourth Amendment.
-2-
<PAGE> 101
3. COMMENCEMENT DATES WITH RESPECT OF THE FOURTH AMENDMENT PREMISES.
The Commencement Dates in respect of each portion of the Fourth Amendment
Premises shall be as follows:
Suite 203: The later of: (i) June 20, 1999, or (ii) the date that the tenant
presently occupying Suite 203 vacates Suite 203.
Suite 501: The later of: (i) September 10, 1998, or (ii) the date that the
tenant presently occupying Suite 501 vacates Suite 501.
Suite 502: The later of: (i) the earlier of: (x) the date one hundred twenty
(120) days after Lessor gives Lessee written notice that Suite 502
will be available for Lessee's occupancy, or (y) January 1, 1999, or
(ii) the date that the tenant presently occupying Suite 502 vacates
Suite 502.
4. CONDITION OF FOURTH AMENDMENT PREMISES
Lessee shall take each portion of the Fourth Amendment Premises "as-is",in
the condition in which such portion of the Fourth Amendment Premises is in as of
the Commencement Date in respect of such portion of the Fourth Amendment
Premises, without any representation or warranty by Lessor to Lessee as to the
condition of the Fourth Amendment Premises or the Building, and without any
obligation on the part of Lessor to prepare or construct the Fourth Amendment
Premises for Lessee's occupancy. Without limiting the foregoing, the following
provisions of the Lease shall have no applicability to the Fourth Amendment
Premises: Sections 3.1.1, 3.2, 3.3, 3.3.3, and 3.4 of the Lease.
5. LESSOR'S CONTRIBUTION
A. Lessor shall, in the manner hereinafter set forth, provide to Lessee up
to Two Hundred Thirty-Eight Thousand Seventy-Five and 00/100 ($238,075.00)
Dollars ("Lessor's Contribution") towards the cost of leasehold improvements to
be installed by Lessee in any portion of the Fourth Amendment Premises
("Lessee's Work"). Provided that Lessee is not in default, beyond the expiration
of any applicable grace periods, of its obligations under the Lease at the time
that Lessee submits any requisition on account of Lessor's Contribution, Lessor
shall pay the cost of the work shown on each requisition (as hereinafter
defined) submitted by Lessee to Lessor within thirty (30) days of submission
thereof by Lessee to Lessor.
B. For the purposes hereof, a "requisition" shall mean written
documentation (including, without limitation, invoices from Lessee's contractor,
written lien waivers and
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such other documentation as Lessor's mortgagee may reasonably request) showing
in reasonable detail the costs of the improvements installed to date in the
Fourth Amendment Premises, accompanied by certifications from Lessee, Lessee's
architect, and Lessee's contractor that the work performed to date has been
performed in accordance with applicable laws and in accordance with Lessee's
approved plans, and that the amount of the requisition in question does not
exceed the amount of the work covered by such requisition. Each requisition
shall be accompanied by evidence reasonably satisfactory to Lessor that all work
covered by previous requisitions has been fully paid by Lessee. Lessor shall
have the right, upon reasonable advance notice to Lessee, to inspect Lessee's
books and records relating to each requisition in order to verify the amount
thereof. Lessee shall submit requisition(s) no more often than monthly.
C. Lessor shill have no obligation to advance funds on account of Lessor's
Contribution unless and until Lessor has received the requisition in question,
together with the certifications required by Subparagraph B of this Paragraph 5,
certifying that the work shown on the requisition has been performed in
accordance with applicable law and in accordance with Lessee's approved plans.
D. Except with respect to work and/or materials previously paid for by
Lessee, as evidenced by paid invoices and written lien waivers provided to
Lessor, Lessor shall have the right to have Lessor's Contribution paid to both
Lessee and Lessee's contractor(s) and vendor(s) jointly.
E. Lessee's Work shall be performed in accordance with the Lease,
including, without limitation, Article 3.3.1.
6. UTILITIES
All utilities consumed in the Fourth Amendment Premises will be separately
metered and paid for directly by Lessee, or will be billed by Lessor to Lessee
on a pro-rata basis and paid by Lessee to Lessor, within ten (10) days of
billing therefore, as additional rent.
7. PARKING
A. The parties hereby confirm that, as of the Execution Date of this
Fourth Amendment: (i) Lessee has the right to use 53 parking spaces ("Existing
Parking Spaces") in the parking areas serving the Building ("Parking Areas"),
(ii) Lessee has no obligation to pay for the use of five of said parking spaces,
and (iii) Lessee is obligated to pay for the use of 48 of said parking spaces,
as part of Base Rent, based upon the annual fair rental value of said parking
spaces, as determined by Lessor, from time to time.
B. Commencing as of the Commencement Date in respect of Suite 501 and
continuing thereafter throughout the term of the Lease, as it may be extended,
there shall be appurtenant to Lessee's demise of the Fourth Amendment Premises,
the right to use an
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additional fifteen (15) parking spaces ("Additional Parking Spaces") in the
Parking Areas. Lessee shall pay for the use of the Additional Parking Spaces, as
part of Base Rent, at a rate equal to the annual fair rental value of such
parking spaces, as reasonably determined by Lessor, from time to time. Lessee's
use of said Additional Parking Spaces shall be subject to the same terms and
conditions as are applicable to Lessee's use of the Existing Parking Spaces.
C. Lessee's use of both the Existing Parking Spaces and the Additional
Parking Spaces shall be subject to such reasonable rules and regulations as
Lessor may promulgate from time to time.
8. LESSEE'S EXPANSION OPTIONS
A. Except as set forth in this Paragraph 8, Lessee shall have no right to
lease additional premises in the Building. Without limiting the foregoing,
Section 25 of the Lease is hereby deleted in its entirety and is of no further
force or effect.
B. Suite 304
(1) Definition of Suite 304. "Suite 304" is a portion of the third
floor of the Building containing approximately 12,865 rentable square feet of
area. Suite 304 is substantially as shown on Exhibit A, Fourth Amendment, Sheet
2. Suite 304 is presently leased to Inscribe pursuant to a lease, the term of
which expires as of September 30, 1999. Lessee's right to lease Suite 304 is
subject to the rights of two other lessees in the Building, Active Control
Experts ("ACX") and CLAM Associates, Inc. ("CLAM") to lease Suite 304.
(2) Lessee's Right to Lease Suite 304. On the conditions (which
conditions Lessor may waive by written notice to Lessee at any time) that Lessee
is not in default of its obligations under the Lease, both at the time that
Lessor gives Lessee an Offer, as hereinafter defined, to lease Suite 304, and as
of the Commencement Date in respect of Suite 304, and subject to the provisions
of this Subparagraph B, Lessee shall have the right to lease Suite 304 as
follows.
(3) Option Procedures. If ACX either fails timely to lease Suite 304
or irrevocably waives its right lease Suite 304, then Lessor shall give to
Lessee a written offer ("Offer") to lease Suite 304. Said Offer shall be upon
the terms set forth in Subparagraph B(4) of this Paragraph 8 and shall be
subject to the rights of CLAM to lease Suite 304 on the terms set forth in the
Offer. Lessee shall have fourteen (14) business days following receipt of the
Offer to give written notice ("Acceptance Notice") to Lessor accepting the
Offer. If Lessee does not timely give the Acceptance Notice, Lessee shall have
no further right to lease Suite 304 pursuant to this Subparagraph B, time being
of the essence of this Subparagraph B. If Lessee timely gives the Acceptance
Notice, then, subject to the provisions of this Subparagraph B, Lessor shall
demise and
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lease to Lessee, and Lessee shall hire and take from Lessor Suite 304 on the
terms set forth in the Offer. Notwithstanding anything to the contrary herein
contained:
(a) If ACX exercises its right to lease Suite 304, then Lessor shall
have no obligation to give an Offer to lease Suite 304 to Lessee and
Lessee shall have no further right to lease Suite 304; and
(b) Lessee acknowledges that CLAM will have the right to lease Suite
304 based upon the Offer if it is accepted by Lessee. Therefore, if CLAM
exercises its right to lease Suite 304, Lessee shall have no further right
to lease Suite 304.
(4) Terms Applicable to Lessee's Demise of Suite 304. The Offer
shall be on all of the terms and conditions of the Lease applicable to the other
premises demised to Lessee except as follows:
(a) Commencement Date. The Commencement Date in respect of Suite 304
shall be the later of: (x) October 1, 1999, or (y) the date that Inscribe
vacates Suite 304.
(b) Base Rent. The Base Rent payable by Lessee in respect of Suite
304 shall be based upon the fair market rent of Suite 304, as of October 1,
1999, as determined by Lessor in its bona fide business judgment. Lessee shall
have no right to submit the rent payable by Lessee in respect of Suite 304 to
appraisal. Lessee's obligation to pay Base Rent in respect of Suite 304 shall
commence as of the Commencement Date in respect of Suite 304.
(c) Lessee's Proportionate Building Share. Lessee's Proportionate
Building Share in respect of Suite 304 shall be 4.52%.
(d) Parking. As appurtenant to the demise of Suite 304 Lessee shall
have the right to use ten (10) additional parking spaces ("Suite 304 Parking
Spaces") in the Parking Areas. Lessee shall pay for the use of the Suite 304
Parking Spaces as part of Base Rent, at a rate equal to the annual fair rental
value of the Suite 304 Parking Spaces, as reasonably determined by Lessor, from
time to time. Lessee's use of the Suite 304 Parking Spaces shall be subject to
the same terms and conditions as are applicable to Lessee's use of the Existing
Parking Spaces.
(e) Condition of Suite 304. Lessee shall take Suite 304 "as-is", in
the condition in which Suite 304 is in as of the Commencement Date in respect of
Suite 304, without any representation or warranty by Lessor to Lessee as to the
condition of Suite 304 or the Building, and without any obligation on the part
of Lessor to prepare or construct Suite 304 for Lessee's occupancy.
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(f) Lessor's Contribution. Lessor shall not be obligated to provide
any Lessor Contribution to Lessee in respect of Suite 304:
(g) Lessee's Extension Option. Lessee's remaining extension option
(i.e. relating to the Second Extended Term) shall apply to Suite 304. The rental
payable by Lessee in respect of Suite 304 for the Second Extended Term shall be
based upon one hundred (100%) percent of the Market Rent of Suite 304,
determined in accordance with Exhibit E to the Lease, plus the annual fair value
of the Suite 304 Parking Spaces as determined by Lessor.
(h) Confirmatory Lease Amendment. Notwithstanding the fact that
Lessee's exercise of the above-described expansion option shall be
self-executing, as aforesaid, the parties hereby agree promptly to execute a
lease amendment reflecting the addition of Suite 304. The execution of such
lease amendment shall not be deemed to waive any of the conditions to Lessee's
exercise of the herein expansion option, unless otherwise specifically provided
in such lease amendment.
C. Suite 303
(1) Definition of Suite 303. "Suite 303" is a portion of the third
floor of the Building containing approximately 2,518 rentable square feet of
area. Suite 303 is substantially as shown on Exhibit A, Fourth Amendment, Sheet
2. Suite 303 is presently leased to Inscribe pursuant to a lease, the term of
which expires as of September 30, 1999. Lessee's right to lease Suite 303 is
subject to the rights of three other lessees in the Building, Cambridge
Communications ("CAMBRIDGE COMMUNICATIONS" [d/b/a Media Map]), Active Control
Experts ("ACX") and CLAM Associates, Inc. ("CLAM") to lease Suite 303.
(2) Lessee's Right to Lease Suite 303. On the conditions (which
conditions Lessor may waive by written notice to Lessee at any time) that Lessee
is not in default of its obligations under the Lease, both at the time that
Lessor gives Lessee an Offer, as hereinafter defined, to lease Suite 303, and as
of the Commencement Date in respect of Suite 303, and subject to the provisions
of this Subparagraph C, Lessee shall have the right to lease Suite 303 as
follows.
(3) Option Procedures. If CAMBRIDGE COMMUNICATIONS and ACX both fail
timely to lease Suite 303 and/or irrevocably waive their tights to lease Suite
303, then Lessor shall give to Lessee a written offer ("Offer") to lease Suite
303. Said Offer shall be upon the terms set forth in Subparagraph C of this
Paragraph 8 and shall be subject to the rights of CLAM to lease Suite 303 on the
terms set forth in the Offer. Lessee shall have fourteen (14) business days
following receipt of the Offer to give written notice ("Acceptance Notice") to
Lessor accepting the Offer. If Lessee does not timely give the Acceptance
Notice, Lessee shall have no further right to lease Suite 303 pursuant to this
Subparagraph C, time being of the essence of this Subparagraph C. If Lessee
timely gives the Acceptance Notice, then, subject to the provisions of this
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Subparagraph C, Lessor shall demise and lease to Lessee, and Lessee shall hire
and take from Lessor Suite 303 on the terms set forth in the Offer.
Notwithstanding anything to the contrary herein contained:
(a) If either CAMBRIDGE COMMUNICATIONS or ACX exercises its right to
lease Suite 303, then Lessor shall have no obligation to give an Offer to
lease Suite 303 to Lessee and Lessee shall have no further right to lease
Suite 303; and
(b) Lessee acknowledges that CLAM will have the right to lease Suite
303 based upon the Offer if it is accepted by Lessee. Therefore, if CLAM
exercises its right to lease Suite 303, Lessee shall have no further right
to lease Suite 303.
(4) Terms Applicable to Lessee's Demise of Suite 303. The Offer
shall be on all of the terms and conditions of the Lease applicable to the other
premise demised to Lessee except as follows:
(a) Commencement Date. The Commencement Date in respect of the Suite
303 shall be the later of: (x) October 1, 1999, or (y) the date that Inscribe
vacates Suite 303.
(b) Base Rent. The Base Rent payable by Lessee in respect of Suite
303 shall be based upon the fair market rent of Suite 303, as of October 1,
1999, as determined by Lessor in its bona fide business judgment. Lessee shall
have no right to submit the rent payable by Lessee in respect of Suite 303 to
appraisal. Lessee's obligation to pay Base Rent in respect of Suite 303 shall
commence as of the Commencement Date in respect of Suite 303.
(c) Lessee's Proportionate Building Share. Lessee's Proportionate
Building Share in respect of Suite 303 shall be .88%.
(d) Parking. As appurtenant to the demise of Suite 303 Lessee shall
have the right to use two (2) additional parking spaces ("Suite 303 Parking
Spaces") in the Parking Areas. Lessee shall pay for the use of the Suite 303
Parking Spaces as part of Base Rent, at a rate equal to the annual fair rental
value of the Suite 303 Parking Spaces, as reasonably determined by Lessor, from
time to time. Lessee's use of the Suite 303 Parking Spaces shall be subject to
the same terms and conditions as are applicable to Lessee's use of the Existing
Parking Spaces.
(e) Condition of Suite 303. Lessee shall take Suite 303 "as-is", in
the condition in which Suite 303 is in as of the Commencement Date in respect of
Suite 303, without any representation or warranty by Lessor to Lessee as to the
condition of Suite 303 or the Building, and without any obligation on the part
of Lessor to prepare or construct Suite 303 for Lessee's occupancy.
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(f) Lessor's Contribution. Lessor shall not be obligated to provide
any Lessor Contribution to Lessee in respect of Suite 303.
(g) Lessee's Extension Option. Lessee's remaining extension option
(i.e. relating to the Second Extended Term) shall apply to Suite 303. The rental
payable by Lessee in respect of Suite 303 for the Second Extended Term shall be
based upon one hundred (100%) percent of the Market Rent of Suite 303,
determined in accordance with Exhibit E to the Lease, plus the annual fair value
of the Suite 303 Parking Spaces as determined by Lessor.
(h) Confirmatory Lease Amendment. Notwithstanding the fact that
Lessee's exercise of the above-described expansion option shall be
self-executing, as aforesaid, the parties hereby agree promptly to execute a
lease amendment reflecting the addition of Suite 303. The execution of such
lease amendment shall not be deemed to waive any of the conditions to Lessee's
exercise of the herein expansion option, unless otherwise specifically provided
in such lease amendment.
9. LESSEE'S EXTENSION OPTIONS
A. The parties acknowledge that the extension of the term of the Lease
through November 30, 2004 has effected the exercise of right to extend the term
of the Lease for the First Extended Term pursuant to Section 24 of the Lease.
The parties confirm and agree that Lessee has one remaining extension option
pursuant to Section 24 of the Lease (i.e. with respect to the Second Extended
Term which would commence as of December 1, 2004 and would expire as of November
30, 2009).
B. If Lessee exercises its right, pursuant to Section 24 of the Lease to
extend the term of the Lease for the Second Extended Term, then the parties
confirm and agree that: (i) the Base Rental payable in respect of the Original
Premises shall be based upon ninety (90%) percent of the Market Rent for the
Original Premises as of December 1, 2004, determined in accordance with Exhibit
E to the Lease, (ii) the Base Rental payable in respect of all other premises
then demised to Lessee shall be based upon one hundred (100%) percent of the
Market Rent of such premises as of December 1, 2004, determined in accordance
with Exhibit E to the Lease, and (iii) the Base Rent payable in respect of all
parking spaces, other than the first five parking spaces (which shall be
provided at no cost or charge to Lessee) shall be based upon the annual fair
value of such parking spaces, as reasonably determined by Lessor, from time to
time.
10. BROKER
Each party represents to the other party that it has not dealt with any
broker in connection with the execution and delivery of this Fourth Amendment
other than Fallon Hines & O'Connor, a Trammell Crow Company. Each party shall
indemnify, defend and hold the other party harmless from any claims, losses, or
damages (including, without
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limitation, reasonable attorneys fees) arising in breach of its representations
under this Paragraph 10. Section 20 of the Lease shall have no applicability to
this Fourth Amendment.
11. NOTICES TO LESSOR
Until Lessee receives notice changing Lessor's notice address, any notices
to be sent to Lessor shall be sent to the following address:
c/o Beacon Capital Partners
One Federal Street
25th Floor
Boston, MA 02109
12. LESSEE'S RIGHT TO REDUCE THE SIZE OF THE PREMISES
Lessee shall have no right to terminate its lease of the Fourth Amendment
Premises pursuant to Paragraphs 7,8, or 9 of the Second Amendment (i.e.
Paragraphs 7, 8, and 9 of the Second Amendment shall have no applicability to
the Fourth Amendment Premises.
13. LESSEE'S SUBLETTING RIGHTS WITH RESPECT TO THE FOURTH AMENDMENT
PREMISES
Notwithstanding anything to the contrary in the Lease (including, without
limitation, Section 12 thereof), the following provisions shall apply to the
Fourth Amendment Premises:
A. Sublet Profit in respect of the Fourth Amendment Premises. In the event
of a sublease of the Fourth Amendment Premises or any portion thereof, Lessee
shall pay to Lessor, as additional rent, fifty (50%) percent of any Net Sublease
Profits, as hereinafter defined, payable in accordance with the following. "Net
Sublease Profit" shall be defined as a monthly amount equal to the amount by
which the sublease rent and other charges payable by the sublessee to Lessee
under the sublease of the Fourth Amendment Premises, or any portion thereof,
exceeds the sum of the rent and other charges payable under this Lease allocable
to the sublet portion thereof, plus a monthly amount equal to the "Sublease
Expenses", as hereinafter defined, divided by the number of months in the term
of the sublease. The Net Sublease Profit shall be payable on a monthly basis
concurrently with the sublessee's payment of rent to Lessee under the sublease.
"Sublease Expenses" shall be defined as the sum of brokerage commissions, legal
fees, design costs and construction costs incurred by Lessee in connection with
the sublease in question.
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B. Lessor's Recapture Right with Respect to Proposed Subleases of the
Fourth Amendment Premises. Lessor shall have the right to recapture portions of
the Fourth Amendment Premises which Lessee proposes to sublease, as follows:
(1) For the purposes of this Subparagraph B, a "Triggering Sublease" shall
be defined as any proposed sublease of a portion of the Fourth Amendment
Premises for a term which will terminate on or after the date one (1) month
prior to the expiration of the term of the Lease, and which either will (a)
sublease an area containing 3,130 or more of the rentable floor area, or (b)
together with other subleases of the Fourth Amendment Premises then effect,
effect the subleasing of 3,130 square feet or more of the rentable floor area of
the Fourth Amendment Premises.
(2) At the time that Lessee requests Lessor's consent to any proposed
sublease of a Triggering Sublease, Lessee shall, for sublease or assignment give
Lessor a Recapture Offer, as hereinafter defined.
(3) For the purposes hereof a "Recapture Offer" shall be defined as a
notice in writing from Lessee to Lessor which:
(a) States that Lessee desires to sublet a portion of the Fourth
Amendment Premises;
(b) Identifies the affected portion of the premises ("Recapture
Premises").
(c) Identifies the proposed sublessee and provides to Lessor
sufficient financial and other information about the proposed sublessee as
is reasonably necessary in order to enable Lessor to determine whether to
grant its consent to such proposed sublease.
(d) Includes a copy of the proposed sublease.
(e) Offers to Lessor to terminate the Lease in respect of the
Recapture Premises (i.e. Lessee's rental obligations shall be reduced
based upon in proportion to the ratio of the rentable floor area of the
Recapture Premises to the rentable Area of the premises then demised to
Lessee).
(4) Lessor shall have fifteen (15) business days to accept a Recapture
Offer. If Lessor timely accepts the Recapture Offer, then the term of the Lease
in respect of the Recapture Premises shall terminate as of the date that the
proposed sublease would have commenced had Lessor not accepted the Recapture
Offer. If Lessor does not timely give written notice to Lessee accepting a
Recapture Offer; then Lessor agrees that it will not unreasonably withhold or
delay its consent to a sublease of the Recapture Premises, to a Qualified
Transferee, as hereinafter defined. If Lessor gives written notice to Lessee
accepting a Recapture Offer ("Lessor's Recapture Notice"), then Lessor shall, at
the time
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that Lessee vacates and delivers the Recapture Premises to Lessor, reimburse
Lessee for the unamortized portion of the Allocable Portion of Lessee's Fourth
Amendment Premises Costs, as hereinafter defined. For the purposes of this
Paragraph 14(B)(4):
(i) Lessee's Fourth Amendment Premises Costs shall be defined as the
amount, if any, by which the total cost of the leasehold improvements installed
by Lessee in connection with the initial preparation of the Fourth Amendment
Premises for Lessee's occupancy exceeds Lessor's Contribution, as defined in
Paragraph 5 of this Fourth Amendment. In no event shall Lessee's Fourth
Amendment Premises Costs, for the purposes of this Paragraph 14(B)(4), exceed
One Hundred Twenty-Five Thousand Two Hundred Thirty and 00/100 ($125,230.00)
Dollars. Lessee shall submit to Lessor on or before December 31, 1999, evidence
reasonably satisfactory to Lessor of Lessee's Fourth Amendment Premises Costs.
If Lessee fails reasonably to submit satisfactory evidence of any cost to Lessor
prior to December 31, 1999, such cost shall not be included in Lessee's Fourth
Amendment Premises Costs.
(ii) With respect to any portion of the Fourth Amendment Premises, the
Allocable Portion of Lessee's Fourth Amendment Premises Costs shall be based
upon the ratio of the rentable area of such portion of the Fourth Amendment
Premises to the rentable area of the entire Fourth Amendment Premises.
(iii) The unamortized portion of the Allocable Portion of Lessee's Fourth
Amendment Premises Costs shall be based upon the effective date ("Effective
Date") that Lessor recaptures such Recapture Premises as follows:
(a) If the Effective Date occurs prior to December 31, 1999, the
unamortized portion shall be defined as one hundred (100%) percent.
(b) If the Effective Date occurs during calendar year 2000, the
unamortized portion shall be defined as eighty (80%) percent.
(c) If the Effective Date occurs during calendar year 2001, the
unamortized portion shall be defined as sixty (60%) percent.
(d) If the Effective Date occurs during calendar year 2002, the
unamortized portion shall be defined as forty (40%) percent.
(e) If the Effective Date occurs during calendar year 2003, the
unamortized portion shall be defined as twenty (20%) percent.
(5) For the purposes hereof, a "Qualified Transferee" shall be
defined as a person, firm or corporation which, in Lessor's reasonable opinion:
(a) is financially responsible and of good reputation;
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(b) is engaged in a business, the functional aspects of which, with
respect to the premises, are similar to the use of other premises
made by other office space Lessees in the Building; and
(c) is not a Lessee or sublessee of premises in the Building
(6) Notwithstanding anything to the contrary in this Paragraph B
contained, if Lessee is in default of its obligations under the Lease at the
time that it makes the aforesaid offer to Lessor, such default shall be deemed
to be a "reasonable" reason for Lessor withholding its consent to any proposed
subletting or assignment; and
(7) No subletting or assignment shall relieve Lessee of its primary
obligation as party-tenant hereunder, nor shall it reduce or increase Lessor's
obligations under the Lease. The provisions of this Subparagraph (7) shall not
be limited to the Fourth Amendment Premises and shall apply to any sublease or
assignment by Lessee.
14. LESSEE'S LIABILITY INSURANCE
All liability insurance which Lessee or its contractors are required to
carry under the Lease (including, without limitation, pursuant to Sections 9A
and 11) shall name Lessee, Lessor, and Lessor's managing agent as insured
parties.
15. WAIVER OF SUBROGATION
Any insurance carried by Lessee with respect to its property located in
the Premises or the Building shall include an endorsement denying to the insurer
rights of subrogation against Lessor's managing agent (as well as Lessor).
Lessee, notwithstanding any provisions of the Lease to the contrary hereby
waives any rights of recovery against Lessor's managing agent (as well as
Lessor) for injury or loss due to hazards covered by such insurance.
16. LIMITATIONS ON LESSOR'S LIABILITY
Lessee shall neither assert nor seek to enforce any claim against Lessor,
or Lessor's agents or employees, or the assets of Lessor or of Lessor's agents
or employees, for breach of the Lease or otherwise, other than against Lessor's
interest in the Building and in the uncollected rents, issues and profits
thereof, and Lessee agrees to look solely to such interest for the satisfaction
of any liability of Lessor under this Lease, it being specifically agreed that
in no event shall Lessor or Lessor's agents or employees (or any of the
officers, trustees, directors, partners, beneficiaries, joint venturers,
members, stockholders or other principals or representatives, and the like,
disclosed or undisclosed, thereof) ever be personally liable for any such
liability. This paragraph shall not limit any right that Lessee might otherwise
have to obtain injunctive relief against Lessor or to take any other action
which shall not involve the personal liability of Lessor to respond in monetary
damages from Lessor's assets other than the Lessor's interest in said real
estate,
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as aforesaid. In no event shall Lessor or Lessor's agents or employees (or any
of the officers, trustees, directors, partners, beneficiaries, joint venturers,
members, stockholders or other principals or representatives and the like,
disclosed or undisclosed, thereof) ever be liable for consequential or
incidental damages. Without limiting the foregoing, in no event shall Lessor or
Lessor's agents or employees (or any of the officers, trustees, directors,
partners, beneficiaries, joint venturers, members, stockholders or other
principals or representatives and the like, disclosed or undisclosed, thereof)
ever be liable for lost profits of Lessee.
17. WAIVER OF RIGHTS TO TERMINATE THE TERM OF THE LEASE IN RESPECT OF
THE EXPANDED LEASED PREMISES
A. Paragraphs 7,8 and 9 of the Second Amendment to Lease are hereby
deleted in their entirety and are of no further force or effect.
B. Effective as of November 1, 1998, Annual Base Rent in respect of the
Expanded Leased Premises shall be increased to Fifty-Seven Thousand Five Hundred
and 04/100 (i.e., a monthly payment of $4,791.67).
C. The rent adjustment percentage in respect of the Expanded Leased
Premises shall be .80%.
D. In consideration of Lessee waiving its right with respect to the
Expanded Leased Premises (i.e., as set forth in Paragraphs 7 and 9 of the Second
Amendment), Lessor shall, on November 1, 1998, pay to Lessee Ten Thousand and
00/100 ($10,000.00) Dollars.
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18. As hereby amended, the Lease is ratified, confirmed and approved in
all respects.
EXECUTED UNDER SEAL as of the date first above written.
LESSOR
CAMBRIDGE ATHENAEUM LLC, a Delaware limited liability company
By: Kendall Athenaeum, LLC, a Delaware limited liability company,
its manager
By: Beacon/PW Kendall LLC, a Delaware limited liability company, its
manager
By: Beacon Capital Partners, L.P., a Delaware limited partnership
d/b/a Beacon Capital Partners Limited
Partnership, its manager
By: Beacon Capital Partners, Inc., a Maryland
corporation, its general partner
By: /s/ Thomas Rogers
---------------------------
Name: Thomas Rogers
Title: Vice President
Hereunto Duly Authorized
LESSEE:
LEUKOSITE, INC.
By: /s/ Christopher Mirabelli Date Signed: 11/12/98
--------------------------- --------
Name: Christopher Mirabelli
Title: CEO & Director
Hereunto Duly Authorized
Date Signed:
--------------
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EXHIBIT B
LEASE DATA, FOURTH AMENDMENT
Execution Date: As of September 1, 1998
Lessor: Cambridge Athenaeum, LLC
Lessee: Leukosite, Inc.
Building: 215 First Street, Cambridge, Ma
Premises:
Original Premises:
Areas in the basement, first, and second floors of the Building,
substantially as shown on Exhibit A attached to the Lease
Second Amendment Premises:
An area on the first floor of the Building, substantially as shown
on Exhibit A attached to the Second Amendment to Lease
Third Amendment Premises:
An area on the second floor of the Building, substantially as shown
on Exhibit A attached to the Third Amendment to Lease
Fourth Amendment Premises:
Suite 203:
An area on the second floor of the Building, substantially as shown
on Exhibit A, Fourth Amendment, Sheet 1
Suite 501:
An area on the fifth floor of the Building, substantially as shown
on Exhibit A, Fourth Amendment, Sheet 3
Suite 502:
An area on the fifth floor of the Building, substantially as shown
on Exhibit A, Fourth Amendment, Sheet 3
Rentable Areas and Lessee's Shares:
<TABLE>
<CAPTION>
Area Lessee's Share
Original Premises:
<S> <C> <C>
8.59%
Second Amendment Premises: 0.80%
Third Amendment Premises: 1.41%
Fourth Amendment Premises:
Suite 203: 0.60%
Suite 501: 1.05%
Suite 502: 2.74%
-----
Total 15.19%
</TABLE>
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<PAGE> 115
Base Rent (not including parking spaces)
All Premises other than Fourth Amendment Premises:
From the date of this Amendment through October 31, 1998:
$698,050.32 per annum (i.e. monthly installments of $58,170.86
November 1, 1998 through November 30, 1999: $709,550.32 per annum
(i.e., monthly installments of $59,129.19)
December 1, 1999 through November 30,2004: $474,984.00 per annum
(i.e. monthly installments of $39,582.00)
Fourth Amendment Premises:
Suite 203:
Commencing as of the Commencement Date in respect of Suite 203
through November 30,2004: $43,075.00 per annum (i.e. monthly
installments of $3,589.58)
Suite 501:
Commencing as of the Commencement Date in respect of Suite 501
through November 30, 2004: $75,000.00 per annum (i.e. monthly
installments of $6,250.00)
Suite 502:
o Lessee shall have no obligation to pay Base Rent in
respect of Suite 502 for the period commencing as of the
Commencement Date in respect of Suite 502 and ending as
the sixtieth day after the Commencement Date in respect
of Suite 502.
o Commencing as of the date sixty (60) days after the
Commencement Date in respect of Suite 502 through
November 30, 2004: $226,200.00 per annum (i.e. monthly
installments of $18,850.00)
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<PAGE> 116
EXHIBIT A, FOURTH AMENDMENT, SHEET 1
[GRAPHIC OMITTED]
<PAGE> 117
EXHIBIT A, FOURTH AMENDMENT, SHEET 2
[GRAPHIC OMITTED]
<PAGE> 118
Exhibit B
Floor Plan of Premises
<PAGE> 119
Exhibit B
[GRAPHIC OMITTED]
<PAGE> 120
Exhibit C
Consent of Landlord
The foregoing Sublease is made with full knowledge and agreement of
Landlord and Landlord accepts the Sublease but retains all rights to approve any
future sublease or assignment, as set forth in the Prime Lease.
LANDLORD:
CAMBRIDGE ATHENAEUM LLC,
a Delaware limited liability company
By: Kendall Athenaeum, LLC, a Delaware limited liability company,
its manager
By: Beacon/PW Kendall, LLC, a Delaware limited liability company, its
manager
By: Beacon Capital Partners, L.P., a Delaware limited partnership
d/b/a Beacon Capital Partners Limited
Partnership, its manager
By: Beacon Capital Partners, Inc., a Maryland Corporation,
its general partner
By:
---------------------------
Name:
Title:
<PAGE> 121
215 First Street
Cambridge, Massachusetts
("the Building")
OVERLANDLORD'S CONSENT TO SUBLEASE
Dated as of November 17, 1998
A. The undersigned Overlandlord, as Landlord, under a certain Lease dated
June 8, 1998 (the "Lease"), by and between Cambridge Athenaeum LLC, a
Delaware limited liability company, successor in interest to Robert A.
Jones and K George Najarian, Trustees of Athenaeum Realty Nominee Trust,
Landlord, and LeukoSite, Inc., a Delaware corporation, Tenant, for
premises (the "Premises") in the Building, hereby consents to a Sublease
(the "Sublease") under the sublease dated as of November 17, 1998
("Sublease") by and between LeukoSite, Inc., as Sublandlord, and Sage
Networks, Inc., as Subtenant, of certain premises (the "Sublet Premises")
located on the fifth (5th) floor of the Building, containing 7,800
rentable square feet, provided that:
1. A copy of any notice sent pursuant to said Sublease shall be sent to
Overlandlord, do Beacon Capital Partners, Inc., One Federal Street,
Boston, Massachusetts 02110, Attention: Treasurer, certified mail,
return receipt requested;
2. Subtenant shall have no right, without Overlandlord's prior written
consent, to further sublet the Sublet Premises or any portion
thereof nor shall the Subtenant have any right, without
Overlandlord's prior written consent, to assign said Sublease.
-1-
<PAGE> 122
3. Subtenant shall name Overlandlord as an additional insured party
under any liability insurance policy which Subtenant is required to
maintain and, prior to taking possession of the Sublet Premises,
Subtenant shall deliver to Overlandlord a certificate of such
insurance.
B. Nothing herein contained shall:
1. Be deemed to diminish or relieve LeukoSite, Inc. of its primary
responsibility as party-tenant under the Lease;
2. Be deemed in any way to limit, restrict, or diminish Overlandlord's
rights under the Lease;
3. Extend, or otherwise increase, Overlandlord's obligations under the
Lease; or
4. Extend the term of the Lease.
Without limiting the foregoing, in the event that the Lease is terminated
for any reason, Subtenant shall have no further right to occupy the Sublet
Premises.
C. Anything contained in the Sublease which is contrary to provisions and
conditions of this Overlandlord's Consent shall be null and void and of no
force and effect so far as it relates to the rights and obligations of
Overlandlord.
D. Any and all alterations, additions and improvements in or to the First
Amendment Sublet Premises shall be subject to Overlandlord's prior written
consent.
E. The undersigned Overlandlord hereby reserves its right to withhold consent
where the Lease allows the Landlord to withhold consent.
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<PAGE> 123
F. The undersigned Overlandlord hereby reserves rights to withhold consent
where the Lease allows the Landlord to withhold consent.
OVERLANDLORD:
CAMBRIDGE ATHENAEUM LLC,
a Delaware limited liability company
By: Kendall Athenaeum LLC,
a Delaware limited liability company, its manager
By: Beacon/PW Kendall LLC, a Delaware limited liability
company, its manager
By: Beacon Capital Partners, L.P., a Delaware
limited partnership d/b/a Beacon Capital Partners
Limited Partnership, its manager
By: Beacon Capital Partners, Inc.,
a Maryland corporation, its general partner
By: /s/ Thomas Rogers
----------------------
Name: Thomas Rogers
Title: Vice President
Hereunto Duly Authorized
-3-
<PAGE> 1
** Indicates that information has been omitted herein pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission
simultaneously herewith.
Exhibit 10.20
- --------------------------------------------------------------------------------
AGREEMENT FOR TERMINAL FACILITY
COLLOCATION SPACE
THIS AGREEMENT made as of this 2nd day of July, 1998, (the "Effective
Date") by and between COMSTOR Corporation, a Virginia corporation, hereinafter
called "COMSTOR", and SAGE Networks, Inc., hereinafter called "Customer."
RECITALS
WHEREAS, COMSTOR currently owns or leases certain premises (the
"Premises") described in the Collocation Schedule(s) and amendments thereto, if
any, identified herewith and made a part hereof, at which certain services shall
be provided in conformity with the applicable specifications set forth in each
Collocation Schedule. Each Collocation Schedule shall only be effective upon its
being dated and subscribed to by the parties for identification purposes and
together with the terms hereof shall constitute the entire agreement between the
parties with respect to the Collocation Space (collectively the "Agreement");
and
WHEREAS, Customer desires access to the Premises to locate therein certain
telecommunications equipment and other data processing equipment used by
Customer in its Internet Web Hosting business and cabling (hereinafter the
"Equipment") for the purpose of interconnecting the Equipment with COMSTOR's
telecommunications network (the "COMSTOR Network"); and
WHEREAS, COMSTOR is willing to grant Customer a license to store equipment
in a portion of the Premises (hereinafter the "Terminal Facility") upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
COMSTOR and Customer (collectively the "Parties") hereby agree as follows:
I. LICENSE TO OCCUPY, PERMISSIBLE USE AND RELOCATION PROVISIONS.
A. COMSTOR hereby grants to Customer a non-exclusive license to use its
facilities hereinafter described and attendant space associated with such
facilities. The parties understand and acknowledge that this Agreement is
not intended to grant any legal or beneficial right, title or interest in
real property or in any leasehold estate, or to grant any possessory
right, title or interest, legal, beneficial or otherwise, in any such
property interest or estate. The license granted hereby shall not
constitute any legal or beneficial interest in personal property, but
shall be and remain a license to use said facility limited by the terms
and conditions of this Agreement. Nothing contained herein shall be
construed as altering or amending the nature of the foregoing grant.
Further, this Agreement shall be interpreted in a manner consistent with
said grant and any provision hereof which cannot be interpreted in such
consistent manner shall be null and void and unenforceable. The license
hereby granted is personal to Customer.
B. COMSTOR grants to Customer a license to store its and its customers
equipment in a portion of the Terminal Facility (the "Collocation Space"
or the "Space") depicted in each Collocation Schedule attached hereto.
C. Only upon the express written consent of COMSTOR may Customer interconnect
the Equipment with equipment or services of any local access provider
other than COMSTOR, which consent will not be unreasonably withheld. If
Customer should interconnect the Equipment with equipment or services of
any entity other than COMSTOR without obtaining the
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prior written consent of COMSTOR, Customer shall be in breach of this
Agreement and COMSTOR may pursue any legal or equitable remedy, including
but not limited to the immediate termination of the license pursuant to
Section VI, below. If access provided under the Internet Service Agreement
is down for a 24 hour period, Customer will have the right to interconnect
Equipment with a local access provider in addition to COMSTOR.
D. In connection with the Space made available hereunder during the Term,
COMSTOR shall perform services which support the overall operation of the
Terminal Facility (e.g., janitorial services, environmental systems
maintenance, and power plant maintenance) at no additional charge to
Customer.
E. Internet access and connectivity to be provided to Customer and the space
during the Term will be in accordance with the Internet Service Agreement
entered into between Customer and COMSTOR dated as of 2 July 1998, the
Terms of which are incorporated herein by reference.
F. Without expressed prior written consent of Customer, COMSTOR will
not effect in any manner either physically or electronically Customer
Equipment, except in such instances where such intervention will prevent
damage to the Equipment or other equipment located in the terminal
facility.
G. Customer shall provide to COMSTOR an update and keep current a complete
list of all persons to which Customer has granted access to the Terminal
facility.
II. TERM OF AGREEMENT, TERMINATION AND RENEWAL.
A. Customer's license to occupy each Collocation Space shall begin on the
"Requested Service Date", as set forth in paragraph 3 of each individual
Collocation Schedule or on the date COMSTOR completes the build-out of the
Space, whichever is later. The minimum term of the Customer's license to
store equipment in the Terminal Facility shall be the period set forth in
the Collocation Schedule (the "Minimum Term").
B. If COMSTOR fails for any reason to grant access to the Space to Customer
on or before the Requested Service Date (July 6, 1998 for 110v and July
13, 1998 for 220v) this Agreement shall not be void or voidable.
Notwithstanding the foregoing if COMSTOR fails to grant access to the
Space to Customer within a thirty (30) day period after such Requested
Service Date (due to any reason other than the acts or omissions of
Customer), Customer may upon written notice to COMSTOR, declare relevant
Collocate Schedule null and void with no further obligation by Customer
under the relevant Collocate Schedule, and COMSTOR shall refund all fees
and charges paid in advance by Customer. In the event that COMSTOR is
delayed in granting access to the Space to Customer for any reason other
than the acts or omissions of Customer, Customer shall not be obligated to
pay the Collocation Fee or Service Fee (as hereinafter defined) hereunder
until such time as COMSTOR tenders possession of the Space to the
Customer. Except as provided herein, COMSTOR shall not be liable to
Customer in any way as a result of such delay or failure to tender
possession.
C. Subject to the conditions specified in this Section II, Customer shall
have the option, upon at least thirty (30) days' prior written notice to
COMSTOR, to renew its license to store Equipment in the Space (the
"Renewal Periods") for the period(s) of time and on the terms and
conditions which are set forth in this Agreement and the Collocation
Schedule relevant thereto. The Minimum Term and any Renewal Periods are
sometimes collectively referred to as the "Term".
D. Customer's option to renew its license to store Equipment in the Space,
pursuant to the Terms hereof shall be contingent on the election by
COMSTOR to continue to own or lease the
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Premises in which the Space is located for the duration of the Renewal
Period(s), such election to be exercised at the sole discretion of
COMSTOR. If COMSTOR elects to exercise such option, COMSTOR will provide
Customer 120 Days prior written notice before the end of the Term.
E. Following the expiration of the first twelve months of the Term, Customer
shall have the right to terminate this Agreement upon one hundred twenty
(120) days' prior written notice to COMSTOR, subject to payment of the
termination charges set forth in Paragraph 10 of the annexed Collocation
Schedule.
F. Upon termination or expiration of the Term for each Space, Customer agrees
to remove the Equipment and other property which has been installed by
Customer or Customer's agents. In the event such Equipment or property has
not been removed within thirty (30) days of the effective termination or
expiration date, COMSTOR shall have the right, upon an additional 15 day
notice to Customer, to remove, relocate, or otherwise store such Equipment
or property at Customer's expense.
G. In the event the Terminal Facility becomes the subject of a taking by
eminent domain by any authority having such power, COMSTOR shall have the
right to terminate this Agreement. COMSTOR shall attempt to give Customer
reasonable advance notice of the removal schedule. Customer shall have no
claim against COMSTOR for any relocation expenses, any part of any award
that may be made for such taking or the value of any unexpired term or
renewed periods that results from a termination by COMSTOR under this
provision, or any loss of business from full or partial interruption or
interference due to any termination. However, nothing contained in this
Agreement shall prohibit Customer from seeking any relief or remedy
against the condemning authority in the event of an eminent domain
proceeding or condemnation which affects the Space.
III. PRICES AND PAYMENT TERMS.
A. Customer shall pay COMSTOR monthly recurring fees (the "Recurring Fees")
which shall include charges for use and equipment storage in the Space
(the "Collocation Fees"), as well as cross-connect fees (the
"Cross-Connect Fees") and power charges (the "Power Charges"), if
applicable. In addition to any Recurring Fees, Customer shall be charged
non-recurring fees for build-out of the Space (the "Build-Out Charges"),
including, where applicable, cross-connect installation fees and/or
Dispatch Labor Charges, where applicable, all of which shall be set forth
in the relevant Collocation Schedule and the Exhibits thereto. If Customer
requests that COMSTOR provide services not delineated herein or in the
collocation schedules at any time during the Term, such services shall be
provided at prices mutually negotiated by the parties.
B. Prices do not include taxes, except as specifically stated herein.
Customer agrees to pay or reimburse COMSTOR for any applicable taxes that
are levied based on the transactions hereunder, exclusive of COMSTOR's
income taxes and real estate taxes on the Terminal Facility. Any such
charges shall be invoiced and payable within the payment terms of this
Agreement. COMSTOR agrees to provide Customer with reasonable
documentation to support invoiced amounts for taxes within thirty (30)
calendar days of receipt of a Customer written request.
C. The Collocation Fee and/or Power Charges shall be increased by any
increases or decreased by any decreases, incurred by COMSTOR and required
under the lease relevant to the Premises in which the Space is located.
Customer shall pay to COMSTOR its pro rata share of any such increases
based on the number of square feet of the Space compared to the number of
square feet leased by COMSTOR under the applicable lease. COMSTOR shall
notify Customer of any such increase as soon as practicable. If such
increases in the aggregate during the Term
3
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exceed 3% then Customer shall have the right to terminate this agreement
upon ninety (90) days written notice from COMSTOR, provided such notice is
delivered to COMSTOR within thirty (30) days of COMSTOR's notice to
Customer.
D. All Recurring Fees shall be invoiced in the beginning of each month
commencing on the first day of the Term as identified in the Collocation
Schedule and thereafter, on the first day of each calendar month. Charges
for partial months shall be prorated accordingly. All Recurring Fees shall
be payable net sixty (60) days from date of invoice. Late payments shall
be subject to late charges if payment is not received within the payment
term period. The late payment charges will be calculated based on 1.5% per
month of the unpaid amount.
E. Customer agrees to reimburse COMSTOR for all reasonable repair or
restoration costs associated with damage or destruction caused by
Customer's personnel, Customer's agents, Customer's customers, or
Customer's suppliers/contractors or Customer's visitors during the Term or
as a consequence of Customer's removal of the Equipment or property
installed in the Space.
IV. ADDITIONAL TERMS GOVERNING USE OF COLLOCATION SPACE; INSTALLATION OF
EQUIPMENT.
A. Before beginning any delivery, installation, replacement, alteration or
removal work, Customer must obtain COMSTOR's written approval of
Customer's choice of suppliers and contractors. COMSTOR may request
additional information before granting approval and may require scheduling
changes and substitution of suppliers and contractors as conditions of its
approval. Approval by COMSTOR is not an endorsement of Customer's supplier
or contractor, and Customer will remain solely responsible for the
selection of the supplier or contractor and all payments for construction
work.
B. Customer shall not make any construction changes or material alterations
to the interior or exterior portions of the Space, including any cabling
or power supplies for the Equipment, without obtaining COMSTOR's written
approval for Customer to have the work performed or have COMSTOR perform
the work.
C. Customer's use of the Space, installation of Equipment and access to the
Terminal Facility shall at all times be subject to Customer's adherence to
the generally accepted industry standards, security rules and rules of
conduct established by COMSTOR for the Terminal Facility. Customer agrees
not to erect any signs or devices to the exterior portion of the Space
without submitting the request to COMSTOR and obtaining COMSTOR's written
approval, which will not be unreasonably withheld.
D. Customer may not provide or make available to any third party space within
the Collocation Space other than Customers own collocation customers
without COMSTOR's prior written consent. If Customer should provide or
make available to any third party except its own collocation customers
space within the Collocation Space without obtaining the written consent
of COMSTOR, Customer shall be in breach of this Agreement and COMSTOR may
pursue any legal or equitable remedy, including but not limited to the
immediate termination of the license pursuant to Section VI, below.
E. Customer shall be permitted to utilize the areas of Collocation Space or
Terminal Facility designated as "Personnel Areas" on "DIAGRAM 1" as
temporary workspace to house employees, and may not house or store any
server equipment in such areas, other than desktop computers and other
system monitoring computers. This agreement is neither a rental agreement
nor sublease and shall convey none of the associated or implied rights or
privileges of either to Customer.
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V. INSURANCE.
Customer agrees to maintain, at Customer's expense, during the entire time this
Agreement is in effect for each Collocation Space (i) Comprehensive General
Liability Insurance in an amount not less than One Million Dollars
($1,000,000.00) per occurrence for bodily injury or property damage, (ii)
Employer's Liability in an amount not less than Two Hundred Thousand Dollars
($200,000.00) per occurrence, and (iii) Worker's Compensation in an amount not
less than that prescribed by statutory limits. Prior to storing equipment in the
Collocation Space, Customer shall furnish COMSTOR with certificates of insurance
which evidence the minimum levels of Customer's insurance coverage as set forth
herein and which names COMSTOR as an additional insured.
VI. DEFAULT AND TERMINATION.
A. COMSTOR may declare the license granted hereunder to be null and void,
terminate this agreement, and, without incurring liability therefor,
prohibit Customer from using the license if (a) Customer becomes
insolvent, is generally unable to pay its debts as they become due or is
adjudicated bankrupt by a court of competent jurisdiction ; (b)
proceedings are commenced by or against Customer in any court under a
bankruptcy act or for the appointment of a trustee, receiver of Customer's
property or establishment of a debtor-in-possession, and the same is not
dismissed within (60) days (c) Customer defaults in paying all or part of
the Recurring Fees, late charges or interest under Article III hereof when
due, or (d) Customer fails to perform any other covenant, agreement,
condition, rule, or regulation now or subsequently contained herein for
more than 30 days after COMSTOR gives written notice thereof. Such period
of 30 days may be extended by COMSTOR in its sole reasonable discretion
where the Customer is unable to cure such default within such period due
to facts and circumstances beyond its control despite proceeding in good
faith using its best efforts. Such sole discretion shall not be withheld
unreasonably. Failure by COMSTOR to exercise any of its rights hereunder
shall not constitute a waiver of any past, present or future right or
remedy.
B. If COMSTOR fails to perform its obligations hereunder, Customer may, at
its sole option and with written notice, issue a default termination
letter to COMSTOR to cure the default condition. If the default condition
is not remedied or if COMSTOR has not commenced curing such default
condition within the time period specified in the notice letter and
diligently continues curing such default to completion, which shall not be
less than thirty (30) days, Customer may then, without the necessity of
any further notice, discontinue performance and terminate this Agreement,
as applicable, for default and pursue any other remedies available at law
or in equity. Customer's failure to exercise any of its rights hereunder
shall not constitute or be construed by COMSTOR as being a waiver of any
past, present, or future right or remedy.
C. Beginning at any time after November 1, 1998 COMSTOR reserves the right to
rescind the license granted by this Agreement for any reason upon 120 days
prior written notice to Customer delivered no sooner than November 1,
1998; upon a determination that is in its best interest to terminate its
occupancy and use of the Collocation Space. If it terminates such
occupancy and use, it shall use its best efforts to arrange for the
occupancy and use of the Collocation Space by Customer without the
involvement of COMSTOR upon such terms and conditions as may be available
in the market.
VII. WARRANTIES, REMEDIES AND DISCLAIMERS.
A. COMSTOR shall, at COMSTOR's own expense, defend, indemnify and hold
Customer harmless against any and all claims that the Collocation Space
used by Customer hereunder infringes on any third party's property or
ownership rights. COMSTOR shall, at COMSTOR's sole option, either (i)
settle any such claim, (ii) secure valid rights for Customer's continued
use, or (iii)
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furnish equivalent Collocation Space satisfactory to Customer within the
terminal facility, that is not infringing and that can be used to satisfy
the original specifications in COMSTOR's determination. This warranty and
remedy by COMSTOR shall be valid only if (i) Customer gives COMSTOR prompt
written notice upon Customer's receipt of any such claim, (ii) Customer
provides COMSTOR with all pertinent information in its possession relative
to such claim and (iii) COMSTOR shall have sole control over the
settlement or defense of such claim.
B. Except for the warranties set forth in this Article, there are no
warranties, whether express, implied, oral, or written, with respect to
the Collocation Space or services covered or furnished pursuant to this
Agreement, including but not limited to, any implied warranty of
merchantability or fitness for a particular purpose. Moreover, the
remedies provided in this Article are exclusive and in lieu of all other
remedies.
VIII. EXCUSED PERFORMANCE.
Neither Party shall be liable to the other Party under this Agreement for any
failure or delay in performance that is due to causes beyond its reasonable
control, including but not limited to, acts of nature, governmental actions,
fires, civil disturbances, interruptions of power, or transportation problems.
IX. ASSIGNMENT OR TRANSFER.
Customer shall not assign or transfer the rights or obligations associated with
this Agreement, in whole or in part, without COMSTOR's prior written consent.
X. PUBLICITY.
Customer shall not use COMSTOR's name in publicity or press releases without
COMSTOR's prior written consent.
XI. LIMITATION OF LIABILITY.
A. In no event shall COMSTOR or any of its officers or employees be liable
for any loss of profit or revenue by Customer or for any consequential,
incidental, special, punitive or exemplary damages incurred or suffered by
Customer, nor for any loss of power or HVAC interruption, even if COMSTOR
has been advised of the possibility of such loss or damage.
B. Customer shall indemnify and hold harmless COMSTOR, its officers and
employees, servants, agents, affiliates and parent, from and against any
and all claims, cost, expenses or liability arising out of Customer's use
of the Collocation Space or Customer's operation of the Equipment within
the Collocation Space, plus reasonable attorney fees incurred by the Party
who incurred such loss or damage.
C. Notwithstanding anything to the contrary contained herein, each Party
shall be liable to the other for damage or loss to any property or persons
if such damage or loss is caused by gross negligent or willful act or
omission of such Party or its officers, employees, servants, agents,
affiliates or contractors or by the malfunction of any equipment supplied
or operated by said Party.
XII. SURVIVAL PROVISIONS.
The Parties rights and obligations which by their nature would extend beyond the
termination, cancellation or expiration of this Agreement shall survive such
termination, cancellation or
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expiration.
XIII. NOTICES.
All notifications made hereunder shall be in writing and shall be delivered
either by certified mail, return receipt requested. (in which case notice is
effective 3 days after mailing) or by overnight courier ( in which case notice
is effective upon day of receipt). All notifications and transmittals to COMSTOR
issued pursuant to the provisions of this Agreement shall be sent to:
c/o Comstor Corporation Eisenhower, Tarby and Laufer, P.C.
14116 Newbrook Drive 10476 Armstrong Street
Chantilly, VA 20151 Fairfax, VA 22030
ATTN: Ken Canard, VP, Technology Attn: Rick Tarby, Councel
All formal notices and transmittals to Customer shall be sent to all three of
the following locations:
Sage Networks Sage Networks, Inc.
215 First Street 11 Martine Avenue
3rd floor D-Wing 12th floor
Cambridge, MA 02142 White Plains, NY 10606
ATTN: Rajat Bhargava, COO ATTN: Bruce S. Klein, General Counsel
Sage Networks, Inc.
7925 Westpark Drive
McLean, VA 22102
ATTN: David Link, Dir. of Sales ESG
Either Party may change the notice address or addressee by providing prior
written notice.
XIV. APPLICABLE LAW.
This Agreement shall be governed by the laws of the Commonwealth of Virginia,
without regard to Virginia's choice of law principles.
XV. ENTIRE AGREEMENT.
This Agreement, including all Attachments, constitutes the entire agreement
between the Parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements of such Parties in connection herewith.
Customer acknowledges that it has not been induced to enter into this Agreement
by any representative or promise not specifically expressed in this Agreement.
Any modification made hereto shall not be valid and binding unless it is in
writing and signed by both Parties.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first above written.
COMSTOR CORPORATION SAGE NETWORKS, INC.
/s/ Barry Culman /s/ Leonard J. Fassler
- --------------------------------- ---------------------------------
Barry Culman Leonard J. Fassler,
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President Co-Chairman
- ------------------------- -------------------------
Date Date
8
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<PAGE> 9
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COLLOCATION SCHEDULE NO. 1
This Collocation Schedule is made as of this 2nd day of July, 1998 (the
"Effective Date") and subject to all definitions, terms and conditions of that
certain Agreement for Terminal Facility Collocation Space , dated as of the 2nd
dayt of July 1998 the ("Agreement") by and between COMSTOR Corporation
("COMSTOR") and SAGE NETWORKS ("Customer").
1. ADDRESS OF TERMINAL FACILITY: 2. SPACE ALLOCATION
7925 Westpark Drive As designated in "DIAGRAM 1"
Suite B1
McLean, VA 22102
3. MINIMUM TERM: 36 Month(s) 4. RENEWAL PERIOD:
Requested service date: 6 July 1998 Month to Month
5. MONTHLY RECURRING SERVICE FEES
<TABLE>
<S> <C>
Diagram 1 Striped Area in B22 ** US / month - Equipment(1,2)
Diagram 1 Striped Area in B23 ** US / month - Equipment(1,2)
Diagram 1 Striped Area in B16, B49, & B48 ** US / month - Personnel(1,2)
AC Power @ 110VAC ** / month / available AMP (3)
AC Power @ 208VAC ** / month / available AMP (3)
</TABLE>
(1) As per terms outlined in paragraph IV.E
(2) Reflect multi-year ** discount of **
(3) Does not apply to power provided in personnel areas
6. NON-RECURRING FEES
<TABLE>
<S> <C>
208 VAC Power Build-Out ** US (208 VAC to 16 Racks)
110 VAC Power Build-Out ** US (110 VAC to 20 Racks)
</TABLE>
7. ENVIRONMENT & POWER
Areas in B22 and B23 will be environmentally controlled 24x7 at STP.
COMSTOR will provide 16 x 208VAC @ 20 AMP and 120 x 10VAC @ 20 AMP
circuits, backed up by Generator, which will be terminated in B22 and B23
at rack slots designated by Customer.
8. CABLING
Customer will be responsible for all communications cabling between Customer
equipment and from SAGE equipment to non-COMSTOR carriers. Cable type and path
must be approved by COMSTOR prior to installation.
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9. SCHEDULE FOR COMPLETION
Terminal Facility Space will be available 6 July 1998, however Generator
backed up power may not be available until 15 September 1998. COMSTOR will
work diligently and make best effort to provide generator backup prior to
15 September 1998 if possible.
10. TERMINATION
Should customer terminate this agreement, for any reason, prior to MINIMUM
TERM as designated in paragraph 3 of this Schedule, customer shall be
liable to COMSTOR for termination charges as outlined in the following
schedule:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Terminated Within Termination Charges
- --------------------------------------------------------------------------------
<S> <C>
0-12 months from start of TERM Difference between ** and the **
(excluding power fees and Access Fees)
paid by Customer through termination
date
- --------------------------------------------------------------------------------
13-24 months from start of TERM Customer will pay COMSTOR **
- --------------------------------------------------------------------------------
25-35 months from start of TERM Customer will pay COMSTOR **
- --------------------------------------------------------------------------------
36 or more months from start of TERM **
- --------------------------------------------------------------------------------
</TABLE>
COMSTOR CORPORATION SAGE NETWORKS, INC.
/s/ Barry Culman /s/ Leonard J. Fassler
- --------------------------------- ---------------------------------
Barry Culman DATE Leonard J. Fassler DATE
President Co-Chairman
10
- --------------------------------------------------------------------------------
<PAGE> 1
Exhibit 21.1
Subsidiaries Jurisdiction
- --------------------------------------------------------------------------------
1. B.N. Technology, Inc. dba ICOM. California
- --------------------------------------------------------------------------------
2. Digiweb, Inc. Maryland
- --------------------------------------------------------------------------------
3. Interliant of Texas, Inc. Delaware
- --------------------------------------------------------------------------------
4. Net Daemons Associates, Inc. Massachusetts
- --------------------------------------------------------------------------------
5. Sage NDA Acquisition Corp. Massachusetts
- --------------------------------------------------------------------------------
6. Sage Networks Acquisition Corp. Delaware
- --------------------------------------------------------------------------------
7. Telephonetics, Inc. Florida
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated
February 15, 1999, except for the last paragraph of Note 12, as to which the
date is March 10, 1999, in Amendment No. 1 to the Registration Statement (Form
S-1 No. 333-74403) and related Prospectus of Interliant, Inc. (formerly Sage
Networks, Inc.) for the registration of shares of its common stock.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
April 27, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated
February 26, 1999, except for Note 11, as to which the date is March 10, 1999,
with respect to the financial statements of Interliant, Inc., included in the
Registration Statement on Form S-1 and related Prospectus of Interliant, Inc.
(formerly Sage Networks, Inc.) for the registration of shares of its common
stock.
/s/ ERNEST & YOUNG LLP
Houston, Texas
April 28, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
in the Prospectus constituting part of this Registration Statement on Form S-1
of our report dated July 13, 1998, relating to the financial statements of Tri
Star Web Creations, Inc.; our report dated September 4, 1998 relating to the
consolidated financial statements of GEN International, Inc. and Subsidiaries,
and our report dated January 24, 1999 relating to the financial statements of
Digiweb, Inc., which reports appear in such Prospectus. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
/s/ URBACH KAHN & WERLIN PC
New York, New York
April 28, 1999
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
in the Prospectus constituting part of this Registration Statement on Form S-1
of our report dated March 19, 1998, relating to the financial statements of
Clever Computers, Inc., which appears in such Prospectus. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
BSC & E
Atlanta, Georgia
April 28, 1999
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report, which includes an explanatory
paragraph regarding basis of presentation, dated August 18, 1998, relating to
the financial statements of HostAmerica, a division of HomeCom Communications,
Inc., which appears in such Prospectus. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLC
Atlanta, Georgia
April 28, 1999
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
in the Prospectus constituting part of this Registration Statement on Form S-1
of our report dated September 11, 1998, relating to the financial statements of
B.N. Technology, Inc. dba Internet Communications, which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
FRANKEL, LOGDEN, LOCHER, GOLDITCH
SARDI & HOWARD
Encino, California
April 26, 1999
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated January 15, 1999, relating to the
combined financial statements of Telephonetics International, Inc. and
Affiliate, which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO SEIDMAN, LLP
Miami, Florida
April 26, 1999
<PAGE> 1
EXHIBIT 23.8
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-74403 of Interliant, Inc. of our report dated February 2, 1999 (February 17,
1999 as to Note 10) relating to the financial statements of Net Daemons
Associates, Inc. appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Boston, Massachusetts
April 27, 1999
<TABLE> <S> <C>
Exhibit 27.1
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-1-1998 JAN-1-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 6,813 4,376
<SECURITIES> 0 0
<RECEIVABLES> 1,126 5,790
<ALLOWANCES> (320) (692)
<INVENTORY> 0 0
<CURRENT-ASSETS> 8,259 11,993
<PP&E> 5,801 12,894
<DEPRECIATION> (698) (1,427)
<TOTAL-ASSETS> 27,219 102,432
<CURRENT-LIABILITIES> 4,504 17,455
<BONDS> 0 0
0 0
0 13,000
<COMMON> 192 310
<OTHER-SE> 22,523 70,752
<TOTAL-LIABILITY-AND-EQUITY> 27,219 102,432
<SALES> 4,905 5,434
<TOTAL-REVENUES> 4,905 5,434
<CGS> 3,236 3,251
<TOTAL-COSTS> 14,753 12,692
<OTHER-EXPENSES> 0 41
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (9,710) (7,245)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (9,710) (7,245)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (9,710) (7,245)
<EPS-PRIMARY> (1.10) (0.29)
<EPS-DILUTED> (1.10) (0.29)
</TABLE>
