As filed with the Securities and Exchange Commission on January 8, 1999
Registration No. 333-_________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LOG ON AMERICA, INC.
(Name of Small Business Issuer in its Charter)
7375 05-0496586
Delaware (Primary Standard Industrial (I.R.S. Employer
(State of Incorporation) Classification Code Number) Identification No.)
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3 Regency Plaza
Providence, Rhode Island 02903
(401) 459-6298
(Address and telephone number of principal
executive offices and principal place of business)
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David R. Paolo, President
Log On America, Inc.
3 Regency Plaza
Providence, Rhode Island 02903
(401) 459-6298
(Name, address and telephone number of agent for service)
Copies to:
Michael H. Freedman, Esq. Lawrence B. Fisher, Esq.
Silverman, Collura, Chernis & Balzano, P.C. Orrick, Herrington & Sutcliffe LLP
381 Park Avenue South, Suite 1601 30 Rockefeller Plaza, 40th Floor
New York, New York 10016 New York, New York 10112
Telephone (212) 779-8600 Telephone (212) 506-3660
Facsimile (212) 779-8858 Facsimile (212) 506-3730
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Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this Registration Statement.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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 registration statement 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,
check the following box. [ ]
================================================================================
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, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
===========================================================================================================================
Proposed
Proposed Maximum Maximum
Title of Each Class of Securities to be Amount to be Offering Price Per Aggregate Offering Amount of
Registered Registered Share(1) Price (1) Registration Fee
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value 2,300,000(2) $7.50 $17,250,000 $4,795.50
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Representative's Warrants to purchase
shares of Common Stock 200,000 $.0001 $20 $0(4)
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Common Stock Issuable Upon Exercise of
Representative's Warrants 200,000(3) $9.00 $1,800,000 $500.40
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Common Stock held by Selling
Securityholders 1,896,116 $7.50 $14,220,870 $3,953.40
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Common Stock underlying Warrants held
by Selling Securityholders 1,131,921(3) $7.50 $8,489,407.50 $2,360.06
- ---------------------------------------------------------------------------------------------------------------------------
Total 5,728,038 -- $41,760,305 $11,609.36
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</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457 of the Securities Act.
(2) Includes 300,000 shares of Common Stock Issuable upon exercise of an
over-allotment option granted to the Underwriter.
(3) Pursuant to Rule 416 of the Securities Act, there are also being
registered hereby such additional indeterminate number of shares of Common
Stock as may become issuable pursuant to the anti-dilution provisions of
the Representative's Warrants.
(4) No registration fee is required pursuant to Rule 457 of the Securities
Act.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 8, 1999
2,000,000 Shares
LOG ON AMERICA, INC.
Common Stock
This is an initial public offering of shares of Common Stock of Log On
America, Inc. ("LOA") No public market currently exists for our shares. We
anticipate that the initial public offering price will be between $7.00 and
$8.00 per share. We have applied to list the Common Stock on the American Stock
Exchange ("AMEX") under the symbol "LOA." The market price of the securities may
differ after the offering.
Please see the Risk Factors beginning on page 7 to read about certain
factors you should consider before buying shares of Common Stock.
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the accuracy
or adequacy of this Prospectus. Any representation to the contrary is a criminal
offense.
-------------------------
Per Share Total
--------- -----
Initial public offering price.............. $ $
Underwriting discount...................... $ $
Proceeds, before expenses, to LOA.......... $ $
This Prospectus also relates to the registration for resale of 1,896,116
shares of Common Stock and 1,131,921 shares of Common Stock underlying warrants
for the purchase of Common Stock held by certain Selling Securityholders
identified in this Prospectus. Such shares may not be sold for a period of
twelve months from the effective date of this Prospectus without the prior
written consent of Security Capital Trading, Inc. LOA will not receive any
proceeds from the sale of such shares.
The Underwriters may, under certain circumstances, purchase up to an
additional 300,000 shares from LOA at the initial public offering price less the
underwriting discount.
This Offering is a "firm commitment" underwriting. This means that all
2,000,000 shares must be purchased by the principal Representative (subject to
certain conditions) if it purchases any of the shares. The Underwriters expect
to deliver the shares against payment in New York, New York on __________, 1999.
The information in this preliminary prospectus is not complete and may be
changed. The securities may not be sold until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell nor does it seek an offer to buy these
securities in any jurisdiction where the sale is not permitted.
SECURITY CAPITAL TRADING, INC.
Prospectus dated _______, 1999
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING PURCHASES OF COMMON STOCK TO COVER SOME OR ALL OF A
SHORT POSITION IN THE COMMON STOCK MAINTAINED BY THE REPRESENTATAIVE AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRITPION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
LOA is not currently a reporting company under the Securities and Exchange
Act of 1934, and therefore has not filed any reports with the Securities and
Exchange Commission. Upon completion of this offering, LOA intends to register
under the Exchange Act and furnish its stockholders with annual reports
containing audited financial statements reported on by independent auditors and
quarterly reports containing unaudited financial information for the first three
quarters of each fiscal year.
(Picture of man holding phone on the left); The words "Bridging the
Gap Between Voice, Date
and the Internet" on the
right, along the with
Company logo.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with the more detailed information and financial statements and
the notes relating thereto, appearing elsewhere in this Prospectus. Unless
otherwise specified, all information in this Prospectus assumes an initial
public offering price of $7.50 and no exercise of the Underwriter's
over-allotment option. You should read the entire Prospectus carefully,
including the "Risk Factors" section and the financial statements and notes
thereto.
The Company
Log On America, Inc. ("LOA") is a Northeast regional competitive local
exchange carrier ("CLEC") and Information/Internet Service Provider ("IISP")
positioning itself to provide a full range of Internet, voice, data and cable
programming solutions to commercial clients. The majority of our current
operations is providing dedicated access lines for commercial accounts. We
currently maintain a national dial-up Internet service along with commercial
Internet Protocol ("IP") transit throughout the Northeast. We, along with our
predecessor entities, have been providing on-line services, and related
products, to individual and corporate clients since November, 1992. We were
recently approved as a competitive local exchange company in the State of Rhode
Island. We believe our CLEC status will allow us to provide a full range of
local telecommunication services to our customers such as voice, data and the
Internet. Our clients include residential users, Internet Exchange Carriers
("IXC"), Internet Services Provides ("ISP"), wireless carriers and business,
government and institutional end users. We intend to provide to our clients all
of all of our services in selected cities with a population of 200,000 to
1,000,000.
In 1997, Log On America, Inc., a Rhode Island corporation ("LOARI") sold
100% of its assets to Global Telemedia International, Inc. ("GTMI") and agreed
to change its name to Tekcom, Inc. In consideration of the sale of LOARI, GTMI
agreed to: (i) assume all outstanding liabilities of LOARI; and (ii) pay LOARI
shareholders 20% of the value of all LOARI business on the third anniversary of
the purchase ("Contingent Sum"). To transfer the assets and liabilities of
LOARI, GTMI formed a wholly owned subsidiary, System 4, Inc. System 4, Inc., a
Delaware corporation, changed its name to Log On America, Inc. in July 1997.
Wan Secure, Inc. ("WS") was organized in Delaware in January 1998 to
purchase 100% of the outstanding capital of LOA from GTMI. Pursuant to such
acquisition, LOA became a wholly owned subsidiary of WS. In consideration for
the purchase, WS executed a note in the amount of $100,000 (the "GTMI Note").
The GTMI Note was personally guaranteed by David R. Paolo, WS's majority
shareholder. In September 1998, WS effected a merger with and into LOA whereby
WS was the survivor. Simultaneously with the merger, WS changed its name to Log
On America., Inc.
In and around February 1998, 100% of the shareholders of Tekcom, Inc.
(formerly LOARI) agreed to surrender and release all rights and claims to the
Contingent Sum. As
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consideration for such surrender and release, Tekcom shareholders received an
aggregate of 795,130 shares of LOA. In July 1998, GTMI accepted a settlement of
the GTMI Note. In consideration for such settlement, GTMI received $25,000.
As a result of the aforesaid transactions, we are a successor in interest
to WS, System 4, Inc. and LOARI.
We incorporated in Rhode Island ("LOARI") in 1992 and, subsequent to the
aforesaid transactions, we are now a Delaware corporation. Our principal offices
are located at 3 Regency Plaza, Providence, Rhode Island 02903, telephone (401)
459-6298, facsimile (401) 459-6222, email: [email protected], and we maintain a
website at "www.loa.com." Nothing contained on our website should be construed
as a part of this Prospectus.
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THE OFFERING
Shares of Common Stock
Offered by LOA..........2,000,000 shares of Common Stock (2,300,000 if the
Underwriter's over-allotment option is exercised in
full).
Securities Outstanding
Upon Completion of
this Offering...........6,610,716shares of Common Stock issued and outstanding
(6,910,716 if the Underwriter's over-allotment option is
exercised in full)(1).
Use of Proceeds.........We intend to use the net proceeds from the sale of the
Common Stock to: (i) finance network expansion and
equipment upgrades, (ii) strategic acquisitions, (iii)
marketing and sales activity, and (iv) working capital
and general corporate purposes.
Risk Factors............The shares of Common Stock offered by us are highly
speculative, involve a high degree of risk and immediate
and substantial dilution and should not be purchased by
an investor who cannot afford the loss of his or her
entire investment.
Proposed American Stock
Stock Exchange Symbol .."LOA"
- ---------------------------
(1) Excludes (i) 1,131,922 shares of Common Stock reserved for issuance upon
the exercise of warrants; and (ii) 200,000 shares of Common Stock reserved
for issuance upon the exercise of the Underwriter's Warrants.
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Summary Financial Data
The following summary financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" and the financial statements and Notes thereto, included elsewhere in
this Prospectus. The statement of operations data for the years ended December
31, 1997 and 1996, and the balance sheet data for the year ended December 31,
1997 are derived from LOA's audited Financial Statements included elsewhere in
this Prospectus. The statement of operations data for the nine month periods
ended September 30, 1998 and 1997, and the balance sheet data for the nine month
period ended September 30, 1998 have been derived from unaudited financial
statements and include all adjustments (consisting of only normal recurring
adjustments) that LOA considers necessary for a fair statement of the results of
such interim periods. The operating results for the nine months ended September
30, 1998 are not necessarily indicative of the results to be expected for the
full year or for any future period.
<TABLE>
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For the Nine
Months Ended Year Ended
September 30, December 31,
------------- ------------
(unaudited)
1998 1997 1997 1996
---- ---- ---- ----
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Statement of Operations Data:
Revenues $ 551,304 $ 217,038 $ 351,560 $ 186,702
Total Operating Costs
and Expenses $ 727,249 382,395 629,584 323,517
Net loss $ (178,228) $(167,825) $(280,001) $(163,036)
=========== ========= ========= =========
Basic and diluted net loss per share $ (.05) $ (1,661) $ (2,772) $ (1,614)
Shares used in computing basic and
diluted net loss per share 3,708,770 101 101 101
</TABLE>
December 31, 1997 September 30, 1998
----------------- ------------------
(Unaudited)
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Actual Actual As Adjusted(1)
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Balance Sheet Data (end of period):
Cash........................... -- $ 69,911 $13,823,145
Working Capital (Deficit)...... (384,126) $(279,870) $13,551,640
Total Assets................... 362,655 $ 602,204 $16,711,438
Total Debt..................... 22,796 $ 18,486 $ 0
Total Liabilities.............. 463,396 $ 454,908 $ 364,142
Stockholders' Equity
(Deficit).................... (100,741) $ 147,296 $16,347,296
</TABLE>
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(1) The as adjusted balance sheet data as of September 30, 1998 gives effect
to (i) the completion on December 22, 1998 of a private placement of
369,216 shares of Common Stock at $3.25 per share ("December Placement");
and (ii) the 2,000,000 shares offered hereby at an assumed initial
offering price of $7.50 per share and the application of the net proceeds
therefrom.
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RISK FACTORS
The shares of Common Stock offered hereby are highly speculative in nature
and involve a high degree of risk. Therefore each prospective investor should
consider very carefully certain risks and speculative factors inherent in and
affecting our business prior to the purchase of any of the shares of Common
Stock offered hereby, as well as all of the other matters set forth elsewhere in
this Prospectus.
Limited Operating History - Anticipated Future Losses.
Our historical financial data is not reliable as a basis upon which to
predict our future revenues or operating expenses for a number of reasons,
including our limited operating history, the emerging nature of the Internet
industry, and our growth strategy.
In addition, we have suffered recurring losses from operations since our
inception and have recorded limited revenues to date and expect to operate at a
loss for the foreseeable future. Our business must be considered in light of the
risks, expenses, and problems frequently encountered by companies with a limited
operating history. For example, since 1992, we have incurred substantial
operating losses and as of September 30, 1998, our accumulated deficit was
approximately $178,228. The continuation of our operations is contingent upon
our success in establishing markets for our products and services and achieving
profitable operations. Although we intend to expand our marketing of products
and services, no assurance can be given that we will be able to achieve these
objectives or that, if these objectives are achieved, we will ever be
profitable. Such operations will also require additional financing for us in the
form of debt or equity. There can be no assurance that we will be able to
achieve profitability and, if achieved, sustain such profitability, nor can
there be any assurance as to when such profitability might be achieved. If we
are unsuccessful in addressing any of these risks, it could have a material
adverse effect on our business, results of operations and financial condition.
Planning the development of our business, and accurately predicting our
future revenues and expenses, is difficult because our business and the industry
in which we compete are in the early stages of development. We also expect that,
as in many new industries, there will be intense competition. Our potential
customers and users will be intensely competitive. Our potential customers and
users will experiment with many different products until it becomes apparent
which ones work best. We believe that this will result in a wide range of
pricing models for a variety of difference services and will decrease the
predictability of our revenues.
In addition, at this early state of development, our business and
financial condition could be damaged materially by cancellation or non-renewal
of existing or future client contracts. This could happen if the perceived value
of our services falls below the expectations of our current or prospective
clients, or for many other reasons. Given the possibility of such revenue
fluctuations, we do not believe that quarterly comparisons of the results of our
operations during any fiscal year or from year to year are
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necessarily meaningful or useful to predict future results. Also, the price at
which our securities trade may be subject to substantial volatility because of
fluctuations in our financial results.
Significant Capital Requirements; Dependence on Offering Proceeds; Need for
Additional Financing.
We anticipate, based on our currently proposed plans and assumptions, that
the proceeds of the sale of the shares of Common Stock offered hereby will be
sufficient to satisfy our contemplated cash requirements for at least the 12
month period following the consummation of this Offering. After such time, we
will require additional funding. There is no current arrangements with respect
to sources of additional financing. There can be no assurance that other
additional financing will be available on commercially reasonable terms, or at
all. The inability to obtain additional financing, when needed, would have a
material adverse effect on us, including possibly requiring us to curtail or
cease operations. To the extent that any future financing involves the sale of
our equity securities, our then existing stockholders shares, including
investors shares in this Offering, would be substantially diluted. To the extent
we incur indebtedness or otherwise issues debt securities, we will be subject to
risks associated with indebtedness, including the risk that interest rates may
fluctuate and cash flow may be insufficient to pay principal and interest on
such indebtedness.
Limited Sales Force and Channels of Distribution.
Currently we have a limited number of sales and marketing employees and we
have not established distribution channels for our services and products. There
can be no assurance that we will be able to develop a sufficient sales force and
marketing group. The inability to develop a sufficient sales force and marketing
group would have a material adverse effect on our business, results of
operations and financial condition.
Dependence on Computer Infrastructure; Lack of Insurance.
Substantially all of our communications hardware and certain of our
computer hardware operations are located at our offices in Providence, Rhode
Island. There can be no assurance that a system failure at our present location
would not adversely affect the performance of our services. Our system is
vulnerable to damage from fire, flood, earthquakes, power loss,
telecommunications failures, break-ins and similar events. Moreover, we do not
presently have a disaster recovery plan, carry any business interruption
insurance or have a any secondary "Off-Site" systems or a formal disaster
recovery plan.
Despite our implementation of network security measures, our servers are
vulnerable to computer viruses, physical or electronic break-ins and similar
disruptive problems. Computer viruses, break-ins or other problems caused by
third parties could lead to interruptions, delays or cessation in service to
users of our services and products. The occurrence of any of these risks could
have a material adverse effect on our business, results of operations and
financial condition.
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Liability for Information Retrieved from the Internet.
There is a risk that materials may be downloaded and distributed to others
by the on-line or Internet services operated or facilitated by us or the
Internet access providers with which we have a relationship with. In the event
this were to happen there is the potential that claims may be made against us
for defamation, negligence, copyright or trademark infringement or some other
theory. Such claims or the imposition of liability may have a material adverse
effect on our business, results of operations and financial condition.
Internet Security and E-Commerce Risks.
A significant barrier to e-commerce and communications over the Internet
has been the need for secure transmission of confidential information. Internet
usage could decline if any well-publicized compromise of security occurred. 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 information or credit card information, users
could possibly sue us or bring claims against us.
Need to Manage Growth Effectively
The pursuit of our business strategy will place a significant strain on
our managerial, operational and financial resources. We will need to improve our
financial and management controls, reporting systems and procedures; expand,
train and manage our work force for marketing, sales and support, product
development, site design, and network and equipment repair and maintenance, and
manage multiple relationships with various customers, strategic partners and
other third parties. We will need to continually expand and upgrade our
technology infrastructure and systems and ensure continued high levels of
service, speedy operation, and reliability. In addition, we will have to improve
our methods for measuring the performance and commercial success of our
different products to better respond to customers demands for information on
product effectiveness and to better determine which products and services can be
developed most profitably.
Dependence on the Internet
To achieve our objectives, we may have to acquire technologies or products
or enter into strategic alliances and acquisitions. For those initiatives to
succeed, we must make our existing technology, business, and systems work
effectively with those of our strategic partners and any acquired properties
without under expense, distraction of management from other priorities or other
disruptions to our existing business. Currently, our market is highly dependent
upon the increased use of the Internet by consumers for information,
publication, distribution and commerce. Our future operating results will depend
substantially upon the increased use of the Internet by individuals and
companies for information, publication, distribution and commerce. Critical
issues concerning the commercial use of the Internet (including security,
reliability, cost, ease of use, access, and quality of service) remain
unresolved and may impact the growth of Internet use. If widespread commercial
use of the Internet does not
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develop, our business, results of operations and financial condition will be
materially adversely affected.
Moreover, the success of our services and products depend, in large part,
upon the development of an infrastructure for providing Internet access and
services. The Internet has experienced, and it is expected to continue to
experience, significant growth in the number of users. There can be no assurance
that the Internet infrastructure will continue to be able to support the demands
placed on it by this continued growth in use. The Internet could also lose its
viability due to delays in the development or adoption of new standards and
protocols to handle increased levels of internet activity, or due to increased
governmental regulation. There can be no assurance that the infrastructure or
complementary services necessary to make the Internet a viable commercial
marketplace will be developed, or, if developed, that the Internet will become a
viable commercial marketplace for services and products such as the services
that we currently offer. If the necessary infrastructure or complementary
services or facilities are not developed, or if the Internet does not become a
liable commercial marketplace, our business, results of operations and financial
condition will be materially adversely affected.
Security Risks.
Although we are not aware of any attempts by programmers or "hackers" to
penetrate our network security, there can be no assurance that such actions will
not occur in the future. A party who is able to penetrate our network security
could misappropriate proprietary information or cause interruptions in the
operation of our Web sites, which could have a material adverse effect on our
business, financial condition and results of operations. We may be required to
expend significant capital and resources to protect against the threat of such
security breaches or to alleviate problems caused by such breaches. Concerns
over the security of Internet transactions and the privacy of users may also
inhibit the growth of the Internet generally, particularly as a means of
conducting commercial transactions. Security breaches or the inadvertent
transmission of computer viruses could expose us to a risk of loss or litigation
and possible liability. Our business, results of operations, and financial
condition could be materially adversely effected if contractual provisions
attempting to limit our liability in such areas are not successful or
enforceable, or if other parties do not accept such contractual provisions as
part of our agreements.
Possibility of Economic Downturn
Any substantial downturn in economic conditions or any significant
increase in the cost of operations in general could significantly depress
discretionary consumer spending and, therefore, have a material adverse effect
on our sales of products and services. In addition, the future unavailability of
attractive financing rates could adversely affect our business.
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Management's Discretion in Application of Net Proceeds.
Our intention is to allocate a substantial amount of the net proceeds of
from this Offering to the acquisition, development and marketing of our various
business activities. Investors in this Offering will not be able to direct the
use of these funds or have any opportunity to review the development and or
marketing of products. Investors must therefore rely on our management for
directing the expenditure of the Offering proceeds. There can be no assurance
that any such acquisition, development or marketing will prove successful.
Internet Competition.
The Internet connectivity business is highly competitive, and there are no
substantial barriers to entry and it is our belief that competition will
intensify. Currently, our primary competitors include such companies as: (i)
national Internet Service Providers (Netcom On Line Communication Services,
Inc., PSINet, Inc., UUNET Technologies, Inc. and BBN Corp.); (ii) regional
providers; (iii) on-line service provide (America Online, Inc.); and (iv)
regional telephone companies and long distance companies such as MCI Worldcom,
Inc. and AT&T Corp. Many of our current and potential competitors have
substantially greater human and financial resources, experience, and brand name
recognition than us, and may have significant competitive advantages through
other lines of business and existing business relationships. Furthermore,
additional major media and other companies with financial and other resources
substantially greater than ours may introduce new Internet products and services
addressing these markets in the future. Our future growth and profitability will
depend, in part, upon consumer and commercial acceptance of our voice, data and
Internet technology, and significant penetration of our Internet related
products and services. There can be no assurance that our competitors will not
develop products or services that are superior to ours or achieve greater market
acceptance than our products and services. Competition could have a material
adverse effect on our ability to consummate arrangements with clients or enter
into strategic business alliances, or on our business, financial condition and
results of operations. Moreover, as a strategic response to changes in the
competitive environment, we may make certain pricing, service or marketing
decisions or enter into acquisitions or new ventures that could have a material
adverse effect on our business, financial condition and results of operations.
Regulation, Rules and Governing Law.
We are currently subject to regulation by the Federal Communications
Commission ("FCC") and related state agencies. Additionally, we may be required
to file related applications with the FCC.
In so far as the Internet is a relatively new medium, the legal
obligations and First Amendment rights of service providers and participants in
the Internet, are not well defined and are evolving. The Internet has not been
subject to regulation by the FCC or other governmental agencies, and standards
applicable to print publishers and television in respect of the law of
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defamation and obscenity are not clearly applicable to the Internet. To the
extent these issues have been considered by the courts, outcomes have not been
uniform.
In 1996, Congress passed a telecommunications act which, among other
things, includes protection from liability for Internet providers who take steps
to prevent defamatory material from being published on the Internet and also
includes provisions to protect children from indecent material on the Internet.
Certain provisions of that legislation regarding the imposition of criminal
penalties for publication of indecent materials on the Internet were recently
held to be unconstitutional by the United States Supreme Court. In addition, the
adoption of additional laws in the United States and in foreign countries could
adversely affect our business
No Assurance as to Future Acquisitions.
Our business plan calls for the acquisition of certain competitors. Our
ability to achieve our expansion plans depends in large part on our sound
business judgment relative to quality targets and our negotiating strength.
There can be no assurance, however, that our acquisition targets will be
receptive to our proposals or that we will be able to enter into acquisition
agreements on acceptable terms, if at all. Moreover there can be no assurance
that once acquisitions are made they will have a positive effect on our
operations.
Early Stage Products and Technology.
The market in which we compete is characterized by rapidly changing
technology, evolving industry standards, frequently introduced new services,
products and enhancements and changing customer demands. Our products and
technology will depend, in part, upon the ability to develop and manage customer
applications of those products and technologies. Many of our anticipated
products and service applications are in the early stages of development and/or
marketing, and are subject to the risks inherent in the development and
marketing of new products and services. Many of our competitors have already
introduced products that include one or more of the features incorporated in our
products. We expect that our competitors may attempt to replicate the technology
of our products or employ competing technologies, if our products are
commercially successful. Our risks include competition from telecommunication
companies, computer software, and technology or service companies, failure of
our products to attain widespread acceptance in the marketplace, and the
development of unforeseen design or engineering problems with our products and
applications. There can be no assurance that these or other risks associated
with new product and service development or introduction will not occur. The
occurrence of one or more of these risks could have a materially adverse effect
on our financial condition and operating results.
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Dependence on Third Party Suppliers.
We depend in large part on third-party suppliers for our access to the
Internet through leased telecommunications lines, such as Bell Atlantic Corp.
and MCI Worldcom, Inc.. Although this access is available from several
alternative suppliers, there can be no assurance that we can obtain substitute
services from other providers at reasonable or comparable prices or in a timely
manner. We are also dependent upon the regional telephone operating company
(Bell Atlantic) to provide installations of circuits and to maintain those
circuits. Substantial failure by any of these third parties to perform as we
require could materially adversely affect our business, operations, and
financial condition.
Dependence on Key Personnel.
Our ability carry out our proposed activities will be dependent, to a
substantial degree, upon the efforts of our CEO, David Paolo. The loss of the
services of Mr. Paolo, or his incapacity to perform his duties would have a
material adverse effect upon our activities and prospects. We do not have key
man life insurance coverage on the life of Mr. Paolo. Our success is also
dependent on our ability to recruit and motivate high quality personnel. There
can be no assurance that we will be able to hire and retain such personnel. The
loss of the services of any of our key employees or officers could adversely
affect on our business.
Dilution of Common Stock.
Dilution represents the difference between the offering price and the net
tangible book value per share immediately after the completion of the Offering.
The net tangible value of the presently outstanding shares will, at no
additional cost to the holders thereof, be increased from approximately
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$.03 per share as of September 30, 1998 to $.29 per share as of December 22,
1998 as a result of our $1,200,000 private placement of 369,216 shares of Common
Stock ("December Placement"). The net tangible book value will increase to $2.47
if all of the shares are sold in this Offering ($2.69 if the Underwriter's
over-allotment is exercised in full). The shares of Common Stock acquired by the
public investors at $7.50 per share will have the same net tangible book value
of $2.47 per Share ($2.69 if the Underwriter's over-allotment is exercised).
Investors in this Offering will thus suffer an immediate loss of $5.03 per share
($4.81 if the Underwriter's over-allotment is exercised in full) in the net
tangible book value of each share purchased.
Control by Directors and Executive Officers.
Upon completion of this Offering, our present Stockholders will own
approximately 70% of the then outstanding shares of Common Stock. Therefore, the
majority of outstanding shares will be owned by our existing Stockholders and
these shareholders will poses voting control, giving them the ability to amend
corporate filings, elect all of our board of directors, and otherwise control
all matters requiring approval by our the shareholders, including approval of
significant corporate transactions. The purchasers of the shares of Common Stock
offered hereby would have no effective voice in our management and we would be
controlled by the existing Stockholders.
No Prior Public Market.
Prior to the Offering, there has been no public market for our Common
Stock. Although we intend to apply for listing of the Common Stock offered
hereby on the American Stock Exchange, there can be no assurance that an active
trading market will develop or be maintained. The market prices for securities
of Internet companies have historically been volatile. Factors that could cause
the market price of the Common Stock to fluctuate substantially include but are
not limited to:
o future technological innovations;
o new commercial products;
o changes in regulation;
o period to period fluctuations in financial performance; and
o fluctuations in the securities markets.
Such price changes have often been unrelated to the operating performance
of the affected companies. These broad market fluctuations may adversely affect
the market price of the Common Stock.
Arbitrary Determination of Offering Price
Our initial public offering price for the shares of Common Stock offered
hereby will be determined by negotiations between us and Security Capital
Trading, Inc. ("Security Capital"), the Representative of several Underwriters,
and may bear no relationship to the price at which the
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<PAGE>
Common Stock may trade after completion of this Offering. Factors which may be
considered in determining the initial public offering price include but are not
limited to:
o the information set forth in this Prospectus and otherwise available to
Security Capital;
o the history of and the prospects for the industry in which we operate;
o the assessment of our management;
o our past and present operations;
o our prospects for future earnings;
o the present state of our development;
o the general condition of the securities markets at the time of this
Offering; and
o the recent market prices of and the demand for publicly traded common
stock of generally comparable companies.
A decline in the trading price of the Common Stock could also impact
negatively upon our ability to raise additional equity capital in the future.
Impact of Potential AMEX Delisting on Marketability of Securities; Broker\Dealer
Sales of Our Securities.
We intend to list our Common Stock on the American Stock Exchange
("AMEX"). AMEX has rules which establish criteria for the continued listing of
securities on AMEX. Generally, AMEX will consider delisting or suspending a
company based on, among other things, the following criteria: Stockholders'
equity, operating losses, reduced market value of publicly held shares,
substantial disposition of assets, and total number of shareholders.
If we were to continue to incur operating losses, we might be unable to
maintain the standards for continued listing and the listed securities could be
subject to delisting from AMEX. If our securities are delisted, an investor
would find it more difficult to dispose of our securities or to obtain accurate
quotations as to the price of our securities. Any news coverage concerning our
delisting may also adversely affect an investor's ability to dispose of our
securities. In addition, if our securities were delisted, they would likely be
subject to a rule that imposes additional sales practice requirements on
broker\dealers who sell such securities to persons other than established
customers and accredited investors (accredited investors are generally persons
having net worth in excess of $1,000,000 or annual income exceeding $200,000, or
$300,000 together with a spouse). For transactions covered by this rule, the
broker\dealer must make a special suitability determination for the purchaser
and must have received the purchaser's written consent to the transaction prior
to sale, as well as disclosing certain information concerning the risks of
purchasing low priced securities on the market for such securities.
Consequently, delisting, if it occurred, would adversely affect the ability of
broker\dealers to sell our securities and would make subsequent financing more
difficult.
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Penny Stock Regulation.
If we are unable to meet the AMEX listing or maintenance requirements and
the price per share of our Common Stock were to drop below $5.00 per share, then
our securities would become subject to certain "penny stock" rules promulgated
by the Securities and Exchange Commission. Under such rule, broker\dealers who
recommend such securities to persons other than established customers and
accredited investors must make a special written suitability determination for
the purchaser and receive the purchaser's written agreement to a transaction
prior to sale. Securities are exempt from this rule if the market price is at
least $5.00 per share.
The Commission has adopted regulations that generally define a "penny
stock" to be an equity security that has a market price of less than $5.00 per
share or an exercise price of less than $5.00 per share subject to certain
exceptions. Such exceptions include equity securities listed on AMEX and equity
securities issued by an issuer that has: (i) net tangible assets of at least
$2,000,000, if such issuer has been in continuous operation for more than three
years, or (ii) net tangible assets of at least $5,000,000, if such issuer has
been in continuous operation for less than three years, or (iii) average revenue
of at least $6,000,000 for the preceding three years. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a risk of disclosure schedule explaining the penny
stock market and the risks associated therewith.
Shares Eligible for Future Sale.
Upon completion of this Offering, we will have 6,610,716 shares of Common
Stock outstanding (6,910,716 shares if the Underwriter's over-allotment option
is exercised in full). The 2,000,000 shares of Common Stock offered hereby
(2,300,000 shares if the Underwriter's over-allotment option is exercised in
full) will be freely tradeable without restriction or further registration under
the Securities Act, except for any shares purchased by our "affiliates," as such
term is defined in Rule 144 promulgated under the Securities Act. The
outstanding shares of Common Stock prior to the Offering are "restricted
securities" within the meaning of Rule 144. Restricted securities may only be
sold in private transactions or pursuant to Rule 144. In addition, an aggregate
of 1,131,922 shares are issuable upon the exercise of outstanding warrants. All
of such shares will be restricted securities when issued, unless registered.
We along with our Stockholders and our warrant holders have agreed to not
(without the prior written consent of Security Capital), directly or indirectly,
offer, sell, pledge, grant any option to purchase, or otherwise sell or dispose
of any shares of LOA's Common Stock or other similar securities for a period of
twelve months after the Offering. Sales of substantial amounts of Common Stock
(including shares issued upon the exercise of outstanding warrants) in the
public market after the Offering or the prospect of such sales could adversely
affect the market price of the Common Stock and may have a material affect on
our ability to raise any necessary capital to fund its future operations.
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No Dividends.
We have never paid dividends on our Common Stock and do not contemplate
paying dividends in the foreseeable future. It is Management's present intention
to retain future earnings, if any, for use in our business.
Possible Anti-Takeover Effects of Delaware Law
We are subject to the provisions of Section 203 of the General Corporation
Law of the State of Delaware. In general, Section 203 prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person becomes an interested stockholder, unless the
business combination is approved in a prescribed manner or unless the interested
stockholder acquires at least 85% of the corporation's voting stock (excluding
shares held by certain designated stockholders) in the transaction in which it
becomes an interested stockholder. A "business combination" includes mergers,
asset sales and other transactions resulting in financial benefit to the
interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within the previous three years did own, 15% or more of the corporation's voting
stock. This provision of the Delaware law could delay and make more difficult a
business combination even if the business combination would be beneficial, in
the short term, to the interests of our stockholders and also could limit the
price certain investors might be willing to pay in the future for shares of our
Common Stock.
Limitation of Liability and Indemnification.
Our certificate of incorporation limits, to the maximum extent permitted
by the Delaware General Corporation Law, the personal liability of directors for
monetary damages for breach of their fiduciary duties as directors, and provides
that we shall indemnify its officers and directors and may indemnify its
employees and other agents to the fullest extent permitted by law. Section 145
of the Delaware law provides that a corporation may indemnify a director,
officer, employee or agent made or threatened to be made a party to an action by
reason of the fact that he was a director, officer, employee or agent of the
corporation or was serving at the request of the corporation against expenses
actually and reasonably incurred in connection with such action if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
interests of the corporation, and, with respect to any criminal action or
proceeding, if he had no reasonable cause to believe his conduct was unlawful.
Delaware law does not permit a corporation to eliminate a director's duty of
care, and the provisions of our certificate of incorporation have no effect on
the availability of equitable remedies, such as injunction or rescission, for a
director's breach of the duty of care.
We may enter into indemnification agreements with its directors and
officers which may require it, among other things, to indemnify such directors
and officers against liabilities that may arise by reason of their status or
service as directors or officers (other than liabilities arising from
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willful misconduct of a culpable nature), to advance their expenses incurred as
a result of any proceeding against them as to which they could be indemnified,
and to obtain directors' and officers' insurance, if available on reasonable
terms.
Year 2000.
Like many other entities, we are currently assessing our computer software
and database with respect to its functionality beyond the turn of the century.
The extent and estimated cost of the modifications which will be required cannot
yet be determined, although it is expected that such expenditures will not have
a material effect on the financial condition and results of our operations.
In June, 1998, we began converting our computer system to be year 2000
compliant. As of December 15, 1998, all of our non-IT systems were compliant. As
of December 15, 1998, we spent $1,500 on our Year 2000 compliant efforts. This
figure includes all labor and expenses.
Lack of Experience of the Representative.
Security Capital Trading, Inc. has participated as a Representative in
only two public offerings of securities since commencing operations in June
1995. Security Capital's lack of experience may have an adverse effect on its
ability to market the securities offered hereby as well as the development and
maintenance of a trading market for our securities following the Offering.
Security Capital's inexperience may result in its inability to correctly utilize
over-allotment, stabilization and market maintenance strategies that more
experienced Underwriters utilize to assist in maintaining orderly trading
markets. This may adversely affect the price of our Common Stock and the ability
of purchasers in the Offering to resell their shares.
Risks Associated with Forward Looking Statements.
This Prospectus contains "forward-looking statements," which can be
identified by the use of such words as "intend," "anticipate," "believe,"
"estimate," "project," or "expect" or similar statements. The statements in
"Risk Factors" are cautionary statements. They identify important factors, with
respect to forward-looking statements, that could cause actual results to differ
materially from those forecasted in such statements. All forward-looking
statements in this Prospectus are expressly qualified in their entirety by the
cautionary statements in this paragraph.
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USE OF PROCEEDS
The net proceeds to LOA from the sale of the 2,000,000 shares of Common
Stock offered hereby are estimated to be approximately $12,725,000, and
$14,682,500 if the Underwriter's over-allotment option is exercised in full,
(assuming an initial offering price of $7.50 per share), after deducting
underwriting discounts and commissions, and other estimated expenses of
approximately $325,000 payable by LOA.
LOA anticipates using the net proceeds from the Offering as follows::
Amount($): Percent(%)(1)
----------- -------------
Network expansion and
equipment upgrades(2) $4,700,000 36.9%
Strategic acquisitions(3) $4,100,000 32.2%
Marketing and sales(4) $2,000,000 15.7%
Working capital and
general corporate purposes(5) $1,925,000 15.1%
- --------------------------
(1) Assumes no exercise of the Underwriter's over-allotment option.
(2) LOA intends to purchase routing and switching equipment to continue its
network buildup of the specific products and services which is currently
offered.
(3) LOA does not currently have any plans or agreements regarding
acquisitions.
(4) LOA intends to hire additional sales and marketing personnel and
advertise in various media sources.
(5) Working capital and general corporate purposes consist primarily of
selling general and administrative expenses. Proceeds from the sale of the
over-allotment option, if any, will be used for working capital and
general corporate purposes.
The foregoing represents LOA's best estimate of its allocation of the net
proceeds from the sale of shares of Common Stock offered hereby based on the
current state of LOA's business operations, LOA's current plans and current
economic and industry conditions and is subject to reallocation among the
categories listed above or for additional purposes. Accordingly, LOA will have
broad discretion as to the application of the net proceeds.
LOA believes that the net proceeds of this Offering will be sufficient to
meet its projected needs for working capital and capital requirements through at
least the 12 months following
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completion of this Offering. Pending such uses, LOA intends to invest the net
proceeds from this Offering in interest bearing accounts, certificates of
deposit, money market funds or other short term investments.
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CAPITALIZATION
The following table sets forth the capitalization of LOA: (i) as of
September 30, 1998; and (ii) as adjusted to give effect to (a) the completion of
the December Placement of 369,216 shares of Common Stock at $3.25 per share and
the application of the estimated net proceeds therefrom; and (b) the
consummation of the Offering at an assumed initial public offering price of
$7.50 per share and the application of the estimated net proceeds therefrom
which include the repayment of all outstanding debt. The table should be read in
conjunction with the Financial Statements, including the Notes thereto,
appearing elsewhere in this Prospectus.
September 30, 1998
------------------
Actual As Adjusted(1)
------ --------------
Long Term Note Payable: ................. $ 12,490 --
Stockholders' Equity (deficit):
Common Stock, $.01 par value;
20,000,000 shares authorized,
4,241,500 issued and outstanding
as of September 30, 1998; and
6,610,716 issued and outstanding,
as adjusted ............................ $ 18,070 $ 41,762
Additional paid-in capital(2) ........... $ 307,454 $ 16,483,762
--------- ------------
Accumulated deficit ..................... $(178,228) $ (178,228)
--------- ------------
Total Stockholders' equity ......... $ 147,296 $ 16,347,248
--------- ------------
Total capitalization ............... $ 147,296 $ 16,347,248
========= ============
- ----------
(1) Does not include: (i) 1,000,000 shares of Common Stock reserved for
issuance upon the exercise of outstanding warrants exercisable during the
five year period commencing January 15, 1999 at an exercise price of $1.00
per share; (ii) 13,076 shares of Common Stock reserved for issuance upon
the exercise of outstanding warrants granted on December 3, 1998, which
warrants are exercisable during the four year period commencing December
3, 1999 and expiring December 3, 2003 at $3.90 per share; 23,845 shares of
Common Stock reserved for issuance upon the exercise of outstanding
warrants, granted on December 23, 1998, which warrants are exercisable
during the four year period commencing December 23, 1999 and expiring
December 23, 2003 at $3.90 per share; (iii) 50,000 shares of Common Stock
reserved for issuance upon the exercise of outstanding warrants
exercisable during the five year period commencing December 31, 1998 at
$3.50 per share; (iv) 45,000 shares of Common Stock reserved for issuance
upon the exercise of outstanding warrants exercisable during the four year
period commencing December 31, 1998 at $3.25 per share; (v) 300,000 shares
of Common Stock issuable upon exercise of the Underwriter's over-allotment
option; and (vi) 200,000 shares of Common Stock reserved for issuance upon
the exercise of the Representative's Warrants exercisable during the four
year period
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commencing one year from the date of this Prospectus at an exercise price
of 120% of the public offering price.
(2) In January, 1998 the board of directors of LOA approved a change in
authorized common stock from 1,000 shares at no par value to 5,000,000
shares at $.01 par value. Simultaneously, the President of the Company and
then sole shareholder exchanged his 1,000 shares for 1,958,620 shares of
the newly authorized $.01 par value stock. In addition, the President
received 475,980 shares of stock issued as a result of the settlement with
the Tekcom Contingent Sum holders.
DIVIDEND POLICY
LOA has never paid any dividends on its Common Stock. LOA does not intend
to declare or pay dividends on the Common Stock, but to retain earnings, if any,
for the operation and expansion of LOA's business. Dividends will be subject to
the discretion of the Board of Directors and will be contingent on future
earnings, if any, LOA's financial condition, capital requirements, general
business conditions and such other factors as the Board of Directors deems
relevant.
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DILUTION
Purchasers of the shares of Common Stock offered hereby will experience an
immediate and substantial dilution in the net tangible book value of their
investment. The difference between the initial public offering price per share
of Common Stock and the net tangible book value per share of Common Stock after
this Offering constitutes the dilution per share of Common Stock to investors in
this Offering. Net tangible book value per share is determined by dividing the
net tangible book value (total tangible assets less total liabilities) by the
number of outstanding shares of Common Stock. As of September 30, 1998, LOA had
a net tangible book value of $147,296, approximately $.03 per share of Common
Stock. After considering LOA's December Placement of 369,216 shares at $3.25 per
share, the net tangible book value per share at December 22, 1998 is $.29 per
share. Without taking into account any other changes in such net tangible book
value of LOA after December 22, 1998, other than to give effect to the sale of
all of the shares of Common Stock offered hereby at an assumed initial public
offering price of $7.50 per share, the net tangible book value on December 22,
1998, would have been $16,347,296 or $2.47 per share, which represents an
immediate increase in the net tangible book value of approximately $2.18 or an
increase of 752% per share to existing Stockholders and an immediate dilution of
$5.03 per share or 67% to new investors. The following table illustrates this
per share dilution:
Assumed initial public offering
price per share ............................... $7.50
Net tangible book value
per share as of September 30, 1998............. $ .03
Increase per share attributable
to December Placement.......................... $0.26
Increase per share attributable
to this Offering............................... $2.18
Net tangible book value per share
after this Offering............................ $2.47
Dilution per share to new investors
post December Placement........................ $5.03
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The following table summarizes, as of December 31, 1998, the number of
shares of Common Stock purchased from LOA, the total consideration paid to LOA
and the average price per share paid by existing Stockholders and by new
investors.
Shares Purchased(1) Total Consideration
------------------- -------------------
Average
Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
Existing
Stockholders............ 4,610,716 70% $1,525,524 9% $ .33
New Investors........... 2,000,000 30% $15,000,000 91% $7.50
--------- --- ----------- --- ----
Total............. 6,610,716 100% $16,525,524 100%
--------- ---- ---------- ----
(1) Does not include (i) 1,000,000 shares of Common Stock reserved for
issuance upon the exercise of outstanding warrants exercisable during the
five year period commencing January 15, 1999 at an exercise price of $1.00
per share; (ii) 36,921 shares of Common Stock reserved for issuance upon
the exercise of outstanding warrants exercisable during the four year
period commencing December, 1999 at $3.90 per share; (iii) 50,000 shares
of Common Stock reserved for issuance upon the exercise of outstanding
warrants exercisable during the four year period commencing December 31,
1998 at $3.50 per share; and (iv) 45,000 shares of Common Stock reserved
for issuance upon the exercise of outstanding warrants exercisable during
the four year period commencing December 31, 1998 at $3.25 per share; (v)
300,000 shares of Common Stock issuable upon the exercise of the
Underwriter's over-allotment option; and (vi) 200,000 shares of Common
Stock reserved for issuance upon there exercise of the Representative's
Warrants exercisable during a four year period commencing one year from
the date of this Prospectus at an exercise price of 120% of the initial
public offering price. Should the Underwriter's over-allotment option be
exercised, the new investors will hold 2,300,000 shares of Common Stock
representing 33.3% of the outstanding shares of Common Stock after the
Offering. The proceeds of $17,250,000 would represent approximately 92% of
the total consideration paid by investors.
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SELECTED FINANCIAL DATA
The following table sets forth selected financial information with respect
to LOA as of and for the periods indicated. The statement of operations data for
the years ended December 31, 1997 and 1996, and the balance sheet data for the
year ended December 31, 1997 are derived from LOA's audited Financial Statements
included elsewhere in this Prospectus. The statement of operations data for the
nine month periods ended September 30, 1998 and 1997, and the balance sheet data
for the nine month period ended September 30, 1998 have been derived from
unaudited financial statements and include all adjustments (consisting of only
normal recurring adjustments) that LOA considers necessary for a fair statement
of the results of such interim periods. Results for the nine months ended
September 30, 1998 are not necessarily indicative of the results to be expected
for the full year or for any future period. The selected financial information
should be read in conjunction with the financial statements and notes thereto
and the discussion under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
For the Nine
Months Ended Year Ended
September 30, December 31,
------------- ------------
(unaudited)
1998 1997 1997 1996
---- ---- ---- ----
Statement of Operations Data:
Revenues .................. $ 551,304 $ 217,038 $ 351,560 $ 186,702
Total Operating Costs
and Expenses ............. $ 727,249 382,395 629,584 323,517
Net loss .................. $ (178,228) $(167,825) $(280,001) $(163,036)
=========== ========= ========= =========
Basic and diluted
net loss per share ....... $ (.05) $ (1,661) $ (2,772) $ (1,614)
Shares used in computing
basic and diluted
net loss per share ........ 3,708,770 101 101 101
December 31, 1997 September 30, 1998
----------------- ------------------
(Unaudited)
Actual Actual As Adjusted(1)
------ ------ --------------
Balance Sheet Data
(end of period):
Cash -- $ 69,911 $13,823,145
Working Capital
(Deficit) (384,126) $(279,870) $13,551,640
Total Assets 362,655 $ 602,204 $16,711,438
Total Debt 22,796 $ 18,486 $ 0
Total Liabilities 463,396 $ 454,908 $ 364,142
Stockholders' Equity
(Deficit) (100,741) $ 147,296 $16,347,296
(1) The as adjusted balance sheet data as of September 30, 1998 gives effect
to (i) the completion on December 22, 1998 of a private placement of
369,216 shares of Common Stock at $3.25 per share ("December Placement");
and (ii) the 2,000,000 shares offered hereby at an assumed initial
offering price of $7.50 per share and the application of the net proceeds
therefrom.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain information contained in this Registration Statement, including in
this "Management's Discussion and Analysis of Financial Condition and Results of
Operations," contain forward-looking statements. The forward-looking statements
contained herein are based on current expectations that involve a number of
risks and uncertainties. Such forward-looking statements are based on
assumptions which include, but are not limited to, the ability of LOA to obtain
additional financing, the ability of LOA to implement its acquisition strategy
and the success of that strategy, that LOA will continue to design, market and
provide successful new services, that competitive conditions will not change
materially, that demand for LOA's services will continue to grow, that LOA will
retain and add qualified personnel, that LOA's forecasts will accurately
anticipate revenue growth and the costs of producing that growth, and that there
will be no material adverse change in LOA's business. In light of the
significant uncertainties inherent in the forward-looking information included
in this Registration Statement, actual results could differ materially from the
forward-looking information contained in this Registration Statement. The
following discussion and analysis should be read in conjunction with the
Selected Financial Data and the Financial Statements and Notes thereto included
elsewhere herein
Overview
LOA is a Northeast regional competitive local exchange carrier ("CLEC")
and Information/Internet Service Provider ("IISP") positioning itself to provide
a full range of Internet, voice, data and cable programming solutions to
commercial clients.
LOA currently provides a variety of Internet-related services to business
organizations, including leased lines, web page hosting, web page design,
Internet set-up and sales of DEC Alpha web servers to customers in the State of
Rhode Island. LOA has developed a base of corporate and institutional customers
for its Internet services and has built the necessary network infrastructure for
an Internet service network. The majority of LOA's current operations is
providing dedicated access lines for commercial accounts. LOA maintains a
national dial-up Internet service along with commercial Internet Protocol ("IP")
transit throughout the Northeast. LOA, and its predecessor entities, has been
providing on-line services including web page hosting and design, and other
related products, to individual and corporate clients since November 1992.
LOA has been approved as a competitive local exchange company. LOA
believes its CLEC status allows it to provide a range of local telecommunication
services to its customers including voice, data, and Internet services. Such
customers may include residential users, Internet Exchange Carriers ("IXC"),
Internet Service Providers ("ISP"), wireless carriers and business, government
and institutional end users. LOA believes it will be able to provide typical
phone service such as dial tone, toll calls (in-state long distance), long
distance, as well as high-speed Internet access, through the use of home cable
into a residence.
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Currently, LOA is a retail customer of Bell Atlantic. LOA intends to market
certain new communication link services to existing customers while attempting
to gain additional market share from the ILECs. These new services include,
POP-to-Pop Special Access, End-User/IXC Special Access and Private Line.
Results of Operations
Comparison of Nine Months Ended September 30, 1998
to Nine Months Ended September 30, 1997
Revenues
LOA's revenues are primarily comprised of dial-up, dedicated access
service and web services. Revenues grew 154% from $217,038 to $551,304 for the
nine months ended September 30, 1998 as compared to the comparable period in
1997. Revenue growth performance is attributable to an increase in sales
efforts, services offered and an aggressive marketing campaign in LOA's local
market, Rhode Island.
Dial-up
During 1998, LOA expended significant marketing efforts in Rhode Island to
expand its Internet dial-up customer base through billboard advertising, radio
media, and target marketing campaigns. As a result, dial-up revenue grew from
$58,793 to $177,111 from the nine months ended September 30, 1997 as compared to
the comparable period in 1998 for an increase of 200%.
Dedicated Access Service
During the fourth quarter of 1997, LOA increased its sales efforts for
dedicated Internet access service which resulted in higher revenue growth during
1998. As a result, dedicated Internet access service business grew based
principally on ISDN, T-1 and High Speed circuit growth. Revenues grew from
$115,456 to $314,272 from the nine months ended September 30, 1997 as compared
to the comparable period in 1998 for an increase of 172%.
Web Services
During 1998, Web site hosting and consulting became more important to
LOA's new and existing customers as the popularity of the web increased as a
business tool. Accordingly, to respond to this increase in demand, LOA increased
its sales efforts and increased server capacities and speed. As a result, web
services revenue relating to Dial-up access, Point to Point, 384k & 56k Frame
Relay, xDSL, Domain Names and Web Page Design & Hosting grew from $32,975 to
$51,343 from the nine months ended September 30, 1997 as compared to the
comparable period in 1998 for an increase of 56%.
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Gross Profit
Gross profit consists of total revenue less the cost of delivering
services and equipment. Gross profit increased from $126,572 to $322,254 for an
increase of 58% for the nine months ended September 30, 1997 and 1998,
respectively.
Selling General, and Administrative Expenses
Selling general, and administrative expenses ("SG&A") increased from
$291,929 in the nine months ended September 30, 1997 to $495,375 in the nine
months ended September 30, 1998 for an increase of 70%. These increases were
primarily attributed to six additional personnel and overhead costs associated
with LOA's expansion efforts, including additional telecommunication costs of
approximately $106,000 relating to building out LOA's network backbone.
Advertising
Advertising expenses were $4,600 for the nine months ended September 30,
1997, and $64,820 for the nine months ended September 30, 1998 for an increase
of 1,039%.
Legal and Accounting
Legal and accounting expenses increased from $19,206 in the nine months
ended September 30, 1997 to $28,524 in the nine months ended September 30, 1998
for an increase of 50%. This increase resulted from legal and accounting work
required in preparation of LOA's September and December private placements.
Other Expenses
Other expenses represent interest on LOA small business loans and
penalties in connection with LOA's payroll tax delinquency. Other expenses were
$2,468 and $2,283 for the nine months ended September 30, 1997, and 1998,
respectively.
Net Loss
As a result of the foregoing, net loss grew from $167,825 to $178,228 for
the nine months ended September 30, 1997, and 1998, respectively, for an
increase of 6.2%.
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Comparison of Fiscal Year Ended December 31, 1997
to Fiscal Year Ended December 31, 1996
Revenues
LOA's revenue grew 88% from $186,702 to $351,560 for the year ended
December 31, 1998, as compared to the comparable period in 1997. Revenue growth
performance is attributable to increasing sales efforts, services offered, and
an aggressive marketing campaign in LOA's local market, Rhode Island.
Dial-up
During 1997, LOA expended significant marketing efforts to expand its
others services dedicated to access and web services. This resulted in a
decrease in LOA's dial-up customer base. As a result, dial-up revenue decreased
from $168,119 to $123,680 from 1996 to 1997 for a decrease of 26%.
Dedicated Access Service
During the fourth quarter of 1997, LOA increased its sales efforts for
dedicated access service which resulted in higher revenue growth during fiscal
year 1998. As a result, dedicated access service business grew based principally
on ISDN, T-1 and High Speed circuit growth. Revenues grew from $14,153 to
$172,734 from fiscal year 1996 to fiscal year 1997, for an increase of 1,120%.
Web Services
During 1997, Web site hosting and consulting became more important to
LOA's new and existing customers as the popularity of the web increased as a
business tool. As a result, web services revenue grew from $4,430 to $41,895
from fiscal year 1996 to fiscal year 1997 for an increase of 846%.
Gross Profit
Gross profit consists of total revenue less the cost of delivering
services and equipment. Gross profit increased from $134,666 to $213,036 from
1996 to 1997 for an increase of 55%. This increase was a direct result of the
increase in revenues.
Selling General, and Administrative Expenses
Selling general, and administrative expenses ("SG&A") increased from
$271,481 in fiscal year 1996 to $491,060 in fiscal year 1997, for an increase of
81%. The increases was primarily attributed to three additional personnel and
overhead costs associated with LOA's
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expansion efforts. Included in overhead costs were additional telecommunication
costs of $140,364 related to building out LOA's network.
Advertising expenses were $64,820 and $8,089 for the years ended December
31, 1997, and 1996, respectively.
Other Expenses
Other expenses represent interest on a small business loan and tax
penalties in connection with certain payroll taxes owed to Internal Revenue
Service ("IRS"). LOA settled with the IRS in the amount of $41,559 and received
a final release to that effect, dated December 28, 1998. Other expenses were
$26,221 and $1,977 in fiscal year 1996 and fiscal year 1997, respectively. This
decrease was primarily attributed to the decrease in penalties during 1997.
Net Loss
As a result of the foregoing, net loss grew from $163,036 to $280,001 in
1996 and 1997 for an increase of 72%.
Liquidity and Capital Resources
LOA has historically financed our operations primarily through the sale of
equity and debt securities and through funds provided by LOA's predecessor's
parent company.
During 1997, LOA received $179,260 from its parent company, GTMI. These
funds were utilized to fund operations, expand marketing efforts and expand
LOA's customer base. During the third quarter of 1998, LOA sold 275,000 shares
of Common Stock in a private placement, dated August 18, 1998, resulting in
gross proceeds of $275,000 for use in operational activities. Subsequent to
September 30, 1998, LOA sold an additional 369,216 shares of Common Stock in the
December Placement resulting in gross proceeds of approximately $1,200,000, and
net proceeds of approximately $1,044,000.
As of September 30, 1998, LOA had notes payable totaling $18,486, and
accrued but unpaid expenses totaling $72,280, current accounts payable totaling
$338,433, and a current working capital deficiency of $279,870. This working
capital deficiency has been eliminated as a result of the December Placement.
Certain payroll taxes were owed to the IRS. LOA settled with the IRS in
full in the amount of $41,559 and received a final release to that effect, dated
December 28, 1998.
In August 1998, certain consultants were issued 1,000,000 warrants. The
warrants are exercisable during the five-year period commencing January 15,
1999, at the exercise price of $1.00. The shares of Common Stock underlying the
warrants contain certain piggyback
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registration rights.
In December 1998, LOA issued 131,921 warrants to consultants and a
placement agent in connection with the December Placement. 50,000 and 45,000 of
the warrants are exercisable at $3.50 and $3.25 per share, respectively. The
warrants are exercisable during the four-year period commencing December 31,
1998. Also issued in December 1998, were 36,921 warrants exercisable at $3.90,
which are exercisable during the four year period commencing December 15, 1999.
For the period ended September 30, 1998, LOA's negative cash flow from
operations was $146,123, down from $159,628 for the same period in the prior
year due to an increase in revenue growth.
LOA anticipates based upon its currently prepared plans and assumptions
relating to operations that the net proceeds from the sale of the securities
offered herein and the projected cash flow from operations that the cash
available will be sufficient to satisfy our contemplated cash requirements for
at least the 12 months following completion of this Offering.
Year 2000 Compliance.
The inability of computers, software and other equipment utilizing
microprocessing to organize and properly address certain fields containing a
two-digit year is commonly referred to as the Year 2000 problem. As the year
2000 approaches, such systems may be unable to accurately process certain
date-based information.
LOA has implemented a Year 2000 program to ensure that LOA's computer
systems and applications will function properly beyond 1999. LOA has identified
vendor and business partner software with which it electronically interacts, or
from which it purchases supplies, and has requested Year 2000 compliance
certifications. LOA has received verbal assurances from those vendors and
business partners that they and their respective suppliers are Year 2000
compliant. Although the LOA believes all of its systems are and will be Year
2000 compliant, there can be no assurances that all of LOA's vendors' and
business partners' systems will be Year 2000 compliant. LOA's cost to comply
with the Year 2000 initiative is not expected to be material.
In addition, LOA is communicating with its external service providers to
ensure that such service providers are taking appropriate action to address Year
2000 issues. However, there can be no assurance that the systems of third
parties on which LOA's systems rely will connect, or that a conversion is
compatible with LOA's systems and accordingly would not have an adverse effect
on LOA's systems.
Recent Accounting Pronouncements.
In March 1998, the Accounting Standards Executive Committee issued AICPA
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or
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Obtained for Internal Use" ("SOP 98-1"). This statement provides guidance on
accounting for the costs of computer software developed or obtained for internal
use and identifies characteristics of internal use software as well as assists
in determining when computer software is for internal use. SOP 98-1 is effective
for fiscal years beginning after December 15, 1998, with earlier application
permitted. LOA has not determined the impact of the adoption of SOP 98-1 as this
is highly dependent upon the nature, timing and extent of future internal use
software development.
In March 1998, the Accounting Standards Executive Committee issued AICPA
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities."
This Statement of Position provides guidance on the financial reporting of
start-up costs and organization costs. It requires that the cost of start-up
activities and organization costs be expensed as incurred. The SOP is effective
for financial statements for fiscal years beginning after December 15, 1998. LOA
does not expect adoption of this SOP to have a material impact on its financial
statements.
LOA will be required to adopt Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related
Information." Statement 131 superseded SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise" and is effective for years beginning after
December 31, 1997. Statement 131 establishes standards for the way that public
business enterprises report selected information about operating segments in
financial reports. Statement 131 also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The addition of Statement 131 will not effect LOA's results of operations or
financial position, but may effect the disclosure of the segment information in
the future.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This statement changes the previous accounting definition of derivative--which
focused on freestanding contracts such as options and forwards (including
futures and swaps)--expanding it to include embedded derivatives and many
commodity contracts. Under the Statement, every derivative is recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999. Earlier
application is allowed as of the beginning of any quarter beginning after
issuance. LOA does not anticipate that the adoption of SFAS 133 will have a
material impact on its financial position or results of operations.
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BUSINESS
Overview
LOA was incorporated in Rhode Island ("LOARI") in 1992 for the purpose of
providing online and Internet related services. LOA is a Rhode Island regional
competitive local exchange carrier ("CLEC") and information/Internet Service
Provider ("IISP"). LOA currently provides a variety of internet solutions to
both commercial and residential customers and we plan to include a full range of
local telecommunication services, resulting in an ability to offer a complete
menu of Internet, voice, data, video, and cable programming solutions to our
customers.
LOA believes that the Northeast region provides access to attractive Tier
1 (cities with populations over 2,000,000), Tier 2 and 3 (cities with
populations between 250,000 and 2,000,000) demographic markets within close
proximity of planned network expansions resulting in efficient utilization of
network capacity. Our plan is to initiate an acquisition campaign targeting
ISPs, CLECs and resellers of telecommunication services to gain market share,
name recognition and valuable industry talent. In parallel with the acquisition
program, LOA intends to initiate an internal growth strategy that will pursue
market share through an increased direct sales force offering an expanded
product line to both commercial and residential customers. Anticipated market
penetration will require system upgrade and expansion through the purchase of
equipment and the hiring by management of addition technical personnel.
Our goal is to be a leading provider of a wide range of Internet, voice,
data, video, and cable programming solutions to a diverse customer base in the
Northeast. We believe that a strategy comprised of acquisitions and direct sales
will allow us to achieve our desired market penetration and competitive
position.
In January of 1997, LOARI sold 100% of its assets to Global Telemedia
International, Inc. ("GTMI") and agreed to change its name to Tekcom, Inc. In
consideration for the sale, GTMI agreed to (i) assume all outstanding
liabilities of LOARI; and (ii) pay LOARI shareholders 20% of the value of all
LOARI business on the third anniversary of the purchase ("Contingent Sum"). At
this time GTMI formed System 4, Inc., a wholly owned Delaware subsidiary, in
which to transfer the LOARI assets and liabilities. In July 1997, System 4, Inc.
changed its name to Log On America, Inc.
Wan Secure, Inc. ("WS") was organized in Delaware in January 1998, to
purchase 100% of the outstanding capital stock of LOA from GTMI. Pursuant to
such acquisition, LOA became a wholly owned subsidiary of WS. In consideration
for the purchase, WS executed a note in the amount of $100,000 ("GTMI Note").
The GTMI Note was personally guaranteed by David R. Paolo, WS's majority
shareholder. In September 1998, WS effected a merger with and into LOA whereby
WS was the survivor. Simultaneously with the merger, WS changed its name to Log
On America, Inc.
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In and around February 1998, 100% of the shareholders of Tekcom, Inc.
(formerly LOARI) agreed to surrender and release all rights and claims to the
Contingent Sum. As consideration for such surrender and release, Tekcom
shareholders received an aggregate of 795,130 shares of LOA. In July 1998, GTMI
accepted a settlement of the GTMI Note. In consideration for such settlement,
GTMI accepted $25,000. As a result of the aforesaid transactions, LOA is a
successor in interest to WS, System 4 and LOARI.
Business
LOA is an Internet Service Provider ("ISP") which provides its customers
with access to the Internet. The majority of LOA's current operations is
providing dedicated access lines for commercial accounts. LOA maintains a
national dial-up Internet service along with commercial Internet Protocol ("IP")
transit throughout the Northeast. LOA, and its predecessor entities, has been
providing on-line services, and related products, to individual and corporate
clients since November 1992. LOA has also recently been approved as a
competitive local exchange company ("CLEC") in Rhode Island. LOA believes its
CLEC status allows it to provide a full range of local telecommunication
services to its customers including voice, data, and Internet services. Such
customers include residential users, Internet Exchange Carriers ("IXC"),
Internet Service Providers ("ISP"), wireless carriers and business, government
and institutional end users. LOA believes that its prices will be competitive
with those charged by independent local exchange carriers ("ILECs"). LOA intends
to provide typical phone service such as dial tone, toll calls (in-state long
distance), long distance, as well as high-speed Internet access, through the use
of one cable into the home of a user in the second quarter of 1999 in Rhode
Island. LOA believes its commercial customers will benefit from LOA's CLEC
status by LOA's ability to resell local phone services from the area's local
provider (Bell Atlantic) at a discount to certain of its competitors. Currently,
LOA is a retail customer of Bell Atlantic.
LOA is also positioned to address local and wide area network ("LAN/WAN")
security issues and provide secure virtual private networks, encrypted DS0 to
DS3 IP transit, LAN/WAN design, Intranets, secure commerce, secure server
applications, and firewall sales and support.
Marketing and Business Strategy.
LOA's goal is to be a leading provider of a wide range of Internet, voice,
data, video, and cable programming solutions in the Northeast. To effectuate
such goal LOA intends to develop, utilize and package its services for the
marketplace at competitive prices. LOA has focused its efforts on high revenue,
high margin commercial clients which enter into term contracts for service,
generally 12 months in duration. LOA believes this approach differentiates it
from its competitors who generally seek bulk quantities of Internet dial-up
customers for a monthly fee without contractual commitment. Although LOA also
markets to customers on a monthly fee basis without contractual commitment, LOA
relies on service and performance to attract and to keep its clients. LOA also
provides equipment and security products to its clients which provides enhanced
customer service and helps LOA meet the demands of its customers.
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LOA employs the following marketing strategies: targeted direct marketing,
development of brochures, trade show participation and print media. Upon
consummation of this Offering, LOA plans to expand its direct marketing sales
team, and to employ more sales staff in the Northeast.
LOA currently offers a comprehensive range of Internet access options, Web
production services and Web hosting services designed to meet the needs of
businesses and individual subscribers. LOA's strategy is to focus on cities that
have not become the primary target markets for national ISPs such as Netcom On
Line Communication Services, Inc. and America Online, Inc. or long distance
carriers, and have a population base sufficient to provide a return on
investment to justify our initiatives. It is the objective of LOA to provide a
"one-stop-shop" to its customers. The "one-stop-shop" will require reliable
Internet access, guidance and training regarding the use of the Internet and
support on how to take full advantage of Internet applications pertinent to the
individual customer. LOA plans to leverage its local presence in the form of
customized service, and direct field sales force and customer service
organizations to provide on-site sales and support. LOA also plans to remain
competitive in the individual internet market with reasonably priced services.
LOA believes its recent approval as a CLEC from the Rhode Island Public
Utilities Commission provides LOA with the ability to become a full service
provider of local telecommunications services to IXCs, ISPs, wireless carriers
and business, government and institutional end users in selected cities by
offering products and customer service at prices competitive with those charged
by the ILECs.
Internet Business
Our strategy is to continue to focus on our internet market in the
Northeast, to expand to surrounding markets and to provide direct on-site sales
contact with the business communities in those areas. LOA intends to continue to
expand its subscriber base by providing high quality services coupled with the
expertise to assist its customers with solutions to their internet and
telecommunication needs. LOA intends to achieve its strategy by focusing on the
following key elements:
1. Focus On Business Customers. LOA believes that use of the Internet by
businesses will grow substantially over the next several years. The Internet has
the potential to enhance productivity through improved communications, access to
data, and through new ways of organizing how businesses interact, both with
other commercial enterprises and with consumers. LOA believes that the Internet
provides the potential for businesses, large and small, to maintain a worldwide
presence for marketing their products and making information about their
products and services available to interested parties in ways not possible
before. LOA believes that many businesses are aware, in general, that the
Internet provides a potential new means of conducting commerce, and that
businesses do not have the knowledge or technical expertise required to access
or use the Internet. LOA believes that by offering its business customers a
service oriented
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relationship, it can position itself as a value added supplier and thus gain a
competitive advantage over certain of its larger competitors which may be
unwilling or unable to provide the kind of customized service that LOA intends
to provide. In order to implement this strategy, LOA instituted a technical
personnel sales staff, currently comprised of 2 individuals.
2. Provide High-Bandwidth, Reliable Infrastructure Services. LOA has
contracted with Bell Atlantic to deploy LOA's first 155Mbs OC/3 Sonnet ring
("Sonnet") around the city of Providence, Rhode Island. Sonnet will allow LOA to
deliver high speed Internet access throughout all major points of Providence,
Road Island.
3. Provide Value-Added Services. LOA offers a range of value-added
services designed to assist business customers in taking advantage of
opportunities offered by the Internet. Our current value-added services include
Web services, network consulting, security consulting, data services, commercial
transaction and payment processing services, Intranet applications, and e-mail
to fax services.
4. Pricing Strategy. LOA believes that price competition will intensify as
the Internet market grows and matures. LOA intends to remain competitive by
pricing its services to reflect market conditions. Accordingly, LOA believes
that management of its costs will be critical to remaining competitive. LOA has
made and plans to continue to make investments in its hardware and network
infrastructure which are designed to increase efficiency and reduce the cost of
delivering its services. LOA intends to price all of its services in order to
remain competitive with demand, competition and market trends.
Internet Products and Services.
LOA is a Northeast CLEC and IISP providing Internet and wide area network
("WAN") access, Web Hosting and Web Development. Its current clients include
educational facilities such as Providence College, international corporations
such as Cookson America, Inc., and Toray Plastics, Inc., organizations such as
Butler Hospital and the Bell Atlantic Telecommunications Center, and
governmental agencies such as the Rhode Island Supreme Court, the Office of the
Rhode Island Attorney General and the Rhode Island Public Utilities Commission.
LOA provides its clients with a variety of services for Internet access
such as: e-mail, web sites, and dedicated circuits with wide bandwidth to
enhance data transmission. LOA's services are used by clients to receive and/or
send data or display products and services on the Internet using text,
high-resolution color photographs, video and/or audio.
LOA is the Domain Name registration provider for Wenzhou Emy Network
Information Company, a Chinese entity which markets access to the World Wide Web
to institutions and corporations within the Zhejiang Province of the People's
Republic of China.
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The following list summarizes and defines the specific products and
services which LOA currently offers:
Dial-up access: Retail access for home users with personal computers.
Point to Point, 384k & 56k Frame Relay: Dedicated access for higher bandwidth
solutions for corporate needs.
xDSL: High bandwidth solutions for residential and corporate needs.
Domain Names: The name used as a means of identity for use on the Internet in
the People's Republic of China.
Web Page Design & Hosting: Building, designing and construction of a web sites,
including corporate web sites that reside and are served from the ISP's web
server.
Equipment sales: The sale of hardware associated with the deployment of Internet
services. DEC Alpha servers, Cisco Routers, CSU/DSU and cables.
Banner Advertisements: Display ads and links listed on LOA's web site.
Secure Virtual Private Networks: Provides long haul connectivity between remote
sites.
Encrypted DS0 to DS3 IP transit: Secure IP Tunneling with T1 to T3 local loops
back-hauled through LOA's backbone.
Secure LAN and WAN design: LOA's technical team can design Local Area or Wide
Area Networks for small to large corporations seeking security protection and
flexibility in communications.
Intranet, Extranet, Secure Commerce: LOA's technical personnel can design custom
Intranet, Extranet or Secure Commerce Server to meet various business needs.
Security Breach Investigations: LOA investigates compromised networks and
attempts to identify perpetrators of security breaches.
Data Loss Insurance: LOA also offers its customers a "Data Loss Insurance
Policy" that insures a network from the threat of security breaches.
Continue To Increase The Number Of Cities Served. During 1996, LOA
achieved its goal of having dial-up services in a total of 230 area codes, and
LOA plans to have its own network systems in operation or under construction in
a total of 20 cities by the middle of 1999, and a total of 50 cities by the end
of 2000. There can be no assurance that LOA will meet such goals. LOA's
expansion into additional cities is expected to be accomplished by the
acquisition of existing networks as well as the development of new
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networks. By adding networks, LOA believes it can increase revenues and obtain
economies of scale in its operating costs.
Planned CLEC Business.
On October 6, 1998, LOA's application for CLEC status with the Rhode
Island Public Utilities Commission was approved. LOA intends to become a full
service provider of local telecommunications services to IXCs, ISPs, wireless
carriers and business, government and institutional end users in selected cities
in the Northeast by offering products with customer service at competitive
prices with those charged by the ILECs. LOA plans on preparing other
applications for CLEC status in the Northeast.
The principal elements of LOA's CLEC strategy include:
Targeting Second and Third Tier Markets. As an early entrant in selected
second and third tier cities (cities with a population of between 250,000 to
2,000,000), as well as through its acquisition strategy, LOA believes it can
attain a competitive position by securing franchises and rights-of-way,
installing CLEC networks and facilities and establishing customer relationships
with IXCs, ISPs, wireless carriers and business, government and institutional
end users that will enable it to take advantage of the potential growth rates
for local exchange service revenues in those markets. Currently, LOA has not
secured, and has no agreements to secure, any franchises, rights-of-way,
installed CLEC networks, facilities, established customer relationships with
IXCs, ISPs, wireless carriers, business, or government and institutional end
users.
LOA also intends to pursue opportunities in selected first tier markets
defined as those cities in the Northeast with over two million people. LOA
intends to utilize its existing operational capabilities in conjunction with
proposed operating agreements with IXC customers. LOA's intends to design its
networks to access at least 70% to 80% of the identified business, government
and institutional end user revenue base and the IXC facilities ("Points of
Presence" or "POPs") and substantially all of the central offices of the ILECs
within the defined markets.
Expand and Enhance Service Offerings.
LOA intends to expand its capability to provide enhanced services to
complement its planned switch-based services. LOA intends that its enhanced
services will include, among other things, high speed video conferencing, frame
relay and ATM-based packet transport services
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along with its currently existing Internet access products. LOA plans to upgrade
and add to its systems and services as technology and regulations permit.
Planned CLEC Products And Services.
LOA plans to provide several types of switched access and private line
services to IXC and end-user customers. Historically, competitive access
providers ("CAPs") were able to offer only non-switched special access and
private line services which involved the installation of dedicated lines to
provide the following types of communications links:
POP-to-POP Special Access. Telecommunications lines linking the POPs of
one IXC or the POPs of different IXCs in a market, allowing these POPs to
exchange transmissions for transport to their final destinations.
End-User/IXC Special Access. Telecommunications lines between an end user,
such as a business, and the local POP of its selected IXC.
Private Line. Telecommunications lines connecting various locations of one
or more customers' operations, suitable for transmitting voice and data traffic
internally.
Collocated Special Access: A dedicated line carrying switched
transmissions from the IXC POP, through the ILEC's central office to the end
users.
Collocated POP-to-ILEC Switched Access Transport: A dedicated line
carrying switched transmissions from the ILEC's central office to an IXC's POP.
In order to provide these services, LOA intends to offer various types of
dedicated fiber optic lines that operate at different speeds and handle varying
amounts of traffic to provide tailor-made solutions to its customers' needs,
including:
DS-0: A dedicated line service that meets the requirements of business
communications, with transmission capacity of up to 64 kilobits of bandwidth per
second (a voice grade equivalent circuit). This service offers a basic low
capacity dedicated digital channel for connecting telephones, fax machines,
personal computers and other telecommunications equipment.
DS-1: A high speed channel typically linking high volume customer
locations to IXCs or other customer locations. Used for voice transmissions as
well as the interconnection of Local Area Networks ("LANs"), DS-1 service
accommodates transmission speeds of up to 1.544 megabits per second, the
equivalent of 24 voice-grade equivalent circuits. LOA offers this high-capacity
service for customers who need a larger communications pipeline.
DS-3: This service provides a very high capacity digital channel with
transmission capacity of 45 megabits per second, which is equivalent to 28 DS-1
circuits or 672 voice grade
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equivalent circuits. This is a digital service used by IXCs for central office
connections and by some large commercial users to link multiple sites.
LOA intends to add capabilities to provide local dial tone and switched
access termination and origination services to its networks.
It is intended that the business customers served by LOA can acquire
centrex and long-distance services from LOA as a reseller. In order to provide
these services, LOA intends to purchase these services in bulk from the ILEC and
the IXC and provide its retail customers with a single source of integrated
local and long distance telecommunications services and facilities management at
a discount from the published retail ILEC tariff rates. By using centrex service
instead of a private branch exchange ("PBX") to direct their telecommunications
traffic, customers can avoid the large investment in equipment required and the
fixed costs associated with maintaining a PBX network infrastructure. LOA's
centrex service, as envisioned, will allow medium to small business customers
who lack the size or resources to support their own PBX to benefit from a
telecommunications system.
LOA intends to provide a full range of consulting, management, engineering
and information system solutions for telephone, cable television and wireless
providers and other telecommunications infrastructure owners and operators in
the United States.
Competition
The Internet connectivity and telecommunications business is highly
competitive, and there are no substantial barriers to entry. LOA believes that
competition will intensify and its ability to successfully compete depends on a
number of factors including market presence, the capacity, reliability, and the
security of its network infrastructure, its pricing of services compared to its
competitors, the timing of new products and services by LOA and its competitors,
LOA's ability to react to changes in the market, and industry and economic
trends. LOA's competitors consist of (1) regional Internet access providers, (2)
national Internet service providers, (3) on-line service companies, (4) regional
telephone companies and national long distance carriers, and (5)
hardware/software companies and cable operators, as discussed below:
1. Regional Internet Access Providers. LOA's competitors include
numerous regional Internet access providers.
2. National Internet Service Providers. National Internet service
providers include companies such as Netcom On Line Communication
Services, Inc., a division of ICG Telecom Group, Inc. ("Netcom"),
PSINet, Inc. ("PSI"), UUNET Technologies, Inc. ("UUNET"), and BBN
Corp., a division of GTE Corp. ("BBN"). These national competitors
have established national and international networks, providing
extensive coverage throughout the United States and select
international locations. Netcom, PSI and UUNET have established
communications and network infrastructure, adapt more swiftly to new
or
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emerging technologies and changes in customer requirements, take
advantage of acquisition and other opportunities more readily, and
devote more resources to the marketing and sale of services, than
LOA. Netcom, PSI and BBN have targeted the individual dial-up
market, while UUNET has specifically targeted the business markets.
3. On-line Service Companies. Other competitors include the national
on-line service providers such as America On-line, Inc., Delphi
Information Services, Inc., a division of News Corp., and Genie, a
division of General Electric Information Services. Most of the
established on-line services are rapidly expanding their Internet
access services in order to offer more direct access to the Internet
at more competitive prices. On-line service companies are focused on
the individual dial-up market and are becoming direct competitors
with the national Internet providers and the long distance
telecommunication carriers.
4. Regional Telephone Companies and National Long Distance Companies.
Regional telephone companies such as Bell Atlantic Corp., Southern
New England Telephone Co., and national long distance carriers such
AT&T Corp., MCI Worldcom, Inc., and Sprint Corp. have recently
announced Internet access services.
5. Hardware / Software Companies and Cable Operators. In 1995,
Microsoft Corporation announced its entry into the on-line service
business with "Microsoft Network," a consumer on-line service that
was released as a standard integrated feature of the Windows 95
operating system. It can reasonably be expected that other
significant software and/ or hardware companies will follow suit.
Cable operators such as Cox Communications, Inc., and
Tele-Communications, Inc., have also announced their intention to
utilize their cable networks to offer Internet services. Cable
modems have the capacity to transmit at speeds up to 10 megabits per
second versus the normal telephone dial-up speed of 56.6 kilobits
per second. Several cable companies are in the process of upgrading
their systems to handle the Internet. Each of LOA's primary markets
is highly competitive. Many of LOA's competitors are much larger
than LOA and have substantially greater resources.
6. CLEC - Regional CLEC competitors include Teleport, Inc., MCI
Worldcom, Inc., and TCG, Inc. Most of these competitors have
substantially greater resources than LOA.
Government Regulation.
LOA is currently subject to regulation by the Federal Communications
Commission ("FCC") and related state agencies. In so far as the Internet is a
relatively new medium, the legal obligations and First Amendment rights of
service providers and participants in the Internet, are not well defined and are
evolving. The Internet has not been subject to regulation by the FCC
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or other governmental agencies, and standards applicable to print publishers and
television in respect of the law of defamation and obscenity are not clearly
applicable to the Internet. To the extent these issues have been considered by
the courts, outcomes have not been uniform.
In 1996, Congress passed a telecommunications act which, among other
things, includes protection from liability for Internet providers who take steps
to prevent defamatory material from being published on the Internet and also
includes provisions to protect children from indecent material on the Internet.
Certain provisions of that legislation regarding the imposition of criminal
penalties for publication of indecent materials on the Internet were recently
held to be unconstitutional by the United States Supreme Court.
The Internet could lose its viability due to delays in the development or
adoption of new standards and protocols to handle increased levels of internet
activity, or due to increased governmental regulation. There can be no assurance
that the infrastructure or complementary services necessary to make the internet
a viable commercial marketplace will be developed, or, if developed, that the
Internet will become a viable commercial marketplace for services and products
such as those offered by LOA. If the necessary infrastructure or complementary
services or facilities are not developed, or if the Internet does not become a
liable commercial marketplace, our business, results of operations and financial
condition will be materially adversely affected. In addition, the adoption of
additional laws in the United States and in foreign countries could adversely
affect our business.
Proprietary Technology.
LOA regards its technology as proprietary and attempts to protect it with
copyrights, trademarks, trade secret laws, restrictions on disclosure and
transferring title and other methods. We have registered the Internet domain
name www.loa.com. There can be no assurance that potential users and advertisers
will not confuse our domain name with other similar domain names. If such
confusion occurs, we may lose business to a competitor, and have to adjust our
advertising rates and service fees accordingly, or some users of our services
may have negative experiences with other companies on their Web sites that such
users erroneously associate with us.
Employees.
As of December 31, 1998, LOA had 12 employees. Of these 12 employees, 4
were engaged in technical support, 2 in information processing services, 1 in
customer support functions, 2 were engaged in sales and marketing, and 3 in
administration and finance functions. LOA has no collective bargaining agreement
in place and believes that its relationship with its employees is good.
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Facilities.
LOA entered into a lease agreement between LOA and Regency Plaza
Associates dated May 1, 1996, for the premises located at 3 Regency Plaza,
Providence, Rhode Island 02903. Said lease was amended on August 6, 1997, to
provide for rental increases, additional space, and extension of its term. The
lease currently provides for a term expiring on May 31, 1999. Monthly rent is
currently $2,568. The facilities currently comprise approximately 3,000 square
feet.
The Company also maintains office space comprising less than 500 square
feet in Massachusetts through a verbal arrangement with a customer. The Company
discounts services to the customer in consideration for such space. The Company
uses this space to service its Massachusetts clients and customers. Upon
completion of this Offering, the Company intends to enter into a lease
arrangement for an office in Massachusetts.
Legal Proceedings.
There is currently no pending or threatened litigation against LOA.
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MANAGEMENT
Directors and Officers
The following table sets forth certain information concerning each of the
directors and officers of LOA:
Name Age Position
- ---- --- --------
David R. Paolo 30 President, CEO and Chairman
Donald J. Schattle II 33 V.P. of Operations and Technology
and Director
Kenneth M. Cornell 30 CFO
Raymond Paolo 53 V.P. of Administration, Secretary
Treasurer and Director
Paul Phillips 55 Director
Deborah Stevenson 33 Director
David R. Paolo is the President, Chief Executive Officer, Chairman and founder
of LOA. He has served in this position since the formation of LOA's precursor,
LOARI. In 1994, Mr. Paolo was appointed as Ambassador for the Greater Providence
Chamber of Commerce, which he still retains, and in 1996, he was voted chairman
of the NYNEX Advisory Board. Mr. Paolo attended Roger Williams University from
1986 to 1990.
Donald J. Schattle II has served as Vice President of Operations and Technology
since 1998. From 1997 to 1998, he served as Senior Systems Administrator,
Director of Operations for LOA's predecessor, LOARI. Prior thereto, Mr. Schattle
owned a computer consulting and technical support firm, Cybersultants, Inc.,
from 1995 to 1996, and was a systems administrator, and service and support
engineer for AAA of South Central New England from 1992 to 1996. Mr. Schattle
graduated from the University of Rhode Island in 1994 with a B.A. degree.
Kenneth M. Cornell has served as Chief Financial Officer since December 1998.
Mr. Cornell is President of Cornell & Associates, Inc. a company providing
financial advisory services. From July 1996 to May 1997, he served as Controller
of Global Telemedia International, Inc. From 1991 to 1996 he worked at Ernst &
Young LLP in the audit department. Mr. Cornell graduated with a B.S. from the
University Fisher School of Accounting in May 1990. In 1991, he graduated from
said university with a Masters in Accounting.
Raymond Paolo has served as V.P. of Administration, Secretary, Treasurer and
director of LOA since October 1998. Prior thereto, he was Chief Financial
Officer of LOARI since its inception in 1992. Mr. Paolo has worked as an
independent sales representative for R.E.P. Enterprises from 1991 to 1992 and as
President of Horizon Distributors, Inc., a consumer electronics and computer
mass merchandiser from 1985 to 1990. Mr. Paolo graduated from the University of
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Rhode Island in 1968 with a B.S. in Business Administration. In 1980, he
graduated from the Williams School of Banking with a M.A. in Business
Administration.
Paul Phillips has served as a director of LOA since May 1998. From 1967 to the
present, Mr. Phillips has served as manager of computer operations with Blue
Cross/Blue Shield of Rhode Island. Mr. Phillips manages day to day operations at
Blue Cross/Blue Shield's mainframe and network systems. Mr. Philliips attended
Johnson and Wales University in Rhode Island from 1970 to 1972.
Deborah Stevenson has served as a director of LOA since May 1998. Ms. Stevenson
has over 10 years of experience in the data processing field in the
manufacturing and financial areas working for Hasbro, where she worked from
1988-1994, and currently as Systems Project Manager at Fleet Technology
Solutions, a division of Fleet Bank. Ms. Stevenson graduated in 1989 from
Community College of Rhode Island with an A.S. in computer science.
Directors are elected to serve until the next annual meeting of the
Stockholders and until their successors have been duly elected and qualified.
Raymond Paolo is the father of David R. Paolo.
Compensation of Directors
Directors do not receive compensation for attendance at meetings of the
Board of Directors, but will be reimbursed for certain expenses in connection
with attendance at board meetings.
Audit Committee
The Board of Directors intends to have a standing Audit Committee as of
the closing of the Offering. The Audit Committee will be comprised of the
following directors: Paul Phillips, Deborah Stevenson and David Paolo. The Audit
Committee will assist the Board of Directors in exercising its fiduciary
responsibilities for oversight of audit and related matters, including corporate
accounting, reporting and control practices. It will be responsible for
recommending to the Board of Directors the independent auditors for the
following year. The Audit Committee intends to meet periodically with
management, financial personnel and the independent auditors to review internal
accounting controls and auditing and financial reporting matters.
Executive Compensation
For the years ended December 31, 1996, 1997 and 1998, David R. Paolo,
LOA's President, was compensated and/or received advances in the amount of
$60,000, $77,617 and $105,700, respectively. In 1998, Mr. Paolo executed a
promissory note to LOA in the amount of $77,617 ("Paolo Note"). Pursuant to the
terms of the Paolo Note, LOA agrees to forgive 25% of the principal amount each
year. No other officer or director received compensation in excess of $100,000
for each of fiscal 1996, 1997 and 1998.
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<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Restricted Securities
Name and Other Annual Stock Underlying All Other
Principal Position Year Salary Bonus Compensation Awards Options Compensation
- ------------------ ---- ------ ----- ------------ ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
David R. Paolo 1998 $90,000 $2,500 -0- -0- -0- $13,200(1)
1997 $77,617 -0- -0- -0- -0- -0-
1996 $60,000 -0- -0- -0- -0- -0-
</TABLE>
(1) Represents $7,800 for car allowance and $5,400 for club membership.
Employment Agreements
On January 12, 1998, LOA amended an employment agreement with David R.
Paolo dated January 3, 1997, to serve as President and Chief Executive Officer
of LOA (the "David Employment Agreement"). The term of the David Employment
Agreement is for six years commencing on January 12, 1998. Mr. Paolo's base
compensation of $91,500 per year was increased to $124,500 upon the consummation
of a previous private offering, dated August 28, 1998. Pursuant to the terms and
conditions of the David Employment Agreement, Mr. Paolo will receive an annual
increase in base compensation of 10% for the term of the agreement. Mr. Paolo's
base compensation was increased to $136,950, effective January 1, 1999. The
David Employment Agreement contains a provision for performance based bonuses,
including non-qualified stock options upon the effectuation of a Company stock
option plan, car allowance, and club membership. The David Employment Agreement
contains a non-compete clause for a period of two years following the
termination of Mr. Paolo's employment. The David Employment Agreement may be
terminated upon 90 days written notice by either party. In addition, under
certain terms and conditions of the David Employment Agreement, if LOA
terminates the David Employment Agreement; Mr. Paolo may be entitled to receive
the balance of any unpaid salary which would otherwise be payable to Mr. Paolo
(during the remainder of the term of the David Employment Agreement).
On January 12, 1998, LOA entered into an employment agreement with Raymond
Paolo to serve as Chief Financial Officer of LOA (the "Raymond Employment
Agreement"). On January 1, 1999 LOA amended the Raymond Employment Agreement to
reflect his current position as V.P. of Administration, Secretary and Treasurer
of LOA. The Raymond Employment Agreement's term is for six years. Mr. Paolo's
base compensation of $51,500 per year was increased to $69,500 upon the
consummation of a previous private offering, dated August 8, 1998. Pursuant to
the terms and conditions of the Raymond Employment Agreement, Mr. Paolo will
receive an annual increase in base compensation of 10% for the term of the
agreement. Mr. Paolo's base compensation was increased to $76,450, effective
January 1, 1999. The Raymond Employment Agreement contains a provision for
performance based bonuses, including non-qualified stock options upon the
effectuation of a Company stock option
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<PAGE>
plan and car allowance. The Raymond Employment Agreement contains a non-compete
clause for a period of two years following the termination of Mr. Paolo's
employment. The Raymond Employment Agreement may be terminated upon 90 days
written notice by either party. In addition, under certain terms and conditions
of the Raymond Employment Agreement, if LOA terminates the Raymond Employment
Agreement; Mr. Paolo may be entitled to receive the balance of any unpaid salary
which would otherwise be payable to Mr. Paolo (during the remainder of the term
of the Raymond Employment Agreement).
Stock Option Plan.
In January 1998, LOA adopted the 1999 Stock Option Plan ("Plan"). The
purpose of the Plan is to enable LOA to attract, retain and motivate key
employees, directors, and on occasion, consultants, by providing them with stock
options. Options granted under the Plan may be either incentive stock options,
as defined in Section 422A of the Internal Revenue Code of 1986, as amended, or
non-qualified stock options. LOA has reserved 1,000,000 shares of Common Stock
for issuance under the Plan. As of the date of this Prospectus, no options have
been granted pursuant to the Plan.
The Plan will be administered by the Board of Directors. The Board has the
power to determine the terms of any options granted thereunder, including the
exercise price, the number of shares subject to the option, and conditions of
exercise. Options granted under the Plan are generally not transferable, and
each option is generally exercisable during the lifetime of the optionee only by
such optionee. The exercise price of all incentive stock options granted under
the Plan must be at least equal to the fair market value of the shares of common
stock on the date of the grant. With respect to any participant who owns stock
possessing more than 10% of the voting power of all classes of stock of LOA
("10% Owners"), the exercise price of any incentive stock option granted must be
equal to at least 110% of the fair market value on the grant date. The term of
all incentive stock options under the Plan may not exceed ten years, or five
years in the case of 10% Owners. The specific terms of each option grant are
approved by the Board of Directors and are reflected in a written stock option
agreement.
Right to Designate Director.
The Representative has the right, for a period of five years from the
closing of this Offering, to designate a person for election to LOA's Board of
Directors.
Limitations of Liability and Indemnification of Directors and Officers.
LOA's Certificate of Incorporation, as amended and Amended Bylaws limit
the liability of directors and officers to the maximum extent permitted by
Delaware law. Delaware law provides that directors of a corporation will not be
personally liable for monetary damages for breach of their fiduciary duties as
directors, including gross negligence, except liability for (i) breach of the
directors' duty of loyalty; (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law, (iii) the
unlawful payment of a dividend or
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<PAGE>
unlawful stock purchase or redemption, and (iv) any transaction from which the
director derives an improper personal benefit. Delaware law does not permit a
corporation to eliminate a director's duty of care, and this provision of LOA's
Certificate of Incorporation has no effect on the availability of equitable
remedies, such as injunction or rescission, based upon a director's breach of
the duty of care.
LOA is planning to enter into indemnification agreements with each of its
current and future directors and officers which provide for indemnification of,
and advancing of expenses to, such persons to the greatest extent permitted by
Delaware law, including by reason of action or inaction occurring in the past
and circumstances in which indemnification and the advancing of expenses are
discretionary under Delaware law.
LOA's Certificate of Incorporation authorizes LOA to purchase and maintain
insurance for the purposes of indemnification. LOA intends to apply for
directors' and officers' insurance, although there can be no assurance that LOA
will be able to obtain such insurance on reasonable terms, or at all.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of LOA
pursuant to the foregoing provisions, or otherwise, LOA has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
Corporation Takeover Provisions
Section 203 of the Delaware General Corporation Law
LOA is subject to the provisions of Section 203 of the Delaware General
Corporation Law ("Section 203"). Under Section 203, certain "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 prohibited for a three-year period following the date that such
stockholder became an interested stockholder, unless (i) the corporation has
elected
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<PAGE>
in its original certificate of incorporation not to be governed by Section 203
(LOA did not make such an election) (ii) 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 (iii) 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 render or vote stock held by
the plan) or, (iv) the business combination was approved by the Board of
Directors of the corporation and ratified by two-thirds of the voting stock
which the interested stockholder did not own. The three-year prohibition also
does not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during t he 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 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 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 LOA and
therefore could discourage attempts to acquire LOA.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth as of December 31, 1998, and as adjusted
for this Offering, the number and percentage of outstanding shares of Common
Stock beneficially owned by each person who beneficially owns (i) more than 5%
of the outstanding shares of Common Stock; (ii) each of LOA's officers and
directors; and (iii) all of LOA's officers and directors as a group. Except as
otherwise noted, the persons named in this table, based upon information
provided by such persons, have sole voting and investment power with respect to
all shares of Common Stock beneficially owned by them.
Number of
Shares % Beneficially % Beneficially
Name and Address of Beneficially Owned Before Owned After
Beneficial Owner(1) Owned Offering Offering(2)
- ------------------- ------------ -------------- --------------
David R. Paolo ................ 2,434,600 52.8% 35.2%
Raymond Paolo ................. 200,000 4.3% 2.9%
Donald Schattle II ............ 80,000 1.7% 1.2%
Paul Phillips ................. 13,500 ** **
Deborah Stevenson ............. 27,000 ** **
Kenneth Cornell ............... 45,000(3) ** **
Marilyn Henderson ............. 375,000 8.1% 5.4%
ICC Consulting, Inc. .......... 250,000(4) 5.4% 3.6%
25A Sintsink Drive West
Port Washington, NY 11050
Scofield Dennison Corp. ....... 250,000(4) 5.4% 3.6%
130 Shore Rd.
Port Washington, NY 11050
Northeastern Fibercom ......... 250,000(4) 5.4% 3.6%
8 West 38th St.
New York, NY 10018
Horizon Fiber, Inc. ........... 250,000(4) 5.4% 3.6%
22 Cherry Lane
Putnam Valley, NY 10579
All Officers and Directors .... 2,800,100 60.7% 40.5%
as a Group (6 persons)
** Less than 1%
(1) Unless otherwise indicated, the addresses of each beneficial owner is c/o
Log On America, Inc., 3 Regency Plaza, Providence, Rhode Island 02903.
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<PAGE>
(2) Assumes the sale of all of the shares of Common Stock offered hereby and
the exercise of the Underwriter's over-allotment option. Does not reflect
the exercise of the Representative's Warrants.
(3) Represents warrants for the purchase of 45,000 shares of Common Stock
issuable to the securityholder in consideration of accounting and other
related services rendered. Such warrants are exercisable during a four
year period commencing December 31, 1998 at $3.25 per share.
(3) Represents warrants for the purchase of 250,000 shares of Common Stock
during the four year period commencing January 15, 1999 at an exercise
price of $1.00 per share in consideration of business sales and promotion
services rendered.
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CERTAIN TRANSACTIONS
In 1997, LOA America, Inc., a Rhode Island corporation ("LOARI") sold 100%
of its assets and liabilities to Global Telemedia International, Inc. ("GTMI")
and agreed to change its name to Tekcom, Inc. In consideration for the sale,
GTMI assumed the liabilities of LOARI and agreed to pay LOARI shareholders 20%
of the value of all LOARI business on the third anniversary of the purchase
("Contingent Sum"). At this time GTMI formed System 4, Inc., a wholly owned
Delaware subsidiary, in which to transfer the LOARI assets and liabilities.
System 4, Inc. then changed its name to LOA America, Inc.
In January 1998, Wan Secure, Inc. ("WS") was organized in Delaware to
purchase 100% of the outstanding capital stock of LOA from GTMI. In
consideration for the purchase, WS executed a note in the amount of $100,000
("GTMI Note"). The GTMI Note was personally guaranteed by David R. Paolo, WS's
majority shareholder.
In and around February 1998, 100% of Tekcom, Inc. (formerly LOARI)
shareholders agreed to surrender and release all rights and claims to the
Contingent Sum. As consideration for such surrender and release, Tekcom
shareholders received shares in LOA. In July 1998, the GTMI accepted a
settlement of the GTMI Note. In consideration for such settlement, GTMI accepted
$25,000.
In May 1998, David R. Paolo, LOA's president and CEO, and Raymond Paolo,
an officer and director of LOA, executed promissory notes to LOA in the amounts
of $77,617.80 and $47,859.41, respectively ("Paolo Notes"). Pursuant to the
terms of the Paolo Notes, LOA agrees to forgive 25% of the principal amount for
each note per year. Accordingly, the Paolo Notes will be completely forgiven in
2002.
LOA currently has office space in Massachusetts of less than 500 square
feet under a verbal arrangement with a customer. In consideration of the use of
its customers office LOA provides discounted services to the customer. The
office is used to service its clients located in Massachusetts.
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DESCRIPTION OF SECURITIES
The following section does not purport to be complete and is qualified in
its entirety by reference to the detailed provisions of LOA's Certificate of
Incorporation and By-laws, copies of which have been filed with LOA's
Registration Statement on Form SB-2, of which this Prospectus forms a part.
The authorized capital stock of LOA consists of 20,000,000 shares of
Common Stock, $.01 par value. As of December 31, 1998, 4,610,716 shares of
Common Stock were issued and outstanding. As of such date, there were 64 record
holders of the Common Stock. LOA is not authorized to issue Preferred Stock.
Common Stock
Shares of Common Stock are entitled to one vote per share, either in
person or by proxy, on all matters that may be voted upon by the owners thereof
at meetings of the shareholders. There is no provision for cumulative voting
with respect to the election of directors by the holders of Common Stock.
Therefore, the holders of more than 50% of the shares of outstanding Common
Stock can, if they choose to do so, elect all of the directors of LOA. In such
event, the holders of the remaining shares of Common Stock will not be able to
elect any directors.
The holders of Common Stock (i) have equal rights to dividends from funds
legally available therefore, when and if declared by the board of directors of
LOA; (ii) are entitled to share ratably in all of the assets of LOA available
for distribution to holders of Common Stock upon liquidation, dissolution or
winding up of the affairs of LOA; and (iii) do not have preemptive, subscriptive
or conversion rights, or redemption of sinking fund provisions applicable
thereto. The outstanding shares of Common Stock are duly authorized, validly
issued, fully paid and nonassessable.
Warrants
LOA currently has 1,095,000 common stock purchase warrants ("Warrants")
outstanding. 1,000,000 of such Warrants, held in the aggregate by four
beneficial owners, are exercisable during the five year period commencing
January 15, 1999 at an exercise price of $1.00. 50,000 of such Warrants, held by
one beneficial owner, are exercisable during the five year period commencing
December 31, 1998 at an exercise price of $3.50 per share. 45,000 of such
Warrants, held by one beneficial owner, are exercisable during the four year
period commencing December 31, 1998 at $3.25 per share. The shares of Common
Stock underlying the Warrants contain piggyback registration rights, which the
holders have waived with respect to this Offering and the twelve month period
following completion of this Offering.
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Placement Agent Warrants
LOA issued warrants to its placement agent, Security Capital Trading,
Inc., in connection with its private placement between November and December
1998. Such warrants provide for the purchase of: (ii) 13,076 shares of Common
Stock upon the exercise of warrants granted on December 3, 1998, which warrants
are exercisable during the four year period commencing December 3, 1999 and
expiring December 3, 2003 at an exercise price of $3.90 per share; and (ii)
23,845 shares of Common Stock upon the exercise of warrants granted on December
23, 1998, which warrants are exercisable during the four year period commencing
December 23, 1999 and expiring December 23, 2003 at an exercise price of $3.90
per share. These warrants provide for piggy-back and demand registration rights.
Representative's Warrants
LOA has agreed to sell to the Representative, upon closing of this
Offering, warrants for the purchase of 200,000 shares of Common Stock
("Representative's Warrants"). The Representative's Warrants may be purchased
for $20. The Representative's Warrants are exercisable at a price equal to 120%
of the Common Stock offering price. The Representative's Warrants are
exercisable during the four year period commencing one year from the date of
issuance. The Representative's Warrants contain provisions which protect the
holders thereof against dilution. The exercise price and number of shares of
Common Stock and Representative's Warrants purchasable will be subject to
adjustment under certain circumstances, including, but not limited to, stock
dividends, stock splits, mergers, acquisitions and recapitalization.
Pursuant to the terms of the Representative's Warrants, LOA has agreed
that, for a period of five years commencing on the date of this Prospectus, upon
written demand of the holders of a majority of the Representative's Warrants and
the securities issued pursuant thereto, LOA will, on one occasion, register for
sale in a public offering under the Securities Act all or any portion of the
securities issuable upon exercise of the Representative's Warrants (and the
Warrants and Shares included therein). Any such registration would be at LOA's
expense. LOA has also agreed to include such underlying securities in any
appropriate registration statement which is filed by LOA during the five years
following the date of this Prospectus.
Transfer Agent
LOA intends to appoint Continental Stock Transfer & Trust Company as the
transfer agent and registrar for the shares of Common Stock offered hereby.
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RESALES BY SELLING SECURITYHOLDERS
The registration statement, of which this Prospectus forms a part, also
relates to the registration by LOA, for the account of the Selling
Securityholders, of an aggregate of 1,896,116 shares of Common Stock and
1,131,921 shares of Common Stock underlying warrants. The Selling
Securityholders' shares are not being underwritten by the Underwriters in
connection with this Offering. The Selling Securityholders have agreed not to
directly or indirectly offer, sell, transfer or otherwise encumber or dispose of
any of their Common Stock for a period of twelve months after the date of this
Prospectus.
The sale of the Selling Securityholders' shares by the Selling
Securityholders may be effected from time to time in transactions (which may
include block transactions by or for the account of the Selling Securityholders)
in the over-the-counter market or in negotiated transactions, or through the
writing of options on the Selling Securityholders' shares, a combination of such
methods of sale, or otherwise. Sales may be made at fixed prices which may be
changed, at a market prices prevailing at the time of sale, or at negotiated
prices.
The Selling Securityholders may effect such transactions by selling the
Selling Securityholders' shares directly to purchasers, through broker\dealers
acting as agents for the Selling Securityholders, or to broker\dealers who may
purchase shares as principals and thereafter sell the Selling Securityholders'
shares from time to time in the over-the-counter market, in negotiated
transactions, or otherwise. Such broker\dealers, if any, may receive
compensation in the form of discounts, concessions or commissions from the
Selling Securityholders and/or the purchaser for whom which broker-dealers may
act as agents or to whom they may sell as principals or both (which compensation
as to a particular broker-dealer may be in excess of customary commissions).
The Selling Securityholders and broker-dealers, if any, acting in
connection with such sales, might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit upon the resale of such securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
Sales of any shares of Common Stock by the Selling Securityholders may
depress the price of the Common Stock in any market that may develop for the
Common Stock.
<TABLE>
<CAPTION>
Shares Owned Shares Owned
Prior to Offering(1) Common Stock After Offering(2)
Names of Selling -------------------- Offered By ------------------
Securityholders Number Beneficial Owner Number Percent
- --------------- ------ ---------------- ------ -------
<S> <C> <C> <C> <C>
Robert A. Schattle 52,500 52,500 0 0
Brian C. Schattle 50,000 50,000 0 0
Donald J. Schattle 207,500 207,500 0 0
Vivian A. Tamburini 7,500 7,500 0 0
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
Shares Owned Shares Owned
Prior to Offering(1) Common Stock After Offering(2)
Names of Selling -------------------- Offered By ------------------
Securityholders Number Beneficial Owner Number Percent
- --------------- ------ ---------------- ------ -------
<S> <C> <C> <C> <C>
Arthur G. Schattle 10,000 10,000 0 0
and Sheila M. Schattle JT
Marilyn Henderson 375,000 375,000 0 0
Fred Stolle 200,000 200,000 0 0
Anthony Cattani 27,000 27,000 0 0
John K. Greim, Sr. 64,000 64,000 0 0
Victor Calderone 32,400 32,400 0 0
Robert and Shirley Henebury 20,250 20,250 0 0
Paul Phillips 13,500 13,500 0 0
Equity Mortgage 13,500 13,500 0 0
Ernest Hoffer 13,500 13,500 0 0
John Greim, Jr. 13,500 13,500 0 0
Joseph DiGianfilippo 13,500 13,500 0 0
Betty and Anthony Fiorillo 13,500 13,500 0 0
Shannon Love Eldridge 13,500 13,500 0 0
Peter Florio 20,250 20,250 0 0
Steven Marino 27,000 27,000 0 0
Mark and Debbie Stephenson 27,000 27,000 0 0
Vincent Cipriano 27,000 27,000 0 0
Karen S. Kelly 10,000 10,000 0 0
Deborah L. Peacock 100,000 100,000 0 0
Robert M. Kessler 50,000 50,000 0 0
Michael Lombardi 4,500 4,500 0 0
James and Cindy Dugan 4,500 4,500 0 0
Mitchell Cheek 4,500 4,500 0 0
David Forsley 4,500 4,500 0 0
Thomas O'Donnell 2,500 2,500 0 0
Mail Processing Concepts 4,500 4,500 0 0
Raymond T. Mancini 50,000 50,000 0 0
Donald St. Angelo 25,000 25,000 0 0
Richard St. Angelo 25,000 25,000 0 0
Charles E. Casale 30,768 30,768 0 0
Deborah Lee 15,384 15,384 0 0
Eugene I. Meyers 23,076 23,076 0 0
Clyde D. Adams TTEE 15,384 15,384 0 0
Adams Revocable Trust
Wayne B. Peacock 15,384 15,384 0 0
Larry H. Pallini 15,384 15,384 0 0
Joseph D. DiMase TTEE 15,384 15,384 0 0
Money Purchase Pension Plan
Louis J. Petrillo and
Anna Marie Mariniello JT 7,692 7,692 0 0
Shirley Lynn Gasbarro Trust 15,384 15,384 0 0
Faustin M. Kabwe 15,384 15,384 0 0
Michel Van Lierde 15,384 15,384 0 0
Dr. Christoph Ludz 15,384 15,384 0 0
Robert Standaert 7,692 7,692 0 0
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
Shares Owned Shares Owned
Prior to Offering(1) Common Stock After Offering(2)
Names of Selling -------------------- Offered By ------------------
Securityholders Number Beneficial Owner Number Percent
- --------------- ------ ---------------- ------ -------
<S> <C> <C> <C> <C>
Paul J. Gardella and 30,768 30,768 0 0
Mark Edelsberg as Tenants
In Common
Shaji Ravindranathan and 7,692 7,692 0 0
Paul K. Chang as Tenants
In Common
Robert F. Tierney and
Corinne M. Tierney JT 15,384 15,384 0 0
Kleopatra Georgiades 15,384 15,384 0 0
Dalia Silverman 15,384 63,384(3) 0 0
Edward Miller and
Diane Miller JT 7,692 7,692 0 0
Stuart Cohen and
Paul Waltzer as Tenants in
Common 15,384 15,384 0 0
Robert Manheimer 15,384 15,384 0 0
Dr. Kenneth Barton 7,692 7,692 0 0
Girolamo Sorbara 15,384 15,384 0 0
Amar C. Amar 3,846 3,846 0 0
R. Shastri Divakaruni 3,846 3,846 0 0
LOA Investment LLC 7,692 7,692 0 0
Security Capital Trading, Inc. 36,921 36,921(4) 0 0
ICC Consulting, Inc. 250,000 250,000(5) 0 0
Scofield Dennison Corp. 250,000 250,000(5) 0 0
Northeastern Fibercom 250,000 250,000(5) 0 0
Horizon Fiber, Inc. 250,000 250,000(5) 0 0
Michael H. Freedman 2,000 2,000(6) 0 0
Kenneth M. Cornell 45,000 45,000(7) 0 0
</TABLE>
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares of Common Stock which such person has
the right to acquire such shares within 60 days of December 31, 1998. For
purposes of computing the percentage of outstanding shares of Common Stock
held by each person or group of persons named above, any security which
such person or persons has or have the right to acquire within such date
is deemed to be outstanding but is not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person. Except
as indicated in the footnotes to this table and pursuant to applicable
community property laws, LOA believes based on information supplied by
such persons, that the persons named in this table have sole voting and
investment power with respect to all shares of Common Stock which they
beneficially own.
(2) Assumes the sale of all of the shares offered hereby.
57
<PAGE>
(3) Includes 48,000 shares of Common Stock underlying a warrant exercisable
during the five year period commencing December 31, 1998.
(4) Represents shares of Common Stock underlying warrants for the purchase of
36,922 shares of Common Stock exercisable during the four year period
commencing December 1999 at an exercise price of $3.90 per share.
(5) Represents shares of Common Stock underlying warrants for the purchase of
250,000 shares of Common Stock during the five year period commencing
January 15, 1999 at an exercise price of $1.00 per share.
(6) Represents shares of Common Stock underlying a warrant for the purchase of
2,000 shares of Common Stock exercisable during the five year period
commencing December 31, 1998 at an exercise price of $3.50 per share.
(7) Represents shares of Common Stock underlying a warrant for the purchase of
45,000 shares of Common Stock during the four year period commencing
December 31, 1998 at an exercise price of $3.25 per share.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no market for LOA's Common Stock
and no prediction can be made as to the effect, if any, that market sales of
shares of Common Stock or the availability of such shares for sale will have on
the market prices from time to time. The possibility that substantial amounts of
shares of Common Stock may be sold in the public market may adversely affect
prevailing market prices for the shares of Common Stock and/or may impair LOA's
ability to raise equity capital in the future.
Upon completion of this Offering, LOA will have 6,610,716 shares of Common
Stock outstanding (6,910,716 shares if the Underwriter's over-allotment option
is exercised in full). The 2,000,000 shares of Common Stock offered hereby
(2,300,000 shares if the Underwriter's over-allotment option is exercised in
full) will be freely tradeable without restriction or further registration under
the Securities Act, except for any shares purchased by "affiliates" of LOA, as
such term is defined in pursuant to Rule 144 promulgated under the Securities
Act. The remaining shares of Common Stock were sold by LOA in private
transactions and may only be sold if registered under the Securities Act, sold
in accordance with Rule 144 or Rule 701 thereunder or pursuant to an exemption
from registration. In addition, an aggregate of 1,131,922 shares are issuable
upon the exercise of outstanding warrants. All of such shares will be restricted
securities when issued, unless registered.
LOA and each of its securityholders, as well as holders of warrants to
purchase Common Stock have agreed that they will not, without the prior written
consent of the Representative, directly or indirectly, offer, sell, pledge,
grant any option to purchase, or otherwise sell or dispose of any shares of
Common Stock or other similar securities, which they owned prior to the
Offering, for a period of twelve months after the Offering. Such agreements
provide that the Representative may, in its sole discretion and at any time
without notice, release all or a portion of the shares subject to these lock-up
agreements; however, the Representative has no intention to do so.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate (as that term is defined
under the rules and regulations of the Securities Act), who has beneficially
owned "restricted securities" for at least one year will be entitled to sell
within any three month period a number of shares that does not exceed the
greater of (i) 1% of the then outstanding shares of Common Stock, or (ii) the
average weekly trading volume in the Common Stock on all national securities
exchanges and/or reported through the automated quotation system of registered
securities associations during the four calendar weeks immediately preceding the
date on which notice of the sale is filed with the Commission. Sales pursuant to
Rule 144 are also subject to certain other requirements regarding the manner of
sale, notice and availability of current public information about LOA. A person
(or persons whose shares are aggregated) who is not deemed to have been an
affiliate of LOA at any time during the three months immediately preceding the
sale is entitled to sell restricted securities pursuant to Rule 144(k) without
regard to the limitations described above, provided that two years have expired
since the later of the date on which such restricted securities were acquired
from the LOA
59
<PAGE>
or the date they were acquired from an affiliate of LOA. Affiliates, including
members of the Board of Directors and certain of the officers of LOA continue to
be subject to such limitations. As defined in Rule 144, an "affiliate" of an
issuer is a person that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with,
such issuer. Under Rule 701, persons who purchase shares upon exercise of
options granted prior to the effective date of this Offering, are entitled to
sell such shares beginning 90 days after the effective date of the Offering in
reliance upon Rule 144 without having to comply with the holding period
requirements set forth under Rule 144.
60
<PAGE>
UNDERWRITING
The Underwriters named below ("Underwriters"), for whom Security Capital
Trading, Inc. is acting as Representative, have severally agreed, subject to the
terms and conditions contained in the Underwriting Agreement ("Underwriting
Agreement"), to purchase from LOA, and LOA has agreed to sell to the
Underwriters on a firm commitment basis, the respective number of shares of
Common Stock set forth opposite their names:
Number of
Underwriters Shares
- ------------ ------
Security Capital Trading, Inc...............................
Total.............................................. 2,000,000
The Underwriters are committed to purchase all the securities offered
hereby, if any of the securities are purchased. The Underwriting Agreement
provides that the obligations of the several Underwriters are subject to the
conditions precedent specified therein.
The Selling Securityholders' shares are not being underwritten by the
Underwriters in connection with this Offering. The sale of the Selling
Securityholders shares by the Selling Securityholders may be effected from time
to time in transactions, which may include block transactions by or for the
account of the Selling Securityholders, in the over-the-counter market or in
negotiated transactions or through the writing of options on the Selling
Securityholders shares, a combination of such methods of sale, or otherwise.
Sales may be made at fixed prices which may be changed at market prices
prevailing at the time of sale, or at negotiated prices.
LOA has been advised by the Representative that the Underwriters initially
propose to offer the shares of Common Stock to the public at the public offering
price set forth on the cover page of this Prospectus and to certain dealers
concessions not in excess of $______ per share of Common Stock. Such dealers may
reallow a concession not in excess of $______ per share of Common Stock to
certain other dealers. After the commencement of the Offering, the public
offering price, concessions and reallowances may be changed by the
Representative. The Representative has informed LOA that it does not expect
sales to discretionary accounts by the Representative to exceed five percent of
the shares of Common Stock offered by LOA hereby.
LOA has granted to the Underwriters an over-allotment option, exercisable
during the 45-day period from the date of this Prospectus, to purchase from LOA
up to an additional 300,000 shares of Common Stock at the initial public
offering prices, less underwriting discounts and the non-accountable expense
allowance. Such option may be exercised only for the purpose of covering
over-allotments, if any, incurred in the sale of the shares of Common
61
<PAGE>
Stock offered hereby. To the extent such option is exercised in whole or in
part, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase the number of the additional shares of Common Stock
proportionate to its initial commitment.
LOA has agreed to pay to the Representative a non-accountable expense
allowance equal to three percent of the gross proceeds derived from the sale of
the shares of Common Stock underwritten, of which $50,000 has been paid to date.
LOA has agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
Underwriters may be required to make. LOA has been advised that, in the opinion
of the Commission, such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Securities. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M, pursuant to which such persons may bid for or purchase
the Common Stock for the purpose of stabilizing their respective market prices.
The Underwriters also may create a short position for the account of the
Underwriters by selling more shares of Common Stock in connection with the
Offering than they are committed to purchase from LOA, and in such case may
purchase shares of Common Stock in the open market following completion of the
Offering to cover all or a portion of such short position. The Underwriters may
also cover all or a portion of such short position, up to 300,000 shares of
Common Stock, by exercising the over-allotment option referred to above. In
addition, the Representative may impose "penalty bids" under contractual
arrangements with the Underwriters whereby it may reclaim from an Underwriter
(or dealer participating in the Offering) for the account of other Underwriters,
the selling concession with respect to the shares of Common Stock that are
distributed in the Offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the prices of the shares of Common
Stock at a level above that which might otherwise prevail in the open market.
None of the transactions described in this paragraph is required, and, if they
are undertaken, they may be discontinued at any time.
LOA's directors and executive officers, and all holders of shares of
Common Stock, warrants or other securities convertible, exercisable or
exchangeable for Common Stock, have, pursuant to certain lock-up agreements
("Lock-up Agreements"), agreed not to offer, sell or otherwise dispose of any
shares of Common Stock for a period of twelve months following the date of this
Prospectus without the prior written consent of the Representative. An
appropriate legend shall be placed on the certificates representing such
securities. The Representative has no general policy with respect to the release
of shares prior to the expiration of the lock-up period and has no present
intention to waive or modify any of these restrictions on the sale of LOA
securities.
62
<PAGE>
In connection with this Offering, LOA has agreed to sell to the
Representative, and/or its designees, for nominal consideration,
Representative's Warrants to purchase from LOA up to 200,000 shares of Common
Stock. The Representative's Warrants are initially exercisable at any time
during a period of four (4) years commencing one year from the date of the
Prospectus at a price of 120% of the initial public offering price per share of
Common Stock. The Representative's Warrants provide for adjustment in the number
of securities issuable upon the exercise thereof as a result of certain
subdivisions and combinations of the Common Stock. The Representative's Warrants
grant to the holders thereof certain rights of registration for the securities
issuable upon exercise thereof. In addition, the Representative's Warrants may
not be sold, transferred, assigned, hypothecated or otherwise disposed of, in
whole or in part, for a period of one year from the date of the prospectus,
except to officers of the Representative.
Prior to this Offering, there has been no public market for LOA's Common
Stock. Consequently, the initial public offering price of the Common Stock has
been determined by negotiation between the LOA and the Representative and does
not necessarily bear any relationship to LOA's asset value, net worth or other
established criteria of value. The factors considered in such negotiations, in
addition to prevailing market conditions, included the history of and prospects
for the industry in which LOA competes, an assessment of LOA's management, the
prospects of LOA, its capital structure and such other factors as were deemed
relevant.
LOA has also granted to the Representative, the right, for a period of
five years from the closing of the offering, to nominate a designee of the
Representatives for election to the Board of Directors of LOA. LOA's officers,
directors and principal shareholders have agreed to vote their shares in favor
of such designee. The Representative has not yet exercised its right to
designate such a person. If the Representative elects not to exercise this
right, then the Representative may designate one person to attend meetings of
the Board of Directors.
Security Capital Trading, Inc. commenced operations in June 1995. Security
Capital Trading, Inc. has participated as a Representative in only two public
offering of securities. Accordingly, the Representative has only limited
experience as an underwriter of the public offering of securities.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock being offered
hereby are being passed upon for LOA by Silverman, Collura, Chernis & Balzano,
P.C. ("SCCB"). Orrick, Herrington & Sutcliffe LLP, New York, New York 10112, is
acting as counsel for the
63
<PAGE>
Representatives in connection with this Offering. Certain designees of SCCB have
been granted warrants for the purchase of an aggregate of 50,000 shares of
Common Stock exercisable during the five year period commencing December 31,
1998 at an exercise price of $3.50 per share.
EXPERTS
The financial statements included in this Registration Statement for the
years ended December 31, 1997 and 1996 have been examined by Tauber & Balser,
PC. ("T&B"), independent certified public accountants, as set forth in its
report appearing elsewhere herein, and are included in reliance upon such report
and upon the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
With respect to the securities offered hereby, LOA has filed with the
principal office of the Securities and Exchange Commission ("Commission") in
Washington, D.C., a Registration Statement on Form SB-2 under the Securities Act
of 1933, as amended ("Securities Act"). For purposes hereof, the term
"Registration Statement" means the original Registration Statement and any and
all amendments thereto. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits thereto, to which
reference hereby is made. For further information with respect to LOA and the
securities offered hereby, reference is made to the Registration Statement,
including the exhibits thereto, and the financial statements and notes filed as
a part thereof. Each statement made in this Prospectus concerning a document
filed as an exhibit to the Registration Statement is not necessarily complete
and is qualified in its entirety by reference to such exhibit for a complete
statement of its provisions. Any interested party may inspect the Registration
Statement and its exhibits without charge, or obtain a copy of all or any
portion thereof, at prescribed rates, at the public reference facilities of the
Commission at its principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549. The Registration Statement and exhibits may
also be inspected at the Commission's regional offices at Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and
at 7 World Trade Center, Suite 1300, New York, New York 10048. Such other
reports and other information may also be inspected without charge at a website
maintained by the Commission. The address of the website is www.sec.gov.
64
<PAGE>
GLOSSARY OF SELECTED TERMS
"Associated Services" means products indirectly related to telecommunications,
including but not limited to Internet access, video conferencing, video on
demand and e-mail.
"Carriers" denotes companies that are licensed by the various states to carry
domestic and/or international long-distance traffic. These companies may have
their own switching facilities or may contract to use the switching platform(s)
of other carriers.
"Internet" means a wide collection of inter-connected networks that all use the
transmission control protocol/Internet protocol (TCP/IP) operating system and
that evolved from the Advanced Research Projects Administration Network which
was developed in the late 1960s. The Internet
"ISP" means a company that provides access service to the Internet. Services may
be provided to businesses or individual customers via simple local dial in
capability or by means of dedicated high-speed transmission devices.
"PTT" is the acronym for the Postal, Telephone and Telegraph agency or ministry
within a country that is responsible for the management and licensing of those
services within and into and out of that country.
"Telecommunications Industry" is intended to include carriers of voice, data
and video traffic, Internet services and associated products, including
transmission by satellite, wired and wireless means. The industry also includes
other marketers and providers of any services.
65
<PAGE>
LOG ON AMERICA, INC.
FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 and 1997 (Unaudited)
AND
DECEMBER 31, 1997 and 1996
<PAGE>
LOG ON AMERICA, INC.
TABLE OF CONTENTS
Pages
-----
INDEPENDENT AUDITORS' REPORT F-2
BALANCE SHEETS F-3-F-4
STATEMENTS OF OPERATIONS F-5
STATEMENTS OF CASH FLOWS F-6-F-7
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) F-8
NOTES TO FINANCIAL STATEMENTS F-9-F-15
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Log On America, Inc.
Providence, Rhode Island
We have audited the accompanying balance sheet of Log On America, Inc. as of
December 31, 1997 and the related statements of operations, stockholders' equity
(deficiency) and cash flows for the years ended December 31, 1997 and 1996.
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 Log On America, Inc. as of
December 31, 1997, and the results of its operations and its cash flows for the
years ended December 31, 1997 and 1996, in conformity with generally accepted
accounting principles.
s/ Tauber & Balser, P.C.
Atlanta, Georgia
December 18, 1998
F-2
<PAGE>
LOG ON AMERICA, INC.
BALANCE SHEETS
SEPTEMBER 30, 1998 (UNAUDITED) and
DECEMBER 31, 1997
ASSETS
September 30, December 31,
1998 1997
------------ ------------
(Unaudited)
CURRENT ASSETS
Cash $ 69,911 $ --
Accounts receivable, net of allowance
for doubtful accounts of $4,264 at
September 30, 1998 and $12,723 at
December 31, 1997 87,495 59,602
Other current assets 5,142 1,948
-------- --------
TOTAL CURRENT ASSETS 162,548 61,550
-------- --------
PROPERTY & EQUIPMENT, net of accumulated
depreciation of $159,157 at
September 30, 1998 and
$128,164 at December 31, 1997 62,123 66,727
OTHER ASSETS
Goodwill, net of accumulated
amortization of $58,721
at September 30, 1998
and $25,857 at
December 31, 1997 248,015 155,140
Notes receivable - officer 128,813 78,533
Deposits 705 705
-------- --------
377,533 234,378
-------- --------
TOTAL ASSETS $602,204 $362,655
======== ========
F-3
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
CURRENT LIABILITIES
Notes payable - current portion $ 5,996 $ 5,076
Accounts payable 338,433 315,626
Accrued expenses 72,280 83,445
Deferred revenues 25,709 38,262
Notes payable - related party -- 3,267
--------- ---------
TOTAL CURRENT LIABILITIES 442,418 445,676
--------- ---------
LONG-TERM DEBT, net of current portion
Note payable 12,490 17,720
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common Stock, $.01 par value;
authorized 20,000,000 shares and
issued and outstanding 4,241,500
shares as of September 30, 1998
Authorized 1,000 shares and issued
and outstanding 100 shares as
of December 31, 1997, respectively 18,070 179,260
Additional paid-in capital 307,454 --
Accumulated deficit (178,228) (280,001)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) 147,296 (100,741)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY) $ 602,204 $ 362,655
========= =========
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
LOG ON AMERICA, INC.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS SEPTEMBER 30, 1998 and 1997 (UNAUDITED) and
FOR THE YEARS ENDED DECEMBER 31, 1997 and 1996
<TABLE>
<CAPTION>
Nine Months
Ended September 30 Year Ended December 31,
------------------ -----------------------
1998 1997 1997 1996
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Dial up $ 177,111 $ 58,793 $ 123,680 $ 168,119
Dedicated access service 314,272 115,456 172,734 14,153
Web services 51,343 32,975 41,895 4,430
Other 8,578 9,814 13,251 --
----------- --------- --------- ---------
Total Revenues 551,304 217,038 351,560 186,702
----------- --------- --------- ---------
OPERATING EXPENSES
Communication and internet services 228,950 90,466 138,524 52,036
General and administrative 498,299 291,929 491,060 271,481
----------- --------- --------- ---------
Total Operating Expenses 727,249 382,395 629,584 323,517
----------- --------- --------- ---------
OPERATING LOSS (175,945) (165,357) (278,024) (136,815)
----------- --------- --------- ---------
OTHER EXPENSES
Interest (2,283) (2,468) (1,977) (2,139)
Penalties -- -- -- (24,082)
----------- --------- --------- ---------
(2,283) (2,468) (1,977) (26,221)
----------- --------- --------- ---------
NET LOSS $ (178,228) $(167,825) $(280,001) $(163,036)
=========== ========= ========= =========
WEIGHTED AVERAGE COMMON SHARES
USED IN COMPUTING BASIC AND
DILUTED LOSS PER SHARE 3,708,770 101 101 101
----------- --------- --------- ---------
BASIC AND DILUTED LOSS
PER COMMON SHARE $ (.05) $ (1,661) $ (2,772) $ (1,614)
=========== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
LOG ON AMERICA, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 and 1997 (UNAUDITED) and
FOR THE YEARS ENDED DECEMBER 31, 1997 and 1996
<TABLE>
<CAPTION>
Nine Months
Ended September 30, Year Ended December 31,
---------------------- -----------------------
1998 1997 1997 1996
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(178,228) $(167,825) $(280,001) $(163,036)
--------- --------- --------- ---------
Adjustments:
Stock issued for services 4,392 -- -- --
Stock issued for settlement of
prior obligations 10,022 -- -- --
Notes receivable forgiven related
to stock subscriptions 36,110 -- -- --
Depreciation and amortization 63,858 37,473 71,296 36,347
Bad debt provision (8,459) (395) 903 11,820
Negative amortization of note payable -- -- -- 1,445
Changes in:
Accounts receivable (19,432) (39,657) (46,808) (10,933)
Prepaid advertising -- -- 20,000 (20,000)
Other current assets (3,194) (549) (1,948) --
Note receivable - officer (50,280) (54,501) (78,533) --
Accounts payable 22,806 24,861 105,820 152,464
Accrued expenses (11,165) 7,998 13,568 61,254
Deferred revenue (12,553) 32,967 38,262 --
--------- --------- --------- ---------
Total Adjustments 32,105 8,197 122,560 232,397
--------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (146,123) (159,628) (157,441) 69,361
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (26,389) (12,257) (12,257) (92,857)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on notes payable-related party -- -- -- 6,667
Proceeds from capital contribution from parent
company -- 179,260 179,260
Proceeds from sale of common stock 275,000 -- -- 10,000
Payments on note payable (29,310) (3,292) (6,362) (594)
Payments on notes payable-related party (3,267) (3,200) (3,200) (200)
--------- --------- --------- ---------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 242,423 169,501 169,698 15,873
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH 69,911 883 -- (7,623)
CASH BEGINNING OF PERIOD -- -- -- 7,623
--------- --------- --------- ---------
CASH END OF PERIOD $ 69,911 $ 883 $ -- $ --
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
LOG ON AMERICA, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 and 1997 (UNAUDITED) and
FOR THE YEARS ENDED DECEMBER 31, 1997 and 1996
Nine Months Year Ended
Ended September 30, December 31,
------------------- -----------------
1998 1997 1997 1996
---- ---- ---- ----
(Unaudited)
SUPPLEMENTAL DISCLOSURES OF CASH INFORMATION:
Cash paid for interest $2,952 $554 $3,148 $972
====== ==== ====== ====
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Details of acquisition
Fair value of assets acquired $ 134,311
=========
Goodwill established $ 180,998
=========
Liabilities assumed $ 315,309
=========
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
LOG ON AMERICA, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) and
THE YEARS ENDED DECEMBER 31, 1997 and 1996
<TABLE>
<CAPTION>
Total
Common Stock Issued Additional Stockholders'
--------------------- Paid-In Accumulated Equity
Shares Par Value Capital Deficit (Deficiency)
------ --------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1995 100 $ 144,200 $ -- $(172,162) $ (27,962)
Shares issued 2 10,000 -- -- 10,000
Net loss -- -- -- (163,036) (163,036)
---------- --------- -------- --------- ---------
BALANCE DECEMBER 31, 1996 102 154,200 -- (335,198) (180,998)
Acquisition of assets and assumptions of
liabilities of Global Telemedia, Inc. (102) (154,200) -- 335,198 180,998
Capital infusion by parent company 100 179,260 -- -- 179,260
Net loss -- -- -- (280,001) (280,001)
---------- --------- -------- --------- ---------
BALANCE DECEMBER 31, 1997 100 179,260 -- (280,001) (100,741)
Acquisition of assets and assumption of
liabilities by WAN Secure, Inc. (100) (179,260) -- 280,001 100,741
Issuance of common stocks for services 62,750 628 3,764 -- 4,392
Issuance of common stock for notes 1,150,000 11,500 24,610 -- 36,110
Issuance of common stock 275,000 2,750 272,250 -- 275,000
Issuance of common stock to President 2,434,600 -- -- -- --
Issuance of common stock for settlement of
prior obligations 319,150 3,192 6,830 -- 10,022
Net loss -- -- -- (178,228) (178,228)
---------- --------- -------- --------- ---------
BALANCE SEPTEMBER 30, 1998 (unaudited) 4,241,500 $ 18,070 $307,454 $(178,228) $ 147,296
========== ========= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
LOG ON AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 and 1997 (UNAUDITED) and
THE YEARS ENDED DECEMBER 31, 1997 and 1996
1. Summary of Significant Accounting Policies
Nature of Business and Operating History
Log On America, Inc. was incorporated in Rhode Island ("LOARI") in 1992 for the
purposes of providing online and Internet related services. In 1997, LOARI sold
100% of its assets to Global Telemedia International, Inc. ("GTMI") and agreed
to change its name to Tekcom, Inc. In consideration for the sale, GTMI agreed to
(i) assume all outstanding liabilities of LOARI; and (ii) pay LOARI shareholders
20% of the value of all LOARI business on the third anniversary of the purchase
("Contingent Sum"). At this time, GTMI formed System 4, Inc., a wholly owned
Delaware subsidiary, in which to transfer the LOARI assets and liabilities.
In July 1997, System 4, Inc. changed its name to Log On America, Inc. ("LOA").
Wan Secure, ("WS") was organized in Delaware in January 1998 to purchase 100% of
the outstanding capital stock of LOA from GTMI. Pursuant to such acquisition,
LOA became a wholly owned subsidiary of WS. In consideration for the purchase,
WS executed a note in the amount of $100,000 ("GTMI Note"). The GTMI Note was
personally guaranteed by David R. Paolo, WS's majority shareholder. In September
1998, WS effected a merger with and into LOA whereby WS was the survivor.
Simultaneously with the merger, WS changed its name to Log On America, Inc. (the
"Company").
In and around February 1998, 100% of the shareholders of Tekcom, Inc. (formerly
LOARI) agreed to surrender and release all rights and claims to the Contingent
Sum. As consideration for such surrender and release, Tekcom shareholders
received an aggregate of 795,130 shares; 319,150 shares were issued to the
Contingent Sum holders and 475,980 shares were issued to the founder and
President of the Company. In July 1998, GTMI accepted a settlement of the GTMI
Note. In consideration for such settlement, GTMI accepted $25,000. As a result
of the aforesaid transactions, the Company is a successor in interest to WS,
System 4 and LOARI.
Unaudited Financial Statements
The balance sheet and statement of changes in stockholders' equity as of
September 30, 1998 and the statements of income and cash flows for the nine
months ended September 30, 1998 and 1997 are unaudited, and in the opinion of
management, include all normal and recurring adjustments necessary to present
fairly the Company's financial position, results of operations and cash flows.
The data disclosed in these notes to the financial statements for these periods
is also unaudited. The results of operations for the periods presented are not
necessarily indicative of the operations for the full year.
Fair Value of Financial Instruments
All current assets and liabilities are carried at cost, which approximates fair
value because of the short maturity of those instruments.
F-9
<PAGE>
LOG ON AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 and 1997 (UNAUDITED) and
THE YEARS ENDED DECEMBER 31, 1997 and 1996
1. Summary of Significant Accounting Policies, continued
Credit Risk
The Company's accounts receivable potentially subject the Company to credit
risks as collateral is generally not required. The Company's risk of loss is
limited due to advance billings to customers for services, the use of
pre-approved charges to customer credit cards, and the ability to terminate
access on delinquent accounts. The carrying amount of the Company's receivables
approximates their fair value.
Property and Equipment
Purchased property and equipment are recorded at cost, and depreciated using an
accelerated method over the estimated useful lives of the assets, commencing
when the assets are installed or placed in service.
Goodwill
The excess of liabilities assumed over the fair value of assets acquired when
the Company sold all of its assets and liabilities to Global Telemedia
International, Inc. (GTMI) on January 2, 1997 was $180,998. In January, 1998 WAN
Secure, Inc. purchased all of the liabilities and assets of LOA from GTMI,
resulting in additional excess liabilities over fair value of assets acquired of
$99,882. The resulting goodwill is being amortized by the straight-line method
over a 7 year period. Amortization for the period ended September 30, 1998 was
$32,864 (unaudited), and for the year ended December 31, 1997 was $25,857.
Revenue Recognition
The Company recognizes revenue when services are provided. Services are
generally billed one month in advance. Advance billings and collections relating
to future access services are recorded as deferred revenue and recognized when
revenue is earned.
Advertising Expense
The advertising expense includes the cost of sales brochures, print advertising
in trade publications and trade shows. The cost of advertising is expensed as
incurred. Advertising expense was $4,600 (unaudited) for the period ended
September 30, 1998 and $64,820 and $8,089 for the years ended December 31, 1997
and 1996, respectively.
F-10
<PAGE>
LOG ON AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 and 1997 (UNAUDITED) and
THE YEARS ENDED DECEMBER 31, 1997 and 1996
1. Summary of Significant Accounting Policies, continued
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles (GAAP) 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 may differ from these estimates.
Stock Based Compensation
As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the
Company accounts for its stock-based compensation arrangements pursuant to APB
No. 25, Accounting for Stock Issued to Employees. In accordance with those
provisions, because the exercise price of the Company's stock options equals the
market price of the underlying stock on the grant date, no compensation expense
is recognized.
Net Loss Per Share
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128
(SFAS No. 128), Earnings Per Share, which established new standards for
computing and presenting earnings per share. SFAS No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earning per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of stock options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share.
All loss per share amounts have been presented to conform to the SFAS No. 128
presentation. Stock options are warrants have not been included in the
computation of diluted loss per share as the computation would not be dilutive.
For additional disclosure regarding stock options and warrants see Note 9.
2. Notes Receivable - Officers
Notes receivable - officers consisted of amounts loaned to officers of the
Company in the amount of $128,813 at September 30, 1998 (unaudited) and $78,533
at December 31, 1997. In May 1998, David R. Paolo, the Company's President and
CEO, and Raymond Paolo, an officer and director, executed promissory notes to
the Company in the amounts of $77,617 and $47,859, respectively ("Paolo Notes").
Pursuant to the terms of the Paolo Notes, the Company agrees to forgive 25% of
the principal amount for each note per year if the officers remain employed by
the Company. If employment is terminated, the notes become immediately due and
payable.
F-11
<PAGE>
LOG ON AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 and 1997 (UNAUDITED) and
THE YEARS ENDED DECEMBER 31, 1997 and 1996
3. Property and Equipment
Property and equipment consist of the following:
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
Computer, telecommunications and office equipment $219,326 $192,937
Leasehold improvements 1,954 1,954
-------- --------
221,280 194,891
Less accumulated depreciation 159,157 128,164
-------- --------
$ 62,123 $ 66,727
======== ========
Depreciation expense for the period ended September 30, 1998 was $30,993
(unaudited), and $45,439 and $36,347 for the years ended December 31, 1997 and
1996, respectively.
4. Accrued Expenses and Deferred Revenues
Accrued expenses and deferred revenues consisted of the following as of:
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
Accrued payroll taxes $59,722 $ 66,994
Accrued expenses 12,558 16,451
------- ---------
$72,280 $ 83,445
======= =========
F-12
<PAGE>
LOG ON AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 and 1997 (UNAUDITED) and
THE YEARS ENDED DECEMBER 31, 1997 and 1996
5. Notes Payable
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
Notes payable consist of the following:
Note payable to Small Business Loan Fund
Corporation at 6.98%, due October 1999,
interest and principal payable
monthly in the amount of $594,
with balance due at maturity $18,486 $22,796
Notes payable to related parties at 9.25%,
interest and principal due in lump sum at
various due dates in 1997 and 1998 -- 3,267
------- -------
18,486 26,063
Less current portion 5,996 8,343
------- -------
$12,490 $17,720
======= =======
Maturities of notes payable are as follows for the years ended December 31,
1998 $ 8,343
1999 17,720
-------
$26,063
=======
6. Income Taxes
There are no income tax assets, liabilities or income tax expense included in
the financial statements. The Company has incurred losses since inception for
both book and tax purposes. However, the Company can not utilize any federal or
state loss carryforwards due to changes in ownership of the Company.
7. Lease Commitments
The Company leases office space and equipment under operating leases expiring in
1999. Rental expense for the period ended September 30, 1998 was $46,412
(unaudited), and $50,700 and $18,204 for the years ended December 31, 1997 and
1996, respectively. The following represent minimum rental payments due:
Years ended
December 31, Amount
------------ ------
1998 $54,684
1999 23,961
-------
$78,645
=======
F-13
<PAGE>
LOG ON AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 and 1997 (UNAUDITED) and
THE YEARS ENDED DECEMBER 31, 1997 and 1996
7. Lease Commitments (continued)
The Company has office space in Massachusetts of less than 500 square feet under
a verbal agreement with a customer. In consideration of the use of its
customer's office, LOA provides discounted services to the customer. The office
is used to service its clients located in Massachusetts.
8. Reverse Merger and Subsequent Events
In October 1998, Log On America, Inc., a Delaware corporation and wholly owned
subsidiary of WAN Secure, Inc. completed a reverse merger with its parent
company. WAN Secure, Inc. then changed its name to Log On America, Inc., and
remained a Delaware corporation.
In a private offering that occurred in November and December 1998, the Company
sold $1,200,000 of unregistered shares at a price of $50,000 per unit which
consists of 15,384 shares of common stock ($3.25 per share). Net proceeds to LOA
were $1,044,000. Securities issued under the private offering were done so in
reliance upon the exemption from registration afforded by Section 4(2) of the
Securities Act and Rule 506 of Regulation D. Accordingly, the transfer of the
units and underlying shares of common stock is subject to substantial
restrictions.
In December 1998, the Company issued 50,000 and 45,000 warrants exercisable at
$3.50 and $3.25, respectively. The warrants are exercisable during the four year
period commencing December 31, 1998.
In December 1998, the Company approved an initial public offering of up to
2,300,000 shares of its common stock.
On December 21, 1998, the Company paid $41,559 to the Internal Revenue Service
for settlement of all past due payroll taxes.
9. Stock Options and Warrants
As of January 4, 1999, the Board of Directors has authorized the granting of
options for up to 1,000,000 shares of Common Stock to officers, directors, and
employees at a strike price at 85% to 90% of market value.
In August 1998, the Company issued 1,000,000 warrants to certain consultants.
The warrants are exercisable during the five-year period commencing January 15,
1999 at the exercise price of $1.00. The shares of common stock underlying the
warrants contain piggyback registration rights. The value of the warrants
granted of $1,000,000 was determined using the Black-Sholes model.
F-14
<PAGE>
LOG ON AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 and 1997 (UNAUDITED) and
THE YEARS ENDED DECEMBER 31, 1997 and 1996
9. Stock Options and Warrants (continued)
In December 1998, the Company issued 131,922 warrants to consultants and
underwriters in conjunction with the private offering and the proposed public
offering. 50,000 and 45,000 of the warrants are exercisable at $3.50 and $3.25
per share, respectively. The warrants are exercisable during the four-year
period commencing December 31, 1998. Also issued in December 1998, were 36,922
warrants exercisable at $3.90, which are exercisable during the four year period
commencing December 15, 1998.The total value of the December, 1998 warrants, as
determined by using the Black-Sholes model, was $465,245.
10. Employment Agreements
The Company has employment agreements through 2004 with David R. Paolo,
President and CEO and Raymond Paolo, an officer and director. The agreements
call for an annual increase of base compensation of 10%, and include provisions
for performance based bonuses. The Company's potential minimum obligation under
the agreements was $1,302,828 at September 30, 1998.
11. Common Stock Issued to President
In January, 1998 the board of directors of Wan Secure, Inc. approved a change in
authorized common stock from 1,000 shares at no par value to 5,000,000 shares at
$.01 par value. Simultaneously, the President of the Company and then sole
shareholder exchanged his 1,000 shares for 1,958,620 shares of the newly
authorized $.01 par value stock. In addition, the President received 475,980
shares of stock issued as a result of the settlement with the Tekcom Contingent
Sum holders.
F-15
<PAGE>
================================================================================
No dealer, salesman or any other person is authorized to give any
information or to represent anything not contained in this Prospectus. You must
not rely on any unauthorized information or representations. This Prospectus is
an offer to sell the securities offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in this
Prospectus is current only as of this date
TABLE OF CONTENTS
Page
----
Prospectus Summary.............................................................3
Risk Factors...................................................................7
Use of Proceeds...............................................................19
Capitalization................................................................21
Dividend Policy...............................................................22
Dilution......................................................................23
Selected Financial Data.......................................................25
Management's Discussion and Analysis of
Financial Condition.........................................................26
Business......................................................................33
Management....................................................................44
Principal Shareholders........................................................50
Certain Transactions..........................................................52
Description of Securities.....................................................53
Resales by Selling Securityholders............................................55
Shares Eligible for Future Sale...............................................59
Underwriting..................................................................61
Legal Matters.................................................................63
Experts.......................................................................64
Additional Information........................................................64
Glossary of Selected Terms....................................................65
Index to Financial Statements................................................F-1
--------------------
Until __________, 1999 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to deliver
a Prospectus when acting as Representatives and with respect to their unsold
allotments or subscriptions.
================================================================================
================================================================================
2,000,000 SHARES
LOG ON AMERICA, INC.
COMMON STOCK
--------------------
PROSPECTUS
--------------------
Security Capital Trading, Inc.
____________, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC Registration Fee $11,609.36
American Stock Exchange Listing Fee $10,000
NASD Filing Fee $ 4,676.03
Printing and Engraving Expenses $75,000*
Legal Fees and Expenses $125,000*
Accounting Fees and Expenses $50,000*
Transfer Agent's Fees and Expenses $10,000
Blue Sky Fees and Expenses $35,000
Miscellaneous Expenses $ 4,000
-----------
TOTAL $325,285*
*Estimated
The Selling Securityholders will not pay any portion of the foregoing
expenses of issuance and distribution.
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
LOA's Certificate of Incorporation, as amended and Amended Bylaws limit the
liability of directors and officers to the maximum extent permitted by Delaware
law. Delaware law provides that directors of a corporation will not be
personally liable for monetary damages for breach of their fiduciary duties as
directors, including gross negligence, except liability for (i) breach of the
directors' duty of loyalty; (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law, (iii) the
unlawful payment of a dividend or unlawful stock purchase or redemption, and
(iv) any transaction from which the director derives an improper personal
benefit. Delaware law does not permit a corporation to eliminate a director's
duty of care, and this provision of LOA's Certificate of Incorporation has no
effect on the availability of equitable remedies, such as injunction or
rescission, based upon a director's breach of the duty of care.
LOA is planning to enter into indemnification agreements with each of its
current and future directors and officers which provide for indemnification of,
and advancing of expenses to, such persons to the greatest extent permitted by
Delaware law, including by reason of action or inaction occurring in the past
and circumstances in which indemnification and the advancing of expenses are
discretionary under Delaware law.
II-1
<PAGE>
LOA's Certificate of Incorporation authorizes LOA to purchase and maintain
insurance for the purposes of indemnification. LOA intends to apply for
directors' and officers' insurance, although there can be no assurance that LOA
will be able to obtain such insurance on reasonable terms, or at all.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of LOA pursuant
to the foregoing provisions, or otherwise, LOA has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
Corporation Takeover Provisions
Section 203 of the Delaware General Corporation Law
LOA is subject to the provisions of Section 203 of the Delaware General
Corporation Law ("Section 203"). Under Section 203, certain "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 prohibited for a three-year period following the date that such
stockholder became an interested stockholder, unless (i) the corporation has
elected in its original certificate of incorporation not to be governed by
Section 203 (LOA did not make such an election) (ii) 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 (iii) 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 render or vote stock held by
the plan) or, (iv) the business combination was approved by the Board of
Directors of the corporation and ratified by two-thirds of the voting stock
which the interested stockholder did not own. The three-year prohibition also
does not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during t he 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 to include
mergers or consolidations between a Delaware corporation and an "interested
stockholder," transactions with an "interested stockholder"
II-2
<PAGE>
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 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 LOA and therefore could discourage attempts to acquire LOA.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
December 1998 Private Placement (December Placement)
In December 1998 LOA closed a private placement of 24 units ("Units"), each
unit consisting of 15,384 shares of Common Stock, at a price of $50,000 per
Unit. LOA sold 369,216 shares of its Common Stock and raised gross proceeds of
$1,200,000. The placement agent for the December Placement was Security Capital
Trading, Inc., which received a commission of 10% of the $1,200,000 raised and a
non-accountable expense allowance of 3% per Unit sold. Security Capital Trading,
Inc. was granted warrants to purchase 13,076 shares of Common Stock reserved for
issuance upon the exercise of outstanding warrants granted on December 3, 1998,
which warrants are exercisable during the four year period commencing December
3, 1999 and expiring December 3, 2003 at $3.90 per share; and 23,845 shares of
Common Stock reserved for issuance upon the exercise of outstanding warrants,
granted on December 23, 1998, which warrants are exercisable during the four
year period commencing December 23, 1999 and expiring December 23, 2003 at $3.90
per share. The December Placement was exempt from state and federal registration
pursuant to Rule 506 of Regulation D, and Section 4(2) of the Securities Act.
July 1998 Private Placement
In July 1998 LOA closed a private placement of shares of Common Stock at a
price of $1.00 per share. LOA sold 275,000 shares of Common Stock and received
gross proceeds of $275,000. The private placement was offered by LOA's officers
and directors, none of whom received commissions for the sales. The private
placement was exempt from state and federal registration pursuant to Rule 506 of
Regulation D, and Section 4(2) of the Securities Act.
Warrants
In August 1998, LOA granted warrants for the purchase of 1,000,000 shares
of Common Stock at an exercise price of $1.00 per share to four entities, ICC
Consulting, Inc., Scofield Dennison Corp., Northeastern Fibercom and Horizon
Fiber, Inc. in consideration of certain business promotion and sales. The
warrants provide for piggy-back registration rights and are exercisable during
the four year period commencing January 15, 1999.
In December 1998, LOA granted warrants for the purchase of 50,000 shares of
Common Stock to Silverman, Collura, Chernis & Balzano, P.C., LOA's legal
counsel, for services rendered. The warrants provide for cashless exercise and
piggy-back registration rights. The warrants are exercisable during the five
year period commencing December 31,
II-3
<PAGE>
1998 at an exercise price of $3.50 per share.
In December 1998, LOA granted warrants for the purchase of 45,000 shares of
Common Stock to Kenneth M. Cornell, LOA's interim CFO, for services rendered.
The warrants provide for piggy-back registration rights and are exercisable
during the four year period commencing December 31, 1998 at an exercise price of
$3.25 per share.
In November and December 1998, LOA granted warrants to Security Trading
Capital,Inc. for the purchase of 36,921 shares of Common Stock at an exercise
price of $3.90 per share in connection with the December Placement.
All of the above warrants were issued pursuant to an exemption under
Section 4(2) of the Securities Act.
ITEM 27. EXHIBITS
Exhibit No. Description
- ----------- -----------
1.1 Form of Underwriting Agreement
1.2 Form of Representative's Warrant Agreement
3.1 Certificate of Incorporation of Registrant, as amended
3.2* By-laws of Registrant, as amended
4.1* Specimen certificate representing Registrant's Common Stock
5.1* Opinion of Silverman, Collura, Chernis & Balzano, P.C. with
respect to legality of the securities of the Registrant
being registered
10.1 David R. Paolo Employment Agreement
10.2 Raymond Paolo Employment Agreement
23.1* Consent of Silverman, Collura, Chernis & Balzano, P.C. (included
in Exhibit 5.1)
23.2 Consent of Tauber & Balser, P.C.
24.1 Power of Attorney (set forth on signature page of the
Registration Statement
27.1 Financial Data Schedule
II-4
<PAGE>
* to be filed by amendment
b. Financial Statement Schedules.
None
ITEM 28. UNDERTAKINGS.
(a) Rule 415 Offerings.
The undersigned issuer hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
Registration Statement; and
(iii) Includes any additional or changed material information on the
plan of distribution.
provided, however, the paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
Registration Statement is on Form S-3 or Form S-8, and the information required
in a post-effective amendment by those paragraphs is contained in periodic
reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(b) Request for acceleration of effective date.
(1) Insofar as indemnification for liabilities arising under the Securities
Act, may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provisions, or otherwise, the
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the issuer
of expenses incurred
II-5
<PAGE>
or paid by a director, officer or controlling person of the issuer in the
successful defense of any action, suit or proceedings) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the issuer will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such court.
(2) For determining liability under the Securities Act, treat the
information in the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in the form of prospectus
file by the small business issuer under rule 424(b)(1), or (4) or 457(h) under
the Securities Act as part of this registration statement as at the time the
Commission declares it effective.
(3) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Providence, State of Rhode Island, on January 6, 1999.
LOG ON AMERICA, INC.
By: s/David R. Paolo
---------------------------------
David R. Paolo, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below, hereby constitutes and appoints David R. Paolo, his true and lawful
attorney-in-fact, with full power of substitution and resubstitution, for his
and in his name, place and stead, in any and all capacities, to sign any or all
amendments or supplements to this Registration Statement and to file the same
with all exhibits thereto and other documents in connection therewith, with the
Commission, granting unto said attorney-in-fact full power and authority to do
and perform each and every act and thing necessary or appropriate to be done
with respect to this Registration Statement or any amendments or supplements
hereto and about the premises, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact, or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in their
respective capacities with LOA and on the dates indicated.
Signature Title Date
--------- ----- ----
s/ David R. Paolo Principal Executive Officer
- ------------------------ and Chairman of the Board January 6, 1999
David R. Paolo
s/ Kenneth M. Cornell Principal Financial Officer and
- ------------------------ Principal Accounting Officer January 6, 1999
Kenneth M. Cornell
s/ Raymond E. Paolo Vice President of Administration,
- ------------------------ Secretary, Treasurer and Director January 6, 1999
Raymond E. Paolo
Director
- ------------------------
Donald J. Schattle III
s/ Paul Phillips Director January 6, 1999
- -----------------------
Paul Phillips
s/ Deborah Stevenson
- ------------------------ Director January 6, 1999
Deborah Stevenson
II-7
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
1.1 Form of Underwriting Agreement
1.2 Form of Representative's Warrant Agreement
3.1 Certificate of Incorporation of Registrant, as amended
3.2* By-laws of Registrant, as amended
4.1* Specimen certificate representing Registrant's Common Stock
5.1* Opinion of Silverman, Collura, Chernis & Balzano, P.C. with
respect to legality of the securities of the Registrant
being registered
10.1 David R. Paolo Employment Agreement
10.2 Raymond Paolo Employment Agreement
23.1* Consent of Silverman, Collura, Chernis & Balzano, P.C. (included
in Exhibit 5.1)
23.2 Consent of Tauber & Balser, P.C.
24.1 Power of Attorney (set forth on signature page of the
Registration Statement
27.1 Financial Data Schedule
[Form of Underwriting Agreement - Subject to Additional Review]
2,000,000 Shares of Common Stock
LOG ON AMERICA, INC.
UNDERWRITING AGREEMENT
New York, New York
, 1999
SECURITY CAPITAL TRADING, INC.
As Representative of the
several Underwriters named
in Schedule A to Exhibit A
annexed hereto
520 Madison Avenue
10th Floor
New York, New York 10022
Ladies and Gentlemen:
Log On America, Inc., a Delaware corporation (the "Company"), confirms its
agreement with Security Capital Trading, Inc. ("Security Capital") and each of
the underwriters named in Schedule A hereto (collectively, the "Underwriters,"
which term shall also include any underwriter substituted as hereinafter
provided in Section 11), for whom Security Capital is acting as Representative
(in such capacity, Security Capital shall hereinafter be referred to as "you" or
the "Representative"), with respect to the sale by the Company and the purchase
by the Underwriters, acting severally and not jointly, of the respective number
of shares ("Shares") of the Company's common stock, $0.01 par value per share
("Common Stock"). The aggregate 2,000,000 shares of Common Stock are hereinafter
referred to as the "Firm Securities."
Upon your request, as provided in Section 2(b) of this Agreement, the
Company shall also issue and sell to the Underwriters, acting severally and not
jointly, up to an additional 300,000 shares of Common Stock for the purpose of
covering over-allotments, if any. Such 300,000 shares of Common Stock are
hereinafter collectively referred to as the "Option Securities." The Company
also proposes to issue and sell to you warrants (the "Representative's
Warrants") pursuant to the Representative's Warrant Agreement (the
"Representative's Warrant Agreement") for the purchase of an additional 200,000
shares of Common Stock. The shares of Common Stock issuable upon exercise of the
Representative's Warrants are hereinafter referred to as the "Representative's
Securities." The Firm Securities, the Option Securities, the
<PAGE>
Representative's Warrants and the Representative's Securities (collectively,
hereinafter referred to as the "Securities") are more fully described in the
Registration Statement and the Prospectus referred to below.
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, each of the Underwriters as of the date
hereof, and as of the Closing Date (as hereinafter defined) and each Option
Closing Date (as hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and an amendment or
amendments thereto, on Form SB-2 (No. 333-_________), including any related
preliminary prospectus ("Preliminary Prospectus"), for the registration of the
Firm Securities, the Option Securities and the Representative's Securities under
the Securities Act of 1933, as amended (the "Act"), which registration statement
and amendment or amendments have been prepared by the Company in conformity with
the requirements of the Act, and the rules and regulations (the "Regulations")
of the Commission under the Act. The Company will promptly file a further
amendment to said registration statement in the form heretofore delivered to the
Underwriters and will not file any other amendment thereto to which the
Underwriters shall have objected in writing after having been furnished with a
copy thereof. Except as the context may otherwise require, such registration
statement, as amended, on file with the Commission at the time the registration
statement becomes effective (including the prospectus, financial statements,
schedules, exhibits and all other documents filed as a part thereof or
incorporated therein (including, but not limited to those documents or
information incorporated by reference therein) and all information deemed to be
a part thereof as of such time pursuant to paragraph (b) of Rule 430(A) of the
Regulations), is hereinafter called the "Registration Statement", and the form
of prospectus in the form first filed with the Commission pursuant to Rule
424(b) of the Regulations, is hereinafter called the "Prospectus." For purposes
hereof, "Rules and Regulations" mean the rules and regulations adopted by the
Commission under either the Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has issued
any order preventing or suspending the use of any Preliminary Prospectus, the
Registration Statement or Prospectus or any part of any thereof and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Company's securities have been instituted or are pending
or threatened. Each of the Preliminary Prospectus, the Registration Statement
and Prospectus at the time of filing thereof conformed with the requirements of
the Act and the Rules and Regulations, and none of the Preliminary Prospectus,
the Registration Statement or Prospectus at the time of filing thereof contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that this representation and warranty does not apply to statements made in
reliance upon and in conformity with written information furnished to the
Company with respect to the Underwriters by or on behalf of the Underwriters
expressly for use in such Preliminary Prospectus, Registration Statement or
Prospectus or any amendment thereof or supplement thereto.
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<PAGE>
(c) When the Registration Statement becomes effective and at all times
subsequent thereto up to the Closing Date (as defined herein) and each Option
Closing Date (as defined herein), if any, and during such longer period as the
Prospectus may be required to be delivered in connection with sales by the
Underwriters or a dealer, the Registration Statement and the Prospectus will
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and will conform to the requirements
of the Act and the Rules and Regulations; neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided, however,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in strict conformity with information
furnished to the Company in writing by or on behalf of any Underwriter expressly
for use in the Preliminary Prospectus, Registration Statement or Prospectus or
any amendment thereof or supplement thereto.
(d) Each of the Company, a Delaware corporation, and the Company's
wholly-owned subsidiary, ___________, a ______ corporation ("_______") (such
subsidiary is hereinafter referred to as the "Subsidiary"), has been duly
organized and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its organization. Except as set forth in the
Prospectus, neither Company nor the Subsidiary owns an interest in any
corporation, partnership, trust, joint venture or other business entity. Each of
the Company and the Subsidiary is duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in which its ownership or
leasing of any properties or the character of its operations requires such
qualification or licensing. The Company owns, directly or indirectly, one
hundred percent (100%) of the outstanding capital stock or other ownership
interests of the Subsidiary, and all of such shares or other ownership interests
have been validly issued, are fully paid and non-assessable, were not issued in
violation of any preemptive rights and are owned free and clear of any liens,
charges, claims, encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever. Each of the Company and the
Subsidiary has all requisite power and authority (corporate and other), and has
obtained any and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, those having jurisdiction
over environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus; each of the Company and the
Subsidiary is and has been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates, franchises and
permits and all applicable federal, state, local and foreign laws, rules and
regulations; and neither the Company nor the Subsidiary has received any notice
of proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, position, prospects, value, operation,
properties, business or results of operations of the Company. The Reorganization
(as defined in the Prospectus) pursuant to which the Company became the parent
company of the Subsidiary has been consummated as described in the Prospectus.
The disclosures in the Registration Statement concerning the effects of domestic
and foreign laws, rules and regulations on the Company's and the Subsidiary's
business as currently conducted and as contemplated are correct in all material
respects and do not omit to state a material fact required to be stated therein
or necessary to make
3
<PAGE>
the statements contained therein not misleading in light of the circumstances
under which they were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Closing Date and each Option Closing Date, if any, based upon the
assumptions set forth therein, and the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities, except for this Agreement,
the Representative's Warrant Agreement and as described in the Prospectus. The
Securities and all other securities issued or issuable by the Company conform
or, when issued and paid for, will conform, in all respects to all statements
with respect thereto contained in the Registration Statement and the Prospectus.
All issued and outstanding securities of the Company have been duly authorized
and validly issued and are fully paid and non-assessable and the holders thereof
have no rights of rescission with respect thereto, and are not subject to
personal liability by reason of being such holders; and none of such securities
were issued in violation of the preemptive rights of any holders of any security
of the Company or similar contractual rights granted by the Company. The
Securities are not and will not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized and, when issued, paid for
and delivered in accordance with the terms hereof, will be validly issued, fully
paid and non-assessable and will conform to the description thereof contained in
the Prospectus; the holders thereof will not be subject to any liability solely
as such holders; all corporate action required to be taken for the
authorization, issue and sale of the Securities has been duly and validly taken;
and the certificates representing the Securities will be in due and proper form.
Upon the issuance and delivery pursuant to the terms hereof of the Securities to
be sold by the Company hereunder, the Underwriters or the Representative, as the
case may be, will acquire good and marketable title to such Securities free and
clear of any lien, charge, claim, encumbrance, pledge, security interest, defect
or other restriction or equity of any kind whatsoever.
(f) The consolidated financial statements of the Company and the
Subsidiary, together with the related notes and schedules thereto, included in
the Registration Statement, each Preliminary Prospectus and the Prospectus
fairly present the financial position, income, changes in cash flow, changes in
stockholders' equity and the results of operations of the Company and the
Subsidiary at the respective dates and for the respective periods to which they
apply and such financial statements have been prepared in conformity with
generally accepted accounting principles and the Rules and Regulations,
consistently applied throughout the periods involved and such financial
statements as are audited have been examined by Tauber & Balser, P.C., who are
independent certified public accountants within the meaning of the Act and the
Rules and Regulations, as indicated in their respective reports filed therewith.
There has been no adverse change or development involving a prospective adverse
change in the condition, financial or otherwise, or in the earnings, position,
prospects, value, operation, properties, business, or results of operations of
the Company or the Subsidiary, whether or not arising in the ordinary course of
business, since the date of the financial statements included in the
Registration Statement and the Prospectus and the outstanding debt, the
property, both tangible and intangible, and the business of the Company and the
Subsidiary, conform in all material respects to the descriptions thereof
contained in the Registration Statement and the Prospectus. Financial
information (including, without limitation, any pro forma financial information)
set
4
<PAGE>
forth in the Prospectus under the headings "Summary Financial Data," "Selected
Financial Data," "Capitalization," and "Management's Discussion and Analysis of
Financial Condition and Plan of Operation," fairly present, on the basis stated
in the Prospectus, the information set forth therein, and have been derived from
or compiled on a basis consistent with that of the audited financial statements
included in the Prospectus; and, in the case of pro forma financial information,
if any, the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions and
circumstances referred to therein. The amounts shown as accrued for current and
deferred income and other taxes in such financial statements are sufficient for
the payment of all accrued and unpaid domestic and foreign income taxes,
interest, penalties, assessments or deficiencies applicable to the Company and
the Subsidiary, whether disputed or not, for the applicable period then ended
and periods prior thereto; adequate allowance for doubtful accounts has been
provided for unindemnified losses due to the operations of the Company and the
Subsidiary; and the statements of income do not contain any items of special or
nonrecurring income not earned in the ordinary course of business, except as
specified in the notes thereto.
(g) Each of the Company and the Subsidiary (i) has paid all domestic and
foreign taxes for which it is liable, (ii) has established adequate reserves for
such taxes which are not due and payable, and (iii) does not have any tax
deficiency or claims outstanding, proposed or assessed against it.
(h) No transfer tax, stamp duty or other similar tax is payable by or on
behalf of the Underwriters in connection with (i) the issuance by the Company of
the Securities, (ii) the purchase by the Underwriters of the Firm Securities and
the Option Securities from the Company and the purchase by the Representative of
the Representative's Warrants from the Company, (iii) the consummation by the
Company of any of its obligations under this Agreement, or (iv) resales of the
Firm Securities and the Option Securities in connection with the distribution
contemplated hereby.
(i) Each of the Company and the Subsidiary maintains insurance policies,
including, but not limited to, general liability, and property insurance, which
insures each of the Company, the Subsidiary and their respective employees,
against such losses and risks generally insured against by comparable
businesses. Neither the Company nor the Subsidiary (A) has failed to give notice
or present any insurance claim with respect to any matter, including but not
limited to the Company's business, property or employees, under any insurance
policy or surety bond in a due and timely manner, (B) has any disputes or claims
against any underwriter of such insurance policies or surety bonds or has failed
to pay any premiums due and payable thereunder, or (C) has failed to comply with
all conditions contained in such insurance policies and surety bonds. There are
no facts or circumstances under any such insurance policy or surety bond which
would relieve any insurer of its obligation to satisfy in full any valid claim
of the Company or the Subsidiary.
(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of, the Company
or the Subsidiary which (i) questions the validity of the capital stock of the
Company,
5
<PAGE>
this Agreement or the Representative's Warrant Agreement, or of any action taken
or to be taken by the Company pursuant to or in connection with this Agreement
or the Representative's Warrant Agreement, (ii) is required to be disclosed in
the Registration Statement which is not so disclosed (and such proceedings as
are summarized in the Registration Statement are accurately summarized in all
material respects), or (iii) might materially and adversely affect the
condition, financial or otherwise, or the earnings, position, prospects,
stockholders' equity, value, operation, properties, business or results of
operations of the Company or the Subsidiary.
(k) The Company has full legal right, power and authority to authorize,
issue, deliver and sell the Securities, enter into this Agreement and the
Representative's Warrant Agreement and to consummate the transactions provided
for in this Agreement and the Representative's Warrant Agreement; and this
Agreement and the Representative's Warrant Agreement have each been duly and
properly authorized, executed and delivered by the Company. Each of this
Agreement and the Representative's Warrant Agreement constitutes a legal, valid
and binding agreement of the Company enforceable against the Company in
accordance with its terms, and none of the Company's issue and sale of the
Securities, execution or delivery of this Agreement or the Representative's
Warrant Agreement, its performance hereunder and thereunder, its consummation of
the transactions contemplated herein and therein, or the conduct of its business
as described in the Registration Statement, the Prospectus, and any amendments
or supplements thereto, conflicts with or will conflict with or results or will
result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, or result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever upon, any property
or assets (tangible or intangible) of the Company or the Subsidiary pursuant to
the terms of (i) the Certificate of Incorporation or By-Laws of the Company or
the Certificate of Incorporation or Bylaws of the Subsidiary, (ii) any license,
contract, collective bargaining agreement, indenture, mortgage, deed of trust,
lease, voting trust agreement, stockholders agreement, note, loan or credit
agreement or any other agreement or instrument to which the Company or the
Subsidiary is a party or by which the Company or the Subsidiary is or may be
bound or to which its or assets (tangible or intangible) is or may be subject,
or any indebtedness, or (iii) any statute, judgment, decree, order, rule or
regulation applicable to the Company or the Subsidiary of any arbitrator, court,
regulatory body or administrative agency or other governmental agency or body
(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, having jurisdiction over the Company or
the Subsidiary or any of its or their respective activities or properties.
(l) No consent, approval, authorization or order of, and no filing with,
any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Securities pursuant to the
Prospectus and the Registration Statement, the performance of this Agreement and
the Representative's Warrant Agreement and the transactions contemplated hereby
and thereby, including without limitation, any waiver of any preemptive, first
refusal or other rights that any entity or person may have for the issue and/or
sale of any of the Securities, except such as have been or may be obtained under
the Act or may be required under state securities or Blue Sky laws in connection
with the Underwriters' purchase and distribution of the Firm Securities and the
Option Securities, and the Representative's Warrants to be sold by the Company
hereunder. All authorizations, approvals, consents, orders, registrations,
licenses or permits of any court or governmental agency or body necessary for
6
<PAGE>
the consummation of the organization of the Company and the transfer of the
Subsidiary's shares to the Company have been obtained or effected and are in
full force and effect.
(m) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company or the Subsidiary is a party or by
which it or they may be bound or to which its or their respective assets,
properties or business may be subject have been duly and validly authorized,
executed and delivered by the Company or the Subsidiary and constitute the
legal, valid and binding agreements of the Company or the Subsidiary, as the
case may be, enforceable against it in accordance with its terms. The
descriptions in the Registration Statement of agreements, contracts and other
documents are accurate and fairly present the information required to be shown
with respect thereto by Form SB-2, and there are no contracts or other documents
which are required by the Act to be described in the Registration Statement or
filed as exhibits to the Registration Statement which are not described or filed
as required, and the exhibits which have been filed are complete and correct
copies of the documents of which they purport to be copies.
(n) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and Prospectus, and except as may otherwise
be indicated or contemplated herein or therein, neither the Company nor the
Subsidiary has (i) issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money, (ii) entered into any
transaction other than in the ordinary course of business, or (iii) declared or
paid any dividend or made any other distribution on or in respect of its capital
stock of any class, and there has not been any change in the capital stock, or
any change in the debt (long or short term) or liabilities or material adverse
change in or affecting the general affairs, management, financial operations,
stockholders' equity or results of operations of the Company or the Subsidiary.
(o) No default exists in the due performance and observance of any term,
covenant or condition of any license, contract, collective bargaining agreement,
indenture, mortgage, installment sale agreement, lease, deed of trust, voting
trust agreement, stockholders agreement, partnership agreement, note, loan or
credit agreement, purchase order, or any other agreement or instrument
evidencing an obligation for borrowed money, or any other material agreement or
instrument to which the Company or the Subsidiary is a party or by which the
Company or the Subsidiary may be bound or to which the property or assets
(tangible or intangible) of the Company or the Subsidiary is subject or
affected.
(p) Each of the Company and the Subsidiary has generally enjoyed a
satisfactory employer-employee relationship with its employees and is in
compliance with all domestic and foreign laws and regulations respecting
employment and employment practices, terms and conditions of employment and
wages and hours. There are no pending investigations involving the Company or
the Subsidiary by any governmental agency responsible for the enforcement of
such domestic or foreign laws and regulations. There is no unfair labor practice
charge or complaint against the Company or the Subsidiary or any lockout,
strike, picketing, boycott, dispute, slowdown or stoppage pending or threatened
against or involving the Company or the Subsidiary, or any predecessor entity,
and none has ever occurred. No representation question exists respecting the
employees of the Company or the Subsidiary, and no collective bargaining
7
<PAGE>
agreement or modification thereof is currently being negotiated by the Company
or the Subsidiary. No grievance or arbitration proceeding is pending under any
expired or existing collective bargaining agreements of the Company or the
Subsidiary. No labor dispute with the employees of the Company or the Subsidiary
exists, or, is imminent.
(q) Neither the Company nor the Subsidiary maintains, sponsors or
contributes to any program or arrangement that is an "employee pension benefit
plan," an "employee welfare benefit plan," or a "multiemployer plan" as such
terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA
Plans"). Neither the Company nor the Subsidiary maintains or contributes, now or
at any time previously, to a defined benefit plan, as defined in Section 3(35)
of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, which could subject the Company or the Subsidiary to any tax
penalty on prohibited transactions and which has not adequately been corrected.
Neither the Company nor the Subsidiary has never completely or partially
withdrawn from a "multiemployer plan."
(r) Neither the Company, the Subsidiary nor any of its or their respective
employees, directors, stockholders, partners, or affiliates (within the meaning
of the Rules and Regulations) of any of the foregoing has taken or will take,
directly or indirectly, any action designed to or which has constituted or which
might be expected to cause or result in, under the Exchange Act, or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or otherwise.
(s) Except as otherwise disclosed in the Prospectus, none of the patents,
patent applications, trademarks, service marks, trade names and copyrights, and
licenses and rights to the foregoing presently owned or held by the Company or
the Subsidiary, are in dispute so far as known by the Company or are in any
conflict with the right of any other person or entity. Each of the Company and
the Subsidiary (i) owns or has the right to use, free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever, all patents, trademarks,
service marks, trade names and copyrights, technology and licenses and rights
with respect to the foregoing, used in the conduct of its business as now
conducted or proposed to be conducted without infringing upon or otherwise
acting adversely to the right or claimed right of any person, corporation or
other entity under or with respect to any of the foregoing and (ii) is not
obligated or under any liability whatsoever to make any payment by way of
royalties, fees or otherwise to any owner or licensee of, or other claimant to,
any patent, trademark, service mark, trade name, copyright, know-how, technology
or other intangible asset, with respect to the use thereof or in connection with
the conduct of its business or otherwise.
(t) Each of the Company and the Subsidiary owns and has the unrestricted
right to use all trade secrets, know-how (including all other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures),
inventions, designs, processes, works of authorship, computer programs and
technical data and information (collectively herein "intellectual property")
that are material to the development, manufacture, operation and sale of all
products and services sold or proposed to be sold by the Company, free and clear
of and without violating any right, lien, or claim of others, including without
limitation, former
8
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employers of its employees; provided, however, that the possibility exists that
other persons or entities, completely independent of the Company or the
Subsidiary, or its or their respective employees or agents, could have developed
trade secrets or items of technical information similar or identical to those of
the Company or the Subsidiary. Neither the Company nor the Subsidiary is aware
of any such development of similar or identical trade secrets or technical
information by others.
(u) Each of the Company and the Subsidiary has good and marketable title
to, or valid and enforceable leasehold estates in, all items of real and
personal property stated in the Prospectus to be owned or leased by it, free and
clear of all liens, charges, claims, encumbrances, pledges, security interests,
defects, or other restrictions or equities of any kind whatsoever, other than
those referred to in the Prospectus and liens for taxes not yet due and payable.
(v) Tauber & Balser, P.C., whose report is filed with the Commission as a
part of the Registration Statement, are independent certified public accountants
as required by the Act and the Rules and Regulations.
(w) The Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which each of the Company's officers,
directors, stockholders and holders of securities exchangeable or exercisable
for or convertible into shares of Common Stock has agreed not to, directly or
indirectly, issue, offer, offer to sell, sell, grant any option for the sale or
purchase of, assign, transfer, pledge, hypothecate or otherwise encumber or
dispose of any shares of Common Stock or securities convertible into,
exercisable or exchangeable for or evidencing any right to purchase or subscribe
for any shares of Common Stock (either pursuant to Rule 144 of the Rules and
Regulations or otherwise) or dispose of any beneficial interest therein for a
period of not less than twelve (12) months following the effective date of the
Registration Statement (the "Lock-Up Period") without the prior written consent
of the Representative and the Company. During the 12 month period commencing on
the effective date of the Registration Statement, the Company shall not, without
the prior written consent of the Representative, sell, contract or offer to
sell, issue, transfer, assign, pledge, distribute, or otherwise dispose of,
directly or indirectly, any shares of Common Stock or any options, rights or
warrants with respect to any shares of Common Stock. The Company will cause the
Transfer Agent (as hereinafter defined) to mark an appropriate legend on the
face of stock certificates representing all of such securities and to place
"stop transfer" orders on the Company's stock ledgers.
(x) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuance with
respect to the Company, or any of its officers, directors, stockholders,
partners, employees or affiliates, that may affect the Underwriters'
compensation, as determined by the National Association of Securities Dealers,
Inc. ("NASD").
(y) The Common Stock has been approved for listing on the American Stock
Exchange ("Amex").
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(z) Neither the Company, the Subsidiary nor any of their respective
officers, employees, agents or any other person acting on behalf of the Company
or the Subsidiary has, directly or indirectly, given or agreed to give any
money, gift or similar benefit (other than legal price concessions to customers
in the ordinary course of business) to any customer, supplier, employee or agent
of a customer or supplier, or official or employee of any governmental agency
(domestic or foreign) or instrumentality of any government (domestic or foreign)
or any political party or candidate for office (domestic or foreign) or other
person who was, is, or may be in a position to help or hinder the business of
the Company or the Subsidiary (or assist the Company or the Subsidiary in
connection with any actual or proposed transaction) which (a) might subject the
Company or the Subsidiary, or any other such person to any damage or penalty in
any civil, criminal or governmental litigation or proceeding (domestic or
foreign), (b) if not given in the past, might have had a material adverse effect
on the assets, business or operations of the Company or the Subsidiary, or (c)
if not continued in the future, might adversely affect the assets, business,
condition, financial or otherwise, earnings, position, properties, value,
operations or prospects of the Company or the Subsidiary. The Company's internal
accounting controls are sufficient to cause the Company to comply with the
Foreign Corrupt Practices Act of 1977, as amended.
(aa) Except as set forth in the Prospectus, no officer, director,
stockholder or partner of the Company, or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Rules and Regulations)
of any of the foregoing persons or entities has or has had, either directly or
indirectly, (i) an interest in any person or entity which (A) furnishes or sells
services or products which are furnished or sold or are proposed to be furnished
or sold by the Company or the Subsidiary, or (B) purchases from or sells or
furnishes to the Company or the Subsidiary any goods or services, or (ii) a
beneficial interest in any contract or agreement to which the Company or the
Subsidiary is a party or by which it may be bound or affected. Except as set
forth in the Prospectus under "Certain Transactions," there are no existing
agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among the
Company or the Subsidiary, and any officer, director, or 5% or greater
securityholder of the Company, or any partner, affiliate or associate of any of
the foregoing persons or entities.
(bb) Any certificate signed by any officer of the Company, and delivered
to the Underwriters or to Underwriters' Counsel (as defined herein) shall be
deemed a representation and warranty by the Company to the Underwriters as to
the matters covered thereby.
(cc) The minute books of each of the Company and the Subsidiary have been
made available to the Underwriters and contain a complete summary of all
meetings and actions of the directors (including committees thereof) and
stockholders of the Company and the Subsidiary, since the time of their
respective incorporation, and reflect all transactions referred to in such
minutes accurately in all material respects.
(dd) Except and to the extent described in the Prospectus, no holders of
any securities of the Company or of any options, warrants or other convertible
or exchangeable securities of the Company have the right to include any
securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the
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Company to file a registration statement under the Act and no person or entity
holds any anti-dilution rights with respect to any securities of the Company.
(ee) The Company has as of the effective date of the Registration
Statement entered into an employment agreement with each of David R. Paolo and
Raymond Paolo in the form filed as Exhibits ____ and ____, respectively, to the
Registration Statement.
(ff) The Company confirms as of the date hereof that it is in compliance
with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act
Relating to Disclosure of Doing Business with Cuba, and the Company further
agrees that if it or any affiliate commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba after the
date the Registration Statement becomes or has become effective with the
Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the Company's,
or any affiliate's, business with Cuba or with any person or affiliate located
in Cuba changes in any material way, the Company will provide the Department
notice of such business or change, as appropriate, in a form acceptable to the
Department.
(gg) The Company is not, and upon the issuance and sale of the Securities
as herein contemplated and the application of the net proceeds therefrom as
described in the Prospectus under the caption "Use of Proceeds" will not be, an
"investment company" or an entity "controlled" by an "investment company" as
such terms are defined in the Investment Company Act of 1940, as amended (the
"1940 Act").
(hh) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparations of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorizations; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company at a price of
$_______ [90% of the initial public offering price per share of Common Stock]
per share of Common Stock, that number of Firm Securities set forth in Schedule
A opposite the name of such Underwriter, subject to such adjustment as the
Representative in its sole discretion shall make to eliminate any sales or
purchases of fractional shares, plus any additional number of Firm Securities
which such Underwriter may become obligated to purchase pursuant to the
provisions of Section 11 hereof.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the
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Company hereby grants an option to the Underwriters, severally and not jointly,
to purchase all or any part of an additional 300,000 shares of Common Stock at a
price of $_________ per share of Common Stock [90% of the initial public
offering price per share of Common Stock]. The option granted hereby will expire
forty-five (45) days after (i) the date the Registration Statement becomes
effective, if the Company has elected not to rely on Rule 430A under the Rules
and Regulations, or (ii) the date of this Agreement if the Company has elected
to rely upon Rule 430A under the Rules and Regulations, and may be exercised in
whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Firm Securities upon notice by the Representative to the
Company setting forth the number of Option Securities as to which the several
Underwriters are then exercising the option and the time and date of payment and
delivery for any such Option Securities. Any such time and date of delivery (an
"Option Closing Date") shall be determined by the Representative, but shall not
be later than three (3) full business days after the exercise of said option,
nor in any event prior to the Closing Date, as hereinafter defined, unless
otherwise agreed upon by the Representative and the Company. Nothing herein
contained shall obligate the Underwriters to make any over-allotments. No Option
Securities shall be delivered unless the Firm Securities shall be simultaneously
delivered or shall theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates for,
the Firm Securities shall be made at the offices of the Representative at 520
Madison Avenue, 10th Floor, New York, New York 10022, or at such other place as
shall be agreed upon by the Representative and the Company. Such delivery and
payment shall be made at 10:00 a.m. (New York City time) on ________, 1999 or at
such other time and date as shall be agreed upon by the Representative and the
Company, but not less than three (3) nor more than five (5) full business days
after the effective date of the Registration Statement (such time and date of
payment and delivery being herein called the "Closing Date"). In addition, in
the event that any or all of the Option Securities are purchased by the
Underwriters, payment of the purchase price for, and delivery of certificates
for, such Option Securities shall be made at the above-mentioned office of the
Representative or at such other place as shall be agreed upon by the
Representative and the Company on each Option Closing Date as specified in the
notice from the Representative to the Company. Delivery of the certificates for
the Firm Securities and the Option Securities, if any, shall be made to the
Underwriters against payment by the Underwriters, severally and not jointly, of
the purchase price for the Firm Securities and the Option Securities, if any, to
the order of the Company for the Firm Securities and the Option Securities, if
any, by New York Clearing House funds. In the event such option is exercised,
each of the Underwriters, acting severally and not jointly, shall purchase that
proportion of the total number of Option Securities then being purchased which
the number of Firm Securities set forth in Schedule A hereto opposite the name
of such Underwriter bears to the total number of Firm Securities, subject in
each case to such adjustments as the Representative in its discretion shall make
to eliminate any sales or purchases of fractional shares. Certificates for the
Firm Securities and the Option Securities, if any, shall be in definitive, fully
registered form, shall bear no restrictive legends and shall be in such
denominations and registered in such names as the Underwriters may request in
writing at least two (2) business days prior to the Closing Date or the relevant
Option Closing Date, as the case may be. The certificates for the Firm
Securities and the Option Securities, if any, shall be made available to the
Representative at such office or such other place as the Representative may
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<PAGE>
designate for inspection, checking and packaging no later than 9:30 a.m. on the
last business day prior to the Closing Date or the relevant Option Closing Date,
as the case may be.
(d) On the Closing Date, the Company shall issue and sell to the
Representative Representative's Warrants at a purchase price of $.0001 per
warrant, which Representative's Warrants shall entitle the holders thereof to
purchase an aggregate of 200,000 shares of Common Stock. The Representative's
Warrants shall be exercisable for a period of four (4) years commencing one (1)
year from the effective date of the Registration Statement at a price equaling
one hundred twenty percent (120%) of the respective initial public offering
price of the Shares. The Representative's Warrant Agreement and form of Warrant
Certificate shall be substantially in the form filed as Exhibit 4.1 to the
Registration Statement. Payment for the Representative's Warrants shall be made
on the Closing Date.
3. Public Offering of the Shares. As soon after the Registration Statement
becomes effective as the Representative deems advisable, the Underwriters shall
make a public offering of the Shares (other than to residents of or in any
jurisdiction in which qualification of the Securities is required and has not
become effective) at the price and upon the other terms set forth in the
Prospectus. The Representative may from time to time increase or decrease the
public offering price after distribution of the Shares has been completed to
such extent as the Representative, in its sole discretion deems advisable. The
Underwriters may enter into one of more agreements as the Underwriters, in each
of their sole discretion, deem advisable with one or more broker-dealers who
shall act as dealers in connection with such public offering.
4. Covenants and Agreements of the Company. The Company covenants and
agrees with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Act or Exchange
Act before termination of the offering of the Shares by the Underwriters of
which the Representative shall not previously have been advised and furnished
with a copy, or to which the Representative shall have objected or which is not
in compliance with the Act, the Exchange Act or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof, the
Company will advise the Representative and confirm the notice in writing (i)
when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective; (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose; (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any of the Securities for offering or sale in
any jurisdiction or of the initiation, or the threatening, of any proceeding for
that purpose; (iv) of the receipt of any
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comments from the Commission; and (v) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement to the
Prospectus or for additional information. If the Commission or any state
securities commission shall enter a stop order or suspend such qualification at
any time, the Company will make every effort to obtain promptly the lifting of
such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representative) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Representative, pursuant
to Rule 424(b)(4)) not later than the Commission's close of business on the
earlier of (i) the second business day following the execution and delivery of
this Agreement and (ii) the fifth business day after the effective date of the
Registration Statement.
(d) The Company will give the Representative notice of its intention to
file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriters in connection with the offering of the Securities which differs
from the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Rules and Regulations),
and will furnish the Representative with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed filing or use, as
the case may be, and will not file any such prospectus to which the
Representative or Orrick, Herrington & Sutcliffe LLP ("Underwriters' Counsel")
shall object.
(e) The Company shall endeavor in good faith, in cooperation with the
Representative, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Representative may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such documents
and furnish such information as may be required for such purpose; provided,
however, the Company shall not be required to qualify as a foreign corporation
or file a general or limited consent to service of process in any such
jurisdiction. In each jurisdiction where such qualification shall be effected,
the Company will, unless the Representative agrees that such action is not at
the time necessary or advisable, use all reasonable efforts to file and make
such statements or reports at such times as are or may reasonably be required by
the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be delivered under
the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when a prospectus relating
to the Securities is required to be delivered under the Act, any event shall
have occurred as a result of which, in the opinion of counsel for the Company or
Underwriters' Counsel, the Prospectus, as then amended or supplemented, includes
an untrue statement of a material fact or omits to state any
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<PAGE>
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or if it is necessary at any time to amend the Prospectus to comply
with the Act, the Company will notify the Representative promptly and prepare
and file with the Commission an appropriate amendment or supplement in
accordance with Section 10 of the Act, each such amendment or supplement to be
satisfactory to Underwriters' Counsel, and the Company will furnish to the
Underwriters copies of such amendment or supplement as soon as available and in
such quantities as the Underwriters may request.
(g) As soon as practicable, but in any event not later than forty-five
(45) days after the end of the 12-month period beginning on the day after the
end of the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (ninety (90) days in the event that the end of
such fiscal quarter is the end of the Company's fiscal year), the Company shall
make generally available to its security holders, in the manner specified in
Rule 158(b) of the Rules and Regulations, and to the Representative, an earnings
statement which will be in the detail required by, and will otherwise comply
with, the provisions of Section 11(a) of the Act and Rule 158(a) of the Rules
and Regulations, which statement need not be audited unless required by the Act,
covering a period of at least twelve (12) consecutive months after the effective
date of the Registration Statement.
(h) During a period of five (5) years after the date hereof, the Company
will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports of earnings, and will deliver to the Representative:
(i) concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in the
form furnished to the Company's stockholders and certified by the
Company's principal financial or accounting officer;
(ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
stockholders' equity, and cash flows of the Company for such fiscal year,
accompanied by a copy of the certificate thereon of independent certified
public accountants;
(iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD
or any securities exchange;
(v) every press release and every material news item or article of
interest to the financial community in respect of the Company, or its
affairs, which was released or prepared by or on behalf of the Company;
and
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(vi) any additional information of a public nature concerning the
Company (and any future subsidiary) or its businesses which the
Representative may request.
During such seven-year period, if the Company has an active subsidiary,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiary(ies) are consolidated, and
will be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
(i) The Company will maintain a transfer agent ("Transfer Agent") and, if
necessary under the jurisdiction of incorporation of the Company, a Registrar
(which may be the same entity as the Transfer Agent) for its Common Stock.
(j) The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Representative may request.
(k) On or before the effective date of the Registration Statement, the
Company shall provide the Representative with true original copies of duly
executed, legally binding and enforceable agreements pursuant to which, for a
period of twelve (12) months from the effective date of the Registration
Statement, each of the Company's stockholders and holders of securities
exchangeable or exercisable for or convertible into shares of Common Stock
agrees that it or he or she will not, directly or indirectly, issue, offer to
sell, sell, grant an option for the sale or purchase of, assign, transfer,
pledge, hypothecate or otherwise encumber or dispose of any shares of Common
Stock or securities convertible into, exercisable or exchangeable for or
evidencing any right to purchase or subscribe for any shares of Common Stock
(either pursuant to Rule 144 of the Rules and Regulations or otherwise) or
dispose of any beneficial interest therein without the prior consent of the
Representatives (collectively, the "Lock-up Agreements"). During the 12 month
period commencing on the effective date of the Registration Statement, the
Company shall not, without the prior written consent of the Representative,
sell, contract or offer to sell, issue, transfer, assign, pledge, distribute, or
otherwise dispose of, directly or indirectly, any shares of Common Stock or any
options, rights or warrants with respect to any shares of Common Stock. On or
before the Closing Date, the Company shall deliver instructions to the Transfer
Agent authorizing it to place appropriate legends on the certificates
representing the securities subject to the Lock-up Agreements and to place
appropriate stop transfer orders on the Company's ledgers.
(l) Neither the Company, the Subsidiary, nor any of their respective
officers, directors, stockholders, nor any of their respective affiliates
(within the meaning of the Rules and Regulations) will take, directly or
indirectly, any action designed to, or which might in the future reasonably be
expected to cause or result in, stabilization or manipulation of the price of
any securities of the Company.
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(m) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
(n) The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, a Form SR as may be
required pursuant to Rule 463 under the Act) from time to time, under the Act,
the Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents filed will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act, and the Rules and Regulations.
(o) The Company shall furnish to the Representative as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date of the Registration Statement) which have been read by
the Company's independent public accountants, as stated in their letters to be
furnished pursuant to Sections 6(j) hereof.
(p) The Company shall cause the Common Stock to be quoted on Amex and, for
a period of five (5) years from the date hereof, use its best efforts to
maintain the Amex quotation of the Common Stock to the extent outstanding.
(q) For a period of five (5) years from the Closing Date, the Company
shall furnish to the Representative at the Company's sole expense, (i) daily
consolidated transfer sheets relating to the Common Stock, (ii) the list of
holders of all of the Company's securities and (iii) a Blue Sky "Trading Survey"
for secondary sales of the Company's securities prepared by counsel to the
Company.
(r) As soon as practicable, (i) but in no event more than five (5)
business days before the effective date of the Registration Statement, file a
Form 8-A with the Commission providing for the registration under the Exchange
Act of the Securities and (ii) but in no event more than thirty (30) days after
the effective date of the Registration Statement, take all necessary and
appropriate actions to be included in Standard and Poor's Corporation
Descriptions and Moody's OTC Manual and to continue such inclusion for a period
of not less than five (5) years.
(s) The Company hereby agrees that it will not, for a period of twelve
(12) months from the effective date of the Registration Statement, adopt,
propose to adopt or otherwise permit to exist any employee, officer, director,
consultant or compensation plan or similar arrangement permitting (i) the grant,
issue, sale or entry into any agreement to grant, issue or sell any option,
warrant or other contract right (x) at an exercise price that is less than the
greater of the public offering price of the Shares set forth herein and the fair
market value on the date of grant or sale or (y) to any of its executive
officers or directors or to any holder of 5% or more of the Common Stock; (ii)
the payment for such securities with any form of consideration
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other than cash; or (iii) the existence of stock appreciation rights, phantom
options or similar arrangements.
(t) Until the completion of the distribution of the Securities, the
Company shall not, without the prior written consent of the Representative and
Underwriters' Counsel, issue, directly or indirectly, any press release or other
communication or hold any press conference with respect to the Company or its
activities or the offering contemplated hereby, other than trade releases issued
in the ordinary course of the Company's business consistent with past practices
with respect to the Company's operations.
(u) For a period equal to the lesser of (i) five (5) years from the date
hereof, and (ii) the sale to the public of the Representative's Securities, the
Company will not take any action or actions which may prevent or disqualify the
Company's use of Form F-1 (or other appropriate form) for the registration under
the Act of the Representative's Securities.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing Date and the
Option Closing Date (to the extent not paid at the Closing Date) all expenses
and fees (other than fees of Underwriters' Counsel, except as provided in (iv)
below) incident to the performance of the obligations of the Company under this
Agreement and the Representative's Warrant Agreement, including, without
limitation, (i) the fees and expenses of accountants and counsel for the
Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing (including mailing and handling charges),
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the Prospectus and any amendments and
supplements thereto and the printing, mailing (including the payment of postage
with respect thereto) and delivery of this Agreement, the Representative's
Warrant Agreement, the Agreement Among Underwriters, the Selected Dealer
Agreements, and related documents, including the cost of all copies thereof and
of the Preliminary Prospectuses and of the Prospectus and any amendments thereof
or supplements thereto supplied to the Underwriters and such dealers as the
Underwriters may request, in quantities as hereinabove stated, (iii) the
printing, engraving, issuance and delivery of the Securities including, but not
limited to, (x) the purchase by the Underwriters of the Firm Securities and the
Option Securities and the purchase by the Representative of the Representative's
Warrants from the Company, (y) the consummation by the Company of any of its
obligations under this Agreement and the Representative's Warrant Agreement, and
(z) resale of the Firm Securities and the Option Securities by the Underwriters
in connection with the distribution contemplated hereby, (iv) the qualification
of the Securities under state or foreign securities or "Blue Sky" laws and
determination of the status of such securities under legal investment laws,
including the costs of printing and mailing the "Preliminary Blue Sky
Memorandum", the "Supplemental Blue Sky Memorandum" and "Legal Investments
Survey," if any, and disbursements and fees of counsel in connection therewith,
(v) costs and expenses incurred by the Company in connection with the "road
show", (vi) fees and expenses of the Transfer Agent and registrar and all issue
and transfer taxes, if any, (vii) applications for assignment of a rating of the
Securities by qualified rating agencies, (viii) the fees payable to the
Commission and the NASD, and (ix) the fees and expenses incurred in connection
with the quotation of the Securities on Amex and any other exchange.
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(b) If this Agreement is terminated by the Underwriters in accordance with
the provisions of Section 6 or Section 12, the Company shall reimburse and
indemnify the Underwriters for all of their actual out-of-pocket expenses,
including the fees and disbursements of Underwriters' Counsel, less any amounts
already paid pursuant to Section 5(c) hereof.
(c) The Company further agrees that, in addition to the expenses payable
pursuant to subsection (a) of this Section 5, it will pay to the Representative
on the Closing Date by certified or bank cashier's check or, at the election of
the Representative, by deduction from the proceeds of the offering of the Firm
Securities, a non-accountable expense allowance equal to 2% of the gross
proceeds received by the Company from the sale of the Firm Securities.
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had been
made on and as of the Closing Date or each Option Closing Date, as the case may
be; the accuracy on and as of the Closing Date or Option Closing Date, if any,
of the statements of the officers of the Company made pursuant to the provisions
hereof; and the performance by the Company on and as of the Closing Date and
each Option Closing Date, if any, of its covenants and obligations hereunder and
to the following further conditions:
(a) The Registration Statement shall have become effective not later than
12:00 P.M., New York time, on the date of this Agreement or such later date and
time as shall be consented to in writing by the Representative, and, at the
Closing Date and each Option Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated by the Commission and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of Underwriters' Counsel. If the Company has elected to rely upon
Rule 430A of the Rules and Regulations, the price of the Shares and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period and, prior to the Closing Date, the Company
shall have provided evidence satisfactory to the Representative of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Representative shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representative's opinion, is material, or omits to state a
fact which, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein not misleading, or
that the Prospectus, or any supplement thereto, contains an untrue statement of
fact which, in the Representative's opinion, is material, or omits to state a
fact which, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
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(c) On or prior to each of the Closing Date and each Option Closing Date,
if any, the Representative shall have received from Underwriters' Counsel, such
opinion or opinions with respect to the organization of the Company, the
validity of the Securities, the Registration Statement, the Prospectus and other
related matters as the Representative may request and Underwriters' Counsel
shall have received such papers and information as they request to enable them
to pass upon such matters.
(d) At the Closing Date, the Underwriters shall have received the
favorable opinion of Silverman, Collura, Chernis & Balzano, P.C., counsel to the
Company, dated the Closing Date, addressed to the Underwriters and in form and
substance satisfactory to Underwriters' Counsel, to the effect that:
(i) each of the Company and the Subsidiary (A) has been duly
organized and is validly existing as a corporation in good standing under
the laws of its jurisdiction, (B) is duly qualified and licensed and in
good standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of any properties or the character of its operations
requires such qualification or licensing, and (C) has all requisite
corporate power and authority, and has obtained any and all necessary
authorizations, approvals, orders, licenses, certificates, franchises and
permits of and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over
environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus; each of the Company
and the Subsidiary is and has been doing business in compliance with all
such authorizations, approvals, orders, licenses, certificates, franchises
and permits and all domestic and foreign laws, rules and regulations; and,
neither the Company nor the Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would materially adversely affect the
business, operations, condition, financial or otherwise, or the earnings,
business affairs, position, prospects, value, operation, properties,
business or results of operations of the Company or the Subsidiary. The
disclosures in the Registration Statement concerning the effects of
domestic and foreign laws, rules and regulations on the Company's business
as currently conducted and as contemplated are correct in all material
respects and do not omit to state a fact required to be stated therein or
necessary to make the statements contained therein not misleading in light
of the circumstances in which they were made.
(ii) the Company owns, directly or indirectly, one hundred percent
(100%) of the outstanding capital stock or other ownership interests of
the Subsidiary, and all such shares or other ownership interests have been
validly issued, are fully paid and non-assessable, were not issued in
violation of any preemptive rights and are owned free and clear of any
liens, charges, claims, encumbrances, pledges, security interests, defects
or other restrictions or equities of any kind whatsoever.
(iii) except as described in the Prospectus, the Company does not
own an interest in any other corporation, partnership, joint venture,
trust or other business entity;
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(iv) the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or
supplement thereto, under "CAPITALIZATION", and neither the Company nor
the Subsidiary is a party to or bound by any instrument, agreement or
other arrangement providing for it to issue, sell, transfer, purchase or
redeem any capital stock, rights, warrants, options or other securities,
except for this Agreement and the Representative's Warrant Agreement and
as described in the Prospectus. The Securities and all other securities
issued or issuable by the Company conform in all material respects to all
statements with respect thereto contained in the Registration Statement
and the Prospectus. All issued and outstanding securities of the Company
have been duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of rescission with
respect thereto, and are not subject to personal liability by reason of
being such holders; and none of such securities were issued in violation
of the preemptive rights of any holders of any security of the Company or
any similar rights granted by the Company. The Securities to be sold by
the Company hereunder and under the Representative's Warrant Agreement are
not and will not be subject to any preemptive or other similar rights of
any stockholder, have been duly authorized and, when issued, paid for and
delivered in accordance with the terms hereof, will be validly issued,
fully paid and non-assessable and conform to the description thereof
contained in the Prospectus; the holders thereof will not be subject to
any liability solely as such holders; all corporate action required to be
taken for the authorization, issue and sale of the Securities has been
duly and validly taken; and the certificates representing the Securities
are in due and proper form. The Representative's Warrants constitute valid
and binding obligations of the Company to issue and sell, upon exercise
thereof and payment therefor, the number and type of securities of the
Company called for thereby. Upon the issuance and delivery pursuant to
this Agreement of the Firm Securities and the Option Securities and the
Representative's Warrants to be sold by the Company, the Underwriters and
the Representative, respectively, will acquire good and marketable title
to the Firm Securities and the Option Securities and the Representative's
Warrants free and clear of any pledge, lien, charge, claim, encumbrance,
pledge, security interest, or other restriction or equity of any kind
whatsoever. No transfer tax is payable by or on behalf of the Underwriters
in connection with (A) the issuance by the Company of the Securities, (B)
the purchase by the Underwriters of the Firm Securities and the Option
Securities from the Company, and the purchase by the Representative of the
Representative's Warrants from the Company (C) the consummation by the
Company of any of its obligations under this Agreement or the
Representative's Warrant Agreement, or (D) resales of the Firm Securities
and the Option Securities in connection with the distribution contemplated
hereby.
(v) the Registration Statement is effective under the Act, and, if
applicable, filing of all pricing information has been timely made in the
appropriate form under Rule 430A, and no stop order suspending the use of
the Preliminary Prospectus, the Registration Statement or Prospectus or
any part of any thereof or suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or, to the best of such counsel's
knowledge, threatened or contemplated under the Act;
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(vi) each of the Preliminary Prospectus, the Registration Statement,
and the Prospectus and any amendments or supplements thereto (other than
the financial statements and other financial and statistical data included
therein, as to which no opinion need be rendered) comply as to form in all
material respects with the requirements of the Act and the Rules and
Regulations.
(vii) to the best of such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act to be
described in the Registration Statement and the Prospectus and filed as
exhibits to the Registration Statement other than those described in the
Registration Statement (or required to be filed under the Exchange Act if
upon such filing they would be incorporated, in whole or in part, by
reference therein) and the Prospectus and filed as exhibits thereto, and
the exhibits which have been filed are correct copies of the documents of
which they purport to be copies; (B) the descriptions in the Registration
Statement and the Prospectus and any supplement or amendment thereto of
contracts and other documents to which the Company or the Subsidiary is a
party or by which it is bound, including any document to which the Company
or the Subsidiary is a party or by which it is bound, incorporated by
reference into the Prospectus and any supplement or amendment thereto, are
accurate and fairly represent the information required to be shown by Form
F-1; (C) there is not pending or threatened against the Company or the
Subsidiary any action, arbitration, suit, proceeding, inquiry,
investigation, litigation, governmental or other proceeding (including,
without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, pending or threatened against (or
circumstances that may give rise to the same), or involving the properties
or business of the Company or the Subsidiary which (x) is required to be
disclosed in the Registration Statement which is not so disclosed (and
such proceedings as are summarized in the Registration Statement are
accurately summarized in all respects), (y) questions the validity of the
capital stock of the Company or this Agreement or the Representative's
Warrant Agreement, or of any action taken or to be taken by the Company
pursuant to or in connection with any of the foregoing; (D) no statute or
regulation or legal or governmental proceeding required to be described in
the Prospectus is not described as required; and (E) there is no action,
suit or proceeding pending, or threatened, against or affecting the
Company or the Subsidiary before any court or arbitrator or governmental
body, agency or official (or any basis thereof known to such counsel) in
which there is a reasonable possibility of a decision which may result in
a material adverse change in the condition, financial or otherwise, or the
earnings, position, prospects, stockholders' equity, value, operation,
properties, business or results of operations of the Company or the
Subsidiary, which could adversely affect the present or prospective
ability of the Company to perform its obligations under this Agreement or
the Representative's Warrant Agreement or which in any manner draws into
question the validity or enforceability of this Agreement or the
Representative's Warrant Agreement;
(viii) the Company has full legal right, power and authority to
enter into each of this Agreement and the Representative's Warrant
Agreement, and to consummate the transactions provided for therein; and
each of this Agreement and the Representative's Warrant Agreement has been
duly authorized, executed and delivered by the Company. Each of this
Agreement and the Representative's Warrant Agreement, assuming due
22
<PAGE>
authorization, execution and delivery by each other party thereto
constitutes a legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms (except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating
to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as
rights to indemnity or contribution may be limited by applicable law), and
none of the Company's execution or delivery of this Agreement and the
Representative's Warrant Agreement, its performance hereunder or
thereunder, its consummation of the transactions contemplated herein or
therein, or the conduct of its business as described in the Registration
Statement, the Prospectus, and any amendments or supplements thereto,
conflicts with or will conflict with or results or will result in any
breach or violation of any of the terms or provisions of, or constitutes
or will constitute a default under, or result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge, security
interest, defect or other restriction or equity of any kind whatsoever
upon, any property or assets (tangible or intangible) of the Company or
the Subsidiary pursuant to the terms of, (A) the Certificate of
Incorporation or By-Laws of the Company or the Certificate of
Incorporation or By-laws of the Subsidiary, (B) any license, contract,
collective bargaining agreement, indenture, mortgage, deed of trust,
lease, voting trust agreement, stockholders agreement, note, loan or
credit agreement or any other agreement or instrument to which the Company
or the Subsidiary is a party or by which it is or they are or may be bound
or to which any of its or their respective properties or assets (tangible
or intangible) is or may be subject, or any indebtedness, or (C) any
statute, judgment, decree, order, rule or regulation applicable to the
Company or the Subsidiary of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body (including,
without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, having jurisdiction over the
Company or the Subsidiary or any of their respective activities or
properties.
(ix) no consent, approval, authorization or order, and no filing
with, any court, regulatory body, government agency or other body (other
than such as may be required under Blue Sky laws, as to which no opinion
need be rendered) is required in connection with the issuance of the Firm
Securities and the Option Securities pursuant to the Prospectus and the
Registration Statement, the issuance of the Representative's Warrants, the
performance of this Agreement and the Representative's Warrant Agreement,
and the transactions contemplated hereby and thereby;
(x) the properties and business of each of the Company and the
Subsidiary conforms in all material respects to the description thereof
contained in the Registration Statement and the Prospectus; and each of
the Company and the Subsidiary has good and marketable title to, or valid
and enforceable leasehold estates in, all items of real and personal
property stated in the Prospectus to be owned or leased by it, in each
case free and clear of all liens, charges, claims, encumbrances, pledges,
security interests, defects or other restrictions or equities of any kind
whatsoever, other than those referred to in the Prospectus and liens for
taxes not yet due and payable;
(xi) neither the Company nor the Subsidiary is in breach of, or in
default under, any term or provision of any license, contract, collective
bargaining
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agreement, indenture, mortgage, installment sale agreement, deed of trust,
lease, voting trust agreement, stockholders' agreement, partnership
agreement, note, loan or credit agreement or any other agreement or
instrument evidencing an obligation for borrowed money, or any other
agreement or instrument to which the Company or the Subsidiary is a party
or by which the Company or the Subsidiary may be bound or to which the
properties or assets (tangible or intangible) of the Company or the
Subsidiary is subject or affected; and neither the Company nor the
Subsidiary is in violation of any term or provision of its Certificate of
Incorporation or By-Laws with respect to the Company and the Certificate
of Incorporation or By-laws with respect to the Subsidiary or in violation
of any franchise, license, permit, judgment, decree, order, statute, rule
or regulation;
(xii) the statements in the Prospectus under "RISK FACTORS," "THE
COMPANY," "BUSINESS," "MANAGEMENT," "PRINCIPAL STOCKHOLDERS," "CERTAIN
TRANSACTIONS," "DESCRIPTION OF SECURITIES," "RESALES BY SELLING
SECURITYHOLDERS" and "SHARES ELIGIBLE FOR FUTURE SALE" have been reviewed
by such counsel, and insofar as they refer to statements of law,
descriptions of statutes, licenses, rules or regulations or legal
conclusions, are correct in all material respects;
(xiii) the Securities have been accepted for quotation on Amex;
(xiv) the persons listed under the caption "PRINCIPAL STOCKHOLDERS"
and "RESALES BY SELLING SECURITYHOLDERS" in the Prospectus are the
respective "beneficial owners" (as such phrase is defined in regulation
13d-3 under the Exchange Act) of the securities set forth opposite their
respective names thereunder as and to the extent set forth therein;
(xv) neither the Company nor the Subsidiary, nor any of their
respective officers, stockholders, employees or agents, nor any other
person acting on behalf of the Company or the Subsidiary has, directly or
indirectly, given or agreed to give any money, gift or similar benefit
(other than legal price concessions to customers in the ordinary course of
business) to any customer, supplier, employee or agent of a customer or
supplier, or official or employee of any governmental agency or
instrumentality of any government (domestic or foreign) or any political
party or candidate for office (domestic or foreign) or other person who is
or may be in a position to help or hinder the business of the Company or
the Subsidiary (or assist it in connection with any actual or proposed
transaction) which (A) might subject the Company or the Subsidiary to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding, (B) if not given in the past, might have had an adverse effect
on the assets, business or operations of the Company or the Subsidiary, as
reflected in any of the financial statements contained in the Registration
Statement, or (C) if not continued in the future, might adversely affect
the assets, business, operations or prospects of the Company or the
Subsidiary;
(xvi) no person, corporation, trust, partnership, association or
other entity has the right to include and/or register any securities of
the Company in the Registration Statement, require the Company to file any
registration statement or, if filed, to include any security in such
registration statement;
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<PAGE>
(xvii) except as described in the Prospectus, there are no claims,
payments, issuances, arrangements or understandings for services in the
nature of a finder's or origination fee with respect to the sale of the
Securities hereunder or financial consulting arrangements or any other
arrangements, agreements, understandings, payments or issuances that may
affect the Underwriters' compensation, as determined by the NASD;
(xviii) assuming due execution by the parties thereto other than the
Company, the Lock-up Agreements are legal, valid and binding obligations
of the parties thereto, enforceable against the party and any subsequent
holder of the securities subject thereto in accordance with its terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and
the application of equitable principles in any action, legal or equitable,
and except as rights to indemnity or contribution may be limited by
applicable law);
(xix) except as described in the Prospectus, neither the Company nor
the Subsidiary (A) maintains, sponsors or contributes to any ERISA Plans,
(B) maintains or contributes, now or at any time previously, to a defined
benefit plan, as defined in Section 3(35) of ERISA, and (C) has ever
completely or partially withdrawn from a "multiemployer plan";
(xx) the Company is in compliance with all provisions of Section 1
of Laws of Florida, Chapter 92-198, An Act Relating to Disclosure of Doing
Business with Cuba;
(xxi) neither the Company, the Subsidiary or any of their affiliates
shall be subject to the requirements of or shall be deemed an "Investment
Company," pursuant to and as defined under, respectively, the Investment
Company Act.
Such counsel shall state that such counsel has participated in conferences
with officers and other representatives of the Company, and representatives of
the independent public accountants for the Company, at which conferences such
counsel made inquiries of such officers, representatives and accountants and
discussed the contents of the Preliminary Prospectus, the Registration
Statement, the Prospectus, and related matters and, although such counsel is not
passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Preliminary
Prospectus, the Registration Statement and Prospectus, on the basis of the
foregoing, no facts have come to the attention of such counsel which lead them
to believe that either the Registration Statement or any amendment thereto, at
the time such Registration Statement or amendment became effective or the
Preliminary Prospectus or Prospectus or amendment or supplement thereto as of
the date of such opinion contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements and
schedules and other financial and statistical data included in the Preliminary
Prospectus, the Registration Statement or the Prospectus). Such counsel shall
further state that its opinions may be relied upon by Underwriters' Counsel in
rendering its opinion to the Underwriters.
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In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on certificates
and written statements of responsible officers of the Company and certificates
or other written statements of officers of departments of various jurisdictions
having custody of documents respecting the corporate existence or good standing
of the Company, provided that copies of any such statements or certificates
shall be delivered to Underwriters' Counsel if requested. The opinion of such
counsel for the Company shall state that the opinion of any such other counsel
is in form satisfactory to such counsel and that the Representative,
Underwriters' Counsel and they are each justified in relying thereon. Any
opinion of counsel for the Company and the Subsidiary shall not state that it is
to be governed or qualified by, or that it is otherwise subject to, any
treatise, written policy or other document relating to legal opinions,
including, without limitation, the Legal Opinion Accord of the ABA Section of
Business Law (1991) or any comparable state accord.
(e) At each Option Closing Date, if any, the Underwriters shall have
received the favorable opinions of Silverman, Collura, Chernis & Balzano, P.C.,
counsel to the Company and the Subsidiary, dated such Option Closing Date,
addressed to the Underwriters and in form and substance satisfactory to
Underwriters' Counsel confirming as of such Option Closing Date the statements
made by Haythe & Curley in their opinion delivered on the Closing Date.
(f) On or prior to each of the Closing Date and each Option Closing Date,
if any, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company herein contained.
(g) Prior to each of the Closing Date and each Option Closing Date, if
any, (i) there shall have been no material adverse change nor development
involving a prospective change in the condition, financial or otherwise,
earnings, position, value, properties, results of operations, prospects,
stockholders' equity or the business activities of the Company or the
Subsidiary, whether or not in the ordinary course of business, from the latest
dates as of which such condition is set forth in the Registration Statement and
Prospectus; (ii) there shall have been no transaction, not in the ordinary
course of business, entered into by the Company or the Subsidiary, from the
latest date as of which the financial condition of the Company is set forth in
the Registration Statement and Prospectus which is adverse to the Company; (iii)
neither the Company nor the Subsidiary shall be in default under any provision
of any instrument relating to any outstanding indebtedness; (iv) the Company
shall not have issued any securities (other than the Securities) or declared or
paid any dividend or made any distribution in respect of its capital stock of
any class and there has not been any change in the capital stock or any material
change in the debt (long or short term) or liabilities or obligations of the
Company (contingent or otherwise); (v) no material amount of the assets of the
Company or the Subsidiary shall have been pledged or mortgaged, except as set
forth in the Registration Statement and Prospectus; (vi) no action, suit or
proceeding, at law or in equity, shall have been pending or threatened (or
26
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circumstances giving rise to same) against the Company or the Subsidiary, or
affecting any of its or their respective properties or businesses before or by
any court or federal, state or foreign commission, board or other administrative
agency wherein an unfavorable decision, ruling or finding may adversely affect
the business, operations, earnings, position, value, properties, results of
operations, prospects or financial condition or income of the Company or the
Subsidiary; and (vii) no stop order shall have been issued under the Act and no
proceedings therefor shall have been initiated, threatened or contemplated by
the Commission.
(h) At each of the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that each of such persons has carefully examined the
Registration Statement, the Prospectus and this Agreement, and that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date
or the Option Closing Date, as the case may be, and the Company has
complied with all agreements and covenants and satisfied all conditions
contained in this Agreement on its part to be performed or satisfied at or
prior to such Closing Date or Option Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued, and no proceedings for that
purpose have been instituted or are pending or, to the best of each of
such person's knowledge, are contemplated or threatened under the Act;
(iii) The Registration Statement and the Prospectus and, if any,
each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes
any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading and neither the Preliminary Prospectus or any
supplement thereto included any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; and
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (a) the Company
has not incurred up to and including the Closing Date or the Option
Closing Date, as the case may be, other than in the ordinary course of its
business, any material liabilities or obligations, direct or contingent;
(b) the Company has not paid or declared any dividends or other
distributions on its capital stock; (c) neither the Company nor the
Subsidiary has entered into any transactions not in the ordinary course of
business; (d) there has not been any change in the capital stock or
long-term debt or any increase in the short-term borrowings (other than
any increase in the short-term borrowings in the ordinary course of
business) of the Company; (e) neither the Company nor the Subsidiary has
sustained any loss or damage to its properties or assets, whether or not
insured; (f) there is no litigation which is
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<PAGE>
pending or threatened (or circumstances giving rise to same) against the
Company or the Subsidiary or any affiliated party which is required to be
set forth in an amended or supplemented Prospectus which has not been set
forth; and (g) there has occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this subsection
(i) are to such documents as amended and supplemented at the date of such
certificate.
(i) By the Closing Date, the Underwriters will have received clearance
from the NASD as to the amount of compensation allowable or payable to the
Underwriters, as described in the Registration Statement.
(j) At the time this Agreement is executed, the Underwriters shall have
received a letter, dated such date, addressed to the Underwriters in form and
substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Underwriters and Underwriters' Counsel, from ___________________:
(i) confirming that they are independent certified public
accountants with respect to the Company and the Subsidiary within the
meaning of the Act and the applicable Rules and Regulations;
(ii) stating that it is their opinion that the financial statements
and supporting schedules of the Company included in the Registration
Statement comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations
thereunder and that the Representative may rely upon the opinion of Tauber
& Balser, P.C. with respect to the financial statements and supporting
schedules included in the Registration Statement;
(iii) stating that, on the basis of a limited review which included
a reading of the latest available unaudited interim financial statements
of the Company, a reading of the latest available minutes of the
stockholders and board of directors and the various committees of the
board of directors of the Company, consultations with officers and other
employees of the Company responsible for financial and accounting matters
and other specified procedures and inquiries, nothing has come to their
attention which would lead them to believe that (A) the unaudited
financial statements and supporting schedules of the Company included in
the Registration Statement do not comply as to form in all material
respects with the applicable accounting requirements of the Act and the
Rules and Regulations or are not fairly presented in conformity with
generally accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements of the Company
included in the Registration Statement, or (B) at a specified date not
more than five (5) days prior to the effective date of the Registration
Statement, there has been any change in the capital stock or long-term
debt of the Company, or any decrease in the stockholders' equity or net
current assets or net assets of the Company as compared with amounts shown
in the March 31, 1998 balance sheet included in the Registration
Statement, other than as set forth in or contemplated by the Registration
Statement, or, if there was any change or decrease, setting forth the
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<PAGE>
amount of such change or decrease, and (C) during the period from March
31, 1998 to a specified date not more than five (5) days prior to the
effective date of the Registration Statement, there was any decrease in
net revenues, net earnings or increase in net earnings per common share of
any of the Company or the Subsidiary, in each case as compared with the
corresponding period beginning March 31, 1997, other than as set forth in
or contemplated by the Registration Statement, or, if there was any such
decrease, setting forth the amount of such decrease;
(iv) setting forth, at a date not later than five (5) days prior to
the date of the Registration Statement, the amount of liabilities of the
Company and the Subsidiary taken as a whole (including a break-down of
commercial paper and notes payable to banks);
(v) stating that they have compared specific dollar amounts, numbers
of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the general
accounting records, including work sheets, of the Company and excluding
any questions requiring an interpretation by legal counsel, with the
results obtained from the application of specified readings, inquiries and
other appropriate procedures (which procedures do not constitute an
examination in accordance with generally accepted auditing standards) set
forth in the letter and found them to be in agreement;
(vi) statements as to such other matters incident to the transaction
contemplated hereby as the Representatives may request.
(k) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from Tauber & Balser, P.C. a letter, dated as
of the Closing Date or the Option Closing Date, as the case may be, to the
effect that they reaffirm the statements made in the letter furnished pursuant
to subsection (j) of this Section, except that the specified date referred to
shall be a date not more than five (5) days prior to the Closing Date or the
Option Closing Date, as the case may be, and, if the Company has elected to rely
on Rule 430A of the Rules and Regulations, to the further effect that they have
carried out procedures as specified in clause (v) of subsection (j) of this
Section with respect to certain amounts, percentages and financial information
as specified by the Representative and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records specified in such
clause (v).
(l) On each of the Closing Date and each Option Closing Date, if any,
there shall have been duly tendered to the Representative for the several
Underwriters' accounts the appropriate number of Securities.
(m) No order suspending the sale of the Securities in any jurisdiction
designated by the Representative pursuant to subsection (e) of Section 4 hereof
shall have been issued on either the Closing Date or the Option Closing Date, if
any, and no proceedings for that purpose shall have been instituted or shall be
contemplated.
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<PAGE>
(n) On or before the Closing Date, the Company shall have executed and
delivered to the Representative, (i) the Representative's Warrant Agreement
substantially in the form filed as Exhibit 1.___ to the Registration Statement,
in final form and substance satisfactory to the Representative, and (ii) the
Representative's Warrants in such denominations and to such designees as shall
have been provided to the Company.
(o) On or before the Closing Date, the Firm Securities and Option
Securities shall have been duly approved for quotation on Amex, subject to
official notice of issuance.
(p) On or before the Closing Date, there shall have been delivered to the
Representative all of the Lock-up Agreements, in form and substance satisfactory
to Underwriters' Counsel.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representative may terminate this
Agreement or, if the Representative so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters (for purposes of this Section 7 "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the Underwriter,
including specifically each person who may be substituted for an Underwriter as
provided in Section 11 hereof), and each person, if any, who controls the
Underwriter ("controlling person") within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, from and against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions,
proceedings, investigations, inquiries, suits and litigation in respect
thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any such claim, action, proceeding, investigation, inquiry, suit or litigation,
commenced or threatened, or any claim whatsoever), as such are incurred, to
which the Underwriter or such controlling person may become subject under the
Act, the Exchange Act or any other statute or at common law or otherwise or
under the laws of foreign countries, arising out of or based upon (A) any untrue
statement or alleged untrue statement of a material fact contained (i) in any
Preliminary Prospectus, the Registration Statement or the Prospectus (as from
time to time amended and supplemented); (ii) in any post-effective amendment or
amendments or any new registration statement and prospectus in which is included
securities of the Company issued or issuable upon exercise of the Securities; or
(iii) in any application or other document or written communication (in this
Section 7 collectively called "application") executed by the Company or based
upon written information furnished by the Company in any jurisdiction in order
to qualify the Securities under the securities laws thereof or filed with the
Commission, any state securities commission or agency, Amex or any other
securities exchange; (B) the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading (in the case of the Prospectus, in the light of the
circumstances under which they were made), or (C) any breach of any
representation, warranty, covenant or agreement of the Company contained herein
or in any certificate by or on behalf of the Company or any of its officers
delivered pursuant hereto, unless, in the case of clause (A) or (B) above,
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<PAGE>
such statement or omission was made in reliance upon and in strict conformity
with written information furnished to the Company with respect to any
Underwriter by or on behalf of such Underwriter expressly for use in any
Preliminary Prospectus, the Registration Statement or Prospectus, or any
amendment thereof or supplement thereto, or in any application, as the case may
be.
The indemnity agreement in this subsection (a) shall be in addition to any
liability which the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each other person, if
any, who controls the Company within the meaning of the Act, to the same extent
as the foregoing indemnity from the Company to the Underwriters but only with
respect to statements or omissions, if any, made in any Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to any
Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this Offering. The
Company acknowledges that the statements with respect to the public offering of
the Firm Securities and the Option Securities set forth under the heading
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriters for
inclusion in the Prospectus.
(c) Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any claim, action, suit, investigation, inquiry,
proceeding or litigation, such indemnified party shall, if a claim in respect
thereof is to be made against one or more indemnifying parties under this
Section 7, notify each party against whom indemnification is to be sought in
writing of the commencement thereof (but the failure so to notify an
indemnifying party shall not relieve it from any liability which it may have
under this Section 7 except to the extent that it has been prejudiced in any
material respect by such failure or from any liability which it may have
otherwise). In case any such claim, action, suit, investigation, inquiry,
proceeding or litigation is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such case
but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying parties in connection with
the defense of thereof at the expense of the indemnifying party, (ii) the
indemnifying parties shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense thereof within a reasonable
time after notice of commencement thereof, or (iii) such indemnified party or
parties
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<PAGE>
shall have reasonably concluded that there may be defenses available to it or
them which are different from or additional to those available to one or all of
the indemnifying parties (in which case the indemnifying parties shall not have
the right to direct the defense thereof on behalf of the indemnified party or
parties), in any of which events such fees and expenses of one additional
counsel shall be borne by the indemnifying parties. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one claim, action, suit,
investigation, inquiry, proceeding or litigation or separate but similar or
related claims, actions, suits, investigations, inquiries, proceedings or
litigation in the same jurisdiction arising out of the same general allegations
or circumstances. Anything in this Section 7 to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim, action,
suit, investigation, inquiry, proceeding or litigation effected without its
written consent; provided, however, that such consent was not unreasonably
withheld. An indemnifying party will not, without the prior written consent of
the indemnified parties, settle, compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit,
investigation, inquiry, proceeding or litigation in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim, action, suit,
investigation, inquiry, proceeding or litigation), unless such settlement,
compromise or consent (i) includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit, investigation,
inquiry, proceeding or litigation and (ii) does not include a statement as to or
an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) In order to provide for just and equitable contribution in any case in
which (i) an indemnified party makes claim for indemnification pursuant to this
Section 7, but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
this Section 7 provide for indemnification in such case, or (ii) contribution
under the Act may be required on the part of any indemnified party, then each
indemnifying party shall contribute to the amount paid as a result of such
losses, claims, damages, expenses or liabilities (or actions in respect thereof)
(A) in such proportion as is appropriate to reflect the relative benefits
received by each of the contributing parties, on the one hand, and the party to
be indemnified on the other hand, from the offering of the Firm Securities and
the Option Securities or (B) if the allocation provided by clause (A) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of each of the contributing parties, on the one hand, and the
party to be indemnified on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages, expenses or
liabilities, as well as any other relevant equitable considerations. In any case
where the Company is the contributing party and the Underwriters are the
indemnified party, the relative benefits received by the Company on the one
hand, and the Underwriters, on the other, shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Firm Securities
and the Option Securities (before deducting expenses) bear to the total
underwriting discounts received by the Underwriters hereunder, in each case as
set forth in the table on the Cover Page of the Prospectus. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, or by the
Underwriters, and the parties' relative intent,
32
<PAGE>
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid or payable by an indemnified party
as a result of the losses, claims, damages, expenses or liabilities (or actions
in respect thereof) referred to above in this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), the Underwriters shall
not be required to contribute any amount in excess of the underwriting discount
applicable to the Firm Securities and the Option Securities purchased by the
Underwriters hereunder. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For purposes
of this Section 7, each person, if any, who controls the Company or the
Underwriter within the meaning of the Act, each officer of the Company who has
signed the Registration Statement, and each director of the Company shall have
the same rights to contribution as the Company or the Underwriter, as the case
may be, subject in each case to this subsection (d). Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect to which a claim for
contribution may be made against another party or parties under this subsection
(d), notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have hereunder or otherwise than under this subsection (d), or to the extent
that such party or parties were not adversely affected by such omission. The
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, any controlling person of any Underwriter or the Company, and shall
survive termination of this Agreement or the issuance and delivery of the
Securities to the Underwriters and the Representative, as the case may be.
Effective Date. This Agreement shall become effective at 10:00 a.m., New
York City time, on the next full business day following the date hereof, or at
such earlier time after the Registration Statement becomes effective as the
Representative, in its discretion, shall release the Securities for sale to the
public; provided, however, that the provisions of Sections 5, 7 and 10 of this
Agreement shall at all times be effective. For purposes of this Section 9, the
Securities to be purchased hereunder shall be deemed to have been so released
upon the earlier of dispatch by the Representative of telegrams to securities
dealers releasing such securities for offering or the release by the
Representative for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
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<PAGE>
10. Termination.
(a) Subject to subsection (b) of this Section 10, the Representative shall
have the right to terminate this Agreement, (i) if any domestic or international
event or act or occurrence has materially adversely disrupted, or in the
Representative's opinion will in the immediate future materially adversely
disrupt, the financial markets; or (ii) if any material adverse change in the
financial markets shall have occurred; or (iii) if trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the NASD, the Boston Stock
Exchange, the Commission or any governmental authority having jurisdiction over
such matters; or (iv) if trading of any of the securities of the Company shall
have been suspended, or any of the securities of the Company shall have been
delisted, on any exchange or in any over-the-counter market; (v) if the United
States shall have become involved in a war or major hostilities, or if there
shall have been an escalation in an existing war or major hostilities or a
national emergency shall have been declared in the United States; or (vi) if a
banking moratorium has been declared by a state or federal authority; or (vii)
if a moratorium in foreign exchange trading has been declared; or (viii) if the
Company or the Subsidiary shall have sustained a loss material or substantial to
the Company or the Subsidiary by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act which, whether or not such
loss shall have been insured, will, in the Representative's opinion, make it
inadvisable to proceed with the offering, sale and/or delivery of the
Securities; or (ix) if there shall have been such a material adverse change in
the conditions or prospects of the Company, or such material adverse change in
the general market, political or economic conditions, in the United States,
Turkey or elsewhere, that, in each case, in the Representative's judgment, would
make it inadvisable to proceed with the offering, sale and/or delivery of the
Securities or (x) if either David R. Paolo or Raymond Paolo shall no longer
serve the Company in their respective present capacities.
(b) If this Agreement is terminated by the Representative in accordance
with the provisions of Section 10(a) the Company shall promptly reimburse and
indemnify the Representative for all of its actual out-of-pocket expenses,
including the fees and disbursements of counsel for the Underwriters (less
amounts previously paid pursuant to Section 5(c) above). Notwithstanding any
contrary provision contained in this Agreement, if this Agreement shall not be
carried out within the time specified herein, or any extension thereof granted
to the Representative, by reason of any failure on the part of the Company to
perform any undertaking or satisfy any condition of this Agreement by it to be
performed or satisfied (including, without limitation, pursuant to Section 6 or
Section 12) then, the Company shall promptly reimburse and indemnify the
Representative for all of its actual out-of-pocket expenses, including the fees
and disbursements of counsel for the Underwriters (less amounts previously paid
pursuant to Section 5(c) above). In addition, the Company shall remain liable
for all Blue Sky counsel fees and disbursements, expenses and filing fees.
Notwithstanding any contrary provision contained in this Agreement, any election
hereunder or any termination of this Agreement (including, without limitation,
pursuant to Sections 6, 10, 11 and 12 hereof), and whether or not this Agreement
is otherwise carried out, the provisions of Section 5 and Section 7 shall not be
in any way affected by such election or termination or failure to carry out the
terms of this Agreement or any part hereof.
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<PAGE>
11. Substitution of the Underwriters. If one or more of the Underwriters
shall fail (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 6, Section 10 or Section 12
hereof) to purchase the Securities which it or they are obligated to purchase on
such date under this Agreement (the "Defaulted Securities"), the Representative
shall have the right, within 24 hours thereafter, to make arrangement for one or
more of the non defaulting Underwriters, or any other underwriters, to purchase
all, but not less than all, of the Defaulted Securities in such amounts as may
be agreed upon and upon the terms herein set forth; if, however, the
Representative shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
total number of Firm Securities to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full amount
thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the total
number of Firm Securities, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriters (or, if such
default shall occur with respect to any Option Securities to be purchased
on an Option Closing Date, the Underwriters may at the Representative's
option, by notice from the Representative to the Company, terminate the
Underwriters' obligation to purchase Option Securities from the Company on
such date).
No action taken pursuant to this Section 11 shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
In the event of any such default which does not result in a termination of
this Agreement, the Representative shall have the right to postpone the Closing
Date for a period not exceeding seven (7) days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements.
12. Default by the Company. If the Company shall fail at the Closing Date
or at any Option Closing Date, as applicable, to sell and deliver the number of
Securities which it is obligated to sell hereunder on such date, then this
Agreement shall terminate (or, if such default shall occur with respect to any
Option Securities to be purchased on an Option Closing Date, the Underwriters
may at the Representative's option, by notice from the Representative to the
Company, terminate the Underwriters' obligation to purchase Option Securities
from the Company on such date) without any liability on the part of any
non-defaulting party other than pursuant to Section 5, Section 7 and Section 10
hereof. No action taken pursuant to this Section 12 shall relieve the Company
from liability, if any, in respect of such default.
13. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative at Security Capital Trading, Inc., 520 Madison Avenue, 10th
Floor, New York, New York 10022, Attention: Ronald Heineman, with a copy to
Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103,
Attention: Lawrence B. Fisher, Esq. Notices to the Company shall be directed to
the Company at Log On America, Inc., 3 Regency Plaza, Providence, Rhode Island,
02903, Attention:
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David R. Paolo, with a copy to Silverman, Collura, Chernis & Balzano, P.C., 381
Park Avenue South, New York, New York, 10016, Attention: Michael H. Freedman,
Esq.
14. Parties. This Agreement shall inure solely to the benefit of and shall
be binding upon, the Underwriters, the Company and the controlling persons,
directors and officers referred to in Section 7 hereof, and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provisions herein contained. No
purchaser of Securities from any Underwriter shall be deemed to be a successor
by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement and the Representative's
Warrant Agreement constitute the entire agreement of the parties hereto and
supersede all prior written or oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may not be amended
except in a writing, signed by the Representative and the Company.
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If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
LOG ON AMERICA, INC.
By:________________________
Name:
Title:
Confirmed and accepted as of
the date first above written.
SECURITY CAPITAL TRADING, INC.
For itself and as Representative of the
several Underwriters named in
Schedule A hereto.
By:___________________________________
Name:
Title:
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SCHEDULE A
Number of Shares
Name of Underwriters to be Purchased
- -------------------- ---------------
Security Capital Trading, Inc..............................
Total......................................................
---------
2,000,000
=========
- --------------------------------------------------------------------------------
LOG ON AMERICA, INC.
AND
SECURITY CAPITAL TRADING, INC.
REPRESENTATIVE'S
WARRANT AGREEMENT
Dated as of ___________, 1999
- --------------------------------------------------------------------------------
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT dated as of _________, 1999 between LOG
ON AMERICA, INC., a Delaware corporation (the "Company"), and SECURITY CAPITAL
TRADING, INC. ("SCT") (SCT is hereinafter referred to variously as the "Holder"
or "Holders" or the "Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representative or its
designee(s) warrants ("Warrants") to purchase up to an aggregate 200,000 shares
(the "Shares) of common stock, $.01 par value per Share ("Common Stock"), of the
Company; and
WHEREAS, the Representative has agreed pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof between the
Company and the several Underwriters listed therein to act as the Representative
in connection with the Company's proposed public offering of 2,000,000 shares of
Common Stock at a public offering price of $______ per Share (the "Public
Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representative in consideration for, and as
part of the Representative's compensation in connection with, the Representative
acting as the Representative pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment by the
Representative to the Company of an aggregate twenty dollars ($20.00), the
agreements herein set forth and other good and valuable consideration, hereby
acknowledged, the parties hereto agree as follows:
1. Grant. The Representative (or its designees) is hereby granted the
right to purchase, at any time from _____________, 2000 [twelve months after
date of this Agreement],
2
<PAGE>
until 5:30 P.M., New York time, on ___________, 2004 [five years after date of
this Agreement], up to an aggregate of 200,000 Shares of Common Stock, at an
initial exercise price (subject to adjustment as provided in Section 8 hereof)
of $_____ per Share [120% of initial public offering price per share of Common
Stock], subject to the terms and conditions of this Agreement.
2. Warrant Certificates. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A, attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. Exercise of Warrant.
3.1 Method of Exercise. The Warrants initially are exercisable at an
aggregate initial exercise price (subject to adjustment as provided in Section 8
hereof) per Share set forth in Section 6 hereof payable by certified or official
bank check in New York Clearing House funds, subject to adjustment as provided
in Section 8 hereof. Upon surrender of a Warrant Certificate with the annexed
Form of Election to Purchase duly executed, together with payment of the
Exercise Price (as hereinafter defined) for the Shares purchased at the
Company's principal executive offices (presently located at 3 Regency Plaza,
Providence, Rhode Island, 02903) the registered holder of a Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased. The purchase rights
represented by each Warrant Certificate are exercisable at the option of the
Holder thereof, in whole or in part (but not as to fractional shares of the
Common Stock). Warrants may be exercised to purchase all or part of the Shares
represented thereby. In the case of the purchase of less than all the Shares
purchasable under any Warrant Certificate, the Company shall cancel
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<PAGE>
said Warrant Certificate upon the surrender thereof and shall execute and
deliver a new Warrant Certificate of like tenor for the balance of the Shares
purchasable thereunder.
3.2 Exercise by Surrender of Warrant. In addition to the method of payment
set forth in Section 3.1 and in lieu of any cash payment required thereunder,
the Holder(s) of the Warrants shall have the right at any time and from time to
time to exercise the Warrants in full or in part by surrendering the Warrant
Certificate in the manner specified in Section 3.1 in exchange for the number of
Shares equal to the product of (x) the number of Shares as to which the Warrants
are being exercised, multiplied by (y) a fraction, the numerator of which is the
Market Price (as defined in Section 3.3 hereof) of the Shares minus the Exercise
Price of the Shares and the denominator of which is the Market Price per Share.
Solely for the purposes of this Section 3.2, Market Price shall be calculated
either (i) on the date on which the form of election attached hereto is deemed
to have been sent to the Company pursuant to Section 14 hereof ("Notice Date")
or (ii) as the average of the Market Price for each of the five trading days
immediately preceding the Notice Date, whichever of (i) or (ii) results in a
greater Market Price.
3.3 Definition of Market Price.
(a) As used herein, the phrase "Market Price of the Shares" at any date
shall be deemed to be the last reported sale price, or, in case no such reported
sale takes place on such day, the average of the last reported sale prices for
the last three (3) trading days, in either case as officially reported by the
principal securities exchange on which the Common Stock is listed or admitted to
trading or by the Nasdaq National Market ("Nasdaq/NM") or the Nasdaq Small Cap
Market ("Nasdaq Small Cap"), or, if the Common Stock is not listed or admitted
to trading on any national securities exchange or quoted by the National
Association of Securities Dealers Automated Quotation System ("Nasdaq"), the
average closing bid price as furnished by the National
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Association of Securities Dealers, Inc. ("NASD") through Nasdaq or similar
organization if Nasdaq is no longer reporting such information.
(b) If the Market Price of the Common Stock cannot be determined pursuant
to Section 3.3(a) above, the Market Price of the Common Stock shall be
determined in good faith (using customary valuation methods) by resolution of
the members of the Board of Directors of the Company, based on the best
information available to it.
4. Issuance of Certificates. Upon the exercise of the Warrants, the
issuance of certificates for shares of Common Stock shall be made forthwith (and
in any event such issuance shall be made within five (5) business days
thereafter) without charge to the Holder thereof including, without limitation,
any tax which may be payable in respect of the issuance thereof, and such
certificates shall (subject to the provisions of Sections 5 and 7 hereof) be
issued in the name of, or in such names as may be directed by, the Holder
thereof.
The Warrant Certificates and the certificates representing the shares of
Common Stock shall be executed on behalf of the Company by the manual or
facsimile signature of the then present Chairman or Vice Chairman of the Board
of Directors or President or Vice President of the Company under its corporate
seal reproduced thereon, attested to by the manual or facsimile signature of the
then present Secretary or Assistant Secretary or Treasurer or Assistant
Treasurer of the Company. Warrant Certificates shall be dated the date of
execution by the Company upon initial issuance, division, exchange, substitution
or transfer.
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5. Restriction On Transfer of Warrants. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof; that the Warrants may not be sold, transferred, assigned, hypothecated
or otherwise disposed of, in whole or in part, for a period of one (1) year from
the date hereof, except to officers or partners of the Representative.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Price. Except as otherwise provided in
Section 8 hereof, the initial exercise price of each Warrant shall be 120% of
the initial public offering price of the securities to be offered. The adjusted
exercise price shall be the price which shall result from time to time from any
and all adjustments of the initial exercise price in accordance with the
provisions of Section 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933. The Warrants and the
shares of Common Stock underlying the Warrants and the other securities issuable
upon exercise of the Warrants (collectively, the "Warrant Securities") have been
registered under the Securities Act of 1933, as amended (the "Act") pursuant to
the Company's Registration Statement on Form SB-2 (Registration No. 333-_____)
(the "Registration Statement"). All the representations and warranties of the
Company contained in the Underwriting Agreement relating to the Registration
Statement, the Preliminary Prospectus and Prospectus (as such terms are defined
in the Underwriting Agreement) and made as of the dates provided therein, are
hereby incorporated by reference. The Company agrees and covenants promptly to
file post effective amendments to such Registration Statement as may be
necessary to maintain the effectiveness of the Registration Statement as long as
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any Warrants are outstanding. In the event that, for any reason, whatsoever, the
Company shall fail to maintain the effectiveness of the Registration Statement,
upon exercise, in part or in whole, of the Warrants, certificates representing
the shares of Common Stock underlying the Warrants shall bear the following
legend:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended ("Act"), and may not be
offered, sold, pledged, hypothecated, assigned or transferred except
pursuant to (i) an effective registration statement under the Act, (ii) to
the extent applicable, Rule 144 under the Act (or any similar rule under
such Act relating to the disposition of securities), or (iii) an opinion
of counsel, if such opinion shall be reasonably satisfactory to counsel to
the issuer, that an exemption from registration under such Act is
available.
7.2 Piggyback Registration. If, at any time commencing after the Closing
Date of the public offering hereof and expiring seven (7) years thereafter, the
Company proposes to register any of its securities under the Act (other than
pursuant to Form S-8, S-4 or a comparable registration statement) the Company
will give written notice by registered mail, at least thirty (30) days prior to
the filing of each such registration statement, to the Representative and to all
other Holders of the Warrants and/or the Warrant Securities of its intention to
do so. If the Representative or other Holders of the Warrants and/or Warrant
Securities notifies the Company within twenty (20) days after receipt of any
such notice of its or their desire to include any such securities in such
proposed registration statement, the Company shall afford the Representative and
such Holders of the Warrants and/or Warrant Securities the opportunity to have
any such Warrant Securities registered under such registration statement.
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Notwithstanding the provisions of this Section 7.2, the Company shall have
the right at any time after it shall have given written notice pursuant to this
Section 7.2 (irrespective of whether a written request for inclusion of any such
securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
7.3 Demand Registration.
(a) At any time commencing after the Closing Date of the public offering
hereof and expiring five (5) years thereafter, the Holders of the Warrants
and/or Warrant Securities representing a "Majority" (as hereinafter defined) of
such securities (assuming the exercise of all of the Warrants) shall have the
right (which right is in addition to the registration rights under Section 7.2
hereof), exercisable by written notice to the Company, to have the Company
prepare and file with the Securities and Exchange Commission (the "Commission"),
on one occasion, a registration statement and such other documents, including a
prospectus, as may be necessary in the opinion of both counsel for the Company
and counsel for the Representative and Holders, in order to comply with the
provisions of the Act, so as to permit a public offering and sale of their
respective Warrant Securities for nine (9) consecutive months by such Holders
and any other Holders of the Warrants and/or Warrant Securities who notify the
Company within ten (10) days after receiving notice from the Company of such
request.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) Notwithstanding anything to the contrary contained herein, if the
Company shall not have filed a registration statement for the Warrant Securities
within the time period
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specified in Section 7.4(a) hereof pursuant to the written notice specified in
Section 7.3(a) of a Majority of the Holders of the Warrants and/or Warrant
Securities, the Company shall have the option, upon the written notice of
election of a Majority of the Holders of the Warrants and/or Warrant Securities
to repurchase (i) any and all Warrant Securities at the higher of the Market
Price per share of Common Stock on (x) the date of the notice sent pursuant to
Section 7.3(a) or (y) the expiration of the period specified in Section 7.4(a)
and (ii) any and all Warrants at such Market Price less the Exercise Price of
such Warrant. Such repurchase shall be in immediately available funds and shall
close within two (2) days after the later of (i) the expiration of the period
specified in Section 7.4(a) or (ii) the delivery of the written notice of
election specified in this Section 7.3(c).
(d) In addition to the registration rights under Section 7.2 and
subsection (a) of this Section 7.3, at any time commencing after the date hereof
and expiring five (5) years thereafter, any Holder of Warrants and/or Warrant
Securities shall have the right, exercisable by written request to the Company,
to have the Company prepare and file, on one occasion, with the Commission a
registration statement so as to permit a public offering and sale for nine (9)
consecutive months by any such Holder of its Warrant Securities provided,
however, that the provisions of Section 7.4(b) hereof shall not apply to any
such registration request and registration and all costs incident thereto shall
be at the expense of the Holder or Holders making such request.
7.4 Covenants of the Company With Respect to Registration. In connection
with any registration under Section 7.2 or 7.3 hereof, the Company covenants and
agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within thirty (30) days of receipt of any demand therefor, shall use
its best efforts to have any registration statement declared effective at the
earliest possible time, and shall furnish each Holder desiring to sell Warrant
Securities such number of prospectuses as shall reasonably be requested.
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(b) The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. The
Holder(s) will pay all costs, fees and expenses in connection with any
registration statement filed pursuant to Section 7.3(d). If the Company shall
fail to comply with the provisions of Section 7.4(a), the Company shall, in
addition to any other equitable or other relief available to the Holder(s), be
liable for any or all incidental or special damages sustained by the Holder(s)
requesting registration of their Warrant Securities, excluding consequential
damages.
(c) The Company will take all necessary action which may be required in
qualifying or registering the Warrant Securities included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as reasonably are requested by the Holder(s), provided that the Company
shall not be obligated to execute or file any general consent to service of
process or to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant Securities to
be sold pursuant to any registration statement and each person, if any, who
controls such Holders within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
against all loss, claim, damage, expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the Exchange
Act or otherwise, arising from such registration statement but only to the same
extent and with the same effect as the provisions pursuant to which the Company
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has agreed to indemnify the Underwriters contained in Section 7 of the
Underwriting Agreement. The Company further agree(s) that upon demand by an
indemnified person, at any time or from time to time, it will promptly reimburse
such indemnified person for any loss, claim, damage, liability, cost or expense
actually and reasonably paid by the indemnified person as to which the Company
has indemnified such person pursuant hereto. Notwithstanding the foregoing
provisions of this Section 7.4(d) any such payment or reimbursement by the
Company of fees, expenses or disbursements incurred by an indemnified person in
any proceeding in which a final judgment by a court of competent jurisdiction
(after all appeals or the expiration of time to appeal) is entered against the
Company or such indemnified person as a direct result of the Holder(s) or such
person's gross negligence or willful misfeasance will be promptly repaid to the
Company.
(e) The Holder(s) of the Warrant Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders, or their successors or assigns, for
specific inclusion in such registration statement to the same extent and with
the same effect as the provisions contained in Section 7 of the Underwriting
Agreement pursuant to which the Underwriters have agreed to indemnify the
Company. The Holder(s) further agree(s) that upon demand by an indemnified
person, at any time or from time to time, they will promptly reimburse such
indemnified person for any loss, claim, damage, liability, cost or expense
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actually and reasonably paid by the indemnified person as to which the Holder(s)
have indemnified such person pursuant hereto. Notwithstanding the foregoing
provisions of this Section 7.4(e) any such payment or reimbursement by the
Holder(s) of fees, expenses or disbursements incurred by an indemnified person
in any proceeding in which a final judgment by a court of competent jurisdiction
(after all appeals or the expiration of time to appeal) is entered against the
Company or such indemnified person as a direct result of the Company or such
person's gross negligence or willful misfeasance will be promptly repaid to the
Holder(s).
(f) Nothing contained in this Agreement shall be construed as requiring
the Holder(s) to exercise their Warrants prior to the initial filing of any
registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities other
than the Warrant Securities to be included in any registration statement filed
pursuant to Section 7.3 hereof, or permit any other registration statement to be
or remain effective during the effectiveness of a registration statement filed
pursuant to Section 7.3 hereof, without the prior written consent of the Holders
of the Warrants and Warrant Securities representing a Majority of such
securities (assuming the exercise of all of the Warrants).
(h) The Company shall furnish to each Holder participating in the offering
and to each underwriter, if any, a signed counterpart, addressed to such Holder
or underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "cold comfort" letter dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing under the
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underwriting agreement) signed by the independent public accountants who have
issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(i) The Company shall as soon as practicable after the effective date of
the registration statement, and in any event within 15 months thereafter, make
"generally available to its security holders" (within the meaning of Rule 158
under the Act) an earnings statement (which need not be audited) complying with
Section 11(a) of the Act and covering a period of at least 12 consecutive months
beginning after the effective date of the registration statement.
(j) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described below and to the
managing underwriter, if any, copies of all correspondence between the
Commission and the Company, its counsel or auditors and all memoranda relating
to discussions with the Commission or its staff with respect to the registration
statement and permit each Holder and underwriter to do such investigation, upon
reasonable advance notice, with respect to information contained in or omitted
from the registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the NASD. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
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reasonable extent and at such reasonable times and as often as any such Holder
or underwriter shall reasonably request.
(k) The Company shall enter into an underwriting agreement with the
managing underwriter selected for such underwriting by Holders holding a
Majority of the Warrant Securities requested to be included in such
underwriting, which may be the Representative. Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such managing
underwriter, and shall contain such representations, warranties and covenants by
the Company and such other terms as are customarily contained in agreements of
that type used by the managing underwriter. The Holders shall be parties to any
underwriting agreement relating to an underwritten sale of their Warrant
Securities and may, at their option, require that any or all of the
representations, warranties and covenants of the Company to or for the benefit
of such underwriters shall also be made to and for the benefit of such Holders.
Such Holders shall not be required to make any representations or warranties to
or agreements with the Company or the underwriters except as they may relate to
such Holders and their intended methods of distribution.
(l) In addition to the Warrant Securities, upon the written request
therefor by any Holder(s), the Company shall include in the registration
statement any other securities of the Company held by such Holder(s) as of the
date of filing of such registration statement, including without limitation,
restricted shares of Common Stock, options, warrants or any other securities
convertible into shares of Common Stock.
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(m) For purposes of this Agreement, the term "Majority" in reference to
the Holders of Warrants or Warrant Securities shall mean in excess of fifty
percent (50%) of the then outstanding Warrants or Warrant Securities that (i)
are not held by the Company, an affiliate, officer, creditor, employee or agent
thereof or any of their respective affiliates, members of their family, persons
acting as nominees or in conjunction therewith and (ii) have not been resold to
the public pursuant to a registration statement filed with the Commission under
the Act.
8. Adjustments to Exercise Price and Number of Securities.
8.1 Subdivision and Combination. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
8.2 Stock Dividends and Distributions. In case the Company shall pay
dividend in, or make a distribution of, shares of Common Stock or of the
Company's capital stock convertible into Common Stock, the Exercise Price shall
forthwith be proportionately decreased. An adjustment made pursuant to this
Section 8.2 shall be made as of the record date for the subject stock dividend
or distribution.
8.3 Adjustment in Number of Securities. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 8, the number of
Warrant Securities issuable upon the exercise at the adjusted Exercise Price of
each Warrant shall be adjusted to the nearest whole number by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
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8.4 Definition of Common Stock. For the purpose of this Agreement, the
term "Common Stock" shall mean (i) the class of stock designated as Common Stock
in the Certificate of Incorporation of the Company as may be amended or restated
as of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to no par value, or from no par value
to par value.
8.5 Merger or Consolidation or Sale.
(a) In case of any consolidation of the Company with, or merger of the
Company with, or merger of the Company into, another corporation (other than a
consolidation or merger which does not result in any reclassification or change
of the outstanding Common Stock), the corporation formed by such consolidation
or merger shall execute and deliver to the Holder a supplemental warrant
agreement providing that the holder of each Warrant then outstanding or to be
outstanding shall have the right thereafter (until the expiration of such
Warrant) to receive, upon exercise of such Warrant, the kind and amount of
shares of stock and other securities and property receivable upon such
consolidation, merger, sale or transfer by a holder of the number of shares of
Common Stock of the Company for which such Warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in this Section 8. The above provision of
this subsection shall similarly apply to successive consolidations or mergers.
(b) In the event of (i) the sale by the Company of all or substantially
all of its assets, or (ii) the engagement by the Company or any of its
affiliates in a "Rule 13e-3 transaction" as defined in paragraph (a)(3) of Rule
13e-3 of the General Rules and Regulations under the Securities Exchange Act of
1934, as amended, or (iii) a distribution to the Company's stockholders of any
cash, assets, property, rights, evidences of indebtedness, securities or any
other thing of value, or
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any combination thereof, the Holders of the unexercised Warrants shall receive
notice of such sale, transaction or distribution twenty (20) days prior to the
date of such sale or the record date for such transaction or distribution, as
applicable, and, if they exercise such Warrants prior to such date, they shall
be entitled, in addition to the shares of Common Stock issuable upon the
exercise thereof, to receive such property, cash, assets, rights, evidence of
indebtedness, securities or any other thing of value, or any combination
thereof, on the payment date of such sale, transaction or distribution.
8.6 No Adjustment of Exercise Price in Certain Cases. No adjustment of the
Exercise Price shall be made if the amount of said adjustment shall be less than
ten cents (104) per Warrant Security, provided, however, that in such case any
adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried forward, shall amount
to at least ten cents ($.10) per Warrant Security.
9. Exchange and Replacement of Warrant Certificates. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Shares in such denominations as shall be
designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
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10. Elimination of Fractional Interests. The Company shall not be required
to issue certificates representing fractions of shares of Common Stock upon the
exercise of the Warrants, it being the intent of the parties that all fractional
interests shall be eliminated by rounding any fraction up to the nearest whole
number of shares of Common Stock, or other securities, properties or rights.
11. Reservation and Listing of Securities. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants, such number of
shares of Common Stock or other securities, properties or rights as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all shares
of Common Stock and other securities issuable upon such exercise shall be duly
and validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder. As long as the Warrants shall be outstanding, the
Company shall use its best efforts to cause all shares of Common Stock issuable
upon the exercise of the Warrants to be listed (subject to official notice of
issuance) on all securities exchanges on which the Common Stock issued to the
public in connection herewith may then be listed and/or quoted on Nasdaq
National Market or Nasdaq Small Cap Market.
12. Notices to Warrant Holders. Nothing contained in this Agreement shall
be construed as conferring upon the Holders the right to vote or to consent or
to receive notice as a stockholder in respect of any meetings of stockholders
for the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
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(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings,
as indicated by the accounting treatment of such dividend or distribution
on the books of the Company; or
(b) the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety
shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least twenty (20) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
13. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
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(d) If to the registered Holder of the Warrants, to the address of
such Holder as shown on the books of the Company; or
(e) If to the Company, to the address set forth in Section 3 hereof
or to such other address as the Company may designate by notice to the
Holders.
14. Supplements and Amendments. The Company and the Representative may
from time to time supplement or amend this Agreement without the approval of any
Holders of Warrant Certificates (other than the Representative) in order to cure
any ambiguity, to correct or supplement any provision contained herein which may
be defective or inconsistent with any provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and the Representative may deem necessary or desirable and which the Company and
the Representative deem shall not adversely affect the interests of the Holders
of Warrant Certificates.
15. Successors. All the covenants and provisions of this Agreement shall
be binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
16. Termination. This Agreement shall terminate at the close of business
on __________, 2003. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination until the close of
business on _____________, 2008.
17. Governing Law, Submission to Jurisdiction. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
The Company, the Representative and the Holders hereby agree that any
action, proceeding or claim against it arising out of, or relating in any way
to, this Agreement shall be
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brought and enforced in the courts of the State of New York or of the United
States of America for the Southern District of New York, and irrevocably submits
to such jurisdiction, which jurisdiction shall be exclusive. The Company, the
Representative and the Holders hereby irrevocably waive any objection to such
exclusive jurisdiction or inconvenient forum. Any such process or summons to be
served upon any of the Company, the Representative and the Holders (at the
option of the party bringing such action, proceeding or claim) may be served by
transmitting a copy thereof, by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address as set forth in
Section 14 hereof. Such mailing shall be deemed personal service and shall be
legal and binding upon the party so served in any action, proceeding or claim.
The Company, the Representative and the Holders agree that the prevailing
party(ies) in any such action or proceeding shall be entitled to recover from
the other party(ies) all of its/their reasonable legal costs and expenses
relating to such action or proceeding and/or incurred in connection with the
preparation therefor.
18. Entire Agreement; Modification. This Agreement (including the
Underwriting Agreement to the extent portions thereof are referred to herein)
contains the entire understanding between the parties hereto with respect to the
subject matter hereof and may not be modified or amended except by a writing
duly signed by the party against whom enforcement of the modification or
amendment is sought.
19. Severability. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this Agreement are
for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
21
<PAGE>
21. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Representative and any other registered Holder(s) of the Warrant Certificates or
Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole and exclusive benefit of the
Company and the Representative and any other Holder(s) of the Warrant
Certificates or Warrant Securities.
22. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall to either constitute but one and the
same instrument.
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
LOG ON AMERICA, INC.
By:
----------------------------------------
David R. Paolo
President and Chief Executive Officer
Attest:
- --------------------------------
Secretary
SECURITY CAPITAL TRADING, INC.
By:
----------------------------------------
Name:
Title:
23
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
(ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE
UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION
OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE
ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, ________, 2004
No. W-01 200,000 Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that __________, or registered assigns,
is the registered holder of __________ Warrants to purchase initially, at any
time from ____________, 2000 [one year from the effective date of the
Registration Statement] until 5:00 p.m. New York time on ____________, 2004
[five years from the effective date of the Registration Statement] ("Expiration
Date"), up to 200,000 Shares of common stock, $.01 par value ("Common Stock") of
LOG ON AMERICA, INC., a Delaware corporation (the "Company"), at the initial
exercise price, subject to adjustment in certain events (the "Exercise Price"),
of $_____________ [120% of the public offering price per Share] per Share upon
surrender of this Warrant Certificate and payment of the Exercise Price at an
office or agency of the Company, or by surrender of this Warrant Certificate in
lieu of cash payment, but subject to the conditions set forth herein and in the
warrant agreement dated as of _________________, 1999 between the Company and
Security Capital Trading, Inc. (the "Warrant Agreement"). Payment of the
Exercise Price shall be made by certified or official bank check in New York
Clearing House funds payable to the order of the Company or by surrender of this
Warrant Certificate.
No Warrant may be exercised after 5:00 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
<PAGE>
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain events
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such Warrant.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of ___________, 1999
LOG ON AMERICA, INC.
[SEAL] By:________________________________________
David R. Paolo
President and Chief Executive Officer
Attest:
________________________________________
Secretary
3
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _____________ Shares and
herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of Log On America,
Inc. in the amount of $__________, all in accordance with the terms of Section
3.1 of the Representative's Warrant Agreement dated as of ___________, 1999
between Log On America, Inc. and Security Capital Trading, Inc. The undersigned
requests that certificates for such securities be registered in the name of
_______________ whose address is __________________________ and that such
certificates be delivered to ______________________________ whose address is
____________________________.
Dated:
Signature ____________________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
________________________________________________________
(Insert Social Security or Other Identifying Number of
Holder)
4
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ____________ Shares all in
accordance with the terms of Section 3.2 of the Representative's Warrant
Agreement dated as of ______________, 1999 between Log On America, Inc. and
Security Capital Trading, Inc. The undersigned requests that certificates for
such securities be registered in the name of __________________ whose address is
_______________________ and that such certificates be delivered to
_____________________ whose address is ____________________________________.
Dated:
Signature _____________________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
________________________________________________________
(Insert Social Security or Other Identifying Number of
Holder)
5
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _____________ hereby sells, assigns and transfers unto
________________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ________________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature: _____________________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
________________________________________________________
(Insert Social Security or Other Identifying Number of
Holder)
6
CERTIFICATE OF INCORPORATION
OF
Wan Secure, Inc.
FIRST: The name of this corporation is Wan Secure, Inc.
SECOND: Its registered office in the State of Delaware is to be located at
1313 N. Market Street, Wilmington DE 19801-1151, County of New Castle. The
registered agent in charge thereof is The Company Corporation, address "same as
above".
THIRD: The nature of the business and, the objects and purposes proposed
to be transacted, promoted and carried on, are to do any or all the things
herein mentioned as fully and to the same extent as natural persons might or
could do, and in any part of the world, viz:
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH: The amount of the total authorized capital stock of this
corporation is divided into 1,000 shares of stock at NO par value.
FIFTH: The name and mailing address of the incorporator is as follows:
Regina Cephas, 1313 N. Market St., Wilmington DE 19801-1151
SIXTH: The Directors shall have power to make and to alter or amend the
By-Laws; to fix the amount to be reserved as working capital, and to authorize
and cause to be executed, mortgages and liens without limit as to the amount,
upon the property and franchise of the Corporation.
With the consent in writing, and pursuant to a vote of the holders of a
majority of the capital stock issued and outstanding, the Directors shall have
the authority to dispose, in any manner, of the whole property of this
corporation.
The By-Laws shall determine whether and to what extent the accounts and
books of this corporation, or any of them shall be open to the inspection of the
stockholder; and no stockholder shall have any right of inspecting any account,
or book or document of this Corporation, except as conferred by the law of the
By-Laws, or by resolution of the stockholders.
The stockholders and directors shall have the power to hold their meetings
and keep the books, documents and papers of the Corporation outside of the State
of Delaware, at such places as may be from time to time designated by the
By-Laws or by resolution of the stockholders or directors, except as otherwise
required by the laws of Delaware.
SEVENTH: Directors of the corporation shall not be liable to either the
corporation or its stockholders for monetary damages for a breach of fiduciary
duties unless the breach involves: (1) a 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 for unlawful payments of dividends or unlawful stock purchase or
redemption by the corporation; or (4) a transaction from which the director
derived an improper personal benefit.
I, THE UNDERSIGNED, for the purpose of forming a Corporation under the
laws of the State of Delaware, do make, file and record this Certificate and do
certify that the facts herein are true; and I have accordingly hereunto set my
hand.
DATED: January 2, 1998 /s/ Regina Cephas
Regina Cephas
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
WAN SECURE, INC.
----------------------------
WAN SECURE, INC., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation at a meeting duly
convened and held, adopted the following resolution:
RESOLVED that the Board of Directors hereby declares it advisable and in
the best interest of the Company that Article Fourth of the Certificate of
Incorporation be amended to read as follows:
FOURTH: The total number of shares of stock which this corporation is
authorized to issue is:
Five Million (5,000,000) shares with a par value of One Cent ($.01) per
share, amounting to Fifty Thousand Dollars ($50,000.00).
SECOND: That the said amendment has been consented to and authorized by
the holders of a majority of the issued and outstanding stock entitled to vote
by written consent given in accordance with the provisions of Section 228 of the
General Corporation Law of the State of Delaware.
THIRD: That the aforesaid amendment as duly adopted in accordance with the
applicable provisions of Sections 242 and 228 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, said corporation has caused this Certificate to be
signed by David Paolo this 17 day of August A.D. 1998.
/s/ David Paolo
-----------------------
Authorized Officer
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
OF
WAN SECURE, INC.,
a Delaware corporation,
AND
LOG ON AMERICA, INC.,
a Delaware corporation, being its wholly owned subsidiary
WAN SECURE, INC., a corporation organized and existing under and by virtue
of the General Laws of the State of Delaware, does hereby certify:
FIRST, that WAN SECURE, INC., is the parent corporation of LOG ON AMERICA,
INC., a corporation organized and existing under and by virtue of the General
Laws of the State of Delaware, and is the 100% owner of the 100 shares issued by
LOG ON AMERICA, INC., which corporation had been authorized under its articles
of incorporation to issue 1,000 shares of common stock at $.001 thereof.
SECOND, that the Board of Directors of WAN SECURE, INC., at a special
meeting duly convened and held, adopted the following resolution:
RESOLVED, the Board of Directors hereby declares it advisable and in the
best interest of WAN SECURE, INC., effective immediately, that: LOG ON AMERICA,
INC., as the wholly owned subsidiary of WAN SECURE, INC., be merged into WAN
SECURE, INC., its parent, which surviving corporation shall assume all of the
obligations and assert ownership in all the property of LOG ON AMERICA, INC.;
that the 100 issued shares of LOG ON AMERICA, INC., owned by WAN SECURE, INC.,
being 100% of the issued shares of LOG ON AMERICA, INC., be surrendered and
canceled; that 100% of the authorized shares of LOG ON AMERICA, INC., be voided
and thereby be incapable of issuance at any time; that the name of WAN SECURE,
INC., as the surviving corporation, be changed to LOG ON AMERICA, INC.; that
upon surrender of shares previously issued by WAN SECURE, INC., which surviving
corporation shall be henceforth known as LOG ON AMERICA, INC., it shall provide
its shareholders with replacement shares on a pro rata basis so as to reflect
the change of name from WAN SECURE, INC., to LOG ON AMERICA, INC.; and, that its
president and secretary, jointly or singly, take such action as each or both
deem necessary to effectuate the resolutions of the board of directors and be
and are, jointly or singly, authorized to execute any and all documents as each
or both deem necessary to effectuate said resolutions.
A copy of said Resolution having been adopted on September 15, 1998, is
attached hereto and incorporated by reference.
<PAGE>
THIRD, That said certificate of ownership and merger has been unanimously
consented to and authorized by the board of directors of WAN SECURE, INC., in
accordance with the provisions of the General Laws of the State of Delaware.
IN WITNESS WHEREOF, WAN SECURE, INC., HAS CAUSED THIS CERTIFICATE OF
OWNERSHIP AND MERGER TO BE SIGNED BY DAVID R. PAOLO, ITS PRESIDENT, AND RAYMOND
E. PAOLO, ITS SECRETARY, ON THIS 2th DAY OF OCTOBER 1998.
/s/ David R. Paolo
-------------------------------
David R. Paolo, President,
being a duly Authorized Officer
/s/ Raymond E. Paolo
-------------------------------
Raymond E. Paolo, Secretary,
being a duly Authorized Officer
Subscribed and sworn to before me this 2th day of October 1998.
/s/ [ILLEGIBLE]
-------------------------------
Notary Public:
My Commission Expires: 9/22/2001
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF LOG ON AMERICA, INC.
Log On America, Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, does hereby
certify:
FIRST: That the Board of Directors of said corporation at a meeting duly
convened and held, adopted the following resolution:
RESOLVED that the Board of Directors hereby declares it
advisable and in the best interest of the Company that Article Fourth of
the Certificate of Incorporation be amended to read as follows:
FOURTH: The total number of shares of stock which this
corporation is authorized to issue is: Twenty Million (20,000,000) shares
with a par value on One Cent ($.01) par share, amounting to Two Hundred
Thousand Dollars ($200,000.00).
SECOND: That the said amendment has been unanimously consented to and
authorized by the holders of the issued and outstanding stock entitled to vote
by written consent given in accordance with the provisions Section 228 of the
General Corporation Law of the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
applicable provisions of Sections 242 and 228 of the General Corporation Laws of
the State of Delaware.
IN WITNESS WHEREOF, said corporation has caused this Certificate to be
signed by David R. Paolo, its President and Raymond E. Paolo, its Treasurer, on
this 22nd of August 1998.
/s/ David R. Paolo
-------------------------------
David R. Paolo, President,
Authorized Officer
/s/ Raymond E. Paolo
-------------------------------
Raymond E. Paolo, Treasurer
Authorized Officer
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
LOG ON AMERICA, INC.
Adopted in accordance with the provisions
of Section 242 of the General Corporation
Law of the State of Delaware
David R. Paolo and Raymond E. Paolo, the president and secretary
respectively, of Log On America, Inc. ("Corporation"), a corporation existing
under the laws of the State of Delaware do hereby certify as follows:
FIRST: That the Certificate of Incorporation, of said Corporation has been
amended as follows:
1. By striking out the whole of Article SEVENTH thereof as it now exists
and inserting in lieu thereof a new Article SEVENTH to read in its entirety as
follows:
SEVENTH: No director of the Corporation shall be liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law ("DGCL"),
or (iv) for any transaction from which the director derived an improper personal
benefit. If the DGCL is hereafter amended to authorize corporate action further
limiting or eliminating the personal liability of directors, then the liability
of a director to the Corporation shall be limited or eliminated to the fullest
extent permitted by the DGCL, as so amended from time to time. No repeal or
modification of this ARTICLE SEVENTH, directly or by adoption of an inconsistent
provision of this Certificate of Incorporation by the stockholders of the
Corporation shall be effective with respect to any cause of action, suit, claim
or other matter, that, but for this ARTICLE SEVENTH, would accrue or arise prior
to such repeal or modification.
2. By adding a new ARTICLE EIGHTH and ARTICLE NINTH to read in their
entirety as follows:
EIGHTH: The Corporation shall, to the fullest extent permitted by Section
145 of the DGCL, as the same may be amended and supplemented, indemnify any and
all persons whom it shall have power to indemnify under said section
("Indemnitee") from and against any and all of the expenses, liabilities or
other matters referred to in or covered by said section, and the indemnification
provided for herein 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
official capacity and as to action in another capacity while holding such
office,
<PAGE>
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. The Corporation shall pay in advance of the
final disposition of such Indemnitee upon the receipt of an undertaking by or on
behalf of such Indemnitee to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the Corporation as
authorized in this ARTICLE EIGHTH.
NINTH: The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability, or loss, whether or not the Corporation
would have the power to indemnity such person against such expense, liability or
loss under the DGCL.
SECOND: That such amendment has been duly adopted in accordance with the
provisions of Section 242 of the DGCL by obtaining the written consent of the
holders of the majority of the stock of Log On America, Inc. entitled to vote at
a meeting of stockholders pursuant to Section 228 of the DGCL.
IN WITNESS WHEREOF, we, the undersigned, have executed and subscribed this
certificate this 4 day of January, 1999.
/s/ David R. Paolo
----------------------------
David R. Paolo, President
ATTEST:
/s/ Raymond E. Paolo
- ---------------------------
Raymond E. Paolo, Secretary
EMPLOYMENT AGREEMENT
This Amendment No. 1 to Employment Agreement ("Agreement") is entered into and
made effective as of January 12, 1998, by and among Log On America, Inc., a
Delaware corporation, WAN Secure, Inc. a Delaware corporation ("Employer") and
David R. Paolo ("Employee").
R E C I T A L S
WHEREAS, Employer and Employee have entered into a certain Employment Agreement,
dated as of January 3, 1997, and Employer and Employee desire to enter into this
Agreement in order to restate such Employment Agreement in its entirety, as set
forth below; WHEREAS, Employer is desirous of hiring Employee as one of its key
employees; WHEREAS, Employee is willing to accept employment as an employee of
Employer; and WHEREAS, the parties hereto desire to delineate the
responsibilities of Employee and the expectations of Employer;
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants and obligations herein contained, the parties hereto agree as follows:
AGREEMENT
1. EMPLOYMENT. Employer hereby employs Employee, and Employee hereby accepts
employment with Employer, upon the terms and conditions set forth in this
Agreement.
2. TERM OF EMPLOYMENT. The employment of Employee pursuant to the terms of
this Agreement shall commence as of January 12, 1998, and shall continue
for a period of Six (6) years, unless sooner terminated pursuant to the
provisions hereof; PROVIDED, HOWEVER, that this Agreement shall, unless
earlier terminated, as of the fifteenth of each month of the term of this
Agreement, be automatically extended for an additional month.
3. DUTIES.
3.1. BASIC DUTIES. Subject to the direction and control of the Board of
Directors of Employer, Employee shall serve as the President and
Chief Executive Officer of Employer and shall fulfill all duties and
obligations of such office.
3.2. OTHER DUTIES OF EMPLOYEE. In addition to the foregoing, Employee
shall perform such other or different duties related to those set
forth in Paragraph 3.1 as may be assigned to him from time to time
by Employer; PROVIDED, HOWEVER, that any such additional assignment
shall be at a level of responsibility commensurate with that set
forth in Paragraph 3.1 and PROVIDED, FURTHER, that Employee may
serve, or continue to serve, on the boards of directors of and hold
any other offices or positions in, companies or entities that in the
judgment of Employer will not present any conflict of interest with
Employer or any of its operations or adversely affect the
performance of Employee's duties pursuant to this Agreement.
3.3. TIME DEVOTED TO EMPLOYMENT. Employee shall devote his full time to
the business of Employer during the term of this Agreement to
fulfill his obligations hereunder.
<PAGE>
3.4. PLACE OF PERFORMANCE OF DUTIES. The services of Employee shall be
performed at Employer's place of business and at such other
locations as shall be designated from time to time by Employer.
4. COMPENSATION AND METHOD OF PAYMENT.
4.1 TOTAL COMPENSATION. As compensation under this Agreement, Employer
shall pay and Employee shall accept the following:
(1) For each year of this Agreement, measured from the effective
date hereof, base compensation of nine one thousand five
hundred dollars ($91,500), increased to one hundred twenty
four thousand five hundred dollars ($124,500) immediately upon
adequate funding and further increased annually by ten percent
(10%) per year, plus such additional increases as may be
approved from time to time by the Board of Directors of
Employer. All such increases shall be effective as of the
beginning of such calendar year in which the increase becomes
effective pursuant to the terms hereof or is approved by the
Board of Directors, as the case may be. Such adjustments may
be based on the performance of Employer, the value of Employee
to Employer or any other factors considered relevant by
Employer.
(2) For each year:
(i) an income performance based bonus ("Income Performance
Bonus"), payable quarterly, as stated in the 1998
management incentive plan
(3) Reimbursement of such discretionary expenses as are reasonable
and necessary, in the judgment of the Board of Directors, for
Employee's performance of his responsibilities under this
Agreement.
(4) Nonqualified options as described in the 1998 employee stock
option plan.
(5) Participation in Employer's employee fringe benefit programs
in effect from time to time for employees at comparable levels
of responsibility. Participation will be in accordance with
any applicable policies adopted by Employer. Employee shall be
entitled to vacations, absences for illness, and to similar
benefits of employment, and shall be subject to such policies
and procedures as may be adopted by Employer. Without limiting
the generality of the foregoing, it is initially anticipated
that such benefits of employment shall include four (4) weeks'
vacation during each 12-month period of employment with
Employer (which shall accrue monthly on a PRO RATA basis and
which shall be carried forward for a period not to exceed
three (3) years and otherwise in accordance with Employer's
policies); major medical and health insurance; life and
disability insurance; and stock option plans for employees and
members of the Board of Directors. Employer further agrees
that in the event it offers disability insurance to its
employees, Employer shall arrange for Employee to be covered
by similar insurance.
<PAGE>
(6) In addition, Employee shall be entitled to: (a) a car
allowance of $650 per month, (b) a club membership expense
allowance of $450 per month, the reasonable cost of premiums
for a whole life insurance policy with a death benefit of one
million dollars ($1,000,000), and (d) if for any reason
Employee shall not be covered by a health insurance policy of
Employer, a medical insurance coverage expense allowance of
$800 per month.
(7) In the event of a Change of Control of Employer (as such term
is defined in Section 4.3(2) hereof), Employee shall be
entitled to receive the balance of the unpaid base
compensation ("Unpaid Base Compensation") which would
otherwise be payable to Employee during the remainder of the
term of this Agreement pursuant to Section 4.1(1) hereof
within thirty (30) days of the date of such Change of Control
and any and all options granted to Employee pursuant to
Section 4.1(4) hereof and otherwise shall vest immediately
upon the date of such Change of Control; PROVIDED, HOWEVER, in
the event of such Change of Control of Employer, the term of
this Agreement shall automatically be extended to a period of
five (5) years from the date of such Change of Control of
Employer for purposes of this Section 4.1(7).
4.2 PAYMENT OF COMPENSATION. Employer shall pay the compensation
provided for in Section 4.1 hereof as follows:
(1) Employer shall pay the base compensation in cash in fifty-two
equal installments or in accordance with Employer's payroll
practices for all its employees, but in no event less
frequently than bi-monthly.
(2) Employer shall pay all Incentive Compensation in cash or in
securities ("Securities") issued by Employer, which shall be
at the sole election of Employee, to a Deferred Compensation
Trust, to be established by Employer in the form provided in
Exhibit "B" hereto. With respect to each year, Employee shall,
on or before the beginning of such year, inform Employer in
writing of the percentage of Incentive Compensation which
shall be paid in cash and of the percentage thereof which
shall be paid in Securities to the Deferred Compensation
Trust.
(3) Employer shall pay in cash the reimbursement of such
discretionary expenses provided in Section 4.1(3) hereof.
4.3 AMOUNTS PAID TO THE DEFERRED COMPENSATION TRUST
(1) The amount of Incentive Compensation paid by the Company to
the Deferred Compensation Trust may not be subject in any
manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment or garnishment by
creditors of Employee or his beneficiaries, and Employee has
only the status of a general unsecured creditor of the Company
as to the amounts of Incentive Compensation paid pursuant to
this Agreement.
<PAGE>
(2) The total of Incentive Compensation paid to the Deferred
Compensation Trust pursuant to this Agreement will be
distributed to Employee therefrom in a lump sum on the
occurrence of the earliest of the following:
(a) Employee's termination of service because of death,
disability, or termination of employment;
(b) Employee's attainment of the age of sixty-five (65)
years; or
(c) A Change of Control of Employer. For all purposes of
this Agreement, a "Change of Control" shall mean: (i)
the acquisition by any person, entity or group of
persons, within the meaning of Section 13(d) or 14(d),
or any comparable successor provisions, of the
Securities Exchange Act of 1934 (the "Act") of
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Act) of at least twenty-five
percent (25%) of either the outstanding shares of common
stock or the combined voting power of Employer's then
outstanding voting securities entitled to vote
generally, or (ii) the approval by the stockholders of
Employer of a reorganization, merger or consolidation,
in which persons who were stockholders of Employer
immediately prior to such reorganization, merger or
consolidation do not, immediately thereafter, own or
control more than fifty percent (50%) of the combined
voting power entitled to vote generally in the election
of directors of the surviving corporation of such
reorganization merger or consolidation, or a liquidation
or dissolution of Employer or of the sale of all or
substantially all of Employer's assets, or (iii) in the
event Employer terminates Employee pursuant to this
Agreement for any reason other than the occurrence of
any of the events set forth in Sections 5.2(2), (3),
(4), (6), (7) or (9) hereof, or (iv) in the event any
person shall be elected by the stockholders of Employer
to the Board of Directors of Employer who shall not have
been nominated for election by a majority of the Board
of Directors of Employer or any duly appointed committee
thereof
5. TERMINATION OF AGREEMENT.
5.1. BY NOTICE. This Agreement, and the employment of Employee hereunder,
may be terminated by Employee or Employer upon ninety (90) days'
written notice of termination; PROVIDED, HOWEVER, in the event
Employer terminates this Agreement for any reason other than the
occurrence of any of the events set forth in Sections 5.2(2), (3),
(4), (6), (7) or (9), and subject to Section 4.1(7) hereof. Employee
shall be entitled to receive the balance of the unpaid base salary
which would otherwise be payable to Employer during the remainder of
the term of this Agreement pursuant to Sections 4.1(1) and 4.1(6)
hereof within thirty (30) days after such ninety (90) day notice
period.
<PAGE>
5.2. OTHER TERMINATION. This Agreement, and the employment of Employee
hereunder, shall terminate immediately upon the occurrence of any
one of the following events:
(1) The death or mental or physical incapacity of Employee.
(2) The loss by Employee of legal capacity (other than as
described in Section 5.2(1) hereof).
(3) The failure by Employee to devote substantially all of his
available professional time to the business of Employer or the
willful and habitual neglect of duties.
(4) The willful engaging by Employee in an act of dishonesty
constituting a felony under the laws of the state in which
Employer's principal place of business is located, resulting
or intending to result in gain or personal enrichment at the
expense of Employer or to the detriment of Employer's business
and to which Employee is not legally entitled.
(5) The continued incapacity in excess of one hundred eighty (180)
days on the part of Employee to perform his duties, unless
waived by Employer.
(6) The mutual written agreement of Employee and Employer.
(7) The expiration of the term of this Agreement.
(8) The involuntary termination of Employee as a director of
Employer.
(9) Employee's breach of this Agreement.
5.3 EFFECT OF TERMINATION BY REASON OF DEATH OR INCAPACITY. In the event
of the termination of Employee's employment pursuant to Sections
5.2(1) or (5) of this Agreement prior to the completion of the term
of employment specified herein, and subject to Section 4.1(7)
hereof, Employee shall be entitled to receive the balance of the
unpaid compensation (including any Incentive Compensation pursuant
to Section 4.4 hereof) which is not covered by disability or other
insurance and which would otherwise be payable to Employee during
the term of this Agreement pursuant to Section 4.1(1) hereof within
60 days after such termination.
5.4. REMEDIES. No termination of the employment of Employee pursuant to
the terms of this Agreement shall prejudice any other remedy to
which any party to this Agreement may be entitled either at law, in
equity, or under this Agreement.
6. PROPERTY RIGHTS AND OBLIGATIONS OF EMPLOYEE.
6.1. TRADE SECRETS. For purposes of this Agreement, "trade secrets" shall
include without limitation any and all financial, cost and pricing
information and any and all information contained in any drawings,
designs, plans, proposals, customer lists, records of any kind,
data, formulas, specifications, concepts or ideas, where such
information is reasonably related to the business of Employer and
has not previously been publicly released by duly authorized
representatives of Employer or Parent or otherwise lawfully entered
the public domain.
<PAGE>
6.2. PRESERVATION OF TRADE SECRETS. Employee will preserve as
confidential all trade secrets pertaining to Employer's business
that have been or may be obtained or learned by him by reason of his
employment or otherwise. Employee will not, without the written
consent of Employer, either use for his own benefit or purposes or
disclose or permit disclosure to any third parties, either during
the term of his employment hereunder or thereafter (except as
required in fulfilling the duties of his employment), any trade
secret connected with the business of Employer.
6.3. TRADE SECRETS OF OTHERS. Employee agrees that he will not disclose
to Employer or induce Employer to use any trade secrets belonging to
any third party.
6.4. PROPERTY OF EMPLOYER. Employee agrees that all documents, reports,
files, analyses, drawings, designs, tools, equipment, plans
(including, without limitation, marketing and sales plans),
proposals, customer lists, computer software or hardware, and
similar materials that are made by him or come into his possession
by reason of his employment with Employer are the property of
Employer and shall not be used by him in any way adverse to
Employer's interests. Employee will not allow any such documents or
things, or any copies, reproductions or summaries thereof to be
delivered to or used by any third party without the specific consent
of Employer. Employee agrees to deliver to the Board of Directors of
Employer or its designee, upon demand, and in any event upon the
termination of Employee's employment, all of such documents and
things which are in Employee's possession or under his control.
6.5 NONCOMPETITION BY EMPLOYEE. During the term of this Agreement, and
for a period of one (1) year following the termination of this
Agreement, Employee shall not, directly or indirectly, either as an
employee, employer, consultant, agent, principal, partner, principal
stockholder, corporate officer, director, or in any other individual
or representative capacity: (i) engage or participate in any
business that is in competition in any manner with the business of
Employer; (ii) divert, take away or attempt to divert or take away
(and during the one year period, call on or solicit) any of
Employer's clients within the United States. For purposes of this
Agreement, the term "Employer's clients" shall mean clients who had
a business relationship with Employer prior to Employee's employment
with Employer and those who develop a business relationship with
Employer, during Employee's employment with Employer; (iii)
undertake planning for or organization of any business within the
United States or in any other country in which Employer is engaged
in business activity competitive with Employer's business within the
United States or in any other country in which Employer is engaged
in business or combine or conspire with employees or other
representative of Employer's business within the United States or in
any other country in which Employer is engaged in business for the
purpose of organizing any such competitive activity within the
United States or in any other country in which Employer is engaged
in business; or (iv) induce or influence (or seek to induce or
influence) any person who is engaged, as an employee, agent,
independent contractor or otherwise by Employer within the United
States or in any other country in which Employer is engaged in
business to terminate his or her employment or engagement.
<PAGE>
6.6 SURVIVAL PROVISIONS AND CERTAIN REMEDIES. Unless otherwise agreed to
in writing between the parties hereto, the provisions of this
Section 6 shall survive the termination of this Agreement. The
covenants in this Section 6 shall be construed as separate covenants
and to the extent any covenant shall be judicially unenforceable, it
shall not affect the enforcement of any other covenant. In the event
Employee breaches any of the provisions of this Section 6, Employee
agrees that Employer shall be entitled to injunctive relief in
addition to any other remedy to which Employer may be entitled.
7. GENERAL PROVISIONS.
7.1. NOTICES. Any notices or other communications required or permitted
to be given hereunder shall be given sufficiently only if in writing
and served personally or sent by certified mail, postage prepaid and
return receipt requested, addressed as follows:
If to Employer: Log On America, Inc.
3 Regency Plaza
Providence, RI 02903
Attn: Raymond E. Paolo
Tel: 401-453-6100 Ext: 2
Fax: 401-459-6222
If to Employee: David R. Paolo
6 Juniper Lane
Johnston, RI 02903
Tel: 401-459-6299
Fax: 401-459-6222
However, either party may change his/its address for purposes of this Agreement
by giving written notice of such change to the other party in accordance with
this Paragraph 7.1. Notices delivered personally shall be deemed effective as of
the day delivered and notices delivered by mail shall be deemed effective as of
three days after mailing (excluding weekends and federal holidays).
7.2. CHOICE OF LAW AND FORUM. Except as expressly provided otherwise in
this Agreement, this Agreement shall be governed by and construed in
accordance with the laws of the State of Rhode Island. The parties
agree that any dispute arising under this Agreement, whether during
the term of this Agreement or at any subsequent time, shall be
resolved exclusively in the courts of the State of Rhode Island and
the parties hereby submit to the jurisdiction of such courts for all
purposes provided herein and appoint the Secretary of State of the
State of Rhode Island as agent for service of process for all
purposes provided herein.
<PAGE>
7.3. ENTIRE AGREEMENT; MODIFICATION AND WAIVER, This Agreement supersedes
any and all other agreements, whether oral or in writing, between
the parties hereto with respect to the employment of Employee by
Employer and contains all covenants and agreements between the
parties relating to such employment in any manner whatsoever. Each
party to this Agreement acknowledges that no representations,
inducements, promises, or agreements, oral or written, have been
made by any party, or anyone acting on behalf of any party, which
are not embodied herein, and that no other agreement, statement, or
promise not contained in this Agreement shall be valid or binding.
Any modification of this Agreement shall be effective only if it is
in writing signed by the party to be charged. No waiver of any of
the provisions of this Agreement shall be deemed, or shall
constitute, a waiver of any other provision, whether or not similar,
nor shall any waiver constitute a continuing waiver. No waiver shall
be binding unless executed in writing by the party making the
waiver.
7.4. ASSIGNMENT. Because of the personal nature of the services to be
rendered hereunder, this Agreement may not be assigned in whole or
in part by Employee without the prior written consent of Employer.
However, subject to the foregoing limitation, this Agreement shall
be binding on, and shall inure to the benefit of, the parties hereto
and their respective heirs, legatees, executors, administrators,
legal representatives, successors and assigns.
7.5. SEVERABILITY. If for any reason whatsoever, any one or more of the
provisions of this Agreement shall be held or deemed to be
inoperative, unenforceable, or invalid as applied to any particular
case or in all cases, such circumstances shall not have the effect
of rendering any such provision inoperative, unenforceable, or
invalid in any other case or of rendering any of the other
provisions of this Agreement inoperative, unenforceable or invalid.
7.6 CORPORATE AUTHORITY. Employer represents and warrants as of the date
hereof that Employer's execution and delivery of this Agreement to
Employee and the carrying out of the provisions hereof have been
duly authorized by Employer's Board of Directors and authorized by
Employer's shareholders and further represents and warrants that
neither the execution and delivery of this Agreement, nor the
compliance with the terms and provisions thereof by Employer will
result in the breach of any state regulation, administrative or
court order, nor will such compliance conflict with, or result in
the breach of, any of the terms or conditions of Employer's Articles
of Incorporation or Bylaws, as amended, or any agreement or other
instrument to which Employer is a party, or by which Employer is or
may be bound, or constitute an event of default thereunder, or with
the lapse of time or the giving of notice or both constitute an
event of default thereunder.
7.7. ATTORNEYS' FEES. In any action at law or in equity to enforce or
construe any provisions or rights under this Agreement, the
unsuccessful party or parties to such litigation, as determined by
the courts pursuant to a final judgment or decree, shall pay the
successful party or parties all costs, expenses, and reasonable
attorneys' fees incurred by such successful party or parties
(including, without limitation, such costs, expenses, and fees on
any appeals), and if such successful party or parties shall recover
judgment in any such action or proceedings, such costs, expenses,
and attorneys' fees shall be included as part of such judgement.
<PAGE>
7.8. COUNTERPARTS. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
7.9. HEADINGS AND CAPTIONS. Headings and captions are included for
purposes of convenience only and are not a part hereof.
7.10. CONSULTATION WITH COUNSEL. Employee acknowledges that he has had the
opportunity to consult with counsel independent of Employer or
Employer's counsel, Fredrick Stolle Esq., regarding the entering
into of this Agreement and has done so to the extent he sees fit.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as
of the day and year first written above at Providence, Rhode Island.
"Employer"
Log On America, Inc.,
a Delaware corporation
By: /s/ Raymond E. Paolo 1/12/98
----------------------
Raymond E. Paolo
Chief Financial Officer
"Employer"
WAN Secure, Inc.,
a Delaware corporation
By: /s/ Raymond E. Paolo 1/12/98
----------------------
Raymond E. Paolo
Chief Financial Officer
"Employee"
By: /s/ David R. Paolo 1/12/98
----------------------
David R. Paolo
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into and made effective as of
January 1, 1999, by and between Log On America, Inc., a Delaware corporation
("Employer") and Raymond E. Paolo ("Employee").
R E C I T A L S
WHEREAS, Employer and Employee have entered into a certain Employment Agreement,
dated as of January 12, 1998 by and among the Employer, the Employee and Wan
Secure, Inc., and Employer and Employee desire to enter into this Agreement in
order to restate such Employment Agreement in its entirety, as set forth below;
WHEREAS, Employer is desirous of hiring Employee as one of its key employees;
WHEREAS, Employee is willing to accept employment as an employee of Employer;
and WHEREAS, the parties hereto desire to delineate the responsibilities of
Employee and the expectations of Employer;
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants and obligations herein contained, the parties hereto agree as follows:
AGREEMENT
1. EMPLOYMENT. Employer hereby employs Employee, and Employee hereby accepts
employment with Employer, upon the terms and conditions set forth in this
Agreement.
2. TERM OF EMPLOYMENT. The employment of Employee pursuant to the terms of
this Agreement shall commence as of January 12, 1998, and shall continue
for a period of six (6) years, unless sooner terminated pursuant to the
provisions hereof; PROVIDED, HOWEVER, that this Agreement shall, unless
earlier terminated, as of the fifteenth of each month of the term of this
Agreement, be automatically extended for an additional month.
3. DUTIES.
3.1. BASIC DUTIES. Subject to the direction and control of the Board of
Directors of Employer, Employee shall serve as the Vice President of
Administration, Secretary and Treasurer of Employer and shall
fulfill all duties and obligations of such office.
3.2. OTHER DUTIES OF EMPLOYEE. In addition to the foregoing, Employee
shall perform such other or different duties related to those set
forth in Paragraph 3.1 as may be assigned to him from time to time
by Employer; PROVIDED, HOWEVER, that any such additional assignment
shall be at a level of responsibility commensurate with that set
forth in Paragraph 3.1 and PROVIDED, FURTHER, that Employee may
serve, or continue to serve, on the boards of directors of, and hold
any other offices or positions in, companies or entities that in the
judgment of Employer will not present any conflict of interest with
Employer or any of its operations or adversely affect the
performance of Employee's duties pursuant to this Agreement.
3.3. TIME DEVOTED TO EMPLOYMENT. Employee shall devote his full time to
the business of Employer during the term of this Agreement to
fulfill his obligations hereunder.
<PAGE>
3.4. PLACE OF PERFORMANCE OF DUTIES. The services of Employee shall be
performed at Employer's place of business and at such other
locations as shall be designated from time to time by Employer.
4. COMPENSATION AND METHOD OF PAYMENT.
4.1 TOTAL COMPENSATION. As compensation under this Agreement, Employer
shall pay and Employee shall accept the following:
(1) For each year of this Agreement, measured from the effective
date hereof, base compensation of fifty one thousand five
hundred dollars ($51,500), increased to Sixty Nine thousand
five hundred dollars ($69,500) immediately upon adequate
funding and further increased annually by ten percent (10%)
per year, plus such additional increases as may be approved
from time to time by the Board of Directors of Employer. All
such increases shall be effective as of the beginning of such
calendar year in which the increase becomes effective pursuant
to the terms hereof or is approved by the Board of Directors,
as the case may be. Such adjustments may be based on the
performance of Employer, the value of Employee to Employer or
any other factors considered relevant by Employer.
(2) For each year:
(i) an income performance based bonus ("Income Performance
Bonus"), payable quarterly, as stated in the 1998
management incentive plan
(3) Reimbursement of such discretionary expenses as are reasonable
and necessary, in the judgment of the Board of Directors, for
Employee's performance of his responsibilities under this
Agreement.
(4) Nonqualified options as described in the 1999 employee stock
option plan.
(5) Participation in Employer's employee fringe benefit programs
in effect from time to time for employees at comparable levels
of responsibility. Participation will be in accordance with
any applicable policies adopted by Employer. Employee shall be
entitled to vacations, absences for illness, and to similar
benefits of employment, and shall be subject to such policies
and procedures as may be adopted by Employer. Without limiting
the generality of the foregoing, it is initially anticipated
that such benefits of employment shall include four (4) weeks'
vacation during each 12-month period of employment with
Employer (which shall accrue monthly on a PRO RATA basis and
which shall be carried forward for a period not to exceed
three (3) years and otherwise in accordance with Employer's
policies); major medical and health insurance; life and
disability insurance; and stock option plans for employees and
members of the Board of Directors. Employer further agrees
that in the event it offers disability insurance to its
employees, Employer shall arrange for Employee to be covered
by similar insurance.
<PAGE>
(6) In addition, Employee shall be entitled to: (a) a car
allowance of $450 per month (b) if for any reason Employee
shall not be covered by a health insurance policy of Employer,
a medical insurance coverage expense allowance of $800 per
month.
(7) In the event of a Change of Control of Employer (as such term
is defined in Section 4.3(2) hereof), Employee shall be
entitled to receive the balance of the unpaid base
compensation ("Unpaid Base Compensation") which would
otherwise be payable to Employee during the remainder of the
term of this Agreement pursuant to Section 4.1(1) hereof
within thirty (30) days of the date of such Change of Control
and any and all options granted to Employee pursuant to
Section 4.1(4) hereof and otherwise shall vest immediately
upon the date of such Change of Control; PROVIDED, HOWEVER, in
the event of such Change of Control of Employer, the term of
this Agreement shall automatically be extended to a period of
five (5) years from the date of such Change of Control of
Employer for purposes of this Section 4.1(7).
4.2 PAYMENT OF COMPENSATION. Employer shall pay the compensation provided for
in Section 4.1 hereof as follows:
(1) Employer shall pay the base compensation in cash in fifty-two equal
installments or in accordance with Employer's payroll practices for
all its employees, but in no event less frequently than bi-monthly.
(2) Employer shall pay all Incentive Compensation in cash or in
securities ("Securities") issued by Employer, which shall be at the
sole election of Employee, to a Deferred Compensation Trust, to be
established by Employer in the form provided in Exhibit "B" hereto.
With respect to each year, Employee shall, on or before the
beginning of such year, inform Employer in writing of the percentage
of Incentive Compensation which shall be paid in cash and of the
percentage thereof which shall be paid in Securities to the Deferred
Compensation Trust.
(3) Employer shall pay in cash the reimbursement of such discretionary
expenses provided in Section 4.1(3) hereof.
4.3 AMOUNTS PAID TO THE DEFERRED COMPENSATION TRUST
(1) The amount of Incentive Compensation paid by the Company to the
Deferred Compensation Trust may not be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, attachment or garnishment by creditors of Employee or
his beneficiaries, and Employee has only the status of a general
unsecured creditor of the Company as to the amounts of Incentive
Compensation paid pursuant to this Agreement.
<PAGE>
(2) The total of Incentive Compensation paid to the Deferred
Compensation Trust pursuant to this Agreement will be distributed to
Employee therefrom in a lump sum on the occurrence of the earliest
of the following:
(a) Employee's termination of service because of death,
disability, or termination of employment;
(b) Employee's attainment of the age of sixty-five (65) years; or
(c) A Change of Control of Employer. For all purposes of this
Agreement, a "Change of Control" shall mean: (i) the
acquisition by any person, entity or group of persons, within
the meaning of Section 13(d) or 14(d), or any comparable
successor provisions, of the Securities Exchange Act of 1934
(the "Act") of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Act) of at least twenty-five
percent (25%) of either the outstanding shares of common stock
or the combined voting power of Employer's then outstanding
voting securities entitled to vote generally, or (ii) the
approval by the stockholders of Employer of a reorganization,
merger or consolidation, in which persons who were
stockholders of Employer immediately prior to such
reorganization, merger or consolidation do not, immediately
thereafter, own or control more than fifty percent (50%) of
the combined voting power entitled to vote generally in the
election of directors of the surviving corporation of such
reorganization merger or consolidation, or a liquidation or
dissolution of Employer or of the sale of all or substantially
all of Employer's assets, or (iii) in the event Employer
terminates Employee pursuant to this Agreement for any reason
other than the occurrence of any of the events set forth in
Sections 5.2(2),(3),(4),(6), (7) or (9) hereof, or (iv) in the
event any person shall be elected by the stockholders of
Employer to the Board of Directors of Employer who shall not
have been nominated for election by a majority of the Board of
Directors of Employer or any duly appointed committee thereof
5. TERMINATION OF AGREEMENT.
5.1. BY NOTICE. This Agreement, and the employment of Employee hereunder,
may be terminated by Employee or Employer upon ninety (90) days'
written notice of termination; PROVIDED, HOWEVER, in the event
Employer terminates this Agreement for any reason other than the
occurrence of any of the events set forth in Sections 5.2 (2), (3),
(4), (6), (7) or (9), and subject to Section 4.1(7) hereof, Employee
shall be entitled to receive the balance of the unpaid base salary
which would otherwise be payable to Employer during the remainder of
the term of this Agreement pursuant to Sections 4.1(1) and 4.1(6)
hereof within thirty (30) days after such ninety (90) day notice
period.
<PAGE>
5.2. OTHER TERMINATION. This Agreement, and the employment of Employee
hereunder, shall terminate immediately upon the occurrence of any
one of the following events:
(1) The death or mental or physical incapacity of Employee.
(2) The loss by Employee of legal capacity (other than as
hdescribed in Section 5.2(1) hereof).
(3) The failure by Employee to devote substantially all of his
available professional time to the business of Employer or the
wilful and habitual neglect of duties.
(4) The willful engaging by Employee in an act of dishonesty
constituting a felony under the laws of the state in which
Employer's principal place of business is located, resulting
or intending to result in gain or personal enrichment at the
expense of Employer or to the detriment of Employer's business
and to which Employee is not legally entitled.
(5) The continued incapacity in excess of one hundred eighty (180)
days on the part of Employee to perform his duties, unless
waived by Employer.
(6) The mutual written agreement of Employee and Employer. (7) The
expiration of the term of this Agreement. (8) The involuntary
termination of Employee as a director of Employer. (9)
Employee's breach of this Agreement.
5.3 EFFECT OF TERMINATION BY REASON OF DEATH OR INCAPACITY. In the event
of the termination of Employee's employment pursuant to Sections
5.2(1) or (5) of this Agreement prior to the completion of the term
of employment specified herein, and subject to Section 4.1(7)
hereof, Employee shall be entitled to receive the balance of the
unpaid compensation (including any Incentive Compensation pursuant
to Section 4.4 hereof) which is not covered by disability or other
insurance and which would otherwise be payable to Employee during
the term of this Agreement pursuant to Section 4.1(1) hereof within
60 days after such termination.
5.4. REMEDIES. No termination of the employment of Employee pursuant to
the terms of this Agreement shall prejudice any other remedy to
which any party to this Agreement may be entitled either at law, in
equity, or under this Agreement.
6. PROPERTY RIGHTS AND OBLIGATIONS OF EMPLOYEE.
6.1. TRADE SECRETS. For purposes of this Agreement, "trade secrets" shall
include without limitation any and all financial, cost and pricing
information and any and all information contained in any drawings,
designs, plans, proposals, customer lists, records of any kind,
data, formulas, specifications, concepts or ideas, where such
information is reasonably related to the business of Employer and
has not previously been publicly released by duly authorized
representatives of Employer or Parent or otherwise lawfully entered
the public domain.
<PAGE>
6.2. PRESERVATION OF TRADE SECRETS. Employee will preserve as
confidential all trade secrets pertaining to Employer's business
that have been or may be obtained or learned by him by reason of his
employment or otherwise. Employee will not, without the written
consent of Employer, either use for his own benefit or purposes or
disclose or permit disclosure to any third parties, either during
the term of his employment hereunder or thereafter (except as
required in fulfilling the duties of his employment), any trade
secret connected with the business of Employer.
6.3. TRADE SECRETS OF OTHERS. Employee agrees that he will not disclose
to Employer or induce Employer to use any trade secrets belonging to
any third party.
6.4. PROPERTY OF EMPLOYER. Employee agrees that all documents, reports,
files, analyses, drawings, designs, tools, equipment, plans
(including, without limitation, marketing and sales plans),
proposals, customer lists, computer software or hardware, and
similar materials that are made by him or come into his possession
by reason of his employment with Employer are the property of
Employer and shall not be used by him in any way adverse to
Employer's interests. Employee will not allow any such documents or
things, or any copies, reproductions or summaries thereof to be
delivered to or used by any third party without the specific consent
of Employer. Employee agrees to deliver to the Board of Directors of
Employer or its designee, upon demand, and in any event upon the
termination of Employee's employment, all of such documents and
things which are in Employee's possession or under his control.
6.5 NONCOMPETITION BY EMPLOYEE. During the term of this Agreement, and
for a period of one (1) year following the termination of this
Agreement, Employee shall not, directly or indirectly, either as an
employee, employer, consultant, agent, principal, partner, principal
stockholder, corporate officer, director, or in any other individual
or representative capacity: (i) engage or participate in any
business that is in competition in any manner with the business of
Employer; (ii) divert, take away or attempt to divert or take away
(and during the one year period, call on or solicit) any of
Employer's clients within the United States. For purposes of this
Agreement, the term "Employer's clients" shall mean clients who had
a business relationship with Employer prior to Employee's employment
with Employer and those who develop a business relationship with
Employer, during Employee's employment with Employer; (iii)
undertake planning for or organization of any business within the
United States or in any other country in which Employer is engaged
in business activity competitive with Employer's business within the
United States or in any other country in which Employer is engaged
in business or combine or conspire with employees or other
representative of Employer's business within the United States or in
any other country in which Employer is engaged in business for the
purpose of organizing any such competitive activity within the
United States or in any other country in which Employer is engaged
in business; or (iv) induce or influence (or seek to induce or
influence) any person who is engaged, as an employee, agent,
independent contractor or otherwise by Employer within the United
States or in any other country in which Employer is engaged in
business to terminate his or her employment or engagement.
<PAGE>
6.6 SURVIVAL PROVISIONS AND CERTAIN REMEDIES. Unless otherwise agreed to
in writing between the parties hereto, the provisions of this
Section 6 shall survive the termination of this Agreement. The
covenants in this Section 6 shall be construed as separate covenants
and to the extent any covenant shall be judicially unenforceable, it
shall not affect the enforcement of any other covenant. In the event
Employee breaches any of the provisions of this Section 6, Employee
agrees that Employer shall be entitled to injunctive relief in
addition to any other remedy to which Employer may be entitled.
7. GENERAL PROVISIONS.
7.1. NOTICES. Any notices or other communications required or permitted
to be given hereunder shall be given sufficiently only if in writing
and served personally or sent by certified mail, postage prepaid and
return receipt requested, addressed as follows:
If to Employer: Log On America, Inc.
3 Regency Plaza
Providence, RI 02903
Attn: David R. Paolo
Tel: 401-453-6100 Ext: 1
Fax: 401-459-6222
If to Employee: Raymond E.. Paolo
57 Venice Street
Johnston, RI 02919
Tel: 401-459-6297
Fax: 401-459-6222
However, either party may change his/its address for purposes of this Agreement
by giving written notice of such change to the other party in accordance with
this Paragraph 7.1. Notices delivered personally shall be deemed effective as of
the day delivered and notices delivered by mail shall be deemed effective as of
three days after mailing (excluding weekends and federal holidays).
7.2. CHOICE OF LAW AND FORUM. Except as expressly provided otherwise in
this Agreement, this Agreement shall be governed by and construed in
accordance with the laws of the State of Rhode Island. The parties
agree that any dispute arising under this Agreement, whether during
the term of this Agreement or at any subsequent time, shall be
resolved exclusively in the courts of the State of Rhode Island and
the parties hereby submit to the jurisdiction of such courts for all
purposes provided herein and appoint the Secretary of State of the
State of Rhode Island as agent for service of process for all
purposes provided herein.
<PAGE>
7.3. ENTIRE AGREEMENT; MODIFICATION AND WAIVER. This Agreement supersedes
any and all other agreements, whether oral or in writing, between
the parties hereto with respect to the employment of Employee by
Employer and contains all covenants and agreements between the
parties relating to such employment in any manner whatsoever. Each
party to this Agreement acknowledges that no representations,
inducements, promises, or agreements, oral or written, have been
made by any party, or anyone acting on behalf of any party, which
are not embodied herein, and that no other agreement, statement, or
promise not contained in this Agreement shall be valid or binding.
Any modification of this Agreement shall be effective only if it is
in writing signed by the party to be charged. No waiver of any of
the provisions of this Agreement shall be deemed, or shall
constitute, a waiver of any other provision, whether or not similar,
nor shall any waiver constitute a continuing waiver. No waiver shall
be binding unless executed in writing by the party making the
waiver.
7.4. ASSIGNMENT. Because of the personal nature of the services to be
rendered hereunder, this Agreement may not be assigned in whole or
in part by Employee without the prior written consent of Employer.
However, subject to the foregoing limitation, this Agreement shall
be binding on, and shall inure to the benefit of, the parties hereto
and their respective heirs, legatees, executors, administrators,
legal representatives, successors and assigns.
7.5. SEVERABILITY. If for any reason whatsoever, any one or more of the
provisions of this Agreement shall be held or deemed to be
inoperative, unenforceable, or invalid as applied to any particular
case or in all cases, such circumstances shall not have the effect
of rendering any such provision inoperative, unenforceable, or
invalid in any other case or of rendering any of the other
provisions of this Agreement inoperative, unenforceable or invalid.
7.6 CORPORATE AUTHORITY. Employer represents and warrants as of the date
hereof that Employer's execution and delivery of this Agreement to
Employee and the carrying out of the provisions hereof have been
duly authorized by Employer's Board of Directors and authorized by
Employer's shareholders and further represents and warrants that
neither the execution and delivery of this Agreement, nor the
compliance with the terms and provisions thereof by Employer will
result in the breach of any state regulation, administrative or
court order, nor will such compliance conflict with, or result in
the breach of, any of the terms or conditions of Employer's Articles
of Incorporation or Bylaws, as amended, or any agreement or other
instrument to which Employer is a party, or by which Employer is or
may be bound, or constitute an event of default thereunder, or with
the lapse of time or the giving of notice or both constitute an
event of default thereunder.
7.7. ATTORNEYS' FEES. In any action at law or in equity to enforce or
construe any provisions or rights under this Agreement, the
unsuccessful party or parties to such litigation, as determined by
the courts pursuant to a final judgment or decree, shall pay the
successful party or parties all costs, expenses, and reasonable
attorneys' fees incurred by such successful party or parties
(including, without limitation, such costs, expenses, and fees on
any appeals), and if such successful party or parties shall recover
judgment in any such action or proceedings, such costs, expenses,
and attorneys' fees shall be included as part of such judgment.
7.8. COUNTERPARTS. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
<PAGE>
7.9. HEADINGS AND CAPTIONS. Headings and captions are included for
purposes of convenience only and are not a part hereof.
7.10. CONSULTATION WITH COUNSEL. Employee acknowledges that he has had the
opportunity to consult with counsel independent of Employer or
Employer's counsel, Fredrick Stolle Esq., regarding the entering
into of this Agreement and has done so to the extent he sees fit.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as
of the day and year first written above at Providence, Rhode Island.
"Employer"
Log On America, Inc.,
a Delaware corporation
By: /s/ David R. Paolo
--------------------------
David R. Paolo
President and Chief Executive Officer
"Employee"
By: /s/ Raymond E. Paolo
--------------------------
Raymond E.. Paolo
TAUBER & BALSER, P.C.
Certified Public Accountants
3340 Peachtree Road, N.E.
Suite 250
Atlanta, GA 30326
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Registration Statement on Form S-B2 of our
report dated December 18, 1998, relating to the financial statements of Log On
America, Inc. We also consent to the reference to our firm under the caption
'Experts' in the Prospectus.
/s/ Tauber & Balser, P.C.
Tauber & Balser, P.C.
Atlanta, Georgia
January 7, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 69,911
<SECURITIES> 0
<RECEIVABLES> 91,759
<ALLOWANCES> 4,264
<INVENTORY> 0
<CURRENT-ASSETS> 162,548
<PP&E> 221,280
<DEPRECIATION> 159,157
<TOTAL-ASSETS> 602,204
<CURRENT-LIABILITIES> 442,418
<BONDS> 0
0
0
<COMMON> 18,070
<OTHER-SE> 129,226
<TOTAL-LIABILITY-AND-EQUITY> 602,204
<SALES> 0
<TOTAL-REVENUES> 551,304
<CGS> 228,950
<TOTAL-COSTS> 228,950
<OTHER-EXPENSES> 493,299
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,283
<INCOME-PRETAX> (178,228)
<INCOME-TAX> 0
<INCOME-CONTINUING> (178,228)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (178,228)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
