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REGISTRATION NO. 33-
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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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BIZNESSONLINE.COM, INC.
(Name of small business issuer in its charter)
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DELAWARE 7375 06-1519132
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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MARK E. MUNRO
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
BIZNESSONLINE.COM, INC.
1720 ROUTE 34
WALL, NEW JERSEY 07719
(732) 280-6408
(732) 280-6409 (FAX)
(Address and telephone number of principal executive offices and principal place
of business
and name, address and telephone number of agent for service)
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COPIES TO:
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MICHAEL F. SWEENEY, ESQ. WILLIAM M. PRIFTI, ESQ. RUBI FINKELSTEIN, ESQ.
ROBERT D. EMERSON, ESQ. LYNNFIELD WOODS OFFICE PARK ORRICK, HERRINGTON & SUTCLIFFE,
DUFFY & SWEENEY, LLP 220 BROADWAY, SUITE 204 LLP
300 TURKS HEAD BUILDING LYNNFIELD, MA 01940 30 ROCKEFELLER PLAZA
PROVIDENCE, RI 02903 (781) 593-4525 NEW YORK, NY 10112
(401) 455-0700 (781) 598-5222 (FAX) (212) 506-5000
(401) 455-0701 (FAX) (212) 506-3730 (FAX)
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APPROXIMATE DATE OF COMMENCEMENT 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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /__________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE AGGREGATE OFFERING REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED PRICE(1) FEE(1)
<S> <C> <C> <C>
Common Stock......................................................... 2,300,000 $20,700,000 $5,754.60
Underwriters' Warrants............................................... 200,000 $200 $.06
Common Stock underlying Underwriters' Warrants....................... 200,000 $2,700,000 $750.66
Total Registration Fee............................................... $6,505.26
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457 under the Securities Act
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A),
MAY DETERMINE.
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THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
DATED FEBRUARY , 1999
BIZNESSONLINE.COM, INC.
2,000,000 SHARES OF COMMON STOCK
This is the initial public offering of BiznessOnline.com, Inc.
("BiznessOnline"). We provide dial-up and dedicated Internet access, web site
design and hosting, and e-commerce services to individual and business
subcribers in secondary markets in the northeastern United States such as
Albany, New York and Hartford, Connecticut. We own one Internet service provider
and upon completion of this offering we will acquire four additional Internet
service providers and we will have approximately 20,000 subscribers. This is a
firm commitment underwriting.
We expect the public offering price to be between $7.00 and $9.00 per share.
We are applying to list our common stock on the Nasdaq Small Cap market under
the symbol "BNET" and on the Boston Stock Exchange under the symbol [ ]. No
public market currently exists for the shares.
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE [ ].
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<CAPTION>
PER SHARE TOTAL
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Public Offering Price....................................................... $ $
Underwriting Discounts and Commissions...................................... $ $
Proceeds, Before Expenses, to BiznessOnline................................. $ $
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE DISCLOSURES IN THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
We have granted the Underwriters the right to purchase up to 300,000
additional shares to cover any over-allotments. If the Underwriters exercise
this right in full, the Public Offering Price will total $[ ], the Underwriting
Discounts and Commissions will total $[ ] and the proceeds before expenses to
BiznessOnline will total $[ ]. We expect the closing to occur in New York, New
York, on [ ], 1999.
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SCHNEIDER SECURITIES, INC. JOSEPH STEVENS &
COMPANY, INC.
, 1999
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary........................... 3
Risk Factors................................. 8
Use of Proceeds.............................. 17
Dividend Policy.............................. 17
Capitalization............................... 18
Dilution..................................... 19
Selected Pro Forma Financial Data............ 20
Selected Historical Financial Data for Our
Internet Service Providers................. 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 26
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Business..................................... 36
Management................................... 42
Certain Transactions......................... 48
Principal Stockholders....................... 48
Description of Securities.................... 49
Shares Available for Future Sale............. 51
Underwriting................................. 52
Legal Matters................................ 53
Experts...................................... 54
How to Get More Information.................. 54
Index to Financial Statements................ F-1
</TABLE>
INTRODUCTORY MATTERS
Unless otherwise stated, all of the information in this prospectus:
- Assumes that the Underwriters' over-allotment option and the Underwriters'
warrants are not exercised;
- Assumes an offering price of $8.00 per share which is the midpoint of the
estimated offering price range of $7.00 to $9.00 per share;
- Assumes that the conversion of 70,000 shares of preferred stock into
76,564 shares of our common stock (which occurs automatically upon the
closing of this offering) has occurred and that such common stock is
outstanding;
- Gives effect to a 10,000 for one stock split in the nature of a stock
dividend declared on January 20, 1999 and a 3.147186 for one stock split
which we intend to effect prior to the effective date of this prospectus;
and
- Assumes the issuance of a total of 977,500 shares of our common stock to
the former stockholders of our five Internet service providers discussed
in the following paragraph
On January 31, 1999, we acquired Global 2000 Communications, Inc., an
Internet service provider serving the greater Albany, New York area with
approximately 4,000 individual and business subscribers. Upon the consummation
of this offering, we will acquire four additional Internet service providers
serving Connecticut and northeastern New York and we will have a total of
approximately 20,000 individual and business subscribers. We have accounted for
the acquisition of Global 2000 Communications and we will account for the
acquisition of the additional four Internet service providers as purchases for
financial reporting purposes. When we use the terms "BiznessOnline," "we," and
"our", we are referring to BiznessOnline.com, Inc., Global 2000 Communications,
and the four additional Internet service providers we will acquire at the
consummation of this offering. All references to historical activities of
BiznessOnline refer to historical activities of our five Internet service
providers.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. We intend to identify
forward-looking statements in this prospectus using words such as "believes,"
"intends," "expects," "may," "will," "should," "plan," "projected,"
"contemplates," "anticipates," or similar statements.
These statements are based on our beliefs as well as assumptions we made
using information currently available to us. Because these statements reflect
our current views concerning future events, these statements involve certain
risks, uncertainties and assumptions. Actual future results may differ
significantly from the results discussed in the forward-looking statements. We
do not undertake to update any forward-looking statements that may be made by or
on behalf of us, in this prospectus or otherwise. Some, but not all, of the
factors that may cause such a difference include those discussed in the Risk
Factors section beginning on page [ ] of this prospectus.
2
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PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
IT IS NOT COMPLETE AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE FOLLOWING
SUMMARY TOGETHER WITH THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND
NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS.
BIZNESSONLINE.COM, INC.
We are a new company formed to acquire and operate businesses that provide
Internet access and related services to customers in secondary markets in the
northeastern United States. In January, 1999, we acquired an Internet service
provider serving the greater Albany, New York area with approximately 4,000
individual and business subscribers. Upon the completion of this offering, we
will acquire four additional Internet service providers serving Connecticut and
northeastern New York and we will have a total of approximately 20,000
individual and business subscribers. Our Internet service providers generated
approximately $6.196 million in revenues in 1998 on a consolidated basis.
We provide a full range of Internet services including:
- dial-up Internet access
- high speed dedicated Internet access;
- web site design;
- web site hosting;
- e-commerce;
- banner advertising; and
- locating client servers at our facility.
We provide telephone assistance and on location service to our subscribers.
We also maintain complete back-up systems for our computer operations and our
external Internet access lines.
Our target subscribers include residential and small to medium sized
business customers in secondary markets in the northeastern United States such
as Albany, New York and Hartford, Connecticut. We believe our target subscribers
in these markets have been under-served by many national on-line service
providers which often provide access only through long distance calls. We expect
to continue to grow by:
- acquiring additional Internet service providers in the northeastern United
States;
- increasing our customer support services;
- creating a strong regional brand identity;
- expanding our e-commerce services;
- increasing our sales and marketing staff; and
- offering competitively priced products.
Our executive offices are located at 1720 Route 34, Wall, New Jersey 07719,
and our telephone number is (732) 280-6408. Our world-wide web address is
BiznessOnline.com. Information contained in our web site is not part of this
prospectus.
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KEY FACTS
SHARES OFFERED TO THE PUBLIC:
2,000,000 shares of common stock
OVER-ALLOTMENT OPTION:
Up to 300,000 shares (not included in 2,000,000)
TOTAL SHARES OUTSTANDING PRIOR TO OFFERING:
4,201,250 shares including:
- 3,147,186 shares issued to our founding stockholders;
- 977,500 shares issued to the stockholders of our five Internet service
providers
- 76,564 shares issued to our preferred stock investors
TOTAL SHARES OUTSTANDING AFTER OFFERING:
6,201,250 Shares
TOTAL SHARES OUTSTANDING AFTER OFFERING IF OVER-ALLOTMENT OPTION IS EXERCISED:
6,501,250 shares
PRICE PER SHARE TO PUBLIC:
$8.00
TOTAL PROCEEDS RAISED BY OFFERING:
$16,000,000 (not including over-allotment option)
UNDERWRITERS' FEES:
8.0% of the total proceeds plus a 3% non-accountable expense allowance
EXPENSES OF THE OFFERING:
$1 million
NET PROCEEDS:
$13 million
USE OF PROCEEDS:
$6,310,000 to satisfy the cash/note portion of the purchase price of our five
existing Internet service providers; the balance for working capital and general
corporate purposes
UNDERWRITERS' WARRANTS:
Underwriters will receive warrants to purchase 200,000 shares at an exercise
price of $12.00 (150% of the offering price) exercisable for four (4) years
commencing one (1) year after the offering
AVERAGE PRICE PER SHARE PAID BY CURRENT SHAREHOLDERS:
$1.99
NET TANGIBLE BOOK VALUE AFTER OFFERING:
$7,845,000
NET TANGIBLE BOOK VALUE PER SHARE AFTER OFFERING:
$1.27
PROPOSED MARKETS:
Nasdaq SmallCap Market(SM)--BNET
Boston Stock Exchange--[ ]
UNDERWRITING:
Firm Commitment
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SUMMARY PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following table provides summary pro forma consolidated financial
information for BiznessOnline and the five Internet service providers we will
acquire prior to and at the consummation of the offering based on historical
data for the year ended December 31, 1998. We present the pro forma consolidated
balance sheet data as of December 31, 1998 based on historical data, pro forma
consolidated data and as adjusted for this offering. The pro forma consolidated
statements of operations data for the year ended December 31, 1998 assume that
the acquisition of the five Internet service providers and this offering were
consummated on January 1, 1998. The pro forma consolidated balance sheet data
assumes that the acquisitions of the five Internet service providers were
consummated on December 31, 1998. The summary pro forma financial data do not
necessarily indicate the operating results or financial position which would
have resulted from the operation of BiznessOnline on a consolidated basis during
the period presented, nor does this pro forma data necessarily represent any
future operating results or financial position of BiznessOnline. In addition to
this summary financial data, you should also refer to the more complete
financial information included elsewhere in this prospectus, including more
complete historical results for our Internet service providers.
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<CAPTION>
FISCAL YEAR
ENDED
DECEMBER 31,
1998
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CONSOLIDATED STATEMENT OF OPERATIONS DATA
Revenues........................................................................................ $ 6,195,694
Costs and Expenses
Connectivity and operations................................................................... 4,218,136
Selling, general and administrative expenses.................................................. 1,441,048
Depreciation.................................................................................. 404,444
Amortization.................................................................................. 2,543,738
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Total Costs and Expenses.................................................................. 8,607,366
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Loss From Operations............................................................................ (2,411,672)
Other income (expense), net................................................................... (81,025)
Interest expense.............................................................................. (59,752)
Loss Before Income Taxes........................................................................ (2,552,449)
Income Taxes.................................................................................. --
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Net Loss........................................................................................ $ (2,552,449)
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Net loss per share--basic and diluted........................................................... $ (.41)
Weighted average shares outstanding............................................................. 6,201,250
OTHER OPERATING DATA:
Approximate number of subscribers at year end................................................... 20,000
Earnings Before Interest, Taxes, Depreciation and Amortization.................................. $ 536,510
</TABLE>
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<CAPTION>
AT DECEMBER 31, 1998
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PRO FORMA PRO FORMA
ACTUAL CONSOLIDATED AS ADJUSTED
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CONSOLIDATED BALANCE SHEET DATA:
Working capital.......................................................... $ 49,088 $ (6,222,377) $ 7,247,623
Total assets............................................................. 256,214 15,163,262 22,214,784
Total liabilities........................................................ 98,648 8,025,696 1,715,696
Stockholders' equity..................................................... 57,566 7,137,566 20,499,088
</TABLE>
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The Consolidated Statement of Operations Data:
- reflects an aggregate change in compensation and increases in expenses
associated with corporate management under contractual arrangements of
$494,000.
- reflects additional amortization of goodwill and other intangibles to be
recorded as a result of the acquisitions of our five Internet service
providers in the amount of $2,522,204 for the year ended December 31,
1998.
The Other Operating Data:
- reflects Earnings Before Interest, Taxes, Depreciation and Amortization or
income (loss) from operations plus depreciation and amortization. Earnings
Before Interest, Taxes, Depreciation and Amortization is provided because
it is a measure commonly used by investors to analyze and compare
companies in this industry on the basis of operating performance. Earnings
Before Interest, Taxes, Depreciation and Amortization is not a measure of
financial performance under generally accepted accounting principles and
should not be construed as a substitute for operating income, net income
or cash flows from operating activities for purposes of analyzing our
operating performance, financial position and cash flows.
The Consolidated Balance Sheet Data:
- reflects the use of $6,310,000 representing the cash portion of the
purchase prices for our Internet service providers which will be paid on
consummation of the acquisitions and $7,820,000 payable in shares of our
common stock, subject to adjustments based on the financial condition of
our Internet service providers as of the closing date of this offering.
See "Business--The Acquisitions", "Use of Proceeds", and "Notes to the
Unaudited Pro Forma Consolidated Financial Statements" for more
information.
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SUMMARY HISTORICAL INDIVIDUAL INTERNET SERVICE PROVIDER DATA
The following table presents certain summary historical statement of
operations and other operating data for our five Internet service providers for
the fiscal years ended December 31, 1997 and December 31, 1998. The statement of
operations data has been derived from the audited financial statements of the
five Internet service providers. See "Selected Historical Financial Data for our
Internet service providers" beginning on page below.
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<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
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AlbanyNet, Inc.
Revenues................................................................. $ 838,807 $ 1,140,518
Operating income......................................................... 78,171 242,848
Basic and diluted net income per share................................... 422.65 1,224.73
Subscribers at end of period............................................. 2,300 3,200
Borg Internet Services, Inc.
Revenues................................................................. $ 505,970 $ 832,734
Operating income (loss).................................................. 35,422 (29,296)
Basic and diluted net income (loss) per share............................ 6,190.67 (9,652.33)
Subscribers at end of period............................................. 2,500 4,000
Caravela Software, Inc.
Revenues................................................................. $ 1,516,112 $ 1,879,410
Operating income (loss).................................................. (83,393) 85,311
Basic and diluted net income (loss) per share............................ (555.48) (23.98)
Subscribers at end of period............................................. 4,000 5,000
Global 2000 Communications, Inc.
Revenues................................................................. $ 1,108,980 $ 1,738,613
Operating income......................................................... 107,763 271,838
Basic and diluted net income per share................................... 429.43 1,198.86
Subscribers at end of period............................................. 3,300 4,000
Ulsternet, Inc.
Revenues................................................................. $ 318,630 $ 604,419
Operating income (loss).................................................. (17,816) 33,389
Basic and diluted net income (loss) per share............................ (279.74) 251.12
Subscribers at end of period............................................. 2,100 3,800
</TABLE>
7
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RISK FACTORS
An investment in our common stock involves a high degree of risk. In
addition to the other information contained in this prospectus, you should
carefully consider the following risk factors and other information in this
prospectus before investing in our common stock.
WE HAVE A LIMITED OPERATING HISTORY
We were formed in June 1998 and acquired our first Internet service provider
in January 1999. We will acquire four additional Internet service providers upon
completion of this offering. Our management team faces the challenge of
successfully implementing company-wide administrative and operating systems and
managing our newly acquired companies. We may not be able to successfully manage
our business to achieve or maintain profitability of any of our individual
Internet service providers, or overall. In addition, our pro forma financial
results cover periods when we did not control or manage our Internet service
providers and may not be indicative of our future financial results.
A "GROWTH BY ACQUISITIONS" STRATEGY IS RISKY
Our business strategy depends largely on our ability to expand into new
markets and enhance our presence in our existing markets by acquiring additional
Internet service providers that meet our financial, geographic and other
acquisition criteria. Although our acquisition strategy may provide
opportunities for rapid growth, we will face numerous risks, including the
following:
- competition from other bidders to acquire existing Internet service
providers;
- difficulty in combining newly acquired operations, technology and
personnel;
- loss of subscribers as a result of ownership or management changes;
- poor performance or failure of acquired businesses to achieve expected
results;
- diversion of management's attention from existing operations;
- possible acquisition of substantial contingent or undisclosed liabilities;
and
- risks of entering markets in which we have little or no direct prior
experience.
We may not be successful in overcoming these risks or any other problems
encountered in connection with future acquisitions. In addition, future
acquisitions could adversely affect our operating results as a result of
dilutive issuances of equity securities, the incurrence of debt, or the
amortization of expenses related to goodwill and other intangible assets.
ALL OF OUR CONTEMPLATED ACQUISITIONS MAY NOT BE COMPLETED
The acquisition agreements for the Internet service providers we will
acquire at the consummation of this offering contain customary closing
conditions. We cannot assure investors that all the conditions to these
acquisitions will be satisfied prior to the closing of this offering, and we may
not be able to consummate one or more of these acquisitions at the time of this
offering or at all. In such an event, we will use the additional unspent
proceeds of this offering for general working capital purposes.
THE VALUATIONS OF OUR INTERNET SERVICE PROVIDERS ARE UNRELATED TO APPRAISALS OR
ASSET VALUES
We did not establish the purchase prices of our Internet service providers
by independent appraisals. We negotiated the purchase price for each Internet
service provider at arm's length based on a number of factors including 1998
revenues, cash flows, historical operating results, growth rates, number of
subscribers, management and business prospects. The purchase price paid for each
Internet service provider does not necessarily bear any relationship to the net
book value of the acquired assets
8
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or to any other recognized indicators of value. For example, appraisals of the
assets of our Internet service providers could be substantially less than the
purchase prices we are paying for each Internet service provider. As a result,
we may be unable to sell or liquidate our Internet service providers at the
purchase prices we paid for these companies.
WE FACE STRONG COMPETITION FROM MANY EXPERIENCED AND WELL-FINANCED PARTIES
The market for Internet access and related services is extremely competitive
and highly fragmented. We expect competition in these markets to increase as use
of the Internet grows and established telecommunications and computer-related
vendors expand their traditional products and services and new start-up
companies emerge. Our competitors include the following categories of companies:
- national and regional commercial Internet service providers such as Verio
and Earthlink;
- established on-line services such as America Online and Prodigy;
- computer hardware and software companies such as Microsoft and IBM;
- national long-distance carriers such as MCI Worldcom, AT&T, and Sprint;
- regional telephone operating companies;
- cable television operators such as Time Warner, Tele-Communications, and
TCA Cable;
- satellite companies;
- non-profit or educational Internet service providers; and
- newly licensed providers of spectrum-based wireless data services.
Many of our competitors are larger and have greater financial, technical,
operating, marketing and other resources, experience and brand recognition than
we do. The significant financial resources of many of our competitors could lead
to severe price cutting in an effort to secure market share, which could have a
negative effect on our revenues and results of operations. To be successful, we
will need to distinguish ourselves by our product and service knowledge, our
responsiveness to our customers, and our ability to provide state-of-the-art and
innovative service and products to our customers. We cannot assure you of our
survival in such a competitive and rapidly evolving market.
OUR SUCCESS DEPENDS ON OUR ABILITY TO RETAIN OUR MANAGEMENT AND OTHER KEY
PERSONNEL
Our success will depend on the skill and efforts of Mark E. Munro, our
President and Chief Executive Officer, and other senior executives. The loss of
Mr. Munro's services would have a detrimental impact on our business. Our
success will also depend on our ability to hire and retain other qualified
management, including competent marketing, technical and sales personnel. We may
be unable to locate and hire such personnel. We may also be unable to retain or
integrate the personnel of acquired Internet service providers into our company.
WE MAY FACE DIFFICULTIES IN IMPROVING OPERATING RESULTS OF EXISTING INTERNET
SERVICE PROVIDERS
Our business strategy also depends on improving the profitability of
acquired businesses by lowering costs and increasing revenues. We intend to
lower costs by consolidating and centralizing certain administrative functions
and eliminating redundant networks. However, we will have a difficult time
increasing our revenues unless:
- we develop a wide range of Internet products/services;
- the use of the Internet for commercial purposes continues to grow;
- we increase our customer service and technical support capabilities;
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- we recruit competent managers, technicians, and salespersons;
- we respond to competition and corresponding pricing pressures;
- the need for customized service grows;
- we continue to improve administrative, financial and accounting systems
and controls;
- we implement new marketing efforts; and
- we install and standardize adequate operational and control systems.
Our inability to increase revenues could hamper our internal growth strategy and
have a negative effect on our business and financial condition.
WE MAY ACQUIRE CONTINGENT OR UNDISCLOSED LIABILITIES
Despite our best efforts to thoroughly investigate acquisition candidates,
we may acquire liabilities that we did not know about when we negotiated the
acquisitions. We also may acquire liabilities that are contingent and are
realized or prove to be larger than anticipated. If any substantial contingent
obligations are realized or if we discover any substantial unknown liabilities,
our financial condition would be adversely affected.
OUR INTERNET SERVICES ARE SUBJECT TO SECURITY RISKS SUCH AS VIRUSES AND SABOTAGE
Although we intend to implement industry-standard security measures, our
systems will be vulnerable to computer viruses, sabotage, unauthorized access
and other intentional or accidental actions of Internet users, subscribers,
employees or others which could result in temporary or prolonged delays in
Internet-related service. Unauthorized access could also jeopardize confidential
information stored in the computer systems of our customers, which may deter
potential subscribers and result in liability claims against us. Fixing problems
caused by computer viruses or other inappropriate uses or security breaches may
require interruptions, delays, or stops in service to our subscribers. Until
more comprehensive and cost-effective security technologies are developed, the
security and privacy concerns of existing and potential customers may inhibit
the growth of the Internet service industry in general, and our customer base
and revenues in particular.
OUR SYSTEMS COULD FAIL TO OPERATE PROPERLY
Our business depends on our ability to deliver high quality uninterrupted
access to the Internet. However, there is a risk that our services will be
interrupted as a result of:
- network equipment damage caused by natural disasters such as earthquakes
and fires;
- hardware failures at our operational centers;
- increased stress on network hardware and traffic management systems;
- local power losses or other telecommunications systems failures; and
- capacity constraints either at a particular telecommunications facility or
systemwide.
Any system failure that causes interruption in our service, particularly
during our early stages of development, could have a negative effect on our
business, financial condition and results of operations.
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THE EXTENT TO WHICH BUSINESS WILL USE THE INTERNET FOR COMMERCE AND
COMMUNICATIONS IS STILL UNCERTAIN
Our products and services will be designed for users of the Internet. Use of
the Internet for commerce and communications is a fast-growing, rapidly-evolving
industry characterized by new products, services, standards and consumer
uncertainty. The small to medium sized businesses that we expect to serve may be
reluctant to purchase Internet access and related services for a variety of
reasons, including:
- inconsistent quality of services;
- lack of availability of cost-effective, high speed options;
- limited number of local access points;
- inability to protect confidential information, including credit card
numbers;
- liability for release of confidential/proprietary information;
- reluctance to accept new ways of doing business;
- costs of investing in new technology.
There can be no assurance that encryption or other technologies will be
developed that satisfactorily address some of these security and efficiency
concerns. Published reports have also indicated that capacity constraints,
unless resolved, may impede further development of the Internet. If the demand
for such services by our target market fails to grow, we will not be able to
fully implement our plans for growth and our business, financial condition and
results of operations will suffer.
WE DEPEND ON COMPANIES FOR TELECOMMUNICATIONS ACCESS; SOME OF THESE COMPANIES
MAY BECOME COMPETITORS
Like all Internet service providers, we depend on other major companies
(such as UUNET, MCI or Sprint) to provide connectivity and equipment capacity to
us. We also depend on certain third-party suppliers of hardware components. As
we and other Internet service providers grow, our suppliers will face
significant demand for their products; some of these suppliers may have limited
resources and production capacity. If our suppliers fail to adjust to meet
increasing demand, they may be unable to supply components and products in the
quantities, at the quality levels and at the times required by us, or at all. In
addition, prices for these components and products may increase significantly.
If our suppliers fail to provide equipment and we are unable to develop
alternative sources of supply, we will experience delays and increased costs in
expanding our network.
Our suppliers and telecommunications carriers also sell or lease products
and services to our competitors and may be, or in the future may become,
competitors themselves. We cannot assure investors that our suppliers and
telecommunications carriers will not enter into arrangements with our
competitors, or stop selling or leasing their products or services to us at
commercially reasonable prices. We also depend on local exchange companies to
provide local dial-up service and high speed dedicated access phone lines at our
operating centers. If these companies are unable or unwilling to provide us
phone lines and capacity sufficient to meet the needs of our customers, we will
not be able to fully implement our plans for growth and our business, financial
condition and results of operations would suffer.
WE FACE POTENTIAL LIABILITY FOR INFORMATION CARRIED ON OR DISSEMINATED THROUGH
OUR NETWORK
Internet service providers are subject to new federal requirements that they
report the presence of child pornography, when made aware of it, although the
law does not require these companies to monitor information distributed through
their systems. Although a growing number of courts have ruled
11
<PAGE>
that the 1996 Telecommunications Act immunizes Internet service providers from
liability for defamatory material carried on their facilities, we cannot assure
investors that other courts will take a similar approach. Some courts have held
that Internet service providers may, under certain circumstances, be subject to
damages for copying, distributing, or displaying copyrighted materials, although
the recently enacted Digital Millennium Copyright Act establishes "safe harbor"
procedures that enable these companies to avoid monetary liability for copyright
infringement.
The United States Congress has enacted laws to regulate the content of the
Internet. In 1996, Congress passed the Communications Decency Act of 1996 which
attempted to regulate the access of minors to "indecent" and "patently
offensive" speech on the Internet. The United States Supreme Court declared the
Communications Decency Act unconstitutional because it violated the First
Amendment right to free speech. In response, Congress passed the Child Online
Protection Act which provides criminal penalties for the commercial distribution
of material on the World Wide Web considered to be "harmful to minors." A
federal district court has preliminarily enjoined enforcement of the Act pending
a full trial in the case.
As the Internet is a relatively new medium, the legal obligations and
potential liability of Internet service providers are not well defined and are
evolving. The imposition upon Internet service providers or Web server hosts of
potential liability for materials carried on or disseminated through their
systems could require us to implement measures to reduce our exposure to this
liability. These measures, as well as existing and future federal and state
legislation, may require the expenditure of substantial resources or the
discontinuation of certain product or service offerings, any of which could have
a material adverse effect on our business, operating results and financial
condition.
OUR BUSINESS IS REGULATED BY STATE AND LOCAL GOVERNMENTS
We are not currently subject to direct regulation by the Federal
Communications Commission or any other federal or state agency. Until recently,
however, the telecommunications field has always been highly regulated by both
federal and state authorities. The regulatory situation is changing. For
example, the 1996 Telecommunications Act made it possible for Regional Bell
Operating Companies and other entities to enter the long distance business and
also made it possible for affiliates of utility companies and for joint ventures
between local exchange carriers and cable television operators to provide an
expandable range of telecommunications services. Changes in the regulatory
environment relating to the Internet connectivity market, including regulatory
changes which directly or indirectly affect telecommunications costs or increase
the likelihood or scope of competition from the Regional Bell Operating
Companies or other telecommunications companies, could affect the prices at
which we may sell our services. The following examples illustrate some
regulatory risks that could increase our costs of doing business of these risks
and/or competition in our market.
- The Federal Communications Commission currently is considering whether
subscriber calls to Internet service providers should be classified as
"local" or "interstate" calls. Although the Commission to date has
determined that Internet service providers should not be required to pay
interstate access charges to local telephone companies for each minute
that dial-up users spend connected to Internet service providers through
telephone company switches, this decision may be reconsidered in the
future if the Commission finds these calls to be "interstate."
- An April 1998 report to Congress by the Federal Communications Commission
suggested that Internet telephony providers may need to comply with the
same regulations that long distance carriers must comply with, including
the payment of access fees to local exchange carriers and contributions to
universal service subsidies.
- The Federal Communications Commission may, in the future, reconsider its
past ruling that Internet access service is not "telecommunications."
Reconsideration could result in Internet
12
<PAGE>
service providers paying a portion of their gross revenues as a "universal
service contribution" requirement.
- The Federal Communications Commission is considering measures that could
stimulate development of high-speed transmission facilities for customers
to obtain access to Internet service providers. Such regulatory measures
also could broaden or narrow the ability of Internet service providers
that are not affiliated with transmission providers to use these
high-speed facilities.
In general, it is likely that existing and future changes in regulations
governing the telecommunications industry will increase competition, lower
product and service prices, and encourage technological changes. Such changes
may have a detrimental impact on our growth strategy and our business, financial
condition and results of operations.
THE INTERNET SERVICE MARKET CHANGES RAPIDLY
Our industry is characterized by rapidly changing technology, constantly
evolving industry standards, emerging competition and frequent new service
information. We are unable to predict whether we will have the necessary
resources to adapt to such a changing marketplace. For example, our Internet
service providers provide Internet access across telephone lines to computers.
If the Internet becomes easily accessible by screen-based telephones, television
or other electronic devices, or if the means of delivery changes to satellite or
other wireless technology, we may need to change our network design and develop
new technology. Our pursuit of these technological advances would require
substantial time and expense. We cannot assure you that we will be successful in
adapting our business to alternative access systems or that new technologies
will be available or affordable for us.
WE MAY EXPERIENCE PROBLEMS FROM OUR COMPUTER SYSTEMS THAT ARE NOT READY ON A
TIMELY BASIS TO PROCESS INFORMATION ASSOCIATED WITH THE YEAR 2000
We may be subject to liability if our computer systems or computer software
of others with whom we have business relationships fail to operate properly in
the Year 2000 and beyond. Many currently installed computer systems and software
products are coded to accept only two-digit entries to identify a year in a date
code field. As a result, date sensitive systems and software may fail or
malfunction because they may incorrectly recognize a date using "00" as the year
1900 rather than the year 2000. Our subscribers and vendors may need to upgrade
their computer systems and software products to ensure that they are Year 2000
compliant.
We and our subscribers are dependent on ours, and their, computer systems. A
failure of these systems to correctly recognize dates beyond December 31, 1999
could materially disrupt our operations. Subscribers could be prevented from
accessing the Internet or our Internet service providers' web sites, which could
have a material adverse affect on our financial condition. We also face risks if
our vendors' systems fail. See "Management's Discussion & Analysis of Financial
Condition and Results of Operations--Year 2000 Disclosure" on page .
WE DO NOT ANTICIPATE PAYING DIVIDENDS ON OUR COMMON STOCK
We expect to retain any future earnings for use in our business to develop,
operate and expand our business. As a result, we do not anticipate paying any
dividends to our stockholders in the foreseeable future.
OUR QUARTERLY REVENUES AND OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY
The operating results for our Internet service providers have fluctuated in
the past, and our operating results may change materially in the future.
Fluctuations could affect the market price of our common stock. Fluctuations may
depend upon a variety of factors, including the incurrence of capital
13
<PAGE>
costs and costs associated with the introduction of new products and services.
Other factors that may contribute to changes in operating results include:
- the pricing and mix of services that we offer;
- market acceptance of new products and services;
- our subscriber retention rates;
- changes in operating costs;
- changes in pricing policies and product offerings by our competitors;
- introduction of alternative technologies;
- growth in demand for Internet access services;
- effects of potential future acquisitions; and
- one-time costs associated with acquisitions.
Due to the foregoing factors, we believe that period-to-period comparisons
of our operating results are not necessarily meaningful and that these
comparisons should not be relied upon as indicators of future performance.
WE WILL HAVE BROAD DISCRETIONARY USE OF THE NET PROCEEDS OF THE OFFERING
We have complete discretion over how to use a significant portion of the net
proceeds of this offering. After paying the cash portion of the purchase prices
for our Internet service provider acquisitions (including the promissory notes
to the Global 2000 Communications stockholders) and the offering expenses, we
have not identified specific uses for the remainder of these proceeds. We intend
to use these proceeds for general corporate purposes, which may include
additional acquisitions and working capital expenditures. However, we cannot
assure investors that our use of the net proceeds will not vary substantially
due to unforeseen factors. Pending their utilization, we intend to invest the
net proceeds of this offering in short-term investment grade and government
securities.
PURCHASERS OF OUR COMMON STOCK AT THE INITIAL PUBLIC OFFERING PRICE WILL
EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION
The public offering price of our common stock in this offering will be
substantially higher than the pro forma tangible book value per share of
outstanding common stock. Purchasers of shares in this offering will experience
immediate and substantial dilution in tangible book value per share, and the
existing stockholders (not including the former shareholders of our Internet
service providers who will receive common stock in the acquisitions) will
receive a material increase in the tangible book value per share of their shares
of common stock. The dilution to investors in this offering will be $6.73 per
share assuming an initial public offering price of $8.00.
THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK
Prior to this offering there has been no public market for our common stock.
As such, there can be no assurance that an active trading market will develop or
be sustained upon completion of this offering, or that the market price of our
common stock will not decline below the initial public offering price. We
negotiated the initial public offering price of our common stock with
representatives of our Underwriters, and such price may not be indicative of the
prices that will prevail in the public market.
14
<PAGE>
OUR STOCK PRICE MAY BE VOLATILE
The trading prices of our common stock could be subject to wide fluctuations
in response to quarterly variations in our operating results, technological
innovations or new products, governmental regulatory action, general conditions
in the Internet access and related markets, general conditions in the
telecommunications services market, increased price competition, changes in
earnings estimates by analysts or other events and factors, many of which are
beyond our control. In addition, the stock market has experienced extreme price
and volume fluctuations, which have particularly affected the market prices of
many Internet related companies and which have often been unrelated to the
operating performance of such companies.
THE MARKET PRICE OF OUR COMMON STOCK MAY DECLINE DUE TO SHARES ELIGIBLE FOR
FUTURE SALE
Upon completion of this offering, we will have 6,501,250 shares of common
stock outstanding assuming the initial public offering price is $8.00 per share
and assuming the Underwriters' over-allotment option is exercised in full. The
2,300,000 shares sold in this offering will be freely tradable in the United
States if a market for our stock develops by persons other than our officers,
directors or other affiliated parties. All of the remaining 4,201,250 shares are
"restricted securities" under Rule 144 of the Securities Act of 1933.
Ordinarily, under Rule 144, a person holding restricted securities for a period
of one year may, every three months, sell in ordinary brokerage transactions an
amount equal to the greater of one percent of a company's then outstanding
common stock or the average weekly trading volume during the four calendar weeks
prior to such sales. Rule 144 also permits sales by a person who is not an
affiliate of the company and who has held the shares for two years without any
quantity limitation.
Of the 4,201,250 restricted securities
- the holders of 3,160,806 shares (the principal founders of BiznessOnline,
and the investors in our private offering of preferred stock from December
10, 1998 through February 12, 1999 which automatically converted to common
stock at the closing of this offering) have agreed not to sell any of
their shares for a period of 14 months from the date of our final
prospectus for this offering without the prior written consent of the
Underwriters. After such 14 month period, these holders would be eligible
to resell their shares subject to volume limitations and other conditions
of Rule 144.
- the holders of 977,500 shares (the stockholders of our five Internet
service providers) have agreed not to sell 488,750 shares for a period of
two years from the date of our final prospectus for this offering, after
which such shares could be resold under Rule 144 by non-affiliates without
any volume limitations. Of the remaining 488,750 shares, 318,750 shares
would be available for resale under Rule 144 commencing one (1) year from
the closing date of this offering, and 170,000 would be available for
resale under Rule 144 commencing January 31, 2000.
- the holders of 62,944 shares may sell their shares commencing July 2, 1999
subject to the volume limitations and other conditions of Rule 144.
Any substantial future sales of our common stock under Rule 144 or any other
applicable exemption under the Securities Act of 1933 could have a depressive
effect on the market price of our stock and could impair our ability to raise
additional capital through the sale of our equity securities.
15
<PAGE>
WE ARE SUBJECT TO VARIOUS ANTI-TAKEOVER PROVISIONS THAT MAKE IT DIFFICULT FOR A
THIRD PARTY TO GAIN CONTROL OF US
We have included certain "anti-takeover" provisions in our organizational
documents which may deprive our stockholders of the opportunity to sell their
common stock at above-market prices. These provisions include the following:
- We have elected to be governed by Section 203 of the Delaware General
Corporation Law in our charter. Section 203 is an anti-takeover law which,
in general, restricts the ability of 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 became an interested stockholder.
- We have also included a provision in our charter which authorizes our
Board of Directors to issue preferred stock in one or more series and to
fix the rights, preferences, privileges and restrictions of these shares,
including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, liquidation preferences and the number of
shares constituting any series or designation of such series, without
further vote or action by stockholders.
- Finally, our by-laws require advance notice for nominations of directors
and any other matters to be brought before an annual meeting of
stockholders other than by our Board of Directors.
As a result of the application of Section 203, the existence of "blank
check" preferred stock, the advance notice procedure in our by-laws, and certain
change in control provisions contained in the employment contracts of our
President and Chief Executive Officer and Executive Vice President, potential
acquirers may find it more difficult or be discouraged from attempting to
acquire us or change our Board of Directors or our management. As a result,
investors may be deprived of certain opportunities to sell our stock at
above-market prices in such transactions.
WE HAVE LIMITED OFFICERS' AND DIRECTORS' LIABILITIES UNDER DELAWARE LAW
Under our charter and the Delaware General Corporation Law, our directors
are not liable for monetary damages for breach of fiduciary duty, except in
connection with a breach of the duty of loyalty, for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, for dividend payments or stock repurchases illegal under Delaware law or
for any transaction in which a director has derived an improper personal
benefit. In addition, our charter provides that we must indemnify our officers
and directors to the fullest extent permitted by Delaware law for all expenses
incurred in the settlement of any actions against such persons in connection
with their service as officers or directors of our company.
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<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of the two million shares of common stock
after deducting underwriting fees and our estimated offering expenses will be
approximately $13 million. If the underwriters' over allotment is exercised in
full, our net proceeds are estimated to be $15 million.
We intend to use the net proceeds as follows:
- $580,000 to repay our promissory notes to the former Global 2000
Communications stockholders;
- $5,730,000 to pay the cash portion of the purchase price of the four
Internet service providers we will acquire at the consummation of this
offering, and
- the balance for general working capital, integrating the operating systems
of our Internet service providers, and possible future acquisitions.
We have no current agreements or commitments to acquire any new companies
and we are not currently negotiating with any acquisition candidates. Pending
such uses, the net proceeds of this offering will be invested in short-term,
interest bearing, investment grade and government securities. We believe that
our cash flow from operations and the proceeds from this offering will be
sufficient to fund our operations for at least the next twelve months.
DIVIDEND POLICY
We have not paid cash dividends on our common stock since inception and we
do not anticipate paying any cash dividends on our common stock in the
foreseeable future. We intend to reinvest earnings, if any, in the development
and expansion of our business. Our Board of Directors will determine, in its
sole discretion, whether to declare any dividends on our common stock in the
future, and any such declaration will depend on our earnings, capital
requirements, financial position, general economic conditions, and other
pertinent factors.
17
<PAGE>
CAPITALIZATION
The following table describes:
- the actual capitalization as of December 31, 1998;
- pro forma consolidated capitalization as of such date to reflect the
issuance and conversion of 70,000 shares of Class A Preferred Stock into
76,564 shares of common stock at the consummation of this offering and the
issuance of 977,500 shares of common stock to the stockholders of our
Internet service providers as described in "Business--The Acquisitions";
and
- pro forma as adjusted capitalization as of such date to reflect the
issuance of 2,000,000 shares of common stock in this offering at an
initial public offering price of $8.00 per share and the application of
the estimated net proceeds from the sale of the shares.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ACTUAL CONSOLIDATED AS ADJUSTED
----------- ------------ -------------
<S> <C> <C> <C>
Long-term debt and capital lease obligations, less current portion..... $ -- $ 211,155 $ 211,155
----------- ------------ -------------
Class A Preferred stock subscriptions.................................. 100,000 -- --
----------- ------------ -------------
Stockholders' equity:
Class A Preferred stock, $.01 par value, 1,000,000 shares
authorized;........................................................ -- -- --
Common stock, $.01 par value, 39,000,000 shares authorized; 3,147,186
shares outstanding, actual; 4,201,250 shares outstanding pro forma
consolidated and 6,201,250 shares outstanding, as adjusted......... 31,472 42,013 62,013
Additional paid-in capital........................................... 151,528 7,137,987 20,479,509
Accumulated deficit.................................................. (125,434) (42,434) (42,434)
----------- ------------ -------------
Total stockholders' equity............................................. 57,566 7,137,566 20,499,088
----------- ------------ -------------
Total capitalization................................................... $ 157,566 $7,348,721 $ 20,710,243
----------- ------------ -------------
----------- ------------ -------------
</TABLE>
The preceding table excludes:
- 300,000 shares issuable upon exercise of the Underwriters' over allotment
option;
- 200,000 shares issuable upon exercise of the Underwriters' warrants;
- 500,000 shares reserved for issuance under our 1999 Stock Incentive Plan
of which 30,000 shares are currently reserved for issuance under options
granted to our Chief Financial Officer, at an exercise price equal to the
public offering price of our common stock in this offering; and
- 50,000 shares reserved for issuance under our 1999 Non-Employee Director
Stock Incentive Plan, of which 15,000 shares will be reserved for issuance
under options to be granted at the consummation of this offering at an
exercise price equal to the public offering price of our common stock in
this offering.
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<PAGE>
DILUTION
At December 31, 1998, BiznessOnline had a pro forma consolidated net
tangible book value (deficit) of $(5,516,522) or $(1.31) per share based on
4,201,250 shares of common stock outstanding. Net tangible book value (deficit)
per share represents the amount of our total tangible assets less total
liabilities, divided by the number of shares of common stock outstanding.
Without taking into account any changes in the net tangible book value (deficit)
after December 31, 1998, other than to give effect to the net proceeds from the
sale of the shares in this offering at an assumed initial public offering price
of $8.00, the pro forma as adjusted net tangible book value of our common stock
at December 31, 1998 would have been $7,893,522 or $1.27 per share. This
represents an immediate increase in net tangible book value of $2.58 to existing
holders of common stock, and an immediate dilution of $6.73 per share from the
offering price of common stock on a per share basis to investors in this
offering. Dilution per share represents the difference between the offering
price per share of common stock and the pro forma tangible book value per share
of common stock immediately after the offering. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Offering price per share of common stock..................... $ 8.00
Pro Forma Consolidated net tangible book value (deficit) per
share before offering...................................... $ (1.31)
Increase in net tangible book value per share attributed to
the estimated net proceeds of the offering................. 2.58
---------
Pro forma as adjusted net tangible book value per share after
the offering............................................... 1.27
Dilution of net tangible book value per share of common stock
to investors in the offering............................... 6.73
</TABLE>
The following table summarizes on a pro forma basis as of December 31, 1998,
after giving effect to:
- the automatic conversion of Class A Preferred Stock into 76,564 shares of
common stock at the consummation of this offering;
- the issuance of 977,500 shares of common stock to the shareholders of our
Internet service providers; and
- the sale of common stock in this offering.
The table shows the number of shares of common stock purchased, the
percentage of common stock purchased, the total consideration paid or exchanged,
the percentage of total consideration, and the average price per share paid by
the existing stockholders and the investors in the offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
New investors................................. 2,000,000 32.3% $ 16,000,000 65.7% $ 8.00
Internet service providers.................... 977,500 15.8% $ 7,820,000 32.1% $ 8.00
Preferred stockholders........................ 76,564 1.2% $ 350,000 1.4% $ 4.57
Original investors............................ 3,147,186 50.7% $ 183,000 .8% $ .06
---------- ----------- ------------- -----------
6,201,250 100.0% $ 24,353,000 100.0%
---------- ----------- ------------- -----------
---------- ----------- ------------- -----------
</TABLE>
19
<PAGE>
SELECTED PRO FORMA FINANCIAL DATA
We present below certain pro forma consolidated financial data for
BiznessOnline based on historical data for the fiscal year ended December 31,
1998, considering the consolidated historical results for BiznessOnline and our
five Internet service providers. We present the pro forma consolidated balance
sheet data for December 31, 1998 based on historical data, pro forma
consolidated for the issuance and conversion of 70,000 shares of Class A
Preferred Stock into 76,564 shares of common stock at the consummation of this
offering, and the issuance of 977,500 shares of common stock issued to the
stockholders of our Internet service providers as described in
"Business--Acquisitions" and pro forma as adjusted for this offering. The pro
forma consolidated statements of operations data for the year ended December 31,
1998 assume that the acquisitions were consummated on January 1, 1998. The pro
forma consolidated balance sheet data assume that the acquisitions were
consummated on December 31, 1998. The summary pro forma financial data do not
necessarily indicate the operating results or financial position which would
have resulted from BiznessOnline's operations on a consolidated basis during the
periods presented, nor does this pro forma data necessarily represent any future
operating results or financial position of BiznessOnline.
You should read the selected pro forma financial data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our Unaudited Pro Forma Financial Statements and the related
Notes appearing elsewhere in this prospectus.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
Revenues....................................................................................... $ 6,195,694
Costs and Expenses:
Connectivity and operations.................................................................. 4,218,136
Selling, general and administrative expenses................................................. 1,441,048
Depreciation................................................................................. 404,444
Amortization of intangibles.................................................................. 2,543,738
-----------------
Total costs and expenses................................................................. 8,607,366
-----------------
Loss from operations......................................................................... (2,411,672)
Other Income (Expense):
Other income (expense), net.................................................................. (81,025)
Interest expense............................................................................. (59,752)
-----------------
Net loss before income taxes............................................................. (2,552,449)
Income Taxes................................................................................... --
-----------------
Net loss................................................................................. $ (2,552,449)
-----------------
-----------------
Net Loss per share basic and diluted..................................................... $ (.41)
Weighted average shares outstanding...................................................... 6,201,250
OTHER OPERATING DATA:
Approximate number of subscribers at year end................................................ 20,000
Earning Before Interest, Taxes, Depreciation, and Amortization............................... $ 536,510
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
----------------------------------------
<S> <C> <C> <C>
PRO FORMA PRO FORMA
ACTUAL CONSOLIDATED AS ADJUSTED
---------- ------------- -------------
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................................................ $ 49,088 $ (6,222,377) $ 7,247,683
Total assets........................................................... 256,214 15,163,262 22,214,784
Total liabilities...................................................... 98,648 8,025,696 1,715,696
Stockholders' equity................................................... 57,566 7,137,566 20,499,088
</TABLE>
The Pro Forma Consolidated Statement of Operations data for the year ended
December 31, 1998 reflect an aggregate change in compensation and increases in
expenses associated with corporate management under contractual arrangements of
$494,000 and reflects additional amortization of goodwill and other intangibles
to be recorded as a result of the acquisitions in the amount of $2,522,204 for
the year ended December 31,1998. The goodwill and other intangibles are expected
to be amortized over a five-year period and computed on the basis described in
the "Notes to the Unaudited Pro Forma Consolidated Financial Statements".
Earnings Before Interest, Taxes, Depreciation and Amortization represents
income (loss) from operations plus depreciation and amortization. Earnings
Before Interest, Taxes, Depreciation and Amortization is provided because it is
a measure commonly used by investors to analyze and compare companies on the
basis of operating performance. Earnings Before Interest, Taxes, Depreciation
and Amortization is not a measure of financial performance under generally
accepted accounting principles and should not be construed as a substitute for
operating income, net income or cash flows from operating activities for
purposes of analyzing our operating performance, financial position or cash
flows.
21
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA FOR BIZNESSONLINE
AND OUR INTERNET SERVICE PROVIDERS
The selected financial data are derived in part from the more detailed
historical financial statements and notes thereto of our Internet service
providers included elsewhere in this prospectus.
The following selected financial data of the Internet service providers
should be read in conjunction with the historical financial statements and notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operation" included elsewhere in this prospectus. All of the Internet
service providers have fiscal years ending December 31.
The following table presents selected historical financial data for
BiznessOnline and our Internet service providers for the stated periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
<S> <C> <C>
1997 1998
------------ ------------
STATEMENTS OF OPERATIONS DATA:
BIZNESSONLINE.COM, INC.
Selling, general and administrative expenses........................................ -- 125,434
------------ ------------
Total costs and expenses.......................................................... -- 125,434
------------ ------------
Loss from operations................................................................ -- (125,434)
Net Loss............................................................................ -- $ (125,434)
------------ ------------
------------ ------------
Net loss per share basic and diluted................................................ -- $ (.04)
Weighted average shares outstanding................................................. -- 3,147,186
ALBANYNET, INC.
Revenues............................................................................ $ 838,807 $ 1,140,518
Costs and Expenses:
Connectivity and operations....................................................... 658,329 768,400
Selling, general and administrative expenses...................................... 44,441 61,456
Depreciation...................................................................... 57,866 67,814
------------ ------------
Total costs and expenses........................................................ 760,636 897,670
------------ ------------
Income from operations.............................................................. 78,171 242,848
Other income, net................................................................... 11,082 5,369
Interest expense.................................................................... (4,724) (3,272)
------------ ------------
Net income.......................................................................... $ 84,529 $ 244,945
------------ ------------
------------ ------------
Net income per share basic and diluted.............................................. $ 422.65 $ 1,224.73
Weighted average shares outstanding................................................. 200 200
------------ ------------
------------ ------------
Approximate number of subscribers at year end....................................... 2,300 3,200
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
BORG INTERNET SERVICES, INC.
Revenues............................................................................ $ 505,970 $ 832,734
Costs and Expenses:
Connectivity and operations....................................................... 319,127 601,890
Selling, general and administrative expenses...................................... 64,978 136,025
Depreciation...................................................................... 64,909 102,581
Amortization of intangibles....................................................... 21,534 21,534
------------ ------------
Total costs and expenses........................................................ 470,548 862,030
------------ ------------
Income (loss) from operations....................................................... 35,422 (29,296)
Interest expense.................................................................... (4,467) (11,717)
------------ ------------
Income (loss) before income taxes................................................... 30,955 (41,013)
Income tax provision (benefit)...................................................... 12,383 (12,056)
------------ ------------
Net income (loss)................................................................... $ 18,572 $ (28,957)
------------ ------------
------------ ------------
Net income (loss) per share basic and diluted....................................... $ 6,190.67 $ (9,652.33)
Weighted average shares outstanding................................................. 3 3
------------ ------------
------------ ------------
Approximate number of subscribers at year end....................................... 2,500 4,000
CARAVELA SOFTWARE, INC.
Revenues............................................................................ $ 1,516,112 $ 1,879,410
Costs and Expenses:
Connectivity and operations....................................................... 1,328,076 1,520,192
Selling, general and administrative expenses...................................... 152,944 156,761
Depreciation...................................................................... 118,485 117,146
------------ ------------
Total costs and expenses........................................................ 1,599,505 1,794,099
------------ ------------
Income (loss) from operations....................................................... (83,393) 85,311
Other income (expense), net......................................................... 267 (67,901)
Interest expense.................................................................... (9,453) (21,406)
------------ ------------
Income (loss) before income taxes................................................... (92,579) (3,996)
Income tax provision (benefit)...................................................... (37,031) (1,598)
------------ ------------
Net loss............................................................................ $ (55,548) $ (2,398)
------------ ------------
------------ ------------
Net (loss) per share basic and diluted.............................................. $ (555.48) $ (23.98)
Weighted average shares outstanding................................................. 100 100
------------ ------------
------------ ------------
Approximate number of subscribers at year end....................................... 4,000 5,000
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
GLOBAL 2000 COMMUNICATIONS, INC.
Revenues............................................................................ $ 1,108,980 $ 1,738,613
Costs and Expenses:
Connectivity and operations....................................................... 809,374 927,769
Selling, general and administrative expenses...................................... 148,153 480,334
Depreciation...................................................................... 43,690 58,672
------------ ------------
Total costs and expenses........................................................ 1,001,217 1,466,775
------------ ------------
Income from operations.............................................................. 107,763 271,838
Other income, net................................................................... (7,502) (18,493)
Interest expense.................................................................... (14,375) (13,573)
------------ ------------
Net income.......................................................................... $ 85,886 $ 239,772
------------ ------------
------------ ------------
Net income per share basic and diluted.............................................. $ 429.43 $ 1,198.86
Weighted average shares outstanding................................................. 200 200
------------ ------------
------------ ------------
Approximate number of subscribers at year end....................................... 3,300 4,000
ULSTERNET, INC.
Revenues............................................................................ $ 318,630 $ 604,419
Costs and Expenses:
Connectivity and operations....................................................... 290,309 491,327
Selling, general and administrative expenses...................................... 6,913 21,472
Depreciation...................................................................... 39,224 58,231
------------ ------------
Total costs and expenses........................................................ 336,446 571,030
------------ ------------
Income (loss) from operations....................................................... (17,816) 33,389
Interest expense.................................................................... (8,480) (9,784)
Net income.......................................................................... $ (26,296) $ 23,605
------------ ------------
------------ ------------
Net income per share basic and diluted.............................................. $ (279.74) $ 251.12
Weighted average shares outstanding................................................. 94 94
------------ ------------
------------ ------------
Approximate number of subscribers at year end....................................... 2,100 3,800
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1998
------------
<S> <C>
BALANCE SHEET DATA:
BiznessOnline.com, Inc.
Working Capital................................................................................... $ 49,088
Total Assets...................................................................................... $ 256,214
Long Term Debt, less Current Portion.............................................................. $ --
Total Stockholders' Equity........................................................................ $ 57,566
AlbanyNet, Inc.
Working Capital................................................................................... $ 142,000
Total Assets...................................................................................... $ 259,894
Long Term Debt, less Current Portion.............................................................. $ 4,030
Total Stockholders' Equity........................................................................ $ 190,079
Borg Internet Services, Inc.
Working Capital (deficit)......................................................................... $ (173,633)
Total Assets...................................................................................... $ 396,252
Long Term Debt, less Current Portion.............................................................. $ 78,608
Total Stockholders' Equity (deficit).............................................................. $ (11,642)
Caravela Software, Inc.
Working Capital (deficit)......................................................................... $ (160,143)
Total Assets...................................................................................... $ 550,128
Long Term Debt, less Current Portion.............................................................. $ 6,816
Total Stockholders' Equity........................................................................ $ 68,021
Global 2000 Communications, Inc.
Working Capital................................................................................... $ 41,066
Total Assets...................................................................................... $ 622,536
Long Term Debt, less Current Portion.............................................................. $ 96,496
Total Stockholders' Equity........................................................................ $ 192,023
Ulsternet, Inc.
Working Capital (deficit)......................................................................... $ (143,755)
Total Assets...................................................................................... $ 88,217
Long Term Debt, less Current Portion.............................................................. $ 25,205
Total Stockholders' Equity (deficit).............................................................. $ (92,502)
</TABLE>
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is based on the consolidated pro forma
results of BiznessOnline and the historical results for each of our Internet
service providers for which separate data has been included in this prospectus.
See "Selected Consolidated Pro Forma Financial Data" on page 20 above for the
basis of the pro forma presentation for BiznessOnline.
Certain statements set forth below contain "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 and
are thus prospective. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause our actual results,
performance or achievements or industry results, to be materially different from
any future results, performance or achievements expressed or implied by these
forward-looking statements. The most significant of risks, uncertainties and
other factors are discussed under the heading,"Risk Factors" beginning on page 8
of this prospectus, and prospective investors should carefully consider such
factors.
OVERVIEW
We provide dial up and dedicated Internet access, web design and web-hosting
and related e-commerce services to individuals and small to medium sized
businesses located in Connecticut and northeastern New York. We currently own
one Internet service provider and, upon the consummation of this offering, we
will acquire four additional Internet service providers. As of December 31,
1998, our five Internet service providers had a combined base of approximately
20,000 subscribers and combined annual revenues of $6.196 million. We plan to
seek to acquire additional Internet service providers located in the
northeastern United States after completion of this offering.
We derive internet access revenues primarily from subscriptions from
individuals and small to medium-sized businesses for dial-up and dedicated
access to the Internet. Subscription fees vary between $9.95 and $24.95 monthly
among our Internet service providers and by the billing plans for a particular
Internet service provider. Most of our subscribers pay us by credit card
automatically on a monthly basis. In addition, we host commercial and individual
web sites and provide commercial web design services, as well as e-commerce
advertising and interactive web site support. These services are predominantly
utilized by small to medium sized businesses looking to establish a presence on
the world wide web. We also earn revenue by providing dedicated access services
via telephone lines.
Our costs and expenses include connectivity and operations, sales and
marketing, general and administrative, amortization and depreciation.
Connectivity and operating expenses consist of the cost of non-capital
equipment costs and the recurring telecommunication costs associated with
providing services to subscribers, including the cost of local telephone lines
and the costs of leased lines connecting the Internet and our operations
centers. We expect these expenses to increase over time to support our growing
subscriber base.
Connectivity and operating expenses also include the salaries and employee
benefits of our personnel providing installation, web development and technical
services, the cost of the equipment to provide these services, rent and
utilities for our Internet service providers' offices, and customer service and
technical support personnel costs. We expect customer service and support
expenses to increase over time to support new and existing subscribers. New
subscribers tend to be particularly heavy customer service and technical support
users.
Sales and marketing expenses include the costs associated with acquiring
subscribers, including bonuses, sales commissions and advertising. Sales and
marketing expenses are expected to increase with the expected growth of the
subscriber base. We plan to increase advertising in new markets we enter as we
acquire new Internet service providers. We also plan to hire additional sales
and marketing personnel in each market we enter.
26
<PAGE>
General and administrative expenses consist primarily of administrative
staff and related benefits, as well as the cost of travel and entertainment.
General and administrative costs are expected to increase in the short term to
support the growth of the company, particularly the implementation of a common
billing and financial reporting system.
Amortization expense primarily relates to the amortization of goodwill and
other intangibles acquired in the acquisitions and, on a pro forma basis, is
based upon the useful lives of these intangibles. Amortization expense is
expected to increase as additional acquisitions are made and will vary according
to purchase prices and intangible assets. Our policy in future acquisitions will
be to amortize the portion of the acquisition purchase price attributable to
goodwill and other intangibles over the appropriate period.
Depreciation expense primarily relates to our equipment and is based on the
estimated useful lives of the assets ranging from three to five years using the
straight-line and accelerated methods for the equipment. Depreciation expense is
expected to increase as our Internet service providers increase their networks
to support new and existing subscribers and as we build a centralized billing
and financial reporting system.
PRO FORMA RESULTS OF OPERATION
The pro forma operating results include the effects of the pro forma
adjustments that are included in the Unaudited Pro Forma Consolidated Financial
Statements appearing on Page F 3. This data may not be comparable to and may not
be indicative of our past consolidated results of operations because:
- our Internet service providers were not under common control of management
during the period presented;
- our Internet service providers used different tax structures (S
corporations and C Corporations) during the periods presented, however, we
used C Corporation structure to present pro forma results;
- we will have contractual agreements to compensate new corporate
management; and
- we will use the purchase method of accounting to record the purchases,
resulting in the recording of intangibles that are expected to be
amortized over a useful life of five years.
The following table presents our Unaudited Pro Forma Consolidated Statement
of Operations for the year ended December 31, 1998. For a discussion of the pro
forma adjustments, see the Unaudited Pro Forma Consolidated Financial Statements
and the notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
1998
----------------------
<S> <C> <C>
$ %
----------- ---------
Revenues.................................................................................... 6,195,694 100.0
Connectivity and Operations................................................................. 4,218,136 68.1
Selling, General and
Administrative expense...................................................................... 1,441,048 19.7
Depreciation................................................................................ 404,444 6.5
Amortization of intangibles................................................................. 2,543,738 41.1
----------- ---------
Total costs and expenses.................................................................... 8,607,366 138.9
----------- ---------
Loss from operations........................................................................ (2,411,672) (38.9)
Other income (expense) net.................................................................. (81,025) (1.3)
Interest expense............................................................................ (59,752) (1.0)
Loss before taxes........................................................................... (2,552,449) (41.2)
----------- ---------
----------- ---------
Approximate total Subscribers at year end................................................... 20,000
</TABLE>
27
<PAGE>
RESULTS OF OPERATIONS
The following tables set forth certain historical financial data and such
data as a percentage of revenues for the periods indicated.
BIZNESSONLINE.COM, INC.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1997 1998
--------------------- ---------------------
$ % $ %
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Selling, General and Administrative expense............................ -- -- 125,434 --
Total costs and expenses............................................... -- 125,434 --
---------- --------- ---------- ---------
Loss from operations................................................... -- -- (125,434) --
Net loss............................................................... -- -- (125,434) --
---------- --------- ---------- ---------
---------- --------- ---------- ---------
</TABLE>
GLOBAL 2000 COMMUNICATIONS, INC.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1997 1998
--------------------- ---------------------
$ % $ %
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues............................................................... 1,108,980 100.0 1,738,613 100.0
Connectivity and Operations............................................ 809,374 73.0 927,769 53.4
Selling, General and Administrative expense............................ 148,153 13.4 480,334 27.6
Depreciation........................................................... 43,690 3.9 58,672 3.4
---------- --------- ---------- ---------
Total costs and expenses............................................... 1,001,217 90.3 1,466,775 84.4
---------- --------- ---------- ---------
Income from operations................................................. 107,763 9.7 271,838 15.6
Other income (expense) net............................................. (7,502) (.7) (18,493) (1.1)
Interest expense....................................................... (14,375) (1.3) (13,573) (.8)
---------- --------- ---------- ---------
Net Income............................................................. 85,886 7.7 239,772 13.8
---------- --------- ---------- ---------
---------- --------- ---------- ---------
Approximate total Subscribers at year end.............................. 3,300 4,000
</TABLE>
Global results for the year ended December 31, 1997 compared to the year
ended December 31, 1998.
REVENUES:
Revenues increased $629,633, or 56.8% from $1,108,980 to $1,738,613,
primarily as a result of an increase in the number of subscribers and increased
revenue per subscriber. The number of subscribers increased from 3,300 at the
end of 1997 to 4,000 at the end of 1998, an increase of 21.2%.
CONNECTIVITY AND OPERATIONS:
Connectivity and operations expenses increased $118,395 or 14.6%, from
$809,374 to $927,769. This increase was a result of the increased subscriber
base.
SELLING, GENERAL AND ADMINISTRATIVE:
Selling, general and administrative expenses increased $332,181, or 224.2%
from $148,153 to $480,334 primarily as a result of an increase in advertising
expenses.
28
<PAGE>
DEPRECIATION:
Depreciation expenses increased $14,982, or 34.3%, from $43,690 to $58,672
as a result of the acquisition of fixed assets during 1998 of approximately
$103,000.
OTHER (EXPENSE) NET:
Other (expense) net increased $(10,991) from $(7,502) to $(18,493). This
change was a result of losses on disposal of fixed assets.
INTEREST EXPENSE:
Interest expense decreased $802, from $14,375 to $13,573, primarily as a
result of the decrease in average principal outstanding of debt and capitalized
leases.
CARAVELA SOFTWARE, INC. D/B/A CONNIX
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1997 1998
--------------------- ---------------------
$ % $ %
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues............................................................... 1,516,112 100.0 1,879,410 100.0
Connectivity and Operations............................................ 1,328,076 87.6 1,520,192 81.0
Selling, General and Administrative expense............................ 152,944 10.1 156,761 8.3
Depreciation........................................................... 118,485 7.8 117,146 6.2
---------- --------- ---------- ---------
Total costs and expenses............................................... 1,599,505 105.5 1,794,099 95.5
---------- --------- ---------- ---------
Income (loss) from operations.......................................... (83,393) (5.5) 85,311 4.5
Other income (expense) net............................................. 267 .0 (67,901) (3.6)
Interest expense....................................................... (9,453) (.6) (21,406) (1.1)
---------- --------- ---------- ---------
Income (loss) before taxes............................................. (92,579) (6.1) (3,996) (.2)
Income tax benefit..................................................... (37,031) (2.4) (1,598) (.1)
---------- --------- ---------- ---------
Net loss............................................................... (55,548) (3.7) (2,398) (.1)
---------- --------- ---------- ---------
---------- --------- ---------- ---------
Approximate total Subscribers at year end.............................. 4,000 5,000
</TABLE>
Connix' results for the year ended December 31, 1997 compared to the year
ended December 31, 1998.
REVENUES:
Revenues increased $363,298, or 24.0%, from $1,516,112 to $1,879,410
primarily as a result of an increase in subscribers. The number of subscribers
increased from 4,000 at December 31, 1997 to 5,000 at December 31, 1998, an
increase of 25.0%.
CONNECTIVITY AND OPERATIONS:
Connectivity and operations expenses increased $192,116, or 14.5%, from
1,328,070 to 1,520,192. The increase was primarily a result of the increase in
the number of subscribers.
29
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE:
Selling, general and administrative expenses increased $3,817, or 2.5%, from
$152,944, to $156,761. The slight increase in these expenses was a result of an
increase in advertising expenses, which was offset by a decrease in bad debt
expenses.
DEPRECIATION:
Depreciation expenses decreased $1,339, or 1.1%, from $118,485, to $117,146,
primarily as a result of disposals of fixed assets offset by new assets
acquired.
OTHER INCOME (EXPENSE) NET:
Other income (expense), net changed from other income, net of $267, to other
expense, net of $(67,901). This change was a result of losses on disposal of
fixed assets in 1998.
INTEREST EXPENSE:
Interest expense increased $11,953, from $9,453 to $21,406, primarily as a
result of the increase in average principal outstanding of debt.
INCOME TAX BENEFIT:
Income tax benefit decreased from $37,031 to $1,598. The decrease was a
result of the smaller loss before income taxes during 1998. The effective rate
remained 40% for both years.
ULSTERNET, INC.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1997 1998
-------------------- --------------------
$ % $ %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues................................................................... 318,630 100.0 604,419 100.0
Connectivity and Operations................................................ 290,309 91.1 491,327 81.3
Selling, General and Administrative expense................................ 6,913 2.2 21,472 3.6
Depreciation............................................................... 39,224 12.3 58,231 9.6
--------- --------- --------- ---------
Total costs and expenses................................................... 336,446 105.6 571,030 94.5
--------- --------- --------- ---------
Income (loss) from Operations.............................................. (17,816) (5.6) 33,389 5.5
Interest expense........................................................... (8,480) (2.7) (9,784) (1.6)
--------- --------- --------- ---------
Net Income (Loss).......................................................... (26,296) (8.3) 23,605 3.9
--------- --------- --------- ---------
--------- --------- --------- ---------
Approximate total subscribers at year end.................................. 2,100 3,800
</TABLE>
Ulsternet results for the year ended December 31, 1997 compared to the year
ended December 31, 1998.
REVENUES:
Revenues increased $285,789, or 89.7%, from $318,630 to $604,419 primarily
as a result of an increase in subscribers. The number of subscribers increased
from 2,100 at December 31, 1997 to 3,800 at December 31, 1998, an increase of
81.0%.
30
<PAGE>
COSTS AND EXPENSES:
Total costs and expenses increased $234,584, or 69.7% from $336,446 to
$571,030, primarily as a result of the increase in the number of subscribers.
CONNECTIVITY AND OPERATIONS:
Connectivity and operations expenses increased $201,018, or 69.2%, from
$290,309 to $491,327. The increase was primarily a result of the increased
number of subscribers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE:
Selling, general and administrative expenses increased $14,559, from $6,913,
to $21,472.
DEPRECIATION:
Depreciation expenses increased $19,007, or 48.5%, from $39,224 to $58,231,
primarily as a result of capital equipment spending.
INTEREST EXPENSE:
Interest expense increased $1,304, from $8,480 to $9,784, primarily as a
result of the increase in average principal outstanding of debt and capitalized
leases.
BORG INTERNET SERVICES, INC.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1997 1998
-------------------- --------------------
$ % $ %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues................................................................... 505,970 100.0 832,734 100.0
Connectivity and Operations................................................ 319,127 63.1 601,890 72.3
Selling, General and Administrative expense................................ 64,978 12.8 136,025 16.3
Depreciation............................................................... 64,909 12.8 102,581 12.3
Amortization of intangibles................................................ 21,534 4.3 21,534 2.6
--------- --------- --------- ---------
Total costs and expenses................................................... 470,548 93.0 862,030 103.5
--------- --------- --------- ---------
Income (loss) from operations.............................................. 35,422 7.0 (29,296) (3.5)
Interest expense........................................................... (4,467) (.9) (11,717) (1.4)
--------- --------- --------- ---------
Income (loss) before taxes................................................. 30,955 6.1 (41,013) (4.9)
Income tax provision (benefit)............................................. 12,383 2.4 (12,056) (1.4)
--------- --------- --------- ---------
Net income (loss).......................................................... 18,572 3.7 (28,957) (3.5)
--------- --------- --------- ---------
--------- --------- --------- ---------
Approximate total Subscribers at year end.................................. 2,500 4,000
</TABLE>
Borg results for the year ended December 31, 1997 compared to the year ended
December 31, 1998.
REVENUES:
Revenues increased $326,764 or 64.6%, from $505,970 to $832,734, primarily
as a result of an increase in subscribers. The number of subscribers increased
from 2,500 at December 31, 1997 to 4,000 at December 31, 1998, an increase of
60.0%.
31
<PAGE>
CONNECTIVITY AND OPERATIONS:
Connectivity and operations expenses increased $282,763, or 88.6%, from
$319,127 to $601,890. The increase was primarily a result of the increase in the
number of subscribers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE:
Selling, general and administrative expenses increased $71,047, or 109.3%,
from $64,978 to $136,025. The increase was a result of increased advertising
expenses.
DEPRECIATION:
Depreciation expenses increased $37,672 or 58.0%, from $64,909 to $102,581,
primarily as a result of increased capital equipment spending.
INTEREST EXPENSE:
Interest expense increased $7,250, from $4,467 to $11,717, primarily as a
result of the increase in average principal outstanding of debt and capitalized
leases.
INCOME TAX PROVISION (BENEFIT):
Income tax provision during 1998 of $12,383 changed to an income tax
(benefit) of $(12,056). The change was a result of a loss before taxes in 1998.
The effective rate remained 40% for both years.
ALBANYNET, INC.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1997 1998
-------------------- ---------------------
$ % $ %
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues................................................................. 838,807 100.0 1,140,518 100.0
Connectivity and Operations.............................................. 658,329 78.5 768,400 67.4
Selling, General and Administrative expense.............................. 44,441 5.3 61,456 5.4
Depreciation............................................................. 57,866 6.9 67,814 5.9
--------- --------- ---------- ---------
Total costs and expenses................................................. 760,636 90.7 897,670 78.7
--------- --------- ---------- ---------
Income from operations................................................... 78,171 9.3 242,848 21.3
Other income, net........................................................ 11,082 1.3 5,369 .5
Interest expense......................................................... (4,724) (.6) (3,272) (.3)
--------- --------- ---------- ---------
Net Income............................................................... 84,529 10.0 244,945 21.5
--------- --------- ---------- ---------
--------- --------- ---------- ---------
Approximate total Subscribers at year end................................ 2,300 3,200
</TABLE>
Albanynet's results for the year ended December 31, 1997 compared to the
year ended December 31, 1998.
REVENUES:
Revenues increased $301,711 or 36.0%, from $838,807 to $1,140,518 primarily
as a result of an increase in subscribers. The number of subscribers increased
from 2,300 at December 31, 1997 to 3,200 at December 31, 1998, an increase of
39.1%.
32
<PAGE>
CONNECTIVITY AND OPERATIONS:
Connectivity and operations expenses increased $110,071 or 16.7% from
$658,329 to $768,400. The increase was primarily a result of the increased
number of subscribers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE:
Selling, general and administrative expenses increased $17,015, or 38.3%,
from $44,441 to $61,456.
DEPRECIATION:
Depreciation expenses increased $9,948, from $57,866 to $67,814, primarily
as a result of capital equipment purchases.
INTEREST EXPENSE:
Interest expense decreased $1,452, from $4,724 to $3,272. The decrease was a
result of lower outstanding capital leases during 1998.
33
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Internet service providers we will acquire are corporations that are
thinly capitalized. These Internet service providers have been financed
primarily through cash flow from operations. Due to the net proceeds from this
offering, we expect our liquidity on a consolidated basis to be substantially
different from that of the individual companies.
PRO FORMA COMBINED LIQUIDITY AND CAPITAL RESOURCES
We will conduct all operations through our Internet service providers.
Following completion of this offering, we expect to provide growth capital to
our Internet service providers to allow each company to build its network
infrastructure and increase its sales and marketing staff. Upon completion of
the offering and after funding the acquisitions of the four additional Internet
service providers, we will have approximately $8 million of cash on hand,
$300,000 of short term indebtedness and $200,000 of long term debt. If the
Underwriters' over-allotment is exercised, we will have approximately $10
million of cash on hand.
On a combined basis, we generated cash flow from operations of $677,726
during the year ended December 31, 1997, and $944,797 during the year ended
December 31, 1998. In addition, we utilized cash flow in investing activities of
$445,283 during the year ended December 31, 1997, and $349,384 during 1998 and
used $156,544 from financing activities during the year ended December 31, 1997
and $207,326 during 1998.
We believe that our cash flow from operations and proceeds from this
offering will provide the cash required to fund existing operations for at least
twelve months following the consummation of the offering. Thus we intend to
pursue our strategy of acquiring additional Internet service providers, web
hosts and e-commerce service companies through the use of remaining cash on hand
as a result of this offering and the issuance of additional common stock, notes
payable and cash flow from operations.
YEAR 2000 DISCLOSURE
With the new millennium approaching, many businesses and institutions are
reviewing and modifying their computer systems to ensure they accurately process
transactions relating to the Year 2000 and beyond. This effort is necessary
because many existing computer systems and microprocessors with data functions,
including those in non-information technology equipment and systems, use only
two digits to identify a year in the date field and assume that the first two
digits of the year are always "19." Consequently, on January 1, 2000, computers
that are not Year 2000 compliant may read the year of 1900. Computer systems
that calculate, compare or sort using the incorrect date may malfunction causing
disruptions of operations, including, a temporary inability to process
transactions, send invoices or engage in other normal business activities. Our
failure to address potential Year 2000 malfunctions in our computer and
non-information technology equipment and systems could result in our suffering
business interruption, financial loss, reputational harm and legal liability.
We do not have any significant non-information technology equipment or
systems. As a result, our Year 2000 readiness efforts have primarily addressed
computer hardware and software performance.
We have received representations from the former owners of our Internet
service providers that they have taken all necessary action to assess, evaluate,
test and correct all of the hardware, software, microchips and other processing
capabilities of the computer and telecommunications systems they use in their
businesses to be Year 2000 compliant. We have not conducted our own audit of our
Internet service providers to confirm that these representations are true. To
the extent these representations are breached and we suffer damages relating to
Year 2000 malfunctions, our operating results and financial conditions may be
adversely affected.
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We are currently assessing Year 2000 risks related to our external vendors
and third-party network service providers. To the extent that we rely on
external vendors or third-party network service providers with Year 2000
exposures, any failure by these vendors or third-party network service providers
to resolve any Year 2000 issues on a timely basis or in a manner that is
compatible with our systems could also have a material adverse effect on our
financial condition.
We have not yet developed a contingency plan to address situations that may
result if we are unable to achieve Year 2000 compliance. The cost of developing
and implementing such a plan, if necessary, could be material.
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 Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides guidance
on accounting for the costs of computer software developed or obtained for
internal use and 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. We have 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.
("SOP 98-5"). SOP 98-5 provides guidance on the financial reporting of start up
costs and organization costs. It requires start up and organization costs to be
expensed as incurred. SOP 98-5 is effective for financial statements for fiscal
years beginning after December 15, 1998. We have implemented SOP 98-5 during
1998 and do not expect it to have a material impact on our financial position or
results of operations.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131 "Disclosure About Segments of an
Enterprise and Related Information." SFAS 131 supersedes SFAS 14, "Financial
Reporting for Segments of a Business Enterprise", and is effective for years
beginning after December 31, 1997. SFAS 131 establishes standards for the way
that public business enterprises report selected information about operating
segments in financial reports. SFAS 131 also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
We have not yet determined the impact of the adoption of SFAS 131.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133 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 SFAS 133,
every derivative is recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS 133 requires that changes in the
derivative fair value be recognized currently in earnings unless specified hedge
accounting criteria are met. SFAS 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. We do not anticipate that SFAS 133 will have a
material impact on our financial position or results of operations.
35
<PAGE>
BUSINESS
OVERVIEW
We provide dial-up and dedicated Internet access, web site design and
hosting, and e-commerce services to individual and business subscribers in
secondary markets in the northeastern United States such as Albany, New York and
Hartford, Connecticut. We market our Internet service providers as premium
Internet access providers, and we offer subscribers comprehensive technical
assistance, low modem to subscriber ratios, and high speed connectivity. In
addition, our home page web sites serve as regional portals, offering local and
national news and weather, community resources, advertising, and links to other
local and national content providers.
INDUSTRY BACKGROUND
The Internet has grown rapidly since its introduction to the public in the
early 1990s allowing millions of people worldwide to obtain and share
information, communicate and conduct business electronically. The International
Telecommunications Union reported that in 1996, there were 24.5 Internet users
per 100 personal computers; that figure is projected to grow 22% annually to
66.7 Internet users per 100 personal computers by 2001. International Data
Corporation estimates that by the end of 2002, the number of Internet users will
increase to over 135 million in the United States and over 319 million
worldwide. The growth in the number of Internet users is being fueled by a
number of factors, including the large and growing base of installed personal
computers, the speed and reduction in cost of modem and personal computers, and
the increasing importance of the Internet as a means of communication and as a
sales and distribution channel.
OUR STRATEGY
Our strategy is to rapidly build a base of Internet subscribers through
acquisition and internal growth. We believe individual dial-up customers have a
set of objectives for their Internet service providers which we must meet in
order to attract and retain their accounts, including:
- Prompt and courteous customer service;
- Low modem to subscriber ratio;
- On-site service;
- Competitive pricing packages;
- Access to local and national content; and
- Reliability.
We believe that business accounts provide our Internet service providers
with additional growth opportunities for several reasons:
- As residential dial-up users' demands for local content and e-commerce
increases, regional businesses must respond by providing access to their
products and services through the Internet, or risk losing sales and
market share to national and international business competitors.
- The types of services needed by commercial subscribers, including
dedicated access lines, web design and hosting services, and other
business related Internet services, have the potential to produce high
profit margins.
- Commercial subscribers expect high levels of technical support services
which can be best served by a local Internet service provider.
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We believe small and middle market businesses maintain small information
technology departments and do not have the resources to internally develop and
manage all the components of their Internet strategies.
The following are the key elements of our strategy:
- ACQUIRE ADDITIONAL INTERNET SERVICE PROVIDERS. We will use our newly
acquired management teams to assist us in identifying local competitors
and other Internet companies also primarily in secondary markets as
potential acquisitions.
- INCREASE OUR CUSTOMER SUPPORT. We will implement a centralized customer
care and billing system that will allow our Internet service providers to
better manage our customers' requests, and we plan to establish a service
management team that will be responsible for measuring customer
satisfaction levels.
- CREATE A STRONG REGIONAL BRAND. Our Internet service providers will
eventually adopt our corporate name which will be a first step towards
developing a distinctive regional brand image. We plan to enhance this
image with print, radio and television advertising.
- EXPAND E-COMMERCE SERVICES. Small to medium-sized businesses are focusing
on the development of e-commerce as a way to expand their revenues. We
intend to establish an e-commerce sales and design team to focus on this
rapidly expanding Internet service.
- INCREASING SALES AND MARKETING STAFF. It is our belief that one of the
fastest growing segments of the Internet access market are small to mid
sized businesses. Each account represents an opportunity to sell dedicated
access, web site design and hosting, e-commerce and ongoing account
management. We intend to hire knowledgeable sales personnel to market our
products and services to this target market.
THE ACQUISITIONS
SUMMARY. The table below summarizes certain purchase price, subscriber and
revenue information for our five Internet service providers. We negotiated the
purchase price for each Internet service provider at arm's length based on a
number of factors including their 1998 revenues, cash flows, historical
operating results, growth rates, number of subscribers, management and business
prospects. The number of shares of our common stock that we will issue to the
owners of these companies is based on the price of common stock offered to the
public in this offering. We will adjust each purchase price after the closing of
this offering based on the stockholders' equity of each Internet service
provider as of the closing date. We will retain common stock valued between
$50,000 and $200,000 from the purchase price (except in the case of AlbanyNet,
Inc. where we will retain cash) in escrow for one year after the closings to
fund a portion of any potential indemnity obligations of the stockholders of our
Internet service providers under our merger or stock purchase agreements.
<TABLE>
<CAPTION>
PURCHASE
1998 1998 PURCHASE PRICE: TOTAL SHARES TOTAL
INTERNET SERVICE PROVIDERS SUBSCRIBERS REVENUES PRICE: CASH STOCK @$8/ SHARE PRICE
- --------------------------------------------- ------------- --------- ----------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Global 2000 Communications, Inc.............. 4,000 $1,738,613 $ 580,000 $2,720,000 340,000 $3,300,000
Albanynet, Inc............................... 3,200 $1,140,518 $2,400,000 0 0 $2,400,000
Borg Internet Services, Inc.................. 4,000 $ 832,734 $ 500,000 $1,500,000 187,500 $2,000,000
Caravela Software, Inc....................... 5,000 $1,879,410 $2,180,000 $2,800,000 350,000 $4,980,000
Ulsternet, Inc............................... 3,800 $ 604,419 $ 650,000 $ 800,000 100,000 $1,450,000
------ --------- ----------- ----------- ------------- ----------
Totals....................................... 20,000 $6,195,694 $6,310,000 $7,820,000 977,500 $14,130,000
------ --------- ----------- ----------- ------------- ----------
------ --------- ----------- ----------- ------------- ----------
</TABLE>
We have accounted for the acquisition of Global 2000 Communications and we
will account for the additional four Internet service providers to be acquired
at the consummation of this offering as purchases for financial reporting
purposes. As with Global 2000 Communications, we will allocate the
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excess of the purchase price for each company over the fair value of that
company's net tangible assets (approximately $12,611,021 in the aggregate
including Global 2000 Communications) primarily to goodwill and subscriber
lists. We plan to amortize amounts allocated to intangibles over an average life
of five years from the closing of this offering. As a result, we will record
annual additional amortization expense for the intangible assets acquired from
these companies of approximately $2,522,204 for each year during the five years
following consummation of this offering.
GLOBAL 2000 COMMUNICATIONS, INC. We acquired all of the outstanding stock
of Global 2000 Communications under an Agreement and Plan of Merger and
Reorganization on January 31, 1999 for shares of our common stock equal to
$2,720,000 or 340,000 shares (valued at the initial public offering price of
$8.00 which is the mid point of the range per share of this offering) and
$580,000 in promissory notes payable at the consummation of this offering. We
will adjust the purchase price on or before May 31, 1999 based on Global's
shareholders' equity on January 31, 1999. For example, if the shareholders'
equity amount is $100,000 less than we expect under our merger agreement
covenants, we are entitled to reduce the purchase price by $100,000, and we
would allocate 82% of such adjustment to the stock portion of the purchase price
and 18% to the cash portion. Global 2000 Communications commenced operations as
an Internet service provider in the greater Albany, New York area in 1994, and
in 1998 served approximately 4,000 subscribers and had revenues of $1,738,613.
The three principal stockholders of Global 2000 Communications entered into
three year employment agreements as described above at the merger closing and
will continue to manage the business of this subsidiary.
ALBANYNET, INC. We will acquire all of the outstanding stock of AlbanyNet
under a stock purchase agreement dated February 8, 1999 for $2,400,000 in cash
at the consummation of this offering. We may adjust the purchase price within 45
days after consummation of this offering based on AlbanyNet's shareholders'
equity on the closing date as described above for Global 2000 Communications.
AlbanyNet commenced operations as an Internet service provider in the greater
Albany, New York area in 1996, and in 1998 served approximately 3,200
subscribers and had revenues of $1,140,518. One of the four principal
stockholders of AlbanyNet will enter into a three year employment agreement at
the consummation of this offering and will continue to manage the business of
this subsidiary.
BORG INTERNET SERVICES, INC. We will acquire all of the outstanding stock
of Borg Internet Services, Inc. under an Agreement and Plan of Merger and
Reorganization dated January 28, 1999 for shares of our common stock equal to
$1,500,000 (valued at the initial public offering price per share of our common
stock in this offering) and $500,000 in cash payable at the consummation of this
offering. We may adjust the purchase price within 45 days after consummation of
this offering based on Borg's shareholders' equity on the closing date as
described above for Global 2000 Communications (with a 75% to 25% stock to cash
ratio). Borg commenced operations as an Internet service provider in the Utica,
New York area in 1995, and in 1998 served approximately 4,000 subscribers and
had revenues of $832,734. The three principal stockholders of Borg will each
enter into a three year employment agreement at the consummation of this
offering and will continue to manage the business of this subsidiary.
CARAVELA SOFTWARE, INC. We will acquire all of the outstanding stock of
Caravela Software (doing business as "Connix") under an Agreement and Plan of
Merger and Reorganization dated February 8, 1999 for shares of our common stock
equal to $2,800,000 (valued at the initial public offering price per share of
our common stock in this offering) and $2,180,000 in cash at the consummation of
this offering. We may adjust the purchase price within 45 days after
consummation of this offering based on Connix' shareholders' equity on the
closing date as described above for Global 2000 Communications (with a 60% to
40% stock to cash ratio). Connix commenced operations as an Internet service
provider in Connecticut in 1996, and in 1998 served approximately 5,000
subscribers and had revenues of $1,879,410. The two principal stockholders of
Connix will each enter into a three year employment
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agreement at the consummation of this offering and will continue to manage the
business of this subsidiary.
ULSTERNET, INC. We will acquire all of the outstanding stock of Ulsternet
under an Agreement and Plan of Merger and Reorganization dated February 3, 1999
for shares of our common stock equal to $800,000 (valued at the initial public
offering price per share of our common stock in this offering) and $650,000 in
cash at the consummation of this offering. We may adjust the purchase price
within 45 days after consummation of this offering based on Ulsternet's
shareholders' equity on the closing date as described above for Global 2000
Communications (with a 55% to 45% stock to cash ratio). Ulsternet commenced
operations as an Internet service provider in the Kingston, New York area in
1996, and in 1998 served approximately 3,800 subscribers and had revenues of
$604,419. The principal stockholder of Ulsternet will enter into a three year
employment agreement at the consummation of this offering and will continue to
manage the business of this subsidiary.
COMPETITION
The market for Internet access and related service is extremely competitive.
We expect competition in these markets to increase as Internet use grows and
established national Internet service providers, telecommunications and computer
related vendors expand their traditional products and services and new start ups
emerge. Our competitors include:
- national and regional commercial Internet service providers such as Verio
and Earthlink, and Mindspring;
- established on-line commercial information providers such as AOL, Prodigy
and MSN;
- local Internet service providers;
- cable television operators such as Time Warner and Tele-Communications,
Inc;
- national long distance telecommunications carriers such as AT&T, MCI
Worldcom, and Sprint;
- computer hardware and software companies, such as IBM and Compaq; and
- regional telephone operating companies.
We also believe that new competitors will continue to enter the Internet
access market, such as large computer hardware and software companies, media and
telecommunications entities, and companies that provide direct service to
residential customers, including cable television operators, wireless
communication companies, local and long distance telephone companies and
electric utility companies.
Many of our competitors are larger and have greater financial, technical,
and operating resources than we do. We will need to distinguish ourselves by our
product and service knowledge, our responsiveness to our targeted market of
small to medium sized businesses, our ability to bundle and cross-sell products
and services within our market, and our capacity to be a one-stop provider of
Internet related products and services. We also feel that our ability to be
flexible in providing solutions to customer business problems will be an
advantage over some of our larger competition.
GOVERNMENT REGULATION
The telecommunication industry is highly regulated by both federal and state
government. Internet access generally occurs through transmission over public
telephone lines. These transmissions are governed by regulatory policies
establishing charges and terms for communication. Currently, as an Internet
access provider, we are not subject to direct regulation by the Federal
Communications Commission or any other agency, other than regulations applicable
to businesses generally. However, the government may also elect in the future to
regulate Internet service providers as basic providers of telecommunication
services.
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These regulations could change how we pay to connect to the local telephone
network. Currently, we, like other Internet access providers, are not required
to pay carrier access charges. Access charges are assessed by local telephone
companies to long distance companies for the use of the local telephone network
to originate and terminate long distance calls generally on a per minute basis.
Access charges have long been a source of dispute, with long distance companies
arguing that the access rates are substantially in excess of cost and local
telephone companies arguing that access rates are needed to subsidize lower
local rates for end user and other purposes. In May 1997, the Federal
Communications Commission reaffirmed its decision that Internet access providers
should not be required to pay carrier access charges. In a related order, the
Commission also concluded that Internet access providers should not be required
to contribute local rate subsidies and to meet with public policy objectives,
such as enhanced communications systems for schools, libraries and other health
care providers. As a result, unlike telecommunication carriers and other
telecommunications providers, Internet access providers will not have to
contribute a percentage of their revenues to the federal universal fund and are
not likely to be required to contribute to similar funds being established at
the state level. However, both the universal service fund and access charges are
continuing to be debated and could change at any time. Telephone companies are
actively seeking reversal of the Commission's decision. As Internet telephony
begins to compete with traditional telephone companies, the chances of the
Commission reversing its previous decision increase. We would be adversely
affected if in the future our Internet service providers were required to pay
access charges or contribute to the universal service fund.
The law relating to liability of on-line service providers and Internet
service providers for information carried on or disseminated through their
network is unsettled. Companies like ours face potential liability for the
actions of subscribers and others using our systems, including liability for
infringement of intellectual property rights, rights of publicity, defamation,
libel and criminal activity (including transmission of obscene materials). As
the law in this area develops, our potential liability for information carried
on or disseminated through our network could require us to implement measures to
reduce our exposure to such liability, which may require the expenditure of
substantial resources or the discontinuation of certain products or service
offerings, any of which could be detrimental to our business, financial
condition and results of operation.
Due to the increasing popularity and use of the Internet, a number of laws
and regulations have been adopted in recent months, and it is possible that
additional laws and regulations may be adopted with respect to the Internet,
covering issues such as content, user privacy, pricing and copyright
infringement. Such laws and regulations potentially affecting us have been
adopted, and may be adopted in the future, by federal and state governments. We
cannot predict the impact, if any, that recent and future regulatory changes or
developments may have on our business, financial condition and results of
operation. Changes in the regulatory environment relating to the Internet access
industry or telecommunication services, including regulatory changes that
directly or indirectly affect telecommunication costs or increase the likelihood
or scope of competition from regional bell operating companies, or others, could
have a material adverse effect or our business, financial condition and results
of operation.
PERSONNEL
As of December 31, 1998, on a pro forma basis, we employed 60 persons,
including:
- 8 sales and marketing personnel;
- 42 connectivity and operations employees; and
- 10 administrative personnel.
None of our employees are represented by a labor union, and we are not
governed by any collective bargaining agreement. We have a satisfactory
relationship with our employees.
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PROPERTIES
We lease approximately 2,800 square feet of office space for our executive
offices in Wall, New Jersey at approximately $11 per square foot under a lease
expiring December 31, 2001. Our Internet service providers lease space in their
markets for their administrative offices. We anticipate that we will require
additional space as we expand. We believe we will be able to obtain suitable
space when required.
LEGAL PROCEEDINGS
We are not a party to any material legal proceeding.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Mark E. Munro....................... 36 Chairman of the Board, President, Chief Executive Officer and
Director
S. Keith London..................... 32 Executive Vice President and Director
David Conboy........................ 42 Director
John B. Fraser...................... 66 Director Nominee
Joseph Luciano...................... 51 Director Nominee
Daniel J. Sullivan.................. 41 Chief Financial Officer
</TABLE>
MARK E. MUNRO, Chairman of the Board, President and Chief Executive Officer,
founded BiznessOnline in June, 1998. From October, 1996 until September, 1997,
Mr. Munro served as President of Sales, Marketing and Distribution, and Director
of VSI Enterprises, Inc. (Nasdaq: VSIN), a video conferencing equipment
manufacturer. In August 1990, Mr. Munro founded Eastern Telecom, Inc., a company
involved in the marketing and sales of telecommunications services and products
for NYNEX, Bell Atlantic and The Southern New England Telephone Company. Mr.
Munro served as Chief Executive Officer, Treasurer and Director of Eastern
Telecom from 1990 until 1996, when VSI Enterprises, Inc. acquired all of the
outstanding stock of Eastern Telecom. From 1985 until 1990, Mr. Munro worked for
NYNEX as a senior account executive and as general manager of U.S. Telecenters,
a reseller of local exchange and long distance telephone services and products.
S. KEITH LONDON, Executive Vice President and Director, has been with us
since June, 1998. From October, 1996 until August, 1997, Mr. London was Director
of Business Development for Eastern Telecom, Inc. From February, 1995 until
October, 1996, Mr. London served as an Associate Director at Geneva Corporate
Finance, Inc., an investment banking firm in New York City. From May, 1993 until
December, 1994, Mr. London attended Columbia University Graduate School of
Business.
DAVID CONBOY, Director, Chief Executive Officer of Global Communications
founded Global 2000 Communications, Inc. in June 1994. From September, 1991
through June, 1994, Mr. Conboy served as National Marketing Director for New
Wave Products, a distributor of health care products.
JOHN B. FRASER, Director Nominee, is currently a self-employed business
consultant. He was President of Geneva Financial Corporation, an investment
banking firm from July, 1994 to January, 1998. At Geneva, Mr. Fraser was
responsible for the development and execution of corporate finance transactions.
Prior to joining Geneva, from July, 1987 to June, 1994, Mr. Fraser was Managing
Director for Citibank and supervised Citibank's North American mergers and
acquisitions business. From February, 1981 to January, 1998, Mr. Fraser was
President and Director of Morgan Grenfell, Inc., a British investment bank. Mr.
Fraser received his M.B.A. from Harvard Business School. He serves as a director
of Worldtex, Inc. (NYSE:WTX), a company which manufactures elastic yarn for
hosiery.
JOSEPH LUCIANO, Director Nominee, has served as Chief Operating Officer of
Program Planning Professionals, an international technologies project management
consulting company, since September, 1998. Prior to joining Program Planning
Professionals, he served as Chief Information Officer at Mars, Inc., a national
candy maker, from 1983 through August, 1998.
DANIEL J. SULLIVAN, has served as our Chief Financial Officer since January,
1999. From December, 1997 through January, 1999, Mr. Sullivan served as
controller of the Vitronics-Soltec division of a subsidiary of Dover Corporation
(NYSE:DOV). Vitronics-Soltec manufactures capital equipment for the electronics
industry. From April, 1994 until December, 1997, he was Vice President and
Controller of Vitronics Corporation, a manufacturer of capital equipment for the
electronics industry which traded
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on the American Stock Exchange prior to its acquisition by Dover Corporation in
1997. From November, 1984 through October, 1993, he held various positions in
the financial department at Visual Technology, Inc., a manufacturer of computer
hardware and software.
COMPENSATION OF DIRECTORS
Directors who are also our employees receive no additional compensation for
attendance at Board meetings. Non-employee directors will receive $500 per Board
meeting and options for the purchase of common stock from our 1999 Non-Employee
Director Stock Option Plan as described below. They will also be reimbursed for
their travel, lodging, and other out-of-pocket expenses incurred in connection
with attending Board meetings.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation we paid to our Chief
Executive Officer for services rendered in all capacities during the fiscal year
ended December 31, 1998. No other executive officers earned in excess of
$100,000 of salary and bonus for the periods indicated. See "Employment
Agreements" below.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
-------------
<S> <C> <C>
NAME AND PRINCIPAL POSITION YEAR SALARY
- ----------------------------------------------------------------------- --------- -------------
Mark E. Munro.......................................................... 1998 $ 7,692
Chairman and Chief
Executive Officer
</TABLE>
EMPLOYMENT AGREEMENTS
We have entered into an employment agreement with Mr. Munro which provides
for an initial term of three (3) years commencing January 1, 1999 at an initial
annual base salary of $125,000 plus an annual performance bonus to be determined
by the Board's Compensation Committee. Mr. Munro's employment agreement also
contains change-of control provisions that require us to pay Mr. Munro two (2)
times his annual base salary in the event of a change-of-control during the term
of the Agreement, subject to certain conditions. Mr. Munro's Agreement also
provides for health insurance benefits and contains non-competition provisions
that prohibit him from competing with us. The period covered by the
non-competition provisions will end upon the later of the expiration of the
agreement or one year after Mr. Munro's resignation or termination.
We have entered into an employment agreement with Mr. London which provides
for an initial term of one (1) year commencing December 1, 1998 at an initial
annual base salary of $80,000. Mr. London's employment agreement contains
change-of-control provisions requiring us to pay Mr. London 1.5 times his annual
salary in the event of a change-of-control during the term, subject to certain
conditions. Mr. London's employment agreement also contains health insurance
benefits and a non-competition covenant that runs for a one year period
following termination.
We have entered into an employment agreement with Mr. Sullivan which
provides for a term of one (1) year commencing January 25, 1999 at an initial
annual base salary of $125,000. Mr. Sullivan is also entitled to receive an
option to purchase 30,000 shares of common stock at an exercise price equal to
the price per share of the common stock offered to the public in this offering,
vesting 10,000 shares per year over a three-year period. In the event we
terminate Mr. Sullivan without cause, Mr. Sullivan will receive his base salary
and health benefits for the greater of six (6) months or the remainder of his
initial one-year employment term.
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We have also entered into employment agreements with key employees of Global
2000 Communications, Inc. and we will enter into employment agreements with
certain key employees of the four Internet service providers we will acquire
upon consummation of this offering. In general, these agreements are for terms
of three years at annual salaries between $60,000 and $70,000, provide for
bonuses in the aggregate between 5% and 7.5% of each respective Internet service
provider's annual revenue growth (excluding revenues generated as a result of
mergers or acquisitions), between 15% and 20% of each respective Internet
service provider's annual Earnings Before Interest, Taxes, Depreciation and
Amortization growth (after allocation of corporate overhead expenses and
excluding revenues generated as a result of mergers or acquisitions), and for
successfully integrating additional newly acquired Internet service providers
into our consolidated operations. These agreements contain customary
non-competition provisions which generally prohibit the employees from competing
with us in the northeastern United States for two years following termination of
employment.
1999 STOCK INCENTIVE PLAN
PURPOSE. We believe it is in our company's best interest to provide
material incentives for the continued services of key and valuable employees and
non-employees who perform services for us. Our 1999 Stock Incentive Plan allows
us to award both incentive and non-qualified stock options to eligible
participants.
OPERATION AND ELIGIBILITY. A committee of our Board of Directors
administers the 1999 Stock Incentive Plan. The committee may award (i) incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, or (ii) non-qualified stock options. Only employees are
eligible to receive incentive stock options. We have reserved 500,000 shares of
our common stock for issuance under the 1999 Stock Incentive Plan, all or any
portion of which may be granted in the form of incentive stock options. Shares
of common stock reserved for issuance but never issued, such as shares covered
by expired or terminated options, generally will be available for subsequent
awards.
OPTION PRICE. The option price per share for any option granted under the
Incentive Stock Plan will be determined by the administering committee. However,
in the case of an incentive stock option, the option price per share will not be
less than 100% of the fair market value of our common stock at the time of
grant.
OPTION TERM. The committee determines the term of each option. No incentive
stock option may be exercised after the expiration of ten years from the date
the option is granted. The committee may determine that all or a stated
percentage of the shares covered by such option shall become exercisable in
installments.
SPECIAL RULES FOR 10% STOCKHOLDER. The option price per share of an
incentive stock option granted to an employee who owns more than 10% of the
total combined voting power of all classes of our stock will be at least 110% of
the fair market value per share of the stock subject to the option. In addition,
incentive stock options to 10% stockholders may not be exercised after five
years from the date the option is granted.
GRANT LIMITATION. The aggregate fair market value of common stock with
respect to which incentive stock options are exercisable for the first time by
any employee during any calendar year (determined at the time the incentive
stock option is granted) shall not exceed $100,000.
TERMINATION OF OPTION BY REASON OF TERMINATION OF EMPLOYMENT. Unless the
committee determines otherwise, if an option holder's employment terminates, all
options that are not exercisable on the date of termination of employment shall
immediately terminate. Any remaining options shall terminate if not exercised
before the earlier of the expiration of the option term or the following
periods:
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- thirty (30) days following termination of employment, if termination was
not a result of retirement on or after age 55, or of death or disability
(disability within the meaning of Section 22(e)(3) of the Internal Revenue
Code); or
- three (3) months following termination of employment because of retirement
on or after age 55;
- one (l) year following date of death or commencement of disability, if the
option holder was employed by at the time of death or the commencement of
disability; or
- immediately upon a "for cause" termination.
NON-TRANSFERABILITY. Except in limited circumstances, each option shall be
exercisable during the option holder's lifetime only by him and may not be
assigned or transferred except by his will or by the laws of descent and
distribution.
MODIFICATION OR CANCELLATION OF OPTION. The committee may amend the terms
of any option with the consent of the option holder, including the acceleration
of the exercisability of any option for any reason including a change in control
or ownership, or the cancellation of any outstanding options granted under this
Plan. In substitution for canceled options, the committee may grant new options
(subject to the limitations contained in this Stock Incentive Plan) covering the
same or different numbers of shares of common stock at an option price per share
in all events not less than fair market value on the date of the new grant.
DISPOSITION OF SHARES. No option shall qualify as an incentive stock option
if the shares of common stock acquired upon exercise are transferred, other than
by will or by the laws of descent and distribution, within two years of the date
such option was granted or within one year after the receipt of the shares upon
exercise of the option.
METHOD OF EXERCISE. An option granted under the Plan may be exercised by
written notice to the administering committee, stating the number of shares of
common stock in respect of which the Option is being exercised. The notice shall
either be accompanied by the payment of the full option price for such shares or
with a request for a loan from us for all or a part of the purchase price. The
purchase price may be paid:
- in cash (including personal check);
- by the delivery of common stock already owned by the option holder;
- subject to the prior approval of the committee and if permitted by
applicable law, by delivery of a promissory note of the option holder; or
- by any combination of the above.
A certificate or certificates for the shares of our common stock purchased
through the exercise of an option shall be issued in regular course after the
exercise of the option and payment therefore. During the option period no person
entitled to exercise any option granted under the Plan shall have any of the
rights or privileges of a stockholder with respect to any shares issuable upon
exercise of such option until certificates representing such shares shall have
been issued and delivered.
CHANGES IN THE OUR CAPITAL STRUCTURE. The existence of outstanding options
shall not affect in any way our right or ability to make or authorize any or all
changes in our capital structure or our business, or any merger or
consolidation, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting our common stock or our rights hereof, or the
dissolution or liquidation, or any sale or transfer of all or any part of our
assets or business or substantially all of our outstanding stock, or any other
corporate act or proceeding, whether of a similar character or otherwise.
If we shall effect a subdivision, consolidation or reclassification of
shares or other capital readjustment or recapitalization, the payment of a stock
dividend, or other increase or reduction of the number of shares of the voting
shares outstanding, without receiving compensation therefor in money, services
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or property, then the number, class, and per share price of our common stock
shall be appropriately adjusted in such a manner as to entitle an option holder
to receive upon exercise of an option, for the same aggregate cash
consideration, the same total number and class of shares as he would have
received as a result of the event requiring the adjustment.
If we merge into or consolidate with another corporation, regardless of
whether or not we are the surviving corporation, or if we are liquidated, or
sell or otherwise dispose of substantially all of our assets or substantially
all of our stock while this option remains outstanding, unless our Board
determines otherwise, all outstanding options shall expire as of the effective
date of any such merger, consolidation, liquidation, sale, or other disposition,
provided that (x) notice of the merger, consolidation, liquidation, sale or
other disposition shall be given to such option holder at least 30 days prior to
the effective date of such merger, consolidation, liquidation, sale or other
disposition and (y) an option holder shall have the right to exercise an option
to the extent that the same is then exercisable during the 30 day period
preceding the effective date of such merger, consolidation, liquidation, sale or
other disposition.
In general, our issuance of shares of stock of any class, for cash or
property, or for labor or services, either upon direct sale or upon the exercise
of rights or warrants to subscribe therefor, or upon conversion of our shares or
our obligations convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares or the price of our common stock then subject to outstanding
options.
AMENDMENT OR TERMINATION. The committee may amend, suspend or terminate
this Stock Incentive Plan. We shall obtain stockholder approval of any amendment
to the extent necessary to comply with applicable law, including the Internal
Revenue Code and any Stock Exchange regulation.
DURATION OF PLAN. No incentive stock option may be granted later than 10
years after the earlier of the date the Plan is adopted or the date the Plan is
approved by our stockholders.
1999 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
Our directors who are not employees will initially be granted a
non-qualified option to purchase 7,500 shares of our common stock upon election
to our Board. These shares shall vest on the following schedule:
- 33 1/3% on the grant date;
- 33 1/3% on the first anniversary grant date; and
- 33 1/3% on the second anniversary of grant date.
If a director continues to serve on the Board after the first anniversary
date of his or her election, he or she shall be granted an additional
non-qualified option to purchase 2,500 shares of our common stock for each
additional year, vesting twelve months after the grant date of such additional
option.
In each case, the exercise price will be equal to the market price on the
date of the grant, and all options granted under this plan will have an eight
year term. and will vest as set forth above, unless automatically accelerated in
the event of death, disability, or merger or consolidation with another
corporation. Options may be exercised in whole or in part with cash, shares or
our common stock, or in the discretion of our administering committee, by a
promissory note. A total of 50,000 shares of our common stock has been reserved
for issuance under this plan.
LIMITATION ON LIABILITY OF AND INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law allows a Delaware
corporation to indemnify its present and former directors and officers under
certain conditions. Article Twelve of our Certificate of Incorporation provides
that any person made a party to or otherwise involved in any
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action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter, a "proceeding"), by reason of the fact that such
person is or was a director or officer of BiznessOnline, or is or was serving at
our request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall be indemnified and
held harmless us to the fullest extent authorized by the Delaware General
Corporation Law against all expense, liability and loss. However, we will only
indemnify a director or officer in a proceeding such person initiates if such
proceeding was authorized by our directors. The right of indemnification
described herein includes the right to be paid expenses incurred in defending
any proceeding in advance of its final disposition, provided that such person,
if required by the Delaware General Corporation Law, undertakes to repay all
amounts advanced if it shall be ultimately determined that such director or
officer is not entitled to be indemnified under Article Twelve or otherwise.
Section 102(b)(7) of the Delaware General Corporation Law gives a Delaware
corporation the power to adopt a charter provision eliminating or limiting the
personal liability of directors to the corporation or its stockholders for
breach of fiduciary duty as directors, provided that such provision may not
eliminate or limit the liability of directors for:
- any breach of the director's duty of loyalty to the corporation or its
stockholders;
- any acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- any payment of a dividend or approval of a stock purchase that is illegal
under Section 174 of the Delaware General Corporation Law, or
- any transaction from which the director derived an improper personal
benefit.
Article Twelve of our Certificate of Incorporation states that to the
maximum extent permitted by Section 102(b)(7) of the Delaware General
Corporation Law, our director shall not be personally liable to us or our
stockholders for monetary damages resulting from such director's breach of
fiduciary duty as a director, except for liability involving one of the four
exceptions described above. In addition, our Certificate of Incorporation
provides that if the Delaware General Corporation Law is amended to authorize
the further limitation or elimination of the liability of a director, then the
liability of the directors shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
Section 145 of the Delaware General Corporation Law allows a corporation to
obtain insurance on behalf of its directors and officers against liabilities
incurred by them in those capacities. Article Twelve of our Certificate of
Incorporation provides that we may maintain insurance to protect us and our
directors and officers against expenses, liabilities and losses whether or not
we would have the power to indemnify such person against such expense, liability
or loss under the Delaware General Corporation Law. We intend to procure a
directors' and officers' liability and company reimbursement liability insurance
policy that will (a) insure directors and officers against losses (above a
deductible amount) arising from certain claims made against them by reason of
certain acts done or attempted by such directors or officers and (b) insure us
against losses (above a deductible amount) arising from any such claims, but
only if we are required or permitted to indemnify such directors or officers for
such losses under statutory or common law or under provisions of our Certificate
of Incorporation or By-Laws.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the BiznessOnline pursuant to the foregoing
provisions, or otherwise, we have been advised that in the opinion of the
Securities and Exchange Commission indemnification for liabilities is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
Reference is also made to Section [ ] of the Underwriting Agreement between
us and the Underwriters, filed as Exhibit 1.1 to this Registration Statement,
for a description of indemnification arrangements between us and the
Underwriters.
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CERTAIN TRANSACTIONS
On July 1, 1998, in connection with our formation, we sold 1,337,554 shares
of common stock to Mark E. Munro, our President and Chief Executive Officer and
1,337,554 shares of common stock to his wife Susan Munro. We also sold 409,134
shares of common stock to S. Keith London, our Executive Vice President and a
director. In each case, these sales were made for cash for an aggregate
consideration of $183,000 and pursuant to organizational subscription
agreements.
On January 31, 1999, we issued a total of 340,000 shares of our common stock
to the six stockholders of Global 2000 Communications, Inc, comprising the stock
portion of the merger consideration paid to such persons pursuant to an
Agreement and Plan of Merger and Reorganization. David Conboy, a director and
his wife, Lorin Beller, each received 127,500 shares in connection with this
acquisition.
On February 1, 1999, our Global 2000 Communications, Inc. subsidiary entered
into a lease with David Conboy, a director, and his wife Lorin Beller for
approximately 2,000 square feet of office space with a monthly rent of $2,000
plus utilities. The term of the lease is five years subject, however, to our
right to terminate at any time upon thirty days prior notice without further
liability.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information about the beneficial
ownership of our common stock of as of the date of this prospectus, by:
- each of our directors;
- each of our executive officers named in the Summary Compensation Table;
and
- our current executive officers and directors as a group.
The common stock is the only class of our equity securities which will be
outstanding after the offering. No other person beneficially owns more than 5%
of our common stock. We currently have 17 stockholders.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS TITLE SHARES OWNED BEFORE THE OFFERING AFTER THE OFFERING
- ------------------------------------ --------------------- ------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Mark E. Munro....................... CEO, President, 2,675,108(1) 63.7% 43.1%
Treasurer &
Director
S. Keith London..................... Executive Vice 409,134 9.7% 6.6%
President &
Director
Susan Munro......................... -- 2,675,108(2) 63.7% 43.1%
David Conboy........................ Director 255,000(3) 6.1% 4.1%
Lorin Beller........................ 255,000(4) 6.1% 4.1%
Joseph Luciano...................... Director Nominee 0 0 Less than 1%
John Fraser......................... Director Nominee 0 0 Less than 1%
All current directors and executive 3,344,242(1 (3) 79.5% 53.9%
officers [6] persons)...............
</TABLE>
- ------------------------------
In the preceding table:
- Mr. Munro's shares include 1,337,554 shares of common stock owned by Mr.
Munro's wife, Susan Munro, as to which Mr. Munro disclaims beneficial
ownership.
- Mrs. Munro's shares include 1,337,554 shares of common stock owned by Mrs.
Munro's husband, Mark Munro, as to which Mrs. Munro disclaims beneficial
ownership.
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- Mr. Conboy's shares include 127,500 shares of common stock owned by Mr.
Conboy's wife, Lorin Beller, as to which Mr. Conboy disclaims beneficial
ownership.
- Ms. Beller's shares include 127,500 shares of common stock owned by Ms.
Beller's husband, David Conboy, as to which Ms. Beller disclaims
beneficial ownership.
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DESCRIPTION OF SECURITIES
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 39,000,000 shares of common stock,
par value $0.01 per share, and 1,000,000 shares of preferred stock, par value
$0.01 per share. As of February 25, 1999, assuming the issuance of 977,500
shares of common stock to the stockholders of Global 2000 Communications and the
other four Internet service providers we are acquiring at the closing of this
offering, the conversion of 70,000 shares of preferred stock to 76,564 shares of
common stock at the closing of this offering, and a 3.147186 stock split, we
have 4,201,250 shares of our common stock outstanding, held by 17 stockholders.
Prior to the conversion of our outstanding preferred stock, there were 70,000
shares of our Class A Preferred Stock--First Series outstanding, held by 7
stockholders.
Upon completion of this offering, we will have outstanding 6,201,250 shares
of common stock outstanding assuming the initial public offering price is $8.00
per share, or 6,501,250 shares if the Underwriters' over-allotment option is
exercised in full. There will be no shares of preferred stock outstanding after
the closing of this offering.
The following is a description of our capital stock.
COMMON STOCK
We are authorized to issue 39,000,000 shares of common stock. Each
stockholder of record will be entitled to one vote for each outstanding share of
our common stock owned by that stockholder on every matter properly submitted to
the stockholders for their vote. Subject to the dividend rights of holders of
preferred stock, holders of common stock are entitled to any dividend declared
by the Board of Directors out of funds legally available for this purpose and,
after the payment of liquidation preferences to all holders of preferred stock,
holders of common stock are entitled to receive on a pro rata basis all our
remaining assets available for distribution to the stockholders in the event of
our liquidation, dissolution or winding up. Holders of common stock do not have
any preemptive right to become subscribers or purchasers of additional shares of
any class of our capital stock. The outstanding shares of common stock are, and
the shares of common stock offered in this offering will be, when issued and
paid for, fully paid and nonassessable. The rights, preferences and privileges
of holders of common stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock that we may
designate and issue in the future.
PREFERRED STOCK
Our Certificate of Incorporation allows us to issue without stockholder
approval preferred stock having rights senior to those of the common stock.
Following completion of this offering, no shares of preferred stock will be
outstanding. Thereafter, our Board of Directors will be authorized, without
further stockholder approval, to issue up to 1,000,000 shares of preferred stock
in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption and liquidation preferences, and to fix the number
of shares constituting any series and the designations of these series. The
issuance of preferred stock may have the effect of delaying or preventing a
change in control of BiznessOnline. The issuance of preferred stock could
decrease the amount of earnings and assets available for distribution to the
holders of common stock or could adversely affect the rights and powers,
including voting rights, of the holders of the common stock.
Between February 5, 1999 and February 12, 1999, we issued 70,000 shares of
preferred stock designated as "Class A Preferred Stock--First Series" in
connection with the closing of a private offering of preferred stock. These
shares have no voting rights; a liquidation preference of $5.00 per share; and
are entitled to dividends if we pay dividends to our common stockholders as if
each share of
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preferred stock had been converted to common on a one-for-one basis. Upon
consummation of this offering, the Class A Preferred Stock automatically
converts to common stock at the conversion rate of $8.75 per preferred share
divided by the price per share of the common stock being sold in this offering.
The conversion of preferred stock to common stock is mandatory and automatic on
the date of completion of this offering.
At present, we have no plans to issue any additional shares of preferred
stock.
COMMON STOCK OPTIONS.
Our 1999 Stock Incentive Plan enables us to issue incentive and
non-qualified stock options to deserving employees and non-employees who perform
services for BiznessOnline. Under our Stock Incentive Plan, we have reserved
500,000 shares of our authorized common stock for option grants. We believe that
our Stock Incentive Plan will enhance our ability to attract and retain key
employees and other persons who are in a position to make significant
contributions to our success. See "MANAGEMENT--1999 Stock Incentive Plan."
We have agreed to issue incentive stock options under our Stock Incentive
Plan to purchase 30,000 shares of common stock to our chief financial officer
pursuant to his employment agreement. The options vest over a three year period
commencing on January 25, 2000 and are exercisable at the price per share of our
common stock offered to the public in this offering. See "MANAGEMENT--Employment
Agreements."
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS.
SECTION 203. In our Certificate of Incorporation, we elected to be governed
by Section 203 of the Delaware General Corporation Law. Section 203 prevents an
"interested stockholder" (defined in Section 203 generally as a person owning
15% or more of a corporation's outstanding voting stock), from engaging in a
"business combination" (as defined in Section 203) with a publicly-held Delaware
corporation for three years following the date such person became an interested
stockholder unless (i) before such person became an interested stockholder, the
board of directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the business
combination; (ii) upon consummation of the transaction that resulted in the
interested stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers of the corporation and by employee stock plans
that do not provide employees with the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer);
or (iii) following the transaction in which such person became an interested
stockholder, the business combination is approved by our Board of Directors and
authorized at a meeting of our stockholders by affirmative vote (and not by
written consent) of the holders of two-thirds of our outstanding voting stock
not owned by the interested stockholder.
ADVANCE NOTICE FOR STOCKHOLDER PROPOSALS AND STOCKHOLDER NOMINATIONS OF
DIRECTORS. Our By-Laws establish an advance notice procedure for nomination,
other than by the Board of Directors, of candidates for election as directors
and for certain matters to be brought before an annual meeting of stockholders.
The nomination procedure will require that a stockholder give prior written
notice, in proper form, of a planned nomination for the Board of Directors to
our Secretary. The requirements as to the form and timing of that notice are
specified in the By-Laws. If the election inspectors determine that a person was
not nominated in accordance with this nomination procedure, such person will not
be eligible for election as a director. With regard to matters to be brought
before a stockholders meeting, a stockholder seeking to have any business
conducted at an annual meeting must give prior written notice, in proper form,
to our Secretary. The requirements as to the form and timing of that notice are
specified in the By-Laws. If the Chairman or other officer presiding at a
meeting
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determines that other business was not properly brought before such meeting in
accordance with this procedure, such business will not be conducted at such
meeting. Although our By-Laws do not give our Board of Directors any power to
approve or disapprove stockholder nominations for the election of directors or
of any other business desired by stockholders to be conducted at an annual or
any other meeting, the By-Laws (i) may have the effect of precluding a
nomination for the election of directors or precluding the conduct of business
at a particular annual meeting if the proper procedures are not followed or (ii)
may discourage or deter a third party from conducting a solicitation of proxies
to elect its own slate of directors or otherwise attempting to obtain control of
us, even if the conduct of such solicitation or such attempt might be beneficial
to us and our stockholders.
TRANSFER AGENT. We have appointed [ ] as the Transfer Agent for
our common stock.
SHARES AVAILABLE FOR FUTURE SALE
Upon completion of this offering, we will have 6,501,250 shares of common
stock outstanding assuming the initial public offering price is $8.00 per share
and assuming the Underwriters' over-allotment option is exercised in full. The
2,300,000 shares sold in this offering will be freely tradable in the United
States if a market for our stock develops by persons other than our officers,
directors or other affiliated parties. All of the remaining 4,201,250 shares are
"restricted securities" under Rule 144 of the Securities Act of 1933.
Ordinarily, under Rule 144, a person holding restricted securities for a period
of one year may, every three months, sell in ordinary brokerage transactions an
amount equal to the greater of one percent of a company's then outstanding
common stock or the average weekly trading volume during the four calendar weeks
prior to such sales. Rule 144 also permits sales by a person who is not an
affiliate of the company and who has held the shares for two years without any
quantity limitation.
Of the 4,201,250 restricted securities
- the holders of 3,160,806 shares (the principal founders of BiznessOnline,
and the investors in our private offering of preferred stock from December
10, 1998 through February 12, 1999 which automatically converted to common
stock at the closing of this offering) have agreed not to sell any of
their shares for a period of 14 months from the date of our final
prospectus for this offering without the prior written consent of the
Underwriters. After such 14 month period, these holders would be eligible
to resell their shares subject to volume limitations and other conditions
of Rule 144.
- the holders of 977,500 shares (the stockholders of our five Internet
service providers) have agreed not to sell 488,750 shares for a period of
two years from the date of our final prospectus for this offering, after
which such shares could be resold under Rule 144 by non-affiliates without
any volume limitations. Of the remaining 488,750 shares, 318,750 shares
would be available for resale under Rule 144 commencing one (1) year from
the closing date of this offering, and 170,000 would be available for
resale under Rule 144 commencing January 31, 2000.
- the holders of 62,944 shares may sell their shares commencing July 2, 1999
subject to the volume limitations and other conditions of Rule 144.
Any substantial future sales of our common stock under Rule 144 or any other
applicable exemption under the Securities Act of 1933 could have a depressive
effect on the market price of our stock and could impair our ability to raise
additional capital through the sale of our equity securities.
CONVERSION OF PREFERRED STOCK. There are currently 70,000 shares of
Preferred Stock outstanding. Upon completion of this offering, each share of
Preferred Stock automatically converts to common stock at the conversion rate of
$8.75 preferred share divided by the price per share of the common stock we are
selling in this offering. The conversion of preferred stock to common stock is
mandatory and automatic on the date of completion of this offering.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the form
of which has been filed as an exhibit to the Registration Statement), each of
the Underwriters named below through their representatives, Schneider
Securities, Inc. and Joseph Stevens & Company, Inc., has severally agreed to
purchase from us on a firm commitment basis the following respective shares of
common stock at the initial public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Schneider Securities, Inc........................................................ --
Joseph Stevens & Company, Inc.................................................... --
Total...................................................................... 2,000,000
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent. The Underwriters shall be obligated
to purchase all of the Shares if they purchase any.
The Underwriters have advised us that they propose to offer the shares of
common stock to the public at the initial public offering prices set forth on
the cover of this prospectus. The Underwriters have also advised us that they
may allow to certain dealers concessions of not in excess of $[ ] per share of
common stock, of which a sum not in excess of $[ ] per share of common stock
may in turn be reallowed by such dealers to other dealers. After the initial
offering, the public offering price and other selling terms may be changed by
the Underwriters. The Underwriters have further advised us that they do not
expect sales to discretionary accounts to exceed five percent of the total
number of shares of common stock offered hereby.
We have agreed to pay to the representatives of the Underwriters a
non-accountable expense allowance equal to three percent of the total proceeds
of the offering of which we have already paid $50,000 to Schneider Securities.
We have granted an option to the Underwriters, exercisable during the 45-day
period following the effective date of the Underwriting Agreement, to purchase
up to 300,000 shares of common stock at the offering price less underwriting
discounts and commissions set forth on the cover page of this prospectus and the
non-accountable expense allowance. The Underwriters may exercise such option
only to satisfy over-allotments in the sale of the shares. To the extent that
the Underwriters exercise such options, each of the Underwriters will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of additional shares of common stock as the number of shares of
common stock to be purchased by it in the above table bears to the total amount
offered. We will become obligated, pursuant to the option, to sell such shares
to the Underwriters to the extent the option is exercised. If any additional
shares of common stock are purchased, the Underwriters will offer additional
shares on the same terms as those on which the shares are being offered.
We have also agreed to sell to the representatives of the Underwriters, for
nominal consideration, warrants (the "Underwriters' Warrants") to purchase the
number of shares of our common stock equal to 10% of the total number of shares
of common stock sold in this offering at a price per share equal to 150% of the
initial public offering price of the common stock. The Underwriters' Warrants
will be exercisable for a period of four years commencing one year from the
effective date of this offering and will contain certain demand and "piggyback"
registration rights with respect to the common stock issuable upon the exercise
of the Underwriters' Warrants. The Underwriters' Warrants are not transferable
(except to members of the syndicate and their affiliates). The exercise price
and the number of shares issuable upon exercise may, under certain
circumstances, be subject to adjustment pursuant to antidilution provisions.
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Certain principal stockholders and BiznessOnline have agreed that, for a
period of 14 months from the date of this prospectus, they will not sell any
securities (except for shares of common stock issued pursuant to exercise of
options which may be granted under our 1999 Stock Incentive Plan).
The Underwriting Agreement provides for reciprocal indemnification between
us and the Underwriter against certain liabilities in connection with the
Registration Statement, including liabilities under the Securities Act.
Schneider Securities received a $7,500 commission in connection with our
private offering of Class A Preferred Stock which closed in February, 1999.
The foregoing is a brief summary of certain provisions of the Underwriting
Agreement and is not a complete statement of its terms and conditions. A copy of
the Underwriting Agreement is on file with the Commission as an exhibit to the
Registration Statement of which this prospectus is a part.
In connection with this offering, certain underwriters may engage in passive
market making transactions in the shares in accordance with Rule 103 of
Regulation M. Further, the Underwriters' selling group members and their
respective affiliates may engage in transactions that stabilize, maintain or
otherwise affect the market price of our shares. These transactions may include
stabilization transactions permitted by Rule 104 of Regulation M, under which
persons may bid for or purchase shares to stabilize the market price. The
Underwriters may also create a "short position" for their own account by selling
more shares in the offering than they are committed to purchase, and in that
case they may purchase shares in the open market after this offering is
completed to cover all or a part of their short position. The representatives of
the Underwriters may also cover all or a portion of their short position, up to
300,000 shares, by exercising their over-allotment option described above and on
the cover of this prospectus.
Prior to the offering, there has been no public market for any of our
securities. The initial public offering price of the shares of common stock
offered hereby will be determined by negotiations between us and the
representatives of the Underwriters and are not necessarily related to our
assets, earnings, or book value or any other established criteria of value.
Among the factors considered in determining the public offering price are the
following:
- the history and prospects of our business and the industry in which we
compete;
- an assessment of our management and the present state of our development
and business operations;
- prevailing market conditions in the U.S. economy and the industry in which
we compete;
- our revenues, operating cash flow and earnings in recent periods;
- the market capitalizations and stages of development of other companies
which the representatives of the Underwriters believe to be comparable to
us; and
- estimates of our business potential.
LEGAL MATTERS
The validity of the common stock we are offering will be passed upon for
BiznessOnline by Duffy & Sweeney, LLP, 300 Turks Head Building, Providence,
Rhode Island 02903. Michael F. Sweeney, Esq., a partner in the law firm of Duffy
& Sweeney, LLP, serves as our Assistant Secretary and is a partner in a general
partnership which owns 62,944 shares of our common stock. William M. Prifti,
Esq. is acting as counsel for the Underwriters in connection with certain legal
matters related to the offering.
54
<PAGE>
EXPERTS
The financial statements of BiznessOnline as of December 31, 1998 and for
the period from July 1, 1998 (date of inception) through December 31, 1998 have
been included herein in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
The financial statements of Global 2000 Communications, Inc., AlbanyNet,
Inc., Borg Internet Services, Inc., Caravela Software, Inc., and Ulsternet,
Inc., as of December 31, 1998 and for each of the tears in the two-year period
then ended have been included herein in reliance upon the report of KPMG LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
HOW TO GET MORE INFORMATION
We have filed with the Securities and Exchange Commission (the "Commission")
a Registration Statement on Form SB-2 under the Securities Act with respect to
the Securities. This prospectus does not contain all the information set forth
in the Registration Statement and the exhibits and schedules thereto, as
permitted by the Rules and Regulations of the Commission. For further
information about us and the securities offered hereby, reference is made to the
Registration Statement including the exhibits and schedules thereto. Statements
contained in this prospectus as to the contents of any contract or other
document summarize only the material provisions thereof and are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. The Registration
Statement and exhibits and schedules thereto may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
Regional Offices located at 7 World Trade Center, Suite 1300, New York, New York
10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials may be obtained at prescribed rates by writing to the
Commission's Public Reference Section, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
Our Registration Statement as well as any reports to be filed under the
Exchange Act can also be obtained electronically after we have filed these
documents with the Commission through a variety of databases, including amount
others, the Commission's Electronic Data Gathering, Analysis and Retrieval
program, Knight-Ridder Information, Inc., Federal Filing/Dow Jones, Lexis/Nexis
and the Commission's Web site. (http://www.sec.gov).
Prior to this Offering, we have not been a reporting company under the
Securities Exchange Act of 1934, as amended. Subsequent to this Offering, we
intend to furnish to our stockholders annual reports, which will include
financial statements audited by independent accountants, and such other periodic
reports as we may determine to provide or as may be required by law.
55
<PAGE>
BIZNESSONLINE.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
BIZNESSONLINE.COM, INC. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Consolidated Financial Statements.............
Unaudited Pro Forma Balance Sheet.................................................
Unaudited Pro Forma Consolidated Statement of Operations..........................
Notes to Unaudited Pro Forma Consolidated Financial Statements....................
BIZNESSONLINE.COM, INC.
Report of KPMG LLP, Independent Auditors..........................................
Balance Sheet.....................................................................
Statement of Operations...........................................................
Statement of Stockholders' Equity.................................................
Statement of Cash Flows...........................................................
Notes to Financial Statements.....................................................
ALBANYNET, INC.
Report of KPMG LLP, Independent Auditors..........................................
Balance Sheet.....................................................................
Statements of Income..............................................................
Statements of Stockholders' Equity................................................
Statements of Cash Flows..........................................................
Notes to Financial Statements.....................................................
BORG INTERNET SERVICES, INC.
Report of KPMG LLP, Independent Auditors..........................................
Balance Sheet.....................................................................
Statements of Operations..........................................................
Statements of Stockholders' Equity (Deficit)......................................
Statements of Cash Flows..........................................................
Notes to Financial Statements.....................................................
CARAVELA SOFTWARE, INC.
Report of KPMG LLP, Independent Auditors..........................................
Balance Sheet.....................................................................
Statements of Operations..........................................................
Statements of Stockholders' Equity................................................
Statements of Cash Flows..........................................................
Notes to Financial Statements.....................................................
GLOBAL 2000 COMMUNICATIONS, INC.
Report of KPMG LLP, Independent Auditors..........................................
Balance Sheet.....................................................................
Statements of Income..............................................................
Statements of Stockholders' Equity................................................
Statements of Cash Flows..........................................................
Notes to Financial Statements.....................................................
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
ULSTERNET, INC.
Report of KPMG LLP, Independent Auditors..........................................
Balance Sheet.....................................................................
Statements of Operations..........................................................
Statements of Stockholders' Equity (Deficit)......................................
Statements of Cash Flows..........................................................
Notes to Financial Statements.....................................................
</TABLE>
F-2
<PAGE>
BIZNESSONLINE.COM, INC.
INTRODUCTION TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements give
effect to the acquisitions by BiznessOnline.com, Inc. (the "Company") of the
outstanding capital stock of Albanynet, Inc. ("Albanynet"), Borg Internet
Services, Inc. ("Borg"), Caravela Software, Inc. ("Connix"), Global 2000
Communications, Inc. ("Global"), and Ulsternet, Inc. ("Ulsternet") (the
"Internet service providers") or (the "Acquisitions"). With the exception of
Global, which was acquired on January 31, 1999, the remaining acquisitions will
occur simultaneously with the closing of the initial public offering (the "IPO")
and will be accounted for using the purchase method of accounting. The Company
is deemed to be the accounting acquirer.
The unaudited pro forma consolidated balance sheet gives effect to the
Acquisitions and the IPO as if they had occurred on December 31, 1998. The
unaudited pro forma consolidated statement of operations reflect the operating
results of the Internet service providers for the year ended December 31, 1998,
and gives effect to the Acquisitions as if they had occurred on January 1, 1998.
The Company, which was incorporated in June 1998, conducted limited operations
during the year ended December 31, 1998. The Company and the Internet service
providers have fiscal years ending December 31.
The Company has preliminarily analyzed the additional expense that it
expects to incur as a result of the Acquisitions and has reflected these amounts
in the pro forma consolidated statement of operations. The pro forma
consolidated results of operations give effect to the anticipated compensation
of the Company's new corporate management under contractual arrangements. The
Company has also included the compensation differential between the historical
compensation paid to the former owners of the Internet service providers and the
contractual compensation limits as a result of the Acquisitions. With respect to
other potential cost savings, the Company has not, and can not quantify these
savings until completion of the combination of the Internet service providers.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma financial data do not purport to represent what the
Company's financial position or results of operations would actually have been
if such acquisitions in fact had occurred on those dates and are not necessarily
representative of the Company's financial position or results of operations for
any future period. Since the Internet service providers were not under common
control or management, historical consolidated results may not be comparable to,
or indicative of, future performance. The pro forma consolidated financial
statements should be read in conjunction with the financial statements and notes
thereto included elsewhere in this Prospectus. See "Risk Factors" included
elsewhere herein.
F-3
<PAGE>
BIZNESSONLINE.COM, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
BIZNESS ALBANYNET BORG CONNIX GLOBAL ULSTERNET
--------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 147,736 $ 149,779 $ 25,189 $ 30,760 $ 260,131 $ 1,258
Accounts receivable, net........................... 58,006 65,819 189,643 114,952 5,530
Other current assets............................... 3,349 4,971
Deferred tax asset................................. 61,296 94,745
--------- ----------- --------- --------- --------- ---------
Total current assets................................. 147,736 207,785 155,653 315,148 375,083 11,759
Property and equipment, net........................ 52,109 197,532 234,923 243,035 76,458
Goodwill and intangibles, net...................... 43,067
Deferred costs..................................... 108,478
Other assets....................................... 57 4,418
--------- ----------- --------- --------- --------- ---------
Total assets..................................... $ 256,214 $ 259,894 $ 396,252 $ 550,128 $ 622,536 $ 88,217
--------- ----------- --------- --------- --------- ---------
--------- ----------- --------- --------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current portion of long term debt.................. 37,581 129,978 7,288 8,905
Current portion of capital lease obligations....... 14,735 48,004 3,846 27,698
Line of credit..................................... 50,000
Accounts payable................................... 98,648 2,184 13,156 55,133 12,843
Income taxes payable............................... 53,796 7,925
Accrued expenses................................... 57,654 23,657 64,615 710
Due to affiliates/stockholders.....................
Deferred taxes..................................... 93,162
Deferred revenue................................... 48,866 119,095 115,436 258,268 105,358
--------- ----------- --------- --------- --------- ---------
Total current liabilities............................ 98,648 65,785 329,286 475,291 334,017 155,514
Long term debt, net of current portion............. 6,816 96,496 11,271
Capital lease obligations, net of current
portion.......................................... 4,030 78,608 13,934
Preferred stock subscriptions...................... 100,000
Stockholders' equity (deficit)
Preferred stock -- -- -- -- -- --
Common stock....................................... 31,472 200 1 1,000 27,500 10,200
Additional paid in capital......................... 151,528 299
Retained earnings (deficit)........................ (125,434) 189,879 (11,942) 67,021 164,523 (102,702)
--------- ----------- --------- --------- --------- ---------
Total stockholders' equity (deficit)................. 57,566 190,079 (11,642) 68,021 192,023 (92,502)
--------- ----------- --------- --------- --------- ---------
Total liabilities and stockholders' equity
(deficit)........................................ $ 256,214 $ 259,894 $ 396,252 $ 550,128 $ 622,536 $ 88,217
--------- ----------- --------- --------- --------- ---------
--------- ----------- --------- --------- --------- ---------
<CAPTION>
ACQUISITION PRO FORMA IPO PRO FORMA
ADJUSTMENTS CONSOLIDATED ADJUSTMENTS AS ADJUSTED
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 250,000 $ 864,853 $7,160,000 $8,024,853
Accounts receivable, net........................... 433,950 433,950
Other current assets............................... 8,320 8,320
Deferred tax asset................................. 129,000 285,041 285,041
----------- ------------ ----------- -----------
Total current assets................................. 379,000 1,592,164 7,160,000 8,752,164
Property and equipment, net........................ 804,057 804,057
Goodwill and intangibles, net...................... 12,611,021 12,654,088 12,654,088
Deferred costs..................................... 108,478 (108,478) --
Other assets....................................... 4,475 4,475
----------- ------------ ----------- -----------
Total assets..................................... 1$2,990,021 $15,163,262 $7,051,522 2$2,214,784
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current portion of long term debt.................. 183,752 183,752
Current portion of capital lease obligations....... 94,283 94,283
Line of credit..................................... 50,000 50,000
Accounts payable................................... 181,964 181,964
Income taxes payable............................... 61,721 61,721
Accrued expenses................................... 146,636 146,636
Due to affiliates/stockholders..................... 6,310,000 6,310,000 (6,310,000) --
Deferred taxes..................................... 46,000 139,162 139,162
Deferred revenue................................... 647,023 647,023
----------- ------------ ----------- -----------
Total current liabilities............................ 6,356,000 7,814,541 (6,310,000) 1,504,541
Long term debt, net of current portion............. 11,271 114,583 114,583
Capital lease obligations, net of current
portion.......................................... 96,572 96,572
Preferred stock subscriptions...................... (100,000) -- --
Stockholders' equity (deficit)
Preferred stock -- -- -- --
Common stock....................................... (28,360) 42,013 20,000 62,013
Additional paid in capital......................... 6,986,160 7,137,987 13,341,522 20,479,509
Retained earnings (deficit)........................ (223,779) (42,434) (42,434)
----------- ------------ ----------- -----------
Total stockholders' equity (deficit)................. 6,734,021 7,137,566 13,361,522 20,499,088
----------- ------------ ----------- -----------
Total liabilities and stockholders' equity
(deficit)........................................ 1$2,990,021 $15,163,262 $7,051,522 2$2,214,784
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
</TABLE>
See notes to the Unaudited Pro Forma Consolidated Financial Statements.
F-4
<PAGE>
BIZNESSONLINE.COM, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
BIZNESS ALBANYNET BORG CONNIX GLOBAL ULSTERNET
----------- ------------ ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................................... $ 1,140,518 $ 832,734 $ 1,879,410 $ 1,738,613 $ 604,419
Costs and expenses:
Connectivity and operations.............. 768,400 601,890 1,520,192 927,769 491,327
Selling, general and administrative...... 125,434 61,456 136,025 156,761 480,334 21,472
Depreciation............................. 67,814 102,581 117,146 58,672 58,231
Amortization of intangibles.............. -- 21,534 -- -- --
----------- ------------ ---------- ------------ ------------ ----------
Total costs and expenses................... 125,434 897,670 862,030 1,794,099 1,466,775 571,030
----------- ------------ ---------- ------------ ------------ ----------
Income (loss) from operations.............. (125,434) 242,848 (29,296) 85,311 271,838 33,389
Other income (expense)
Other income (expense), net.............. 5,369 (67,901) (18,493)
Interest expense......................... (3,272) (11,717) (21,406) (13,573) (9,784)
----------- ------------ ---------- ------------ ------------ ----------
Income before income tax provision......... (125,434) 244,945 (41,013) (3,996) 239,772 23,605
Income tax provision (benefit)............. (12,056) (1,598)
----------- ------------ ---------- ------------ ------------ ----------
Net income (loss).......................... $ (125,434) $ 244,945 $ (28,957) $ (2,398) $ 239,772 $ 23,605
----------- ------------ ---------- ------------ ------------ ----------
----------- ------------ ---------- ------------ ------------ ----------
<CAPTION>
PRO FORMA AS
ADJUSTMENTS ADJUSTED
------------- -------------
<S> <C> <C>
Revenues................................... $ 6,195,694
Costs and expenses:
Connectivity and operations.............. (91,442) 4,218,136
Selling, general and administrative...... 585,000 1,441,048
Depreciation............................. 404,444
Amortization of intangibles.............. 2,522,204 2,543,738
------------- -------------
Total costs and expenses................... 3,015,762 8,607,366
------------- -------------
Income (loss) from operations.............. (3,015,762) (2,411,672)
Other income (expense)
Other income (expense), net.............. (81,025)
Interest expense......................... (59,752)
------------- -------------
Income before income tax provision......... (3,015,762) (2,552,449)
Income tax provision (benefit)............. 13,654 --
------------- -------------
Net income (loss).......................... $ (3,029,416) $ (2,552,449)
------------- -------------
------------- -------------
</TABLE>
See notes to the Unaudited Pro Forma Consolidated Financial Statements.
F-5
<PAGE>
BIZNESSONLINE.COM, INC.
NOTES TO THE UNAUDITED PROFORMA CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--GENERAL
BiznessOnline.com, Inc. (the "Company") was founded in June 1998 for the
purpose of acquiring existing Internet Service Providers servicing the
northeastern United States. The company will provide Internet access and the
related services to individuals and small to mid-sized businesses located in the
northeastern United States.
The historical financial statements reflect the financial position and
results of operations of the Company and the Internet service providers and were
derived from the Company and the respective Internet service providers'
financial statements as indicated. The unaudited pro forma consolidated
financial statements include the results of operations for the Internet service
providers as of and for the year ended December 31, 1998.
NOTE 2--ACQUISITION OF INTERNET SERVICE PROVIDERS
Concurrent with this IPO, the Company will acquire all the outstanding
capital stock of the Internet service providers. On January 31, 1999, the
Company completed the acquisition of Global for a combination of stock and a
note payable, which is to be paid concurrently with this IPO. The acquisitions
will be paid for with a combination of the common stock of the Company and cash.
The acquisitions will be accounted for the using the purchase method of
accounting with the Company being considered as the accounting acquirer.
The following table sets forth the consideration to be paid (the "Purchase
Consideration"), (a) in cash, and (b) in shares of common stock to the owners of
each of the Internet service providers.
The purchase price has been allocated to the Company's historical assets and
liabilities based on their respective carrying values, as these carrying values
are deemed to represent the fair market values of these assets and liabilities.
Additionally, adjustments have been made for the establishment of deferred
income tax liabilities and assets related to the transaction for purposes of
determining the excess of the purchase price over the fair value of the net
assets acquired. The allocation of the purchase price is considered preliminary
until such time as the consummation of the Transactions. The Company does not
anticipate that the final allocation of purchase price will differ significantly
from that presented herein.
The following table reflects the consideration to be paid in cash and shares
of common stock as of December 31, 1998, assuming an initial public offering
price of $8.00 per share.
<TABLE>
<CAPTION>
SHARES OF VALUE OF TOTAL
CASH COMMON STOCK SHARES CONSIDERATION
------------ -------------- ---------- -------------
<S> <C> <C> <C> <C>
Albanynet............................................... $ 2,400,000 -- $ -- $ 2,400,000
Borg.................................................... 500,000 187,500 1,500,000 2,000,000
Connix.................................................. 2,180,000 350,000 2,800,000 4,980,000
Global.................................................. 580,000 340,000 2,720,000 3,300,000
Ulsternet............................................... 650,000 100,000 800,000 1,450,000
</TABLE>
F-6
<PAGE>
NOTE 3--UNAUDITED PROFORMA CONSOLIDATED BALANCE SHEET ADJUSTMENTS
The following table summarizes the unaudited pro forma consolidated balance
sheet adjustments
<TABLE>
<CAPTION>
PRO FORMA
OFFERING
ACQUISITION ADJUSTMENTS ADJUSTMENTS
----------------------------------------------- TOTAL ----------
(A) (B) (C) (D) PRE OFFERING (E)
----------- --------- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................... $ -- $ -- $ -- $ 250,000 $ 250,000 $13,470,000
Accounts receivable, net.......................
Other current assets...........................
Deferred tax asset............................. 129,000 129,000
----------- --------- ---------- ----------- ------------ ----------
Total current assets............................. -- 129,000 -- 250,000 379,000 13,470,000
Property and equipment, net....................
Goodwill and intangibles, net.................. 12,611,021 12,611,021
Deferred costs................................. (108,478)
Other assets
----------- --------- ---------- ----------- ------------ ----------
Total assets................................... $ -- $ 129,000 $12,611,021 $ 250,000 $12,990,021 $13,361,522
----------- --------- ---------- ----------- ------------ ----------
----------- --------- ---------- ----------- ------------ ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current portion of long term debt.............. $ -- $ -- $ -- $ -- $ -- $ --
Current portion of capital lease obligations...
Line of credit.................................
Accounts payable............................... --
Income taxes payable...........................
Accrued expenses...............................
Due to affiliates/stockholders................. 6,310,000 6,310,000
Deferred taxes................................. 46,000 46,000
Deferred revenue...............................
----------- --------- ---------- ----------- ------------ ----------
Total current liabilities........................ 6,310,000 46,000 -- -- 6,356,000 --
Preferred stock subscription................... (100,000) (100,000)
Long term debt, net of current portion.........
Capital lease obligations, net of current
portion......................................
Stockholders' equity (deficit)
Preferred stock................................
Common stock................................... (29,126) 766 (28,360) 20,000
Additional paid in capital..................... (6,310,000) 12,946,926 349,234 6,986,160 13,341,522
Retained earnings (deficit).................... 83,000 (306,779) (223,779) --
----------- --------- ---------- ----------- ------------ ----------
Total stockholders' equity (deficit)............. (6,310,000) 83,000 2,611,021 350,000 6,734,021 13,361,522
----------- --------- ---------- ----------- ------------ ----------
Total liabilities and Stockholders' equity
(deficit).................................. $ -- $ 129,000 $12,611,021 $ 250,000 $12,990,021 $13,361,522
----------- --------- ---------- ----------- ------------ ----------
----------- --------- ---------- ----------- ------------ ----------
<CAPTION>
(F) ADJUSTMENTS
---------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................... $(6,310,000) $7,160,000
Accounts receivable, net.......................
Other current assets...........................
Deferred tax asset.............................
---------- -----------
Total current assets............................. (6,310,000) 7,160,000
Property and equipment, net....................
Goodwill and intangibles, net..................
Deferred costs................................. (108,478)
Other assets
---------- -----------
Total assets................................... $(6,310,000) $7,051,522
---------- -----------
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current portion of long term debt.............. $ -- $ --
Current portion of capital lease obligations...
Line of credit.................................
Accounts payable............................... --
Income taxes payable...........................
Accrued expenses...............................
Due to affiliates/stockholders................. (6,310,000) (6,310,000)
Deferred taxes.................................
Deferred revenue...............................
---------- -----------
Total current liabilities........................ (6,310,000) (6,310,000)
Preferred stock subscription...................
Long term debt, net of current portion.........
Capital lease obligations, net of current
portion......................................
Stockholders' equity (deficit)
Preferred stock................................
Common stock................................... 20,000
Additional paid in capital..................... 13,341,522
Retained earnings (deficit).................... --
---------- -----------
Total stockholders' equity (deficit)............. -- 13,361,522
---------- -----------
Total liabilities and Stockholders' equity
(deficit).................................. $(6,310,000) $7,051,522
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(a) Records the liability for the cash portion of the consideration to be paid
to the owners of the ISPs in connection with the Acquisitions.
(b) Records the deferred tax asset and deferred tax liability attributable to
the temporary differences between the financial reporting and tax basis of
assets and liabilities held in S corporations, consisting of deferred tax
assets of $129,000 and deferred tax liabilities of $46,000.
(c) Records the purchase of the Internet service providers by the Company for
$6,310,000 payable in cash and 977,500 shares of common stock with an
estimated fair value of $6.80 per share, which represents a discount of 15%
from the assumed initial public offering price of $8.00 per share due to
restrictions on the sale and transferability of the shares issued.
(d) Records the issuance and conversion of 70,000 shares of Series A Preferred
Stock into 76,564 shares of common stock.
(e) Records the cash proceeds from the issuance of shares of the Company's
common stock net of estimated offering costs. IPO costs primarily consist of
underwriting discounts and commissions, accounting fees, legal fees and
printing expenses.
(f) Records the use of the IPO proceeds to pay the cash portion of consideration
due to the owners of the ISPs in connection with the Acquisitions.
F-7
<PAGE>
NOTE 4--ADJUSTMENTS TO THE UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF
OPERATIONS
The following table summarizes unaudited pro forma consolidated statement of
operations adjustments.
<TABLE>
<CAPTION>
ACQUISITION ADJUSTMENTS
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
(A) (B) (C) (D) TOTAL
---------- ----------- ------------- --------- -------------
Revenues...................................... $ -- $ -- $ -- $ -- $ --
Costs and Expenses:
Connectivity and operations................. (91,442) (91,442)
Selling, general and Administrative......... 585,000 585,000
Depreciation................................
Amortization................................ 2,522,204 2,522,204
---------- ----------- ------------- --------- -------------
Total costs and expenses...................... (91,442) 585,000 2,522,204 -- 3,015,762
---------- ----------- ------------- --------- -------------
Income (loss) from operations................. 91,442 (585,000) (2,522,204) -- (3,015,762)
Other Income (expense)........................
Other income (expense), net.................
Interest expense............................
---------- ----------- ------------- --------- -------------
Income before income tax provision............ 91,442 (585,000) (2,522,204) -- (3,015,762)
Income tax provision (benefit)................ 13,654 13,654
---------- ----------- ------------- --------- -------------
Net income (loss)............................. $ 91,442 $ (585,000) $ (2522,204) $ 13,654 $ (3,029,416)
---------- ----------- ------------- --------- -------------
---------- ----------- ------------- --------- -------------
</TABLE>
- ------------------------
(a) Reflects the compensation differential between the historical compensation
paid to the former owners of the ISPs and the contractual compensation
limits as a result of the Acquisitions.
(b) Reflects an increase in compensation expense to reflect the Company's new
corporate management under contractual arrangements.
(c) Reflects the amortization of goodwill and other intangibles to be recorded
as a result of the Acquisitions over a 5 year estimated life for goodwill
and other intangibles related to the Internet service providers.
(d) Reflects the incremental provision for federal and state income taxes
assuming all entities were subject to federal and state income tax and
relating, to the other statements of operations adjustments and for income
taxes on S Corporation income, assuming a corporate income tax rate of 40%
and the non-deductibility of goodwill. The Company has not recorded an
income tax benefit for the period.
F-8
<PAGE>
When the transaction referred to in Note 7 of the Notes to Financial Statements
have been consummated, we will be in a position to render the following report.
/s/ KPMG LLP
INDEPENDENT AUDITORS' REPORT
The Board of Directors
BiznessOnline.com, Inc.:
We have audited the accompanying balance sheet of BiznessOnline.com, Inc. as
of December 31, 1998, and the related statements of operations, stockholders'
equity and cash flows for the period from July 1, 1998 (date of inception)
through December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BiznessOnline.com, Inc. as
of December 31, 1998, and the results of its operations and its cash flows for
the period from July 1, 1998 (date of inception) through December 31, 1998 in
conformity with generally accepted accounting principles.
Providence, Rhode Island
February 12, 1999
F-9
<PAGE>
BIZNESSONLINE.COM, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash........................................................................... $ 147,736
---------
Total current assets......................................................... 147,736
---------
Deferred costs................................................................. 108,478
---------
Total assets................................................................. $ 256,214
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 98,648
---------
Total current liabilities.................................................... 98,648
---------
Preferred stock subscriptions (note 4)........................................... 100,000
---------
Stockholders' equity (notes 4 and 7):
Class A preferred stock; $.01 par value; 1,000,000 shares authorized, none
issued....................................................................... --
Common stock, $.01 par value; 39,000,000 shares authorized, 3,147,186 shares
issued and outstanding....................................................... 31,472
Additional paid-in capital..................................................... 151,528
Accumulated deficit............................................................ (125,434)
---------
Total stockholders' equity................................................... 57,566
---------
Total liabilities and stockholders' equity................................... $ 256,214
---------
---------
</TABLE>
See accompanying notes to financial statements
F-10
<PAGE>
BIZNESSONLINE.COM, INC.
STATEMENT OF OPERATIONS
PERIOD FROM JULY 1, 1998 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1998
<TABLE>
<S> <C>
Operating expenses:
General and administrative..................................................... $ 125,434
---------
Total operating expenses..................................................... 125,434
---------
Operating and net loss....................................................... $(125,434)
---------
---------
Net loss per share--basic and diluted............................................ $ (.04)
---------
---------
Weighted average shares outstanding--basic and diluted........................... 3,147,186
---------
---------
</TABLE>
See accompanying notes to financial statements.
F-11
<PAGE>
BIZNESSONLINE.COM, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM JULY 1, 1998 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
PREFERRED COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT EQUITY
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Initial capitalization............................. $ -- 1 99 -- 100
Additional capital contributions................... -- -- 182,900 -- 182,900
Stock split (note 4)............................... -- 9,999 (9,999) -- --
Stock split (note 7)............................... -- 21,472 (21,472) -- --
Net loss........................................... -- -- -- (125,434) (125,434)
----- ----------- ----------- ------------ ------------
Balance at December 31, 1998....................... $ -- 31,472 151,528 (125,434) 57,566
----- ----------- ----------- ------------ ------------
----- ----------- ----------- ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-12
<PAGE>
BIZNESSONLINE.COM, INC.
STATEMENT OF CASH FLOWS
PERIOD FROM JULY 1, 1998 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss....................................................................... $(125,434)
Adjustments to reconcile net loss to net cash used in operating activities:
Changes in net assets and liabilities:
Increase in accounts payable............................................... 98,648
---------
Net cash used in operating activities.................................... (26,786)
---------
Cash flows from financing activities:
Capital contributions.......................................................... 183,000
Proceeds from preferred stock subscriptions.................................... 100,000
Increase in deferred costs..................................................... (108,478)
---------
Net cash provided by financing activities................................ 174,522
---------
Net increase in cash............................................................. 147,736
Cash at beginning of period...................................................... --
---------
Cash at end of period............................................................ $ 147,736
---------
---------
</TABLE>
See accompanying notes to financial statements.
F-13
<PAGE>
BIZNESSONLINE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) NATURE OF OPERATIONS
BiznessOnline.com, Inc. (the"Company"), a Delaware Corporation, was
incorporated on June 11, 1998 for the purpose of acquiring Internet service
providers ("ISPs") serving individuals and small to medium-sized businesses. The
Company has acquired all of the stock of Global 2000 Communications, Inc., an
ISP, as of January 31, 1999 and intends to acquire the stock of 4 more ISPs (the
"Acquisitions") simultaneously upon the closing of an initial public offering
(the "IPO") of its common stock.
The Company plans to consummate the Acquisitions in accordance with
acquisition agreements negotiated with the current owners of each of the ISPs.
The Acquisitions will be financed through the issuance of shares of common stock
and the cash proceeds from the IPO.
The Company has conducted activities to date which have related to the
Acquisitions and developing its management team and corporate structure.
Expenses subsequent to inception consist primarily of the salary and related
travel costs of the Company's two employees, which costs have been charged to
expense. The Company is dependent upon the IPO to close the pending
Acquisitions. There is no assurance that the IPO and pending Acquisitions
discussed will be completed or that the Company will be able to generate future
operating revenues.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
(b) EARNINGS PER SHARE
BiznessOnline.com, Inc. adopted the provisions of SFAS No. 128, "Earnings
per Share," at inception. This statement requires the presentation of basic and
diluted earnings per share for all periods presented. There were no common stock
equivalents outstanding for the period presented; accordingly, basic and fully
diluted earnings per share are the same.
(3) OPERATING LEASE
The Company has one operating lease for office space entered into during
January 1999 which expires December 2001. The minimum lease payment for the
three years subsequent to December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999............................................................... $ 30,140
2000............................................................... 30,140
2001............................................................... 30,140
---------
Total.......................................................... $ 90,420
---------
---------
</TABLE>
F-14
<PAGE>
(4) STOCKHOLDERS' EQUITY
(a) COMMON STOCK
In connection with the organization and initial capitalization of the
Company on July 1, 1998 (date of inception), the Company's founding stockholders
contributed an aggregate of $100 for 100 shares of common stock, $.01 par value
("Common Stock"), which the Company believes approximated the fair market value
of the Company's Common Stock at that time.
In addition, certain of the founding stockholders subsequently contributed
$182,900 during 1998 to fund operating expenses and deferred offering costs.
In January 1999, the Company increased the number of authorized common
shares from 9,000,000 to 39,000,000 shares and effected a 10,000 for one stock
split of its issued and outstanding common stock. All share data presented in
the accompanying financial statements has been restated to reflect the increased
number of authorized and outstanding shares of common stock. (See also Note 7.)
(b) PREFERRED STOCK
In December 1998, the Company received $100,000 in Preferred Stock
subscriptions for its Class A Preferred Stock. In February 1999, the Company
closed a private offering of the Class A Preferred Stock for a total of $350,000
(including the $100,000 previously subscribed) at an aggregate $5.00 per share.
The Preferred Stock is automatically convertible into common stock at the
conversion rate of $8.75 per preferred share divided by the IPO price at the
time of the IPO.
(5) INCOME TAXES
The tax effects of temporary differences that give rise to significant
portions of potential deferred tax assets and deferred tax liabilities are
presented below as of December 31, 1998:
<TABLE>
<S> <C>
Net operating loss................................................ $ 50,174
Total deferred tax assets......................................... 50,174
Valuation allowance............................................... (50,174)
Net deferred tax asset............................................ --
</TABLE>
The Company is in a net deferred tax asset position at December 31, 1998.
However, as a newly formed organization, future profits are not certain. As
such, the Company has established a valuation reserve for the entire amount of
the net deferred tax asset.
(6) ACQUISITION
On January 31, 1999 the Company acquired all of the shares of Global 2000
Communications, Inc. in exchange for a $580,000 note payable at the IPO and
$2,720,000 payable in shares of common stock, subject to adjustment based on the
IPO price per share, of BiznessOnline.com, Inc., for a total purchase price of
$3,300,000.
(7) SUBSEQUENT EVENT
In connection with the proposed IPO, the Company intends to effect a
3,147,186 for one stock split of its issued and outstanding common stock. All
share and per share data presented in the accompanying financial statements has
been restated to reflect the increased number of outstanding shares of common
stock.
F-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders
AlbanyNet, Inc.:
We have audited the accompanying balance sheet of AlbanyNet Inc.
("AlbanyNet") as of December 31, 1998, and the related statements of income,
stockholders' equity and cash flows for each of the years in the two-year period
then ended. These financial statements are the responsibility of AlbanyNet'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 AlbanyNet Inc. as of
December 31, 1998, and the results of its operations and its cash flows for each
of the years in the two-year period then ended in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
Providence, Rhode Island
January 29, 1999
F-16
<PAGE>
ALBANYNET, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 149,779
Accounts receivable, net of allowance for doubtful accounts of $5,000........... 58,006
---------
Total current assets........................................................ 207,785
---------
Property and equipment (note 3):
Computer and telecommunications equipment....................................... 214,788
Less accumulated depreciation................................................... 162,679
---------
Net property and equipment.................................................. 52,109
---------
Total assets................................................................ $ 259,894
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of obligations under capital leases (note 3)............... $ 14,735
Accounts payable................................................................ 2,184
Deferred revenue................................................................ 48,866
---------
Total current liabilities................................................... 65,785
Long-term liabilities:
Obligations under capital leases, excluding current installments (note 3)....... 4,030
---------
Total liabilities........................................................... 69,815
---------
Stockholders' equity:
Common stock, $1 par value; 200 shares authorized, issued and outstanding....... 200
Retained earnings............................................................... 189,879
---------
Total stockholders' equity.................................................. 190,079
---------
Total liabilities and stockholders' equity.................................. $ 259,894
---------
---------
</TABLE>
See accompanying notes to financial statements
F-17
<PAGE>
ALBANYNET, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Revenues................................................................................. $ 838,807 1,140,518
---------- ----------
Operating expenses:
Connectivity and operations............................................................ 658,329 768,400
Sales and marketing.................................................................... 37,285 35,820
General and administrative............................................................. 7,156 25,636
Depreciation and amortization.......................................................... 57,866 67,814
---------- ----------
Total operating expenses........................................................... 760,636 897,670
---------- ----------
Operating income................................................................... 78,171 242,848
Other income (expense):
Interest expense....................................................................... (4,724) (3,272)
Interest income........................................................................ 2,507 5,369
Other income........................................................................... 8,575 --
---------- ----------
Total other income................................................................. 6,358 2,097
---------- ----------
Net income......................................................................... $ 84,529 244,945
---------- ----------
---------- ----------
Net income per share--basic and diluted.................................................. $ 422.65 1,224.73
---------- ----------
---------- ----------
Weighted average shares outstanding--basic and diluted................................... 200 200
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
ALBANYNET, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
RETAINED TOTAL
EARNINGS STOCKHOLDERS'
COMMON (ACCUMULATED EQUITY
STOCK DEFICIT) (DEFICIT)
----------- ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1996.............................................. $ 200 (39,629) (39,429)
Net income.............................................................. -- 84,529 84,529
----- ------------ ------------
Balance at December 31, 1997.............................................. 200 44,900 45,100
Distributions to stockholders........................................... -- (99,966) (99,966)
Net income.............................................................. -- 244,945 244,945
----- ------------ ------------
Balance at December 31, 1998.............................................. $ 200 189,879 190,079
----- ------------ ------------
----- ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
ALBANYNET, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................................................. $ 84,529 244,945
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization......................................................... 57,866 67,814
Changes in net assets and liabilities:
Increase in accounts receivable--trade.............................................. (29,795) (28,211)
Decrease in accounts payable........................................................ (3,168) (7,236)
Increase (decrease) in deferred revenue............................................. 24,931 (11,666)
---------- ----------
Net cash provided by operating activities......................................... 134,363 265,646
---------- ----------
Cash flows from investing activities:
Capital expenditures.................................................................... (55,413) (30,014)
---------- ----------
Net cash used in investing activities............................................. (55,413) (30,014)
---------- ----------
Cash flows from financing activities:
Principal payments under capital lease obligations...................................... (25,355) (30,859)
Distribution to stockholders............................................................ -- (99,966)
Repayments of long-term debt............................................................ (24,033) (38,149)
---------- ----------
Net cash used in financing activities............................................. (49,388) (168,974)
---------- ----------
Net increase in cash and cash equivalents......................................... 29,562 66,658
Cash and cash equivalents at beginning of year............................................ 53,559 83,121
---------- ----------
Cash and cash equivalents at end of year.................................................. $ 83,121 149,779
---------- ----------
---------- ----------
Supplemental cash flow information:
Non-cash financing activities:
Capital lease obligations of $35,808 and $13,829 were incurred in 1997 and 1998, respectively.
Interest paid was $4,724 and $3,272 in 1997 and 1998, respectively.
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
ALBANYNET, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(1) NATURE OF OPERATIONS
AlbanyNet, Inc. ("AlbanyNet") was incorporated in 1996. AlbanyNet is a
provider of Internet access and offers a broad spectrum of Internet access
services to both individual and business customers ranging from dial-up services
to continuous access services using dedicated telephone connections and Web
hosting services.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions, including estimates of the allowance for doubtful accounts and
provisions for sales credits, that affect the amounts reported in the financial
statements. Actual results may differ from those estimates.
(b) REVENUE RECOGNITION
AlbanyNet recognizes revenue when services are provided. Services are
generally billed in advance. Advance billings are recorded as deferred revenue
and recognized as revenue when earned over the period of service.
(c) CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, AlbanyNet considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
(d) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using
an accelerated method over the estimated useful lives of the assets for property
and equipment. The estimated useful lives of the assets range from three to five
years. AlbanyNet leases certain of its data communications and other equipment
under capital lease agreements. The assets and liabilities under capital leases
are recorded at the lesser of the present value of aggregate future minimum
lease payments or the fair value of the assets under the lease. Assets under
capital lease are depreciated over the shorter of their estimated useful lives
or the lease term.
(e) INCOME TAXES
As a subchapter S corporation, AlbanyNet's income is taxed at the
stockholder level, therefore except for certain local business income taxes, no
income tax provision has been included in the financial statements.
(f) ADVERTISING COSTS
AlbanyNet incurs advertising costs associated with the marketing of its
services. These costs of advertising are expensed as incurred. Advertising
expense totaled $36,635 and $28,894 for the years ended December 31, 1997 and
1998, respectively.
F-21
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
(h) EARNINGS PER SHARE
AlbanyNet adopted the provisions of SFAS No. 128, "Earnings per Share," on
December 31, 1997. This statement requires the presentation of basic and diluted
earnings per share for all periods presented. There were no common stock
equivalents outstanding for any of the periods presented; accordingly, basic and
fully diluted earnings per share are the same.
(3) LEASES
AlbanyNet leases certain equipment under capital lease agreements that
expire at various dates through August 2000. At December 31, 1998, the gross
amount of equipment and related accumulated amortization recorded under capital
leases were as follows:
<TABLE>
<S> <C>
Computer and telecommunications equipment.......................................... $ 77,062
Less accumulated amortization...................................................... 57,832
---------
$ 19,230
---------
---------
</TABLE>
AlbanyNet has several operating leases for office space and office
equipment, with expiration dates through July 2000. Rental expense for operating
leases during 1997 and 1998 was $7,200 and $10,225, respectively.
Future minimum lease payments under capital and operating leases as of
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDED DECEMBER 31: LEASES LEASES
- ------------------------------------------------------------------------ --------- -----------
<S> <C> <C>
1999............................................................ $ 15,753 17,506
2000............................................................ 4,183 5,253
--------- -----------
Total minimum lease payment..................................... 19,936 22,759
-----------
-----------
Less amount representing interest (at 10%)...................... 1,171
---------
Present value of minimum capital lease payments................. 18,765
Less current installments of obligations under capital leases... 14,735
---------
Obligations under capital leases, excluding current
installments.................................................. $ 4,030
---------
---------
</TABLE>
F-22
<PAGE>
(4) COMMITMENTS
AlbanyNet has entered into several contracts with vendors that provide
certain telephone related line access services and advertising. Following are
the commitments for each of the five years subsequent to December 31, 1998:
<TABLE>
<S> <C>
1999...................................................................... $ 72,161
2000...................................................................... 71,160
2001...................................................................... 71,160
2002...................................................................... 5,160
2003...................................................................... 5,160
Thereafter................................................................ 6,020
---------
Total................................................................... $ 230,821
---------
---------
</TABLE>
(5) SUBSEQUENT EVENT (UNAUDITED)
AlbanyNet's stockholders have entered into a merger and stock purchase
agreement whereby they will sell all of the shares in the Company to
BiznessOnline.com, Inc. (the acquirer) for cash concurrent with the consummation
of the initial public offering ("IPO") of the common stock of the acquirer. Upon
consummation of the offering, the acquirer will become the sole stockholder of
AlbanyNet. Subsequent to the acquisition, AlbanyNet will be merged into a
subsidiary of the acquirer.
F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders
Borg Internet Services, Inc.:
We have audited the accompanying balance sheet of Borg Internet Services,
Inc. (Borg) as of December 31, 1998, and the related statements of operations,
stockholders' equity (deficit) and cash flows for each of the years in the
two-year period then ended. These financial statements are the responsibility of
Borg'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 Borg Internet Services, Inc.
as of December 31, 1998, and the results of its operations and its cash flows
for each of the years in the two-year period then ended in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
Providence, Rhode Island
January 22, 1999
F-24
<PAGE>
BORG INTERNET SERVICES, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash............................................................................ $ 25,189
Accounts receivable, net of allowance for doubtful accounts of $20,000.......... 65,819
Deferred tax asset.............................................................. 61,296
Other current assets............................................................ 3,349
---------
Total current assets........................................................ 155,653
---------
Property and equipment, net (notes 3 and 4)....................................... 197,532
Goodwill, net of amortization of $64,601.......................................... 43,067
---------
Total assets................................................................ $ 396,252
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable (note 5).......................................................... $ 37,581
Current installments of obligations under capital leases (note 4)............... 48,004
Accounts payable................................................................ 13,156
Income tax payable.............................................................. 53,796
Accrued expenses................................................................ 57,654
Deferred revenue................................................................ 119,095
---------
Total current liabilities................................................... 329,286
Long-term liabilities:
Obligations under capital leases, excluding current installments (note 4)....... 78,608
---------
Total liabilities........................................................... 407,894
---------
Stockholders' equity (deficit):
Common stock, $.01 par value; 25,000 shares authorized, 3 shares issued and
outstanding................................................................... 1
Additional paid-in capital...................................................... 299
Accumulated deficit............................................................. (11,942)
---------
Total stockholders' equity (deficit)........................................ (11,642)
---------
Total liabilities and stockholders' equity (deficit)........................ $ 396,252
---------
---------
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
BORG INTERNET SERVICES, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Revenues................................................................................. $ 505,970 832,734
---------- ----------
Operating expenses:
Connectivity and operations............................................................ 319,127 601,890
Sales and marketing.................................................................... 35,046 90,687
General and administrative............................................................. 29,932 45,338
Depreciation and amortization.......................................................... 86,443 124,115
---------- ----------
Total operating expenses........................................................... 470,548 862,030
---------- ----------
Operating income (loss)............................................................ 35,422 (29,296)
Interest expense......................................................................... (4,467) (11,717)
---------- ----------
Income (loss) before taxes......................................................... 30,955 (41,013)
Income taxes (benefit) (note 6).......................................................... 12,383 (12,056)
---------- ----------
Net income (loss).................................................................. $ 18,572 (28,957)
---------- ----------
---------- ----------
Net income (loss) per share--basic and diluted........................................... $ 6,190.67 (9,652.33)
---------- ----------
---------- ----------
Weighted average shares outstanding--basic and diluted................................... 3 3
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
BORG INTERNET SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
RETAINED TOTAL
ADDITIONAL EARNINGS STOCKHOLDERS'
COMMON PAID-IN (ACCUMULATED EQUITY
STOCK CAPITAL DEFICIT) (DEFICIT)
----------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996.................................. $ 1 299 (1,557) (1,257)
Net income.................................................. -- -- 18,572 18,572
----- --- ------------- ------------
Balance at December 31, 1997.................................. 1 299 17,015 17,315
Net loss.................................................... -- -- (28,957) (28,957)
----- --- ------------- ------------
Balance at December 31, 1998.................................. $ 1 299 (11,942) (11,642)
----- --- ------------- ------------
----- --- ------------- ------------
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE>
BORG INTERNET SERVICES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................................................... $ 18,572 (28,957)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization......................................................... 86,443 124,115
Changes in net assets and liabilities:
Decrease (increase) in accounts receivable--trade................................... (60,930) 8,916
Decrease (increase) in other current assets......................................... (4,264) 915
Increase (decrease) in accounts payable............................................. 34,646 (37,053)
Increase in income tax payable...................................................... 31,960 21,838
Increase in deferred taxes, net..................................................... (19,577) (33,892)
Increase (decrease) in accrued expenses............................................. 11,517 (18,745)
Increase in deferred revenue........................................................ 22,174 57,968
----------- ---------
Net cash provided by operating activities......................................... 120,541 95,105
----------- ---------
Cash flows from investing activities:
Capital expenditures.................................................................... (111,652) (53,553)
----------- ---------
Net cash used in investing activities............................................. (111,652) (53,553)
----------- ---------
Cash flows from financing activities:
Principal payments under capital lease obligations...................................... -- (15,727)
Repayments of long-term debt............................................................ (12,000) (12,000)
----------- ---------
Net cash used in financing activities............................................. (12,000) (27,727)
----------- ---------
Net increase (decrease) in cash................................................... (3,111) 13,825
Cash at beginning of year................................................................. 14,475 11,364
----------- ---------
Cash at end of year....................................................................... $ 11,364 25,189
----------- ---------
----------- ---------
Supplemental cash flow information:
Non-cash financing activities:
Capital lease obligations of $142,339 were incurred in 1998.
Interest paid was $0 in 1997 and $4,039 in 1998.
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE>
BORG INTERNET SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(1) NATURE OF OPERATIONS
Borg Internet Services, Inc. ("Borg") was incorporated in 1995. Borg is a
provider of Internet access and offers a broad spectrum of Internet access
services to both individual and business customers ranging from dial-up services
to continuous access services using dedicated telephone connections and Web
hosting services.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions, including estimates of the allowance for doubtful accounts and
provisions for sales credits, that affect the amounts reported in the financial
statements. Actual results may differ from those estimates.
(b) REVENUE RECOGNITION
Borg recognizes revenue when services are provided. Services are generally
billed in advance. Advance billings are recorded as deferred revenue and
recognized as revenue when earned over the period of service.
(c) CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, Borg considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
(d) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using
an accelerated method over the estimated useful lives of the assets for property
and equipment. The estimated useful lives of the assets range from three to five
years. Borg leases certain of its data communications and other equipment under
capital lease agreements. The assets and liabilities under capital leases are
recorded at the lesser of the present value of aggregate future minimum lease
payments or the fair value of the assets under the lease. Assets under capital
lease are depreciated over the shorter of their estimated useful lives or the
lease term.
(e) GOODWILL
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, which is five years. Borg assesses the recoverability
of this intangible asset by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting Borg's average cost of funds. The
assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved.
F-29
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(f) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(g) ADVERTISING COSTS
Borg incurs advertising costs associated with the marketing of its services.
These costs of advertising are expensed as incurred. Advertising expense totaled
$21,641 and $49,559 for the years ended December 31, 1997 and 1998,
respectively.
(h) IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
(i) EARNINGS PER SHARE
Borg adopted the provisions of SFAS No. 128, "Earnings per Share," on
December 31, 1997. This statement requires the presentation of basic and diluted
earnings per share for all periods presented. There were no common stock
equivalents outstanding for any of the periods presented; accordingly, basic and
fully diluted earnings per share are the same.
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1998:
<TABLE>
<S> <C>
Computer and telecommunications equipment......................... $ 394,082
Office equipment.................................................. 2,824
---------
Property and equipment............................................ 396,906
Less accumulated depreciation and amortization.................... 199,374
---------
Net property and equipment........................................ $ 197,532
---------
---------
</TABLE>
F-30
<PAGE>
(4) LEASES
Borg leases certain equipment under capital lease agreements that expire at
various dates through August 2001. At December 31, 1998, the gross amount of
equipment and related accumulated amortization recorded under capital leases
were as follows:
<TABLE>
<S> <C>
Computer and telecommunications equipment......................... $ 142,339
Less accumulated amortization..................................... 17,726
---------
$ 124,613
---------
---------
</TABLE>
Borg has one operating lease for office space and office equipment on a
month to month basis. Rental expense for operating leases during 1997 and 1998
was $9,954 and $12,974, respectively.
Future minimum lease payments under capital leases as of December 31, 1998
are as follows:
<TABLE>
<CAPTION>
CAPITAL
YEAR ENDED DECEMBER 31: LEASES
- ----------------------------------------------------------------------------------- ---------
<S> <C>
1999....................................................................... $ 58,504
2000....................................................................... 53,883
2001....................................................................... 31,488
---------
Total minimum lease payments............................................... 143,875
Less amounts representing interest (at 10%)................................ 17,263
---------
Present value of minimum capital lease payments............................ 126,612
Less current installments of obligations under capital leases.............. 48,004
---------
Obligations under capital leases, excluding current installments........... $ 78,608
---------
---------
</TABLE>
(5) NOTES PAYABLE
The notes payable are due to related parties. The notes bear interest at 10%
and are due and payable.
(6) INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1997 and 1998,
consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
--------- --------- ---------
<S> <C> <C> <C>
1997:
Federal..................................................... $ 23,968 (14,681) 9,287
State....................................................... 7,990 (4,894) 3,096
--------- --------- ---------
$ 31,958 (19,575) 12,383
--------- --------- ---------
--------- --------- ---------
1998:
Federal..................................................... $ 16,378 (25,420) (9,042)
State....................................................... 5,460 (8,474) (3,014)
--------- --------- ---------
$ 21,838 (33,894) (12,056)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Income tax expense (benefit) amounted to $12,383 for 1997 (an effective rate
of 40%) and $(12,056) for 1998 (an effective rate of 29%). The actual expense
(benefit) for both 1997 and 1998
F-31
<PAGE>
(6) INCOME TAXES (CONTINUED)
differs from the "expected" tax expense (benefit) for those years (computed by
applying the U.S. federal corporate income tax rate of 34% to income (loss)
before income taxes) as follows:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Computed "expected" tax expense (benefit)................................ $ 10,525 (13,944)
Increase in income taxes resulting from:
State income taxes, net of federal income tax benefit................ 1,858 (2,460)
Other................................................................ -- 4,348
--------- ---------
$ 12,383 (12,056)
--------- ---------
--------- ---------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1998 are presented below:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Goodwill............................................................... $ -- 5,658
Bad debt reserve....................................................... 4,000 8,000
Deferred revenue....................................................... 24,451 47,638
--------- ---------
Gross deferred tax asset........................................... 28,451 61,296
--------- ---------
Deferred tax liability:
Goodwill............................................................... (1,049) --
--------- ---------
Gross deferred tax liabilities..................................... (1,049) --
--------- ---------
Net deferred tax asset............................................. $ 27,402 61,296
--------- ---------
--------- ---------
</TABLE>
Management has concluded that it is more likely than not that Borg will have
sufficient taxable income of an appropriate character within the carryback and
carryforward period permitted by current tax law to allow for the utilization of
the deductible amounts generating the deferred tax asset.
(7) COMMITMENTS
Borg has entered into contracts with two vendors who provide certain
telephone related line access services. The contracts expire in April 1999, the
commitment for 1999 is $14,419.
(8) SUBSEQUENT EVENT (UNAUDITED)
Borg's stockholders have entered into a merger agreement whereby they will
exchange all of the shares in the Company to BiznessOnline. Com, Inc. (acquirer)
in exchange for cash and shares of common stock of the acquirer concurrent with
the consummation of the initial public offering ("IPO") of the common stock of
the acquirer. Upon consummation of the offering, the acquirer will become the
sole stockholder of Borg. Subsequent to the acquisition, Borg will merge into a
subsidiary of the acquirer.
F-32
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders
Caravela Software, Inc.:
We have audited the accompanying balance sheet of Caravela Software, Inc.
(Caravela) as of December 31, 1998 and the related statements of operations,
stockholders' equity and cash flows for each of the years in the two-year period
then ended. These financial statements are the responsibility of the Caravela'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 Caravela Software, Inc. as
of December 31, 1998, and the results of its operations and its cash flows for
each of the years in the two-year period then ended in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
Providence, Rhode Island
February 2, 1999
F-33
<PAGE>
CARAVELA SOFTWARE, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash............................................................................ $ 30,760
Accounts receivable, net of allowance for doubtful accounts of $43,259.......... 189,643
Deferred tax asset.............................................................. 94,745
---------
Total current assets........................................................ 315,148
---------
Property and equipment, net (note 3).............................................. 234,923
Organizational costs, net of amortization of $611................................. 57
---------
Total assets................................................................ $ 550,128
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to stockholders (note 7)........................................... $ 58,969
Current portion of long-term debt (note 6)...................................... 71,009
Line of credit (note 5)......................................................... 50,000
Accounts payable................................................................ 55,133
Accrued expenses................................................................ 23,657
Income tax payable.............................................................. 7,925
Deferred taxes (note 8)......................................................... 93,162
Deferred revenue................................................................ 115,436
---------
Total current liabilities................................................... 475,291
Long-term liabilities:
Long-term debt (note 6)......................................................... 6,816
---------
Total liabilities........................................................... 482,107
---------
Stockholders' equity:
Common stock, $10 par value; 5,000 shares authorized, 100 shares issued and
outstanding................................................................... 1,000
Retained earnings............................................................... 67,021
---------
Total stockholders' equity.................................................. 68,021
---------
Total liabilities and stockholders' equity.................................. $ 550,128
---------
---------
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE>
CARAVELA SOFTWARE, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
------------ ----------
<S> <C> <C>
Revenues............................................................................... $ 1,516,112 1,879,410
------------ ----------
Operating expenses:
Connectivity and operations.......................................................... 1,328,076 1,520,192
Sales and marketing.................................................................. 73,455 151,261
General and administrative........................................................... 79,489 5,500
Depreciation and amortization........................................................ 118,485 117,146
------------ ----------
Total operating expenses......................................................... 1,599,505 1,794,099
------------ ----------
Operating income (loss).......................................................... (83,393) 85,311
------------ ----------
Other income (expense):
Loss on disposal of equipment........................................................ -- (78,993)
Interest expense..................................................................... (9,453) (21,406)
Other income......................................................................... 267 11,092
------------ ----------
Total other income (expense)..................................................... (9,186) (89,307)
------------ ----------
Loss before income taxes......................................................... (92,579) (3,996)
Income tax benefit (note 8)............................................................ 37,031 1,598
------------ ----------
Net income (loss)................................................................ $ (55,548) (2,398)
------------ ----------
------------ ----------
Net income (loss) per share--basic and diluted......................................... $ (555.48) (23.98)
------------ ----------
------------ ----------
Weighted average shares outstanding--basic and diluted................................. 100 100
------------ ----------
------------ ----------
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE>
CARAVELA SOFTWARE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDERS'
STOCK EARNINGS EQUITY
----------- --------- ------------
<S> <C> <C> <C>
Balance at December 31, 1996.................................................. $ 1,000 124,967 125,967
Net loss.................................................................... -- (55,548) (55,548)
----------- --------- ------------
Balance at December 31, 1997.................................................. 1,000 69,419 70,419
Net loss.................................................................... -- (2,398) (2,398)
----------- --------- ------------
Balance at December 31, 1998.................................................. $ 1,000 67,021 68,021
----------- --------- ------------
----------- --------- ------------
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE>
CARAVELA SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................................................... $ (55,548) (2,398)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization........................................................ 118,485 117,146
Loss on disposal of equipment........................................................ -- 78,993
Changes in net assets and liabilities:
Decrease (increase) in accounts receivable--trade.................................. 81,230 (52,390)
Decrease in other current assets................................................... -- 1,000
Increase (decrease) in accounts payable............................................ 79,278 (31,019)
Increase (decrease) in income tax payable.......................................... 26,103 (18,178)
Increase (decrease) in deferred taxes.............................................. (76,782) 15,897
Decrease in accrued expenses....................................................... (49,085) (6,658)
Increase in deferred revenue....................................................... 27,954 34,491
----------- ----------
Net cash provided by operating activities........................................ 151,635 136,884
----------- ----------
Cash flows from investing activities:
Proceeds from disposal of equipment.................................................... -- 6,952
Capital expenditures................................................................... (182,737) (151,929)
----------- ----------
Net cash used in investing activities............................................ (182,737) (144,977)
----------- ----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt............................................... 85,009 107,430
Principal payments under capital lease obligations..................................... (13,365) (14,555)
Repayments of long-term debt........................................................... (19,605) (75,000)
----------- ----------
Net cash provided by financing activities........................................ 52,039 17,875
----------- ----------
Net increase in cash............................................................. 20,937 9,782
Cash at beginning of year................................................................ 41 20,978
----------- ----------
Cash at end of year...................................................................... $ 20,978 30,760
----------- ----------
----------- ----------
Supplemental cash flow information:
Interest of $9,722 and $20,415 was paid in 1997 and 1998, respectively.
Income taxes of $8,000 and $0 were paid in 1997 and 1998, respectively.
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE>
CARAVELA SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(1) NATURE OF OPERATIONS
Caravela Software, Inc. ("Caravela") was incorporated in 1994 and operates
under the name Connix. Caravela is a provider of Internet access and offers a
broad spectrum of Internet access services to both individual and business
customers ranging from dial-up services to continuous access services using
dedicated telephone connections and Web hosting services.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions, including estimates of the allowance for doubtful accounts and
provisions for sales credits, that affect the amounts reported in the financial
statements. Actual results may differ from those estimates.
(b) REVENUE RECOGNITION
Caravela recognizes revenue when services are provided. Services are
generally billed in advance. Advance billings are recorded as deferred revenue
and recognized as revenue when earned over the period of service.
(c) CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, Caravela considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
(d) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using
an accelerated method over the estimated useful lives of the assets for property
and equipment. The estimated useful lives of the assets range from three to five
years. Caravela leases certain of its data communications and other equipment
under capital lease agreements. The assets and liabilities under capital leases
are recorded at the lesser of the present value of aggregate future minimum
lease payments or the fair value of the assets under the lease. Assets under
capital lease are depreciated over the shorter of their estimated useful lives
or the lease term.
(e) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. For income tax reporting purposes, Caravela is on the cash
method of accounting.
F-38
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(f) ADVERTISING COSTS
Caravela incurs advertising costs associated with the marketing of its
services. These costs of advertising are expensed as incurred. Advertising
expense totaled $49,416 and $96,804 for the years ended December 31, 1997 and
1998, respectively.
(g) IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
(h) EARNINGS PER SHARE
Caravela adopted the provisions of SFAS No. 128, "Earnings per Share," on
December 31, 1997. This statement requires the presentation of basic and diluted
earnings per share for all periods presented. There were no common stock
equivalents outstanding for any of the periods presented; accordingly, basic and
fully diluted earnings per share are the same.
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1998:
<TABLE>
<S> <C>
Computer, telecommunications and office equipment................. $ 450,692
Less accumulated depreciation..................................... 215,769
---------
Net property and equipment........................................ $ 234,923
---------
---------
</TABLE>
(4) LEASES
Caravela has two operating leases for office space on a month-to-month
basis. Caravela also had three capital leases for office equipment which were
paid in full during 1998. Rental expense for operating leases during 1997 and
1998 was $39,154 and $32,280, respectively.
(5) LINE OF CREDIT
At December 31, 1998, Caravela maintained a $50,000 Revolving Line of Credit
with a bank. The Revolving Line of Credit bears interest at prime plus 2% (prime
rate was 7.75% at December 31, 1998) and is payable on demand.
F-39
<PAGE>
(6) LONG-TERM DEBT
Long-term debt at December 31, 1998 consists of the following:
<TABLE>
<S> <C>
9% note payable to bank in monthly installments of $3,426, including
interest, due February 2000, secured by the personal guarantee of the
stockholders and certain property and equipment owned by Caravela........ $ 45,415
9.25% note payable to bank in monthly installments of $3,435 per month,
including interest, due November 1999 secured by the personal guarantee
of the stockholders and certain property and equipment owned by
Caravela................................................................. 32,410
---------
77,825
Less current portion....................................................... 71,009
---------
Long-term debt, excluding current portion.................................. $ 6,816
---------
---------
</TABLE>
The aggregate maturities of long-term debt for each of the two years
subsequent to December 31, 1998 are as follows: 1999, $71,009 and 2000, $6,816.
(7) NOTE PAYABLE TO STOCKHOLDERS
The note payable is due to the stockholders of Caravela and bears interest
at 10%. The note payable will mature in 1999.
(8) INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1997 and 1998,
consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
---------- --------- ---------
<S> <C> <C> <C>
1997:
Federal.................................................... $ 29,813 (57,587) (27,774)
State...................................................... 9,938 (19,195) (9,257)
---------- --------- ---------
$ 39,751 (76,782) (37,031)
---------- --------- ---------
---------- --------- ---------
1998:
Federal.................................................... $ (13,121) 11,923 (1,198)
State...................................................... (4,374) 3,974 (400)
---------- --------- ---------
$ (17,495) 15,897 (1,598)
---------- --------- ---------
---------- --------- ---------
</TABLE>
Income tax expense (benefit) amounted to $(37,031) for 1997 (an effective
rate of 40%) and $(1,598) for 1998 (an effective rate of 40%). The actual
expense (benefit) for both 1997 and 1998 differs from the "expected" tax expense
(benefit) for those years (computed by applying the U.S. federal corporate
income tax rate of 34% to income (loss) before income taxes) as follows:
<TABLE>
<CAPTION>
1997 1998
---------- ---------
<S> <C> <C>
Computed "expected" tax expense (benefit)................................ $ (31,477) (1,359)
Increase in income taxes resulting from:
State income taxes, net of federal income tax benefit.................. (5,554) (239)
---------- ---------
$ (37,031) (1,598)
---------- ---------
---------- ---------
</TABLE>
F-40
<PAGE>
(8) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1998 are presented below:
<TABLE>
<CAPTION>
1997 1998
---------- ---------
<S> <C> <C>
Deferred tax assets:
Accounts payable...................................................... $ 34,460 22,053
Accrued expenses...................................................... 5,544 9,214
Bad debt reserve...................................................... 24,000 17,304
Deferred revenue...................................................... 32,378 46,174
---------- ---------
Gross deferred tax asset.......................................... 96,382 94,745
---------- ---------
Deferred tax liability:
Accounts receivable................................................... (78,902) (93,162)
---------- ---------
Gross deferred tax liabilities.................................... (78,902) (93,162)
---------- ---------
Net deferred tax asset............................................ $ 17,480 1,583
---------- ---------
---------- ---------
</TABLE>
Management has concluded that it is more likely than not that Caravela will
have sufficient taxable income of an appropriate character within the carryback
and carryforward period permitted by current tax law to allow for the
utilization of the deductible amounts generating the deferred tax asset.
(9) DEFINED CONTRIBUTION PLAN
Caravela sponsors a 401(k) Plan for all employees meeting certain
eligibility requirements. Caravela contributes 35% of the employees'
contribution, up to 6% of each employee's eligible compensation. The employer
matching contribution was $5,436 and $9,487 in 1997 and 1998, respectively. In
addition the plan provides for a voluntary annual profit sharing contribution.
Caravela contributed $12,798 in 1997 and $0 in 1998.
(10) COMMITMENTS
Caravela has entered into several contracts with vendors that provide
certain telephone related line access services with various expiration dates.
Following are the commitments for each of the two years subsequent to December
31, 1998:
<TABLE>
<S> <C>
1999............................................................... $ 32,840
2000............................................................... 23,200
---------
Total.......................................................... $ 56,040
---------
---------
</TABLE>
(11) SUBSEQUENT EVENT (UNAUDITED)
Caravela's stockholders have entered into a merger agreement whereby they
will exchange all of the shares in the Company to BiznessOnline.com, Inc. (the
acquirer) in exchange for cash and shares of common stock of the acquirer
concurrent with the consummation of the initial public offering ("IPO") of the
common stock of the acquirer. Upon consummation of the offering, the acquirer
will become the sole stockholder of Caravela. Subsequent to the acquisition,
Caravela will merge into a subsidiary of the acquirer.
F-41
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Global 2000 Communications, Inc.:
We have audited the accompanying balance sheets of Global 2000
Communications, Inc. (Global 2000) as of December 31, 1998, and the related
statements of income, stockholders' equity and cash flows for each of the years
in the two-year period then ended. These financial statements are the
responsibility of the Global 2000 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 Global 2000 Communications,
Inc. as of December 31, 1998, and the results of its operations and its cash
flows for each of the years in the two-year period then ended in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
Providence, Rhode Island
January 31, 1999
F-42
<PAGE>
GLOBAL 2000 COMMUNICATIONS, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 260,131
Accounts receivable--trade, net of allowance for doubtful accounts of $18,000... 114,952
---------
Total current assets........................................................ 375,083
---------
Property and equipment, net (note 3).............................................. 243,035
Other assets, net................................................................. 4,418
---------
Total assets................................................................ $ 622,536
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (note 6)................................... $ 7,288
Obligations under capital lease (note 4)........................................ 3,846
Accrued expenses................................................................ 64,615
Deferred revenue................................................................ 258,268
---------
Total current liabilities................................................... 334,017
Long-term liabilities:
Long-term debt, excluding current maturities (note 6)........................... 96,496
---------
Total liabilities........................................................... 430,513
---------
Stockholders' equity:
Common stock, no par value; 200 shares authorized, issued and outstanding 27,500
Retained earnings............................................................... 164,523
---------
Total stockholders' equity.................................................. 192,023
---------
Total liabilities and stockholders' equity.................................. $ 622,536
---------
---------
</TABLE>
See accompanying notes to financial statements.
F-43
<PAGE>
GLOBAL 2000 COMMUNICATIONS, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
------------ ----------
<S> <C> <C>
Revenues............................................................................... $ 1,108,980 1,738,613
------------ ----------
Operating expenses:
Connectivity and operations (note 5)................................................. 809,374 927,769
Sales and marketing.................................................................. 71,513 366,229
General and administrative (note 7).................................................. 76,640 114,105
Depreciation and amortization........................................................ 43,690 58,672
------------ ----------
Total operating expenses......................................................... 1,001,217 1,466,775
------------ ----------
Operating income................................................................. 107,763 271,838
Other income (expense), net:
Interest and other income............................................................ 2,836 2,938
Loss on disposal of equipment........................................................ (10,338) (21,431)
Interest expense..................................................................... (14,375) (13,573)
------------ ----------
Total other income (expense), net................................................ (21,877) (32,066)
------------ ----------
Net income....................................................................... $ 85,886 239,772
------------ ----------
------------ ----------
Net income per share--basic and diluted................................................ $ 429.43 1,198.86
------------ ----------
------------ ----------
Weighted average shares outstanding--basic and diluted................................. 200 200
------------ ----------
------------ ----------
</TABLE>
See accompanying notes to financial statements.
F-44
<PAGE>
GLOBAL 2000 COMMUNICATIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDERS'
STOCK EARNINGS EQUITY
--------- ---------- ------------
<S> <C> <C> <C>
Balance at December 31, 1996................................................. $ 27,500 25,865 53,365
Distributions to shareholders.............................................. -- (81,000) (81,000)
Net income................................................................. -- 85,886 85,886
--------- ---------- ------------
Balance at December 31, 1997................................................. 27,500 30,751 58,251
Distributions to shareholders.............................................. -- (106,000) (106,000)
Net income................................................................. -- 239,772 239,772
--------- ---------- ------------
Balance at December 31, 1998................................................. $ 27,500 164,523 192,023
--------- ---------- ------------
--------- ---------- ------------
</TABLE>
See accompanying notes to financial statements.
F-45
<PAGE>
GLOBAL 2000 COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................................. $ 85,886 239,772
----------- ----------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization........................................................ 43,690 58,672
Net realized loss (gain) on investment............................................... (694) 1,535
Loss on disposal of property and equipment........................................... 10,338 21,431
Changes in net assets and liabilities:
Decrease (increase) in accounts receivable--trade.................................. (64,271) 12,488
Increase in other assets........................................................... (1,360) (1,988)
Decrease in trade accounts payable................................................. (9,964) (75)
Increase (decrease) in accrued expenses............................................ 39,807 (5,110)
Increase in deferred revenue....................................................... 70,790 41,014
----------- ----------
Net cash provided by operating activities........................................ 174,222 367,739
----------- ----------
Cash flows from investing activities:
Proceeds from sale of investments...................................................... 36,384 25,614
Acquisition of property and equipment.................................................. (38,147) (103,938)
Proceeds from disposal of fixed assets................................................. 13,800 --
Purchases of investments............................................................... (52,174) (10,656)
----------- ----------
Net cash used in investing activities.............................................. (40,137) (88,980)
----------- ----------
Cash flows from financing activities:
Principal payments under capital lease obligations..................................... (8,049) (10,090)
Distributions to shareholders.......................................................... (81,000) (106,000)
Repayments of long-term debt........................................................... (23,078) (7,288)
----------- ----------
Net cash used in financing activities............................................ (112,127) (123,378)
----------- ----------
Net increase in cash and cash equivalents........................................ 21,958 155,381
Cash and cash equivalents at beginning of year........................................... 82,792 104,750
----------- ----------
Cash and cash equivalents at end of year................................................. $ 104,750 260,131
----------- ----------
----------- ----------
Supplemental disclosures of cash flow information:
Interest of $14,375 and $13,573 was paid in 1997 and 1998, respectively.
Global 2000 incurred a capital lease obligation of $17,000 in connection with an
acquisition of equipment in 1997.
</TABLE>
See accompanying notes to financial statements.
F-46
<PAGE>
GLOBAL 2000 COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(1) NATURE OF OPERATIONS
Global 2000 Communications, Inc. ("Global 2000") was incorporated in New
York State in 1994. Global 2000 is a regional provider of Internet access and
offers a broad spectrum of Internet access services to both individual and
business customers ranging from dial-up services to continuous access services
using dedicated telephone connections and Web hosting services.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions, including estimates of the allowance for doubtful accounts, that
affect the amounts reported in the financial statements. Actual results may
differ from those estimates.
(b) REVENUE RECOGNITION
Global 2000 recognizes revenue when services are provided. Services are
generally billed in advance. Advance billings are recorded as deferred revenue
and recognized as revenue when earned over the period of service.
(c) CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, Global 2000 considers all
highly liquid investments purchased with original maturity of three months or
less to be cash equivalents.
(d) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided for
using the straight line method over the estimated useful lives of the assets.
The estimated useful lives of the assets range from three to forty years. Global
2000 leases certain of its computer and telecommunications equipment under
capital lease agreements. The assets and liabilities under capital leases are
recorded at the lesser of the present value of aggregate future minimum lease
payments or the fair value of the assets under the lease. Assets under capital
lease are depreciated over shorter of their useful life or the lease term.
(e) INCOME TAXES
As a subchapter S corporation, Global 2000's income is taxed at the
stockholder level, except for certain business income taxes, therefore, no
income tax provision has been included in the financial statements.
(f) ADVERTISING COSTS
Global 2000 incurs advertising costs associated with the marketing of its
services. These costs of advertising are expensed as incurred. Advertising
expense totaled $71,513 and $366,229 for the years ended December 31, 1997 and
1998, respectively.
F-47
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets.
(h) EARNINGS PER SHARE
Global 2000 adopted the provisions of SFAS No. 128, "Earnings per Share," on
January 1, 1998. This statement requires the presentation of basic and diluted
earnings per share for all periods presented. There were no common stock
equivalents outstanding for any of the periods presented; accordingly, basic and
fully diluted earnings per share are the same.
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1998
<TABLE>
<S> <C>
Computer, telecommunications and office equipment................. $ 238,153
Software.......................................................... 9,730
Leasehold Improvements............................................ 100,361
---------
348,244
Less accumulated depreciation..................................... 105,209
---------
Property and equipment, net....................................... $ 243,035
---------
---------
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1998 was
$43,650 and $58,672, respectively. Estimated useful lives used in the
calculation of depreciation by major category of property and equipment are as
follows:
<TABLE>
<S> <C>
Computer, telecommunications and office equipment............... 3-7 years
Software........................................................ 3 years
30-40
Leasehold improvements.......................................... years
</TABLE>
(4) LEASES
Global 2000 leases computer and telecommunications equipment under a capital
lease agreement that is due to expire on May 1, 1999. At December 31, 1998, the
gross amount of equipment under capital leases was $17,000 with accumulated
amortization of $13,460. Amortization of assets held under capital lease is
included with depreciation expense.
Global 2000 also has several operating leases, primarily for office
equipment, with expiration dates through July 1, 2000. See note 5 for
information regarding rental of office space.
F-48
<PAGE>
(4) LEASES (CONTINUED)
Future minimum lease payments under operating leases with initial or
remaining noncancellable lease terms in excess of one year as of December 31,
1998 are as follows:
<TABLE>
<CAPTION>
OPERATING
YEAR ENDED DECEMBER 31: LEASES
- ----------------------------------------------------------------------------------- -----------
<S> <C>
1999....................................................................... $ 30,150
2000....................................................................... 8,775
-----------
Total minimum lease payments............................................... $ 38,925
-----------
-----------
</TABLE>
(5) RELATED PARTY TRANSACTIONS
Global 2000 rents office space from two of its primary shareholders on a
month-to-month basis. Rent expense in 1997 and 1998 was $6,000 and $21,000,
respectively.
(6) NOTE PAYABLE
The note payable is owed to a financial institution. The note bears interest
equal to the financial institution's base rate plus 2% per annum and is payable
in monthly installments of $1,483, including interest through June 1, 2001, when
payment will be made for the entire unpaid principal balance and any accrued
interest. Maturities for the next three years are as follows: 1999--$7,288;
2000--$8,050 and 2001--$88,446.
(7) RETIREMENT PLAN
Employees of Global 2000 with at least three years of service are included,
on a voluntary basis, in a contributory defined contribution pension plan
administered by Global 2000. The plan is a single-employer pension plan.
Contributions by Global 2000 totaled $39,648 and $53,535 for 1997 and 1998,
respectively.
(8) COMMITMENTS
Global 2000 has entered into several contracts with vendors that provide
certain telephone related line access services with various expiration dates.
Following are the commitments for each of the two years subsequent to December
31, 1998:
<TABLE>
<S> <C>
1999.............................................................. $ 68,632
2000.............................................................. 64,632
---------
Total......................................................... $ 133,264
---------
---------
</TABLE>
(9) SUBSEQUENT EVENT
Global 2000 was acquired by BiznessOnline.com, Inc. (the acquirer) on
January 31, 1999 in exchange for a note of $580,000 payable at the Initial
Public Offering (IPO) of the acquirer and $2,720,000 payable in shares of common
stock of the acquirer subject to adjustment at the IPO closing based on the IPO
price per share. Upon consummation of the agreement, the acquirer became the
sole stockholder of Global 2000. Subsequent to the acquisition, Global 2000 was
merged into a subsidiary of the acquirer.
F-49
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders
Ulsternet, Inc.:
We have audited the accompanying balance sheet of Ulsternet, Inc.
(Ulsternet) as of December 31, 1998, and the related statements of operations,
stockholders' equity (deficit) and cash flows for each of the years in the
two-year period then ended. These financial statements are the responsibility of
Ulsternet'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 Ulsternet, Inc. as of
December 31, 1998, and the results of its operations and its cash flows for each
of the years in the two-year period then ended in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
Providence, Rhode Island
January 25, 1999
F-50
<PAGE>
ULSTERNET, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash............................................................................ $ 1,258
Accounts receivable, net of allowance for doubtful accounts of $3,000........... 5,530
Prepaid expenses................................................................ 4,971
---------
Total current assets........................................................ 11,759
---------
Property and equipment, net (note 3)
Computer and telecommunications equipment....................................... 220,984
Less accumulated depreciation................................................... 144,526
---------
Net property and equipment.................................................. 76,458
---------
Total assets................................................................ $ 88,217
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt (note 4)................................... $ 8,905
Current installments of obligations under capital leases (note 3)............... 27,698
Accounts payable................................................................ 12,843
Accrued expenses................................................................ 710
Deferred revenue................................................................ 105,358
---------
Total current liabilities................................................... 155,514
Long-term liabilities:
Long-term debt, excluding current maturities (note 4)........................... 11,271
Obligations under capital leases, excluding current installments (note 3)....... 13,934
---------
Total liabilities........................................................... 180,719
---------
Stockholders' equity (deficit) (note 5):
Common stock, no par value; 200 shares authorized, 94 shares issued and
outstanding................................................................... 10,200
Accumulated deficit............................................................. (102,702)
---------
Total stockholders' deficit................................................. (92,502)
---------
Total liabilities and stockholders' deficit................................. $ 88,217
---------
---------
</TABLE>
See accompanying notes to financial statements
F-51
<PAGE>
ULSTERNET, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
---------- ---------
<S> <C> <C>
Revenues................................................................................... $ 318,630 604,419
---------- ---------
Operating expenses:
Connectivity and operations.............................................................. 290,309 491,327
Sales and marketing...................................................................... 4,377 6,136
General and administrative............................................................... 2,536 15,336
Depreciation and amortization............................................................ 39,224 58,231
---------- ---------
Total operating expenses............................................................. 336,446 571,030
---------- ---------
Operating income (loss).............................................................. (17,816) 33,389
Interest expense........................................................................... (8,480) (9,784)
---------- ---------
Net income (loss).................................................................... $ (26,296) 23,605
---------- ---------
---------- ---------
Net income (loss) per share--basic and diluted............................................. $ (279.74) 251.12
---------- ---------
---------- ---------
Weighted average shares outstanding--basic and diluted..................................... 94 94
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to financial statements.
F-52
<PAGE>
ULSTERNET, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
TOTAL
STOCKHOLDERS'
COMMON ACCUMULATED EQUITY
STOCK DEFICIT (DEFICIT)
--------- ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1996.............................................. $ -- -- --
Capital Contributions................................................... 10,200 -- 10,200
Distributions........................................................... -- (54,688) (54,688)
Net loss................................................................ -- (26,296) (26,296)
--------- ------------ ------------
Balance at December 31, 1997.............................................. 10,200 (80,984) (70,784)
Distributions........................................................... -- (45,323) (45,323)
Net income.............................................................. -- 23,605 23,605
--------- ------------ ------------
Balance at December 31, 1998.............................................. $ 10,200 (102,702) (92,502)
--------- ------------ ------------
--------- ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-53
<PAGE>
ULSTERNET, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................................................ $ (26,296) 23,605
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization.......................................................... 39,224 58,231
Changes in net assets and liabilities:
Decrease (increase) in accounts receivable........................................... (6,645) 1,115
Increase in prepaid expenses......................................................... -- (4,971)
Increase in accounts payable......................................................... 7,413 5,430
Increase in accrued expenses......................................................... 325 385
Increase in deferred revenue......................................................... 82,944 22,414
---------- ---------
Net cash provided by operating activities.......................................... 96,965 106,209
---------- ---------
Cash flows from investing activities:
Capital expenditures..................................................................... (55,344) (31,860)
---------- ---------
Net cash used in investing activities.............................................. (55,344) (31,860)
---------- ---------
Cash flows from financing activities:
Capital contributions.................................................................... 10,200 --
Proceeds from long-term debt............................................................. 40,524 --
Distributions to stockholders............................................................ (54,688) (45,323)
Principal payments under capital lease obligations....................................... (18,806) (26,271)
Repayments of long-term debt............................................................. (12,298) (8,050)
---------- ---------
Net cash used in financing activities.............................................. (35,068) (79,644)
---------- ---------
Net increase (decrease) in cash.................................................... 6,553 (5,295)
Cash at beginning of year.................................................................. -- 6,553
---------- ---------
Cash at end of year........................................................................ $ 6,553 1,258
---------- ---------
---------- ---------
Supplemental cash flow information:
Ulsternet paid $8,480 and $9,784 in interest in 1997 and 1998, respectively.
Non-cash financing activities:
Capital lease obligations of $49,703 and $21,883 were incurred in 1997 and 1998, respectively.
</TABLE>
See accompanying notes to financial statements.
F-54
<PAGE>
ULSTERNET, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(1) NATURE OF OPERATIONS
Ulsternet, Inc. ("Ulsternet") was incorporated on November 7, 1996.
Ulsternet is a provider of Internet access and offers a broad spectrum of
Internet access services to both individual and business customers ranging from
dial-up services to continuous access services using dedicated telephone
connections and Web hosting services.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions, including estimates of the allowance for doubtful accounts and
provisions for sales credits, that affect the amounts reported in the financial
statements. Actual results may differ from those estimates.
(b) REVENUE RECOGNITION
Ulsternet recognizes revenue when services are provided. Services are
generally billed in advance. Advance billings are recorded as deferred revenue
and recognized as revenue when earned over the service period.
(c) CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, Ulsternet considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
(d) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using
an accelerated method over the estimated useful lives of the assets for property
and equipment. The estimated useful lives of the assets range from three to five
years. Ulsternet leases certain of its data communications and other equipment
under capital lease agreements. The assets and liabilities under capital leases
are recorded at the lesser of the present value of aggregate future minimum
lease payments or the fair value of the assets under the lease. Assets under
capital lease are depreciated over the shorter of their estimated useful lives
or the lease term.
(e) INCOME TAXES
As a subchapter S corporation, Ulsternet's income is taxed at the
stockholder level, therefore except for certain local business income taxes, no
income tax provision has been included in the financial statements.
(f) ADVERTISING COSTS
Ulsternet incurs advertising costs associated with the marketing of its
services. These costs of advertising are expensed as incurred. Advertising
expense totaled $1,387 and $1,016 for the years ended December 31, 1997 and
1998, respectively.
F-55
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
(h) EARNINGS PER SHARE
Ulsternet adopted the provisions of SFAS No. 128, "Earnings per Share," on
December 31, 1997. This statement requires the presentation of basic and diluted
earnings per share for all periods presented. There were no common stock
equivalents outstanding for any of the periods presented; accordingly, basic and
fully diluted earnings per share are the same.
(3) LEASES
Ulsternet leases certain equipment under capital lease agreements that
expire at various dates through July 2001. At December 31, 1998, the gross
amount of equipment and related accumulated amortization recorded under capital
leases were as follows:
<TABLE>
<S> <C>
Computer and telecommunications equipment.......................... $ 91,930
Less accumulated amortization...................................... 43,577
---------
$ 48,353
---------
---------
</TABLE>
Ulsternet has one operating lease for office space on a month-to-month
basis. Rental expense for the operating lease during 1997 and 1998 was $3,600
and $5,100, respectively.
Future minimum lease payments under capital and operating leases as of
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL
YEAR ENDED DECEMBER 31: LEASES
- ----------------------------------------------------------------------------------- ---------
<S> <C>
1999....................................................................... $ 30,554
2000....................................................................... 12,974
2001....................................................................... 1,647
---------
Total minimum lease payment................................................ 45,175
Less amount representing interest (at 10%)................................. 3,543
---------
Present value of minimum capital lease payments............................ 41,632
Less current installments of obligations under capital leases.............. 27,698
---------
Obligations under capital leases, excluding current installments........... $ 13,934
---------
---------
</TABLE>
F-56
<PAGE>
(4) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1998:
<TABLE>
<S> <C>
Note payable to a bank in monthly installments of $430, including
interest at 10.5%, due January 2002, secured by equipment........ $ 13,417
Note payable to a bank in monthly installments of $476, including
interest at 11%, due May 2000, secured by personal property...... 6,759
---------
Total long-term debt............................................. 20,176
Less current maturities.......................................... 8,905
---------
Long-term debt, excluding current maturities..................... $ 11,271
---------
---------
</TABLE>
Maturities for the next three years are as follows: 1999--$8,905;
2000--$6,569 and 2001--$4,702.
(5) DISTRIBUTIONS TO STOCKHOLDERS
Ulsternet is a cash-basis, subchapter S corporation for federal income tax
purposes. As such, income or loss is measured on the cash basis of accounting
for tax purposes and distributions are made based on those results. (For
financial statement purposes, Ulsternet is on the accrual method of accounting.)
The distributions made to date do not exceed Ulsternet's income tax basis and
therefore have been reflected as charges to accumulated deficit for financial
statement purposes rather than as returns of capital stock.
(6) COMMITMENTS
Ulsternet has entered into several contracts with vendors that provide
certain telephone related line access services. The contracts have various
expiration dates, through 2002. Following are the commitments for each of the
four years subsequent to December 31, 1998:
<TABLE>
<S> <C>
1999.............................................................. $ 104,625
2000.............................................................. 34,985
2001.............................................................. 33,078
2002.............................................................. 11,026
---------
Total......................................................... $ 183,714
---------
---------
</TABLE>
(7) SUBSEQUENT EVENT (UNAUDITED)
Ulsternet's stockholders have entered into a merger agreement whereby they
will exchange their shares in the Company to BiznessOnline.Com, Inc. (acquirer)
in exchange for cash and shares of common stock of the acquirer concurrent with
the consummation of the initial public offering ("IPO") of the common stock of
the acquirer. Upon consummation of the offering, the acquirer will become the
sole stockholder of Ulsternet. Subsequent to the acquisition, Ulsternet will
merge into a subsidiary of the acquirer.
F-57
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY BIZNESSONLINE, ANY OF THE
UNDERWRITERS OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES: (I) OTHER THAN
THOSE SPECIFICALLY OFFERED HEREBY, (II) IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED, (III) IN ANY JURISDICTION IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, (IV) TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION,
OR (V) TO ANY PERSON WHO IS NOT A UNITED STATES RESIDENT OR WHO IS OUTSIDE THE
JURISDICTION OF THE UNITED STATES. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF BIZNESSONLINE SINCE THE DATE HEREOF
OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
AS OF WHICH SUCH INFORMATION IS PROVIDED IN THIS PROSPECTUS. UNTIL , 1999
(25 CALENDAR DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING
TRANSACTIONS IN THE SECURITIES OFFERED HEREBY, 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 UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------
Until , 1999 (25 calendar days after the date of this
prospectus), all dealers effecting transactions in the securities offered
hereby, 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 underwriters and with respect
to their unsold allotments or subscriptions.
2,000,000 SHARES
BIZNESSONLINE.COM
COMMON STOCK
---------------------
PROSPECTUS
---------------------
SCHNEIDER SECURITIES, INC.
JOSEPH STEVENS & COMPANY, INC.
, 1999
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law allows a Delaware
corporation to indemnify its present and former directors and officers under
certain conditions. Article Twelve of our Certificate of Incorporation provides
that any person made a party to or otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter, a "proceeding"), by reason of the fact that such person is or was
a director or officer of BiznessOnline, or is or was serving at our request as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall be indemnified and held harmless by us
to the fullest extent authorized by the Delaware General Corporation Law against
all expense, liability and loss, PROVIDED, HOWEVER, that we shall only indemnify
such person in a proceeding initiated by such person only if such proceeding was
authorized by our directors. The right of indemnification described herein
includes the right to be paid expenses incurred in defending any proceeding in
advance of its final disposition, provided that such person, if required by the
Delaware General Corporation Law, undertakes to repay all amounts advanced if it
shall be ultimately determined that such director or officer is not entitled to
be indemnified under Article Twelve or otherwise.
Section 102(b)(7) of the Delaware General Corporation Law gives a Delaware
corporation the power to adopt a charter provision eliminating or limiting the
personal liability of directors to the corporation or its stockholders for
breach of fiduciary duty as directors, provided that such provision may not
eliminate or limit the liability of directors for:
- any breach of the director's duty of loyalty to the corporation or its
stockholders;
- any acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- any payment of a dividend or approval of a stock purchase that is illegal
under Section 174 of the Delaware General Corporation Law, or
- any transaction from which the director derived an improper personal
benefit.
Article Twelve of our Certificate of Incorporation states that to the
maximum extent permitted by Section 102(b)(7) of the Delaware General
Corporation Law, our directors shall not be personally liable to us or our
stockholders for monetary damages resulting from such director's breach of
fiduciary duty as a director, except for liability involving one of the four
exceptions described above. In addition, our Certificate of Incorporation
provides that if the Delaware General Corporation Law is amended to authorize
the further limitation or elimination of the liability of a director, then the
liability of the directors shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
Section 145 of the Delaware General Corporation Law allows a corporation to
obtain insurance on behalf of its directors and officers against liabilities
incurred by them in those capacities. Article Twelve of our Certificate of
Incorporation provides that we may maintain insurance to protect us and our
directors and officers against expenses, liabilities and losses whether or not
we would have the power to indemnify such person against such expense, liability
or loss under the Delaware General Corporation Law. We intend to procure a
directors' and officers' liability and company reimbursement liability insurance
policy that will (a) insure directors and officers against losses (above a
deductible amount) arising from certain claims made against them by reason of
certain acts done or attempted by such directors or officers and (b) insure us
against losses (above a deductible amount) arising from any such claims, but
only if we are required or permitted to indemnify such directors or officers for
such losses under statutory or common law or under provisions of our Certificate
of Incorporation or By-Laws.
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Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of BiznessOnline pursuant to the foregoing
provisions, or otherwise, we have been advised that in the opinion of the
Securities and Exchange Commission indemnification for liabilities is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
Reference is also made to Section [ ] of the Underwriting Agreement between
us and the Underwriters, filed as Exhibit 1 to this Registration Statement, for
a description of indemnification arrangements between us and the Underwriters.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered other than the
underwriting discounts and commissions. All amounts shown are estimates except
the Securities and Exchange Commission registration fee and the NASD filing fee.
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ITEM AMOUNT
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SEC registration fee.............................................................. $ 5,115
NASD filing fee................................................................... $ 2,580
NASDAQ Small Cap listing application fee.......................................... $ 9,000
Boston Stock Exchange............................................................. $ *
Blue Sky fees and expenses........................................................ $ 35,000
Printing and engraving expenses (including Edgar filing service charges)*......... $ 100,000
Accounting fees and expenses...................................................... $ *
Legal fees and expenses........................................................... $ *
Transfer agent and registrar fee.................................................. $ *
Miscellaneous..................................................................... $ *
Total....................................................................... $ *
</TABLE>
* to be filed by amendment
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following gives effect to a 10,000 for one stock split in the nature of
a dividend on January 20, 1999 and a 3.147187 which we intend to effect prior to
the effective date of this Registration Statement.
(a) On July 1, 1998, in connection with our formation, we sold (i) 1,337,554
shares of our common stock $.01 par value per share, to Mark E. Munro, (ii)
1,337,554 shares of our common stock to Susan Munro, (iii) 409,134 shares of our
common stock to S. Keith London, and (iv) 62,944 shares of our common stock to
S&D Enterprises, a Rhode Island partnership, in each case for cash at a price
per share (pre split) of $1 for an aggregate consideration of $100 and pursuant
to an organizational subscription agreement. These sales were effected without
registration under the Securities Act of 1933, as amended (the "Securities
Act"), in reliance upon the exemption from registration contained in Section
4(2) of the Securities Act.
(b) On January 31, 1999, we issued a total of 272,000 shares of our common
stock to the six stockholders of Global 2000 Communications, Inc., a New York
corporation, comprising a portion of the merger consideration paid to such
persons, pursuant to an Agreement and Plan of Merger and Reorganization by which
Global 2000 Communications was merged with and into our wholly-owned subsidiary.
These issuances were effected without registration and the Securities Act in
reliance upon the exemption for registration set forth in Section 4(2) of the
Securities Act.
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(c) Between February 5, 1999 and February 12, 1999, we issued shares of our
Class A Preferred Stock - First Series (the "First Series") to 7 accredited
investors in private transactions. We issued a total of 70,000 shares of the
First Series for an aggregate purchase price of $350,000. Except for a
commission of $7,500 on aggregate sales of $75,000 paid to Schneider Securities,
Inc. (one of our Underwriters in this offering), no commissions were paid. These
sales were effected without registration under the Securities Act in reliance
upon the exemptions from registration set forth in Section 4(2) of the
Securities Act and Rule 506 of Regulation D thereunder, relating to the sale of
securities by an issuer not involving a public offering.
(d) Prior to filing this Registration Statement, on several dates in late
January and early February, 1999, we agreed to issue a total of 977,500 shares
(assuming an $8.00 per share price in this offering) of our common stock to the
stockholders of our Internet service providers to be acquired at the
consummation of this offering as a portion of the aggregate consideration to be
paid to such persons under definitive merger agreements. These transactions were
effected without registration under the Securities Act in reliance upon the
exemption for registration set forth in Section 4(2) of the Securities Act.
ITEM 27. EXHIBITS
The following exhibits are filed as part of this Registration Statement with
the Securities and Exchange Commission, pursuant to Item 601 of Regulation S-B.
All exhibits refer to BiznessOnline.com, Inc. unless otherwise indicated.
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1.1 Form of Underwriting Agreement
1.2 Form of Underwriters' Warrant
3.1 Certificate of Incorporation, filed with the Delaware Secretary of State on June 11,
1998
3.2 Certificate of Amendment to Certificate of Incorporation, filed with the Delaware
Secretary of State on December 9, 1998
3.3 Certificate of Designation, filed with the Delaware Secretary of State on February
1, 1999
3.4 Certificate of Amendment to Certificate of Incorporation, filed with the Delaware
Secretary of State on February 4, 1999
3.5 Certificate of Amendment to Certificate of Incorporation, filed with the Delaware
Secretary of State on February 10, 1999
3.6 By-Laws
*4.1 Specimen Common Stock Certificate
4.6 Relevant portion of Article II and VII of By-Laws (included in Exhibit 3.2)
*5.1 Opinion of Duffy & Sweeney, LLP regarding the legality of the securities offered
10.1 Merger Agreement among the Company, InSite Internet I Acquisition Co., Inc., Global
2000 Communications, Inc. ("Global") and the shareholders of Global
10.2 Merger Agreement among the Company, InSite Internet II Acquisition Co., Inc., Borg
Internet Services, Inc. ("Borg") and the shareholders of Borg
10.3 Merger Agreement among the Company, InSite Internet IV Acquisition Co., Inc.,
Ulsternet, Inc. ("Ulsternet") and the shareholders of Ulsternet
10.4 Merger Agreement among the Company, InSite Internet V Acquisition Co., Inc.,
Caravela Software, Inc. ("Caravela") and the shareholders of Caravela
10.5 Stock Purchase Agreement among the Company, and the shareholders of AlbanyNet, Inc.
10.6 Employment Agreement with Mark E. Munro
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10.7 Employment Agreement with S. Keith London
10.8 Employment Agreement with Daniel J. Sullivan
10.9 1999 Stock Incentive Plan
10.10 Form of Incentive Stock Option Agreement for 1999 Stock Incentive Plan
10.11 Form of Non-Qualified Stock Option Agreement for 1999 Stock Incentive Plan
10.12 1999 Non-Employee Director Stock Incentive Plan
10.13 Form of Non-Qualified Stock Option Agreement for 1999 Non-Employee Director Stock
Incentive Plan
11.1 Computation of Per Share Earnings
21.1 Subsidiaries of the registrant
23.1 Consent of KPMG LLP, Independent Auditors (BiznessOnline.com, Inc.)
23.2 Consent of KPMG LLP, Independent Auditors (AlbanyNet, Inc.)
23.3 Consent of KPMG LLP, Independent Auditors (Borg Internet Services, Inc.)
23.4 Consent of KPMG LLP, Independent Auditors (Caravela Software, Inc.)
23.5 Consent of KPMG LLP, Independent Auditors (Global 2000, Inc.)
23.6 Consent of KPMG LLP, Independent Auditors (Ulsternet, Inc.)
23.7 Consent of Duffy & Sweeney, LLP (included in Exhibit 5.1 to this Registration
Statement)
23.8 Consent of John B. Fraser (Director Nominee)
23.9 Consent of Joseph Luciano (Director Nominee)
27 Financial Data Schedules
</TABLE>
* To be filed by amendment
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, 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, Rhode Island on February 24, 1999.
BiznessOnline.com, inc.
By: /s/ MARK E. MUNRO
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Mark E. Munro, Chairman of
the Board, Chief Executive Officer,
President and Director
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
By: /s/ S. KEITH LONDON
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Executive Vice President
and Director
By: /s/ DANIEL J. SULLIVAN
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Chief Financial and Principal Accounting
Officer
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EXHIBIT INDEX
The following exhibits are filed as part of this Registration Statement with
the Securities and Exchange Commission, pursuant to Item 601 of Regulation S-B.
All exhibits refer to BiznessOnline.com, Inc. unless otherwise indicated.
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EXHIBITS
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1.1 Form of Underwriting Agreement
1.2 Form of Underwriters' Warrant
3.1 Certificate of Incorporation, filed with the Delaware Secretary of State on June 11, 1998
3.2 Certificate of Amendment to Certificate of Incorporation, filed with the Delaware Secretary of State on
December 9, 1998
3.3 Certificate of Designation, filed with the Delaware Secretary of State on February 1, 1999
3.4 Certificate of Amendment to Certificate of Incorporation, filed with the Delaware Secretary of State on
February 4, 1999
3.5 Certificate of Amendment to Certificate of Incorporation, filed with the Delaware Secretary of State on
February 10, 1999
3.6 By-Laws
*4.1 Specimen Common Stock Certificate
4.6 Relevant portion of Article II and VII of By-Laws (included in Exhibit 3.2)
*5.1 Opinion of Duffy & Sweeney, LLP regarding the legality of the securities offered
10.1 Merger Agreement among the Company, InSite Internet I Acquisition Co., Inc., Global 2000 Communications,
Inc. ("Global") and the shareholders of Global
10.2 Merger Agreement among the Company, InSite Internet II Acquisition Co., Inc., Borg Internet Services,
Inc. ("Borg") and the shareholders of Borg
10.3 Merger Agreement among the Company, InSite Internet IV Acquisition Co., Inc., Ulsternet, Inc.
("Ulsternet") and the shareholders of Ulsternet
10.4 Merger Agreement among the Company, InSite Internet V Acquisition Co., Inc., Caravela Software, Inc.
("Caravela") and the shareholders of Caravela
10.5 Stock Purchase Agreement among the Company, and the shareholders of AlbanyNet, Inc.
10.6 Employment Agreement with Mark E. Munro
10.7 Employment Agreement with S. Keith London
10.8 Employment Agreement with Daniel J. Sullivan
10.9 1999 Stock Incentive Plan
10.10 Form of Incentive Stock Option Agreement for 1999 Stock Incentive Plan
10.11 Form of Non-Qualified Stock Option Agreement for 1999 Stock Incentive Plan
10.12 1999 Non-Employee Director Stock Incentive Plan
10.13 Form of Non-Qualified Stock Option Agreement for 1999 Non-Employee Director Stock Incentive Plan
11.1 Computation of Per Share Earnings
21.1 Subsidiaries of the registrant
23.1 Consent of KPMG LLP, Independent Auditors (BiznessOnline.com, Inc.)
23.2 Consent of KPMG LLP, Independent Auditors (AlbanyNet, Inc.)
23.3 Consent of KPMG LLP, Independent Auditors (Borg Internet Services, Inc.)
23.4 Consent of KPMG LLP, Independent Auditors (Caravela Software, Inc.)
</TABLE>
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EXHIBITS
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23.5 Consent of KPMG LLP, Independent Auditors (Global 2000, Inc.)
23.6 Consent of KPMG LLP, Independent Auditors (Ulsternet, Inc.)
23.7 Consent of Duffy & Sweeney, LLP (included in Exhibit 5.1 to this Registration Statement)
23.8 Consent of John B. Fraser (Director Nominee)
23.9 Consent of Joseph Luciano (Director Nominee)
27 Financial Data Schedules
</TABLE>
* To be filed by amendment
<PAGE>
Exhibit 1.1
BIZNESSONLINE.COM,INC.
2,000,000 SHARES
OF
COMMON STOCK
UNDERWRITING AGREEMENT
, 19
Schneider Securities,Inc. Joseph Stevens & Company, Inc.
1120 Lincoln Street 33 Maiden Lane
Denver, Colorado 80203 New York, New York 10038
Dear Sirs:
BiznessOnline.com,Inc.. a Delaware corporation (the "Company"), proposes to
issue and sell to the several Underwriters named in Schedule I hereto (the
"Underwriters"), two million shares of Common Stock of the Company (the
"Securities"). The Company hereby confirms the agreement made by it with respect
to the purchase of the Securities by the Underwriter, which Securities are more
fully described in the Registration Statement referred to below .Schneider
Securities,Inc. and Joseph Stevens & Company, Inc. are referred to herein as the
"Underwriters" or the "Co-Representatives."
You have advised the Company that the Underwriters desire to act on a firm
commitment basis to publicly offer and sell the Securities for the Company and
that you are authorized to execute this Agreement. The Company confirms the
agreement made by it with respect to the relationship with the Underwriters as
follows:
1. FILING OF REGISTRATION STATEMENT WITH S.E.C. AND DEFINITIONS. A Registration
Statement and Prospectus on Form SB-2 (File No.333- ) with respect to the
Securities has been carefully and accurately prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended (the
"Act"), and the published rules and regulations (the "Rules and Regulations")
thereunder or under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and has been filed with the Securities and Exchange Commission
(the "Commission") and such other states that the Underwriter deems necessary in
its discretion to so file to permit a public offering and trading thereunder.
Such registration statement, including the prospectus, Part II, and all
financial schedules and exhibits thereto, as amended at the time when it shall
become effective, is herein referred to as the "Registration Statement," and the
prospectus included as part of the Registration Statement on file with the
Commission that discloses all the information that was omitted from the
prospectus on the effective date pursuant to Rule 430 A of the Rules and
Regulations with any changes contained in any prospectus filed with the
Commission by the Company with the Underwriters consent after the effective date
of the Registration Statement, is herein referred to as the "Final Prospectus."
The prospectus included as part of the Registration Statement of the Company and
in any amendments thereto prior to the effective date of the Registration
Statement is referred to herein as a "Preliminary Prospectus."
2. Discount, Delivery, and Sale of the Securities
(a)Subject to the terms and conditions of this Agreement, and on the basis of
the representations, warranties, and agreements herein contained, the Company
agrees to sell to, and the Underwriters agree to buy from the Company at a
purchase price of $ per share before any underwriter expense allowances, an
aggregate of 2,000,000 shares of Common Stock on a firm commitment basis the
"Initial Securities" in the amounts set forth in Schedule I which is a part of
this Underwriting Agreement.
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It is understood that the Underwriters propose to offer the Securities to be
purchased hereunder to the public upon the terms and conditions set forth in the
Registration Statement, after the Registration Statement becomes effective.
(b) Delivery of the Securities against payment of the purchase price
therefor by certified or official bank check or checks or wire transfer in
next-day funds, payable to the order of the Company shall take place at the
offices of the clearing broker for the Underwriter at New York City, within
three (3) business days after the Securities are first traded (or such other
place as may be designated by agreement between you and the Company) at 11:00
A.M., New York time or such time and date as you and the Company may agree upon
in writing, such time and date of payment and delivery for the Securities being
herein called the "Initial Closing Date."
The Company will make the certificates for the shares of Common Stock to be
purchased by the Underwriters hereunder available to the Underwriter for
inspection and packaging at least two (2) full business days prior to the
Initial Closing Date. The certificates shall be in such names and denominations
as the Underwriter may request to the Company in writing at least two (2) full
business days prior to any Closing Date.
(c)In addition, subject to the terms and conditions of this Agreement and on
the basis of the representations, warranties and agreements herein contained,
the Company grants an option to the Underwriters to purchase up to an additional
300,000 shares of Common Stock ("Option Securities") at the same terms as the
Underwriters shall pay for the Initial Securities being sold by the Company
pursuant to the provisions of Section 2(a) hereof. This option may be exercised
from time to time, for the purpose of covering overallotments, within forty-five
(45) days after (i) the effective date of the Registration Statement 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, upon written notice by the Underwriter
setting forth the number of Option Securities as to which the Underwriter is
exercising the option and the time and date at which such certificates are to be
delivered. Such time and date shall be determined by the Underwriter but shall
not be earlier than four (4) nor later than ten (10) full business days after
the date of the exercise of said option. Nothing herein shall obligate the
Underwriter to make any overallotment.
(d) Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriter hereunder will be delivered at the closing by the
Company to the Underwriters against payment of the purchase price by the
Underwriters by certified or bank cashier's checks or wire transfer in next day
funds payable to the order of the Company.
(e)The information set forth under "Underwriting" in any preliminary
prospectus and Prospectus relating to the Securities and the information set
forth in the last paragraph on the front cover page, under the last paragraph on
page 2 concerning stabilization and over-allotment by the Underwriters, and
(insofar as such information relates to the Underwriters) constitutes the only
information furnished by the Underwriter to the Company for inclusion therein,
and you represent and warrant to the Company that the statements made therein
are correct.
(f) On the Initial Closing Date, the Company shall issue and sell to the
Representative, warrants (the "Representative's Warrants") at a purchase
price of $.001 per Representative's Warrant, which shall entitle the
holders thereof to purchase an aggregate of 200,000 shares of Common
Stock. The shares of common stock issuable upon the exercise of the
Representative's Warrants are hereafter referred to as the
"Representative's Securities" or "Representative's Warrants." 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 fifty percent
(150%) of the initial public offering price of the Securities. The form
of Representative's Warrant Certificate shall be substantially in the
form filed as an Exhibit to the Registration Statement. Payment for the
Representative's Warrant shall be made on the Initial Closing Date.
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(a) The Company represents and warrants to you as follows:
(i) The Company has prepared and filed with 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 Securities, the Representative's Warrant (sometimes referred
to herein collectively as the "Registered Securities"), under 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 Company will promptly file a further amendment to said
registration statement in the form heretofore delivered to the Underwriter and
will not file any other amendment thereto to which the Underwriter shall have
objected verbally or 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, any
schedules, exhibits and all other documents filed as a part thereof or that may
be 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
Rules and 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 Rules and Regulations, is hereinafter called the
"Prospectus."
(ii) Neither the Commission nor any state regulatory authority has issued any
order preventing or suspending the use of any Prospectus or the Registration
Statement and no proceeding for an order suspending the effectiveness of the
Registration Statement or any of the Company's securities has been instituted or
is pending or threatened. Each such Prospectus and/or any supplement thereto has
conformed in all material respects with the requirements of the Act and the
Rules and Regulations and on its date did not include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein not misleading, in light of the circumstances under which they were made
and (i) the Prospectus and/or any supplement thereto will contain all statements
which are required to be stated therein by the Act and Rules and Regulations,
and (ii) the Prospectus and/or any supplement thereto will not include 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 not misleading,
in light of the circumstances under which they were made; provided, however,
that no representations, warranties or agreements are made hereunder as to
information contained in or omitted from the Prospectus in reliance upon, and in
conformity with, the written information furnished to the Company by you as set
forth in Section 2(e) above.
(iii) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the state of its incorporation,
with full power and authority (corporate and other) to own its properties and
conduct its businesses as described in the Prospectus and is duly qualified to
do business as a foreign corporation in good standing in all other jurisdictions
in which the nature of its business or the character or location of its
properties requires such qualification, except where the failure to so qualify
would not have a material adverse effect on the business, properties or
operations of the Company and the subsidiaries as a whole.
(iv) The Company has full legal right, power and authority to authorize,
issue, deliver and sell the Securities, the Option Securities and the
Representative's Securities and to enter into this Agreement, the
Representative's Warrant dated as of the initial closing date to be exercised
and delivered by the Company to the Representative (the "Representative's
Warrant Agreement"), and to consummate the transactions provided for in such
agreements, and each of such agreements has been duly and properly authorized,
and on the Initial Closing Date will be duly and properly executed and delivered
by the Company. This Agreement constitutes and on the Initial Closing Date the
Representative's Warrant Agreement will then constitute valid and binding
agreements, enforceable in accordance with their respective terms (except as the
enforceability thereof may be limited by bankruptcy or other similar laws
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affecting the rights of creditors generally or by general equitable principles
and except as the enforcement of indemnification provisions may be limited by
federal or state securities laws).
(v) Except as disclosed in the Prospectus, the Company is not in violation of
its respective certificate or articles of incorporation or bylaws or in default
in the performance or observance of any material obligation, agreement, covenant
or condition contained in any material bond, debenture, note or other evidence
of indebtedness or in any material contract, indenture, mortgage, loan
agreement, lease, joint venture, partnership or other agreement or instrument to
which the Company is a party or by which it may be bound or is not in material
violation of any law, order, rule, regulation, writ, injunction or decree of any
governmental instrumentality or court, domestic or foreign; and the execution
and delivery of this Agreement, the Representative's Warrant Agreement ;and the
consummation of the transactions contemplated therein and in the Prospectus and
compliance with the terms of each such agreement will not conflict with, or
result in a material breach of any of the terms, conditions or provisions of, or
constitute a material default under, or result in the imposition of any material
lien, charge or encumbrance upon any of the property or assets of the Company
pursuant to, any material bond, debenture, note or other evidence of
indebtedness or any material contract, indenture, mortgage, loan agreement,
lease, joint venture, partnership or other agreement or instrument to which the
Company is a party nor will such action result in the material violation by the
Company of any of the provisions of its respective certificate or articles of
incorporation or bylaws or any law, order, rule, regulation, writ, injunction,
decree of any government, governmental instrumentality or court, domestic or
foreign, except where such violation will not have a material adverse effect on
the financial condition of the Company.
(vi) The authorized, issued and outstanding capital stock of the Company is
as set forth in the Prospectus and the Company will have the adjusted
capitalization set forth therein on the Initial Closing Date; all of the shares
of issued and outstanding capital stock of the Company set forth therein have
been duly authorized, validly issued and are fully paid and nonassessable; the
holders thereof do not have any rights of rescission with respect therefor and
are not subject to personal liability for any obligations of the Company by
reason of being stockholders under the laws of the State in which the Company is
incorporated; none of such outstanding capital stock is subject to or was issued
in violation of any preemptive or similar rights of any stockholder of the
Company; and such capital stock (including the Securities, the Option Securities
and the Representative's Securities) conforms in all material respects to all
statements relating thereto contained in the Prospectus.
(vii) 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 or as described in the
Prospectus. The Securities, the Option Securities and the Representative's
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 respective descriptions thereof
contained in the Prospectus; except for payment of the applicable purchase price
paid upon exercise of the options or warrants, as the case may be 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, the Option Securities and the Representative's Securities has
been duly and validly taken; and the certificates representing the Securities,
the Option Securities and the Representative's Securities will be in due and
proper form. Upon the issuance and delivery pursuant to the terms hereof of the
Securities, the Option Securities and the Representative's Securities to be sold
by the Company hereunder, the Underwriter will acquire good and marketable title
to such Securities, Option Securities and Representative's Securities free and
clear of any lien, charge, claim, encumbrance, pledge, security interest, defect
or other restriction of any kind whatsoever other than restrictions as may be
imposed under the securities laws.
(viii) The Company has good and marketable title to all properties and assets
described in the Prospectus as owned by it, free and clear of all liens,
charges, encumbrances or restrictions, except such as are described or referred
to in the Prospectus or which are not materially significant or important in
relation to its business or which have been incurred in the ordinary course of
business; except as described in the Prospectus all of the leases and subleases
under which the Company holds properties or assets as lessee or sublessee as
described in the Prospectus are in full force and effect, and the Company is not
in material default in respect of any of the terms or provisions of any of such
leases or subleases, and no claim has been asserted by anyone adverse to the
Company's rights as lessor, sublessor, lessee or sublessee under any of the
leases or subleases mentioned above or affecting or questioning the Company's
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right to the continued possession of the leased or subleased premises or assets
under any such lease or sublease; and the Company owns or leases all such
properties as are necessary to its operations as now conducted and as
contemplated to be conducted, except as otherwise stated in the Prospectus.
(ix) The financial statements, together with related notes, set forth in
the Prospectus fairly present the financial position and results of operations
of the Company at the respective dates and for the respective periods to which
they apply. Said statements and related notes have been prepared in accordance
with generally accepted accounting principles applied on a basis which is
consistent in all material respects during the periods involved but any stub
period has not been audited by an independent accounting firm. There has been no
material adverse change or material development involving a prospective change
in the condition, financial or otherwise, or in the prospects, value, operation,
properties, business or results of operations of the Company 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.
(x) Subsequent to the respective dates as of which information is given
in the Prospectus as it may be amended or supplemented, and except as described
in the Prospectus, the Company has not, directly or indirectly, incurred any
liabilities or obligations, direct or contingent, not in the ordinary course of
business or entered into any transactions not in the ordinary course of
business, which are material to the business of the Company as a whole and there
has not been any change in the capital stock of, or any incurrence of long term
debts by, the Company or any issuance of options, warrants or rights to purchase
the capital stock of the Company or declaration or payment of any dividend on
the capital stock of the Company or any material adverse change in the condition
(financial or other), net worth or results of operations of the Company as a
whole and the Company has not become a party to, any material litigation whether
or not in the ordinary course of business.
(xi)To the knowledge of the Company, there is no pending or threatened,
action, suit or proceeding to which the Company is a party before or by any
court or governmental agency or body, which might result in any material adverse
change in the condition (financial or other), business or prospects of the
Company as a whole or might materially and adversely affect the properties or
assets of the Company as a whole nor are there any actions, suits or proceedings
against the Company related to environmental matters or related to
discrimination on the basis of age, sex, religion or race which might be
expected to materially and adversely affect the conduct of the business,
property, operations, financial condition or earnings of the Company as a whole;
and no labor disturbance by the employees of the Company individually exists or
is, to the knowledge of the Company, imminent which might be expected to
materially and adversely affect the conduct of the business, property,
operations, financial condition or earnings of the Company as a whole.
(xii) Except as may be disclosed in the Prospectus, the Company has
properly prepared and filed all necessary federal, state, local and foreign
income and franchise tax returns, has paid all taxes shown as due thereon, has
established adequate reserves for such taxes which are not yet due and payable,
and does not have any tax deficiency or claims outstanding, proposed or assessed
against it.
(xiii) The Company has sufficient licenses, permits, right to use trade or
service marks and other governmental authorizations currently required for the
conduct of its business as now being conducted and as contemplated to be
conducted and the Company is in all material respects complying therewith.
Except as set forth in the Prospectus, the expiration of any such licenses,
permits, or other governmental authorizations would not materially affect the
Company's operations. To its knowledge, none of the activities or businesses of
the Company are in material violation of, or cause the Company to materially
violate any law, rule, regulations, or order of the United States, any state,
county or locality, or of any agency or body of the United States or of any
state, county or locality.
(xiv) The Company has not at any time (i) made any contributions to any
candidate for political office in violation of law, or failed to disclose fully
any such contribution, or (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar public or
quasi public duties, other than payments required or allowed by applicable law.
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(xv) Except as set forth in the Prospectus the Company knows of no
outstanding claims for services either in the nature of a finder's fee,
brokerage fee or otherwise with respect to this financing for which the Company
or the Underwriters may be responsible, or which may affect the Underwriter's
compensation as determined by the National Association of Securities Dealers,
Inc. ("NASD") except as otherwise disclosed in the Prospectus or known by the
Underwriters.
(xvi) The Company has its property adequately insured against loss or
damage by fire and maintains such other insurance as is customarily maintained
by companies in the same or similar business.
(xvii) The Representative's Warrants herein described are duly and validly
authorized and upon delivery to the Representative in accordance herewith will
be duly issued and legal, valid and binding obligations of the Company, except
as the enforceability thereof may be limited by bankruptcy or other similar laws
affecting the rights of creditors generally or by equitable principles, and
except as the enforcement of indemnification provisions may be limited by
federal or state securities laws.
The Representative's Securities issuable upon exercise of any of the
Representative's Warrants have been duly authorized, and when issued upon
payment of the exercise price therefor, will be validly issued, fully paid and
nonassessable.
(xviii) Except as set forth in the Prospectus, no default exists in the
due performance and observance of any term, covenant or condition of any
material license, contract, indenture, mortgage, installment sale agreement,
lease, deed of trust, voting trust agreement, stockholders 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 is a party or by which the Company may be bound
or to which the property or assets (tangible or intangible) of the Company is
subject or affected.
(xix) To the best of the Company's knowledge it has generally enjoyed a
satisfactory employer-employee relationship with its employees and, to the best
of its knowledge, is in substantial compliance in all material respects with all
federal, state, local, and foreign laws and regulations respecting employment
and employment practices, terms and conditions of employment and wages and
hours. To the best of the Company's knowledge, there are no pending
investigations involving the Company, by the U.S. Department of Labor, or any
other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. To the best of the Company's
knowledge, there is no unfair labor practice charge or complaint against the
Company pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or to its knowledge involving the Company, or any predecessor entity, and none
has ever occurred. To the best of the Company's knowledge, no representation
question is pending respecting the employees of the Company, and no collective
bargaining agreement or modification thereof is currently being negotiated by
the Company. To the best of the Company's knowledge, no grievance or arbitration
proceeding is pending or to its knowledge threatened under any expired or
existing collective bargaining agreements of the Company. No labor dispute with
the employees of the Company is pending, or, to its knowledge is imminent; and
the Company is not aware of any pending or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers or contractors which
may result in any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs, position, prospects, value,
operation, properties, business or results of operations of the Company.
(xx) Except as may be set forth in the Registration Statement, the Company
does not maintain, sponsor or contribute 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(l) and 3(37),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") ("ERISA Plans"). The Company does not maintain or contribute, 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 Internal Revenue Code (the "Code"), which could subject the Company
to any tax penalty on prohibited transactions and which has not adequately been
corrected. Each ERISA Plan is in compliance with all material reporting,
disclosure and other requirements of the Code and ERISA as
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they relate to any such ERISA Plan. Determination letters have been received
from the Internal Revenue Service with respect to each ERISA Plan which is
intended to comply with Code Section 401 (a), stating that such ERISA Plan and
the attendant trust are qualified thereunder. The Company has never completely
or partially withdrawn from a "multiemployer plan."
(xxi) None of the Company, or any of its employees, directors,
stockholders, or affiliates (within the meaning of the Rules and Regulations)
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,
Option Securities, Representative's Securities or otherwise.
(xxii) None of the patents, patent applications, trademarks, service
marks, trade names, copyrights, and licenses and rights to the foregoing
presently owned or held by the Company, are in dispute or, to the best knowledge
of the Company's management are in any conflict with the right of any other
person or entity. The Company (i) except as disclosed in the Prospectus owns or
has the right to use, 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 except as set forth in the Prospectus or otherwise disclosed
to the Underwriter in writing, to the best knowledge of the Company's management
is not obligated or under any liability whatsoever to make any material payments
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.
(xxiii) Except as disclosed in the Prospectus the Company owns and has
adequate right to use to the best knowledge of the Company's management 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") required for or
incident to the development, manufacture, operation and sale of all products and
services sold or proposed to be sold by the Company. The Company is not aware of
any such development of similar or identical trade secrets or technical
information by others. The Company has valid and binding confidentiality
agreements with all of its officers, covering its intellectual property (subject
to the equitable powers of any court), which agreements have remaining terms of
at least two years from the effective date of the Registration Statement except
where the failure to have such agreements would not materially and adversely
effect the Company's business taken as a whole. The Company 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.
(xxiv) KPMG LLP whose reports are 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.
(xxv) The Company has agreed to cause to be duly executed agreements
pursuant to which each of the Company's officers and directors and holders of
more than 5% of the outstanding Common Stock and holders of any Incentive Stock
Options and their underlying shares and holders of preferred stock convertible
into Common Stock and any person or entity deemed to be an affiliate of the
Company pursuant to the Rules and Regulations has agreed not to, directly or
indirectly, sell, assign, transfer, or otherwise 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) for a
period of not less than fourteen (14) months following such effective date. It
is understood that those persons receiving Common Stock of the Company pursuant
to an acquisition will be subject to the one-year lockup provision of Rule 144
before any resales may occur and that after the one-year holding period 50% of
the holdings of such person may be resold under the provisions of Rule 144. The
Company will cause the Transfer Agent, as defined below, to mark an appropriate
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legend on the face of stock certificates representing all of such securities and
to place "stop transfer" orders on the Company's stock ledgers.
(xxvi) The Registered Securities have been approved for listing on NASDAQ
or an Exchange.
(xxvii) Except as set forth in the Prospectus or disclosed in writing to
the Underwriter (which writing specifically refers to this Section), no officer
or director of the Company, holder of 5% or more of securities 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 (B)
purchases from or sells or furnishes to the Company any goods or services, or
(ii) a beneficiary interest in any contract or agreement to which the Company is
a party or by which it may be bound or affected. Except as set forth in the
Prospectus under "Certain Transactions" or disclosed in writing to the
Underwriter (which writing specifically refers to this Section) there are no
existing agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among the
Company, and any officer, director, principal stockholder of the Company, or any
partner, affiliate or associate of any of the foregoing persons or entities.
(xxviii) Any certificate signed by any officer of the Company, and delivered
to the Underwriter or to the Underwriter's counsel (as defined herein) shall be
deemed a representation and warranty by the Company to the Underwriter as to the
matters covered thereby.
(xxix) Each of the minute books of the Company has been made available to the
Underwriter and contains a complete summary of all meetings and actions of the
directors and stockholders of the Company, since the time of its incorporation
and reflect all transactions referred to in such minutes accurately in all
respects.
(xxx) Intentionally left blank.
(xxxi) Except and only to the extent described in the Prospectus or disclosed
in writing to the Underwriter (which writing specifically refers to this
Section), 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 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. Except as disclosed in the Prospectus, all rights so described or
disclosed have been waived or have not been triggered with respect to the
transactions contemplated by this Agreement and the Representative's Warrant
Agreement (including the warrants issuable thereunder).
(xxxii) The Company has not entered into any employment agreements with its
executive officers, except as disclosed in the Prospectus.
(xxxiii) 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 Registered Securities pursuant to
the Prospectus and the Registration Statement, the issuance of the Underwriter's
Warrants, the performance of this Agreement, 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, the Option Securities and the Underwriter's Securities, except such
as have been or may be obtained under the Act, otherwise or may be required
under state securities or blue sky laws in connection with the Underwriter's
purchase and distribution of the Securities, the Option Securities, the
Representative's Securities and the Underwriter's Warrants to be sold by the
Company hereunder or may be required by the Rules of the National Association of
Securities Dealer, Inc. ("NASD").
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(xxxiv) 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 is a party or by which it may be
bound or to which its assets, properties or businesses may be subject have been
duly and validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company, enforceable
against the Company, in accordance with their respective 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.
(xxxv) Within the past five (5) years, none of the Company's independent
public accountants has brought to the attention of the Company's management any
"material weakness" as defined in the Statement of Auditing Standard No.
60 in any of the Company's internal controls.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees with you that:
(a)It will cooperate in all respects in making the Prospectus effective and
will not at any time, whether before or after the effective date, file any
amendment to or supplement to the Prospectus of which you shall not previously
have been advised and furnished with a copy or to which you or your counsel
shall have reasonably objected or which is not in material compliance with the
Act and the Rules and Regulations or applicable state law.
As soon as the Company is advised thereof, the Company will advise you, and
confirm the advice in writing, of the receipt of any comments of the Commission
or any state securities department, when the Registration Statement 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, of the effectiveness of any posteffective amendment to the Registration
Statement or Prospectus, or the filing of any supplement to the Prospectus or
any amended Prospectus, of any request made by the Commission or any state
securities department for amendment of the Prospectus or for supplementing of
the Prospectus or for additional information with respect thereto, of the
issuance of any stop order suspending the effectiveness of the Prospectus or any
order preventing or suspending the use of any Prospectus or any order suspending
trading in the Common Stock of the Company, or of the suspension of the
qualification of the Securities, the Option Securities or the Representatives
Securities for offering in any jurisdiction, or of the institution of any
proceedings for any such purposes, and will use its best efforts to prevent the
issuance of any such order and, if issued, to obtain as soon as possible the
lifting or dismissal thereof.
The Company has caused to be delivered to you copies of such Prospectus, and the
Company has consented and hereby consents to the use of such copies for the
purposes permitted by law. The Company authorizes you and the dealers to use the
Prospectus and such copies of the Prospectus in connection with the sale of the
Securities, the Option Securities and the Representative's Securities for such
period as in the opinion of your counsel and our counsel the use thereof is
required to comply with the applicable provisions of the Act and the Rules and
Regulations. The Company will prepare and file with the states, promptly upon
your request, any such amendments or supplements to the Prospectus, and take any
other action, as, in the opinion of your counsel, may be necessary or advisable
in connection with the initial sale of the Securities, the Option Securities and
the Underwriter's Securities and will use its best efforts to cause the same to
become effective as promptly as possible.
The Company shall file the Prospectus (in form and substance satisfactory to
the Underwriter) or transmit the Prospectus by a means reasonably calculated to
result in filing with the Commission pursuant to rule 424(b)(1) or pursuant to
Rule 424(b)(3) 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.
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In case of the happening, at any time within such period as a Prospectus is
required under the Act to be delivered in connection with the initial sale of
the Securities, the Option Securities and the Representative's Securities of any
event of which the Company has knowledge and which materially affects the
Company, or the securities thereof, and which should be set forth in an
amendment of or a supplement to the Prospectus in order to make the statements
therein not then misleading, in light of the circumstances existing at the time
the Prospectus is required under the Act to be delivered, or in case it shall be
necessary to amend or supplement the Prospectus to comply with the Act, the
Rules and Regulations or any other law, the Company will forthwith prepare and
furnish to you copies of such amended Prospectus or of such supplement to be
attached to the Prospectus, in such quantities as you may reasonably request, in
order that the Prospectus, as so amended or supplemented, will not 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 not misleading
in light of the circumstances under which they are made. The preparation and
furnishing of any such amendment or supplement to the Prospectus or supplement
to be attached to the Prospectus shall be without expense to you.
The Company will to the best of its ability comply with the Act, the Exchange
Act and applicable state securities laws so as to permit the initial offer and
sales of the Securities, the Option Securities and the Representatives
Securities under the Act, the Rules and Regulations, and applicable state
securities laws.
(b)It will cooperate to qualify the Securities and the Option Securities and
the Representative's Securities for initial sale under the securities laws of
such jurisdictions as you may designate and will make such applications and
furnish such information as may be required for that purpose, provided the
Company shall not be required to qualify as a foreign corporation or a dealer in
securities. The Company will, from time to time, prepare and file such
statements and reports as are or may be required to continue such qualification
in effect for so long as the Underwriter may reasonably request.
(c)So long as any of the Securities, the Option Securities or the
Representative's Securities remain outstanding in the hands of the public, the
Company, at its expense, will annually furnish to its shareholders a report of
its operations to include financial statements audited by independent public
accountants, and will furnish to the Underwriter as soon as practicable after
the end of each fiscal year, a balance sheet of the Company as at the end of
such fiscal year, together with statements of operations, shareholders' equity,
and changes in cash flow of the Company for such fiscal year, all in reasonable
detail and accompanied by a copy of the certificate or report thereon of
independent public accountants.
(d) It will deliver to you at or before the Initial Closing Date three
signed copies of the signature pages to the Registration Statement and three
copies of the registration statement including all financial statements and
exhibits filed therewith, whether or not incorporated by reference. The Company
will deliver to you, from time to time until the effective date of the
Prospectus, as many copies of the Prospectus as you may reasonably request. The
Company will deliver to you on the effective date of the Prospectus and
thereafter for so long as a Prospectus is required to be delivered under the Act
and the Rules and Regulations as many copies of the Prospectus, in final form,
or as thereafter amended or supplemented, as you may from time to time
reasonably request.
(e)The Company will apply the net proceeds from the sale of the Securities
and the Option Securities substantially in the manner set forth under "Use of
Proceeds" in the Prospectus. No portion of the proceeds shall be used, directly
or indirectly, to acquire any securities issued by the Company, without the
prior written consent of the Underwriter.
(f) As soon as it is practicable, but in any event not later than the first
(lst) day of the fifteenth (15th) full calendar month following the
effective date of the Registration Statement, the Company will make
available to its security holders and the Underwriter an earnings
statement (which need not be audited) covering a period of at least
twelve (12) consecutive months beginning after the effective date of the
Registration Statement, which shall satisfy the requirements of Section
11(a) of the Act and Rule 158(a) of the Rules and Regulations.
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(g)NON-ACCOUNTABLE EXPENSE ALLOWANCE AND OTHER COSTS AND EXPENSES.
The Company shall pay to the Underwriter at each closing date, and to be
deducted from the purchase price for the Securities and the Option Securities,
an amount equal to three percent (3%) of the gross proceeds received by the
Company from the sale of the Securities and the Option Securities at such
closing date less in the case of the Initial Closing Date, the sum of $50,000
previously paid by the Company. If the sale of the Securities by the Underwriter
is not consummated for any reason not attributable to the Underwriter, or if (i)
the Company unilaterally withdraws the Registration Statement or does not
proceed with the public offering for reasons other than the affirmative
wrongdoing of the Underwriter, or (ii) the representations in Section 3 hereof
are not correct or the covenants cannot be complied with, or (iii) there has
been a materially adverse change in the condition, prospects or obligations of
the Company or a materially adverse change in stock market conditions from
current conditions, all as determined by the Underwriter, then the Company shall
reimburse the Underwriter for its out of pocket expenses including without
limitation, its legal fees and disbursements all on a non-accountable basis, an
additional sum of $50,000.This additional fee is also to be paid if the Company
decides to complete the offering or does a private placement with another
broker/dealer or agent or if good funds are not in place five days prior to the
effective date.
COSTS AND EXPENSES. Subject to the provisions above the Company will pay
all costs and expenses incident to the performance of this Agreement by the
Company including, but not limited to, the fees and expenses of counsel to the
Company and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the Registration
Statement and Prospectus (including the fee of the Commission, any securities
exchange and the NASD in connection with the filing required by the NASD
relating to the offering of the Securities contemplated hereby); all expenses,
including fees of counsel, which shall be due and payable on the Closing Date in
connection with the qualification of the Securities under the state securities
or blue sky laws; the cost of furnishing to you copies of the Prospectus, this
Agreement, the cost of printing the certificates representing the Securities and
of preparing and photocopying the Underwriting Agreement and related
Underwriting documents, the cost of three underwriter's bound volumes, any
advertising costs and expenses, including but not limited to the Company's
expenses on "road show" information meetings and presentations, prospectus
memorabilia, issue and transfer taxes, if any. The Company will also pay all
costs and expenses incident to the furnishing of any amended Prospectus of or
any supplement to be attached to the Prospectus.
(h) As a condition of the closing, the Company shall obtain from its officers
and directors and holders of 5% of the outstanding Common Stock of the Company,
written commitments restricting the sale of 100% of their common stock for (12)
months after the closing.
(i) During a date five years after the date hereof, the Company will make
available to its shareholders, as soon as practicable, and deliver to the
Underwriter:
(1) as soon as they are available, copies of all reports (financial or
other) mailed to shareholders;
(2) 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;
(3) 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 prepared and released by or on behalf of the Company; and
(4) any additional information of a public nature concerning the Company
(and any future subsidiaries) or its businesses which the Underwriter may
request.
During such five-year period, if the Company has active subsidiaries, the
foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
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(j)The Company will maintain a 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.
(k)The Company will furnish to the Underwriter or on the Underwriter's order,
without charge, at such place as the Underwriter may designate, copies of each
Preliminary Prospectus, the Final 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 Underwriter may request.
(1)Neither the Company nor any of its officers, directors, stockholders or
any of its affiliates 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 of the Company's securities.
(m) The Company shall timely file all such reports, forms or other documents
as may be required 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.
(n)The Company shall cause the Securities to be listed on the Nasdaq Small
Cap Market or on an exchange for a period of five (5) years from the date
hereof, and use its best efforts to maintain the listing of the Securities to
the extent they are outstanding.
(o)As soon as practicable, (i) 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 30
days from the effective date of the Registration Statement, take all necessary
and appropriate actions to be included in Standard and Poor's Corporation
Descriptions and/or Moody's OTC Manual and to continue such inclusion for a
period of not less than five years if the securities are not listed on an
exchange. The Company also agrees to take such steps as may be necessary to
comply with the requirements of any state to be in compliance with the
aftermarket provisions of Section 18 of the Securities Act of 1933, as amended,
and as further amended by the National Securities Markets Improvement Act of
1996.
(p)Until the completion of the distribution of the Securities, the Company
shall not without the prior written consent of the Underwriter and its counsel
which consent shall not be unreasonably withheld or delayed, 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.
(q) During the five (5) year period from the date hereof, the Company will not
take any action or actions which may prevent or disqualify the Company's use
of Form SB-2 (or other appropriate form) for the registration under the Act
of the Warrant Shares and the Representative's Securities.
5. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligation of the
Underwriters to offer and sell the Securities and the Option Securities is
subject to the accuracy (as of the date hereof, and as of the Closing Dates) of
and compliance with the representations and warranties of the Company to the
performance by it of its agreement and obligations hereunder and to the
following additional conditions:
(a)The Registration Statement shall have become effective as and when cleared
by the Commission, and you shall have received notice thereof, on or prior to
any closing date no stop order suspending the effectiveness of the Prospectus
shall have been issued and no proceedings for that or similar purpose shall have
been instituted or shall be
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pending, or, to your knowledge or to the knowledge of the Company, shall be
contemplated by the Commission; any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of counsel to the Underwriter; and qualification, under the
securities laws of such states as you may designate, of the issue and sale of
the Securities upon the terms and conditions herein set forth or contemplated
and containing no provision unacceptable to you shall have been secured, and no
stop order shall be in effect denying or suspending effectiveness of such
qualification nor shall any stop order proceedings with respect thereto be
instituted or pending or threatened under such law.
(b) On any closing date and, with respect to the letter referred to in
subparagraph (iii), as of the date hereof, you shall have received:
(i) the opinion, together with such number of signed or facsimile copies of
such opinion as you may reasonably request, addressed to you by Duffy & Sweeney
LLP, counsel for the Company, in form and substance reasonably satisfactory to
the Underwriters and William M. Prifti, Esq., counsel to the Underwriters, dated
each such closing date, to the effect that:
(A) The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the jurisdiction in which it is
incorporated and has all necessary corporate power and authority to carry on its
business as described in the Prospectus.
(B) The Company is qualified to do business in each jurisdiction in which
conducting its business requires such qualification, except where the failure to
be so qualified would not have a material adverse effect on the Company's
business or assets.
(C) The Company has the full corporate power and authority to enter into this
Agreement, the Representative's Warrant Agreement and to consummate the
transactions provided for therein and each such Agreement has been duly and
validly authorized, executed and delivered by the Company. Each of this
Agreement and the Representative's Warrant Agreement, assuming due
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, subject to bankruptcy, insolvency or
similar laws governing the rights of creditors and to general equitable
principles, and provided that no opinion need be given as to the enforceability
of any indemnification or contribution provisions, and none of the Company's
execution or delivery of this Agreement, or 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 material breach or violation of any of the terms or provisions of,
or constitutes or will constitute a material default under, or result in the
creation or imposition of any material lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction of any kind whatsoever upon, any
property or assets (tangible or intangible) of the Company pursuant to the terms
of (A) the articles of incorporation or by-laws of the Company, (B) to the
knowledge of such counsel, any material license, contract, indenture, mortgage,
deed of trust, voting trust agreement, stockholders' agreement, note, loan or
credit agreement or any other agreement or instrument to which the Company is a
party or by which it is or may be bound, or (C) to the knowledge of such
counsel, any statute, judgment, decree, order, rule or regulation applicable to
the Company, whether domestic or foreign.
(D) The Company had authorized and outstanding capital stock as set forth in
the Prospectus under the heading "Capitalization" as of the date set forth
therein, and all of such issued and outstanding shares of capital stock have
been duly and validly authorized and issued, and to the knowledge of such
counsel are fully paid and nonassessable, and to the knowledge of such counsel
no stockholder of the Company is entitled to any preemptive rights to subscribe
for, or purchase shares of the capital stock and to the knowledge of such
counsel none of such securities were issued in violation of the preemptive
rights of any holders of any securities of the Company.
(E) To the knowledge of such counsel, 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
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this Agreement, the Representative's Warrant Agreement, and except as described
in the Prospectus. The Common Stock, and the Representative's Warrants each
conforms in all material respects to the respective descriptions thereof
contained in the Prospectus. The outstanding shares of Common Stock, the
Redeemable Warrant and the Representative's Warrant Stock, upon issuance and
delivery and payment therefore in the manner described herein, the Warrant
Agreement and the Representative Agreement, as the case may be, will be, duly
authorized, validly issued, fully paid and nonassessable. There are no
preemptive or other rights to subscribe for or to purchase, or any restriction
upon the voting or transfer of, any shares of Common Stock pursuant to the
Company's articles of incorporation, by-laws, other governing documents or any
agreement or other instrument known to such counsel to which the Company is a
party or by which it is bound.
(F) The certificates representing the Securities comprising the Common Stock
are in due and proper form and and the Representative's Warrant has been duly
authorized and reserved for issuance and when issued and delivered in accordance
with the respective terms of the Warrant Agreement and Representative's Warrant
Agreement, respectively, will duly and validly issued, fully paid and
nonassessable.
(G) To the knowledge of such counsel, there are no claims, suits or other
legal proceedings pending or threatened against the Company in any court or
before or by any governmental body which might materially affect the business of
the Company or the financial condition of the Company as a whole, except as set
forth in or contemplated by the Prospectus.
(H) Based on oral and/or written advice from the staff of the Commission, the
Registration Statement has become effective and, to the knowledge of such
counsel, no stop order suspending the effectiveness of the Prospectus is in
effect and no proceedings for that purpose are pending before, or threatened by,
federal or by a state securities administrator.
(I) To the knowledge of such counsel, there are no legal or governmental
proceedings, actions, arbitrations, investigations, inquiries or the like
pending or threatened against the Company of a character required to be
disclosed in the Prospectus which have not been so disclosed, questions the
validity of the capital stock of the Company or this Agreement or the
Representative's Warrant Agreement or might adversely affect the condition,
financial or otherwise, or the prospects of the Company or which could adversely
affect the Company's ability to perform any of its obligations under this
Agreement, or the Representative's Warrant Agreement.
(J) To such counsel's knowledge, there are no material agreements, contracts
or other documents known to such counsel 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
and the Prospectus and filed as exhibits thereto, and to such counsel's
knowledge (A) 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 is a party or by
which it is bound, including any document to which the Company is a party or by
which it is bound incorporated by reference into the Prospectus and any
supplement or amendment thereto, are accurate in all material respects and
fairly represent the information required to be shown by Form SB-2.
(K) No consent, approval, order or authorization from any regulatory board,
agency or instrumentality having jurisdiction over the Company, or its
properties (other than registration under the Act or qualification under state
or foreign securities law or approval by the NASD) is required for the valid
authorization, issuance, sale and delivery of the Securities, the Option
Securities or the Representative's Warrant.
(L) The statements in the Prospectus under "Risk Factors- Dependence on Key
Personnel" "Management-Limitation of Liability" "Description of the Securities,"
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.
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In addition, such counsel shall state that such counsel has participated in
conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not certified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the Closing Date and on any later date on which Option Shares are to
be purchased, the Registration Statement and any amendment or supplement, when
such documents became effective or were filed with the Commission (other than
the financial statements including the notes thereto and supporting schedules
and other financial and statistical information derived therefrom, as to which
such counsel need express no comment) 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, or at the Closing
Date or any later date on which the Option Shares are to be purchased, as the
case may be, the Prospectus and any amendment or supplement thereto (other than
the financial statements including the notes thereto and other financial and
statistical information derived therefrom, as to which such counsel need express
no comment) contained any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
Such opinion shall also cover such other matters incident to the transactions
contemplated hereby and the offering Prospectus as you or counsel to the
Underwriter shall reasonably request. In rendering such opinion, to the extent
deemed reasonable by them, such counsel may rely upon certificates of any
officer of the Company or public officials as to matters of fact of which the
maker of such certificate has knowledge.
(ii) a certificate, signed by the Chief Executive Officer and the Principal
Financial or Accounting Officer of the Company dated the Closing Date, to the
effect that with regard to the Company, each of the conditions set forth in
Section 5(d) have been satisfied.
(iii) a letter, addressed to the Underwriter and in form and substance
satisfactory to the Underwriter in all respects (including the nonmaterial
nature of the changes or decreases, if any, referred to in clause (D) below),
from KPMG LLP.dated, respectively, as of the effective date of the Registration
Statement and as of the Closing Date, as the case may be:
(A) Confirming that they are independent public accountants with respect to
the Company and its consolidated subsidiaries, if any, within the meaning of the
Act and the applicable published Rules and Regulations.
(B) Stating that, in their opinion, the financial statements, related notes
and schedules of the Company and its consolidated subsidiaries, if any, included
in the Registration Statement examined by them comply as to form in all material
respects with the applicable accounting requirements of the Act and the
published Rules and Regulations thereunder.
(C) Stating that, with respect to the period from December 31, 1998, to a
specified date (the specified date") not earlier than five (5) business days
prior to the date of such letter, they have read the minutes of meetings of the
stockholders and board of directors (and various committees thereof) of the
Company and its consolidated subsidiaries, if any, for the period from December
31, 1998 through the specified date, and made inquiries of officers of the
Company and its consolidated subsidiaries, if any, responsible for financial and
accounting matters and, especially as to whether there was any decrease in
sales, income before extraordinary items or net income as compared with the
corresponding period in the preceding year; or any change in the capital stock
of the Company or any change in the longterm debt or any increase in the
short-term bank borrowings or any decrease in net current assets or net assets
of the Company or of any of its consolidated subsidiaries, if any, and further
stating that while such procedures and inquiries do not constitute an
examination made in accordance with generally accepted auditing standards,
nothing came to their attention which caused them to believe that during the
period from December 31, 1997, through the specified date there were any
decreases as compared with the corresponding period in the preceding year in
sales, income before extraordinary items or net income; or any change in the
capital stock of the Company or
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consolidated subsidiary, if any, or any change in the long term debt or any
increase in the short-term bank borrowings (other than any increase in
short-term bank borrowings in the ordinary course of business) of the Company or
any consolidated subsidiary, if any, or any decrease in the net current assets
or net assets of the Company or any consolidated subsidiary, if any; and
(D) Stating that they have carried out certain specified procedures
(specifically set forth in such letter or letters) as specified by the
Underwriter (after consultations with KPMG LLP, CPA's relating to such
procedures), not constituting an audit, with respect to certain tables,
statistics and other financial data in the Prospectus specified by the
Underwriter and such financial data not included in the Prospectus but from
which information in the Prospectus is derived, and which have been obtained
from the general accounting records of the Company or consolidated subsidiaries,
if any, or from such accounting records by analysis or computation, and having
compared such financial data with the accounting records of the Company or the
consolidated subsidiaries, if any, stating that they have found such financial
data to agree with the accounting records of the Company.
(c) All corporate proceedings and other legal matters relating to this
Agreement, the Prospectus and other related matters shall be satisfactory to or
approved by counsel to the Underwriter and you shall have received from Duffy &
Sweeney LLP a signed opinion dated as of each closing date, with respect to the
incorporation of the Company, the validity of the Securities, the form of the
Prospectus, (other than the financial statements together with related notes and
other financial and statistical data contained in the Prospectus or omitted
therefrom, as to which such counsel need express no opinion), the execution of
this Agreement and other related matters as you may reasonably require.
(d) At each closing date, (i) the representations and warranties of the
Company contained in this Agreement shall be true and correct in all material
respects with the same effect as if made on and as of such closing date; (ii)
the Prospectus and any amendments or supplements thereto shall contain all
statements which are required to be stated therein in accordance with the Act
and the Rules and Regulations and in all material respects conform to the
requirements thereof, and neither the Prospectus nor any amendment or supplement
thereto shall contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary, in light of the
circumstances under which they were made, in order to make the statements
therein not misleading; (iii) there shall have been since the respective dates
as of which information is given no material adverse change in the business,
properties or condition (financial or otherwise), results of operations, capital
stock, longterm debt or general affairs of the Company from that set forth in
the Prospectus, except changes which the Prospectus indicates might occur after
the effective date of the Prospectus, and the Company shall not have incurred
any material liabilities or material obligations, direct or contingent, or
entered into any material transaction, contract or agreement not in the ordinary
course of business other than as referred to in the Prospectus and which would
be required to be set forth in the Prospectus; and (iv) except as set forth in
the Prospectus, no action, suit or proceeding at law or in equity shall be
pending or threatened against the Company which would be required to be set
forth in the Prospectus, and no proceedings shall be pending or threatened
against the Company or any subsidiary before or by any commission, board or
administrative agency in the United States or elsewhere, wherein an unfavorable
decision, ruling or finding would materially and adversely affect the business,
property, condition (financial or otherwise), results of operations or general
affairs of the Company.
(e) On the Initial Closing Date, the Company shall have executed and
delivered to the Underwriter, (i) the Representatives' Warrant Agreement
substantially in the form filed as an Exhibit to the Registration Statement in
final form and substance satisfactory to the Underwriter, and (ii) the
Representative's Warrants in such denominations and to such designees as shall
have been provided to the Company.
(f) On or before the Initial Closing Date, the Securities shall have been
duly approved for listing on an exchange or onNasdaq, Small Cap Market.
(g) On or before the Initial Closing Date, there shall have been delivered to
the Underwriter all of the Lock-up Agreements required to be delivered pursuant
to Section 3(a)(xxv) and 4(h), in form and substance satisfactory to the
Underwriter and Underwriter's counsel.
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If any condition to the Underwriter's 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 Underwriter may terminate this Agreement or, if
the Underwriter so elects, it may waive any such conditions which have not been
fulfilled or extend the time for their fulfillment.
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS. The obligation of the Company to
sell and deliver the Securities is subject to the following:
(a) The provisions regarding the effective date, as described in
Section 10.
(b) At the Initial Closing Date, no stop order suspending the effectiveness
of the Prospectus shall have been issued under the Act or any proceedings
therefor initiated or threatened by the Commission or by any state securities
department.
(c) Tender of payment by the Underwriter in accord with Section 2 hereof.
7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each Underwriter and
its employees and each person, if any, who controls you within the meaning of
the Act, against any losses, claims, damages or liabilities, joint or several
(which shall, for any purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), to which
each Underwriter or such controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission made in the Prospectus, or such amendment or supplement to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, which is in reliance upon and in conformity
with written information furnished by the Company to you specifically for use in
the preparation thereof, and provided further that the indemnity agreement
contained in this subsection (a) shall not inure to the benefit of you with
respect to any person asserting any such loss, claim, damage or liability who
has purchased the Securities which are the subject thereof if you or any
participants failed to send or give a copy of the Prospectus to such person at
or prior to the written confirmation of the sale of such Securities to such
person and except that, with respect to any untrue statement or omission or any
alleged untrue statement or omission, made in any Pre-Effective Prospectus, the
indemnity agreement contained in this subsection (a) shall not inure to the
benefit of any Underwriter ( or to any person controlling any such underwriter)
from whom the person asserting any such loss, claim, damage or liability
purchased the securities concerned to the extent that such untrue statement or
omission, or alleged untrue statement or omission, has been corrected in a later
Pre-Effective Prospectus or in the Final Prospectus unless the Underwriter
circulated a later Pre-Effective Prospectus or the Final Prospectus to such
person
(b) Each Underwriter will indemnify and hold harmless the Company, each of
its directors, each of its officers, each person, if any, who controls the
Company within the meaning of the Act against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such director, officer or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission was made in the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by you specifically for use in the preparation thereof. This indemnity
will be in addition to any liability which any Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
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this Section, notify the indemnifying party of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party, similarly notified, to assume the
defense thereof, subject to the provisions herein stated, with counsel
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that, if the indemnified party is you or a person who controls you, the fees and
expenses of such counsel shall be at the expense of the indemnifying party if
(i) the employment of such counsel has been specifically authorized in writing
by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both you or such controlling person
and the indemnifying party and you or such controlling person shall have been
advised by such counsel that there is a conflict of interest which would prevent
counsel for the indemnifying party from representing the indemnifying party and
you or such controlling person (in which case the indemnifying party shall not
have the right to assume the defense of such action on behalf of you or such
controlling person, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction or which are consolidated
into the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for you and all such controlling persons, which firm
shall be designated in writing by you). No settlement of any action against an
indemnified party shall be made without the consent of the indemnified party,
which shall not be unreasonably withheld in light of all factors of importance
to such indemnified party.
8. CONTRIBUTION. In order to provide for just and equitable contribution
tinder the Act in any case in which (i) the indemnifying party makes a claim for
indemnification pursuant to Section 7 hereof 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 Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of the
Underwriters, then the Company and the Underwriters in the aggregate shall
contribute to the aggregate losses, claims, damages, or liabilities to which
they may be subject (which shall, for all purposes of this Agreement, include,
but not be limited to, all costs of defense and investigation and all attorneys'
fees) in either such case (after contribution from others) in such proportions
that the Underwriters are responsible in the aggregate for that portion of such
losses, claims, damages or liabilities determined by multiplying the total
amount of such losses, claims, damages or liabilities times the difference
between the public offering price and the commission to the Underwriter and
dividing the product thereof by the public offering price, and the Company, if
applicable, shall be responsible for that portion of such losses, claims,
damages or liabilities times the commission to the Underwriters and dividing the
product thereof by the public offering price; provided, however, that the
Underwriters shall not be required to so contribute any amount in excess of the
underwriting discount applicable to the Securities purchased by the Underwriters
hereunder if such allocation is not permitted by applicable law, then the
relative fault of the Company and the Underwriters in connection with the
statements or omissions which resulted in such damages and other relevant
equitable considerations shall also be considered. No person guilty of a
fraudulent misrepresentation (within the meaning of Section 12(2) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. The foregoing contribution agreement shall in no
way affect the contribution liabilities of any person having liability under
Section 12 of the Act other than the Company and the Underwriter. As used in
this paragraph, the term "Underwriters" includes any person who controls the
Underwriters within the meaning of Section 15 of the Act. If the full amount of
the contribution specified in this paragraph is not permitted by law, then any
Underwriter and each person who controls any Underwriter shall be entitled to
contribution from the Company, to the full extent permitted by law.
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9. EFFECTIVE DATE. This Agreement shall become effective at 10:00 a.m. New
York time on the next full business day following the effective date of the
Registration Statement, or at such other time after the effective date of the
Prospectus as you in your discretion shall first commence the public offering of
any of the Securities covered thereby, provided, however, that at all times the
provisions of Sections 7, 8, 9 and 11 shall be effective.
10. TERMINATION.
(a) This Agreement, may be terminated at any time prior to the Closing
Date by you if in your judgment it is impracticable to offer for sale or to
enforce contracts made by you for the sale of the Securities agreed to be sold
hereunder by reason of (i) the Company as a whole having sustained a material
loss, whether or not insured, by reason of fire, earthquake, flood, accident or
other calamity, or from any labor dispute or court or government action, order
or decree, (ii) trading in securities of the Company having been suspended by a
state securities administrator or by the Commission, (iii) material governmental
restrictions having been imposed on trading in securities generally (not in
force and effect on the date hereof) or trading on the New York Stock Exchange,
American Stock Exchange, or in the over-the-counter market shall have been
suspended, (iv) a banking moratorium having been declared by federal or New York
State authorities, (v) an outbreak or escalation of hostilities or other
national or international calamity having occurred, (vi) the passage by the
Congress of the United States or by any state legislative body, of any act or
measure, or the adoption of any orders, rules or regulations by any governmental
body or any authoritative accounting institute or board, or any governmental
executive, which is believed likely by you to have a material impact on the
business, financial condition or financial statements of the Company; or (vii)
any material adverse change having occurred, since the respective dates as of
which information is given in the Prospectus, in the condition, financial or
otherwise, of the Company as a whole, whether or not arising in the ordinary
course of business, (viii)Mark E. Monroe ceases to be employed by the Company in
his present capacity; (ix) the Securities are not listed on NASDAQ.
(b) If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 10 or in Section 9, the
Company shall be promptly notified by you, by telephone or telegram, confirmed
by letter.
11. REPRESENTATIONS, WARRANTS AND AGREEMENTS TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company (or its officers) and the Underwriter set forth in or
made pursuant to this Agreement will remain in full force and effect, regardless
of any investigation made by or on behalf of the Underwriter, the Company, or
any of their officers or directors and will survive delivery of and payment for
the Securities.
12. NOTICES. All communications hereunder will be in writing and, except as
otherwise expressly provided herein, if sent to you, will be mailed,
delivered or telephoned and confirmed to you at, Schneider Securities,Inc.
1120 Lincoln Street, Denver, Colorado 80203 Attn: Investment Banking
Department; and to the Company to Mark E. Monroe, President,
BiznessOnline.com,Inc. 1720 Route 34,Wall, New Jersey 07719.
13. PARTIES IN INTEREST. This Agreement is made solely for the benefit of the
Underwriter(s), and the Company, and their respective controlling persons,
directors and officers, and their respective successors, assigns, executors
and administrators. No other person shall acquire or have any right under or
by virtue of this Agreement.
14. HEADINGS. The Section headings in this Agreement have been inserted as a
matter of convenience of reference and are not a part of this Agreement.
15. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State ofColorado, without giving effect to
conflict of law principles.
16. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which together shall constitute one and the same
instrument.
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If the foregoing correctly sets forth the understanding between the Company
and you, as Representative of the several underwriters, please so indicate in
the space provided below for such purpose, whereupon this letter and your
acceptance shall constitute a binding agreement between us.
Very truly yours,
BiznessOnline.com,Inc.
--------------------------------
By
(Authorized Officer)
Mark E. Monroe, President
Accepted as of the date first above written:
Schneider Securities,Inc.
As Representative of the several Underwriters
By:
-------------------------------------
(Authorized Officer)
T.J. O'Rourke, President
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EXHIBIT A
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
Shares of
Underwriter Common Stock
- ---------- -------------
<S> <C>
Schneider Securities,Inc.
Joseph Stevens & Company, Inc.
---------
TOTAL 2,000,000
</TABLE>
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Exhibit 1.2
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION STATEMENT AS TO SUCH
SECURITIES FILED UNDER THE ACT, OR AN EXEMPTION FROM REGISTRATION, AND
COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS. THE ISSUER MAY REQUIRE AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER HEREOF THAT SUCH REGISTRATION IS
NOT REQUIRED AND THAT SUCH LAWS ARE COMPLIED WITH.
VOID AFTER 3:30 P.M., EASTERN TIME, ON 2004
UNDERWRITER'S
WARRANT TO PURCHASE
COMMON STOCK
OF
BIZNESSONLINE.COM,INC.
This is to Certify That, FOR VALUE RECEIVED, (the "Holder") is entitled to
purchase, subject to the provisions of this Warrant, fromBiznessOnline.com,Inc..
("Company"), a Delaware corporation, at any time on or after 2000, and not later
than 3:30 p.m., Eastern Time, on , 2004, 200,000 shares of Common Stock of the
Company ("Securities") exercisable at a purchase price for the Securities which
is 150% of the public offering price . The number of Securities to be received
upon the exercise of this Warrant and the price to be paid for the Securities
may be adjusted from time to time as hereinafter set forth. The purchase price
of a Security in effect at any time and as adjusted from time to time is
hereinafter sometimes referred to as the "Exercise Price." This Warrant is or
may be one of a series of Warrants identical in form issued by the Company to
purchase an aggregate of 200,000 Shares of Common Stock. The Securities, as
adjusted from time to time, underlying the Warrants are hereinafter sometimes
referred to as "Warrant Securities". The Securities issuable upon the exercise
hereof are in all respects identical to the securities being purchased by the
Underwriter for resale to the public pursuant to the terms and conditions of the
Underwriting Agreement entered into on this date between the Company and Holder
(A) EXERCISE OF WARRANT. Subject to the provisions of Section (g) hereof, this
Warrant may be exercised in whole or in part at anytime or from time to time on
or after , 2000, but not later than 3:30 p.m., Eastern Time on , 2004, or if ,
2004 is a day on which banking institutions are authorized by law to close, then
on the next succeeding day which shall not be such a day, by presentation and
surrender hereof to the Company or at the office of its stock transfer agent, if
any, with the Purchase Form annexed hereto duly executed and accompanied by
payment of the Exercise Price for the number of shares of Common Stock, together
with all federal and state taxes applicable upon such exercise. The Company
agrees to provide notice to the Holder that any tender offer is being made for
the Securities no later than the first business day after the day the Company
becomes aware that any tender offer is being made for the Securities. If this
Warrant should be exercised in part only, the Company shall, upon surrender of
this Warrant for cancellation, execute and deliver a new Warrant evidencing the
right of the Holder to purchase the balance of the shares purchasable hereunder.
Upon receipt by the Company of this Warrant at the office of the Company or at
the office of the Company's stock transfer agent, in proper form for exercise
and accompanied by the total Exercise Price, the Holder shall be deemed to be
the holder of record of the Securities issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such Securities shall not then be
actually delivered to the Holder.
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(B) RESERVATION OF SECURITIES. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of shares of Securities as shall be required for issuance or
delivery upon exercise of this Warrant. The Company covenants and agrees that,
upon exercise of the Warrants and payment of the Exercise Price therefor, all
Securities 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 Securities 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.
(C) FRACTIONAL SHARES. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant. With respect to any
fraction of a share called for upon any exercise hereof, the Company shall pay
to the Holder an amount in cash equal to such fraction multiplied by the current
market value of such fractional share, determined as follows:
(1) If the Securities are listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange, the current value
shall be the last reported sale price of the Common Stock on such exchange on
the last business day prior to the date of exercise of this Warrant or if no
such sale is made on such day, the average of the closing bid and asked prices
for such day on such exchange; or
(2) If the Securities are not so listed or admitted to unlisted trading
privileges, the current value shall be the mean of the last reported bid and
asked prices reported by the National Association of Securities Dealers
Automated Quotation System (or, if not so quoted on NASDAQ or quoted by the
National Quotation Bureau, Inc.) on the last business day prior to the date of
the exercise of this Warrant; or
(3) If the Securities are not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the current value shall
be an amount, not less than book value, determined in such reasonable manner as
may be prescribed by the Board of Directors of the Company, such determination
to be final and binding on the Holder.
(D) EXCHANGE, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is exchangeable,
without expense, at the option of the Holder, upon presentation and surrender
hereof to the Company or at the office of its stock transfer agent, if any, for
other Warrants of different denominations entitling the Holder thereof to
purchase (under the same terms and conditions as provided by this Warrant) in
the aggregate the same number of Securities purchasable hereunder. This Warrant
may not be sold, transferred, assigned, or hypothecated until after one year
from the effective date of the registration statement except that it may be (i)
assigned in whole or in part to the officers of the "Underwriter(s)", and
(ii)transferred to any successor to the business of the "Underwriter(s)." Any
such assignment shall be made by surrender of this Warrant to the Company, or at
the office of its stock transfer agent, if any, with the Assignment Form annexed
hereto duly executed and with funds sufficient to pay any transfer tax;
whereupon the Company shall, without charge, execute and deliver a new Warrant
in the name of the assignee named in-such instrument of assignment, and this
Warrant shall promptly be canceled. This Warrant may be divided or combined with
other Warrants which carry the same rights upon presentation hereof at the
office of the Company or at the office of its stock transfer agent, if any,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued and signed by the Holder hereof. The term
"Warrant" as used herein includes any Warrants issued in substitution for or
replacement of this Warrant, or into which this Warrant may be divided or
exchanged. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date. Any such new Warrant
executed and delivered shall constitute an additional contractual obligation on
the part of the Company, whether or not the Warrant so lost, stolen, destroyed,
or mutilated shall be at any time enforceable by anyone.
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<PAGE>
(E) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(F) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be outstanding
and unexercised (i) if the Company shall pay any dividend exclusive of a cash
dividend, or make any distribution upon the Common Stock, or (ii) if the Company
shall offer to the holders of Common Stock for subscription or purchase by them
any shares of stock of any class or any other rights, or (iii) if any capital
reorganization of the Company, reclassification of the capital stock of the
Company, consolidation or merger of the Company with or into another
corporation, sale, lease or transfer of all or substantially all of the property
and assets of the Company to another corporation, or voluntary or involuntary
dissolution, liquidation or winding up of the Company shall be effected, then,
in any such case, the Company shall cause to be delivered to the Holder, at
least ten (10) days prior to the date specified in (x) or (y) below, as the case
may be, a notice containing a brief description of the proposed action and
stating the date on which (x) a record is to be taken for the purpose of such
dividend, distribution or rights, or (y) such reclassification, reorganization,
consolidation, merger, conveyance, lease, dissolution, liquidation or winding up
is to take place and the date, if any, is to be fixed, as of which the holders
of Common Stock of record shall be entitled to exchange their shares of Common
Stock for equivalent securities or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
(G) ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES OF COMMON STOCK
DELIVERABLE.
(A)(i) Except as hereinafter provided, in the event the Company shall, at
any time or from time to time after the date hereof, issue any shares of Common
Stock as a stock dividend to the holders of Common Stock, or subdivide or
combine the outstanding shares of Common Stock into a greater or lesser number
of shares (any such issuance, subdivision or combination being herein call a
"Change of Shares"), then, and thereafter upon each further Change of Shares,
the Exercise Price of the Common Stock issuable upon the exercise of the Warrant
and the Redeemable Warrant in effect immediately prior to such Change of Shares
shall be changed to a price (including any applicable fraction of a cent to the
nearest cent) determined by dividing (i) the sum of (a) the total number of
shares of Common Stock outstanding immediately prior to such Change of Shares,
multiplied by the Exercise Price in effect immediately prior to such Change of
Shares, and (b) the consideration, if any, received by the Company upon such
issuance, subdivision or combination by (ii) the total number of shares of
Common Stock outstanding immediately after such Change of Shares; PROVIDED,
HOWEVER, that in no event shall the Exercise Price be adjusted pursuant to this
computation to an amount in excess of the Exercise Price in effect immediately
prior to such computation, except in the case of a combination of outstanding
shares of Common Stock.
For the purposes of any adjustment to be made in accordance with this
Section (g) the following provisions shall be applicable:
(I) Shares of Common Stock issuable by way of dividend or other distribution
on any capital stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of shareholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(II) The number of shares of Common Stock at any one time outstanding shall
not be deemed to include the number of shares issuable (subject to readjustment
upon the actual issuance thereof) upon the exercise of options, rights or
warrants and upon the conversion or exchange of convertible or exchangeable
securities.
(ii) Upon each adjustment of the Exercise Price pursuant to this Section
(g), the number of shares of Common Stock purchasable upon the exercise of each
Warrant shall be the number derived by multiplying the number of shares of
Common Stock purchasable immediately prior to such adjustment by the Exercise
Price in effect prior to such adjustment and dividing the product so obtained by
the applicable adjusted Exercise Price.
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<PAGE>
(B) In case of any reclassification or change of outstanding Securities
issuable upon exercise of the Warrants (other than a change in par value, or
from par value to no par value, or from no par value to par value or as a result
of a subdivision or combination), or in case of any consolidation or merger of
the Company with or into another corporation other than a merger with a
"Subsidiary" (which shall mean any corporation or corporations, as the case may
be, of which capital stock having ordinary power to elect a majority of the
Board of Directors of such corporation (regardless of whether or not at the time
capital stock of any other class or classes of such corporation shall have or
may have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned by the Company or by one or more Subsidiaries)
or by the Company and one or more Subsidiaries in which merger the Company is
the continuing corporation and which does not result in any reclassification or
change of the then outstanding shares of Common Stock or other capital stock
issuable upon exercise of the Warrants (other than a change in par value, or
from par value to no par value, or from no par value to par value or as a result
of subdivision or combination) or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, then, as a condition of such reclassification, change, consolidation,
merger, sale or conveyance, the Company, or such successor or purchasing
corporation, as the case may be, shall make lawful and adequate provision
whereby the Holder of each Warrant then outstanding shall have the right
thereafter to receive on exercise of such Warrant the kind and amount of
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of
securities issuable upon exercise of such Warrant immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance and shall
forthwith file at the principal office of the Company a statement signed on its
behalf by its President or a Vice President and by its Treasurer or an Assistant
Treasurer or its Secretary or an Assistant Secretary evidencing such provision.
Such provisions shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in Section
(g)(A). The above provisions of this Section (g)(B) shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
(C) Irrespective of any adjustments or changes in the Exercise Price or the
number of Securities purchasable upon exercise of the Warrants, the Warrant
Certificates theretofore and thereafter issued shall, unless the Company shall
exercise its option to issue new Warrant Certificates pursuant hereto, continue
to express the Exercise Price per share and the number of shares purchasable
thereunder as the Exercise Price per share and the number of shares purchasable
thereunder as expressed in the Warrant Certificates when the same were
originally issued.
(D) After each adjustment of the Exercise Price pursuant to this Section
(g), the Company will promptly prepare a certificate signed on its behalf by the
President or Vice President, and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Exercise Price as so adjusted, (ii) the number of Securities purchasable upon
exercise of each Warrant, after such adjustment, and (iii' a brief statement of
the facts accounting for such adjustment. The Company will promptly file such
certificate in the Company's minute books and cause a brief summary thereof to
be sent by ordinary first class mail to each Holder at his last address as it
shall appear on the registry books of the Company. No failure to mail such
notice nor any defect therein or in the mailing thereof shall affect the
validity thereof except as to the holder to whom the Company failed to mail such
notice, or except as to the holder whose notice was defective. The affidavit of
an officer or the Secretary or an Assistant Secretary of the Company that such
notice has been mailed shall, in the absence of fraud, be prima facie evidence
of the facts stated therein.
(E) No adjustment of the Exercise Price shall be made as a result of or in
connection with the issuance or sale of Securities if the amount of said
adjustment shall be less than $.10, 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 that shall amount, together with any adjustment so carried forward,
to at least $.10. In addition, Holders shall not be entitled to cash dividends
paid by the Company prior to the exercise of any Warrant or Warrants held by
them.
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<PAGE>
(F) In the event that the Company shall at any time prior to the exercise
of all Warrants declare a dividend consisting solely of shares of Common Stock
or otherwise distribute to its stockholders any assets, property, rights, or
evidences of indebtedness, the Holders of the unexercised Warrants shall
thereafter be entitled, in addition to the Securities or other securities and
property receivable upon the exercise thereof, to receive, upon the exercise of
such Warrants, the same property, assets, rights, or evidences of indebtedness,
that they would have been entitled to receive at the time of such dividend or
distribution as if the Warrants had been exercised immediately prior to such
dividend or distribution. At the time of any such dividend or distribution, the
Company shall make appropriate reserves to ensure the timely performance of the
provisions of this Section (g).
(G.1) RIGHT TO EXERCISE ON A NET ISSUANCE BASIS. In lieu of exercising this
Warrant for cash, the Holder shall have the right to exercise this Warrant or
any portion thereof ( the "Net Issuance Right") into Common Stock as provided in
this Section G.1 at any time or from time to time during the period specified on
page one of this Warrant Agreement, hereof by the surrender of this Warrant to
the Company with a duly executed and completed Exercise Form marked to reflect
net issuance exercise. Upon exercise of the Net Issuance Right with respect to a
particular number of shares subject to this Warrant and noted on the Exercise
Form (the" Net Issuance Warrant Shares"), the Company shall deliver to the
Holder (without payment by the Holder of any Exercise Price or any cash or other
consideration) (X) that number of shares of fully paid and nonassessable shares
of Common Stock equal to the quotient obtained by dividing the value of this
Warrant (or the specified portion hereof) on the Net Issuance Exercise Date,
which value shall be determined by subtracting (A) the aggregate Exercise price
of the Net Issuance Warrant Shares immediately prior to the exercise of the Net
Issuance Right from (B) the aggregate fair market value of the Net Issuance
Warrant Shares issuable upon exercise of this Warrant ( or the specified portion
hereof) on the Net Issuance Exercise Date ( as herein defined) by (Y) the fair
market value one share of Common Stock on the Net Issuance Exercise Date ( as
herein defined).
Expressed as a formula, such net issuance exercise shall be computed as
follows:
X = B-A
Y
Where: X = the number of shares of Common Stock that may be issued to the
Holder
Y = the fair market value ("FMV") of one share of Common Stock as of
the Net Issuance Exercise Date
A = the aggregate Exercise Price (i.e. the product determined by
multiplying the Net Issuance Warrant Shares by the Exercise Price)
B = the aggregate FMV ( i.e. the product determined by multiplying the
FMV by the Net Issuance Warrant Shares.
G.1.2 DETERMINATION OF FAIR MARKET VALUE. For purposes of this Section G.1.2,
"fair market value" of a share of Common Stock as of the Net Issuance Exercise
Date shall mean:
(i) if the Net Issuance Right is exercised in connection with
and contingent upon a Public Offering, and if the Company's
registration Statement relating to such Public Offering has
been declared effective by the SEC, then the initial "Price
to Public" specified in the final Prospectus with respect to
such offering.
(ii) if the Net Issuance Right is not exercised in connection
with and contingent upon a Public Offering, then as follows:
(A) If traded on a securities exchange, the fair market value of the
Common Stock shall be deemed to be the average of the closing
prices of the Common Stock on such exchange over the 30-day
period ending five business days prior to the Net Issuance Date;
(B) If traded on the Nasdaq National Market or the Nasdaq Small Cap
Market, the fair market value of the Common Stock shall be deemed
to be the average of the last reported sales prices o
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<PAGE>
the common Stock on such Market over the 30-day period ending
five business days prior to the Net Issuance Exercise Date;
(C) If traded over-the-counter other than on the Nasdaq National
market or the Nasdaq SmallCap Market, the fair market value of
the Common Stock shall be deemed to be the average of the
midpoint between the closing bid and ask prices of the Common
Stock over the 30-day period ending five business days prior to
the Net Issuance Exercise Date; and
(D) If there is no public market for the Common Stock, then the fair
market value shall be determined by mutual agreement of the
Warrantholder and the Company, and if the Warrantholder and the
company are unable to so agree, at the Company's sole expense, by
an investment banker of national reputation selected by the
Company and reasonably acceptable to the Warrantholder.
(h) PIGGYBACK REGISTRATION. If, at any time commencing one year from the
effective date of the registration statement and expiring four (4) years
thereafter, the Company proposes to register any of its securities under the
Securities Act of 1933, as amended (the "Act") (other than in connection with a
merger or pursuant to Form S-8, S-4 or other comparable registration statement)
it will give written notice by registered mail, at least thirty (30) days prior
to the filing of each such registration statement, to the Holders and to all
other Holders of the Warrants and/or the Warrant Securities of its intention to
do so. If the Holder or other Holders of the Warrants and/or Warrant Securities
notify 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 each of the Underwriter and such Holders of
the Warrants and/or Warrant Securities the opportunity to have any such Warrant
Securities registered under such registration statement. In the event any
underwriter underwriting the sale of securities registered by such registration
statement shall limit the number of securities includable in such registration
by shareholders of the Company, the number of such securities shall be allocated
pro rata among the holders of Warrants and the holders of other securities
entitled to piggyback registration rights.
Notwithstanding the provisions of this Section, the Company shall have the
right at any time after it shall have given written notice pursuant to this
Section (irrespective of whether 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.
(i) DEMAND REGISTRATION.
(1) At any time commencing one year from the effective date of the
registration statement and expiring four (4) 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 (i) 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 Underwriter 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.
(2) The Company covenants and agrees to give written notice of any
registration request under this Section (i) 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.
(3) In addition to the registration rights under this Section (i) at any
time commencing one year after the effective date of the registration statement
and expiring four (4) years thereafter, the Holders of Representative's 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 such Holders of its Warrant Securities;
provided, however, that the provisions of Section (i)(2) 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.
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(J) COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. In connection with
any registration under Section (h) or (i) hereof, the Company covenants and
agrees as follows:
(i) The Company shall use its best efforts to file a registration statement
within sixty (60) 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.
(ii) 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 (h), (i) and (j) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. If the
Company shall fail to comply with the provisions of Section (j)(i), the Company
shall, in addition to any other equitable or other relief available to the
Holder(s), extend the Exercise Period by such number of days as shall equal the
delay caused by the Company's failure.
(iii)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 are reasonably 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.
(iv) 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"), from
and 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 has agreed to indemnify the Underwriter contained in Section 7 of the
Underwriting Agreement relating to the offering.
(v) 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 with the
same effect as the provisions contained in Section 7 of the Underwriting
Agreement pursuant to which the Underwriter has agreed to indemnify the Company.
(vi) The Holder(s) may exercise their Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
(vii)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 (i) hereof, or permit any other registration statement to be
or remain effective during the effectiveness of a registration statement filed
pursuant to Section (i) hereof, other than a secondary offering of equity
securities of the Company, without the prior written consent of the Holders of
the Warrants and Warrant Securities representing a Majority of such securities
(assuming an exercise of all the Warrants underlying the Warrants).
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(viii) 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 (x) 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 (y) 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
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.
(ix) 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.
(x) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described below and to the
managing underwriters, 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 National Association of Securities
Dealers, Inc. ("NASD") or an Exchange. 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 reasonable
extent and at such reasonable times and as often as any such Holder or
underwriter shall reasonably request.
(xi) The Company shall enter into an underwriting agreement with the
managing underwriters, which may be the Underwriter. Such agreement shall be
satisfactory in form and substance to the Company, and such managing
underwriters, 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; provided however, that no Holder
shall be required to make any representations, warranties or covenants or grant
any indemnity to which it shall object in any such underwriting agreement. 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 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.
(xii) For purposes of this Agreement, the term " Majority" in reference
to the Holders of Warrants or Warrant Securities, shall mean in
excess of fifty (50%) of the then outstanding Warrants and 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 or (ii) have not been resold
to the public pursuant to a registration statement filed with the
Commission under the Act.
(k) CONDITIONS OF COMPANY'S OBLIGATIONS. The Company's obligation under Section
j hereof shall be conditioned as to each such public offering, upon a timely
receipt by the Company in writing of:
(A) Information as to the terms of such public offering furnished by or on
behalf of the Holders making a public distribution of their Warrant Securities;
and
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(B) Such other information as the Company may reasonably require from such
Holder, or any underwriter for any of them, for inclusion in such registration
statement or offering statement or post-effective amendment.
(C) An agreement by the Holder to sell his Warrants and Warrant Securities
on the basis provided in the Underwriting Agreement.
(1) CONTINUING EFFECT OF AGREEMENT. The Company's agreements with respect
to the Warrant Securities in this Warrant will continue in effect regardless of
the exercise or surrender of this Warrant.
(m) NOTICES. Any notices or certificates by the Company to the Holder and by
the Holder to the Company shall be deemed delivered if in writing and delivered
personally or sent by certified mail, to the Holder, addressed to him or sent to
Schneider Securities,Inc.,1120 Lincoln Street, Denver, Colorado 80203 or, if the
Holder has designated, by notice in writing to the Company, any other address,
to such other address, and, if to the Company, addressed to
BiznessOnline.com,Inc. 1720 Route 34, Wall, New Jersey 07719. The Company may
change its address by written notice to Schneider Securities, Inc.
(n) LIMITED TRANSFERABILITY. This Warrant Certificate and the Warrant may
not be sold, transferred, assigned or hypothecated for a one-year period after
the effective date of the Registration Statement except to underwriters of the
Offering referred to in the Underwriting Agreement or to individuals who are
either partners or officers of such an underwriter or by will or by operation of
law. and if transfer occurs after one year, the warrant must be exercised
immediately upon transfer or it shall lapse. The Warrant may be divided or
combined, upon request to the Company by the Warrant holder, into a certificate
or certificates evidencing the same aggregate number of Warrants. The Warrant
may not be offered, sold, transferred, pledged or hypothecated in the absence of
any effective registration statement as to such Warrant filed under the Act, or
an exemption from the requirement of such registration, and compliance with the
applicable federal and state securities laws. The Company may require an opinion
of counsel satisfactory to the Company that such registration is not required
and that such laws are complied with. The Company may treat the registered
holder of this Warrant as he or it appears on the Company's book at any time as
the Holder for all purposes. The Company shall permit the Holder or his duly
authorized attorney, upon written request during ordinary business hours, to
inspect and copy or make extracts from its books showing the registered holders
of Warrants.
(o) TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933. The Company may
cause the following legend, or one similar thereto, to be set forth on the
Warrants and on each certificate representing Warrant Securities, or any other
security issued or issuable upon exercise of this Warrant not theretofore
distributed to the public or sold to underwriters for distribution to the public
pursuant to Sections (h) or (i) hereof; unless counsel satisfactory to the
Company is of the opinion as to any such certificate that such legend, or one
similar thereto, is unnecessary:
"The warrants represented by this certificate are restricted securities and
may not be offered for sale, sold or otherwise transferred unless an opinion of
counsel satisfactory to the Company is obtained stating that such offer , sale
or transfer is in compliance wrath state and federal securities law.
(p) APPLICABLE LAW. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Colorado, without giving effect to
conflict of law principles.
(q) ASSIGNABILITY. This Warrant may not be amended except in a writing signed by
each Holder and the Company.(r) SURVIVAL OF INDEMNIFICATION PROVISIONS. The
indemnification provisions of this Warrant shall survive until , 2007
9
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BiznessOnline.com,Inc.
By
------------------------------
Mark E. Monroe, President
Date:
-----------------------------
Attest:
-----------------------------
, Secretary
10
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PURCHASE FORM
Dated _________ 19____
The undersigned hereby irrevocably elects to exercise the Warrant to the extent
of purchasing __________ shares of
Common Stock and hereby makes payment of $ in payment of the actual
exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name____________________________________________________________________________
(please typewrite or print in block letters)
Address_________________________________________________________________________
Signature_______________________________________________________________________
11
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ASSIGNMENT FORM
FOR VALUE RECEIVED,____________________________________________________________
hereby sells, assigns and transfers unto
Name___________________________________________________________________________
(please typewrite or print in block letters)
Address________________________________________________________________________
the right to purchase shares of Common Stock as represented by this Warrant to
the extent of shares of Common Stock as to which such right is exercisable and
does hereby irrevocably constitute and appoint , attorney, to transfer the same
on the books of the Company with full power of substitution in the premises.
Signature______________________________________________________________________
Dated:__________________ 19_____
12
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EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
INSITE TELECOM, INC.
FIRST: The name of the Corporation is InSite Telecom, Inc.
SECOND: The address of its registered office in the State of Delaware
is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name
of its registered agent at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which
corporations may be organized under the Delaware General Corporation Law.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is Nine Million (9,000,000) shares of common stock, par
value $.01 per share ("Common Stock"), and One Million (1,000,000) shares of
preferred stock, par value $.01 per share ("Preferred Stock").
FIFTH: The designations and the powers, preferences and rights and the
qualifications, limitations or restrictions on the shares of Common Stock
initially authorized for issuance shall be governed by the following provisions:
(i) Identical Rights. Except as otherwise provided herein, all
shares of Common Stock shall be identical and shall entitle
the holders thereof to the same rights and privileges.
(ii) Voting Rights. Except as otherwise required by law or as
otherwise provided by the Board of Directors with respect to
any class or series of Preferred Stock, the entire voting
power and all voting rights shall be vested exclusively in the
Common Stock. On all matters submitted to the Corporation's
stockholders, each holder of Common Stock shall be entitled to
one vote for each share standing in such holder's name on the
books of the Corporation.
(iii) Dividend Rights. Subject to the preferred rights of the
holders of shares of any class or series of Preferred Stock as
provided by the Board of Directors with respect to any such
class or series of Preferred Stock, when and as dividends or
other distributions are declared by the Board out of funds
legally available therefor, whether payable in cash, in
property or in securities of the Corporation, the holders of
shares of Common Stock shall be entitled to share equally,
share for share, in such dividends or distributions, provided
that if dividends or other distributions are declared which
are payable in shares of Common Stock, such dividends or other
distributions shall be declared payable at the same rate for
all holders of Common Stock, and the dividends payable in
shares of Common Stock will be payable to holders of Common
Stock.
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(iv) No Closing of Transfer Books. The Corporation shall not close
its books against the transfer of any share of Common Stock.
(v) Liquidation Rights. In the event of any liquidation,
dissolution or winding up of the Corporation, whether
voluntary or otherwise, after the distribution or payment to
any holders of shares of any class or series of Preferred
Stock as provided by the Board of Directors with respect to
any such class or series of Preferred Stock, the remaining
assets of the Corporation available for distribution to
stockholders shall be distributed among and paid to the
holders of Common Stock ratably in proportion to the number of
shares of Common Stock held by them respectively
SIXTH: Subject to the provisions of this Certificate of Incorporation
and the limitations prescribed by law, the Corporation may issue Preferred Stock
from time to time in one or more series or classes as the Board of Directors may
establish by the adoption of a resolution or resolutions relating thereto and
without any further action or vote by the stockholders, each series or class to
have such voting powers, full or limited, or no voting powers, and such
designations, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions thereof, including
dividend rights (and whether dividends are cumulative), dividend rates, terms of
redemption, redemption prices, conversion rights and liquidation preferences, as
shall be stated in the resolution or resolutions providing for the issue of such
series or class adopted by the Board of Directors pursuant to authority to do
so, which authority is hereby granted to the Board of Directors without any
further action or vote by the stockholders.
SEVENTH: (a) The number of directors of the Corporation shall be
determined from time to time in the manner described in the Bylaws. No director
need be a stockholder.
(b) Newly created directorships resulting from any increase in
the number of directors and any vacancies on the Board of Directors resulting
from death, resignation, disqualification, removal or other cause shall be
filled by the affirmative vote of a majority of the remaining directors then in
office, even if less than a quorum of the Board of Directors, or by a sole
remaining director. Any director elected in accordance with the preceding
sentence shall hold office until the next succeeding annual meeting of
stockholders, and until such director's successor shall have been duly elected
and qualified. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
EIGHTH: The name and mailing address of the Corporation's incorporator
is Michael F. Sweeney, Esq., Duffy & Sweeney, 300 Turks Head Building,
Providence, RI 02903.
NINTH: The powers of the incorporator are to terminate upon the filing
of this Certificate of Incorporation, and the names and mailing addresses of the
persons who are to serve as the directors of the Corporation until the first
annual meeting of the stockholders or until their successors are elected and
qualified are:
Mark E. Munro, c/o Duffy & Sweeney, 300 Turks Head Building,
Providence, Rhode Island 02903
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TENTH: The Corporation is to have perpetual existence.
ELEVENTH: In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized:
(a) To make, alter or repeal the bylaws of the Corporation.
(b) To authorize and cause to be executed mortgages and liens
upon the real and personal property of the Corporation.
(c) To set apart out of any of the funds of the Corporation
available for dividends a reserve or reserves for any proper purposes and to
abolish any such reserve in the manner in which it was created.
(d) By a majority of the whole board, to designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. The bylaws may provide that in the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such agent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors, or in the bylaws of the Corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease, or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the bylaws of the Corporation; and, unless the resolution or bylaws
expressly so provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock.
(e) When and as authorized by the stockholders in accordance
with statute, to sell, lease or exchange all or substantially all of the
property and assets of the Corporation, including its goodwill and its corporate
franchises, upon such terms and conditions and for such consideration, which may
consist in whole or in part of money or property, including shares of stock in,
and/or other securities of; any other corporation, as its Board of Directors
shall deem expedient and for the best interests of the Corporation.
TWELFTH: (a) To the maximum extent permitted by Section 102(b)(7) of
the Delaware General Corporation Law, a director of this Corporation shall not
be personally 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
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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, or (iv) for any transaction
from which the director derived an improper personal benefit.
(b)(l) Right to Indemnification. Each director and officer of
the Corporation who was or is made a party or is threatened to be made a party
to or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she is or was a director or officer of the Corporation or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action or inaction in an
official capacity as a director or officer of the Corporation or in any other
capacity while serving as a director or officer of the Corporation, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a director or officer
who has ceased to be a director or officer, and shall inure to the benefit of
his or her heirs, executors, and administrators; PROVIDED, HOWEVER, that, except
as provided in this paragraph (b), the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this paragraph (b) shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer of the Corporation (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section or
otherwise. The Corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
(2) Right of Director or Officer to Bring Suit. If the
Corporation is required to indemnify under subparagraph (b)(l) above and such
indemnification is not provided by the Corporation within 30 days after a
written notice of a claim has been received by the Corporation, the director or
officer may at any time thereafter bring suit against the Corporation and obtain
injunctive relief ordering the Corporation to provide such indemnification or
payment of expenses and costs of defending such claim or to recover the unpaid
amount of the claim and, if successful in whole or in part, the director or
officer shall be entitled to be paid also the
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expense of prosecuting such claim.It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceedings in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
director or officer has not met the standards of conduct which make it
permissible under the Delaware General Corporation Law for the Corporation to
indemnify the director or officers for the amount claimed, but the burden of
proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the director or officer is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual determination by
the Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the director or officer has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct.
(3) Non-Exclusivity of Rights. The right to indemnification
and the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this paragraph (b) shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
(4) Insurance. 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 indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
THIRTEENTH: Whenever a compromise or arrangement is proposed between
this Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement, or to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders of this Corporation, as the case may be,
and also on this Corporation.
FOURTEENTH: Meetings of the stockholders may be held within or without
the
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State of Delaware as the bylaws may provide. The books of the Corporation
may be kept (subject to any provision contained in the statutes) outside the
State of Delaware at such place or places as may be designated from time to time
by the Board of Directors or in the bylaws of the Corporation. Elections of
directors need not be by written ballot unless the bylaws of the Corporation
shall so provide.
FIFTEENTH: The Corporation reserves the right to amend, alter, change,
or repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation; except that any
such amendment shall be made by the holders of at least two-thirds of the
outstanding shares of Common Stock of the Corporation.
SIXTEENTH: The Corporation expressly elects to be governed by Section
203 of the Delaware General Corporation Law.
THE UNDERSIGNED, being the incorporator named hereinbefore, for the
purposes of forming a corporation pursuant to the Delaware General Corporation
Law, does make this certificate, hereby declaring and certifying that this is
his act and deed and the facts herein stated are true, and accordingly, has
hereunto set his hand this 11th day of June, 1998.
/s/ MICHAEL F. SWEENEY
----------------------
Michael F. Sweeney
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EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
INSITE TELECOM, INC.
The undersigned, Mark E. Munro, President of InSite Telecom, Inc., a
Delaware corporation, (the "Corporation") for and on behalf of the Corporation
hereby certifies that the following amendment has been duly adopted by the
Corporation and hereby executes this Certificate of Amendment to Certificate of
Incorporation of the Corporation in accordance with the provisions of Section
242 of the General Corporation Law of the State of Delaware:
Article First of the Certificate of Incorporation of the Corporation is
hereby amended in its entirety to read as follows:
FIRST: The name of the Corporation is InSite Internet, Inc.
THE UNDERSIGNED, being the officer named hereinbefore, for the purposes
of amending the Certificate of Incorporation of InSite Telecom, Inc. pursuant to
the General Corporation Law of the State of Delaware, does make this
certificate, hereby declaring and certifying that this is his act and deed and
the facts herein stated are true, and accordingly, has hereunto set his hand
this 9th day of December, 1998.
/s/ MARK E. MUNRO
------------------------
Mark E. Munro, President
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
CLASS A PREFERRED STOCK - FIRST SERIES
OF
INSITE INTERNET, INC.
(Pursuant to Section 151 of
the General Corporation Law of the State of Delaware)
InSite Internet, Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of
Directors by the Certificate of Incorporation of the Corporation, as amended
(the "Certificate"), and pursuant to the provisions of Section 151 of Title 8 of
the Delaware Code of 1953, said Board of Directors, by unanimous written consent
filed with the minutes of the Board, adopted the following resolution creating a
series of Preferred Stock consisting of 200,000 shares designated as "Class A
Preferred Stock - First Series":
RESOLVED: That, pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the provisions of its
Certificate of Incorporation, as amended, a series of Preferred Stock of the
Corporation be and it hereby is created, such series of Preferred Stock to be
designated "Class A Preferred Stock - First Series", to consist of 200,000
shares, par value $.01 per share (the "First Series"), which shares shall have
the designation, terms, conditions, preferences and privileges, relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions, as follows:
1. DESIGNATION OF CLASS A PREFERRED STOCK, FIRST SERIES. Two hundred
thousand (200,000) shares of the Corporation's Preferred Stock, par value $.01
per share, are hereby designated "Class A Preferred Stock First Series" (the
"First Series").
2. DIVIDENDS.
2.1 REDEMPTION DIVIDEND. In the event (i) a holder of shares of the
First Series exercises such holder's right to redemption under SECTION 6.1
below, (ii) the Corporation exercises its right of redemption under SECTION 6.2
below, or (iii) a liquidation, dissolution or winding up of the Corporation
occurs under SECTION 4 below, such holder or holders of the First Series then
outstanding, if any, to which the event applies shall be entitled to receive in
cash a dividend equal to 12% per annum based on the original purchase price paid
by such holder(s) for shares of the First Series subject to such redemption or
liquidation event (the "Redemption Dividend").
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2.2 PARTICIPATION IN COMMON DIVIDENDS. In addition to the Redemption
Dividend specified in SECTION 2.1, the holders of shares of the First Series
shall be entitled to receive pro rata in cash an additional dividend in any year
in which the Corporation pays dividends to its common stockholders (the
"Participating Common Dividends"). In such event, the First Series shall receive
pro rata an amount equal to 22% of the total amount to be distributed as a
dividend multiplied by the percentage of the First Series outstanding at such
date, and the holders of Common Stock shall receive pro rata an amount equal to
the balance of the total amount to be distributed as a dividend.
3. NO VOTING RIGHTS. Except as otherwise required by applicable law,
the holders of the First Series shall not be entitled to vote on any matter,
either as a separate class or with the Common Stock. In particular, the
Corporation may issue, without the approval of the First Series, different
classes or series of Preferred Stock which may rank junior to or on a PARI PASSU
basis with the First Series in terms of liquidation preference and other rights.
4. LIQUIDATION.
4.1. PREFERENCE OF THE FIRST SERIES. Upon any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, the holders
of the First Series shall be entitled, before any distribution or payment is
made upon any shares of Common Stock or other capital stock of the Corporation
having a liquidation preference junior to the First Series, to be paid in cash
the sum of $5.00 per share, subject to appropriate adjustments for subdivisions
or combinations of the outstanding shares of the First Series effected after the
date hereof (the "Liquidation Preference Price") plus the Redemption Dividend
described in SECTION 2.1. If upon such liquidation, dissolution or winding up,
the assets to be distributed among the holders of the shares of the First Series
and all other shares of capital stock of the Corporation having the same
liquidation preference as the First Series shall be insufficient to permit
payment to said holders of such amounts, then all of the assets of the
Corporation then remaining shall be distributed ratably among the holders of the
shares of the First Series and such other capital stock of the Corporation
having the same liquidation preference as the First Series.
4.2. DISTRIBUTION OF REMAINING ASSETS. Upon any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
after (i) provision is made for holders of the First Series and all other shares
of capital stock of the Corporation having the same liquidation preference as
the First Series then outstanding as provided in the preceding paragraph, and
(ii) holders of Common Stock or any other capital stock of the Corporation
having a liquidation preference junior to the First Series have received in the
aggregate a return of their actual paid-in capital, any remaining proceeds from
the liquidation, consolidation or winding up shall be allocated such that the
holders of the First Series and all other shares of capital stock of the
Corporation having the same liquidation preference as the First Series shall
receive pro rata an amount equal to 22% of such remaining proceeds multiplied by
the percentage of the First Series outstanding at such date, and the holders of
Common Stock and any other capital stock having a liquidation preference junior
to the First Series shall receive pro
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rata an amount equal to the balance of such remaining proceeds.
4.3. TREATMENT OF CONSOLIDATIONS, MERGERS, AND SALES OF ASSETS. A
consolidation or merger of the Corporation in which it is not the surviving
corporation or a sale of all or substantially all of the assets of the
Corporation shall be regarded as a liquidation, dissolution or winding up of the
affairs of the Corporation within the meaning of this SECTION 4.
4.4. NON-CASH ITEMS. If assets other than cash are distributed pursuant
to this SECTION 4, the valuation of such assets will be made by the Board of
Directors acting in good faith.
5. CONVERSION OF THE FIRST SERIES INTO COMMON STOCK.
5.1. MANDATORY CONVERSION UPON AN INITIAL PUBLIC OFFERING; CONVERSION
PRICE. Each share of the First Series shall automatically be converted into the
number of shares of Common Stock determined by dividing $8.75 (1.75 times the
Liquidation Preference Price of $5.00) by the price per share of Common Stock
offered to the public in the Corporation's initial public offering of Common
Stock. The conversion shall be mandatory and automatic as of the date of any
such initial public offering. All holders of record of the First Series will be
given prompt written notice of the event which resulted in the conversion of the
First Series. Such notice shall be sent by telex, telecopy or first class mail,
postage prepaid, to each holder of record of the First Series at such holder's
address as shown in the records of the Corporation. After the effective date of
such conversion, each holder of shares of the First Series shall surrender such
holder's certificate or certificates for all such shares to the Corporation for
cancellation at the place designated in such notice and upon receipt thereof,
shall thereafter receive certificates for the number of shares of Common Stock
to which such holder is entitled but the failure so to surrender shall not
affect the conversion pursuant to this SECTION 5.1 and such conversion shall be
deemed to have been effected upon the closing of such a registered public
offering, and at such time the rights and preferences hereunder of the holder of
such share or shares of the First Series shall cease, and such holder shall be
deemed to have become the holder of record of the shares of Common Stock
issuable upon such conversion.
5.2. RESERVATION OF COMMON STOCK. The Corporation will at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock or its treasury shares of Common Stock, solely for the purpose of issuance
upon the conversion of the First Series, the maximum number of shares of Common
Stock as then could be issuable upon the conversion of all then outstanding
shares of the First Series. All shares of Common Stock which are issuable upon
conversion of the First Series in accordance with this Certificate of
Designation will, when so issued, be duly authorized, validly issued, fully paid
and nonassessable. The Corporation will take all action that may be necessary to
assure that all shares of Common Stock issuable upon such conversion may be so
issued without violation of any law, regulation or agreement applicable to the
Corporation.
5.3. NO ADJUSTMENTS TO THE CONVERSION PRICE FOR STOCK SPLITS OR
COMBINATIONS. The
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<PAGE>
conversion formula described in SECTION 5.1 shall be fixed and shall not be
subject to adjustment as a result of any stock splits, subdivisions,
combinations or other capital reorganizations of the Corporation which occur
with respect to the Corporation's Common Stock prior to the Corporation's
initial public offering of Common Stock which is underwritten on a firm
commitment basis.
5.4. NO OPTIONAL CONVERSION RIGHTS. Except as described in this SECTION
5 in connection with an initial public offering, shares of the First Series are
not otherwise convertible into Common Stock.
5.5 FRACTIONAL SHARES. No fractional shares shall be issued upon the
conversion of any share or shares of the First Series. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of the First series by a holder thereof shall be aggregated for purposes
of determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of a fraction of a share of Common Stock, the Corporation
shall, in lieu of issuing any fractional share, pay the holder otherwise
entitled to such fraction a sum in cash equal to the fair market value of such
fraction on the date of conversion (as determined in good faith by the Board of
Directors).
6. REDEMPTION RIGHTS.
6.1. REQUIRED REDEMPTION AT THE REQUEST OF THE HOLDERS. At the
individual option of each holder of shares of the First Series commencing on
June 1, 2000 or thereafter, the Corporation shall redeem the number of shares of
the First Series that is specified in a request for redemption delivered to the
Corporation by the holder on or after such date, by paying the Liquidation
Preference Price per share of the First Series to be redeemed, plus the
Redemption Dividend specified in SECTION 2.1, plus any Participating Common
Dividends payable under SECTION 2.2, provided that the Corporation has funds
legally available for such redemption transaction. On the requested date of
redemption (which shall be no sooner than 60 days from the date of delivery of
the redemption request to the Corporation) as specified in the holder's notice,
the holder shall surrender to the Corporation his certificate for the shares of
the First Series to be redeemed and the Corporation shall pay to such holder the
redemption price therefor plus all dividends as specified herein in immediately
available funds. In the case of a partial redemption, the Corporation will issue
a new certificate to the holder representing the balance of the unredeemed
shares. If funds are not legally available to fully satisfy any requested
redemption, the Corporation will redeem shares to the extent of its legally
available funds and the remaining unredeemed shares shall remain eligible for
redemption once funds become available.
6.2. OPTIONAL REDEMPTION BY THE CORPORATION. At any time or from time
to time after June 1, 2000 (provided the Corporation is not at such time in the
process of preparing for its initial public offering of Common Stock which is to
be underwritten on a firm commitment basis), upon at least sixty (60) days'
prior written notice to the holders of the First Series, all or a
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<PAGE>
portion of the shares of the First Series may be redeemed at the option of the
Corporation provided that the Corporation has funds legally available therefor.
The redemption price shall be equal to the Liquidation Preference Price per
share of the First Series to be redeemed, plus the Redemption Dividend specified
in SECTION 2.1, plus any Participating Common Dividends payable under SECTION
2.2. On the requested date of redemption as specified in the Corporation's
notice, the holder shall surrender to the Corporation his certificate for the
shares of the First Series to be redeemed and the Corporation shall pay to such
holder the redemption price plus any dividends as specified herein in
immediately available funds. In the case of a partial redemption, the
Corporation will issue a new certificate to the holder representing the balance
of the unredeemed shares.
7. CHARGES. The issuance of certificates representing Common Stock upon
conversion of the First Series as hereinabove set forth shall be made without
charge for any expense or issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any taxes which may be payable in
respect of any transfer involved in the issuance and delivery of any certificate
in a name other than that of the holder of shares converted.
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IN WITNESS WHEREOF, InSite Internet, Inc. has caused this Certificate
of Designation to be duly executed this 12th day of January, 1999.
Attest: INSITE INTERNET, INC.
By_/s/ MICHAEL F. SWEENEY By /s/ MARK E. MUNRO
--------------------------- -----------------
Title: Assistant Secretary Title: President
ACKNOWLEDGEMENT
STATE OF Rhode Island
COUNTY OF Providence
At Providence in said County on this 12th day of January, 1999
personally appeared before me Mark E. Munro, who, being by me first duly sworn,
declared that he is the President of InSite Internet, Inc., that he signed the
foregoing document as President of said corporation, and that the statements
therein contained are true.
/s/ ROBERT D. EMERSON
---------------------
Notary Public
My Commission Expires:4/8/02
(NOTARIAL SEAL)
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<PAGE>
EXHIBIT 3.4
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
INSITE INTERNET, INC.
The undersigned, Mark E. Munro, President of InSite Internet, Inc., a
Delaware corporation, (the "Corporation") for and on behalf of the Corporation
(i) hereby certifies that the following amendment has been duly adopted by the
Corporation pursuant to the provisions of Section 228 of the General Corporation
Law of the State of Delaware and that written notice of such action was given to
the non-consenting stockholders and (ii) hereby executes this Certificate of
Amendment to Certificate of Incorporation of the Corporation in accordance with
the provision of Sections 242 of the General Corporation Law of the State of
Delaware:
Article Fourth of the Certificate of Incorporation of the Corporation is
hereby amended in its entirety to read as follows:
FOURTH: The number of shares of stock which the Corporation shall have
authority to issue is Thirty-Nine Million (39,000,000) shares of common
stock, par value $.01 per share ("Common Stock") and One Million
(1,000,000) shares of preferred stock, par value $.01 per share ("Preferred
Stock").
THE UNDERSIGNED, being the officer named hereinbefore, for the purposes of
amending the Certificate of Incorporation of InSite Internet, Inc. pursuant to
the General Corporation Law of the State of Delaware, does make this
certificate, hereby declaring and certifying that this is his act and deed and
the facts herein stated are true, and accordingly, has hereunto set his hand
this 3rd day of February, 1999.
/s/ MARK E. MUNRO
------------------------
Mark E. Munro, President
<PAGE>
EXHIBIT 3.5
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
INSITE INTERNET, INC.
The undersigned, Mark E. Munro, President of InSite Internet, Inc., a
Delaware corporation, (the "Corporation") for and on behalf of the Corporation
(i) hereby certifies that the following amendment has been duly adopted by the
Corporation pursuant to the provisions of Section 228 of the General Corporation
Law of the State of Delaware and that written notice of such action was given to
the non-consenting stockholders and (ii) hereby executes this Certificate of
Amendment to Certificate of Incorporation of the Corporation in accordance with
the provision of Sections 242 of the General Corporation Law of the State of
Delaware:
Article First of the Certificate of Incorporation of the Corporation is
hereby amended in its entirety to read as follows:
FIRST: The name of the Corporation is BiznessOnline.com, Inc.
THE UNDERSIGNED, being the officer named hereinbefore, for the purposes of
amending the Certificate of Incorporation of InSite Internet, Inc. pursuant to
the General Corporation Law of the State of Delaware, does make this
certificate, hereby declaring and certifying that this is his act and deed and
the facts herein stated are true, and accordingly, has hereunto set his or her
hand this 10th day of February, 1999.
/s/ MARK E. MUNRO
------------------------
Mark E. Munro, President
<PAGE>
EXHIBIT 3.6
(amended as of 2/10/99 to reflect
the new name"BiznessOnline.com, Inc.)
BY-LAWS
OF
BIZNESSONLINE.COM, INC.
ARTICLE I
OFFICES
SECTION 1. DELAWARE OFFICE. The registered office of BiznessOnline.com,
Inc. (the "Corporation") within the State of Delaware shall be in the City of
Wilmington, County of Newcastle.
SECTION 2. OTHER OFFICES. The Corporation may also have an office or
offices and keep the books and records of the Corporation, except as otherwise
may be required by law, in such other place or places, either within or without
the State of Delaware, as the Board of Directors of the Corporation (the
"Board") may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of holders of shares of capital
stock of the Corporation shall be held at the office of the Corporation in the
State of Delaware or at such other place, within or without the State of
Delaware, as may from time to time be fixed by the Board or specified or fixed
in the respective notices or waivers of notice thereof.
SECTION 2. ANNUAL MEETINGS. The Annual Meeting of stockholders of the
Corporation for the election of directors and for the transaction of such other
business as may properly come before the meeting (the "Annual Meeting") shall be
held at 10:00 a.m. on the first Tuesday in April, or on such other date and at
such other time as may be fixed by the Board. If the Annual Meeting shall not be
held on the day designated, the Board shall call a special meeting of
stockholders as soon as practicable for the election of directors.
SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders, unless
otherwise provided by law, may be called at any time by the Board pursuant to a
resolution adopted by a majority of the then authorized number of directors (as
determined in accordance with Section 2 of Article III of these By-laws) or by
the Chief Executive Officer. Any such call must
<PAGE>
specify the matter or matters to be acted upon at such meeting and only such
matter or matters shall be acted upon thereat.
SECTION 4. NOTICE OF MEETINGS. Except as otherwise may be required by law,
notice of each meeting of stockholders, whether the Annual Meeting or a special
meeting, shall be in writing, shall state the purpose or purposes of the
meeting, the place, date and hour of the meeting and, unless it is the Annual
Meeting, shall indicate that the notice is being issued by or at the direction
of the person or persons calling the meeting, and a copy thereof shall be
delivered or sent by mail, not less than 10 or more than 60 days before the date
of said meeting, to each stockholder entitled to vote at such meeting. If
mailed, such notice shall be directed to such stockholder at his address as it
appears on the stock records of the Corporation, unless he shall have filed with
the Secretary a written request that notices to him be mailed to some other
address, in which case it shall be directed to him at such other address. Notice
of an adjourned meeting need not be given if the time and place to which the
meeting is to be adjourned was announced at the meeting at which the adjournment
was taken, unless (i) the adjournment is for more than 30 days, or (ii) the
Board shall fix a new record date for such adjourned meeting after the
adjournment.
SECTION 5. QUORUM. At each meeting of stockholders of the Corporation, the
holders of shares having a majority of the voting power of the capital stock of
the Corporation issued and outstanding and entitled to vote thereat shall be
present or represented by proxy to constitute a quorum for the transaction of
business, except as otherwise provided by law.
SECTION 6. ADJOURNMENTS. In the absence of a quorum at any meeting of
stockholders or any adjournment or adjournments thereof, holders of shares
having a majority of the voting power of the capital stock present or
represented by proxy at the meeting may adjourn the meeting from time to time
until a quorum shall be present or represented by proxy. At any such adjourned
meeting at which a quorum shall be present or represented by proxy, any business
may be transacted which might have been transacted at the meeting as originally
called if a quorum had been present or represented by proxy thereat.
SECTION 7. ORDER OF BUSINESS.
(a) At any Annual Meeting, only such business shall be conducted as shall
have been brought before the Annual Meeting (i) by or at the direction of the
Board of Directors, or (ii) by any stockholder who complies with the procedures
set forth in this Section 7.
(b) For business properly to be brought before the Annual Meeting by a
stockholder, the stockholder must have given timely notice thereof in proper
written form to the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation not less than 30 days nor more than 60 days prior to
the Annual Meeting; PROVIDED, HOWEVER, that in the event that less than 40 days
notice or prior public disclosure of the date of the Annual Meeting is given or
made to stockholders, notice by the stockholder to be timely must be received
not later than
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the close of business on the tenth day following the day on which such notice of
the date of the Annual Meeting was mailed or such public disclosure was made. To
be in proper written form, a stockholder's notice to the Secretary shall set
forth in writing as to each matter the stockholder proposes to bring before the
Annual Meeting: (i) a brief description of the business desired to be brought
before the Annual Meeting and the reasons for conducting such business at the
Annual Meeting; (ii) the name and address, as they appear on the Corporation's
books, of the stockholder proposing such business; (iii) the class and number of
shares of the Corporation which are beneficially owned by the stockholder; and
(iv) any material interest of the stockholder in such business. Notwithstanding
anything in these By-laws to the contrary, no business shall be conducted at the
Annual Meeting except in accordance with the procedures set forth in this
Section 7. The chairman of the Annual Meeting shall, if the facts warrant,
determine and declare to the Annual Meeting that business was not properly
brought before the Annual Meeting in accordance with the provisions of this
Section 7 and, if he should so determine, he shall so declare to the Annual
Meeting and any such business not properly brought before the Annual Meeting
shall not be transacted.
SECTION 8. VOTING. Except as otherwise provided in the Certificate of
Incorporation or in a resolution of the Board of Directors adopted pursuant to
the Certificate of Incorporation establishing a series of Common Stock of the
Corporation, at each meeting of stockholders, every stockholder of the
Corporation shall be entitled to one vote for every share of capital stock
standing in his name on the stock records of the Corporation (i) at the time
fixed pursuant to Section 6 of Article VII of these By-laws as the record date
for the determination of stockholders entitled to vote at such meeting, or (ii)
if no such record date shall have been fixed, then at the close of business on
the day next preceding the day on which notice thereof shall be given. At each
meeting of stockholders, all matters (except as otherwise provided in Section 3
of Article III of these By-laws and except in cases where a larger vote is
required by law or by the Certificate of Incorporation of the Corporation or
these By-laws) shall be decided by a majority of the votes cast at such meeting
by the holders of shares of capital stock present or represented by proxy and
entitled to vote thereon, a quorum being present.
SECTION 9. INSPECTORS. For each election of directors by the
stockholders and in any other case in which it shall be advisable, in the
opinion of the Board, that the voting upon any matter shall be conducted by
inspectors of election, the Board shall appoint two inspectors of election. If,
for any such election of directors or the voting upon any such other matter, any
inspector appointed by the Board shall be unwilling or unable to serve, or if
the Board shall fail to appoint inspectors, the chairman of the meeting shall
appoint the necessary inspector or inspectors. The inspectors so appointed,
before entering upon the discharge of their duties, shall be sworn faithfully to
execute the duties of inspectors with strict impartiality, and according to the
best of their ability, and the oath so taken shall be subscribed by them. Such
inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each of the shares represented
at the meeting, the existence of a quorum, and the validity and effect of
proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in
3
<PAGE>
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the chairman
of the meeting or any stockholder entitled to vote thereat, the inspectors shall
make a report in writing of any challenge, question or matter determined by them
and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as an inspector of election of
directors. Inspectors need not be stockholders.
ARTICLE III
DIRECTORS
SECTION 1. POWERS. The business of the Corporation shall be managed under
the direction of the Board. The Board may exercise all such authority and powers
of the Corporation and do all such lawful acts and things as are not by law or
otherwise directed or required to be exercised or done by the stockholders.
SECTION 2. NUMBER, ELECTION AND TERMS. The authorized number of directors
may be determined from time to time by a vote of a majority of the then
authorized number of directors or by the affirmative vote of the holders of a
majority of the voting power of the then outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors, voting
together as a single class; PROVIDED, HOWEVER, that such number initially shall
not be less than one nor more than ten; and PROVIDED, FURTHER, that such number
and such minimum and maximum may be increased pursuant to resolution of the
Board, adopted pursuant to the Certificate of Incorporation, establishing any
series or any class of Common Stock. Except as otherwise provided in the
Certificate of Incorporation, newly created directorships resulting from any
increase in the number of directors and any vacancies on the Board resulting
from death, resignation, disqualification, removal or other cause shall be
filled by the affirmative vote of a majority of the remaining directors then in
office, even if less than a quorum of the Board, or by a sole remaining
director. Any director elected in accordance with the preceding sentence shall
hold office until the next succeeding Annual Meeting and until such director's
successor shall have been duly elected and qualified. No decrease in the number
of directors constituting the Board shall shorten the term of any incumbent
director.
SECTION 3. NOMINATIONS OF DIRECTORS; ELECTION. Nominations for the election
of directors may be made by the Board or a committee appointed by the Board, or
by any stockholder entitled to vote generally in the election of directors who
complies with the procedures set forth in this Section 3. Directors shall be at
least 21 years of age. Directors need not be stockholders. At each meeting of
stockholders for the election of directors, at which a quorum is present, the
persons receiving a plurality of the votes cast shall be elected directors. All
nominations by stockholders shall be made pursuant to timely notice in proper
written form to the Secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the Corporation not less than 30 days nor more than 60 days prior to
the meeting; PROVIDED, HOWEVER, that in the
4
<PAGE>
event that less than 40 days notice or prior public disclosure of the date of
the meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. To be in proper written form, such
stockholder's notice shall set forth in writing (i) as to each person whom the
stockholder proposes to nominate for election or reelection as a director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended, including, without limitation, such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected; and (ii) as to the stockholder giving the notice, the (x) name and
address, as they appear on the Corporation's books, of such stockholder and (y)
the class and number of shares of the Corporation which are beneficially owned
by such stockholder. At the request of the Board of Directors, any person
nominated by the Board of Directors for election as a director shall furnish to
the Secretary of the Corporation the information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. In the event
that a stockholder seeks to nominate one or more directors, the Secretary shall
appoint two inspectors, who shall not be affiliated with the Corporation, to
determine whether a stockholder has complied with this Section 3. If the
inspectors shall determine that a stockholder has not complied with this Section
3, the inspectors shall direct the chairman of the meeting to declare to the
meeting that a nomination was not made in accordance with the procedures
prescribed by the By-laws of the Corporation, and the chairman shall so declare
to the meeting and the defective nomination shall be disregarded.
SECTION 4. PLACE OF MEETINGS. Meetings of the Board shall be held at the
Corporation's office in the State of Delaware or at such other place, within or
without such State, as the Board may from time to time determine or as shall be
specified or fixed in the notice or waiver of notice of any such meeting.
SECTION 5. REGULAR MEETINGS. Regular meetings of the Board shall be held in
accordance with a yearly meeting schedule as determined by the Board; or such
meetings may be held on such other days and at such other times as the Board may
from time to time determine. Notice of regular meetings of the Board need not be
given except as otherwise required by these By-laws.
SECTION 6. SPECIAL MEETINGS. Special meetings of the Board may be called by
the Chief Executive Officer and shall be called by the Secretary at the request
of any two of the other directors.
SECTION 7. NOTICE OF MEETINGS. Notice of each special meeting of the Board
(and of each regular meeting for which notice shall be required), stating the
time, place and purposes thereof, shall be mailed to each director, addressed to
him at his residence or usual place of business, or shall be sent to him by
telex, cable or telegram so addressed, or shall be given personally or by
telephone, on 24 hours' notice.
5
<PAGE>
SECTION 8. QUORUM AND MANNER OF ACTION. The presence of at least a majority
of the authorized number of directors shall be necessary and sufficient to
constitute a quorum for the transaction of business at any meeting of the Board.
If a quorum shall not be present at any meeting of the Board, a majority of the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Except where a different vote is required or permitted by law or these By-laws
or otherwise, the act of a majority of the directors present at any meeting at
which a quorum shall be present shall be the act of the Board. Any action
requited or permitted to be taken by the Board may be taken without a meeting if
all the directors consent in writing to the adoption of a resolution authorizing
the action. The resolution and the written consents thereto by the directors
shall be filed with the minutes of the proceedings of the Board. Any one or more
directors may participate in any meeting of the Board by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time. Participation by such means
shall be deemed to constitute presence in person at a meeting of the Board.
SECTION 9. RESIGNATION. Any director may resign at any time by giving
written notice to the Corporation; PROVIDED, HOWEVER, that written notice to the
Board, the Chairman of the Board, the Chief Executive Officer or the Secretary
shall be deemed to constitute notice to the Corporation. Such resignation shall
take effect upon receipt of such notice or at any later time specified therein
and, unless otherwise specified therein, acceptance of such resignation shall
not be necessary to make it effective.
SECTION 10. REMOVAL OF DIRECTORS. Any director may be removed from office
with or without cause by the affirmative vote of the holders of a majority of
the voting power of all shares of the Corporation entitled to vote generally in
the election of directors, voting together as a single class.
SECTION 11. COMPENSATION OF DIRECTORS. The Board may provide for the
payment to any of the directors, other than officers or employees of the
Corporation, of a specified amount for services as director or member of a
committee of the Board, or of a specified amount for attendance at each regular
or special Board meeting or committee meeting, or of both, and all directors
shall be reimbursed for expenses of attendance at any such meeting; PROVIDED,
HOWEVER, that nothing herein contained shall be construed to preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor.
6
<PAGE>
ARTICLE IV
COMMITTEES OF THE BOARD
SECTION 1. APPOINTMENT AND POWERS OF EXECUTIVE COMMITTEE. The Board may, by
resolution adopted by the affirmative vote of a majority of the authorized
number of directors, designate an Executive Committee of the Board which shall
consist of such number of members as the Board shall determine. Except as
provided by Delaware law, during the interval between the meetings of the Board,
the Executive Committee shall possess and may exercise all the powers of the
Board in the management and direction of all the business and affairs of the
Corporation (except the matters hereinafter assigned to any other Committee of
the Board), in such manner as the Executive Committee shall deem in the best
interests of the Corporation in all cases in which specific directions shall not
have been given by the Board. A majority of the members of the Executive
Committee shall constitute a quorum for the transaction of business by the
committee and the act of a majority of the members of the committee present at a
meeting at which a quorum shall be present shall be the act of the committee.
Either the Chief Executive Officer or the Chairman of the Executive Committee
may call the meetings of the Executive Committee.
SECTION 2. APPOINTMENT AND POWERS OF AUDIT COMMITTEE. The Board may, by
resolution adopted by the affirmative vote of a majority of the authorized
number of directors, designate an Audit Committee of the Board, which shall
consist of such number of members as the Board shall determine. The Audit
committee shall (i) make recommendations to the Board as to the independent
accountants to be appointed by the Board; (ii) review with the independent
accountants the scope of their examination; (iii) receive the reports of the
independent accountants and meet with representatives of such accountants for
the purpose of reviewing and considering questions relating to their examination
and such reports; (iv) review, either directly or through the independent
accountants, the internal accounting and auditing procedures of the Corporation;
and (v) perform such other functions as may be assigned to it from time to time
by the Board. The Audit Committee may determine its manner of acting and fix the
time and place of its meetings, unless the Board shall otherwise provide. A
majority of the members of the Audit Committee shall constitute a quorum for the
transaction of business by the committee and the act of a majority of the
members of the committee present at a meeting at which a quorum shall be present
shall be the act of the committee.
SECTION 3. COMPENSATION COMMITTEE; OTHER COMMITTEES. The Board may, by
resolution adopted by the affirmative vote of a majority of the authorized
number of directors, designate members of the Board to constitute a Compensation
Committee and such other committees of the Board as the Board may determine.
Such committees shall in each case consist of such number of directors as the
Board may determine, and shall have and may exercise, to the extent permitted by
law, such powers as the Board may delegate to them in the respective resolutions
appointing them. Each such committee may determine its manner of acting and fix
the time and place of its meetings, unless the Board shall otherwise provide. A
majority of the members of any such committee shall constitute a quorum for the
transaction
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<PAGE>
of business by the committee and the act of a majority of the members of such
committee present at a meeting at which a quorum shall be present shall be the
act of the committee.
SECTION 4. ACTION BY CONSENT; PARTICIPATION BY TELEPHONE OR SIMILAR
EQUIPMENT. Unless the Board shall otherwise provide, any action required or
permitted to be taken by any committee may be taken without a meeting if all
members of the committee consent in writing to the adoption of a resolution
authorizing the action. The resolution and the written consents thereto by the
members of the committee shall be filed with the minutes of the proceedings of
the committee. Unless the Board shall otherwise provide, any one or more members
of any such committee may participate in any meeting of the committee by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear one another. Participation by
such means shall constitute presence in person at a meeting of the committee.
SECTION 5. CHANGES IN COMMITTEES; RESIGNATIONS; REMOVALS. The Board shall
have power, by the affirmative vote of a majority of the authorized number of
directors, at any time to change the members of, to fill vacancies in, and to
discharge any committee of the Board. Any member of any such committee may
resign at any time by giving notice to the Corporation; however, that notice to
the Board, the Chairman of the Board, the Chief Executive Officer, the chairman
of such committee or the Secretary shall be deemed to constitute notice to the
Corporation. Such resignation shall take effect upon receipt of such notice or
at any later time specified therein; and, unless otherwise specified therein,
acceptance of such resignation shall not be necessary to make it effective. Any
member of any such committee may be removed at any time, either with or without
cause, by the affirmative vote of a majority of the authorized number of
directors at any meeting of the Board called for that purpose.
ARTICLE V
OFFICERS
SECTION 1. NUMBER AND QUALIFICATION. The Corporation shall have such
officers as may be necessary or desirable for the business of the Corporation.
Each officer of the Corporation shall have a title set forth below or as may be
prescribed by the Board and shall hold his office for such term as may be
prescribed by the Board PROVIDED, HOWEVER that the term for the Chairman of the
Board shall automatically terminate upon the termination of such officer's term
as a director of the Corporation. There shall be elected from among the officers
of the Corporation, persons having the titles and exercising the duties (as
prescribed by the By-laws or by the Board) of President, Treasurer and
Secretary, and such other persons having such other titles and such other duties
as the Board may prescribe. The same person may hold more than one office. The
Chairman of the Board and the Chief Executive Officer, if any, shall be elected
from among the directors. The Chief Executive Officer may appoint one or more
deputies, associates or assistant officers or such other agents as may be
necessary or desirable for the business of the Corporation. In case one or more
deputies, associates or
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assistant officers shall be appointed, the officer such appointee assists may
delegate to the appointee the authority to perform such of the officer's duties
as the officer may determine.
SECTION 2. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Corporation; PROVIDED, HOWEVER, that notice to the Board,
Chairman of the Board, the Chief Executive Officer or the Secretary shall be
deemed to constitute notice to the Corporation. Such resignation shall take
effect upon receipt of such notice or at any later time specified therein; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 3. REMOVAL. Any officer or agent may be removed, either with or
without cause, at any time, by the Board at any meeting called for that purpose;
provided however that the Chief Executive Officer and president each may remove
any agent appointed by him.
SECTION 4. VACANCIES. Any vacancy among the officers, whether caused by
death, resignation, removal or any other cause, shall be filled in the manner
prescribed for election or appointment to such office.
SECTION 5. CHAIRMAN OF THE BOARD. The Chairman of the Board, if any, shall,
if present, preside at all meetings of the Board and, in the absence of the
Chief Executive Officer, at all meetings of the stockholders. He shall perform
the duties incident to the office of the Chairman of the Board and all such
other duties as are specified in these By-laws or as shall be assigned to him
from time to time by the Board.
SECTION 6. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer, if any,
shall, if present, preside at all meetings of the stockholders. He shall have,
under the control of the Board, general supervision and direction of the
business and affairs of the Corporation. He shall at all times see that all
resolutions or determinations of the Board are carried into effect. He may from
time to time appoint, remove or change members of and discharge one or more
advisory committees, each of which shall consist of such number of persons (who
may, but need not, be directors or officers of the Corporation), and have such
advisory duties, as he shall determine. He shall perform the duties incident to
the office of the Chief Executive Officer and all such other duties as are
specified in these By-laws or as shall be assigned to him from time to time by
the Board.
SECTION 7. TREASURER. The Treasurer shall have charge and custody of, and
be responsible for, all funds and securities of the Corporation, shall keep full
and accurate accounts of receipts and disbursements in books belonging to the
Corporation, shall deposit all moneys and other valuables to the credit of the
Corporation in such depositories as may be designated pursuant to these By-laws,
shall receive, and give receipts for, moneys due and payable to the Corporation
from any source whatsoever, shall disburse the funds of the Corporation and
shall render to all regular meetings of the Board, or whenever the Board may
require, an account of all his transactions as Treasurer. He shall, in general,
perform all the duties incident to the office of Treasurer and all such other
duties as may be assigned to him
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from time to time by the Chief Executive Officer or such other officer to whom
the Treasurer reports.
SECTION 8. SECRETARY. The Secretary shall, if present, act as secretary of,
and keep the minutes of, all meetings of the Board, the Executive Committee and
other committees of the Board and the stockholders in one or more books provided
for that purpose, shall see that all notices are duly given in accordance with
these By-laws and as required by law, shall be custodian of the seal of the
Corporation and shall affix and attest the seal to all documents to be executed
on behalf of the Corporation under its seal. He shall, in general, perform all
the duties incident to the office of Secretary and all such other duties as may
be assigned to him from time to time by the Chief Executive Officer or such
other officer to whom the Secretary reports.
SECTION 9. BONDS OF OFFICERS. If required by the Board, any officer of the
Corporation shall give a bond for the faithful discharge of his duties in such
amount and with such surety or sureties as the Board may require.
SECTION 10. COMPENSATION. The salaries of the officers shall be fixed from
time to time by the Compensation Committee of the Board; PROVIDED, HOWEVER, that
the Chief Executive Officer may fix or delegate to others the authority to fix
the salaries of any agents appointed by the Chief Executive Officer.
SECTION 11. OFFICERS OF OPERATING COMPANIES OR DIVISIONS. The Chief
Executive Officer shall have the power to appoint, remove, and prescribe the
terms of office, responsibilities, duties and salaries of, the officers of the
operating companies or divisions, other than those who are officers of the
Corporation.
ARTICLE VI
CONTRACTS, CHECKS, LOANS, DEPOSITS, ETC.
SECTION 1. CONTRACTS. The Board may authorize any officer or officers,
agent or agents, in the name and on behalf of the Corporation, to enter into any
contract or to execute and deliver any instrument, which authorization may be
general or confined to specific instances; and, unless so authorized by the
Board, no officer, agent or employee shall have any power or authority to bind
the Corporation by any contract or engagement or to pledge its credit or to
render it liable pecuniarily for any purpose or for any amount.
SECTION 2. CHECKS, ETC. All checks, drafts, bills of exchange or other
orders for the payment of money out of the funds of the Corporation, and all
notes or other evidences of indebtedness of the Corporation, shall be signed in
the name and on behalf of the Corporation in such manner as shall from time to
time be authorized by the Board, which authorization may be general or confined
to specific instances.
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SECTION 3. LOANS. No loan shall be contracted on behalf of the Corporation,
and no negotiable paper shall be issued in its name, unless authorized by the
Board, which authorization may be general or confined to specific instances. All
bonds, debentures, notes and other obligations or evidences of indebtedness of
the Corporation issued for such loans shall be made, executed and delivered as
the Board shall authorize.
SECTION 4. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as may be selected by or in the
manner designated by the Board. The Board or its designees may make such special
rules and regulations with respect to such bank accounts, not inconsistent with
the provisions of the Certificate of Incorporation or these By-laws, as them may
deem advisable.
ARTICLE VII
CAPITAL STOCK
SECTION 1. STOCK CERTIFICATES. Each stockholder shall be entitled to have,
in such form as shall be approved by the Board, a certificate or certificates
signed by the Chairman of the Board or Chief Executive Officer and by either the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary
(except that, when any such certificate is countersigned by a transfer agent or
registered by a registrar other than the Corporation or an employee of the
Corporation, the signatures of any such officers may be facsimiles, engraved or
printed), which may be sealed with the seal of the Corporation (which seal may
be a facsimile, engraved or printed), certifying the number of shares of capital
stock of the Corporation owned by such stockholder. In the event any officer who
has signed or whose facsimile signature has been placed upon any such
certificate shall have ceased to be such officer before such certificate is
issued, such certificate may be issued by the Corporation with the same effect
as if he were such officer at the date of its issue.
SECTION 2. LISTS OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make or cause to be prepared or made, at least 10 days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares of capital stock registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least 10 days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting for the duration thereof, and may be inspected by any stockholder of
the Corporation who is present.
SECTION 3. STOCK LEDGER. The stock ledger of the Corporation shall be the
only
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evidence as to who are the stockholders entitled to examine the stock ledger,
the list required by Section 2 of this Article VII or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
SECTION 4. TRANSFERS OF CAPITAL STOCK. Transfers of shares of capital stock
of the Corporation shall be made only on the stock ledger of the Corporation by
the holder of record thereof, by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the Corporation, or by
the transfer agent of the Corporation, and only on surrender of the certificate
or certificates representing such shares, properly endorsed or accompanied by a
duly executed stock transfer power. The Board may make such additional rules and
regulations as it may deem advisable concerning the issue and transfer of
certificates representing shares of the capital stock of the Corporation.
SECTION 5. LOST CERTIFICATES. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
SECTION 6. FIXING OF RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividends or other distributions or allotments of any rights, or entitled to
exercise any rights in respect to any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board may fix, in advance, a
record date, which shall not be more than 60 days nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; PROVIDED,
HOWEVER, that the Board of Directors may fix a new record date for the adjourned
meeting.
SECTION 7. BENEFICIAL OWNERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends and to vote as such owner, and to hold liable for
calls and assessments a person registered on its books as the owner of shares,
and shall not be bound to recognize any equitable or other claim to or interest
in such shares on the part of any other person, whether or not the Corporation
shall have express or other notice thereof, except as otherwise provided by law.
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ARTICLE VIII
FISCAL YEAR
The Corporation's fiscal year shall be fixed by resolution of the Board of
Directors.
ARTICLE IX
SEAL
The Corporation's seal shall be circular in form and shall include the
words "BiznessOnline.com, Inc., Delaware, 1998."
ARTICLE X
WAIVER OF NOTICE
Whenever any notice is required by law, the certificate of Incorporation or
these By-Laws to be given to any director, member of a committee or stockholder,
a waiver thereof in writing, signed by the person or persons entitled to such
notice, whether signed before or after the time stated in such written waiver,
shall be deemed equivalent to such notice. Attendance of a person at a meeting
shall constitute a waiver of notice of such meeting, except when such person
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the grounds that the meeting is
not lawfully called or convened. Neither the business to be transacted at, nor
the purpose of, any meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
ARTICLE XI
AMENDMENTS
These By-Laws or any of them may be amended or supplemented in any respect
at any time, either (i) at any meeting of stockholders, provided that any
amendment or supplement proposed to be acted upon at any such meeting shall have
been described or referred to in the notice of such meeting; of (ii) at any
meeting of the Board, provided that any amendment or supplement proposed to be
acted upon at any such meeting shall have been described or referred to in the
notice of such meeting or an announcement with respect thereto shall have been
made at the last previous Board meeting, and provided further that no amendment
or supplement adopted by the Board shall vary or conflict with any amendment or
supplement adopted by the stockholders.
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Exhibit 10.1
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
INTRODUCTION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the "Agreement")
is entered into as of the 27th day of January 1999 by and among InSite Internet,
Inc. (formerly known as InSite Telecom, Inc.), a Delaware corporation (the
"Parent"), InSite Internet I Acquisition Co., Inc., a New York corporation
("Newco"), Global 2000 Communications, Inc., a New York corporation (the
"Company") and Lorin Beller, David Conboy, Joan Conboy, James Conboy, Tracy
Conboy and Adam Wills, the stockholders of the Company (collectively, the
"Stockholders").
BACKGROUND
A. The Parent, Newco and the Company intend to effect a merger of the Company
into Newco in accordance with this Agreement and the New York Business
Corporation Law (the "Merger"). Upon consummation of the Merger, the Company
will cease to exist, and Newco will continue to exist as the surviving
corporation of the Merger.
B. It is intended that the Merger qualify as a tax-free reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code") and that this Agreement constitute a plan of reorganization for
such purposes.
C. This Agreement has been adopted and approved by the respective boards of
directors of the Parent, Newco and the Company, and the shareholders of Newco
and the Stockholders have each unanimously approved this Agreement by written
consent.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual and dependent promises
and the representations and warranties hereinafter contained, the parties hereto
agree as follows:
SECTION 1. DESCRIPTION OF THE MERGER TRANSACTION.
1.1 MERGER OF THE COMPANY INTO NEWCO. Upon the terms and subject to the
conditions set forth in this Agreement, at the Effective Time (as defined in
SECTION 1.2 below), the Company shall be merged with and into Newco, and the
separate existence of the Company shall cease.
1.2 EFFECTIVE TIME. On the Closing Date (as defined in SECTION 1.7
below), a properly executed Certificate of Merger for the merger of the Company
into Newco, conforming to the requirements of the New York Business Corporation
Law (the "Merger Certificate"), shall be
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delivered to the Secretary of State of New York. The Merger shall take effect at
the time the Merger Certificate is filed with the Secretary of State of the
State of New York or at such later date as provided in the Merger Certificate
(the "Effective Time"). At the Effective Time, the Company shall be merged with
and into Newco in accordance with the Merger Certificate and the separate
existence of the Company shall cease and Newco shall continue as the surviving
corporation (the "Surviving Corporation").
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time:
(a) The Certificate of Incorporation of Newco shall become the
Certificate of Incorporation of the Surviving Corporation; and, subsequent to
the Effective Time, such Certificate of Incorporation shall be the Certificate
of Incorporation of the Surviving Corporation until changed as provided by law.
(b) The bylaws of Newco shall become the bylaws of the
Surviving Corporation; and, subsequent to the Effective Time, such bylaws shall
be the bylaws of the Surviving Corporation until they shall thereafter be duly
amended.
(c) The Board of Directors of the Surviving Corporation shall
be set forth on EXHIBIT 1.3 hereto and shall hold office subject to the
provisions of the laws of the Surviving Corporation's state of incorporation and
of the Certificate of Incorporation and bylaws of the Surviving Corporation.
(d) The officers of the Surviving Corporation shall be set
forth on EXHIBIT1.3 hereto, each of such officers to serve, subject to the
provisions of the Certificate of Incorporation and bylaws of the Surviving
Corporation, until his or her successor is elected and qualified.
1.4 EFFECT OF MERGER. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of the New York Business
Corporation Law (the "NYBCL"). Except as herein specifically set forth, the
identity, existence, purposes, powers, objects, franchises, privileges, rights
and immunities of Newco shall continue unaffected and unimpaired by the Merger
and the corporate franchises, existence and rights of the Company shall be
merged with and into Newco, and Newco, as the Surviving Corporation, shall be
fully vested therewith. At the Effective Time, the separate existence of the
Company shall cease and, in accordance with the terms of this Agreement, the
Surviving Corporation shall possess all the rights, privileges, immunities and
franchises, of a public as well as of a private nature, and all property, real,
personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all taxes, including those due and owing and those
accrued, and all other choses in action, and all and every other interest of or
belonging to or due to the Company and Newco shall be taken and deemed to be
transferred to, and vested in, the Surviving Corporation without further act or
deed; and all property, rights and privileges, powers and
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franchises and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the Company and Newco;
and the title to any real estate, or interest therein, whether by deed or
otherwise, vested in the Company and Newco, shall not revert or be in any way
impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the Company and Newco and any claim existing, or
action or proceeding pending, by or against the Company or Newco may be
prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in its place. Neither the rights of creditors nor any liens
upon the property of the Company or Newco shall be impaired by the Merger, and
all debts, liabilities and duties of the Company and Newco shall attach to the
Surviving Corporation, and may be enforced against the Surviving Corporation to
the same extent as if said debts, liabilities and duties had been incurred or
contracted by the Surviving Corporation.
1.5 MERGER CONSIDERATION; CONVERSION OF SHARES.
(a) As of the Effective Time, all of the shares of Common
Stock of the Company, no par value per share ("Company Stock"), issued and
outstanding immediately prior to the Effective Time, by virtue of the Merger and
without any action on the part of the holders thereof, shall be automatically
converted to, in the aggregate, shares of Common Stock of the Parent, par value
$.01 per share ("Parent Stock") and promissory notes, as follows (collectively,
the "Merger Consideration"):
(1) 272,000 shares of Parent Stock; provided,
however, that in the event Parent completes an initial public
offering of its common stock within twelve months of the date
of this Agreement (an "IPO"), the number of shares of Parent
Stock to be issued to the Stockholders hereunder shall be
automatically deemed to be adjusted as of the closing date of
such IPO as follows:
(i) in the event the offering price per
share of Parent Stock offered to the public in such
an IPO (the "IPO Price") is less than $10 per share,
the Parent shall issue an additional number of shares
of Parent Stock to the Stockholders as promptly as
practicable after the closing date of the IPO equal
to $2,720,000 divided by the IPO Price, less 272,000.
By way of illustration, if the IPO Price is $8 per
share, the Parent would issue an additional 68,000
shares of Parent Stock to the Stockholders;
(ii) in the event the IPO Price is greater
than $10 per share, the 272,000 shares of Parent
Stock received at the Closing would automatically be
deemed to represent as of the IPO closing date that
lesser number of shares of Parent Stock determined by
dividing $2,720,000 divided by the IPO Price. Upon
surrender of the original stock certificates for
Parent Stock issued to the Stockholders at the
Closing in the aggregate amount of 272,000 shares,
the Parent will stamp "cancelled" on such
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certificates and reissue new certificates in the
proper amounts to the Stockholders. By way of
illustration, if the IPO Price is $12.50 per share,
the shares of Parent Stock issued to the Stockholders
at the Closing would be deemed to represent 217,600
shares of Parent Stock as of the closing date of the
IPO, and upon surrender of the certificates therefor,
the Parent would promptly reissue new certificates to
the Stockholders in accordance with their ownership
interests set forth on SCHEDULE 3.4 hereto.
(iii) notwithstanding anything else in this
Agreement to the contrary, the parties hereto
acknowledge and agree that it is their intent that
the total value of Parent Shares to be issued to the
Stockholders as a result of this Agreement will be
adjusted based on the initial offering price of
Parent Stock offered to the public in the IPO (as
stated in the final prospectus for any such IPO) as
of the IPO closing date, regardless of any stock
splits, stock dividends, mergers, reorganizations,
recapitalizations, issuance of options, or other
major capital event that may take place after the
date of this Agreement and prior to the IPO closing
date such that the Stockholders ultimately receive in
the aggregate a total number of shares of Parent
Stock equal to $2,720,000 divided by the IPO Price.
The "IPO Price" as used in this section means the
initial offering price of Parent Stock offered to the
public in the IPO by the underwriters for the Parent
as stated in the final prospectus for the IPO.
(2) promissory notes of the Parent in the aggregate
principal amount of $580,000, in the form set forth in EXHIBIT
1.5(a) hereto, subject to the post-closing adjustment with
respect to such principal amount as set forth in SECTION 2
below.
(b) Each share of the Company Stock held in the treasury of
the Company immediately prior the Effective Time (if any) shall be canceled
without any conversion thereof and no payment shall be made with respect
thereto.
(c) As of and after the Effective Time, the Surviving
Corporation shall not be bound by any options, warrants, rights or agreements
with respect to the issuance or acquisition of capital stock of the Company
which would entitle any person to own, purchase or receive any capital stock of
the Company. As of the date hereof, there are no options, warrants, rights or
agreements with respect to the issuance or acquisition of the capital stock of
the Company except the Merger transaction contemplated hereby.
1.6 DELIVERY OF MERGER CONSIDERATION/ESCROW OF SHARES/SET-OFF.
(a) At the Closing, the Stockholders shall, upon surrender of
certificates representing all outstanding shares of Company Stock, receive their
pro rata share of the aggregate Merger Consideration set forth in SECTION 1.5
above in accordance with the percentage
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ownership interests of the Stockholders reflected on SCHEDULE 3.4 hereto,
provided, however, that 5,000 shares of Parent Stock included in the aggregate
Merger Consideration (the "Escrow Shares") shall be delivered into escrow at the
Closing pursuant to the Escrow Agreement attached hereto as EXHIBIT 1.6. In
addition to all other rights and remedies of the Parent, Newco and the Surviving
Corporation for breach by the Company or the Stockholders of the representations
and warranties of the Company and Stockholders herein, both at law and in
equity, the Parent shall have the right to set-off against the Escrow Shares and
against the promissory notes delivered to the Stockholders hereunder for any
claims of the Parent or the Surviving Corporation arising the post Closing
adjustment provisions of SECTION 2 below and/or under the indemnity provisions
of SECTION 12 below.
(b) The Stockholders shall deliver to the Parent at the
Closing the certificates representing the Company Stock, duly endorsed in blank
by each Stockholder, or accompanied by duly executed stock powers. The
Stockholders shall cure any deficiencies with respect to the endorsement of the
certificates or other documents of conveyance with respect to the Company Stock
or with respect to the stock powers accompanying any of the Company Stock.
(c) Upon surrender of the certificates representing shares of
Company Stock, such certificates shall be canceled, and as of the Effective
Time, the stock transfer books of the Company shall be closed and there shall be
no further registration of transfers of shares of the Company thereafter.
(d) No certificates representing fractional shares of Parent
Stock shall be issued upon the surrender of certificates which, prior to the
Effective Time, represented shares of Company Stock. In lieu of any such
fractional shares, the Stockholders will be paid an amount in cash based on an
assumed price of $10 per share.
1.7 CLOSING. The transactions contemplated by this Agreement
shall be consummated at a closing (the "Closing") which will take place at the
offices of Duffy & Sweeney, LLP, 300 Turks Head Building, Providence, Rhode
Island 02903, within five (5) business days following the satisfaction or waiver
of the conditions set forth in SECTION 7. Notwithstanding the foregoing, the
Closing may take place at such other place and time or date as may be mutually
agreed upon by the parties hereto. The actual date of the Closing is referred to
herein as the "Closing Date".
SECTION 2. POST CLOSING ADJUSTMENT
2.1 POST-CLOSING ADJUSTMENT. Within one hundred twenty (120) days after
the Closing, the Parent shall engage KPMG Peat Marwick LLP to audit a balance
sheet prepared in accordance with generally accepted accounting principles
("GAAP") of the Company as of 5:00 PM (EST) on the day prior to the Closing Date
(the "Closing Date Balance Sheet"). Such Closing Balance Sheet will utilize the
accrual method of accounting notwithstanding the fact that the Company has
heretofore utilized the cash-basis method of accounting in connection with its
financial statements and taxes. If the aggregate shareholders' equity as shown
on the Closing Date Balance Sheet is less than $270,000 (the amount of such
shortfall being hereafter known as the "Net Worth Deficiency"), the
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Stockholders shall, at the sole discretion of the Parent and the Surviving
Corporation within thirty (30) days of the date of delivery of the Closing Date
Balance Sheet, shall pay within five (5) days of the date of determination of
the Net Worth Deficiency (subject to the dispute resolution procedure set forth
below) (i) 18% of the Net Worth Deficiency to the Parent in cash, by certified
check or by wire transfer of immediately available funds, and (ii) 82% of the
Net Worth Deficiency in Shares of Parent Common Stock which shall be valued at
the "closing sales price" (as defined in SECTION 4(b)(i) of the Escrow Agreement
attached hereto as EXHIBIT 1.6) for the ten (10) business day period immediately
preceding the date the parties reach agreement as to any Net Worth Deficiency.
The Parent shall have the option, at its sole discretion and notwithstanding any
language to the contrary in the Escrow Agreement, to receive the shares of
Parent Stock necessary to satisfy 82% of the Net Worth Deficiency from the
Stockholders directly (i.e. not from the "Escrow Shares") or from the Escrow
Shares. Notwithstanding anything in this SECTION 2 to the contrary, if there is
any Net Worth Deficiency and the Stockholders dispute any item contained on the
Closing Date Balance Sheet, the Stockholders shall notify the Parent in writing
of each disputed item (collectively, the "Disputed Amounts"), and specify the
amount thereof in dispute within thirty (30) business days after the delivery of
the Closing Date Balance Sheet. If the Parent and the Stockholders cannot
resolve any such dispute which would eliminate or reduce the amount of the Net
Worth Deficiency, then such dispute shall be resolved by an independent
nationally recognized accounting firm which is reasonably acceptable to the
Parent and the Stockholders (the "Independent Accounting Firm"). The
determination of the Independent Accounting Firm shall be made as promptly as
practical and shall be final and binding on the parties, absent manifest error
which error may only be corrected by such Independent Accounting Firm. Any
expenses relating to the engagement of the Independent Accounting Firm shall be
allocated between the Parent and the Stockholders so that the Stockholders'
aggregate share of such costs shall bear the same proportion to the total costs
that the Disputed Amounts unsuccessfully contested by the Stockholders (as
finally determined by the Independent Accounting Firm) bear to the total of the
Disputed Amounts so submitted to the Independent Accounting Firm.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
3.1 MAKING OF REPRESENTATIONS AND WARRANTIES. As a material inducement
to the Parent and Newco to enter into this Agreement and consummate the
transactions contemplated hereby, the Company and each of the Stockholders
hereby jointly and severally make to the Parent and Newco the representations
and warranties contained in this SECTION 3.
3.2 ORGANIZATION AND QUALIFICATION OF THE COMPANY. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of New York with full corporate power and authority to own or lease its
properties and to conduct its business in the manner and in the places where
such properties are owned or leased and where such business is currently
conducted or proposed to be conducted. The copies of the Certificate of
Incorporation of the Company as amended to date, certified by the Secretary of
State of New York and the bylaws certified by the Secretary of the Company and
heretofore delivered to the Parent's
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counsel, are complete and correct, and no amendments thereto are pending. The
stock records and minute books of the Company which have heretofore been
delivered to the Parent's counsel are correct and complete. The Company is duly
qualified to do business as a foreign corporation in each jurisdiction in which
it owns, operates or leases real property and in each other jurisdiction in
which the failure to be so qualified or registered would have a material adverse
effect on the properties, assets, business, financial condition and prospects of
the Company.
3.3 SUBSIDIARIES; INVESTMENTS. Except as set forth in SCHEDULE 3.3, the
Company has no direct or indirect subsidiaries and owns no securities issued by
any other business organization or governmental authority, except U.S.
Government securities, bank certificates of deposit and money market accounts
acquired as short-term investments in the ordinary course of its business.
Except as set forth in SCHEDULE 3.3, the Company neither owns nor has any direct
or indirect interest in or control over any corporation, partnership, joint
venture or entity of any kind. For purposes of this Agreement, the term
"subsidiary" means, with respect to any person, any corporation 20% or more of
the outstanding voting securities of which, or any partnership, joint venture or
other entity 20% or more of the total equity interest of which, is directly or
indirectly owned by such person.
3.4 CAPITAL STOCK. The total authorized capital stock of the Company
consists solely of the shares listed on SCHEDULE 3.4. All of the issued and
outstanding shares of the Company Common Stock are duly authorized and validly
issued, are fully paid and nonassessable, are owned of record and beneficially
by the Stockholders as set forth in SCHEDULE 3.4 free and clear of any liens,
claims, encumbrances, restrictions, security interests, mortgages, pledges or
other demands, and all such shares were offered, issued, sold and delivered by
the Company in compliance with all applicable state and federal laws concerning
the issuance of securities. Further, none of such shares were issued in
violation of the preemptive rights of any past or present stockholder. No shares
of the Company Stock are held in the treasury of the Company. SCHEDULE 3.4
contains a complete and correct listing of the Stockholders of the Company at
the date hereof, together with the number and class of the capital stock of the
Company owned by each such stockholder. There are no outstanding subscriptions,
options, warrants, commitments, preemptive rights, agreements, arrangements or
commitments of any kind for or relating to the issuance, sale, registration or
voting of, or outstanding securities convertible into or exchangeable for, any
shares of capital stock of any class or other equity interests of the Company.
The Company has never acquired any treasury stock.
3.5 AUTHORITY OF THE COMPANY AND THE STOCKHOLDERS
(a) The Company has full right, power and authority to enter
into this Agreement and each agreement, document and instrument to be executed
and delivered by it pursuant to or as contemplated by this Agreement and to
carry out the transactions contemplated hereby and thereby. The execution,
delivery and performance by the Company of this Agreement and each such other
agreement, document and instrument have been duly authorized by the Company's
Board of Directors, and have been approved by the Stockholders by a
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unanimous written consent vote executed by each Stockholder. This Agreement and
each agreement, document and instrument to be executed and delivered by the
Company pursuant to or as contemplated by this Agreement (to the extent it
contains obligations to be performed by the Company) constitutes, or when
executed, delivered and approved by the Company Stockholders will constitute,
valid and binding obligations of the Company, enforceable in accordance with
their respective terms. The execution, delivery and performance by the Company
of this Agreement and each such other agreement, document and instrument:
(i) does not and will not violate any provision of
the Certificate of Incorporation or bylaws of the Company;
(ii) does not and will not violate any laws of the
United States, or any state or other jurisdiction applicable to the
Company or require the Company to obtain any court, regulatory body,
administrative agency or other approval, consent or waiver, or make any
filing with, any federal, state, local or foreign governmental body,
agency or official ("Governmental Entity") that has not been obtained or
made, other than the filing of the Certificate of Merger in accordance
with the NYBCL and except for any other approvals, consents, waivers and
filings that, if not obtained or made, individually or in the aggregate,
would not have a material adverse effect on the properties, assets,
business, financial condition or prospects of the Company; and
(iii) except as otherwise indicated on SCHEDULE 3.15
hereto, do not and will not result in a breach of, constitute a default
under, accelerate any obligation under, or give rise to a right of
termination of any indenture or loan or credit agreement or any other
agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination
or arbitration award, whether written or oral, to which the Company is a
party or by which the property of the Company is bound or affected, or
result in the creation or imposition of any mortgage, pledge, lien,
security interest or other charge or encumbrance on any of the assets of
the Company, except where such breach, default, acceleration or right of
termination would not have a material adverse effect on the properties,
assets, business, financial condition or prospects of the Company, and
would not result in the creation or imposition of any mortgage, pledge,
lien, security interest or other charge or encumbrance on any of the
assets of the Company.
(b) Each Stockholder has full right, authority and power to
enter into this Agreement and each agreement, document and instrument to be
executed and delivered by or on behalf of it pursuant to or as contemplated by
this Agreement and to carry out the transactions contemplated hereby and
thereby. This Agreement and each agreement, document and instrument to be
executed and delivered by each Stockholder pursuant to or as contemplated by
this Agreement (to the extent it contains obligations to be performed by such
Stockholder) constitutes, or when executed and delivered will constitute, valid
and binding obligations of such Stockholder enforceable in accordance with their
respective terms, subject to the terms hereof.
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The execution, delivery and performance by each Stockholder of this Agreement
and each such agreement, document and instrument:
(i) do not and will not violate any provision of the
Certificate of Incorporation or bylaws of the Company;
(ii) do not and will not violate any laws of the
United States, or any state or other jurisdiction applicable to such
Stockholder or require such Stockholder to obtain any approval, consent
or waiver of, or make any filing with, any Governmental Entity that has
not been obtained or made; and
(iii) do not and will not result in a breach of,
constitute a default under, accelerate any obligation under or give rise
to a right of termination of any indenture or loan or credit agreement
or any other agreement, contract, instrument, mortgage, lien, lease,
permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award to which such Stockholder is a party
or by which the property of such Stockholder is bound or to which the
property of such Stockholder is subject or result in the creation or
imposition of any mortgage, pledge, lien, security interest or other
charge or encumbrance on any of the assets or properties of the Company.
Except as disclosed on SCHEDULE 3.15, there are no Stockholder
agreements with respect to the ownership or operation of the Company,
and any such agreements shall be terminated prior to the Closing.
3.6 STATUS OF PROPERTY OWNED OR LEASED.
(a) REAL PROPERTY. The real property identified as being owned
or leased by the Company on SCHEDULE 3.6(a) is collectively referred to herein
as the "Real Property". The Real Property constitutes all the real property
owned and leased by the Company.
(i) TITLE. Except as set forth on SCHEDULE 3.6(a),
there are no unrecorded mortgages, deeds of trust, ground leases,
security interests or similar encumbrances, liens, assessments,
licenses, claims, rights of first offer or refusal, options, or options
to purchase, or any covenants, conditions, restrictions, rights of way,
easements, judgments or other encumbrances or matters affecting title
to the Real Property. There are no leases, tenancies or occupancy
rights of any kind affecting any of the Real Property.
(ii) SECURITY INTERESTS. There is not now, nor, as a
result of the consummation of the transactions contemplated hereby,
will there be, any mortgages, deeds of trust, ground leases, security
interests or similar encumbrances on the Real Property, except as set
forth on SCHEDULE 3.6(a) (collectively, the "Encumbrances"). There is
no outstanding principal balance or accrued unpaid interest or other
amount due as of the date hereof under any instrument secured by any of
the Encumbrances and all
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payments required under each Encumbrance to the date hereof have been
made in full. No condition or fact does or will exist, as a result of
the consummation of the transactions contemplated hereby, which, with
the lapse of time or the giving of notice or both, would constitute a
material default thereunder or result in any acceleration of the
indebtedness secured thereby or any increase in the amount of interest,
premiums or penalties payable on such indebtedness.
(iii) COMMISSIONS. There are no brokerage or leasing
fees or commissions or other compensation due or payable on an absolute
or contingent basis to any person, firm, corporation, or other entity
with respect to or on account of any of the Encumbrances or the Real
Property, and no such fees, commissions or other compensation shall, by
reason on any existing agreement, become due after the date hereof.
(iv) PHYSICAL CONDITION. Except as set forth on
SCHEDULE 3.6(a), there is no material defect in the physical condition
of any of the Real Property. Except as set forth on SCHEDULE 3.6(a),
there is no material defect in any material improvements located on or
constituting a part of any of the Real Property, including, without
limitation, the structural elements thereof, the mechanical systems
(including without limitation all heating, ventilating, air
conditioning, plumbing, electrical, elevator, security,
telecommunication, utility, and sprinkler systems) therein, the roofs
or the parking and loading areas (collectively, the "Improvements").
All of the Improvements located on or constituting a part of any of the
Real Property, including, without limitation, the structural elements
thereof, the mechanical systems therein, the roofs and the parking and
loading areas are in generally good operating condition and repair.
(v) UTILITIES. The Company has not received any
written notice of any termination or impairment of the furnishing of,
or any material increase in rates for, services to any of the Real
Property of water, sewer, gas, electric, telecommunication, drainage or
other utility services, except ordinary and usual rate increases
applicable to all customers (or all customers of a certain class) of a
utility provider. The Company has not entered into any agreement
requiring it to pay to any utility provider rates which are less
favorable than rates generally applicable to customers of the same
class as the Company.
(vi) COMPLIANCE. Except as set forth on SCHEDULE
3.6(a), the Company has not received any written notice from any
municipal, state, federal or other governmental authority with respect
to any violation of any zoning, building, fire, water, use, health,
environmental or other statute, ordinance, code or regulation issued in
respect of any of the Real Property that has not been heretofore
corrected, and except in either case as set forth in SCHEDULE 3.6(a)
hereto.
(vii) GOVERNMENT APPROVALS. The Company has not
received any notice of any plan, study or effort by any Governmental
Entity which would adversely affect the
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present use, zoning or value to the Company of any of the Real Property
or which would modify or realign any adjacent street or highway in a
manner materially adverse to the Company.
(viii) ZONING. The Company has not received any
notice of any zoning violations. All buildings and improvements
situated on the Real Property were built pursuant to validly issued
building permits. Certificates of occupancy were issued for all such
structures as built, and all such structures have been maintained as
built since such certificates were issued.
(ix) REAL PROPERTY TAXES. Except as set forth in said
SCHEDULE 3.6(a), no special assessments of any kind (special, bond or
otherwise) are or have been levied against any Real Property, or any
portion thereof, which are outstanding or unpaid. Each property
constituting part of the Real Property is assessed as a separate and
distinct tax lot.
(x) SERVICE CONTRACTS. A complete list of all
material existing service, management, supply or maintenance or
equipment lease contracts and other contractual agreements affecting
the Real Property or any portion thereof (the "Service Contracts") is
set forth on SCHEDULE 3.6(a). All such Service Contracts are terminable
upon no more than thirty (30) days written notice, at no cost, except
as specified in SCHEDULE 3.6(a).
(b) PERSONAL PROPERTY. A list of each item of the machinery,
equipment and other fixed assets owned or leased by the Company having a fair
market value of at least $5,000 (the "Equipment"), is contained in SCHEDULE
3.6(b) hereto. All of the Equipment and other machinery, equipment and personal
property of the Company is located on the Real Property or used in the operation
of the Company. Except as specifically disclosed in SCHEDULE 3.6(b) or in the
Company Financial Statements (as hereinafter defined), the Company has good and
marketable title to all of the personal property owned by it. None of such
personal property or assets is subject to any mortgage, pledge, lien,
conditional sale agreement, security title, encumbrance or other charge except
as specifically disclosed in any Schedule hereto or in the Financial Statements.
The Financial Statements reflect all personal property of the Company, subject
to dispositions and additions in the ordinary course of business consistent with
this Agreement. Except as otherwise specified in SCHEDULE 3.6(b) hereto, all
leasehold improvements, furnishings, machinery and equipment of the Company are
in generally good repair, normal wear and tear excepted, have been well
maintained, and conform in all material respects with all applicable ordinances,
regulations and other laws.
3.7. FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.
(a) The Company has delivered to the Parent the following
financial statements, copies of which are attached hereto as SCHEDULE 3.7:
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(i) Compiled balance sheets of the Company dated as
of December 31, 1995, December 31, 1996, and December 31, 1997, and
compiled statements of income, stockholders' equity and cash flows for
each of the years ended December 31, 1995, December 31, 1996 and
December 31, 1997 (the "Year-End Company Financial Statements");
(ii) Unaudited balance sheets of the Company as of
December 31, 1998 (herein the "Company Balance Sheet Date") and
statements of income, stockholders' equity and cash flows for the year
then ended, certified by the chief financial officer of the Company (the
"Interim Company Financial Statements", together with the Year-End
Company Financial Statements, the "Company Financial Statements");
The Company Financial Statements have been prepared in accordance with GAAP
applied consistently during the periods covered thereby (except that the Interim
Company Financial Statements are subject to normal year-end audit adjustments
and do not include footnotes), and present fairly in all respects the financial
condition of the Company at the dates of said statements and the results of
their operations for the periods covered thereby.
(b) As of the Company Balance Sheet Date, the Company had no
liabilities of any nature, whether accrued, absolute, contingent or otherwise,
(including without limitation liabilities as guarantor or otherwise with respect
to obligations of others or contingent liabilities arising prior to the Company
Balance Sheet Date) except liabilities stated or adequately reserved for on the
Company Financial Statements or reflected in Schedules furnished to Parent
hereunder as of the date hereof.
(c) As of the date hereof, the Company has no liabilities of
any nature, whether accrued, absolute, contingent or otherwise, (including
without limitation liabilities as guarantor or otherwise with respect to
obligations of others, or liabilities for taxes due or then accrued or to become
due or contingent liabilities arising prior to the date hereof or the Closing,
as the case may be) except liabilities (i) stated or adequately reserved for on
the appropriate Company Financial Statement or the notes thereto, (ii) reflected
in Schedules furnished to Parent hereunder on the date hereof or (iii) incurred
in the ordinary course of business of the Company consistent with prior
practices.
(d) The Company's "gross revenues" (which shall mean total
aggregate sales less returns, credits and other adjustments to revenue) as set
forth on the Company Financial Statements for the year ended December 31, 1998
exceed $1,181,000.
(e) The aggregate stockholder's equity as shown on the Company
Financial Statements as of the Company Balance Sheet Date exceeds $270,000.
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3.8 TAXES.
(a) The Company has paid or caused to be paid all federal,
state, local, foreign and other taxes, including without limitation income
taxes, estimated taxes, alternative minimum taxes, excise taxes, sales taxes,
use taxes, value-added taxes, gross receipts taxes, franchise taxes, capital
stock taxes, employment and payroll-related taxes, withholding taxes, stamp
taxes, transfer taxes and property taxes, whether or not measured in whole or in
part by net income, and all deficiencies, or other additions to tax, interest,
fines and penalties owed by it (collectively, "Taxes"), in the amounts indicated
on tax returns filed by the Company through the date hereof or in correspondence
received from any federal, state, local or foreign government taxing authority,
whether disputed or not (other than current taxes the liability for which is
adequately reserved for on the financial statements provided to the Parent
pursuant to SECTION 3.7 hereof).
(b) The Company has in accordance with applicable law filed
all federal, state, local and foreign tax returns required to be filed by it
through the date hereof and all such returns correctly and accurately set forth
the amount of any Taxes relating to the applicable period. For every taxable
period of the Company, the Company has delivered or made available to Parent
complete and correct copies of all federal, state, local and foreign income tax
returns, examination reports and statements of deficiencies assessed against or
agreed to by the Company. SCHEDULE 3.8 attached hereto sets forth all federal
tax elections under the Internal Revenue Code of 1986, as amended (the "Code"),
that are in effect with respect to the Company or for which an application by
the Company is pending.
(c) Neither the Internal Revenue Service ("IRS") nor any other
governmental authority is now asserting in writing or threatening to assert
against the Company any deficiency or claim for additional Taxes or a claim that
the Company is or may be subject to taxation by that jurisdiction. There are no
security interests on any of the assets of the Company that arose in connection
with any failure (or alleged failure) to pay any Tax. The Company has not
entered into a closing agreement pursuant to Section 7121 of the Code. The
Stockholders have paid all taxes due and filed all tax returns relating to
distributions from the Company as a "Subchapter S" corporation under the Code.
The Company has at all times maintained its status as a Subchapter S corporation
under the Code.
(d) Except as set forth in SCHEDULE 3.8 attached hereto, there
has not been any audit of any tax return filed by the Company, no audit of any
tax return of the Company is in progress, and the Company has not been notified
by any tax authority that any such audit is contemplated or pending. Except as
set forth in SCHEDULE 3.8, no extension of time with respect to any date on
which a tax return was or is to be filed by the Company is in force, and no
waiver or agreement by the Company is in force for the extension of time for the
assessment or payment of any Taxes.
(e) (i) The Company has not consented to have the provisions
of Section 341(f)(2) of the Code applied to it, (ii) the Company has not agreed
to, and has not been requested by any governmental authority to, make any
adjustments under Section 481(a) of the Code by reason of a change in accounting
method or otherwise and (iii) the Company has never
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made any payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances would obligate it to make any
payments, that will not be deductible under Section 280G of the Code. The
Company has disclosed on its federal income tax returns all positions taken
therein that could give rise to a penalty for underpayment of federal Tax under
Section 6662 of the Code. The Company has never had any liability for unpaid
Taxes because it is a member of an "affiliated group" (as defined in Section
1504(a) of the Code). The Company has never filed, nor has it ever been required
to file, a consolidated, combined or unitary tax return with any entity. The
Company is not a party to any tax sharing agreement.
(f) The Company computes its federal taxable income under the
cash basis method of accounting.
(g) For purposes of this SECTION 3.8, all references to
Sections of the Code shall include any predecessor provisions to such Sections
and any similar provisions of federal, state, local or foreign law.
3.9 ACCOUNTS RECEIVABLE. All accounts receivable of the Company as of
the respective balance sheet dates in the Company Financial Statements and all
accounts receivable arising thereafter or hereafter to the Closing Date, arose
or will arise from valid sales in the ordinary course of business. Except as set
forth in SCHEDULE 3.9, the Company has no accounts or loans receivable from any
person, firm or corporation which is "affiliated" with the Company. For purposes
hereof, "affiliate" means any Stockholder, or any business entity which
controls, or is controlled by, or is under common control with the Company.
3.10 INVENTORIES. The Company maintains less than $10,000 of inventory,
all saleable in the ordinary course and stated in accordance with GAAP.
3.11 ABSENCE OF CERTAIN CHANGES.
Since December 31, 1997, the Company has conducted its business only in
the ordinary course and consistent with past practices and except as disclosed
in SCHEDULE 3.11 there has not been:
(i) Any change in the properties, assets, liabilities,
business, operations, financial condition or prospects of the Company
which change by itself or in conjunction with all other such changes,
whether or not arising in the ordinary course of business, has been
materially adverse with respect to the Company;
(ii) Except for the endorsement of checks in the ordinary
course of business any material contingent liability incurred by the
Company as guarantor or otherwise with respect to the obligations of
others or any cancellation of any material debt or claim owing to, or
waiver of any material right of, the Company;
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(iii) Any mortgage, encumbrance or lien placed on any of the
properties of the Company which remains in existence on the date hereof
or will remain on the Closing Date except for liens permitted by any
current agreement of the Company with respect to borrowed money;
(iv) Any purchase, sale or other disposition, or any
agreement or other arrangement for the purchase, sale or other
disposition, of any capital assets of the Company costing more than
$10,000;
(v) Any damage, destruction or loss, whether or not covered
by insurance, materially and adversely affecting any of the properties,
assets or business of the Company;
(vi) Any declaration, setting aside or payment of any
dividend by the Company, or the making of any other distribution in
respect of the capital stock of the Company, any direct or indirect
redemption, purchase or other acquisition by the Company of its own
capital stock, any issuance or sale of any securities convertible into
or exchangeable for debt or equity securities of the Company or any
grant, issuance or exercise of options, warrants, subscriptions,
preemptive rights, agreements, arrangements or commitments of any kind
for or relating to the issuance, sale, registration or voting of any
shares of capital stock of any class or other equity interests of the
Company;
(vii) Any claim of unfair labor practices asserted against
the Company; any change in the compensation (in the form of salaries,
wages, incentive arrangements or otherwise) payable or to become
payable by the Company to any of its officers, employees, agents or
independent contractors other than customary merit or cost of living
increases in accordance with its usual practices, or any bonus payment
or arrangement made to or with any of such officers, employees, agents
or independent contractors; any entering into any employment, deferred
compensation or other similar agreement (or any amendment to any such
existing agreement) with any officer, director or employee of the
Company except for employment arrangements providing for salary or
wages of less than $20,000 per annum and any oral agreement terminable
at will by the Company;
(viii) Any change with respect to the officers or senior
management of the Company, any grant of any severance or termination
pay to any officer or employee of the Company;
(ix) Any payment or discharge of a material lien or
liability of the Company which was not shown on the Company
Financial Statements or incurred in the ordinary course of business
thereafter;
(x) Any obligation or liability incurred by the Company to
any of its officers, directors or stockholders, or any loans or
advances made by the Company to any
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of its officers, directors, stockholders, except normal compensation
and expense allowances payable to officers or employees;
(xi) Any change in accounting methods or practices other
than to comply with accounting pronouncements, credit practices or
collection policies used by the Company;
(xii) Any other transaction entered into by the Company
other than transactions in the ordinary course of business; or
(xiii) Any agreement or understanding whether in writing or
otherwise, that would result in any of the transactions or events or
require the Company to take any of the actions specified in paragraphs
(i) through (xii) above.
3.12 BANKING RELATIONS. All of the arrangements which the Company has
with any banking institution are described in SCHEDULE 3.12 attached hereto,
indicating with respect to each of such arrangements the type of arrangement
maintained (such as checking account, borrowing arrangements, safe deposit box,
etc.), the names in which the accounts are held, the account number, and the
name of each person, corporation, firm or other entity authorized in respect
thereof.
3.13 PATENTS, TRADE NAMES, TRADEMARKS, COPYRIGHTS AND PROPRIETARY
RIGHTS. All patents, patent applications, trademark registrations, trademark
registration applications, copyright registrations, copyright registration
applications and all material trade names, trademarks, copyrights and other
material proprietary rights owned by or licensed to the Company or used in its
respective business as presently conducted (the "Proprietary Rights") are listed
in SCHEDULE 3.13 attached hereto. All of the material patents, registered
trademarks and copyrights of the Company and all of the material patent
applications, trademark registration applications and copyright registration
applications of the Company have been duly registered in, filed in or issued by
the United States Patent and Trademark Office, the United States Register of
Copyrights or the corresponding offices of other countries identified on said
schedule. Except as set forth in SCHEDULE 3.13: (a) use of said patents, trade
names, trademarks, copyrights or other proprietary rights in the ordinary course
of business as presently conducted does not require the consent of any other
person and (b) the Company has sufficient title or adequate rights or licenses
to use all material patents, trade names, trademarks, copyrights, or other
proprietary rights used by it in its business as presently conducted free and
clear of any attachments, liens, encumbrances or adverse claims. The Company has
not received written notice that its present or contemplated activities or
products infringe any such patents, trade names, trademarks or other proprietary
rights of others. Except as set forth in SCHEDULE 3.13: (i) no other person has
an interest in or right or license to use, or the right to license others to
use, any of said patents, patent applications, trade names, trademarks,
copyrights or other proprietary rights; (ii) there are no written claims or
demands of any other person pertaining thereto and no proceedings have been
instituted, or are pending or threatened, which challenge the rights of the
Company in
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respect thereof; (iii) none of the patents, trade names, trademarks, copyrights
or other proprietary rights listed in said schedule is subject to any
outstanding order, decree, judgment or stipulation, or is being infringed by
others; and (iv) no proceeding charging the Company with infringement of any
adversely held patent, trade name, trademark or copyright has been filed or is
threatened to be filed.
3.14 TRADE SECRETS AND CUSTOMER LISTS. The Company has the right to use
in the ordinary course of its business as presently conducted, free and clear of
any claims or rights of others, all trade secrets, inventions, customer lists
and secret processes required for or incident to the manufacture or marketing of
all products presently sold, manufactured, licensed, under development or
produced by it, including products licensed from others. Any payments required
to be made by the Company for the use of such trade secrets, inventions,
customer lists and secret processes are described in SCHEDULE 3.14. The Company
is not using or in any way making use of any confidential information or trade
secrets of any third party, including without limitation, a former employer of
any present or past employee of the Company or any of the predecessors of the
Company.
3.15 CONTRACTS.
(a) Except for contracts, commitments, plans, agreements and
licenses described in SCHEDULE 3.15 (complete and accurate copies of which have
been delivered to the Parent), the Company is neither a party to nor subject to:
(i) any plan or contract providing for bonuses,
pensions, options, stock purchases, deferred compensation, retirement
payments, profit sharing, severance or termination pay, collective
bargaining or the like, or any contract or agreement with any labor
union;
(ii) any employment contract or contract for services
which requires the payment of $20,000 or more annually or which is not
terminable within thirty (30) days by the Company without liability for
any penalty or severance payment other than pursuant to the Company's
severance policies existing on the date hereof;
(iii) any contract or agreement for the purchase of
any commodity, material or equipment except purchase orders in the
ordinary course for less than $10,000 each;
(iv) any other contracts or agreements creating any
obligation of the Company of $10,000 or more with respect to any such
contract;
(v) any contract or agreement providing for the
purchase of all or substantially all of its requirements of a
particular product from a supplier;
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(vi) any contract or agreement which by its terms
does not terminate or is not terminable by the Company or any successor
or assign within six months after the date hereof without payment of a
penalty;
(vii) any contract or agreement for the sale or lease
of its products or services not made in the ordinary course of
business;
(viii) any contract with any sales agent or
distributor of products of the Company or any subsidiary;
(ix) any contract containing covenants limiting the
freedom of the Company to compete in any line of business or with any
person or entity;
(x) any contract or agreement for the purchase of any
fixed asset for a price in excess of $10,000 whether or not such
purchase is in the ordinary course of business;
(xi) any license agreement (as licensor or licensee);
(xii) any indenture, mortgage, promissory note, loan
agreement, guaranty or other agreement or commitment for the borrowing
of money and any related security agreement;
(xiii) any contract or agreement with any officer,
employee, director or stockholder of the Company or with any persons or
organizations controlled by or affiliated with any of them;
(xiv) any partnership, joint venture, or other
similar contract, arrangement or agreement; or
(xv) any registration rights agreements, warrants,
warrant agreements or other rights to subscribe for securities, any
voting agreements, voting trusts, shareholder agreements or other
similar arrangements or any stock purchase or repurchase agreements or
stock restriction agreements.
(b) All material contracts, agreements, leases and instruments
to which the Company is a party or by which the Company is obligated are valid
and are in full force and effect and constitute legal, valid and binding
obligations of the Company and the other parties thereto, enforceable in
accordance with their respective terms. Neither the Company nor any other party
to any contract, agreement, lease or instrument of the Company is in default in
complying with any provisions thereof, and no condition or event or facts exists
which, with notice, lapse of time or both would constitute a default thereof on
the part of either of the
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Company or on the part of any other party thereto in any such case that could
have a material adverse effect on the properties, assets, financial condition or
prospects of either of the Company. SCHEDULE 3.15 indicates whether any of the
agreements, contracts, commitments or other instruments and documents described
therein requires consent or approval to be transferred to the Surviving
Corporation as a result of the transactions contemplated herein.
3.16 LITIGATION. SCHEDULE 3.16 hereto lists all currently pending and
threatened litigation and governmental or administrative proceedings or
investigations to which the Company is a party. Except for matters described in
SCHEDULE 3.16, there is no litigation or governmental or administrative
proceeding or investigation pending or threatened against the Company which may
have an adverse effect on the properties, assets, business, financial condition
or prospects of the Company or which would prevent or hinder the consummation of
the transactions contemplated by this Agreement.
3.17 COMPLIANCE WITH LAWS. The Company has not received notice of a
violation or alleged violation of applicable statutes, ordinances, orders, rules
and regulations promulgated by any federal, state, municipal or other
governmental authority, which violation or alleged violation would have a
material adverse effect on the business of the Company, and except as set forth
in SCHEDULE 3.17 hereto, the Company is currently in compliance in all material
respects with all such statutes, ordinances, orders, rules or regulations, and
there is no valid basis for any claim that the Company is not in compliance with
any such statute, ordinance, order, rule or regulation.
3.18 INSURANCE. SCHEDULE 3.18 sets forth the following information with
respect to each insurance policy (including policies providing property,
casualty, Liability, and workers' compensation coverage and bond and surety
arrangements) to which the Seller has been a party, a named insured, or
otherwise the beneficiary of coverage at any time within the past five (5)
years: (a) the name, address, and telephone number of the agent; (b) the name of
the insurer, the name of the policyholder, and the name of each covered insured;
(c) the policy number and the period of coverage; (d) the scope (including an
indication of whether the coverage was on a claims made, occurrence, or other
basis) and amount (including a description of how deductibles and ceilings are
calculated and operate) of coverage; and (e) a description of any retroactive
premium adjustments or other loss-sharing arrangements. With respect to each
such insurance policy: (i) the policy is legal, valid, binding, enforceable, and
in full force and effect; (ii) the policy will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following
the consummation of the transactions contemplated hereby, (iii) neither the
Seller nor any other party to the policy is in breach or default (including with
respect to the payment of premiums or the giving of notices), and no event has
occurred which, with notice or the lapse of time, would constitute such a breach
or default, or permit termination, modification, or acceleration, under the
policy; and (iv) no party to the policy has repudiated any provision thereof.
The Seller has been covered during the past five (5) years by insurance in scope
and amount customary and reasonable for the businesses in which it has engaged
during the
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aforementioned period. SCHEDULE 3.18 describes any self-insurance arrangements
affecting the Seller.
3.19 WARRANTY AND RELATED MATTERS. There are no existing or threatened
in writing, product liability, warranty or other similar claims against the
Company alleging that any of its products or services are defective or fail to
meet any product or service warranties except as disclosed in SCHEDULE 3.19
hereto. The Company has not received notice of any statements, citations,
correspondence or decisions by any Governmental Entity stating that any product
manufactured, marketed or distributed at any time by the Company (the "Company
Products") is defective or unsafe or fails to meet any product warranty or any
standards promulgated by any such Governmental Entity. There have been no
recalls ordered by any such Governmental Entity with respect to any Company
Product. There is no (i) fact relating to any Company Product that may impose
upon the Company a duty to recall any Company Product or a duty to warn
customers of a defect in any Company Product, (ii) latent or overt design,
manufacturing or other defect in any Company Product, or (iii) liability for
warranty or other claim or return with respect to any Company Product except in
the ordinary course of business consistent with the past experience of the
Company for such kind of claims and liabilities.
3.20 FINDER'S FEES. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
the Company or the Stockholders.
3.21 PERMITS; BURDENSOME AGREEMENTS. SCHEDULE 3.21 lists all material
permits, registrations, licenses, franchises, certifications and other approvals
(collectively, the "Approvals") required from Governmental Entities in order for
the Company to conduct its business. The Company has obtained all the Approvals,
which are valid and in full force and effect. Except as disclosed on SCHEDULE
3.21, none of the Approvals is subject to termination by their express terms as
a result of the execution of this Agreement by the Company or the consummation
of the Merger, and no further Approvals will be required in order to continue to
conduct the business currently conducted by the Company subsequent to the
Closing. Except as disclosed in SCHEDULE 3.21 or in any other schedule hereto,
the Company is neither subject to nor bound by any agreement, judgment, decree
or order which may materially and adversely affect its properties, assets,
business, financial condition or prospects.
3.22 TRANSACTIONS WITH INTERESTED PERSONS. Except as set forth in
SCHEDULE 3.22 hereto, no Stockholder, officer, employee or director of the
Company and none of their respective parents, grandparents, spouses, children,
siblings or grandchildren owns directly or indirectly on an individual or joint
basis any material interest in, or serves as an officer or director or in
another similar capacity of, any competitor, supplier or customer of the Company
or any organization, person or entity with whom the Company is doing business.
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3.23 EMPLOYEE BENEFIT PROGRAMS.
(a) SCHEDULE 3.23 sets forth a list of every Employee Program
(as defined below) that has been maintained (as such term is further defined
below) by the Company at any time during the three-year period ending on the
date hereof.
(b) Each Employee Program which has been maintained by a
Company and which has at any time been intended to qualify under Section 401(a)
or 501(c)(9) of the Code, has received a favorable determination or approval
letter from the IRS regarding its qualification under such section and has, in
fact, been qualified under the applicable section of the Code from the effective
date of such Employee Program through and including the Closing (or, if earlier,
the date that all of such Employee Program's assets were distributed). No event
or omission has occurred which would cause any such Employee Program to lose
such qualification under the applicable Code section.
(c) Except as otherwise disclosed on SCHEDULE 3.23, there has
not been any failure of any party to comply with any laws applicable to or the
terms of any Employee Programs that have been maintained by the Company, except
for any failures to comply that, individually or in the aggregate, would not
have a material adverse effect on the properties, assets, business, financial
condition or prospects of the Company. With respect to any Employee Program now
or heretofore maintained by the Company, there has occurred no "prohibited
transaction," as defined in Section 406 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code, or
breach of any duty under ERISA or other applicable law (including, without
limitation, any health care continuation requirements or any other tax law
requirements, or conditions to favorable tax treatment, applicable to such
plan), which could result, directly or indirectly (including without limitation
through any obligation of indemnification or contribution) in any taxes,
penalties or other liability to the Company or any Affiliate (as defined below).
No litigation, arbitration, or governmental administrative proceeding or
investigation or other proceeding (other than those relating to routine claims
for benefits) is pending or threatened with respect to any such Employee
Program.
(d) Neither the Company nor any Affiliate has ever maintained
any Employee Program subject to Title IV of ERISA.
(e) Except as otherwise disclosed on SCHEDULE 3.23, with
respect to each Employee Program maintained by the Company within the three
years preceding the date hereof, complete and correct copies of the following
documents (if applicable to such Employee Program) have previously been
delivered to the Parent: (i) all documents embodying or governing such Employee
Program, and any funding medium for the Employee Program (including, without
limitation, trust agreements) as they may have been amended to the date hereof;
(ii) the most recent IRS determination or approval letter with respect to such
Employee Program under Code Section 401 or 501(c)(9), and any applications for
determination or approval subsequently filed with the IRS; (iii) the three most
recently filed IRS forms 5500, with
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all applicable schedules and accountants' opinions attached thereto; (iv) the
summary plan description for such Employee Program (or other descriptions of
such Employee Program provided to employees) and all modifications thereto; (v)
any insurance policy (including any fiduciary liability insurance policy)
related to such Employee Program; and (vi) any documents evidencing any loan to
an Employee Program that is a leveraged employee stock ownership plan.
(f) Each Employee Program maintained by the Company as of the
date hereof is subject to amendment or termination by the Board of Directors of
the Company without any further liability or obligation on the part of the
Company to make further contributions to any trust maintained under any such
Employee Program following such termination and the Company has not made any
written or oral representations to the contrary to its employees.
(g) For purposes of this SECTION 3.23:
(i) "Employee Program" means (a) all employee benefit
plans within the meaning of ERISA Section 3(3), including, but not
limited to, multiple employer welfare arrangements (within the meaning
of ERISA Section 3(40)), plans to which more than one unaffiliated
employer contributes and employee benefit plans (such as foreign or
excess benefit plans) which are not subject to ERISA; and (b) all stock
option plans, bonus or incentive award plans, severance pay policies or
agreements, deferred compensation agreements, supplemental income
arrangements, vacation plans, and all other employee benefit plans,
agreements, and arrangements not described in subsection (a) above. In
the case of an Employee Program funded through an organization
described in Code Section 501(c)(9), each reference to such Employee
Program shall include a reference to such organization;
(ii) an entity "maintains" an Employee Program if
such entity sponsors, contributes to, or provides (or has promised to
provide) benefits under such Employee Program, or has any obligation
(by agreement or under applicable law) to contribute to or provide
benefits under such Employee Program, or if such Employee Program
provides benefits to or otherwise covers employees of such entity (or
their spouses, dependents, or beneficiaries);
(iii) an entity is an "Affiliate" of a Company for
purposes of this SECTION 3.23 if it would have ever been considered a
single employer with the Company under ERISA Section 4001(b) or part of
the same "controlled group" as the Company for purposes of ERISA
Section 302(d)(8)(c) and
(iv) "Multiemployer Plan" means a (pension or
non-pension) employee benefit plan to which more than one employer
contributes and which is maintained pursuant to one or more collective
bargaining agreements.
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3.24 ENVIRONMENTAL MATTERS.
(a) Except as used in connection with routine maintenance and
as set forth in SCHEDULE 3.24 hereto, (i) the Company has never generated,
transported, used, stored, treated, disposed of, or managed any Hazardous Waste
(as defined below); (ii) no Hazardous Material (as defined below) has ever been
or is threatened to be spilled, released, or disposed of at any site presently
or formerly owned, operated, leased, or used by the Company, or has ever come to
be located in the soil or groundwater at any such site; (iii) no Hazardous
Material has ever been transported from any site presently or formerly owned,
operated, leased, or used by the Company for treatment, storage, or disposal at
any other place; (iv) the Company does not presently own, operate, lease, or
use, nor has it previously owned, operated, leased, or used any site on which
underground storage tanks are or were located; and (v) no lien has ever been
imposed by any Governmental Entity on any property, facility, machinery, or
equipment owned, operated, leased, or used by the Company in connection with the
presence of any Hazardous Material.
(b) Except as set forth in SCHEDULE 3.24 hereto, (i) the
Company has no liability under, nor has the Company ever violated in any
material respect, any Environmental Law (as defined below); (ii) any property
owned, operated, leased, or used by the Company and any facilities and
operations thereon are presently in compliance in all material respects with all
applicable Environmental Laws; (iii) the Company has never entered into or been
subject to any judgment, consent decree, compliance order, or administrative
order with respect to any environmental or health and safety matter or received
any request for information, notice, demand letter, administrative inquiry, or
formal or informal complaint or claim with respect to any environmental or
health and safety matter or the enforcement of any Environmental Law (as defined
below); and (iv) the Company nor any Company Stockholder has any reason to
believe that any of the items enumerated in clause (iii) of this paragraph will
be forthcoming.
(c) Except as set forth in SCHEDULE 3.24 hereto, no site
owned, operated, leased, or used by the Company contains any asbestos or
asbestos-containing material, any polychlorinated biphenyls ("pcbs") or
equipment containing pcbs, or any urea formaldehyde foam insulation.
(d) For purposes of this SECTION 3.24, (i) "Hazardous
Material" shall mean and include any hazardous waste, hazardous material,
hazardous substance, petroleum product, oil, toxic substance, pollutant, or
contaminant, as defined or regulated under any Environmental Law or any other
substance which may pose a threat to the environment or to human health or
safety; (ii) "Hazardous Waste" shall mean and include any hazardous waste as
defined or regulated under any Environmental Law; (iii) "Environmental Law"
shall mean any environmental laws, regulation, rule, ordinance, or by-law at the
foreign, federal, state, or local level, existing as of the date hereof; and
(iv) the Company shall mean and include the Company, its predecessors and all
other entities for whose conduct the Company is or may be held responsible under
any Environmental Law.
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3.25 LISTS OF CERTAIN EMPLOYEES AND SUPPLIERS.
(a) SCHEDULE 3.25 hereto contains a list of all current
directors and officers of the Company and a list of all managers, employees and
consultants of the Company who, individually, have received or are scheduled to
receive base salary from the Company during the current fiscal year of $20,000
or more. In each case such schedule includes the current job title and current
base salary of each such individual.
(b) SCHEDULE 3.25 sets forth a true and complete list of all
suppliers of the Company to whom the Company made payments aggregating $25,000
or more during the most recent complete fiscal year showing, with respect to
each, the name, address and dollar volume involved.
3.26 EMPLOYEES; LABOR MATTERS. As of the date hereof, the Company
employed the number of full-time employees and part-time employees described on
SCHEDULE 3.26. The Company is not delinquent in payments to any of its employees
for any wages, salaries, commissions, bonuses or other direct compensation for
any services performed for it to the date hereof or amounts required to be
reimbursed to such employees. Except as set forth in SCHEDULE 3.26, upon
termination of the employment of any of said employees, the Company will not by
reason of the Merger be liable to any of said employees for so-called "severance
pay" or any other payments. Except as set forth in SCHEDULE 3.26 attached
hereto, the Company has no policy, practice, plan or program of paying severance
pay or any form of severance compensation in connection with the termination of
employment. The Company is in compliance with all applicable laws and
regulations respecting labor, employment, fair employment practices, terms and
conditions of employment, and wages and hours. No charges of employment
discrimination or unfair labor practices have been brought against the Company,
nor are there any strikes, slowdowns, stoppages of work, or any other concerted
interference with normal operations existing, pending or threatened against or
involving the Company. There are no grievances, complaints or charges that have
been filed against the Company under any dispute resolution procedure
(including, but not limited to, any proceedings under any dispute resolution
procedure under any collective bargaining agreement). No collective bargaining
agreements are in effect or are currently being or are about to be negotiated by
the Company. The Company has not received written notice of pending or
threatened changes with respect to the senior management or key supervisory
personnel of the Company.
3.27 CUSTOMERS. SCHEDULE 3.27 sets forth any customer who accounted for
more than 5% of the sales of the Company for the most recent complete fiscal
year of the Company (collectively, the "Customers"). No Customer has given
notice to the Company of its intention to terminate, to cancel or otherwise
materially and adversely modify its relationship with the
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Company or to decrease materially or limit its usage or purchase of the services
or products of the Company.
3.28 Y2K. The Company has taken all necessary action to assess,
evaluate and correct all of the hardware, software, embedded microchips and
other processing capabilities of computer and telecommunication systems it uses,
either directly or indirectly, including but not limited to computerized
services provided by third parties such as billing and payroll services, to
ensure that such systems will be able to function accurately and without
interruption or ambiguity using date information before, during and after
January 1, 2000.
3.29 TAX-FREE REORGANIZATION. Neither the Company nor any Stockholders
has taken any action which would violate any requirement, including but not
limited to the continuity-of-business-enterprise requirement of 26 C.F.R.
ss.1.368-1(d), for tax-free reorganization status undeR SECTION 368(a) of the
Code with respect to the Merger.
3.30 DISCLOSURE.
(a) This Agreement, including the Schedules hereto prepared by
the Company, together with the other information furnished to the Parent by the
Company and the Stockholders in connection herewith, does not contain an untrue
statement of material fact or omit to state a material fact necessary to make
the statements herein and therein, in light of the circumstances under which
they were made, not misleading.
(b) The Company and the Stockholders acknowledge and agree (i)
that there exits no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that the
contemplated IPO of the Parent will occur at a particular price or within a
particular range of prices or occur at all; (ii) that neither the Parent, its
subsidiaries or any of their respective officers, directors, agents or
representatives nor any underwriter shall have any liability to the Company or
the Stockholders or any other person affiliated or associated with the Company
for any failure of the contemplated IPO to occur at a particular price or within
a particular range of prices or to occur at all; and (iii) that the decision of
the Stockholders to enter into this Agreement, or to vote in favor of or consent
to the Merger, has been or will be made independent of, and without reliance
upon, any statements, opinions or other communications, or due diligence
investigations which have been or will be made performed by any prospective
underwriter, relative to the Parent or the contemplated IPO.
SECTION 4. COVENANTS OF THE COMPANY AND THE STOCKHOLDERS.
4.1 MAKING OF COVENANTS AND AGREEMENTS. The Company and the
Stockholders covenant and agree as set forth in this SECTION 4.
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4.2 CONDUCT OF BUSINESS. Between the date of this Agreement and the
Merger Effective Date, the Stockholders will cause the Company to do and the
Company will do the following, unless Parent shall otherwise consent in writing:
(a) conduct its business only in the ordinary course
consistent with past practices, refrain from changing or introducing any method
of management or operations except in the ordinary course of business and in a
manner consistent with past practices and maintain levels of working capital
consistent with past practices;
(b) refrain from making any purchase, sale or disposition of
any asset or property other than in the ordinary course of business, from
purchasing or selling any capital asset costing more than $5,000 and from
mortgaging, pledging, subjecting to a lien or otherwise encumbering any of its
properties or assets;
(c) refrain from incurring or modifying any contingent
liability as a guarantor or otherwise with respect to the obligations of others,
and from incurring or modifying any other contingent or fixed obligations or
liabilities except in the ordinary course of business and in a manner consistent
with past practices;
(d) refrain from making any change in its incorporation
documents, by-laws or authorized or issued capital stock or from acquiring any
securities issued by any other business organization other than short-term
investments in the ordinary course of business;
(e) refrain from declaring, setting aside or paying any
dividend, making any other distribution in respect of its capital stock, making
any direct or indirect redemption, purchase or other acquisition of its capital
stock, issuing, granting, awarding, selling, pledging, disposing of or
encumbering or authorizing the issuance, grant, award, sale, pledge, disposition
or encumbrance of any shares of, or securities convertible or exchangeable for,
or options, warrants, calls, commitments or rights of any kind to acquire, any
shares of capital stock of any class of the Company or entering into any
agreement or commitment with respect to any of the foregoing;
(f) refrain from making any change in the compensation payable
or to become payable to any of its officers, employees or agents, except for
scheduled increases in salary or wages in the ordinary course of business that
are consistent with past practices, or granting any severance or termination pay
to, or establishing, adopting or entering into any agreement or arrangement
providing for severance or termination pay to, or entering into or amending any
employment, or other agreement or arrangement with, any director, officer or
other employee of the Company or any Stockholder or establishing, adopting or
entering into or amending any collective bargaining, bonus, incentive, deferred
compensation, profit sharing, stock option or purchase, insurance, pension,
retirement or other employee benefit plan;
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(g) refrain from making any change in its borrowing
arrangements or modifying, amending or terminating any of its contracts except
in the ordinary course of business, or waiving, releasing or assigning any
material rights or claims;
(h) use reasonable efforts to prevent any change with respect
to its management and supervisory personnel or banking arrangements;
(i) use reasonable efforts to keep intact its business
organization and to preserve the goodwill of and business relationships with all
suppliers, customers and others having business relations with it, and to
maintain its properties and facilities, including those held under leases, in as
good a working order and condition as on the date hereof, ordinary wear and tear
excepted;
(j) use reasonable efforts to have in effect and maintain at
all times all insurance of the kind, in the amount and with the insurers set
forth in SCHEDULE 3.18 or equivalent insurance with any substitute insurers
approved by Parent;
(k) refrain from changing accounting policies or procedures
(including, without limitation, procedures with respect to the payment of
accounts payable and collection of accounts receivable) or from making any tax
election or settling or compromising any federal, state, local or foreign income
tax liability;
(l) refrain from entering into any executory agreement,
commitment or undertaking to do any of the activities prohibited by the
foregoing provisions; and
(m) permit Parent and its authorized representatives
(including without limitation Parent's attorneys, accountants, and pension and
environmental consultants) to have full access to all of its properties, assets,
books, records, business files, executive personnel, tax returns, contracts and
documents and furnish to Parent and its authorized representatives such
financial and other information with respect to its business or properties as
Parent may from time to time reasonably request.
4.3 CONSENTS AND APPROVALS. The Company and each of the Stockholders
shall use their best efforts to obtain or cause to be obtained prior to the
Closing Date all necessary consents and approvals to the performance of the
obligations of the Company and the Stockholders under this Agreement, including,
without limitation, the consents and authorizations described in SCHEDULE 3.15
or SCHEDULE 4.3 and such other authorizations, waivers, consents and permits as
may be necessary to transfer to Parent and/or to retain in full force and effect
without penalty subsequent to the Effective Time all contracts, permits,
licenses and franchises of or applicable to the businesses of the Company.
4.4 ACTION BY WRITTEN CONSENT OF STOCKHOLDERS. On the date hereof the
Stockholders will execute and deliver a unanimous written consent in lieu of a
meeting in accordance with
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applicable law for the purpose of authorizing the transactions contemplated
hereby. The recommendation of the Board of Directors will remain in effect at
all times prior to the Effective Time. The Stockholders hereby agree to vote all
shares of capital stock of the Company held of record by them or over which they
exercise voting control in favor of the Merger, this Agreement and the
consummation of the transactions contemplated hereby and shall not demand
appraisal or dissenter's rights in connection with the merger under the NYBCL.
4.5 EXCLUSIVE DEALING. Unless and until the earlier to occur of the
Closing Date or the termination of this Agreement pursuant to SECTION 9, neither
the Company nor any Stockholder shall, nor shall any of them permit any
director, officer, employee or agent of either of the Company to, directly or
indirectly, (i) take any action to solicit, initiate submission of or encourage,
proposals or offers from any person relating to any acquisition or purchase of
all or (other than in the ordinary course of business) a portion of the assets
of, or any equity interest in, the Company or any merger or business combination
with the Company (an "Acquisition Proposal"), (ii) participate in any
discussions or negotiations regarding an Acquisition Proposal with any person or
entity other than Parent and Newco and their representatives, or (iii) otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other person to do any of the foregoing.
4.6 NO SALES OF CAPITAL STOCK. Between the date of this Agreement and
the Effective Time, none of the Stockholders shall sell, exchange, deliver,
assign, pledge, encumber or otherwise transfer or dispose of any Company Stock
owned beneficially or of record by such Stockholder, nor grant any right of any
kind to acquire, dispose of, vote or otherwise control in any manner such shares
of Company Stock; provided, however, that notwithstanding anything to the
contrary stated herein, any transferee, executor, heir, legal representative,
successor or assign of any Stockholder shall be bound by this Agreement.
4.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to the Parent of (i) the occurrence or non-occurrence
of any event the occurrence or non-occurrence of which would be likely to cause
any representation or warranty of the Company or the Stockholders contained
herein to be untrue or inaccurate in any material respect at or prior to the
Closing and (ii) any material failure of any Stockholder or the Company to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by such person hereunder. The delivery of any notice pursuant to
this SECTION 4.8 shall not be deemed to (i) modify the representations or
warranties hereunder of the party delivering such notice, (ii) modify the
conditions set forth in SECTION 7 or elsewhere or (iii) limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
4.8 AMENDMENT OF SCHEDULES. The Company and the Stockholders agree
that, with respect to the representations and warranties contained in this
Agreement, the Company and the Stockholders shall have the continuing obligation
until the Closing Date to supplement or amend promptly the Schedules hereto with
respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required to be set forth or
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described on the Schedules. Notwithstanding the foregoing sentence, no amendment
or supplement to a Schedule prepared by the Company or the Company Stockholders
that constitutes or reflects an event or occurrence that would be reasonably
likely to have a material adverse effect may be made unless the Parent consents
to such amendment or supplement.
4.9 FURTHER ASSURANCES. The Company and Stockholders hereto agree to
execute and deliver, or cause to be executed and delivered, such further
instruments or documents or take such other action as may be reasonably
necessary or convenient to carry out the transactions contemplated hereby.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND NEWCO.
5.1 MAKING OF REPRESENTATIONS AND WARRANTIES. As of the date hereof,
the Parent and Newco hereby represent and warrant to the Stockholders and the
Company as set forth in this SECTION 5.
5.2 ORGANIZATION OF THE PARENT AND NEWCO. The Parent and Newco are
corporations duly organized, validly existing and in good standing under the
laws their respective state of incorporation with full corporate power and
authority to conduct their respective businesses in the manner as now conducted.
5.3 AUTHORITY. All necessary corporate action has been taken by the
Parent and Newco to authorize the execution, delivery and performance of this
Agreement and each agreement, document and instrument to be executed and
delivered by the Parent and/or Newco pursuant to this Agreement. This Agreement
and each agreement, document and instrument to be executed and delivered by the
Parent and/or Newco pursuant to this Agreement (to the extent it contains
obligations to be performed by the Parent and/or Newco) constitutes, or when
executed and delivered by the Parent and/or Newco will constitute, valid and
binding obligations of the Parent and/or Newco enforceable in accordance with
their respective terms.
5.4 NO CONFLICTS. The execution, delivery and performance by the Parent
and Newco of this Agreement and each such other agreement, document and
instrument: (i) does not and will not violate any provision of the Certificate
of Incorporation or bylaws of the Parent or Newco; and (ii) will not result in a
breach of, constitute a default under, accelerate any obligation under, or give
rise to a right of termination of any indenture or loan or credit agreement or
any other agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination or
arbitration award, whether written or oral, to which the Parent or Newco is a
party or by which the property of the Parent or Newco is bound or affected, or
result in the creation or imposition of any mortgage, pledge, lien, security
interest or other charge or encumbrance on any of the assets of the Parent or
Newco, except where such breach, default, acceleration or right of termination
would not have a material adverse effect on the properties, assets, business,
financial condition or prospects of the Parent or Newco, and
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would not result in the creation or imposition of any mortgage, pledge, lien,
security interest or other charge or encumbrance on any of the assets of the
Parent or Newco.
5.5 PARENT STOCK. The Parent Stock to be delivered to the Stockholders
at the Closing, when delivered in accordance with the terms of this Agreement,
will constitute valid and legally issued shares of the Common Stock of the
Parent, fully paid and non-assessable. Such Parent Stock will constitute
restricted securities and will be subject to the lock-up provisions and other
transfer restrictions imposed under this Agreement and under applicable federal
and state securities laws as described in Section 9 below.
5.6 PARENT PROMISSORY NOTES. The promissory notes of the Parent to be
issued to the Stockholders as part of the Merger Consideration have been duly
authorized and when issued in accordance with this Agreement, will represent
binding obligations of the Parent, subject, however, to the Parent's right to
set off against such promissory notes for breach of any representation or
warranty and to any post-closing adjustments contemplated herein.
5.7 LITIGATION. There is no litigation or governmental or
administrative proceeding or investigation pending or threatened against the
Parent or Newco which may have an adverse effect on the properties, assets,
business, financial condition or prospects of the Parent or Newco or which would
prevent or hinder the consummation of the transactions contemplated by this
Agreement.
5.8 COMPLIANCE WITH LAWS. Neither the Parent nor Newco has received
notice of a violation or alleged violation of applicable statutes, ordinances,
orders, rules and regulations promulgated by any federal, state, municipal or
other governmental authority, which violation or alleged violation would have a
material adverse effect on the business of the Parent or Newco.
SECTION 6. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARENT AND NEWCO.
6.1 INTRODUCTION. The obligations of the Parent (and its accountants
KPMG Peat Marwick LLP) and Newco to consummate this Agreement and the
transactions contemplated hereby are subject to the fulfillment, prior to or at
the Closing, of the conditions set forth in this SECTION 6.
6.2 EXAMINATION OF FINANCIAL STATEMENTS. Prior to the Closing Date, the
Parent shall have had sufficient time to review the unaudited balance sheets of
the Company as of the last day of the month ended immediately prior to the
Closing Date (if December 31, including year-end adjustments) and the unaudited
statements of income, cash flow and stockholder's equity for the period then
ended, disclosing no material change in the financial condition of the Company
or the results of its operations from the financial statements originally
furnished by the Company as set forth in SCHEDULE 3.7.
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6.3 NO MATERIAL ADVERSE CHANGE. No material adverse change in the
results of operations, financial position or business of the Company shall have
occurred and the Company shall not have suffered any material loss or damages to
any of its properties or assets, whether or not covered by insurance, since the
Company Balance Sheet Date, which change, loss or damage materially affects or
impairs the ability of the Company to conduct its business; and the Parent shall
have received on the Closing Date a certificate signed by the President of the
Company and each of the Stockholders to such effect.
6.4 DUE DILIGENCE AND REGULATORY REVIEW. The Parent shall have
completed to its satisfaction a due diligence investigation of the Company and
its prospects, business, assets, contracts, rights, liabilities and obligations,
including a review of the practices and procedures of the Company with respect
to compliance with contracts and federal, state and local laws and regulations
governing the operations of the Company. Such review shall be satisfactory in
all respects to the Parent, in its sole discretion.
6.5 OPINION OF COUNSEL. The Parent shall have received an opinion from
Thuillez, Ford, Gold & Johnson, LLP, counsel to the Company and the
Stockholders, dated the Closing Date, in form and substance satisfactory to the
Parent, to the effect that with respect to the Company:
(a) the Company has been duly organized and is validly
subsisting in good standing under the laws of the State of New York.
(b) the authorized and outstanding capital stock of the
Company is as represented by the Stockholders in this Agreement and each share
of such stock has been duly and validly authorized and issued, is fully paid and
nonassessable and was not issued in violation of the preemptive rights of any
stockholder;
(c) to the knowledge of such counsel, the Company does not
have any outstanding options, warrants, calls, conversion rights or other
commitments of any kind to issue or sell any of its capital stock;
(d) this Agreement has been duly authorized, executed and
delivered by the Company and the Stockholders and constitutes a valid and
binding agreement of the Company and the Stockholders enforceable against them
in accordance with its terms except as such enforceability may be subject to
bankruptcy, moratorium, insolvency, reorganization, arrangement and other
similar laws relating to or affecting the rights of creditors and except (i) as
the same may be subject to the effect of general principles of equity and (ii)
that no opinion need be expressed as to the enforceability of indemnification
provisions included herein;
(e) except to the extent set forth on SCHEDULE 3.16, to the
knowledge of such counsel, there are no claims, actions, suits or proceedings
pending, or threatened against or affecting the Company, at law or in equity, or
before or by any federal, state, municipal or other
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governmental department, commission, board, bureau, agency or instrumentality
wherever located;
(f) no notice to, consent, authorization, approval or order of
any court or governmental agency or body or of any other third party is required
in connection with the execution, delivery or consummation of this Agreement by
any Stockholders or for the transfer to the Parent of the Company Stock;
(g) the execution of this Agreement and the performance of the
obligations hereunder will not violate or result in a breach or constitute a
default under any of the terms or provisions of the Company's Certificate of
Incorporation or the bylaws of the Company or of any lease, instrument, license,
permit or any other agreement to which the Company is a party or by which the
Company or any Stockholder is bound; and
(h) any other matters incident to the matters set forth herein
as reasonably required by the Parent.
6.6 ADDITIONAL LIABILITIES AND OBLIGATIONS. The Stockholders shall have
delivered to the Parent a certificate dated the Closing Date, setting forth (i)
all liabilities and obligations of the Company arising since the Company Balance
Sheet Date and (ii) showing all material contracts and agreements, together with
copies thereof, entered into by the Company since the Company Balance Sheet
Date.
6.7 GOOD STANDING CERTIFICATES; CERTIFIED COPY OF THE CERTIFICATE OF
INCORPORATION. The Company shall have delivered to the Parent certificates,
dated as of a date no earlier than twenty days prior to the Closing Date, duly
issued by the Secretary of State and the Department of Revenue of the state of
New York (and by the Secretary of State and the Department of Revenue of any
other state in which the Company is authorized to do business), showing that the
Company is in good standing and authorized to do business and that all state
franchise and/or income tax returns and taxes for the Company for all periods
prior to the dates of such certificates have been filed and paid. The Company
shall also have delivered to the Parent prior to the Closing a recent copy of
its Certificate of Incorporation and all amendments thereto duly certified by
the Secretary of State of New York.
6.8 REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the representations
and warranties of the Company and the Stockholders contained in SECTION 3 AND
ELSEWHERE IN THIS AGREEMENT shall be true and correct on and as of the Closing
Date, with the same effect as though made on and as of the Closing Date; the
Company and the Stockholders shall, on or before the Closing Date, have
performed and satisfied all agreements and conditions hereunder which by the
terms hereof are to be performed and satisfied by the Company or the
Stockholders on or before the Closing Date; and the Company and the Stockholders
shall have delivered to the Parent a certificate dated the Closing Date signed
by the Company's President and by each of the Stockholders to the foregoing
effect.
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6.9 APPROVALS AND CONSENTS. The Company and the Stockholders shall have
made all filings with and notifications of governmental authorities, regulatory
agencies and other entities required to be made by them in connection with the
execution and delivery of this Agreement, the performance of the transactions
contemplated hereby and the continued operation of the businesses of the Company
subsequent to the Merger Effective Date, and the Company and the Parent shall
have received all required authorizations, waivers, consents and permits to
permit the consummation of the transactions contemplated by this Agreement, in
form and substance reasonably satisfactory to the Parent, from all third
parties, including, without limitation, applicable governmental authorities,
regulatory agencies, lessors, lenders and contract parties, required in
connection with the Merger or the Company's permits, leases, licenses and
franchises, to avoid a breach, default, termination, acceleration or
modification of any material agreement, contract, instrument, mortgage, lien,
lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award as a result of the execution or performance
of this Agreement, or otherwise in connection with the execution and performance
of this Agreement.
6.10 NO ACTIONS OR PROCEEDINGS. No action or proceeding by any court,
administrative body or governmental agency shall have been instituted or
threatened which would enjoin, restrain or prohibit, or would likely result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions contemplated by this Agreement, and which would in the
reasonable judgment of the Parent or Newco make it inadvisable to consummate
such transactions, and no law or regulation shall be in effect and no court
order shall have been entered in any action or proceeding instituted by any
party which enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions as contemplated by this Agreement.
6.11 PROCEEDINGS SATISFACTORY TO NEWCO AND THE PARENT. All proceedings
to be taken by the Company and the Stockholders in connection with the
consummation of the Closing on the Closing Date and the other transactions
contemplated hereby and all certificates, opinions, instruments and other
documents required to effect the transaction contemplated hereby reasonably
requested by Newco and the Parent shall be reasonably satisfactory in form and
substance to Newco and the Parent and their counsel.
6.12 EMPLOYMENT AGREEMENTS. Each of the Stockholders shall have
executed and delivered an individual employment agreement with Newco in the
forms attached hereto as EXHIBIT 6.12(a) (for Lorin Beller), EXHIBIT 6.12(b)
(for David Conboy) and EXHIBIT 6.12(c) (for Adam Wills).
6.13 FACILITY LEASE. David Conboy and Lorin Beller shall have executed
and delivered a new lease with Newco for the property located at 1840 Western
Avenue, Albany, New York which lease shall be a gross lease in the form of
EXHIBIT 6.13 hereto and which shall be for a term
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of five (5) years with gross rent at not more than $14.50 per square foot of
leased space (inclusive of all taxes, insurance, common area maintenance charges
and utilities).
SECTION 7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS.
7.1 INTRODUCTION. The obligations of the Company and the Stockholders
to consummate this Agreement and the transactions contemplated hereby are
subject to the fulfillment, prior to or at the Closing Date, of the following
conditions (any one or more of which may be waived in whole or in part by the
Company and the Stockholders):
7.2 REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the representations
and warranties of the Parent and Newco contained in SECTION 5 shall be true and
correct in all material respects on and as of the Closing Date, with the same
effect as though made on and as of the Closing Date; the Parent and Newco shall,
on or before the Closing Date, have performed and satisfied all agreements and
conditions hereunder which by the terms hereof are to be performed and satisfied
by the Parent and Newco on or before the Closing Date; and the Parent and Newco
shall have delivered to the Company a certificate signed by the President of the
Parent and of Newco and dated as of the Closing Date certifying to the foregoing
effect.
7.3 NO ACTIONS OR PROCEEDINGS. No action or proceeding by any court,
administrative body or governmental agency shall have been instituted or
threatened which would enjoin, restrain or prohibit, or would likely result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions as contemplated by this Agreement, and which would in the
reasonable judgment of the Company make it inadvisable to consummate such
transactions, and no law or regulation shall be in effect and no court order
shall have been entered in any action or proceeding instituted by any party
which enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions as contemplated by this Agreement.
7.4 EMPLOYMENT AGREEMENTS. Newco shall have executed and delivered an
individual employment agreement with each of the Stockholders in the forms
attached hereto as EXHIBIT 6.12(a) (for Lorin Beller), EXHIBIT 6.12(b) (for
David Conboy) and EXHIBIT 6.12(c) (for Adam Wills).
7.5 FACILITY LEASE. Newco shall have executed and delivered a new lease
with David Conboy and Lorin Beller for the property located at 1840 Western
Avenue, Albany, New York which lease shall be a gross lease in the form of
EXHIBIT 6.13 hereto and which shall be for a term of five (5) years with gross
rent at not more than $14.50 per square foot of leased space (inclusive of all
taxes, insurance, common area maintenance charges and utilities).
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SECTION 8 - PARENT STOCK - TRANSFER RESTRICTIONS.
8.1 50% LOCK-UP. In addition to applicable federal and state securities
laws restricting the public sale of the Parent Stock to be issued to the
Stockholders hereunder as set forth in SECTION 8.2 below, the Stockholders
hereby irrevocably agree that prior to the closing date of the Parent's
contemplated IPO and for a period of two years after the IPO closing date, they
will not to (i) offer, pledge, sell or otherwise transfer (except as
contemplated in Section 1.5(a)(1)(ii) hereof), directly or indirectly, more than
50% of the shares of Parent Stock received hereunder (as adjusted for any stock
splits, recapitalizations, mergers or other similar events post-IPO), or (ii)
enter into agreement that transfers, in whole or in part, any of the economic
consequences of ownership of more than 50% of the shares of Parent Stock
received hereunder (as adjusted for any stock splits, recapitalizations, mergers
or other similar events post-IPO). The Stockholders agree that the foregoing
shall be binding upon the Stockholders' successors, assigns, heirs, and personal
representatives.
8.2 UNREGISTERED STOCK; INVESTMENT INTENT. The Stockholders acknowledge
and agree that the shares of Parent Stock to be delivered to the Stockholders
pursuant to this Agreement have not been and will not be registered under the
Securities Act of 1933, as amended (the "Act") and therefore may not be resold
without compliance with the Act. The Stockholders represent and warrant that the
Parent Stock to be acquired by Stockholders pursuant to this Agreement is being
acquired solely for their own account, for investment purposes only, and with no
present intention of distributing, selling or otherwise disposing of it in
connection with a distribution. The Stockholders covenant, warrant and represent
that none of the shares of Parent Stock issued to such Stockholders will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the Act and the rules and regulations of the Securities and Exchange
Commission and applicable state securities laws.
8.3 ABLE TO BEAR RISK; SOPHISTICATED INVESTORS; INFORMATION. The
Stockholders represent and warrant that they are able to bear the economic risk
of an investment in Parent Stock acquired pursuant to this Agreement and can
afford to sustain a total loss of such investment. They further represent and
warrant that they (i) fully understand the nature, scope and duration of the
limitations on transfer contained in this Agreement and (ii) have such knowledge
and experience in financial and business matters that they are capable of
evaluating the merits and risks of the proposed investment and therefore have
the capacity to protect their own interests in connection with the acquisition
of the Parent Stock. The Stockholders represent and warrant that they have had
an adequate opportunity to ask questions and receive answers from the officers
of the Parent concerning any and all matters relating to the acquisition of
Parent Stock as contemplated by this Agreement including, without limitation,
the background and experience of the officers and directors of the Parent, the
plans for the operations of the business of the Parent, and any plans for
additional acquisitions and the like. The Stockholders have asked any and all
questions in the nature described in the preceding sentence and all questions
have been answered to their satisfaction.
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8.4 RESTRICTIVE LEGENDS. The certificates evidencing the Parent Stock
to be received by the Stockholders hereunder will bear a legend substantially in
the form set forth below and containing such other information as the Parent may
deem appropriate. References in such legend to "THE COMPANY" shall refer to the
Parent.
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY
STATE SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES
UNDER THE 1933 ACT AND ANY STATE SECURITIES OR BLUE SKY LAWS, UNLESS,
IN THE OPINION (WHICH SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO
THE COMPANY) OF COUNSEL SATISFACTORY TO THE COMPANY, SUCH REGISTRATION
IS NOT REQUIRED.
In addition, such certificates shall also bear such other legends as
counsel for the Parent reasonably determines are required under the applicable
laws of any state.
SECTION 9. TERMINATION OF AGREEMENT; EFFECT OF TERMINATION.
9.1 TERMINATION. This Agreement may be terminated any time prior to the
Closing Date solely by:
(a) mutual consent of the boards of directors of the Parent
and the Company;
(b) either the Stockholders and the Company , on the one hand,
or by the Parent and Newco, on the other hand, if
(i) the transactions contemplated by this
Agreement to take place at the Closing shall
not have been consummated by January 31,
1999, unless the failure of such
transactions to be consummated is due to the
willful failure of the party seeking to
terminate this Agreement to perform any of
its obligations under this Agreement to the
extent required to be performed by it prior
to or on the Closing Date; or
(ii) if a material breach or default shall be
made by the other party in the observance of
or in the due and timely performance of any
of the covenants or agreements contained
herein, and the curing of such default shall
not have been made on or before the Closing
Date
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9.2 LIABILITIES IN THE EVENT OF TERMINATION. The termination of this
Agreement will in no way limit any obligation or liability of any party based on
or arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this Agreement
including, but not limited to, legal and audit costs and out of pocket expenses.
SECTION 10. NON-COMPETITION.
For a period of two (2) years from and after the Closing Date, the
Stockholders will not (i) engage directly or indirectly in any business that the
Company conducts as of the Closing Date in the eastern United States; (except
that ownership of less than 2% of the outstanding stock of any competing
publicly traded corporation shall not constitute a violation of this covenant
not to compete) or (ii) solicit, directly or indirectly, any customers, clients,
accounts, officers, employees, agents or representatives of the Company, Newco
or the Parent. If the final judgment of a court of competent jurisdiction
declares that any term or provision of this Section is invalid or unenforceable,
the parties hereto agree that the court making the determination of invalidity
or unenforceability shall have the power to reduce the scope, duration, or area
of the term or provision, to delete specific words or phrases, or to replace any
invalid or unenforceable term or provision with a term or provision that is
valid and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time within which the
judgment may be appealed.
SECTION 11. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
11.1 THE STOCKHOLDERS. The Stockholders recognize and acknowledge that
they have had in the past, currently have and in the future may have access to
certain confidential information relating to the Company, the Parent and Newco,
including, but not limited to, operational policies, customer lists, and pricing
and cost policies, that are valuable, special and unique assets of the Company,
the Parent and Newco. The Stockholders agree that they will not use or disclose
such confidential information to any person, firm, corporation, association or
other entity for any purpose or reason whatsoever, except (a) to authorized
representatives of the Parent and Newco who need to know such information in
connection with the transactions contemplated hereby, who have been informed of
the confidential nature of such information and who have agreed to keep such
information confidential as provided hereby, and (b) following the Closing, such
information may be disclosed by the Stockholders as is required in the course of
performing his or her duties for the Parent or the Surviving Corporation unless
(i) such information becomes known to the public generally through no breach by
the Stockholders of this covenant, (ii) disclosure is required by law or the
order of any governmental authority under color of law or is necessary in order
to secure a consent or approval to consummate the transactions contemplated
hereby, provided, that prior to disclosing any information pursuant to this
clause (ii), the Stockholders shall give prior written notice thereof to the
Parent and provide
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the Parent with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party and the
same prior disclosure set forth immediately above is given. In the event of a
breach or threatened breach by the Stockholders of the provisions of this
section, the Parent shall be entitled to an injunction restraining the
Stockholders from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting the Parent from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event that the transactions
contemplated herein are not consummated, the Stockholders shall return to the
Parent within a reasonable time all documents containing confidential
information about the Parent.
11.2 THE PARENT AND NEWCO. The Parent and Newco recognize and
acknowledge that they had in the past and currently have access to certain
confidential information relating to the Company, such as operational policies,
customer lists, and pricing and cost policies, that are valuable, special and
unique assets of the Company. The Parent and Newco agree that, prior to the
Closing, or if the transactions contemplated by this Agreement are not
consummated, they will not use or disclose such confidential information to
their own benefit except in furtherance of the transactions contemplated by this
Agreement or disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to the Stockholders and to authorized representatives of the Company
or the Parent or Newco who need to know such information in connection with the
transactions contemplated hereby, who have been informed of the confidential
nature of such information and who have agreed to keep such information
confidential as provided hereby, unless (i) such information becomes known to
the public generally through no breach by the Parent or Newco of this covenant,
(ii) disclosure is required by law or the order of any governmental authority
under color of law or is necessary in order to secure a consent or approval to
consummate the transactions contemplated hereby, provided, that prior to
disclosing any information pursuant to this clause (ii), the Parent and Newco
shall, if possible, give prior written notice thereof to the Company and the
Stockholders and provide the Company and the Stockholders with the opportunity
to contest such disclosure, or (iii) the disclosing party reasonably believes
that such disclosure is required in connection with the defense of a lawsuit
against the disclosing party and the same prior disclosure set forth immediately
above is given. In the event of a breach or threatened breach by the Parent or
Newco of the provisions of this Section, the Company and the Stockholders shall
be entitled to an injunction restraining the Parent and Newco from disclosing,
in whole or in part, such confidential information. Nothing herein shall be
construed as prohibiting the Company and the Stockholders from pursuing any
other available remedy for such breach or threatened breach, including the
recovery of damages. In the event that the transactions contemplated herein are
not consummated, the Parent and Newco shall return to the Company within a
reasonable time all documents containing confidential information about the
Company.
11.3 DAMAGES. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants in SECTIONS 11.1 and 11.2, and
because of the immediate
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and irreparable damage that would be caused for which they would have no other
adequate remedy, the parties hereto agree that, in the event of a breach by any
of them of the foregoing covenants, the covenant may be enforced against the
other parties by injunctions and restraining orders.
11.4 SURVIVAL. The obligations of the parties under this ARTICLE 11
shall survive notwithstanding either the termination of this Agreement or the
consummation of the transactions contemplated herein on the Closing Date.
SECTION 12. INDEMNIFICATION.
12.1 INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders, jointly and
severally on behalf of themselves and their respective successors, executors,
administrators, estates, heirs and permitted assigns, agree subsequent to the
Effective Time to indemnify and hold harmless the Parent, the Surviving
Corporation and their respective officers, directors, employees and agents
(individually, a "Parent Indemnified Party" and collectively, the "Parent
Indemnified Parties") from and against and in respect of all losses,
liabilities, obligations, damages, deficiencies, actions, suits, proceedings,
demands, assessments, orders, judgments, fines, penalties, costs and expenses
(including the reasonable fees, disbursements and expenses of attorneys,
accountants and consultants) of any kind or nature whatsoever (whether or not
arising out of third-party claims and including all amounts paid in
investigation, defense or settlement of the foregoing) sustained, suffered or
incurred by or made against any Parent Indemnified Party (a "Loss" or "Losses"),
solely to the extent of the limitations set forth in SECTION 12.2 below, arising
out of, based upon or in connection with:
(a) any breach of any representation or warranty made by the
Company or the Stockholders in this Agreement or in any schedule, exhibit,
certificate, agreement or other instrument delivered under or in connection with
this Agreement, or by reason of any claim, action or proceeding asserted or
instituted arising out of any matter or thing covered by any such
representations or warranties (collectively, "Parent Representation and Warranty
Claims");
(b) any breach of any covenant or agreement made by the
Company or any Stockholder in this Agreement or in any schedule, exhibit,
certificate, agreement or other instrument delivered under or in connection with
this Agreement, or by reason of any claim, action or proceeding asserted or
instituted arising out of any matter or thing covered by any such covenant or
agreement; or
(c) with respect to taxes of the Company incurred with respect
to any Pre-Closing Tax Period (as defined below) to the extent such liability
exceeds the amounts accrued therefor and disclosed to the Parent in SCHEDULE 3.7
hereto (it being understood that such Schedule shall be updated as of the
Closing to reflect tax accruals as of such date consistent with the Company's
past practices); the term "Pre-Closing Tax Period" shall mean all taxable
periods
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ending on or before the Closing Date and the portion (ending on the Closing
Date) of any taxable period that includes (but does not end on) the Closing
Date.
Claims under clauses (a) through (c) of this SECTION 12.1 are hereinafter
collectively referred to as "Parent Indemnifiable Claims". The rights of Parent
Indemnified Parties to recover indemnification in respect of any occurrence
referred to in clauses (b) and (c) of this SECTION 12.1 shall not be limited by
the fact that such occurrence may not constitute an inaccuracy in or breach of
any representation or warranty referred to in clause (a) of this SECTION 12.1.
12.2 LIMITATIONS ON INDEMNIFICATION BY THE COMPANY STOCKHOLDERS. The
Company Stockholders shall not be obligated to indemnify Parent Indemnified
Parties except to the extent the cumulative amount of Losses to such Parent
Indemnifiable Parties exceeds Five Thousand Dollars ($5,000) (the "Parent
threshold") whereupon the full amount of such Losses shall be recoverable in
accordance with the terms hereof.
12.3 NOTICE; DEFENSE OF CLAIMS.
Promptly after receipt by an indemnified party of notice of any claim,
liability or expense to which the indemnification obligations hereunder would
apply, the indemnified party shall give notice thereof in writing to the
indemnifying party, but the omission to so notify the indemnifying party
promptly will not relieve the indemnifying party from any liability except to
the extent that the indemnifying party shall have been prejudiced as a result of
the failure or delay in giving such notice. Such notice shall state the
information then available regarding the amount and nature of such claim,
liability or expense and shall specify the provision or provisions of this
Agreement under which the liability or obligation is asserted. If within twenty
(20) days after receiving such notice the indemnifying party gives written
notice to the indemnified party stating that (i) it would be liable under the
provisions hereof for indemnity in the amount of such claim if such claim were
successful and (ii) that it disputes and intends to defend against such claim,
liability or expense at its own cost and expense, then counsel for the defense
shall be selected by the indemnifying party (subject to the consent of the
indemnified party which consent shall not be unreasonably withheld) and the
indemnified party shall not be required to make any payment with respect to such
claim, liability or expense as long as the indemnifying party is conducting a
good faith and diligent defense at its own expense; provided, however, that the
assumption of defense of any such matters by the indemnifying party shall relate
solely to the claim, liability or expense that is subject or potentially subject
to indemnification. The indemnifying party shall have the right, with the
consent of the indemnified party, which consent shall not be unreasonably
withheld, to settle all Indemnifiable matters related to claims by third parties
which are susceptible to being settled provided its obligation to indemnify the
indemnifying party therefor will be fully satisfied. The indemnifying party
shall keep the indemnified party apprised of the status of the claim, liability
or expense and any resulting suit, proceeding or enforcement action, shall
furnish the indemnified party with all documents and information that the
indemnified party shall reasonably request and shall consult with the
indemnified party prior to acting on major matters, including settlement
discussions.
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Notwithstanding anything herein stated, the indemnified party shall at all times
have the right to fully participate in such defense at its own expense directly
or through counsel; provided, however, if the named parties to the action or
proceeding include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate under
applicable standards of professional conduct the expense of separate counsel for
the indemnified party shall be paid by the indemnifying party. If no such notice
of intent to dispute and defend is given by the indemnifying party, or if such
diligent good faith defense is not being or ceases to be conducted, the"
indemnified party shall, at the expense of the indemnifying party, undertake the
defense of (with counsel selected by the indemnified party), and shall have the
right to compromise or settle (exercising reasonable business judgment), such
claim, liability or expense. If such claim, liability or expense is one that by
its nature cannot be defended solely by the indemnifying party, then the
indemnified party shall make available all information and assistance that the
indemnifying party may reasonably request and shall cooperate with the
indemnifying party in such defense.
SECTION 13. MISCELLANEOUS.
13.1 LAW GOVERNING. This Agreement shall be construed under and
governed by the internal laws of the State of New York without regard to its
conflict of laws provisions.
13.2 NOTICES. Any notice, request, demand other communication required
or permitted hereunder shall be in writing and shall be deemed to have been
given (i) if delivered or sent by facsimile transmission, upon receipt, or (ii)
if sent by registered or certified mail upon the sooner of receipt or the
expiration of three days after deposit in United States Post Office facilities
properly addressed with postage prepaid. all notices will be sent to the
addresses set forth below or to such other address as such party may designate
by notice to each other party hereunder:
TO PARENT OR NEWCO:
InSite Internet, Inc.
1100 First Avenue
Spring Lake, NJ 07762
ATTN: Mark E. Munro, President and Chief Executive Officer
Phone: 732-280-6407
Fax: 908-449-8823
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with a copy to:
Duffy & Sweeney, LLP
300 Turks Head Building
Providence, RI 02903
ATTN: Michael F. Sweeney, Esq.
Phone: (401) 455-0700
Fax: (401) 455-0701
TO THE COMPANY:
Global 2000 Communications, Inc.
1840 Western Ave.
Albany, NY 12203
ATTN: David Conboy, Chief Executive Officer
Phone: 518-452-1465
with a copy to:
Thuillez, Ford, Gold & Johnson, LLP
90 State Street, Suite 1500
Albany, NY 12207-1715
ATTN: Dale M. Thuillez
Phone: (518) 445-9952
Fax: (518) 462-4031
TO THE STOCKHOLDERS:
David Conboy
Lorin Beller
Adam Wills
c/o Global 2000 Communications, Inc.
1840 Western Ave.
Albany, NY 12203
With a copy to:
Thuillez, Ford, Gold & Johnson, LLP
90 State Street, Suite 1500
Albany, NY 12207-1715
ATTN: Dale M. Thuillez
Phone: (518) 445-9952
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Fax: (518) 462-4031
Any notice given hereunder may be given on behalf of any party by its counsel or
other authorized representative.
13.3 ENTIRE AGREEMENT. This Agreement, including any schedules, annexes
and/or exhibits referred to herein and the other writings specifically
identified herein or contemplated hereby or delivered in connection with the
transactions contemplated hereby, is complete, reflects the entire agreement of
the parties with respect to its subject matter, and supersedes all previous
written or oral negotiations, commitments and writings.
13.4 ASSIGNABILITY. This Agreement may not be assigned or delegated by
any party hereto without the prior written consent of all parties hereto. No
Stockholder may assign his, her or its rights or delegate his, her or its
obligations hereunder without the prior written consent of the Parent. This
Agreement and the obligations of the parties hereunder shall be binding upon and
enforceable by, and shall inure to the benefit of, the parties hereto and their
respective successors, executors, administrators, estates, heirs and permitted
assigns, and no others.
13.5 ARBITRATION; JURISDICTION; VENUE; ATTORNEY'S FEES. Each party
hereto agrees that any dispute regarding this Agreement shall be submitted to
arbitration to and shall be resolved in accordance with the rules of the
JAMS/Endispute for expedited cases then in effect. The arbitrator(s) shall be
mutually selected by the parties or in the event the parties cannot mutually
agree, then appointed by JAMS/Endispute. Any arbitration shall be held within a
thirty (30) mile radius of New York City and the arbitrator(s) shall apply New
York law. Judgment upon any award rendered by the arbitrator(s) shall be final
and may be entered in any court of competent jurisdiction. Notwithstanding the
foregoing, the Parent and Newco shall have the absolute right to obtain
equitable remedies in any state court of competent jurisdiction in the State of
New York or in the United States District Court for the Northern District of New
York. Each party irrevocably submits to and accepts the exclusive jurisdiction
of each of such courts and waives any objection (including any objection to
venue or any objection based upon the grounds of forum non conveniens) which
might be asserted against the bringing of any such action, suit or other legal
proceeding in such courts. The court and/or arbitrator(s) shall award costs and
expenses (including reasonable attorney's fees) to the prevailing party and/or
parties in any litigation or arbitration.
13.6 CAPTIONS AND GENDER. The captions in this Agreement are for
convenience only and shall not affect the construction or interpretation of any
term or provision hereof. The use in this Agreement of the masculine pronoun in
reference to a party hereto shall be deemed to include the feminine or neuter
pronoun, as the context may require.
13.7 CERTAIN DEFINITIONS. for purposes of this Agreement, the term:
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(a) "Affiliate" of a person shall mean a person that directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the first mentioned person;
(b) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise; and
(c) "person" means an individual, corporation, partnership,
association, trust or any unincorporated organization.
13.8 EXECUTION IN COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same document.
13.9 AMENDMENTS; WAIVERS. This Agreement may not be amended or
modified, nor may compliance with any condition or covenant set forth herein be
waived, except by a writing duly and validly executed by the Parent, Newco, the
Company and the Stockholders, or, in the case of a waiver, the party waiving
compliance. No delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any such right, power or privilege, or any single or
partial exercise of any such right, power or privilege, preclude any further
exercise thereof or the exercise of any other such right, power or privilege.
13.10 SURVIVAL OF WARRANTIES. All representations, warranties,
agreements, covenants and obligations herein or in any schedule or certificate
delivered by any party incident to the transactions contemplated hereby are
material and may be relied upon by the party receiving the same and shall
survive for a period ending two (2) years after the Closing Date
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date set forth above by their duly authorized representatives.
ATTEST: INSITE INTERNET, INC.
/S/ MICHAEL F. SWEENEY By: /S/ MARK E. MUNRO
- ---------------------------- ------------------------------------
Michael F. Sweeney, Mark E. Munro, President
Assistant Secretary and Chief Executive Officer
ATTEST: INSITE INTERNET I ACQUISITION CO., INC.
/S/ MICHAEL F. SWEENEY By: /S/ MARK E. MUNRO
- ---------------------------- ------------------------------------
Michael F. Sweeney, Mark E. Munro, President
Assistant Secretary and Chief Executive Officer
ATTEST: GLOBAL 2000 COMMUNICATIONS, INC.
/S/ DAVID CONBOY By: /S/ LORIN BELLER
- ---------------------------- ------------------------------------
David Conboy, Secretary Lorin Beller, President
WITNESS:
/S/ JOHN DOE /S/ DAVID CONBOY
- ---------------------------- ---------------------------------------
David Conboy
/S/ JUNE HOFFMAN /S/ JOAN CONBOY
- ---------------------------- ---------------------------------------
Joan Conboy
/S/ JUNE HOFFMAN /S/ JAMES CONBOY
- ---------------------------- ---------------------------------------
James Conboy
/S/ GINA SEONLES /S/ TRACY CONBOY
- ---------------------------- ---------------------------------------
Tracy Conboy
/S/ JOHN DOE /S/ LORIN BELLER
- ---------------------------- ---------------------------------------
Lorin Beller
/S/ JOHN DOE /S/ ADAM WILLS
- ---------------------------- ---------------------------------------
Adam Wills
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EXHIBIT 1.3
BOARD OF DIRECTORS/OFFICERS
INSITE INTERNET I ACQUISITION CO., INC.
Board of Directors
Mark Munro
Keith London
Officers
Mark Munro - President, Secretary & Treasurer
S. Keith London - Secretary
Michael F. Sweeney - Assistant Secretary
Upon the filing of the Merger Certificate to effect the Merger of the Company
into Newco at the Closing, the Board of Directors of Newco will execute a
consent vote electing David Conboy as Chief Executive Officer, Lorin Beller as
President, and Adam Wills as Director of Networking of the Surviving
Corporation.
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EXHIBIT 1.5(a)
This promissory note has not been registered under The Securities Act of 1933,
as amended, and may not be sold, offered for sale, assigned, transferred or
otherwise disposed of unless registered pursuant to the provisions of that Act
or an opinion of counsel to the Maker is obtained stating that such disposition
is in compliance with an available exemption from such registration.
INSITE INTERNET, INC.
Unsecured Subordinated Promissory Note
$11,600.00 January 31, 1999
Spring Lake, New Jersey
FOR VALUE RECEIVED, the undersigned, INSITE INTERNET, INC., a Delaware
corporation (the "Maker"), promises to pay to Tracy Conboy or permitted assigns
(the "Holder"), the principal sum of Eleven Thousand Six Hundred Dollars and
00/100 ($11,600.00) upon the closing of an initial public offering of the
Maker's common stock which is underwritten on a firm commitment basis (the
"Maturity Date"), together with interest on the outstanding principal balance of
this Note from the date hereof until fully paid at a simple annual interest rate
equal to the "Applicable Federal Rate" for short term debt instruments as
provided under Section 1274(d) of the Internal Revenue Code of 1986, as amended.
Interest shall be calculated on the basis of the actual number of days
elapsed over a year of three hundred and sixty (360) days.
The entire principal amount hereof, together with all interest hereon,
shall be due and payable on the Maturity Date or upon the acceleration of this
Note following the occurrence of an Event of Default, as that term is defined
below, whichever shall first occur. Upon the occurrence of any Event of Default,
the Holder shall have the right to declare the unpaid principal of and interest
on this Note to be forthwith due and payable.
The principal hereof and interest hereon shall be payable on the
Maturity Date in lawful money of the United States of America, at the Maker's
principal office in Spring Lake, New Jersey or at such other place as the Holder
hereof may designate in writing to the Maker. The Maker may prepay this Note in
full or in part at any time without premium or penalty.
The Holder agrees that the Note may not be sold, transferred, pledged,
hypothecated or otherwise disposed of except to a person who, in the opinion of
counsel to the Maker, is a person to whom the Note may legally be transferred
without registration under the Securities Act of
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1933, as amended the (the "1933 Act"), and then only against receipt of an
agreement of such person to comply with the provisions of this paragraph with
respect to any resale or other disposition of the Note.
The Maker covenants and agrees that, so long as this Note shall be
outstanding, it will:
(i) Promptly pay and discharge all lawful taxes, assessments,
and governmental charges or levies imposed upon the Maker or upon its income and
profits, PROVIDED, HOWEVER, that the Maker shall not be required to pay and
discharge any such tax, assessment, charge or levy so long as the validity
thereof shall be contested in good faith by appropriate proceedings and the
Maker shall set aside on its books adequate reserves with respect to any such
tax, assessment, charge, or levy so contested;
(ii) Do or cause to be done all things necessary to preserve
and keep in full force and effect its corporate existence, rights and franchises
and comply with all laws applicable to the Maker as its counsel may advise;
(iii) At all times keep true and correct books, records and
accounts.
This Note shall become and be due and payable upon written demand made
by the Holder hereof if one or more of the following events (each, an "Event of
Default"), shall happen and be continuing: (i) default in the payment of the
principal and interest on this Note when and as the same shall become due and
payable, whether by acceleration or otherwise; (ii) default in the due
observance or performance of any covenant, condition or agreement on the part of
the Maker to be observed or performed pursuant to the terms hereof, if such
default shall continue uncured for 30 days after written notice, specifying such
default, shall have been given to the Maker by the Holder; (iii) application
for, or consent to, the appointment of a receiver, trustee or liquidator of the
Maker or of its property; (iv) admission in writing of the Maker's inability to
pay its debts as they mature; (v) general assignment by the Maker for the
benefit of creditors; (vi) filing by the Maker of a voluntary petition in
bankruptcy or a petition or an answer seeking reorganization, or an arrangement
with creditors; or (vii) entering against the Maker of a court order approving a
petition filed against it under the Federal Bankruptcy laws, which order shall
not have been vacated or set aside or otherwise terminated within 120 days. The
Maker agrees that notice of the occurrence of any Event of Default will be
promptly given to the Holder at his registered address by certified mail. In
case any Event of Default shall happen and be continuing, the Holder may proceed
to protect and enforce his rights by suit in the specific performance of any
covenant or agreement contained in this Note or in aid of the exercise of any
power granted in this Note or may proceed to enforce the payment of this Note or
to enforce any other legal or equitable rights as such Holder may have.
The Maker waives presentment for payment, protest and demand, and
notice of protest, demand and/or dishonor and nonpayment of this Note.
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The Maker may consider and treat the person in whose name this Note
shall be registered as the absolute owner thereof for all purposes whatsoever
(whether or not this Note shall be overdue), and the Maker shall not be affected
by any notice to the contrary. This Note may not be offered, sold, assigned or
otherwise transferred unless registered under the 1933 Act or on opinion of
counsel to the Maker if obtained which states that such transfer is exempt from
registration. In case of transfer by operation of law, the transferee agrees to
notify the Maker of such transfer and of his address and to submit appropriate
evidence regarding the transfer so that this Note may be registered in the name
of the transferee. This Note is transferable only on the books of the Maker by
the Holder hereof, in person or by his attorney, on the surrender hereof, duly
endorsed. Communications sent to any registered owner shall be effective as
against all holders or transferees of the Note not registered at the time of
sending the communication.
Payments of interest and principal shall be made to the Holder of this
Note upon presentation of this Note on or after the Maturity Date. No interest
shall be due on this Note for such period of time as may elapse between the
Maturity Date and the date of presentation.
The Holder shall not, by virtue hereof, be entitled to any rights of a
stockholder in the Maker, either at law or in equity, and the rights of the
Holder are limited to those expressed in this Note.
Upon receipt by the Maker of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Note, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Note, if mutilated, the Maker shall execute
and deliver a new Note of like tenor and date. Any such new Note executed and
delivered shall constitute an additional contractual obligation on the part of
the Maker whether or not this Note so lost, stolen, destroyed or mutilated shall
be at any time enforceable by anyone.
This Note shall be construed and enforced in accordance with the laws
of the State of Delaware.
This note shall be unsecured.
In no event shall the amount due or payable hereunder exceed the
maximum rate of interest allowed by applicable law, and in the event any such
payment is inadvertently paid by the Maker or inadvertently received by the
Holder, then such excess sum shall be credited as a payment of principal, unless
the Maker shall notify the Holder, in writing, that the Maker elects to have
such excess sum refunded to it forthwith. It is the express intent hereof that
the Maker not pay and the Holder to receive, directly or indirectly, in any
manner whatsoever, interest in excess of that which may be lawfully paid by the
Maker under applicable law.
Payment of this Note is subordinate to payment in full of all
"senior indebtedness" of the Maker, now existing or hereafter arising. For
purposes of this Note, "senior indebtedness"
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means all obligations of the Maker for money borrowed to any banks, financing
companies, factors, or other similar lenders.
Maker shall have the right to set off amounts due and owing hereunder
against sums claimed by Maker against Holder pursuant to the post-closing
adjustment provisions of Section 2 and the indemnification provisions of Section
12 of that certain Agreement and Plan of Merger and Reorganization of even date
herewith by and among Maker, Holder and certain other parties thereto.
IN WITNESS WHEREOF, the undersigned Maker has caused this to be
executed by its duly authorized corporate officer as of the day and year first
above written.
MAKER:
INSITE INTERNET, INC.
By:
-----------------------------
Title: PRESIDENT
--------------------------
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EXHIBIT 1.6
ESCROW AGREEMENT
This ESCROW AGREEMENT is entered into as of the ____ day of __________,
1999 by and among: Global 2000 Communications, Inc., a New York corporation (the
"Company"); Lorin Beller, David Conboy and Adam Wills, stockholders of the
Company (collectively, the "Stockholders"); InSite Internet I Acquisition Co.,
Inc., a New York corporation ("Newco"); InSite Internet, Inc., a Delaware
corporation ("InSite"); and Duffy & Sweeney, LLP, a Rhode Island limited
liability partnership, as escrow agent (the "Escrow Agent").
WHEREAS, the Company, the Stockholders, Newco and InSite are parties to
an Agreement and Plan of Merger and Reorganization dated as of _________, 1999
(the "Merger Agreement"), relating to the merger of the Company with and into
Newco; and
WHEREAS, pursuant to the Merger Agreement, the Stockholders will deliver
the number of shares of common stock of InSite, par value $.01 per share,
identified on SCHEDULE 1 hereto (the "Escrow Shares"), into escrow to be held by
an escrow agent on behalf of the Stockholders as provided under the Merger
Agreement; and
WHEREAS, the parties hereto wish to specify the terms and conditions on
which the Escrow Shares, together with all income thereon, will be held,
invested and disbursed; and
WHEREAS, the Escrow Agent has expressed its willingness to act as escrow
agent hereunder.
NOW, THEREFORE, in consideration of the mutual undertakings and
covenants contained in this Escrow Agreement and of the mutual benefits to be
derived therefrom, the parties hereto agree as follows:
1. APPOINTMENT AND OBLIGATION OF ESCROW AGENT. The Stockholders, the
Company, Newco and InSite hereby appoint the Escrow Agent to receive, hold and
dispose of the Escrow Shares pursuant to the terms and conditions of this Escrow
Agreement, and the Escrow Agent hereby accepts such appointment on the terms and
conditions hereto. The use of the term "Escrow Agent" is solely for purposes of
identification and does not indicate or imply that the Escrow Agent has any
agency or other fiduciary obligations to any person or entity except for the
limited obligations of the Escrow Agreement pursuant hereto.
2. DEPOSIT OF ESCROW SHARES.
(a) The Stockholders hereby agree to deliver the Escrow Shares to
the Escrow Agent at the closing of the transactions contemplated by the Merger
Agreement, accompanied by an executed stock power or powers endorsed in blank.
The Escrow Agent hereby agrees to hold
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the Escrow Shares upon receipt in accordance with this Agreement. The Escrow
Shares do not form a part of the capital or debt of Escrow Agent and are not
subject to the claims of its creditors or depositors but are set apart and held
for the exclusive benefit of the parties.
(b) The Escrow Shares shall be used by the Escrow Agent solely for
the purposes of satisfying the indemnity obligations of the Stockholders under
Section 12 of the Merger Agreement. The Escrow Shares shall not be available to,
and shall not be used by, the Escrow Agent to set off any obligations of InSite
or Newco owing to the Escrow Agent in any capacity.
3. CASH DIVIDENDS AND VOTING RIGHTS. Until the Escrow Shares are
delivered by the Escrow Agent in accordance with the terms hereof, the
Stockholders are entitled to exercise all voting rights with respect to the
Escrow Shares and to receive for their own use cash and other dividends and
distributions on the Escrow Shares.
4. RELEASE OF ESCROW SHARES. The Escrow Agent shall release the Escrow
Shares as follows:
(a) If, at any time, InSite or Newco believes it is entitled to
receive a full or partial distribution of the Escrow Shares to satisfy the
indemnity obligations of the Stockholders to InSite and Newco and their
respective officers, directors, employees and agents under Section 12 of the
Merger Agreement, InSite or Newco shall give the Escrow Agent written notice of
the same (the "Claims Notice"), which Claims Notice shall specify the number of
Escrow Shares to be distributed, determined in accordance with SECTION 4(b)
hereof. Upon receipt of any Claims Notice, the Escrow Agent shall promptly
forward a copy of such notice to the Stockholders. If the Stockholders object to
the distribution proposed in the Claims Notice, the Stockholders shall give
written notice of such objection to the Escrow Agent within thirty (30) days
following receipt of the Claims Notice (the "Objection Notice"). If the Escrow
Agent does not receive an Objection Notice within such thirty (30) day period,
the Escrow Agent shall distribute to InSite the Escrow Shares having a value, as
determined in accordance with SECTION 4(c) hereof, equal to the amount specified
in the Claims Notice. If the Escrow Agent receives an Objection Notice within
such thirty (30) day period, the Escrow Agent shall continue to hold the Escrow
Shares pursuant to the terms of this Agreement, subject to the Claims Notice
until the Escrow Agent receives (i) a joint written instruction from the
Stockholders and InSite, Newco regarding disposition of the Escrow Shares
subject to the Claims Notice and Objection Notice, or (ii) a certified copy of a
final, non-appealable decision of a court of competent jurisdiction regarding
disposition of the Escrow Shares subject to the Claims Notice and Objection
Notice. Notwithstanding the foregoing sentence, the Escrow Agent may exercise
its rights under SECTION 9 of this Agreement at any time in the event of a
dispute between the parties regarding release of the Escrow Shares. Upon release
of the Escrow Shares in good faith pursuant to this Agreement, the Escrow Agent
shall be fully released and discharged from all obligations under this
Agreement.
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(b) For purposes of distribution by the Escrow Agent of all or any
portion of the Escrow Shares pursuant to paragraph (a) of this SECTION 4, the
number of Escrow Shares to be delivered shall be determined based on the
"closing sales price" (as hereinafter defined) of InSite Common Stock for the 10
consecutive trading days immediately preceding the "date of distribution" (as
hereinafter defined) of the Escrow Shares by the Escrow Agent.
(i) For purposes hereof, "closing sales
price" shall mean (a) the average of the closing sales price, or, in case no
such reported sale takes place on such day, the average of the reported closing
bid and asked prices, in either case on the principal national securities
exchange on which InSite Common Stock is listed or admitted to trading for such
10 day period, or (b) if not listed or admitted to trading on any national
securities exchange, the closing sales price as reported by The Nasdaq Stock
Market, Inc., or, if such firm at the time is not engaged in the business of
reporting such prices, as furnished by any similar firm then engaged in such
business as selected by InSite's Board of Directors, for such 10 day period, or
(c) if not listed or admitted to trading on any national securities exchange or
reported by Nasdaq or any similar firm, the net book value of the Escrow Shares
as determined by management of InSite as of the end of the most recent fiscal
quarter immediately preceding the last day of such 10 day period.
(ii) For purposes hereof, "date of
distribution" shall be the date specified in the Claims Notice which shall be
(a) the date as of the end of the thirty (30) day period commencing on the date
of the Claims Notice, or (b) in the event of a dispute, the actual date of
notification to the Escrow Agent to release Escrow Shares which shall be
promptly after resolution of any disputes.
(c) On the date which is one (1) year after the closing date of
the transactions contemplated by the Merger Agreement (the "Escrow Termination
Date"), the Escrow Agent shall deliver to the Stockholders the remaining Escrow
Shares, unless the Escrow Agent shall have been notified in writing by InSite,
Newco or the Stockholders that a Claims Notice is pending and has not been
resolved as described in paragraph (b)(i) or (ii) of this SECTION 4. If the
Escrow Agent has been advised that a Claims Notice is pending on the Escrow
Termination Date and has not been resolved as aforesaid, the Escrow Agent shall
deliver the remaining Escrow Shares to the parties in accordance with the
resolution of the Claims Notice, as provided in SECTION 4(b).
5. EXCULPATION OF ESCROW AGENT. The Escrow Agent shall have no duties or
responsibilities except for those set forth herein (and required by applicable
law), which the parties agree are ministerial in nature. If in doubt as to its
duties and responsibilities hereunder, the Escrow Agent may consult with counsel
of its choice and shall be protected in any action taken or omitted in good
faith in connection with the written advice or opinion of such counsel. The
Escrow Agent shall not be deemed to have any knowledge of or responsibility for
the terms of any other agreement or instrument including the Merger Agreement.
The Escrow Agent makes no representation as to the validity, value, genuineness
or collectibility of any security,
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document or instrument held by or delivered to it. Except for the Escrow Agent's
own fraud, bad faith, willful misconduct or gross negligence: (a) the Escrow
Agent shall have no liability of any kind whatsoever for the performance of any
duties imposed upon the Escrow Agent under this Escrow Agreement or for any
action or failure to act taken in good faith by the Escrow Agent hereunder; (b)
the Escrow Agent shall not be responsible for the acts or omissions of any other
parties hereto; (c) the Escrow Agent shall not be liable to anyone for damages,
losses or expenses arising out of this Escrow Agreement; and (d) the Escrow
Agent may rely and/or act upon any instrument or document believed by the Escrow
Agent in good faith to be genuine and to be executed and delivered by the proper
person or party, and may assume in good faith the authenticity, validity and
effectiveness thereof and shall not be obligated to make any investigation or
determination as to the truth and accuracy of any information contained therein.
The Escrow Agent shall not be liable for any error of judgment, or for any act
done or step taken or omitted by it in good faith or for any mistake of fact or
law, or for anything which it may do or refrain from doing in connection
herewith, except its own bad faith, willful misconduct or gross negligence. In
the event of any dispute between InSite, Newco or the Stockholders, InSite and
the Stockholders shall pay, on demand, the reasonable attorneys' fees and other
reasonable costs and expenses incurred by the Escrow Agent in respect thereof;
InSite, Newco and the Stockholders shall be jointly and severally liable for
such fees, costs and expenses but, as between themselves, such fees, costs and
expenses shall be paid by the party losing such dispute or as determined by the
court or other party resolving such dispute.
6. INDEMNIFICATION; EXPENSES. In consideration of its acceptance of the
appointment as the Escrow Agent, InSite, Newco and the Stockholders, jointly and
severally, agree to indemnify and hold the Escrow Agent harmless as to any
liability incurred by it to any person, firm or corporation by reason of its
having accepted the same or in carrying out in good faith any of the terms
hereof, and to reimburse Escrow Agent for all its reasonable expenses,
including, among other things, counsel fees and court costs, incurred by reason
of its position hereunder or actions taken pursuant hereto.
7. SUCCESSOR ESCROW AGENT.
(a) The Escrow Agent (and any successor escrow agent) may at any
time resign as such by delivering the Escrow Shares to any successor escrow
agent jointly designated in writing by InSite, Newco and the Stockholders, or to
any court of competent jurisdiction, whereupon the Escrow Agent shall be
discharged of and from any and all further obligations arising in connection
with this Escrow Agreement. The resignation of the Escrow Agent shall take
effect on the earlier of the appointment of a successor escrow agent or the day
which is thirty (30) days after the date of delivery of the Escrow Agent's
written notice of resignation to the other parties hereto. In the event that a
successor escrow agent has not been appointed at the expiration of such thirty
(30) day period, the Escrow Agent's sole responsibility hereunder shall be the
safekeeping of the Escrow Shares and to deliver all or any portion thereof as
may be specified in a written agreement signed by all the other parties to this
Agreement or as any court of competent jurisdiction may order.
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(b) If the Escrow Agent receives a written notice signed by
InSite, Newco and the Stockholders stating that they have selected another
escrow agent, the Escrow Agent shall deliver the Escrow Shares to the successor
escrow agent named in the aforesaid notice within ten (10) days.
8. ENTIRE AGREEMENT; MODIFICATION. With the exception of the Merger
Agreement and agreements, schedules and exhibits thereto, this Escrow Agreement
contains the entire agreement, and supersedes all prior agreements and
undertakings, oral or written, between the parties hereto with respect to the
subject matter hereof. No modification of this Escrow Agreement shall be valid
unless the same is in writing and is signed by InSite, Newco, the Stockholders
and the Escrow Agent.
9. INCONSISTENT CLAIMS. In the event that the Escrow Agent should at any
time be confronted with inconsistent claims or demands by the parties hereto,
the Escrow Agent shall have the right to interplead said parties in any court of
competent jurisdiction in Rhode Island, and request that such court determine
such respective rights of the parties with respect to this Escrow Agreement, and
upon doing so, the Escrow Agent automatically shall be released from any
obligations or liability as consequence of any such claims or demands.
10. STOCKHOLDERS' ACKNOWLEDGMENT OF ATTORNEY/CLIENT RELATIONSHIP BETWEEN
INSITE, NEWCO AND THE ESCROW AGENT. The Stockholders acknowledge and agree that
the Escrow Agent has acted and will continue to act as counsel to InSite and
Newco in connection with the negotiation and execution of the Merger Agreement.
In that connection and as a condition to the Escrow Agent's and InSite's and
Newco's agreement to enter into this Agreement, the Stockholders waive any right
to seek disqualification of the Escrow Agent from serving as counsel to InSite
and Newco by virtue of this Agreement or any dispute hereunder.
11. NOTICES. Any notices to be given hereunder shall be sufficiently
given if in writing and delivered personally, sent by telecopy (answerback
received), sent by recognized overnight courier, or mailed by registered or
certified mail, return receipt requested, postage prepaid, to the following
addresses or to such other address as the parties may from time to time
designate in writing delivered in accordance with this SECTION 11:
(a) To the Stockholders at: with a copy to:
Lorin Beller Thuillez, Ford, Gold & Johnson, LLP
David Conboy 90 State Street, Suite 1500
Adam Wills Albany, NY 12207-1715
c/o Global 2000 Communications, Inc. Attn: Dale M. Thuillez
1840 Western Avenue Phone: (518) 445-9952
Albany, NY 12203 Fax: (518) 462-4031
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(b) To InSite and Newco care of:
InSite Internet, Inc.
1100 First Avenue
Spring Lake, NJ 07762
Attn: Mark E. Munro, President & CEO
Phone: (732) 280-6407
Fax: (732) 280-6409
with a copy to the Escrow Agent at the address below:
(c) To the Escrow Agent at:
Duffy & Sweeney, LLP
300 Turks Head Building
Providence, RI 02903
Attn: Michael F. Sweeney, Partner
Phone: (401) 455-0700
Fax: (401) 455-0701
Any notices to be given hereunder shall be deemed received (a) on the date
delivered, if delivered personally, (b) on the date sent, if sent by telecopy,
(c) on the first business day after the date such notice was sent, if sent by
overnight courier, or (d) on the third business day after the date such notice
was sent, if sent by registered or certified mail, PROVIDED THAT no such notice
or other communication shall be deemed given to the Escrow Agent until the same
is received by the Escrow Agent.
12. BINDING EFFECT. This Escrow Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, except that the Stockholders and InSite, Newco may not assign their
respective obligations hereunder without the prior written consent of the other
parties. Any assignment in contravention of this provision shall be void. No
assignment shall release the Stockholders or InSite, Newco from any obligation
or liability under this Escrow Agreement.
13. GOVERNING LAW. This Escrow Agreement shall be construed in accordance
with and governed by the laws of the State of Rhode Island.
14. DEFINED TERMS. Capitalized terms used herein without definition shall
have the meanings assigned to them in the Merger Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement as of the date first above written.
INSITE INTERNET, INC.
ATTEST:
By:
- -------------------------------- ---------------------------------
, Assistant Secretary Mark E. Munro, President
and Chief Executive Officer
INSITE INTERNET I ACQUISITION CO.,
INC.
ATTEST:
By:
- -------------------------------- ---------------------------------
, Assistant Secretary Mark E. Munro, President
GLOBAL 2000 COMMUNICATIONS, INC.
ATTEST:
By:
- -------------------------------- ---------------------------------
, Secretary ____________, President
WITNESS:
- -------------------------------- ------------------------------------
Lorin Beller
WITNESS
- -------------------------------- ------------------------------------
David Conboy
WITNESS
- -------------------------------- ------------------------------------
Adam Wills
ATTEST DUFFY & SWEENEY.LLP
By:
- -------------------------------- ---------------------------------
Michael F. Sweeney, Partner
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SCHEDULE 1
<TABLE>
<CAPTION>
STOCKHOLDER NUMBER OF ESCROW SHARES
- ----------- -----------------------
<S> <C>
Lorin Beller 2083
David Conboy 2083
Adam Wills 834
</TABLE>
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EXHIBIT 6.12(a)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this
____ day of ________________, 1999, by and between, InSite Internet I
Acquisition Co., Inc., a New York corporation (the "Company") and wholly-owned
subsidiary of InSite Internet, Inc., a Delaware corporation (the "Parent") and
Lorin Beller, an individual with a mailing address at
________________________________ ("Employee").
INTRODUCTION
Employee is a principal and employee of Global 2000 Communications, Inc.
(the "Founding Company") and possesses skills and knowledge advantageous to the
Company.
The Parent, the Company, the Founding Company, and the stockholders of
the Founding Company are parties to that certain Agreement and Plan of Merger
and Reorganization dated as of _____________, 1999 (the "Merger Agreement")
pursuant to which the Parent, the Founding Company and the Company intend to
effect a merger of the Founding Company with and into the Company.
Contemporaneously with and conditioned upon the closing of the transactions
contemplated by the Merger Agreement (the "Effective Date"), effective on the
Effective Date, the Company desires to employ Employee and Employee desires to
accept such employment on the terms and conditions set forth herein.
AGREEMENT
In consideration of the premises and mutual promises hereinbelow set
forth, the parties hereby agree as follows:
1. EMPLOYMENT; DUTIES. Subject to the terms and conditions set
forth herein, the Company hereby employs Employee during the Employment Period
(as defined below), and Employee hereby accepts such employment. Employee agrees
to be a full-time employee of the Company and devote her full and exclusive
time, energy, skill and best efforts to the business of the Company and to the
fulfillment of Employee's duties hereunder. Employee's duties include, but are
not limited to, (i) serving as President of the Company; (ii) sales of the
Company's and its affiliates products and services; (iii) assisting in the
internal growth of the Company's business; and (iv) other duties assigned to
Employee by the Company from time to time consistent with Employee's position.
2. EMPLOYMENT PERIOD. The term of this Agreement (the "Employment
Period") shall commence on the Effective Date and shall terminate three (3)
years thereafter, unless terminated earlier pursuant to SECTION 4 or SECTION 5
below.
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3. COMPENSATION AND BENEFITS.
3.1 SALARY. During the Employment Period, the Company agrees
to pay Employee at the rate of $70,000 per year ("Base Salary"). Employee's
salary shall be subject to customary withholdings and be payable to Employee on
the regularly occurring pay period established by the Company.
3.2 HEALTH BENEFITS. During the Employment Period, the
Company shall provide Employee with individual and/or family health care
coverage, as provided by health care provider(s) selected by the Company from
time to time.
3.3 BONUS. During the Employment Period, Employee shall be
paid a bonus at the end of each fiscal year equal to the sum of (i) 2.5% of the
Company's increase in "annual sales" and (ii) 5% of the Company's increase in
"EBITDA" (i.e., earnings before interest and taxes, less depreciation and
amortization). Such bonus (if any) shall be payable at the discretion of the
Company in either (A) cash or (B) common stock, options or other awards from the
Parent's incentive stock plan, subject to applicable securities law and tax
withholding payments by Employee. The calculation for such bonus shall (x) be
based on the unconsolidated financial statements of the Company as certified by
the Company's certified public accountants; (y) be subject to allocation of
overhead provisions from time to time adopted by the Company, the Parent and its
subsidiaries; and (z) include only "organic" sales and earnings (i.e. only such
earnings and sales generated from the Company's currently existing business) and
shall exclude, without limitation, any earnings or sales generated by way of
merger, acquisition or other similar event.
3.4 RETIREMENT PLAN. During the Employment Period, Employee
shall be entitled to participate in any 401(k) or similar plan adopted by the
Company for the benefit of its employees. The Company reserves the right to
modify, terminate or withdraw any such plan (if so adopted) at any time in its
sole discretion.
3.5 INCENTIVE BONUS. Employee will be paid an incentive
bonus equal to 1.0% of the total purchase price for each company that Employee
introduces to the Parent and is subsequently acquired by the Parent, payable at
the Company's discretion in either (i) cash or (ii) common stock, stock options
or other awards from the Parent's incentive stock option plan, subject to
applicable securities law and tax withholding payments by Employee. Employee
will be required to submit any referral in writing for acknowledgment by the
Parent prior to any negotiations between the Parent and the referral. Employee
acknowledges that other persons or entities, (including other employees,
officers, and directors of the Company and its affiliates), have been or may be
offered a similar "incentive bonus" and that any incentive bonus which Employee
may be entitled to hereunder is subject to a percentage reduction to the extent
that other persons or entities participated in or were responsible for the
referral. Any dispute regarding apportionment of an incentive bonus shall be
resolved by binding arbitration in
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accordance with SECTION 13 hereof. In no event shall the Company or the Parent
pay more than one incentive bonus for any single transaction.
4. TERMINATION BY THE COMPANY FOR CAUSE. Upon written notice to
Employee, the Company may terminate this Agreement for cause if any of the
following events shall occur: (i) any breach of this Agreement by Employee; (ii)
the commission of a felony by Employee; (iii) the commission of an act by
Employee involving fraud, theft or dishonesty; (iv) material breach by the
Founding Company or its stockholders of their representations, warranties and
covenants and/or obligations under the Merger Agreement which breach remains
uncured for a period of thirty (30) days following notice to Employee; or (v)
the Company's bona fide decision to terminate its business and liquidate its
assets. In the event of a termination pursuant to this SECTION 4, all
obligations of the Company under this Agreement shall cease.
5. TERMINATION WITHOUT CAUSE.
5.1 BY EMPLOYER. The Company may terminate this Agreement at
any time without cause upon thirty (30) days written notice to Employee. In such
event, the Company shall pay Employee during regular payroll periods (less
customary withholding taxes) the Base Salary for up to the greater of twelve
(12) months or the remainder of the Employment Period provided however, in
either case, (i) Employee is actively seeking new employment and (ii) the
Company's severance obligations hereunder will end on the date Employee secures
new employment. All other obligations of the Company shall cease on the date of
termination.
5.2 BY EMPLOYEE. Employee may terminate this Agreement at
any time upon ninety (90) days prior written notice to the Company. In such
case, Employee shall not be eligible for any severance payments or other
benefits after the date of termination.
5.3 MERGER AGREEMENT. Absent a breach of the Merger
Agreement, termination by either the Company or Employee pursuant to this
SECTION 5 shall not be deemed a breach of the Merger Agreement, nor will it
affect either party's obligations thereunder.
6. CONFIDENTIALITY AND NON-DISCLOSURE. Employee recognizes and
acknowledges that she has had in the past, currently has and in the future may
have access to certain confidential information relating to the Company and its
affiliates, including, but not limited to, operational policies, financial
information, marketing information, personnel information, trade secrets,
customer information (including customer lists), and pricing and cost policies,
that are valuable, special and unique assets of the Company (collectively,
"Confidential Information"). Employee agrees that she will not use or disclose
such Confidential Information to any person, firm, corporation, association or
other entity for any purpose or reason whatsoever, except as is required in the
course of performing her duties hereunder unless (i) such information becomes
known to the public generally through no breach by Employee of this covenant or
(ii) disclosure is required by law or any governmental authority or is required
in connection with the defense of a lawsuit against the disclosing party,
provided, that prior to disclosing any information pursuant
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to this clause (ii), Employee shall give prior written notice thereof to the
Company and provide the Company with the opportunity to contest such disclosure.
Employee agrees that, both during the Employment Period and after the
termination of this Agreement, Employee will hold in a fiduciary capacity for
the benefit of the Company, and shall not directly or indirectly use or
disclose, except as authorized by the Company in connection with the performance
of Employee's duties, any Confidential Information, that Employee may have or
may acquire (whether or not developed or compiled by Employee and whether or not
Employee has been authorized to have access to such Confidential Information)
during the term of this Agreement. The covenants contained in this SECTION 6
shall survive for the Employment Period and for a period of two (2) years
thereafter; provided, however, that with respect to those items of Confidential
Information which constitute trade secrets under applicable law, Employee's
obligations of confidentiality and non-disclosure as set forth in this SECTION 6
shall continue to survive after the applicable period above to the greatest
extent permitted by applicable law. These rights of the Company are in addition
to those rights the Company has under the common law or applicable statutes for
the protection of trade secrets.
7. NON-COMPETITION. Employee expressly covenants and agrees that
for the Employment Period and for a period of two (2) years thereafter, she
shall not, directly or indirectly, seek, obtain or accept a "Competitive
Position" in the "Restricted Territory" with a "Competitor" of the Company (as
such terms are hereafter defined). For purposes of this Agreement, a
"Competitor" of the Company means any business, individual, partnership, joint
venture, association, firm, corporation or other entity engaged, wholly or
partly, in the business of selling internet access service or in any related
business which the Company and/or its affiliates may engage in from time to time
during the term of this covenant; the "Restricted Territory" means each state of
the United States of America in which the Company and/or its affiliates
transacts business during the term of this covenant; a "Competitive Position"
means any employment with any Competitor of the Company whereby Employee will
use or is likely to use any Confidential Information, or whereby Employee has
duties for such Competitor that are the same or substantially similar to those
actually performed by Employee pursuant to the terms hereof. Nothing contained
in this SECTION 7 is intended to prevent Employee from investing in stock or
other securities listed on a national securities exchange or actively traded on
the over the counter market or any corporation engaged, wholly or partly, in the
sale of telecommunications products or services; provided, however, that
Employee and members of her immediate family shall not, directly or indirectly,
hold more than a total of two percent (2%) of all issued and outstanding stock
or other securities of any such corporation.
8. NON-SOLICITATION.
8.1 NON-SOLICITATION OF CUSTOMERS. Employee agrees that she
will not take any customer lists of the Company after leaving her employ and
that she will, for the Employment Period and for a period of two (2) years
thereafter, refrain from soliciting or attempting to solicit directly or by
assisting others, any business from any of the Company's
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customers, including actively sought prospective customers, with whom Employee
had "material contact" during the employment for purposes of providing products
or services.
8.2 NON-SOLICITATION OF EMPLOYEES. Employee agrees that she
will, for the Employment Period and for a period of two (2) years thereafter,
refrain from recruiting or hiring, or attempting to recruit or hire, directly or
by assisting others, any other employee of the Company who is employed by the
Company or any successor or affiliate of the Company.
9. TOLLING OF PERIOD OF RESTRAINT. Employee hereby expressly
acknowledges and agrees that in the event the enforceability of any of the terms
of this Agreement shall be challenged in court and Employee is not enjoined from
breaching any of the restraints set forth in SECTION 6 through SECTION 9, then
if a court of competent jurisdiction finds that the challenged restraint is
enforceable, the time period of the restraint shall be deemed tolled upon the
filing of the lawsuit challenging the enforceability of the restraint until the
dispute is finally resolved and all periods of appeal have expired.
10. ACKNOWLEDGEMENTS. Employee hereby acknowledges and agrees that
the restrictions contained in SECTION 6 through SECTION 9 are fair and
reasonable and necessary for the protection of the legitimate business interests
of the Company. Employee acknowledges that in the event Employee's employment
with the Company terminates for any reason, Employee will be able to earn a
livelihood without violating the restrictions contained in SECTION 6 through
SECTION 9 and that Employee's ability to earn a livelihood without violating
such restrictions is a material condition to Employee's employment and continued
employment with the Company. Employee expressly agrees that the character,
duration and geographical scope of the covenants contained in this SECTION 6
through SECTION 9 are reasonable in light of the circumstances as they exist at
the date upon which this Agreement has been executed including the substantial
payments made by the Company and Employee in consideration of the Merger
Agreement. However, should a determination nonetheless be made by a court of
competent jurisdiction at a later date that the character, duration or
geographical scope of the covenants contained herein are unreasonable in light
of the circumstances as they then exist, then it is the intention of both
Employee and the Company that these covenants shall be construed by the court in
such a manner as to impose only those restrictions on the conduct of Employee
which are reasonable in light of the circumstances as they then exist and
necessary to assure the Company of the intended benefit of these covenants.
11. RIGHTS TO MATERIALS; WORK FOR HIRE. All records, files,
memoranda, reports, price lists, customer lists, drawings, plans, sketches,
documents and the like (together with all copies thereof) relating to the
business of the Company, which Employee shall use or prepare or come in contact
with in the course of, or as a result of, her employment shall, as between the
parties hereto, remain the sole property of the Company. Upon the termination of
Employment or upon the prior demand of the Company, Employee shall immediately
return all such materials and shall not thereafter cause removal thereof from
the premises of the Company. Employee agrees to disclose and assign to the
Company as its exclusive property, all ideas, writings,
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inventions, discoveries, improvements and technical or business innovations made
or conceived by Employee, whether or not patentable or copyrightable, either
solely or jointly with others during the Employment Period and for a period of
two (2) years thereafter whether or not made or conceived during regular hours
of work or otherwise, which are along the lines of the business, work or
investigations of the Company or its affiliates. Employee agrees to execute any
and all documents hereafter requested by the Company necessary to further
effectuate the foregoing.
12. REMEDIES. Without limiting the Company's right to claim
damages, Employee acknowledges that the Company will be irreparably harmed by a
breach of any provision of this Agreement and Employee agrees that the Company
shall be entitled to injunctive relief in the event of such breach.
13. GOVERNING LAW; ARBITRATION; JURISDICTION; VENUE; ATTORNEY'S
FEES. This Agreement is made and entered into in and shall be governed by and
interpreted in accordance with the laws of, the State of New York. The Company
and Employee agree that any dispute regarding this Agreement shall be submitted
to arbitration to and shall be resolved in accordance with the rules of the
JAMS/Endispute for expedited cases then in effect. The arbitrator(s) shall be
mutually selected by the parties or in the event the parties cannot mutually
agree, then appointed by JAMS/Endispute. Any arbitration shall be held within a
thirty (30) mile radius of New York City and the arbitrator(s) shall apply New
York law. Judgment upon any award rendered by the arbitrator(s) shall be final
and may be entered in any court of competent jurisdiction. Notwithstanding the
foregoing, the Company shall have the absolute right to obtain equitable
remedies in any state court of competent jurisdiction in the State of New York
or in the United States District Court for the Southern District of New York. By
her execution and delivery of this agreement, Employee irrevocably submits to
and accepts the exclusive jurisdiction of each of such courts and waives any
objection (including any objection to venue or any objection based upon the
grounds of forum non conveniens) which might be asserted against the bringing of
any such action, suit or other legal proceeding in such courts. The court and/or
arbitrator(s) shall award costs and expenses (including reasonable attorney's
fees) to the prevailing party in any litigation or arbitration.
14. MISCELLANEOUS.
14.1 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all previous agreements, written and oral, regarding the
subject matter hereof between the parties hereto. This Agreement shall not be
changed, altered, modified or amended, except by a written agreement signed by
both parties hereto.
14.2. NOTICES. All notices, requests, demands and other
communications required or permitted to be given or made under this Agreement
shall be
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in writing and shall be deemed to have been given if delivered by hand,
sent by generally recognized overnight courier service, telex or telecopy, or
mail,
(a) to the Company care of: With a copy to:
InSite Internet., Inc. Duffy & Sweeney, LLP
1100 First Avenue 300 Turks Head Building
Spring Lake, NJ 07762 Providence, RI 02903
Attention: Mark E. Munro, CEO Attention: Michael F. Sweeney, Esq.
Telephone: (732) 280-6408 Telephone: (401) 455-0700
Fax: (732) 280-6409 Fax: (401) 455-0701
(b) to the Employee at: With a copy to:
Lorin Beller Thuillez, Ford, Gold & Johnson, LLP
_______________ 90 State Street, Suite 1500
_______________ Albany, NY 12207-1715
Attn: Dale M. Thuillez
Phone: (518) 445-9952
Fax: (518) 462-4031
14.3 ASSIGNMENT. The Company may assign this Agreement to
(i) any entity controlling, controlled by or under common control with the
Company or (ii) to any purchaser of the Company's assets provided that such
purchaser agrees to assume the Company's obligations hereunder.
14.4. SEVERABILITY. If any term or provision of this
Agreement, or the application thereof to any person or under any circumstance,
shall to any extent be invalid or unenforceable, the remainder of this
Agreement, or the application of such terms to the persons or under
circumstances other than those as to which it is invalid or unenforceable, shall
be considered severable and shall not be affected thereby, and each term of this
Agreement shall be valid and enforceable to the fullest extent permitted by law.
The invalid or unenforceable provisions shall, to the extent permitted by law,
be deemed amended and given such interpretation as to achieve the economic
intent of this Agreement.
14.5. WAIVER. The failure of any party to insist in any one
instance or more upon strict performance of any of the terms and conditions
hereof, or to exercise any right or privilege herein conferred, shall not be
construed as a waiver of such terms, conditions, rights or privileges, but same
shall continue to remain in full force and effect. Any waiver by any party of
any violation of, breach of or default under any provision of this Agreement by
the other party shall not be construed as, or constitute, a continuing waiver of
such provision, or waiver of any other violation of, breach of or default under
any other provision of this Agreement.
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14.6. RIGHT OF SETOFF. Notwithstanding anything to the
contrary set forth herein, and in addition to any and all remedies at law or in
equity which the Company may have, the Company shall have the absolute and
unconditional right to setoff its payment obligations hereunder against the
amount of any claims for indemnification it may have against Employee under the
Merger Agreement.
14.7. TITLES; GENDER. Section and subsection titles are for
convenience of reference only and are not to be considered in the interpretation
or construction of any of the provisions hereof. All pronouns or any variations
thereof contained in this Agreement refer to the masculine, feminine or neuter
as the identity of the person may require.
14.8 SURVIVAL. SECTION 6 through SECTION 14 hereof shall
survive any termination of this Agreement.
14.9 EXECUTION IN COUNTERPARTS. This Agreement may be
executed in counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same document.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY:
ATTEST: INSITE INTERNET ACQUISITION I Co., Inc.
By:
- ------------------------------- ----------------------------------
Mark E. Munro, President
WITNESS: EMPLOYEE:
- ------------------------------- ----------------------------------
Lorin Beller
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EXHIBIT 6.12(b)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this
____ day of ___________, 1999, by and between, InSite Internet I Acquisition
Co., Inc., a New York corporation (the "Company") and wholly-owned subsidiary of
InSite Internet, Inc., a Delaware corporation (the "Parent") and David Conboy,
an individual with a mailing address at ________________________________
("Employee").
INTRODUCTION
Employee is a principal and employee of Global 2000 Communications, Inc.
(the "Founding Company") and possesses skills and knowledge advantageous to the
Company.
The Parent, the Company, the Founding Company, and the stockholders of
the Founding Company are parties to that certain Agreement and Plan of Merger
and Reorganization dated as of __________, 1999 (the "Merger Agreement")
pursuant to which the Parent, the Founding Company and the Company intend to
effect a merger of the Founding Company with and into the Company.
Contemporaneously with and conditioned upon the closing of the transactions
contemplated by the Merger Agreement (the "Effective Date"), effective on the
Effective Date, the Company desires to employ Employee and Employee desires to
accept such employment on the terms and conditions set forth herein.
AGREEMENT
In consideration of the premises and mutual promises hereinbelow set
forth, the parties hereby agree as follows:
1. EMPLOYMENT; DUTIES. Subject to the terms and conditions set
forth herein, the Company hereby employs Employee during the Employment Period
(as defined below), and Employee hereby accepts such employment. Employee agrees
to be a full-time employee of the Company and devote his full and exclusive
time, energy, skill and best efforts to the business of the Company and to the
fulfillment of Employee's duties hereunder. Employee's duties include, but are
not limited to, (i) serving as Chief Executive Officer of the Company; (ii)
sales of the Company's and its affiliates products and services; (iii) assisting
in the internal growth of the Company's business; and (iv) other duties assigned
to Employee by the Company from time to time consistent with Employee's
position.
2. EMPLOYMENT PERIOD. The term of this Agreement (the "Employment
Period") shall commence on the Effective Date and shall terminate three (3)
years thereafter, unless terminated earlier pursuant to SECTION 4 or SECTION 5
below.
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3. COMPENSATION AND BENEFITS.
3.1 SALARY. During the Employment Period, the Company agrees
to pay Employee at the rate of $70,000 per year ("Base Salary"). Employee's
salary shall be subject to customary withholdings and be payable to Employee on
the regularly occurring pay period established by the Company.
3.2 HEALTH BENEFITS. During the Employment Period, the
Company shall provide Employee with individual and/or family health care
coverage, as provided by health care provider(s) selected by the Company from
time to time.
3.3 BONUS. During the Employment Period, Employee shall be
paid a bonus at the end of each fiscal year equal to the sum of (i) 2.5% of the
Company's increase in "annual sales" and (ii) 5% of the Company's increase in
"EBITDA" (i.e., earnings before interest and taxes, less depreciation and
amortization). Such bonus (if any) shall be payable at the discretion of the
Company in either (A) cash or (B) common stock, options or other awards from the
Parent's incentive stock plan, subject to applicable securities law and tax
withholding payments by Employee. The calculation for such bonus shall (x) be
based on the unconsolidated financial statements of the Company as certified by
the Company's certified public accountants; (y) be subject to allocation of
overhead provisions from time to time adopted by the Company, the Parent and its
subsidiaries; and (z) include only "organic" sales and earnings (i.e. only such
earnings and sales generated from the Company's currently existing business) and
shall exclude, without limitation, any earnings or sales generated by way of
merger, acquisition or other similar event.
3.4 RETIREMENT PLAN. During the Employment Period, Employee
shall be entitled to participate in any 401(k) or similar plan adopted by the
Company for the benefit of its employees. The Company reserves the right to
modify, terminate or withdraw any such plan (if so adopted) at any time in its
sole discretion.
3.5 INCENTIVE BONUS. Employee will be paid an incentive
bonus equal to 1.0% of the total purchase price for each company that Employee
introduces to the Parent and is subsequently acquired by the Parent, payable at
the Company's discretion in either (i) cash or (ii) common stock, stock options
or other awards from the Parent's incentive stock option plan, subject to
applicable securities law and tax withholding payments by Employee. Employee
will be required to submit any referral in writing for acknowledgment by the
Parent prior to any negotiations between the Parent and the referral. Employee
acknowledges that other persons or entities, (including other employees,
officers, and directors of the Company and its affiliates), have been or may be
offered a similar "incentive bonus" and that any incentive bonus which Employee
may be entitled to hereunder is subject to a percentage reduction to the extent
that other persons or entities participated in or were responsible for the
referral. Any dispute regarding apportionment of an incentive bonus shall be
resolved by binding arbitration in
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accordance with SECTION 13 hereof. In no event shall the Company or the Parent
pay more than one incentive bonus for any single transaction.
4. TERMINATION BY THE COMPANY FOR CAUSE. Upon written notice to
Employee, the Company may terminate this Agreement for cause if any of the
following events shall occur: (i) any breach of this Agreement by Employee; (ii)
the commission of a felony by Employee; (iii) the commission of an act by
Employee involving fraud, theft or dishonesty; (iv) material breach by the
Founding Company or its stockholders of their representations, warranties and
covenants and/or obligations under the Merger Agreement which breach remains
uncured for a period of thirty (30) days following notice to Employee; or (v)
the Company's bona fide decision to terminate its business and liquidate its
assets. In the event of a termination pursuant to this SECTION 4, all
obligations of the Company under this Agreement shall cease.
5. TERMINATION WITHOUT CAUSE.
5.1 BY EMPLOYER. The Company may terminate this Agreement at
any time without cause upon thirty (30) days written notice to Employee. In such
event, the Company shall pay Employee during regular payroll periods (less
customary withholding taxes) the Base Salary for up to the greater of twelve
(12) months or the remainder of the Employment Period provided however, in
either case, (i) Employee is actively seeking new employment and (ii) the
Company's severance obligations hereunder will end on the date Employee secures
new employment. All other obligations of the Company shall cease on the date of
termination.
5.2 BY EMPLOYEE. Employee may terminate this Agreement at
any time upon ninety (90) days prior written notice to the Company. In such
case, Employee shall not be eligible for any severance payments or other
benefits after the date of termination.
5.3 MERGER AGREEMENT. Absent a breach of the Merger
Agreement, termination by either the Company or Employee pursuant to this
SECTION 5 shall not be deemed a breach of the Merger Agreement, nor will it
affect either party's obligations thereunder.
6. CONFIDENTIALITY AND NON-DISCLOSURE. Employee recognizes and
acknowledges that he has had in the past, currently has and in the future may
have access to certain confidential information relating to the Company and its
affiliates, including, but not limited to, operational policies, financial
information, marketing information, personnel information, trade secrets,
customer information (including customer lists), and pricing and cost policies,
that are valuable, special and unique assets of the Company (collectively,
"Confidential Information"). Employee agrees that he will not use or disclose
such Confidential Information to any person, firm, corporation, association or
other entity for any purpose or reason whatsoever, except as is required in the
course of performing his duties hereunder unless (i) such information becomes
known to the public generally through no breach by Employee of this covenant or
(ii) disclosure is required by law or any governmental authority or is required
in connection with the defense of a lawsuit against the disclosing party,
provided, that prior to disclosing any information pursuant
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to this clause (ii), Employee shall give prior written notice thereof to the
Company and provide the Company with the opportunity to contest such disclosure.
Employee agrees that, both during the Employment Period and after the
termination of this Agreement, Employee will hold in a fiduciary capacity for
the benefit of the Company, and shall not directly or indirectly use or
disclose, except as authorized by the Company in connection with the performance
of Employee's duties, any Confidential Information, that Employee may have or
may acquire (whether or not developed or compiled by Employee and whether or not
Employee has been authorized to have access to such Confidential Information)
during the term of this Agreement. The covenants contained in this SECTION 6
shall survive for the Employment Period and for a period of two (2) years
thereafter; provided, however, that with respect to those items of Confidential
Information which constitute trade secrets under applicable law, Employee's
obligations of confidentiality and non-disclosure as set forth in this SECTION 6
shall continue to survive after the applicable period above to the greatest
extent permitted by applicable law. These rights of the Company are in addition
to those rights the Company has under the common law or applicable statutes for
the protection of trade secrets.
7. NON-COMPETITION. Employee expressly covenants and agrees that
for the Employment Period and for a period of two (2) years thereafter, he shall
not, directly or indirectly, seek, obtain or accept a "Competitive Position" in
the "Restricted Territory" with a "Competitor" of the Company (as such terms are
hereafter defined). For purposes of this Agreement, a "Competitor" of the
Company means any business, individual, partnership, joint venture, association,
firm, corporation or other entity engaged, wholly or partly, in the business of
selling internet access service or in any related business which the Company
and/or its affiliates may engage in from time to time during the term of this
covenant; the "Restricted Territory" means each state of the United States of
America in which the Company and/or its affiliates transacts business during the
term of this covenant; a "Competitive Position" means any employment with any
Competitor of the Company whereby Employee will use or is likely to use any
Confidential Information, or whereby Employee has duties for such Competitor
that are the same or substantially similar to those actually performed by
Employee pursuant to the terms hereof. Nothing contained in this SECTION 7 is
intended to prevent Employee from investing in stock or other securities listed
on a national securities exchange or actively traded on the over the counter
market or any corporation engaged, wholly or partly, in the sale of
telecommunications products or services; provided, however, that Employee and
members of his immediate family shall not, directly or indirectly, hold more
than a total of two percent (2%) of all issued and outstanding stock or other
securities of any such corporation.
8. NON-SOLICITATION.
8.1 NON-SOLICITATION OF CUSTOMERS. Employee agrees that he
will not take any customer lists of the Company after leaving his employ and
that he will, for the Employment Period and for a period of two (2) years
thereafter, refrain from soliciting or attempting to solicit directly or by
assisting others, any business from any of the Company's customers, including
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actively sought prospective customers, with whom Employee had "material contact"
during the employment for purposes of providing products or services.
8.2 NON-SOLICITATION OF EMPLOYEES. Employee agrees that he
will, for the Employment Period and for a period of two (2) years thereafter,
refrain from recruiting or hiring, or attempting to recruit or hire, directly or
by assisting others, any other employee of the Company who is employed by the
Company or any successor or affiliate of the Company.
9. TOLLING OF PERIOD OF RESTRAINT. Employee hereby expressly
acknowledges and agrees that in the event the enforceability of any of the terms
of this Agreement shall be challenged in court and Employee is not enjoined from
breaching any of the restraints set forth in SECTION 6 through SECTION 9, then
if a court of competent jurisdiction finds that the challenged restraint is
enforceable, the time period of the restraint shall be deemed tolled upon the
filing of the lawsuit challenging the enforceability of the restraint until the
dispute is finally resolved and all periods of appeal have expired.
10. ACKNOWLEDGEMENTS. Employee hereby acknowledges and agrees that
the restrictions contained in SECTION 6 through SECTION 9 are fair and
reasonable and necessary for the protection of the legitimate business interests
of the Company. Employee acknowledges that in the event Employee's employment
with the Company terminates for any reason, Employee will be able to earn a
livelihood without violating the restrictions contained in SECTION 6 through
SECTION 9 and that Employee's ability to earn a livelihood without violating
such restrictions is a material condition to Employee's employment and continued
employment with the Company. Employee expressly agrees that the character,
duration and geographical scope of the covenants contained in this SECTION 6
through SECTION 9 are reasonable in light of the circumstances as they exist at
the date upon which this Agreement has been executed including the substantial
payments made by the Company and Employee in consideration of the Merger
Agreement. However, should a determination nonetheless be made by a court of
competent jurisdiction at a later date that the character, duration or
geographical scope of the covenants contained herein are unreasonable in light
of the circumstances as they then exist, then it is the intention of both
Employee and the Company that these covenants shall be construed by the court in
such a manner as to impose only those restrictions on the conduct of Employee
which are reasonable in light of the circumstances as they then exist and
necessary to assure the Company of the intended benefit of these covenants.
11. RIGHTS TO MATERIALS; WORK FOR HIRE. All records, files,
memoranda, reports, price lists, customer lists, drawings, plans, sketches,
documents and the like (together with all copies thereof) relating to the
business of the Company, which Employee shall use or prepare or come in contact
with in the course of, or as a result of, his employment shall, as between the
parties hereto, remain the sole property of the Company. Upon the termination of
Employment or upon the prior demand of the Company, Employee shall immediately
return all such materials and shall not thereafter cause removal thereof from
the premises of the Company. Employee agrees to disclose and assign to the
Company as its exclusive property, all ideas, writings,
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inventions, discoveries, improvements and technical or business innovations made
or conceived by Employee, whether or not patentable or copyrightable, either
solely or jointly with others during the Employment Period and for a period of
two (2) years thereafter whether or not made or conceived during regular hours
of work or otherwise, which are along the lines of the business, work or
investigations of the Company or its affiliates. Employee agrees to execute any
and all documents hereafter requested by the Company necessary to further
effectuate the foregoing.
12. REMEDIES. Without limiting the Company's right to claim
damages, Employee acknowledges that the Company will be irreparably harmed by a
breach of any provision of this Agreement and Employee agrees that the Company
shall be entitled to injunctive relief in the event of such breach.
13. GOVERNING LAW; ARBITRATION; JURISDICTION; VENUE; ATTORNEY'S
FEES. This Agreement is made and entered into in and shall be governed by and
interpreted in accordance with the laws of, the State of New York. The Company
and Employee agree that any dispute regarding this Agreement shall be submitted
to arbitration to and shall be resolved in accordance with the rules of the
JAMS/Endispute for expedited cases then in effect. The arbitrator(s) shall be
mutually selected by the parties or in the event the parties cannot mutually
agree, then appointed by JAMS/Endispute. Any arbitration shall be held within a
thirty (30) mile radius of New York City and the arbitrator(s) shall apply New
York law. Judgment upon any award rendered by the arbitrator(s) shall be final
and may be entered in any court of competent jurisdiction. Notwithstanding the
foregoing, the Company shall have the absolute right to obtain equitable
remedies in any state court of competent jurisdiction in the State of New York
or in the United States District Court for the Southern District of New York. By
his execution and delivery of this agreement, Employee irrevocably submits to
and accepts the exclusive jurisdiction of each of such courts and waives any
objection (including any objection to venue or any objection based upon the
grounds of forum non conveniens) which might be asserted against the bringing of
any such action, suit or other legal proceeding in such courts. The court and/or
arbitrator(s) shall award costs and expenses (including reasonable attorney's
fees) to the prevailing party in any litigation or arbitration.
14. MISCELLANEOUS.
14.1 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all previous agreements, written and oral, regarding the
subject matter hereof between the parties hereto. This Agreement shall not be
changed, altered, modified or amended, except by a written agreement signed by
both parties hereto.
14.2. NOTICES. All notices, requests, demands and other
communications required or permitted to be given or made under this Agreement
shall be in writing and shall be
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deemed to have been given if delivered by hand, sent by generally recognized
overnight courier service, telex or telecopy, or mail,
(a) to the Company care of: With a copy to:
InSite Internet., Inc. Duffy & Sweeney, LLP
1100 First Avenue 300 Turks Head Building
Spring Lake, NJ 07762 Providence, RI 02903
Attention: Mark E. Munro, CEO Attention: Michael F. Sweeney, Esq.
Telephone: (732) 280-6408 Telephone: (401) 455-0700
Fax: (732) 280-6409 Fax: (401) 455-0701
(b) to the Employee at: With a copy to:
David Conboy Thuillez, Ford, Gold & Johnson, LLP
_______________ 90 State Street, Suite 1500
_______________ Albany, NY 12207-1715
Attn: Dale M. Thuillez
Phone: (518) 445-9952
Fax: (518) 462-4031
14.3 ASSIGNMENT. The Company may assign this Agreement to
(i) any entity controlling, controlled by or under common control with the
Company or (ii) to any purchaser of the Company's assets provided that such
purchaser agrees to assume the Company's obligations hereunder.
14.4. SEVERABILITY. If any term or provision of this
Agreement, or the application thereof to any person or under any circumstance,
shall to any extent be invalid or unenforceable, the remainder of this
Agreement, or the application of such terms to the persons or under
circumstances other than those as to which it is invalid or unenforceable, shall
be considered severable and shall not be affected thereby, and each term of this
Agreement shall be valid and enforceable to the fullest extent permitted by law.
The invalid or unenforceable provisions shall, to the extent permitted by law,
be deemed amended and given such interpretation as to achieve the economic
intent of this Agreement.
14.5. WAIVER. The failure of any party to insist in any one
instance or more upon strict performance of any of the terms and conditions
hereof, or to exercise any right or privilege herein conferred, shall not be
construed as a waiver of such terms, conditions, rights or privileges, but same
shall continue to remain in full force and effect. Any waiver by any party of
any violation of, breach of or default under any provision of this Agreement by
the other party shall not be construed as, or constitute, a continuing waiver of
such provision, or waiver of any other violation of, breach of or default under
any other provision of this Agreement.
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14.6. RIGHT OF SETOFF. Notwithstanding anything to the
contrary set forth herein, and in addition to any and all remedies at law or in
equity which the Company may have, the Company shall have the absolute and
unconditional right to setoff its payment obligations hereunder against the
amount of any claims for indemnification it may have against Employee under the
Merger Agreement.
14.7. TITLES; GENDER. Section and subsection titles are for
convenience of reference only and are not to be considered in the interpretation
or construction of any of the provisions hereof. All pronouns or any variations
thereof contained in this Agreement refer to the masculine, feminine or neuter
as the identity of the person may require.
14.8 SURVIVAL. SECTION 6 through SECTION 14 hereof shall
survive any termination of this Agreement.
14.9 EXECUTION IN COUNTERPARTS. This Agreement may be
executed in counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same document.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY:
ATTEST: INSITE INTERNET ACQUISITION I Co., Inc.
By:
- ------------------------------- ----------------------------------
Mark E. Munro, President
WITNESS: EMPLOYEE:
- ------------------------------- ----------------------------------
David Conboy
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EXHIBIT 6.12(c)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this
____ day of __________, 1999, by and between, InSite Internet I Acquisition Co.,
Inc., a New York corporation (the "Company") and wholly-owned subsidiary of
InSite Internet, Inc., a Delaware corporation (the "Parent") and Adam Wills, an
individual with a mailing address at ________________________________
("Employee").
INTRODUCTION
Employee is a principal and employee of Global 2000 Communications, Inc.
(the "Founding Company") and possesses skills and knowledge advantageous to the
Company.
The Parent, the Company, the Founding Company, and the stockholders of
the Founding Company are parties to that certain Agreement and Plan of Merger
and Reorganization dated as of ______________, 1999 (the "Merger Agreement")
pursuant to which the Parent, the Founding Company and the Company intend to
effect a merger of the Founding Company with and into the Company.
Contemporaneously with and conditioned upon the closing of the transactions
contemplated by the Merger Agreement (the "Effective Date"), effective on the
Effective Date, the Company desires to employ Employee and Employee desires to
accept such employment on the terms and conditions set forth herein.
AGREEMENT
In consideration of the premises and mutual promises hereinbelow set
forth, the parties hereby agree as follows:
1. EMPLOYMENT; DUTIES. Subject to the terms and conditions set
forth herein, the Company hereby employs Employee during the Employment Period
(as defined below), and Employee hereby accepts such employment. Employee agrees
to be a full-time employee of the Company and devote his full and exclusive
time, energy, skill and best efforts to the business of the Company and to the
fulfillment of Employee's duties hereunder. Employee's duties include, but are
not limited to, (i) serving as Director of Networking of the Company; (ii) sales
of the Company's and its affiliates products and services; (iii) assisting in
the internal growth of the Company's business; and (iv) other duties assigned to
Employee by the Company from time to time consistent with Employee's position.
2. EMPLOYMENT PERIOD. The term of this Agreement (the "Employment
Period") shall commence on the Effective Date and shall terminate three (3)
years thereafter, unless terminated earlier pursuant to SECTION 4 or SECTION 5
below.
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3. COMPENSATION AND BENEFITS.
3.1 SALARY. During the Employment Period, the Company agrees
to pay Employee at the rate of $70,000 per year ("Base Salary"). Employee's
salary shall be subject to customary withholdings and be payable to Employee on
the regularly occurring pay period established by the Company.
3.2 HEALTH BENEFITS. During the Employment Period, the
Company shall provide Employee with individual and/or family health care
coverage, as provided by health care provider(s) selected by the Company from
time to time.
3.3 BONUS. During the Employment Period, Employee shall be
paid a bonus at the end of each fiscal year equal to the sum of (i) 2.5% of the
Company's increase in "annual sales" and (ii) 5.0% of the Company's increase in
"EBITDA" (i.e., earnings before interest and taxes, less depreciation and
amortization). Such bonus (if any) shall be payable at the discretion of the
Company in either (A) cash or (B) common stock, options or other awards from the
Parent's incentive stock plan, subject to applicable securities law and tax
withholding payments by Employee. The calculation for such bonus shall (x) be
based on the unconsolidated financial statements of the Company as certified by
the Company's certified public accountants; (y) be subject to allocation of
overhead provisions from time to time adopted by the Company, the Parent and its
subsidiaries; and (z) include only "organic" sales and earnings (i.e. only such
earnings and sales generated from the Company's currently existing business) and
shall exclude, without limitation, any earnings or sales generated by way of
merger, acquisition or other similar event.
3.4 RETIREMENT PLAN. During the Employment Period, Employee
shall be entitled to participate in any 401(k) or similar plan adopted by the
Company for the benefit of its employees. The Company reserves the right to
modify, terminate or withdraw any such plan (if so adopted) at any time in its
sole discretion.
4. TERMINATION BY THE COMPANY FOR CAUSE. Upon written notice to
Employee, the Company may terminate this Agreement for cause if any of the
following events shall occur: (i) any breach of this Agreement by Employee; (ii)
the commission of a felony by Employee; (iii) the commission of an act by
Employee involving fraud, theft or dishonesty; (iv) material breach by the
Founding Company or its stockholders of their representations, warranties and
covenants and/or obligations under the Merger Agreement which breach remains
uncured for a period of thirty (30) days following notice to Employee; or (v)
the Company's bona fide decision to terminate its business and liquidate its
assets. In the event of a termination pursuant to this SECTION 4, all
obligations of the Company under this Agreement shall cease.
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5. TERMINATION WITHOUT CAUSE.
5.1 BY EMPLOYER. The Company may terminate this Agreement at
any time without cause upon thirty (30) days written notice to Employee. In such
event, the Company shall pay Employee during regular payroll periods (less
customary withholding taxes) the Base Salary for up to the greater of twelve
(12) months or the remainder of the Employment Period provided however, in
either case, (i) Employee is actively seeking new employment and (ii) the
Company's severance obligations hereunder will end on the date Employee secures
new employment. All other obligations of the Company shall cease on the date of
termination.
5.2 BY EMPLOYEE. Employee may terminate this Agreement at
any time upon ninety (90) days prior written notice to the Company. In such
case, Employee shall not be eligible for any severance payments or other
benefits after the date of termination.
5.3 MERGER AGREEMENT. Absent a breach of the Merger
Agreement, termination by either the Company or Employee pursuant to this
SECTION 5 shall not be deemed a breach of the Merger Agreement, nor will it
affect either party's obligations thereunder.
6. CONFIDENTIALITY AND NON-DISCLOSURE. Employee recognizes and
acknowledges that he has had in the past, currently has and in the future may
have access to certain confidential information relating to the Company and its
affiliates, including, but not limited to, operational policies, financial
information, marketing information, personnel information, trade secrets,
customer information (including customer lists), and pricing and cost policies,
that are valuable, special and unique assets of the Company (collectively,
"Confidential Information"). Employee agrees that he will not use or disclose
such Confidential Information to any person, firm, corporation, association or
other entity for any purpose or reason whatsoever, except as is required in the
course of performing his duties hereunder unless (i) such information becomes
known to the public generally through no breach by Employee of this covenant or
(ii) disclosure is required by law or any governmental authority or is required
in connection with the defense of a lawsuit against the disclosing party,
provided, that prior to disclosing any information pursuant to this clause (ii),
Employee shall give prior written notice thereof to the Company and provide the
Company with the opportunity to contest such disclosure. Employee agrees that,
both during the Employment Period and after the termination of this Agreement,
Employee will hold in a fiduciary capacity for the benefit of the Company, and
shall not directly or indirectly use or disclose, except as authorized by the
Company in connection with the performance of Employee's duties, any
Confidential Information, that Employee may have or may acquire (whether or not
developed or compiled by Employee and whether or not Employee has been
authorized to have access to such Confidential Information) during the term of
this Agreement. The covenants contained in this SECTION 6 shall survive for the
Employment Period and for a period of two (2) years thereafter; provided,
however, that with respect to those items of Confidential Information which
constitute trade secrets under applicable law, Employee's obligations of
confidentiality and non-disclosure as set forth in this SECTION 6 shall continue
to survive after the applicable period above to the greatest extent permitted by
applicable law.
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These rights of the Company are in addition to those rights the Company has
under the common law or applicable statutes for the protection of trade secrets.
7. NON-COMPETITION. Employee expressly covenants and agrees that
for the Employment Period and for a period of two (2) years thereafter, he shall
not, directly or indirectly, seek, obtain or accept a "Competitive Position" in
the "Restricted Territory" with a "Competitor" of the Company (as such terms are
hereafter defined). For purposes of this Agreement, a "Competitor" of the
Company means any business, individual, partnership, joint venture, association,
firm, corporation or other entity engaged, wholly or partly, in the business of
selling internet access service or in any related business which the Company
and/or its affiliates may engage in from time to time during the term of this
covenant; the "Restricted Territory" means each state of the United States of
America in which the Company and/or its affiliates transacts business during the
term of this covenant; a "Competitive Position" means any employment with any
Competitor of the Company whereby Employee will use or is likely to use any
Confidential Information, or whereby Employee has duties for such Competitor
that are the same or substantially similar to those actually performed by
Employee pursuant to the terms hereof. Nothing contained in this SECTION 7 is
intended to prevent Employee from investing in stock or other securities listed
on a national securities exchange or actively traded on the over the counter
market or any corporation engaged, wholly or partly, in the sale of
telecommunications products or services; provided, however, that Employee and
members of his immediate family shall not, directly or indirectly, hold more
than a total of two percent (2%) of all issued and outstanding stock or other
securities of any such corporation.
8. NON-SOLICITATION.
8.1 NON-SOLICITATION OF CUSTOMERS. Employee agrees that he
will not take any customer lists of the Company after leaving his employ and
that he will, for the Employment Period and for a period of two (2) years
thereafter, refrain from soliciting or attempting to solicit directly or by
assisting others, any business from any of the Company's customers, including
actively sought prospective customers, with whom Employee had "material contact"
during the employment for purposes of providing products or services.
8.2 NON-SOLICITATION OF EMPLOYEES. Employee agrees that he
will, for the Employment Period and for a period of two (2) years thereafter,
refrain from recruiting or hiring, or attempting to recruit or hire, directly or
by assisting others, any other employee of the Company who is employed by the
Company or any successor or affiliate of the Company.
9. TOLLING OF PERIOD OF RESTRAINT. Employee hereby expressly
acknowledges and agrees that in the event the enforceability of any of the terms
of this Agreement shall be challenged in court and Employee is not enjoined from
breaching any of the restraints set forth in SECTION 6 through SECTION 9, then
if a court of competent jurisdiction finds that the challenged restraint is
enforceable, the time period of the restraint shall be deemed tolled upon the
filing of
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the lawsuit challenging the enforceability of the restraint until the dispute is
finally resolved and all periods of appeal have expired.
10. ACKNOWLEDGEMENTS. Employee hereby acknowledges and agrees that
the restrictions contained in SECTION 6 through SECTION 9 are fair and
reasonable and necessary for the protection of the legitimate business interests
of the Company. Employee acknowledges that in the event Employee's employment
with the Company terminates for any reason, Employee will be able to earn a
livelihood without violating the restrictions contained in SECTION 6 through
SECTION 9 and that Employee's ability to earn a livelihood without violating
such restrictions is a material condition to Employee's employment and continued
employment with the Company. Employee expressly agrees that the character,
duration and geographical scope of the covenants contained in this SECTION 6
through SECTION 9 are reasonable in light of the circumstances as they exist at
the date upon which this Agreement has been executed including the substantial
payments made by the Company and Employee in consideration of the Merger
Agreement. However, should a determination nonetheless be made by a court of
competent jurisdiction at a later date that the character, duration or
geographical scope of the covenants contained herein are unreasonable in light
of the circumstances as they then exist, then it is the intention of both
Employee and the Company that these covenants shall be construed by the court in
such a manner as to impose only those restrictions on the conduct of Employee
which are reasonable in light of the circumstances as they then exist and
necessary to assure the Company of the intended benefit of these covenants.
11. RIGHTS TO MATERIALS; WORK FOR HIRE. All records, files,
memoranda, reports, price lists, customer lists, drawings, plans, sketches,
documents and the like (together with all copies thereof) relating to the
business of the Company, which Employee shall use or prepare or come in contact
with in the course of, or as a result of, his employment shall, as between the
parties hereto, remain the sole property of the Company. Upon the termination of
Employment or upon the prior demand of the Company, Employee shall immediately
return all such materials and shall not thereafter cause removal thereof from
the premises of the Company. Employee agrees to disclose and assign to the
Company as its exclusive property, all ideas, writings, inventions, discoveries,
improvements and technical or business innovations made or conceived by
Employee, whether or not patentable or copyrightable, either solely or jointly
with others during the Employment Period and for a period of two (2) years
thereafter whether or not made or conceived during regular hours of work or
otherwise, which are along the lines of the business, work or investigations of
the Company or its affiliates. Employee agrees to execute any and all documents
hereafter requested by the Company necessary to further effectuate the
foregoing.
12. REMEDIES. Without limiting the Company's right to claim
damages, Employee acknowledges that the Company will be irreparably harmed by a
breach of any provision of this Agreement and Employee agrees that the Company
shall be entitled to injunctive relief in the event of such breach.
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13. GOVERNING LAW; ARBITRATION; JURISDICTION; VENUE; ATTORNEY'S
FEES. This Agreement is made and entered into in and shall be governed by and
interpreted in accordance with the laws of, the State of New York. The Company
and Employee agree that any dispute regarding this Agreement shall be submitted
to arbitration to and shall be resolved in accordance with the rules of the
JAMS/Endispute for expedited cases then in effect. The arbitrator(s) shall be
mutually selected by the parties or in the event the parties cannot mutually
agree, then appointed by JAMS/Endispute. Any arbitration shall be held within a
thirty (30) mile radius of New York City and the arbitrator(s) shall apply New
York law. Judgment upon any award rendered by the arbitrator(s) shall be final
and may be entered in any court of competent jurisdiction. Notwithstanding the
foregoing, the Company shall have the absolute right to obtain equitable
remedies in any state court of competent jurisdiction in the State of New York
or in the United States District Court for the Southern District of New York. By
his execution and delivery of this agreement, Employee irrevocably submits to
and accepts the exclusive jurisdiction of each of such courts and waives any
objection (including any objection to venue or any objection based upon the
grounds of forum non conveniens) which might be asserted against the bringing of
any such action, suit or other legal proceeding in such courts. The court and/or
arbitrator(s) shall award costs and expenses (including reasonable attorney's
fees) to the prevailing party in any litigation or arbitration.
14. MISCELLANEOUS.
14.1 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all previous agreements, written and oral, regarding the
subject matter hereof between the parties hereto. This Agreement shall not be
changed, altered, modified or amended, except by a written agreement signed by
both parties hereto.
14.2. NOTICES. All notices, requests, demands and other
communications required or permitted to be given or made under this Agreement
shall be in writing and shall be deemed to have been given if delivered by hand,
sent by generally recognized overnight courier service, telex or telecopy, or
mail,
(a) to the Company care of: With a copy to:
InSite Internet., Inc. Duffy & Sweeney, LLP
1100 First Avenue 300 Turks Head Building
Spring Lake, NJ 07762 Providence, RI 02903
Attention: Mark E. Munro, CEO Attention: Michael F. Sweeney, Esq.
Telephone: (732) 280-6408 Telephone: (401) 455-0700
Fax: (732) 280-6409 Fax: (401) 455-0701
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(b) to the Employee at: With a copy to:
Adam Wills Thuillez, Ford, Gold & Johnson, LLP
_______________ 90 State Street, Suite 1500
_______________ Albany, NY 12207-1715
Attn: Dale M. Thuillez
Phone: (518) 445-9952
Fax: (518) 462-4031
14.3 ASSIGNMENT. The Company may assign this Agreement to
(i) any entity controlling, controlled by or under common control with the
Company or (ii) to any purchaser of the Company's assets provided that such
purchaser agrees to assume the Company's obligations hereunder.
14.4. SEVERABILITY. If any term or provision of this
Agreement, or the application thereof to any person or under any circumstance,
shall to any extent be invalid or unenforceable, the remainder of this
Agreement, or the application of such terms to the persons or under
circumstances other than those as to which it is invalid or unenforceable, shall
be considered severable and shall not be affected thereby, and each term of this
Agreement shall be valid and enforceable to the fullest extent permitted by law.
The invalid or unenforceable provisions shall, to the extent permitted by law,
be deemed amended and given such interpretation as to achieve the economic
intent of this Agreement.
14.5. WAIVER. The failure of any party to insist in any one
instance or more upon strict performance of any of the terms and conditions
hereof, or to exercise any right or privilege herein conferred, shall not be
construed as a waiver of such terms, conditions, rights or privileges, but same
shall continue to remain in full force and effect. Any waiver by any party of
any violation of, breach of or default under any provision of this Agreement by
the other party shall not be construed as, or constitute, a continuing waiver of
such provision, or waiver of any other violation of, breach of or default under
any other provision of this Agreement.
14.6. RIGHT OF SETOFF. Notwithstanding anything to the
contrary set forth herein, and in addition to any and all remedies at law or in
equity which the Company may have, the Company shall have the absolute and
unconditional right to setoff its payment obligations hereunder against the
amount of any claims for indemnification it may have against Employee under the
Merger Agreement.
14.7. TITLES; GENDER. Section and subsection titles are for
convenience of reference only and are not to be considered in the interpretation
or construction of any of the provisions hereof. All pronouns or any variations
thereof contained in this Agreement refer to the masculine, feminine or neuter
as the identity of the person may require.
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14.8 SURVIVAL. SECTION 6 through SECTION 14 hereof shall
survive any termination of this Agreement.
14.9 EXECUTION IN COUNTERPARTS. This Agreement may be
executed in counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same document.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY:
ATTEST: INSITE INTERNET ACQUISITION I Co., Inc.
By:
- ------------------------------- -----------------------------------------
Mark E. Munro, President
WITNESS: EMPLOYEE:
- ------------------------------- --------------------------------------------
Adam Wills
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Exhibit 10.2
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
-----------------------------------------------
INTRODUCTION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the "Agreement")
is entered into as of the 28th day of January, 1999 by and among InSite
Internet, Inc. (formerly known as InSite Telecom, Inc.), a Delaware corporation
(the "Parent"), InSite Internet II Acquisition Co., Inc., a New York corporation
("Newco"), Borg Internet Services, Inc., a Nevada corporation (the "Company")
and John L. Ryder, Michael Wil. Swiercz and James L. Henrickson, the
stockholders of the Company (collectively, the "Stockholders").
BACKGROUND
A. The Parent intends to undertake an initial public offering of its common
stock (the "IPO") and in connection therewith contemplates filing a registration
statement with the Securities and Exchange Commission ("SEC") within ninety (90)
days of the execution and delivery of this Agreement.
B. Contemporaneously with and conditioned upon the successful closing of the
IPO, the Parent, Newco and the Company intend to effect a merger of the Company
into Newco in accordance with this Agreement, the New York Business Corporation
Law and the business corporation laws of the state of Nevada (the "Merger").
Upon consummation of the Merger, the Company will cease to exist, and Newco will
continue to exist as the surviving corporation of the Merger.
C. It is intended that the Merger qualify as a tax-free reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code") and that this Agreement constitute a plan of reorganization for
such purposes.
D. This Agreement has been adopted and approved by the respective boards of
directors of the Parent, Newco and the Company, and the shareholders of Newco
and the Stockholders have each unanimously approved this Agreement by written
consent.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual and dependent promises
and the representations and warranties hereinafter contained, the parties hereto
agree as follows:
SECTION 1. DESCRIPTION OF THE MERGER TRANSACTION.
1.1 MERGER OF THE COMPANY INTO NEWCO. Upon the terms and subject to the
conditions set forth in this Agreement, at the Effective Time (as defined in
SECTION 1.2), the
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Company shall be merged with and into Newco, and the separate existence of the
Company shall cease.
1.2 EFFECTIVE TIME. The effective time of the Merger (the " Effective
Time") shall occur at the time a properly executed articles or a certificate of
merger for the merger of the Company into Newco, conforming to the requirements
of the New York Business Corporation Law and the business corporation laws of
the State of Nevada (collectively, the "Merger Certificates") have been
delivered and accepted for filing by the Secretary of State of the State of New
York and the Secretary of State of the State of Nevada. At the Effective Time,
the Company shall be merged with and into Newco in accordance with the Merger
Certificates and the separate existence of the Company shall cease and Newco
shall continue as the surviving corporation (the "Surviving Corporation"). The
Effective Time shall occur contemporaneously with the IPO closing date as
described in SECTION 1.7 below.
1.3 ARTICLES OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF THE
SURVIVING CORPORATION. At the Effective Time:
(a) The Articles of Incorporation of Newco shall become the
Articles of Incorporation of the Surviving Corporation; and, subsequent to the
Effective Time, such Articles of Incorporation shall be the Articles of
Incorporation of the Surviving Corporation until changed as provided by law.
(b) The bylaws of Newco shall become the bylaws of the
Surviving Corporation; and, subsequent to the Effective Time, such bylaws shall
be the bylaws of the Surviving Corporation until they shall thereafter be duly
amended.
(c) The Board of Directors of the Surviving Corporation shall
be set forth on EXHIBIT 1.3 hereto and shall hold office subject to the
provisions of the laws of the Surviving Corporation's state of incorporation and
of the Articles of Incorporation and bylaws of the Surviving Corporation.
(d) The officers of the Surviving Corporation shall be set
forth on EXHIBIT 1.3 hereto, each of such officers to serve, subject to the
provisions of the Articles of Incorporation and bylaws of the Surviving
Corporation, until his or her successor is elected and qualified.
1.4 EFFECT OF MERGER. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of the New York Business
Corporation Law and the business corporation laws of the State of Nevada. Except
as herein specifically set forth, the identity, existence, purposes, powers,
objects, franchises, privileges, rights and immunities of Newco shall continue
unaffected and unimpaired by the Merger and the corporate franchises, existence
and rights of the Company shall be merged with and into Newco, and Newco, as the
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Surviving Corporation, shall be fully vested therewith. At the Effective Time,
the separate existence of the Company shall cease and, in accordance with the
terms of this Agreement, the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises, of a public as well as of a private
nature, and all property, real, personal and mixed, and all debts due on
whatever account, including subscriptions to shares, and all taxes, including
those due and owing and those accrued, and all other choses in action, and all
and every other interest of or belonging to or due to the Company and Newco
shall be taken and deemed to be transferred to, and vested in, the Surviving
Corporation without further act or deed; and all property, rights and
privileges, powers and franchises and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of the Company and Newco; and the title to any real estate, or interest therein,
whether by deed or otherwise, vested in the Company and Newco, shall not revert
or be in any way impaired by reason of the Merger. Except as otherwise provided
herein, the Surviving Corporation shall thenceforth be responsible and liable
for all the liabilities and obligations of the Company and Newco and any claim
existing, or action or proceeding pending, by or against the Company or Newco
may be prosecuted as if the Merger had not taken place, or the Surviving
Corporation may be substituted in its place. Neither the rights of creditors nor
any liens upon the property of the Company or Newco shall be impaired by the
Merger, and all debts, liabilities and duties of the Company and Newco shall
attach to the Surviving Corporation, and may be enforced against the Surviving
Corporation to the same extent as if said debts, liabilities and duties had been
incurred or contracted by the Surviving Corporation.
1.5 MERGER CONSIDERATION; CONVERSION OF SHARES.
(a) As of the Effective Time, all of the shares of Common
Stock of the Company, no par value per share ("Company Stock"), issued and
outstanding immediately prior to the Effective Time, by virtue of the Merger and
without any action on the part of the holders thereof, shall be automatically
converted to, in the aggregate, shares of Common Stock of the Parent, par value
$.01 per share ("Parent Stock") and cash, as follows (collectively, the "Merger
Consideration"):
(1) a number of shares of Parent Stock equal to the
quotient of $1,500,000 divided by the price to the public of a
share of Parent Stock offered in the IPO, subject to the
post-closing adjustment with respect to such amount as set
forth in SECTION 2 below; and
(2) cash, certified check, wire transfer or other
readily available funds in the amount of $500,000, subject to
the post-closing adjustment with respect to such amount as set
forth in SECTION 2 below.
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(b) Each share of Company Stock held in the treasury of the
Company immediately prior the Effective Time (if any) shall be canceled without
any conversion thereof and no payment shall be made with respect thereto.
(c) As of and after the Effective Time, the Surviving
Corporation shall not be bound by any options, warrants, rights or agreements
with respect to the issuance or acquisition of capital stock of the Company
which would entitle any person to own, purchase or receive any capital stock of
the Company. As of the date hereof, there are no options, warrants, rights or
agreements with respect to the issuance or acquisition of the capital stock of
the Company except for the Merger transaction contemplated by this Agreement.
1.6 DELIVERY OF MERGER CONSIDERATION/ESCROW OF SHARES/SET-OFF.
(a) At the Closing, the Stockholders shall, upon surrender of
certificates representing all outstanding shares of Company Stock, receive their
pro rata share of the aggregate Merger Consideration set forth in SECTION 1.5
above in accordance with the percentage ownership interests of the Stockholders
reflected on SCHEDULE 3.4 hereto, provided, however, that a number of shares of
Parent Stock included in the aggregate Merger Consideration with a value of
$100,000 based on the public offering price of Parent Stock in the IPO (the
"Escrow Shares") and allocated pro rata among the Stockholders shall be
delivered into escrow at the Closing pursuant to the Escrow Agreement attached
hereto as EXHIBIT 1.6. In addition to all other rights and remedies of the
Parent, Newco and the Surviving Corporation for breach by the Company or the
Stockholders of the representations and warranties of the Company and
Stockholders herein, both at law and in equity, the Parent shall have the right
to set-off against the Escrow Shares for any claims of the Parent or the
Surviving Corporation arising under the post-Closing adjustment provisions of
Section 2 below and/or the indemnity provisions of SECTION 12 below.
(b) The Stockholders shall deliver to the Parent at the
Closing the certificates representing Company Stock, duly endorsed in blank by
each Stockholder, or accompanied by duly executed stock powers. The Stockholders
shall cure any deficiencies with respect to the endorsement of the certificates
or other documents of conveyance with respect to Company Stock or with respect
to the stock powers accompanying any of Company Stock.
(c) Upon surrender of the certificates representing shares of
Company Stock, such certificates shall be canceled, and as of the Effective
Time, the stock transfer books of the Company shall be closed and there shall be
no further registration of transfers of shares of the Company thereafter.
(d) No certificates representing fractional shares of Parent
Stock shall be issued upon the surrender of certificates which, prior to the
Effective Time, represented shares of Company Stock. In lieu of any such
fractional shares, the Stockholders will be paid an amount in cash based on the
public offering price of Parent Stock in the IPO.
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1.7 CLOSING. Within two (2) business days following the date
on which the price of the shares of Parent Stock offered to the public in the
contemplated IPO shall have been determined, the Parent, the Company and Newco
shall take all actions necessary to effect the Merger (including filing the
Merger Certificates which shall become effective at the Effective Time) and to
effect the conversion and delivery of shares referred to in SECTION 1.6 hereof
(hereinafter referred to as the "Closing"); provided, however, that such actions
shall not include the actual completion of the Merger or the conversion and
delivery of the shares referred to in SECTION 1.6 hereof, which actions shall
only take place at the Effective Time (which shall be contemporaneous with the
IPO closing date) as herein provided. The Closing shall take place at the
offices of Duffy & Sweeney, LLP, 300 Turks Head Building, Providence, Rhode
Island 02903, or at such other place and time or date as may be mutually agreed
upon by the parties hereto. The actual date of the Closing is referred to herein
as the "Closing Date". Concurrently with the closing of the IPO, the Merger
shall become effective and all transactions contemplated by this Agreement,
including the conversion and delivery of shares and the delivery of checks in
for the cash portion of the Merger Consideration, shall be completed. Except as
otherwise provided in SECTION 9 hereto, during the period between the date of
the final pricing of the shares of Parent Stock to be offered to the public in
the contemplated IPO (as determined by the Parent and its underwriters), and the
Closing Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the IPO is terminated pursuant to its
terms. This Agreement shall in any event terminate if the Effective Time has not
occurred within 15 business days of the Closing Date. Time is of the essence.
SECTION 2. POST CLOSING ADJUSTMENT
2.1 POST-CLOSING ADJUSTMENT. Within forty-five (45) days after the
Closing, the Parent shall engage KPMG Peat Marwick LLP to audit a balance sheet
prepared in accordance with generally accepted accounting principles ("GAAP") of
the Company as of 5:00 PM (EST) on the day prior to the Closing Date (the
"Closing Date Balance Sheet"). Such Closing Balance Sheet will utilize the
accrual method of accounting notwithstanding the fact that the Company has
heretofore utilized the cash-basis method of accounting in connection with its
financial statements and taxes. If the aggregate shareholders' equity as shown
on the Closing Date Balance Sheet is less than $167,000 (the amount of such
shortfall being hereafter known as the "Net Worth Deficiency"), the Stockholders
shall pay, within 5 days of the date of determination of the Net Worth
Deficiency (subject to the dispute resolution procedure set forth below) (i) 25%
of the Net Worth Deficiency to the Parent in cash, by certified check or by wire
transfer of immediately available funds, and (ii) 75% of the Net Worth
Deficiency in shares of Parent Stock which shall be valued at the "closing sales
price" (as defined in Section 4(b)(i) of the Escrow Agreement attached hereto as
Exhibit 1.6) for the ten (10) business day period immediately preceding the date
the parties reach agreement as to any Net Worth Deficiency. The Parent shall
have the option, at its sole discretion and notwithstanding any language to the
contrary in the Escrow Agreement attached hereto, to receive the shares of
Parent Stock necessary to satisfy
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75% of the Net Worth Deficiency from the Stockholders directly (i.e. not from
the "Escrow Shares") or from the Escrow Shares. Notwithstanding anything in this
SECTION 2 to the contrary, if there is any Net Worth Deficiency and the
Stockholders dispute any item contained on the Closing Date Balance Sheet, the
Stockholders shall notify the Parent in writing of each disputed item
(collectively, the "Disputed Amounts"), and specify the amount thereof in
dispute within thirty (30) business days after the delivery of the Closing Date
Balance Sheet. If the Parent and the Stockholders cannot resolve any such
dispute which would eliminate or reduce the amount of the Net Worth Deficiency,
then such dispute shall be resolved by an independent nationally recognized
accounting firm which is reasonably acceptable to the Parent and the
Stockholders (the "Independent Accounting Firm"). The determination of the
Independent Accounting Firm shall be made as promptly as practical and shall be
final and binding on the parties, absent manifest error which error may only be
corrected by such Independent Accounting Firm. Any expenses relating to the
engagement of the Independent Accounting Firm shall be allocated between the
Parent and the Stockholders so that the Stockholders' aggregate share of such
costs shall bear the same proportion to the total costs that the Disputed
Amounts unsuccessfully contested by the Stockholders (as finally determined by
the Independent Accounting Firm) bear to the total of the Disputed Amounts so
submitted to the Independent Accounting Firm.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
3.1 MAKING OF REPRESENTATIONS AND WARRANTIES. As a material inducement
to the Parent and Newco to enter into this Agreement and consummate the
transactions contemplated hereby, the Company and each of the Stockholders
hereby jointly and severally make to the Parent and Newco the representations
and warranties contained in this Section 3.
3.2 ORGANIZATION AND QUALIFICATION OF THE COMPANY. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of Nevada with full corporate power and authority to own or lease its properties
and to conduct its business in the manner and in the places where such
properties are owned or leased and where such business is currently conducted or
proposed to be conducted. The copies of the Certificate of Incorporation of the
Company as amended to date, certified by the Secretary of State of Nevada and
the bylaws certified by the Secretary of the Company and heretofore delivered to
the Parent's counsel, are complete and correct, and no amendments thereto are
pending. The stock records and minute books of the Company which have heretofore
been delivered to the Parent's counsel are correct and complete. The Company is
duly qualified to do business as a foreign corporation in New York and in each
other jurisdiction in which it owns, operates or leases real property and in
each other jurisdiction in which the failure to be so qualified or registered
would have a material adverse effect on the properties, assets, business,
financial condition and prospects of the Company.
3.3 SUBSIDIARIES; INVESTMENTS. Except as set forth in SCHEDULE 3.3, the
Company has no direct or indirect subsidiaries and owns no securities issued by
any other business
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organization or governmental authority, except U.S. Government securities, bank
certificates of deposit and money market accounts acquired as short-term
investments in the ordinary course of its business. Except as set forth in
SCHEDULE 3.3, the Company neither owns nor has any direct or indirect interest
in or control over any corporation, partnership, joint venture or entity of any
kind. For purposes of this Agreement, the term "subsidiary" means, with respect
to any person, any corporation 20% or more of the outstanding voting securities
of which, or any partnership, joint venture or other entity 20% or more of the
total equity interest of which, is directly or indirectly owned by such person.
3.4 CAPITAL STOCK. The total authorized capital stock of the Company
consists solely of the shares listed on U3.4. All of the issued and
outstanding shares of the Company Common Stock are duly authorized and validly
issued, are fully paid and nonassessable, are owned of record and beneficially
by the Stockholders as set forth in SCHEDULE 3.4 free and clear of any liens,
claims, encumbrances, restrictions, security interests, mortgages, pledges or
other demands, and all such shares were offered, issued, sold and delivered by
the Company in compliance with all applicable state and federal laws concerning
the issuance of securities. Further, none of such shares were issued in
violation of the preemptive rights of any past or present stockholder. No shares
of the Company Stock are held in the treasury of the Company. SCHEDULE 3.4
contains a complete and correct listing of the Stockholders of the Company at
the date hereof, together with the number and class of the capital stock of the
Company owned by each such stockholder. There are no outstanding subscriptions,
options, warrants, commitments, preemptive rights, agreements, arrangements or
commitments of any kind for or relating to the issuance, sale, registration or
voting of, or outstanding securities convertible into or exchangeable for, any
shares of capital stock of any class or other equity interests of the Company.
The Company has never acquired any treasury stock.
3.5 AUTHORITY OF THE COMPANY AND THE STOCKHOLDERS
(a) The Company has full right, power and authority to enter
into this Agreement and each agreement, document and instrument to be executed
and delivered by it pursuant to or as contemplated by this Agreement and to
carry out the transactions contemplated hereby and thereby. The execution,
delivery and performance by the Company of this Agreement and each such other
agreement, document and instrument have been duly authorized by the Company's
Board of Directors, and have been approved by the Stockholders by a unanimous
written consent vote executed by each Stockholder. This Agreement and each
agreement, document and instrument to be executed and delivered by the Company
pursuant to or as contemplated by this Agreement (to the extent it contains
obligations to be performed by the Company) constitutes, or when executed,
delivered and approved by the Company Stockholders will constitute, valid and
binding obligations of the Company, enforceable in accordance with their
respective terms. The execution, delivery and performance by the Company of this
Agreement and each such other agreement, document and instrument:
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(i) does not and will not violate any provision of
the Articles of Incorporation or bylaws of the Company;
(ii) does not and will not violate any laws of the
United States, or any state or other jurisdiction applicable to the
Company or require the Company to obtain any court, regulatory body,
administrative agency or other approval, consent or waiver, or make any
filing with, any federal, state, local or foreign governmental body,
agency or official ("Governmental Entity") that has not been obtained
or made, other than the filing of the Certificate of Merger in
accordance with the New York Business Corporation Law and the business
corporation laws of the State of Nevada and except for any other
approvals, consents, waivers and filings that, if not obtained or made,
individually or in the aggregate, would not have a material adverse
effect on the properties, assets, business, financial condition or
prospects of the Company; and
(iii) except as otherwise indicated on SCHEDULE 3.15
hereto, do not and will not result in a breach of, constitute a default
under, accelerate any obligation under, or give rise to a right of
termination of any indenture or loan or credit agreement or any other
agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination
or arbitration award, whether written or oral, to which the Company is
a party or by which the property of the Company is bound or affected,
or result in the creation or imposition of any mortgage, pledge, lien,
security interest or other charge or encumbrance on any of the assets
of the Company, except where such breach, default, acceleration or
right of termination would not have a material adverse effect on the
properties, assets, business, financial condition or prospects of the
Company, and would not result in the creation or imposition of any
mortgage, pledge, lien, security interest or other charge or
encumbrance on any of the assets of the Company.
(b) Each Stockholder has full right, authority and power to
enter into this Agreement and each agreement, document and instrument to be
executed and delivered by or on behalf of it pursuant to or as contemplated by
this Agreement and to carry out the transactions contemplated hereby and
thereby. This Agreement and each agreement, document and instrument to be
executed and delivered by each Stockholder pursuant to or as contemplated by
this Agreement (to the extent it contains obligations to be performed by such
Stockholder) constitutes, or when executed and delivered will constitute, valid
and binding obligations of such Stockholder enforceable in accordance with their
respective terms, subject to the terms hereof. The execution, delivery and
performance by each Stockholder of this Agreement and each such agreement,
document and instrument:
(i) do not and will not violate any provision of the
Articles of Incorporation or bylaws of the Company;
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(ii) do not and will not violate any laws of the
United States, or any state or other jurisdiction applicable to such
Stockholder or require such Stockholder to obtain any approval, consent
or waiver of, or make any filing with, any Governmental Entity that has
not been obtained or made; and
(iii) do not and will not result in a breach of,
constitute a default under, accelerate any obligation under or give
rise to a right of termination of any indenture or loan or credit
agreement or any other agreement, contract, instrument, mortgage, lien,
lease, permit, authorization, order, writ, judgment, injunction,
decree, determination or arbitration award to which such Stockholder is
a party or by which the property of such Stockholder is bound or to
which the property of such Stockholder is subject or result in the
creation or imposition of any mortgage, pledge, lien, security interest
or other charge or encumbrance on any of the assets or properties of
the Company. Except as disclosed on SCHEDULE 3.15, there are no
Stockholder agreements with respect to the ownership or operation of
the Company, and any such agreements shall be terminated prior to the
Closing.
3.6 STATUS OF PROPERTY OWNED OR LEASED.
(a) REAL PROPERTY. The real property identified as being owned
or leased by the Company on SCHEDULE 3.6(a) is collectively referred to herein
as the "Real Property". The Real Property constitutes all the real property
owned and leased by the Company.
(i) TITLE. Except as set forth on SCHEDULE 3.6(a),
there are no unrecorded mortgages, deeds of trust, ground leases,
security interests or similar encumbrances, liens, assessments,
licenses, claims, rights of first offer or refusal, options, or options
to purchase, or any covenants, conditions, restrictions, rights of way,
easements, judgments or other encumbrances or matters affecting title
to the Real Property. There are no leases, tenancies or occupancy
rights of any kind affecting any of the Real Property.
(ii) SECURITY INTERESTS. There is not now, nor, as a
result of the consummation of the transactions contemplated hereby,
will there be, any mortgages, deeds of trust, ground leases, security
interests or similar encumbrances on the Real Property, except as set
forth on SCHEDULE 3.6(a) (collectively, the "Encumbrances"). There is
no outstanding principal balance or accrued unpaid interest or other
amount due as of the date hereof under any instrument secured by any of
the Encumbrances and all payments required under each Encumbrance to
the date hereof have been made in full. No condition or fact does or
will exist, as a result of the consummation of the transactions
contemplated hereby, which, with the lapse of time or the giving of
notice or both, would constitute a material default thereunder or
result in any acceleration of the indebtedness
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secured thereby or any increase in the amount of interest, premiums or
penalties payable on such indebtedness.
(iii) COMMISSIONS. There are no brokerage or leasing
fees or commissions or other compensation due or payable on an absolute
or contingent basis to any person, firm, corporation, or other entity
with respect to or on account of any of the Encumbrances or the Real
Property, and no such fees, commissions or other compensation shall, by
reason on any existing agreement, become due after the date hereof.
(iv) PHYSICAL CONDITION. Except as set forth on
SCHEDULE 3.6(a), there is no material defect in the physical condition
of any of the Real Property. Except as set forth on SCHEDULE 3.6(a),
there is no material defect in any material improvements located on or
constituting a part of any of the Real Property, including, without
limitation, the structural elements thereof, the mechanical systems
(including without limitation all heating, ventilating, air
conditioning, plumbing, electrical, elevator, security,
telecommunication, utility, and sprinkler systems) therein, the roofs
or the parking and loading areas (collectively, the "Improvements").
All of the Improvements located on or constituting a part of any of the
Real Property, including, without limitation, the structural elements
thereof, the mechanical systems therein, the roofs and the parking and
loading areas are in generally good operating condition and repair.
(v) UTILITIES. The Company has not received any
written notice of any termination or impairment of the furnishing of,
or any material increase in rates for, services to any of the Real
Property of water, sewer, gas, electric, telecommunication, drainage or
other utility services, except ordinary and usual rate increases
applicable to all customers (or all customers of a certain class) of a
utility provider. The Company has not entered into any agreement
requiring it to pay to any utility provider rates which are less
favorable than rates generally applicable to customers of the same
class as the Company.
(vi) COMPLIANCE. Except as set forth on
SCHEDULE 3.6(a), the Company has not received any written notice from
any municipal, state, federal or other governmental authority with
respect to any violation of any zoning, building, fire, water, use,
health, environmental or other statute, ordinance, code or regulation
issued in respect of any of the Real Property that has not been
heretofore corrected, and except in either case as set forth in
SCHEDULE 3.6(a) hereto.
(vii) GOVERNMENT APPROVALS. The Company has not
received any notice of any plan, study or effort by any Governmental
Entity which would adversely affect the present use, zoning or value to
the Company of any of the Real Property or which would modify or
realign any adjacent street or highway in a manner materially adverse
to the Company.
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(viii) ZONING. The Company has not received any
notice of any zoning violations. All buildings and improvements
situated on the Real Property were built pursuant to validly issued
building permits. Certificates of occupancy were issued for all such
structures as built, and all such structures have been maintained as
built since such certificates were issued.
(ix) REAL PROPERTY TAXES. Except as set forth in said
Schedule 3.6(a), no special assessments of any kind (special, bond or
otherwise) are or have been levied against any Real Property, or any
portion thereof, which are outstanding or unpaid. Each property
constituting part of the Real Property is assessed as a separate and
distinct tax lot.
(x) SERVICE CONTRACTS. A complete list of all
material existing service, management, supply or maintenance or
equipment lease contracts and other contractual agreements affecting
the Real Property or any portion thereof (the "Service Contracts") is
set forth on SCHEDULE 3.6(a). All such Service Contracts are terminable
upon no more than thirty (30) days written notice, at no cost, except
as specified in SCHEDULE 3.6(a).
(b) PERSONAL PROPERTY. A list of each item of the
machinery, equipment and other fixed assets owned or leased by the Company
having a fair market value of at least $5,000 (the "Equipment"), is contained
in SCHEDULE 3.6(b) hereto. All of the Equipment and other machinery,
equipment and personal property of the Company is located on the Real
Property or used in the operation of the Company. Except as specifically
disclosed in SCHEDULE 3.6(b) or in the Company Financial Statements (as
hereinafter defined), the Company has good and marketable title to all of the
personal property owned by it. None of such personal property or assets is
subject to any mortgage, pledge, lien, conditional sale agreement, security
title, encumbrance or other charge except as specifically disclosed in any
Schedule hereto or in the Financial Statements. The Financial Statements
reflect all personal property of the Company, subject to dispositions and
additions in the ordinary course of business consistent with this Agreement.
Except as otherwise specified in SCHEDULE 3.6(b) hereto, all leasehold
improvements, furnishings, machinery and equipment of the Company are in
generally good repair, normal wear and tear excepted, have been well
maintained, and conform in all material respects with all applicable
ordinances, regulations and other laws.
3.7. FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.
(a) The Company has delivered to the Parent the following
financial statements, copies of which are attached hereto as SCHEDULE 3.7:
(i) Compiled, reviewed or management-prepared balance
sheets of the Company dated December 31, 1995, December 31, 1996, and
December 31, 1997, and
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compiled, reviewed or management-prepared statements of income,
stockholders' equity and cash flows for each of the three (3) years
ended December 31, 1995, 1996 and 1997, certified by the Chief
Financial Officer of the Company (the "Year-End Company Financial
Statements");
(ii) Draft audited balance sheets of the Company as
of December 31, 1998 (herein the "Company Balance Sheet Date") and
statements of income, stockholders' equity and cash flows for the
twelve months then ended, certified by the chief financial officer of
the Company (the "Interim Company Financial Statements", together with
the Year-End Company Financial Statements, the "Company Financial
Statements");
The Company Financial Statements have been prepared in accordance with GAAP
applied consistently during the periods covered thereby (except that the Interim
Company Financial Statements are subject to normal year-end audit adjustments
and do not include footnotes), and present fairly in all respects the financial
condition of the Company at the dates of said statements and the results of
their operations for the periods covered thereby.
(b) As of the Company Balance Sheet Date, the Company had no
liabilities of any nature, whether accrued, absolute, contingent or otherwise,
(including without limitation liabilities as guarantor or otherwise with respect
to obligations of others or contingent liabilities arising prior to the Company
Balance Sheet Date) except liabilities stated or adequately reserved for on the
Company Financial Statements or reflected in Schedules furnished to Parent
hereunder as of the date hereof.
(c) As of the date hereof, the Company has no liabilities of
any nature, whether accrued, absolute, contingent or otherwise, (including
without limitation liabilities as guarantor or otherwise with respect to
obligations of others, or liabilities for taxes due or then accrued or to become
due or contingent liabilities arising prior to the date hereof or the Closing,
as the case may be) except liabilities (i) stated or adequately reserved against
on the appropriate Company Financial Statement or the notes thereto, (ii)
reflected in Schedules furnished to Parent hereunder on the date hereof or (iii)
incurred in the ordinary course of business of the Company consistent with prior
practices.
(d) The Company's "gross revenues" (which shall mean total
aggregate sales less returns, credits and other customary, normal adjustments to
revenue) as set forth in the Company Financial Statements for the twelve month
period ended December 31, 1998 exceed $547,000, and the aggregate stockholder's
equity as shown on the Company's Financial Statements as of the Company Balance
Sheet Date exceeds $167,000.
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3.8 TAXES.
(a) The Company has paid or caused to be paid all federal,
state, local, foreign and other taxes, including without limitation income
taxes, estimated taxes, alternative minimum taxes, excise taxes, sales taxes,
use taxes, value-added taxes, gross receipts taxes, franchise taxes, capital
stock taxes, employment and payroll-related taxes, withholding taxes, stamp
taxes, transfer taxes and property taxes, whether or not measured in whole or in
part by net income, and all deficiencies, or other additions to tax, interest,
fines and penalties owed by it (collectively, "Taxes"), in the amounts indicated
on tax returns filed by the Company through the date hereof or in correspondence
received from any federal, state, local or foreign government taxing authority,
whether disputed or not (other than current taxes the liability for which is
adequately reserved for on the financial statements provided to the Parent
pursuant to SECTION 3.7 hereof).
(b) The Company has in accordance with applicable law filed
all federal, state, local and foreign tax returns required to be filed by it
through the date hereof and all such returns correctly and accurately set forth
the amount of any Taxes relating to the applicable period. For every taxable
period of the Company, the Company has delivered or made available to Parent
complete and correct copies of all federal, state, local and foreign income tax
returns, examination reports and statements of deficiencies assessed against or
agreed to by the Company. SCHEDULE 3.8 attached hereto sets forth all federal
tax elections under the Internal Revenue Code of 1986, as amended (the "Code"),
that are in effect with respect to the Company or for which an application by
the Company is pending.
(c) Neither the Internal Revenue Service ("IRS") nor any other
governmental authority is now asserting in writing or threatening to assert
against the Company any deficiency or claim for additional Taxes or a claim that
the Company is or may be subject to taxation by that jurisdiction. There are no
security interests on any of the assets of the Company that arose in connection
with any failure (or alleged failure) to pay any Tax. The Company has not
entered into a closing agreement pursuant to Section 7121 of the Code.
(d) Except as set forth in SCHEDULE 3.8 attached hereto, there
has not been any audit of any tax return filed by the Company, no audit of any
tax return of the Company is in progress, and the Company has not been notified
by any tax authority that any such audit is contemplated or pending. Except as
set forth in SCHEDULE 3.8, no extension of time with respect to any date on
which a tax return was or is to be filed by the Company is in force, and no
waiver or agreement by the Company is in force for the extension of time for the
assessment or payment of any Taxes.
(e) (i) The Company has not consented to have the provisions
of Section 341(f)(2) of the Code applied to it, (ii) the Company has not agreed
to, and has not been requested by any governmental authority to, make any
adjustments under Section 481(a) of the Code by reason of a change in accounting
method or otherwise and (iii) the Company has never
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made any payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances would obligate it to make any
payments, that will not be deductible under Section 280G of the Code. The
Company has disclosed on its federal income tax returns all positions taken
therein that could give rise to a penalty for underpayment of federal Tax under
Section 6662 of the Code. The Company has never had any liability for unpaid
Taxes because it is a member of an "affiliated group" (as defined in Section
1504(a) of the Code). The Company has never filed, nor has it ever been required
to file, a consolidated, combined or unitary tax return with any entity. The
Company is not a party to any tax sharing agreement.
(f) The Company computes its federal taxable income under the
cash basis method of accounting.
(g) For purposes of this SECTION 3.8, all references to
Sections of the Code shall include any predecessor provisions to such Sections
and any similar provisions of federal, state, local or foreign law.
3.9 ACCOUNTS RECEIVABLE. All accounts receivable of the Company as of
the respective balance sheet dates in the Company Financial Statements and all
accounts receivable arising thereafter or hereafter to the Closing Date, arose
or will arise from valid sales in the ordinary course of business. Except as set
forth in SCHEDULE 3.9, the Company has no accounts or loans receivable from any
person, firm or corporation which is affiliated with the Company. For purposes
hereof, "affiliate" means any Stockholder, or any business entity which
controls, or is controlled by, or is under common control with the Company.
3.10 INVENTORIES. The Company maintains less than $10,000 of inventory,
all saleable in the ordinary course and stated in accordance with GAAP.
3.11 ABSENCE OF CERTAIN CHANGES.
Since December 31, 1997, the Company has conducted its business only in
the ordinary course and consistent with past practices and except as disclosed
in SCHEDULE 3.11 there has not been:
(i) Any change in the properties, assets, liabilities,
business, operations, financial condition or prospects of the Company
which change by itself or in conjunction with all other such changes,
whether or not arising in the ordinary course of business, has been
materially adverse with respect to the Company;
(ii)Except for the endorsement of checks in the ordinary
course of business any material contingent liability incurred by the
Company as guarantor or otherwise with respect to the obligations of
others or any cancellation of any material debt or claim owing to, or
waiver of any material right of, the Company;
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(iii) Any mortgage, encumbrance or lien placed on any of the
properties of the Company which remains in existence on the date hereof
or will remain on the Closing Date except for liens permitted by any
current agreement of the Company with respect to borrowed money;
(iv) Any purchase, sale or other disposition, or any agreement
or other arrangement for the purchase, sale or other disposition, of
any capital assets of the Company costing more than $10,000;
(v) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting any of the properties,
assets or business of the Company;
(vi) Any declaration, setting aside or payment of any dividend
by the Company, or the making of any other distribution in respect of
the capital stock of the Company, any direct or indirect redemption,
purchase or other acquisition by the Company of its own capital stock,
any issuance or sale of any securities convertible into or exchangeable
for debt or equity securities of the Company or any grant, issuance or
exercise of options, warrants, subscriptions, preemptive rights,
agreements, arrangements or commitments of any kind for or relating to
the issuance, sale, registration or voting of any shares of capital
stock of any class or other equity interests of the Company;
(vii) Any claim of unfair labor practices asserted against the
Company; any change in the compensation (in the form of salaries,
wages, incentive arrangements or otherwise) payable or to become
payable by the Company to any of its officers, employees, agents or
independent contractors other than customary merit or cost of living
increases in accordance with its usual practices, or any bonus payment
or arrangement made to or with any of such officers, employees, agents
or independent contractors; any entering into any employment, deferred
compensation or other similar agreement (or any amendment to any such
existing agreement) with any officer, director or employee of the
Company except for employment arrangements providing for salary or
wages of less than $20,000 per annum and any oral agreement terminable
at will by the Company;
(viii) Any change with respect to the officers or senior
management of the Company, any grant of any severance or termination
pay to any officer or employee of the Company;
(ix) Any payment or discharge of a material lien or liability
of the Company which was not shown on the Company Financial Statements
or incurred in the ordinary course of business thereafter;
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(x) Any obligation or liability incurred by the Company to any
of its officers, directors or stockholders, or any loans or advances
made by the Company to any of its officers, directors, stockholders,
except normal compensation and expense allowances payable to officers
or employees;
(xi) Any change in accounting methods or practices other than
to comply with new accounting pronouncements, credit practices or
collection policies used by the Company;
(xii) Any other transaction entered into by the Company other
than transactions in the ordinary course of business; or
(xiii) Any agreement or understanding whether in writing or
otherwise, that would result in any of the transactions or events or
require the Company to take any of the actions specified in paragraphs
(i) through (xii) above.
3.12 BANKING RELATIONS. All of the arrangements which the Company has
with any banking institution are described in SCHEDULE 3.12 attached hereto,
indicating with respect to each of such arrangements the type of arrangement
maintained (such as checking account, borrowing arrangements, safe deposit box,
etc.), the names in which the accounts are held, the account number, and the
name of each person, corporation, firm or other entity authorized in respect
thereof.
3.13 PATENTS, TRADE NAMES, TRADEMARKS, COPYRIGHTS AND PROPRIETARY
RIGHTS. All patents, patent applications, trademark registrations, trademark
registration applications, copyright registrations, copyright registration
applications and all material trade names, trademarks, copyrights and other
material proprietary rights owned by or licensed to the Company or used in its
respective business as presently conducted (the "Proprietary Rights") are listed
in SCHEDULE 3.13 attached hereto. All of the material patents, registered
trademarks and copyrights of the Company and all of the material patent
applications, trademark registration applications and copyright registration
applications of the Company have been duly registered in, filed in or issued by
the United States Patent and Trademark Office, the United States Register of
Copyrights or the corresponding offices of other countries identified on said
schedule. Except as set forth in SCHEDULE 3.13: (a) use of said patents, trade
names, trademarks, copyrights or other proprietary rights in the ordinary course
of business as presently conducted does not require the consent of any other
person and (b) the Company has sufficient title or adequate rights or licenses
to use all material patents, trade names, trademarks, copyrights, or other
proprietary rights used by it in its business as presently conducted free and
clear of any attachments, liens, encumbrances or adverse claims. The Company has
not received written notice that its present or contemplated activities or
products infringe any such patents, trade names, trademarks or other proprietary
rights of others. Except as set forth in SCHEDULE 3.13: (i) no other person has
an interest in or right or license to use, or the right to license others to
use, any of said patents,
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patent applications, trade names, trademarks, copyrights or other proprietary
rights; (ii) there are no written claims or demands of any other person
pertaining thereto and no proceedings have been instituted, or are pending or
threatened, which challenge the rights of the Company in respect thereof; (iii)
none of the patents, trade names, trademarks, copyrights or other proprietary
rights listed in said schedule is subject to any outstanding order, decree,
judgment or stipulation, or is being infringed by others; and (iv) no proceeding
charging the Company with infringement of any adversely held patent, trade name,
trademark or copyright has been filed or is threatened to be filed.
3.14 TRADE SECRETS AND CUSTOMER LISTS. The Company has the right to use
in the ordinary course of its business as presently conducted, free and clear of
any claims or rights of others, all trade secrets, inventions, customer lists
and secret processes required for or incident to the manufacture or marketing of
all products presently sold, manufactured, licensed, under development or
produced by it, including products licensed from others. Any payments required
to be made by the Company for the use of such trade secrets, inventions,
customer lists and secret processes are described in SCHEDULE 3.14. The Company
is not using or in any way making use of any confidential information or trade
secrets of any third party, including without limitation, a former employer of
any present or past employee of the Company or any of the predecessors of the
Company.
3.15 CONTRACTS.
(a) Except for contracts, commitments, plans, agreements and
licenses described in SCHEDULE 3.15 (complete and accurate copies of which have
been delivered to the Parent), the Company is neither a party to nor subject to:
(i) any plan or contract providing for bonuses,
pensions, options, stock purchases, deferred compensation, retirement
payments, profit sharing, severance or termination pay, collective
bargaining or the like, or any contract or agreement with any labor
union;
(ii) any employment contract or contract for services
which requires the payment of $20,000 or more annually or which is not
terminable within thirty (30) days by the Company without liability for
any penalty or severance payment other than pursuant to the Company's
severance policies existing on the date hereof;
(iii) any contract or agreement for the purchase of
any commodity, material or equipment except purchase orders in the
ordinary course for less than $10,000 each;
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(iv) any other contracts or agreements creating any
obligation of the Company of $10,000 or more with respect to any such
contract;
(v) any contract or agreement providing for the
purchase of all or substantially all of its requirements of a
particular product from a supplier;
(vi) any contract or agreement which by its terms
does not terminate or is not terminable by the Company or any successor
or assign within six months after the date hereof without payment of a
penalty;
(vii) any contract or agreement for the sale or lease
of its products or services not made in the ordinary course of
business;
(viii) any contract with any sales agent or
distributor of products of the Company or any subsidiary;
(ix) any contract containing covenants limiting the
freedom of the Company to compete in any line of business or with any
person or entity;
(x) any contract or agreement for the purchase of any
fixed asset for a price in excess of $10,000 whether or not such
purchase is in the ordinary course of business;
(xi) any license agreement (as licensor or
licensee);
(xii) any indenture, mortgage, promissory note, loan
agreement, guaranty or other agreement or commitment for the borrowing
of money and any related security agreement;
(xiii) any contract or agreement with any officer,
employee, director or stockholder of the Company or with any persons or
organizations controlled by or affiliated with any of them;
(xiv) any partnership, joint venture, or other
similar contract, arrangement or agreement; or
(xv) any registration rights agreements, warrants,
warrant agreements or other rights to subscribe for securities, any
voting agreements, voting trusts, shareholder agreements or other
similar arrangements or any stock purchase or repurchase agreements or
stock restriction agreements.
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(b) All material contracts, agreements, leases and instruments
to which the Company is a party or by which the Company is obligated are valid
and are in full force and effect and constitute legal, valid and binding
obligations of the Company and the other parties thereto, enforceable in
accordance with their respective terms. Neither the Company nor any other party
to any contract, agreement, lease or instrument of the Company is in default in
complying with any provisions thereof, and no condition or event or facts exists
which, with notice, lapse of time or both would constitute a default thereof on
the part of either of the Company or on the part of any other party thereto in
any such case that could have a material adverse effect on the properties,
assets, financial condition or prospects of either of the Company. SCHEDULE 3.15
indicates whether any of the agreements, contracts, commitments or other
instruments and documents described therein requires consent or approval to be
transferred to the Surviving Corporation as a result of the transactions
contemplated herein.
3.16 LITIGATION. SCHEDULE 3.16 hereto lists all currently pending and
threatened litigation and governmental or administrative proceedings or
investigations to which the Company is a party. Except for matters described in
SCHEDULE 3.16, there is no litigation or governmental or administrative
proceeding or investigation pending or threatened against the Company which may
have an adverse effect on the properties, assets, business, financial condition
or prospects of the Company or which would prevent or hinder the consummation of
the transactions contemplated by this Agreement.
3.17 COMPLIANCE WITH LAWS. The Company has not received notice of a
violation or alleged violation of applicable statutes, ordinances, orders, rules
and regulations promulgated by any federal, state, municipal or other
governmental authority, which violation or alleged violation would have a
material adverse effect on the business of the Company, and except as set forth
in Schedule 3.17 hereto, the Company is currently in compliance in all material
respects with all such statutes, ordinances, orders, rules or regulations, and
there is no valid basis for any claim that the Company is not in compliance with
any such statute, ordinance, order, rule or regulation.
3.18 INSURANCE. SCHEDULE 3.18 sets forth the following information with
respect to each insurance policy (including policies providing property,
casualty, Liability, and workers' compensation coverage and bond and surety
arrangements) to which the Seller has been a party, a named insured, or
otherwise the beneficiary of coverage at any time within the past five (5)
years: (a) the name, address, and telephone number of the agent; (b) the name of
the insurer, the name of the policyholder, and the name of each covered insured;
(c) the policy number and the period of coverage; (d) the scope (including an
indication of whether the coverage was on a claims made, occurrence, or other
basis) and amount (including a description of how deductibles and ceilings are
calculated and operate) of coverage; and (e) a description of any retroactive
premium adjustments or other loss-sharing arrangements. With respect to each
such insurance policy: (i) the policy is legal, valid, binding, enforceable, and
in full force and effect; (ii) the policy will continue to be legal, valid,
binding, enforceable, and in full force and effect on
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identical terms following the consummation of the transactions contemplated
hereby, (iii) neither the Seller nor any other party to the policy is in breach
or default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; and (iv) no party to the policy has
repudiated any provision thereof. The Seller has been covered during the past
five (5) years by insurance in scope and amount customary and reasonable for the
businesses in which it has engaged during the aforementioned period.
SCHEDULE 3.18 describes any self-insurance arrangements affecting the Seller.
3.19 WARRANTY AND RELATED MATTERS. There are no existing or threatened
in writing, product liability, warranty or other similar claims against the
Company alleging that any of its products or services are defective or fail to
meet any product or service warranties except as disclosed in SCHEDULE 3.19
hereto. The Company has not received notice of any statements, citations,
correspondence or decisions by any Governmental Entity stating that any product
manufactured, marketed or distributed at any time by the Company (the "Company
Products") is defective or unsafe or fails to meet any product warranty or any
standards promulgated by any such Governmental Entity. There have been no
recalls ordered by any such Governmental Entity with respect to any Company
Product. There is no (i) fact relating to any Company Product that may impose
upon the Company a duty to recall any Company Product or a duty to warn
customers of a defect in any Company Product, (ii) latent or overt design,
manufacturing or other defect in any Company Product, or (iii) liability for
warranty or other claim or return with respect to any Company Product except in
the ordinary course of business consistent with the past experience of the
Company for such kind of claims and liabilities.
3.20 FINDER'S FEES. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
the Company or the Stockholders.
3.21 PERMITS; BURDENSOME AGREEMENTS. Schedule 3.21 lists all
material permits, registrations, licenses, franchises, certifications and
other approvals (collectively, the "Approvals") required from Governmental
Entities in order for the Company to conduct its business. The Company has
obtained all the Approvals, which are valid and in full force and effect.
Except as disclosed on SCHEDULE 3.21, none of the Approvals is subject to
termination by their express terms as a result of the execution of this
Agreement by the Company or the consummation of the Merger, and no further
Approvals will be required in order to continue to conduct the business
currently conducted by the Company subsequent to the Closing. Except as
disclosed in SCHEDULE 3.21 or in any other schedule hereto, the Company is
neither subject to nor bound by any agreement, judgment, decree or order
which may materially and adversely affect its properties, assets, business,
financial condition or prospects.
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3.22 TRANSACTIONS WITH INTERESTED PERSONS. Except as set forth in
SCHEDULE 3.22 hereto, no Stockholder, officer, employee or director of the
Company and none of their respective parents, grandparents, spouses, children,
siblings or grandchildren owns directly or indirectly on an individual or joint
basis any material interest in, or serves as an officer or director or in
another similar capacity of, any competitor, supplier or customer of the Company
or any organization, person or entity with whom the Company is doing business.
3.23 EMPLOYEE BENEFIT PROGRAMS.
(a) SCHEDULE 3.23 sets forth a list of every Employee Program
(as defined below) that has been maintained (as such term is further defined
below) by the Company at any time during the three-year period ending on the
date hereof.
(b) Each Employee Program which has been maintained by a
Company and which has at any time been intended to qualify under Section 401(a)
or 501(c)(9) of the Code, has received a favorable determination or approval
letter from the IRS regarding its qualification under such section and has, in
fact, been qualified under the applicable section of the Code from the effective
date of such Employee Program through and including the Closing (or, if earlier,
the date that all of such Employee Program's assets were distributed). No event
or omission has occurred which would cause any such Employee Program to lose
such qualification under the applicable Code section.
(c) Except as otherwise disclosed on SCHEDULE 3.23, there has
not been any failure of any party to comply with any laws applicable to or the
terms of any Employee Programs that have been maintained by the Company, except
for any failures to comply that, individually or in the aggregate, would not
have a material adverse effect on the properties, assets, business, financial
condition or prospects of the Company. With respect to any Employee Program now
or heretofore maintained by the Company, there has occurred no "prohibited
transaction," as defined in Section 406 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code, or
breach of any duty under ERISA or other applicable law (including, without
limitation, any health care continuation requirements or any other tax law
requirements, or conditions to favorable tax treatment, applicable to such
plan), which could result, directly or indirectly (including without limitation
through any obligation of indemnification or contribution) in any taxes,
penalties or other liability to the Company or any Affiliate (as defined below).
No litigation, arbitration, or governmental administrative proceeding or
investigation or other proceeding (other than those relating to routine claims
for benefits) is pending or threatened with respect to any such Employee
Program.
(d) Neither the Company nor any Affiliate has ever maintained
any Employee Program subject to Title IV of ERISA.
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(e) Except as otherwise disclosed on SCHEDULE 3.23, with
respect to each Employee Program maintained by the Company within the three
years preceding the date hereof, complete and correct copies of the following
documents (if applicable to such Employee Program) have previously been
delivered to the Parent: (i) all documents embodying or governing such Employee
Program, and any funding medium for the Employee Program (including, without
limitation, trust agreements) as they may have been amended to the date hereof;
(ii) the most recent IRS determination or approval letter with respect to such
Employee Program under Code Section 401 or 501(c)(9), and any applications for
determination or approval subsequently filed with the IRS; (iii) the three most
recently filed IRS forms 5500, with all applicable schedules and accountants'
opinions attached thereto; (iv) the summary plan description for such Employee
Program (or other descriptions of such Employee Program provided to employees)
and all modifications thereto; (v) any insurance policy (including any fiduciary
liability insurance policy) related to such Employee Program; and (vi) any
documents evidencing any loan to an Employee Program that is a leveraged
employee stock ownership plan.
(f) Each Employee Program maintained by the Company as of the
date hereof is subject to amendment or termination by the Board of Directors of
the Company without any further liability or obligation on the part of the
Company to make further contributions to any trust maintained under any such
Employee Program following such termination and the Company has not made any
written or oral representations to the contrary to its employees.
(g) For purposes of this SECTION 3.23:
(i) "Employee Program" means (a) all employee benefit
plans within the meaning of ERISA Section 3(3), including, but not
limited to, multiple employer welfare arrangements (within the meaning
of ERISA Section 3(40)), plans to which more than one unaffiliated
employer contributes and employee benefit plans (such as foreign or
excess benefit plans) which are not subject to ERISA; and (b) all stock
option plans, bonus or incentive award plans, severance pay policies or
agreements, deferred compensation agreements, supplemental income
arrangements, vacation plans, and all other employee benefit plans,
agreements, and arrangements not described in subsection (a) above. In
the case of an Employee Program funded through an organization
described in Code Section 501(c)(9), each reference to such Employee
Program shall include a reference to such organization;
(ii) an entity "maintains" an Employee Program if
such entity sponsors, contributes to, or provides (or has promised to
provide) benefits under such Employee Program, or has any obligation
(by agreement or under applicable law) to contribute to or provide
benefits under such Employee Program, or if such Employee Program
provides benefits to or otherwise covers employees of such entity (or
their spouses, dependents, or beneficiaries);
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(iii) an entity is an "Affiliate" of a Company for
purposes of this SECTION 3.23 if it would have ever been considered a
single employer with the Company under ERISA Section 4001(b) or part of
the same "controlled group" as the Company for purposes of ERISA
Section 302(d)(8)(c) and
(iv) "Multiemployer Plan" means a (pension or
non-pension) employee benefit plan to which more than one employer
contributes and which is maintained pursuant to one or more collective
bargaining agreements.
3.24 ENVIRONMENTAL MATTERS.
(a) Except as used in connection with routine maintenance and
as set forth in Schedule 3.24 hereto, (i) the Company has never generated,
transported, used, stored, treated, disposed of, or managed any Hazardous Waste
(as defined below); (ii) no Hazardous Material (as defined below) has ever been
or is threatened to be spilled, released, or disposed of at any site presently
or formerly owned, operated, leased, or used by the Company, or has ever come to
be located in the soil or groundwater at any such site; (iii) no Hazardous
Material has ever been transported from any site presently or formerly owned,
operated, leased, or used by the Company for treatment, storage, or disposal at
any other place; (iv) the Company does not presently own, operate, lease, or
use, nor has it previously owned, operated, leased, or used any site on which
underground storage tanks are or were located; and (v) no lien has ever been
imposed by any Governmental Entity on any property, facility, machinery, or
equipment owned, operated, leased, or used by the Company in connection with the
presence of any Hazardous Material.
(b) Except as set forth in SCHEDULE 3.24 hereto, (i) the
Company has no liability under, nor has the Company ever violated in any
material respect, any Environmental Law (as defined below); (ii) any property
owned, operated, leased, or used by the Company and any facilities and
operations thereon are presently in compliance in all material respects with all
applicable Environmental Laws; (iii) the Company has never entered into or been
subject to any judgment, consent decree, compliance order, or administrative
order with respect to any environmental or health and safety matter or received
any request for information, notice, demand letter, administrative inquiry, or
formal or informal complaint or claim with respect to any environmental or
health and safety matter or the enforcement of any Environmental Law (as defined
below); and (iv) the Company nor any Company Stockholder has any reason to
believe that any of the items enumerated in clause (iii) of this paragraph will
be forthcoming.
(c) Except as set forth in SCHEDULE 3.24 hereto, no site
owned, operated, leased, or used by the Company contains any asbestos or
asbestos-containing material, any polychlorinated biphenyls ("pcbs") or
equipment containing pcbs, or any urea formaldehyde foam insulation.
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(d) For purposes of this SECTION 3.24, (i) "Hazardous
Material" shall mean and include any hazardous waste, hazardous material,
hazardous substance, petroleum product, oil, toxic substance, pollutant, or
contaminant, as defined or regulated under any Environmental Law or any other
substance which may pose a threat to the environment or to human health or
safety; (ii) "Hazardous Waste" shall mean and include any hazardous waste as
defined or regulated under any Environmental Law; (iii) "Environmental Law"
shall mean any environmental laws, regulation, rule, ordinance, or by-law at the
foreign, federal, state, or local level, existing as of the date hereof; and
(iv) the Company shall mean and include the Company, its predecessors and all
other entities for whose conduct the Company is or may be held responsible under
any Environmental Law.
3.25 LISTS OF CERTAIN EMPLOYEES AND SUPPLIERS.
(a) SCHEDULE 3.25 hereto contains a list of all current
directors and officers of the Company and a list of all managers, employees and
consultants of the Company who, individually, have received or are scheduled to
receive base salary from the Company during the current fiscal year of $20,000
or more. In each case such schedule includes the current job title and current
base salary of each such individual.
(b) SCHEDULE 3.25 sets forth a true and complete list of all
suppliers of the Company to whom the Company made payments aggregating $25,000
or more during the most recent complete fiscal year, showing, with respect to
each, the name, address and dollar volume involved.
3.26 EMPLOYEES; LABOR MATTERS. As of the date hereof, the Company
employed the number of full-time employees and part-time employees described on
SCHEDULE 3.26. The Company is not delinquent in payments to any of its employees
for any wages, salaries, commissions, bonuses or other direct compensation for
any services performed for it to the date hereof or amounts required to be
reimbursed to such employees. Except as set forth in SCHEDULE 3.26, upon
termination of the employment of any of said employees, the Company will not by
reason of the Merger be liable to any of said employees for so-called "severance
pay" or any other payments. Except as set forth in SCHEDULE 3.26 attached
hereto, the Company has no policy, practice, plan or program of paying severance
pay or any form of severance compensation in connection with the termination of
employment. The Company is in compliance with all applicable laws and
regulations respecting labor, employment, fair employment practices, terms and
conditions of employment, and wages and hours. No charges of employment
discrimination or unfair labor practices have been brought against the Company,
nor are there any strikes, slowdowns, stoppages of work, or any other concerted
interference with normal operations existing, pending or threatened against or
involving the Company. There are no grievances, complaints or charges that have
been filed against the Company under any dispute resolution procedure
(including, but not limited to, any proceedings under any dispute resolution
procedure under any collective bargaining agreement). No collective bargaining
agreements are in effect
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or are currently being or are about to be negotiated by the Company. The Company
has not received written notice of pending or threatened changes with respect to
the senior management or key supervisory personnel of the Company.
3.27 CUSTOMERS. SCHEDULE 3.27 sets forth any customer who accounted for
more than 5% of the sales of the Company for the most recent complete fiscal
year of the Company (collectively, the "Customers"). No Customer has given
notice to the Company of its intention to terminate, to cancel or otherwise
materially and adversely modify its relationship with the Company or to decrease
materially or limit its usage or purchase of the services or products of the
Company.
3.28 Y2K. The Company has taken all necessary action to assess,
evaluate and correct all of the hardware, software, embedded microchips and
other processing capabilities of computer and telecommunication systems it uses,
either directly or indirectly, including but not limited to computerized
services provided by third parties such as billing and payroll services, to
ensure that such systems will be able to function accurately and without
interruption or ambiguity using date information before, during and after
January 1, 2000.
3.29 TAX-FREE REORGANIZATION. Neither the Company nor any Stockholders
has taken any action which would violate any requirement, including but not
limited to the continuity-of-business-enterprise requirement of 26 C.F.R.
ss.1.368-1(d), for tax-free reorganization status under SECTION 368(a) of the
Code with respect to the Merger.
3.30 DISCLOSURE.
(a) This Agreement, including the Schedules hereto prepared by
the Company, together with the other information furnished to the Parent by the
Company and the Stockholders in connection herewith, does not contain an untrue
statement of material fact or omit to state a material fact necessary to make
the statements herein and therein, in light of the circumstances under which
they were made, not misleading. If, prior to the 90th day after the date of the
final prospectus of the Parent utilized in connection with the IPO, the Company
or the Stockholders become aware of any fact or circumstance which would affect
the accuracy of a representation or warranty of the Company or the Stockholders
in this Agreement, in any material respect, the Company and the Stockholders
shall immediately give notice of such fact or circumstance to the Parent.
However, subject to the provisions of SECTION 4.8, such notification shall not
relieve either the Company or the Stockholders of their respective obligations
under this Agreement, and subject to the provisions of SECTION 4.8, at the sole
option of the Parent, the truth and accuracy of any and all warranties and
representations of the Company, or on behalf of the Company and of the
Stockholders at the date of this Agreement and on the Closing Date and
immediately prior to at the Effective Time, shall be a precondition to the
consummation of this transaction.
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(b) The Company and the Stockholders acknowledge and agree (i)
that there exits no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that the
contemplated IPO of the Parent will occur at a particular price or within a
particular range of prices or occur at all; (ii) that neither the Parent, its
subsidiaries or any of their respective officers, directors, agents or
representatives nor any underwriter shall have any liability to the Company or
the Stockholders or any other person affiliated or associated with the Company
for any failure of the contemplated IPO to occur at a particular price or within
a particular range of prices or to occur at all; and (iii) that the decision of
the Stockholders to enter into this Agreement, or to vote in favor of or consent
to the Merger, has been or will be made independent of, and without reliance
upon, any statements, opinions or other communications, or due diligence
investigations which have been or will be made performed by any prospective
underwriter, relative to the Parent or the contemplated IPO.
SECTION 4. COVENANTS OF THE COMPANY AND THE STOCKHOLDERS.
4.1 MAKING OF COVENANTS AND AGREEMENTS. The Company and the
Stockholders covenant and agree as set forth in this SECTION 4.
4.2 CONDUCT OF BUSINESS. Between the date of this Agreement and the
Merger Effective Date, the Stockholders will cause the Company to do and the
Company will do the following, unless Parent shall otherwise consent in writing:
(a) conduct its business only in the ordinary course
consistent with past practices, refrain from changing or introducing any method
of management or operations except in the ordinary course of business and in a
manner consistent with past practices and maintain levels of working capital
consistent with past practices;
(b) refrain from making any purchase, sale or disposition of
any asset or property other than in the ordinary course of business, from
purchasing or selling any capital asset costing more than $5,000 and from
mortgaging, pledging, subjecting to a lien or otherwise encumbering any of its
properties or assets;
(c) refrain from incurring or modifying any contingent
liability as a guarantor or otherwise with respect to the obligations of others,
and from incurring or modifying any other contingent or fixed obligations or
liabilities except in the ordinary course of business and in a manner consistent
with past practices;
(d) refrain from making any change in its incorporation
documents, by-laws or authorized or issued capital stock or from acquiring any
securities issued by any other business organization other than short-term
investments in the ordinary course of business;
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(e) refrain from declaring, setting aside or paying any
dividend, making any other distribution in respect of its capital stock, making
any direct or indirect redemption, purchase or other acquisition of its capital
stock, issuing, granting, awarding, selling, pledging, disposing of or
encumbering or authorizing the issuance, grant, award, sale, pledge, disposition
or encumbrance of any shares of, or securities convertible or exchangeable for,
or options, warrants, calls, commitments or rights of any kind to acquire, any
shares of capital stock of any class of the Company or entering into any
agreement or commitment with respect to any of the foregoing;
(f) refrain from making any change in the compensation payable
or to become payable to any of its officers, employees or agents, except for
scheduled increases in salary or wages in the ordinary course of business that
are consistent with past practices, or granting any severance or termination pay
to, or establishing, adopting or entering into any agreement or arrangement
providing for severance or termination pay to, or entering into or amending any
employment, or other agreement or arrangement with, any director, officer or
other employee of the Company or any Stockholder or establishing, adopting or
entering into or amending any collective bargaining, bonus, incentive, deferred
compensation, profit sharing, stock option or purchase, insurance, pension,
retirement or other employee benefit plan;
(g) refrain from making any change in its borrowing
arrangements or modifying, amending or terminating any of its contracts except
in the ordinary course of business, or waiving, releasing or assigning any
material rights or claims;
(h) use reasonable efforts to prevent any change with respect
to its management and supervisory personnel or banking arrangements;
(i) use reasonable efforts to keep intact its business
organization and to preserve the goodwill of and business relationships with all
suppliers, customers and others having business relations with it, and to
maintain its properties and facilities, including those held under leases, in as
good a working order and condition as on the date hereof, ordinary wear and tear
excepted;
(j) use reasonable efforts to have in effect and maintain at
all times all insurance of the kind, in the amount and with the insurers set
forth in SCHEDULE 3.18 or equivalent insurance with any substitute insurers
approved by Parent;
(k) refrain from changing accounting policies or procedures
(including, without limitation, procedures with respect to the payment of
accounts payable and collection of accounts receivable) or from making any tax
election or settling or compromising any federal, state, local or foreign income
tax liability;
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(l) refrain from entering into any executory agreement,
commitment or undertaking to do any of the activities prohibited by the
foregoing provisions; and
(m) permit Parent and its authorized representatives
(including without limitation Parent's attorneys, accountants, and pension and
environmental consultants) to have full access to all of its properties, assets,
books, records, business files, executive personnel, tax returns, contracts and
documents and furnish to Parent and its authorized representatives such
financial and other information with respect to its business or properties as
Parent may from time to time reasonably request.
4.3 CONSENTS AND APPROVALS. The Company and each of the Stockholders
shall use their best efforts to obtain or cause to be obtained prior to the
Closing Date all necessary consents and approvals to the performance of the
obligations of the Company and the Stockholders under this Agreement, including,
without limitation, the consents and authorizations described in SCHEDULE 3.15
or SCHEDULE 4.3 and such other authorizations, waivers, consents and permits as
may be necessary to transfer to Parent and/or to retain in full force and effect
without penalty subsequent to the Effective Time all contracts, permits,
licenses and franchises of or applicable to the businesses of the Company.
4.4 ACTION BY WRITTEN CONSENT OF STOCKHOLDERS. On the date hereof the
Stockholders will execute and deliver a unanimous written consent in lieu of a
meeting in accordance with applicable law for the purpose of authorizing the
transactions contemplated hereby. The recommendation of the Board of Directors
will remain in effect at all times prior to the Effective Time. The Stockholders
hereby agree to vote all shares of capital stock of the Company held of record
by them or over which they exercise voting control in favor of the Merger, this
Agreement and the consummation of the transactions contemplated hereby and shall
not demand appraisal or dissenter's rights in connection with the merger under
the business corporation laws of the State of Nevada.
4.5 EXCLUSIVE DEALING. Unless and until the earlier to occur of the
Closing Date or the termination of this Agreement pursuant to SECTION 9, neither
the Company nor any Stockholder shall, nor shall any of them permit any
director, officer, employee or agent of either of the Company to, directly or
indirectly, (i) take any action to solicit, initiate submission of or encourage,
proposals or offers from any person relating to any acquisition or purchase of
all or (other than in the ordinary course of business) a portion of the assets
of, or any equity interest in, the Company or any merger or business combination
with the Company (an "Acquisition Proposal"), (ii) participate in any
discussions or negotiations regarding an Acquisition Proposal with any person or
entity other than Parent and Newco and their representatives, or (iii) otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other person to do any of the foregoing.
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4.6 NO SALES OF CAPITAL STOCK. Between the date of this Agreement and
the Effective Time, none of the Stockholders shall sell, exchange, deliver,
assign, pledge, encumber or otherwise transfer or dispose of any Company Stock
owned beneficially or of record by such Stockholder, nor grant any right of any
kind to acquire, dispose of, vote or otherwise control in any manner such shares
of Company Stock; provided, however, that notwithstanding anything to the
contrary stated herein, any transferee, executor, heir, legal representative,
successor or assign of any Stockholder shall be bound by this Agreement.
4.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to the Parent of (i) the occurrence or non-occurrence
of any event the occurrence or non-occurrence of which would be likely to cause
any representation or warranty of the Company or the Stockholders contained
herein to be untrue or inaccurate in any material respect at or prior to the
Closing and (ii) any material failure of any Stockholder or the Company to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by such person hereunder. The delivery of any notice pursuant to
this SECTION 4.8 shall not be deemed to (i) modify the representations or
warranties hereunder of the party delivering such notice, (ii) modify the
conditions set forth in SECTION 7 or elsewhere or (iii) limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
4.8 AMENDMENT OF SCHEDULES. The Company and the Stockholders agree
that, with respect to the representations and warranties contained in this
Agreement, the Company and the Stockholders shall have the continuing obligation
until the Closing Date to supplement or amend promptly the Schedules hereto with
respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required to be set forth or
described on the Schedules. Notwithstanding the foregoing sentence, no amendment
or supplement to a Schedule prepared by the Company or the Stockholders that
constitutes or reflects an event or occurrence that would be reasonably likely
to have a material adverse effect may be made unless the Parent consents to such
amendment or supplement.
4.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company
and the Stockholders shall furnish or cause to be furnished to the Parent and
its underwriters all of the information concerning the Company and the
Stockholders reasonably requested by the Parent and its underwriters for
inclusion in, and will cooperate with the Parent and its underwriters in the
preparation of, any Registration Statement required by the Securities and
Exchange Commission and any prospectus included therein (including audited and
unaudited financial statements, prepared in accordance with GAAP, and in form
otherwise reasonably requested by the Parent and its underwriters as suitable
for inclusion in the Registration Statement). The Company and the Stockholders
agree to promptly advise the Parent if at any time during the period in which a
prospectus relating to the IPO is required to be delivered under the Securities
Act, any information contained in the prospectus concerning the Company or the
Stockholders becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information requested relates solely to the Company or
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the Stockholders, each of the Company and the Stockholders jointly and severally
represents and warrants that the Registration Statement will not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
4.10 FURTHER ASSURANCES. The Company and Stockholders hereto agree to
execute and deliver, or cause to be executed and delivered, such further
instruments or documents or take such other action as may be reasonably
necessary or convenient to carry out the transactions contemplated hereby.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND NEWCO.
5.1 MAKING OF REPRESENTATIONS AND WARRANTIES. As of the date hereof,
the Parent and Newco hereby represent and warrant to the Stockholders and the
Company as set forth in this Section 5.
5.2 ORGANIZATION OF THE PARENT AND NEWCO. The Parent and Newco are
corporations duly organized, validly existing and in good standing under the
laws their respective state of incorporation with full corporate power and
authority to conduct their respective businesses in the manner as now conducted.
5.3 AUTHORITY. All necessary corporate action has been taken by the
Parent and Newco to authorize the execution, delivery and performance of this
Agreement and each agreement, document and instrument to be executed and
delivered by the Parent and/or Newco pursuant to this Agreement. This Agreement
and each agreement, document and instrument to be executed and delivered by the
Parent and/or Newco pursuant to this Agreement (to the extent it contains
obligations to be performed by the Parent and/or Newco) constitutes, or when
executed and delivered by the Parent and/or Newco will constitute, valid and
binding obligations of the Parent and/or Newco enforceable in accordance with
their respective terms.
5.4 NO CONFLICTS. The execution, delivery and performance by the Parent
and Newco of this Agreement and each such other agreement, document and
instrument: (i) does not and will not violate any provision of the Certificate
of Incorporation or bylaws of the Parent or Newco; and (ii) will not result in a
breach of, constitute a default under, accelerate any obligation under, or give
rise to a right of termination of any indenture or loan or credit agreement or
any other agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination or
arbitration award, whether written or oral, to which the Parent or Newco is a
party or by which the property of the Parent or Newco is bound or affected, or
result in the creation or imposition of any mortgage, pledge, lien, security
interest or other charge or encumbrance on any of the assets of the Parent or
Newco, except where such breach, default, acceleration or right of termination
would not have a material adverse effect on the properties, assets, business,
financial condition or prospects of the Parent or Newco, and
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would not result in the creation or imposition of any mortgage, pledge, lien,
security interest or other charge or encumbrance on any of the assets of the
Parent or Newco.
5.5 PARENT STOCK. The Parent Stock to be delivered to the Stockholders
at the Closing, when delivered in accordance with the terms of this Agreement,
will constitute valid and legally issued shares of the Common Stock of the
Parent, fully paid and non-assessable. Such Parent Stock will constitute
restricted securities and will be subject to the lock-up provisions and other
transfer restrictions imposed under this Agreement and under applicable federal
and state securities laws as described in SECTION 9 below.
5.6 LITIGATION. There is no litigation or governmental or
administrative proceeding or investigation pending or threatened against the
Parent or Newco which may have an adverse effect on the properties, assets,
business, financial condition or prospects of the Parent or Newco or which would
prevent or hinder the consummation of the transactions contemplated by this
Agreement.
5.7 COMPLIANCE WITH LAWS. Neither the Parent nor Newco has received
notice of a violation or alleged violation of applicable statutes, ordinances,
orders, rules and regulations promulgated by any federal, state, municipal or
other governmental authority, which violation or alleged violation would have a
material adverse effect on the business of the Parent or Newco.
SECTION 6. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARENT AND NEWCO.
6.1 INTRODUCTION. The obligations of the Parent (and its accountants
KPMG Peat Marwick LLP) and Newco to consummate this Agreement and the
transactions contemplated hereby are subject to the fulfillment, prior to or at
the Closing, of the conditions set forth in this SECTION 6.
6.2 EXAMINATION OF FINANCIAL STATEMENTS. Prior to the Closing Date, the
Parent shall have had sufficient time to review the unaudited balance sheets of
the Company as of the last day of the month ended immediately prior to the
Closing Date (if December 31, including year-end adjustments) and the unaudited
statements of income, cash flow and stockholder's equity for the period then
ended, disclosing no material change in the financial condition of the Company
or the results of its operations from the financial statements originally
furnished by the Company as set forth in SCHEDULE 3.7. In addition, prior to the
Closing Date, the Parent and Newco shall have had sufficient opportunity to
review the audited balance sheet of the Company as of December 31, 1998 and the
audited statements of income, cash flow and stockholders' equity for the years
ended December 31, 1998 and December 31, 1997 prepared by the Parent's
accounting firm in accordance with GAAP in connection with the contemplated IPO,
and the Parent shall be satisfied in all respects with such financial
information, and such information shall indicate that the Company's gross
revenues for the year ended December 31, 1998 shall exceed $547,000, and the
aggregate stockholder's equity as of December 31, 1998 shall exceed $167,000.
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6.3 NO MATERIAL ADVERSE CHANGE. No material adverse change in the
results of operations, financial position or business of the Company shall have
occurred and the Company shall not have suffered any material loss or damages to
any of its properties or assets, whether or not covered by insurance, since the
Company Balance Sheet Date, which change, loss or damage materially affects or
impairs the ability of the Company to conduct its business; and the Parent shall
have received on the Closing Date a certificate signed by the President of the
Company and each of the Stockholders to such effect.
6.4 DUE DILIGENCE AND REGULATORY REVIEW. The Parent shall have
completed to its satisfaction a due diligence investigation of the Company and
its prospects, business, assets, contracts, rights, liabilities and obligations,
including a review of the practices and procedures of the Company with respect
to compliance with contracts and federal, state and local laws and regulations
governing the operations of the Company. Such review shall be satisfactory in
all respects to the Parent, in its sole discretion.
6.5 OPINION OF COUNSEL. The Parent shall have received an opinion from
Paravati, Karl, Green & DeBella, counsel to the Company and the Stockholders,
dated the Closing Date, in form and substance satisfactory to the Parent, to the
effect that with respect to the Company:
(a) the Company has been duly organized and is validly
subsisting in good standing under the laws of the State of Nevada.
(b) the authorized and outstanding capital stock of the
Company is as represented by the Stockholders in this Agreement and each share
of such stock has been duly and validly authorized and issued, is fully paid and
nonassessable and was not issued in violation of the preemptive rights of any
stockholder;
(c) to the knowledge of such counsel, the Company does not
have any outstanding options, warrants, calls, conversion rights or other
commitments of any kind to issue or sell any of its capital stock;
(d) this Agreement has been duly authorized, executed and
delivered by the Company and the Stockholders and constitutes a valid and
binding agreement of the Company and the Stockholders enforceable against
them in accordance with its terms except as such enforceability may be
subject to bankruptcy, moratorium, insolvency, reorganization, arrangement
and other similar laws relating to or affecting the rights of creditors and
except (i) as the same may be subject to the effect of general principles of
equity and (ii) that no opinion need be expressed as to the enforceability of
indemnification provisions included herein;
(e) except to the extent set forth on SCHEDULE 3.16, to the
knowledge of such counsel, there are no claims, actions, suits or proceedings
pending, or threatened against or
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affecting the Company, at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality wherever located;
(f) no notice to, consent, authorization, approval or order of
any court or governmental agency or body or of any other third party is required
in connection with the execution, delivery or consummation of this Agreement by
any Stockholders or for the transfer to the Parent of the Company Stock;
(g) the execution of this Agreement and the performance of the
obligations hereunder will not violate or result in a breach or constitute a
default under any of the terms or provisions of the Company's Certificate of
Incorporation or the bylaws of the Company or of any lease, instrument, license,
permit or any other agreement to which the Company is a party or by which the
Company or any Stockholder is bound; and
(h) any other matters incident to the matters set forth herein
as reasonably required by the Parent.
6.6 ADDITIONAL LIABILITIES AND OBLIGATIONS. The Stockholders shall have
delivered to the Parent a certificate dated the Closing Date, setting forth (i)
all liabilities and obligations of the Company arising since the Company Balance
Sheet Date and (ii) showing all material contracts and agreements, together with
copies thereof, entered into by the Company since the Company Balance Sheet
Date.
6.7 GOOD STANDING CERTIFICATES; CERTIFIED COPY OF THE CERTIFICATE OF
INCORPORATION. The Company shall have delivered to the Parent certificates,
dated as of a date no earlier than twenty days prior to the Closing Date, duly
issued by the Secretary of State and the Department of Revenue of the state of
Nevada (and by the Secretary of State and the Department of Revenue of New York
and of any other state in which the Company is authorized to do business),
showing that the Company is in good standing and authorized to do business and
that all state franchise and/or income tax returns and taxes for the Company for
all periods prior to the dates of such certificates have been filed and paid.
The Company shall also have delivered to the Parent prior to the Closing a
recent copy of its Certificate of Incorporation and all amendments thereto duly
certified by the Secretary of State of Nevada.
6.8 REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the representations
and warranties of the Company and the Stockholders contained in SECTION 3 and
elsewhere in this Agreement shall be true and correct on and as of the Closing
Date, with the same effect as though made on and as of the Closing Date; the
Company and the Stockholders shall, on or before the Closing Date, have
performed and satisfied all agreements and conditions hereunder which by the
terms hereof are to be performed and satisfied by the Company or the
Stockholders on or before the Closing Date; and the Company and the Stockholders
shall have delivered to the
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Parent a certificate dated the Closing Date signed by the Company's President
and by each of the Stockholders to the foregoing effect.
6.9 APPROVALS AND CONSENTS. The Company and the Stockholders shall have
made all filings with and notifications of governmental authorities, regulatory
agencies and other entities required to be made by them in connection with the
execution and delivery of this Agreement, the performance of the transactions
contemplated hereby and the continued operation of the businesses of the Company
subsequent to the Effective Time, and the Company and the Parent shall have
received all required authorizations, waivers, consents and permits to permit
the consummation of the transactions contemplated by this Agreement, in form and
substance reasonably satisfactory to the Parent, from all third parties,
including, without limitation, approvals required under federal and state
securities laws and/or the securities and Exchange Commission, state "Blue Sky"
laws, other applicable governmental authorities and regulatory agencies,
lessors, lenders and contract parties, required in connection with the Merger or
the Company's permits, leases, licenses and franchises, to avoid a breach,
default, termination, acceleration or modification of any material agreement,
contract, instrument, mortgage, lien, lease, permit, authorization, order, writ,
judgment, injunction, decree, determination or arbitration award as a result of
the execution or performance of this Agreement, or otherwise in connection with
the execution and performance of this Agreement.
6.10 NO ACTIONS OR PROCEEDINGS. No action or proceeding by any court,
administrative body or governmental agency shall have been instituted or
threatened which would enjoin, restrain or prohibit, or would likely result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions contemplated by this Agreement, and which would in the
reasonable judgment of the Parent or Newco make it inadvisable to consummate
such transactions, and no law or regulation shall be in effect and no court
order shall have been entered in any action or proceeding instituted by any
party which enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions as contemplated by this Agreement.
6.11 PROCEEDINGS SATISFACTORY TO NEWCO AND THE PARENT. All proceedings
to be taken by the Company and the Stockholders in connection with the
consummation of the Closing on the Closing Date and the other transactions
contemplated hereby and all certificates, opinions, instruments and other
documents required to effect the transaction contemplated hereby reasonably
requested by Newco and the Parent shall be reasonably satisfactory in form and
substance to Newco and the Parent and their counsel.
6.12 EMPLOYMENT AGREEMENTS. Each of the Stockholders shall have
executed and delivered an individual employment agreement with Newco in the
forms attached hereto as EXHIBIT 6.12(a) (for John L. Ryder), EXHIBIT 6.12(b)
(for Michael Wil.Swiercz) and EXHIBIT 6.12(c) (for James L. Henrickson).
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6.13 EFFECTIVENESS OF REGISTRATION STATEMENT AND IPO CLOSING. The
Registration Statement prepared and filed in connection with the Parent's
contemplated IPO shall have been declared effective by the Securities and
Exchange Commission, and the Parent and its underwriters shall have successfully
closed the IPO. The intent of the parties hereto is to hold the Closing for the
transactions contemplated hereby as described in SECTION 1.7 contemporaneously
with the IPO closing.
SECTION 7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS.
7.1 INTRODUCTION. The obligations of the Company and the Stockholders
to consummate this Agreement and the transactions contemplated hereby are
subject to the fulfillment, prior to or at the Closing Date, of the following
conditions (any one or more of which may be waived in whole or in part by the
Company and the Stockholders):
7.2 REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the representations
and warranties of the Parent and Newco contained in SECTION 5 shall be true and
correct in all material respects on and as of the Closing Date, with the same
effect as though made on and as of the Closing Date; the Parent and Newco shall,
on or before the Closing Date, have performed and satisfied all agreements and
conditions hereunder which by the terms hereof are to be performed and satisfied
by the Parent and Newco on or before the Closing Date; and the Parent and Newco
shall have delivered to the Company a certificate signed by the President of the
Parent and of Newco and dated as of the Closing Date certifying to the foregoing
effect.
7.3 NO ACTIONS OR PROCEEDINGS. No action or proceeding by any court,
administrative body or governmental agency shall have been instituted or
threatened which would enjoin, restrain or prohibit, or would likely result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions as contemplated by this Agreement, and which would in the
reasonable judgment of the Company make it inadvisable to consummate such
transactions, and no law or regulation shall be in effect and no court order
shall have been entered in any action or proceeding instituted by any party
which enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions as contemplated by this Agreement.
7.4 EMPLOYMENT AND OTHER AGREEMENTS. Newco shall have executed and
delivered an individual employment agreement with each of the Stockholders in
the forms attached hereto as EXHIBIT 6.12(a) (for John L. Ryder), EXHIBIT
6.12(b) (for Michael Wil. Swiercz) and EXHIBIT 6.12(c) (for James L.
Henrickson).
7.5 EFFECTIVENESS OF REGISTRATION STATEMENT AND IPO CLOSING. The
Registration Statement prepared and filed in connection with the Parent's
contemplated IPO shall have been declared effective by the Securities and
Exchange Commission, and the Parent and its underwriters shall have successfully
closed the IPO. The intent of the parties hereto is to hold
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the Closing for the transactions contemplated hereby as described in SECTION 1.7
contemporaneously with or as promptly as practicable after the IPO closing.
SECTION 8 - PARENT STOCK - TRANSFER RESTRICTIONS.
8.1 50% LOCK-UP. In addition to applicable federal and state securities
laws restricting the public sale of the Parent Stock to be issued to the
Stockholders hereunder as set forth in SECTION 8.2 below, the Stockholders
hereby irrevocably agree that for a period of two years after the Closing Date,
they will not to (i) offer, pledge, sell or otherwise transfer directly or
indirectly, more than 50% of the shares of Parent Stock received hereunder (as
adjusted for any stock splits, recapitalizations, mergers or other similar
events post-IPO), or (ii) enter into any agreement that transfers, in whole or
in part, any of the economic consequences of ownership of more than 50% of the
shares of Parent Stock received hereunder (as adjusted for any stock splits,
recapitalizations, mergers or other similar events post-IPO). The Stockholders
agree that the foregoing shall be binding upon the Stockholders' successors,
assigns, heirs, and personal representatives.
8.2 UNREGISTERED STOCK; INVESTMENT INTENT. The Stockholders acknowledge
and agree that the shares of Parent Stock to be delivered to the Stockholders
pursuant to this Agreement have not been and will not be registered under the
Securities Act of 1933, as amended (the "Act") and therefore may not be resold
without compliance with the Act. The Stockholders represent and warrant that the
Parent Stock to be acquired by Stockholders pursuant to this Agreement is being
acquired solely for their own account, for investment purposes only, and with no
present intention of distributing, selling or otherwise disposing of it in
connection with a distribution. The Stockholders covenant, warrant and represent
that none of the shares of Parent Stock issued to such Stockholders will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the Act and the rules and regulations of the Securities and Exchange
Commission and applicable state securities laws.
8.3 ABLE TO BEAR RISK; SOPHISTICATED INVESTORS; INFORMATION. The
Stockholders represent and warrant that they are able to bear the economic risk
of an investment in Parent Stock acquired pursuant to this Agreement and can
afford to sustain a total loss of such investment. They further represent and
warrant that they (i) fully understand the nature, scope and duration of the
limitations on transfer contained in this Agreement and (ii) have such knowledge
and experience in financial and business matters that they are capable of
evaluating the merits and risks of the proposed investment and therefore have
the capacity to protect their own interests in connection with the acquisition
of the Parent Stock. The Stockholders represent and warrant that they have had
an adequate opportunity to ask questions and receive answers from the officers
of the Parent concerning any and all matters relating to the acquisition of
Parent Stock as contemplated by this Agreement including, without limitation,
the background and experience of the officers and directors of the Parent, the
plans for the operations of the business
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of the Parent, and any plans for additional acquisitions and the like. The
Stockholders have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
8.4 RESTRICTIVE LEGENDS. The certificates evidencing the Parent Stock
to be received by the Stockholders hereunder will bear legends substantially in
the form set forth below and containing such other information as the Parent may
deem appropriate. References in such legend to "THE COMPANY" shall refer to the
Parent.
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY
STATE SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES
UNDER THE 1933 ACT AND ANY STATE SECURITIES OR BLUE SKY LAWS, UNLESS,
IN THE OPINION (WHICH SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO
THE COMPANY) OF COUNSEL SATISFACTORY TO THE COMPANY, SUCH REGISTRATION
IS NOT REQUIRED.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE FURTHERMORE SUBJECT TO A
LOCK-UP AGREEMENT WITH THE COMPANY DATED AS OF _____________, A COPY OF
WHICH MAY BE OBTAINED BY CONTACTING THE SECRETARY OF THE COMPANY
In addition, such certificates shall also bear such other legends as
counsel for the Parent reasonably determines are required under the applicable
laws of any state.
SECTION 9. TERMINATION OF AGREEMENT; EFFECT OF TERMINATION.
9.1 TERMINATION. This Agreement may be terminated any time prior to the
Closing Date solely by:
(a) mutual consent of the boards of directors of the Parent
and the Company;
(b) either the Stockholders and the Company, on the one hand,
or by the Parent and Newco, on the other hand, if
(i) the transactions contemplated by this Agreement
to take place at the Closing shall not have been
consummated by December 31, 1999, unless the failure
of such transactions to be consummated is
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due to the willful failure of the party seeking to
terminate this Agreement to perform any of its
obligations under this Agreement to the extent
required to be performed by it prior to or on the
Closing Date; or
(ii) if a material breach or default shall be made by
the other party in the observance of or in the due
and timely performance of any of the covenants or
agreements contained herein, and the curing of such
default shall not have been made on or before the
Closing Date
9.2 LIABILITIES IN THE EVENT OF TERMINATION. The termination of this
Agreement will in no way limit any obligation or liability of any party based on
or arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this Agreement
including, but not limited to, legal and audit costs and out of pocket expenses.
SECTION 10. NON-COMPETITION.
For a period of two (2) years from and after the Closing Date, the
Stockholders will not (i) engage directly or indirectly in any business that the
Company conducts as of the Closing Date in the United States; (except that
ownership of less than 2% of the outstanding stock of any competing publicly
traded corporation shall not constitute a violation of this covenant not to
compete) or (ii) solicit, directly or indirectly, any customers, clients,
accounts, officers, employees, agents or representatives of the Company, Newco
or the Parent. If the final judgment of a court of competent jurisdiction
declares that any term or provision of this Section is invalid or unenforceable,
the parties hereto agree that the court making the determination of invalidity
or unenforceability shall have the power to reduce the scope, duration, or area
of the term or provision, to delete specific words or phrases, or to replace any
invalid or unenforceable term or provision with a term or provision that is
valid and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time within which the
judgment may be appealed.
SECTION 11. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
11.1 THE STOCKHOLDERS. The Stockholders recognize and acknowledge that
they have had in the past, currently have and in the future may have access to
certain confidential information relating to the Company, the Parent and Newco,
including, but not limited to, operational policies, customer lists, and pricing
and cost policies, that are valuable, special and unique assets of the Company,
the Parent and Newco. The Stockholders agree that they will not
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use or disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
authorized representatives of the Parent and Newco who need to know such
information in connection with the transactions contemplated hereby, who have
been informed of the confidential nature of such information and who have agreed
to keep such information confidential as provided hereby, and (b) following the
Closing, such information may be disclosed by the Stockholders as is required in
the course of performing his or her duties for the Parent or the Surviving
Corporation unless (i) such information becomes known to the public generally
through no breach by the Stockholders of this covenant, (ii) disclosure is
required by law or the order of any governmental authority under color of law or
is necessary in order to secure a consent or approval to consummate the
transactions contemplated hereby, provided, that prior to disclosing any
information pursuant to this clause (ii), the Stockholders shall give prior
written notice thereof to the Parent and provide the Parent with the opportunity
to contest such disclosure, or (iii) the disclosing party reasonably believes
that such disclosure is required in connection with the defense of a lawsuit
against the disclosing party and the same prior disclosure set forth immediately
above is given. In the event of a breach or threatened breach by the
Stockholders of the provisions of this section, the Parent shall be entitled to
an injunction restraining the Stockholders from disclosing, in whole or in part,
such confidential information. Nothing herein shall be construed as prohibiting
the Parent from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages. In the event that the
transactions contemplated herein are not consummated, the Stockholders shall
return to the Parent within a reasonable time all documents containing
confidential information about the Parent.
11.2 THE PARENT AND NEWCO. The Parent and Newco recognize and
acknowledge that they had in the past and currently have access to certain
confidential information relating to the Company, such as operational policies,
customer lists, and pricing and cost policies, that are valuable, special and
unique assets of the Company. The Parent and Newco agree that, prior to the
Closing, or if the transactions contemplated by this Agreement are not
consummated, they will not use or disclose such confidential information to
their own benefit except in furtherance of the transactions contemplated by this
Agreement or disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to the Stockholders and to authorized representatives of the Company
or the Parent or Newco who need to know such information in connection with the
transactions contemplated hereby, who have been informed of the confidential
nature of such information and who have agreed to keep such information
confidential as provided hereby, unless (i) such information becomes known to
the public generally through no breach by the Parent or Newco of this covenant,
(ii) disclosure is required by law or the order of any governmental authority
under color of law or is necessary in order to secure a consent or approval to
consummate the transactions contemplated hereby, provided, that prior to
disclosing any information pursuant to this clause (ii), the Parent and Newco
shall, if possible, give prior written notice thereof to the Company and the
Stockholders and provide the Company and the Stockholders with the opportunity
to contest such disclosure, or (iii) the disclosing party reasonably believes
that such
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disclosure is required in connection with the defense of a lawsuit against the
disclosing party and the same prior disclosure set forth immediately above is
given. In the event of a breach or threatened breach by the Parent or Newco of
the provisions of this Section, the Company and the Stockholders shall be
entitled to an injunction restraining the Parent and Newco from disclosing, in
whole or in part, such confidential information. Nothing herein shall be
construed as prohibiting the Company and the Stockholders from pursuing any
other available remedy for such breach or threatened breach, including the
recovery of damages. In the event that the transactions contemplated herein are
not consummated, the Parent and Newco shall return to the Company within a
reasonable time all documents containing confidential information about the
Company.
11.3 DAMAGES. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants in SECTIONS 11.1 and 11.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
11.4 Survival. The obligations of the parties under this ARTICLE 11
shall survive notwithstanding either the termination of this Agreement or the
consummation of the transactions contemplated herein on the Closing Date.
SECTION 12. INDEMNIFICATION.
12.1 INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders, jointly and
severally on behalf of themselves and their respective successors, executors,
administrators, estates, heirs and permitted assigns, agree subsequent to the
Effective Time to indemnify and hold harmless the Parent, the Surviving
Corporation and their respective officers, directors, employees and agents
(individually, a "Parent Indemnified Party" and collectively, the "Parent
Indemnified Parties") from and against and in respect of all losses,
liabilities, obligations, damages, deficiencies, actions, suits, proceedings,
demands, assessments, orders, judgments, fines, penalties, costs and expenses
(including the reasonable fees, disbursements and expenses of attorneys,
accountants and consultants) of any kind or nature whatsoever (whether or not
arising out of third-party claims and including all amounts paid in
investigation, defense or settlement of the foregoing) sustained, suffered or
incurred by or made against any Parent Indemnified Party (a "Loss" or "Losses"),
arising out of, based upon or in connection with:
(a) any breach of any representation or warranty made by the
Company or the Stockholders in this Agreement or in any schedule, exhibit,
certificate, agreement or other instrument delivered under or in connection with
this Agreement, or by reason of any claim, action or proceeding asserted or
instituted arising out of any matter or thing covered by any such
representations or warranties (collectively, "Parent Representation and Warranty
Claims");
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(b) any breach of any covenant or agreement made by the
Company or any Stockholder in this Agreement or in any schedule, exhibit,
certificate, agreement or other instrument delivered under or in connection with
this Agreement, or by reason of any claim, action or proceeding asserted or
instituted arising out of any matter or thing covered by any such covenant or
agreement; or
(c) with respect to taxes of the Company incurred with respect
to any Pre-Closing Tax Period (as defined below) to the extent such liability
exceeds the amounts accrued therefor and disclosed to the Parent in Schedule 3.7
hereto (it being understood that such Schedule shall be updated as of the
Closing to reflect tax accruals as of such date consistent with the Company's
past practices); the term "Pre-Closing Tax Period" shall mean all taxable
periods ending on or before the Closing Date and the portion (ending on the
Closing Date) of any taxable period that includes (but does not end on) the
Closing Date.
Claims under clauses (a) through (c) of this Section 12.1 are hereinafter
collectively referred to as "Parent Indemnifiable Claims". The rights of Parent
Indemnified Parties to recover indemnification in respect of any occurrence
referred to in clauses (b) and (c) of this Section 12.1 shall not be limited by
the fact that such occurrence may not constitute an inaccuracy in or breach of
any representation or warranty referred to in clause (a) of this Section 12.1.
12.2 LIMITATIONS ON INDEMNIFICATION BY THE COMPANY STOCKHOLDERS.
Notwithstanding the provisions of SECTION 12.1, the Company Stockholders shall
not be obligated to indemnify Parent Indemnified Parties except to the extent
the cumulative amount of Losses to such Parent Indemnifiable Parties exceeds Ten
Thousand Dollars ($10,000) (the "Parent threshold") whereupon the full amount of
such Losses shall be recoverable in accordance with the terms hereof.
12.3 NOTICE; DEFENSE OF CLAIMS.
Promptly after receipt by a Parent Indemnified Party of notice of any
claim, liability or expense to which the indemnification obligations hereunder
would apply, the Parent Indemnified Party shall give notice thereof in writing
to the Stockholders, but the omission to so notify the Stockholders promptly
will not relieve the Stockholders from any liability except to the extent that
the Stockholders shall have been prejudiced as a result of the failure or delay
in giving such notice. Such notice shall state the information then available
regarding the amount and nature of such claim, liability or expense and shall
specify the provision or provisions of this Agreement under which the liability
or obligation is asserted. If within twenty (20) days after receiving such
notice the Stockholders give written notice to the Parent Indemnified Party
stating that (i) it would be liable under the provisions hereof for indemnity in
the amount of such claim if such claim were successful and (ii) that it disputes
and intends to defend against such claim, liability or expense at its own cost
and expense, then counsel for the defense shall be selected by the
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Stockholders (subject to the consent of the Parent Indemnified Party which
consent may not be unreasonably withheld) and the Parent Indemnified Party shall
not be required to make any payment with respect to such claim, liability or
expense as long as the Stockholders are conducting a good faith and diligent
defense at their own expense; provided, however, that the assumption of defense
of any such matters by the Stockholders shall relate solely to the claim,
liability or expense that is subject or potentially subject to indemnification.
The Stockholders shall have the right, with the consent of the Parent
Indemnified Party, which consent shall not be unreasonably withheld, to settle
any Parent Indemnified Claims by third parties which are susceptible to being
settled provided its obligation to indemnify the Parent Indemnified Party
therefor will be fully satisfied. The Stockholders shall keep the Parent
Indemnified Party apprised of the status of the claim, liability or expense and
any resulting suit, proceeding or enforcement action, shall furnish the Parent
Indemnified Party with all documents and information that the Parent Indemnified
Party shall reasonably request and shall consult with the Parent Indemnified
Party prior to acting on major matters, including settlement discussions.
Notwithstanding anything herein stated, the Parent Indemnified Party shall at
all times have the right to fully participate in such defense at its own expense
directly or through counsel; provided, however, if the named parties to the
action or proceeding include both the Stockholders and the Parent Indemnified
Party and representation of both parties by the same counsel would be
inappropriate under applicable standards of professional conduct, the expense of
separate counsel for the Parent Indemnified Party shall be paid by the
Stockholders. If no such notice of intent to dispute and defend is given by the
Stockholders, or if such diligent good faith defense is not being or ceases to
be conducted, the Parent Indemnified Party shall, at the expense of the
Stockholders, undertake the defense of (with counsel selected by the Parent
Indemnified Party), and shall have the right to compromise or settle (exercising
reasonable business judgment), such claim, liability or expense. If such claim,
liability or expense is one that by its nature cannot be defended solely by the
Stockholders, then the Parent Indemnified Party shall make available all
information and assistance that the Stockholders may reasonably request and
shall cooperate with the Stockholders in such defense.
SECTION 13. MISCELLANEOUS.
13.1 LAW GOVERNING. This Agreement shall be construed under and
governed by the internal laws of the State of New York without regard to its
conflict of laws provisions.
13.2 NOTICES. Any notice, request, demand other communication required
or permitted hereunder shall be in writing and shall be deemed to have been
given (i) if delivered or sent by facsimile transmission, upon receipt, or
(ii) if sent by registered or certified mail upon the sooner of receipt or the
expiration of three days after deposit in United States Post Office facilities
properly addressed with postage prepaid. all notices will be sent to the
addresses set forth below or to such other address as such party may designate
by notice to each other party hereunder:
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TO PARENT OR NEWCO:
InSite Internet, Inc.
1100 First Avenue
Spring Lake, NJ 07762
ATTN: Mark E. Munro, President and Chief Executive Officer
Phone: 732-280-6407
Fax: 908-449-8823
with a copy to:
Duffy & Sweeney, LLP
300 Turks Head Building
Providence, RI 02903
ATTN: Michael F. Sweeney, Esq.
Phone: (401) 455-0700
Fax: (401) 455-0701
TO THE COMPANY AND THE STOCKHOLDERS:
Borg Internet Services, Inc.
Suite 403, 4th Floor
1001 Broad Street
Utica, NY 13501
ATTN: John L. Ryder, Michael Wil. Swiercz & James L. Henrickson
Phone: 315-793-0036
Fax: 315-793-0213
with a copy to:
Peter A. Karl III, Esq.
Paravati, Karl, Green & DeBella
12 Steuben Park
Utica, NY 13501
Phone: 315-735-6481
Fax: 315-735-6406
Any notice given hereunder may be given on behalf of any party by its counsel or
other authorized representative.
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13.3 ENTIRE AGREEMENT. This Agreement, including any schedules, annexes
and/or exhibits referred to herein and the other writings specifically
identified herein or contemplated hereby or delivered in connection with the
transactions contemplated hereby, is complete, reflects the entire agreement of
the parties with respect to its subject matter, and supersedes all previous
written or oral negotiations, commitments and writings.
13.4 ASSIGNABILITY. This Agreement may not be assigned or delegated by
any party hereto without the prior written consent of all parties hereto. No
Stockholder may assign his, her or its rights or delegate his, her or its
obligations hereunder without the prior written consent of the Parent. This
Agreement and the obligations of the parties hereunder shall be binding upon and
enforceable by, and shall inure to the benefit of, the parties hereto and their
respective successors, executors, administrators, estates, heirs and permitted
assigns, and no others.
13.5 ARBITRATION; JURISDICTION; VENUE; ATTORNEY'S FEES. Each party
hereto agrees that any dispute regarding this Agreement shall be submitted to
arbitration to and shall be resolved in accordance with the rules of the
JAMS/Endispute for expedited cases then in effect. The arbitrator(s) shall be
mutually selected by the parties or in the event the parties cannot mutually
agree, then appointed by JAMS/Endispute. Any arbitration shall be held within a
thirty (30) mile radius of New York City and the arbitrator(s) shall apply New
York law. Judgment upon any award rendered by the arbitrator(s) shall be final
and may be entered in any court of competent jurisdiction. Notwithstanding the
foregoing, the Parent and Newco shall have the absolute right to obtain
equitable remedies in any state court of competent jurisdiction in the State of
New York or in the United States District Court for the Southern District of New
York. Each party irrevocably submits to and accepts the exclusive jurisdiction
of each of such courts and waives any objection (including any objection to
venue or any objection based upon the grounds of forum non conveniens) which
might be asserted against the bringing of any such action, suit or other legal
proceeding in such courts. The court and/or arbitrator(s) shall award costs and
expenses (including reasonable attorney's fees) to the prevailing party and/or
parties in any litigation or arbitration.
13.6 CAPTIONS AND GENDER. The captions in this Agreement are for
convenience only and shall not affect the construction or interpretation of any
term or provision hereof. The use in this Agreement of the masculine pronoun in
reference to a party hereto shall be deemed to include the feminine or neuter
pronoun, as the context may require.
13.7 CERTAIN DEFINITIONS. for purposes of this Agreement, the term:
(a) "Affiliate" of a person shall mean a person that directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the first mentioned person;
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(b) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise; and
(c) "person" means an individual, corporation, partnership,
association, trust or any unincorporated organization.
13.8 EXECUTION IN COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same document.
13.9 AMENDMENTS; WAIVERS. This Agreement may not be amended or
modified, nor may compliance with any condition or covenant set forth herein be
waived, except by a writing duly and validly executed by the Parent, Newco, the
Company and the Stockholders, or, in the case of a waiver, the party waiving
compliance. No delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any such right, power or privilege, or any single or
partial exercise of any such right, power or privilege, preclude any further
exercise thereof or the exercise of any other such right, power or privilege.
13.10 SURVIVAL OF WARRANTIES. All representations, warranties,
agreements, covenants and obligations herein or in any schedule or certificate
delivered by any party incident to the transactions contemplated hereby are
material and may be relied upon by the party receiving the same and shall
survive for a period ending two (2) years after the Closing Date.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date set forth above by their duly authorized
representatives.
PARENT
InSite Internet, Inc.
ATTEST:
/s/ Michael F. Sweeney By: /s/ Mark E. Munro
- ---------------------- ------------------
Assistant Secretary Mark E. Munro, President
and Chief Executive Officer
ATTEST: INSITE INTERNET II
ACQUISITION CO., INC.
/s/ Michael F. Sweeney By: /s/ Mark E. Munro
- ---------------------- ------------------
Assistant Secretary Mark E. Munro, President
and Chief Executive Officer
COMPANY
Borg Internet Services, Inc.
ATTEST:
________________________ By:/s/ John L. Ryder
-----------------
, Secretary John L. Ryder, President
WITNESS: STOCKHOLDERS
/s/ Kenneth W. Lawrence /s/ John L. Ryder
- ----------------------- -----------------
John L. Ryder
/s/ Kenneth W. Lawrence /s/ Michael Wil. Swiercz
- ----------------------- ------------------------
Michael Wil. Swiercz
/s/ Kenneth W. Lawrence /s/ James L. Henrickson
- ----------------------- -----------------------
James L. Henrickson
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EXHIBIT 1.3
BOARD OF DIRECTORS/OFFICERS
INSITE INTERNET II ACQUISITION CO., INC.
BOARD OF DIRECTORS
Mark Munro
Keith London
OFFICERS
Mark Munro - President, Secretary & Treasurer
Michael F. Sweeney - Assistant Secretary
Upon the filing of the Merger Certificate to effect the Merger of the Company
into Newco at the Closing, the Board of Directors of Newco will execute a
consent vote electing John L. Ryder as General Manager, Michael Wil. Swiercz as
Technical Director and James L. Henrickson as Networks Operations Manager of the
Surviving Corporation.
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EXHIBIT 1.6
ESCROW AGREEMENT
This ESCROW AGREEMENT is entered into as of the ____ day of ______, 1999
by and among: Borg Internet Services, Inc., a Nevada corporation (the
"Company"); John L. Ryder, Michael Wil. Swiercz and James L. Henrickson,
stockholders of the Company (collectively, the "Stockholders"); InSite Internet
II Acquisition Co., Inc., a New York corporation ("Newco"); InSite Internet,
Inc., a Delaware corporation ("InSite"); and Duffy & Sweeney, LLP, a Rhode
Island limited liability partnership, as escrow agent (the "Escrow Agent").
WHEREAS, the Company, the Stockholders, Newco and InSite are parties to
an Agreement and Plan of Merger and Reorganization dated as of _____________,
1999 (the "Merger Agreement"), relating to the merger of the Company with and
into Newco; and
WHEREAS, pursuant to the Merger Agreement, the Stockholders will deliver
the number of shares of common stock of InSite, par value $.01 per share,
identified on SCHEDULE 1 hereto (the "Escrow Shares"), into escrow to be held by
an escrow agent on behalf of the Stockholders as provided under the Merger
Agreement; and
WHEREAS, the parties hereto wish to specify the terms and conditions on
which the Escrow Shares, together with all income thereon, will be held,
invested and disbursed; and
WHEREAS, the Escrow Agent has expressed its willingness to act as escrow
agent hereunder.
NOW, THEREFORE, in consideration of the mutual undertakings and
covenants contained in this Escrow Agreement and of the mutual benefits to be
derived therefrom, the parties hereto agree as follows:
1. APPOINTMENT AND OBLIGATION OF ESCROW AGENT. The Stockholders, the
Company, Newco and InSite hereby appoint the Escrow Agent to receive, hold and
dispose of the Escrow Shares pursuant to the terms and conditions of this Escrow
Agreement, and the Escrow Agent hereby accepts such appointment on the terms and
conditions hereto. The use of the term "Escrow Agent" is solely for purposes of
identification and does not indicate or imply that the Escrow Agent has any
agency or other fiduciary obligations to any person or entity except for the
limited obligations of the Escrow Agreement pursuant hereto.
2. DEPOSIT OF ESCROW SHARES.
(a) The Stockholders hereby agree to deliver the Escrow Shares to
the Escrow Agent at the closing of the transactions contemplated by the Merger
Agreement, accompanied by an
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executed stock power or powers endorsed in blank. The Escrow Agent hereby agrees
to hold the Escrow Shares upon receipt in accordance with this Agreement. The
Escrow Shares do not form a part of the capital or debt of Escrow Agent and are
not subject to the claims of its creditors or depositors but are set apart and
held for the exclusive benefit of the parties.
(b) The Escrow Shares shall be used by the Escrow Agent solely for
the purposes of satisfying the indemnity obligations of the Stockholders under
Section 12 of the Merger Agreement. The Escrow Shares shall not be available to,
and shall not be used by, the Escrow Agent to set off any obligations of InSite
or Newco owing to the Escrow Agent in any capacity.
3. CASH DIVIDENDS AND VOTING RIGHTS. Until the Escrow Shares are
delivered by the Escrow Agent in accordance with the terms hereof, the
Stockholders are entitled to exercise all voting rights with respect to the
Escrow Shares and to receive for their own use cash and other dividends and
distributions on the Escrow Shares.
4. RELEASE OF ESCROW SHARES. The Escrow Agent shall release the Escrow
Shares as follows:
(a) If, at any time, InSite or Newco believes it is entitled to
receive a full or partial distribution of the Escrow Shares to satisfy the
indemnity obligations of the Stockholders to InSite and Newco and their
respective officers, directors, employees and agents under SECTION 12 of the
Merger Agreement, InSite or Newco shall give the Escrow Agent written notice of
the same (the "Claims Notice"), which Claims Notice shall specify the number of
Escrow Shares to be distributed, determined in accordance with SECTION 4(b)
hereof. Upon receipt of any Claims Notice, the Escrow Agent shall promptly
forward a copy of such notice to the Stockholders. If the Stockholders object to
the distribution proposed in the Claims Notice, the Stockholders shall give
written notice of such objection to the Escrow Agent within thirty (30) days
following receipt of the Claims Notice (the "Objection Notice"). If the Escrow
Agent does not receive an Objection Notice within such thirty (30) day period,
the Escrow Agent shall distribute to InSite the Escrow Shares having a value, as
determined in accordance with SECTION 4(c) hereof, equal to the amount specified
in the Claims Notice. If the Escrow Agent receives an Objection Notice within
such thirty (30) day period, the Escrow Agent shall continue to hold the Escrow
Shares pursuant to the terms of this Agreement, subject to the Claims Notice
until the Escrow Agent receives (i) a joint written instruction from the
Stockholders and InSite, Newco regarding disposition of the Escrow Shares
subject to the Claims Notice and Objection Notice, or (ii) a certified copy of a
final, non-appealable decision of a court of competent jurisdiction regarding
disposition of the Escrow Shares subject to the Claims Notice and Objection
Notice. Notwithstanding the foregoing sentence, the Escrow Agent may exercise
its rights under SECTION 9 of this Agreement at any time in the event of a
dispute between the parties regarding release of the Escrow Shares. Upon release
of the Escrow Shares in good faith pursuant to this Agreement, the Escrow Agent
shall be fully released and discharged from all obligations under this
Agreement.
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(b) For purposes of distribution by the Escrow Agent of all or any
portion of the Escrow Shares pursuant to paragraph (a) of this SECTION 4, the
number of Escrow Shares to be delivered shall be determined based on the
"closing sales price" (as hereinafter defined) of InSite Common Stock for the 30
consecutive trading days immediately preceding the "date of distribution" (as
hereinafter defined) of the Escrow Shares by the Escrow Agent.
(i) For purposes hereof, "closing sales price" shall
mean (a) the average of the closing sales price, or, in case no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices, in either case on the principal national securities exchange on which
InSite Common Stock is listed or admitted to trading for such 30 day period, or
(b) if not listed or admitted to trading on any national securities exchange,
the closing sales price as reported by The Nasdaq Stock Market, Inc., or, if
such firm at the time is not engaged in the business of reporting such prices,
as furnished by any similar firm then engaged in such business as selected by
InSite's Board of Directors, for such 30 day period, or (c) if not listed or
admitted to trading on any national securities exchange or reported by Nasdaq or
any similar firm, the net book value of the Escrow Shares as determined by
management of InSite as of the end of the most recent fiscal quarter immediately
preceding the last day of such 30 day period.
(ii) For purposes hereof, "date of distribution"
shall be the date specified in the Claims Notice which shall be (a) the date as
of the end of the thirty (30) day period commencing on the date of the Claims
Notice, or (b) in the event of a dispute, the actual date of notification to the
Escrow Agent to release Escrow Shares which shall be promptly after resolution
of any disputes.
(c) On the date which is one (1) year after the closing date of
the transactions contemplated by the Merger Agreement (the "Escrow Termination
Date"), the Escrow Agent shall deliver to the Stockholders the remaining Escrow
Shares, unless the Escrow Agent shall have been notified in writing by InSite,
Newco or the Stockholders that a Claims Notice is pending and has not been
resolved as described in paragraph (b)(i) or (ii) of this SECTION 4. If the
Escrow Agent has been advised that a Claims Notice is pending on the Escrow
Termination Date and has not been resolved as aforesaid, the Escrow Agent shall
deliver the remaining Escrow Shares to the parties in accordance with the
resolution of the Claims Notice, as provided in SECTION 4(b).
5. EXCULPATION OF ESCROW AGENT. The Escrow Agent shall have no duties
or responsibilities except for those set forth herein (and required by
applicable law), which the parties agree are ministerial in nature. If in doubt
as to its duties and responsibilities hereunder, the Escrow Agent may consult
with counsel of its choice and shall be protected in any action taken or omitted
in good faith in connection with the written advice or opinion of such counsel.
The Escrow Agent shall not be deemed to have any knowledge of or responsibility
for the terms
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of any other agreement or instrument including the Merger Agreement. The Escrow
Agent makes no representation as to the validity, value, genuineness or
collectibility of any security, document or instrument held by or delivered to
it. Except for the Escrow Agent's own fraud, bad faith, willful misconduct or
gross negligence: (a) the Escrow Agent shall have no liability of any kind
whatsoever for the performance of any duties imposed upon the Escrow Agent under
this Escrow Agreement or for any action or failure to act taken in good faith by
the Escrow Agent hereunder; (b) the Escrow Agent shall not be responsible for
the acts or omissions of any other parties hereto; (c) the Escrow Agent shall
not be liable to anyone for damages, losses or expenses arising out of this
Escrow Agreement; and (d) the Escrow Agent may rely and/or act upon any
instrument or document believed by the Escrow Agent in good faith to be genuine
and to be executed and delivered by the proper person or party, and may assume
in good faith the authenticity, validity and effectiveness thereof and shall not
be obligated to make any investigation or determination as to the truth and
accuracy of any information contained therein. The Escrow Agent shall not be
liable for any error of judgment, or for any act done or step taken or omitted
by it in good faith or for any mistake of fact or law, or for anything which it
may do or refrain from doing in connection herewith, except its own bad faith,
willful misconduct or gross negligence. In the event of any dispute between
InSite, Newco or the Stockholders, InSite and the Stockholders shall pay, on
demand, the reasonable attorneys' fees and other reasonable costs and expenses
incurred by the Escrow Agent in respect thereof; InSite, Newco and the
Stockholders shall be jointly and severally liable for such fees, costs and
expenses but, as between themselves, such fees, costs and expenses shall be paid
by the party losing such dispute or as determined by the court or other party
resolving such dispute.
6. INDEMNIFICATION; EXPENSES. In consideration of its acceptance of the
appointment as the Escrow Agent, InSite, Newco and the Stockholders, jointly and
severally, agree to indemnify and hold the Escrow Agent harmless as to any
liability incurred by it to any person, firm or corporation by reason of its
having accepted the same or in carrying out in good faith any of the terms
hereof, and to reimburse Escrow Agent for all its reasonable expenses,
including, among other things, counsel fees and court costs, incurred by reason
of its position hereunder or actions taken pursuant hereto.
7. SUCCESSOR ESCROW AGENT.
(a) The Escrow Agent (and any successor escrow agent) may at any
time resign as such by delivering the Escrow Shares to any successor escrow
agent jointly designated in writing by InSite, Newco and the Stockholders, or to
any court of competent jurisdiction, whereupon the Escrow Agent shall be
discharged of and from any and all further obligations arising in connection
with this Escrow Agreement. The resignation of the Escrow Agent shall take
effect on the earlier of the appointment of a successor escrow agent or the day
which is thirty (30) days after the date of delivery of the Escrow Agent's
written notice of resignation to the other parties hereto. In the event that a
successor escrow agent has not been appointed at the expiration of such thirty
(30) day period, the Escrow Agent's sole responsibility hereunder shall be the
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safekeeping of the Escrow Shares and to deliver all or any portion thereof as
may be specified in a written agreement signed by all the other parties to this
Agreement or as any court of competent jurisdiction may order.
(b) If the Escrow Agent receives a written notice signed by
InSite, Newco and the Stockholders stating that they have selected another
escrow agent, the Escrow Agent shall deliver the Escrow Shares to the successor
escrow agent named in the aforesaid notice within ten (10) days.
8. ENTIRE AGREEMENT; MODIFICATION. With the exception of the Merger
Agreement and agreements, schedules and exhibits thereto, this Escrow Agreement
contains the entire agreement, and supersedes all prior agreements and
undertakings, oral or written, between the parties hereto with respect to the
subject matter hereof. No modification of this Escrow Agreement shall be valid
unless the same is in writing and is signed by InSite, Newco, the Stockholders
and the Escrow Agent.
9. INCONSISTENT CLAIMS. In the event that the Escrow Agent should at
any time be confronted with inconsistent claims or demands by the parties
hereto, the Escrow Agent shall have the right to interplead said parties in any
court of competent jurisdiction in Rhode Island, and request that such court
determine such respective rights of the parties with respect to this Escrow
Agreement, and upon doing so, the Escrow Agent automatically shall be released
from any obligations or liability as consequence of any such claims or demands.
10. STOCKHOLDERS' ACKNOWLEDGMENT OF ATTORNEY/CLIENT RELATIONSHIP
BETWEEN INSITE, NEWCO AND THE ESCROW AGENT. The Stockholders acknowledge and
agree that the Escrow Agent has acted and will continue to act as counsel to
InSite and Newco in connection with the negotiation and execution of the Merger
Agreement. In that connection and as a condition to the Escrow Agent's and
InSite's and Newco's agreement to enter into this Agreement, the Stockholders
waive any right to seek disqualification of the Escrow Agent from serving as
counsel to InSite and Newco by virtue of this Agreement or any dispute
hereunder.
11. NOTICES. Any notices to be given hereunder shall be sufficiently
given if in writing and delivered personally, sent by telecopy (answerback
received), sent by recognized overnight courier, or mailed by registered or
certified mail, return receipt requested, postage prepaid, to the following
addresses or to such other address as the parties may from time to time
designate in writing delivered in accordance with this SECTION 11:
(a) To the Company and the Stockholders at: with a copy to:
John L. Ryder Peter A. Karl III, Esq.
Michael Wil. Swiercz Paravati, Karl, Green & DeBella
James L. Henrickson 12 Steuben Park
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c/o Borg Internet Services, Inc. Utica, NY 13501
Suite 403 Telephone: (315) 735-6481
4th Floor Fax: (315) 735-6406
1001 Broad Street
Utica, NY 13501
(b) To InSite and Newco care of:
InSite Internet, Inc.
1100 First Avenue
Spring Lake, NJ 07762
Attn: Mark E. Munro, President & CEO
Phone: (732) 280-6407
Fax: (732) 280-6409
with a copy to the Escrow Agent at the address below:
c) To the Escrow Agent at:
Duffy & Sweeney, LLP
300 Turks Head Building
Providence, RI 02903
Attn: Michael F. Sweeney, Partner
Phone: (401) 455-0700
Fax: (401) 455-0701
Any notices to be given hereunder shall be deemed received (a) on the date
delivered, if delivered personally, (b) on the date sent, if sent by telecopy,
(c) on the first business day after the date such notice was sent, if sent by
overnight courier, or (d) on the third business day after the date such notice
was sent, if sent by registered or certified mail, PROVIDED THAT no such notice
or other communication shall be deemed given to the Escrow Agent until the same
is received by the Escrow Agent.
12. BINDING EFFECT. This Escrow Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, except that the Stockholders and InSite, Newco may not assign their
respective obligations hereunder without the prior written consent of the other
parties. Any assignment in contravention of this provision shall be void. No
assignment shall release the Stockholders or InSite, Newco from any obligation
or liability under this Escrow Agreement.
13. GOVERNING LAW. This Escrow Agreement shall be construed in
accordance with and governed by the laws of the State of Rhode Island.
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14. DEFINED TERMS. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Merger Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement as of the date first above written.
INSITE INTERNET, INC.
ATTEST:
________________________________ By:____________________________
, Assistant Secretary Mark E. Munro, President
and Chief Executive Officer
INSITE INTERNET II ACQUISITION CO.,
INC.
ATTEST:
_______________________________ By: _____________________________
, Assistant Secretary Mark E. Munro, President
BORG INTERNET SERVICES, INC.
ATTEST:
________________________ By:_____________________________
, Secretary ____________, President
WITNESS:
- ------------------------- --------------------------------
John L. Ryder
WITNESS
- ------------------------- --------------------------------
James L. Henrickson
WITNESS
- ------------------------- ----------------------
Michael Wil. Swiercz
ATTEST DUFFY & SWEENEY,LLP
_________________________ By:__________________________
Michael F. Sweeney, Partner
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SCHEDULE 1
STOCKHOLDER NUMBER OF ESCROW SHARES
John L. Ryder _________
Michael Wil. Swiercz _________
James L. Henrickson _________
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EXHIBIT 6.12(a)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this
_____ day of _____________, 1999, by and between, InSite Internet II Acquisition
Co., Inc., a New York corporation (the "Company") and wholly-owned subsidiary of
InSite Internet, Inc., a Delaware corporation (the "Parent") and John L. Ryder,
an individual with a mailing address at 9137 Sly Hill Rd., Ava, New York 13303
("Employee").
INTRODUCTION
Employee is a principal and employee of Borg Internet Services, Inc.
(the "Founding Company") and possesses skills and knowledge advantageous to the
Company.
The Parent intends to undertake an initial public offering of its common
stock (the "IPO") and in connection therewith contemplates filing a registration
statement with the Securities and Exchange Commission. Contemporaneously with
and conditioned upon the successful closing of the IPO (the "Effective Date"),
(i) the Parent, the Founding Company and the Company intend to effect a merger
of the Founding Company into the Company in accordance with that certain
Agreement and Plan of Merger and Reorganization dated as of ______________, 1999
by and among the Parent, the Company, the Founding Company, and the stockholder
of the Founding Company (the "Merger Agreement") and (ii) effective on the
Effective Date, the Company desires to employ Employee and Employee desires to
accept such employment on the terms and conditions set forth herein.
AGREEMENT
In consideration of the premises and mutual promises hereinbelow set
forth, the parties hereby agree as follows:
1. EMPLOYMENT; DUTIES. Subject to the terms and conditions set forth
herein, the Company hereby employs Employee during the Employment Period (as
defined below), and Employee hereby accepts such employment. Employee agrees to
be a full-time employee of the Company and devote his full and exclusive time,
energy, skill and best efforts to the business of the Company and to the
fulfillment of Employee's duties hereunder. Employee's duties include, but are
not limited to, (i) serving as General Manager of the Company; (ii) sales of the
Company's and its affiliates products and services; (iii) assisting in the
internal growth of the Company's business; and (iv) other duties assigned to
Employee by the Company from time to time consistent with Employee's position.
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2. EMPLOYMENT PERIOD. The term of this Agreement (the "Employment
Period") shall commence on the Effective Date and shall terminate three (3)
years thereafter, unless terminated earlier pursuant to SECTION 4 or SECTION 5
below.
3. COMPENSATION AND BENEFITS.
3.1 SALARY. During the Employment Period, the Company agrees
to pay Employee at the rate of $60,000 per year ("Base Salary"). Employee's
salary shall be subject to customary withholdings and be payable to Employee on
the regularly occurring pay period established by the Company.
3.2 HEALTH BENEFITS. During the Employment Period, the Company
shall provide Employee with individual and/or family health care coverage, as
provided by health care provider(s) selected by the Company from time to time.
3.3 BONUS. During the Employment Period, Employee shall be
paid a bonus at the end of each fiscal year equal to the sum of (i) 2.5% of the
Company's increase in "annual sales" and (ii) 5.0% of the Company's increase in
"EBITDA" (i.e., earnings before interest and taxes, less depreciation and
amortization). Such bonus (if any) shall be payable at the discretion of the
Company in either (A) cash or (B) common stock, options or other awards from the
Parent's incentive stock plan, subject to applicable securities law and tax
withholding payments by Employee. The calculation for such bonus shall (w) be
based on the unconsolidated financial statements of the Company as certified by
the Company's certified public accountants; (x) be subject to allocation of
overhead provisions from time to time adopted by the Company, the Parent and its
subsidiaries; (y) include sales and earnings from new services offered; and
(z) include sales and earnings from new services offered resulting from an
expansion approved by the Parent, or as a result of additional services made
available by the Parent; and shall exclude, without limitation, any earnings or
sales generated by way of merger, acquisition or other similar event.
3.4 RETIREMENT PLAN. During the Employment Period, Employee
shall be entitled to participate in any 401(k) or similar plan adopted by the
Company for the benefit of its employees. The Company reserves the right to
modify, terminate or withdraw any such plan (if so adopted) at any time in its
sole discretion.
3.5 INCENTIVE BONUS. Employee will be paid an incentive bonus
equal to 2.0% of the total purchase price for each company that Employee
introduces to the Parent and is subsequently acquired by the Parent, payable at
the Company's discretion in either (i) cash or (ii) common stock, stock options
or other awards from the Parent's incentive stock option plan, subject to
applicable securities law and tax withholding payments by Employee. Employee
will be required to submit any referral in writing for acknowledgment by the
Parent prior to any negotiations between the Parent and the referral. Employee
acknowledges that other persons or
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entities, (including other employees, officers, and directors of the Company and
its affiliates), have been or may be offered a similar "incentive bonus" and
that any incentive bonus which Employee may be entitled to hereunder is subject
to a percentage reduction to the extent that other persons or entities
participated in or were responsible for the referral. Any dispute regarding
apportionment of an incentive bonus shall be resolved by binding arbitration in
accordance with Section 13 hereof. In no event shall the Company or the Parent
pay more than a total of 2% for any single acquisition transaction.
4. TERMINATION BY THE COMPANY FOR CAUSE. Upon written notice to
Employee, the Company may terminate this Agreement for cause if any of the
following events shall occur: (i) any breach of this Agreement by Employee; (ii)
the commission of a felony by Employee; (iii) the commission of an act by
Employee involving fraud, theft or dishonesty; (iv) material breach by the
Founding Company or its stockholders of their representations, warranties and
covenants and/or obligations under the Merger Agreement which breach remains
uncured for a period of thirty (30) days following notice to Employee; or (v)
the Company's bona fide decision to terminate its business and liquidate its
assets. In the event of a termination pursuant to this Section 4, all
obligations of the Company under this Agreement shall cease.
5. TERMINATION WITHOUT CAUSE.
5.1 BY EMPLOYER. The Company may terminate this Agreement at
any time without cause upon thirty (30) days written notice to Employee. In such
event, the Company shall pay Employee during regular payroll periods (less
customary withholding taxes) the Base Salary for up to the greater of twelve
(12) months or the remainder of the Employment Period. All other obligations of
the Company shall be prorated to the date of termination.
5.2 BY EMPLOYEE. Employee may terminate this Agreement at any
time upon ninety (90) days prior written notice to the Company. In such case,
(i) any severance payments may be negotiated, in good faith, by the Employee and
the Company, but the Company shall be under no legal obligation to provide any
severance payments, and (ii) all obligations of the Company hereunder shall be
prorated to the date of termination.
5.3 MERGER AGREEMENT. Absent a breach of the Merger Agreement,
termination by either the Company or Employee pursuant to this SECTION 5 shall
not be deemed a breach of the Merger Agreement, nor will it affect either
party's obligations thereunder.
6. CONFIDENTIALITY AND NON-DISCLOSURE. Employee recognizes and
acknowledges that he has had in the past, currently has and in the future may
have access to certain confidential information relating to the Company and its
affiliates, including, but not limited to, operational policies, financial
information, marketing information, personnel information, trade secrets,
customer information (including customer lists), and pricing and cost policies,
that are valuable, special and unique assets of the Company (collectively,
"Confidential Information"). Employee
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agrees that he will not use or disclose such Confidential Information to any
person, firm, corporation, association or other entity for any purpose or reason
whatsoever, except as is required in the course of performing his duties
hereunder unless (i) such information becomes known to the public generally
through no breach by Employee of this covenant or (ii) disclosure is required by
law or any governmental authority or is required in connection with the defense
of a lawsuit against the disclosing party, provided, that prior to disclosing
any information pursuant to this clause (ii), Employee shall give prior written
notice thereof to the Company and provide the Company with the opportunity to
contest such disclosure. Employee agrees that, both during the Employment Period
and after the termination of this Agreement, Employee will hold in a fiduciary
capacity for the benefit of the Company, and shall not directly or indirectly
use or disclose, except as authorized by the Company in connection with the
performance of Employee's duties, any Confidential Information, that Employee
may have or may acquire (whether or not developed or compiled by Employee and
whether or not Employee has been authorized to have access to such Confidential
Information) during the term of this Agreement. The covenants contained in this
SECTION 6 shall survive for the Employment Period and for a period of two (2)
years thereafter; provided, however, that with respect to those items of
Confidential Information which constitute trade secrets under applicable law,
Employee's obligations of confidentiality and non-disclosure as set forth in
this SECTION 6 shall continue to survive after the applicable period above to
the greatest extent permitted by applicable law. These rights of the Company are
in addition to those rights the Company has under the common law or applicable
statutes for the protection of trade secrets.
7. NON-COMPETITION. Employee expressly covenants and agrees that for
the Employment Period and for a period of two (2) years thereafter, he shall
not, directly or indirectly, seek, obtain or accept a "Competitive Position" in
the "Restricted Territory" with a "Competitor" of the Company (as such terms are
hereafter defined). For purposes of this Agreement, a "Competitor" of the
Company means any business, individual, partnership, joint venture, association,
firm, corporation or other entity engaged, wholly or partly, in the business of
selling internet access service or in any related business which the Company and
its affiliates may engage in from time to time during the term of this covenant;
the "Restricted Territory" means each state of the United States of America; a
"Competitive Position" means any employment with any Competitor of the Company
whereby Employee will use or is likely to use any Confidential Information, or
whereby Employee has duties for such Competitor that are the same or
substantially similar to those actually performed by Employee pursuant to the
terms hereof. Nothing contained in this SECTION 7 is intended to prevent
Employee from investing in stock or other securities listed on a national
securities exchange or actively traded on the over the counter market or any
corporation engaged, wholly or partly, in the sale of telecommunications
products or services; provided, however, that Employee and members of his
immediate family shall not, directly or indirectly, hold more than a total of
two percent (2%) of all issued and outstanding stock or other securities of any
such corporation.
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8. NON-SOLICITATION.
8.1 NON-SOLICITATION OF CUSTOMERS. Employee agrees that he
will not take any customer lists of the Company after leaving his employ and
that he will, for the Employment Period and for a period of two (2) years
thereafter, refrain from soliciting or attempting to solicit directly or by
assisting others, any business from any of the Company's customers, including
actively sought prospective customers, with whom Employee had "material contact"
during the employment for purposes of providing products or services.
8.2 NON-SOLICITATION OF EMPLOYEES. Employee agrees that he
will, for the Employment Period and for a period of two (2) years thereafter,
refrain from recruiting or hiring, or attempting to recruit or hire, directly or
by assisting others, any other employee of the Company who is employed by the
Company or any successor or affiliate of the Company.
9. TOLLING OF PERIOD OF RESTRAINT. Employee hereby expressly
acknowledges and agrees that in the event the enforceability of any of the terms
of this Agreement shall be challenged in court and Employee is not enjoined from
breaching any of the restraints set forth in SECTION 6 through SECTION 9, then
if a court of competent jurisdiction finds that the challenged restraint is
enforceable, the time period of the restraint shall be deemed tolled upon the
filing of the lawsuit challenging the enforceability of the restraint until the
dispute is finally resolved and all periods of appeal have expired.
10. ACKNOWLEDGEMENTS. Employee hereby acknowledges and agrees that the
restrictions contained in SECTION 6 through SECTION 9 are fair and reasonable
and necessary for the protection of the legitimate business interests of the
Company. Employee acknowledges that in the event Employee's employment with the
Company terminates for any reason, Employee will be able to earn a livelihood
without violating the restrictions contained in SECTION 6 through SECTION 9 and
that Employee's ability to earn a livelihood without violating such restrictions
is a material condition to Employee's employment and continued employment with
the Company. Employee expressly agrees that the character, duration and
geographical scope of the covenants contained in this SECTION 6 through
SECTION 9 are reasonable in light of the circumstances as they exist at the date
upon which this Agreement has been executed including the substantial payments
made by the Company and Employee in consideration of the Merger Agreement.
However, should a determination nonetheless be made by a court of competent
jurisdiction at a later date that the character, duration or geographical scope
of the covenants contained herein are unreasonable in light of the circumstances
as they then exist, then it is the intention of both Employee and the Company
that these covenants shall be construed by the court in such a manner as to
impose only those restrictions on the conduct of Employee which are reasonable
in light of the circumstances as they then exist and necessary to assure the
Company of the intended benefit of these covenants.
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11. RIGHTS TO MATERIALS; WORK FOR HIRE. All records, files, memoranda,
reports, price lists, customer lists, drawings, plans, sketches, documents and
the like (together with all copies thereof) relating to the business of the
Company, which Employee shall use or prepare or come in contact with in the
course of, or as a result of, his employment shall, as between the parties
hereto, remain the sole property of the Company. Upon the termination of
Employment or upon the prior demand of the Company, Employee shall immediately
return all such materials and shall not thereafter cause removal thereof from
the premises of the Company. Employee agrees to disclose and assign to the
Company as its exclusive property, all ideas, writings, inventions, discoveries,
improvements and technical or business innovations made or conceived by
Employee, whether or not patentable or copyrightable, either solely or jointly
with others during the Employment Period and for a period of six months (6)
thereafter whether or not made or conceived during regular hours of work or
otherwise, which are along the lines of the business, work or investigations of
the Company or its affiliates. Employee agrees to execute any and all documents
hereafter requested by the Company necessary to further effectuate the
foregoing.
12. REMEDIES. Without limiting the Company's right to claim damages,
Employee acknowledges that the Company will be irreparably harmed by a breach of
any provision of this Agreement and Employee agrees that the Company shall be
entitled to injunctive relief in the event of such breach.
13. GOVERNING LAW; ARBITRATION; JURISDICTION; VENUE; ATTORNEY'S FEES.
This Agreement is made and entered into in and shall be governed by and
interpreted in accordance with the laws of, the State of New York. The Company
and Employee agree that any dispute regarding this Agreement shall be submitted
to arbitration to and shall be resolved in accordance with the rules of the
JAMS/Endispute for expedited cases then in effect. The arbitrator(s) shall be
mutually selected by the parties or in the event the parties cannot mutually
agree, then appointed by JAMS/Endispute. Any arbitration shall be held within a
thirty (30) mile radius of New York City and the arbitrator(s) shall apply New
York law. Judgment upon any award rendered by the arbitrator(s) shall be final
and may be entered in any court of competent jurisdiction. Notwithstanding the
foregoing, the Company shall have the absolute right to obtain equitable
remedies in any state court of competent jurisdiction in the State of New York
or in the United States District Court for the Southern District of New York. By
his execution and delivery of this agreement, Employee irrevocably submits to
and accepts the exclusive jurisdiction of each of such courts and waives any
objection (including any objection to venue or any objection based upon the
grounds of forum non conveniens) which might be asserted against the bringing of
any such action, suit or other legal proceeding in such courts. The court and/or
arbitrator(s) shall award costs and expenses (including reasonable attorney's
fees) to the prevailing party in any litigation or arbitration.
14. MISCELLANEOUS.
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14.1 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all previous agreements, written and oral, regarding the
subject matter hereof between the parties hereto. This Agreement shall not be
changed, altered, modified or amended, except by a written agreement signed by
both parties hereto.
14.2. NOTICES. All notices, requests, demands and other
communications required or permitted to be given or made under this Agreement
shall be in writing and shall be deemed to have been given if delivered by hand,
sent by generally recognized overnight courier service, telex or telecopy, or
mail,
(a) to the Company care of: With a copy to:
InSite Internet., Inc. Duffy & Sweeney, LLP
1100 First Avenue 300 Turks Head Building
Spring Lake, NJ 07762 Providence, RI 02903
Attention: Mark E. Munro, CEO Attention: Michael F. Sweeney, Esq.
Telephone: (732) 280-6408 Telephone: (401) 455-0700
Fax: (732) 280-6409 Fax: (401) 455-0701
(b) to the Employee at: With a copy to:
John L. Ryder Peter A. Karl III, Esq.
201 Sly Hill Rd. Paravati, Karl, Green & DeBella
Ava, NY 13303 12 Steuben Park
Utica, NY 13501
Telephone: (315) 735-6481
Fax: (315) 735-6406
14.3 ASSIGNMENT. The Company may assign this Agreement to
(i) any entity controlling, controlled by or under common control with the
Company or (ii) to any purchaser of the Company's assets provided that such
purchaser agrees to assume the Company's obligations hereunder.
14.4. SEVERABILITY. If any term or provision of this
Agreement, or the application thereof to any person or under any circumstance,
shall to any extent be invalid or unenforceable, the remainder of this
Agreement, or the application of such terms to the persons or under
circumstances other than those as to which it is invalid or unenforceable, shall
be considered severable and shall not be affected thereby, and each term of this
Agreement shall be valid and enforceable to the fullest extent permitted by law.
The invalid or unenforceable provisions shall, to the extent permitted by law,
be deemed amended and given such interpretation as to achieve the economic
intent of this Agreement.
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14.5. WAIVER. The failure of any party to insist in any one
instance or more upon strict performance of any of the terms and conditions
hereof, or to exercise any right or privilege herein conferred, shall not be
construed as a waiver of such terms, conditions, rights or privileges, but same
shall continue to remain in full force and effect. Any waiver by any party of
any violation of, breach of or default under any provision of this Agreement by
the other party shall not be construed as, or constitute, a continuing waiver of
such provision, or waiver of any other violation of, breach of or default under
any other provision of this Agreement.
14.6. RIGHT OF SETOFF. Notwithstanding anything to the
contrary set forth herein, and in addition to any and all remedies at law or in
equity which the Company may have, the Company shall have the absolute and
unconditional right to setoff its payment obligations hereunder against the
amount of any claims for indemnification it may have against Employee under the
Merger Agreement.
14.7. TITLES; GENDER. Section and subsection titles are for
convenience of reference only and are not to be considered in the interpretation
or construction of any of the provisions hereof. All pronouns or any variations
thereof contained in this Agreement refer to the masculine, feminine or neuter
as the identity of the person may require.
14.8 SURVIVAL. SECTION 6 through SECTION 14 hereof shall
survive any termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY:
ATTEST: INSITE INTERNET ACQUISITION II Co., Inc.
_______________________________ By:__________________________________
Mark E. Munro, President
WITNESS: EMPLOYEE:
- ------------------------------- ----------------------------------
John L. Ryder
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EXHIBIT 6.12(b)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this
_____ day of _____________, 1999, by and between, InSite Internet II Acquisition
Co., Inc., a New York corporation (the "Company") and wholly-owned subsidiary of
InSite Internet, Inc., a Delaware corporation (the "Parent") and Michael Wil.
Swiercz, an individual with a mailing address at 11 Glencrest Blvd., New
Hartford, NY 13413 ("Employee").
INTRODUCTION
Employee is a principal and employee of Borg Internet Services, Inc.
(the "Founding Company") and possesses skills and knowledge advantageous to the
Company.
The Parent intends to undertake an initial public offering of its common
stock (the "IPO") and in connection therewith contemplates filing a registration
statement with the Securities and Exchange Commission. Contemporaneously with
and conditioned upon the successful closing of the IPO (the "Effective Date"),
(i) the Parent, the Founding Company and the Company intend to effect a merger
of the Founding Company into the Company in accordance with that certain
Agreement and Plan of Merger and Reorganization dated as of ______________, 1999
by and among the Parent, the Company, the Founding Company, and the stockholder
of the Founding Company (the "Merger Agreement") and (ii) effective on the
Effective Date, the Company desires to employ Employee and Employee desires to
accept such employment on the terms and conditions set forth herein.
AGREEMENT
In consideration of the premises and mutual promises hereinbelow set
forth, the parties hereby agree as follows:
1. EMPLOYMENT; DUTIES. Subject to the terms and conditions set
forth herein, the Company hereby employs Employee during the Employment Period
(as defined below), and Employee hereby accepts such employment. Employee agrees
to be a full-time employee of the Company and devote his full and exclusive
time, energy, skill and best efforts to the business of the Company and to the
fulfillment of Employee's duties hereunder. Employee's duties include, but are
not limited to, (i) serving as Technical Director of the Company; (ii) sales of
the Company's and its affiliates products and services; (iii) assisting in the
internal growth of the Company's business; and (iv) other duties assigned to
Employee by the Company from time to time consistent with Employee's position.
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2. EMPLOYMENT PERIOD. The term of this Agreement (the "Employment
Period") shall commence on the Effective Date and shall terminate three (3)
years thereafter, unless terminated earlier pursuant to SECTION 4 or SECTION 5
below.
3. COMPENSATION AND BENEFITS.
3.1 SALARY. During the Employment Period, the Company agrees
to pay Employee at the rate of $60,000 per year ("Base Salary"). Employee's
salary shall be subject to customary withholdings and be payable to Employee on
the regularly occurring pay period established by the Company.
3.2 HEALTH BENEFITS. During the Employment Period, the Company
shall provide Employee with individual and/or family health care coverage, as
provided by health care provider(s) selected by the Company from time to time.
3.3 BONUS. During the Employment Period, Employee shall be
paid a bonus at the end of each fiscal year equal to the sum of (i) 2.5% of the
Company's increase in "annual sales" and (ii) 5.0% of the Company's increase in
"EBITDA" (i.e., earnings before interest and taxes, less depreciation and
amortization). Such bonus (if any) shall be payable at the discretion of the
Company in either (A) cash or (B) common stock, options or other awards from the
Parent's incentive stock plan, subject to applicable securities law and tax
withholding payments by Employee. The calculation for such bonus shall (w) be
based on the unconsolidated financial statements of the Company as certified by
the Company's certified public accountants; (x) be subject to allocation of
overhead provisions from time to time adopted by the Company, the Parent and its
subsidiaries; (y) include sales and earnings from new services offered; and
(z) include sales and earnings from new services offered resulting from an
expansion approved by the Parent, or as a result of additional services made
available by the Parent; and shall exclude, without limitation, any earnings or
sales generated by way of merger, acquisition or other similar event.
3.4 RETIREMENT PLAN. During the Employment Period, Employee
shall be entitled to participate in any 401(k) or similar plan adopted by the
Company for the benefit of its employees. The Company reserves the right to
modify, terminate or withdraw any such plan (if so adopted) at any time in its
sole discretion.
3.5 INCENTIVE BONUS. Employee will be paid an incentive bonus
equal to 2.0% of the total purchase price for each company that Employee
introduces to the Parent and is subsequently acquired by the Parent, payable at
the Company's discretion in either (i) cash or (ii) common stock, stock options
or other awards from the Parent's incentive stock option plan, subject to
applicable securities law and tax withholding payments by Employee. Employee
will be required to submit any referral in writing for acknowledgment by the
Parent prior to any negotiations between the Parent and the referral. Employee
acknowledges that other persons or
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entities, (including other employees, officers, and directors of the Company and
its affiliates), have been or may be offered a similar "incentive bonus" and
that any incentive bonus which Employee may be entitled to hereunder is subject
to a percentage reduction to the extent that other persons or entities
participated in or were responsible for the referral. Any dispute regarding
apportionment of an incentive bonus shall be resolved by binding arbitration in
accordance with SECTION 13 hereof. In no event shall the Company or the Parent
pay more than 2% for any single acquisition transaction.
4. TERMINATION BY THE COMPANY FOR CAUSE. Upon written notice to
Employee, the Company may terminate this Agreement for cause if any of the
following events shall occur: (i) any breach of this Agreement by Employee; (ii)
the commission of a felony by Employee; (iii) the commission of an act by
Employee involving fraud, theft or dishonesty; (iv) material breach by the
Founding Company or its stockholders of their representations, warranties and
covenants and/or obligations under the Merger Agreement which breach remains
uncured for a period of thirty (30) days following notice to Employee; or (v)
the Company's bona fide decision to terminate its business and liquidate its
assets. In the event of a termination pursuant to this SECTION 4, all
obligations of the Company under this Agreement shall cease.
5. TERMINATION WITHOUT CAUSE.
5.1 BY EMPLOYER. The Company may terminate this Agreement at
any time without cause upon thirty (30) days written notice to Employee. In such
event, the Company shall pay Employee during regular payroll periods (less
customary withholding taxes) the Base Salary for up to the greater of twelve
(12) months or the remainder of the Employment Period. All other obligations of
the Company shall be prorated to the date of termination.
5.2 BY EMPLOYEE. Employee may terminate this Agreement at any
time upon ninety (90) days prior written notice to the Company. In such case,
(i) any severance payments may be negotiated, in good faith, by the Employee and
the Company, but the Company shall be under no legal obligation to provide any
severance payments, and (ii) all obligations of the Company hereunder shall be
prorated to the date of termination.
5.3 MERGER AGREEMENT. Absent a breach of the Merger Agreement,
termination by either the Company or Employee pursuant to this SECTION 5 shall
not be deemed a breach of the Merger Agreement, nor will it affect either
party's obligations thereunder.
6. CONFIDENTIALITY AND NON-DISCLOSURE. Employee recognizes and
acknowledges that he has had in the past, currently has and in the future may
have access to certain confidential information relating to the Company and its
affiliates, including, but not limited to, operational policies, financial
information, marketing information, personnel information, trade secrets,
customer information (including customer lists), and pricing and cost policies,
that are valuable, special and unique assets of the Company (collectively,
"Confidential Information"). Employee
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agrees that he will not use or disclose such Confidential Information to any
person, firm, corporation, association or other entity for any purpose or reason
whatsoever, except as is required in the course of performing his duties
hereunder unless (i) such information becomes known to the public generally
through no breach by Employee of this covenant or (ii) disclosure is required by
law or any governmental authority or is required in connection with the defense
of a lawsuit against the disclosing party, provided, that prior to disclosing
any information pursuant to this clause (ii), Employee shall give prior written
notice thereof to the Company and provide the Company with the opportunity to
contest such disclosure. Employee agrees that, both during the Employment Period
and after the termination of this Agreement, Employee will hold in a fiduciary
capacity for the benefit of the Company, and shall not directly or indirectly
use or disclose, except as authorized by the Company in connection with the
performance of Employee's duties, any Confidential Information, that Employee
may have or may acquire (whether or not developed or compiled by Employee and
whether or not Employee has been authorized to have access to such Confidential
Information) during the term of this Agreement. The covenants contained in this
SECTION 6 shall survive for the Employment Period and for a period of two (2)
years thereafter; provided, however, that with respect to those items of
Confidential Information which constitute trade secrets under applicable law,
Employee's obligations of confidentiality and non-disclosure as set forth in
this SECTION 6 shall continue to survive after the applicable period above to
the greatest extent permitted by applicable law. These rights of the Company are
in addition to those rights the Company has under the common law or applicable
statutes for the protection of trade secrets.
7. NON-COMPETITION. Employee expressly covenants and agrees that for
the Employment Period and for a period of two (2) years thereafter, he shall
not, directly or indirectly, seek, obtain or accept a "Competitive Position" in
the "Restricted Territory" with a "Competitor" of the Company (as such terms are
hereafter defined). For purposes of this Agreement, a "Competitor" of the
Company means any business, individual, partnership, joint venture, association,
firm, corporation or other entity engaged, wholly or partly, in the business of
selling internet access service or in any related business which the Company and
its affiliates may engage in from time to time during the term of this covenant;
the "Restricted Territory" means each state of the United States of America; a
"Competitive Position" means any employment with any Competitor of the Company
whereby Employee will use or is likely to use any Confidential Information, or
whereby Employee has duties for such Competitor that are the same or
substantially similar to those actually performed by Employee pursuant to the
terms hereof. Nothing contained in this SECTION 7 is intended to prevent
Employee from investing in stock or other securities listed on a national
securities exchange or actively traded on the over the counter market or any
corporation engaged, wholly or partly, in the sale of telecommunications
products or services; provided, however, that Employee and members of his
immediate family shall not, directly or indirectly, hold more than a total of
two percent (2%) of all issued and outstanding stock or other securities of any
such corporation.
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8. NON-SOLICITATION.
8.1 NON-SOLICITATION OF CUSTOMERS. Employee agrees that he
will not take any customer lists of the Company after leaving his employ and
that he will, for the Employment Period and for a period of two (2) years
thereafter, refrain from soliciting or attempting to solicit directly or by
assisting others, any business from any of the Company's customers, including
actively sought prospective customers, with whom Employee had "material contact"
during the employment for purposes of providing products or services.
8.2 NON-SOLICITATION OF EMPLOYEES. Employee agrees that he
will, for the Employment Period and for a period of two (2) years thereafter,
refrain from recruiting or hiring, or attempting to recruit or hire, directly or
by assisting others, any other employee of the Company who is employed by the
Company or any successor or affiliate of the Company.
9. TOLLING OF PERIOD OF RESTRAINT. Employee hereby expressly
acknowledges and agrees that in the event the enforceability of any of the terms
of this Agreement shall be challenged in court and Employee is not enjoined from
breaching any of the restraints set forth in SECTION 6 through SECTION 9, then
if a court of competent jurisdiction finds that the challenged restraint is
enforceable, the time period of the restraint shall be deemed tolled upon the
filing of the lawsuit challenging the enforceability of the restraint until the
dispute is finally resolved and all periods of appeal have expired.
10. ACKNOWLEDGEMENTS. Employee hereby acknowledges and agrees that the
restrictions contained in SECTION 6 through SECTION 9 are fair and reasonable
and necessary for the protection of the legitimate business interests of the
Company. Employee acknowledges that in the event Employee's employment with the
Company terminates for any reason, Employee will be able to earn a livelihood
without violating the restrictions contained in SECTION 6 through SECTION 9 and
that Employee's ability to earn a livelihood without violating such restrictions
is a material condition to Employee's employment and continued employment with
the Company. Employee expressly agrees that the character, duration and
geographical scope of the covenants contained in this SECTION 6 through
SECTION 9 are reasonable in light of the circumstances as they exist at the date
upon which this Agreement has been executed including the substantial payments
made by the Company and Employee in consideration of the Merger Agreement.
However, should a determination nonetheless be made by a court of competent
jurisdiction at a later date that the character, duration or geographical scope
of the covenants contained herein are unreasonable in light of the circumstances
as they then exist, then it is the intention of both Employee and the Company
that these covenants shall be construed by the court in such a manner as to
impose only those restrictions on the conduct of Employee which are reasonable
in light of the circumstances as they then exist and necessary to assure the
Company of the intended benefit of these covenants.
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11. RIGHTS TO MATERIALS; WORK FOR HIRE. All records, files, memoranda,
reports, price lists, customer lists, drawings, plans, sketches, documents and
the like (together with all copies thereof) relating to the business of the
Company, which Employee shall use or prepare or come in contact with in the
course of, or as a result of, his employment shall, as between the parties
hereto, remain the sole property of the Company. Upon the termination of
Employment or upon the prior demand of the Company, Employee shall immediately
return all such materials and shall not thereafter cause removal thereof from
the premises of the Company. Employee agrees to disclose and assign to the
Company as its exclusive property, all ideas, writings, inventions, discoveries,
improvements and technical or business innovations made or conceived by
Employee, whether or not patentable or copyrightable, either solely or jointly
with others during the Employment Period and for a period of six (6) months
thereafter whether or not made or conceived during regular hours of work or
otherwise, which are along the lines of the business, work or investigations of
the Company or its affiliates. Employee agrees to execute any and all documents
hereafter requested by the Company necessary to further effectuate the
foregoing.
12. REMEDIES. Without limiting the Company's right to claim damages,
Employee acknowledges that the Company will be irreparably harmed by a breach of
any provision of this Agreement and Employee agrees that the Company shall be
entitled to injunctive relief in the event of such breach.
13. GOVERNING LAW; ARBITRATION; JURISDICTION; VENUE; ATTORNEY'S FEES.
This Agreement is made and entered into in and shall be governed by and
interpreted in accordance with the laws of, the State of New York. The Company
and Employee agree that any dispute regarding this Agreement shall be submitted
to arbitration to and shall be resolved in accordance with the rules of the
JAMS/Endispute for expedited cases then in effect. The arbitrator(s) shall be
mutually selected by the parties or in the event the parties cannot mutually
agree, then appointed by JAMS/Endispute. Any arbitration shall be held within a
thirty (30) mile radius of New York City and the arbitrator(s) shall apply New
York law. Judgment upon any award rendered by the arbitrator(s) shall be final
and may be entered in any court of competent jurisdiction. Notwithstanding the
foregoing, the Company shall have the absolute right to obtain equitable
remedies in any state court of competent jurisdiction in the State of New York
or in the United States District Court for the Southern District of New York. By
his execution and delivery of this agreement, Employee irrevocably submits to
and accepts the exclusive jurisdiction of each of such courts and waives any
objection (including any objection to venue or any objection based upon the
grounds of forum non conveniens) which might be asserted against the bringing of
any such action, suit or other legal proceeding in such courts. The court and/or
arbitrator(s) shall award costs and expenses (including reasonable attorney's
fees) to the prevailing party in any litigation or arbitration.
14. MISCELLANEOUS.
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14.1 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all previous agreements, written and oral, regarding the
subject matter hereof between the parties hereto. This Agreement shall not be
changed, altered, modified or amended, except by a written agreement signed by
both parties hereto.
14.2. NOTICES. All notices, requests, demands and other
communications required or permitted to be given or made under this Agreement
shall be in writing and shall be deemed to have been given if delivered by hand,
sent by generally recognized overnight courier service, telex or telecopy, or
mail,
(a) to the Company care of: With a copy to:
InSite Internet., Inc. Duffy & Sweeney, LLP
1100 First Avenue 300 Turks Head Building
Spring Lake, NJ 07762 Providence, RI 02903
Attention: Mark E. Munro, CEO Attention: Michael F. Sweeney, Esq.
Telephone: (732) 280-6408 Telephone: (401) 455-0700
Fax: (732) 280-6409 Fax: (401) 455-0701
(b) to the Employee at: With a copy to:
Michael Wil. Swiercz Peter A. Karl III, Esq.
11 Glencrest Blvd. Paravati, Karl, Green & DeBella
New Hartford, NY 13413 12 Steuben Park
Utica, NY 13501
Telephone: (315) 735-6481
Fax: (315) 735-6406
14.3 ASSIGNMENT. The Company may assign this Agreement to
(i) any entity controlling, controlled by or under common control with the
Company or (ii) to any purchaser of the Company's assets provided that such
purchaser agrees to assume the Company's obligations hereunder.
14.4. SEVERABILITY. If any term or provision of this
Agreement, or the application thereof to any person or under any
circumstance, shall to any extent be invalid or unenforceable, the remainder
of this Agreement, or the application of such terms to the persons or under
circumstances other than those as to which it is invalid or unenforceable,
shall be considered severable and shall not be affected thereby, and each
term of this Agreement shall be valid and enforceable to the fullest extent
permitted by law. The invalid or unenforceable provisions shall, to the
extent permitted by law, be deemed amended and given such interpretation as
to achieve the economic intent of this Agreement.
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14.5. WAIVER. The failure of any party to insist in any one
instance or more upon strict performance of any of the terms and conditions
hereof, or to exercise any right or privilege herein conferred, shall not be
construed as a waiver of such terms, conditions, rights or privileges, but
same shall continue to remain in full force and effect. Any waiver by any
party of any violation of, breach of or default under any provision of this
Agreement by the other party shall not be construed as, or constitute, a
continuing waiver of such provision, or waiver of any other violation of,
breach of or default under any other provision of this Agreement.
14.6. RIGHT OF SETOFF. Notwithstanding anything to the
contrary set forth herein, and in addition to any and all remedies at law or in
equity which the Company may have, the Company shall have the absolute and
unconditional right to setoff its payment obligations hereunder against the
amount of any claims for indemnification it may have against Employee under the
Merger Agreement.
14.7. TITLES; GENDER. Section and subsection titles are for
convenience of reference only and are not to be considered in the interpretation
or construction of any of the provisions hereof. All pronouns or any variations
thereof contained in this Agreement refer to the masculine, feminine or neuter
as the identity of the person may require.
14.8 SURVIVAL. SECTION 6 through SECTION 14 hereof shall
survive any termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY:
ATTEST: INSITE INTERNET ACQUISITION II Co., Inc.
_______________________________ By:__________________________________
Mark E. Munro, President
WITNESS: EMPLOYEE:
- ------------------------------- ----------------------------------
Michael Wil. Swiercz
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EXHIBIT 6.12(c)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this
_____ day of _____________, 1999, by and between, InSite Internet II Acquisition
Co., Inc., a New York corporation (the "Company") and wholly-owned subsidiary of
InSite Internet, Inc., a Delaware corporation (the "Parent") and James L.
Henrickson, an individual with a mailing address at 3rd Avenue Extension,
Frankfort, NY 13340 ("Employee").
INTRODUCTION
Employee is a principal and employee of Borg Internet Services, Inc.
(the "Founding Company") and possesses skills and knowledge advantageous to the
Company.
The Parent intends to undertake an initial public offering of its common
stock (the "IPO") and in connection therewith contemplates filing a registration
statement with the Securities and Exchange Commission. Contemporaneously with
and conditioned upon the successful closing of the IPO (the "Effective Date"),
(i) the Parent, the Founding Company and the Company intend to effect a merger
of the Founding Company into the Company in accordance with that certain
Agreement and Plan of Merger and Reorganization dated as of ______________, 1999
by and among the Parent, the Company, the Founding Company, and the stockholder
of the Founding Company (the "Merger Agreement") and (ii) effective on the
Effective Date, the Company desires to employ Employee and Employee desires to
accept such employment on the terms and conditions set forth herein.
AGREEMENT
In consideration of the premises and mutual promises hereinbelow set
forth, the parties hereby agree as follows:
1. EMPLOYMENT; DUTIES. Subject to the terms and conditions set forth
herein, the Company hereby employs Employee during the Employment Period (as
defined below), and Employee hereby accepts such employment. Employee agrees to
be a full-time employee of the Company and devote his full and exclusive time,
energy, skill and best efforts to the business of the Company and to the
fulfillment of Employee's duties hereunder. Employee's duties include, but are
not limited to, (i) serving as Networks Operations Manager of the Company; (ii)
sales of the Company's and its affiliates products and services; (iii) assisting
in the internal growth of the Company's business; and (iv) other duties assigned
to Employee by the Company from time to time consistent with Employee's
position.
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2. EMPLOYMENT PERIOD. The term of this Agreement (the "Employment
Period") shall commence on the Effective Date and shall terminate three (3)
years thereafter, unless terminated earlier pursuant to SECTION 4 or SECTION 5
below.
3. COMPENSATION AND BENEFITS.
3.1 SALARY. During the Employment Period, the Company agrees
to pay Employee at the rate of $60,000 per year ("Base Salary"). Employee's
salary shall be subject to customary withholdings and be payable to Employee on
the regularly occurring pay period established by the Company.
3.2 HEALTH BENEFITS. During the Employment Period, the Company
shall provide Employee with individual and/or family health care coverage, as
provided by health care provider(s) selected by the Company from time to time.
3.3 BONUS. During the Employment Period, Employee shall be
paid a bonus at the end of each fiscal year equal to the sum of (i) 2.5% of
the Company's increase in "annual sales" and (ii) 5.0% of the Company's
increase in "EBITDA" (i.e., earnings before interest and taxes, less
depreciation and amortization). Such bonus (if any) shall be payable at the
discretion of the Company in either (A) cash or (B) common stock, options or
other awards from the Parent's incentive stock plan, subject to applicable
securities law and tax withholding payments by Employee. The calculation for
such bonus shall (w) be based on the unconsolidated financial statements of
the Company as certified by the Company's certified public accountants;
(x) be subject to allocation of overhead provisions from time to time adopted by
the Company, the Parent and its subsidiaries; (y) include sales and earnings
from new services offered; and (z) include sales and earnings from new
services offered resulting from an expansion approved by the Parent, or as a
result of additional services made available by the Parent; and shall
exclude, without limitation, any earnings or sales generated by way of
merger, acquisition or other similar event.
3.4 RETIREMENT PLAN. During the Employment Period, Employee
shall be entitled to participate in any 401(k) or similar plan adopted by the
Company for the benefit of its employees. The Company reserves the right to
modify, terminate or withdraw any such plan (if so adopted) at any time in its
sole discretion.
3.5 INCENTIVE BONUS. Employee will be paid an incentive bonus
equal to 2.0% of the total purchase price for each company that Employee
introduces to the Parent and is subsequently acquired by the Parent, payable at
the Company's discretion in either (i) cash or (ii) common stock, stock options
or other awards from the Parent's incentive stock option plan, subject to
applicable securities law and tax withholding payments by Employee. Employee
will be required to submit any referral in writing for acknowledgment by the
Parent prior to any negotiations between the Parent and the referral. Employee
acknowledges that other persons or
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entities, (including other employees, officers, and directors of the Company and
its affiliates), have been or may be offered a similar "incentive bonus" and
that any incentive bonus which Employee may be entitled to hereunder is subject
to a percentage reduction to the extent that other persons or entities
participated in or were responsible for the referral. Any dispute regarding
apportionment of an incentive bonus shall be resolved by binding arbitration in
accordance with SECTION 13 hereof. In no event shall the Company or the Parent
pay more than a total of 2% for any single acquisition transaction.
4. TERMINATION BY THE COMPANY FOR CAUSE. Upon written notice to
Employee, the Company may terminate this Agreement for cause if any of the
following events shall occur: (i) any breach of this Agreement by Employee;
(ii) the commission of a felony by Employee; (iii) the commission of an act
by Employee involving fraud, theft or dishonesty; (iv) material breach by the
Founding Company or its stockholders of their representations, warranties and
covenants and/or obligations under the Merger Agreement which breach remains
uncured for a period of thirty (30) days following notice to Employee; or
(v) the Company's bona fide decision to terminate its business and liquidate
its assets. In the event of a termination pursuant to this SECTION 4, all
obligations of the Company under this Agreement shall cease.
5. TERMINATION WITHOUT CAUSE.
5.1 BY EMPLOYER. The Company may terminate this Agreement at
any time without cause upon thirty (30) days written notice to Employee. In such
event, the Company shall pay Employee during regular payroll periods (less
customary withholding taxes) the Base Salary for up to the greater of twelve
(12) months or the remainder of the Employment Period. All other obligations of
the Company shall be prorated to the date of termination.
5.2 BY EMPLOYEE. Employee may terminate this Agreement at any
time upon ninety (90) days prior written notice to the Company. In such case,
(i) any severance payments may be negotiated, in good faith, by the Employee and
the Company, but the Company shall be under no legal obligation to provide any
severance payments, and (ii) all obligations of the Company hereunder shall be
prorated to the date of termination.
5.3 MERGER AGREEMENT. Absent a breach of the Merger Agreement,
termination by either the Company or Employee pursuant to this SECTION 5 shall
not be deemed a breach of the Merger Agreement, nor will it affect either
party's obligations thereunder.
6. CONFIDENTIALITY AND NON-DISCLOSURE. Employee recognizes and
acknowledges that he has had in the past, currently has and in the future may
have access to certain confidential information relating to the Company and its
affiliates, including, but not limited to, operational policies, financial
information, marketing information, personnel information, trade secrets,
customer information (including customer lists), and pricing and cost policies,
that are valuable, special and unique assets of the Company (collectively,
"Confidential Information"). Employee
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agrees that he will not use or disclose such Confidential Information to any
person, firm, corporation, association or other entity for any purpose or reason
whatsoever, except as is required in the course of performing his duties
hereunder unless (i) such information becomes known to the public generally
through no breach by Employee of this covenant or (ii) disclosure is required by
law or any governmental authority or is required in connection with the defense
of a lawsuit against the disclosing party, provided, that prior to disclosing
any information pursuant to this clause (ii), Employee shall give prior written
notice thereof to the Company and provide the Company with the opportunity to
contest such disclosure. Employee agrees that, both during the Employment Period
and after the termination of this Agreement, Employee will hold in a fiduciary
capacity for the benefit of the Company, and shall not directly or indirectly
use or disclose, except as authorized by the Company in connection with the
performance of Employee's duties, any Confidential Information, that Employee
may have or may acquire (whether or not developed or compiled by Employee and
whether or not Employee has been authorized to have access to such Confidential
Information) during the term of this Agreement. The covenants contained in this
SECTION 6 shall survive for the Employment Period and for a period of two (2)
years thereafter; provided, however, that with respect to those items of
Confidential Information which constitute trade secrets under applicable law,
Employee's obligations of confidentiality and non-disclosure as set forth in
this SECTION 6 shall continue to survive after the applicable period above to
the greatest extent permitted by applicable law. These rights of the Company are
in addition to those rights the Company has under the common law or applicable
statutes for the protection of trade secrets.
7. NON-COMPETITION. Employee expressly covenants and agrees that for
the Employment Period and for a period of two (2) years thereafter, he shall
not, directly or indirectly, seek, obtain or accept a "Competitive Position" in
the "Restricted Territory" with a "Competitor" of the Company (as such terms are
hereafter defined). For purposes of this Agreement, a "Competitor" of the
Company means any business, individual, partnership, joint venture, association,
firm, corporation or other entity engaged, wholly or partly, in the business of
selling internet access service or in any related business which the Company and
its affiliates may engage in from time to time during the term of this covenant;
the "Restricted Territory" means each state of the United States of America; a
"Competitive Position" means any employment with any Competitor of the Company
whereby Employee will use or is likely to use any Confidential Information, or
whereby Employee has duties for such Competitor that are the same or
substantially similar to those actually performed by Employee pursuant to the
terms hereof. Nothing contained in this SECTION 7 is intended to prevent
Employee from investing in stock or other securities listed on a national
securities exchange or actively traded on the over the counter market or any
corporation engaged, wholly or partly, in the sale of telecommunications
products or services; provided, however, that Employee and members of his
immediate family shall not, directly or indirectly, hold more than a total of
two percent (2%) of all issued and outstanding stock or other securities of any
such corporation.
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8. NON-SOLICITATION.
8.1 NON-SOLICITATION OF CUSTOMERS. Employee agrees that he
will not take any customer lists of the Company after leaving his employ and
that he will, for the Employment Period and for a period of two (2) years
thereafter, refrain from soliciting or attempting to solicit directly or by
assisting others, any business from any of the Company's customers, including
actively sought prospective customers, with whom Employee had "material contact"
during the employment for purposes of providing products or services.
8.2 NON-SOLICITATION OF EMPLOYEES. Employee agrees that he
will, for the Employment Period and for a period of two (2) years thereafter,
refrain from recruiting or hiring, or attempting to recruit or hire, directly or
by assisting others, any other employee of the Company who is employed by the
Company or any successor or affiliate of the Company.
9. TOLLING OF PERIOD OF RESTRAINT. Employee hereby expressly
acknowledges and agrees that in the event the enforceability of any of the terms
of this Agreement shall be challenged in court and Employee is not enjoined from
breaching any of the restraints set forth in SECTION 6 through SECTION 9, then
if a court of competent jurisdiction finds that the challenged restraint is
enforceable, the time period of the restraint shall be deemed tolled upon the
filing of the lawsuit challenging the enforceability of the restraint until the
dispute is finally resolved and all periods of appeal have expired.
10. ACKNOWLEDGEMENTS. Employee hereby acknowledges and agrees that
the restrictions contained in SECTION 6 through SECTION 9 are fair and
reasonable and necessary for the protection of the legitimate business
interests of the Company. Employee acknowledges that in the event Employee's
employment with the Company terminates for any reason, Employee will be able
to earn a livelihood without violating the restrictions contained in SECTION
6 through SECTION 9 and that Employee's ability to earn a livelihood without
violating such restrictions is a material condition to Employee's employment
and continued employment with the Company. Employee expressly agrees that the
character, duration and geographical scope of the covenants contained in this
SECTION 6 through SECTION 9 are reasonable in light of the circumstances as
they exist at the date upon which this Agreement has been executed including
the substantial payments made by the Company and Employee in consideration of
the Merger Agreement. However, should a determination nonetheless be made by
a court of competent jurisdiction at a later date that the character,
duration or geographical scope of the covenants contained herein are
unreasonable in light of the circumstances as they then exist, then it is the
intention of both Employee and the Company that these covenants shall be
construed by the court in such a manner as to impose only those restrictions
on the conduct of Employee which are reasonable in light of the circumstances
as they then exist and necessary to assure the Company of the intended
benefit of these covenants.
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11. RIGHTS TO MATERIALS; WORK FOR HIRE. All records, files, memoranda,
reports, price lists, customer lists, drawings, plans, sketches, documents and
the like (together with all copies thereof) relating to the business of the
Company, which Employee shall use or prepare or come in contact with in the
course of, or as a result of, his employment shall, as between the parties
hereto, remain the sole property of the Company. Upon the termination of
Employment or upon the prior demand of the Company, Employee shall immediately
return all such materials and shall not thereafter cause removal thereof from
the premises of the Company. Employee agrees to disclose and assign to the
Company as its exclusive property, all ideas, writings, inventions, discoveries,
improvements and technical or business innovations made or conceived by
Employee, whether or not patentable or copyrightable, either solely or jointly
with others during the Employment Period and for a period of six (6) months
thereafter whether or not made or conceived during regular hours of work or
otherwise, which are along the lines of the business, work or investigations of
the Company or its affiliates. Employee agrees to execute any and all documents
hereafter requested by the Company necessary to further effectuate the
foregoing.
12. REMEDIES. Without limiting the Company's right to claim damages,
Employee acknowledges that the Company will be irreparably harmed by a breach of
any provision of this Agreement and Employee agrees that the Company shall be
entitled to injunctive relief in the event of such breach.
13. GOVERNING LAW; ARBITRATION; JURISDICTION; VENUE; ATTORNEY'S FEES.
This Agreement is made and entered into in and shall be governed by and
interpreted in accordance with the laws of, the State of New York. The Company
and Employee agree that any dispute regarding this Agreement shall be submitted
to arbitration to and shall be resolved in accordance with the rules of the
JAMS/Endispute for expedited cases then in effect. The arbitrator(s) shall be
mutually selected by the parties or in the event the parties cannot mutually
agree, then appointed by JAMS/Endispute. Any arbitration shall be held within a
thirty (30) mile radius of New York City and the arbitrator(s) shall apply New
York law. Judgment upon any award rendered by the arbitrator(s) shall be final
and may be entered in any court of competent jurisdiction. Notwithstanding the
foregoing, the Company shall have the absolute right to obtain equitable
remedies in any state court of competent jurisdiction in the State of New York
or in the United States District Court for the Southern District of New York. By
his execution and delivery of this agreement, Employee irrevocably submits to
and accepts the exclusive jurisdiction of each of such courts and waives any
objection (including any objection to venue or any objection based upon the
grounds of forum non conveniens) which might be asserted against the bringing of
any such action, suit or other legal proceeding in such courts. The court and/or
arbitrator(s) shall award costs and expenses (including reasonable attorney's
fees) to the prevailing party in any litigation or arbitration.
14. MISCELLANEOUS.
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14.1 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all previous agreements, written and oral, regarding the
subject matter hereof between the parties hereto. This Agreement shall not be
changed, altered, modified or amended, except by a written agreement signed by
both parties hereto.
14.2. NOTICES. All notices, requests, demands and other
communications required or permitted to be given or made under this Agreement
shall be in writing and shall be deemed to have been given if delivered by hand,
sent by generally recognized overnight courier service, telex or telecopy, or
mail,
(a) to the Company care of: With a copy to:
InSite Internet., Inc. Duffy & Sweeney, LLP
1100 First Avenue 300 Turks Head Building
Spring Lake, NJ 07762 Providence, RI 02903
Attention: Mark E. Munro, CEO Attention: Michael F. Sweeney, Esq.
Telephone: (732) 280-6408 Telephone: (401) 455-0700
Fax: (732) 280-6409 Fax: (401) 455-0701
(b) to the Employee at: With a copy to:
James L. Henrickson Peter A. Karl III, Esq.
3rd Avenue Extension Paravati, Karl, Green & DeBella
Frankfort, NY 13340 12 Steuben Park
Utica, NY 13501
Telephone: (315) 735-6481
Fax: (315) 735-6406
14.3 ASSIGNMENT. The Company may assign this Agreement to
(i) any entity controlling, controlled by or under common control with the
Company or (ii) to any purchaser of the Company's assets provided that such
purchaser agrees to assume the Company's obligations hereunder.
14.4. SEVERABILITY. If any term or provision of this
Agreement, or the application thereof to any person or under any circumstance,
shall to any extent be invalid or unenforceable, the remainder of this
Agreement, or the application of such terms to the persons or under
circumstances other than those as to which it is invalid or unenforceable, shall
be considered severable and shall not be affected thereby, and each term of this
Agreement shall be valid and enforceable to the fullest extent permitted by law.
The invalid or unenforceable provisions shall, to the extent permitted by law,
be deemed amended and given such interpretation as to achieve the economic
intent of this Agreement.
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14.5. WAIVER. The failure of any party to insist in any one
instance or more upon strict performance of any of the terms and conditions
hereof, or to exercise any right or privilege herein conferred, shall not be
construed as a waiver of such terms, conditions, rights or privileges, but same
shall continue to remain in full force and effect. Any waiver by any party of
any violation of, breach of or default under any provision of this Agreement by
the other party shall not be construed as, or constitute, a continuing waiver of
such provision, or waiver of any other violation of, breach of or default under
any other provision of this Agreement.
14.6. RIGHT OF SETOFF. Notwithstanding anything to the
contrary set forth herein, and in addition to any and all remedies at law or in
equity which the Company may have, the Company shall have the absolute and
unconditional right to setoff its payment obligations hereunder against the
amount of any claims for indemnification it may have against Employee under the
Merger Agreement.
14.7. TITLES; GENDER. Section and subsection titles are for
convenience of reference only and are not to be considered in the interpretation
or construction of any of the provisions hereof. All pronouns or any variations
thereof contained in this Agreement refer to the masculine, feminine or neuter
as the identity of the person may require.
14.8 SURVIVAL. SECTION 6 through SECTION 14 hereof shall
survive any termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY:
ATTEST: INSITE INTERNET ACQUISITION II Co., Inc.
_______________________________ By:__________________________________
Mark E. Munro, President
WITNESS: EMPLOYEE:
- ------------------------------- ----------------------------------
James L. Henrickson
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Exhibit 10.3
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
INTRODUCTION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the "Agreement")
is entered into as of the 3rd day of February, 1999 by and among InSite
Internet, Inc. (formerly known as InSite Telecom, Inc.), a Delaware corporation
(the "Parent"), InSite Internet IV Acquisition Co., Inc., a New York corporation
("Newco"), Ulsternet, Inc., a New York corporation (the "Company") and Andrew
Halpern and Lawrence McCloskey, the stockholders of the Company (collectively,
the "Stockholders").
BACKGROUND
A. The Parent intends to undertake an initial public offering of its common
stock (the "IPO") and in connection therewith contemplates filing a registration
statement with the Securities and Exchange Commission ("SEC") within ninety (90)
days of the execution and delivery of this Agreement;
B. Concurrently with and conditioned upon the successful closing of the IPO
(which shall be the date the Parent's underwriter or underwriters, pursuant to a
firm commitment underwriting agreement, purchase the shares of common stock from
the Parent to be offered to the public in the IPO), the Parent, Newco and the
Company intend to effect a merger of the Company into Newco in accordance with
this Agreement and the New York Business Corporation Law (the "Merger"). Upon
consummation of the Merger, the Company will cease to exist, and Newco will
continue to exist as the surviving corporation of the Merger.
C. It is intended that the Merger qualify as a tax-free reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code") and that this Agreement constitute a plan of reorganization for
such purposes.
D. This Agreement has been adopted and approved by the respective boards of
directors of the Parent, Newco and the Company, and the shareholders of Newco
and the Stockholders have each unanimously approved this Agreement by written
consent.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual and dependent promises
and the representations and warranties hereinafter contained, the parties hereto
agree as follows:
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SECTION 1. DESCRIPTION OF THE MERGER TRANSACTION.
1.1 MERGER OF THE COMPANY INTO NEWCO. Upon the terms and subject to the
conditions set forth in this Agreement, at the Effective Time (as defined in
SECTION 1.7), the Company shall be merged with and into Newco, and the separate
existence of the Company shall cease.
1.2 EFFECTIVE TIME. The effective time of the Merger (the "Effective
Time") shall occur on the date specified in SECTION 1.7. At the Effective Time,
a properly executed certificate of merger for the merger of the Company into
Newco, conforming to the requirements of the New York Business Corporation Law
(the "Merger Certificate") shall be delivered and accepted for filing by the
Secretary of State of the State of New York. At the Effective Time, the Company
shall be merged with and into Newco in accordance with the Merger Certificate
and the separate existence of the Company shall cease and Newco shall continue
as the surviving corporation (the "Surviving Corporation"). The Effective Time
shall occur on the date of the IPO closing as described in SECTION 1.7 below
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF THE
SURVIVING CORPORATION. At the Effective Time:
(a) The Certificate of Incorporation of Newco shall become the
Certificate of Incorporation of the Surviving Corporation; and, subsequent to
the Effective Time, such Certificate of Incorporation shall be the Certificate
of Incorporation of the Surviving Corporation until changed as provided by law.
(b) The bylaws of Newco shall become the bylaws of the
Surviving Corporation; and, subsequent to the Effective Time, such bylaws shall
be the bylaws of the Surviving Corporation until they shall thereafter be duly
amended.
(c) The Board of Directors of the Surviving Corporation shall
be set forth on EXHIBIT 1.3 hereto and shall hold office subject to the
provisions to the laws of the Surviving Corporation's state of incorporation and
of the Certificate of Incorporation and bylaws of the Surviving Corporation.
(d) The officers of the Surviving Corporation shall be set
forth on SCHEDULE 1.3 hereto, each of such officers to serve, subject to the
provisions of the Articles of Incorporation and bylaws of the Surviving
Corporation, until his or her successor is elected and qualified.
1.4 EFFECT OF MERGER. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of the New York Business
Corporation Law. Except as
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herein specifically set forth, the identity, existence, purposes, powers,
objects, franchises, privileges, rights and immunities of Newco shall continue
unaffected and unimpaired by the Merger and the corporate franchises, existence
and rights of the Company shall be merged with and into Newco, and Newco, as the
Surviving Corporation, shall be fully vested therewith. At the Effective Time,
the separate existence of the Company shall cease and, in accordance with the
terms of this Agreement, the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises, of a public as well as of a private
nature, and all property, real, personal and mixed, and all debts due on
whatever account, including subscriptions to shares, and all taxes, including
those due and owing and those accrued, and all other choses in action, and all
and every other interest of or belonging to or due to the Company and Newco
shall be taken and deemed to be transferred to, and vested in, the Surviving
Corporation without further act or deed; and all property, rights and
privileges, powers and franchises and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of the Company and Newco; and the title to any real estate, or interest therein,
whether by deed or otherwise, vested in the Company and Newco, shall not revert
or be in any way impaired by reason of the Merger. Except as otherwise provided
herein, the Surviving Corporation shall thenceforth be responsible and liable
for all the liabilities and obligations of the Company and Newco and any claim
existing, or action or proceeding pending, by or against the Company or Newco
may be prosecuted as if the Merger had not taken place, or the Surviving
Corporation may be substituted in its place. Neither the rights of creditors nor
any liens upon the property of the Company or Newco shall be impaired by the
Merger, and all debts, liabilities and duties of the Company and Newco shall
attach to the Surviving Corporation, and may be enforced against the Surviving
Corporation to the same extent as if said debts, liabilities and duties had been
incurred or contracted by the Surviving Corporation.
1.5 MERGER CONSIDERATION; CONVERSION OF SHARES.
(a) As of the Effective Time, all of the shares of Common
Stock of the Company, no par value per share ("Company Stock"), issued and
outstanding immediately prior to the Effective Time, by virtue of the Merger and
without any action on the part of the holders thereof, shall be automatically
converted to, in the aggregate, shares of Common Stock of the Parent, par value
$.01 per share ("Parent Stock") and cash, as follows (collectively, the "Merger
Consideration"):
(1) a number of shares of Parent Stock equal to the
quotient of $800,000 divided by the initial price to the
public of a share of Parent Stock offered in the IPO, subject
to the post-closing adjustment with respect to such amount as
set forth in SECTION 2 below; and
(2) cash, certified check, wire transfer or other
readily available funds in the amount of $650,000, subject to
the post-closing adjustment with respect to such amount as set
forth in SECTION 2 below.
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(b) Each share of Company Stock held in the treasury of the
Company immediately prior the Effective Time (if any) shall be canceled without
any conversion thereof and no payment shall be made with respect thereto.
(c) As of and after the Effective Time, the Surviving
Corporation shall not be bound by any options, warrants, rights or agreements
with respect to the issuance or acquisition of capital stock of the Company
which would entitle any person to own, purchase or receive any capital stock of
the Company. As of the date hereof, there are no options, warrants, rights or
agreements with respect to the issuance or acquisition of the capital stock of
the Company except for the Merger transaction contemplated by this Agreement.
1.6 DELIVERY OF MERGER CONSIDERATION/ESCROW OF SHARES/SET-OFF.
(a) At the Closing, the Stockholders shall deliver their
certificates representing all outstanding shares of Company Stock to counsel for
the Parent to hold in escrow until the Effective Time. At the Effective Time,
the Stockholders shall receive their pro rata share of the aggregate Merger
Consideration set forth in SECTION 1.5 above in accordance with the percentage
ownership interests of the Stockholders reflected on SCHEDULE 3.4 hereto, by
wire transfer or bank check, provided, however, that a number of shares of
Parent Stock included in the aggregate Merger Consideration with a value of
$72,500 based on the public offering price of Parent Stock in the IPO (the
"Escrow Shares") and allocated pro rata among the Stockholders shall be
delivered into escrow at the Effective Time pursuant to the Escrow Agreement
attached hereto as EXHIBIT 1.6. In addition to all other rights and remedies of
the Parent, Newco and the Surviving Corporation for breach by the Company or the
Stockholders of the representations and warranties of the Company and
Stockholders herein, both at law and in equity, the Parent shall have the right
to set-off against the Escrow Shares for any claims of the Parent or the
Surviving Corporation arising under the post Closing adjustment provisions of
SECTION 2 below and/or the indemnity provisions of SECTION 12 below.
(b) The Stockholders shall deliver to counsel for the Parent
at the Closing the certificates representing Company Stock, duly endorsed in
blank by each Stockholder, or accompanied by duly executed stock powers, to hold
in escrow until the Effective Time. The Stockholders shall cure any deficiencies
with respect to the endorsement of the certificates or other documents of
conveyance with respect to Company Stock or with respect to the stock powers
accompanying any of Company Stock.
(c) At the Effective Time, counsel for the Parent shall
release the certificates representing shares of Company Stock to the Parent and
such certificates shall be canceled. As of the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of the Company thereafter.
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(d) No certificates representing fractional shares of Parent
Stock shall be issued upon the surrender of certificates which, prior to the
Effective Time, represented shares of Company Stock. In lieu of any such
fractional shares, the Stockholders will be paid an amount in cash based on the
public offering price of Parent Stock in the IPO.
1.7 CLOSING; EFFECTIVE TIME. Within two (2) business days
following the date on which the price of the shares of Parent Stock offered to
the public in the contemplated IPO shall have been determined, the Parent, the
Company and Newco shall take all actions necessary to complete the transactions
contemplated by this Agreement to effect the Merger (including delivering all
closing documents to counsel for the Parent to hold in escrow until the
Effective Time, pre-clearing the form of the Merger Certificate which shall be
filed at the Effective Time, and completing all other actions as required
hereunder and summarized in a closing agenda to be delivered in advance of the
IPO pricing) to prepare to effect the conversion and delivery of shares referred
to in SECTION 1.6 hereof at the Effective Time (the date on which the closing
documents are delivered into escrow and all of the preparatory actions necessary
to complete the transactions contemplated hereunder is taken shall hereinafter
be referred to as the "Closing"); provided, however, that such actions shall not
include the actual completion of the Merger or the conversion and delivery of
the shares referred to in SECTION 1.6 hereof, which actions shall only take
place at the Effective Time as herein provided. The Closing shall take place at
the offices of Duffy & Sweeney, LLP, 300 Turks Head Building, Providence, Rhode
Island 02903, or at such other place and time or date as may be mutually agreed
upon by the parties hereto. The actual date of the Closing is referred to herein
as the "Closing Date". Concurrently with the closing of the IPO, the Merger
shall become effective and all transactions contemplated by this Agreement,
including the conversion and delivery of shares and the delivery of checks or
wire transfers for the cash portion of the Merger Consideration, shall be
completed. The date on which the merger is effected shall be referred to as the
"Effective Time." During the period between the Closing Date and the Effective
Time, this Agreement may only be terminated by the parties if the underwriting
agreement in respect of the IPO is terminated pursuant to its terms. Counsel for
the Parent shall return all closing documents to the Company if the Effective
Time has not occurred on or before June 30, 1999, including but not limited to
the Merger Certificate and the original stock certificates representing all
outstanding shares of Company Stock. Time is of the essence.
SECTION 2. POST CLOSING ADJUSTMENT
2.1 POST-CLOSING ADJUSTMENT. Within forty-five (45) days after the
Effective Time, the Parent shall engage KPMG LLP to audit a balance sheet
prepared in accordance with generally accepted accounting principles ("GAAP") of
the Company as of 5:00 PM (EST) on the day prior to the Effective Time (the
"Closing Date Balance Sheet"). Such Closing Date Balance Sheet will utilize the
accrual method of accounting notwithstanding the fact that the Company has
heretofore utilized the cash basis method of accounting for purposes of
preparing its financial statements. If the aggregate shareholders' equity as
shown on the Closing Date Balance Sheet is less than $1000 (the amount of such
shortfall being hereafter known as the "Net Worth Deficiency"), the Stockholders
shall pay within five (5) days of the date of determination
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of the Net Worth Deficiency (subject to the dispute resolution procedure set
forth below) (i) 45% of the Net Worth Deficiency to the Parent in cash, by
certified check or by wire transfer of immediately available funds, and (ii) 55%
of the Net Worth Deficiency in shares of Parent Stock which shall be valued at
the "closing sales price" (as defined in Section 4(b)(i) of the Escrow Agreement
attached hereto as EXHIBIT 1.6) for the ten (10) business day period immediately
preceding the date the parties reach agreement as to any Net Worth Deficiency.
The Parent shall have the option, at its sole discretion and notwithstanding any
language to the contrary in the Escrow Agreement attached hereto, to receive the
shares of Parent Stock necessary to satisfy 55% of the Net Worth Deficiency from
the Stockholders directly (i.e. not from the "Escrow Shares") or from the Escrow
Shares. Notwithstanding anything in this SECTION 2 to the contrary, if there is
any Net Worth Deficiency and the Stockholders dispute any item contained on the
Closing Date Balance Sheet, the Stockholders shall notify the Parent in writing
of each disputed item (collectively, the "Disputed Amounts"), and specify the
amount thereof in dispute within thirty (30) business days after the delivery of
the Closing Date Balance Sheet. If the Parent and the Stockholders cannot
resolve any such dispute which would eliminate the amount of the Net Worth
Deficiency, then such dispute shall be resolved by an independent nationally
recognized accounting firm which is reasonably acceptable to the Parent and the
Stockholders (the "Independent Accounting Firm"). The determination of the
Independent Accounting Firm shall be made as promptly as practical and shall be
final and binding on the parties, absent manifest error which error may only be
corrected by such Independent Accounting Firm. Any expenses relating to the
engagement of the Independent Accounting Firm shall be allocated between the
Parent and the Stockholders so that the Stockholders' aggregate share of such
costs shall bear the same proportion to the total costs that the Disputed
Amounts unsuccessfully contested by the Stockholders (as finally determined by
the Independent Accounting Firm) bear to the total of the Disputed Amounts so
submitted to the Independent Accounting Firm.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
3.1 MAKING OF REPRESENTATIONS AND WARRANTIES. As a material inducement
to the Parent and Newco to enter into this Agreement and consummate the
transactions contemplated hereby, the Company and each of the Stockholders
hereby jointly and severally make to the Parent and Newco the representations
and warranties contained in this SECTION 3 WHICH SHALL BE TRUE AND CORRECT AS OF
THE DATE HEREOF, AS OF THE CLOSING DATE AND AS OF THE EFFECTIVE TIME.
3.2 ORGANIZATION AND QUALIFICATION OF THE COMPANY. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of New York with full corporate power and authority to own or lease its
properties and to conduct its business in the manner and in the places where
such properties are owned or leased and where such business is currently
conducted or proposed to be conducted. The copies of the Certificate of
Incorporation of the Company as amended to date, certified by the Secretary of
State of New York and the bylaws certified by the Secretary of the Company and
heretofore delivered to the Parent's counsel, are complete and correct, and no
amendments thereto are pending. The stock records and minute books of the
Company which have heretofore been delivered to the Parent's counsel are correct
and complete. The Company is duly
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qualified to do business as a foreign corporation in each jurisdiction in which
it owns, operates or leases real property and in each other jurisdiction in
which the failure to be so qualified or registered would have a material adverse
effect on the properties, assets, business, financial condition and prospects of
the Company.
3.3 SUBSIDIARIES; INVESTMENTS. Except as set forth in SCHEDULE 3.3, the
Company has no direct or indirect subsidiaries and owns no securities issued by
any other business organization or governmental authority, except U.S.
Government securities, bank certificates of deposit and money market accounts
acquired as short-term investments in the ordinary course of its business.
Except as set forth in SCHEDULE 3.3, the Company neither owns nor has any direct
or indirect interest in or control over any corporation, partnership, joint
venture or entity of any kind. For purposes of this Agreement, the term
"subsidiary" means, with respect to any person, any corporation 20% or more of
the outstanding voting securities of which, or any partnership, joint venture or
other entity 20% or more of the total equity interest of which, is directly or
indirectly owned by such person.
3.4 CAPITAL STOCK. The total authorized capital stock of the Company
consists solely of the shares listed on SCHEDULE 3.4. All of the issued and
outstanding shares of the Company Common Stock are duly authorized and validly
issued, are fully paid and nonassessable, are owned of record and beneficially
by the Stockholders as set forth in SCHEDULE 3.4 free and clear of any liens,
claims, encumbrances, restrictions, security interests, mortgages, pledges or
other demands, and all such shares were offered, issued, sold and delivered by
the Company in compliance with all applicable state and federal laws concerning
the issuance of securities. Further, none of such shares were issued in
violation of the preemptive rights of any past or present stockholder. No shares
of the Company Stock are held in the treasury of the Company. SCHEDULE 3.4
contains a complete and correct listing of the Stockholders of the Company at
the date hereof, together with the number and class of the capital stock of the
Company owned by each such stockholder. There are no outstanding subscriptions,
options, warrants, commitments, preemptive rights, agreements, arrangements or
commitments of any kind for or relating to the issuance, sale, registration or
voting of, or outstanding securities convertible into or exchangeable for, any
shares of capital stock of any class or other equity interests of the Company.
The Company has never acquired any treasury stock.
3.5 AUTHORITY OF THE COMPANY AND THE STOCKHOLDERS
(a) The Company has full right, power and authority to enter
into this Agreement and each agreement, document and instrument to be executed
and delivered by it pursuant to or as contemplated by this Agreement and to
carry out the transactions contemplated hereby and thereby. The execution,
delivery and performance by the Company of this Agreement and each such other
agreement, document and instrument have been duly authorized by the Company's
Board of Directors, and have been approved by the Stockholders by a unanimous
written consent vote executed by each Stockholder. This Agreement and each
agreement, document and instrument to be executed and delivered by the Company
pursuant to or as contemplated by this Agreement (to the extent it contains
obligations to be performed by the Company) constitutes, or when executed,
delivered and approved
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by the Company Stockholders will constitute, valid and binding obligations of
the Company, enforceable in accordance with their respective terms. The
execution, delivery and performance by the Company of this Agreement and each
such other agreement, document and instrument:
(i) does not and will not violate any provision
of the Certificate of Incorporation or bylaws of the Company;
(ii) does not and will not violate any laws of the
United States, or any state or other jurisdiction applicable to the
Company or require the Company to obtain any court, regulatory body,
administrative agency or other approval, consent or waiver, or make any
filing with, any federal, state, local or foreign governmental body,
agency or official ("Governmental Entity") that has not been obtained or
made, other than the filing of the Certificate of Merger in accordance
with the New York Business Corporation Law and except for any other
approvals, consents, waivers and filings that, if not obtained or made,
individually or in the aggregate, would not have a material adverse
effect on the properties, assets, business, financial condition or
prospects of the Company; and
(iii) except as otherwise indicated on SCHEDULE 3.15
hereto, do not and will not result in a breach of, constitute a default
under, accelerate any obligation under, or give rise to a right of
termination of any indenture or loan or credit agreement or any other
agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination
or arbitration award, whether written or oral, to which the Company is a
party or by which the property of the Company is bound or affected, or
result in the creation or imposition of any mortgage, pledge, lien,
security interest or other charge or encumbrance on any of the assets of
the Company, except where such breach, default, acceleration or right of
termination would not have a material adverse effect on the properties,
assets, business, financial condition or prospects of the Company, and
would not result in the creation or imposition of any mortgage, pledge,
lien, security interest or other charge or encumbrance on any of the
assets of the Company.
(b) Each Stockholder has full right, authority and power to
enter into this Agreement and each agreement, document and instrument to be
executed and delivered by or on behalf of it pursuant to or as contemplated by
this Agreement and to carry out the transactions contemplated hereby and
thereby. This Agreement and each agreement, document and instrument to be
executed and delivered by each Stockholder pursuant to or as contemplated by
this Agreement (to the extent it contains obligations to be performed by such
Stockholder) constitutes, or when executed and delivered will constitute, valid
and binding obligations of such Stockholder enforceable in accordance with their
respective terms, subject to the terms hereof. The execution, delivery and
performance by each
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Stockholder of this Agreement and each such agreement, document and instrument:
(i) do not and will not violate any provision of the
Certificate of incorporation or bylaws of the Company;
(ii) do not and will not violate any laws of the
United States, or any state or other jurisdiction applicable to such
Stockholder or require such Stockholder to obtain any approval, consent
or waiver of, or make any filing with, any Governmental Entity that has
not been obtained or made; and
(iii) do not and will not result in a breach of,
constitute a default under, accelerate any obligation under or give rise
to a right of termination of any indenture or loan or credit agreement
or any other agreement, contract, instrument, mortgage, lien, lease,
permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award to which such Stockholder is a party
or by which the property of such Stockholder is bound or to which the
property of such Stockholder is subject or result in the creation or
imposition of any mortgage, pledge, lien, security interest or other
charge or encumbrance on any of the assets or properties of the Company.
Except as disclosed on SCHEDULE 3.15, there are no Stockholder
agreements with respect to the ownership or operation of the Company,
and any such agreements shall be terminated prior to the Closing.
3.6 STATUS OF PROPERTY OWNED OR LEASED.
(a) REAL PROPERTY. The Company does not own any real,property.
The real property identified as being owned or leased by the Company on SCHEDULE
3.6(A) is collectively referred to herein as the "Real Property". The Real
Property constitutes all the real property owned and leased by the Company.
(i) TITLE. Except as set forth on SCHEDULE 3.6(a), to
the best knowledge of the Company and the Stockholders, there are no
unrecorded mortgages, deeds of trust, ground leases, security interests
or similar encumbrances, liens, assessments, licenses, claims, rights
of first offer or refusal, options, or options to purchase, or any
covenants, conditions, restrictions, rights of way, easements,
judgments or other encumbrances or matters affecting title to the Real
Property. There are no leases, tenancies or occupancy rights of any
kind affecting any of the Real Property.
(ii) SECURITY INTERESTS. To the best knowledge of the
Company and the Stockholders, there is not now, nor, as a result of the
consummation of the transactions contemplated hereby, will there be,
any mortgages, deeds of trust, ground leases, security interests or
similar encumbrances on the Real Property, except as set forth on
SCHEDULE 3.6(a) (collectively, the "Encumbrances"). To the best
knowledge of the Company and the Stockholders, there is no outstanding
principal balance or accrued unpaid interest or other
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amount due as of the date hereof under any instrument secured by any of
the Encumbrances and all payments required under each Encumbrance to
the date hereof have been made in full. To the best knowledge of the
Company and the Stockholders, no condition or fact does or will exist,
as a result of the consummation of the transactions contemplated
hereby, which, with the lapse of time or the giving of notice or both,
would constitute a material default thereunder or result in any
acceleration of the indebtedness secured thereby or any increase in the
amount of interest, premiums or penalties payable on such indebtedness.
(iii) COMMISSIONS. To the best knowledge of the
Company and the Stockholders, there are no brokerage or leasing fees or
commissions or other compensation due or payable on an absolute or
contingent basis to any person, firm, corporation, or other entity with
respect to or on account of any of the Encumbrances or the Real
Property, and no such fees, commissions or other compensation shall, by
reason on any existing agreement, become due after the date hereof.
(iv) PHYSICAL CONDITION. Except as set forth on
SCHEDULE 3.6(a), to the best knowledge of the Company and the
Stockholders, there is no material defect in the physical condition of
any of the Real Property. Except as set forth on SCHEDULE 3.6(a), to
the best knowledge of the Company and the Stockholders, there is no
material defect in any material improvements located on or constituting
a part of any of the Real Property, including, without limitation, the
structural elements thereof, the mechanical systems (including without
limitation all heating, ventilating, air conditioning, plumbing,
electrical, elevator, security, telecommunication, utility, and
sprinkler systems) therein, the roofs or the parking and loading areas
(collectively, the "Improvements"). All of the Improvements located on
or constituting a part of any of the Real Property, including, without
limitation, the structural elements thereof, the mechanical systems
therein, the roofs and the parking and loading areas are in generally
good operating condition and repair.
(v) UTILITIES. The Company has not received any
written notice of any termination or impairment of the furnishing of,
or any material increase in rates for, services to any of the Real
Property of water, sewer, gas, electric, telecommunication, drainage or
other utility services, except ordinary and usual rate increases
applicable to all customers (or all customers of a certain class) of a
utility provider. The Company has not entered into any agreement
requiring it to pay to any utility provider rates which are less
favorable than rates generally applicable to customers of the same
class as the Company.
(vi) COMPLIANCE. Except as set forth on SCHEDULE
3.6(a), the Company has not received any written notice from any
municipal, state, federal or other governmental authority with respect
to any violation of any zoning, building, fire, water, use, health,
environmental or other statute, ordinance, code or regulation issued in
respect of any of the Real Property that has not been heretofore
corrected.
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(vii) GOVERNMENT APPROVALS. The Company has not
received any notice of any plan, study or effort by any Governmental
Entity which would adversely affect the present use, zoning or value to
the Company of any of the Real Property or which would modify or
realign any adjacent street or highway in a manner materially adverse
to the Company.
(viii) ZONING. The Company has not received any
notice of any zoning violations.
(ix) REAL PROPERTY TAXES. To the best knowledge of
the Company and the Stockholders, except as set forth in said SCHEDULE
3.6(a), no special assessments of any kind (special, bond or otherwise)
are or have been levied against any Real Property, or any portion
thereof, which are outstanding or unpaid.
(x) SERVICE CONTRACTS. A complete list of all
material existing service, management, supply or maintenance or
equipment lease contracts and other contractual agreements affecting
the Real Property or any portion thereof (the "Service Contracts") to
which the Company is a party is set forth on SCHEDULE 3.6(a). All such
Service Contracts are terminable upon no more than thirty (30) days
written notice, at no cost, except as specified in SCHEDULE 3.6(a).
(b) PERSONAL PROPERTY. A list of each item of the machinery,
equipment and other fixed assets owned or leased by the Company having a fair
market value of at least $5,000 (the "Equipment"), is contained in SCHEDULE
3.6(b) hereto. All of the Equipment and other machinery, equipment and personal
property of the Company is located on the Real Property or used in the operation
of the Company. Except as specifically disclosed in SCHEDULE 3.6(b) or in the
Company Financial Statements (as hereinafter defined), the Company has good and
marketable title to all of the personal property owned by it. None of such
personal property or assets is subject to any mortgage, pledge, lien,
conditional sale agreement, security title, encumbrance or other charge except
as specifically disclosed in any Schedule hereto or in the Financial Statements.
The Financial Statements reflect all personal property of the Company, subject
to dispositions and additions in the ordinary course of business consistent with
this Agreement. Except as otherwise specified in SCHEDULE 3.6(b) hereto, all
leasehold improvements, furnishings, machinery and equipment of the Company are
in generally good repair, normal wear and tear excepted, have been well
maintained, and conform in all material respects with all applicable ordinances,
regulations and other laws.
3.7. FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.
(a) The Company has delivered to the Parent the following
financial statements, copies of which are attached hereto as SCHEDULE 3.7:
(i) Compiled or Reviewed balance sheets of the
Company dated December 31, 1996, and December 31, 1997, and compiled or
reviewed statements of
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income, stockholders' equity and cash flows for each of the two (2)
years ended December 31, 1996 and 1997, certified by the Chief Financial
Officer of the Company (the "Year-End Company Financial Statements");
(ii) Unaudited balance sheets of the Company as of
December 31, 1998 (herein the "Company Balance Sheet Date") and
statements of income, stockholders' equity and cash flows for the twelve
months then ended, certified by the chief financial officer of the
Company (the "Interim Company Financial Statements", together with the
Year-End Company Financial Statements, the "Company Financial
Statements");
The Company Financial Statements have been prepared in accordance with GAAP
applied consistently during the periods covered thereby (except that the Interim
Company Financial Statements are subject to normal year-end audit adjustments
and do not include footnotes), and present fairly in all respects the financial
condition of the Company at the dates of said statements and the results of
their operations for the periods covered thereby.
(b) As of the Company Balance Sheet Date, the Company had no
liabilities of any nature, whether accrued, absolute, contingent or otherwise,
(including without limitation liabilities as guarantor or otherwise with respect
to obligations of others or contingent liabilities arising prior to the Company
Balance Sheet Date) except liabilities stated or adequately reserved for on the
Company Financial Statements or reflected in Schedules furnished to Parent
hereunder as of the date hereof.
(c) As of the date hereof, the Company has no liabilities of
any nature, whether accrued, absolute, contingent or otherwise, (including
without limitation liabilities as guarantor or otherwise with respect to
obligations of others, or liabilities for taxes due or then accrued or to become
due or contingent liabilities arising prior to the date hereof or the Closing,
as the case may be) except liabilities (i) stated or adequately reserved for on
the appropriate Company Financial Statement or the notes thereto, (ii) reflected
in Schedules furnished to Parent hereunder on the date hereof or (iii) incurred
in the ordinary course of business of the Company consistent with prior
practices.
(d) The Company's "gross revenues" (which shall mean the total
aggregate sales less returns, credits and other customary, normal adjustments to
revenue) as set forth in the Company Financial Statements for the twelve month
period ended December 31, 1998 exceed $397,000, and the aggregate stockholder's
equity as shown on the Company's Financial Statements as of the Company Balance
Sheet Date exceeds $1000.
3.8 TAXES.
(a) The Company has paid or caused to be paid all federal,
state, local, foreign and other taxes, including without limitation income
taxes, estimated taxes, alternative minimum taxes, excise taxes, sales taxes,
use taxes, value-added taxes, gross receipts taxes, franchise taxes, capital
stock taxes, employment and payroll-related taxes, withholding taxes, stamp
taxes, transfer taxes and
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property taxes, whether or not measured in whole or in part by net income, and
all deficiencies, or other additions to tax, interest, fines and penalties owed
by it (collectively, "Taxes"), in the amounts indicated on tax returns filed by
the Company through the date hereof or in correspondence received from any
federal, state, local or foreign government taxing authority, whether disputed
or not (other than current taxes the liability for which is adequately reserved
for on the financial statements provided to the Parent pursuant to SECTION 3.7
hereof).
(b) The Company has in accordance with applicable law filed
all federal, state, local and foreign tax returns required to be filed by it
through the date hereof and all such returns correctly and accurately set forth
the amount of any Taxes relating to the applicable period. For every taxable
period of the Company, the Company has delivered or made available to Parent
complete and correct copies of all federal, state, local and foreign income tax
returns, examination reports and statements of deficiencies assessed against or
agreed to by the Company. SCHEDULE 3.8 attached hereto sets forth all federal
tax elections under the Internal Revenue Code of 1986, as amended (the "Code"),
that are in effect with respect to the Company or for which an application by
the Company is pending.
(c) Neither the Internal Revenue Service ("IRS") nor any other
governmental authority is now asserting in writing or threatening to assert
against the Company any deficiency or claim for additional Taxes or a claim that
the Company is or may be subject to taxation by that jurisdiction. There are no
security interests on any of the assets of the Company that arose in connection
with any failure (or alleged failure) to pay any Tax. The Company has not
entered into a closing agreement pursuant to Section 7121 of the Code. The
Stockholders have paid all taxes due and filed all tax returns relating to
distributions from the Company as a "Subchapter S" corporation under the Code.
The Company has at all times maintained its status as a Subchapter S corporation
under the Code.
(d) Except as set forth in SCHEDULE 3.8 attached hereto, there
has not been any audit of any tax return filed by the Company, no audit of any
tax return of the Company is in progress, and the Company has not been notified
by any tax authority that any such audit is contemplated or pending. Except as
set forth in SCHEDULE 3.8, no extension of time with respect to any date on
which a tax return was or is to be filed by the Company is in force, and no
waiver or agreement by the Company is in force for the extension of time for the
assessment or payment of any Taxes.
(e) (i) The Company has not consented to have the provisions
of Section 341(f)(2) of the Code applied to it, (ii) the Company has not agreed
to, and has not been requested by any governmental authority to, make any
adjustments under Section 481(a) of the Code by reason of a change in accounting
method or otherwise and (iii) the Company has never made any payments, is
obligated to make any payments, or is a party to any agreement that under
certain circumstances would obligate it to make any payments, that will not be
deductible under Section 280G of the Code. The Company has disclosed on its
federal income tax returns all positions taken therein that could give rise to a
penalty for underpayment of federal Tax under Section 6662 of the Code. The
Company has never had any liability for unpaid Taxes because it is a member of
an "affiliated group" (as defined in Section
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1504(a) of the Code). The Company has never filed, nor has it ever been required
to file, a consolidated, combined or unitary tax return with any entity. The
Company is not a party to any tax sharing agreement.
(f) The Company computes its federal taxable income under the
cash method of accounting.
(g) For purposes of this SECTION 3.8, all references to
Sections of the Code shall include any predecessor provisions to such Sections
and any similar provisions of federal, state, local or foreign law.
3.9 ACCOUNTS RECEIVABLE. All accounts receivable of the Company as of
the respective balance sheet dates in the Company Financial Statements and all
accounts receivable arising thereafter or hereafter to the Closing Date, arose
or will arise from valid sales in the ordinary course of business. Except as set
forth in SCHEDULE 3.9, the Company has no accounts or loans receivable from any
person, firm or corporation which is affiliated with the Company. For purposes
hereof, "affiliate" means any Stockholder, or any business entity which
controls, or is controlled by, or is under common control with the Company.
3.10 INVENTORIES. The Company maintains less than $20,000 of inventory,
all saleable in the ordinary course and stated in accordance with GAAP.
3.11 ABSENCE OF CERTAIN CHANGES.
Since December 31, 1997, the Company has conducted its business only in
the ordinary course and consistent with past practices and except as disclosed
in SCHEDULE 3.11 there has not been:
(i) Any change in the properties, assets, liabilities,
business, operations, financial condition or prospects of the Company
which change by itself or in conjunction with all other such changes,
whether or not arising in the ordinary course of business, has been
materially adverse with respect to the Company;
(ii) Except for the endorsement of checks in the ordinary
course of business any material contingent liability incurred by the
Company as guarantor or otherwise with respect to the obligations of
others or any cancellation of any material debt or claim owing to, or
waiver of any material right of, the Company;
(iii) Any mortgage, encumbrance or lien placed on any of the
properties of the Company which remains in existence on the date hereof
or will remain on the Closing Date except for liens permitted by any
current agreement of the Company with respect to borrowed money;
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(iv) Any purchase, sale or other disposition, or any agreement
or other arrangement for the purchase, sale or other disposition, of
any capital assets of the Company costing more than $10,000;
(v) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting any of the properties,
assets or business of the Company;
(vi) Any declaration, setting aside or payment of any dividend
by the Company, or the making of any other distribution in respect of
the capital stock of the Company, any direct or indirect redemption,
purchase or other acquisition by the Company of its own capital stock,
any issuance or sale of any securities convertible into or exchangeable
for debt or equity securities of the Company or any grant, issuance or
exercise of options, warrants, subscriptions, preemptive rights,
agreements, arrangements or commitments of any kind for or relating to
the issuance, sale, registration or voting of any shares of capital
stock of any class or other equity interests of the Company;
(vii) Any claim of unfair labor practices asserted against
the Company; any change in the compensation (in the form of salaries,
wages, incentive arrangements or otherwise) payable or to become
payable by the Company to any of its officers, employees, agents or
independent contractors other than customary merit or cost of living
increases in accordance with its usual practices, or any bonus payment
or arrangement made to or with any of such officers, employees, agents
or independent contractors; any entering into any employment, deferred
compensation or other similar agreement (or any amendment to any such
existing agreement) with any officer, director or employee of the
Company except for employment arrangements providing for salary or
wages of less than $20,000 per annum and any oral agreement terminable
at will by the Company;
(viii) Any change with respect to the officers or senior
management of the Company, any grant of any severance or termination
pay to any officer or employee of the Company;
(ix) Any payment or discharge of a material lien or liability
of the Company which was not shown on the Company Financial Statements
or incurred in the ordinary course of business thereafter;
(x) Any obligation or liability incurred by the Company to any
of its officers, directors or stockholders, or any loans or advances
made by the Company to any of its officers, directors, stockholders,
except normal compensation and expense allowances payable to officers
or employees;
(xi) Any change in accounting methods or practices other than
to comply with new accounting pronouncements, credit practices or
collection policies used by the Company;
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(xii) Any other transaction entered into by the Company other
than transactions in the ordinary course of business; or
(xiii) Any agreement or understanding whether in writing or
otherwise, that would result in any of the transactions or events or
require the Company to take any of the actions specified in paragraphs
(i) through (xii) above.
3.12 BANKING RELATIONS. All of the arrangements which the Company has
with any banking institution are described in SCHEDULE 3.12 attached hereto,
indicating with respect to each of such arrangements the type of arrangement
maintained (such as checking account, borrowing arrangements, safe deposit box,
etc.), the names in which the accounts are held, the account number, and the
name of each person, corporation, firm or other entity authorized in respect
thereof.
3.13 PATENTS, TRADE NAMES, TRADEMARKS, COPYRIGHTS AND PROPRIETARY
RIGHTS. All patents, patent applications, trademark registrations, trademark
registration applications, copyright registrations, copyright registration
applications and all material trade names, trademarks, copyrights and other
material proprietary rights owned by or licensed to the Company or used in its
respective business as presently conducted (the "Proprietary Rights") are listed
in SCHEDULE 3.13 attached hereto. All of the material patents, registered
trademarks and copyrights of the Company and all of the material patent
applications, trademark registration applications and copyright registration
applications of the Company have been duly registered in, filed in or issued by
the United States Patent and Trademark Office, the United States Register of
Copyrights or the corresponding offices of other countries identified on said
schedule. Except as set forth in SCHEDULE 3.13: (a) use of said patents, trade
names, trademarks, copyrights or other proprietary rights in the ordinary course
of business as presently conducted does not require the consent of any other
person and (b) the Company has sufficient title or adequate rights or licenses
to use all material patents, trade names, trademarks, copyrights, or other
proprietary rights used by it in its business as presently conducted free and
clear of any attachments, liens, encumbrances or adverse claims. The Company has
not received written notice that its present or contemplated activities or
products infringe any such patents, trade names, trademarks or other proprietary
rights of others. Except as set forth in SCHEDULE 3.13: (i) no other person has
an interest in or right or license to use, or the right to license others to
use, any of said patents, patent applications, trade names, trademarks,
copyrights or other proprietary rights; (ii) there are no written claims or
demands of any other person pertaining thereto and no proceedings have been
instituted, or are pending or threatened, which challenge the rights of the
Company in respect thereof; (iii) none of the patents, trade names, trademarks,
copyrights or other proprietary rights listed in said schedule is subject to any
outstanding order, decree, judgment or stipulation, or is being infringed by
others; and (iv) no proceeding charging the Company with infringement of any
adversely held patent, trade name, trademark or copyright has been filed or is
threatened to be filed.
3.14 TRADE SECRETS AND CUSTOMER LISTS. The Company has the right to use
in the ordinary course of its business as presently conducted, free and clear of
any claims or rights of others, all trade secrets, inventions, customer lists
and secret processes required for or incident to the manufacture or
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marketing of all products presently sold, manufactured, licensed, under
development or produced by it, including products licensed from others. Any
payments required to be made by the Company for the use of such trade secrets,
inventions, customer lists and secret processes are described in SCHEDULE 3.14.
The Company is not using or in any way making use of any confidential
information or trade secrets of any third party, including without limitation, a
former employer of any present or past employee of the Company or any of the
predecessors of the Company.
3.15 CONTRACTS.
(a) Except for contracts, commitments, plans, agreements and
licenses described in SCHEDULE 3.15 (complete and accurate copies of which have
been delivered to the Parent), the Company is neither a party to nor subject to:
(i) any plan or contract providing for bonuses,
pensions, options, stock purchases, deferred compensation, retirement
payments, profit sharing, severance or termination pay, collective
bargaining or the like, or any contract or agreement with any labor
union;
(ii) any employment contract or contract for services
which requires the payment of $20,000 or more annually or which is not
terminable within thirty (30) days by the Company without liability for
any penalty or severance payment other than pursuant to the Company's
severance policies existing on the date hereof;
(iii) any contract or agreement for the purchase of
any commodity, material or equipment except purchase orders in the
ordinary course for less than $20,000 each;
(iv) any other contracts or agreements creating any
obligation of the Company of $20,000 or more with respect to any such
contract;
(v) any contract or agreement providing for the
purchase of all or substantially all of its requirements of a
particular product from a supplier;
(vi) any contract or agreement which by its terms
does not terminate or is not terminable by the Company or any successor
or assign within six months after the date hereof without payment of a
penalty;
(vii) any contract or agreement for the sale or lease
of its products or services not made in the ordinary course of
business;
(viii) any contract with any sales agent or
distributor of products of the Company or any subsidiary;
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(ix) any contract containing covenants limiting the
freedom of the Company to compete in any line of business or with any
person or entity;
(x) any contract or agreement for the purchase of any
fixed asset for a price in excess of $20,000 whether or not such
purchase is in the ordinary course of business;
(xi) any license agreement (as licensor or licensee);
(xii) any indenture, mortgage, promissory note, loan
agreement, guaranty or other agreement or commitment for the borrowing
of money and any related security agreement;
(xiii) any contract or agreement with any officer,
employee, director or stockholder of the Company or with any persons or
organizations controlled by or affiliated with any of them;
(xiv) any partnership, joint venture, or other
similar contract, arrangement or agreement; or
(xv) any registration rights agreements, warrants,
warrant agreements or other rights to subscribe for securities, any
voting agreements, voting trusts, shareholder agreements or other
similar arrangements or any stock purchase or repurchase agreements or
stock restriction agreements.
(b) All material contracts, agreements, leases and instruments
to which the Company is a party or by which the Company is obligated are valid
and are in full force and effect and constitute legal, valid and binding
obligations of the Company and the other parties thereto, enforceable in
accordance with their respective terms. Neither the Company nor any other party
to any contract, agreement, lease or instrument of the Company is in default in
complying with any provisions thereof, and no condition or event or facts exists
which, with notice, lapse of time or both would constitute a default thereof on
the part of either of the Company or on the part of any other party thereto in
any such case that could have a material adverse effect on the properties,
assets, financial condition or prospects of either of the Company. SCHEDULE 3.15
indicates whether any of the agreements, contracts, commitments or other
instruments and documents described therein requires consent or approval to be
transferred to the Surviving Corporation as a result of the transactions
contemplated herein.
3.16 LITIGATION. SCHEDULE 3.16 hereto lists all currently pending and
threatened litigation and governmental or administrative proceedings or
investigations to which the Company is a party. Except for matters described in
SCHEDULE 3.16, there is no litigation or governmental or administrative
proceeding or investigation pending or threatened against the Company which may
have an adverse
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effect on the properties, assets, business, financial condition or prospects of
the Company or which would prevent or hinder the consummation of the
transactions contemplated by this Agreement.
3.17 COMPLIANCE WITH LAWS. The Company has not received notice of a
violation or alleged violation of applicable statutes, ordinances, orders, rules
and regulations promulgated by any federal, state, municipal or other
governmental authority, which violation or alleged violation would have a
material adverse effect on the business of the Company, and except as set forth
in SCHEDULE 3.17 hereto, the Company is currently in compliance in all material
respects with all such statutes, ordinances, orders, rules or regulations, and
there is no valid basis for any claim that the Company is not in compliance with
any such statute, ordinance, order, rule or regulation.
3.18 INSURANCE. SCHEDULE 3.18 sets forth the following information with
respect to each insurance policy (including policies providing property,
casualty, Liability, and workers' compensation coverage and bond and surety
arrangements) to which the Company or Andrew Halpern dba Ulsternet has been a
party, a named insured, or otherwise the beneficiary of coverage at any time
within the past five (5) years: (a) the name, address, and telephone number of
the agent; (b) the name of the insurer, the name of the policyholder, and the
name of each covered insured; (c) the policy number and the period of coverage;
(d) the scope (including an indication of whether the coverage was on a claims
made, occurrence, or other basis) and amount (including a description of how
deductibles and ceilings are calculated and operate) of coverage; and (e) a
description of any retroactive premium adjustments or other loss-sharing
arrangements. With respect to each such insurance policy: (i) the policy is
legal, valid, binding, enforceable, and in full force and effect; (ii) the
policy will continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the consummation of the transactions
contemplated hereby, (iii) neither the Seller nor any other party to the policy
is in breach or default (including with respect to the payment of premiums or
the giving of notices), and no event has occurred which, with notice or the
lapse of time, would constitute such a breach or default, or permit termination,
modification, or acceleration, under the policy; and (iv) no party to the policy
has repudiated any provision thereof. The Company and/or Andrew Halpern dba
Ulsternet has been covered during the past five (5) years by insurance in scope
and amount customary and reasonable for the businesses in which it has engaged
during the aforementioned period. SCHEDULE 3.18 describes any self-insurance
arrangements affecting the Company. Andrew Halpern agrees to take all steps
necessary upon execution of this Agreement to transfer any insurance on the
business or properties of the Company into the name of Ulsternet, Inc.
3.19 WARRANTY AND RELATED MATTERS. There are no existing or threatened
in writing, product liability, warranty or other similar claims against the
Company alleging that any of its products or services are defective or fail to
meet any product or service warranties except as disclosed in SCHEDULE 3.19
hereto. The Company has not received notice of any statements, citations,
correspondence or decisions by any Governmental Entity stating that any product
manufactured, marketed or distributed at any time by the Company (the "Company
Products") is defective or unsafe or fails to meet any product warranty or any
standards promulgated by any such Governmental Entity. There have been no
recalls ordered by any such Governmental Entity with respect to any Company
Product. There is no (i)
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fact relating to any Company Product that may impose upon the Company a duty to
recall any Company Product or a duty to warn customers of a defect in any
Company Product, (ii) latent or overt design, manufacturing or other defect in
any Company Product, or (iii) liability for warranty or other claim or return
with respect to any Company Product except in the ordinary course of business
consistent with the past experience of the Company for such kind of claims and
liabilities.
3.20 FINDER'S FEES. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
the Company or the Stockholders.
3.21 PERMITS; BURDENSOME AGREEMENTS. SCHEDULE 3.21 lists all material
permits, registrations, licenses, franchises, certifications and other approvals
(collectively, the "Approvals") required from Governmental Entities in order for
the Company to conduct its business. The Company has obtained all the Approvals,
which are valid and in full force and effect. Except as disclosed on SCHEDULE
3.21, none of the Approvals is subject to termination by their express terms as
a result of the execution of this Agreement by the Company or the consummation
of the Merger, and no further Approvals will be required in order to continue to
conduct the business currently conducted by the Company subsequent to the
Closing. Except as disclosed in SCHEDULE 3.21 or in any other schedule hereto,
the Company is neither subject to nor bound by any agreement, judgment, decree
or order which may materially and adversely affect its properties, assets,
business, financial condition or prospects.
3.22 TRANSACTIONS WITH INTERESTED PERSONS. Except as set forth in
SCHEDULE 3.22 hereto, no Stockholder, officer, employee or director of the
Company and none of their respective parents, grandparents, spouses, children,
siblings or grandchildren owns directly or indirectly on an individual or joint
basis any material interest in, or serves as an officer or director or in
another similar capacity of, any competitor, supplier or customer of the Company
or any organization, person or entity with whom the Company is doing business.
3.23 EMPLOYEE BENEFIT PROGRAMS.
(a) SCHEDULE 3.23 sets forth a list of every Employee Program
(as defined below) that has been maintained (as such term is further defined
below) by the Company at any time during the three-year period ending on the
date hereof.
(b) Each Employee Program which has been maintained by a
Company and which has at any time been intended to qualify under Section 401(a)
or 501(c)(9) of the Code, has received a favorable determination or approval
letter from the IRS regarding its qualification under such section and has, in
fact, been qualified under the applicable section of the Code from the effective
date of such Employee Program through and including the Closing (or, if earlier,
the date that all of such Employee Program's assets were distributed). No event
or omission has occurred which would cause any such Employee Program to lose
such qualification under the applicable Code section.
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(c) Except as otherwise disclosed on SCHEDULE 3.23, there has
not been any failure of any party to comply with any laws applicable to or the
terms of any Employee Programs that have been maintained by the Company, except
for any failures to comply that, individually or in the aggregate, would not
have a material adverse effect on the properties, assets, business, financial
condition or prospects of the Company. With respect to any Employee Program now
or heretofore maintained by the Company, there has occurred no "prohibited
transaction," as defined in Section 406 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code, or
breach of any duty under ERISA or other applicable law (including, without
limitation, any health care continuation requirements or any other tax law
requirements, or conditions to favorable tax treatment, applicable to such
plan), which could result, directly or indirectly (including without limitation
through any obligation of indemnification or contribution) in any taxes,
penalties or other liability to the Company or any Affiliate (as defined below).
No litigation, arbitration, or governmental administrative proceeding or
investigation or other proceeding (other than those relating to routine claims
for benefits) is pending or threatened with respect to any such Employee
Program.
(d) Neither the Company nor any Affiliate has ever maintained
any Employee Program subject to Title IV of ERISA.
(e) Except as otherwise disclosed on SCHEDULE 3.23, with
respect to each Employee Program maintained by the Company within the three
years preceding the date hereof, complete and correct copies of the following
documents (if applicable to such Employee Program) have previously been
delivered to the Parent: (i) all documents embodying or governing such Employee
Program, and any funding medium for the Employee Program (including, without
limitation, trust agreements) as they may have been amended to the date hereof;
(ii) the most recent IRS determination or approval letter with respect to such
Employee Program under Code Section 401 or 501(c)(9), and any applications for
determination or approval subsequently filed with the IRS; (iii) the three most
recently filed IRS forms 5500, with all applicable schedules and accountants'
opinions attached thereto; (iv) the summary plan description for such Employee
Program (or other descriptions of such Employee Program provided to employees)
and all modifications thereto; (v) any insurance policy (including any fiduciary
liability insurance policy) related to such Employee Program; and (vi) any
documents evidencing any loan to an Employee Program that is a leveraged
employee stock ownership plan.
(f) Each Employee Program maintained by the Company as of the
date hereof is subject to amendment or termination by the Board of Directors of
the Company without any further liability or obligation on the part of the
Company to make further contributions to any trust maintained under any such
Employee Program following such termination and the Company has not made any
written or oral representations to the contrary to its employees.
(g) For purposes of this SECTION 3.23:
(i) "Employee Program" means (a) all employee benefit
plans within the meaning of ERISA Section 3(3), including, but not
limited to, multiple employer
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welfare arrangements (within the meaning of ERISA Section 3(40)), plans
to which more than one unaffiliated employer contributes and employee
benefit plans (such as foreign or excess benefit plans) which are not
subject to ERISA; and (b) all stock option plans, bonus or incentive
award plans, severance pay policies or agreements, deferred
compensation agreements, supplemental income arrangements, vacation
plans, and all other employee benefit plans, agreements, and
arrangements not described in subsection (a) above. In the case of an
Employee Program funded through an organization described in Code
Section 501(c)(9), each reference to such Employee Program shall
include a reference to such organization;
(ii) an entity "maintains" an Employee Program if
such entity sponsors, contributes to, or provides (or has promised to
provide) benefits under such Employee Program, or has any obligation
(by agreement or under applicable law) to contribute to or provide
benefits under such Employee Program, or if such Employee Program
provides benefits to or otherwise covers employees of such entity (or
their spouses, dependents, or beneficiaries);
(iii) an entity is an "Affiliate" of a Company for
purposes of this SECTION 3.23 if it would have ever been considered a
single employer with the Company under ERISA Section 4001(b) or part of
the same "controlled group" as the Company for purposes of ERISA
Section 302(d)(8)(c) and
(iv) "Multiemployer Plan" means a (pension or
non-pension) employee benefit plan to which more than one employer
contributes and which is maintained pursuant to one or more collective
bargaining agreements.
3.24 ENVIRONMENTAL MATTERS.
(a) Except as used in connection with routine maintenance and
as set forth in SCHEDULE 3.24 hereto, (i) the Company has never generated,
transported, used, stored, treated, disposed of, or managed any Hazardous Waste
(as defined below); (ii) to the best knowledge of the Company and the
Stockholders no Hazardous Material (as defined below) has ever been or is
threatened to be spilled, released, or disposed of at any site presently or
formerly owned, operated, leased, or used by the Company, or has ever come to be
located in the soil or groundwater at any such site; (iii) to the best knowledge
of the Company and the Stockholders no Hazardous Material has ever been
transported from any site presently or formerly owned, operated, leased, or used
by the Company for treatment, storage, or disposal at any other place; (iv) to
the best knowledge of the Company and the Stockholders the Company does not
presently own, operate, lease, or use, nor has it previously owned, operated,
leased, or used any site on which underground storage tanks are or were located;
and (v) to the best knowledge of the Company and the Stockholders no lien has
ever been imposed by any Governmental Entity on any property, facility,
machinery, or equipment owned, operated, leased, or used by the Company in
connection with the presence of any Hazardous Material.
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(b) Except as set forth in SCHEDULE 3.24 hereto, (i) the
Company has no liability under, nor has the Company ever violated in any
material respect, any Environmental Law (as defined below); (ii) to the best
knowledge of the Company and the Stockholders any property owned, operated,
leased, or used by the Company and any facilities and operations thereon are
presently in compliance in all material respects with all applicable
Environmental Laws; (iii) the Company has never entered into or been subject to
any judgment, consent decree, compliance order, or administrative order with
respect to any environmental or health and safety matter or received any request
for information, notice, demand letter, administrative inquiry, or formal or
informal complaint or claim with respect to any environmental or health and
safety matter or the enforcement of any Environmental Law (as defined below);
and (iv) the Company nor any Company Stockholder has any reason to believe that
any of the items enumerated in clause (iii) of this paragraph will be
forthcoming.
(c) Except as set forth in SCHEDULE 3.24 hereto, no site
owned, operated, leased, or used by the Company contains any asbestos or
asbestos-containing material, any polychlorinated biphenyls ("pcbs") or
equipment containing pcbs, or any urea formaldehyde foam insulation.
(d) For purposes of this SECTION 3.24, (i) "Hazardous
Material" shall mean and include any hazardous waste, hazardous material,
hazardous substance, petroleum product, oil, toxic substance, pollutant, or
contaminant, as defined or regulated under any Environmental Law or any other
substance which may pose a threat to the environment or to human health or
safety; (ii) "Hazardous Waste" shall mean and include any hazardous waste as
defined or regulated under any Environmental Law; (iii) "Environmental Law"
shall mean any environmental laws, regulation, rule, ordinance, or by-law at the
foreign, federal, state, or local level, existing as of the date hereof; and
(iv) the Company shall mean and include the Company, its predecessors and all
other entities for whose conduct the Company is or may be held responsible under
any Environmental Law.
3.25 LISTS OF CERTAIN EMPLOYEES AND SUPPLIERS.
(a) SCHEDULE 3.25 hereto contains a list of all current
directors and officers of the Company and a list of all managers, employees and
consultants of the Company who, individually, have received or are scheduled to
receive base salary from the Company during the current fiscal year of $20,000
or more. In each case such schedule includes the current job title and current
base salary of each such individual.
(b) SCHEDULE 3.25 sets forth a true and complete list of all
suppliers of the Company to whom the Company made payments aggregating $25,000
or more during the most recent complete fiscal year, showing, with respect to
each, the name, address and dollar volume involved.
3.26 EMPLOYEES; LABOR MATTERS. As of the date hereof, the Company
employed the number of full-time employees and part-time employees described on
SCHEDULE 3.26. The Company is not delinquent in payments to any of its employees
for any wages, salaries, commissions, bonuses or other direct compensation for
any services performed for it to the date hereof or amounts required to be
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reimbursed to such employees. Except as set forth in SCHEDULE 3.26, upon
termination of the employment of any of said employees, the Company will not by
reason of the Merger be liable to any of said employees for so-called "severance
pay" or any other payments. Except as set forth in SCHEDULE 3.26 attached
hereto, the Company has no policy, practice, plan or program of paying severance
pay or any form of severance compensation in connection with the termination of
employment. The Company is in compliance with all applicable laws and
regulations respecting labor, employment, fair employment practices, terms and
conditions of employment, and wages and hours. No charges of employment
discrimination or unfair labor practices have been brought against the Company,
nor are there any strikes, slowdowns, stoppages of work, or any other concerted
interference with normal operations existing, pending or threatened against or
involving the Company. There are no grievances, complaints or charges that have
been filed against the Company under any dispute resolution procedure
(including, but not limited to, any proceedings under any dispute resolution
procedure under any collective bargaining agreement). No collective bargaining
agreements are in effect or are currently being or are about to be negotiated by
the Company. The Company has not received written notice of pending or
threatened changes with respect to the senior management or key supervisory
personnel of the Company.
3.27 CUSTOMERS. SCHEDULE 3.27 sets forth any customer who accounted for
more than 5% of the sales of the Company for the most recent complete fiscal
year of the Company (collectively, the "Customers"). No Customer has given
notice to the Company of its intention to terminate, to cancel or otherwise
materially and adversely modify its relationship with the Company or to decrease
materially or limit its usage or purchase of the services or products of the
Company.
3.28 Y2K. The Company has taken all necessary action to assess,
evaluate, test and correct all of the hardware, software, embedded microchips
and other processing capabilities of computer and telecommunication systems it
uses in its normal business operations to ensure that such systems will be able
to function accurately and without interruption or ambiguity using date
information before, during and after January 1, 2000.
3.29 TAX-FREE REORGANIZATION. Neither the Company nor any Stockholders
has taken any action which would violate any requirement, including but not
limited to the continuity-of-business-enterprise requirement of 26 C.F.R.
ss.1.368-1(d), for tax-free reorganization status undeR SECTION 368(a) of the
Code with respect to the Merger.
3.30 DISCLOSURE.
(a) This Agreement, including the Schedules hereto prepared by
the Company, together with the other information furnished to the Parent by the
Company and the Stockholders in connection herewith, does not contain an untrue
statement of material fact or omit to state a material fact necessary to make
the statements herein and therein, in light of the circumstances under which
they were made, not misleading. If, prior to the 90th day after the date of the
final prospectus of the Parent utilized in connection with the IPO, the Company
or the Stockholders become aware of any fact
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or circumstance which would affect the accuracy of a representation or warranty
of the Company or the Stockholders in this Agreement, in any material respect,
the Company and the Stockholders shall immediately give notice of such fact or
circumstance to the Parent. However, subject to the provisions of SECTION 4.8,
such notification shall not relieve either the Company or the Stockholders of
their respective obligations under this Agreement, and subject to the provisions
of SECTION 4.8, at the sole option of the Parent, the truth and accuracy of any
and all warranties and representations of the Company, or on behalf of the
Company and of the Stockholders at the date of this Agreement and on the Closing
Date and immediately prior to at the Effective Time, shall be a precondition to
the consummation of this transaction.
(b) The Company and the Stockholders acknowledge and agree (i)
that there exits no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that the
contemplated IPO of the Parent will occur at a particular price or within a
particular range of prices or occur at all; (ii) that neither the Parent, its
subsidiaries or any of their respective officers, directors, agents or
representatives nor any underwriter shall have any liability to the Company or
the Stockholders or any other person affiliated or associated with the Company
for any failure of the contemplated IPO to occur at a particular price or within
a particular range of prices or to occur at all; and (iii) that the decision of
the Stockholders to enter into this Agreement, or to vote in favor of or consent
to the Merger, has been or will be made independent of, and without reliance
upon, any statements, opinions or other communications, or due diligence
investigations which have been or will be made performed by any prospective
underwriter, relative to the Parent or the contemplated IPO.
SECTION 4. COVENANTS OF THE COMPANY AND THE STOCKHOLDERS.
4.1 MAKING OF COVENANTS AND AGREEMENTS. The Company and the
Stockholders covenant and agree as set forth in this SECTION 4.
4.2 CONDUCT OF BUSINESS. Between the date of this Agreement and the
Effective Time, the Stockholders will cause the Company to do and the Company
will do the following, unless Parent shall otherwise consent in writing:
(a) conduct its business only in the ordinary course
consistent with past practices, refrain from changing or introducing any method
of management or operations except in the ordinary course of business and in a
manner consistent with past practices and maintain levels of working capital
consistent with past practices;
(b) refrain from making any purchase, sale or disposition of
any asset or property other than in the ordinary course of business, from
purchasing or selling any capital asset costing more than $20,000 and from
mortgaging, pledging, subjecting to a lien or otherwise encumbering any of its
properties or assets;
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(c) refrain from incurring or modifying any contingent
liability as a guarantor or otherwise with respect to the obligations of others,
and from incurring or modifying any other contingent or fixed obligations or
liabilities except in the ordinary course of business and in a manner consistent
with past practices;
(d) refrain from making any change in its incorporation
documents, by-laws or authorized or issued capital stock or from acquiring any
securities issued by any other business organization other than short-term
investments in the ordinary course of business;
(e) refrain from declaring, setting aside or paying any
dividend, making any other distribution in respect of its capital stock, making
any direct or indirect redemption, purchase or other acquisition of its capital
stock, issuing, granting, awarding, selling, pledging, disposing of or
encumbering or authorizing the issuance, grant, award, sale, pledge, disposition
or encumbrance of any shares of, or securities convertible or exchangeable for,
or options, warrants, calls, commitments or rights of any kind to acquire, any
shares of capital stock of any class of the Company or entering into any
agreement or commitment with respect to any of the foregoing;
(f) refrain from making any change in the compensation payable
or to become payable to any of its officers, employees or agents, except for
scheduled increases in salary or wages in the ordinary course of business that
are consistent with past practices, or granting any severance or termination pay
to, or establishing, adopting or entering into any agreement or arrangement
providing for severance or termination pay to, or entering into or amending any
employment, or other agreement or arrangement with, any director, officer or
other employee of the Company or any Stockholder or establishing, adopting or
entering into or amending any collective bargaining, bonus, incentive, deferred
compensation, profit sharing, stock option or purchase, insurance, pension,
retirement or other employee benefit plan;
(g) refrain from making any change in its borrowing
arrangements or modifying, amending or terminating any of its contracts except
in the ordinary course of business, or waiving, releasing or assigning any
material rights or claims;
(h) use reasonable efforts to prevent any change with respect
to its management and supervisory personnel or banking arrangements;
(i) use reasonable efforts to keep intact its business
organization and to preserve the goodwill of and business relationships with all
suppliers, customers and others having business relations with it, and to
maintain its properties and facilities, including those held under leases, in as
good a working order and condition as on the date hereof, ordinary wear and tear
excepted;
(j) use reasonable efforts to have in effect and maintain at
all times all insurance of the kind, in the amount and with the insurers set
forth in SCHEDULE 3.18 or equivalent insurance with any substitute insurers
approved by Parent;
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(k) refrain from changing accounting policies or procedures
(including, without limitation, procedures with respect to the payment of
accounts payable and collection of accounts receivable) or from making any tax
election or settling or compromising any federal, state, local or foreign income
tax liability;
(l) refrain from entering into any executory agreement,
commitment or undertaking to do any of the activities prohibited by the
foregoing provisions; and
(m) permit Parent and its authorized representatives
(including without limitation Parent's attorneys, accountants, and pension and
environmental consultants) to have full access to all of its properties, assets,
books, records, business files, executive personnel, tax returns, contracts and
documents and furnish to Parent and its authorized representatives such
financial and other information with respect to its business or properties as
Parent may from time to time reasonably request.
4.3 CONSENTS AND APPROVALS. The Company and each of the Stockholders
shall use their best efforts to obtain or cause to be obtained prior to the
Closing Date all necessary consents and approvals to the performance of the
obligations of the Company and the Stockholders under this Agreement, including,
without limitation, the consents and authorizations described in SCHEDULE 3.15
or SCHEDULE 4.3, the assignment and transfer of the lease for the premises
currently occupied by the Company to Newco (which premises are leased in the
name of Andrew Halpern personally) and such other authorizations, waivers,
consents and permits as may be necessary to transfer to Newco and/or to retain
in full force and effect without penalty subsequent to the Effective Time all
contracts, permits, licenses and franchises of or applicable to the businesses
of the Company.
4.4 ACTION BY WRITTEN CONSENT OF STOCKHOLDERS. On the date hereof the
Stockholders will execute and deliver a unanimous written consent in lieu of a
meeting in accordance with applicable law for the purpose of authorizing the
transactions contemplated hereby. The recommendation of the Board of Directors
will remain in effect at all times prior to the Effective Time. The Stockholders
hereby agree to vote all shares of capital stock of the Company held of record
by them or over which they exercise voting control in favor of the Merger, this
Agreement and the consummation of the transactions contemplated hereby and shall
not demand appraisal or dissenter's rights in connection with the merger under
the New York Business Corporation Law.
4.5 EXCLUSIVE DEALING. Unless and until the earlier to occur of the
Effective Time or the termination of this Agreement pursuant to SECTION 9,
neither the Company nor any Stockholder shall, nor shall any of them permit any
director, officer, employee or agent of either of the Company to, directly or
indirectly, (i) take any action to solicit, initiate submission of or encourage,
proposals or offers from any person relating to any acquisition or purchase of
all or (other than in the ordinary course of business) a portion of the assets
of, or any equity interest in, the Company or any merger or business combination
with the Company (an "Acquisition Proposal"), (ii) participate in any
discussions or negotiations regarding an Acquisition Proposal with any person or
entity other than Parent and
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Newco and their representatives, or (iii) otherwise cooperate in any way with,
or assist or participate in, facilitate or encourage, any effort or attempt by
any other person to do any of the foregoing.
4.6 NO SALES OF CAPITAL STOCK. Between the date of this Agreement and
the Effective Time, none of the Stockholders shall sell, exchange, deliver,
assign, pledge, encumber or otherwise transfer or dispose of any Company Stock
owned beneficially or of record by such Stockholder, nor grant any right of any
kind to acquire, dispose of, vote or otherwise control in any manner such shares
of Company Stock; provided, however, that notwithstanding anything to the
contrary stated herein, any transferee, executor, heir, legal representative,
successor or assign of any Stockholder shall be bound by this Agreement.
4.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to the Parent of (i) the occurrence or non-occurrence
of any event the occurrence or non-occurrence of which would be likely to cause
any representation or warranty of the Company or the Stockholders contained
herein to be untrue or inaccurate in any material respect at or prior to the
Effective Time and (ii) any material failure of any Stockholder or the Company
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by such person hereunder. The delivery of any notice pursuant
to this SECTION 4.8 shall not be deemed to (i) modify the representations or
warranties hereunder of the party delivering such notice, (ii) modify the
conditions set forth in SECTION 7 or elsewhere or (iii) limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
4.8 AMENDMENT OF SCHEDULES. The Company and the Stockholders agree
that, with respect to the representations and warranties contained in this
Agreement, the Company and the Stockholders shall have the continuing obligation
until the Effective Time to supplement or amend promptly the Schedules hereto
with respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required to be set forth or
described on the Schedules. Notwithstanding the foregoing sentence, no amendment
or supplement to a Schedule prepared by the Company or the Stockholders that
constitutes or reflects an event or occurrence that would be reasonably likely
to have a material adverse effect may be made unless the Parent consents to such
amendment or supplement.
4.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company
and the Stockholders shall furnish or cause to be furnished to the Parent and
its underwriters all of the information concerning the Company and the
Stockholders reasonably requested by the Parent and its underwriters for
inclusion in, and will cooperate with the Parent and its underwriters in the
preparation of, any Registration Statement required by the Securities and
Exchange Commission and any prospectus included therein (including audited and
unaudited financial statements, prepared in accordance with GAAP, and in form
otherwise reasonably requested by the Parent and its underwriters as suitable
for inclusion in the Registration Statement). The Company and the Stockholders
agree to promptly advise the Parent if at any time during the period in which a
prospectus relating to the IPO is required to be delivered under the Securities
Act, any information contained in the prospectus
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concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Insofar as the information requested relates solely to the Company
or the Stockholders, each of the Company and the Stockholders jointly and
severally represents and warrants that the Registration Statement will not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
4.10 FURTHER ASSURANCES. The Company and Stockholders hereto agree to
execute and deliver, or cause to be executed and delivered, such further
instruments or documents or take such other action as may be reasonably
necessary or convenient to carry out the transactions contemplated hereby.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND NEWCO.
5.1 MAKING OF REPRESENTATIONS AND WARRANTIES. As of the date hereof and
as of the Closing Date and the Effective Time, the Parent and Newco hereby
represent and warrant to the Stockholders and the Company as set forth in this
SECTION 5.
5.2 ORGANIZATION OF THE PARENT AND NEWCO. The Parent and Newco are
corporations duly organized, validly existing and in good standing under the
laws their respective state of incorporation with full corporate power and
authority to conduct their respective businesses in the manner as now conducted.
5.3 AUTHORITY. All necessary corporate action has been taken by the
Parent and Newco to authorize the execution, delivery and performance of this
Agreement and each agreement, document and instrument to be executed and
delivered by the Parent and/or Newco pursuant to this Agreement. This Agreement
and each agreement, document and instrument to be executed and delivered by the
Parent and/or Newco pursuant to this Agreement (to the extent it contains
obligations to be performed by the Parent and/or Newco) constitutes, or when
executed and delivered by the Parent and/or Newco will constitute, valid and
binding obligations of the Parent and/or Newco enforceable in accordance with
their respective terms.
5.4 NO CONFLICTS. The execution, delivery and performance by the Parent
and Newco of this Agreement and each such other agreement, document and
instrument: (i) does not and will not violate any provision of the Certificate
of Incorporation or bylaws of the Parent or Newco; and (ii) will not result in a
breach of, constitute a default under, accelerate any obligation under, or give
rise to a right of termination of any indenture or loan or credit agreement or
any other agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination or
arbitration award, whether written or oral, to which the Parent or Newco is a
party or by which the property of the Parent or Newco is bound or affected, or
result in the creation or imposition of any mortgage, pledge, lien, security
interest or other charge or encumbrance on any of the assets of the Parent or
Newco, except where such breach, default, acceleration or right of
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termination would not have a material adverse effect on the properties, assets,
business, financial condition or prospects of the Parent or Newco, and would not
result in the creation or imposition of any mortgage, pledge, lien, security
interest or other charge or encumbrance on any of the assets of the Parent or
Newco.
5.5 PARENT STOCK. The Parent Stock to be delivered to the Stockholders
at the Effective Time, when delivered in accordance with the terms of this
Agreement, will constitute valid and legally issued shares of the Common Stock
of the Parent, fully paid and non-assessable. Such Parent Stock will constitute
restricted securities and will be subject to the lock-up provisions and other
transfer restrictions imposed under this Agreement and under applicable federal
and state securities laws as described in SECTION 9 below.
5.6 LITIGATION. There is no litigation or governmental or
administrative proceeding or investigation pending or threatened against the
Parent or Newco which may have an adverse effect on the properties, assets,
business, financial condition or prospects of the Parent or Newco or which would
prevent or hinder the consummation of the transactions contemplated by this
Agreement.
5.7 COMPLIANCE WITH LAWS. Neither the Parent nor Newco has received
notice of a violation or alleged violation of applicable statutes, ordinances,
orders, rules and regulations promulgated by any federal, state, municipal or
other governmental authority, which violation or alleged violation would have a
material adverse effect on the business of the Parent or Newco.
SECTION 6. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARENT AND NEWCO.
6.1 INTRODUCTION. The obligations of the Parent and Newco to consummate
this Agreement and the transactions contemplated hereby are subject to the
fulfillment, prior to or at the Closing, of the conditions set forth in this
SECTION 6.
6.2 EXAMINATION OF FINANCIAL STATEMENTS. Prior to the Closing Date, the
Parent shall have had sufficient time to review the unaudited balance sheets of
the Company as of the last day of the month ended immediately prior to the
Closing Date (if December 31, including year-end adjustments) and the unaudited
statements of income, cash flow and stockholder's equity for the period then
ended, disclosing no material change in the financial condition of the Company
or the results of its operations from the financial statements originally
furnished by the Company as set forth in SCHEDULE 3.7. In addition, prior to the
Closing Date, the Parent and Newco shall have had sufficient opportunity to
review the audited balance sheet of the Company as of December 31, 1998 and the
audited statements of income, cash flow and stockholders' equity for the years
ended December 31, 1998 and December 31, 1997 as audited by the Parent's
accounting firm in accordance with GAAP in connection with the contemplated IPO,
and the Parent shall be satisfied in all respects with such financial
information, and such information shall indicate that the Company's gross
revenues for the year ended December 31, 1998 shall exceed $397,000, and the
aggregate stockholder's equity as of December 31, 1998 shall exceed $1000.
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6.3 NO MATERIAL ADVERSE CHANGE. No material adverse change in the
results of operations, financial position or business of the Company shall have
occurred and the Company shall not have suffered any material loss or damages to
any of its properties or assets, whether or not covered by insurance, since the
Company Balance Sheet Date, which change, loss or damage materially affects or
impairs the ability of the Company to conduct its business; and the Parent shall
have received on the Closing Date a certificate signed by the President of the
Company and each of the Stockholders to such effect.
6.4 DUE DILIGENCE AND REGULATORY REVIEW. The Parent (and KPMG LLP)
shall have completed to its satisfaction a due diligence investigation of the
Company and its prospects, business, assets, contracts, rights, liabilities and
obligations, including a review of the practices and procedures of the Company
with respect to compliance with contracts and federal, state and local laws and
regulations governing the operations of the Company. Such review shall be
satisfactory in all respects to the Parent, in its sole discretion.
6.5 OPINION OF COUNSEL. The Parent shall have received an opinion from
Fried & Company and/or local counsel to the Company and the Stockholders, dated
the Closing Date, in form and substance satisfactory to the Parent, to the
effect that with respect to the Company:
(a) the Company has been duly organized and is validly
subsisting in good standing under the laws of the State of New York.
(b) the authorized and outstanding capital stock of the
Company is as represented by the Stockholders in this Agreement and each share
of such stock has been duly and validly authorized and issued, is fully paid and
nonassessable and was not issued in violation of the preemptive rights of any
stockholder;
(c) to the knowledge of such counsel, the Company does not
have any outstanding options, warrants, calls, conversion rights or other
commitments of any kind to issue or sell any of its capital stock;
(d) this Agreement has been duly authorized, executed and
delivered by the Company and the Stockholders and constitutes a valid and
binding agreement of the Company and the Stockholders enforceable against them
in accordance with its terms except as such enforceability may be subject to
bankruptcy, moratorium, insolvency, reorganization, arrangement and other
similar laws relating to or affecting the rights of creditors and except (i) as
the same may be subject to the effect of general principles of equity and (ii)
that no opinion need be expressed as to the enforceability of indemnification
provisions included herein;
(e) except to the extent set forth on SCHEDULE 3.16, to the
knowledge of such counsel, there are no claims, actions, suits or proceedings
pending, or threatened against or affecting
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the Company, at law or in equity, or before or by any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality wherever located;
(f) no notice to, consent, authorization, approval or order of
any court or governmental agency or body or of any other third party is required
in connection with the execution, delivery or consummation of this Agreement by
any Stockholders or for the transfer to the Parent of the Company Stock;
(g) the execution of this Agreement and the performance of the
obligations hereunder will not violate or result in a breach or constitute a
default under any of the terms or provisions of the Company's Certificate of
Incorporation or the bylaws of the Company or of any lease, instrument, license,
permit or any other agreement to which the Company is a party or by which the
Company or any Stockholder is bound; and
(h) any other matters incident to the matters set forth herein
as reasonably required by the Parent.
6.6 ADDITIONAL LIABILITIES AND OBLIGATIONS. The Stockholders shall have
delivered to the Parent a certificate dated the Closing Date, setting forth (i)
all liabilities and obligations of the Company arising since the Company Balance
Sheet Date and (ii) showing all material contracts and agreements, together with
copies thereof, entered into by the Company since the Company Balance Sheet
Date.
6.7 GOOD STANDING CERTIFICATES; CERTIFIED COPY OF THE CERTIFICATE OF
INCORPORATION. The Company shall have delivered to the Parent certificates,
dated as of a date no earlier than twenty days prior to the Closing Date, duly
issued by the Secretary of State and the Department of Revenue of the State of
New York and of any other state in which the Company is authorized to do
business, showing that the Company is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
the Company for all periods prior to the dates of such certificates have been
filed and paid. The Company shall also have delivered to the Parent prior to the
Closing a recent copy of its Certificate of Incorporation and all amendments
thereto duly certified by the Secretary of State of New York.
6.8 REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the representations
and warranties of the Company and the Stockholders contained in SECTION 3 and
elsewhere in this Agreement shall be true and correct on and as of the Closing
Date ( and the Effective Time), with the same effect as though made on and as of
the Closing Date ( and the Effective Time); the Company and the Stockholders
shall, on or before the Closing Date, have performed and satisfied all
agreements and conditions hereunder which by the terms hereof are to be
performed and satisfied by the Company or the Stockholders on or before the
Closing Date; and the Company and the Stockholders shall have delivered to the
Parent a certificate dated the Closing Date (and dated the Effective Time if
requested
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by the Parent) signed by the Company's President and by each of the Stockholders
to the foregoing effect.
6.9 APPROVALS AND CONSENTS. The Company and the Stockholders shall have
made all filings with and notifications of governmental authorities, regulatory
agencies and other entities required to be made by them in connection with the
execution and delivery of this Agreement, the performance of the transactions
contemplated hereby and the continued operation of the businesses of the Company
subsequent to the Effective Time, and the Company and the Parent shall have
received all required authorizations, waivers, consents and permits to permit
the consummation of the transactions contemplated by this Agreement, in form and
substance reasonably satisfactory to the Parent, from all third parties,
including, without limitation, approvals required under federal and state
securities laws and/or the securities and Exchange Commission, state "Blue Sky"
laws, other applicable governmental authorities and regulatory agencies,
lessors, lenders and contract parties, required in connection with the Merger or
the Company's permits, leases, licenses and franchises, to avoid a breach,
default, termination, acceleration or modification of any material agreement,
contract, instrument, mortgage, lien, lease, permit, authorization, order, writ,
judgment, injunction, decree, determination or arbitration award as a result of
the execution or performance of this Agreement, or otherwise in connection with
the execution and performance of this Agreement.
6.10 NO ACTIONS OR PROCEEDINGS. No action or proceeding by any court,
administrative body or governmental agency shall have been instituted or
threatened which would enjoin, restrain or prohibit, or would likely result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions contemplated by this Agreement, and which would in the
reasonable judgment of the Parent or Newco make it inadvisable to consummate
such transactions, and no law or regulation shall be in effect and no court
order shall have been entered in any action or proceeding instituted by any
party which enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions as contemplated by this Agreement.
6.11 PROCEEDINGS SATISFACTORY TO NEWCO AND THE PARENT. All proceedings
to be taken by the Company and the Stockholders in preparation for effecting the
Merger at the Effective Time and all certificates, opinions, instruments and
other documents required to effect the transaction contemplated hereby
reasonably requested by Newco and the Parent shall be reasonably satisfactory in
form and substance to Newco and the Parent and their counsel.
6.12 EMPLOYMENT AGREEMENTS. Andrew Halpern shall have executed and
delivered an individual employment agreement with Newco in the form attached
hereto as EXHIBIT 6.12(a), and Joann Halpern shall have executed and delivered
an individual employment agreement with Newco in the form attached hereto as
EXHIBIT 6.12(b).
6.13 EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement prepared and filed in connection with the Parent's contemplated IPO
shall have been declared effective by the Securities and Exchange Commission.
The intent of the parties hereto is to hold the Closing for the transactions
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contemplated hereby as described in SECTION 1.7 within 2 days of the final
pricing of the shares of the Parent to be offered by the underwriter(s) to the
public in the IPO, to deliver all closing documents and certificates to counsel
for the Parent at the Closing to hold in escrow, and to direct such counsel to
release from escrow all such documents and certificates and to effect the Merger
and deliver the Merger Consideration at the Effective Time which shall be
concurrently with the IPO closing which shall occur on or before June 30, 1999.
SECTION 7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY
AND THE STOCKHOLDERS.
7.1 INTRODUCTION. The obligations of the Company and the Stockholders
to consummate this Agreement and the transactions contemplated hereby are
subject to the fulfillment, prior to or at the Closing Date, of the following
conditions (any one or more of which may be waived in whole or in part by the
Company and the Stockholders):
7.2 REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the representations
and warranties of the Parent and Newco contained in SECTION 5 shall be true and
correct in all material respects on and as of the Closing Date (and as of the
Effective Time), with the same effect as though made on and as of the Closing
Date (and as of the Effective Time). The Parent and Newco shall, on or before
the Closing Date, have performed and satisfied all agreements and conditions
hereunder which by the terms hereof are to be performed and satisfied by the
Parent and Newco on or before the Closing Date; and the Parent and Newco shall
have delivered to the Company a certificate signed by the President of the
Parent and of Newco and dated as of the Closing Date (and as of the Effective
Time if requested by counsel for the Company and the Stockholders) certifying to
the foregoing effect.
7.3 NO ACTIONS OR PROCEEDINGS. No action or proceeding by any court,
administrative body or governmental agency shall have been instituted or
threatened which would enjoin, restrain or prohibit, or would likely result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions as contemplated by this Agreement, and which would in the
reasonable judgment of the Company make it inadvisable to consummate such
transactions, and no law or regulation shall be in effect and no court order
shall have been entered in any action or proceeding instituted by any party
which enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions as contemplated by this Agreement.
7.4 EMPLOYMENT AGREEMENTS. Newco shall have executed and delivered (i)
an individual employment agreement with Andrew Halpern in the form attached
hereto as EXHIBIT 6.12(a), and (ii) an individual employment agreement with
Joann Halpern in the form attached hereto as EXHIBIT 6.12(b).
7.5 EFFECTIVENESS OF REGISTRATION STATEMENT AND IPO CLOSING. The
Registration Statement prepared and filed in connection with the Parent's
contemplated IPO shall have been declared effective by the Securities and
Exchange Commission. The intent of the parties hereto is to hold the Closing for
the transactions contemplated hereby as described in SECTION 1.7 within 2 days
of the final pricing of the shares of the Parent to be offered by the
underwriter(s) to the public in the IPO, to deliver all
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closing documents and certificates to counsel for the Parent at the Closing to
hold in escrow, and to direct such counsel to release from escrow all such
documents and certificates and to effect the Merger and deliver the Merger
Consideration at the Effective Time which shall be concurrently with the IPO
closing which shall occur on or before June 30, 1999.
SECTION 8. PARENT STOCK--TRANSFER RESTRICTIONS.
8.1 50% LOCK-UP. In addition to applicable federal and state securities
laws restricting the public sale of the Parent Stock to be issued to the
Stockholders hereunder as set forth in SECTION 8.2 below, the Stockholders
hereby irrevocably agree that for a period of two years after the Closing Date,
they will not to (i) offer, pledge, sell or otherwise transfer directly or
indirectly, more than 50% of the shares of Parent Stock received hereunder (as
adjusted for any stock splits, recapitalizations, mergers or other similar
events post-IPO), or (ii) enter into any agreement that transfers, in whole or
in part, any of the economic consequences of ownership of more than 50% of the
shares of Parent Stock received hereunder (as adjusted for any stock splits,
recapitalizations, mergers or other similar events post-IPO). The Stockholders
agree that the foregoing shall be binding upon the Stockholders' successors,
assigns, heirs, and personal representatives.
8.2 UNREGISTERED STOCK; INVESTMENT INTENT. The Stockholders acknowledge
and agree that the shares of Parent Stock to be delivered to the Stockholders
pursuant to this Agreement have not been and will not be registered under the
Securities Act of 1933, as amended (the "Act") and therefore may not be resold
without compliance with the Act. The Stockholders represent and warrant that the
Parent Stock to be acquired by Stockholders pursuant to this Agreement is being
acquired solely for their own account, for investment purposes only, and with no
present intention of distributing, selling or otherwise disposing of it in
connection with a distribution. The Stockholders covenant, warrant and represent
that none of the shares of Parent Stock issued to such Stockholders will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the Act and the rules and regulations of the Securities and Exchange
Commission and applicable state securities laws.
8.3 ABLE TO BEAR RISK; SOPHISTICATED INVESTORS; INFORMATION. The
Stockholders represent and warrant that they are able to bear the economic risk
of an investment in Parent Stock acquired pursuant to this Agreement and can
afford to sustain a total loss of such investment. They further represent and
warrant that they (i) fully understand the nature, scope and duration of the
limitations on transfer contained in this Agreement and (ii) have such knowledge
and experience in financial and business matters that they are capable of
evaluating the merits and risks of the proposed investment and therefore have
the capacity to protect their own interests in connection with the acquisition
of the Parent Stock. The Stockholders represent and warrant that they have had
an adequate opportunity to ask questions and receive answers from the officers
of the Parent concerning any and all matters relating to the acquisition of
Parent Stock as contemplated by this Agreement including, without limitation,
the background and experience of the officers and directors of the Parent, the
plans for the operations of the business of the Parent, and any plans for
additional acquisitions and the like. The
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Stockholders have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
8.4 RESTRICTIVE LEGENDS. The certificates evidencing the Parent Stock
to be received by the Stockholders hereunder will bear legends substantially in
the form set forth below and containing such other information as the Parent may
deem appropriate. References in such legend to "THE COMPANY" shall refer to the
Parent.
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY
STATE SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES
UNDER THE 1933 ACT AND ANY STATE SECURITIES OR BLUE SKY LAWS, UNLESS,
IN THE OPINION (WHICH SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO
THE COMPANY) OF COUNSEL SATISFACTORY TO THE COMPANY, SUCH REGISTRATION
IS NOT REQUIRED.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE FURTHERMORE SUBJECT TO A
LOCK-UP AGREEMENT WITH THE COMPANY DATED AS OF ___________ , A COPY OF
WHICH MAY BE OBTAINED BY CONTACTING THE SECRETARY OF THE COMPANY.
In addition, such certificates shall also bear such other legends as
counsel for the Parent reasonably determines are required under the applicable
laws of any state.
SECTION 9. TERMINATION OF AGREEMENT; EFFECT OF TERMINATION.
9.1 TERMINATION. This Agreement may be terminated any time prior to the
Closing Date solely by:
(a) mutual consent of the boards of directors of the Parent
and the Company;
(b) either the Stockholders and the Company, on the one
hand, or by the Parent and Newco, on the other hand, if
(i) the transactions contemplated by this
Agreement to take place at the Effective
Time shall not have been consummated by June 30,
1999, unless the failure of such transactions to
be consummated is due to the willful failure of
the party seeking to terminate this Agreement
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to perform any of its obligations under this
Agreement to the extent required to be
performed by it prior to or on the Effective
Time; or
(ii) if a material breach or default shall
be made by the other party in the observance
of or in the due and timely performance of
any of the covenants or agreements contained
herein, and the curing of such default shall
not have been made on or before the Closing Date
9.2 LIABILITIES IN THE EVENT OF TERMINATION. The termination of this
Agreement will in no way limit any obligation or liability of any party based on
or arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this Agreement
including, but not limited to, legal and audit costs and out of pocket expenses.
SECTION 10. NON-COMPETITION.
For a period of two (2) years from and after the later of the successful
closing of the IPO or the Effective Time, the Stockholders will not (i) engage
directly or indirectly in any business that the Company conducts as of the
Effective Time in the United States; (except that ownership of less than 2% of
the outstanding stock of any competing publicly traded corporation shall not
constitute a violation of this covenant not to compete) or (ii) solicit,
directly or indirectly, any customers, clients, accounts, officers, employees,
agents or representatives of the Company, Newco or the Parent. If the final
judgment of a court of competent jurisdiction declares that any term or
provision of this Section is invalid or unenforceable, the parties hereto agree
that the court making the determination of invalidity or unenforceability shall
have the power to reduce the scope, duration, or area of the term or provision,
to delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified after
the expiration of the time within which the judgment may be appealed. This
covenant is conditioned upon the successful closing of the IPO and the payment
of the Merger Consideration (except for the escrow shares) to the Stockholders
at the Effective Time.
SECTION 11. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
11.1 THE STOCKHOLDERS. The Stockholders recognize and acknowledge that
they have had in the past, currently have and in the future may have access to
certain confidential information relating to the Company, the Parent and Newco,
including, but not limited to, operational policies, customer lists, and pricing
and cost policies, that are valuable, special and unique assets of the Company,
the Parent and Newco. The Stockholders agree that they will not use or disclose
such confidential information to any person, firm, corporation, association or
other entity for any purpose or reason whatsoever, except (a) to authorized
representatives of the Parent and Newco who need to know such information in
connection with the transactions contemplated hereby, who have been informed of
the confidential nature of such information and who have agreed to keep such
information confidential as provided
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hereby, and (b) following the Effective Time, such information may be disclosed
by the Stockholders as is required in the course of performing his or her duties
for the Parent or the Surviving Corporation unless (i) such information becomes
known to the public generally through no breach by the Stockholders of this
covenant, (ii) disclosure is required by law or the order of any governmental
authority under color of law or is necessary in order to secure a consent or
approval to consummate the transactions contemplated hereby, provided, that
prior to disclosing any information pursuant to this clause (ii), the
Stockholders shall give prior written notice thereof to the Parent and provide
the Parent with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party and the
same prior disclosure set forth immediately above is given. In the event of a
breach or threatened breach by the Stockholders of the provisions of this
section, the Parent shall be entitled to an injunction restraining the
Stockholders from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting the Parent from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event that the transactions
contemplated herein are not consummated, the Stockholders shall return to the
Parent within a reasonable time all documents containing confidential
information about the Parent.
11.2 THE PARENT AND NEWCO. The Parent and Newco recognize and
acknowledge that they had in the past and currently have access to certain
confidential information relating to the Company, such as operational policies,
customer lists, and pricing and cost policies, that are valuable, special and
unique assets of the Company. The Parent and Newco agree that, prior to the
Effective Time, or if the transactions contemplated by this Agreement are not
consummated, they will not use or disclose such confidential information to
their own benefit except in furtherance of the transactions contemplated by this
Agreement or disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to the Stockholders and to authorized representatives of the Company
or the Parent or Newco who need to know such information in connection with the
transactions contemplated hereby, who have been informed of the confidential
nature of such information and who have agreed to keep such information
confidential as provided hereby, unless (i) such information becomes known to
the public generally through no breach by the Parent or Newco of this covenant,
(ii) disclosure is required by law or the order of any governmental authority
under color of law or is necessary in order to secure a consent or approval to
consummate the transactions contemplated hereby, provided, that prior to
disclosing any information pursuant to this clause (ii), the Parent and Newco
shall, if possible, give prior written notice thereof to the Company and the
Stockholders and provide the Company and the Stockholders with the opportunity
to contest such disclosure, or (iii) the disclosing party reasonably believes
that such disclosure is required in connection with the defense of a lawsuit
against the disclosing party and the same prior disclosure set forth immediately
above is given. In the event of a breach or threatened breach by the Parent or
Newco of the provisions of this Section, the Company and the Stockholders shall
be entitled to an injunction restraining the Parent and Newco from disclosing,
in whole or in part, such confidential information. Nothing herein shall be
construed as prohibiting the Company and the Stockholders from pursuing any
other available remedy for such breach or threatened breach, including the
recovery of damages. In the event that the transactions contemplated herein are
not consummated, the Parent and Newco shall
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return to the Company within a reasonable time all documents containing
confidential information about the Company.
11.3 DAMAGES. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants in SECTIONS 11.1 and 11.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
11.4 SURVIVAL. The obligations of the parties under this ARTICLE 11
shall survive notwithstanding either the termination of this Agreement or the
consummation of the transactions contemplated herein on the Effective Time.
SECTION 12. INDEMNIFICATION.
12.1 INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders, jointly and
severally on behalf of themselves and their respective successors, executors,
administrators, estates, heirs and permitted assigns, agree subsequent to the
Effective Time to indemnify and hold harmless the Parent, the Surviving
Corporation and their respective officers, directors, employees and agents
(individually, a "Parent Indemnified Party" and collectively, the "Parent
Indemnified Parties") from and against and in respect of all losses,
liabilities, obligations, damages, deficiencies, actions, suits, proceedings,
demands, assessments, orders, judgments, fines, penalties, costs and expenses
(including the reasonable fees, disbursements and expenses of attorneys,
accountants and consultants) of any kind or nature whatsoever (whether or not
arising out of third-party claims and including all amounts paid in
investigation, defense or settlement of the foregoing) sustained, suffered or
incurred by or made against any Parent Indemnified Party (a "Loss" or "Losses"),
arising out of, based upon or in connection with:
(a) any breach of any representation or warranty made by the
Company or the Stockholders in this Agreement or in any schedule, exhibit,
certificate, agreement or other instrument delivered under or in connection with
this Agreement, or by reason of any claim, action or proceeding asserted or
instituted arising out of any matter or thing covered by any such
representations or warranties (collectively, "Parent Representation and Warranty
Claims");
(b) any breach of any covenant or agreement made by the
Company or any Stockholder in this Agreement or in any schedule, exhibit,
certificate, agreement or other instrument delivered under or in connection with
this Agreement, or by reason of any claim, action or proceeding asserted or
instituted arising out of any matter or thing covered by any such covenant or
agreement; or
(c) with respect to taxes of the Company incurred with respect
to any Pre-Closing Tax Period (as defined below) to the extent such liability
exceeds the amounts accrued therefor and disclosed to the Parent in SCHEDULE 3.7
hereto (it being understood that such Schedule shall be updated as of the
Closing to reflect tax accruals as of such date consistent with the Company's
past practices);
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the term "Pre-Closing Tax Period" shall mean all taxable periods ending on or
before the Effective Time and the portion (ending on the Effective Time) of any
taxable period that includes (but does not end on) the Effective Time.
Claims under clauses (a) through (c) of this SECTION 12.1 are hereinafter
collectively referred to as "Parent Indemnifiable Claims". The rights of Parent
Indemnified Parties to recover indemnification in respect of any occurrence
referred to in clauses (b) and (c) of this SECTION 12.1 shall not be limited by
the fact that such occurrence may not constitute an inaccuracy in or breach of
any representation or warranty referred to in clause (a) of this SECTION 12.1.
12.2 LIMITATIONS ON INDEMNIFICATION BY THE COMPANY STOCKHOLDERS.
Notwithstanding the provisions of SECTION 12.1, the Company Stockholders shall
not be obligated to indemnify Parent Indemnified Parties except to the extent
the cumulative amount of Losses to such Parent Indemnifiable Parties exceeds Ten
Thousand Dollars ($10,000) (the "Parent threshold") whereupon the full amount of
such Losses shall be recoverable in accordance with the terms hereof.
12.3 NOTICE; DEFENSE OF CLAIMS.
Promptly after receipt by a Parent Indemnified Party of notice of any
claim, liability or expense to which the indemnification obligations hereunder
would apply, the Parent Indemnified Party shall give notice thereof in writing
to the Stockholders, but the omission to so notify the Stockholders promptly
will not relieve the Stockholders from any liability except to the extent that
the Stockholders shall have been prejudiced as a result of the failure or delay
in giving such notice. Such notice shall state the information then available
regarding the amount and nature of such claim, liability or expense and shall
specify the provision or provisions of this Agreement under which the liability
or obligation is asserted. If within twenty (20) days after receiving such
notice the Stockholders give written notice to the Parent Indemnified Party
stating that (i) it would be liable under the provisions hereof for indemnity in
the amount of such claim if such claim were successful and (ii) that it disputes
and intends to defend against such claim, liability or expense at its own cost
and expense, then counsel for the defense shall be selected by the Stockholders
(subject to the consent of the Parent Indemnified Party which consent may not be
unreasonably withheld) and the Parent Indemnified Party shall not be required to
make any payment with respect to such claim, liability or expense as long as the
Stockholders are conducting a good faith and diligent defense at their own
expense; provided, however, that the assumption of defense of any such matters
by the Stockholders shall relate solely to the claim, liability or expense that
is subject or potentially subject to indemnification. The Stockholders shall
have the right, with the consent of the Parent Indemnified Party, which consent
shall not be unreasonably withheld, to settle any Parent Indemnified Claims by
third parties which are susceptible to being settled provided its obligation to
indemnify the Parent Indemnified Party therefor will be fully satisfied. The
Stockholders shall keep the Parent Indemnified Party apprised of the status of
the claim, liability or expense and any resulting suit, proceeding or
enforcement action, shall furnish the Parent Indemnified Party with all
documents and information that the Parent Indemnified Party shall reasonably
request and shall consult with the Parent Indemnified Party prior to acting on
major
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matters, including settlement discussions. Notwithstanding anything herein
stated, the Parent Indemnified Party shall at all times have the right to fully
participate in such defense at its own expense directly or through counsel;
provided, however, if the named parties to the action or proceeding include both
the Stockholders and the Parent Indemnified Party and representation of both
parties by the same counsel would be inappropriate under applicable standards of
professional conduct, the expense of separate counsel for the Parent Indemnified
Party shall be paid by the Stockholders. If no such notice of intent to dispute
and defend is given by the Stockholders, or if such diligent good faith defense
is not being or ceases to be conducted, the Parent Indemnified Party shall, at
the expense of the Stockholders, undertake the defense of (with counsel selected
by the Parent Indemnified Party), and shall have the right to compromise or
settle (exercising reasonable business judgment), such claim, liability or
expense. If such claim, liability or expense is one that by its nature cannot be
defended solely by the Stockholders, then the Parent Indemnified Party shall
make available all information and assistance that the Stockholders may
reasonably request and shall cooperate with the Stockholders in such defense.
SECTION 13. MISCELLANEOUS.
13.1 LAW GOVERNING. This Agreement shall be construed under and
governed by the internal laws of the State of New York without regard to its
conflict of laws provisions.
13.2 NOTICES. Any notice, request, demand other communication required
or permitted hereunder shall be in writing and shall be deemed to have been
given (i) if delivered or sent by facsimile transmission, upon receipt, or (ii)
if sent by registered or certified mail upon the sooner of receipt or the
expiration of three days after deposit in United States Post Office facilities
properly addressed with postage prepaid. all notices will be sent to the
addresses set forth below or to such other address as such party may designate
by notice to each other party hereunder:
TO PARENT OR NEWCO:
InSite Internet, Inc.
1100 First Avenue
Spring Lake, NJ 07762
ATTN: Mark E. Munro, President and Chief Executive Officer
Phone: 732-280-6407
Fax: 908-449-8823
with a copy to:
Duffy & Sweeney, LLP
300 Turks Head Building
Providence, RI 02903
ATTN: Michael F. Sweeney, Esq.
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Phone: (401) 455-0700
Fax: (401) 455-0701
TO THE COMPANY:
Ulsternet, Inc.
56 Scism Road
Tivoli, NY 12583
ATTN: Andrew Halpern
Phone: 914-339-8537
Fax: 914-756-3019
with a copy to:
Fried & Company
700 Thirteenth Street, N.W., Suite 325
Washington, DC 20005
Attn: Jeffrey S. Fried, Esq. & Mark A Garfinkel, Esq.
Phone: 202-331-3900
Fax: 202-331-3905
TO THE STOCKHOLDERS:
Andrew Halpern Lawrence McCloskey
c/o Ulsternet, Inc. 214 Glenerie Blvd.
56 Scism Road Saugerties, NY 12477
Tivoli, NY 12583 Phone: 914-336-5092
Phone: 914-339-8537
Fax: 914-756-3019
With a copy to:
Fried & Company
700 Thirteenth Street, N.W., Suite 325
Washington, DC 20005
Attn: Jeffrey S. Fried, Esq. & Mark A Garfinkel, Esq.
Phone: 202-331-3900
Fax: 202-331-3905
Any notice given hereunder may be given on behalf of any party by its counsel or
other authorized representative.
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13.3 ENTIRE AGREEMENT. This Agreement, including any schedules, annexes
and/or exhibits referred to herein and the other writings specifically
identified herein or contemplated hereby or delivered in connection with the
transactions contemplated hereby, is complete, reflects the entire agreement of
the parties with respect to its subject matter, and supersedes all previous
written or oral negotiations, commitments and writings.
13.4 ASSIGNABILITY. This Agreement may not be assigned or delegated by
any party hereto without the prior written consent of all parties hereto. No
Stockholder may assign his, her or its rights or delegate his, her or its
obligations hereunder without the prior written consent of the Parent. This
Agreement and the obligations of the parties hereunder shall be binding upon and
enforceable by, and shall inure to the benefit of, the parties hereto and their
respective successors, executors, administrators, estates, heirs and permitted
assigns, and no others.
13.5 ARBITRATION; JURISDICTION; VENUE; ATTORNEY'S FEES. Each party
hereto agrees that any dispute regarding this Agreement shall be submitted to
arbitration to and shall be resolved in accordance with the rules of the
JAMS/Endispute for expedited cases then in effect. The arbitrator(s) shall be
mutually selected by the parties or in the event the parties cannot mutually
agree, then appointed by JAMS/Endispute. Any arbitration shall be held within a
thirty (30) mile radius of New York City and the arbitrator(s) shall apply New
York law. Judgment upon any award rendered by the arbitrator(s) shall be final
and may be entered in any court of competent jurisdiction. Notwithstanding the
foregoing, the Parent and Newco shall have the absolute right to obtain
equitable remedies in any state court of competent jurisdiction in the State of
New York or in the United States District Court for the Southern District of New
York. Each party irrevocably submits to and accepts the exclusive jurisdiction
of each of such courts and waives any objection (including any objection to
venue or any objection based upon the grounds of forum non conveniens) which
might be asserted against the bringing of any such action, suit or other legal
proceeding in such courts. The court and/or arbitrator(s) shall award costs and
expenses (including reasonable attorney's fees) to the prevailing party and/or
parties in any litigation or arbitration.
13.6 CAPTIONS AND GENDER. The captions in this Agreement are for
convenience only and shall not affect the construction or interpretation of any
term or provision hereof. The use in this Agreement of the masculine pronoun in
reference to a party hereto shall be deemed to include the feminine or neuter
pronoun, as the context may require.
13.7 CERTAIN DEFINITIONS. for purposes of this Agreement, the term:
(a) "Affiliate" of a person shall mean a person that directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the first mentioned person;
(b) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or
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cause the direction of the management policies of a person, whether through the
ownership of stock, as trustee or executor, by contract or credit arrangement or
otherwise; and
(c) "person" means an individual, corporation, partnership,
association, trust or any unincorporated organization.
13.8 EXECUTION IN COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same document.
13.9 AMENDMENTS; WAIVERS. This Agreement may not be amended or
modified, nor may compliance with any condition or covenant set forth herein be
waived, except by a writing duly and validly executed by the Parent, Newco, the
Company and the Stockholders, or, in the case of a waiver, the party waiving
compliance. No delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any such right, power or privilege, or any single or
partial exercise of any such right, power or privilege, preclude any further
exercise thereof or the exercise of any other such right, power or privilege.
13.10 SURVIVAL OF WARRANTIES. All representations, warranties,
agreements, covenants and obligations herein or in any schedule or certificate
delivered by any party incident to the transactions contemplated hereby are
material and may be relied upon by the party receiving the same and shall
survive for a period ending two (2) years after the Closing Date.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date set forth above by their duly authorized
representatives.
PARENT
InSite Internet, Inc.
ATTEST:
/s/ Michael F. Sweeney By: /s/ Mark E. Munro
- ----------------------------------- -------------------------------------
Michael F. Sweeney, Asst. Secretary Mark E. Munro, President
and Chief Executive Officer
INSITE INTERNET IV ACQUISITION CO., INC.
ATTEST:
/s/ Michael F. Sweeney By: /s/ Mark E. Munro
- ----------------------------------- -------------------------------------
Michael F. Sweeney, Asst. Secretary Mark E. Munro, President
and Chief Executive Officer
COMPANY
Ulsternet, Inc.
ATTEST:
/s/ Joann Halpern By: /s/ Andrew M. Halpern
- ----------------------------------- -------------------------------------
Secretary Andrew M. Halpern, President
WITNESS: STOCKHOLDERS
/s/ Joshua C. Tangeman By: /s/ Andrew M. Halpern
- ----------------------------------- -------------------------------------
Andrew Halpern
WITNESS:
/s/ Joshua C. Tangeman /s/ Lawrence McCloskey
- ----------------------------------- -------------------------------------
Lawrence McCloskey
MUNRO INSITE DOCS MERGER AGREEMENT ULSTERNET.DOC
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EXHIBIT 1.3
BOARD OF DIRECTORS/OFFICERS
INSITE INTERNET IV ACQUISITION CO., INC.
BOARD OF DIRECTORS
Mark Munro
Keith London
OFFICERS
Mark E. Munro--President & Treasurer
S. Keith London--Secretary
Michael F. Sweeney--Assistant Secretary
Upon the filing of the Merger Certificate to effect the Merger of the Company
into Newco at the Closing, the Board of Directors of Newco will execute a
consent vote electing Andrew Halpern as President of the Surviving Corporation.
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EXHIBIT 1.6
ESCROW AGREEMENT
This ESCROW AGREEMENT is entered into as of the ____ day of ______, 1999
by and among: Ulsternet, Inc., a New York corporation (the "Company"); Andrew
Halpern and Lawrence McCloskey, the stockholders of the Company (collectively,
the "Stockholders"); InSite Internet IV Acquisition Co., Inc., a New York
corporation ("Newco"); InSite Internet, Inc., a Delaware corporation ("InSite");
and Duffy & Sweeney, LLP, a Rhode Island limited liability partnership, as
escrow agent (the "Escrow Agent").
WHEREAS, the Company, the Stockholders, Newco and InSite are parties to
an Agreement and Plan of Merger and Reorganization dated as of _______, 1999
(the "Merger Agreement"), relating to the merger of the Company with and into
Newco; and
WHEREAS, pursuant to the Merger Agreement, the Stockholders will deliver
the number of shares of common stock of InSite, par value $.01 per share,
identified on SCHEDULE 1 hereto (the "Escrow Shares"), into escrow to be held by
an escrow agent on behalf of the Stockholders as provided under the Merger
Agreement; and
WHEREAS, the parties hereto wish to specify the terms and conditions on
which the Escrow Shares, together with all income thereon, will be held,
invested and disbursed; and
WHEREAS, the Escrow Agent has expressed its willingness to act as escrow
agent hereunder.
NOW, THEREFORE, in consideration of the mutual undertakings and
covenants contained in this Escrow Agreement and of the mutual benefits to be
derived therefrom, the parties hereto agree as follows:
1. APPOINTMENT AND OBLIGATION OF ESCROW AGENT. The Stockholders, the
Company, Newco and InSite hereby appoint the Escrow Agent to receive, hold and
dispose of the Escrow Shares pursuant to the terms and conditions of this Escrow
Agreement, and the Escrow Agent hereby accepts such appointment on the terms and
conditions hereto. The use of the term "Escrow Agent" is solely for purposes of
identification and does not indicate or imply that the Escrow Agent has any
agency or other fiduciary obligations to any person or entity except for the
limited obligations of the Escrow Agreement pursuant hereto.
2. DEPOSIT OF ESCROW SHARES.
(a) The Stockholders hereby agree to deliver the Escrow Shares to
the Escrow Agent at the closing of the transactions contemplated by the Merger
Agreement, accompanied by an executed stock power or powers endorsed in blank.
The Escrow Agent hereby agrees to hold the Escrow Shares upon
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receipt in accordance with this Agreement. The Escrow Shares do not form a part
of the capital or debt of Escrow Agent and are not subject to the claims of its
creditors or depositors but are set apart and held for the exclusive benefit of
the parties.
(b) The Escrow Shares shall be used by the Escrow Agent solely for
the purposes of satisfying the indemnity obligations of the Stockholders under
Section 12 of the Merger Agreement and/or the post-closing adjustment provisions
of Section 2.1 of the Merger Agreement. The Escrow Shares shall not be available
to, and shall not be used by, the Escrow Agent to set off any obligations of
InSite or Newco owing to the Escrow Agent in any capacity.
3. CASH DIVIDENDS AND VOTING RIGHTS. Until the Escrow Shares are
delivered by the Escrow Agent in accordance with the terms hereof, the
Stockholders are entitled to exercise all voting rights with respect to the
Escrow Shares and to receive for their own use cash and other dividends and
distributions on the Escrow Shares.
4. RELEASE OF ESCROW SHARES. The Escrow Agent shall release the Escrow
Shares as follows:
(a) If, at any time, InSite or Newco believes it is entitled to
receive a full or partial distribution of the Escrow Shares to satisfy the
indemnity obligations of the Stockholders to InSite and Newco and their
respective officers, directors, employees and agents under Section 12 of the
Merger Agreement, InSite or Newco shall give the Escrow Agent written notice of
the same (the "Claims Notice"), which Claims Notice shall specify the number of
Escrow Shares to be distributed, determined in accordance with SECTION 4(b)
hereof. Upon receipt of any Claims Notice, the Escrow Agent shall promptly
forward a copy of such notice to the Stockholders. If the Stockholders object to
the distribution proposed in the Claims Notice, the Stockholders shall give
written notice of such objection to the Escrow Agent within thirty (30) days
following receipt of the Claims Notice (the "Objection Notice"). If the Escrow
Agent does not receive an Objection Notice within such thirty (30) day period,
the Escrow Agent shall distribute to InSite the Escrow Shares having a value, as
determined in accordance with SECTION 4(c) hereof, equal to the amount specified
in the Claims Notice. If the Escrow Agent receives an Objection Notice within
such thirty (30) day period, the parties shall resolve such dispute by
negotiation or, if negotiations are unsuccessful, by resort to the arbitration
procedure set forth in the Merger Agreement, and the Escrow Agent shall continue
to hold the Escrow Shares pursuant to the terms of this Agreement, subject to
the Claims Notice until the Escrow Agent receives (i) a joint written
instruction from the Stockholders and the Parent and Newco regarding disposition
of the Escrow Shares subject to the Claims Notice and Objection Notice, or (ii)
a certified copy of a final decision of the arbitrator regarding disposition of
the Escrow Shares subject to the Claims Notice and Objection Notice.
Notwithstanding the foregoing sentence, the Escrow Agent may exercise its rights
under SECTION 9 of this Agreement at any time in the event of a dispute between
the parties regarding release of the Escrow Shares. Upon release of the Escrow
Shares in good faith pursuant to this Agreement, the Escrow Agent shall be fully
released and discharged from all obligations under this Agreement.
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(b) For purposes of distribution by the Escrow Agent of all or any
portion of the Escrow Shares pursuant to paragraph (a) of this SECTION 4, the
number of Escrow Shares to be delivered shall be determined based on the
"closing sales price" (as hereinafter defined) of InSite Common Stock for the 10
consecutive trading days immediately preceding the "date of distribution" (as
hereinafter defined) of the Escrow Shares by the Escrow Agent.
(i) For purposes hereof, "closing sales price"
shall mean (a) the average of the closing sales price, or, in case no such
reported sale takes place on such day, the average of the reported closing
bid and asked prices, in either case on the principal national securities
exchange on which InSite Common Stock is listed or admitted to trading for
such 10 day period, or (b) if not listed or admitted to trading on any
national securities exchange, the closing sales price as reported by The
Nasdaq Stock Market, Inc., or, if such firm at the time is not engaged in the
business of reporting such prices, as furnished by any similar firm then
engaged in such business as selected by InSite's Board of Directors, for such
10 day period, or (c) if not listed or admitted to trading on any national
securities exchange or reported by Nasdaq or any similar firm, the net book
value of the Escrow Shares as determined by management of InSite as of the
end of the most recent fiscal quarter immediately preceding the last day of
such 10 day period.
(ii) For purposes hereof, "date of distribution"
shall be the date specified in the Claims Notice which shall be (a) the date
as of the end of the thirty (30) day period commencing on the date of the
Claims Notice, or (b) in the event of a dispute, the actual date of
notification to the Escrow Agent to release Escrow Shares which shall be
promptly after resolution of any disputes.
(c) On the date which is one (1) year after the closing date of
the transactions contemplated by the Merger Agreement (the "Escrow Termination
Date"), the Escrow Agent shall deliver to the Stockholders the remaining Escrow
Shares, unless the Escrow Agent shall have been notified in writing by InSite,
Newco or the Stockholders that a Claims Notice is pending and has not been
resolved as described in paragraph (b)(i) or (ii) of this SECTION 4. If the
Escrow Agent has been advised that a Claims Notice is pending on the Escrow
Termination Date and has not been resolved as aforesaid, the Escrow Agent shall
deliver the remaining Escrow Shares to the parties in accordance with the
resolution of the Claims Notice, as provided in SECTION 4(b).
5. EXCULPATION OF ESCROW AGENT. The Escrow Agent shall have no duties or
responsibilities except for those set forth herein (and required by applicable
law), which the parties agree are ministerial in nature. If in doubt as to its
duties and responsibilities hereunder, the Escrow Agent may consult with counsel
of its choice and shall be protected in any action taken or omitted in good
faith in connection with the written advice or opinion of such counsel. The
Escrow Agent shall not be deemed to have any knowledge of or responsibility for
the terms of any other agreement or instrument including the Merger Agreement.
The Escrow Agent makes no representation as to the validity, value, genuineness
or collectibility of any security, document or instrument held by or delivered
to it. Except for the Escrow Agent's own fraud, bad faith, willful misconduct or
gross negligence: (a) the Escrow
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Agent shall have no liability of any kind whatsoever for the performance of any
duties imposed upon the Escrow Agent under this Escrow Agreement or for any
action or failure to act taken in good faith by the Escrow Agent hereunder; (b)
the Escrow Agent shall not be responsible for the acts or omissions of any other
parties hereto; (c) the Escrow Agent shall not be liable to anyone for damages,
losses or expenses arising out of this Escrow Agreement; and (d) the Escrow
Agent may rely and/or act upon any instrument or document believed by the Escrow
Agent in good faith to be genuine and to be executed and delivered by the proper
person or party, and may assume in good faith the authenticity, validity and
effectiveness thereof and shall not be obligated to make any investigation or
determination as to the truth and accuracy of any information contained therein.
The Escrow Agent shall not be liable for any error of judgment, or for any act
done or step taken or omitted by it in good faith or for any mistake of fact or
law, or for anything which it may do or refrain from doing in connection
herewith, except its own bad faith, willful misconduct or gross negligence. In
the event of any dispute between InSite, Newco or the Stockholders, InSite and
the Stockholders shall pay, on demand, the reasonable attorneys' fees and other
reasonable costs and expenses incurred by the Escrow Agent in respect thereof;
InSite, Newco and the Stockholders shall be jointly and severally liable for
such fees, costs and expenses but, as between themselves, such fees, costs and
expenses shall be paid by the party losing such dispute or as determined by the
court or other party resolving such dispute.
6. INDEMNIFICATION; EXPENSES. In consideration of its acceptance of the
appointment as the Escrow Agent, InSite, Newco and the Stockholders, jointly and
severally, agree to indemnify and hold the Escrow Agent harmless as to any
liability incurred by it to any person, firm or corporation by reason of its
having accepted the same or in carrying out in good faith any of the terms
hereof, and to reimburse Escrow Agent for all its reasonable expenses,
including, among other things, counsel fees and court costs, incurred by reason
of its position hereunder or actions taken pursuant hereto.
7. SUCCESSOR ESCROW AGENT.
(a) The Escrow Agent (and any successor escrow agent) may at any
time resign as such by delivering the Escrow Shares to any successor escrow
agent jointly designated in writing by InSite, Newco and the Stockholders, or to
any court of competent jurisdiction, whereupon the Escrow Agent shall be
discharged of and from any and all further obligations arising in connection
with this Escrow Agreement. The resignation of the Escrow Agent shall take
effect on the earlier of the appointment of a successor escrow agent or the day
which is thirty (30) days after the date of delivery of the Escrow Agent's
written notice of resignation to the other parties hereto. In the event that a
successor escrow agent has not been appointed at the expiration of such thirty
(30) day period, the Escrow Agent's sole responsibility hereunder shall be the
safekeeping of the Escrow Shares and to deliver all or any portion thereof as
may be specified in a written agreement signed by all the other parties to this
Agreement or as any court of competent jurisdiction may order.
(b) If the Escrow Agent receives a written notice signed by
InSite, Newco and the Stockholders stating that they have selected another
escrow agent, the Escrow Agent shall deliver the Escrow Shares to the successor
escrow agent named in the aforesaid notice within ten (10) days.
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8. ENTIRE AGREEMENT; MODIFICATION. With the exception of the Merger
Agreement and agreements, schedules and exhibits thereto, this Escrow Agreement
contains the entire agreement, and supersedes all prior agreements and
undertakings, oral or written, between the parties hereto with respect to the
subject matter hereof. No modification of this Escrow Agreement shall be valid
unless the same is in writing and is signed by InSite, Newco, the Stockholders
and the Escrow Agent.
9. INCONSISTENT CLAIMS. In the event that the Escrow Agent should at any
time be confronted with inconsistent claims or demands by the parties hereto,
the Escrow Agent shall have the right to interplead said parties in any court of
competent jurisdiction in Rhode Island, and request that such court determine
such respective rights of the parties with respect to this Escrow Agreement, and
upon doing so, the Escrow Agent automatically shall be released from any
obligations or liability as consequence of any such claims or demands.
10. STOCKHOLDERS' ACKNOWLEDGMENT OF ATTORNEY/CLIENT RELATIONSHIP BETWEEN
INSITE, NEWCO AND THE ESCROW AGENT. The Stockholders acknowledge and agree that
the Escrow Agent has acted and will continue to act as counsel to InSite and
Newco in connection with the negotiation and execution of the Merger Agreement.
In that connection and as a condition to the Escrow Agent's and InSite's and
Newco's agreement to enter into this Agreement, the Stockholders waive any right
to seek disqualification of the Escrow Agent from serving as counsel to InSite
and Newco by virtue of this Agreement or any dispute hereunder.
11. NOTICES. Any notices to be given hereunder shall be sufficiently
given if in writing and delivered personally, sent by telecopy (answerback
received), sent by recognized overnight courier, or mailed by registered or
certified mail, return receipt requested, postage prepaid, to the following
addresses or to such other address as the parties may from time to time
designate in writing delivered in accordance with this SECTION 11:
(a) To Andrew Halpern and Lawrence McCloskey, as follows::
Andrew Halpern
______________
______________
______________
______________
Lawrence McCloskey
__________________
__________________
__________________
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with a copy to:
Fried & Company
700 Thirteenth Street, N.W., Suite 325
Washington, DC 20005
Attn: Jeffrey S. Fried, Esq. & Mark A Garfinkel, Esq.
Phone: 202-331-3900
Fax: 202-331-3905
(b) To InSite and Newco at:
InSite Internet, Inc.
1100 First Avenue
Spring Lake, NJ 07762
Attn: Mark E. Munro, President & CEO
Phone: (732) 280-6407
Fax: (732) 280-6409
with a copy to the Escrow Agent at the address below:
(c) To the Escrow Agent at:
Duffy & Sweeney, LLP
300 Turks Head Building
Providence, RI 02903
Attn: Michael F. Sweeney, Partner
Phone: (401) 455-0700
Fax: (401) 455-0701
Any notices to be given hereunder shall be deemed received (a) on the date
delivered, if delivered personally, (b) on the date sent, if sent by telecopy,
(c) on the first business day after the date such notice was sent, if sent by
overnight courier, or (d) on the third business day after the date such notice
was sent, if sent by registered or certified mail, PROVIDED THAT no such notice
or other communication shall be deemed given to the Escrow Agent until the same
is received by the Escrow Agent.
12. BINDING EFFECT. This Escrow Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, except that the Stockholders and InSite, Newco may not assign their
respective obligations hereunder without the prior written consent of the other
parties. Any assignment in contravention of this provision shall be void. No
assignment shall release the Stockholders or InSite, Newco from any obligation
or liability under this Escrow Agreement.
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13. GOVERNING LAW. This Escrow Agreement shall be construed in accordance
with and governed by the laws of the State of New York.
14. DEFINED TERMS. Capitalized terms used herein without definition shall
have the meanings assigned to them in the Merger Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement as of the date first above written.
INSITE INTERNET, INC.
ATTEST:
By:
- -------------------------------- -------------------------------------
, Assistant Secretary Mark E. Munro, President
and Chief Executive Officer
INSITE INTERNET IV ACQUISITION CO., INC.
ATTEST:
By:
- -------------------------------- ------------------------------------
, Assistant Secretary Mark E. Munro, President
ULSTERNET, INC.
ATTEST:
By:
- -------------------------------- ------------------------------------
, Secretary , President
WITNESS:
- -------------------------------- ------------------------------------
Andrew Halpern
WITNESS:
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- -------------------------------- ------------------------------------
Lawrence McCloskey
DUFFY & SWEENEY, LLP
ATTEST:
By:
- -------------------------------- --------------------------------
Michael F. Sweeney, Partner
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SCHEDULE 1
[TBD--the number of shares of InSite stock with a value equal to $72,500 based
on the public offering price of InSite stock in the IPO allocated pro rata among
the Stockholders]
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EXHIBIT 6.12(a)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this
_____ day of _____________, 1999, by and between, InSite Internet IV Acquisition
Co., Inc., a New York corporation (the "Company") and wholly-owned subsidiary of
InSite Internet, Inc., a Delaware corporation (the "Parent") and Andrew W.
Halpern, an individual with a mailing address at
________________________________ ("Employee").
INTRODUCTION
Employee is a principal and employee of UlsterNet, Inc. (the "Founding
Company") and possesses skills and knowledge advantageous to the Company.
The Parent intends to undertake an initial public offering of its common
stock (the "IPO") and in connection therewith contemplates filing a registration
statement with the Securities and Exchange Commission. Concurrently with the
successful closing of the IPO (the "Effective Date"), (i) the Parent, the
Founding Company and the Company intend to effect a merger of the Founding
Company into the Company in accordance with that certain Agreement and Plan of
Merger and Reorganization dated as of ______________, 1999 by and among the
Parent, the Company, the Founding Company, and the stockholders of the Founding
Company (the "Merger Agreement") and (ii) effective on the Effective Date, the
Company desires to employ Employee and Employee desires to accept such
employment on the terms and conditions set forth herein.
AGREEMENT
In consideration of the premises and mutual promises hereinbelow set
forth, the parties hereby agree as follows:
1. EMPLOYMENT; DUTIES. Subject to the terms and conditions set
forth herein, the Company hereby employs Employee during the Employment Period
(as defined below), and Employee hereby accepts such employment. Employee agrees
to be a full-time employee of the Company and devote his full and exclusive
time, energy, skill and best efforts to the business of the Company and to the
fulfillment of Employee's duties hereunder. Employee's duties include, but are
not limited to, (i) serving as President of the Company; (ii) sales of the
Company's and its affiliates products and services; (iii) assisting in the
internal growth of the Company's business; and (iv) other duties assigned to
Employee by the Company from time to time consistent with Employee's position.
Employee will report directly to the Board of Directors of the Company, and the
Board will determine Employee's specific duties and the scope of his
responsibilities hereunder.
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2. EMPLOYMENT PERIOD. The term of this Agreement (the "Employment
Period") shall commence on the Effective Date and shall terminate three (3)
years thereafter, unless terminated earlier pursuant to SECTION 4 or SECTION 5
below.
3. COMPENSATION AND BENEFITS.
3.1 SALARY. During the Employment Period, the Company agrees
to pay Employee at the rate of $70,000 per year ("Base Salary"). Employee's
salary shall be subject to customary withholdings and be payable to Employee on
the regularly occurring pay period established by the Company.
3.2 HEALTH BENEFITS. During the Employment Period, the
Company shall provide Employee with individual and/or family health care
coverage, as provided by health care provider(s) selected by the Company from
time to time and, with respect to Employee, consistent with the health benefits
provided by the Founding Company to Employee prior to the Effective Date. It is
the intention of the Company to continue Employee's current health care coverage
for at least several months following the Effective Date, to provide reasonable
health care coverage choices including a choice which is not an "HMO" in the
event of any change in health care providers, and not to change Employee's
coverage in any event if such change would not effectively cover any so-called
"pre-existing condition."
3.3 BONUS. During the Employment Period, Employee shall be
paid a bonus at the end of each fiscal year equal to the sum of (i) 5.0% of the
Company's increase in "annual sales" and (ii) 20% of the Company's increase in
"EBITDA" (i.e., earnings before interest and taxes, less depreciation and
amortization). Such bonus (if any) shall be payable at the discretion of the
Company in either (A) cash or (B) common stock, options or other awards from the
Parent's incentive stock plan, subject to applicable securities law and tax
withholding payments by Employee. The calculation for such bonus shall (x) be
based on the unconsolidated financial statements of the Company as certified by
the Company's certified public accountants; (y) be subject to allocation of
overhead provisions from time to time adopted by the Company, the Parent and its
subsidiaries; and (z) include only "organic" sales and earnings (i.e. only such
earnings and sales generated from the Company's currently existing business) and
shall exclude, without limitation, any earnings or sales generated by way of
merger, acquisition or other similar event.
3.4 RETIREMENT PLAN. During the Employment Period, Employee
shall be entitled to participate in any 401(k) or similar plan adopted by the
Company for the benefit of its employees. The Company reserves the right to
modify, terminate or withdraw any such plan (if so adopted) at any time in its
sole discretion.
3.5 INCENTIVE BONUS. Employee will be paid an incentive
bonus equal to 2.0% of the total purchase price for each company that Employee
introduces to the Parent and is subsequently acquired by the Parent, payable at
the discretion of the Company in either (i) cash or (ii) common
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stock, stock options or other awards from the Parent's incentive stock option
plan, subject to applicable securities law and tax withholding payments by
Employee. Employee will be required to submit any referral in writing for
acknowledgment by the Parent prior to any negotiations between the Parent and
the referral. Employee acknowledges that other persons or entities, (including
other employees, officers, and directors of the Company and its affiliates),
have been or may be offered a similar "incentive bonus" and that any incentive
bonus which Employee may be entitled to hereunder is subject to a percentage
reduction to the extent that other persons or entities participated in or were
responsible for the referral. Any dispute regarding apportionment of an
incentive bonus shall be resolved by binding arbitration in accordance with
SECTION 13 hereof. In no event shall the Company or the Parent pay more than one
incentive bonus for any single transaction.
4. TERMINATION BY THE COMPANY FOR CAUSE. Upon written notice to
Employee, the Company may terminate this Agreement for cause if any of the
following events shall occur: (i) any breach of Sections 6 or 7 of this
Agreement or any material breach of any other provision of this Agreement by
Employee; (ii) the commission of a felony by Employee; (iii) the commission of
an act by Employee involving fraud, theft or dishonesty; (iv) material breach by
the Founding Company or its stockholders of their representations, warranties
and covenants and/or obligations under the Merger Agreement which breach remains
uncured for a period of thirty (30) days following notice to Employee; or (v)
the Company's bona fide decision to terminate its business and liquidate its
assets (e.g., a decision by the Company to sell all or substantially all of its
assets or stock as a result of bona fide negotiations with a non-affiliated
third party). In the event of a termination pursuant to this SECTION 4, all
obligations of the Company under this Agreement shall cease.
5. TERMINATION WITHOUT CAUSE.
5.1 BY EMPLOYER. The Company may terminate this Agreement at
any time without cause upon thirty (30) days written notice to Employee. In such
event, the Company shall pay Employee (i) on the effective date of termination,
in one lump sum, an amount equal to 12 months' Base Salary (less customary
withholding taxes), and (ii) at the Company's normal pay periods, in equal
installments (less customary withholding taxes), an amount equal to the Base
Salary for the balance of the scheduled Employment Period less the 12 months'
lump sum salary paid at termination. All other obligations of the Company shall
cease on the date of termination.
5.2 BY EMPLOYEE. Employee may terminate this Agreement at
any time upon ninety (90) days prior written notice to the Company. In such
case, Employee shall not be eligible for any severance payments or other
benefits after the date of termination.
5.3 MERGER AGREEMENT. Absent a breach of the Merger
Agreement, termination by either the Company or Employee pursuant to this
SECTION 5 shall not be deemed a breach of the Merger Agreement, nor will it
affect either party's obligations thereunder.
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6. CONFIDENTIALITY AND NON-DISCLOSURE. Employee recognizes and
acknowledges that he has had in the past, currently has and in the future may
have access to certain confidential information relating to the Company and its
affiliates, including, but not limited to, operational policies, financial
information, marketing information, personnel information, trade secrets,
customer information (including customer lists), and pricing and cost policies,
that are valuable, special and unique assets of the Company (collectively,
"Confidential Information"). Employee agrees that he will not use or disclose
such Confidential Information to any person, firm, corporation, association or
other entity for any purpose or reason whatsoever, except as is required in the
course of performing his duties hereunder unless (i) such information becomes
known to the public generally through no breach by Employee of this covenant or
(ii) disclosure is required by law or any governmental authority or is required
in connection with the defense of a lawsuit against the disclosing party,
provided, that prior to disclosing any information pursuant to this clause (ii),
Employee shall give prior written notice thereof to the Company and provide the
Company with the opportunity to contest such disclosure. Employee agrees that,
both during the Employment Period and after the termination of this Agreement,
Employee will hold in a fiduciary capacity for the benefit of the Company, and
shall not directly or indirectly use or disclose, except as authorized by the
Company in connection with the performance of Employee's duties, any
Confidential Information, that Employee may have or may acquire (whether or not
developed or compiled by Employee and whether or not Employee has been
authorized to have access to such Confidential Information) during the term of
this Agreement. The covenants contained in this SECTION 6 shall survive for the
Employment Period and for a period of two (2) years thereafter; provided,
however, that with respect to those items of Confidential Information which
constitute trade secrets under applicable law, Employee's obligations of
confidentiality and non-disclosure as set forth in this SECTION 6 shall continue
to survive after the applicable period above to the greatest extent permitted by
applicable law. These rights of the Company are in addition to those rights the
Company has under the common law or applicable statutes for the protection of
trade secrets.
7. NON-COMPETITION. Employee expressly covenants and agrees that
for the Employment Period and for a period of two (2) years thereafter, he shall
not, directly or indirectly, seek, obtain or accept a "Competitive Position" in
the "Restricted Territory" with a "Competitor" of the Company (as such terms are
hereafter defined). For purposes of this Agreement, a "Competitor" of the
Company means any business, individual, partnership, joint venture, association,
firm, corporation or other entity engaged primarily in the business of selling
internet access service or in any related telecommunications business which the
Company and its affiliates may engage in from time to time during the term of
this covenant; the "Restricted Territory" means each state of the United States
of America; a "Competitive Position" means any employment with any Competitor of
the Company whereby Employee will use or is likely to use any Confidential
Information, or whereby Employee has duties for such Competitor that are the
same or substantially similar to those actually performed by Employee pursuant
to the terms hereof. Nothing contained in this SECTION 7 is intended to prevent
Employee from investing in stock or other securities listed on a national
securities exchange or actively traded on the over the counter market or any
corporation engaged, wholly or partly, in the sale of telecommunications
products or services; provided, however, that Employee and members of his
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immediate family shall not, directly or indirectly, hold more than a total of
two percent (2%) of all issued and outstanding stock or other securities of any
such corporation.
8. NON-SOLICITATION.
8.1 NON-SOLICITATION OF CUSTOMERS. Employee agrees that he
will not take any customer lists of the Company after leaving his employ and
that he will, for the Employment Period and for a period of two (2) years
thereafter, refrain from soliciting or attempting to solicit directly or by
assisting others, any business from any of the Company's customers, including
actively sought prospective customers, with whom Employee had "material contact"
during the employment for purposes of providing products or services.
8.2 NON-SOLICITATION OF EMPLOYEES. Employee agrees that he
will, for the Employment Period and for a period of two (2) years thereafter,
refrain from recruiting or hiring, or attempting to recruit or hire, directly or
by assisting others, any other employee of the Company who is employed by the
Company or any successor or affiliate of the Company.
9. TOLLING OF PERIOD OF RESTRAINT. Employee hereby expressly
acknowledges and agrees that in the event the enforceability of any of the terms
of this Agreement shall be challenged in court and Employee is not enjoined from
breaching any of the restraints set forth in SECTION 6 through SECTION 9, then
if a court of competent jurisdiction finds that the challenged restraint is
enforceable, the time period of the restraint shall be deemed tolled upon the
filing of the lawsuit challenging the enforceability of the restraint until the
dispute is finally resolved and all periods of appeal have expired.
10. ACKNOWLEDGEMENTS. Employee hereby acknowledges and agrees that
the restrictions contained in SECTION 6 through SECTION 9 are fair and
reasonable and necessary for the protection of the legitimate business interests
of the Company. Employee acknowledges that in the event Employee's employment
with the Company terminates for any reason, Employee will be able to earn a
livelihood without violating the restrictions contained in SECTION 6 through
SECTION 9 and that Employee's ability to earn a livelihood without violating
such restrictions is a material condition to Employee's employment and continued
employment with the Company. Employee expressly agrees that the character,
duration and geographical scope of the covenants contained in this SECTION 6
through SECTION 9 are reasonable in light of the circumstances as they exist at
the date upon which this Agreement has been executed including the substantial
payments made by the Company and Employee in consideration of the Merger
Agreement. However, should a determination nonetheless be made by a court of
competent jurisdiction at a later date that the character, duration or
geographical scope of the covenants contained herein are unreasonable in light
of the circumstances as they then exist, then it is the intention of both
Employee and the Company that these covenants shall be construed by the court in
such a manner as to impose only those restrictions on the conduct of Employee
which are reasonable in light of the circumstances as they then exist and
necessary to assure the Company of the intended benefit of these covenants.
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11. RIGHTS TO MATERIALS; WORK FOR HIRE. All records, files,
memoranda, reports, price lists, customer lists, drawings, plans, sketches,
documents and the like (together with all copies thereof) relating to the
business of the Company, which Employee shall use or prepare or come in contact
with in the course of, or as a result of, his employment shall, as between the
parties hereto, remain the sole property of the Company. Upon the termination of
Employment or upon the prior demand of the Company, Employee shall immediately
return all such materials and shall not thereafter cause removal thereof from
the premises of the Company. Employee agrees to disclose and assign to the
Company as its exclusive property, all ideas, writings, inventions, discoveries,
improvements and technical or business innovations made or conceived by
Employee, whether or not patentable or copyrightable, either solely or jointly
with others during the Employment Period and for a period of six (6) months
thereafter whether or not made or conceived during regular hours of work or
otherwise, which are along the lines of the business, work or investigations of
the Company or its affiliates. Employee agrees to execute any and all documents
hereafter requested by the Company necessary to further effectuate the
foregoing.
12. REMEDIES. Without limiting the Company's right to claim
damages, Employee acknowledges that the Company will be irreparably harmed by a
breach of any provision of this Agreement and Employee agrees that the Company
shall be entitled to injunctive relief in the event of such breach.
13. GOVERNING LAW; ARBITRATION; JURISDICTION; VENUE; ATTORNEY'S
FEES. This Agreement is made and entered into in and shall be governed by and
interpreted in accordance with the laws of, the State of New York. The Company
and Employee agree that any dispute regarding this Agreement shall be submitted
to arbitration to and shall be resolved in accordance with the rules of the
JAMS/Endispute for expedited cases then in effect. The arbitrator(s) shall be
mutually selected by the parties or in the event the parties cannot mutually
agree, then appointed by JAMS/Endispute. Any arbitration shall be held within a
thirty (30) mile radius of New York City and the arbitrator(s) shall apply New
York law. Judgment upon any award rendered by the arbitrator(s) shall be final
and may be entered in any court of competent jurisdiction. Notwithstanding the
foregoing, the Company shall have the absolute right to obtain equitable
remedies in any state court of competent jurisdiction in the State of New York
or in the United States District Court for the Southern District of New York. By
his execution and delivery of this agreement, Employee irrevocably submits to
and accepts the exclusive jurisdiction of each of such courts and waives any
objection (including any objection to venue or any objection based upon the
grounds of forum non conveniens) which might be asserted against the bringing of
any such action, suit or other legal proceeding in such courts. The court and/or
arbitrator(s) shall award costs and expenses (including reasonable attorney's
fees) to the prevailing party in any litigation or arbitration.
14. MISCELLANEOUS.
14.1 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all previous agreements, written and oral, regarding the
subject matter hereof between the parties hereto. This Agreement shall
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not be changed, altered, modified or amended, except by a written agreement
signed by both parties hereto.
14.2 NOTICES. All notices, requests, demands and other
communications required or permitted to be given or made under this Agreement
shall be in writing and shall be deemed to have been given if delivered by hand,
sent by generally recognized overnight courier service, telex or telecopy, or
mail,
(a) to the Company care of: With a copy to:
InSite Internet, Inc. Duffy & Sweeney, LLP
1100 First Avenue 300 Turks Head Building
Spring Lake, NJ 07762 Providence, RI 02903
Attention: Mark E. Munro, CEO Attention: Michael F. Sweeney, Esq.
Telephone: (732) 280-6408 Telephone: (401) 455-0700
Fax: (732) 280-6409 Fax: (401) 455-0701
(b) to the Employee at: With a copy to:
Andrew W. Halpern Fried & Company
56 Scism Road 700 Thirteenth Street, N.W.
Tivoli, NY 12583 Suite 325
Washington, DC 20005
Attn: Jeffrey S. Fried &
Mark A. Garfinkel
Telephone: (202) 331-3900
Fax: (202) 331-3905
14.3 ASSIGNMENT. The Company may assign this Agreement to
(i) any entity controlling, controlled by or under common control with the
Company or (ii) to any purchaser of the Company's assets provided that such
purchaser agrees to assume the Company's obligations hereunder.
14.4 SEVERABILITY. If any term or provision of this
Agreement, or the application thereof to any person or under any circumstance,
shall to any extent be invalid or unenforceable, the remainder of this
Agreement, or the application of such terms to the persons or under
circumstances other than those as to which it is invalid or unenforceable, shall
be considered severable and shall not be affected thereby, and each term of this
Agreement shall be valid and enforceable to the fullest extent permitted by law.
The invalid or unenforceable provisions shall, to the extent permitted by law,
be deemed amended and given such interpretation as to achieve the economic
intent of this Agreement.
14.5 WAIVER. The failure of any party to insist in any one
instance or more upon strict performance of any of the terms and conditions
hereof, or to exercise any right or privilege herein
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conferred, shall not be construed as a waiver of such terms, conditions, rights
or privileges, but same shall continue to remain in full force and effect. Any
waiver by any party of any violation of, breach of or default under any
provision of this Agreement by the other party shall not be construed as, or
constitute, a continuing waiver of such provision, or waiver of any other
violation of, breach of or default under any other provision of this Agreement.
14.6 RIGHT OF SETOFF. Notwithstanding anything to the
contrary set forth herein, and in addition to any and all remedies at law or in
equity which the Company may have, the Company shall have the absolute and
unconditional right to setoff its payment obligations hereunder against the
amount of any claims for indemnification it may have against Employee under the
Merger Agreement.
14.7 TITLES; GENDER. Section and subsection titles are for
convenience of reference only and are not to be considered in the interpretation
or construction of any of the provisions hereof. All pronouns or any variations
thereof contained in this Agreement refer to the masculine, feminine or neuter
as the identity of the person may require.
14.8 SURVIVAL. SECTION 6 through SECTION 14 hereof shall
survive any termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY:
ATTEST: INSITE INTERNET ACQUISITION IV CO., INC.
By:
- ------------------------------- -------------------------------------
Mark E. Munro, President
WITNESS: EMPLOYEE:
- ------------------------------- -----------------------------------------
Andrew W. Halpern
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EXHIBIT 6.12(b)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this
_____ day of _____________, 1999, by and between, InSite Internet IV Acquisition
Co., Inc., a New York corporation (the "Company") and wholly-owned subsidiary of
InSite Internet, Inc., a Delaware corporation (the "Parent") and Joann E.
Halpern, an individual with a mailing address at
________________________________ ("Employee").
INTRODUCTION
Employee is an employee of UlsterNet, Inc. (the "Founding Company") and
possesses skills and knowledge advantageous to the Company.
The Parent intends to undertake an initial public offering of its common
stock (the "IPO") and in connection therewith contemplates filing a registration
statement with the Securities and Exchange Commission. Concurrently with the
successful closing of the IPO (the "Effective Date"), (i) the Parent, the
Founding Company and the Company intend to effect a merger of the Founding
Company into the Company in accordance with that certain Agreement and Plan of
Merger and Reorganization dated as of ______________, 1999 by and among the
Parent, the Company, the Founding Company, and the stockholders of the Founding
Company (the "Merger Agreement") and (ii) effective on the Effective Date, the
Company desires to employ Employee and Employee desires to accept such
employment on the terms and conditions set forth herein.
AGREEMENT
In consideration of the premises and mutual promises hereinbelow set
forth, the parties hereby agree as follows:
1. EMPLOYMENT; DUTIES. Subject to the terms and conditions set
forth herein, the Company hereby employs Employee during the Employment Period
(as defined below), and Employee hereby accepts such employment. Employee agrees
to be a full-time employee of the Company and devote her full and exclusive
time, energy, skill and best efforts to the business of the Company and to the
fulfillment of Employee's duties hereunder. Employee's duties include, but are
not limited to serving as an office assistant for the Company.
2. EMPLOYMENT PERIOD. The term of this Agreement (the "Employment
Period") shall commence on the Effective Date and shall terminate three (3)
years thereafter, unless terminated earlier pursuant to SECTION 4 or SECTION 5
below.
3. COMPENSATION AND BENEFITS.
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3.1 SALARY. During the Employment Period, the Company agrees
to pay Employee at the rate of $25,000 per year ("Base Salary"). Employee's
salary shall be subject to customary withholdings and be payable to Employee on
the regularly occurring pay period established by the Company.
3.2 HEALTH BENEFITS. During the Employment Period, the
Company shall provide Employee with individual and/or family health care
coverage, as provided by health care provider(s) selected by the Company from
time to time and, with respect to Employee, consistent with the health benefits
provided by the Founding Company to Employee prior to the Effective Date. It is
the intention of the Company to continue Employee's current health care coverage
for at least several months following the Effective Date, to provide reasonable
health care coverage choices including a choice which is not an "HMO" in the
event of any change in health care providers, and not to change Employee's
coverage in any event if such change would not effectively cover any so-called
"pre-existing condition."
3.3 RETIREMENT PLAN. During the Employment Period, Employee
shall be entitled to participate in any 401(k) or similar plan adopted by the
Company for the benefit of its employees. The Company reserves the right to
modify, terminate or withdraw any such plan (if so adopted) at any time in its
sole discretion.
4. TERMINATION BY THE COMPANY FOR CAUSE. Upon written notice to
Employee, the Company may terminate this Agreement for cause if any of the
following events shall occur: (i) any breach of Sections 6 or 7 of this
Agreement or any material breach of any other provision of this Agreement by
Employee; (ii) the commission of a felony by Employee; (iii) the commission of
an act by Employee involving fraud, theft or dishonesty; (iv) material breach by
the Founding Company or its stockholders of their representations, warranties
and covenants and/or obligations under the Merger Agreement which breach remains
uncured for a period of thirty (30) days following notice to Employee; or (v)
the Company's bona fide decision to terminate its business and liquidate its
assets (e.g, a decision by the Company to sell all or substantially all of its
assets or stock as a result of bona fide negotiations with a non-affiliated
third party). In the event of a termination pursuant to this SECTION 4, all
obligations of the Company under this Agreement shall cease.
5. TERMINATION WITHOUT CAUSE.
5.1 BY EMPLOYER. The Company may terminate this Agreement at
any time without cause upon thirty (30) days written notice to Employee. In such
event, the Company shall pay Employee (i) on the effective date of termination,
in one lump sum, an amount equal to 12 months' Base Salary (less customary
withholding taxes), and (ii) at the Company's normal pay periods, in equal
installments (less customary withholding taxes), an amount equal to the Base
Salary for the balance of
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the scheduled Employment Period less the 12 months' lump sum salary paid at
termination. All other obligations of the Company shall cease on the date of
termination.
5.2 BY EMPLOYEE. Employee may terminate this Agreement at
any time upon ninety (90) days prior written notice to the Company. In such
case, Employee shall not be eligible for any severance payments or other
benefits after the date of termination.
6. CONFIDENTIALITY AND NON-DISCLOSURE. Employee recognizes and
acknowledges that she has had in the past, currently has and in the future may
have access to certain confidential information relating to the Company and its
affiliates, including, but not limited to, operational policies, financial
information, marketing information, personnel information, trade secrets,
customer information (including customer lists), and pricing and cost policies,
that are valuable, special and unique assets of the Company (collectively,
"Confidential Information"). Employee agrees that she will not use or disclose
such Confidential Information to any person, firm, corporation, association or
other entity for any purpose or reason whatsoever, except as is required in the
course of performing her duties hereunder unless (i) such information becomes
known to the public generally through no breach by Employee of this covenant or
(ii) disclosure is required by law or any governmental authority or is required
in connection with the defense of a lawsuit against the disclosing party,
provided, that prior to disclosing any information pursuant to this clause (ii),
Employee shall give prior written notice thereof to the Company and provide the
Company with the opportunity to contest such disclosure. Employee agrees that,
both during the Employment Period and after the termination of this Agreement,
Employee will hold in a fiduciary capacity for the benefit of the Company, and
shall not directly or indirectly use or disclose, except as authorized by the
Company in connection with the performance of Employee's duties, any
Confidential Information, that Employee may have or may acquire (whether or not
developed or compiled by Employee and whether or not Employee has been
authorized to have access to such Confidential Information) during the term of
this Agreement. The covenants contained in this SECTION 6 shall survive for the
Employment Period and for a period of two (2) years thereafter; provided,
however, that with respect to those items of Confidential Information which
constitute trade secrets under applicable law, Employee's obligations of
confidentiality and non-disclosure as set forth in this SECTION 6 shall continue
to survive after the applicable period above to the greatest extent permitted by
applicable law. These rights of the Company are in addition to those rights the
Company has under the common law or applicable statutes for the protection of
trade secrets.
7. NON-COMPETITION. Employee expressly covenants and agrees that
for the Employment Period and for a period of two (2) years thereafter, she
shall not, directly or indirectly, seek, obtain or accept a "Competitive
Position" in the "Restricted Territory" with a "Competitor" of the Company (as
such terms are hereafter defined). For purposes of this Agreement, a
"Competitor" of the Company means any business, individual, partnership, joint
venture, association, firm, corporation or other entity engaged primarily in the
business of selling internet access service or in any related telecommunications
business which the Company and its affiliates may engage in from time to time
during the term of this covenant; the "Restricted Territory" means each state of
the United States of
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America; a "Competitive Position" means any employment with any Competitor of
the Company whereby Employee will use or is likely to use any Confidential
Information, or whereby Employee has duties for such Competitor that are the
same or substantially similar to those actually performed by Employee pursuant
to the terms hereof. Nothing contained in this SECTION 7 is intended to prevent
Employee from investing in stock or other securities listed on a national
securities exchange or actively traded on the over the counter market or any
corporation engaged, wholly or partly, in the sale of telecommunications
products or services; provided, however, that Employee and members of her
immediate family shall not, directly or indirectly, hold more than a total of
two percent (2%) of all issued and outstanding stock or other securities of any
such corporation.
8. NON-SOLICITATION.
8.1 NON-SOLICITATION OF CUSTOMERS. Employee agrees that she
will not take any customer lists of the Company after leaving her employ and
that she will, for the Employment Period and for a period of two (2) years
thereafter, refrain from soliciting or attempting to solicit directly or by
assisting others, any business from any of the Company's customers, including
actively sought prospective customers, with whom Employee had "material contact"
during the employment for purposes of providing products or services.
8.2 NON-SOLICITATION OF EMPLOYEES. Employee agrees that she
will, for the Employment Period and for a period of two (2) years thereafter,
refrain from recruiting or hiring, or attempting to recruit or hire, directly or
by assisting others, any other employee of the Company who is employed by the
Company or any successor or affiliate of the Company.
9. TOLLING OF PERIOD OF RESTRAINT. Employee hereby expressly
acknowledges and agrees that in the event the enforceability of any of the terms
of this Agreement shall be challenged in court and Employee is not enjoined from
breaching any of the restraints set forth in SECTION 6 through SECTION 9, then
if a court of competent jurisdiction finds that the challenged restraint is
enforceable, the time period of the restraint shall be deemed tolled upon the
filing of the lawsuit challenging the enforceability of the restraint until the
dispute is finally resolved and all periods of appeal have expired.
10. ACKNOWLEDGEMENTS. Employee hereby acknowledges and agrees that
the restrictions contained in SECTION 6 through SECTION 9 are fair and
reasonable and necessary for the protection of the legitimate business interests
of the Company. Employee acknowledges that in the event Employee's employment
with the Company terminates for any reason, Employee will be able to earn a
livelihood without violating the restrictions contained in SECTION 6 through
SECTION 9 and that Employee's ability to earn a livelihood without violating
such restrictions is a material condition to Employee's employment and continued
employment with the Company. Employee expressly agrees that the character,
duration and geographical scope of the covenants contained in this SECTION 6
through SECTION 9 are reasonable in light of the circumstances as they exist at
the date upon which this Agreement has been executed including the substantial
payments made by the Company to Employee's husband in consideration of the
Merger Agreement. However, should a determination nonetheless be made by a
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court of competent jurisdiction at a later date that the character, duration or
geographical scope of the covenants contained herein are unreasonable in light
of the circumstances as they then exist, then it is the intention of both
Employee and the Company that these covenants shall be construed by the court in
such a manner as to impose only those restrictions on the conduct of Employee
which are reasonable in light of the circumstances as they then exist and
necessary to assure the Company of the intended benefit of these covenants.
11. RIGHTS TO MATERIALS; WORK FOR HIRE. All records, files,
memoranda, reports, price lists, customer lists, drawings, plans, sketches,
documents and the like (together with all copies thereof) relating to the
business of the Company, which Employee shall use or prepare or come in contact
with in the course of, or as a result of, her employment shall, as between the
parties hereto, remain the sole property of the Company. Upon the termination of
Employment or upon the prior demand of the Company, Employee shall immediately
return all such materials and shall not thereafter cause removal thereof from
the premises of the Company. Employee agrees to disclose and assign to the
Company as its exclusive property, all ideas, writings, inventions, discoveries,
improvements and technical or business innovations made or conceived by
Employee, whether or not patentable or copyrightable, either solely or jointly
with others during the Employment Period and for a period of six (6) months
thereafter whether or not made or conceived during regular hours of work or
otherwise, which are along the lines of the business, work or investigations of
the Company or its affiliates. Employee agrees to execute any and all documents
hereafter requested by the Company necessary to further effectuate the
foregoing.
12. REMEDIES. Without limiting the Company's right to claim
damages, Employee acknowledges that the Company will be irreparably harmed by a
breach of any provision of this Agreement and Employee agrees that the Company
shall be entitled to injunctive relief in the event of such breach.
13. GOVERNING LAW; ARBITRATION; JURISDICTION; VENUE; ATTORNEY'S
FEES. This Agreement is made and entered into in and shall be governed by and
interpreted in accordance with the laws of, the State of New York. The Company
and Employee agree that any dispute regarding this Agreement shall be submitted
to arbitration to and shall be resolved in accordance with the rules of the
JAMS/Endispute for expedited cases then in effect. The arbitrator(s) shall be
mutually selected by the parties or in the event the parties cannot mutually
agree, then appointed by JAMS/Endispute. Any arbitration shall be held within a
thirty (30) mile radius of New York City and the arbitrator(s) shall apply New
York law. Judgment upon any award rendered by the arbitrator(s) shall be final
and may be entered in any court of competent jurisdiction. Notwithstanding the
foregoing, the Company shall have the absolute right to obtain equitable
remedies in any state court of competent jurisdiction in the State of New York
or in the United States District Court for the Southern District of New York. By
her execution and delivery of this agreement, Employee irrevocably submits to
and accepts the exclusive jurisdiction of each of such courts and waives any
objection (including any objection to venue or any objection based upon the
grounds of forum non conveniens) which might be asserted against the bringing of
any such action,
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suit or other legal proceeding in such courts. The court and/or arbitrator(s)
shall award costs and expenses (including reasonable attorney's fees) to the
prevailing party in any litigation or arbitration.
14. MISCELLANEOUS.
14.1 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all previous agreements, written and oral, regarding the
subject matter hereof between the parties hereto. This Agreement shall not be
changed, altered, modified or amended, except by a written agreement signed by
both parties hereto.
14.2. NOTICES. All notices, requests, demands and other
communications required or permitted to be given or made under this Agreement
shall be in writing and shall be deemed to have been given if delivered by hand,
sent by generally recognized overnight courier service, telex or telecopy, or
mail,
(a) to the Company care of: With a copy to:
InSite Internet., Inc. Duffy & Sweeney, LLP
1100 First Avenue 300 Turks Head Building
Spring Lake, NJ 07762 Providence, RI 02903
Attention: Mark E. Munro, CEO Attention: Michael F. Sweeney, Esq.
Telephone: (732) 280-6408 Telephone: (401) 455-0700
Fax: (732) 280-6409 Fax: (401) 455-0701
(b) to the Employee at: With a copy to:
Joann E. Halpern Fried & Company
56 Scism Road 700 Thirteenth Street, N.W.
Tivoli, NY 12583 Suite 325
Washington, DC 20005
Attn: Jeffrey S. Fried &
Mark A. Garfinkel
Telephone: (202) 331-3900
Fax: (202) 331-3905
14.3 ASSIGNMENT. The Company may assign this Agreement to
(i) any entity controlling, controlled by or under common control with the
Company or (ii) to any purchaser of the Company's assets provided that such
purchaser agrees to assume the Company's obligations hereunder.
14.4. SEVERABILITY. If any term or provision of this
Agreement, or the application thereof to any person or under any circumstance,
shall to any extent be invalid or unenforceable, the
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remainder of this Agreement, or the application of such terms to the persons or
under circumstances other than those as to which it is invalid or unenforceable,
shall be considered severable and shall not be affected thereby, and each term
of this Agreement shall be valid and enforceable to the fullest extent permitted
by law. The invalid or unenforceable provisions shall, to the extent permitted
by law, be deemed amended and given such interpretation as to achieve the
economic intent of this Agreement.
14.5. WAIVER. The failure of any party to insist in any one
instance or more upon strict performance of any of the terms and conditions
hereof, or to exercise any right or privilege herein conferred, shall not be
construed as a waiver of such terms, conditions, rights or privileges, but same
shall continue to remain in full force and effect. Any waiver by any party of
any violation of, breach of or default under any provision of this Agreement by
the other party shall not be construed as, or constitute, a continuing waiver of
such provision, or waiver of any other violation of, breach of or default under
any other provision of this Agreement.
14.6. TITLES; GENDER. Section and subsection titles are for
convenience of reference only and are not to be considered in the interpretation
or construction of any of the provisions hereof. All pronouns or any variations
thereof contained in this Agreement refer to the masculine, feminine or neuter
as the identity of the person may require.
14.7 SURVIVAL. SECTION 6 through SECTION 14 hereof shall
survive any termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY:
ATTEST: INSITE INTERNET ACQUISITION IV CO., INC.
By:
- ------------------------------- -------------------------------------
Mark E. Munro, President
WITNESS: EMPLOYEE:
- ------------------------------- ---------------------------------
Joann E. Halpern
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Exhibit 10.4
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
INTRODUCTION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the "Agreement")
is entered into as of the 8th day of February, 1999 by and among InSite
Internet, Inc., a Delaware corporation (the "Parent"), InSite Internet V
Acquisition Co., Inc., a Connecticut corporation ("Newco"), Caravela Software,
Inc., a Connecticut corporation (doing business as "Connix") (the "Company") and
James Hogue and Gary Wright, the stockholders of the Company (collectively, the
"Stockholders").
BACKGROUND
A. The Parent intends to undertake an initial public offering of its common
stock (the "IPO") and in connection therewith contemplates filing a registration
statement with the Securities and Exchange Commission ("SEC") within ninety (90)
days of the execution and delivery of this Agreement.
B. Contemporaneously with and conditioned upon the successful closing of the
IPO, the Parent, Newco and the Company intend to effect a merger of the Company
into Newco in accordance with this Agreement and the Connecticut Business
Corporation Act (the "Merger"). Upon consummation of the Merger, the Company
will cease to exist, and Newco will continue to exist as the surviving
corporation of the Merger.
C. It is intended that the Merger qualify as a tax-free reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code") and that this Agreement constitute a plan of reorganization for
such purposes.
D. This Agreement has been adopted and approved by the respective boards of
directors of the Parent, Newco and the Company, and the shareholders of Newco
and the Stockholders have each unanimously approved this Agreement by written
consent.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual and dependent promises
and the representations and warranties hereinafter contained, the parties hereto
agree as follows:
SECTION 1. DESCRIPTION OF THE MERGER TRANSACTION.
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1.1 MERGER OF THE COMPANY INTO NEWCO. Upon the terms and subject to the
conditions set forth in this Agreement, at the Effective Time (as defined in
SECTION 1.2), the Company shall be merged with and into Newco, and the separate
existence of the Company shall cease.
1.2 EFFECTIVE TIME. The effective time of the Merger (the "Effective
Time") shall occur at the time a properly executed certificate of merger for the
merger of the Company into Newco, conforming to the requirements of the
Connecticut Business Corporation Act (the "Merger Certificate") has been
delivered and accepted for filing by the Secretary of State of the State of
Connecticut. At the Effective Time, Newco shall be merged with and into the
Company in accordance with the Merger Certificate and the separate existence of
the Company shall cease and Newco shall continue as the surviving corporation
(the "Surviving Corporation"). The Effective Time shall occur contemporaneously
with the IPO Closing Date as described in SECTION 1.7 below
1.3 ARTICLES OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF THE
SURVIVING CORPORATION. At the Effective Time:
(a) The Articles of Incorporation of Newco shall become the
Articles of Incorporation of the Surviving Corporation; and, subsequent to the
Effective Time, such Articles of Incorporation shall be the Articles of
Incorporation of the Surviving Corporation until changed as provided by law.
(b) The bylaws of Newco shall become the bylaws of the
Surviving Corporation; and, subsequent to the Effective Time, such bylaws shall
be the bylaws of the Surviving Corporation until they shall thereafter be duly
amended.
(c) The Board of Directors of the Surviving Corporation shall
be set forth on EXHIBIT 1.3 hereto and shall hold office subject to the
provisions to the laws of the Surviving Corporation's state of incorporation and
of the Articles of Incorporation and bylaws of the Surviving Corporation.
(d) The officers of the Surviving Corporation shall be set
forth on EXHIBIT 1.3 hereto, each of such officers to serve, subject to the
provisions of the Articles of Incorporation and bylaws of the Surviving
Corporation, until his or her successor is elected and qualified.
1.4 EFFECT OF MERGER. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of the Connecticut Business
Corporation Act. Except as herein specifically set forth, the identity,
existence, purposes, powers, objects, franchises, privileges, rights and
immunities of Newco shall continue unaffected and unimpaired by the Merger and
the corporate franchises, existence and rights of the Company shall be merged
with
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and into Newco, and Newco, as the Surviving Corporation, shall be fully vested
therewith. At the Effective Time, the separate existence of the Company shall
cease and, in accordance with the terms of this Agreement, the Surviving
Corporation shall possess all the rights, privileges, immunities and franchises,
of a public as well as of a private nature, and all property, real, personal and
mixed, and all debts due on whatever account, including subscriptions to shares,
and all taxes, including those due and owing and those accrued, and all other
choses in action, and all and every other interest of or belonging to or due to
the Company and Newco shall be taken and deemed to be transferred to, and vested
in, the Surviving Corporation without further act or deed; and all property,
rights and privileges, powers and franchises and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the Company and Newco; and the title to any real estate, or
interest therein, whether by deed or otherwise, vested in the Company and Newco,
shall not revert or be in any way impaired by reason of the Merger. Except as
otherwise provided herein, the Surviving Corporation shall thenceforth be
responsible and liable for all the liabilities and obligations of the Company
and Newco and any claim existing, or action or proceeding pending, by or against
the Company or Newco may be prosecuted as if the Merger had not taken place, or
the Surviving Corporation may be substituted in its place. Neither the rights of
creditors nor any liens upon the property of the Company or Newco shall be
impaired by the Merger, and all debts, liabilities and duties of the Company and
Newco shall attach to the Surviving Corporation, and may be enforced against the
Surviving Corporation to the same extent as if said debts, liabilities and
duties had been incurred or contracted by the Surviving Corporation.
1.5 MERGER CONSIDERATION; CONVERSION OF SHARES.
(a) As of the Effective Time, all of the shares of Common
Stock of the Company, $10 par value per share ("Company Stock"), issued and
outstanding immediately prior to the Effective Time, by virtue of the Merger and
without any action on the part of the holders thereof, shall be automatically
converted to, in the aggregate, shares of Common Stock of the Parent, par value
$.01 per share ("Parent Stock") and cash, as follows (collectively, the "Merger
Consideration"):
(1) a number of shares of Parent Stock equal to the
quotient of $2,800,000 divided by the public offering price
per share of Parent Stock offered to the public in the IPO;
and
(2) cash, certified check, wire transfer or other
immediately available funds in the amount of $2,180,000,
subject to the post-closing adjustment with respect to such
amount as set forth in SECTION 2 below.
(b) Each share of Company Stock held in the treasury of the
Company immediately prior the Effective Time (if any) shall be canceled without
any conversion thereof and no payment shall be made with respect thereto.
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(c) As of and after the Effective Time, the Surviving
Corporation shall not be bound by any options, warrants, rights or agreements
with respect to the issuance or acquisition of capital stock of the Company
which would entitle any person to own, purchase or receive any capital stock of
the Company. As of the date hereof, there are no options, warrants, rights or
agreements with respect to the issuance or acquisition of the capital stock of
the Company except for the Merger transaction contemplated by this Agreement.
1.6 DELIVERY OF MERGER CONSIDERATION/ESCROW OF SHARES/SET-OFF.
(a) At the Closing, the Stockholders shall, upon surrender of
certificates representing all outstanding shares of Company Stock, receive their
pro rata share of the aggregate Merger Consideration set forth in SECTION 1.5
above in accordance with the percentage ownership interests of the Stockholders
reflected on SCHEDULE 3.4 hereto, provided, however, that a number of shares of
Parent Stock included in the aggregate Merger Consideration with a value of
$100,000 based on the public offering price per share of Parent Stock offered to
the public in the IPO (the "Escrow Shares") and allocated pro rata among the
Stockholders shall be delivered into escrow at the Closing pursuant to the
Escrow Agreement attached hereto as EXHIBIT 1.6. In addition to all other rights
and remedies of the Parent, Newco and the Surviving Corporation for breach by
the Company or the Stockholders of the representations and warranties of the
Company and Stockholders herein, both at law and in equity, the Parent shall
have the right to set-off against the Escrow Shares for any claims of the Parent
or the Surviving Corporation arising under the post Closing adjustment
provisions of SECTION 2 below and/or the indemnity provisions of SECTION 12
below.
(b) The Stockholders shall deliver to the Parent at the
Closing the certificates representing Company Stock, duly endorsed in blank by
each Stockholder, or accompanied by duly executed stock powers. The Stockholders
shall cure any deficiencies with respect to the endorsement of the certificates
or other documents of conveyance with respect to Company Stock or with respect
to the stock powers accompanying any of Company Stock.
(c) Upon surrender of the certificates representing shares of
Company Stock, such certificates shall be canceled, and as of the Effective
Time, the stock transfer books of the Company shall be closed and there shall be
no further registration of transfers of shares of the Company thereafter.
(d) No certificates representing fractional shares of Parent
Stock shall be issued upon the surrender of certificates which, prior to the
Effective Time, represented shares of Company Stock. In lieu of any such
fractional shares, the Stockholders will be paid an amount in cash based on the
public offering price of Parent Stock in the IPO.
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1.7 CLOSING. Within two (2) business days following the date
on which the price of the shares of Parent Stock offered to the public in the
IPO shall have been determined, the Parent, the Company and Newco shall take all
actions necessary to effect the Merger (including filing the Merger Certificate
which shall become effective at the Effective Time) and to effect the conversion
and delivery of shares referred to in SECTION 1.6 hereof (hereinafter referred
to as the "Closing"); provided, however, that such actions shall not include the
actual completion of the Merger or the conversion and delivery of the shares
referred to in SECTION 1.6 hereof, which actions shall only take place at the
Effective Time (which shall be contemporaneous with the IPO closing date) as
herein provided. The Closing shall take place at the offices of Duffy & Sweeney,
LLP, 300 Turks Head Building, Providence, Rhode Island 02903, or at such other
place and time or date as may be mutually agreed upon by the parties hereto. The
actual date of the Closing is referred to herein as the "Closing Date".
Concurrently with the closing of the IPO, the Merger shall become effective and
all transactions contemplated by this Agreement, including the conversion and
delivery of shares and the delivery of checks in for the cash portion of the
Merger Consideration, shall be completed. Except as otherwise provided in
SECTION 9 hereto, during the period between the date of the final pricing of the
shares of Parent Stock to be offered to the public in the contemplated IPO (as
determined by the Parent and its underwriters), and the Closing Date, this
Agreement may only be terminated by the parties if the underwriting agreement in
respect of the IPO is terminated pursuant to its terms. This Agreement shall in
any event terminate if the Effective Time has not occurred within 15 business
days of the Closing Date. Time is of the essence.
SECTION 2. POST CLOSING ADJUSTMENT
2.1 POST-CLOSING ADJUSTMENT. Within forty-five (45) days after the
Closing, the Parent shall engage KPMG Peat Marwick LLP to audit a balance sheet
prepared in accordance with generally accepted accounting principles ("GAAP") of
the Company as of 5:00 PM (EST) on the day prior to the Closing Date (the
"Closing Date Balance Sheet"). Such Closing Date Balance Sheet will utilize the
accrual method of accounting even if the Company has heretofore utilized the
cash basis method of accounting. If the aggregate shareholders' equity as shown
on the Closing Date Balance Sheet is less than $40,000 (the amount of such
shortfall being hereafter known as the "Net Worth Deficiency"), the Stockholders
shall pay, within five (5) days of the date of determination of the Net Worth
Deficiency (subject to the dispute resolution procedure set forth below) (i) 40%
of the Net Worth Deficiency to the Parent in cash, by certified check or by wire
transfer of immediately available funds, and (ii) 60% of the Net Worth
Deficiency in Shares of Parent Common Stock which shall be valued at the
"closing sales price" (as defined in SECTION 4(B)(I) of the Escrow Agreement
attached hereto as EXHIBIT 1.6) for the ten (10) business day period immediately
preceding the date the parties reach agreement as to any Net Worth Deficiency.
The Parent shall have the option, at its sole discretion and notwithstanding any
language to the contrary in the Escrow Agreement, to receive the shares of
Parent Stock necessary to satisfy 60% of the Net Worth Deficiency from the
Stockholders directly (i.e. not from the "Escrow Shares") or from the Escrow
Shares. Notwithstanding anything in this SECTION
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2 to the contrary, if there is any Net Worth Deficiency and the Stockholders
dispute any item contained on the Closing Date Balance Sheet, the Stockholders
shall notify the Parent in writing of each disputed item (collectively, the
"Disputed Amounts"), and specify the amount thereof in dispute within thirty
(30) business days after the delivery of the Closing Date Balance Sheet. If the
Parent and the Stockholders cannot resolve any such dispute which would
eliminate or reduce the amount of the Net Worth Deficiency, then such dispute
shall be resolved by an independent nationally recognized accounting firm which
is reasonably acceptable to the Parent and the Stockholders (the "Independent
Accounting Firm"). The determination of the Independent Accounting Firm shall be
made as promptly as practical and shall be final and binding on the parties,
absent manifest error which error may only be corrected by such Independent
Accounting Firm. Any expenses relating to the engagement of the Independent
Accounting Firm shall be allocated between the Parent and the Stockholders so
that the Stockholders' aggregate share of such costs shall bear the same
proportion to the total costs that the Disputed Amounts unsuccessfully contested
by the Stockholders (as finally determined by the Independent Accounting Firm)
bear to the total of the Disputed Amounts so submitted to the Independent
Accounting Firm.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
3.1 MAKING OF REPRESENTATIONS AND WARRANTIES. As a material inducement
to the Parent and Newco to enter into this Agreement and consummate the
transactions contemplated hereby, the Company and each of the Stockholders
hereby jointly and severally make to the Parent and Newco the representations
and warranties contained in this SECTION 3.
3.2 ORGANIZATION AND QUALIFICATION OF THE COMPANY. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of Connecticut with full corporate power and authority to own or lease its
properties and to conduct its business in the manner and in the places where
such properties are owned or leased and where such business is currently
conducted or proposed to be conducted. The copies of the Certificate of
Incorporation of the Company as amended to date, certified by the Secretary of
State of Connecticut and the bylaws certified by the Secretary of the Company
and heretofore delivered to the Parent's counsel, are complete and correct, and
no amendments thereto are pending. The stock records and minute books of the
Company which have heretofore been delivered to the Parent's counsel are correct
and complete. The Company is not conducting business in any state other than
Connecticut, to the best of its knowledge, is not required to qualify to do
business as a foreign corporation in any jurisdiction.
3.3 SUBSIDIARIES; INVESTMENTS. Except as set forth in SCHEDULE 3.3, the
Company has no direct or indirect subsidiaries and owns no securities issued by
any other business organization or governmental authority, except U.S.
Government securities, bank certificates of deposit and money market accounts
acquired as short-term investments in the ordinary course of its business.
Except as set forth in SCHEDULE 3.3, the Company neither owns nor has any direct
or
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indirect interest in or control over any corporation, partnership, joint venture
or entity of any kind. For purposes of this Agreement, the term "subsidiary"
means, with respect to any person, any corporation 20% or more of the
outstanding voting securities of which, or any partnership, joint venture or
other entity 20% or more of the total equity interest of which, is directly or
indirectly owned by such person.
3.4 CAPITAL STOCK. The total authorized capital stock of the Company
consists solely of the shares listed on SCHEDULE 3.4. All of the issued and
outstanding shares of the Company Common Stock are duly authorized and validly
issued, are fully paid and nonassessable, are owned of record and beneficially
by the Stockholders as set forth in SCHEDULE 3.4 free and clear of any liens,
claims, encumbrances, restrictions, security interests, mortgages, pledges or
other demands, and all such shares were offered, issued, sold and delivered by
the Company in compliance with all applicable state and federal laws concerning
the issuance of securities. Further, none of such shares were issued in
violation of the preemptive rights of any past or present stockholder. No shares
of the Company Stock are held in the treasury of the Company. SCHEDULE 3.4
contains a complete and correct listing of the Stockholders of the Company at
the date hereof, together with the number and class of the capital stock of the
Company owned by each such stockholder. There are no outstanding subscriptions,
options, warrants, commitments, preemptive rights, agreements, arrangements or
commitments of any kind for or relating to the issuance, sale, registration or
voting of, or outstanding securities convertible into or exchangeable for, any
shares of capital stock of any class or other equity interests of the Company.
The Company has never acquired any treasury stock.
3.5 AUTHORITY OF THE COMPANY AND THE STOCKHOLDERS
(a) The Company has full right, power and authority to enter
into this Agreement and each agreement, document and instrument to be executed
and delivered by it pursuant to or as contemplated by this Agreement and to
carry out the transactions contemplated hereby and thereby. The execution,
delivery and performance by the Company of this Agreement and each such other
agreement, document and instrument have been duly authorized by the Company's
Board of Directors, and have been approved by the Stockholders by a unanimous
written consent vote executed by each Stockholder. This Agreement and each
agreement, document and instrument to be executed and delivered by the Company
pursuant to or as contemplated by this Agreement (to the extent it contains
obligations to be performed by the Company) constitutes, or when executed,
delivered and approved by the Company Stockholders will constitute, valid and
binding obligations of the Company, enforceable in accordance with their
respective terms. The execution, delivery and performance by the Company of this
Agreement and each such other agreement, document and instrument:
(i) does not and will not violate any provision of
the Certificate of Incorporation or bylaws of the Company;
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(ii) does not and will not violate any laws of the
United States, or any state or other jurisdiction applicable to the
Company or require the Company to obtain any court, regulatory body,
administrative agency or other approval, consent or waiver, or make any
filing with, any federal, state, local or foreign governmental body,
agency or official ("Governmental Entity") that has not been obtained or
made, other than the filing of the Certificate of Merger in accordance
with the Connecticut Business Corporation Act and except for any other
approvals, consents, waivers and filings that, if not obtained or made,
individually or in the aggregate, would not have a material adverse
effect on the properties, assets, business, financial condition or
prospects of the Company; and
(iii) except as otherwise indicated on SCHEDULE 3.15
hereto, do not and will not result in a breach of, constitute a default
under, accelerate any obligation under, or give rise to a right of
termination of any indenture or loan or credit agreement or any other
agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination
or arbitration award, whether written or oral, to which the Company is a
party or by which the property of the Company is bound or affected, or
result in the creation or imposition of any mortgage, pledge, lien,
security interest or other charge or encumbrance on any of the assets of
the Company, except where such breach, default, acceleration or right of
termination would not have a material adverse effect on the properties,
assets, business, financial condition or prospects of the Company, and
would not result in the creation or imposition of any mortgage, pledge,
lien, security interest or other charge or encumbrance on any of the
assets of the Company.
(b) Each Stockholder has full right, authority and power to
enter into this Agreement and each agreement, document and instrument to be
executed and delivered by or on behalf of it pursuant to or as contemplated by
this Agreement and to carry out the transactions contemplated hereby and
thereby. This Agreement and each agreement, document and instrument to be
executed and delivered by each Stockholder pursuant to or as contemplated by
this Agreement (to the extent it contains obligations to be performed by such
Stockholder) constitutes, or when executed and delivered will constitute, valid
and binding obligations of such Stockholder enforceable in accordance with their
respective terms, subject to the terms hereof. The execution, delivery and
performance by each Stockholder of this Agreement and each such agreement,
document and instrument:
(i) do not and will not violate any provision of the
Articles of Incorporation or bylaws of the Company;
(ii) do not and will not violate any laws of the
United States, or any state or other jurisdiction applicable to such
Stockholder or require such Stockholder to obtain any approval, consent
or waiver of, or make any filing with, any Governmental Entity that has
not been obtained or made; and
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(iii) do not and will not result in a breach of,
constitute a default under, accelerate any obligation under or give rise
to a right of termination of any indenture or loan or credit agreement
or any other agreement, contract, instrument, mortgage, lien, lease,
permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award to which such Stockholder is a party
or by which the property of such Stockholder is bound or to which the
property of such Stockholder is subject or result in the creation or
imposition of any mortgage, pledge, lien, security interest or other
charge or encumbrance on any of the assets or properties of the Company.
Except as disclosed on SCHEDULE 3.15, there are no Stockholder
agreements with respect to the ownership or operation of the Company,
and any such agreements shall be terminated prior to the Closing.
3.6 STATUS OF PROPERTY OWNED OR LEASED.
(a) REAL PROPERTY. The real property identified as being owned
or leased by the Company on SCHEDULE 3.6(A) is collectively referred to herein
as the "Real Property". The Real Property constitutes all the real property
owned and leased by the Company.
(i) TITLE. Except as set forth on SCHEDULE 3.6(A),
there are no unrecorded mortgages, deeds of trust, ground leases,
security interests or similar encumbrances, liens, assessments,
licenses, claims, rights of first offer or refusal, options, or options
to purchase, or any covenants, conditions, restrictions, rights of way,
easements, judgments or other encumbrances or matters affecting title
to the Real Property. There are no leases, tenancies or occupancy
rights of any kind affecting any of the Real Property.
(ii) SECURITY INTERESTS. There is not now, nor, as a
result of the consummation of the transactions contemplated hereby,
will there be, any mortgages, deeds of trust, ground leases, security
interests or similar encumbrances on the Real Property, except as set
forth on SCHEDULE 3.6(A) (collectively, the "Encumbrances"). There is
no outstanding principal balance or accrued unpaid interest or other
amount due as of the date hereof under any instrument secured by any of
the Encumbrances and all payments required under each Encumbrance to
the date hereof have been made in full. No condition or fact does or
will exist, as a result of the consummation of the transactions
contemplated hereby, which, with the lapse of time or the giving of
notice or both, would constitute a material default thereunder or
result in any acceleration of the indebtedness secured thereby or any
increase in the amount of interest, premiums or penalties payable on
such indebtedness.
(iii) COMMISSIONS. There are no brokerage or leasing
fees or commissions or other compensation due or payable on an absolute
or contingent basis to any person, firm, corporation, or other entity
with respect to or on account of any of the
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Encumbrances or the Real Property, and no such fees, commissions or
other compensation shall, by reason on any existing agreement, become
due after the date hereof.
(iv) PHYSICAL CONDITION. Except as set forth on
SCHEDULE 3.6(A), there is no material defect in the physical condition
of any of the Real Property. Except as set forth on SCHEDULE 3.6(A),
there is no material defect in any material improvements located on or
constituting a part of any of the Real Property, including, without
limitation, the structural elements thereof, the mechanical systems
(including without limitation all heating, ventilating, air
conditioning, plumbing, electrical, elevator, security,
telecommunication, utility, and sprinkler systems) therein, the roofs
or the parking and loading areas (collectively, the "Improvements").
All of the Improvements located on or constituting a part of any of the
Real Property, including, without limitation, the structural elements
thereof, the mechanical systems therein, the roofs and the parking and
loading areas are in generally good operating condition and repair.
(v) UTILITIES. The Company has not received any
written notice of any termination or impairment of the furnishing of,
or any material increase in rates for, services to any of the Real
Property of water, sewer, gas, electric, telecommunication, drainage or
other utility services, except ordinary and usual rate increases
applicable to all customers (or all customers of a certain class) of a
utility provider. The Company has not entered into any agreement
requiring it to pay to any utility provider rates which are less
favorable than rates generally applicable to customers of the same
class as the Company.
(vi) COMPLIANCE. Except as set forth on SCHEDULE
3.6(A), the Company has not received any written notice from any
municipal, state, federal or other governmental authority with respect
to any violation of any zoning, building, fire, water, use, health,
environmental or other statute, ordinance, code or regulation issued in
respect of any of the Real Property that has not been heretofore
corrected, and except in either case as set forth in SCHEDULE 3.6(A)
hereto.
(vii) GOVERNMENT APPROVALS. The Company has not
received any notice of any plan, study or effort by any Governmental
Entity which would adversely affect the present use, zoning or value to
the Company of any of the Real Property or which would modify or
realign any adjacent street or highway in a manner materially adverse
to the Company.
(viii) ZONING. The Company has not received any
notice of any zoning violations. All buildings and improvements
situated on the Real Property were built pursuant to validly issued
building permits. Certificates of occupancy were issued for all such
structures as built, and all such structures have been maintained as
built since such certificates were issued.
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(ix) REAL PROPERTY TAXES. Except as set forth in said
SCHEDULE 3.6(A), no special assessments of any kind (special, bond or
otherwise) are or have been levied against any Real Property, or any
portion thereof, which are outstanding or unpaid. Each property
constituting part of the Real Property is assessed as a separate and
distinct tax lot.
(x) SERVICE CONTRACTS. A complete list of all
material existing service, management, supply or maintenance or
equipment lease contracts and other contractual agreements affecting
the Real Property or any portion thereof to which the Company is a
party (the "Service Contracts") is set forth on SCHEDULE 3.6(A). All
such Service Contracts are terminable upon no more than thirty (30)
days written notice, at no cost, except as specified in SCHEDULE
3.6(A).
(b) PERSONAL PROPERTY. A list of each item of the machinery,
equipment and other fixed assets owned or leased by the Company having a fair
market value of at least $5,000 (the "Equipment"), is contained in SCHEDULE
3.6(B) hereto. All of the Equipment and other machinery, equipment and personal
property of the Company is located on the Real Property or used in the operation
of the Company. Except as specifically disclosed in SCHEDULE 3.6(B) or in the
Company Financial Statements (as hereinafter defined), the Company has good and
marketable title to all of the personal property owned by it. None of such
personal property or assets is subject to any mortgage, pledge, lien,
conditional sale agreement, security title, encumbrance or other charge except
as specifically disclosed in any Schedule hereto or in the Financial Statements.
The Financial Statements reflect all personal property of the Company, subject
to dispositions and additions in the ordinary course of business consistent with
this Agreement. Except as otherwise specified in SCHEDULE 3.6(B) hereto, all
leasehold improvements, furnishings, machinery and equipment of the Company are
in generally good repair, normal wear and tear excepted, have been well
maintained, and conform in all material respects with all applicable ordinances,
regulations and other laws.
3.7. FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.
(a) The Company has delivered to the Parent the following
financial statements, copies of which are attached hereto as SCHEDULE 3.7:
(i) Audited balance sheets of the Company dated
December 31, 1995, December 31, 1996, and December 31, 1997, and audited
statements of income, stockholders' equity and cash flows for each of
the three (3) years ended December 31, 1995, 1996 and 1997 (the
"Year-End Company Financial Statements");
(ii) Unaudited balance sheets of the Company as of
December 31, 1998 (herein the "Company Balance Sheet Date") and
statements of income, stockholders'
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equity and cash flows for the year ended December 31, 1998, certified by
the chief financial officer of the Company (the "Interim Company
Financial Statements", together with the Year-End Company Financial
Statements, the "Company Financial Statements");
The Company Financial Statements have been prepared in accordance with GAAP
applied consistently during the periods covered thereby (except that the Interim
Company Financial Statements are subject to normal year-end audit adjustments
and do not include footnotes), and present fairly in all respects the financial
condition of the Company at the dates of said statements and the results of
their operations for the periods covered thereby.
(b) As of the Company Balance Sheet Date, the Company had no
liabilities of any nature, whether accrued, absolute, contingent or otherwise,
(including without limitation liabilities as guarantor or otherwise with respect
to obligations of others or contingent liabilities arising prior to the Company
Balance Sheet Date) except liabilities stated or adequately reserved for on the
Company Financial Statements or reflected in Schedules furnished to Parent
hereunder as of the date hereof.
(c) As of the date hereof, the Company has no liabilities of
any nature, whether accrued, absolute, contingent or otherwise, (including
without limitation liabilities as guarantor or otherwise with respect to
obligations of others, or liabilities for taxes due or then accrued or to become
due or contingent liabilities arising prior to the date hereof or the Closing,
as the case may be) except liabilities (i) stated or adequately reserved for on
the appropriate Company Financial Statement or the notes thereto, (ii) reflected
in Schedules furnished to Parent hereunder on the date hereof or (iii) incurred
in the ordinary course of business of the Company consistent with prior
practices.
(d) All financial information delivered to KPMG LLP in
connection with their audit of the Company's financial statements for the
contemplated IPO as of the date hereof are true and correct in all material
respects and reflect all material liabilities of the Company as of the date(s)
of such information, and have been prepared in accordance with accounting
principles applied consistently during the periods covered thereby.
3.8 TAXES.
(a) The Company has paid or caused to be paid all federal,
state, local, foreign and other taxes, including without limitation income
taxes, estimated taxes, alternative minimum taxes, excise taxes, sales taxes,
use taxes, value-added taxes, gross receipts taxes, franchise taxes, capital
stock taxes, employment and payroll-related taxes, withholding taxes, stamp
taxes, transfer taxes and property taxes, whether or not measured in whole or in
part by net income, and all deficiencies, or other additions to tax, interest,
fines and penalties owed by it (collectively, "Taxes"), in the amounts indicated
on tax returns filed by the Company through the date hereof or in correspondence
received from any federal, state, local or foreign government taxing
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authority, whether disputed or not (other than current taxes the liability for
which is adequately reserved for on the financial statements provided to the
Parent pursuant to SECTION 3.7 hereof).
(b) The Company has in accordance with applicable law filed
all federal, state, local and foreign tax returns required to be filed by it
through the date hereof and all such returns correctly and accurately set forth
the amount of any Taxes relating to the applicable period. For every taxable
period of the Company, the Company has delivered or made available to Parent
complete and correct copies of all federal, state, local and foreign income tax
returns, examination reports and statements of deficiencies assessed against or
agreed to by the Company. SCHEDULE 3.8 attached hereto sets forth all federal
tax elections under the Internal Revenue Code of 1986, as amended (the "Code"),
that are in effect with respect to the Company or for which an application by
the Company is pending.
(c) Neither the Internal Revenue Service ("IRS") nor any other
governmental authority is now asserting in writing or threatening to assert
against the Company any deficiency or claim for additional Taxes or a claim that
the Company is or may be subject to taxation by that jurisdiction. There are no
security interests on any of the assets of the Company that arose in connection
with any failure (or alleged failure) to pay any Tax. The Company has not
entered into a closing agreement pursuant to Section 7121 of the Code.
(d) Except as set forth in SCHEDULE 3.8 attached hereto, there
has not been any audit of any tax return filed by the Company, no audit of any
tax return of the Company is in progress, and the Company has not been notified
by any tax authority that any such audit is contemplated or pending. Except as
set forth in SCHEDULE 3.8, no extension of time with respect to any date on
which a tax return was or is to be filed by the Company is in force, and no
waiver or agreement by the Company is in force for the extension of time for the
assessment or payment of any Taxes.
(e) (i) The Company has not consented to have the provisions
of Section 341(f)(2) of the Code applied to it, (ii) the Company has not agreed
to, and has not been requested by any governmental authority to, make any
adjustments under Section 481(a) of the Code by reason of a change in accounting
method or otherwise and (iii) the Company has never made any payments, is
obligated to make any payments, or is a party to any agreement that under
certain circumstances would obligate it to make any payments, that will not be
deductible under Section 280G of the Code. The Company has disclosed on its
federal income tax returns all positions taken therein that could give rise to a
penalty for underpayment of federal Tax under Section 6662 of the Code. The
Company has never had any liability for unpaid Taxes because it is a member of
an "affiliated group" (as defined in Section 1504(a) of the Code). The Company
has never filed, nor has it ever been required to file, a consolidated, combined
or unitary tax return with any entity. The Company is not a party to any tax
sharing agreement.
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(f) The Company computes its federal taxable income under the
cash basis method of accounting.
(g) For purposes of this SECTION 3.8, all references to
Sections of the Code shall include any predecessor provisions to such Sections
and any similar provisions of federal, state, local or foreign law.
3.9 ACCOUNTS RECEIVABLE. All accounts receivable of the Company as of
the respective balance sheet dates in the Company Financial Statements and all
accounts receivable arising thereafter or hereafter to the Closing Date, arose
or will arise from valid sales in the ordinary course of business. Except as set
forth in SCHEDULE 3.9, the Company has no accounts or loans receivable from any
person, firm or corporation which is affiliated with the Company. For purposes
hereof, "affiliate" means (i) any Stockholder, or (ii) any business entity which
controls, or is controlled by, or is under common control with the Company or
with any Stockholder (where "control" shall mean a 20% or greater ownership
interest).
3.10 INVENTORIES. The Company maintains less than $10,000 of inventory,
all saleable in the ordinary course and stated in accordance with GAAP.
3.11 ABSENCE OF CERTAIN CHANGES.
Since December 31, 1997, the Company has conducted its business only in
the ordinary course and consistent with past practices and except as disclosed
in SCHEDULE 3.11 there has not been:
(i) Any change in the properties, assets, liabilities,
business, operations, financial condition or prospects of the Company
which change by itself or in conjunction with all other such changes,
whether or not arising in the ordinary course of business, has been
materially adverse with respect to the Company;
(ii) Except for the endorsement of checks in the ordinary
course of business any material contingent liability incurred by the
Company as guarantor or otherwise with respect to the obligations of
others or any cancellation of any material debt or claim owing to, or
waiver of any material right of, the Company;
(iii) Any mortgage, encumbrance or lien placed on any of the
properties of the Company which remains in existence on the date hereof
or will remain on the Closing Date except for liens permitted by any
current agreement of the Company with respect to borrowed money;
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(iv) Any purchase, sale or other disposition, or any
agreement or other arrangement for the purchase, sale or other
disposition, of any capital assets of the Company costing more than
$10,000;
(v) Any damage, destruction or loss, whether or not covered
by insurance, materially and adversely affecting any of the properties,
assets or business of the Company;
(vi) Any declaration, setting aside or payment of any
dividend by the Company, or the making of any other distribution in
respect of the capital stock of the Company, any direct or indirect
redemption, purchase or other acquisition by the Company of its own
capital stock, any issuance or sale of any securities convertible into
or exchangeable for debt or equity securities of the Company or any
grant, issuance or exercise of options, warrants, subscriptions,
preemptive rights, agreements, arrangements or commitments of any kind
for or relating to the issuance, sale, registration or voting of any
shares of capital stock of any class or other equity interests of the
Company;
(vii) Any claim of unfair labor practices asserted against
the Company; any change in the compensation (in the form of salaries,
wages, incentive arrangements or otherwise) payable or to become
payable by the Company to any of its officers, employees, agents or
independent contractors other than customary merit or cost of living
increases in accordance with its usual practices, or any bonus payment
or arrangement made to or with any of such officers, employees, agents
or independent contractors; any entering into any employment, deferred
compensation or other similar agreement (or any amendment to any such
existing agreement) with any officer, director or employee of the
Company except for employment arrangements providing for salary or
wages of less than $20,000 per annum and any oral agreement terminable
at will by the Company;
(viii) Any change with respect to the officers or senior
management of the Company, any grant of any severance or termination
pay to any officer or employee of the Company;
(ix) Any payment or discharge of a material lien or
liability of the Company which was not shown on the Company Financial
Statements or incurred in the ordinary course of business thereafter;
(x) Any obligation or liability incurred by the Company to
any of its officers, directors or stockholders, or any loans or
advances made by the Company to any of its officers, directors,
stockholders, except normal compensation and expense allowances payable
to officers or employees;
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(xi) Any change in accounting methods or practices, credit
practices or collection policies used by the Company other than to
comply with new accounting pronouncements;
(xii) Any other transaction entered into by the Company
other than transactions in the ordinary course of business; or
(xiii) Any agreement or understanding whether in writing or
otherwise, that would result in any of the transactions or events or
require the Company to take any of the actions specified in paragraphs
(i) through (xii) above.
3.12 BANKING RELATIONS. All of the arrangements which the Company has
with any banking institution are described in SCHEDULE 3.12 attached hereto,
indicating with respect to each of such arrangements the type of arrangement
maintained (such as checking account, borrowing arrangements, safe deposit box,
etc.), the names in which the accounts are held, the account number, and the
name of each person, corporation, firm or other entity authorized in respect
thereof.
3.13 PATENTS, TRADE NAMES, TRADEMARKS, COPYRIGHTS AND PROPRIETARY
RIGHTS. All patents, patent applications, trademark registrations, trademark
registration applications, copyright registrations, copyright registration
applications and all material trade names, trademarks, copyrights and other
material proprietary rights owned by or licensed to the Company or used in its
respective business as presently conducted (the "Proprietary Rights") are listed
in SCHEDULE 3.13 attached hereto. All of the material patents, registered
trademarks and copyrights of the Company and all of the material patent
applications, trademark registration applications and copyright registration
applications of the Company have been duly registered in, filed in or issued by
the United States Patent and Trademark Office, the United States Register of
Copyrights or the corresponding offices of other countries identified on said
schedule. Except as set forth in SCHEDULE 3.13: (a) use of said patents, trade
names, trademarks, copyrights or other proprietary rights in the ordinary course
of business as presently conducted does not require the consent of any other
person and (b) the Company has sufficient title or adequate rights or licenses
to use all material patents, trade names, trademarks, copyrights, or other
proprietary rights used by it in its business as presently conducted free and
clear of any attachments, liens, encumbrances or adverse claims. The Company has
not received written notice that its present or contemplated activities or
products infringe any such patents, trade names, trademarks or other proprietary
rights of others. Except as set forth in SCHEDULE 3.13: (i) no other person has
an interest in or right or license to use, or the right to license others to
use, any of said patents, patent applications, trade names, trademarks,
copyrights or other proprietary rights; (ii) there are no written claims or
demands of any other person pertaining thereto and no proceedings have been
instituted, or are pending or threatened, which challenge the rights of the
Company in respect thereof; (iii) none of the patents, trade names, trademarks,
copyrights or other proprietary rights listed in said schedule is subject to any
outstanding order, decree, judgment or stipulation,
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or is being infringed by others; and (iv) no proceeding charging the Company
with infringement of any adversely held patent, trade name, trademark or
copyright has been filed or is threatened to be filed.
3.14 TRADE SECRETS AND CUSTOMER LISTS. The Company has the right to use
in the ordinary course of its business as presently conducted, free and clear of
any claims or rights of others, all trade secrets, inventions, customer lists
and secret processes required for or incident to the manufacture or marketing of
all products presently sold, manufactured, licensed, under development or
produced by it, including products licensed from others. Any payments required
to be made by the Company for the use of such trade secrets, inventions,
customer lists and secret processes are described in SCHEDULE 3.14. The Company
is not using or in any way making use of any confidential information or trade
secrets of any third party, including without limitation, a former employer of
any present or past employee of the Company or any of the predecessors of the
Company.
3.15 CONTRACTS.
(a) Except for contracts, commitments, plans, agreements and
licenses described in SCHEDULE 3.15 (complete and accurate copies of which have
been delivered to the Parent), the Company is neither a party to nor subject to:
(i) any plan or contract providing for bonuses,
pensions, options, stock purchases, deferred compensation, retirement
payments, profit sharing, severance or termination pay, collective
bargaining or the like, or any contract or agreement with any labor
union;
(ii) any employment contract or contract for services
which requires the payment of $20,000 or more annually or which is not
terminable within thirty (30) days by the Company without liability for
any penalty or severance payment other than pursuant to the Company's
severance policies existing on the date hereof;
(iii) any contract or agreement for the purchase of
any commodity, material or equipment except purchase orders in the
ordinary course for less than $10,000 each;
(iv) any other contracts or agreements creating any
obligation of the Company of $10,000 or more with respect to any such
contract;
(v) any contract or agreement providing for the
purchase of all or substantially all of its requirements of a
particular product from a supplier;
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(vi) any contract or agreement which by its terms
does not terminate or is not terminable by the Company or any successor
or assign within six months after the date hereof without payment of a
penalty;
(vii) any contract or agreement for the sale or lease
of its products or services not made in the ordinary course of
business;
(viii) any contract with any sales agent or
distributor of products of the Company or any subsidiary;
(ix) any contract containing covenants limiting the
freedom of the Company to compete in any line of business or with any
person or entity;
(x) any contract or agreement for the purchase of any
fixed asset for a price in excess of $10,000 whether or not such
purchase is in the ordinary course of business;
(xi) any license agreement (as licensor or licensee);
(xii) any indenture, mortgage, promissory note, loan
agreement, guaranty or other agreement or commitment for the borrowing
of money and any related security agreement;
(xiii) any contract or agreement with any officer,
employee, director or stockholder of the Company or with any persons or
organizations controlled by or affiliated with any of them;
(xiv) any partnership, joint venture, or other
similar contract, arrangement or agreement; or
(xv) any registration rights agreements, warrants,
warrant agreements or other rights to subscribe for securities, any
voting agreements, voting trusts, shareholder agreements or other
similar arrangements or any stock purchase or repurchase agreements or
stock restriction agreements.
(b) All material contracts, agreements, leases and instruments
to which the Company is a party or by which the Company is obligated are valid
and are in full force and effect and constitute legal, valid and binding
obligations of the Company and the other parties thereto, enforceable in
accordance with their respective terms. Neither the Company nor any other party
to any contract, agreement, lease or instrument of the Company is in default in
complying with any provisions thereof, and no condition or event or facts exists
which, with notice, lapse of time or both would constitute a default thereof on
the part of either of the
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Company or on the part of any other party thereto in any such case that could
have a material adverse effect on the properties, assets, financial condition or
prospects of either of the Company. SCHEDULE 3.15 indicates whether any of the
agreements, contracts, commitments or other instruments and documents described
therein requires consent or approval to be transferred to the Surviving
Corporation as a result of the transactions contemplated herein.
3.16 LITIGATION. SCHEDULE 3.16 hereto lists all currently pending and
threatened litigation and governmental or administrative proceedings or
investigations to which the Company is a party. Except for matters described in
SCHEDULE 3.16, there is no litigation or governmental or administrative
proceeding or investigation pending or threatened against the Company which may
have an adverse effect on the properties, assets, business, financial condition
or prospects of the Company or which would prevent or hinder the consummation of
the transactions contemplated by this Agreement.
3.17 COMPLIANCE WITH LAWS. The Company has not received notice of a
violation or alleged violation of applicable statutes, ordinances, orders, rules
and regulations promulgated by any federal, state, municipal or other
governmental authority, which violation or alleged violation would have a
material adverse effect on the business of the Company, and except as set forth
in SCHEDULE 3.17 hereto, the Company is currently in compliance in all material
respects with all such statutes, ordinances, orders, rules or regulations, and,
to the best knowledge of the Company and the Stockholders, there is no valid
basis for any claim that the Company is not in compliance with any such statute,
ordinance, order, rule or regulation.
3.18 INSURANCE. SCHEDULE 3.18 sets forth the following information with
respect to each insurance policy (including policies providing property,
casualty, Liability, and workers' compensation coverage and bond and surety
arrangements) to which the Seller has been a party, a named insured, or
otherwise the beneficiary of coverage at any time within the past five (5)
years: (a) the name, address, and telephone number of the agent; (b) the name of
the insurer, the name of the policyholder, and the name of each covered insured;
(c) the policy number and the period of coverage; (d) the scope (including an
indication of whether the coverage was on a claims made, occurrence, or other
basis) and amount (including a description of how deductibles and ceilings are
calculated and operate) of coverage; and (e) a description of any retroactive
premium adjustments or other loss-sharing arrangements. With respect to each
such insurance policy: (i) the policy is legal, valid, binding, enforceable, and
in full force and effect; (ii) the policy will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following
the consummation of the transactions contemplated hereby, (iii) neither the
Seller nor any other party to the policy is in breach or default (including with
respect to the payment of premiums or the giving of notices), and no event has
occurred which, with notice or the lapse of time, would constitute such a breach
or default, or permit termination, modification, or acceleration, under the
policy; and (iv) no party to the policy has repudiated any provision thereof.
The Seller has been covered during the past five (5) years by insurance in scope
and amount customary and reasonable for the businesses in which it has engaged
during the
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aforementioned period. SCHEDULE 3.18 describes any self-insurance arrangements
affecting the Seller.
3.19 WARRANTY AND RELATED MATTERS. There are no existing or threatened
in writing, product liability, warranty or other similar claims against the
Company alleging that any of its products or services are defective or fail to
meet any product or service warranties except as disclosed in SCHEDULE 3.19
hereto. The Company has not received notice of any statements, citations,
correspondence or decisions by any Governmental Entity stating that any product
manufactured, marketed or distributed at any time by the Company (the "Company
Products") is defective or unsafe or fails to meet any product warranty or any
standards promulgated by any such Governmental Entity. There have been no
recalls ordered by any such Governmental Entity with respect to any Company
Product. There is no (i) fact relating to any Company Product that may impose
upon the Company a duty to recall any Company Product or a duty to warn
customers of a defect in any Company Product, (ii) latent or overt design,
manufacturing or other defect in any Company Product, or (iii) liability for
warranty or other claim or return with respect to any Company Product except in
the ordinary course of business consistent with the past experience of the
Company for such kind of claims and liabilities.
3.20 FINDER'S FEES. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
the Company or the Stockholders.
3.21 PERMITS; BURDENSOME AGREEMENTS. SCHEDULE 3.21 lists all material
permits, registrations, licenses, franchises, certifications and other approvals
(collectively, the "Approvals") required from Governmental Entities in order for
the Company to conduct its business. The Company has obtained all the Approvals,
which are valid and in full force and effect. Except as disclosed on SCHEDULE
3.21, none of the Approvals is subject to termination by their express terms as
a result of the execution of this Agreement by the Company or the consummation
of the Merger, and no further Approvals will be required in order to continue to
conduct the business currently conducted by the Company subsequent to the
Closing. Except as disclosed in SCHEDULE 3.21 or in any other schedule hereto,
the Company is neither subject to nor bound by any agreement, judgment, decree
or order which may materially and adversely affect its properties, assets,
business, financial condition or prospects.
3.22 TRANSACTIONS WITH INTERESTED PERSONS. Except as set forth in
SCHEDULE 3.22 hereto, no Stockholder, officer, employee or director of the
Company and none of their respective parents, grandparents, spouses, children,
siblings or grandchildren owns directly or indirectly on an individual or joint
basis any material interest in, or serves as an officer or director or in
another similar capacity of, any competitor, supplier or customer of the Company
or any organization, person or entity with whom the Company is doing business.
3.23 EMPLOYEE BENEFIT PROGRAMS.
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(a) SCHEDULE 3.23 sets forth a list of every Employee Program
(as defined below) that has been maintained (as such term is further defined
below) by the Company at any time during the three-year period ending on the
date hereof.
(b) Each Employee Program which has been maintained by a
Company and which has at any time been intended to qualify under Section 401(a)
or 501(c)(9) of the Code, has received a favorable determination or approval
letter from the IRS regarding its qualification under such section and has, in
fact, been qualified under the applicable section of the Code from the effective
date of such Employee Program through and including the Closing (or, if earlier,
the date that all of such Employee Program's assets were distributed). No event
or omission has occurred which would cause any such Employee Program to lose
such qualification under the applicable Code section.
(c) Except as otherwise disclosed on SCHEDULE 3.23, there has
not been any failure of any party to comply with any laws applicable to or the
terms of any Employee Programs that have been maintained by the Company, except
for any failures to comply that, individually or in the aggregate, would not
have a material adverse effect on the properties, assets, business, financial
condition or prospects of the Company. With respect to any Employee Program now
or heretofore maintained by the Company, there has occurred no "prohibited
transaction," as defined in Section 406 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code, or
breach of any duty under ERISA or other applicable law (including, without
limitation, any health care continuation requirements or any other tax law
requirements, or conditions to favorable tax treatment, applicable to such
plan), which could result, directly or indirectly (including without limitation
through any obligation of indemnification or contribution) in any taxes,
penalties or other liability to the Company or any Affiliate (as defined below).
No litigation, arbitration, or governmental administrative proceeding or
investigation or other proceeding (other than those relating to routine claims
for benefits) is pending or threatened with respect to any such Employee
Program.
(d) Neither the Company nor any Affiliate has ever maintained
any Employee Program subject to Title IV of ERISA.
(e) Except as otherwise disclosed on SCHEDULE 3.23, with
respect to each Employee Program maintained by the Company within the three
years preceding the date hereof, complete and correct copies of the following
documents (if applicable to such Employee Program) have previously been
delivered to the Parent: (i) all documents embodying or governing such Employee
Program, and any funding medium for the Employee Program (including, without
limitation, trust agreements) as they may have been amended to the date hereof;
(ii) the most recent IRS determination or approval letter with respect to such
Employee Program under Code Section 401 or 501(c)(9), and any applications for
determination or approval subsequently filed with the IRS; (iii) the three most
recently filed IRS forms 5500, with
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all applicable schedules and accountants' opinions attached thereto; (iv) the
summary plan description for such Employee Program (or other descriptions of
such Employee Program provided to employees) and all modifications thereto; (v)
any insurance policy (including any fiduciary liability insurance policy)
related to such Employee Program; and (vi) any documents evidencing any loan to
an Employee Program that is a leveraged employee stock ownership plan.
(f) Each Employee Program maintained by the Company as of the
date hereof is subject to amendment or termination by the Board of Directors of
the Company without any further liability or obligation on the part of the
Company to make further contributions to any trust maintained under any such
Employee Program following such termination and the Company has not made any
written or oral representations to the contrary to its employees.
(g) For purposes of this SECTION 3.23:
(i) "Employee Program" means (a) all employee benefit
plans within the meaning of ERISA Section 3(3), including, but not
limited to, multiple employer welfare arrangements (within the meaning
of ERISA Section 3(40)), plans to which more than one unaffiliated
employer contributes and employee benefit plans (such as foreign or
excess benefit plans) which are not subject to ERISA; and (b) all stock
option plans, bonus or incentive award plans, severance pay policies or
agreements, deferred compensation agreements, supplemental income
arrangements, vacation plans, and all other employee benefit plans,
agreements, and arrangements not described in subsection (a) above. In
the case of an Employee Program funded through an organization
described in Code Section 501(c)(9), each reference to such Employee
Program shall include a reference to such organization;
(ii) an entity "maintains" an Employee Program if
such entity sponsors, contributes to, or provides (or has promised to
provide) benefits under such Employee Program, or has any obligation
(by agreement or under applicable law) to contribute to or provide
benefits under such Employee Program, or if such Employee Program
provides benefits to or otherwise covers employees of such entity (or
their spouses, dependents, or beneficiaries);
(iii) an entity is an "Affiliate" of a Company for
purposes of this SECTION 3.23 if it would have ever been considered a
single employer with the Company under ERISA Section 4001(b) or part of
the same "controlled group" as the Company for purposes of ERISA
Section 302(d)(8)(c) and
(iv) "Multiemployer Plan" means a (pension or
non-pension) employee benefit plan to which more than one employer
contributes and which is maintained pursuant to one or more collective
bargaining agreements.
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3.24 ENVIRONMENTAL MATTERS.
(a) Except as used in connection with routine maintenance and
as set forth in SCHEDULE 3.24 hereto, (i) the Company has never generated,
transported, used, stored, treated, disposed of, or managed any Hazardous Waste
(as defined below); (ii) to the best knowledge of the Company and the
Stockholders, no Hazardous Material (as defined below) has ever been or is
threatened to be spilled, released, or disposed of at any site presently or
formerly owned, operated, leased, or used by the Company, or has ever come to be
located in the soil or groundwater at any such site; (iii) to the best knowledge
of the Company and the Stockholders, no Hazardous Material has ever been
transported from any site presently or formerly owned, operated, leased, or used
by the Company for treatment, storage, or disposal at any other place; (iv) the
Company does not presently own, operate, lease, or use, nor has it previously
owned, or to the best knowledge of the Company and the Stockholders operated,
leased, or used any site on which underground storage tanks are or were located;
and (v) to the best knowledge of the Company, no lien has ever been imposed by
any Governmental Entity on any property, facility, machinery, or equipment
owned, operated, leased, or used by the Company in connection with the presence
of any Hazardous Material.
(b) Except as set forth in SCHEDULE 3.24 hereto, (i) the
Company has no liability under, nor has the Company ever violated in any
material respect, any Environmental Law (as defined below); (ii) any property
owned, operated, leased, or used by the Company and any facilities and
operations thereon are presently in compliance in all material respects with all
applicable Environmental Laws; (iii) the Company has never entered into or been
subject to any judgment, consent decree, compliance order, or administrative
order with respect to any environmental or health and safety matter or received
any request for information, notice, demand letter, administrative inquiry, or
formal or informal complaint or claim with respect to any environmental or
health and safety matter or the enforcement of any Environmental Law (as defined
below); and (iv) the Company nor any Company Stockholder has any reason to
believe that any of the items enumerated in clause (iii) of this paragraph will
be forthcoming.
(c) Except as set forth in SCHEDULE 3.24 hereto, no site
owned, or to the best knowledge of the Company and the Stockholders, operated,
leased, or used by the Company contains any asbestos or asbestos-containing
material, any polychlorinated biphenyls ("pcbs") or equipment containing pcbs,
or any urea formaldehyde foam insulation.
(d) For purposes of this SECTION 3.24, (i) "Hazardous
Material" shall mean and include any hazardous waste, hazardous material,
hazardous substance, petroleum product, oil, toxic substance, pollutant, or
contaminant, as defined or regulated under any Environmental Law or any other
substance which may pose a threat to the environment or to human health or
safety; (ii) "Hazardous Waste" shall mean and include any hazardous waste as
defined or regulated under any Environmental Law; (iii) "Environmental Law"
shall mean any
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environmental laws, regulation, rule, ordinance, or by-law at the foreign,
federal, state, or local level, existing as of the date hereof; and (iv) the
Company shall mean and include the Company, its predecessors and all other
entities for whose conduct the Company is or may be held responsible under any
Environmental Law.
3.25 LISTS OF CERTAIN EMPLOYEES AND SUPPLIERS.
(a) SCHEDULE 3.25 hereto contains a list of all current
directors and officers of the Company and a list of all managers, employees and
consultants of the Company who, individually, have received or are scheduled to
receive base salary from the Company during the current fiscal year of $20,000
or more. In each case such schedule includes the current job title and current
base salary of each such individual.
(b) SCHEDULE 3.25 sets forth a true and complete list of all
suppliers of the Company to whom the Company made payments aggregating $25,000
or more during the most recent complete fiscal year, showing, with respect to
each, the name, address and dollar volume involved.
3.26 EMPLOYEES; LABOR MATTERS. As of the date hereof, the Company
employed the number of full-time employees and part-time employees described on
SCHEDULE 3.26. The Company is not delinquent in payments to any of its employees
for any wages, salaries, commissions, bonuses or other direct compensation for
any services performed for it to the date hereof or amounts required to be
reimbursed to such employees. Except as set forth in SCHEDULE 3.26, upon
termination of the employment of any of said employees, the Company will not by
reason of the Merger be liable to any of said employees for so-called "severance
pay" or any other payments. Except as set forth in SCHEDULE 3.26 attached
hereto, the Company has no policy, practice, plan or program of paying severance
pay or any form of severance compensation in connection with the termination of
employment. To the best knowledge of the Company and the Stockgholders, the
Company is in compliance with all applicable laws and regulations respecting
labor, employment, fair employment practices, terms and conditions of
employment, and wages and hours. No charges of employment discrimination or
unfair labor practices have been brought against the Company, nor are there any
strikes, slowdowns, stoppages of work, or any other concerted interference with
normal operations existing, pending or threatened against or involving the
Company. There are no grievances, complaints or charges that have been filed
against the Company under any dispute resolution procedure (including, but not
limited to, any proceedings under any dispute resolution procedure under any
collective bargaining agreement). No collective bargaining agreements are in
effect or are currently being or are about to be negotiated by the Company. The
Company has not received written notice of pending or threatened changes with
respect to the senior management or key supervisory personnel of the Company.
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3.27 CUSTOMERS. SCHEDULE 3.27 sets forth any customer who accounted for
more than 5% of the sales of the Company for the most recent complete fiscal
year of the Company (collectively, the "Customers"). No Customer has given
notice to the Company of its intention to terminate, to cancel or otherwise
materially and adversely modify its relationship with the Company or to decrease
materially or limit its usage or purchase of the services or products of the
Company.
3.28 Y2K. The Company has taken all necessary action to assess,
evaluate and correct all of the hardware, software, embedded microchips and
other processing capabilities of computer and telecommunication systems it uses,
either directly or indirectly, , to ensure that such systems will be able to
function accurately and without interruption or ambiguity using date information
before, during and after January 1, 2000. To the best knowledge of the Company
and the Stockholders, computerized services provided by third parties to the
Company such as billing services and payroll services will be able to function
accurately and without interruption or ambiguity using date information before,
during and after January 1, 2000.
3.29 TAX-FREE REORGANIZATION. To the best knowledge of the Company and
the Stockholders, neither the Company nor any of the Stockholders has taken any
action which would violate any requirement, including but not limited to the
continuity-of-business-enterprise requirement of 26 C.F.R. Section 1.368-1(d),
for tax-free reorganization status under SECTION 368(A) of the Code with respect
to the Merger, and the Stockholders will use best efforts to satisfy the
tax-free reorganization requirements under Section 368(a) and other applicable
provisions of the Code with respect to the Merger.
3.30 DISCLOSURE.
(a) This Agreement, including the Schedules hereto prepared by
the Company, together with the other information furnished to the Parent by the
Company and the Stockholders in connection herewith, does not contain an untrue
statement of material fact or omit to state a material fact necessary to make
the statements herein and therein, in light of the circumstances under which
they were made, not misleading. If, prior to the 90th day after the date of the
final prospectus of the Parent utilized in connection with the IPO, the Company
or the Stockholders become aware of any fact or circumstance which would affect
the accuracy of a representation or warranty of the Company or the Stockholders
in this Agreement, in any material respect, the Company and the Stockholders
shall immediately give notice of such fact or circumstance to the Parent.
However, subject to the provisions of SECTION 4.8, such notification shall not
relieve either the Company or the Stockholders of their respective obligations
under this Agreement, and subject to the provisions of SECTION 4.8, at the sole
option of the Parent, the truth and accuracy of any and all warranties and
representations of the Company, or on behalf of the Company and of the
Stockholders at the date of this Agreement and on the Closing Date and
immediately prior to at the Effective Time, shall be a precondition to the
consummation of this transaction.
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(b) The Company and the Stockholders acknowledge and agree (i)
that there exits no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that the
contemplated IPO of the Parent will occur at a particular price or within a
particular range of prices or occur at all; (ii) that neither the Parent, its
subsidiaries or any of their respective officers, directors, agents or
representatives nor any underwriter shall have any liability to the Company or
the Stockholders or any other person affiliated or associated with the Company
for any failure of the contemplated IPO to occur at a particular price or within
a particular range of prices or to occur at all; and (iii) that the decision of
the Stockholders to enter into this Agreement, or to vote in favor of or consent
to the Merger, has been or will be made independent of, and without reliance
upon, any statements, opinions or other communications, or due diligence
investigations which have been or will be made performed by any prospective
underwriter, relative to the Parent or the contemplated IPO.
SECTION 4. COVENANTS OF THE COMPANY AND THE STOCKHOLDERS.
4.1 MAKING OF COVENANTS AND AGREEMENTS. The Company and the
Stockholders covenant and agree as set forth in this SECTION 4.
4.2 CONDUCT OF BUSINESS. Between the date of this Agreement and the
earlier to occur of the Effective Time or the date this Agreement is terminated
pursuant to Section 9 below, the Stockholders will cause the Company to do and
the Company will do the following, unless the Parent shall otherwise consent in
writing:
(a) conduct its business only in the ordinary course
consistent with past practices, refrain from changing or introducing any method
of management or operations except in the ordinary course of business and in a
manner consistent with past practices and maintain levels of working capital
consistent with past practices;
(b) refrain from making any purchase, sale or disposition of
any asset or property other than in the ordinary course of business, from
purchasing or selling any capital asset costing more than $30,000 and from
mortgaging, pledging, subjecting to a lien or otherwise encumbering any of its
properties or assets;
(c) refrain from incurring or modifying any contingent
liability as a guarantor or otherwise with respect to the obligations of others,
and from incurring or modifying any other contingent or fixed obligations or
liabilities except in the ordinary course of business and in a manner consistent
with past practices;
(d) refrain from making any change in its incorporation
documents, by-laws or authorized or issued capital stock or from acquiring any
securities issued by any other business organization other than short-term
investments in the ordinary course of business;
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(e) refrain from declaring, setting aside or paying any
dividend, making any other distribution in respect of its capital stock, making
any direct or indirect redemption, purchase or other acquisition of its capital
stock, issuing, granting, awarding, selling, pledging, disposing of or
encumbering or authorizing the issuance, grant, award, sale, pledge, disposition
or encumbrance of any shares of, or securities convertible or exchangeable for,
or options, warrants, calls, commitments or rights of any kind to acquire, any
shares of capital stock of any class of the Company or entering into any
agreement or commitment with respect to any of the foregoing;
(f) refrain from making any change in the compensation payable
or to become payable to any of its officers, employees or agents, except for
scheduled increases in salary or wages in the ordinary course of business that
are consistent with past practices, or granting any severance or termination pay
to, or establishing, adopting or entering into any agreement or arrangement
providing for severance or termination pay to, or entering into or amending any
employment, or other agreement or arrangement with, any director, officer or
other employee of the Company or any Stockholder or establishing, adopting or
entering into or amending any collective bargaining, bonus, incentive, deferred
compensation, profit sharing, stock option or purchase, insurance, pension,
retirement or other employee benefit plan;
(g) refrain from making any change in its borrowing
arrangements or modifying, amending or terminating any of its contracts except
in the ordinary course of business, or waiving, releasing or assigning any
material rights or claims;
(h) use reasonable efforts to prevent any change with respect
to its management and supervisory personnel or banking arrangements;
(i) use reasonable efforts to keep intact its business
organization and to preserve the goodwill of and business relationships with all
suppliers, customers and others having business relations with it, and to
maintain its properties and facilities, including those held under leases, in as
good a working order and condition as on the date hereof, ordinary wear and tear
excepted;
(j) use reasonable efforts to have in effect and maintain at
all times all insurance of the kind, in the amount and with the insurers set
forth in SCHEDULE 3.18 or equivalent insurance with any substitute insurers
approved by Parent;
(k) refrain from changing accounting policies or procedures
(including, without limitation, procedures with respect to the payment of
accounts payable and collection of accounts receivable) or from making any tax
election or settling or compromising any federal, state, local or foreign income
tax liability;
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(l) refrain from entering into any executory agreement,
commitment or undertaking to do any of the activities prohibited by the
foregoing provisions; and
(m) permit Parent and its authorized representatives
(including without limitation Parent's attorneys, accountants, and pension and
environmental consultants) to have full access to all of its properties, assets,
books, records, business files, executive personnel, tax returns, contracts and
documents and furnish to Parent and its authorized representatives such
financial and other information with respect to its business or properties as
Parent may from time to time reasonably request.
4.3 CONSENTS AND APPROVALS. The Company and each of the Stockholders
shall use their best efforts to obtain or cause to be obtained prior to the
Closing Date all necessary consents and approvals to the performance of the
obligations of the Company and the Stockholders under this Agreement, including,
without limitation, the consents and authorizations described in SCHEDULE 3.15,
and such other authorizations, waivers, approvals, consents and permits as set
forth in SCHEDULE 4.3 as may be necessary to transfer to Parent and/or to retain
in full force and effect without penalty subsequent to the Effective Time all
contracts, permits, licenses and franchises of or applicable to the businesses
of the Company.
4.4 ACTION BY WRITTEN CONSENT OF STOCKHOLDERS. On or prior to the date
hereof the Stockholders will execute and deliver a unanimous written consent in
lieu of a meeting in accordance with applicable law for the purpose of
authorizing the transactions contemplated hereby. The recommendation of the
Board of Directors will remain in effect at all times prior to the Effective
Time. The Stockholders hereby agree to vote all shares of capital stock of the
Company held of record by them or over which they exercise voting control in
favor of the Merger, this Agreement and the consummation of the transactions
contemplated hereby and shall not demand appraisal or dissenter's rights in
connection with the merger under the Connecticut Business Corporation Act.
4.5 EXCLUSIVE DEALING. Unless and until the earlier to occur of the
Effective Time or the termination of this Agreement pursuant to SECTION 9,
neither the Company nor any Stockholder shall, nor shall any of them permit any
director, officer, employee or agent of either of the Company to, directly or
indirectly, (i) take any action to solicit, initiate submission of or encourage,
proposals or offers from any person relating to any acquisition or purchase of
all or (other than in the ordinary course of business) a portion of the assets
of, or any equity interest in, the Company or any merger or business combination
with the Company (an "Acquisition Proposal"), (ii) participate in any
discussions or negotiations regarding an Acquisition Proposal with any person or
entity other than Parent and Newco and their representatives, or (iii) otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other person to do any of the foregoing.
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4.6 NO SALES OF CAPITAL STOCK. Between the date of this Agreement and
the Effective Time, none of the Stockholders shall sell, exchange, deliver,
assign, pledge, encumber or otherwise transfer or dispose of any Company Stock
owned beneficially or of record by such Stockholder, nor grant any right of any
kind to acquire, dispose of, vote or otherwise control in any manner such shares
of Company Stock; provided, however, that notwithstanding anything to the
contrary stated herein, any transferee, executor, heir, legal representative,
successor or assign of any Stockholder shall be bound by this Agreement.
4.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to the Parent of (i) the occurrence or non-occurrence
of any event the occurrence or non-occurrence of which would be likely to cause
any representation or warranty of the Company or the Stockholders contained
herein to be untrue or inaccurate in any material respect at or prior to the
Closing and (ii) any material failure of any Stockholder or the Company to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by such person hereunder. The delivery of any notice pursuant to
this SECTION 4.7 shall not be deemed to (i) modify the representations or
warranties hereunder of the party delivering such notice, (ii) modify the
conditions set forth in SECTION 7 or elsewhere or (iii) limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
4.8 AMENDMENT OF SCHEDULES. The Company and the Stockholders agree
that, with respect to the representations and warranties contained in this
Agreement, the Company and the Stockholders shall have the continuing obligation
until the Closing Date to supplement or amend promptly the Schedules hereto with
respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required to be set forth or
described on the Schedules. Notwithstanding the foregoing sentence, no amendment
or supplement to a Schedule prepared by the Company or the Stockholders that
constitutes or reflects an event or occurrence that would be reasonably likely
to have a material adverse effect may be made unless the Parent consents to such
amendment or supplement.
4.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company
and the Stockholders shall furnish or cause to be furnished to the Parent and
its underwriters all of the information concerning the Company and the
Stockholders reasonably requested by the Parent and its underwriters for
inclusion in, and will cooperate with the Parent and its underwriters in the
preparation of, any Registration Statement required by the Securities and
Exchange Commission and any prospectus included therein (including audited and
unaudited financial statements, prepared in accordance with GAAP, and in form
otherwise reasonably requested by the Parent and its underwriters as suitable
for inclusion in the Registration Statement). The Company and the Stockholders
agree to promptly advise the Parent if at any time during the period in which a
prospectus relating to the IPO is required to be delivered under the Securities
Act, any information contained in the prospectus concerning the Company or the
Stockholders becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information requested relates solely to the Company or
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the Stockholders, each of the Company and the Stockholders jointly and severally
represents and warrants that the Registration Statement will not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
4.10 FURTHER ASSURANCES. The Company and Stockholders hereto agree to
execute and deliver, or cause to be executed and delivered, such further
instruments or documents or take such other action as may be reasonably
necessary or convenient to carry out the transactions contemplated hereby.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND NEWCO.
5.1 MAKING OF REPRESENTATIONS AND WARRANTIES. As of the date hereof,
the Parent and Newco hereby represent and warrant to the Stockholders and the
Company as set forth in this SECTION 5.
5.2 ORGANIZATION OF THE PARENT AND NEWCO. The Parent and Newco are
corporations duly organized, validly existing and in good standing under the
laws their respective state of incorporation with full corporate power and
authority to conduct their respective businesses in the manner as now conducted.
5.3 AUTHORITY. All necessary corporate action has been taken by the
Parent and Newco to authorize the execution, delivery and performance of this
Agreement and each agreement, document and instrument to be executed and
delivered by the Parent and/or Newco pursuant to this Agreement. This Agreement
and each agreement, document and instrument to be executed and delivered by the
Parent and/or Newco pursuant to this Agreement (to the extent it contains
obligations to be performed by the Parent and/or Newco) constitutes, or when
executed and delivered by the Parent and/or Newco will constitute, valid and
binding obligations of the Parent and/or Newco enforceable in accordance with
their respective terms.
5.4 NO CONFLICTS. The execution, delivery and performance by the Parent
and Newco of this Agreement and each such other agreement, document and
instrument: (i) does not and will not violate any provision of the Certificate
of Incorporation or bylaws of the Parent or Newco; and (ii) will not result in a
breach of, constitute a default under, accelerate any obligation under, or give
rise to a right of termination of any indenture or loan or credit agreement or
any other agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination or
arbitration award, whether written or oral, to which the Parent or Newco is a
party or by which the property of the Parent or Newco is bound or affected, or
result in the creation or imposition of any mortgage, pledge, lien, security
interest or other charge or encumbrance on any of the assets of the Parent or
Newco, except where such breach, default, acceleration or right of termination
would not have a material adverse effect on the properties, assets, business,
financial condition or prospects of the Parent or Newco, and
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would not result in the creation or imposition of any mortgage, pledge, lien,
security interest or other charge or encumbrance on any of the assets of the
Parent or Newco.
5.5 PARENT STOCK. The Parent Stock to be delivered to the Stockholders
at the Closing, when delivered in accordance with the terms of this Agreement,
will constitute valid and legally issued shares of the Common Stock of the
Parent, fully paid and non-assessable. Such Parent Stock will constitute
restricted securities and will be subject to the lock-up provisions and other
transfer restrictions imposed under this Agreement and under applicable federal
and state securities laws as described in SECTION 9 below.
5.6 LITIGATION. There is no litigation or governmental or
administrative proceeding or investigation pending or threatened against the
Parent or Newco which may have an adverse effect on the properties, assets,
business, financial condition or prospects of the Parent or Newco or which would
prevent or hinder the consummation of the transactions contemplated by this
Agreement.
5.7 COMPLIANCE WITH LAWS. Neither the Parent nor Newco has received
notice of a violation or alleged violation of applicable statutes, ordinances,
orders, rules and regulations promulgated by any federal, state, municipal or
other governmental authority, which violation or alleged violation would have a
material adverse effect on the business of the Parent or Newco.
SECTION 6. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARENT AND NEWCO.
6.1 INTRODUCTION. The obligations of the Parent (and its accountants
KPMG Peat Marwick LLP) and Newco to consummate this Agreement and the
transactions contemplated hereby are subject to the fulfillment, prior to or at
the Closing, of the conditions set forth in this SECTION 6.
6.2 EXAMINATION OF FINANCIAL STATEMENTS. Prior to the initial filing of
the registration statement with respect to the IPO, the Parent and Newco shall
have had sufficient opportunity to review the audited balance sheet of the
Company as of December 31, 1998 and the audited statements of income, cash flow
and stockholders' equity for the years ended December 31, 1998 and December 31,
1997 audited by the Parent's accounting firm in accordance with GAAP in
connection with the contemplated IPO, and the Parent shall be satisfied in all
respects with such financial information, and such information shall indicate
that the Company's gross revenues (which shall mean total aggregate sales less
returns, credits and other normal, customary adjustments to revenue) for the
year ended December 31, 1998 shall exceed $1,850,000, and the aggregate
stockholder's equity as of December 31, 1998 shall exceed $40,000.
6.3 NO MATERIAL ADVERSE CHANGE. No material adverse change in the
results of operations, financial position or business of the Company shall have
occurred and the Company shall not have suffered any material loss or damages to
any of its properties or assets, whether or
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not covered by insurance, since the Company Balance Sheet Date, which change,
loss or damage materially affects or impairs the ability of the Company to
conduct its business; and the Parent shall have received on the Closing Date a
certificate signed by the President of the Company and each of the Stockholders
to such effect.
6.4 DUE DILIGENCE AND REGULATORY REVIEW. Prior to the initial filing of
the registration statement with respect to the IPO, the Parent shall have
completed to its satisfaction a due diligence investigation of the Company and
its prospects, business, assets, contracts, rights, liabilities and obligations,
including a review of the practices and procedures of the Company with respect
to compliance with contracts and federal, state and local laws and regulations
governing the operations of the Company. Such review shall be satisfactory in
all respects to the Parent, in its sole discretion.
6.5 OPINION OF COUNSEL. The Parent shall have received an opinion from
Gorman & Enright, P.C., counsel to the Company and the Stockholders, dated the
Closing Date, in form and substance satisfactory to the Parent, to the effect
that with respect to the Company:
(a) the Company has been duly organized and is validly
subsisting in good standing under the laws of the State of Connecticut.
(b) the authorized and outstanding capital stock of the
Company is as represented by the Stockholders in this Agreement and each share
of such stock has been duly and validly authorized and issued, is fully paid and
nonassessable and was not issued in violation of the preemptive rights of any
stockholder;
(c) to the knowledge of such counsel, the Company does not
have any outstanding options, warrants, calls, conversion rights or other
commitments of any kind to issue or sell any of its capital stock;
(d) this Agreement has been duly authorized, executed and
delivered by the Company and the Stockholders and constitutes a valid and
binding agreement of the Company and the Stockholders enforceable against them
in accordance with its terms except as such enforceability may be subject to
bankruptcy, moratorium, insolvency, reorganization, arrangement and other
similar laws relating to or affecting the rights of creditors and except (i) as
the same may be subject to the effect of general principles of equity and (ii)
that no opinion need be expressed as to the enforceability of indemnification
provisions included herein;
(e) except to the extent set forth on SCHEDULE 3.16, to the
knowledge of such counsel, there are no claims, actions, suits or proceedings
pending, or threatened against or affecting the Company, at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality wherever located;
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(f) no notice to, consent, authorization, approval or order of
any court or governmental agency or body or of any other third party is required
in connection with the execution, delivery or consummation of this Agreement by
any Stockholders or for the transfer to the Parent of the Company Stock;
(g) the execution of this Agreement and the performance of the
obligations hereunder will not violate or result in a breach or constitute a
default under any of the terms or provisions of the Company's Certificate of
Incorporation or the bylaws of the Company or of any lease, instrument, license,
permit or any other agreement to which the Company is a party or by which the
Company or any Stockholder is bound; and
(h) any other matters incident to the matters set forth herein
as reasonably required by the Parent.
6.6 ADDITIONAL LIABILITIES AND OBLIGATIONS. The Stockholders shall have
delivered to the Parent a certificate dated the Closing Date, setting forth (i)
all liabilities and obligations of the Company arising since the Company Balance
Sheet Date and (ii) showing all material contracts and agreements, together with
copies thereof, entered into by the Company since the Company Balance Sheet
Date.
6.7 GOOD STANDING CERTIFICATES; CERTIFIED COPY OF THE CERTIFICATE OF
INCORPORATION. The Company shall have delivered to the Parent certificates,
dated as of a date no earlier than twenty days prior to the Closing Date, duly
issued by the Secretary of State and the Department of Revenue of the State of
Connecticut and of any other state in which the Company is authorized to do
business, showing that the Company is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
the Company for all periods prior to the dates of such certificates have been
filed and paid. The Company shall also have delivered to the Parent prior to the
Closing a recent copy of its Certificate of Incorporation and all amendments
thereto duly certified by the Secretary of State of Connecticut.
6.8 REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the representations
and warranties of the Company and the Stockholders contained in SECTION 3 and
elsewhere in this Agreement shall be true and correct on and as of the Closing
Date, with the same effect as though made on and as of the Closing Date; the
Company and the Stockholders shall, on or before the Closing Date, have
performed and satisfied all agreements and conditions hereunder which by the
terms hereof are to be performed and satisfied by the Company or the
Stockholders on or before the Closing Date; and the Company and the Stockholders
shall have delivered to the Parent a certificate dated the Closing Date signed
by the Company's President and by each of the Stockholders to the foregoing
effect.
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6.9 APPROVALS AND CONSENTS. The Company and the Stockholders shall have
made all filings with and notifications of governmental authorities, regulatory
agencies and other entities required to be made by them in connection with the
execution and delivery of this Agreement, the performance of the transactions
contemplated hereby and the continued operation of the businesses of the Company
subsequent to the Effective Time, and the Company and the Parent shall have
received all required authorizations, waivers, consents and permits to permit
the consummation of the transactions contemplated by this Agreement, in form and
substance reasonably satisfactory to the Parent, from all third parties,
including, without limitation, approvals required under federal and state
securities laws and/or the securities and Exchange Commission, state "Blue Sky"
laws, other applicable governmental authorities and regulatory agencies,
lessors, lenders and contract parties, required in connection with the Merger or
the Company's permits, leases, licenses and franchises, to avoid a breach,
default, termination, acceleration or modification of any material agreement,
contract, instrument, mortgage, lien, lease, permit, authorization, order, writ,
judgment, injunction, decree, determination or arbitration award as a result of
the execution or performance of this Agreement, or otherwise in connection with
the execution and performance of this Agreement.
6.10 NO ACTIONS OR PROCEEDINGS. No action or proceeding by any court,
administrative body or governmental agency shall have been instituted or
threatened which would enjoin, restrain or prohibit, or would likely result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions contemplated by this Agreement, and which would in the
reasonable judgment of the Parent or Newco make it inadvisable to consummate
such transactions, and no law or regulation shall be in effect and no court
order shall have been entered in any action or proceeding instituted by any
party which enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions as contemplated by this Agreement.
6.11 PROCEEDINGS SATISFACTORY TO NEWCO AND THE PARENT. All proceedings
to be taken by the Company and the Stockholders in connection with the
consummation of the Closing on the Closing Date and the other transactions
contemplated hereby and all certificates, opinions, instruments and other
documents required to effect the transaction contemplated hereby reasonably
requested by Newco and the Parent shall be reasonably satisfactory in form and
substance to Newco and the Parent and their counsel.
6.12 EMPLOYMENT AGREEMENTS. Each of the Stockholders shall have
executed and delivered an individual employment agreement with Newco in the form
attached hereto as EXHIBIT 6.12(A) (for James Hogue) and EXHIBIT 6.12(B) (for
Gary Wright).
6.13 EFFECTIVENESS OF REGISTRATION STATEMENT AND IPO CLOSING. The
Registration Statement prepared and filed in connection with the Parent's
contemplated IPO shall have been declared effective by the Securities and
Exchange Commission, and the Parent and its underwriters shall have successfully
closed the IPO. The intent of the parties hereto is to hold
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the Closing for the transactions contemplated hereby as described in SECTION 1.7
contemporaneously with the IPO closing.
SECTION 7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS.
7.1 INTRODUCTION. The obligations of the Company and the Stockholders
to consummate this Agreement and the transactions contemplated hereby are
subject to the fulfillment, prior to or at the Closing Date, of the following
conditions (any one or more of which may be waived in whole or in part by the
Company and the Stockholders):
7.2 REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the representations
and warranties of the Parent and Newco contained in SECTION 5 shall be true and
correct in all material respects on and as of the Closing Date, with the same
effect as though made on and as of the Closing Date; the Parent and Newco shall,
on or before the Closing Date, have performed and satisfied all agreements and
conditions hereunder which by the terms hereof are to be performed and satisfied
by the Parent and Newco on or before the Closing Date; and the Parent and Newco
shall have delivered to the Company a certificate signed by the President of the
Parent and of Newco and dated as of the Closing Date certifying to the foregoing
effect.
7.3 NO ACTIONS OR PROCEEDINGS. No action or proceeding by any court,
administrative body or governmental agency shall have been instituted or
threatened which would enjoin, restrain or prohibit, or would likely result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions as contemplated by this Agreement, and which would in the
reasonable judgment of the Company make it inadvisable to consummate such
transactions, and no law or regulation shall be in effect and no court order
shall have been entered in any action or proceeding instituted by any party
which enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions as contemplated by this Agreement.
7.4 EMPLOYMENT AND OTHER AGREEMENTS. Newco shall have executed and
delivered an individual employment agreement with each of the Stockholders in
the forms attached hereto as EXHIBIT 6.12(A) (for James Hogue), and EXHIBIT
6.12(B) (for Gary Wright).
7.5 EFFECTIVENESS OF REGISTRATION STATEMENT AND IPO CLOSING. The
Registration Statement prepared and filed in connection with the Parent's
contemplated IPO shall have been declared effective by the Securities and
Exchange Commission, and the Parent and its underwriters shall have successfully
closed the IPO. The intent of the parties hereto is to hold the Closing for the
transactions contemplated hereby as described in SECTION 1.7 contemporaneously
with or as promptly as practicable after the IPO closing.
SECTION 8 - PARENT STOCK - TRANSFER RESTRICTIONS.
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8.1 50% LOCK-UP. In addition to applicable federal and state securities
laws restricting the public sale of the Parent Stock to be issued to the
Stockholders hereunder as set forth in SECTION 8.2 below, the Stockholders
hereby irrevocably agree that for a period of two years after the Closing Date,
they will not (i) offer, pledge, sell or otherwise transfer directly or
indirectly, more than 50% of the shares of Parent Stock received hereunder (as
adjusted for any stock splits, recapitalizations, mergers or similar events), or
(ii) enter into any agreement that transfers, in whole or in part, any of the
economic consequences of ownership of more than 50% of the shares of Parent
Stock received hereunder (as adjusted for any stock splits, recapitalizations,
mergers or similar events). The Stockholders agree that the foregoing shall be
binding upon the Stockholders' successors, assigns, heirs, and personal
representatives.
8.2 UNREGISTERED STOCK; INVESTMENT INTENT. The Stockholders acknowledge
and agree that the shares of Parent Stock to be delivered to the Stockholders
pursuant to this Agreement have not been and will not be registered under the
Securities Act of 1933, as amended (the "Act") and therefore may not be resold
without compliance with the Act. The Stockholders represent and warrant that the
Parent Stock to be acquired by Stockholders pursuant to this Agreement is being
acquired solely for their own account, for investment purposes only, and with no
present intention of distributing, selling or otherwise disposing of it in
connection with a distribution. The Stockholders covenant, warrant and represent
that none of the shares of Parent Stock issued to such Stockholders will be
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the Act and the rules and regulations of the Securities and Exchange
Commission and applicable state securities laws.
8.3 ABLE TO BEAR RISK; SOPHISTICATED INVESTORS; INFORMATION. The
Stockholders represent and warrant that they are able to bear the economic risk
of an investment in Parent Stock acquired pursuant to this Agreement and can
afford to sustain a total loss of such investment. They further represent and
warrant that they (i) fully understand the nature, scope and duration of the
limitations on transfer contained in this Agreement and (ii) have such knowledge
and experience in financial and business matters that they are capable of
evaluating the merits and risks of the proposed investment and therefore have
the capacity to protect their own interests in connection with the acquisition
of the Parent Stock. The Stockholders represent and warrant that they have had
an adequate opportunity to ask questions and receive answers from the officers
of the Parent concerning any and all matters relating to the acquisition of
Parent Stock as contemplated by this Agreement including, without limitation,
the background and experience of the officers and directors of the Parent, the
plans for the operations of the business of the Parent, and any plans for
additional acquisitions and the like. The Stockholders have asked any and all
questions in the nature described in the preceding sentence and all questions
have been answered to their satisfaction.
8.4 RESTRICTIVE LEGENDS. The certificates evidencing the Parent Stock
to be received by the Stockholders hereunder will bear legends substantially in
the form set forth below and
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containing such other information as the Parent may deem appropriate. References
in such legend to "THE COMPANY" shall refer to the Parent.
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY
STATE SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES
UNDER THE 1933 ACT AND ANY STATE SECURITIES OR BLUE SKY LAWS, UNLESS,
IN THE OPINION (WHICH SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO
THE COMPANY) OF COUNSEL SATISFACTORY TO THE COMPANY, SUCH REGISTRATION
IS NOT REQUIRED.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE FURTHERMORE SUBJECT TO
THE LOCK-UP PROVISIONS CONTAINED IN SECTION 8.1 OF THAT CERTAIN
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION DATED AS OF
___________, 1999, A COPY OF WHICH MAY BE OBTAINED BY CONTACTING THE
SECRETARY OF THE COMPANY.
In addition, such certificates shall also bear such other legends as
counsel for the Parent reasonably determines are required under the applicable
laws of any state.
SECTION 9. TERMINATION OF AGREEMENT; EFFECT OF TERMINATION.
9.1 TERMINATION. This Agreement may be terminated any time prior to the
Closing Date solely by:
(a) mutual consent of the boards of directors of the Parent
and the Company;
(B) either the Stockholders and the Company, on the one hand,
or by the Parent and Newco, on the other hand, if
(i) the transactions contemplated by this
Agreement to take place at the Closing shall
not have been consummated by June 30, 1999,
unless the failure of such transactions to
be consummated is due to the willful failure
of the party seeking to terminate this
Agreement to perform any of its obligations
under this Agreement to the extent required
to be performed by it prior to or on the
Closing Date; or
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(ii) if a material breach or default shall
be made by the other party in the observance
of or in the due and timely performance of
any of the covenants or agreements contained
herein, and the curing of such default shall
not have been made on or before the Closing
Date
9.2 LIABILITIES IN THE EVENT OF TERMINATION. The termination of this
Agreement will in no way limit any obligation or liability of any party based on
or arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this Agreement
including, but not limited to, legal and audit costs and out of pocket expenses.
SECTION 10. NON-COMPETITION.
For a period of two (2) years from and after the Closing Date, the
Stockholders will not (i) engage directly or indirectly in any business that the
Company conducts as of the Closing Date in the United States; (except that
ownership of less than 2% of the outstanding stock of any competing publicly
traded corporation shall not constitute a violation of this covenant not to
compete) or (ii) solicit, directly or indirectly, any customers, clients,
accounts, officers, employees, agents or representatives of the Company, Newco
or the Parent. If the final judgment of a court of competent jurisdiction
declares that any term or provision of this Section is invalid or unenforceable,
the parties hereto agree that the court making the determination of invalidity
or unenforceability shall have the power to reduce the scope, duration, or area
of the term or provision, to delete specific words or phrases, or to replace any
invalid or unenforceable term or provision with a term or provision that is
valid and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time within which the
judgment may be appealed.
SECTION 11. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
11.1 THE STOCKHOLDERS. The Stockholders recognize and acknowledge that
they have had in the past, currently have and in the future may have access to
certain confidential information relating to the Company, the Parent and Newco,
including, but not limited to, operational policies, customer lists, and pricing
and cost policies, that are valuable, special and unique assets of the Company,
the Parent and Newco. The Stockholders agree that they will not use or disclose
such confidential information to any person, firm, corporation, association or
other entity for any purpose or reason whatsoever, except (a) to authorized
representatives of the Parent and Newco who need to know such information in
connection with the transactions contemplated hereby, who have been informed of
the confidential nature of such information and who have agreed to keep such
information confidential as provided hereby, and (b) following the Closing, such
information may be disclosed by the Stockholders as is required in the course of
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performing his or her duties for the Parent or the Surviving Corporation unless
(i) such information becomes known to the public generally through no breach by
the Stockholders of this covenant, (ii) disclosure is required by law or the
order of any governmental authority under color of law or is necessary in order
to secure a consent or approval to consummate the transactions contemplated
hereby, provided, that prior to disclosing any information pursuant to this
clause (ii), the Stockholders shall give prior written notice thereof to the
Parent and provide the Parent with the opportunity to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party and the same prior disclosure set forth immediately above is given. In the
event of a breach or threatened breach by the Stockholders of the provisions of
this section, the Parent shall be entitled to an injunction restraining the
Stockholders from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting the Parent from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event that the transactions
contemplated herein are not consummated, the Stockholders shall return to the
Parent within a reasonable time all documents containing confidential
information about the Parent.
11.2 THE PARENT AND NEWCO. The Parent and Newco recognize and
acknowledge that they had in the past and currently have access to certain
confidential information relating to the Company, such as operational policies,
customer lists, and pricing and cost policies, that are valuable, special and
unique assets of the Company. The Parent and Newco agree that, prior to the
Closing, or if the transactions contemplated by this Agreement are not
consummated, they will not use or disclose such confidential information to
their own benefit except in furtherance of the transactions contemplated by this
Agreement or disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to the Stockholders and to authorized representatives of the Company
or the Parent or Newco who need to know such information in connection with the
transactions contemplated hereby, who have been informed of the confidential
nature of such information and who have agreed to keep such information
confidential as provided hereby, unless (i) such information becomes known to
the public generally through no breach by the Parent or Newco of this covenant,
(ii) disclosure is required by law or the order of any governmental authority
under color of law or is necessary in order to secure a consent or approval to
consummate the transactions contemplated hereby, provided, that prior to
disclosing any information pursuant to this clause (ii), the Parent and Newco
shall, if possible, give prior written notice thereof to the Company and the
Stockholders and provide the Company and the Stockholders with the opportunity
to contest such disclosure, or (iii) the disclosing party reasonably believes
that such disclosure is required in connection with the defense of a lawsuit
against the disclosing party and the same prior disclosure set forth immediately
above is given. In the event of a breach or threatened breach by the Parent or
Newco of the provisions of this Section, the Company and the Stockholders shall
be entitled to an injunction restraining the Parent and Newco from disclosing,
in whole or in part, such confidential information. Nothing herein shall be
construed as prohibiting the Company and the Stockholders from pursuing any
other available remedy for
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such breach or threatened breach, including the recovery of damages. In the
event that the transactions contemplated herein are not consummated, the Parent
and Newco shall return to the Company within a reasonable time all documents
containing confidential information about the Company.
11.3 DAMAGES. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants in SECTIONS 11.1 and 11.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
11.4 SURVIVAL. The obligations of the parties under this ARTICLE 11
shall survive notwithstanding either the termination of this Agreement or the
consummation of the transactions contemplated herein on the Closing Date.
SECTION 12. INDEMNIFICATION.
12.1 INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders, jointly and
severally on behalf of themselves and their respective successors, executors,
administrators, estates, heirs and permitted assigns, agree subsequent to the
Effective Time to indemnify and hold harmless the Parent, the Surviving
Corporation and their respective officers, directors, employees and agents
(individually, a "Parent Indemnified Party" and collectively, the "Parent
Indemnified Parties") from and against and in respect of all losses,
liabilities, obligations, damages, deficiencies, actions, suits, proceedings,
demands, assessments, orders, judgments, fines, penalties, costs and expenses
(including the reasonable fees, disbursements and expenses of attorneys,
accountants and consultants) of any kind or nature whatsoever (whether or not
arising out of third-party claims and including all amounts paid in
investigation, defense or settlement of the foregoing) sustained, suffered or
incurred by or made against any Parent Indemnified Party (a "Loss" or "Losses"),
arising out of, based upon or in connection with:
(a) any breach of any representation or warranty made by the
Company or the Stockholders in this Agreement or in any schedule, exhibit,
certificate, agreement or other instrument delivered under or in connection with
this Agreement, or by reason of any claim, action or proceeding asserted or
instituted arising out of any matter or thing covered by any such
representations or warranties (collectively, "Parent Representation and Warranty
Claims");
(b) any breach of any covenant or agreement made by the
Company or any Stockholder in this Agreement or in any schedule, exhibit,
certificate, agreement or other instrument delivered under or in connection with
this Agreement, or by reason of any claim, action or proceeding asserted or
instituted arising out of any matter or thing covered by any such covenant or
agreement; or
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(c) with respect to taxes of the Company incurred with respect
to any Pre-Closing Tax Period (as defined below) to the extent such liability
exceeds the amounts accrued therefor and disclosed to the Parent in SCHEDULE 3.7
hereto (it being understood that such Schedule shall be updated as of the
Closing to reflect tax accruals as of such date consistent with the Company's
past practices); the term "Pre-Closing Tax Period" shall mean all taxable
periods ending on or before the Closing Date and the portion (ending on the
Closing Date) of any taxable period that includes (but does not end on) the
Closing Date.
Claims under clauses (a) through (c) of this SECTION 12.1 are hereinafter
collectively referred to as "Parent Indemnifiable Claims". The rights of Parent
Indemnified Parties to recover indemnification in respect of any occurrence
referred to in clauses (b) and (c) of this SECTION 12.1 shall not be limited by
the fact that such occurrence may not constitute an inaccuracy in or breach of
any representation or warranty referred to in clause (a) of this SECTION 12.1.
12.2 LIMITATIONS ON INDEMNIFICATION BY THE COMPANY STOCKHOLDERS.
Notwithstanding the provisions of SECTION 12.1, the Company Stockholders shall
not be obligated to indemnify Parent Indemnified Parties except to the extent
the cumulative amount of Losses to such Parent Indemnifiable Parties exceeds Ten
Thousand Dollars ($10,000) (the "Parent threshold") whereupon the full amount of
such Losses shall be recoverable in accordance with the terms hereof.
12.3 NOTICE; DEFENSE OF CLAIMS.
Promptly after receipt by a Parent Indemnified Party of notice of any
claim, liability or expense to which the indemnification obligations hereunder
would apply, the Parent Indemnified Party shall give notice thereof in writing
to the Stockholders, but the omission to so notify the Stockholders promptly
will not relieve the Stockholders from any liability except to the extent that
the Stockholders shall have been prejudiced as a result of the failure or delay
in giving such notice. Such notice shall state the information then available
regarding the amount and nature of such claim, liability or expense and shall
specify the provision or provisions of this Agreement under which the liability
or obligation is asserted. If within twenty (20) days after receiving such
notice the Stockholders give written notice to the Parent Indemnified Party
stating that (i) it would be liable under the provisions hereof for indemnity in
the amount of such claim if such claim were successful and (ii) that it disputes
and intends to defend against such claim, liability or expense at its own cost
and expense, then counsel for the defense shall be selected by the Stockholders
(subject to the consent of the Parent Indemnified Party which consent may not be
unreasonably withheld) and the Parent Indemnified Party shall not be required to
make any payment with respect to such claim, liability or expense as long as the
Stockholders are conducting a good faith and diligent defense at their own
expense; provided, however, that the assumption of defense of any such matters
by the Stockholders shall relate solely to the claim, liability or expense that
is subject or potentially subject to indemnification. The Stockholders
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shall have the right, with the consent of the Parent Indemnified Party, which
consent shall not be unreasonably withheld, to settle any Parent Indemnified
Claims by third parties which are susceptible to being settled provided its
obligation to indemnify the Parent Indemnified Party therefor will be fully
satisfied. The Stockholders shall keep the Parent Indemnified Party apprised of
the status of the claim, liability or expense and any resulting suit, proceeding
or enforcement action, shall furnish the Parent Indemnified Party with all
documents and information that the Parent Indemnified Party shall reasonably
request and shall consult with the Parent Indemnified Party prior to acting on
major matters, including settlement discussions. Notwithstanding anything herein
stated, the Parent Indemnified Party shall at all times have the right to fully
participate in such defense at its own expense directly or through counsel;
provided, however, if the named parties to the action or proceeding include both
the Stockholders and the Parent Indemnified Party and representation of both
parties by the same counsel would be inappropriate under applicable standards of
professional conduct, the expense of separate counsel for the Parent Indemnified
Party shall be paid by the Stockholders. If no such notice of intent to dispute
and defend is given by the Stockholders, or if such diligent good faith defense
is not being or ceases to be conducted, the Parent Indemnified Party shall, at
the expense of the Stockholders, undertake the defense of (with counsel selected
by the Parent Indemnified Party), and shall have the right to compromise or
settle (exercising reasonable business judgment), such claim, liability or
expense. If such claim, liability or expense is one that by its nature cannot be
defended solely by the Stockholders, then the Parent Indemnified Party shall
make available all information and assistance that the Stockholders may
reasonably request and shall cooperate with the Stockholders in such defense.
SECTION 13. MISCELLANEOUS.
13.1 LAW GOVERNING. This Agreement shall be construed under and
governed by the internal laws of the State of Connecticut without regard to its
conflict of laws provisions.
13.2 NOTICES. Any notice, request, demand other communication required
or permitted hereunder shall be in writing and shall be deemed to have been
given (i) if delivered or sent by facsimile transmission, upon receipt, or (ii)
if sent by registered or certified mail upon the sooner of receipt or the
expiration of three days after deposit in United States Post Office facilities
properly addressed with postage prepaid. all notices will be sent to the
addresses set forth below or to such other address as such party may designate
by notice to each other party hereunder:
TO PARENT OR NEWCO:
InSite Internet, Inc.
1100 First Avenue
Spring Lake, NJ 07762
ATTN: Mark E. Munro, President and Chief Executive Officer
Phone: 732-280-6407
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Fax: 732-280-6409
with a copy to:
Duffy & Sweeney, LLP
300 Turks Head Building
Providence, RI 02903
ATTN: Michael F. Sweeney, Esq.
Phone: (401) 455-0700
Fax: (401) 455-0701
TO THE COMPANY:
Caravela Software, Inc. dba Connix
6 Way Road
Middlefield, CT 06455
ATTN: James Hogue & Gary Wright
Phone:
Fax:
with a copy to:
Gorman & Enright, P.C.
59 Elm Street
New Haven, CT 06510
ATTN: Brian G. Enright, Esq.
Phone: 203-865-1382
Fax: 203-776-7250
TO THE STOCKHOLDERS:
Same as Company above
With a copy to:
Same as Company above
Any notice given hereunder may be given on behalf of any party by its counsel or
other authorized representative.
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13.3 ENTIRE AGREEMENT. This Agreement, including any schedules, annexes
and/or exhibits referred to herein and the other writings specifically
identified herein or contemplated hereby or delivered in connection with the
transactions contemplated hereby, is complete, reflects the entire agreement of
the parties with respect to its subject matter, and supersedes all previous
written or oral negotiations, commitments and writings.
13.4 ASSIGNABILITY. This Agreement may not be assigned or delegated by
any party hereto without the prior written consent of all parties hereto. No
Stockholder may assign his, her or its rights or delegate his, her or its
obligations hereunder without the prior written consent of the Parent. This
Agreement and the obligations of the parties hereunder shall be binding upon and
enforceable by, and shall inure to the benefit of, the parties hereto and their
respective successors, executors, administrators, estates, heirs and permitted
assigns, and no others.
13.5 ARBITRATION; JURISDICTION; VENUE; ATTORNEY'S FEES. Each party
hereto agrees that any dispute regarding this Agreement shall be submitted to
arbitration to and shall be resolved in accordance with the rules of the
JAMS/Endispute for expedited cases then in effect. The arbitrator(s) shall be
mutually selected by the parties or in the event the parties cannot mutually
agree, then appointed by JAMS/Endispute. Any arbitration shall be held within a
thirty (30) mile radius of New Haven, Connecticut and the arbitrator(s) shall
apply Connecticut law. Judgment upon any award rendered by the arbitrator(s)
shall be final and may be entered in any court of competent jurisdiction.
Notwithstanding the foregoing, the Parent and Newco shall have the absolute
right to obtain equitable remedies in any state court of competent jurisdiction
in the State of Connecticut or in any United States District Court in the State
of Connecticut. Each party irrevocably submits to and accepts the exclusive
jurisdiction of each of such courts and waives any objection (including any
objection to venue or any objection based upon the grounds of forum non
conveniens) which might be asserted against the bringing of any such action,
suit or other legal proceeding in such courts. The court and/or arbitrator(s)
shall award costs and expenses (including reasonable attorney's fees) to the
prevailing party and/or parties in any litigation or arbitration.
13.6 CAPTIONS AND GENDER. The captions in this Agreement are for
convenience only and shall not affect the construction or interpretation of any
term or provision hereof. The use in this Agreement of the masculine pronoun in
reference to a party hereto shall be deemed to include the feminine or neuter
pronoun, as the context may require.
13.7 CERTAIN DEFINITIONS. for purposes of this Agreement, the term:
(a) "Affiliate" of a person shall mean a person that directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the first mentioned person;
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(b) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise; and
(c) "person" means an individual, corporation, partnership,
association, trust or any unincorporated organization.
13.8 EXECUTION IN COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same document.
13.9 AMENDMENTS; WAIVERS. This Agreement may not be amended or
modified, nor may compliance with any condition or covenant set forth herein be
waived, except by a writing duly and validly executed by the Parent, Newco, the
Company and the Stockholders, or, in the case of a waiver, the party waiving
compliance. No delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any such right, power or privilege, or any single or
partial exercise of any such right, power or privilege, preclude any further
exercise thereof or the exercise of any other such right, power or privilege.
13.10 SURVIVAL OF WARRANTIES. All representations, warranties,
agreements, covenants and obligations herein or in any schedule or certificate
delivered by any party incident to the transactions contemplated hereby are
material and may be relied upon by the party receiving the same and shall
survive for a period ending two (2) years after the Closing Date.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date set forth above by their duly authorized representatives.
INSITE INTERNET, INC.
ATTEST:
/S/ MICHAEL F. SWEENEY By:/S/ MARK E. MUNRO
- ---------------------------- -----------------------------------
Assistant Secretary Mark E. Munro, President
and Chief Executive Officer
INSITE INTERNET V
ACQUISITION CO., INC.
ATTEST:
/S/ MICHAEL F. SWEENEY By: /S/ MARK E. MUNRO
- ---------------------------- -----------------------------------
Assistant Secretary Mark E. Munro, President
and Chief Executive Officer
CARAVELA SOFTWARE, INC.
dba CONNIX
ATTEST:
/S/ JAMES HOGUE By:/S/ GARY R. WRIGHT
- ---------------------------- -----------------------------------
James Hogue, Secretary Gary R. Wright, President
WITNESS:
/S/ JOHN DOE /S/ JAMES HOGUE
- ---------------------------- --------------------------------------
James Hogue
WITNESS
/S/ JOHN DOE /S/ GARY R. WRIGHT
- ---------------------------- --------------------------------------
Gary Wright
MUNRO INSITE DOCS MERGER AGREEMENT CONNIX.DOC
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EXHIBIT 1.3
BOARD OF DIRECTORS/OFFICERS
INSITE INTERNET V ACQUISITION CO., INC.
BOARD OF DIRECTORS
Mark Munro
Keith London
OFFICERS
Mark Munro - President & Treasurer
Keith London -Secretary
Michael F. Sweeney - Assistant Secretary
Upon the filing of the Merger Certificate to effect the Merger of the Company
into Newco at the Closing, the Board of Directors of Newco will execute a
consent vote electing James Hogue as Chief Executive Officer and Gary Wright as
President of the Surviving Corporation.
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EXHIBIT 1.6
ESCROW AGREEMENT
This ESCROW AGREEMENT is entered into as of the ____ day of _______,
1999 by and among: Caravela Software, Inc. d/b/a Connix, a Connecticut
corporation (the "Company"); James Hogue and Gary Wright the stockholders of the
Company (collectively, the "Stockholders"); InSite Internet V Acquisition Co.,
Inc., a Connecticut corporation ("Newco"); InSite Internet, Inc., a Delaware
corporation ("InSite"); and Duffy & Sweeney, LLP, a Rhode Island limited
liability partnership as escrow agent (the "Escrow Agent").
WHEREAS, the Company, the Stockholders, Newco and InSite are parties to
an Agreement and Plan of Merger and Reorganization dated as of the date hereof
(the "Merger Agreement"), relating to the merger of the Company with and into
Newco; and
WHEREAS, pursuant to the Merger Agreement, the Stockholders will deliver
the number of shares of common stock of InSite, par value $.01 per share,
identified on SCHEDULE 1 hereto (the "Escrow Shares") into escrow to be held by
an Escrow Agent on behalf of the Stockholders as provided under the Merger
Agreement; and
WHEREAS, the parties hereto wish to specify the terms and conditions on
which the Escrow Shares, together with all income thereon, will be held,
invested and disbursed; and
WHEREAS, the Escrow Agent has expressed its willingness to act as escrow
agent hereunder.
NOW, THEREFORE, in consideration of the mutual undertakings and
covenants contained in this Escrow Agreement and of the mutual benefits to be
derived therefrom, the parties hereto agree as follows:
1. APPOINTMENT AND OBLIGATION OF ESCROW AGENT. The Stockholders, the
Company, Newco and InSite hereby appoint the Escrow Agent to receive, hold and
dispose of the Escrow Shares pursuant to the terms and conditions of this Escrow
Agreement, and the Escrow Agent hereby accepts such appointment on the terms and
conditions hereto. The use of the term "Escrow Agent" is solely for purposes of
identification and does not indicate or imply that the Escrow Agent has any
agency or other fiduciary obligations to any person or entity except for the
limited obligations of the Escrow Agreement pursuant hereto.
2. DEPOSIT OF ESCROW SHARES.
(a) The Stockholders hereby agree to deliver the Escrow Shares to
the Escrow Agent at the closing of the transactions contemplated by the Merger
Agreement, accompanied by an
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executed stock power or powers endorsed in blank. The Escrow Agent hereby agrees
to hold the Escrow Shares upon receipt in accordance with this Agreement. The
Escrow Shares do not form a part of the capital or debt of Escrow Agent and are
not subject to the claims of its creditors or depositors but are set apart and
held for the exclusive benefit of the parties.
(b) The Escrow Shares shall be used by the Escrow Agent solely for
the purposes of satisfying the indemnity obligations of the Stockholders under
Section 12 of the Merger Agreement. The Escrow Shares shall not be available to,
and shall not be used by, the Escrow Agent to set off any obligations of InSite
or Newco owing to the Escrow Agent in any capacity.
3. CASH DIVIDENDS AND VOTING RIGHTS. Until the Escrow Shares are
delivered by the Escrow Agent in accordance with the terms hereof, the
Stockholders are entitled to exercise all voting rights with respect to the
Escrow Shares and to receive for their own use cash and other dividends and
distributions on the Escrow Shares.
4. RELEASE OF ESCROW SHARES. The Escrow Agent shall release the Escrow
Shares as follows:
(a) If, at any time, InSite or Newco believes it is entitled to
receive a full or partial distribution of the Escrow Shares to satisfy the
indemnity obligations of the Stockholders to InSite and Newco and their
respective officers, directors, employees and agents under SECTION 12 of the
Merger Agreement, InSite or Newco shall give the Escrow Agent written notice of
the same (the "Claims Notice"), which Claims Notice shall describe the nature
and extent of the claim and shall approximate the number of Escrow Shares to be
distributed, determined in accordance with SECTION 4(B) hereof. Upon receipt of
any Claims Notice, the Escrow Agent shall promptly forward a copy of such notice
to the Stockholders. If the Stockholders object to the distribution proposed in
the Claims Notice, the Stockholders shall give written notice of such objection
to the Escrow Agent within thirty (30) days following receipt of the Claims
Notice (the "Objection Notice"). If the Escrow Agent does not receive an
Objection Notice within such thirty (30) day period, the Escrow Agent shall
distribute to InSite the Escrow Shares having a value, as determined in
accordance with SECTION 4(C) hereof, equal to the amount specified in the Claims
Notice. If the Escrow Agent receives an Objection Notice within such thirty (30)
day period, the Escrow Agent shall continue to hold the Escrow Shares pursuant
to the terms of this Agreement, subject to the Claims Notice until the Escrow
Agent receives (i) a joint written instruction from the Stockholders and InSite
and Newco regarding disposition of the Escrow Shares subject to the Claims
Notice and Objection Notice, or (ii) a certified copy of a final, non-appealable
decision of a court of competent jurisdiction regarding disposition of the
Escrow Shares subject to the Claims Notice and Objection Notice. Notwithstanding
the foregoing sentence, the Escrow Agent may exercise its rights under SECTION 9
of this Agreement at any time in the event of a dispute between the parties
regarding release of the Escrow Shares. Upon release of the Escrow Shares in
good faith pursuant to this Agreement, the Escrow Agent shall be fully released
and discharged from all obligations under this Agreement.
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(b) For purposes of distribution by the Escrow Agent of all or any
portion of the Escrow Shares pursuant to paragraph (a) of this SECTION 4, the
number of Escrow Shares to be delivered shall be determined based on the
"closing sales price" (as hereinafter defined) of InSite Common Stock for the 5
consecutive trading days immediately preceding the "date of determination" (as
hereinafter defined).
(i) For purposes hereof, "closing sales
price" shall mean (a) the average of the closing sales price, or, in case no
such reported sale takes place on such day, the average of the reported closing
bid and asked prices, in either case on the principal national securities
exchange on which the InSite Common Stock is listed or admitted to trading for
such 5 day period, or (b) if not listed or admitted to trading on any national
securities exchange, the closing sales price as reported by The Nasdaq Stock
Market, Inc., or, if such firm at the time is not engaged in the business of
reporting such prices, as furnished by any similar firm then engaged in such
business as selected by InSite's Board of Directors, for such 5 day period, or
(c) if not listed or admitted to trading on any national securities exchange or
reported by Nasdaq or any similar firm, the net book value of the Escrow Shares
as determined by management of InSite as of the end of the most recent fiscal
quarter immediately preceding the last day of such 5 day period.
(ii) For purposes hereof, "date of determination"
shall be the earlier of: (i) if no Objection Notice is received by the Escrow
Agent from the Stockholders within the 30 day period following delivery of the
Claims Notice to the Stockholders, the sooner to occur of 12:01 AM on the day
following the last day of such 30 day period or 12:01 AM on the day following
the date that the parties deliver joint written instructions to the Escrow Agent
as to the release of Escrow Shares subject to the claim described in the Claims
Notice; or (ii) if an Objection Notice is received by the Escrow Agent from the
Stockholders, 12:01 AM on the day following the date that the parties deliver
joint written instructions to the Escrow Agent as to the release of Escrow
Shares subject to the Claims Notice or 12:01 AM on the day following the date
that a certified copy of a final, non-appealable decision of a court of
competent jurisdiction regarding disposition of the Escrow Shares subject to the
Claims Notice is received by the Escrow Agent.
(c) On the date which is one (1) year after the closing date of
the transactions contemplated by the Merger Agreement (the "Escrow Termination
Date"), the Escrow Agent shall deliver to the Stockholders the remaining Escrow
Shares, unless the Escrow Agent shall have been notified in writing by InSite,
Newco or the Stockholders that a Claims Notice is pending and has not been
resolved as described in paragraph (b)(i) or (ii) of this SECTION 4. If the
Escrow Agent has been advised that a Claims Notice is pending on the Escrow
Termination Date and has not been resolved as aforesaid, the Escrow Agent shall
deliver the remaining Escrow Shares to the parties in accordance with the
resolution of the Claims Notice, as provided in SECTION 4(B). InSite and Newco
agree that if a Claims Notice is pending on the Escrow Termination Date, InSite
and Newco will release to the Stockholders the balance of the Escrow
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Shares, if any, which would likely be unnecessary to cover the amount of the
claim described in the Claims Notice, less a reasonable "buffer amount" which
shall not be more than twice the amount valued as provided herein using the
Escrow Termination Date as the "date of determination." For example, if a
$25,000 claim is pending on the Escrow Termination Date, InSite and Newco would
have the right to direct the Escrow Agent to retain up to $50,000 in Escrow
Shares (valued as provided in Section 4(b) above using the Escrow Termination
Date as the "date of determination" for such purposes.
5. EXCULPATION OF ESCROW AGENT. The Escrow Agent shall have no duties or
responsibilities except for those set forth herein (and required by applicable
law), which the parties agree are ministerial in nature. If in doubt as to its
duties and responsibilities hereunder, the Escrow Agent may consult with counsel
of its choice and shall be protected in any action taken or omitted in good
faith in connection with the written advice or opinion of such counsel. The
Escrow Agent shall not be deemed to have any knowledge of or responsibility for
the terms of any other agreement or instrument including the Merger Agreement.
The Escrow Agent makes no representation as to the validity, value, genuineness
or collectibility of any security, document or instrument held by or delivered
to it. Except for the Escrow Agent's own fraud, bad faith, willful misconduct or
gross negligence: (a) the Escrow Agent shall have no liability of any kind
whatsoever for the performance of any duties imposed upon the Escrow Agent under
this Escrow Agreement or for any action or failure to act taken in good faith by
the Escrow Agent hereunder; (b) the Escrow Agent shall not be responsible for
the acts or omissions of any other parties hereto; (c) the Escrow Agent shall
not be liable to anyone for damages, losses or expenses arising out of this
Escrow Agreement; and (d) the Escrow Agent may rely and/or act upon any
instrument or document believed by the Escrow Agent in good faith to be genuine
and to be executed and delivered by the proper person or party, and may assume
in good faith the authenticity, validity and effectiveness thereof and shall not
be obligated to make any investigation or determination as to the truth and
accuracy of any information contained therein. The Escrow Agent shall not be
liable for any error of judgment, or for any act done or step taken or omitted
by it in good faith or for any mistake of fact or law, or for anything which it
may do or refrain from doing in connection herewith, except its own bad faith,
willful misconduct or gross negligence. In the event of any dispute between
InSite/Newco or the Stockholders, InSite/Newco and the Stockholders shall pay,
on demand, the reasonable attorneys' fees and other reasonable costs and
expenses incurred by the Escrow Agent solely in its capacity as Escrow Agent
hereunder; InSite, Newco and the Stockholders shall be jointly and severally
liable for such fees, costs and expenses but, as between themselves, such fees,
costs and expenses shall be paid by the party losing such dispute or as
determined by the court or other party resolving such dispute.
6. INDEMNIFICATION; EXPENSES. In consideration of its acceptance of the
appointment as the Escrow Agent, InSite, Newco and the Stockholders, jointly and
severally, agree to indemnify and hold the Escrow Agent harmless as to any
liability reasonably incurred by it to any person, firm or corporation by reason
of its having accepted the same or in carrying out in good faith any
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of the terms hereof, and to reimburse Escrow Agent for all its reasonable
expenses, including, among other things, counsel fees and court costs, incurred
by reason of its position hereunder or actions taken pursuant hereto. The Escrow
Agent has no intention of charging any "fee" for its services as Escrow Agent
hereunder, and does not contemplate incurring any significant expenses in the
absence of any dispute between the parties with regard to release of the Escrow
Shares.
7. SUCCESSOR ESCROW AGENT.
(a) The Escrow Agent (and any successor escrow agent) may at any
time resign as such by delivering the Escrow Shares to any successor escrow
agent jointly designated in writing by InSite, Newco and the Stockholders, or to
any court of competent jurisdiction, whereupon the Escrow Agent shall be
discharged of and from any and all further obligations arising in connection
with this Escrow Agreement. The resignation of the Escrow Agent shall take
effect on the earlier of the appointment of a successor escrow agent or the day
which is thirty (30) days after the date of delivery of the Escrow Agent's
written notice of resignation to the other parties hereto. In the event that a
successor escrow agent has not been appointed at the expiration of such thirty
(30) day period, the Escrow Agent's sole responsibility hereunder shall be the
safekeeping of the Escrow Shares and to deliver all or any portion thereof as
may be specified in a written agreement signed by all the other parties to this
Agreement or as any court of competent jurisdiction may order.
(b) If the Escrow Agent receives a written notice signed by
InSite, Newco and the Stockholders stating that they have selected another
escrow agent, the Escrow Agent shall deliver the Escrow Shares to the successor
escrow agent named in the aforesaid notice within ten (10) days.
8. ENTIRE AGREEMENT; MODIFICATION. With the exception of the Merger
Agreement and agreements, schedules and exhibits thereto, this Escrow Agreement
contains the entire agreement, and supersedes all prior agreements and
undertakings, oral or written, between the parties hereto with respect to the
subject matter hereof. No modification of this Escrow Agreement shall be valid
unless the same is in writing and is signed by InSite, Newco, the Stockholders
and the Escrow Agent.
9. INCONSISTENT CLAIMS. In the event that the Escrow Agent should at any
time be confronted with inconsistent claims or demands by the parties hereto,
the Escrow Agent shall have the right to interplead said parties in any court of
competent jurisdiction in Rhode Island, and request that such court determine
such respective rights of the parties with respect to this Escrow Agreement, and
upon doing so, the Escrow Agent automatically shall be released from any
obligations or liability as consequence of any such claims or demands.
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10. STOCKHOLDERS' ACKNOWLEDGMENT OF ATTORNEY/CLIENT RELATIONSHIP BETWEEN
INSITE, NEWCO AND THE ESCROW AGENT. The Stockholders acknowledge and agree that
the Escrow Agent has acted and will continue to act as counsel to InSite and
Newco in connection with the negotiation and execution of the Merger Agreement.
In that connection and as a condition to the Escrow Agent's and InSite's and
Newco's agreement to enter into this Agreement, the Stockholders waive any right
to seek disqualification of the Escrow Agent from serving as counsel to InSite
and Newco by virtue of this Agreement or any dispute hereunder.
11. NOTICES. Any notices to be given hereunder shall be sufficiently
given if in writing and delivered personally, sent by telecopy (answerback
received), sent by recognized overnight courier, or mailed by registered or
certified mail, return receipt requested, postage prepaid, to the following
addresses or to such other address as the parties may from time to time
designate in writing delivered in accordance with this SECTION 11:
(a) To the Stockholders at:
James Hogue
Gary Wright
C/o Caravela Software, Inc. dba Connix
6 Way Road
Middlefield, CT 06455
with a copy to:
Gorman & Enright, P.C.
59 Elm Street
New Haven, CT 06510
Attn: Brian G. Enright, Esq.
Phone: 203-865-1382
Fax: 203-776-7250
(b) To InSite and Newco at:
InSite Internet, Inc.
1100 First Avenue
Spring Lake, NJ 07762
Attn: Mark E. Munro, President & CEO
Phone: (732) 280-6407
Fax: (732) 280-6409
with a copy to the Escrow Agent:
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(c) To the Escrow Agent at:
Duffy & Sweeney, LLP
300 Turks Head Building
Providence, RI 02903
Attn: Michael F. Sweeney, Partner
Phone: (401) 455-0700
Fax: (401) 455-0701
Any notices to be given hereunder shall be deemed received (a) on the date
delivered, if delivered personally, (b) on the date sent, if sent by telecopy,
(c) on the first business day after the date such notice was sent, if sent by
overnight courier, or (d) on the third business day after the date such notice
was sent, if sent by registered or certified mail, PROVIDED THAT no such notice
or other communication shall be deemed given to the Escrow Agent until the same
is received by the Escrow Agent.
12. BINDING EFFECT. This Escrow Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, except that the Stockholders and InSite, Newco may not assign their
respective obligations hereunder without the prior written consent of the other
parties. Any assignment in contravention of this provision shall be void. No
assignment shall release the Stockholders or InSite, Newco from any obligation
or liability under this Escrow Agreement.
13. GOVERNING LAW. This Escrow Agreement shall be construed in accordance
with and governed by the laws of the State of Rhode Island.
14. DEFINED TERMS. Capitalized terms used herein without definition shall
have the meanings assigned to them in the Merger Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement as of the date first above written.
INSITE INTERNET, INC.
ATTEST:
By:
- --------------------------------- --------------------------------
, Assistant Secretary Mark E. Munro, President
and Chief Executive Officer
INSITE INTERNET V
ACQUISITION CO., INC.
ATTEST:
By:
- --------------------------------- -------------------------------
, Assistant Secretary Mark E. Munro, President
and Chief Executive Officer
CARAVELA SOFTWARE, INC.
d/b/a CONNIX
ATTEST:
By:
- --------------------------------- --------------------------------
, Secretary ____________, President
WITNESS:
- --------------------------------- -----------------------------------
James Hogue
WITNESS:
- --------------------------------- -----------------------------------
Gary Wright
ATTEST: DUFFY & SWEENEY.LLP
By:
- --------------------------------- --------------------------------
Michael F. Sweeney, Partner
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SCHEDULE 1
[TBD -- the number of shares of InSite stock with a value equal to $100,000
based on the public offering price of InSite stock in the IPO allocated pro rata
among the Stockholders]
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EXHIBIT 6.12(A)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this
_____ day of _____________, 1999, by and between, InSite Internet V Acquisition
Co., Inc., a Connecticut corporation (the "Company") and wholly-owned subsidiary
of InSite Internet, Inc., a Delaware corporation (the "Parent") and James Hogue,
an individual with a mailing address at 12 Sunrise Lane, Madison, Connecticut
06443 ("Employee").
INTRODUCTION
Employee is a principal and employee of Caravela Software, Inc. d/b/a
Connix (the "Founding Company") and possesses skills and knowledge advantageous
to the Company.
The Parent intends to undertake an initial public offering of its common
stock (the "IPO") and in connection therewith contemplates filing a registration
statement with the Securities and Exchange Commission. Contemporaneously with
and conditioned upon the successful closing of the IPO (the "Effective Date"),
(i) the Parent, the Founding Company and the Company intend to effect a merger
of the Founding Company into the Company in accordance with that certain
Agreement and Plan of Merger and Reorganization dated as of [______________],
1999 by and among the Parent, the Company, the Founding Company, and the
stockholders of the Founding Company (the "Merger Agreement") and (ii) effective
on the Effective Date, the Company desires to employ Employee and Employee
desires to accept such employment on the terms and conditions set forth herein.
AGREEMENT
In consideration of the premises and mutual promises hereinbelow set
forth, the parties hereby agree as follows:
1. EMPLOYMENT; DUTIES. Subject to the terms and conditions set
forth herein, the Company hereby employs Employee during the Employment Period
(as defined below), and Employee hereby accepts such employment. Employee agrees
to be a full-time employee of the Company and devote his full and exclusive
time, energy, skill and best efforts to the business of the Company and to the
fulfillment of Employee's duties hereunder. Employee's duties include, but are
not limited to, (i) serving as Chief Executive Officer of the Company; (ii)
sales of the Company's and its affiliates products and services; (iii) assisting
in the internal growth of the Company's business; and (iv) other duties assigned
to Employee by the Company from time to time consistent with Employee's
position.
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2. EMPLOYMENT PERIOD. The term of this Agreement (the "Employment
Period") shall commence on the Effective Date and shall terminate three (3)
years thereafter, unless terminated earlier pursuant to SECTION 4 or SECTION 5
below.
3. COMPENSATION AND BENEFITS.
3.1 SALARY. During the Employment Period, the Company agrees
to pay Employee at the rate of $70,000 per year ("Base Salary"). Employee's
salary shall be subject to customary withholdings and be payable to Employee on
the regularly occurring pay period established by the Company.
3.2 HEALTH BENEFITS. During the Employment Period, the
Company shall provide Employee with individual and/or family health care
coverage, as provided by health care provider(s) selected by the Company from
time to time.
3.3 SALES/EBITDA BONUS. During the Employment Period,
Employee shall be paid a bonus at the end of each fiscal year equal to the sum
of (i) 2.5% of the Company's increase in "annual sales" and (ii) 10% of the
Company's increase in "EBITDA" (i.e., earnings before interest, taxes,
depreciation and amortization). Such bonus (if any) shall be payable at the
discretion of the Company in either (A) cash or (B) common stock, options or
other awards from the Parent's incentive stock plan, subject to applicable
securities law and tax withholding payments by Employee. The calculation for
such bonus shall (x) be based on the unconsolidated financial statements of the
Company as certified by the Company's certified public accountants; (y) be
subject to allocation of overhead provisions from time to time reasonably
adopted by the Company, the Parent and its subsidiaries, including but not
limited to salaries, administrative expenses, equipment and other costs of the
Parent which arguably provide benefits to all of the Parent's operating
subsidiaries including the Company but excluding expenses which do not have a
reasonably direct impact on the Company such as specific costs of a particular
new acquisition; and (z) include only "organic" sales and earnings (i.e. only
such earnings and sales generated from the Company's currently existing
business) and shall exclude, without limitation, any earnings or sales generated
by way of merger, acquisition or other similar event.
3.4 RETIREMENT PLAN. During the Employment Period, Employee
shall be entitled to participate in any 401(k) or similar plan adopted by the
Company for the benefit of its employees. The Company reserves the right to
modify, terminate or withdraw any such plan (if so adopted) at any time in its
sole discretion. It is the intention of the Parent to adopt a new 401(k) plan
for all affiliates after the Effective Date and, to the extent legally
permissible, to credit Employee for his years of service earned or utilize his
service commencement date under the Founding Company's existing 401(k) plan in
connection with transitioning Employee to such new plan.
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3.5 INCENTIVE BONUS. Employee will be paid an incentive
bonus equal to 2.0% (subject to the percentage reduction specified in the third
sentence of this Section 3.5) of the total purchase price for each company that
Employee introduces to the Parent and is subsequently acquired by the Parent,
payable at the Company's discretion in either (i) cash or (ii) common stock,
stock options or other awards from the Parent's incentive stock option plan,
subject to applicable securities law and tax withholding payments by Employee.
Employee will be required to submit any referral in writing for acknowledgment
by the Parent prior to any negotiations between the Parent and the referral.
Employee acknowledges that other persons or entities, (including other
employees, officers, and directors of the Company and its affiliates), have been
or may be offered a similar "incentive bonus" and that any incentive bonus which
Employee may be entitled to hereunder is subject to a percentage reduction to
the extent that other persons or entities participated in or were responsible
for the referral. Any dispute regarding apportionment of an incentive bonus
shall be resolved by binding arbitration in accordance with SECTION 13 hereof.
In no event shall the Company or the Parent pay more than 2% in total incentive
bonuses for any single acquisition transaction.
3.6 VACATION. Employee may take up to four (4) weeks
paid vacation each year during the Employment Period.
4. TERMINATION BY THE COMPANY FOR CAUSE. Upon written notice to
Employee, the Company may terminate this Agreement for cause if any of the
following events shall occur: (i) any breach of this Agreement by Employee; (ii)
the commission of a felony by Employee; (iii) the commission of an act by
Employee involving fraud, theft or dishonesty; (iv) material breach by the
Founding Company or its stockholders of their representations, warranties and
covenants and/or obligations under the Merger Agreement which breach remains
uncured for a period of thirty (30) days following notice to Employee; (v) the
appropriation of a material business opportunity of the Company or its
affiliates, provided, however, that such appropriation shall not be grounds for
a "for cause" termination if Employee has previously discussed the opportunity
with the President and CEO of the Parent and, prior to pursuing the opportunity,
has received a letter or other written authorization from the Parent (which
shall be provided in the Parent's sole discretion) advising Employee that the
Parent, the Company and/or its affiliates do not intend to pursue the
opportunity and permitting Employee to pursue the opportunity subject to the
continuing ability of Employee to devote his full time and best efforts to the
performance of his duties hereunder; or (vi) the Company's bona fide decision to
terminate its business and liquidate its assets. In the event of a termination
pursuant to this SECTION 4, all obligations of the Company under this Agreement
shall cease; provided, however, all benefits hereunder through the date of
termination due and payable to Employee would be paid by the Company subject to
its rights to set-off against such payments in the event of a termination
pursuant to subsections 4(i) through 4(v) above.
5. TERMINATION WITHOUT CAUSE.
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5.1 BY EMPLOYER. The Company may terminate this Agreement at
any time without cause upon thirty (30) days written notice to Employee. In such
event, the Company shall pay Employee during regular payroll periods (less
customary withholding taxes) the Base Salary for up to the greater of twelve
(12) months or the remainder of the Employment Period All other obligations of
the Company shall cease on the date of termination; provided, however, that all
benefits earned through the date of termination but not yet paid would be paid
by the Company.
5.2 BY EMPLOYEE. Employee may terminate this Agreement at
any time upon thirty (30) days prior written notice to the Company. In such
case, Employee shall not be eligible for any severance payments or other
benefits after the date of termination; provided, however, that all benefits
earned through the date of termination but not yet paid would be paid by the
Company..
5.3 MERGER AGREEMENT. Absent a breach of the Merger
Agreement, termination by either the Company or Employee pursuant to this
SECTION 5 shall not be deemed a breach of the Merger Agreement, nor will it
affect either party's obligations thereunder.
6. CONFIDENTIALITY AND NON-DISCLOSURE. Employee recognizes and
acknowledges that he has had in the past, currently has and in the future may
have access to certain confidential information relating to the Company and its
affiliates, including, but not limited to, operational policies, financial
information, marketing information, personnel information, trade secrets,
customer information (including customer lists), and pricing and cost policies,
that are valuable, special and unique assets of the Company (collectively,
"Confidential Information"). Employee agrees that he will not use or disclose
such Confidential Information to any person, firm, corporation, association or
other entity for any purpose or reason whatsoever, except as is required in the
course of performing his duties hereunder unless (i) such information becomes
known to the public generally through no breach by Employee of this covenant or
(ii) disclosure is required by law or any governmental authority or is required
in connection with the defense of a lawsuit against the disclosing party,
provided, that prior to disclosing any information pursuant to this clause (ii),
Employee shall give prior written notice thereof to the Company and provide the
Company with the opportunity to contest such disclosure. Employee agrees that,
both during the Employment Period and after the termination of this Agreement,
Employee will hold in a fiduciary capacity for the benefit of the Company, and
shall not directly or indirectly use or disclose, except as authorized by the
Company in connection with the performance of Employee's duties, any
Confidential Information, that Employee may have or may acquire (whether or not
developed or compiled by Employee and whether or not Employee has been
authorized to have access to such Confidential Information) during the term of
this Agreement. The covenants contained in this SECTION 6 shall survive for the
Employment Period and for a period of two (2) years thereafter; provided,
however, that with respect to those items of Confidential Information which
constitute trade secrets under applicable law, Employee's obligations of
confidentiality and non-disclosure as set forth in this SECTION 6 shall continue
to
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survive after the applicable period above to the greatest extent permitted by
applicable law. These rights of the Company are in addition to those rights the
Company has under the common law or applicable statutes for the protection of
trade secrets.
7. NON-COMPETITION. Employee expressly covenants and agrees that
for the Employment Period and for a period of two (2) years thereafter, he shall
not, directly or indirectly, seek, obtain or accept a "Competitive Position" in
the "Restricted Territory" with a "Competitor" of the Company (as such terms are
hereafter defined). For purposes of this Agreement, a "Competitor" of the
Company means any business, individual, partnership, joint venture, association,
firm, corporation or other entity engaged primarily in the business of selling
internet access service or which has substantial operations in any related
telecommunications business which the Company and its affiliates may engage in
from time to time during the term of this covenant; the "Restricted Territory"
means the New England states, New York, New Jersey, Ohio and Pennsylvania, and
each other state of the United States of America in which the Company or any of
its affiliates has at least 20 customers or conducts operations; a "Competitive
Position" means any employment with any Competitor of the Company whereby
Employee will use or is likely to use any Confidential Information, or whereby
Employee has duties for such Competitor that are the same or substantially
similar to those actually performed by Employee pursuant to the terms hereof.
Nothing contained in this SECTION 7 is intended to prevent Employee from
investing in stock or other securities listed on a national securities exchange
or actively traded on the over the counter market or any corporation engaged,
wholly or partly, in the sale of telecommunications products or services;
provided, however, that Employee and members of his immediate family shall not,
directly or indirectly, hold more than a total of two percent (2%) of all issued
and outstanding stock or other securities of any such corporation.
Notwithstanding anything to the contrary herein, in the event that Employee is
terminated for cause or voluntarily terminates his employment with the Company
during the first 12 months of the Employment Period, the "Restricted Territory"
shall mean each state of the United States for purposes of this non-competition
provision.
8. NON-SOLICITATION.
8.1 NON-SOLICITATION OF CUSTOMERS. Employee agrees that he
will not take any customer lists of the Company after leaving his employ and
that he will, for the Employment Period and for a period of two (2) years
thereafter, refrain from soliciting or attempting to solicit directly or by
assisting others, any business from any of the Company's customers, including
actively sought prospective customers, with whom Employee had "material contact"
during the employment for purposes of providing products or services.
8.2 NON-SOLICITATION OF EMPLOYEES. Employee agrees that he
will, for the Employment Period and for a period of two (2) years thereafter,
refrain from recruiting or hiring, or attempting to recruit or hire, directly or
by assisting others, any other employee of the Company who is employed by the
Company or any successor or affiliate of the Company.
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9. TOLLING OF PERIOD OF RESTRAINT. Employee hereby expressly
acknowledges and agrees that in the event the enforceability of any of the terms
of this Agreement shall be challenged in court and Employee is not enjoined from
breaching any of the restraints set forth in SECTION 6 through SECTION 9, then
if a court of competent jurisdiction finds that the challenged restraint is
enforceable, the time period of the restraint shall be deemed tolled upon the
filing of the lawsuit challenging the enforceability of the restraint until the
dispute is finally resolved and all periods of appeal have expired.
10. ACKNOWLEDGEMENTS. Employee hereby acknowledges and agrees that
the restrictions contained in SECTION 6 through SECTION 9 are fair and
reasonable and necessary for the protection of the legitimate business interests
of the Company. Employee acknowledges that in the event Employee's employment
with the Company terminates for any reason, Employee will be able to earn a
livelihood without violating the restrictions contained in SECTION 6 through
SECTION 9 and that Employee's ability to earn a livelihood without violating
such restrictions is a material condition to Employee's employment and continued
employment with the Company. Employee expressly agrees that the character,
duration and geographical scope of the covenants contained in this SECTION 6
through SECTION 9 are reasonable in light of the circumstances as they exist at
the date upon which this Agreement has been executed including the substantial
payments made by the Company and Employee in consideration of the Merger
Agreement. However, should a determination nonetheless be made by a court of
competent jurisdiction at a later date that the character, duration or
geographical scope of the covenants contained herein are unreasonable in light
of the circumstances as they then exist, then it is the intention of both
Employee and the Company that these covenants shall be construed by the court in
such a manner as to impose only those restrictions on the conduct of Employee
which are reasonable in light of the circumstances as they then exist and
necessary to assure the Company of the intended benefit of these covenants.
11. RIGHTS TO MATERIALS; WORK FOR HIRE. All records, files,
memoranda, reports, price lists, customer lists, drawings, plans, sketches,
documents and the like (together with all copies thereof) relating to the
business of the Company, which Employee shall use or prepare or come in contact
with in the course of, or as a result of, his employment shall, as between the
parties hereto, remain the sole property of the Company. Upon the termination of
Employment or upon the prior demand of the Company, Employee shall immediately
return all such materials and shall not thereafter cause removal thereof from
the premises of the Company. Employee agrees to disclose and assign to the
Company as its exclusive property, all ideas, writings, inventions, discoveries,
improvements and technical or business innovations made or conceived by
Employee, whether or not patentable or copyrightable, either solely or jointly
with others during the Employment Period and for a period of six (6) months
thereafter whether or not made or conceived during regular hours of work or
otherwise, which relate to the business of providing internet access service or
to any related telecommunications business which the Company and its affiliates
may engage in from time to time during the term of the Employment Period .
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Employee agrees to execute any and all documents hereafter requested by the
Company necessary to further effectuate the foregoing.
12. REMEDIES. Without limiting the Company's right to claim
damages, Employee acknowledges that the Company will be irreparably harmed by a
breach of any provision of this Agreement and Employee agrees that the Company
shall be entitled to injunctive relief in the event of such breach.
13. GOVERNING LAW; ARBITRATION; JURISDICTION; VENUE; ATTORNEY'S
FEES. This Agreement is made and entered into in and shall be governed by and
interpreted in accordance with the laws of, the State of Connecticut. The
Company and Employee agree that any dispute regarding this Agreement shall be
submitted to arbitration to and shall be resolved in accordance with the rules
of the JAMS/Endispute for expedited cases then in effect. The arbitrator(s)
shall be mutually selected by the parties or in the event the parties cannot
mutually agree, then appointed by JAMS/Endispute. Any arbitration shall be held
within a thirty (30) mile radius of New Haven, Connecticut and the arbitrator(s)
shall apply Connecticut law. Judgment upon any award rendered by the
arbitrator(s) shall be final and may be entered in any court of competent
jurisdiction. Notwithstanding the foregoing, the Company shall have the absolute
right to obtain equitable remedies in any state court of competent jurisdiction
in the State of Connecticut or in any United States District Court in the State
of Connecticut. By his execution and delivery of this agreement, Employee
irrevocably submits to and accepts the exclusive jurisdiction of each of such
courts and waives any objection (including any objection to venue or any
objection based upon the grounds of forum non conveniens) which might be
asserted against the bringing of any such action, suit or other legal proceeding
in such courts. The court and/or arbitrator(s) shall award costs and expenses
(including reasonable attorney's fees) to the prevailing party in any litigation
or arbitration.
14. MISCELLANEOUS.
14.1 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all previous agreements, written and oral, regarding the
subject matter hereof between the parties hereto. This Agreement shall not be
changed, altered, modified or amended, except by a written agreement signed by
both parties hereto.
14.2. NOTICES. All notices, requests, demands and other
communications required or permitted to be given or made under this Agreement
shall be in writing and shall be deemed to have been given if delivered by hand,
sent by generally recognized overnight courier service, telex or telecopy, or
mail,
(a) to the Company care of: With a copy to:
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InSite Internet., Inc. Duffy & Sweeney, LLP
1100 First Avenue 300 Turks Head Building
Spring Lake, NJ 07762 Providence, RI 02903
Attention: Mark E. Munro, CEO Attention: Michael F. Sweeney, Esq.
Telephone: (732) 280-6408 Telephone: (401) 455-0700
Fax: (732) 280-6409 Fax: (401) 455-0701
(b) to the Employee at: With a copy to:
James Hogue Gorman & Enright, P.C.
12 Sunrise Lane 59 Elm Street
Madison, CT 06443 New Haven, CT 06510
Attention: Brian G. Enright, Esq.
Phone: 203-865-1382
Fax: 203-776-7250
14.3 ASSIGNMENT. The Company may assign this Agreement to
(i) any entity controlling, controlled by or under common control with the
Company or (ii) to any purchaser of the Company's assets provided that such
purchaser agrees to assume the Company's obligations hereunder.
14.4. SEVERABILITY. If any term or provision of this
Agreement, or the application thereof to any person or under any circumstance,
shall to any extent be invalid or unenforceable, the remainder of this
Agreement, or the application of such terms to the persons or under
circumstances other than those as to which it is invalid or unenforceable, shall
be considered severable and shall not be affected thereby, and each term of this
Agreement shall be valid and enforceable to the fullest extent permitted by law.
The invalid or unenforceable provisions shall, to the extent permitted by law,
be deemed amended and given such interpretation as to achieve the economic
intent of this Agreement.
14.5. WAIVER. The failure of any party to insist in any one
instance or more upon strict performance of any of the terms and conditions
hereof, or to exercise any right or privilege herein conferred, shall not be
construed as a waiver of such terms, conditions, rights or privileges, but same
shall continue to remain in full force and effect. Any waiver by any party of
any violation of, breach of or default under any provision of this Agreement by
the other party shall not be construed as, or constitute, a continuing waiver of
such provision, or waiver of any other violation of, breach of or default under
any other provision of this Agreement.
14.6. RIGHT OF SETOFF. Notwithstanding anything to the
contrary set forth herein, and in addition to any and all remedies at law or in
equity which the Company may have, the Company shall have the absolute and
unconditional right to setoff its payment obligations
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hereunder against the amount of any claims for indemnification it may have
against Employee under the Merger Agreement.
14.7. TITLES; GENDER. Section and subsection titles are for
convenience of reference only and are not to be considered in the interpretation
or construction of any of the provisions hereof. All pronouns or any variations
thereof contained in this Agreement refer to the masculine, feminine or neuter
as the identity of the person may require.
14.8 SURVIVAL. SECTION 6 through SECTION 14 hereof shall
survive any termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY:
ATTEST: INSITE INTERNET V ACQUISITION Co., Inc.
By:
- ------------------------------- ----------------------------------
Mark E. Munro, President
WITNESS: EMPLOYEE:
- ------------------------------- ----------------------------------
James Hogue
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EXHIBIT 6.12(B)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this
_____ day of _____________, 1999, by and between, InSite Internet V Acquisition
Co., Inc., a Connecticut corporation (the "Company") and wholly-owned subsidiary
of InSite Internet, Inc., a Delaware corporation (the "Parent") and Gary Wright,
an individual with a mailing address at 42 Dove Lane, Middletown, Connecticut
06457 ("Employee").
INTRODUCTION
Employee is a principal and employee of Caravela Software, Inc. d/b/a
Connix (the "Founding Company") and possesses skills and knowledge advantageous
to the Company.
The Parent intends to undertake an initial public offering of its common
stock (the "IPO") and in connection therewith contemplates filing a registration
statement with the Securities and Exchange Commission. Contemporaneously with
and conditioned upon the successful closing of the IPO (the "Effective Date"),
(i) the Parent, the Founding Company and the Company intend to effect a merger
of the Founding Company into the Company in accordance with that certain
Agreement and Plan of Merger and Reorganization dated as of [______________],
1999 by and among the Parent, the Company, the Founding Company, and the
stockholders of the Founding Company (the "Merger Agreement") and (ii) effective
on the Effective Date, the Company desires to employ Employee and Employee
desires to accept such employment on the terms and conditions set forth herein.
AGREEMENT
In consideration of the premises and mutual promises hereinbelow set
forth, the parties hereby agree as follows:
1. EMPLOYMENT; DUTIES. Subject to the terms and conditions set
forth herein, the Company hereby employs Employee during the Employment Period
(as defined below), and Employee hereby accepts such employment. Employee agrees
to be a full-time employee of the Company and devote his full and exclusive
time, energy, skill and best efforts to the business of the Company and to the
fulfillment of Employee's duties hereunder. Employee's duties include, but are
not limited to, (i) serving as President of the Company; (ii) sales of the
Company's and its affiliates products and services; (iii) assisting in the
internal growth of the Company's business; and (iv) other duties assigned to
Employee by the Company from time to time consistent with Employee's position.
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2. EMPLOYMENT PERIOD. The term of this Agreement (the "Employment
Period") shall commence on the Effective Date and shall terminate three (3)
years thereafter, unless terminated earlier pursuant to SECTION 4 or SECTION 5
below.
3. COMPENSATION AND BENEFITS.
3.1 SALARY. During the Employment Period, the Company agrees
to pay Employee at the rate of $70,000 per year ("Base Salary"). Employee's
salary shall be subject to customary withholdings and be payable to Employee on
the regularly occurring pay period established by the Company.
3.2 HEALTH BENEFITS. During the Employment Period, the
Company shall provide Employee with individual and/or family health care
coverage, as provided by health care provider(s) selected by the Company from
time to time.
3.3 SALES/EBITDA BONUS. During the Employment Period,
Employee shall be paid a bonus at the end of each fiscal year equal to the sum
of (i) 2.5% of the Company's increase in "annual sales" and (ii) 10% of the
Company's increase in "EBITDA" (i.e., earnings before interest, taxes,
depreciation and amortization). Such bonus (if any) shall be payable at the
discretion of the Company in either (A) cash or (B) common stock, options or
other awards from the Parent's incentive stock plan, subject to applicable
securities law and tax withholding payments by Employee. The calculation for
such bonus shall (x) be based on the unconsolidated financial statements of the
Company as certified by the Company's certified public accountants; (y) be
subject to allocation of overhead provisions from time to time reasonably
adopted by the Company, the Parent and its subsidiaries, including but not
limited to salaries, administrative expenses, equipment and other costs of the
Parent which arguably provide benefits to all of the Parent's operating
subsidiaries including the Company but excluding expenses which do not have a
reasonably direct impact on the Company such as specific costs of a particular
new acquisition; and (z) include only "organic" sales and earnings (i.e. only
such earnings and sales generated from the Company's currently existing
business) and shall exclude, without limitation, any earnings or sales generated
by way of merger, acquisition or other similar event.
3.4 RETIREMENT PLAN. During the Employment Period, Employee
shall be entitled to participate in any 401(k) or similar plan adopted by the
Company for the benefit of its employees. The Company reserves the right to
modify, terminate or withdraw any such plan (if so adopted) at any time in its
sole discretion. It is the intention of the Parent to adopt a new 401(k) plan
for all affiliates after the Effective Date and, to the extent legally
permissible, to credit Employee for his years of service earned or utilize his
service commencement date under the Founding Company's existing 401(k) plan in
connection with transitioning Employee to such new plan.
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3.5 INCENTIVE BONUS. Employee will be paid an incentive
bonus equal to 2.0% (subject to the percentage reduction specified in the third
sentence of this Section 3.5) of the total purchase price for each company that
Employee introduces to the Parent and is subsequently acquired by the Parent,
payable at the Company's discretion in either (i) cash or (ii) common stock,
stock options or other awards from the Parent's incentive stock option plan,
subject to applicable securities law and tax withholding payments by Employee.
Employee will be required to submit any referral in writing for acknowledgment
by the Parent prior to any negotiations between the Parent and the referral.
Employee acknowledges that other persons or entities, (including other
employees, officers, and directors of the Company and its affiliates), have been
or may be offered a similar "incentive bonus" and that any incentive bonus which
Employee may be entitled to hereunder is subject to a percentage reduction to
the extent that other persons or entities participated in or were responsible
for the referral. Any dispute regarding apportionment of an incentive bonus
shall be resolved by binding arbitration in accordance with SECTION 13 hereof.
In no event shall the Company or the Parent pay more than 2% in total incentive
bonuses for any single acquisition transaction.
3.6 VACATION. Employee may take up to four (4) weeks paid
vacation each year during the Employment Period.
4. TERMINATION BY THE COMPANY FOR CAUSE. Upon written notice to
Employee, the Company may terminate this Agreement for cause if any of the
following events shall occur: (i) any breach of this Agreement by Employee; (ii)
the commission of a felony by Employee; (iii) the commission of an act by
Employee involving fraud, theft or dishonesty; (iv) material breach by the
Founding Company or its stockholders of their representations, warranties and
covenants and/or obligations under the Merger Agreement which breach remains
uncured for a period of thirty (30) days following notice to Employee; (v) the
appropriation of a material business opportunity of the Company or its
affiliates, provided, however, that such appropriation shall not be grounds for
a "for cause" termination if Employee has previously discussed the opportunity
with the President and CEO of the Parent and, prior to pursuing the opportunity,
has received a letter or other written authorization from the Parent (which
shall be provided in the Parent's sole discretion) advising Employee that the
Parent, the Company and/or its affiliates do not intend to pursue the
opportunity and permitting Employee to pursue the opportunity subject to the
continuing ability of Employee to devote his full time and best efforts to the
performance of his duties hereunder; or (vi) the Company's bona fide decision to
terminate its business and liquidate its assets. In the event of a termination
pursuant to this SECTION 4, all obligations of the Company under this Agreement
shall cease; provided, however, all benefits hereunder through the date of
termination due and payable to Employee would be paid by the Company subject to
its rights to set-off against such payments in the event of a termination
pursuant to subsections 4(i) through 4(v) above.
5. TERMINATION WITHOUT CAUSE.
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5.1 BY EMPLOYER. The Company may terminate this Agreement at
any time without cause upon thirty (30) days written notice to Employee. In such
event, the Company shall pay Employee during regular payroll periods (less
customary withholding taxes) the Base Salary for up to the greater of twelve
(12) months or the remainder of the Employment Period All other obligations of
the Company shall cease on the date of termination; provided, however, that all
benefits earned through the date of termination but not yet paid would be paid
by the Company.
5.2 BY EMPLOYEE. Employee may terminate this Agreement at
any time upon thirty (30) days prior written notice to the Company. In such
case, Employee shall not be eligible for any severance payments or other
benefits after the date of termination; provided, however, that all benefits
earned through the date of termination but not yet paid would be paid by the
Company.
5.3 MERGER AGREEMENT. Absent a breach of the Merger
Agreement, termination by either the Company or Employee pursuant to this
SECTION 5 shall not be deemed a breach of the Merger Agreement, nor will it
affect either party's obligations thereunder.
6. CONFIDENTIALITY AND NON-DISCLOSURE. Employee recognizes and
acknowledges that he has had in the past, currently has and in the future may
have access to certain confidential information relating to the Company and its
affiliates, including, but not limited to, operational policies, financial
information, marketing information, personnel information, trade secrets,
customer information (including customer lists), and pricing and cost policies,
that are valuable, special and unique assets of the Company (collectively,
"Confidential Information"). Employee agrees that he will not use or disclose
such Confidential Information to any person, firm, corporation, association or
other entity for any purpose or reason whatsoever, except as is required in the
course of performing his duties hereunder unless (i) such information becomes
known to the public generally through no breach by Employee of this covenant or
(ii) disclosure is required by law or any governmental authority or is required
in connection with the defense of a lawsuit against the disclosing party,
provided, that prior to disclosing any information pursuant to this clause (ii),
Employee shall give prior written notice thereof to the Company and provide the
Company with the opportunity to contest such disclosure. Employee agrees that,
both during the Employment Period and after the termination of this Agreement,
Employee will hold in a fiduciary capacity for the benefit of the Company, and
shall not directly or indirectly use or disclose, except as authorized by the
Company in connection with the performance of Employee's duties, any
Confidential Information, that Employee may have or may acquire (whether or not
developed or compiled by Employee and whether or not Employee has been
authorized to have access to such Confidential Information) during the term of
this Agreement. The covenants contained in this SECTION 6 shall survive for the
Employment Period and for a period of two (2) years thereafter; provided,
however, that with respect to those items of Confidential Information which
constitute trade secrets under applicable law, Employee's obligations of
confidentiality and non-disclosure as set forth in this SECTION 6 shall continue
to
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survive after the applicable period above to the greatest extent permitted by
applicable law. These rights of the Company are in addition to those rights the
Company has under the common law or applicable statutes for the protection of
trade secrets.
7. NON-COMPETITION. Employee expressly covenants and agrees that
for the Employment Period and for a period of two (2) years thereafter, he shall
not, directly or indirectly, seek, obtain or accept a "Competitive Position" in
the "Restricted Territory" with a "Competitor" of the Company (as such terms are
hereafter defined). For purposes of this Agreement, a "Competitor" of the
Company means any business, individual, partnership, joint venture, association,
firm, corporation or other entity engaged primarily in the business of selling
internet access service or which has substantial operations in any related
telecommunications business which the Company and its affiliates may engage in
from time to time during the term of this covenant; the "Restricted Territory"
means the New England states, New York, New Jersey, Ohio and Pennsylvania, and
each other state of the United States of America in which the Company or any of
its affiliates has at least 20 customers or conducts operations; a "Competitive
Position" means any employment with any Competitor of the Company whereby
Employee will use or is likely to use any Confidential Information, or whereby
Employee has duties for such Competitor that are the same or substantially
similar to those actually performed by Employee pursuant to the terms hereof.
Nothing contained in this SECTION 7 is intended to prevent Employee from
investing in stock or other securities listed on a national securities exchange
or actively traded on the over the counter market or any corporation engaged,
wholly or partly, in the sale of telecommunications products or services;
provided, however, that Employee and members of his immediate family shall not,
directly or indirectly, hold more than a total of two percent (2%) of all issued
and outstanding stock or other securities of any such corporation.
Notwithstanding anything to the contrary herein, in the event that Employee is
terminated for cause or voluntarily terminates his employment with the Company
during the first 12 months of the Employment Period, the "Restricted Territory"
shall mean each state of the United States for purposes of this non-competition
provision.
8. NON-SOLICITATION.
8.1 NON-SOLICITATION OF CUSTOMERS. Employee agrees that he
will not take any customer lists of the Company after leaving his employ and
that he will, for the Employment Period and for a period of two (2) years
thereafter, refrain from soliciting or attempting to solicit directly or by
assisting others, any business from any of the Company's customers, including
actively sought prospective customers, with whom Employee had "material contact"
during the employment for purposes of providing products or services.
8.2 NON-SOLICITATION OF EMPLOYEES. Employee agrees that he
will, for the Employment Period and for a period of two (2) years thereafter,
refrain from recruiting or hiring, or attempting to recruit or hire, directly or
by assisting others, any other employee of the Company who is employed by the
Company or any successor or affiliate of the Company.
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9. TOLLING OF PERIOD OF RESTRAINT. Employee hereby expressly
acknowledges and agrees that in the event the enforceability of any of the terms
of this Agreement shall be challenged in court and Employee is not enjoined from
breaching any of the restraints set forth in SECTION 6 through SECTION 9, then
if a court of competent jurisdiction finds that the challenged restraint is
enforceable, the time period of the restraint shall be deemed tolled upon the
filing of the lawsuit challenging the enforceability of the restraint until the
dispute is finally resolved and all periods of appeal have expired.
10. ACKNOWLEDGEMENTS. Employee hereby acknowledges and agrees that
the restrictions contained in SECTION 6 through SECTION 9 are fair and
reasonable and necessary for the protection of the legitimate business interests
of the Company. Employee acknowledges that in the event Employee's employment
with the Company terminates for any reason, Employee will be able to earn a
livelihood without violating the restrictions contained in SECTION 6 through
SECTION 9 and that Employee's ability to earn a livelihood without violating
such restrictions is a material condition to Employee's employment and continued
employment with the Company. Employee expressly agrees that the character,
duration and geographical scope of the covenants contained in this SECTION 6
through SECTION 9 are reasonable in light of the circumstances as they exist at
the date upon which this Agreement has been executed including the substantial
payments made by the Company and Employee in consideration of the Merger
Agreement. However, should a determination nonetheless be made by a court of
competent jurisdiction at a later date that the character, duration or
geographical scope of the covenants contained herein are unreasonable in light
of the circumstances as they then exist, then it is the intention of both
Employee and the Company that these covenants shall be construed by the court in
such a manner as to impose only those restrictions on the conduct of Employee
which are reasonable in light of the circumstances as they then exist and
necessary to assure the Company of the intended benefit of these covenants.
11. RIGHTS TO MATERIALS; WORK FOR HIRE. All records, files,
memoranda, reports, price lists, customer lists, drawings, plans, sketches,
documents and the like (together with all copies thereof) relating to the
business of the Company, which Employee shall use or prepare or come in contact
with in the course of, or as a result of, his employment shall, as between the
parties hereto, remain the sole property of the Company. Upon the termination of
Employment or upon the prior demand of the Company, Employee shall immediately
return all such materials and shall not thereafter cause removal thereof from
the premises of the Company. Employee agrees to disclose and assign to the
Company as its exclusive property, all ideas, writings, inventions, discoveries,
improvements and technical or business innovations made or conceived by
Employee, whether or not patentable or copyrightable, either solely or jointly
with others during the Employment Period and for a period of six (6) months
thereafter whether or not made or conceived during regular hours of work or
otherwise, which relate to the business of providing internet access service or
to any related telecommunications business which the Company and its affiliates
may engage in from time to time during the term of the Employment Period .
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Employee agrees to execute any and all documents hereafter requested by the
Company necessary to further effectuate the foregoing.
12. REMEDIES. Without limiting the Company's right to claim
damages, Employee acknowledges that the Company will be irreparably harmed by a
breach of any provision of this Agreement and Employee agrees that the Company
shall be entitled to injunctive relief in the event of such breach.
13. GOVERNING LAW; ARBITRATION; JURISDICTION; VENUE; ATTORNEY'S
FEES. This Agreement is made and entered into in and shall be governed by and
interpreted in accordance with the laws of, the State of Connecticut. The
Company and Employee agree that any dispute regarding this Agreement shall be
submitted to arbitration to and shall be resolved in accordance with the rules
of the JAMS/Endispute for expedited cases then in effect. The arbitrator(s)
shall be mutually selected by the parties or in the event the parties cannot
mutually agree, then appointed by JAMS/Endispute. Any arbitration shall be held
within a thirty (30) mile radius of New Haven, Connecticut and the arbitrator(s)
shall apply Connecticut law. Judgment upon any award rendered by the
arbitrator(s) shall be final and may be entered in any court of competent
jurisdiction. Notwithstanding the foregoing, the Company shall have the absolute
right to obtain equitable remedies in any state court of competent jurisdiction
in the State of Connecticut or in any United States District Court in the State
of Connecticut. By his execution and delivery of this agreement, Employee
irrevocably submits to and accepts the exclusive jurisdiction of each of such
courts and waives any objection (including any objection to venue or any
objection based upon the grounds of forum non conveniens) which might be
asserted against the bringing of any such action, suit or other legal proceeding
in such courts. The court and/or arbitrator(s) shall award costs and expenses
(including reasonable attorney's fees) to the prevailing party in any litigation
or arbitration.
14. MISCELLANEOUS.
14.1 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all previous agreements, written and oral, regarding the
subject matter hereof between the parties hereto. This Agreement shall not be
changed, altered, modified or amended, except by a written agreement signed by
both parties hereto.
14.2. NOTICES. All notices, requests, demands and other
communications required or permitted to be given or made under this Agreement
shall be in writing and shall be deemed to have been given if delivered by hand,
sent by generally recognized overnight courier service, telex or telecopy, or
mail,
(a) to the Company care of: With a copy to:
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InSite Internet., Inc. Duffy & Sweeney, LLP
1100 First Avenue 300 Turks Head Building
Spring Lake, NJ 07762 Providence, RI 02903
Attention: Mark E. Munro, CEO Attention: Michael F. Sweeney, Esq.
Telephone: (732) 280-6408 Telephone: (401) 455-0700
Fax: (732) 280-6409 Fax: (401) 455-0701
(b) to the Employee at: With a copy to:
Gary Wright Gorman & Enright, P.C.
42 Dove Lane 59 Elm Street
Middletown, CT 06457 New Haven, CT 06510
Attention: Brian G. Enright, Esq.
Phone: 203-865-1382
Fax: 203-776-7250
14.3 ASSIGNMENT. The Company may assign this Agreement to
(i) any entity controlling, controlled by or under common control with the
Company or (ii) to any purchaser of the Company's assets provided that such
purchaser agrees to assume the Company's obligations hereunder.
14.4. SEVERABILITY. If any term or provision of this
Agreement, or the application thereof to any person or under any circumstance,
shall to any extent be invalid or unenforceable, the remainder of this
Agreement, or the application of such terms to the persons or under
circumstances other than those as to which it is invalid or unenforceable, shall
be considered severable and shall not be affected thereby, and each term of this
Agreement shall be valid and enforceable to the fullest extent permitted by law.
The invalid or unenforceable provisions shall, to the extent permitted by law,
be deemed amended and given such interpretation as to achieve the economic
intent of this Agreement.
14.5. WAIVER. The failure of any party to insist in any one
instance or more upon strict performance of any of the terms and conditions
hereof, or to exercise any right or privilege herein conferred, shall not be
construed as a waiver of such terms, conditions, rights or privileges, but same
shall continue to remain in full force and effect. Any waiver by any party of
any violation of, breach of or default under any provision of this Agreement by
the other party shall not be construed as, or constitute, a continuing waiver of
such provision, or waiver of any other violation of, breach of or default under
any other provision of this Agreement.
14.6. RIGHT OF SETOFF. Notwithstanding anything to the
contrary set forth herein, and in addition to any and all remedies at law or in
equity which the Company may have, the Company shall have the absolute and
unconditional right to setoff its payment obligations
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hereunder against the amount of any claims for indemnification it may have
against Employee under the Merger Agreement.
14.7. TITLES; GENDER. Section and subsection titles are for
convenience of reference only and are not to be considered in the interpretation
or construction of any of the provisions hereof. All pronouns or any variations
thereof contained in this Agreement refer to the masculine, feminine or neuter
as the identity of the person may require.
14.8 SURVIVAL. SECTION 6 through SECTION 14 hereof shall
survive any termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY:
ATTEST: INSITE INTERNET V ACQUISITION Co., Inc.
By:
- ------------------------------- ----------------------------------
Mark E. Munro, President
WITNESS: EMPLOYEE:
- ------------------------------- ----------------------------------
Gary Wright
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Exhibit 10.5
STOCK PURCHASE AGREEMENT
INTRODUCTION
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of
the 8th day of February, 1999 by and among InSite Internet, Inc. (formerly known
as InSite Telecom, Inc.), a Delaware corporation (the "Parent"), and Richard
Louis, Bernard Moskowitz, Joseph Pallante and Matthew Zahorik, the owners of all
of the outstanding capital stock of AlbanyNet, Inc., a New York corporation (the
"Company"). Messrs. Louis, Moskowitz, Pallante and Zahorik are each hereinafter
sometimes referred to individually as a "Stockholder" and collectively as the
"Stockholders").
BACKGROUND
A. The Parent intends to undertake an initial public offering of its common
stock (the "IPO") and in connection therewith contemplates filing a registration
statement with the Securities and Exchange Commission ("SEC") within ninety (90)
days of the execution and delivery of this Agreement;
B. Concurrently with and conditioned upon the successful closing of the IPO
(which shall be the date the Parent's underwriter or underwriters, pursuant to a
firm commitment underwriting agreement, purchase the shares of common stock of
the Parent to be offered to the public in the IPO, which the Parent anticipates
will occur promptly after the SEC declares the Company's IPO registration
statement effective, subject in all cases to the terms and conditions of any
such underwriting agreement), the Stockholders will sell and transfer to the
Parent, and the Parent will purchase from the Stockholders, all of the
outstanding shares of capital stock of the Company (the "Company Shares").
C. This Agreement has been adopted and approved by board of directors and the
shareholders of the Parent by written consent.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual and dependent promises
and the representations and warranties hereinafter contained, the parties hereto
agree as follows:
SECTION 1. SALE AND TRANSFER OF COMPANY SHARES; CLOSING.
1.1 SALE AND TRANSFER OF SHARES. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing (as defined in SECTION
1.4 below), the Stockholders will sell and transfer to the Parent, and the
Parent will purchase the Company Shares from the Stockholders.
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1.2 PURCHASE PRICE. The aggregate purchase price (the "Purchase Price")
for the Company Shares will be $2,400,000, subject to the post-closing
adjustment with respect to such amount as set forth in SECTION 2 below, which
shall be payable in cash, certified check, wire transfer or other readily
available funds at the Closing as described in SECTION 1.4 below.
1.3 DELIVERY OF PURCHASE PRICE/ESCROW/SET-OFF.
(a) At the Closing, the Stockholders shall receive their pro
rata share of the aggregate Purchase Price set forth in SECTION 1.2 above in
accordance with the percentage ownership interests of the Stockholders reflected
on SCHEDULE 3.4 hereto, provided, however, that a total of $200,000 included in
the aggregate Purchase Price (the "Escrow Deposit") and allocated pro rata among
the Stockholders shall be delivered into escrow at the Closing pursuant to the
Escrow Agreement attached hereto as SCHEDULE 1.3. In addition to all other
rights and remedies of the Parent for breach by the Company or the Stockholders
of the representations and warranties of the Company and the Stockholders
herein, both at law and in equity, the Parent shall have the right to set-off
against the Escrow Deposit for any claims of the Parent arising under SECTION
2.1 below (pending resolution of such claims as provided in SECTION 2.1) or
under the indemnity provisions of SECTION 12 below (pending resolution of such
claims as provided in Section 3(a) of the Escrow Agreement).
(b) The Stockholders shall deliver to counsel for the Parent,
at least 2 days prior to the Closing (to hold in escrow until the Closing or to
be returned if this agreement is terminated by its terms) the certificates
representing the Company Shares, duly endorsed in blank by each Stockholder, or
accompanied by duly executed stock powers. The Stockholders shall cure any
deficiencies with respect to the endorsement of the certificates or other
documents of conveyance with respect to the Company Shares or with respect to
the stock powers accompanying any of the Company Shares.
1.4 CLOSING. Within two (2) business days following the date
on which the price of the shares of the common stock of the Parent offered to
the public in the IPO shall have been determined and prior to the closing of the
IPO, the parties hereto shall prepare all closing documents and certificates
required hereunder and deliver all such documents and certificates to counsel
for the Parent (to hold in escrow until the Closing or to be returned if this
agreement is terminated by its terms). Concurrently with the closing of the IPO,
the Parent and the Stockholders shall take all actions necessary to effect the
transfer and delivery of the Company Shares to the Parent as provided herein and
the Parent shall deliver the Purchase Price to the Stockholders in cash,
certified checks, wire transfers or other readily available funds (hereinafter
referred to as the "Closing"). The Closing shall take place at the offices of
Duffy & Sweeney, LLP, 300 Turks Head Building, Providence, Rhode Island 02903,
or at such other place and time or date as may be mutually agreed upon by the
parties hereto. The actual date of the Closing is referred to herein as the
"Closing Date". Except as otherwise provided in SECTION 9 hereto, during
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the period between the date of the final pricing of the shares of the common
stock of the Parent to be offered to the public in the contemplated IPO (as
determined by the Parent and its underwriters), and the Closing Date, this
Agreement may only be terminated by the parties if the underwriting agreement in
respect of the IPO is terminated pursuant to its terms. Time is of the essence.
SECTION 2. POST CLOSING ADJUSTMENT
2.1 POST-CLOSING ADJUSTMENT. Within forty-five (45) days after the
Closing, the Parent shall engage KPMG LLP to audit a balance sheet prepared in
accordance with generally accepted accounting principles ("GAAP") of the Company
as of 5:00 PM (EST) on the day prior to the Closing Date (the "Closing Date
Balance Sheet"). Such Closing Date Balance Sheet will utilize the accrual method
of accounting even if the Company has heretofore utilized the cash basis method
of accounting for purposes of preparing its financial statements. If the
aggregate shareholders' equity as shown on the Closing Date Balance Sheet is
less than $100,000 (the amount of such shortfall being hereafter known as the
"Net Worth Deficiency"), the Stockholders shall pay the Parent in cash, by
certified check or by wire transfer of immediately available funds an amount
equal to the Net Worth Deficiency; provided, however, that the Parent shall have
the option, at its sole discretion and notwithstanding any language to the
contrary in the Escrow Agreement, to receive all or a portion of the Escrow
Deposit to satisfy any such Net Worth Deficiency. Notwithstanding anything in
this SECTION 2 to the contrary, if there is any Net Worth Deficiency and the
Stockholders dispute any item contained on the Closing Date Balance Sheet, the
Stockholders shall notify the Parent in writing of each disputed item
(collectively, the "Disputed Amounts"), and specify the amount thereof in
dispute within thirty (30) business days after the delivery of the Closing Date
Balance Sheet. If the Parent and the Stockholders cannot resolve any such
dispute which would eliminate the amount of the Net Worth Deficiency, then such
dispute shall be resolved by an independent nationally recognized accounting
firm which is reasonably acceptable to the Parent and the Stockholders (the
"Independent Accounting Firm"). The determination of the Independent Accounting
Firm shall be made as promptly as practical and shall be final and binding on
the parties, absent manifest error which error may only be corrected by such
Independent Accounting Firm. Any expenses relating to the engagement of the
Independent Accounting Firm shall be allocated between the Parent and the
Stockholders so that the Stockholders' aggregate share of such costs shall bear
the same proportion to the total costs that the Disputed Amounts unsuccessfully
contested by the Stockholders (as finally determined by the Independent
Accounting Firm) bear to the total of the Disputed Amounts so submitted to the
Independent Accounting Firm. Notwithstanding any provision to the contrary, in
the event the Stockholders are obligated to pay the Parent a Net Worth
Deficiency, each Stockholder shall only be obligated to pay the Parent his share
of the Net Worth Deficiency, calculated by multiplying such Stockholder's
percentage ownership in the Company (as reflected on Schedule 3.4) by the Net
Worth Deficiency, as the Net Worth Deficiency shall be a several obligation of
the Stockholders." Notwithstanding anything herein to the contrary, the Company
shall have the absolute right prior to the Closing to distribute to the
Stockholders any earnings of
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the Company so long as a Net Worth Deficiency is not created. In the event that
the aggregate shareholders' equity of the Company exceeds $100,000 on the
Closing Date Balance Sheet ("Net Worth Surplus"), the Parent acknowledges its
obligation to remit the Net Worth Surplus to the Stockholders in cash or
certified check within 30 days of the date that the Closing Date Balance Sheet
is delivered and accepted by the parties hereto.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.
3.1 MAKING OF REPRESENTATIONS AND WARRANTIES. As a material inducement
to the Parent to enter into this Agreement and consummate the transactions
contemplated hereby, the Stockholders hereby jointly and severally make to the
Parent the representations and warranties contained in this SECTION 3, which
shall be true and correct as of the date hereof and as of the Closing Date.
3.2 ORGANIZATION AND QUALIFICATION OF THE COMPANY. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of New York with full corporate power and authority to own or lease its
properties and to conduct its business in the manner and in the places where
such properties are owned or leased and where such business is currently
conducted or proposed to be conducted. The copies of the Certificate of
Incorporation of the Company as amended to date, certified by the Secretary of
State of New York and the bylaws certified by the Secretary of the Company and
heretofore delivered to the Parent's counsel, are complete and correct, and no
amendments thereto are pending. The stock records and minute books of the
Company which have heretofore been delivered to the Parent's counsel are correct
and complete. The Company is duly qualified to do business as a foreign
corporation in each jurisdiction in which it owns, operates or leases real
property and in each other jurisdiction in which the failure to be so qualified
or registered would have a material adverse effect on the properties, assets,
business, financial condition and prospects of the Company.
3.3 SUBSIDIARIES; INVESTMENTS. Except as set forth in SCHEDULE 3.3, the
Company has no direct or indirect subsidiaries and owns no securities issued by
any other business organization or governmental authority, except U.S.
Government securities, bank certificates of deposit and money market accounts
acquired as short-term investments in the ordinary course of its business.
Except as set forth in SCHEDULE 3.3, the Company neither owns nor has any direct
or indirect interest in or control over any corporation, partnership, joint
venture or entity of any kind. For purposes of this Agreement, the term
"subsidiary" means, with respect to any person, any corporation 20% or more of
the outstanding voting securities of which, or any partnership, joint venture or
other entity 20% or more of the total equity interest of which, is directly or
indirectly owned by such person.
3.4 CAPITAL STOCK. The total authorized capital stock of the Company
consists solely of the Company Shares listed on SCHEDULE 3.4. All of the issued
and outstanding Company Shares are duly authorized and validly issued, are fully
paid and nonassessable, are owned of
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record and beneficially by the Stockholders as set forth in SCHEDULE 3.4, and
all such Company Shares were offered, issued, sold and delivered by the Company
in compliance with all applicable state and federal laws concerning the issuance
of securities. Further, none of such Company Shares were issued in violation of
the preemptive rights of any past or present stockholder. No shares of capital
stock of the Company are held in the treasury of the Company. The Stockholders
hold of record and own beneficially all of the Company Shares, free and clear of
any restrictions on transfer (other than any restrictions under the Securities
Act and state securities laws), taxes, security interests, mortgages, pledges,
liens, encumbrances, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. None of the Stockholders are a party to any
option, warrant, purchase right, or other contract or commitment that could
require any Stockholder to sell, transfer, or otherwise dispose of any Company
Shares (other than this Agreement). None of the Stockholders are a party to any
voting trust, proxy, or other agreement or understanding with respect to the
voting of any Company Shares. SCHEDULE 3.4 contains a complete and correct
listing of the Stockholders of the Company at the date hereof, together with the
number Company Shares owned by each such Stockholder. There are no outstanding
subscriptions, options, warrants, commitments, preemptive rights, agreements,
arrangements or commitments of any kind for or relating to the issuance, sale,
registration or voting of, or outstanding securities convertible into or
exchangeable for, any shares of capital stock of any class or other equity
interests of the Company. The Company has never acquired any treasury stock.
3.5 AUTHORITY OF THE STOCKHOLDERS
(a) Each Stockholder has full right, authority and power to
enter into this Agreement and each agreement, document and instrument to be
executed and delivered by or on behalf of it pursuant to or as contemplated by
this Agreement and to carry out the transactions contemplated hereby and
thereby. This Agreement and each agreement, document and instrument to be
executed and delivered by each Stockholder or by the Company pursuant to or as
contemplated by this Agreement (to the extent it contains obligations to be
performed by such Stockholder or the Company) constitutes, or when executed and
delivered will constitute, valid and binding obligations of such Stockholder or
the Company enforceable in accordance with their respective terms, subject to
the terms hereof. The execution, delivery and performance by each Stockholder of
this Agreement and each such agreement, document and instrument:
(i) do not and will not violate any provision of
the Certificate of Incorporation or bylaws of the Company;
(ii) do not and will not violate any laws of the
United States, or any state or other jurisdiction applicable to such
Stockholder or require such Stockholder to obtain any approval, consent
or waiver of, or make any filing with, any federal, state, local or
foreign governmental body, agency or official ("Governmental Entity")
that has not been obtained or made; and
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(iii) Except as otherwise indicated on SCHEDULE 3.15,
do not and will not result in a breach of, constitute a default under,
accelerate any obligation under or give rise to a right of termination
of any indenture or loan or credit agreement or any other agreement,
contract, instrument, mortgage, lien, lease, permit, authorization,
order, writ, judgment, injunction, decree, determination or arbitration
award to which such Stockholder or the Company is a party or by which
the property of such Stockholder or the Company is bound or to which the
property of such Stockholder or the Company is subject or result in the
creation or imposition of any mortgage, pledge, lien, security interest
or other charge or encumbrance on any of the assets or properties of the
Company. Except as disclosed on SCHEDULE 3.15, there are no Stockholder
agreements with respect to the ownership or operation of the Company,
and any such agreements shall be terminated prior to the Closing.
3.6 STATUS OF PROPERTY OWNED OR LEASED.
(a) REAL PROPERTY. The Company does not own any real property.
The real property identified as being leased by the Company on SCHEDULE 3.6(a)
is collectively referred to herein as the "Real Property". The Real Property
constitutes all the real property leased by the Company.
(i) TITLE. Except as set forth on SCHEDULE 3.6(a), to
the best knowledge of the Stockholders, there are no unrecorded
mortgages, deeds of trust, ground leases, security interests or similar
encumbrances, liens, assessments, licenses, claims, rights of first
offer or refusal, options, or options to purchase, or any covenants,
conditions, restrictions, rights of way, easements, judgments or other
encumbrances or matters affecting title to the Real Property.
(ii) SECURITY INTERESTS. To the best knowledge of the
Stockholders, there is not now, nor, as a result of the consummation of
the transactions contemplated hereby, will there be, any mortgages,
deeds of trust, ground leases, security interests or similar
encumbrances on the Real Property, except as set forth on SCHEDULE
3.6(a) (collectively, the "Encumbrances"). To the best knowledge of the
Stockholders, there is no outstanding principal balance or accrued
unpaid interest or other amount due as of the date hereof under any
instrument secured by any of the Encumbrances and all payments required
under each Encumbrance to the date hereof have been made in full. To
the best knowledge of the Stockholders, no condition or fact does or
will exist, as a result of the consummation of the transactions
contemplated hereby, which, with the lapse of time or the giving of
notice or both, would constitute a material default thereunder or
result in any acceleration of the indebtedness secured thereby or any
increase in the amount of interest, premiums or penalties payable on
such indebtedness.
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(iii) COMMISSIONS. To the best knowledge of the
Stockholders, yhere are no brokerage or leasing fees or commissions or
other compensation due or payable on an absolute or contingent basis to
any person, firm, corporation, or other entity with respect to or on
account of any of the Encumbrances or the Real Property, and no such
fees, commissions or other compensation shall, by reason of any
existing agreement, become due after the date hereof.
(iv) PHYSICAL CONDITION. Except as set forth on
SCHEDULE 3.6(a), to the best knowledge of the Stockholders, there is no
material defect in the physical condition of any of the Real Property.
Except as set forth on SCHEDULE 3.6(a), to the best knowledge of the
Stockholders there is no material defect in any material improvements
located on or constituting a part of any of the Real Property,
including, without limitation, the structural elements thereof, the
mechanical systems (including without limitation all heating,
ventilating, air conditioning, plumbing, electrical, elevator,
security, telecommunication, utility, and sprinkler systems) therein,
the roofs or the parking and loading areas (collectively, the
"Improvements"). To the best knowledge of the Stockholders, all of the
Improvements located on or constituting a part of any of the Real
Property, including, without limitation, the structural elements
thereof, the mechanical systems therein, the roofs and the parking and
loading areas are in generally good operating condition and repair.
(v) UTILITIES. The Company has not received any
written notice of any termination or impairment of the furnishing of,
or any material increase in rates for, services to any of the Real
Property of water, sewer, gas, electric, telecommunication, drainage or
other utility services, except ordinary and usual rate increases
applicable to all customers (or all customers of a certain class) of a
utility provider. The Company has not entered into any agreement
requiring it to pay to any utility provider rates which are less
favorable than rates generally applicable to customers of the same
class as the Company.
(vi) COMPLIANCE. Except as set forth on SCHEDULE
3.6(a), the Company has not received any written notice from any
municipal, state, federal or other governmental authority with respect
to any violation of any zoning, building, fire, water, use, health,
environmental or other statute, ordinance, code or regulation issued in
respect of any of the Real Property that has not been heretofore
corrected.
(vii) GOVERNMENT APPROVALS. The Company has not
received any notice of any plan, study or effort by any Governmental
Entity which would adversely affect the present use, zoning or value to
the Company of any of the Real Property or which would modify or
realign any adjacent street or highway in a manner materially adverse
to the Company.
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(viii) ZONING. The Company has not received any
notice of any zoning violations.
(ix) REAL PROPERTY TAXES. To the best knowledge of
the Stockholders, except as set forth in said SCHEDULE 3.6(a), no
special assessments of any kind (special, bond or otherwise) are or
have been levied against any Real Property, or any portion thereof,
which are outstanding or unpaid.
(x) SERVICE CONTRACTS. A complete list of all
material existing service, management, supply or maintenance or
equipment lease contracts and other contractual agreements affecting
the Real Property or any portion thereof (the "Service Contracts") to
which the Company is a party is set forth on SCHEDULE 3.6(a). All such
Service Contracts are terminable upon no more than thirty (30) days
written notice, at no cost, except as specified in SCHEDULE 3.6(a).
(b) PERSONAL PROPERTY. A list of each item of the machinery,
equipment and other fixed assets owned or leased by the Company having a fair
market value of at least $5,000 (the "Equipment"), is contained in SCHEDULE
3.6(b) hereto. All of the Equipment and other machinery, equipment and personal
property of the Company is located on the Real Property or used in the operation
of the Company. Except as specifically disclosed in SCHEDULE 3.6(b) or in the
Company Financial Statements (as hereinafter defined), the Company has good and
marketable title to all of the personal property owned by it. None of such
personal property or assets is subject to any mortgage, pledge, lien,
conditional sale agreement, security title, encumbrance or other charge except
as specifically disclosed in any Schedule hereto or in the Financial Statements.
The Financial Statements reflect all personal property of the Company, subject
to dispositions and additions in the ordinary course of business consistent with
this Agreement. Except as otherwise specified in SCHEDULE 3.6(b) hereto, all
leasehold improvements, furnishings, machinery and equipment of the Company are
in generally good repair, normal wear and tear excepted, have been well
maintained, and conform in all material respects with all applicable ordinances,
regulations and other laws.
3.7. FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.
(a) The Company has delivered to the Parent the following
financial statements, copies of which are attached hereto as SCHEDULE 3.7:
(i) Management-prepared balance sheets of the Company
dated December 31, 1995, December 31, 1996, and December 31, 1997, and
management-prepared statements of income, stockholders' equity and cash
flows for each of the three (3) years ended December 31, 1995, 1996 and
1997 certified by the chief financial officer of the Company (the
"Year-End Company Financial Statements");
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(ii) Management-prepared balance sheets of the
Company as of December 31, 1998 (herein the "Company Balance Sheet
Date") and management-prepared statements of income, stockholders'
equity and cash flows for the year ended December 31, 1998, certified by
the chief financial officer of the Company (the "Interim Company
Financial Statements", together with the Year-End Company Financial
Statements, the "Company Financial Statements");
The Company Financial Statements have been prepared in accordance with
accounting principles applied consistently during the periods covered thereby
(except that the Interim Company Financial Statements are subject to normal
year-end audit adjustments and do not include footnotes), and present fairly in
all respects the financial condition of the Company at the dates of said
statements and the results of their operations for the periods covered thereby.
(b) As of the Company Balance Sheet Date, the Company had no
liabilities of any nature, whether accrued, absolute, contingent or otherwise,
(including without limitation liabilities as guarantor or otherwise with respect
to obligations of others or contingent liabilities arising prior to the Company
Balance Sheet Date) except liabilities stated or adequately reserved for on the
Company Financial Statements or reflected in Schedules furnished to Parent
hereunder as of the date hereof.
(c) As of the date hereof, the Company has no liabilities of
any nature, whether accrued, absolute, contingent or otherwise, (including
without limitation liabilities as guarantor or otherwise with respect to
obligations of others, or liabilities for taxes due or then accrued or to become
due or contingent liabilities arising prior to the date hereof or the Closing,
as the case may be) except liabilities (i) stated or adequately reserved for on
the appropriate Company Financial Statement or the notes thereto, (ii) reflected
in Schedules furnished to Parent hereunder on the date hereof or (iii) incurred
in the ordinary course of business of the Company consistent with prior
practices.
(d) All financial information delivered to KPMG LLP in
connection with their audit of the Company's financial statements for the
contemplated IPO as of the date hereof are true and correct in all material
respects and reflect all material liabilities of the Company as of the date(s)
of such information, and have been prepared in accordance with accounting
principles applied consistently during the periods covered thereby.
3.8 TAXES.
(a) The Company has paid or caused to be paid all federal,
state, local, foreign and other taxes, including without limitation income
taxes, estimated taxes, alternative minimum taxes, excise taxes, sales taxes,
use taxes, value-added taxes, gross receipts taxes, franchise taxes, capital
stock taxes, employment and payroll-related taxes, withholding taxes, stamp
taxes, transfer taxes and property taxes, whether or not measured in whole or in
part by net income, and
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all deficiencies, or other additions to tax, interest, fines and penalties owed
by it (collectively, "Taxes"), in the amounts indicated on tax returns filed by
the Company through the date hereof or in correspondence received from any
federal, state, local or foreign government taxing authority, whether disputed
or not (other than current taxes the liability for which is adequately reserved
for on the financial statements provided to the Parent pursuant to SECTION 3.7
hereof).
(b) The Company has in accordance with applicable law filed
all federal, state, local and foreign tax returns required to be filed by it
through the date hereof and all such returns correctly and accurately set forth
the amount of any Taxes relating to the applicable period. For every taxable
period of the Company, the Company has delivered or made available to Parent
complete and correct copies of all federal, state, local and foreign income tax
returns, examination reports and statements of deficiencies assessed against or
agreed to by the Company. SCHEDULE 3.8 attached hereto sets forth all federal
tax elections under the Internal Revenue Code of 1986, as amended (the "Code"),
that are in effect with respect to the Company or for which an application by
the Company is pending.
(c) Neither the Internal Revenue Service ("IRS") nor any other
governmental authority is now asserting in writing or threatening to assert
against the Company any deficiency or claim for additional Taxes or a claim that
the Company is or may be subject to taxation by that jurisdiction. There are no
security interests on any of the assets of the Company that arose in connection
with any failure (or alleged failure) to pay any Tax. The Company has not
entered into a closing agreement pursuant to Section 7121 of the Code. The
Stockholders have paid all taxes due and filed all tax returns relating to
distributions from the Company as a "Subchapter S" corporation under the Code.
The Company has at all times maintained its status as a Subchapter S corporation
under the Code.
(d) Except as set forth in SCHEDULE 3.8 attached hereto, there
has not been any audit of any tax return filed by the Company, no audit of any
tax return of the Company is in progress, and the Company has not been notified
by any tax authority that any such audit is contemplated or pending. Except as
set forth in SCHEDULE 3.8, no extension of time with respect to any date on
which a tax return was or is to be filed by the Company is in force, and no
waiver or agreement by the Company is in force for the extension of time for the
assessment or payment of any Taxes.
(e) (i) The Company has not consented to have the provisions
of Section 341(f)(2) of the Code applied to it, (ii) the Company has not agreed
to, and has not been requested by any governmental authority to, make any
adjustments under Section 481(a) of the Code by reason of a change in accounting
method or otherwise and (iii) the Company has never made any payments, is
obligated to make any payments, or is a party to any agreement that under
certain circumstances would obligate it to make any payments, that will not be
deductible under Section 280G of the Code. The Company has disclosed on its
federal income tax returns all positions taken therein that could give rise to a
penalty for underpayment of federal Tax under
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Section 6662 of the Code. The Company has never had any liability for unpaid
Taxes because it is a member of an "affiliated group" (as defined in Section
1504(a) of the Code). The Company has never filed, nor has it ever been required
to file, a consolidated, combined or unitary tax return with any entity. The
Company is not a party to any tax sharing agreement.
(f) The Company computes its federal taxable income under the
accrual method of accounting.
(g) For purposes of this SECTION 3.8, all references to
Sections of the Code shall include any predecessor provisions to such Sections
and any similar provisions of federal, state, local or foreign law.
(h) The Stockholders agree, if so directed by the Parent, to
join with the Parent in making an election under Section 338(h)(10) of the Code
(and any corresponding elections under state, local, or foreign tax law)
(collectively, a "Section 338(h)(10) Election") with respect to the purchase and
sale of the stock of the Company hereunder. The Stockholders will pay any tax,
including any liability of the Stockholders, resulting from the application to
it of Treasury Regulation ss.1.338(h)(10)-1(f)(5), attributable to the making of
the Section 338(h)(10) Election; provided, however, the Parent will indemnify
the Stockholders for any additional tax costs to the Stockholders resulting from
such election, including gross-up.
3.9 ACCOUNTS RECEIVABLE. All accounts receivable of the Company as of
the respective Balance Sheet Dates and all accounts receivable arising
thereafter or hereafter to the Closing Date, arose or will arise from valid
sales in the ordinary course of business. Except as set forth in SCHEDULE 3.9,
the Company has no accounts or loans receivable from any person, firm or
corporation which is affiliated with the Company.
3.10 INVENTORIES. The Company maintains less than $10,000 of
inventory, all saleable in the ordinary course and stated in accordance with
GAAP.
3.11 ABSENCE OF CERTAIN CHANGES.
Since December 31, 1997, the Company has conducted its business only in
the ordinary course and consistent with past practices and except as disclosed
in SCHEDULE 3.11 there has not been:
(i) Any change in the properties, assets, liabilities,
business, operations, financial condition or prospects of the Company
which change by itself or in conjunction with all other such changes,
whether or not arising in the ordinary course of business, has been
materially adverse with respect to the Company;
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(ii) Except for the endorsement of checks in the ordinary
course of business any material contingent liability incurred by the
Company as guarantor or otherwise with respect to the obligations of
others or any cancellation of any material debt or claim owing to, or
waiver of any material right of, the Company;
(iii) Any mortgage, encumbrance or lien placed on any of the
properties of the Company which remains in existence on the date hereof
or will remain on the Closing Date except for liens permitted by any
current agreement of the Company with respect to borrowed money;
(iv) Any purchase, sale or other disposition, or any
agreement or other arrangement for the purchase, sale or other
disposition, of any capital assets of the Company costing more than
$10,000;
(v) Any damage, destruction or loss, whether or not covered
by insurance, materially and adversely affecting any of the properties,
assets or business of the Company;
(vi) Except as provided in SECTION 2.1, any declaration,
setting aside or payment of any dividend by the Company, or the making
of any other distribution in respect of the capital stock of the
Company, any direct or indirect redemption, purchase or other
acquisition by the Company of its own capital stock, any issuance or
sale of any securities convertible into or exchangeable for debt or
equity securities of the Company or any grant, issuance or exercise of
options, warrants, subscriptions, preemptive rights, agreements,
arrangements or commitments of any kind for or relating to the
issuance, sale, registration or voting of any shares of capital stock
of any class or other equity interests of the Company;
(vii) Any claim of unfair labor practices asserted against
the Company; any change in the compensation (in the form of salaries,
wages, incentive arrangements or otherwise) payable or to become
payable by the Company to any of its officers, employees, agents or
independent contractors other than customary merit or cost of living
increases in accordance with its usual practices, or any bonus payment
or arrangement made to or with any of such officers, employees, agents
or independent contractors; any entering into any employment, deferred
compensation or other similar agreement (or any amendment to any such
existing agreement) with any officer, director or employee of the
Company except for employment arrangements providing for salary or
wages of less than $20,000 per annum and any oral agreement terminable
at will by the Company;
(viii) Any change with respect to the officers or senior
management of the Company, any grant of any severance or termination
pay to any officer or employee of the Company;
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(ix) Any payment or discharge of a material lien or
liability of the Company which was not shown on the Company
Financial Statements or incurred in the ordinary course of business
thereafter;
(x) Any obligation or liability incurred by the Company to
any of its officers, directors or stockholders, or any loans or
advances made by the Company to any of its officers, directors,
stockholders, except normal compensation and expense allowances payable
to officers or employees;
(xi) Any change in accounting methods or practices, credit
practices or collection policies used by the Company other than to
comply with new accounting pronouncements;
(xii) Any other transaction entered into by the Company
other than transactions in the ordinary course of business; or
(xiii) Any agreement or understanding whether in writing or
otherwise, that would result in any of the transactions or events or
require the Company to take any of the actions specified in paragraphs
(i) through (xii) above.
3.12 BANKING RELATIONS. All of the arrangements which the Company has
with any banking institution are described in SCHEDULE 3.12 attached hereto,
indicating with respect to each of such arrangements the type of arrangement
maintained (such as checking account, borrowing arrangements, safe deposit box,
etc.), the names in which the accounts are held, the account number, and the
name of each person, corporation, firm or other entity authorized in respect
thereof.
3.13 PATENTS, TRADE NAMES, TRADEMARKS, COPYRIGHTS AND PROPRIETARY
RIGHTS. All patents, patent applications, trademark registrations, trademark
registration applications, copyright registrations, copyright registration
applications and all material trade names, trademarks, copyrights and other
material proprietary rights owned by or licensed to the Company or used in its
respective business as presently conducted (the "Proprietary Rights") are listed
in SCHEDULE 3.13 attached hereto. All of the material patents, registered
trademarks and copyrights of the Company and all of the material patent
applications, trademark registration applications and copyright registration
applications of the Company have been duly registered in, filed in or issued by
the United States Patent and Trademark Office, the United States Register of
Copyrights or the corresponding offices of other countries identified on said
schedule. Except as set forth in SCHEDULE 3.13: (a) use of said patents, trade
names, trademarks, copyrights or other proprietary rights in the ordinary course
of business as presently conducted does not require the consent of any other
person and (b) the Company has sufficient title or adequate rights or licenses
to use all material patents, trade names, trademarks, copyrights, or other
proprietary
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rights used by it in its business as presently conducted free and clear of any
attachments, liens, encumbrances or adverse claims. The Company has not received
written notice that its present or contemplated activities or products infringe
any such patents, trade names, trademarks or other proprietary rights of others.
Except as set forth in SCHEDULE 3.13: (i) no other person has an interest in or
right or license to use, or the right to license others to use, any of said
patents, patent applications, trade names, trademarks, copyrights or other
proprietary rights; (ii) there are no written claims or demands of any other
person pertaining thereto and no proceedings have been instituted, or are
pending or threatened, which challenge the rights of the Company in respect
thereof; (iii) none of the patents, trade names, trademarks, copyrights or other
proprietary rights listed in said schedule is subject to any outstanding order,
decree, judgment or stipulation, or is being infringed by others; and (iv) no
proceeding charging the Company with infringement of any adversely held patent,
trade name, trademark or copyright has been filed or is threatened to be filed.
3.14 TRADE SECRETS AND CUSTOMER LISTS. The Company has the right to use
in the ordinary course of its business as presently conducted, free and clear of
any claims or rights of others, all trade secrets, inventions, customer lists
and secret processes required for or incident to the manufacture or marketing of
all products presently sold, manufactured, licensed, under development or
produced by it, including products licensed from others. Any payments required
to be made by the Company for the use of such trade secrets, inventions,
customer lists and secret processes are described in SCHEDULE 3.14. The Company
is not using or in any way making use of any confidential information or trade
secrets of any third party, including without limitation, a former employer of
any present or past employee of the Company or any of the predecessors of the
Company.
3.15 CONTRACTS.
(a) Except for contracts, commitments, plans, agreements and
licenses described in SCHEDULE 3.15 (complete and accurate copies of which have
been delivered to the Parent), the Company is neither a party to nor subject to:
(i) any plan or contract providing for bonuses,
pensions, options, stock purchases, deferred compensation, retirement
payments, profit sharing, severance or termination pay, collective
bargaining or the like, or any contract or agreement with any labor
union;
(ii) any employment contract or contract for services
which requires the payment of $20,000 or more annually or which is not
terminable within thirty (30) days by the Company without liability for
any penalty or severance payment other than pursuant to the Company's
severance policies existing on the date hereof;
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(iii) any contract or agreement for the purchase of
any commodity, material or equipment except purchase orders in the
ordinary course for less than $10,000 each;
(iv) any other contracts or agreements creating any
obligation of the Company of $10,000 or more with respect to any such
contract;
(v) any contract or agreement providing for the
purchase of all or substantially all of its requirements of a
particular product from a supplier;
(vi) any contract or agreement which by its terms
does not terminate or is not terminable by the Company or any successor
or assign within six months after the date hereof without payment of a
penalty;
(vii) any contract or agreement for the sale or lease
of its products or services not made in the ordinary course of
business;
(viii) any contract with any sales agent or
distributor of products of the Company or any subsidiary;
(ix) any contract containing covenants limiting the
freedom of the Company to compete in any line of business or with any
person or entity;
(x) any contract or agreement for the purchase of any
fixed asset for a price in excess of $10,000 whether or not such
purchase is in the ordinary course of business;
(xi) any license agreement (as licensor or licensee);
provided that a complete list of all software currently owned, licensed
or used by the Company and set forth in Schedule 3.15 shall satisfy the
disclosure obligation of the Company for purposes hereof;
(xii) any indenture, mortgage, promissory note, loan
agreement, guaranty or other agreement or commitment for the borrowing
of money and any related security agreement;
(xiii) any contract or agreement with any officer,
employee, director or stockholder of the Company or with any persons or
organizations controlled by or affiliated with any of them;
(xiv) any partnership, joint venture, or other
similar contract, arrangement or agreement; or
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(xv) any registration rights agreements, warrants,
warrant agreements or other rights to subscribe for securities, any
voting agreements, voting trusts, shareholder agreements or other
similar arrangements or any stock purchase or repurchase agreements or
stock restriction agreements.
(b) All material contracts, agreements, leases and instruments
to which the Company is a party or by which the Company is obligated are valid
and are in full force and effect and constitute legal, valid and binding
obligations of the Company and the other parties thereto, enforceable in
accordance with their respective terms. Neither the Company nor any other party
to any contract, agreement, lease or instrument of the Company is in default in
complying with any provisions thereof, and no condition or event or facts exists
which, with notice, lapse of time or both would constitute a default thereof on
the part of either of the Company or on the part of any other party thereto in
any such case that could have a material adverse effect on the properties,
assets, financial condition or prospects of either of the Company. SCHEDULE 3.15
indicates whether any of the agreements, contracts, commitments or other
instruments and documents described therein requires consent or approval to be
transferred to the Parent as a result of the transactions contemplated herein.
3.16 LITIGATION. SCHEDULE 3.16 hereto lists all currently pending and
threatened litigation and governmental or administrative proceedings or
investigations to which the Company is a party. Except for matters described in
SCHEDULE 3.16, there is no litigation or governmental or administrative
proceeding or investigation pending or threatened against the Company which may
have an adverse effect on the properties, assets, business, financial condition
or prospects of the Company or which would prevent or hinder the consummation of
the transactions contemplated by this Agreement.
3.17 COMPLIANCE WITH LAWS. The Company has not received notice of a
violation or alleged violation of applicable statutes, ordinances, orders, rules
and regulations promulgated by any federal, state, municipal or other
governmental authority, which violation or alleged violation would have a
material adverse effect on the business of the Company, and except as set forth
in SCHEDULE 3.17 hereto, the Company is currently in compliance in all material
respects with all such statutes, ordinances, orders, rules or regulations, and
there is no valid basis for any claim that the Company is not in compliance with
any such statute, ordinance, order, rule or regulation.
3.18 INSURANCE. SCHEDULE 3.18 sets forth the following information with
respect to each insurance policy (including policies providing property,
casualty, liability, and workers' compensation coverage and bond and surety
arrangements) to which the Company has been a party, a named insured, or
otherwise the beneficiary of coverage at any time within the past five (5)
years: (a) the name, address, and telephone number of the agent; (b) the name of
the insurer, the name of the policyholder, and the name of each covered insured;
(c) the policy number and
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the period of coverage; (d) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis) and amount (including
a description of how deductibles and ceilings are calculated and operate) of
coverage; and (e) a description of any retroactive premium adjustments or other
loss-sharing arrangements. With respect to each such insurance policy: (i) the
policy is legal, valid, binding, enforceable, and in full force and effect; (ii)
the policy will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby, (iii) neither the Company nor any other party
to the policy is in breach or default (including with respect to the payment of
premiums or the giving of notices), and no event has occurred which, with notice
or the lapse of time, would constitute such a breach or default, or permit
termination, modification, or acceleration, under the policy; and (iv) no party
to the policy has repudiated any provision thereof. Since its incorporation, the
Company has been covered by insurance in scope and amount customary and
reasonable for the businesses in which it has engaged during the aforementioned
period. SCHEDULE 3.18 describes any self-insurance arrangements affecting the
Company.
3.19 WARRANTY AND RELATED MATTERS. There are no existing or threatened
in writing, product liability, warranty or other similar claims against the
Company alleging that any of its products or services are defective or fail to
meet any product or service warranties except as disclosed in SCHEDULE 3.19
hereto. The Company has not received notice of any statements, citations,
correspondence or decisions by any Governmental Entity stating that any product
manufactured, marketed or distributed at any time by the Company (the "Company
Products") is defective or unsafe or fails to meet any product warranty or any
standards promulgated by any such Governmental Entity. There have been no
recalls ordered by any such Governmental Entity with respect to any Company
Product. There is no (i) fact relating to any Company Product that may impose
upon the Company a duty to recall any Company Product or a duty to warn
customers of a defect in any Company Product, (ii) latent or overt design,
manufacturing or other defect in any Company Product, or (iii) liability for
warranty or other claim or return with respect to any Company Product except in
the ordinary course of business consistent with the past experience of the
Company for such kind of claims and liabilities.
3.20 FINDER'S FEES. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
the Company or the Stockholders.
3.21 PERMITS; BURDENSOME AGREEMENTS. SCHEDULE 3.21 lists all material
permits, registrations, licenses, franchises, certifications and other approvals
(collectively, the "Approvals") required from Governmental Entities in order for
the Company to conduct its business. The Company has obtained all the Approvals,
which are valid and in full force and effect. Except as disclosed on SCHEDULE
3.21, none of the Approvals is subject to termination by their express terms as
a result of the execution of this Agreement by the Stockholders, and no further
Approvals will be required in order to continue to conduct the business
currently
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conducted by the Company subsequent to the Closing. Except as disclosed in
SCHEDULE 3.21 or in any other schedule hereto, the Company is neither subject to
nor bound by any agreement, judgment, decree or order which may materially and
adversely affect its properties, assets, business, financial condition or
prospects.
3.22 TRANSACTIONS WITH INTERESTED PERSONS. Except as set forth in
SCHEDULE 3.22 hereto, no Stockholder, officer, employee or director of the
Company and none of their respective parents, grandparents, spouses, children,
siblings or grandchildren owns directly or indirectly on an individual or joint
basis any material interest in, or serves as an officer or director or in
another similar capacity of, any competitor, supplier or customer of the Company
or any organization, person or entity with whom the Company is doing business.
3.23 EMPLOYEE BENEFIT PROGRAMS.
(a) SCHEDULE 3.23 sets forth a list of every Employee Program
(as defined below) that has been maintained (as such term is further defined
below) by the Company at any time during the three-year period ending on the
date hereof.
(b) Each Employee Program which has been maintained by a
Company and which has at any time been intended to qualify under Section 401(a)
or 501(c)(9) of the Code, has received a favorable determination or approval
letter from the IRS regarding its qualification under such section and has, in
fact, been qualified under the applicable section of the Code from the effective
date of such Employee Program through and including the Closing (or, if earlier,
the date that all of such Employee Program's assets were distributed). No event
or omission has occurred which would cause any such Employee Program to lose
such qualification under the applicable Code section.
(c) Except as otherwise disclosed on SCHEDULE 3.23, there has
not been any failure of any party to comply with any laws applicable to or the
terms of any Employee Programs that have been maintained by the Company, except
for any failures to comply that, individually or in the aggregate, would not
have a material adverse effect on the properties, assets, business, financial
condition or prospects of the Company. With respect to any Employee Program now
or heretofore maintained by the Company, there has occurred no "prohibited
transaction," as defined in Section 406 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code, or
breach of any duty under ERISA or other applicable law (including, without
limitation, any health care continuation requirements or any other tax law
requirements, or conditions to favorable tax treatment, applicable to such
plan), which could result, directly or indirectly (including without limitation
through any obligation of indemnification or contribution) in any taxes,
penalties or other liability to the Company or any Affiliate (as defined below).
No litigation, arbitration, or governmental administrative proceeding or
investigation or other proceeding (other than those relating to routine claims
for benefits) is pending or threatened with respect to any such Employee
Program.
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(d) Neither the Company nor any Affiliate has ever maintained
any Employee Program subject to Title IV of ERISA.
(e) Except as otherwise disclosed on SCHEDULE 3.23, with
respect to each Employee Program maintained by the Company within the three
years preceding the date hereof, complete and correct copies of the following
documents (if applicable to such Employee Program) have previously been
delivered to the Parent: (i) all documents embodying or governing such Employee
Program, and any funding medium for the Employee Program (including, without
limitation, trust agreements) as they may have been amended to the date hereof;
(ii) the most recent IRS determination or approval letter with respect to such
Employee Program under Code Section 401 or 501(c)(9), and any applications for
determination or approval subsequently filed with the IRS; (iii) the three most
recently filed IRS forms 5500, with all applicable schedules and accountants'
opinions attached thereto; (iv) the summary plan description for such Employee
Program (or other descriptions of such Employee Program provided to employees)
and all modifications thereto; (v) any insurance policy (including any fiduciary
liability insurance policy) related to such Employee Program; and (vi) any
documents evidencing any loan to an Employee Program that is a leveraged
employee stock ownership plan.
(f) Each Employee Program maintained by the Company as of the
date hereof is subject to amendment or termination by the Board of Directors of
the Company without any further liability or obligation on the part of the
Company to make further contributions to any trust maintained under any such
Employee Program following such termination and the Company has not made any
written or oral representations to the contrary to its employees.
(g) For purposes of this SECTION 3.23:
(i) "Employee Program" means (a) all employee benefit
plans within the meaning of ERISA Section 3(3), including, but not
limited to, multiple employer welfare arrangements (within the meaning
of ERISA Section 3(40)), plans to which more than one unaffiliated
employer contributes and employee benefit plans (such as foreign or
excess benefit plans) which are not subject to ERISA; and (b) all stock
option plans, bonus or incentive award plans, severance pay policies or
agreements, deferred compensation agreements, supplemental income
arrangements, vacation plans, and all other employee benefit plans,
agreements, and arrangements not described in subsection (a) above. In
the case of an Employee Program funded through an organization
described in Code Section 501(c)(9), each reference to such Employee
Program shall include a reference to such organization;
(ii) an entity "maintains" an Employee Program if
such entity sponsors, contributes to, or provides (or has promised to
provide) benefits under
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such Employee Program, or has any obligation (by agreement or under
applicable law) to contribute to or provide benefits under such
Employee Program, or if such Employee Program provides benefits to or
otherwise covers employees of such entity (or their spouses,
dependents, or beneficiaries);
(iii) an entity is an "Affiliate" of a Company for
purposes of this SECTION 3.23 if it would have ever been considered a
single employer with the Company under ERISA Section 4001(b) or part of
the same "controlled group" as the Company for purposes of ERISA
Section 302(d)(8)(c) and
(iv) "Multiemployer Plan" means a (pension or
non-pension) employee benefit plan to which more than one employer
contributes and which is maintained pursuant to one or more collective
bargaining agreements.
3.24 ENVIRONMENTAL MATTERS.
(a) Except as used in connection with routine maintenance and
as set forth in SCHEDULE 3.24 hereto, (i) the Company has never generated,
transported, used, stored, treated, disposed of, or managed any Hazardous Waste
(as defined below); (ii) to the best knowledge of the Stockholders, no Hazardous
Material (as defined below) has ever been or is threatened to be spilled,
released, or disposed of at any site presently or formerly owned, operated,
leased, or used by the Company, or has ever come to be located in the soil or
groundwater at any such site; (iii) to the best knowledge of the Stockholders,
no Hazardous Material has ever been transported from any site presently or
formerly owned, operated, leased, or used by the Company for treatment, storage,
or disposal at any other place; (iv) to the best knowledge of the Stockholders,
the Company does not presently own, operate, lease, or use, nor has it
previously owned, operated, leased, or used any site on which underground
storage tanks are or were located; and (v) to the best knowledge of the
Stockholders, no lien has ever been imposed by any Governmental Entity on any
property, facility, machinery, or equipment owned, operated, leased, or used by
the Company in connection with the presence of any Hazardous Material.
(b) Except as set forth in SCHEDULE 3.24 hereto, (i) the
Company has no liability under, nor has the Company ever violated in any
material respect, any Environmental Law (as defined below); (ii) any property
owned, operated, leased, or used by the Company and any facilities and
operations thereon are presently in compliance in all material respects with all
applicable Environmental Laws; (iii) the Company has never entered into or been
subject to any judgment, consent decree, compliance order, or administrative
order with respect to any environmental or health and safety matter or received
any request for information, notice, demand letter, administrative inquiry, or
formal or informal complaint or claim with respect to any environmental or
health and safety matter or the enforcement of any Environmental Law (as defined
below); and (iv) neither the Company nor any Stockholder has any reason to
believe that any of the items enumerated in clause (iii) of this paragraph will
be forthcoming.
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(c) Except as set forth in SCHEDULE 3.24 hereto, to the best
knowledge of the Stockholders, no site owned, operated, leased, or used by the
Company contains any asbestos or asbestos-containing material, any
polychlorinated biphenyls ("pcbs") or equipment containing pcbs, or any urea
formaldehyde foam insulation.
(d) For purposes of this SECTION 3.24, (i) "Hazardous
Material" shall mean and include any hazardous waste, hazardous material,
hazardous substance, petroleum product, oil, toxic substance, pollutant, or
contaminant, as defined or regulated under any Environmental Law or any other
substance which may pose a threat to the environment or to human health or
safety; (ii) "Hazardous Waste" shall mean and include any hazardous waste as
defined or regulated under any Environmental Law; (iii) "Environmental Law"
shall mean any environmental laws, regulation, rule, ordinance, or by-law at the
foreign, federal, state, or local level, existing as of the date hereof; and
(iv) the Company shall mean and include the Company, its predecessors and all
other entities for whose conduct the Company is or may be held responsible under
any Environmental Law.
3.25 LISTS OF CERTAIN EMPLOYEES AND SUPPLIERS.
(a) SCHEDULE 3.25 hereto contains a list of all current
directors and officers of the Company and a list of all managers, employees and
consultants of the Company who, individually, have received or are scheduled to
receive base salary from the Company during the current fiscal year of $20,000
or more. In each case such schedule includes the current job title and current
base salary of each such individual.
(b) SCHEDULE 3.25 sets forth a true and complete list of all
suppliers of the Company to whom the Company made payments aggregating $25,000
or more during the most recent complete fiscal year, showing, with respect to
each, the name, address and dollar volume involved.
3.26 EMPLOYEES; LABOR MATTERS. As of the date hereof, the Company
employed the number of full-time employees and part-time employees described on
SCHEDULE 3.26. The Company is not delinquent in payments to any of its employees
for any wages, salaries, commissions, bonuses or other direct compensation for
any services performed for it to the date hereof or amounts required to be
reimbursed to such employees. Except as set forth in SCHEDULE 3.26, upon
termination of the employment of any of said employees, the Company will not be
liable to any of said employees for so-called "severance pay" or any other
payments. Except as set forth in SCHEDULE 3.26 attached hereto, the Company has
no policy, practice, plan or program of paying severance pay or any form of
severance compensation in connection with the termination of employment. The
Company is in compliance with all applicable laws and regulations respecting
labor, employment, fair employment practices, terms and conditions of
employment, and wages and hours. No charges of employment discrimination or
unfair labor
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practices have been brought against the Company, nor are there any strikes,
slowdowns, stoppages of work, or any other concerted interference with normal
operations existing, pending or threatened against or involving the Company.
There are no grievances, complaints or charges that have been filed against the
Company under any dispute resolution procedure (including, but not limited to,
any proceedings under any dispute resolution procedure under any collective
bargaining agreement). No collective bargaining agreements are in effect or are
currently being or are about to be negotiated by the Company. Except for the
Stockholders (other than Matthew Zahorik), the Company has not received written
notice of pending or threatened changes with respect to the senior management or
key supervisory personnel of the Company.
3.27 CUSTOMERS. SCHEDULE 3.27 sets forth any customer who accounted for
more than 5% of the sales of the Company for the most recent complete fiscal
year of the Company (collectively, the "Customers"). No Customer has given
notice to the Company of its intention to terminate, to cancel or otherwise
materially and adversely modify its relationship with the Company or to decrease
materially or limit its usage or purchase of the services or products of the
Company.
3.28 Y2K. The Company has taken all necessary action to assess,
evaluate, test and correct all of the hardware, software, embedded microchips
and other processing capabilities of computer and telecommunication systems it
uses, either directly or indirectly, including but not limited to computerized
services provided by third parties such as billing and payroll services, to
ensure that such systems will be able to function accurately and without
interruption or ambiguity using date information before, during and after
January 1, 2000.
3.29 Avalon Cable. The Company has no further agreements, commitments,
obligations or understandings with Avalon Cable of New England, pursuant to that
certain letter of intent between the Company and Avalon with respect to the sale
of all outstanding stock of the Company to Avalon or other written or verbal
communiocation, which would prevent the consummation of the transactions
contemplated by this Agreement.
3.30 DISCLOSURE.
(a) This Agreement, including the Schedules hereto prepared by
the Stockholders and the Company, together with the other information furnished
to the Parent by the Company and the Stockholders in connection herewith, does
not contain an untrue statement of material fact or omit to state a material
fact necessary to make the statements herein and therein, in light of the
circumstances under which they were made, not misleading. If, prior to the 90th
day after the date of the final prospectus of the Parent utilized in connection
with the IPO, the Company or the Stockholders become aware of any fact or
circumstance which would affect the accuracy of a representation or warranty of
the Company or the Stockholders in this Agreement, in any material respect, the
Company and the Stockholders shall immediately give notice of such fact or
circumstance to the Parent. However, subject to the provisions of SECTION
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4.8, such notification shall not relieve either the Company or the
Stockholders of their respective obligations under this Agreement, and
subject to the provisions of SECTION 4.8, at the sole option of the Parent,
the truth and accuracy of any and all warranties and representations of the
Stockholders, on behalf of the Company and of the Stockholders at the date of
this Agreement and on the Closing Date, shall be a precondition to the
consummation of this transaction.
(b) The Stockholders acknowledge and agree (i) that there
exits no firm commitment, binding agreement, or promise or other assurance of
any kind, whether express or implied, oral or written, that the contemplated IPO
of the Parent will occur at a particular price or within a particular range of
prices or occur at all; (ii) that neither the Parent, its subsidiaries or any of
their respective officers, directors, agents or representatives nor any
underwriter shall have any liability to the Company or the Stockholders or any
other person affiliated or associated with the Company for any failure of the
contemplated IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (iii) that the decision of the Stockholders to
enter into this Agreement has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made performed by any
prospective underwriter, relative to the Parent or the contemplated IPO.
SECTION 4. COVENANTS OF THE STOCKHOLDERS.
4.1 MAKING OF COVENANTS AND AGREEMENTS. The Stockholders covenant and
agree as set forth in this SECTION 4.
4.2 CONDUCT OF BUSINESS. Between the date of this Agreement and the
Closing Date, the Stockholders will cause the Company to do and the Company will
do the following, unless the Parent shall otherwise consent in writing:
(a) conduct its business only in the ordinary course
consistent with past practices, refrain from changing or introducing any method
of management or operations except in the ordinary course of business and in a
manner consistent with past practices and maintain levels of working capital
consistent with past practices;
(b) refrain from making any purchase, sale or disposition of
any asset or property other than in the ordinary course of business, from
purchasing or selling any capital asset costing more than $10,000 and from
mortgaging, pledging, subjecting to a lien or otherwise encumbering any of its
properties or assets;
(c) refrain from incurring or modifying any contingent
liability as a guarantor or otherwise with respect to the obligations of others,
and from incurring or modifying any other contingent or fixed obligations or
liabilities except in the ordinary course of business and in a manner consistent
with past practices;
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(d) refrain from making any change in its incorporation
documents, by-laws or authorized or issued capital stock or from acquiring any
securities issued by any other business organization other than short-term
investments in the ordinary course of business;
(e) except as provided in SECTION 2.1, refrain from declaring,
setting aside or paying any dividend, making any other distribution in respect
of its capital stock, making any direct or indirect redemption, purchase or
other acquisition of its capital stock, issuing, granting, awarding, selling,
pledging, disposing of or encumbering or authorizing the issuance, grant, award,
sale, pledge, disposition or encumbrance of any shares of, or securities
convertible or exchangeable for, or options, warrants, calls, commitments or
rights of any kind to acquire, any shares of capital stock of any class of the
Company or entering into any agreement or commitment with respect to any of the
foregoing;
(f) refrain from making any change in the compensation payable
or to become payable to any of its officers, employees or agents, except for
scheduled increases in salary or wages in the ordinary course of business that
are consistent with past practices, or granting any severance or termination pay
to, or establishing, adopting or entering into any agreement or arrangement
providing for severance or termination pay to, or entering into or amending any
employment, or other agreement or arrangement with, any director, officer or
other employee of the Company or any Stockholder or establishing, adopting or
entering into or amending any collective bargaining, bonus, incentive, deferred
compensation, profit sharing, stock option or purchase, insurance, pension,
retirement or other employee benefit plan;
(g) refrain from making any change in its borrowing
arrangements or modifying, amending or terminating any of its contracts except
in the ordinary course of business, or waiving, releasing or assigning any
material rights or claims;
(h) use reasonable efforts to prevent any change with respect
to its management and supervisory personnel or banking arrangements;
(i) use reasonable efforts to keep intact its business
organization and to preserve the goodwill of and business relationships with all
suppliers, customers and others having business relations with it, and to
maintain its properties and facilities, including those held under leases, in as
good a working order and condition as on the date hereof, ordinary wear and tear
excepted;
(j) use reasonable efforts to have in effect and maintain at
all times all insurance of the kind, in the amount and with the insurers set
forth in SCHEDULE 3.18 or equivalent insurance with any substitute insurers
approved by Parent;
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(k) refrain from changing accounting policies or procedures
(including, without limitation, procedures with respect to the payment of
accounts payable and collection of accounts receivable) or from making any tax
election or settling or compromising any federal, state, local or foreign income
tax liability;
(l) refrain from entering into any executory agreement,
commitment or undertaking to do any of the activities prohibited by the
foregoing provisions; and
(m) permit Parent and its authorized representatives
(including without limitation Parent's attorneys, accountants, and pension and
environmental consultants) to have full access to all of its properties, assets,
books, records, business files, executive personnel, tax returns, contracts and
documents and furnish to Parent and its authorized representatives such
financial and other information with respect to its business or properties as
Parent may from time to time reasonably request.
4.3 CONSENTS AND APPROVALS. The Stockholders shall use their best
efforts to obtain or cause to be obtained prior to the Closing Date all
necessary consents and approvals to the performance of the obligations of the
Stockholders under this Agreement, including, without limitation, the consents
and authorizations described in SCHEDULE 3.15, and such other authorizations,
waivers, approvals, consents and permits as set forth in SCHEDULE 4.3 as may be
necessary to transfer to Parent and/or to retain in full force and effect
without penalty subsequent to the Closing Date all contracts, permits, licenses
and franchises of or applicable to the businesses of the Company.
4.4 [intentionally omitted]
4.5 EXCLUSIVE DEALING. Unless and until the earlier to occur of the
Closing Date or the termination of this Agreement pursuant to SECTION 9, neither
the Company nor any Stockholder shall, nor shall any of them permit any
director, officer, employee or agent of either of the Company to, directly or
indirectly, (i) take any action to solicit, initiate submission of or encourage,
proposals or offers from any person relating to any acquisition or purchase of
all or (other than in the ordinary course of business) a portion of the assets
of, or any equity interest in, the Company or any merger or business combination
with the Company (an "Acquisition Proposal"), (ii) participate in any
discussions or negotiations regarding an Acquisition Proposal with any person or
entity other than Parent and its representatives, or (iii) otherwise cooperate
in any way with, or assist or participate in, facilitate or encourage, any
effort or attempt by any other person to do any of the foregoing.
4.6 NO SALES OF CAPITAL STOCK. Between the date of this Agreement and
the Closing Date, none of the Stockholders shall sell, exchange, deliver,
assign, pledge, encumber or otherwise transfer or dispose of any Company Shares
owned beneficially or of record by such Stockholder, nor grant any right of any
kind to acquire, dispose of, vote or otherwise control in
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any manner such Company Shares; provided, however, that notwithstanding anything
to the contrary stated herein, any transferee, executor, heir, legal
representative, successor or assign of any Stockholder shall be bound by this
Agreement.
4.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to the Parent of (i) the occurrence or non-occurrence
of any event the occurrence or non-occurrence of which would be likely to cause
any representation or warranty of the Stockholders contained herein to be untrue
or inaccurate in any material respect at or prior to the Closing and (ii) any
material failure of any Stockholder or the Company to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by such person
hereunder. The delivery of any notice pursuant to this SECTION 4.7 shall not be
deemed to (i) modify the representations or warranties hereunder of the party
delivering such notice, (ii) modify the conditions set forth in SECTION 7 or
elsewhere or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
4.8 AMENDMENT OF SCHEDULES. The Stockholders agree that, with respect
to the representations and warranties contained in this Agreement, the
Stockholders shall have the continuing obligation until the Closing Date to
supplement or amend promptly the Schedules hereto with respect to any matter
hereafter arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described on the
Schedules. The Stockholders understand and agree that, as of the Closing Date,
they will be required to execute a "bring-down" certificate which shall state
that all representations and warranties in this Agreement are true and correct
as of the Closing Date. To the extent that any such representation and warranty
is qualified by disclosure on a schedule which changes after the date hereof and
prior to Closing, the Stockholders agree to notify the Parent of such changes in
writing and to summarize all such changes via the bring-down certificate on the
Closing Date. Notwithstanding the foregoing sentence, the truth and accuracy of
any and all representations and warranties of the Stockholders as of the date of
this Agreement and as of the Closing Date shall be a precondition to the
consummation of this transaction by the Parent, and Parent shall not be deemed
to have consented to any amendment or supplement to a Schedule prepared by the
Stockholders after the date hereof or to have waived any of its rights or
remedies for breach hereof, particularly with respect to any matter hereafter
arising or discovered that constitutes or reflects an event or occurrence that
would be reasonably likely to have a material adverse effect on the business of
the Company, unless the Parent acknowledges and consents to such amendment or
supplement.
4.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The
Stockholders shall furnish or cause to be furnished to the Parent and its
underwriters all of the information concerning the Company and the Stockholders
reasonably requested by the Parent and its underwriters for inclusion in, and
will cooperate with the Parent and its underwriters in the preparation of, any
Registration Statement required by the Securities and Exchange Commission and
any prospectus included therein (including audited and unaudited financial
statements,
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prepared in accordance with GAAP, and in a form otherwise reasonably requested
by the Parent and its underwriters as suitable for inclusion in the Registration
Statement). The Stockholders agree to promptly advise the Parent if at any time
during the period in which a prospectus relating to the IPO is required to be
delivered under the Securities Act, any information contained in the prospectus
concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Insofar as the information requested relates solely to the Company
or the Stockholders, each of the Company and the Stockholders jointly and
severally represents and warrants that the Registration Statement will not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
4.10 FURTHER ASSURANCES. The Stockholders hereto agree to execute and
deliver, or cause to be executed and delivered, such further instruments or
documents or take such other action as may be reasonably necessary or convenient
to carry out the transactions contemplated hereby.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE PARENT.
5.1 MAKING OF REPRESENTATIONS AND WARRANTIES. As of the date hereof,
the Parent hereby represents and warrants to the Stockholders as set forth in
this SECTION 5.
5.2 ORGANIZATION OF THE PARENT. The Parent is a corporation duly
organized, validly existing and in good standing under the laws of Delaware with
full corporate power and authority to conduct its businesses in the manner as
now conducted.
5.3 AUTHORITY. All necessary corporate action has been taken by the
Parent to authorize the execution, delivery and performance of this Agreement
and each agreement, document and instrument to be executed and delivered by the
Parent pursuant to this Agreement. This Agreement and each agreement, document
and instrument to be executed and delivered by the Parent pursuant to this
Agreement (to the extent it contains obligations to be performed by the Parent)
constitutes, or when executed and delivered by the Parent will constitute, valid
and binding obligations of the Parent enforceable in accordance with their
respective terms.
5.4 NO CONFLICTS. The execution, delivery and performance by the Parent
of this Agreement and each such other agreement, document and instrument: (i)
does not and will not violate any provision of the Certificate of Incorporation
or bylaws of the Parent ; and (ii) will not result in a breach of, constitute a
default under, accelerate any obligation under, or give rise to a right of
termination of any indenture or loan or credit agreement or any other agreement,
contract, instrument, mortgage, lien, lease, permit, authorization, order, writ,
judgment, injunction, decree, determination or arbitration award, whether
written or oral, to which the Parent is a party or by which the property of the
Parent is bound or affected, or result in the
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creation or imposition of any mortgage, pledge, lien, security interest or other
charge or encumbrance on any of the assets of the Parent, except where such
breach, default, acceleration or right of termination would not have a material
adverse effect on the properties, assets, business, financial condition or
prospects of the Parent, and would not result in the creation or imposition of
any mortgage, pledge, lien, security interest or other charge or encumbrance on
any of the assets of the Parent.
5.5 [intentionally omitted]
5.6 LITIGATION. There is no litigation or governmental or
administrative proceeding or investigation pending or threatened against the
Parent which may have an adverse effect on the properties, assets, business,
financial condition or prospects of the Parent or which would prevent or hinder
the consummation of the transactions contemplated by this Agreement.
5.7 COMPLIANCE WITH LAWS. The Parent has not received any notice of a
violation or alleged violation of applicable statutes, ordinances, orders, rules
and regulations promulgated by any federal, state, municipal or other
governmental authority, which violation or alleged violation would have a
material adverse effect on the business of the Parent.
SECTION 6. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARENT.
6.1 INTRODUCTION. The obligations of the Parent to consummate this
Agreement and the transactions contemplated hereby are subject to the
fulfillment, prior to or at the Closing, of the conditions set forth in this
SECTION 6.
6.2 EXAMINATION OF FINANCIAL STATEMENTS. Prior to the Closing Date, the
Parent shall have had sufficient time to review the management-prepared balance
sheets of the Company as of the last day of the month ended immediately prior to
the Closing Date and the management-prepared statements of income, cash flow and
stockholders' equity for the period then ended, disclosing no material change in
the financial condition of the Company or the results of its operations from the
Company Balance Sheet Date. The Parent shall also have had sufficient
opportunity to review the audited balance sheet of the Company as of December
31, 1998 and the audited statements of income, cash flow and stockholders'
equity for the years ended December 31, 1998 and December 31, 1997 as audited by
the Parent's accounting firm at the Parent's sole expense in accordance with
GAAP in connection with the contemplated IPO, and the Parent shall be satisfied
in all respects with such financial information, and such information shall
indicate that the Company's gross revenues for the year ended December 31, 1998
shall exceed $1,100,000, and the aggregate stockholder's equity as of December
31, 1998 shall exceed $100,000.
6.3 NO MATERIAL ADVERSE CHANGE. No material adverse change in the
results of operations, financial position or business of the Company shall have
occurred and the Company
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shall not have suffered any material loss or damages to any of its properties or
assets, whether or not covered by insurance, since the Company Balance Sheet
Date, which change, loss or damage materially affects or impairs the ability of
the Company to conduct its business; and the Parent shall have received on the
Closing Date a certificate signed by the President of the Company and each of
the Stockholders to such effect.
6.4 DUE DILIGENCE AND REGULATORY REVIEW. The Parent (and KPMG LLP)
shall have completed to its satisfaction a due diligence investigation of the
Company and its prospects, business, assets, contracts, rights, liabilities and
obligations, including a review of the practices and procedures of the Company
with respect to compliance with contracts and federal, state and local laws and
regulations governing the operations of the Company. Such review shall be
satisfactory in all respects to the Parent, in its sole discretion.
6.5 OPINION OF COUNSEL. The Parent shall have received an opinion from
Lombardi, Reinhard, Walsh & Harrison, P.C., counsel to the Company and the
Stockholders, dated the Closing Date, in form and substance satisfactory to the
Parent, to the effect that with respect to the Company:
(a) the Company has been duly organized and is validly
subsisting in good standing under the laws of the State of New York.
(b) the authorized and outstanding capital stock of the
Company is as represented by the Stockholders in this Agreement and each share
of such stock has been duly and validly authorized and issued, is fully paid and
nonassessable and was not issued in violation of the preemptive rights of any
stockholder;
(c) to the knowledge of such counsel, the Company does not
have any outstanding options, warrants, calls, conversion rights or other
commitments of any kind to issue or sell any of its capital stock;
(d) this Agreement has been duly authorized, executed and
delivered by the Stockholders and constitutes a valid and binding agreement of
the Stockholders enforceable against them in accordance with its terms except as
such enforceability may be subject to bankruptcy, moratorium, insolvency,
reorganization, arrangement and other similar laws relating to or affecting the
rights of creditors and except (i) as the same may be subject to the effect of
general principles of equity and (ii) that no opinion need be expressed as to
the enforceability of indemnification provisions included herein;
(e) except to the extent set forth on SCHEDULE 3.16, to the
knowledge of such counsel, there are no claims, actions, suits or proceedings
pending, or threatened against or affecting the Company, at law or in equity, or
before or by any federal, state, municipal or other
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governmental department, commission, board, bureau, agency or instrumentality
wherever located;
(f) no notice to, consent, authorization, approval or order of
any court or governmental agency or body or of any other third party is required
in connection with the execution, delivery or consummation of this Agreement by
any Stockholders or for the transfer to the Parent of the Company Shares;
(g) the execution of this Agreement and the performance of the
obligations hereunder will not violate or result in a breach or constitute a
default under any of the terms or provisions of the Company's Certificate of
Incorporation or the bylaws of the Company or of any lease, instrument, license,
permit or any other agreement to which the Company is a party or by which the
Company or any Stockholder is bound; and
(h) any other matters incident to the matters set forth herein
as reasonably required by the Parent.
6.6 ADDITIONAL LIABILITIES AND OBLIGATIONS. The Stockholders shall have
delivered to the Parent a certificate dated the Closing Date, setting forth (i)
all liabilities and obligations of the Company arising since the Company Balance
Sheet Date and (ii) showing all material contracts and agreements, together with
copies thereof, entered into by the Company since the Company Balance Sheet
Date.
6.7 GOOD STANDING CERTIFICATES; CERTIFIED COPY OF THE CERTIFICATE OF
INCORPORATION. The Stockholders shall have delivered to the Parent certificates,
dated as of a date no earlier than twenty days prior to the Closing Date, duly
issued by the Secretary of State and the Department of Revenue of the State of
New York and of any other state in which the Company is authorized to do
business, showing that the Company is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
the Company for all periods prior to the dates of such certificates have been
filed and paid. The Stockholders shall also have delivered to the Parent prior
to the Closing a recent copy of the Company's Certificate of Incorporation and
all amendments thereto duly certified by the Secretary of State of New York.
6.8 REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the representations
and warranties of the Stockholders contained in SECTION 3 and elsewhere in this
Agreement shall be true and correct on and as of the Closing Date, with the same
effect as though made on and as of the Closing Date; the Stockholders shall, on
or before the Closing Date, have performed and satisfied all agreements and
conditions hereunder which by the terms hereof are to be performed and satisfied
by the Stockholders on or before the Closing Date; and the Stockholders shall
have delivered to the Parent a certificate dated the Closing Date signed by each
of the Stockholders to the foregoing effect.
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6.9 APPROVALS AND CONSENTS. The Company and the Stockholders shall have
made all filings with and notifications of governmental authorities, regulatory
agencies and other entities required to be made by them in connection with the
execution and delivery of this Agreement, the performance of the transactions
contemplated hereby and the continued operation of the businesses of the Company
subsequent to the Closing Date, and the Company and the Parent shall have
received all required authorizations, waivers, consents and permits to permit
the consummation of the transactions contemplated by this Agreement, in form and
substance reasonably satisfactory to the Parent, from all third parties,
including, without limitation, approvals required under federal and state
securities laws and/or the securities and Exchange Commission, state "Blue Sky"
laws, other applicable governmental authorities and regulatory agencies,
lessors, lenders and contract parties, required in connection with this
Agreement or the Company's permits, leases, licenses and franchises, to avoid a
breach, default, termination, acceleration or modification of any material
agreement, contract, instrument, mortgage, lien, lease, permit, authorization,
order, writ, judgment, injunction, decree, determination or arbitration award as
a result of the execution or performance of this Agreement, or otherwise in
connection with the execution and performance of this Agreement.
6.10 NO ACTIONS OR PROCEEDINGS. No action or proceeding by any court,
administrative body or governmental agency shall have been instituted or
threatened which would enjoin, restrain or prohibit, or would likely result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions contemplated by this Agreement, and which would in the
reasonable judgment of the Parent make it inadvisable to consummate such
transactions, and no law or regulation shall be in effect and no court order
shall have been entered in any action or proceeding instituted by any party
which enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions as contemplated by this Agreement.
6.11 PROCEEDINGS SATISFACTORY TO THE PARENT. All proceedings to be
taken by the Company and the Stockholders in connection with the consummation of
the Closing on the Closing Date and the other transactions contemplated hereby
and all certificates, opinions, instruments and other documents required to
effect the transaction contemplated hereby reasonably requested by the Parent
shall be reasonably satisfactory in form and substance to the Parent and its
counsel.
6.12 EMPLOYMENT AGREEMENT; TRANSITIONAL SERVICES.
(a) EMPLOYMENT AGREEMENT. The Parent shall cause the Company
at the Closing to enter into an individual employment agreement with Matthew
Zahorik in the form attached hereto as EXHIBIT 6.12(a).
(b) TRANSITIONAL SERVICES. The Stockholders other than Matthew
Zahorik each hereby agree to be available, by teleconference and, if requested,
on-site for 1-2 days per week,
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to assist the Parent during the 90 day period following the Closing with
transitional business matters regarding the Company, with compensation for such
services on a per diem basis based on a rate of $70,000 per year ($280/day,
assuming 250 working days per year).
6.13 EFFECTIVENESS OF REGISTRATION STATEMENT AND IPO CLOSING. The
Registration Statement prepared and filed in connection with the Parent's
contemplated IPO shall have been declared effective by the Securities and
Exchange Commission, and the Parent and its underwriters shall have scheduled
the closing for the IPO. The intent of the parties hereto is to prepare all
documentation for the Closing in advance and to hold the actual Closing for the
transactions contemplated hereby as described in SECTION 1.4 concurrently with
the IPO closing.
SECTION 7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE STOCKHOLDERS.
7.1 INTRODUCTION. The obligations of the Stockholders to consummate
this Agreement and the transactions contemplated hereby are subject to the
fulfillment, prior to or at the Closing Date, of the following conditions (any
one or more of which may be waived in whole or in part by the Stockholders):
7.2 REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the representations
and warranties of the Parent contained in SECTION 5 shall be true and correct in
all material respects on and as of the Closing Date, with the same effect as
though made on and as of the Closing Date; the Parent shall, on or before the
Closing Date, have performed and satisfied all agreements and conditions
hereunder which by the terms hereof are to be performed and satisfied by the
Parent on or before the Closing Date; and the Parent shall have delivered to the
Company a certificate signed by the President of the Parent and dated as of the
Closing Date certifying to the foregoing effect.
7.3 NO ACTIONS OR PROCEEDINGS. No action or proceeding by any court,
administrative body or governmental agency shall have been instituted or
threatened which would enjoin, restrain or prohibit, or would likely result in
substantial damages in respect of, this Agreement or the complete consummation
of the transactions as contemplated by this Agreement, and which would in the
reasonable judgment of the Company make it inadvisable to consummate such
transactions, and no law or regulation shall be in effect and no court order
shall have been entered in any action or proceeding instituted by any party
which enjoins, restrains or prohibits this Agreement or the complete
consummation of the transactions as contemplated by this Agreement.
7.4 EMPLOYMENT AGREEMENT. The Parent shall have executed and delivered
an individual employment agreement with Matthew Zahorik in the form attached
hereto as EXHIBIT 6.12(a).
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7.5 EFFECTIVENESS OF REGISTRATION STATEMENT AND IPO CLOSING. The
Registration Statement prepared and filed in connection with the Parent's
contemplated IPO shall have been declared effective by the Securities and
Exchange Commission, and the Parent and its underwriters shall have successfully
closed the IPO. The intent of the parties hereto is to hold the Closing for the
transactions contemplated hereby as described in SECTION 1.4 contemporaneously
with or as promptly as practicable after the IPO closing.
SECTION 8. [Intentionally Omitted].
SECTION 9. TERMINATION OF AGREEMENT; EFFECT OF TERMINATION.
9.1 TERMINATION. This Agreement may be terminated any time prior to the
Closing Date solely by:
(a) mutual consent of the board of directors of the
Parent and the Stockholders;
(b) either by the Stockholders on the one hand, or by the
Parent on the other hand, if
(i) the transactions contemplated by this
Agreement to take place at the Closing shall
not have been consummated by June 30, 1999,
unless the failure of such transactions to
be consummated is due to the willful failure
of the party seeking to terminate this
Agreement to perform any of its obligations
under this Agreement to the extent required
to be performed by it prior to or on the
Closing Date; or
(ii) if a material breach or default shall
be made by the other party in the observance
of or in the due and timely performance of
any of the covenants or agreements contained
herein, and the curing of such default shall
not have been made on or before the Closing
Date
9.2 LIABILITIES IN THE EVENT OF TERMINATION. The termination of this
Agreement will in no way limit any obligation or liability of any party based on
or arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this Agreement
including, but not limited to, legal and audit costs and out of pocket expenses.
9.3 TIME IS OF THE ESSENCE. Time is of the essence with respect to the
termination provisions of this Section 9, unless waived by the Stockholders.
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9.4 LIQUIDATED DAMAGES. In the event the IPO does not close by June 30,
1999 for any reason except breach by the Stockholders of their obligations under
this Agreement, and the Stockholders and InSite are unable to reach a mutually
satisfactory agreement as to an extension of time for performance or other terms
and conditions, and the Stockholders elect to terminate this Agreement pursuant
to SECTION 9.1(b) above, the Parent agrees to pay the Stockholders $25,000 in
cash or certified check no later than July 15, 1999 as liquidated damages. This
provision for liquidated and agreed upon damages is bona fide and not a penalty,
as the parties agree that by reason of the Stockholders binding themselves to
the sale of their stock and by reason of the withdrawal of the Parent from sale
at a time when other parties would be interested in acquiring it, that the
Stockholders would have sustained damages if the IPO does not close as stated
above, on or before June 30, 1999, which damages will be substantial but will
not be capable of determination with mathematical precision. Therefore, this
provision has been agreed to with respect to this Agreement as beneficial to the
parties thereto.
SECTION 10. NON-COMPETITION.
For a period of two (2) years from and after the Closing Date, the
Stockholders will not (i) engage directly or indirectly in any internet access
service business that the Company conducts as of the Closing Date in the New
England states, New York, New Jersey, Ohio, Pennsylvania (except that ownership
of less than 2% of the outstanding stock of any competing publicly traded
corporation shall not constitute a violation of this covenant not to compete) or
(ii) solicit, directly or indirectly, any customers, clients, accounts,
officers, employees, agents or representatives of the Company or the Parent. If
the final judgment of a court of competent jurisdiction declares that any term
or provision of this Section is invalid or unenforceable, the parties hereto
agree that the court making the determination of invalidity or unenforceability
shall have the power to reduce the scope, duration, or area of the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so
modified after the expiration of the time within which the judgment may be
appealed.
SECTION 11. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
11.1 THE STOCKHOLDERS. The Stockholders recognize and acknowledge that
they have had in the past, currently have and in the future may have access to
certain confidential information relating to the Company and the Parent,
including, but not limited to, operational policies, customer lists, and pricing
and cost policies, that are valuable, special and unique assets of the Company
and the Parent. The Stockholders agree that they will not use or disclose such
confidential information to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except (a) to authorized
representatives of the Parent and the Company who need to know such information
in connection with the transactions contemplated hereby, who have been informed
of the confidential nature of such information and who have
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agreed to keep such information confidential as provided hereby, and (b)
following the Closing, such information may be disclosed by the Stockholders as
is required in the course of performing his or her duties for the Parent or the
Company unless (i) such information becomes known to the public generally
through no breach by the Stockholders of this covenant, (ii) disclosure is
required by law or the order of any governmental authority under color of law or
is necessary in order to secure a consent or approval to consummate the
transactions contemplated hereby, provided, that prior to disclosing any
information pursuant to this clause (ii), the Stockholders shall give prior
written notice thereof to the Parent and provide the Parent with the opportunity
to contest such disclosure, or (iii) the disclosing party reasonably believes
that such disclosure is required in connection with the defense of a lawsuit
against the disclosing party and the same prior disclosure set forth immediately
above is given. In the event of a breach or threatened breach by the
Stockholders of the provisions of this section, the Parent shall be entitled to
an injunction restraining the Stockholders from disclosing, in whole or in part,
such confidential information. Nothing herein shall be construed as prohibiting
the Parent from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages. In the event that the
transactions contemplated herein are not consummated, the Stockholders shall
return to the Parent within a reasonable time all documents containing
confidential information about the Parent.
11.2 THE PARENT. The Parent recognizes and acknowledges that it had in
the past and currently has access to certain confidential information relating
to the Company, such as operational policies, customer lists, and pricing and
cost policies, that are valuable, special and unique assets of the Company. The
Parent agrees that, prior to the Closing, or if the transactions contemplated by
this Agreement are not consummated, it will not use or disclose such
confidential information to its own benefit except in furtherance of the
transactions contemplated by this Agreement or disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to the Stockholders and to
authorized representatives of the Company or the Parent who need to know such
information in connection with the transactions contemplated hereby, who have
been informed of the confidential nature of such information and who have agreed
to keep such information confidential as provided hereby, unless (i) such
information becomes known to the public generally through no breach by the
Parent of this covenant, (ii) disclosure is required by law or the order of any
governmental authority under color of law or is necessary in order to secure a
consent or approval to consummate the transactions contemplated hereby,
provided, that prior to disclosing any information pursuant to this clause (ii),
the Parent shall give prior written notice thereof to the Company and the
Stockholders and provide the Company and the Stockholders with the opportunity
to contest such disclosure, or (iii) the disclosing party reasonably believes
that such disclosure is required in connection with the defense of a lawsuit
against the disclosing party and the same prior disclosure set forth immediately
above is given. In the event of a breach or threatened breach by the Parent of
the provisions of this Section, the Company and the Stockholders shall be
entitled to an injunction restraining the Parent from disclosing, in whole or in
part, such confidential information. Nothing herein shall be construed as
prohibiting the
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Company and the Stockholders from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages. In the event
that the transactions contemplated herein are not consummated, the Parent shall
return to the Company within a reasonable time all documents containing
confidential information about the Company.
11.3 SURVIVAL. The obligations of the parties under this ARTICLE 11
shall survive notwithstanding either the termination of this Agreement or the
consummation of the transactions contemplated herein on the Closing Date.
SECTION 12. INDEMNIFICATION.
12.1 INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders, jointly and
severally on behalf of themselves and their respective successors, executors,
administrators, estates, heirs and permitted assigns, agree subsequent to the
Closing Date to indemnify and hold harmless the Parent, the Company and their
respective officers, directors, employees and agents (individually, a "Parent
Indemnified Party" and collectively, the "Parent Indemnified Parties") from and
against and in respect of all losses, liabilities, obligations, damages,
deficiencies, actions, suits, proceedings, demands, assessments, orders,
judgments, fines, penalties, costs and expenses (including the reasonable fees,
disbursements and expenses of attorneys, accountants and consultants) of any
kind or nature whatsoever (whether or not arising out of third-party claims and
including all amounts paid in investigation, defense or settlement of the
foregoing) sustained, suffered or incurred by or made against any Parent
Indemnified Party (a "Loss" or "Losses"), arising out of, based upon or in
connection with:
(a) any breach of any representation or warranty made by the
Stockholders in this Agreement or in any schedule, exhibit, certificate,
agreement or other instrument delivered under or in connection with this
Agreement, or by reason of any claim, action or proceeding asserted or
instituted arising out of any matter or thing covered by any such
representations or warranties (collectively, "Parent Representation and Warranty
Claims");
(b) any breach of any covenant or agreement made by any
Stockholder in this Agreement or in any schedule, exhibit, certificate,
agreement or other instrument delivered under or in connection with this
Agreement, or by reason of any claim, action or proceeding asserted or
instituted arising out of any matter or thing covered by any such covenant or
agreement; or
(c) with respect to taxes of the Company incurred with respect
to any Pre-Closing Tax Period (as defined below) to the extent such liability
exceeds the amounts accrued therefor and disclosed to the Parent in SCHEDULE 3.7
hereto (it being understood that such Schedule shall be updated as of the
Closing to reflect tax accruals as of such date consistent with the Company's
past practices); the term "Pre-Closing Tax Period" shall mean all taxable
periods ending on or before the Closing Date and the portion (ending on the
Closing Date) of any taxable period that includes (but does not end on) the
Closing Date.
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Claims under clauses (a) through (c) of this SECTION 12.1 are hereinafter
collectively referred to as "Parent Indemnifiable Claims". The rights of Parent
Indemnified Parties to recover indemnification in respect of any occurrence
referred to in clauses (b) and (c) of this SECTION 12.1 shall not be limited by
the fact that such occurrence may not constitute an inaccuracy in or breach of
any representation or warranty referred to in clause (a) of this SECTION 12.1.
12.2 LIMITATIONS ON INDEMNIFICATION BY THE STOCKHOLDERS.
Notwithstanding the provisions of SECTION 12.1, the Stockholders shall not be
obligated to indemnify Parent Indemnified Parties except to the extent the
cumulative amount of Losses to such Parent Indemnifiable Parties exceeds Ten
Thousand Dollars ($10,000) (the "Parent threshold") whereupon the full amount of
such Losses shall be recoverable in accordance with the terms hereof.
12.3 NOTICE; DEFENSE OF CLAIMS.
Promptly after receipt by a Parent Indemnified Party of notice of any
claim, liability or expense to which the indemnification obligations hereunder
would apply, the Parent Indemnified Party shall give notice thereof in writing
to the Stockholders, but the omission to so notify the Stockholders promptly
will not relieve the Stockholders from any liability except to the extent that
the Stockholders shall have been prejudiced as a result of the failure or delay
in giving such notice. Such notice shall state the information then available
regarding the amount and nature of such claim, liability or expense and shall
specify the provision or provisions of this Agreement under which the liability
or obligation is asserted. If within twenty (20) days after receiving such
notice the Stockholders give written notice to the Parent Indemnified Party
stating that (i) it would be liable under the provisions hereof for indemnity in
the amount of such claim if such claim were successful and (ii) that it disputes
and intends to defend against such claim, liability or expense at its own cost
and expense, then counsel for the defense shall be selected by the Stockholders
(subject to the consent of the Parent Indemnified Party which consent may not be
unreasonably withheld) and the Parent Indemnified Party shall not be required to
make any payment with respect to such claim, liability or expense as long as the
Stockholders are conducting a good faith and diligent defense at their own
expense; provided, however, that the assumption of defense of any such matters
by the Stockholders shall relate solely to the claim, liability or expense that
is subject or potentially subject to indemnification. The Stockholders shall
have the right, with the consent of the Parent Indemnified Party, which consent
shall not be unreasonably withheld, to settle any Parent Indemnified Claims by
third parties which are susceptible to being settled provided its obligation to
indemnify the Parent Indemnified Party therefor will be fully satisfied. The
Stockholders shall keep the Parent Indemnified Party apprised of the status of
the claim, liability or expense and any resulting suit, proceeding or
enforcement action, shall furnish the Parent Indemnified Party with all
documents and information that the Parent Indemnified Party shall reasonably
request and shall consult with the Parent Indemnified Party prior to acting on
major matters, including settlement discussions.
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Notwithstanding anything herein stated, the Parent Indemnified Party shall at
all times have the right to fully participate in such defense at its own expense
directly or through counsel; provided, however, if the named parties to the
action or proceeding include both the Stockholders and the Parent Indemnified
Party and representation of both parties by the same counsel would be
inappropriate under applicable standards of professional conduct, the expense of
separate counsel for the Parent Indemnified Party shall be paid by the
Stockholders. If no such notice of intent to dispute and defend is given by the
Stockholders, or if such diligent good faith defense is not being or ceases to
be conducted, the Parent Indemnified Party shall, at the expense of the
Stockholders, undertake the defense of (with counsel selected by the Parent
Indemnified Party), and shall have the right to compromise or settle (exercising
reasonable business judgment), such claim, liability or expense. If such claim,
liability or expense is one that by its nature cannot be defended solely by the
Stockholders, then the Parent Indemnified Party shall make available all
information and assistance that the Stockholders may reasonably request and
shall cooperate with the Stockholders in such defense.
SECTION 13. MISCELLANEOUS.
13.1 LAW GOVERNING. This Agreement shall be construed under and
governed by the internal laws of the State of New York without regard to its
conflict of laws provisions.
13.2 NOTICES. Any notice, request, demand other communication required
or permitted hereunder shall be in writing and shall be deemed to have been
given (i) if delivered or sent by facsimile transmission, upon receipt, or (ii)
if sent by registered or certified mail upon the sooner of receipt or the
expiration of three days after deposit in United States Post Office facilities
properly addressed with postage prepaid. All notices will be sent to the
addresses set forth below or to such other address as such party may designate
by notice to each other party hereunder:
TO THE PARENT:
InSite Internet, Inc.
1100 First Avenue
Spring Lake, NJ 07762
ATTN: Mark E. Munro, President and Chief Executive Officer
Phone: 732-280-6407
Fax: 732-280-6409
with a copy to:
Duffy & Sweeney, LLP
300 Turks Head Building
Providence, RI 02903
ATTN: Michael F. Sweeney, Esq.
Phone: (401) 455-0700
Fax: (401) 455-0701
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TO THE STOCKHOLDERS:
AlbanyNet, Inc.
262 Central Avenue
Albany, NY 12206
ATTN: Richard Louis, Bernard Moskowitz, Matthew Zahorik or
Joseph Pallante
Phone: (518) 462-6262
Fax:
with a copy to:
Lombardi, Reinhard, Walsh & Harrison, P.C.
III Winners Circle
Albany, NY 12205
ATTN: Gary Lombardi, Esq.
Phone: (518) 438-2000
Fax: (518) 438-2471
Any notice given hereunder may be given on behalf of any party by its counsel or
other authorized representative.
13.3 ENTIRE AGREEMENT. This Agreement, including any schedules, annexes
and/or exhibits referred to herein and the other writings specifically
identified herein or contemplated hereby or delivered in connection with the
transactions contemplated hereby, is complete, reflects the entire agreement of
the parties with respect to its subject matter, and supersedes all previous
written or oral negotiations, commitments and writings.
13.4 ASSIGNABILITY. This Agreement may not be assigned or delegated by
any party hereto without the prior written consent of all parties hereto. No
Stockholder may assign his, her or its rights or delegate his, her or its
obligations hereunder without the prior written consent of the Parent. This
Agreement and the obligations of the parties hereunder shall be binding upon and
enforceable by, and shall inure to the benefit of, the parties hereto and their
respective successors, executors, administrators, estates, heirs and permitted
assigns, and no others.
13.5 ARBITRATION; JURISDICTION; VENUE; ATTORNEY'S FEES. Each party
hereto agrees that any dispute regarding this Agreement shall be submitted to
arbitration to and shall be resolved in accordance with the rules of the
JAMS/Endispute for expedited cases then in effect. The arbitrator(s) shall be
mutually selected by the parties or in the event the parties cannot mutually
agree, then appointed by JAMS/Endispute. Any arbitration shall be held in Albany
and the
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arbitrator(s) shall apply New York law. Judgment upon any award rendered by the
arbitrator(s) shall be final and may be entered in any court of competent
jurisdiction. Notwithstanding the foregoing, the Parent shall have the absolute
right to obtain equitable remedies in any state court of competent jurisdiction
in the State of New York or in any United States District Court in the State of
New York. Each party irrevocably submits to and accepts the exclusive
jurisdiction of each of such courts and waives any objection (including any
objection to venue or any objection based upon the grounds of forum non
conveniens) which might be asserted against the bringing of any such action,
suit or other legal proceeding in such courts. The court and/or arbitrator(s)
shall award costs and expenses (including reasonable attorney's fees) to the
prevailing party and/or parties in any litigation or arbitration.
13.6 CAPTIONS AND GENDER. The captions in this Agreement are for
convenience only and shall not affect the construction or interpretation of any
term or provision hereof. The use in this Agreement of the masculine pronoun in
reference to a party hereto shall be deemed to include the feminine or neuter
pronoun, as the context may require.
13.7 CERTAIN DEFINITIONS. for purposes of this Agreement, the term:
(a) "Affiliate" of a person shall mean a person that directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the first mentioned person;
(b) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise; and
(c) "person" means an individual, corporation, partnership,
association, trust or any unincorporated organization.
13.8 EXECUTION IN COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same document.
13.9 AMENDMENTS; WAIVERS. This Agreement may not be amended or
modified, nor may compliance with any condition or covenant set forth herein be
waived, except by a writing duly and validly executed by the Parent and the
Stockholders, or, in the case of a waiver, the party waiving compliance. No
delay on the part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part of
any party of any such right, power or privilege, or any single or partial
exercise of any such right, power or privilege, preclude any further exercise
thereof or the exercise of any other such right, power or privilege.
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13.10 SURVIVAL OF WARRANTIES. All representations, warranties, agreements,
covenants and obligations herein or in any schedule or certificate delivered by
any party incident to the transactions contemplated hereby are material and may
be relied upon by the party receiving the same and shall survive for a period
ending two (2) years after the Closing Date.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date set forth above by their duly authorized representatives.
INSITE INTERNET, INC.
ATTEST:
/S/ MICHAEL F. SWEENEY By:/S/ MARK E. MUNRO
- ---------------------------- ----------------------
Assistant Secretary Mark E. Munro, President
and Chief Executive Officer
WITNESS:
/S/ BERNARD R. MOSKOWITZ /S/ RICHARD LOUIS
- ---------------------------- ----------------------
Richard Louis
WITNESS
/S/ RICHARD LOUIS /S/ BERNARD R. MOSKOWITZ
- ---------------------------- ----------------------
Bernard Moskowitz
WITNESS
/S/ MATT A. ZAHORIK /S/ JOSEPH C. PALLANTE
- ---------------------------- ----------------------
Joseph Pallante
WITNESS
/S/ BERNARD R. MOSKOWITZ /S/ MATT A. ZAHORIK
- ---------------------------- ----------------------
Matthew Zahorik
MUNRO INSITE DOCS MERGER AGREEMENT ALBANYNETII.DOC
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EXHIBIT 1.3
ESCROW AGREEMENT
This ESCROW AGREEMENT is entered into as of the ____ day of ___________,
1999 by and among: Richard Louis, Bernard Moskowitz, Joseph Pallante and Matthew
Zahorik (collectively, the "Stockholders"); InSite Internet, Inc., a Delaware
corporation ("InSite"); and Duffy & Sweeney, LLP, a Rhode Island limited
liability partnership as escrow agent (the "Escrow Agent").
WHEREAS, the Stockholders, and InSite are parties to a Stock Purchase
Agreement dated as of the ______ day of February, 1999 (the "Purchase
Agreement"), relating to the purchase of all of the outstanding stock of
AlbanyNet, Inc., a New York corporation (the "Company"); and
WHEREAS, pursuant to the Purchase Agreement, the Stockholders will
deposit the aggregate sum of $200,000 of the Purchase Price in such proportions
as identified on SCHEDULE 1 (the "Escrow Deposit") into an account (the "Escrow
Account") to be held by Escrow Agent on behalf of the Stockholders as provided
under the Purchase Agreement; and
WHEREAS, the Escrow Agent has expressed its willingness to act as escrow
agent hereunder.
NOW, THEREFORE, in consideration of the mutual undertakings and
covenants contained in this Escrow Agreement and of the mutual benefits to be
derived therefrom, the parties hereto agree as follows:
1. APPOINTMENT AND OBLIGATION OF ESCROW AGENT. The Stockholders and
InSite hereby appoint the Escrow Agent to receive, hold and dispose of the
Escrow Deposit pursuant to the terms and conditions of this Escrow Agreement,
and the Escrow Agent hereby accepts such appointment on the terms and conditions
hereto. The use of the term "Escrow Agent" is solely for purposes of
identification and does not indicate or imply that the Escrow Agent has any
agency or other fiduciary obligations to any person or entity except for the
limited obligations of the Escrow Agreement pursuant hereto.
2. DEPOSIT. Upon receipt of the Escrow Deposit, Escrow Agent shall
deposit the Escrow Deposit in an interest-bearing account at BankRI, Citizens
Bank, Citizens Trust Company, or BankBoston, or in a bank otherwise acceptable
to the Stockholders and InSite which shall have at least $500 million in capital
and surplus. Assets held in the Escrow Account shall be segregated from the
assets of Escrow Agent in accordance with federal regulations. Such assets do
not form a part of the capital or debt of Escrow Agent and are not subject to
the claims of its creditors or depositors but are set apart and held for the
exclusive benefit of the parties. For tax reporting purposes, interest shall be
deemed for the account of the Stockholders.
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<PAGE>
3. RELEASE OF ESCROW DEPOSIT. The Escrow Agent shall release the Escrow
Deposit as follows:
(a) If, at any time, InSite believes it is entitled to receive a
full or partial distribution of the Escrow Deposit to satisfy the indemnity
obligations of the Stockholders to InSite and their respective officers,
directors, employees and agents under SECTION 12 of the Purchase Agreement,
InSite shall give the Escrow Agent written notice of the same (the "Claims
Notice"), which Claims Notice shall specify the amount of the Escrow Deposit to
be distributed. Upon receipt of any Claims Notice, the Escrow Agent shall
promptly forward a copy of such notice to the Stockholders. If the Stockholders
object to the distribution proposed in the Claims Notice, the Stockholders shall
give written notice of such objection to the Escrow Agent within thirty (30)
days following receipt of the Claims Notice (the "Objection Notice"). If the
Escrow Agent does not receive an Objection Notice within such thirty (30) day
period, the Escrow Agent shall deliver to InSite the amount of the Escrow
Deposit specified in the Claims Notice. If the Escrow Agent receives an
Objection Notice within such thirty (30) day period, the Escrow Agent shall
continue to hold the Escrow Deposit pursuant to the terms of this Agreement,
subject to the Claims Notice until the Escrow Agent receives (i) a joint written
instruction from the Stockholders and InSite regarding disposition of the Escrow
Deposit subject to the Claims Notice and Objection Notice, or (ii) a certified
copy of a final, non-appealable decision of a court of competent jurisdiction
regarding disposition of the Escrow Deposit subject to the Claims Notice and
Objection Notice. Notwithstanding the foregoing sentence, the Escrow Agent may
exercise its rights under SECTION 8 of this Agreement at any time in the event
of a dispute between the parties regarding release of the Escrow Deposit. Upon
release of the Escrow Deposit in good faith pursuant to this Agreement, the
Escrow Agent shall be fully released and discharged from all obligations under
this Agreement.
(b) On the date which is one (1) year after the closing date of
the transactions contemplated by the Purchase Agreement (the "Escrow Termination
Date"), the Escrow Agent shall deliver to the Stockholders the remaining Escrow
Deposit, including interest thereon, unless the Escrow Agent shall have been
notified in writing by InSite or the Stockholders that a Claims Notice is
pending and has not been resolved. If the Escrow Agent has been advised that a
Claims Notice is pending on the Escrow Termination Date and has not been
resolved as aforesaid, the Escrow Agent shall deliver the remaining Escrow
Deposit to the parties in accordance with the resolution of the Claims Notice,
as provided in SECTION 3(a).
4. EXCULPATION OF ESCROW AGENT. The Escrow Agent shall have no duties or
responsibilities except for those set forth herein (and required by applicable
law), which the parties agree are ministerial in nature. If in doubt as to its
duties and responsibilities hereunder, the Escrow Agent may consult with counsel
of its choice and shall be protected in any action taken or omitted in good
faith in connection with the written advice or opinion of such counsel. The
Escrow Agent shall not be deemed to have any knowledge of or responsibility for
the terms
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<PAGE>
of any other agreement or instrument including the Purchase Agreement. The
Escrow Agent makes no representation as to the validity, value, genuineness or
collectibility of any security, document or instrument held by or delivered to
it. Except for the Escrow Agent's own fraud, bad faith, willful misconduct or
gross negligence: (a) the Escrow Agent shall have no liability of any kind
whatsoever for the performance of any duties imposed upon the Escrow Agent under
this Escrow Agreement or for any action or failure to act taken in good faith by
the Escrow Agent hereunder; (b) the Escrow Agent shall not be responsible for
the acts or omissions of any other parties hereto; (c) the Escrow Agent shall
not be liable to anyone for damages, losses or expenses arising out of this
Escrow Agreement; and (d) the Escrow Agent may rely and/or act upon any
instrument or document believed by the Escrow Agent in good faith to be genuine
and to be executed and delivered by the proper person or party, and may assume
in good faith the authenticity, validity and effectiveness thereof and shall not
be obligated to make any investigation or determination as to the truth and
accuracy of any information contained therein. The Escrow Agent shall not be
liable for any error of judgment, or for any act done or step taken or omitted
by it in good faith or for any mistake of fact or law, or for anything which it
may do or refrain from doing in connection herewith, except its own bad faith,
willful misconduct or gross negligence. In the event of any dispute between
InSite and the Stockholders, InSite and the Stockholders shall pay, on demand,
the reasonable attorneys' fees and other reasonable costs and expenses incurred
by the Escrow Agent in respect thereof; InSite and the Stockholders shall be
jointly and severally liable for such fees, costs and expenses but, as between
themselves, such fees, costs and expenses shall be paid by the party losing such
dispute or as determined by the court or other party resolving such dispute.
5. INDEMNIFICATION; EXPENSES. In consideration of its acceptance of the
appointment as the Escrow Agent, InSite and the Stockholders, jointly and
severally, agree to indemnify and hold the Escrow Agent harmless as to any
liability incurred by it to any person, firm or corporation by reason of its
having accepted the same or in carrying out in good faith any of the terms
hereof, and to reimburse Escrow Agent for all its reasonable expenses,
including, among other things, counsel fees and court costs, incurred by reason
of its position hereunder or actions taken pursuant hereto.
6. SUCCESSOR ESCROW AGENT.
(a) The Escrow Agent (and any successor escrow agent) may at any
time resign as such by delivering the Escrow Deposit to any successor escrow
agent jointly designated in writing by InSite and the Stockholders, or to any
court of competent jurisdiction, whereupon the Escrow Agent shall be discharged
of and from any and all further obligations arising in connection with this
Escrow Agreement. The resignation of the Escrow Agent shall take effect on the
earlier of the appointment of a successor escrow agent or the day which is
thirty (30) days after the date of delivery of the Escrow Agent's written notice
of resignation to the other parties hereto. In the event that a successor escrow
agent has not been appointed at the expiration of such thirty (30) day period,
the Escrow Agent's sole responsibility hereunder shall be the
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safekeeping of the Escrow Deposit and to deliver all or any portion thereof as
may be specified in a written agreement signed by all the other parties to this
Agreement or as any court of competent jurisdiction may order.
(b) If the Escrow Agent receives a written notice signed by InSite
and the Stockholders stating that they have selected another escrow agent, the
Escrow Agent shall deliver the Escrow Deposit to the successor escrow agent
named in the aforesaid notice within ten (10) days.
7. ENTIRE AGREEMENT; MODIFICATION. With the exception of the Purchase
Agreement and agreements, schedules and exhibits thereto, this Escrow Agreement
contains the entire agreement, and supersedes all prior agreements and
undertakings, oral or written, between the parties hereto with respect to the
subject matter hereof. No modification of this Escrow Agreement shall be valid
unless the same is in writing and is signed by InSite, the Stockholders and the
Escrow Agent.
8. INCONSISTENT CLAIMS. In the event that the Escrow Agent should at any
time be confronted with inconsistent claims or demands by the parties hereto,
the Escrow Agent shall have the right to interplead said parties in any court of
competent jurisdiction in New York, and request that such court determine such
respective rights of the parties with respect to this Escrow Agreement, and upon
doing so, the Escrow Agent automatically shall be released from any obligations
or liability as consequence of any such claims or demands.
9. STOCKHOLDERS' ACKNOWLEDGMENT OF ATTORNEY/CLIENT RELATIONSHIP BETWEEN
INSITE AND THE ESCROW AGENT. The Stockholders acknowledge and agree that the
Escrow Agent has acted and will continue to act as counsel to InSite in
connection with the negotiation and execution of the Purchase Agreement. In that
connection and as a condition to the Escrow Agent's and InSite's agreement to
enter into this Agreement, the Stockholders waive any right to seek
disqualification of the Escrow Agent from serving as counsel to InSite by virtue
of this Agreement or any dispute hereunder.
10. NOTICES. Any notices to be given hereunder shall be sufficiently
given if in writing and delivered personally, sent by telecopy (answerback
received), sent by recognized overnight courier, or mailed by registered or
certified mail, return receipt requested, postage prepaid, to the following
addresses or to such other address as the parties may from time to time
designate in writing delivered in accordance with this SECTION 10:
(a) To the Stockholders at:
Richard Louis, Bernard Moskowitz, Joseph Pallante and Matthew Zahorik
226 Central Ave. 166 Glenwood Road 1334 Stanford Street 23B Pinehurst
Avenue
Albany, NY 12206 Schenectady, NY 12308 Schenectady, NY 12308 Albany, NY
12205
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<PAGE>
with a copy to:
Lombardi, Reinhard, Walsh & Harrison, P.C.
III Winners Circle
Albany, NY 12205
Attn: Gary L. Lombardi, esq.
Phone: (518) 438-2000
Fax: (518) 438-2471
(b) To InSite at:
InSite Internet, Inc.
100 First Avenue
Spring Lake, NJ 07762
Attn: Mark E. Munro, President & CEO
Phone: (732) 280-6407
Fax: (732) 280-6409
with a copy to the Escrow Agent:
(c) To the Escrow Agent at:
Duffy & Sweeney, LLP
300 Turks Head Building
Providence, RI 02903
Attn: Michael F. Sweeney, Partner
Phone: (401) 455-0700
Fax: (401) 455-0701
Any notices to be given hereunder shall be deemed received (a) on the date
delivered, if delivered personally, (b) on the date sent, if sent by telecopy,
(c) on the first business day after the date such notice was sent, if sent by
overnight courier, or (d) on the third business day after the date such notice
was sent, if sent by registered or certified mail, PROVIDED THAT no such notice
or other communication shall be deemed given to the Escrow Agent until the same
is received by the Escrow Agent.
11. BINDING EFFECT. This Escrow Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, except that the Stockholders and InSite may not assign their respective
obligations hereunder without the prior written consent of the other parties.
Any assignment in contravention of this provision shall be
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void. No assignment shall release the Stockholders or InSite from any obligation
or liability under this Escrow Agreement.
12. GOVERNING LAW. This Escrow Agreement shall be construed in accordance
with and governed by the laws of the State of New York.
13. DEFINED TERMS. Capitalized terms used herein without definition shall
have the meanings assigned to them in the Purchase Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement as of the date first above written.
INSITE INTERNET, INC.
ATTEST:
By:
- -------------------------------- --------------------------
, Assistant Secretary Mark E. Munro, President
and Chief Executive Officer
ALBANYNET, INC.
ATTEST:
By:
- ------------------------ ------------------------
, Secretary Title:
WITNESS:
- ------------------------- -----------------------------
Richard Louis
WITNESS:
- ------------------------- -----------------------------
Bernard Moskowitz
WITNESS:
- ------------------------- -----------------------------
Matthew Zahorik
WITNESS:
- ------------------------- -----------------------------
Joseph Pallante
ATTEST: DUFFY & SWEENEY.LLP
By:
- ------------------------- ----------------------------
Michael F. Sweeney, Partner
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<PAGE>
SCHEDULE 1
Escrow Amounts
<TABLE>
<CAPTION>
<S> <C>
Richard Louis $60,000
Bernard Moskowitz $60,000
Joseph Pallante $20,000
Matthew Zahorik $60,000
-------------
TOTAL: $200,000
</TABLE>
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<PAGE>
EXHIBIT 6.12(A)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this
_____ day of _____________, 1999, by and between, AlbanyNet, Inc., a New York
corporation (hereinafter referred to as the "Founding Company" or the "Company")
and wholly-owned subsidiary of InSite Internet, Inc., a Delaware corporation
(the "Parent") and Matthew Zahorik, an individual with a mailing address at 23B
Pinehurst Avenue, Albany, NY 12205 ("Employee").
INTRODUCTION
Employee is a principal and employee of the Founding Company and
possesses skills and knowledge advantageous to the Company.
The Parent intends to undertake an initial public offering of its common
stock (the "IPO") and in connection therewith contemplates filing a registration
statement with the Securities and Exchange Commission. Concurrently with the
successful closing of the IPO (the "Effective Date"), (i) the Parent intends to
acquire all of the stock of the Founding Company in accordance with that certain
Stock Purchase Agreement dated as of ______________, 1999 by and among the
Parent and the stockholders of the Founding Company (the "Stock Purchase
Agreement") and (ii) effective on the Effective Date, the Company desires to
employ Employee and Employee desires to accept such employment on the terms and
conditions set forth herein.
AGREEMENT
In consideration of the premises and mutual promises hereinbelow set
forth, the parties hereby agree as follows:
1. EMPLOYMENT; DUTIES. Subject to the terms and conditions set
forth herein, the Company hereby employs Employee during the Employment Period
(as defined below), and Employee hereby accepts such employment. Employee agrees
to be a full-time employee of the Company and devote his full and exclusive
time, energy, skill and best efforts to the business of the Company and to the
fulfillment of Employee's duties hereunder. Employee's duties include, but are
not limited to, (i) serving as an officer of the Company; (ii) sales of the
Company's and its affiliates products and services; (iii) assisting in the
internal growth of the Company's business; and (iv) other duties assigned to
Employee by the Company from time to time consistent with Employee's position.
2. EMPLOYMENT PERIOD. The term of this Agreement (the "Employment
Period") shall commence on the Effective Date and shall terminate three (3)
years thereafter, unless terminated earlier pursuant to SECTION 4 or SECTION 5
below.
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3. COMPENSATION AND BENEFITS.
3.1 SALARY. During the Employment Period, the Company agrees
to pay Employee at the rate of $70,000 per year ("Base Salary"). Employee's
salary shall be subject to customary withholdings and be payable to Employee on
the regularly occurring pay period established by the Company.
3.2 HEALTH BENEFITS. During the Employment Period, the
Company shall provide, at the Company's sole expense, Employee with individual
and/or family health care coverage, as provided by health care provider(s)
selected by the Company from time to time.
3.3 RETIREMENT PLAN. During the Employment Period, Employee
shall be entitled to participate in any 401(k) or similar plan adopted by the
Company for the benefit of its employees. The Company reserves the right to
modify, terminate or withdraw any such plan (if so adopted) at any time in its
sole discretion.
4. TERMINATION BY THE COMPANY FOR CAUSE. Upon written notice to
Employee, the Company may terminate this Agreement for cause if any of the
following events shall occur: (i) any breach of Sections 6 or 7 of this
Agreement or any material breach of any other provision of this Agreement by
Employee; (ii) the commission of a felony by Employee; (iii) the commission of
an act by Employee involving fraud, theft or dishonesty; (iv) material breach by
the Founding Company or its stockholders of their representations, warranties
and covenants and/or obligations under the Stock Purchase Agreement which breach
remains uncured for a period of thirty (30) days following notice to Employee;
or (v) the Parent's bona fide decision to terminate its business and the
business of all of its operating subsidiaries including the Company and
liquidate all of its assets (e.g. a decision by the Parent to sell all or
substantially all of its assets or stock as a result of bona fide negotiations
with a non-affiliated third party). In the event of a termination pursuant to
this SECTION 4, all obligations of the Company under this Agreement shall cease.
5. TERMINATION WITHOUT CAUSE.
5.1 BY EMPLOYER. The Company may terminate this Agreement at
any time without cause upon ninety (90) days written notice to Employee. In such
event, the Company shall pay Employee during regular payroll periods (less
customary withholding taxes) the Base Salary for up to the greater of twelve
(12) months or the remainder of the Employment Period provided however, in
either case, (i) Employee is actively seeking new employment and (ii) the
Company's severance obligations hereunder will end on the date Employee secures
new employment. All other obligations of the Company shall cease on the date of
termination.
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5.2 BY EMPLOYEE. Employee may terminate this Agreement at
any time upon ninety (90) days prior written notice to the Company. In such
case, Employee shall not be eligible for any severance payments or other
benefits after the date of termination.
5.3 STOCK PURCHASE AGREEMENT. Absent a breach of the Stock
Purchase Agreement, termination by either the Company or Employee pursuant to
this SECTION 5 shall not be deemed a breach of the Stock Purchase Agreement, nor
will it affect either party's obligations thereunder.
6. CONFIDENTIALITY AND NON-DISCLOSURE. Employee recognizes and
acknowledges that he has had in the past, currently has and in the future may
have access to certain confidential information relating to the Company and its
affiliates, including, but not limited to, operational policies, financial
information, marketing information, personnel information, trade secrets,
customer information (including customer lists), and pricing and cost policies,
that are valuable, special and unique assets of the Company (collectively,
"Confidential Information"). Employee agrees that he will not use or disclose
such Confidential Information to any person, firm, corporation, association or
other entity for any purpose or reason whatsoever, except as is required in the
course of performing his duties hereunder unless (i) such information becomes
known to the public generally through no breach by Employee of this covenant or
(ii) disclosure is required by law or any governmental authority or is required
in connection with the defense of a lawsuit against the disclosing party,
provided, that prior to disclosing any information pursuant to this clause (ii),
Employee shall give prior written notice thereof to the Company and provide the
Company with the opportunity to contest such disclosure. Employee agrees that,
both during the Employment Period and after the termination of this Agreement,
Employee will hold in a fiduciary capacity for the benefit of the Company, and
shall not directly or indirectly use or disclose, except as authorized by the
Company in connection with the performance of Employee's duties, any
Confidential Information, that Employee may have or may acquire (whether or not
developed or compiled by Employee and whether or not Employee has been
authorized to have access to such Confidential Information) during the term of
this Agreement. The covenants contained in this SECTION 6 shall survive for the
Employment Period and for a period of two (2) years thereafter; provided,
however, that with respect to those items of Confidential Information which
constitute trade secrets under applicable law, Employee's obligations of
confidentiality and non-disclosure as set forth in this SECTION 6 shall continue
to survive after the applicable period above to the greatest extent permitted by
applicable law. These rights of the Company are in addition to those rights the
Company has under the common law or applicable statutes for the protection of
trade secrets.
7. NON-COMPETITION. Employee expressly covenants and agrees that
for the Employment Period, and in the event that Employee is terminated for
cause hereunder or voluntarily resigns his employment hereunder prior to the end
of the scheduled three year employment period, for the period ending on the date
which is the later of six months from termination of Employee's employment
hereunder, or two years from the Effective Date, he shall
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<PAGE>
not, directly or indirectly, seek, obtain or accept a "Competitive Position" in
the "Restricted Territory" with a "Competitor" of the Company (as such terms are
hereafter defined). For purposes of this Agreement, a "Competitor" of the
Company means any business, individual, partnership, joint venture, association,
firm, corporation or other entity engaged primarily in the business of selling
internet access service; the "Restricted Territory" means the New England
states, New York, New Jersey, Ohio, Pennsylvania; a "Competitive Position" means
any employment with any Competitor of the Company whereby Employee will use or
is likely to use any Confidential Information, or whereby Employee has duties
for such Competitor that are the same or substantially similar to those actually
performed by Employee pursuant to the terms hereof. Nothing contained in this
SECTION 7 is intended to prevent Employee from investing in stock or other
securities listed on a national securities exchange or actively traded on the
over the counter market or any corporation engaged, wholly or partly, in the
sale of telecommunications products or services; provided, however, that
Employee and members of his immediate family shall not, directly or indirectly,
hold more than a total of two percent (2%) of all issued and outstanding stock
or other securities of any such corporation.
8. NON-SOLICITATION.
8.1 NON-SOLICITATION OF CUSTOMERS. Employee agrees that he
will not take any customer lists of the Company after leaving his employ and
that he will, for the Employment Period and for a period of two (2) years
thereafter, refrain from soliciting or attempting to solicit directly or by
assisting others, any business from any of the Company's customers, including
actively sought prospective customers, with whom Employee had "material contact"
during the employment for purposes of providing products or services.
8.2 NON-SOLICITATION OF EMPLOYEES. Employee agrees that he
will, for the Employment Period and for a period of two (2) years thereafter,
refrain from recruiting or hiring, or attempting to recruit or hire, directly or
by assisting others, any other employee of the Company who is employed by the
Company or any successor or affiliate of the Company.
9. TOLLING OF PERIOD OF RESTRAINT. Employee hereby expressly
acknowledges and agrees that in the event the enforceability of any of the terms
of this Agreement shall be challenged in court and Employee is not enjoined from
breaching any of the restraints set forth in SECTION 6 through SECTION 9, then
if a court of competent jurisdiction finds that the challenged restraint is
enforceable, the time period of the restraint shall be deemed tolled upon the
filing of the lawsuit challenging the enforceability of the restraint until the
dispute is finally resolved and all periods of appeal have expired.
10. ACKNOWLEDGEMENTS. Employee hereby acknowledges and agrees that
the restrictions contained in SECTION 6 through SECTION 9 are fair and
reasonable and necessary for the protection of the legitimate business interests
of the Company. Employee acknowledges that in the event Employee's employment
with the Company terminates for any reason, Employee will
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be able to earn a livelihood without violating the restrictions contained in
SECTION 6 through SECTION 9 and that Employee's ability to earn a livelihood
without violating such restrictions is a material condition to Employee's
employment and continued employment with the Company. Employee expressly agrees
that the character, duration and geographical scope of the covenants contained
in this SECTION 6 through SECTION 9 are reasonable in light of the circumstances
as they exist at the date upon which this Agreement has been executed including
the substantial payments made by the Company and Employee in consideration of
the Stock Purchase Agreement. However, should a determination nonetheless be
made by a court of competent jurisdiction at a later date that the character,
duration or geographical scope of the covenants contained herein are
unreasonable in light of the circumstances as they then exist, then it is the
intention of both Employee and the Company that these covenants shall be
construed by the court in such a manner as to impose only those restrictions on
the conduct of Employee which are reasonable in light of the circumstances as
they then exist and necessary to assure the Company of the intended benefit of
these covenants.
11. RIGHTS TO MATERIALS; WORK FOR HIRE. All records, files,
memoranda, reports, price lists, customer lists, drawings, plans, sketches,
documents and the like (together with all copies thereof) relating to the
business of the Company, which Employee shall use or prepare or come in contact
with in the course of, or as a result of, his employment shall, as between the
parties hereto, remain the sole property of the Company. Upon the termination of
Employment or upon the prior demand of the Company, Employee shall immediately
return all such materials and shall not thereafter cause removal thereof from
the premises of the Company. Employee agrees to disclose and assign to the
Company as its exclusive property, all ideas, writings, inventions, discoveries,
improvements and technical or business innovations made or conceived by
Employee, whether or not patentable or copyrightable, either solely or jointly
with others during the Employment Period and for a period of six (6) months
thereafter whether or not made or conceived during regular hours of work or
otherwise, which are along the lines of the business, work or investigations of
the Company or its affiliates. Employee agrees to execute any and all documents
hereafter requested by the Company necessary to further effectuate the
foregoing.
12. REMEDIES. Without limiting the Company's right to claim
damages, Employee acknowledges that the Company will be irreparably harmed by a
breach of any provision of this Agreement and Employee agrees that the Company
shall be entitled to injunctive relief in the event of such breach.
13. GOVERNING LAW; ARBITRATION; JURISDICTION; VENUE; ATTORNEY'S
FEES. This Agreement is made and entered into in and shall be governed by and
interpreted in accordance with the laws of, the State of New York. The Company
and Employee agree that any dispute regarding this Agreement shall be submitted
to arbitration to and shall be resolved in accordance with the rules of the
JAMS/Endispute for expedited cases then in effect. The arbitrator(s) shall be
mutually selected by the parties or in the event the parties cannot mutually
agree, then
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appointed by JAMS/Endispute. Any arbitration shall be held in Albany, New York
and the arbitrator(s) shall apply New York law. Judgment upon any award rendered
by the arbitrator(s) shall be final and may be entered in any court of competent
jurisdiction. Notwithstanding the foregoing, the Company shall have the absolute
right to obtain equitable remedies in any state court of competent jurisdiction
in the State of New York or in the United States District Court for the Southern
District of New York. By his execution and delivery of this agreement, Employee
irrevocably submits to and accepts the exclusive jurisdiction of each of such
courts and waives any objection (including any objection to venue or any
objection based upon the grounds of forum non conveniens) which might be
asserted against the bringing of any such action, suit or other legal proceeding
in such courts. The court and/or arbitrator(s) shall award costs and expenses
(including reasonable attorney's fees) to the prevailing party in any litigation
or arbitration.
14. MISCELLANEOUS.
14.1 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all previous agreements, written and oral, regarding the
subject matter hereof between the parties hereto. This Agreement shall not be
changed, altered, modified or amended, except by a written agreement signed by
both parties hereto.
14.2. NOTICES. All notices, requests, demands and other
communications required or permitted to be given or made under this Agreement
shall be in writing and shall be deemed to have been given if delivered by hand,
sent by generally recognized overnight courier service, telex or telecopy, or
mail,
(a) to the Company care of: With a copy to:
InSite Internet., Inc. Duffy & Sweeney, LLP
1100 First Avenue 300 Turks Head Building
Spring Lake, NJ 07762 Providence, RI 02903
Attention: Mark E. Munro, CEO Attention: Michael F.
Sweeney, Esq.
Telephone: (732) 280-6408 Telephone: (401) 455-0700
Fax: (732) 280-6409 Fax: (401) 455-0701
(b) to the Employee at: With a copy to:
Matthew Zahorik [Counsel]
23B Pinehurst Avenue
Albany, NY 12205
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14.3 ASSIGNMENT. The Company may assign this Agreement to
(i) any entity controlling, controlled by or under common control with the
Company or (ii) to any purchaser of the Company's assets provided that such
purchaser agrees to assume the Company's obligations hereunder.
14.4. SEVERABILITY. If any term or provision of this
Agreement, or the application thereof to any person or under any circumstance,
shall to any extent be invalid or unenforceable, the remainder of this
Agreement, or the application of such terms to the persons or under
circumstances other than those as to which it is invalid or unenforceable, shall
be considered severable and shall not be affected thereby, and each term of this
Agreement shall be valid and enforceable to the fullest extent permitted by law.
The invalid or unenforceable provisions shall, to the extent permitted by law,
be deemed amended and given such interpretation as to achieve the economic
intent of this Agreement.
14.5. WAIVER. The failure of any party to insist in any one
instance or more upon strict performance of any of the terms and conditions
hereof, or to exercise any right or privilege herein conferred, shall not be
construed as a waiver of such terms, conditions, rights or privileges, but same
shall continue to remain in full force and effect. Any waiver by any party of
any violation of, breach of or default under any provision of this Agreement by
the other party shall not be construed as, or constitute, a continuing waiver of
such provision, or waiver of any other violation of, breach of or default under
any other provision of this Agreement.
14.6. FUNDING PLEDGE. The Parent agrees to provide the funds
necessary for the Company to meet all of its payment obligations under this
Agreement during the Employment Period and during the severance pay period as
indicated in SECTION 5.1 of this Agreement.
14.7. TITLES; GENDER. Section and subsection titles are for
convenience of reference only and are not to be considered in the interpretation
or construction of any of the provisions hereof. All pronouns or any variations
thereof contained in this Agreement refer to the masculine, feminine or neuter
as the identity of the person may require.
14.8 SURVIVAL. SECTION 6 through SECTION 14 hereof shall
survive any termination of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY:
ATTEST: AlbanyNet, Inc.
By:
- ------------------------------- ----------------------------------
Mark E. Munro, President
WITNESS: EMPLOYEE:
- ------------------------------ -------------------------------------
Matthew Zahorik
InSite Internet, Inc. hereby joins as a party to this Agreement as of the date
first written above solely for the purposes of acknowledging its obligations
under SECTION 14.6 above.
INSITE INTERNET, INC.
By
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Title
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Exhibit 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this
1st day of January 1999, by and between, BiznessOnline.com, Inc., a Delaware
corporation (the "Company") and Mark E. Munro, an individual with a mailing
address at 111 Washington Avenue, Spring Lake, New Jersey 07762.
INTRODUCTION
The Company is in the business of acquiring internet service provider
businesses. Employee possesses skills and knowledge advantageous to the Company.
The Company desires to employ Employee and Employee desires to accept such
employment on the terms and conditions set forth herein.
AGREEMENT
In consideration of the premises and mutual promises hereinbelow set
forth, the parties hereby agree as follows:
1. EMPLOYMENT; TITLE. Subject to the terms and conditions set
forth herein, the Company hereby employs Employee, on a full-time basis, to act
as Chairman of the Board of Directors, President and Chief Executive Officer of
the Company during the Employment Period (as defined below), and to perform such
acts and duties and furnish such services to the Company in connection with and
related to that position as is customary for persons with similar positions in
like companies, as the Company's Board of Directors shall from time to time
reasonably direct. Employee hereby accepts such employment and agrees to perform
such acts, duties and services for the Company diligently, competently, and in
good faith manner.
2. EMPLOYMENT PERIOD. Subject to earlier termination pursuable to
SECTION 4 and SECTION 5 below, this Agreement shall commence on the date hereof
and continue for a three (3) year period (the "Employment Period").
3. COMPENSATION AND BENEFITS.
3.1 SALARY. During the Employment Period, the Company agrees
to pay Employee at the rate of $125,000 per annum ("Base Salary"). Employee's
salary shall be subject to customary withholdings and be payable to Employee on
the regularly occurring pay period established time to time by the Company.
3.2 HEALTH BENEFITS. During the Employment Period, the
Company shall provide Employee with family health care coverage, as provided by
health care provider(s) selected by the Company from time to time.
<PAGE>
3.3 BONUS. On an annual basis during the Employment Period,
Employee shall be eligible for a performance bonus based upon realization of
specific growth objectives determined by the Compensation Committee of the Board
of Directors.
3.4 RETIREMENT PLAN. During the Employment Period, Employee
shall be entitled to participate in any 401(k) or similar profit sharing plan
hereafter adopted by the Company for the benefit of its employees. The Company
reserves the right to modify, terminate or withdraw any such plan (if so
adopted) at any time in its sole discretion.
3.5 VACATION. Employee may take up to three (3) weeks paid
vacation in each calendar year during the Employment Period.
3.6 AUTOMOBILE. During the Employment Period, the Company
will reimburse Employee for all reasonable expenses related to business use of
Employee's automobile by Employee at the applicable Internal Revenue Service
mileage allowance rate.
3.7 REIMBURSEMENT OF EXPENSES. The Company shall reimburse
Employee for all other reasonable expenses in connection with Employee's duties
hereunder and the promotion of the Company's business in general, upon
presentation by Employee of appropriate supporting documentation.
3.8 SEVERANCE PAYMENTS.
3.8.1 TERMINATION BY THE COMPANY. In the event the
Company terminates this Agreement pursuant to Section 5 (Termination Without
Cause), the Company shall, prior to the effective date of the termination, pay
Employee, in one lump sum, an amount equal to (a) 1.5 times Employee's Base
Salary, at his then current rate, less applicable taxes, if termination shall
occur prior to a "Change in Control" or an "Approved Change in Control" (both as
hereinafter defined) or subsequent to an Approved Change in Control, or (b) 2.0
times Employee's annual salary, at his then current rate, less applicable taxes,
if termination shall occur after a Change in Control. The Company shall also pay
Employee's health insurance benefits at described in SECTION 3.2 for a period of
one year in the event of termination pursuant to SECTION 5, and in the event of
a Change in Control, any options granted to Employee shall become fully vested
as of such date of termination in connection with such Change of Control.
3.8.2 DEFINITIONS.
(a) CHANGE IN CONTROL. A "Change in
Control" shall be deemed to have occurred in any of the following events:
(i) the stockholders of the Company
approve a merger or consolidation of the Company with any other corporation,
other than (a) a merger or consolidation which would result in the voting
securities of the Company outstanding
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immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 80% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation, (b) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no "person" or
group (as such terms are defined in Section 13(d)(3) of the Securities Exchange
Act of 1934) acquires more than 30% of the combined voting power of the
Company's then outstanding securities, or (c) a reorganization pursuant to which
the Company creates a holding company for itself in which the stockholders of
the Company immediately prior to the reorganization (other than those exercising
dissenters' rights) become the stockholders of the holding company immediately
after the reorganization; or
(ii) the stockholders of the Company
approve a plan of complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all of the Company's
assets; or
(iii) as a result of or in connection
with any cash tender offer, merger, or other business combination, sale of
assets or contested election, or combination of the foregoing, the persons who
were directors of the Company just prior to such event shall cease to constitute
a majority of the Board; or
(iv) when any "person" or "group" (as
such terms are defined in Section 13(d)(3) of the Securities Exchange Act of
1934) becomes a "beneficial owner" (as such term is defined in Rule 13d-3 under
the Securities Exchange Act of 1934), directly or indirectly, of securities of
the Company representing forty percent (40%) or more of the total number of
votes that may be cast for the election of directors of the Company; or
(v) the closing of a transaction or
series of transactions in which more than 50% of the voting power of the Company
is transferred; or
(vi) a tender offer or exchange offer
for the common stock of the Company, other than one made by the Company or by a
person or group (as such terms are defined in Section 13(d)(3) of the Securities
Exchange Act of 1934) that on the date hereof holds more than 5% of the
outstanding shares of the Company entitled to vote for the election of
directors, where the offeror acquires more than 40% of the outstanding shares of
common stock of the Company.
(b) APPROVED CHANGE IN CONTROL. An
"Approved Change in Control" of the Company shall mean a Change in Control that
is approved by a majority of the Company's Board of Directors.
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<PAGE>
4. TERMINATION FOR CAUSE; DISABILITY
4.1 TERMINATION FOR CAUSE. The Company may discharge
Employee and terminate his employment under this Agreement for cause without
further liability to the Company by a majority vote of the Board of Directors of
the Company, except that Employee, if a Director, shall not be entitled to vote
thereon. As used in this Section 4.1, "cause" shall mean any or all of the
following: (i) gross or willful misconduct of Employee during the course of his
employment; (ii) conviction of a felony or any criminal offense involving
dishonesty, breach of trust or moral turpitude during the Employment Period; or
(iii) Employee's breach of any of the material terms of this Agreement.
4.2 DISABILITY. If during the Employment Period, Employee
shall become ill, disabled or otherwise incapacitated so as to be unable to
perform his usual duties (a) for a period in excess of one hundred twenty (120)
consecutive days or (b) for more than one hundred eighty (180) days in any
consecutive twelve (12) month period, then the Company shall have the right to
terminate this Agreement without further liability on thirty (30) days' prior
notice to Employee.
5. TERMINATION WITHOUT CAUSE. Upon ninety (90) days prior written
notice, the Company may terminate this Agreement without cause and without
further liability to the Company except as set forth in SECTION 3.8 by a
majority vote of the Board of Directors except that Employee, if a Director,
shall not be entitled to vote thereon.
6. CONFIDENTIALITY AND NON-DISCLOSURE. Employee recognizes and
acknowledges that during the Employment Period he will have access to certain
confidential information relating to the Company and its affiliates, including,
but not limited to, operational policies, financial information, marketing
information, personnel information, trade secrets, customer information
(including customer lists), and pricing and cost policies, that are valuable,
special and unique assets of the Company (collectively, "Confidential
Information"). Employee agrees that he will not use or disclose such
Confidential Information to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except as is required in the course
of performing his duties hereunder unless (i) such information becomes known to
the public generally through no breach by Employee of this covenant or (ii)
disclosure is required by law or any governmental authority or is required in
connection with the defense of a lawsuit against the disclosing party, provided,
that prior to disclosing any information pursuant to this clause (ii), Employee
shall give prior written notice thereof to the Company and provide the Company
with the opportunity to contest such disclosure. Employee agrees that, both
during the Employment Period and for a period of twelve (12) months after the
termination of this Agreement, Employee will hold in a fiduciary capacity for
the benefit of the Company, and shall not directly or indirectly use or
disclose, except as authorized by the Company in connection with the performance
of Employee's duties, any Confidential Information, that Employee may have or
may acquire (whether or not developed or compiled by Employee and whether or not
Employee has been authorized to have access to such Confidential Information)
during the
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term of this Agreement. The covenants contained in this SECTION 6 shall survive
for the Employment Period and for a period of twelve (12) months thereafter;
provided, however, that with respect to those items of Confidential Information
which constitute trade secrets under applicable law, Employee's obligations of
confidentiality and non-disclosure as set forth in this SECTION 6 shall continue
to survive after the applicable period above to the greatest extent permitted by
applicable law. These rights of the Company are in addition to those rights the
Company has under the common law or applicable statutes for the protection of
trade secrets.
7. NON-COMPETITION. Employee expressly covenants and agrees that
for the Employment Period and for a period of twelve (12) months thereafter, he
shall not, directly or indirectly, seek, obtain or accept a "Competitive
Position" in the "Restricted Territory" with a "Competitor" of the Company (as
such terms are hereafter defined). For purposes of this Agreement, a
"Competitor" of the Company means any business, individual, partnership, joint
venture, association, firm, corporation or other entity engaged, wholly or
partly, in the business of selling internet access service; the "Restricted
Territory" means each state of the United States of America in which the Company
and/or its affiliates transacts business during the Employment Period; a
"Competitive Position" means any employment with any Competitor of the Company
whereby Employee will use or is likely to use any Confidential Information, or
whereby Employee has duties for such Competitor that are the same or
substantially similar to those actually performed by Employee pursuant to the
terms hereof. Nothing contained in this SECTION 7 is intended to prevent
Employee from investing in stock or other securities listed on a national
securities exchange or actively traded on the over the counter market or any
corporation engaged, wholly or partly, in the sale of telecommunications
products or services; provided, however, that Employee and members of his
immediate family shall not, directly or indirectly, hold more than a total of
three percent (3%) of all issued and outstanding stock or other securities of
any such corporation.
8. NON-SOLICITATION.
8.1 NON-SOLICITATION OF CUSTOMERS. Employee agrees that he
will not take any customer lists of the Company after leaving his employ and
that he will, for the Employment Period and for a period of twelve (12) months
thereafter, refrain from soliciting or attempting to solicit directly or by
assisting others, any business from any of the Company's customers, including
actively sought prospective customers, with whom Employee had "material contact"
during the employment for purposes of providing products or services.
8.2 NON-SOLICITATION OF EMPLOYEES. Employee agrees that he
will, for the Employment Period and for a period of twelve (12) months
thereafter, refrain from recruiting or hiring, or attempting to recruit or hire,
directly or by assisting others, any other employee of the Company who is
employed by the Company or any successor or affiliate of the Company.
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<PAGE>
9. TOLLING OF PERIOD OF RESTRAINT. Employee hereby expressly
acknowledges and agrees that in the event the enforceability of any of the terms
of this Agreement shall be challenged in court and Employee is not enjoined from
breaching any of the restraints set forth in SECTION 6 through SECTION 8, then
if a court of competent jurisdiction finds that the challenged restraint is
enforceable, the time period of the restraint shall be deemed tolled upon the
filing of the lawsuit challenging the enforceability of the restraint until the
dispute is finally resolved and all periods of appeal have expired.
10. ACKNOWLEDGEMENTS. Employee hereby acknowledges and agrees that
the restrictions contained in SECTION 6 through SECTION 9 are fair and
reasonable and necessary for the protection of the legitimate business interests
of the Company. Employee acknowledges that in the event Employee's employment
with the Company terminates for any reason, Employee will be able to earn a
livelihood without violating the restrictions contained in SECTION 6 through
SECTION 9 and that Employee's ability to earn a livelihood without violating
such restrictions is a material condition to Employee's employment and continued
employment with the Company. Employee expressly agrees that the character,
duration and geographical scope of the covenants contained in this SECTION 6
through SECTION 9 are reasonable in light of the circumstances as they exist at
the date upon which this Agreement has been executed. However, should a
determination nonetheless be made by a court of competent jurisdiction at a
later date that the character, duration or geographical scope of the covenants
contained herein are unreasonable in light of the circumstances as they then
exist, then it is the intention of both Employee and the Company that these
covenants shall be construed by the court in such a manner as to impose only
those restrictions on the conduct of Employee which are reasonable in light of
the circumstances as they then exist and necessary to assure the Company of the
intended benefit of these covenants.
11. RIGHTS TO MATERIALS; WORK FOR HIRE. All records, files,
memoranda, reports, price lists, customer lists, drawings, plans, sketches,
documents and the like (together with all copies thereof) relating to the
business of the Company, which Employee shall use or prepare or come in contact
with in the course of, or as a result of, his employment shall, as between the
parties hereto, remain the sole property of the Company. Upon the termination of
Employment or upon the prior demand of the Company, Employee shall immediately
return all such materials and shall not thereafter cause removal thereof from
the premises of the Company. Employee agrees to disclose and assign to the
Company as its exclusive property, all ideas, writings, inventions, discoveries,
improvements and technical or business innovations made or conceived by
Employee, whether or not patentable or copyrightable, either solely or jointly
with others during the Employment Period and for a period of twelve (12) months
thereafter whether or not made or conceived during regular hours of work or
otherwise, which are along the lines of the business, work or investigations of
the Company or its affiliates. Employee agrees to execute any and all documents
hereafter requested by the Company necessary to effectuate the foregoing.
12. REMEDIES. Without limiting the Company's right to claim
damages, Employee acknowledges that the Company will be irreparably harmed by a
breach of any
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provision of this Agreement and Employee agrees that the Company shall be
entitled to injunctive relief in the event of such breach.
13. GOVERNING LAW; ARBITRATION; JURISDICTION; VENUE; ATTORNEY'S
FEES. This Agreement is made and entered into in and shall be governed by and
interpreted in accordance with the laws of, the State of New Jersey. The Company
and Employee agree that any dispute regarding this Agreement shall be submitted
to arbitration to and shall be resolved in accordance with the rules of the
JAMS/Endispute for expedited cases then in effect. The arbitrator(s) shall be
mutually selected by the parties or in the event the parties cannot mutually
agree, then appointed by JAMS/Endispute. Any arbitration shall be held within a
forty-five (45) mile radius of Spring Lake, New Jersey and the arbitrator(s)
shall apply New Jersey law. Judgment upon any award rendered by the
arbitrator(s) shall be final and may be entered in any court of competent
jurisdiction. Notwithstanding the foregoing, the Company shall have the absolute
right to obtain equitable remedies in any state court of competent jurisdiction
in the State of New Jersey or in the United States District Court in the state
of New Jersey. By his execution and delivery of this agreement, Employee
irrevocably submits to and accepts the exclusive jurisdiction of each of such
courts and waives any objection (including any objection to venue or any
objection based upon the grounds of forum non conveniens) which might be
asserted against the bringing of any such action, suit or other legal proceeding
in such courts. The court and/or arbitrator(s) shall award costs and expenses
(including reasonable attorney's fees) to the prevailing party in any litigation
or arbitration.
14. MISCELLANEOUS.
14.1 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all previous agreements, written and oral, regarding the
subject matter hereof between the parties hereto. This Agreement shall not be
changed, altered, modified or amended, except by a written agreement signed by
both parties hereto.
14.2. NOTICES. All notices, requests, demands and other
communications required or permitted to be given or made under this Agreement
shall be in writing and shall be deemed to have been given if delivered by hand,
sent by generally recognized overnight courier service, telex or telecopy, or
mail,
(a) to the Company: With a copy to:
BiznessOnline.com, Inc. Duffy & Sweeney, LLP
1100 First Avenue 300 Turks Head Building
Spring Lake, NJ 07762 Providence, RI 02903
Attention: Michael F. Sweeney, Esq.
Telephone: (732) 280-6408 Telephone: (401) 455-0700
Fax: (732) 280-6409 Fax: (401) 455-0701
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(b) to the Employee at:
Mark E. Munro
111 Washington Avenue
Spring Lake, NJ 07762
14.3 ASSIGNMENT. The Company may assign this Agreement to
any affiliate without the consent of Employee. For purposes of this section,
"affiliate" shall mean any individual, corporation, partnership or other
business entity that directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, the Company.
14.4. SEVERABILITY. If any term or provision of this
Agreement, or the application thereof to any person or under any circumstance,
shall to any extent be invalid or unenforceable, the remainder of this
Agreement, or the application of such terms to the persons or under
circumstances other than those as to which it is invalid or unenforceable, shall
be considered severable and shall not be affected thereby, and each term of this
Agreement shall be valid and enforceable to the fullest extent permitted by law.
The invalid or unenforceable provisions shall, to the extent permitted by law,
be deemed amended and given such interpretation as to achieve the economic
intent of this Agreement.
14.5. WAIVER. The failure of any party to insist in any one
instance or more upon strict performance of any of the terms and conditions
hereof, or to exercise any right or privilege herein conferred, shall not be
construed as a waiver of such terms, conditions, rights or privileges, but same
shall continue to remain in full force and effect. Any waiver by any party of
any violation of, breach of or default under any provision of this Agreement by
the other party shall not be construed as, or constitute, a continuing waiver of
such provision, or waiver of any other violation of, breach of or default under
any other provision of this Agreement.
14.6 TITLES; GENDER. Section and subsection titles are for
convenience of reference only and are not to be considered in the interpretation
or construction of any of the provisions hereof. All pronouns or any variations
thereof contained in this Agreement refer to the masculine, feminine or neuter
as the identity of the person may require.
14.7 SURVIVAL. SECTION 6 through SECTION 14 hereof shall
survive any termination of this Agreement.
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14.8 EXECUTION IN COUNTERPARTS. This Agreement may be
executed in counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same document.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY:
ATTEST: BiznessOnline.com, Inc.
/s/Michael F. Sweeney By:/s/ Mark E. Munro
- ------------------------------ --------------------------------
Michael F. Sweeney, Assistant Secretary Mark E. Munro, President
WITNESS: EMPLOYEE:
/s/ Jeffrey B. Cianciolo /s/ Mark E. Munro
- ------------------------------ --------------------------------
Mark E. Munro
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Exhibit 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this
1st day of December 1998, by and between, BiznessOnline.com, Inc., a Delaware
corporation (the "Company") and S. Keith London, an individual with a mailing
address at 166 East 92nd Street, New York, NY 10128.
INTRODUCTION
The Company is in the business of acquiring internet service provider
businesses. Employee possesses skills and knowledge advantageous to the Company.
The Company desires to employ Employee and Employee desires to accept such
employment on the terms and conditions set forth herein.
AGREEMENT
In consideration of the premises and mutual promises hereinbelow set
forth, the parties hereby agree as follows:
1. EMPLOYMENT; TITLE. Subject to the terms and conditions set
forth herein, the Company hereby employs Employee, on a full-time basis, to act
as Executive Vice President of the Company during the Employment Period (as
defined below), and to perform such acts and duties and furnish such services to
the Company in connection with and related to that position as is customary for
persons with similar positions in like companies, as the Company's President
shall from time to time reasonably direct. Employee hereby accepts such
employment and agrees to perform such acts, duties and services for the Company
diligently, competently, and in good faith manner.
2. EMPLOYMENT PERIOD. Subject to earlier termination pursuable to
SECTION 4 and SECTION 5 below, this Agreement shall commence on the date hereof
and continue for a one (1) year period (the "Employment Period"). Thereafter,
this Agreement shall automatically renew for additional one (1) year periods
unless the Company gives the Employee ninety (90) days written notice of its
intention not to renew prior to the end of the then current one (1) year term.
3. COMPENSATION AND BENEFITS.
3.1 SALARY. During the Employment Period, the Company agrees
to pay Employee at the rate of $80,000 per annum ("Base Salary"). Employee's
salary shall be subject to customary withholdings and be payable to Employee on
the regularly occurring pay period established time to time by the Company.
<PAGE>
3.2 HEALTH BENEFITS. During the Employment Period, the
Company shall provide Employee with family health care coverage, as provided by
health care provider(s) selected by the Company from time to time.
3.3 RETIREMENT PLAN. During the Employment Period, Employee
shall be entitled to participate in any 401(k) or similar profit sharing plan
hereafter adopted by the Company for the benefit of its employees. The Company
reserves the right to modify, terminate or withdraw any such plan (if so
adopted) at any time in its sole discretion.
3.4 VACATION. Employee may take up to three (3) weeks paid
vacation in each calendar year during the Employment Period.
3.5 AUTOMOBILE. During the Employment Period, the Company
will reimburse Employee for all reasonable expenses related to business use of
Employee's automobile by Employee at the applicable Internal Revenue Service
mileage allowance rate.
3.6 REIMBURSEMENT OF EXPENSES. The Company shall reimburse
Employee for all other reasonable expenses in connection with Employee's duties
hereunder and the promotion of the Company's business in general, upon
presentation by Employee of appropriate supporting documentation.
3.7 [Intentionally omitted]
3.8 SEVERANCE PAYMENTS.
3.8.1 TERMINATION BY THE COMPANY. In the event the
Company terminates this Agreement pursuant to Section 5 (Termination Without
Cause), the Company shall, prior to the effective date of the termination, pay
Employee, in one lump sum, an amount equal to (a) 1.0 times Employee's Base
Salary, at his then current rate, less applicable taxes, if termination shall
occur prior to a "Change in Control" or an "Approved Change in Control" (both as
hereinafter defined) or subsequent to an Approved Change in Control, or (b) 1.5
times Employee's annual salary, at his then current rate, less applicable taxes,
if termination shall occur after a Change in Control. The Company shall also pay
Employee's health insurance benefits at described in SECTION 3.2 for a period of
one year in the event of termination pursuant to SECTION 5, and in the event of
a Change in Control, any options granted to Employee shall become fully vested
as of such date of termination in connection with such Change of Control.
3.8.2 DEFINITIONS.
(a) CHANGE IN CONTROL. A "Change in Control"
shall be deemed to have occurred in any of the following events:
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(i) the stockholders of the Company
approve a merger or consolidation of the Company with any other corporation,
other than (a) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 80% of the combined voting power
of the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, (b) a merger or consolidation
effected to implement a recapitalization of the Company (or similar transaction)
in which no "person" or group (as such terms are defined in Section 13(d)(3) of
the Securities Exchange Act of 1934) acquires more than 30% of the combined
voting power of the Company's then outstanding securities, or (c) a
reorganization pursuant to which the Company creates a holding company for
itself in which the stockholders of the Company immediately prior to the
reorganization (other than those exercising dissenters' rights) become the
stockholders of the holding company immediately after the reorganization; or
(ii) the stockholders of the Company
approve a plan of complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all of the Company's
assets; or
(iii) as a result of or in connection with
any cash tender offer, merger, or other business combination, sale of assets or
contested election, or combination of the foregoing, the persons who were
directors of the Company just prior to such event shall cease to constitute a
majority of the Board; or
(iv) when any "person" or "group" (as such
terms are defined in Section 13(d)(3) of the Securities Exchange Act of 1934)
becomes a "beneficial owner" (as such term is defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of securities of the
Company representing forty percent (40%) or more of the total number of votes
that may be cast for the election of directors of the Company; or
(v) the closing of a transaction or series
of transactions in which more than 50% of the voting power of the Company is
transferred; or
(vi) a tender offer or exchange offer for
the common stock of the Company, other than one made by the Company or by a
person or group (as such terms are defined in Section 13(d)(3) of the Securities
Exchange Act of 1934) that on the date hereof holds more than 5% of the
outstanding shares of the Company entitled to vote for the election of
directors, where the offeror acquires more than 40% of the outstanding shares of
common stock of the Company.
(b) APPROVED CHANGE IN CONTROL. An "Approved
Change in Control" of the Company shall mean a Change in Control that is
approved by a majority of the Company's Board of Directors.
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4. TERMINATION FOR CAUSE; DISABILITY
4.1 TERMINATION FOR CAUSE. The Company may discharge
Employee and terminate his employment under this Agreement for cause without
further liability to the Company by a majority vote of the Board of Directors of
the Company, except that Employee, if a Director, shall not be entitled to vote
thereon. As used in this Section 4.1, "cause" shall mean any or all of the
following: (i) gross or willful misconduct of Employee during the course of his
employment; (ii) conviction of a felony or any criminal offense involving
dishonesty, breach of trust or moral turpitude during the Employment Period; or
(iii) Employee's breach of any of the material terms of this Agreement.
4.2 DISABILITY. If during the Employment Period, Employee
shall become ill, disabled or otherwise incapacitated so as to be unable to
perform his usual duties (a) for a period in excess of one hundred twenty (120)
consecutive days or (b) for more than one hundred eighty (180) days in any
consecutive twelve (12) month period, then the Company shall have the right to
terminate this Agreement without further liability on thirty (30) days' prior
notice to Employee.
5. TERMINATION WITHOUT CAUSE. Upon ninety (90) days prior written
notice, the Company may terminate this Agreement without cause and without
further liability to the Company except as set forth in SECTION 3.8 by a
majority vote of the Board of Directors except that Employee, if a Director,
shall not be entitled to vote thereon.
6. CONFIDENTIALITY AND NON-DISCLOSURE. Employee recognizes and
acknowledges that during the Employment Period he will have access to certain
confidential information relating to the Company and its affiliates, including,
but not limited to, operational policies, financial information, marketing
information, personnel information, trade secrets, customer information
(including customer lists), and pricing and cost policies, that are valuable,
special and unique assets of the Company (collectively, "Confidential
Information"). Employee agrees that he will not use or disclose such
Confidential Information to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except as is required in the course
of performing his duties hereunder unless (i) such information becomes known to
the public generally through no breach by Employee of this covenant or (ii)
disclosure is required by law or any governmental authority or is required in
connection with the defense of a lawsuit against the disclosing party, provided,
that prior to disclosing any information pursuant to this clause (ii), Employee
shall give prior written notice thereof to the Company and provide the Company
with the opportunity to contest such disclosure. Employee agrees that, both
during the Employment Period and for a period of twelve (12) months after the
termination of this Agreement, Employee will hold in a fiduciary capacity for
the benefit of the Company, and shall not directly or indirectly use or
disclose, except as authorized by the Company in connection with the performance
of Employee's duties, any Confidential Information, that Employee may have or
may acquire (whether or not developed or compiled by Employee and whether or not
Employee has been authorized to have access to such Confidential Information)
during the
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<PAGE>
term of this Agreement. The covenants contained in this SECTION 6 shall survive
for the Employment Period and for a period of twelve (12) months thereafter;
provided, however, that with respect to those items of Confidential Information
which constitute trade secrets under applicable law, Employee's obligations of
confidentiality and non-disclosure as set forth in this SECTION 6 shall continue
to survive after the applicable period above to the greatest extent permitted by
applicable law. These rights of the Company are in addition to those rights the
Company has under the common law or applicable statutes for the protection of
trade secrets.
7. NON-COMPETITION. Employee expressly covenants and agrees that
for the Employment Period and for a period of twelve (12) months thereafter, he
shall not, directly or indirectly, seek, obtain or accept a "Competitive
Position" in the "Restricted Territory" with a "Competitor" of the Company (as
such terms are hereafter defined). For purposes of this Agreement, a
"Competitor" of the Company means any business, individual, partnership, joint
venture, association, firm, corporation or other entity engaged, wholly or
partly, in the business of selling internet access service; the "Restricted
Territory" means each state of the United States of America in which the Company
and/or its affiliates transacts business during the Employment Period; a
"Competitive Position" means any employment with any Competitor of the Company
whereby Employee will use or is likely to use any Confidential Information, or
whereby Employee has duties for such Competitor that are the same or
substantially similar to those actually performed by Employee pursuant to the
terms hereof. Nothing contained in this SECTION 7 is intended to prevent
Employee from investing in stock or other securities listed on a national
securities exchange or actively traded on the over the counter market or any
corporation engaged, wholly or partly, in the sale of telecommunications
products or services; provided, however, that Employee and members of his
immediate family shall not, directly or indirectly, hold more than a total of
three percent (3%) of all issued and outstanding stock or other securities of
any such corporation.
8. NON-SOLICITATION.
8.1 NON-SOLICITATION OF CUSTOMERS. Employee agrees that he
will not take any customer lists of the Company after leaving his employ and
that he will, for the Employment Period and for a period of twelve (12) months
thereafter, refrain from soliciting or attempting to solicit directly or by
assisting others, any business from any of the Company's customers, including
actively sought prospective customers, with whom Employee had "material contact"
during the employment for purposes of providing products or services.
8.2 NON-SOLICITATION OF EMPLOYEES. Employee agrees that he
will, for the Employment Period and for a period of twelve (12) months
thereafter, refrain from recruiting or hiring, or attempting to recruit or hire,
directly or by assisting others, any other employee of the Company who is
employed by the Company or any successor or affiliate of the Company.
-5-
<PAGE>
9. TOLLING OF PERIOD OF RESTRAINT. Employee hereby expressly
acknowledges and agrees that in the event the enforceability of any of the terms
of this Agreement shall be challenged in court and Employee is not enjoined from
breaching any of the restraints set forth in SECTION 6 through SECTION 8, then
if a court of competent jurisdiction finds that the challenged restraint is
enforceable, the time period of the restraint shall be deemed tolled upon the
filing of the lawsuit challenging the enforceability of the restraint until the
dispute is finally resolved and all periods of appeal have expired.
10. ACKNOWLEDGEMENTS. Employee hereby acknowledges and agrees that
the restrictions contained in SECTION 6 through SECTION 9 are fair and
reasonable and necessary for the protection of the legitimate business interests
of the Company. Employee acknowledges that in the event Employee's employment
with the Company terminates for any reason, Employee will be able to earn a
livelihood without violating the restrictions contained in SECTION 6 through
SECTION 9 and that Employee's ability to earn a livelihood without violating
such restrictions is a material condition to Employee's employment and continued
employment with the Company. Employee expressly agrees that the character,
duration and geographical scope of the covenants contained in this SECTION 6
through SECTION 9 are reasonable in light of the circumstances as they exist at
the date upon which this Agreement has been executed. However, should a
determination nonetheless be made by a court of competent jurisdiction at a
later date that the character, duration or geographical scope of the covenants
contained herein are unreasonable in light of the circumstances as they then
exist, then it is the intention of both Employee and the Company that these
covenants shall be construed by the court in such a manner as to impose only
those restrictions on the conduct of Employee which are reasonable in light of
the circumstances as they then exist and necessary to assure the Company of the
intended benefit of these covenants.
11. RIGHTS TO MATERIALS; WORK FOR HIRE. All records, files,
memoranda, reports, price lists, customer lists, drawings, plans, sketches,
documents and the like (together with all copies thereof) relating to the
business of the Company, which Employee shall use or prepare or come in contact
with in the course of, or as a result of, his employment shall, as between the
parties hereto, remain the sole property of the Company. Upon the termination of
Employment or upon the prior demand of the Company, Employee shall immediately
return all such materials and shall not thereafter cause removal thereof from
the premises of the Company. Employee agrees to disclose and assign to the
Company as its exclusive property, all ideas, writings, inventions, discoveries,
improvements and technical or business innovations made or conceived by
Employee, whether or not patentable or copyrightable, either solely or jointly
with others during the Employment Period and for a period of twelve (12) months
thereafter whether or not made or conceived during regular hours of work or
otherwise, which are along the lines of the business, work or investigations of
the Company or its affiliates. Employee agrees to execute any and all documents
hereafter requested by the Company necessary to effectuate the foregoing.
12. REMEDIES. Without limiting the Company's right to claim
damages, Employee acknowledges that the Company will be irreparably harmed by a
breach of any
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<PAGE>
provision of this Agreement and Employee agrees that the Company shall be
entitled to injunctive relief in the event of such breach.
13. GOVERNING LAW; ARBITRATION; JURISDICTION; VENUE; ATTORNEY'S
FEES. This Agreement is made and entered into in and shall be governed by and
interpreted in accordance with the laws of, the State of New Jersey. The Company
and Employee agree that any dispute regarding this Agreement shall be submitted
to arbitration to and shall be resolved in accordance with the rules of the
JAMS/Endispute for expedited cases then in effect. The arbitrator(s) shall be
mutually selected by the parties or in the event the parties cannot mutually
agree, then appointed by JAMS/Endispute. Any arbitration shall be held within a
forty-five (45) mile radius of Spring Lake, New Jersey and the arbitrator(s)
shall apply New Jersey law. Judgment upon any award rendered by the
arbitrator(s) shall be final and may be entered in any court of competent
jurisdiction. Notwithstanding the foregoing, the Company shall have the absolute
right to obtain equitable remedies in any state court of competent jurisdiction
in the State of New Jersey or in the United States District Court in the state
of New Jersey. By his execution and delivery of this agreement, Employee
irrevocably submits to and accepts the exclusive jurisdiction of each of such
courts and waives any objection (including any objection to venue or any
objection based upon the grounds of forum non conveniens) which might be
asserted against the bringing of any such action, suit or other legal proceeding
in such courts. The court and/or arbitrator(s) shall award costs and expenses
(including reasonable attorney's fees) to the prevailing party in any litigation
or arbitration.
14. MISCELLANEOUS.
14.1 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all previous agreements, written and oral, regarding the
subject matter hereof between the parties hereto. This Agreement shall not be
changed, altered, modified or amended, except by a written agreement signed by
both parties hereto.
14.2. NOTICES. All notices, requests, demands and other
communications required or permitted to be given or made under this Agreement
shall be in writing and shall be deemed to have been given if delivered by hand,
sent by generally recognized overnight courier service, telex or telecopy, or
mail,
(a) to the Company: With a copy to:
BiznessOnline.com, Inc. Duffy & Sweeney, LLP
1100 First Avenue 300 Turks Head Building
Spring Lake, NJ 07762 Providence, RI 02903
Attention: Michael F. Sweeney, Esq.
Telephone: (732) 280-6408 Telephone: (401) 455-0700
Fax: (732) 280-6409 Fax: (401) 455-0701
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<PAGE>
(b) to the Employee at:
S. Keith London
166 East 92nd Street
New York, NY 10128
14.3 ASSIGNMENT. The Company may assign this Agreement to
any affiliate without the consent of Employee. For purposes of this section,
"affiliate" shall mean any individual, corporation, partnership or other
business entity that directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, the Company.
14.4. SEVERABILITY. If any term or provision of this
Agreement, or the application thereof to any person or under any circumstance,
shall to any extent be invalid or unenforceable, the remainder of this
Agreement, or the application of such terms to the persons or under
circumstances other than those as to which it is invalid or unenforceable, shall
be considered severable and shall not be affected thereby, and each term of this
Agreement shall be valid and enforceable to the fullest extent permitted by law.
The invalid or unenforceable provisions shall, to the extent permitted by law,
be deemed amended and given such interpretation as to achieve the economic
intent of this Agreement.
14.5. WAIVER. The failure of any party to insist in any one
instance or more upon strict performance of any of the terms and conditions
hereof, or to exercise any right or privilege herein conferred, shall not be
construed as a waiver of such terms, conditions, rights or privileges, but same
shall continue to remain in full force and effect. Any waiver by any party of
any violation of, breach of or default under any provision of this Agreement by
the other party shall not be construed as, or constitute, a continuing waiver of
such provision, or waiver of any other violation of, breach of or default under
any other provision of this Agreement.
14.6 TITLES; GENDER. Section and subsection titles are for
convenience of reference only and are not to be considered in the interpretation
or construction of any of the provisions hereof. All pronouns or any variations
thereof contained in this Agreement refer to the masculine, feminine or neuter
as the identity of the person may require.
14.7 SURVIVAL. SECTION 6 through SECTION 14 hereof shall
survive any termination of this Agreement.
-8-
<PAGE>
14.8 EXECUTION IN COUNTERPARTS. This Agreement may be
executed in counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same document.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY:
ATTEST: BiznessOnline.com, Inc.
/s/Michael F. Sweeney By:/s/ Mark E. Munro
- -------------------------- ------------------------
Michael F. Sweeney, Assistant Secretary Mark E. Munro, President
WITNESS: EMPLOYEE:
/s/ Jeffrey B. Cianciolo /s/ S. Keith London
- ------------------------- ---------------------------
S. Keith London
-9-
<PAGE>
Exhibit 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this
25th day of January, 1999, by and between, InSite Internet, Inc., a Delaware
corporation (the "Company") and Daniel J. Sullivan, an individual with a mailing
address at 331 Old Westford Road, Chelmsford, MA 01824 ("Employee").
INTRODUCTION
The Company is in the business of acquiring internet service provider
businesses and intends to consummate an initial public offering of its common
stock within the next one hundred and twenty (120) days (the "IPO"). Employee
possesses skills and knowledge advantageous to the Company. The Company desires
to employ Employee and Employee desires to accept such employment on the terms
and conditions set forth herein.
AGREEMENT
In consideration of the premises and mutual promises hereinbelow set
forth, the parties hereby agree as follows:
1. EMPLOYMENT; DUTIES. Subject to the terms and conditions set
forth herein, the Company hereby employs Employee during the Employment Period
(as defined below), and Employee hereby accepts such employment. Employee agrees
to be a full-time employee of the Company and devote his full and exclusive
time, energy, skill and best efforts to the business of the Company and to the
fulfillment of Employee's duties hereunder. Employee's duties include, but are
not limited to, (i) serving as Chief Financial Officer of the Company; (ii)
assisting in the internal growth of the Company's business; and (iii) other
duties assigned to Employee by the CEO of the Company from time to time
consistent with Employee's position.
2. EMPLOYMENT PERIOD. Subject to earlier termination pursuable to
SECTION 4 and SECTION 5 below, this Agreement shall commence on the date hereof
and continue for a one (1) year period (the "Employment Period"). Thereafter,
this Agreement shall automatically renew for additional one (1) year periods
unless the Company gives the Employee ninety (90) days written notice of its
intention not to renew prior to the end of the then current one (1) year term.
3. COMPENSATION AND BENEFITS.
3.1 SALARY. During the Employment Period, the Company agrees
to pay Employee at the rate of $125,000 per annum ("Base Salary"). Employee's
salary shall be
<PAGE>
subject to customary withholdings and be payable to Employee on the regularly
occurring pay period established time to time by the Company.
3.2 HEALTH BENEFITS. During the Employment Period, the
Company shall provide Employee with family health care coverage, as provided by
health care provider(s) selected by the Company from time to time.
3.3 BONUS. During the Employment Period, Employee shall be
eligible for discretionary bonuses based upon realization of specific growth
objectives determined by the Company including, but not limited to, additional
acquisitions following the IPO.
3.4 RETIREMENT PLAN. During the Employment Period, Employee
shall be entitled to participate in any 401(k) or similar benefit/profit sharing
plan adopted by the Company for the benefit of its employees. The Company
reserves the right to modify, terminate or withdraw any such plan (if so
adopted) at any time in its sole discretion.
3.5 STOCK OPTIONS. Employee shall receive an initial grant
of incentive stock options for 30,000 shares of common stock of the Company with
a three (3) year vesting plan (i.e. 10,000 per year) at end of each of the
initial three anniversary dates of employment (i.e. January 25, 2000, January
25, 2001 and January 25, 2002), provided any options not vested upon termination
of employment shall terminate. A customary option agreement shall be provided to
Employee by the Company. The exercise price for such option shall be the IPO
price per share of the common stock.
3.6 VACATION. Employee may take up to three (3) weeks paid
vacation in each calendar year during the Employment Period.
3.7 RELOCATION: MOVING EXPENSES. Following consummation of a
successful IPO, Employee will relocate to New Jersey upon request of the
Company. In such event, the Company shall reimburse Employee for any temporary
hotel/travel expenses prior to permanent relocation and for moving expenses for
home furnishings.
4. TERMINATION BY THE COMPANY FOR CAUSE. Upon written notice to
Employee, the Company may terminate this Agreement for cause if any of the
following events shall occur: (i) any breach of this Agreement by Employee; (ii)
the commission of a felony by Employee; or (iii) the commission of an act by
Employee involving fraud, theft or dishonesty. In the event of a termination
pursuant to this SECTION 4, all obligations of the Company under this Agreement
shall cease and any stock options which have not vested shall terminate.
5. TERMINATION WITHOUT CAUSE.
5.1 BY EMPLOYER. The Company may terminate this Agreement at
any time without cause upon thirty (30) days written notice to Employee. In such
event, the Company shall, for the greater of six (6) months or the remainder of
the initial one-year term
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<PAGE>
(i) pay Employee during regular payroll periods (less customary withholding
taxes) the Base Salary and (ii) provide the health benefits described in SECTION
3.2. Provided, however, in either case the Company's severance obligations
hereunder will end on the date Employee secures new employment.
5.2 BY EMPLOYEE. Employee may terminate this Agreement at
any time upon one hundred and twenty (120) days prior written notice to the
Company. In such case, Employee shall not be eligible for any severance payments
or other benefits after the date of termination.
5.3 TERMINATION OF STOCK OPTIONS. In the event of a
termination pursuant to this SECTION 5, any stock options which have not vested
shall terminate.
6. CONFIDENTIALITY AND NON-DISCLOSURE. Employee recognizes and
acknowledges that during the Employment Period he will have access to certain
confidential information relating to the Company and its affiliates, including,
but not limited to, operational policies, financial information, marketing
information, personnel information, trade secrets, customer information
(including customer lists), and pricing and cost policies, that are valuable,
special and unique assets of the Company (collectively, "Confidential
Information"). Employee agrees that he will not use or disclose such
Confidential Information to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except as is required in the course
of performing his duties hereunder unless (i) such information becomes known to
the public generally through no breach by Employee of this covenant or (ii)
disclosure is required by law or any governmental authority or is required in
connection with the defense of a lawsuit against the disclosing party, provided,
that prior to disclosing any information pursuant to this clause (ii), Employee
shall give prior written notice thereof to the Company and provide the Company
with the opportunity to contest such disclosure. Employee agrees that, both
during the Employment Period and for a period of twenty-four (24) months after
the termination of this Agreement, Employee will hold in a fiduciary capacity
for the benefit of the Company, and shall not directly or indirectly use or
disclose, except as authorized by the Company in connection with the performance
of Employee's duties, any Confidential Information, that Employee may have or
may acquire (whether or not developed or compiled by Employee and whether or not
Employee has been authorized to have access to such Confidential Information)
during the term of this Agreement. The covenants contained in this SECTION 6
shall survive for the Employment Period and for a period of twenty-four (24)
months thereafter; provided, however, that with respect to those items of
Confidential Information which constitute trade secrets under applicable law,
Employee's obligations of confidentiality and non-disclosure as set forth in
this SECTION 6 shall continue to survive after the applicable period above to
the greatest extent permitted by applicable law. These rights of the Company are
in addition to those rights the Company has under the common law or applicable
statutes for the protection of trade secrets.
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<PAGE>
7. NON-COMPETITION. Employee expressly covenants and agrees that
for the Employment Period and for a period of twenty four (24) months
thereafter, he shall not, directly or indirectly, seek, obtain or accept a
"Competitive Position" in the "Restricted Territory" with a "Competitor" of the
Company (as such terms are hereafter defined). For purposes of this Agreement, a
"Competitor" of the Company means any business, individual, partnership, joint
venture, association, firm, corporation or other entity engaged, wholly or
partly, in the business of selling internet access service or in any related
business which the Company and/or its affiliates may engage in from time to time
during the term of this covenant; the "Restricted Territory" means each state of
the United States of America in which the Company and/or its affiliates
transacts business during the term of this covenant; a "Competitive Position"
means any employment with any Competitor of the Company whereby Employee will
use or is likely to use any Confidential Information, or whereby Employee has
duties for such Competitor that are the same or substantially similar to those
actually performed by Employee pursuant to the terms hereof. Nothing contained
in this SECTION 7 is intended to prevent Employee from investing in stock or
other securities listed on a national securities exchange or actively traded on
the over the counter market or any corporation engaged, wholly or partly, in the
sale of telecommunications products or services; provided, however, that
Employee and members of his immediate family shall not, directly or indirectly,
hold more than a total of two percent (2%) of all issued and outstanding stock
or other securities of any such corporation.
8. NON-SOLICITATION.
8.1 NON-SOLICITATION OF CUSTOMERS. Employee agrees that he
will not take any customer lists of the Company after leaving his employ and
that he will, for the Employment Period and for a period of twenty-four (24)
months thereafter, refrain from soliciting or attempting to solicit directly or
by assisting others, any business from any of the Company's customers, including
actively sought prospective customers, with whom Employee had "material contact"
during the employment for purposes of providing products or services.
8.2 NON-SOLICITATION OF EMPLOYEES. Employee agrees that he
will, for the Employment Period and for a period of twenty-four (24) months
thereafter, refrain from recruiting or hiring, or attempting to recruit or hire,
directly or by assisting others, any other employee of the Company who is
employed by the Company or any successor or affiliate of the Company.
9. TOLLING OF PERIOD OF RESTRAINT. Employee hereby expressly
acknowledges and agrees that in the event the enforceability of any of the terms
of this Agreement shall be challenged in court and Employee is not enjoined from
breaching any of the restraints set forth in SECTION 6 through SECTION 8, then
if a court of competent jurisdiction finds that the challenged restraint is
enforceable, the time period of the restraint shall be deemed tolled upon the
filing of the lawsuit challenging the enforceability of the restraint until the
dispute is finally resolved and all periods of appeal have expired.
-4-
<PAGE>
10. ACKNOWLEDGEMENTS. Employee hereby acknowledges and agrees that
the restrictions contained in SECTION 6 through SECTION 9 are fair and
reasonable and necessary for the protection of the legitimate business interests
of the Company. Employee acknowledges that in the event Employee's employment
with the Company terminates for any reason, Employee will be able to earn a
livelihood without violating the restrictions contained in SECTION 6 through
SECTION 9 and that Employee's ability to earn a livelihood without violating
such restrictions is a material condition to Employee's employment and continued
employment with the Company. Employee expressly agrees that the character,
duration and geographical scope of the covenants contained in this SECTION 6
through SECTION 9 are reasonable in light of the circumstances as they exist at
the date upon which this Agreement has been executed. However, should a
determination nonetheless be made by a court of competent jurisdiction at a
later date that the character, duration or geographical scope of the covenants
contained herein are unreasonable in light of the circumstances as they then
exist, then it is the intention of both Employee and the Company that these
covenants shall be construed by the court in such a manner as to impose only
those restrictions on the conduct of Employee which are reasonable in light of
the circumstances as they then exist and necessary to assure the Company of the
intended benefit of these covenants.
11. RIGHTS TO MATERIALS; WORK FOR HIRE. All records, files,
memoranda, reports, price lists, customer lists, drawings, plans, sketches,
documents and the like (together with all copies thereof) relating to the
business of the Company, which Employee shall use or prepare or come in contact
with in the course of, or as a result of, his employment shall, as between the
parties hereto, remain the sole property of the Company. Upon the termination of
Employment or upon the prior demand of the Company, Employee shall immediately
return all such materials and shall not thereafter cause removal thereof from
the premises of the Company. Employee agrees to disclose and assign to the
Company as its exclusive property, all ideas, writings, inventions, discoveries,
improvements and technical or business innovations made or conceived by
Employee, whether or not patentable or copyrightable, either solely or jointly
with others during the Employment Period and for a period of two (2) years
thereafter whether or not made or conceived during regular hours of work or
otherwise, which are along the lines of the business, work or investigations of
the Company or its affiliates. Employee agrees to execute any and all documents
hereafter requested by the Company necessary to further effectuate the
foregoing.
12. REMEDIES. Without limiting the Company's right to claim
damages, Employee acknowledges that the Company will be irreparably harmed by a
breach of any provision of this Agreement and Employee agrees that the Company
shall be entitled to injunctive relief in the event of such breach.
13. GOVERNING LAW; ARBITRATION; JURISDICTION; VENUE; ATTORNEY'S
FEES. This Agreement is made and entered into in and shall be governed by and
interpreted in accordance with the laws of, the State of New Jersey. The Company
and Employee agree that any dispute regarding this Agreement shall be submitted
to arbitration to and shall be resolved in
-5-
<PAGE>
accordance with the rules of the JAMS/Endispute for expedited cases then in
effect. The arbitrator(s) shall be mutually selected by the parties or in the
event the parties cannot mutually agree, then appointed by JAMS/Endispute. Any
arbitration shall be held within a forty-five (45) mile radius of Spring Lake,
New Jersey and the arbitrator(s) shall apply New Jersey law. Judgment upon any
award rendered by the arbitrator(s) shall be final and may be entered in any
court of competent jurisdiction. Notwithstanding the foregoing, the Company
shall have the absolute right to obtain equitable remedies in any state court of
competent jurisdiction in the State of New Jersey or in the United States
District Court in the state of New Jersey. By his execution and delivery of this
agreement, Employee irrevocably submits to and accepts the exclusive
jurisdiction of each of such courts and waives any objection (including any
objection to venue or any objection based upon the grounds of forum non
conveniens) which might be asserted against the bringing of any such action,
suit or other legal proceeding in such courts. The court and/or arbitrator(s)
shall award costs and expenses (including reasonable attorney's fees) to the
prevailing party in any litigation or arbitration.
14. MISCELLANEOUS.
14.1 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all previous agreements, written and oral, regarding the
subject matter hereof between the parties hereto. This Agreement shall not be
changed, altered, modified or amended, except by a written agreement signed by
both parties hereto.
14.2. NOTICES. All notices, requests, demands and other
communications required or permitted to be given or made under this Agreement
shall be in writing and shall be deemed to have been given if delivered by hand,
sent by generally recognized overnight courier service, telex or telecopy, or
mail,
(a) to the Company: With a copy to:
InSite Internet., Inc. Duffy & Sweeney, LLP
1100 First Avenue 300 Turks Head Building
Spring Lake, NJ 07762 Providence, RI 02903
Attention: Mark E. Munro, CEO Attention: Michael F. Sweeney, Esq.
Telephone: (732) 280-6408 Telephone: (401) 455-0700
Fax: (732) 280-6409 Fax: (401) 455-0701
(b) to the Employee at:
Daniel J. Sullivan
331 Old Westford Road
Chelmsford, MA 01284
(978) 250-1976
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<PAGE>
14.3 ASSIGNMENT. The Company may assign this Agreement to
(i) any entity controlling, controlled by or under common control with the
Company or (ii) to any purchaser of the Company's assets provided that such
purchaser agrees to assume the Company's obligations hereunder.
14.4. SEVERABILITY. If any term or provision of this
Agreement, or the application thereof to any person or under any circumstance,
shall to any extent be invalid or unenforceable, the remainder of this
Agreement, or the application of such terms to the persons or under
circumstances other than those as to which it is invalid or unenforceable, shall
be considered severable and shall not be affected thereby, and each term of this
Agreement shall be valid and enforceable to the fullest extent permitted by law.
The invalid or unenforceable provisions shall, to the extent permitted by law,
be deemed amended and given such interpretation as to achieve the economic
intent of this Agreement.
14.5. WAIVER. The failure of any party to insist in any one
instance or more upon strict performance of any of the terms and conditions
hereof, or to exercise any right or privilege herein conferred, shall not be
construed as a waiver of such terms, conditions, rights or privileges, but same
shall continue to remain in full force and effect. Any waiver by any party of
any violation of, breach of or default under any provision of this Agreement by
the other party shall not be construed as, or constitute, a continuing waiver of
such provision, or waiver of any other violation of, breach of or default under
any other provision of this Agreement.
14.6 TITLES; GENDER. Section and subsection titles are for
convenience of reference only and are not to be considered in the interpretation
or construction of any of the provisions hereof. All pronouns or any variations
thereof contained in this Agreement refer to the masculine, feminine or neuter
as the identity of the person may require.
14.7 SURVIVAL. SECTION 6 through SECTION 14 hereof shall
survive any termination of this Agreement.
-7-
<PAGE>
14.8 EXECUTION IN COUNTERPARTS. This Agreement may be
executed in counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same document.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY:
ATTEST: INSITE INTERNET, Inc.
/s/ Michael F. Sweeney By: /s/ Mark E. Munro
- ------------------------- ------------------------
Michael F. Sweeney,Assisitant Secretary Mark E. Munro, President
WITNESS: EMPLOYEE:
/s/ Robert Emerson /s/ Daniel J. Sullivan
- ------------------------- ------------------------
Daniel J. Sullivan
In consideration of Employee's acceptance of this Agreement, Mark E.
Munro hereby agrees to provide additional capital to the Company as necessary to
meet the Company's payment obligations to Employee hereunder.
Acknowledged and Agreed:
/s/ Mark E. Munro
------------------------
Mark E. Munro
-8-
<PAGE>
Exhibit 10.9
BIZNESSONLINE.COM, INC.
1999 STOCK INCENTIVE PLAN
1. NAME AND PURPOSE. This Plan shall be known as the BiznessOnline.com, Inc.
1999 Stock Incentive Plan (the "Plan"). The purpose of the Plan is to advance
the interests of BiznessOnline.com, Inc., a Delaware corporation (the
"Company"), by providing material incentive for the continued services of key
and valuable employees, directors, and non-employees who perform services for
the Company and its subsidiaries. Awards under the Plan may be granted in the
form of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended ("Incentive Stock Options") or
non-qualified stock options.
2. ADMINISTRATION. The Plan shall be administered by the Board of Directors of
the Company (the "Board") unless the authority to administer the Plan is
delegated to a committee of the Board (the Board or such committee being
hereinafter referred to as the "Committee"). The Committee may establish,
subject to the provisions of the Plan, such rules and regulations as it deems
necessary for the proper administration of the Plan, and make such determination
and take such action in connection therewith or in relation to the Plan as it
deems necessary or advisable, consistent with the Plan.
3. ELIGIBILITY. Regular full-time employees of the Company and its subsidiaries
who are key executives or other key employees as determined by the Committee at
the recommendation of the Chief Executive Officer of the Company shall be
eligible to participate in the Plan. Non-employees who perform services for the
Company, including non-employee directors, shall also be eligible to participate
in the Plan as determined by the Company, except that such non-employees shall
not be eligible to receive Incentive Stock Options. Such employees, directors
and non-employees described above are hereinafter referred to as "Eligible
Employees."
4. SHARES SUBJECT TO THE PLAN.
(a) The shares to be issued and delivered by the Company upon exercise
of options granted under the Plan are the Company's shares of Common Stock, $.01
par value per share ("Common Shares"), which may be either authorized but
unissued shares or treasury shares.
(b) The aggregate number of Common Shares of the Company which may be
issued under the Plan shall not exceed 500,000 shares, all or any portion of
which may be Incentive Stock Options; subject, however, to the adjustment
provided in SECTION 8 in the event of certain changes in the Company's capital
structure. No option may be granted under this Plan which could cause such
maximum limit to be exceeded.
<PAGE>
(c) Common Shares covered by an option which is no longer exercisable
with respect to such shares shall again be available for issuance under this
Plan.
5. GRANT OF OPTIONS. The Committee may from time to time, in its discretion and
subject to the recommendations of the Chief Executive Officer of the Company and
the provisions of the Plan, grant either non-qualified or Incentive Stock
Options to Eligible Employees. Employees to whom options have been granted are
herein referred to as "Optionees". Each option shall be embodied in an option
agreement signed by the Optionee and the Company providing the option shall be
subject to the provisions of this Plan and containing such other provisions as
the Committee may prescribe not inconsistent with the Plan. The option agreement
shall specify whether the option is a non-qualified option or an Incentive Stock
Option.
6. TERMS AND CONDITIONS OF OPTION. All options granted under the Plan shall
contain such terms and conditions as the Committee from time to time determines,
subject to the foregoing and following limitations and requirements:
(a) OPTION PRICE: The option price per share for any option granted
under the Plan shall be determined by the Committee; provided, however, that in
the case of an Incentive Stock Option, the option price per share shall not be
less than l00% of the fair market value of the Common Shares at the time of
grant.
(b) PERIOD WITHIN WHICH OPTION MAY BE EXERCISED: The period of each
option shall be fixed by the Committee, but no Incentive Stock Option may be
exercised after the expiration of ten years from the date the option is granted.
The Committee may, in its discretion, determine as a condition of any option,
that all or a stated percentage of the shares covered by such option shall
become exercisable, in installments or otherwise, only after the completion of a
specified service requirement by the Optionee.
(c) 10% SHAREHOLDER: Notwithstanding any other provision of this Plan,
the option price per share of an Incentive Stock Option granted to an Eligible
Employee who, at the time such option is granted, owns shares possessing more
than l0% of the total combined voting power of all classes of shares of the
Company or its subsidiaries shall be at least ll0% of the fair market value of
the Common Shares subject to the option. In addition, any such Incentive Stock
Option may not be exercised after the expiration of five years from the date the
option is granted.
(d) GRANT LIMITATION: The aggregate fair market value of Common Shares
with respect to which Incentive Stock Options are exercisable for the first time
by any Eligible Employee during any calendar year (determined at the time the
Incentive Stock Option is granted) shall not exceed $l00,000.
(e) TERMINATION OF OPTION BY REASON OF TERMINATION OF EMPLOYMENT:
Unless the Committee in its discretion determines otherwise, if an Optionee's
employment with the Company and its subsidiaries terminates, all options granted
under this Plan to such
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<PAGE>
Optionee which are not exercisable on the date of such termination of employment
shall immediately terminate, and any remaining options shall terminate if not
exercised before the expiration of the following periods, or at such earlier
time as may be applicable under SECTION 6(b) or 6(c) above: (i) thirty (30) days
following such termination of employment, if such termination was not a result
of retirement on or after age 55, or of death or disability (disability within
the meaning of Section 22(e)(3) of the Internal Revenue Code), or (ii) three (3)
months following the Optionee's termination of employment because of retirement
on or after age 55, or (iii) one (l) year following date of death or
commencement of disability, if the Optionee was employed by the Company and/or
subsidiary at the time of his death or the commencement of his disability.
Notwithstanding the foregoing, if the Optionee's employment is terminated for
cause, any remaining portion of this option shall immediately terminate.
(f) NON-TRANSFERABILITY: Each option and all rights thereunder shall be
exercisable during the Optionee's lifetime only by him and shall be
non-assignable and non-transferable by the Optionee except, in the event of the
Optionee's death, by his will or by the laws of descent and distribution;
provided, however, that in the case of a non-qualified option, such option may
be gifted to a family member or a trust for the benefit of a family member. For
purposes of this Section, "family member" means a spouse, parent, child,
grandchild, step-child or step-grandchild. In the event the death of an Optionee
occurs, the representative or representatives of his estate, or the person or
persons who acquired (by bequest or inheritance) the rights to exercise his
options may exercise such options in whole or in part prior to the expiration of
the applicable exercise period, as specified in SECTION 6(e) above.
(g) MORE THAN ONE OPTION GRANTED TO AN OPTIONEE: More than one option
may be granted to an Optionee under this Plan and both non-qualified options and
Incentive Stock Options may be granted to an Optionee.
(h) COMPLIANCE WITH SECURITIES LAWS. Options granted and shares issued
by the Company upon exercise of options shall be granted and issued only in full
compliance with all applicable securities laws, including laws, rules and
regulations of the Securities and Exchange Commission and applicable state Blue
Sky Laws. With respect thereto, the Committee may impose such conditions on
transfer, restrictions and limitations as it may deem necessary and appropriate
to assure compliance with such applicable securities laws.
(i) MODIFICATION OR CANCELLATION OF OPTION. The Committee shall have
the authority to effect, at any time and from time to time, with the consent of
the affected Optionee or Optionees, the modification of the terms of any option
agreement (subject to the limitations hereof), including the acceleration of the
exercisability of any option for any reason including a change in the control or
ownership of the Company, or the cancellation of any or all outstanding options
granted under this Plan. In substitution for canceled options, the Committee may
grant new options (subject to the limitations
-3-
<PAGE>
hereof) covering the same or different numbers of Common Shares at an option
price per share in all events not less than fair market value on the date of the
new grant.
(j) DISPOSITION OF SHARES. No option granted under this Plan shall
qualify as an Incentive Stock Option if the Common Shares acquired pursuant to
the exercise of the option are transferred, other than by will or by the laws of
descent and distribution, within two years of the date such option was granted
or within one year after the transfer of Common Shares to the employee pursuant
to such exercise.
7. METHOD OF EXERCISE. An option granted under this Plan may be exercised by
written notice to the Committee, signed by the Optionee, or by such other person
as is entitled to exercise such option. The notice of exercise shall state the
number of Common Shares in respect of which the Option is being exercised, and
shall either be accompanied by the payment of the full option price for such
shares, or shall fix a date (not more than ten business days from the date of
such notice) for the payment of the full option price of the shares being
purchased. The purchase price may be paid (i) in cash (including personal
check), (ii) the delivery to the Company of Common Shares already owned by the
Optionee (which shall be valued for this purpose at the fair market value on the
date of transfer to the Company as determined by the Committee, (iii) at the
discretion of the Committee, the delivery of a promissory note of the Optionee
to the Company, payable upon such terms as are specified by the Committee, or
(iv) any combination of the above. A certificate or certificates for the Common
Shares of the Company purchased through the exercise of an option shall be
issued in regular course after the exercise of the option and payment therefore.
During the option period no person entitled to exercise any option granted under
this Plan shall have any of the rights or privileges of a shareholder with
respect to any shares issuable upon exercise of such option until certificates
representing such shares shall have been issued and delivered.
8. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of outstanding
options shall not affect in any way the right or ability of the Company or its
stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of bonds,
debentures, preferred or prior preference stock ahead of or affecting the Common
Shares or the rights hereof, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business or
substantially all of the outstanding stock of the Company, or any other
corporate act or proceeding, whether of a similar character or otherwise.
If the Company shall effect a subdivision, consolidation or
reclassification of shares or other capital readjustment or recapitalization,
the payment of a stock dividend, or other increase or reduction of the number of
shares of the voting shares outstanding, without receiving compensation therefor
in money, services or property, then the number, class, and per share price of
Common Shares shall be appropriately adjusted in such a manner as to entitle an
Optionee to receive upon exercise of an option, for the same
-4-
<PAGE>
aggregate cash consideration, the same total number and class of shares as he
would have received as a result of the event requiring the adjustment.
If the Company is merged into or consolidated with another corporation,
regardless of whether or not the Company is the surviving corporation, or if the
Company is liquidated, or sells or otherwise disposes of substantially all of
its assets or substantially all of the stock of the Company while this option
remains outstanding, unless the Board determines otherwise, all outstanding
options shall expire as of the effective date of any such merger, consolidation,
liquidation, sale, or other disposition, provided that (x) notice of such
merger, consolidation, liquidation, sale or other disposition shall be given to
such Optionee at least 30 days prior to the effective date of such merger,
consolidation, liquidation, sale or other disposition and (y) an Optionee shall
have the right to exercise an option to the extent that the same is then
exercisable during the 30 day period preceding the effective date of such
merger, consolidation, liquidation, sale or other disposition.
Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, for cash or property, or for labor or services,
either upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company convertible
into such shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number or price of Common
Shares then subject to outstanding options.
9. AMENDMENT OR TERMINATION. The Committee may at any time amend, suspend or
terminate the Plan. The Company shall obtain stockholder approval of any Plan
amendment to the extent necessary to comply with applicable provisions of
federal securities laws, state corporate and securities, the Internal Revenue
Code of 1986, as amended (including Section 422), and the rules and regulations
of any applicable stock exchange or national market system. If the Plan is
terminated, any unexercised option shall continue to be exercisable in
accordance with its terms, except as provided in SECTION 8 above.
10. COMPANY RESPONSIBILITY. All expenses of this Plan, including the cost of
maintaining records, shall be borne by the Company. The Company shall have no
responsibility or liability (other than under applicable Securities Acts) for
any act or thing done or left undone with respect to the price, time, quantity,
or other conditions and circumstances of the purchase of shares under the terms
of the Plan, so long as the Company acts in good faith.
11. TAX WITHHOLDING. Any grant of an option hereunder shall provide as
determined by the Committee for appropriate arrangements for the satisfaction by
the Company and the Optionee or Participant of all federal, state, local or
other income excise or employment taxes or tax withholding requirements
applicable to the exercise of the option or the later disposition of the Common
Shares thereby acquired and all such additional taxes or amounts as determined
by the Committee in its discretion, including, without limitation,
-5-
<PAGE>
the right of the Company or any subsidiary thereof to receive transfers of
Common Shares or other property from the Optionee or to deduct or withhold in
the form of shares from any transfer to an Optionee or Participant, in such
amount or amounts deemed required or appropriate by the Committee in its sole
and absolute discretion.
12. IMPLIED CONSENT. Every Optionee or Participant, by his acceptance of an
option under this Plan shall be deemed to have consented to be bound, on his own
behalf and on behalf of his heirs, assigns, and legal representatives, by all of
the terms and conditions of this Plan.
13. NO EFFECT ON EMPLOYMENT STATUS. The fact that an employee has been granted
an option under this Plan shall not limit or otherwise qualify the right of the
employer to terminate his employment at any time.
14. DURATION AND TERMINATION OF THE PLAN. The Plan shall become effective upon
adoption by the Board of Directors and approval by the stockholders of the
Company (the "Effective Date"). It shall continue in effect for a term of ten
(10) years unless sooner terminated. Options may be granted under the Plan upon
its becoming effective. No options may be granted during any suspension of the
Plan or after termination of the Plan. No Incentive Stock Option shall be
granted subsequent to ten years from the Effective Date, or subsequent to any
earlier date as of which the Plan is terminated pursuant to SECTION 9.
-6-
<PAGE>
15. DELAWARE LAW TO GOVERN. This Plan shall be construed and administered in
accordance with and governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this 1999 Stock Incentive
Plan to be executed by its duly authorized officer as of this 12th day of
February, l999.
BIZNESSONLINE.COM, INC.
By:/s/ Mark E. Munro
-----------------
Mark E. Munro, President
and Chief Executive Officer
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<PAGE>
Exhibit 10.10
BIZNESSONLINE.COM, INC.
1999 STOCK INCENTIVE PLAN
Incentive Stock Option Agreement
This Agreement is by and between BiznessOnline.com, Inc. (the
"Company") and _____________, (the "Optionee"), effective as of
_________________.
W I T N E S S E T H:
1. GRANT OF OPTION. Pursuant to the provisions of the BiznessOnline.com, Inc.
1999 Stock Incentive Plan (the "Plan"), effective as of the date hereof, the
Company hereby grants to the Optionee, subject to the terms and conditions of
the Plan and subject further to the terms and conditions herein, the right and
option to purchase from the Company all or any part of an aggregate of _____
shares of the common stock ($.01 par value) of the Company ("Common Shares"), at
the purchase price equal to ____ per share, being the fair market value of the
Common Shares as of the date hereof, such option to be exercised as hereinafter
provided. It is intended that the option evidenced hereby constitute an
incentive stock option within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code").
2. TERMS AND CONDITIONS. In addition to the terms and conditions contained in
the Plan, it is understood and agreed that the option evidenced hereby is
subject to the following additional terms and conditions:
(a) EXPIRATION DATE. The option shall expire on the _________
anniversary of the date hereof.
(b) PERIOD OF EXERCISE. Subject to the other terms of this Agreement
regarding the exercisability of this option, this option shall become
exercisable at the rate of ____ Common Shares per _______ over a period of
_______ years from the date hereof commencing _________________ and continuing
on the ________________ day of each ________ thereafter, such that the entire
option shall be fully vested as of ___________________.
(c) EXERCISE OF OPTION. This option shall be exercised by submitting a
written notice to the Committee appointed pursuant to Section 2 of the Plan (the
"Committee") signed by the Optionee and specifying the number of Common Shares
as to which the option is being exercised. Such notice shall be accompanied by
the payment of the full option price for such shares, or shall fix a date (not
more than ten business days from the date of such notice) for the payment of the
full option price of the shares being purchased. Payment shall be made (i) in
cash (including personal check), (ii) by the delivery to the Company of Common
Shares already owned by the Optionee (which shall be valued for this purpose at
the fair market value on the date of transfer to the Company as determined by
the Committee), (iii) at the discretion of the Committee, the delivery of a
promissory note of the Optionee to the Company, payable upon such terms as are
specified by the Committee, or (iv) any combination of the above. A certificate
<PAGE>
or certificates for the Common Shares of the Company purchased through the
exercise of an option shall be issued in regular course after the exercise of
the option and payment therefore.
(d) TERMINATION OF OPTION UPON DEATH, DISABILITY, RETIREMENT OR
TERMINATION OF EMPLOYMENT. Unless the Committee in its discretion determines
otherwise, if an Optionee's employment with the Company and its subsidiaries
terminates, all options granted under this Plan to such Optionee which are not
exercisable on the date of such termination of employment shall immediately
terminate, and any remaining options shall terminate if not exercised before the
expiration of the following periods, or at such earlier time as may be
applicable under SECTION 6(b) or 6(c) of the Plan: (i) thirty (30) days
following such termination of employment, if such termination was not a result
of retirement on or after age 55, or of death or disability (disability within
the meaning of Section 22(e)(3) of the Internal Revenue Code), or (ii) three (3)
months following the Optionee's termination of employment because of retirement
on or after age 55, or (iii) one (l) year following date of death or
commencement of disability, if the Optionee was employed by the Company and/or
subsidiary at the time of his death or the commencement of his disability.
Notwithstanding the foregoing, if the Optionee's employment is terminated for
cause, any remaining portion of this option shall immediately terminate.
(e) NON-TRANSFERABILITY. Each option and all rights thereunder shall be
exercisable during the Optionee's lifetime only by him and shall be
non-assignable and non-transferable by the Optionee except, in the event of the
Optionee's death, by his will or by the laws of descent and distribution. For
purposes of this Section, "family member" means a spouse, parent, child,
grandchild, step-child or step-grandchild. In the event the death of an Optionee
occurs, the representative or representatives of his estate, or the person or
persons who acquired (by bequest or inheritance) the rights to exercise his
options may exercise such options in whole or in part prior to the expiration of
the applicable exercise period, as specified in Paragraph 2(d) above.
(f) CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of
outstanding options shall not affect in any way the right or ability of the
Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Common Shares or the rights hereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business or substantially all of the outstanding stock of the Company,
or any other corporate act or proceeding, whether of a similar character or
otherwise.
If the Company shall effect a subdivision, consolidation or
reclassification of shares or other capital readjustment or recapitalization,
the payment of a stock dividend, or other increase or reduction of the number of
shares of the voting shares outstanding, without receiving compensation therefor
in money, services or property, then the number, class, and per share price of
Common Shares shall be appropriately adjusted in such a manner as to entitle an
Optionee to receive upon exercise of an option, for the same aggregate cash
consideration, the same total number and class of shares as he would have
received as a result of the event requiring the adjustment.
<PAGE>
If the Company is merged into or consolidated with another corporation,
regardless of whether or not the Company is the surviving corporation, or if the
Company is liquidated, or sells or otherwise disposes of substantially all of
its assets or substantially all of the stock of the Company while this option
remains outstanding, unless the Board determines otherwise, all outstanding
options shall expire as of the effective date of any such merger, consolidation,
liquidation, sale, or other disposition, provided that (x) notice of such
merger, consolidation, liquidation, sale or other disposition shall be given to
such Optionee at least 30 days prior to the effective date of such merger,
consolidation, liquidation, sale or other disposition and (y) an Optionee shall
have the right to exercise an option to the extent that the same is then
exercisable during the 30 day period preceding the effective date of such
merger, consolidation, liquidation, sale or other disposition.
Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, for cash or property, or for labor or services,
either upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company convertible
into such shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number or price of Common
Shares then subject to outstanding options.
(g) MODIFICATION OR CANCELLATION OF OPTION. The Committee shall have
the authority to effect, at any time and from time to time, with the consent
of the affected Optionee or Optionees, the modification of the terms of any
option agreement (subject to the limitations hereof), including the
acceleration of the exercisability of any option for any reason including a
change in the control or ownership of the Company, or the cancellation of any
or all outstanding options granted under this Plan. In substitution for
canceled options, the Committee may grant new options (subject to the
limitations hereof) covering the same or different numbers of Common Shares
at an option price per share in all events not less than fair market value on
the date of the new grant.
(h) NO RIGHTS AS STOCKHOLDER. The Optionee shall have no rights as a
stockholder with respect to any Common Shares subject to this option prior to
the date of issuance to him of a certificate or certificates for such shares.
(i) NO RIGHT TO CONTINUED EMPLOYMENT. This option shall not confer upon
the Optionee any right with respect to continuance of employment by the Company
or any subsidiary, nor shall it interfere in any way with the right of the
employer to terminate the Optionee's employment at any time.
(j) COMPLIANCE WITH LAW AND REGULATIONS. This option and the obligation
of the Company to sell and deliver shares hereunder shall be subject to all
applicable federal and state laws, rules and regulations and to such approvals
by any government or regulatory agency as may be required. The Company shall not
be required to issue or deliver any certificates for shares of Common Shares
prior to (i) the listing of such shares on any stock exchange on which the
Common Shares may then be listed, and (ii) the completion of any registration or
<PAGE>
qualification of such shares under any federal or state law, or any rule or
regulation of any government body which the Company shall, in its sole
discretion, determine to be necessary or advisable. Moreover, this option may
not be exercised if its exercise, or the receipt of Common Shares pursuant
thereto, would be contrary to applicable law.
3. DISPOSITION OF SHARES. This option shall not qualify as an incentive stock
option within the meaning of Section 422 of the Internal Revenue Code if the
Common Shares acquired pursuant to the exercise of the option are transferred,
other than by will or the laws of descent and distribution, within two years of
the date hereof, or within one year after transfer of Common Shares to the
Optionee pursuant to such exercise.
4. OPTIONEE BOUND BY PLAN. The Optionee hereby agrees to be bound by all the
terms and provisions of the Plan, a copy of which is available upon request to
the Committee.
5. WITHHOLDING TAXES. Optionee acknowledges and agrees that the Company and its
subsidiaries have the right to deduct from payments of any kind otherwise due to
Optionee any federal, state or local taxes of any kind required by law to be
withheld with respect to the exercise of this option hereunder.
6. NOTICES. Any notice hereunder to the Company shall be addressed to it at its
principal business office, 1720 Route 34, Wall, New Jersey 07719; Attention:
Board of Directors, and any notice hereunder to the Optionee shall be sent to
the address reflected on the payroll records of the Company, subject to the
right of either party to designate at any time hereafter in writing some other
address.
6. DELAWARE LAW TO GOVERN. This Agreement shall be construed and administered
in accordance with and governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Optionee has executed this
Agreement as of the date above written.
BiznessOnline.com, Inc.
By
--------------------------------------
Title: President
--------------------------------------
[Optionee]
<PAGE>
Exhibit 10.11
BIZNESSONLINE.COM
1999 STOCK INCENTIVE PLAN
Non-qualified Stock Option Agreement
This Agreement is by and between BiznessOnline.com, Inc. (the
"Company") and _____________, (the "Optionee"), effective as of
_________________.
W I T N E S S E T H:
1. GRANT OF OPTION. Pursuant to the provisions of the BiznessOnline.com 1999
Stock Incentive Plan (the "Plan"), effective as of the date hereof, the Company
hereby grants to the Optionee, subject to the terms and conditions of the Plan
and subject further to the terms and conditions herein, the right and option to
purchase from the Company all or any part of an aggregate of _____ shares of the
common stock ($.01 par value) of the Company ("Common Shares"), at the purchase
price equal to ____ per share, such option to be exercised as hereinafter
provided. It is intended that the option evidenced hereby constitute a
non-qualified stock option.
2. TERMS AND CONDITIONS. In addition to the terms and conditions contained in
the Plan, it is understood and agreed that the option evidenced hereby is
subject to the following additional terms and conditions:
(a) EXPIRATION DATE. The option shall expire on the _____ anniversary
of the date hereof.
(b) PERIOD OF EXERCISE. Subject to the other terms of this Agreement
regarding the exercisability of this option, this option shall become
exercisable at the rate of ____ Common Shares per _______ over a period of
_______ years from the date hereof commencing _________________ and continuing
on the ________________ day of each ________ thereafter, such that the entire
option shall be fully vested as of ___________________.
(c) EXERCISE OF OPTION. This option shall be exercised by submitting a
written notice to the Committee appointed pursuant to Section 2 of the Plan (the
"Committee") signed by the Optionee and specifying the number of Common Shares
as to which the option is being exercised. Such notice shall be accompanied by
the payment of the full option price for such shares, or shall fix a date (not
more than ten business days from the date of such notice) for the payment of the
full option price of the shares being purchased. Payment shall be made (i) in
cash (including personal check), (ii) by the delivery to the Company of Common
Shares already owned by the Optionee (which shall be valued for this purpose at
the fair market value on the date of transfer to the Company as determined by
the Committee), (iii) at the discretion of the Committee, the delivery of a
promissory note of the Optionee to the Company, payable upon such terms as are
specified by the Committee, or (iv) any combination of the above. A certificate
or certificates for the Common Shares of the Company purchased through the
exercise of an option shall be issued in regular course after the exercise of
the option and payment therefore.
<PAGE>
(d) TERMINATION OF OPTION UPON DEATH, DISABILITY, RETIREMENT OR
TERMINATION OF EMPLOYMENT. Unless the Committee in its discretion determines
otherwise, if an Optionee's employment with the Company and its subsidiaries
terminates, all options granted under this Plan to such Optionee which are not
exercisable on the date of such termination of employment shall immediately
terminate, and any remaining options shall terminate if not exercised before the
expiration of the following periods, or at such earlier time as may be
applicable under SECTION 6(b) of the Plan: (i) thirty (30) days following such
termination of employment, if such termination was not a result of retirement on
or after age 55, or of death or disability (disability within the meaning of
Section 22(e)(3) of the Internal Revenue Code), or (ii) three (3) months
following the Optionee's termination of employment because of retirement on or
after age 55, or (iii) one (l) year following date of death or commencement of
disability, if the Optionee was employed by the Company and/or subsidiary at the
time of his death or the commencement of his disability. Notwithstanding the
foregoing, if the Optionee's employment is terminated for cause, any remaining
portion of this option shall immediately terminate.
(e) NON-TRANSFERABILITY. Each option and all rights thereunder shall be
exercisable during the Optionee's lifetime only by him and shall be
non-assignable and non-transferable by the Optionee except, in the event of the
Optionee's death, by his will or by the laws of descent and distribution;
provided, however, such option may be gifted to a family member or a trust for
the benefit of a family member. For purposes of this Section, "family member"
means a spouse, parent, child, grandchild, step-child or step-grandchild. In the
event the death of an Optionee occurs, the representative or representatives of
his estate, or the person or persons who acquired (by bequest or inheritance)
the rights to exercise his options may exercise such options in whole or in part
prior to the expiration of the applicable exercise period, as specified in
Paragraph 2(d) above.
(f) CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence
of outstanding options shall not affect in any way the right or ability of the
Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Common Shares or the rights hereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business or substantially all of the outstanding stock of the Company,
or any other corporate act or proceeding, whether of a similar character or
otherwise.
If the Company shall effect a subdivision, consolidation or
reclassification of shares or other capital readjustment or recapitalization,
the payment of a stock dividend, or other increase or reduction of the number of
shares of the voting shares outstanding, without receiving compensation therefor
in money, services or property, then the number, class, and per share price of
Common Shares shall be appropriately adjusted in such a manner as to entitle an
Optionee to receive upon exercise of an option, for the same aggregate cash
consideration, the same total number and class of shares as he would have
received as a result of the event requiring the adjustment.
<PAGE>
If the Company is merged into or consolidated with another corporation,
regardless of whether or not the Company is the surviving corporation, or if the
Company is liquidated, or sells or otherwise disposes of substantially all of
its assets or substantially all of the stock of the Company while this option
remains outstanding, unless the Board determines otherwise, all outstanding
options shall expire as of the effective date of any such merger, consolidation,
liquidation, sale, or other disposition, provided that (x) notice of such
merger, consolidation, liquidation, sale or other disposition shall be given to
such Optionee at least 30 days prior to the effective date of such merger,
consolidation, liquidation, sale or other disposition and (y) an Optionee shall
have the right to exercise an option to the extent that the same is then
exercisable during the 30 day period preceding the effective date of such
merger, consolidation, liquidation, sale or other disposition.
Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, for cash or property, or for labor or services,
either upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company convertible
into such shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number or price of Common
Shares then subject to outstanding options.
(g) MODIFICATION OR CANCELLATION OF OPTION. The Committee shall have
the authority to effect, at any time and from time to time, with the consent of
the affected Optionee or Optionees, the modification of the terms of any option
agreement (subject to the limitations hereof), including the acceleration of the
exercisability of any option for any reason including a change in the control or
ownership of the Company, or the cancellation of any or all outstanding options
granted under this Plan. In substitution for canceled options, the Committee may
grant new options (subject to the limitations hereof) covering the same or
different numbers of Common Shares at an option price per share in all events
not less than fair market value on the date of the new grant.
(h) NO RIGHTS AS STOCKHOLDER. The Optionee shall have no rights as a
stockholder with respect to any Common Shares subject to this option prior to
the date of issuance to him of a certificate or certificates for such shares.
(i) NO RIGHT TO CONTINUED EMPLOYMENT. If the Optionee is employed by
the Company, this option shall not confer upon the Optionee any right with
respect to continuance of employment by the Company or any subsidiary, nor shall
it interfere in any way with the right of the employer to terminate the
Optionee's employment at any time.
(j) COMPLIANCE WITH LAW AND REGULATIONS. This option and the obligation
of the Company to sell and deliver shares hereunder shall be subject to all
applicable federal and state laws, rules and regulations and to such approvals
by any government or regulatory agency as may be required. The Company shall not
be required to issue or deliver any certificates for shares of Common Shares
prior to (i) the listing of such shares on any stock exchange on which the
Common Shares may then be listed, and (ii) the completion of any registration or
qualification of such shares under any federal or state law, or any rule or
regulation of any
<PAGE>
government body which the Company shall, in its sole discretion, determine to be
necessary or advisable. Moreover, this option may not be exercised if its
exercise, or the receipt of Common Shares pursuant thereto, would be contrary to
applicable law.
3. OPTIONEE BOUND BY PLAN. The Optionee hereby agrees to be bound by all the
terms and provisions of the Plan, a copy of which is available upon request to
the Committee.
4. WITHHOLDING TAXES. Optionee acknowledges and agrees that the Company and its
subsidiaries have the right to deduct from payments of any kind otherwise due to
Optionee any federal, state or local taxes of any kind required by law to be
withheld with respect to the exercise of this option hereunder.
5. NOTICES. Any notice hereunder to the Company shall be addressed to it at its
principal business office, 1720 Route 34, Wall, New Jersey 07719; Attention:
Board of Directors, and any notice hereunder to the Optionee shall be sent to
the address reflected on the payroll or other records of the Company, subject to
the right of either party to designate at any time hereafter in writing some
other address.
6. DELAWARE LAW TO GOVERN. This Agreement shall be construed and administered in
accordance with and governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Optionee has executed this
Agreement as of the date above written.
BiznessOnline.com, Inc.
By:
---------------------------------
Title: President
------------------------------------
[Optionee]
<PAGE>
Exhibit 10.12
BIZNESSONLINE.COM, INC.
1999 NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN
1. NAME AND PURPOSE. This Plan shall be known as the BiznessOnline.com, Inc.
1999 Non-Employee Director Stock Incentive Plan (the "Plan"). The purpose of the
Plan is to advance the interests of BiznessOnline.com, Inc., a Delaware
corporation (the "Company"), by providing compensation and other incentives for
the continued services of the Company's non-employee directors and for
attracting able individuals to directorships with the Company.
2. ADMINISTRATION. The Plan shall be administered by the Board of Directors or
by the person(s) designated by the Board of Directors to administer the Plan
(the Board or such person(s) being hereafter referred to as the "Committee").
The Committee shall be constituted in such a manner as to satisfy the legal
requirements relating to the administration of stock incentive plans, if any,
under applicable provisions of federal and state laws and the rules of any
applicable stock exchange or market quotation system, and to permit grants and
related transactions under the Plan to be exempt from Section 16(b) of the
Securities Exchange Act of 1934, as amended, and Rule 16(b)-3 thereunder. Once
appointed, the Committee shall continue to serve in its designated capacity
until otherwise directed by the Board of Directors. The Committee may establish,
subject to the provisions of the Plan, such rules and regulations as it deems
necessary for the proper administration of the Plan, and make such determination
and take such action in connection therewith or in relation to the Plan as it
deems necessary or advisable, consistent with the Plan.
3. ELIGIBILITY. A non-employee director of the Company shall automatically
become a participant in the Plan (a "Participant") as of the later of (i) the
closing date of the Company's initial public offering of common stock, or (ii)
the date of initial election to the Board of Directors. A director who is a
regular employee or officer of the Company is not eligible to participate in the
Plan. A Participant shall cease participation in the Plan as of the date the
Participant fails to be re-elected to the Board, resigns or otherwise vacates
his position on the Board, or becomes a regular employee or officer of the
Company.
4. SHARES SUBJECT TO THE PLAN.
(a) The shares to be issued and delivered by the Company upon exercise
of options granted under the Plan are the Company's shares of Common Stock, $.01
par value per share ("Common Shares"), which may be either authorized but
unissued shares or treasury shares.
(b) The aggregate number of Common Shares of the Company which may be
issued under the Plan shall not exceed 50,000 shares; subject, however, to the
adjustment provided in SECTION 7 in the event of certain changes in the
Company's capital structure.
<PAGE>
No option may be granted under this Plan which could cause such maximum limit to
be exceeded.
(c) Common Shares covered by an option which is no longer exercisable
with respect to such shares shall again be available for issuance under this
Plan.
5. TERMS AND CONDITIONS OF GRANTS OF OPTIONS.
(a) GRANT OF OPTIONS. For services rendered as a director of the
Company, the Company shall grant options to each Participant as follows. Each
option shall be embodied in a non-qualified option agreement signed by the
Participant and the Company providing the option shall be subject to the
provisions of this Plan and containing such other provisions as the Committee
may prescribe not inconsistent with the Plan.
(i) INITIAL GRANT. Upon election to the Board of Directors, a
Participant shall be awarded as of such date a non-qualified option to
purchase 7,500 Common Shares (an "Initial Grant"). If such election
becomes effective prior to or as of the effective date of the Company's
initial public offering of Common Shares, the exercise price per share
shall equal the initial offering price of Common Shares to the public
in such initial public offering as determined by the Company and its
underwriters. If such election becomes effective after the consummation
of the Company's initial public offering, the exercise price per share
shall equal the "fair market value" of Common Shares determined on such
election date. For purposes hereof, "fair market value" shall mean (a)
if the Common Shares are listed on the Nasdaq Small Cap Market, the
average of the closing bid and asked prices for the day prior to the
time of determination (or, if no such prices were reported on that
date, on the last date on which such prices were reported), (b) if the
Common Shares are listed on the Nasdaq National Market or other primary
stock exchange as determined by the Committee, the closing price for
the last market trading day prior to the time of the determination (or,
if no closing price was reported on that date, on the last trading date
on which a closing price was reported), or (c) if there is no market as
described in (a) or (b), as determined by the Committee in good faith.
(ii) SUBSEQUENT GRANT. In addition, on the third anniversary
of the date of a Participant's election to the Board of Directors and
continuing on each anniversary date thereafter, a Participant (other
than a director who is not continuing to serve as a director), shall be
awarded non-qualified options to purchase 2,500 Common Shares,
effective as of such anniversary date, at a price equal to the fair
market value of the Common Shares determined on such date (a
"Subsequent Grant").
(b) TERM AND EXERCISABILITY. Each Initial Grant shall have a term of
eight (8) years and shall vest and become exercisable in accordance with the
following schedule:
-2-
<PAGE>
<TABLE>
<CAPTION>
Percentage of Options Vesting Date
--------------------- ------------
<S> <C>
33 1/3 % on the grant date
33 1/3 % 1st anniversary of grant date
33 1/3% 2nd anniversary of grant date
</TABLE>
Each Subsequent Grant shall have a term of eight (8) years and shall be fully
vested as of the date of such grant.
(c) EXERCISE OF OPTION FOLLOWING TERMINATION OF SERVICE. In the event
of termination of a Participant's continuous service as a director for any
reason other than disability or death, such Participant may, but only within
three (3) months after the date of such termination (but in no event later than
the expiration date of the term of such option as set forth in the option
agreement), exercise his or her option to the extent that the Participant was
entitled to exercise it at the date of such termination or to such other extent
as may be determined by the Committee. If the Participant should die within
three (3) months after the date of such termination, the Participant's estate or
the person who acquired the right to exercise the option by bequest or
inheritance may exercise the option to the extent that the Participant was
entitled to exercise it at the date of such termination within twelve (12)
months of the Participant's date of death, but in no event later than the
expiration date of the term of such option as set forth in the option agreement.
(d) DISABILITY OF PARTICIPANT. In the event of termination of a
Participant's continuous service as a director as a result of disability, such
Participant may, within 12 months of the date of such termination (but in no
event later than the expiration date of the term of such option as set forth in
the option agreement), exercise an option to the extent that the Participant was
entitled to exercise it at the date of such termination. To the extent that the
Participant is not entitled to exercise the option at the date of termination,
or if the Participant does not exercise the option to the extent so entitled
within the time specified herein, the option shall terminate. For purposes
hereof, "disability" means that a Participant is unable to serve as a director
by reason of any medically determinable physical or mental impairment. A
Participant will not be considered to have incurred a disability unless he or
she furnishes proof of such condition sufficient to satisfy the Committee.
(e) DEATH OF PARTICIPANT. In the event of death of a Participant, an
option may be exercised at any time within 12 months following the date of death
(but in no event later than the expiration date of the term of such option as
set forth in the option agreement), by the Participant's estate or by a person
who acquired the right to exercise the option by bequest or inheritance, but
only to the extent that the Participant was entitled to exercise it at the date
of death. If, at the time of death, the Participant was not entitled to exercise
the entire option, the shares covered by the unexercisable portion of the option
shall immediately revert to the Plan. If, after death, the Participant's estate
or a person who acquired the right to exercise the option by bequest or
inheritance does not exercise the option within the time specified herein, the
option shall terminate.
-3-
<PAGE>
(f) NON-TRANSFERABILITY: Each option and all rights thereunder shall be
exercisable during the Participant's lifetime only by him and shall be
non-assignable and non-transferable by the Participant except, in the event of
death, by his will or by the laws of descent and distribution; provided,
however, that an option may be gifted to a family member or a trust for the
benefit of a family member. For purposes of this paragraph, "family member"
means a spouse, parent, child, grandchild, step-child or step-grandchild. In the
event of death of a Participant, the representative or representatives of his
estate, or the person or persons who acquired (by bequest or inheritance) the
rights to exercise his or her options may exercise such options in whole or in
part prior to the expiration of the applicable exercise period, as specified in
SECTION 6(e) above.
(g) COMPLIANCE WITH SECURITIES LAWS. Options granted and shares issued
by the Company upon exercise of options shall be granted and issued only in full
compliance with all applicable securities laws, including laws, rules and
regulations of the Securities and Exchange Commission and applicable state Blue
Sky Laws. With respect thereto, the Committee may impose such conditions on
transfer, restrictions and limitations as it may deem necessary and appropriate
to assure compliance with such applicable securities laws.
(h) MODIFICATION OR CANCELLATION OF OPTION. The Committee shall have
the authority to effect, at any time and from time to time, with the consent of
the affected Participant, the modification of the terms of any option agreement
(subject to the limitations hereof), including the acceleration of the
exercisability of any option for any reason including a change in the control or
ownership of the Company, or the cancellation of any or all outstanding options
granted under this Plan. In substitution for canceled options, the Committee may
grant new options (subject to the limitations hereof) covering the same or
different numbers of Common Shares at an option price per share in all events
not less than fair market value on the date of the new grant.
6. METHOD OF EXERCISE. An option granted under this Plan may be exercised by
written notice to the Committee, signed by the Participant, or by such other
person as is entitled to exercise such option. The notice of exercise shall
state the number of Common Shares in respect of which the option is being
exercised, and shall either be accompanied by the payment of the full option
price for such shares, or shall fix a date (not more than ten business days from
the date of such notice) for the payment of the full option price of the shares
being purchased. The purchase price may be paid (i) in cash (including personal
check), (ii) the delivery to the Company of Common Shares already owned by the
Participant (which shall be valued for this purpose at the fair market value on
the date of transfer to the Company as determined by the Committee, (iii) at the
discretion of the Committee, the delivery of a promissory note of the
Participant to the Company, payable upon such terms as are specified by the
Committee, or (iv) any combination of the above. A certificate or certificates
for the Common Shares of the Company purchased through the exercise of an option
shall be issued in regular course after the exercise of the option and payment
therefore. During the option period no person entitled to exercise any
-4-
<PAGE>
option granted under this Plan shall have any of the rights or privileges of a
shareholder with respect to any shares issuable upon exercise of such option
until certificates representing such shares shall have been issued and
delivered.
7. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of outstanding
options shall not affect in any way the right or ability of the Company or its
stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of bonds,
debentures, preferred or prior preference stock ahead of or affecting the Common
Shares or the rights hereof, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business or
substantially all of the outstanding stock of the Company, or any other
corporate act or proceeding, whether of a similar character or otherwise.
If the Company shall effect a subdivision, consolidation or
reclassification of shares or other capital readjustment or recapitalization,
the payment of a stock dividend, or other increase or reduction of the number of
shares of the voting shares outstanding, without receiving compensation therefor
in money, services or property, then the number, class, and per share price of
Common Shares shall be appropriately adjusted in such a manner as to entitle a
Participant to receive upon exercise of an option, for the same aggregate cash
consideration, the same total number and class of shares as he would have
received as a result of the event requiring the adjustment.
If the Company is merged into or consolidated with another corporation,
regardless of whether or not the Company is the surviving corporation, or if the
Company is liquidated, or sells or otherwise disposes of substantially all of
its assets or substantially all of the stock of the Company while this option
remains outstanding, unless the Board of Directors determines otherwise, all
outstanding options shall expire as of the effective date of any such merger,
consolidation, liquidation, sale, or other disposition, provided that (x) notice
of such merger, consolidation, liquidation, sale or other disposition shall be
given to such Participant at least 30 days prior to the effective date of such
merger, consolidation, liquidation, sale or other disposition and (y) a
Participant shall have the right to exercise an option to the extent that the
same is then exercisable during the 30 day period preceding the effective date
of such merger, consolidation, liquidation, sale or other disposition.
Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, for cash or property, or for labor or services,
either upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company convertible
into such shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number or price of Common
Shares then subject to outstanding options.
8. AMENDMENT OR TERMINATION. The Committee may at any time amend, suspend or
terminate the Plan. The Company shall obtain stockholder approval of any Plan
-5-
<PAGE>
amendment to the extent necessary to comply with applicable provisions of
federal securities laws, state corporate and securities, the Internal Revenue
Code of 1986, as amended, and the rules and regulations of any applicable stock
exchange or national market system. If the Plan is terminated, any unexercised
option shall continue to be exercisable in accordance with its terms, except as
provided in SECTION 7 above.
9. COMPANY RESPONSIBILITY. All expenses of this Plan, including the cost of
maintaining records, shall be borne by the Company. The Company shall have no
responsibility or liability (other than under applicable Securities Acts) for
any act or thing done or left undone with respect to the price, time, quantity,
or other conditions and circumstances of the purchase of shares under the terms
of the Plan, so long as the Company acts in good faith.
10. TAX WITHHOLDING. Any grant of an option hereunder shall provide as
determined by the Committee for appropriate arrangements for the satisfaction by
the Company and the Participant of all federal, state, local or other income
excise or employment taxes or tax withholding requirements applicable to the
exercise of the option or the later disposition of the Common Shares thereby
acquired and all such additional taxes or amounts as determined by the Committee
in its discretion, including, without limitation, the right of the Company or
any subsidiary thereof to receive transfers of Common Shares or other property
from the Participant or to deduct or withhold in the form of Common Shares from
any transfer to a Participant, in such amount or amounts deemed required or
appropriate by the Committee in its sole and absolute discretion.
11. IMPLIED CONSENT. Every Participant, by his acceptance of an option under
this Plan shall be deemed to have consented to be bound, on his own behalf and
on behalf of his heirs, assigns, and legal representatives, by all of the terms
and conditions of this Plan.
12. DURATION AND TERMINATION OF THE PLAN. The Plan shall become effective upon
the earlier to occur of its adoption by the Board of Directors or its approval
by the stockholders of the Company. It shall continue in effect for a term of
ten (10) years unless sooner terminated. Options may be granted under the Plan
upon its becoming effective. No options may be granted during any suspension of
the Plan or after termination of the Plan.
13. DELAWARE LAW TO GOVERN. This Plan shall be construed and administered in
accordance with and governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this 1999 Non-Employee
Director Stock Incentive Plan to be executed by its duly authorized officer as
of this 12th day of February, l999.
BIZNESSONLINE.COM, INC.
By:/s/ Mark E. Munro
-----------------
-6-
<PAGE>
Mark E. Munro, President
and Chief Executive Officer
-7-
<PAGE>
Exhibit 10.13
BIZNESSONLINE.COM
1999 NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN
Non-qualified Stock Option Agreement
This Agreement is by and between BiznessOnline.com, Inc. (the
"Company") and _____________, (the "Optionee"), effective as of
_________________.
W I T N E S S E T H:
1. GRANT OF OPTION. Pursuant to the provisions of the BiznessOnline.com 1999
Non-Employee Director Stock Incentive Plan (the "Plan"), effective as of the
date hereof, the Company hereby grants to the Optionee, subject to the terms and
conditions of the Plan and subject further to the terms and conditions herein,
the right and option to purchase from the Company all or any part of an
aggregate of _____ shares of the common stock ($.01 par value) of the Company
("Common Shares"), at the purchase price equal to ____ per share, being the fair
market value of the Common Shares as of the date hereof, such option to be
exercised as hereinafter provided. It is intended that the option evidenced
hereby constitute a non-qualified stock option.
2. TERMS AND CONDITIONS. In addition to the terms and conditions contained in
the Plan, it is understood and agreed that the option evidenced hereby is
subject to the following additional terms and conditions:
(a) EXPIRATION DATE. The option shall expire on the 8th anniversary of
the date hereof.
(b) PERIOD OF EXERCISE. Subject to the other terms of this Agreement
regarding the exercisability of this option, this option shall become
exercisable at the rate of ____ Common Shares per _______ over a period of
_______ years from the date hereof commencing _________________ and continuing
on the ________________ day of each ________ thereafter, such that the entire
option shall be fully vested as of ___________________.
(c) EXERCISE OF OPTION. This option shall be exercised by submitting a
written notice to the Committee appointed pursuant to Section 2 of the Plan (the
"Committee") signed by the Optionee and specifying the number of Common Shares
as to which the option is being exercised. Such notice shall be accompanied by
the payment of the full option price for such shares, or shall fix a date (not
more than ten business days from the date of such notice) for the payment of the
full option price of the shares being purchased. Payment shall be made (i) in
cash (including personal check), (ii) by the delivery to the Company of Common
Shares already owned by the Optionee (which shall be valued for this purpose at
the fair market value on the date of transfer to the Company as determined by
the Committee), (iii) at the discretion of the Committee, the delivery of a
promissory note of the Optionee to the Company, payable upon such terms as are
specified by the Committee, or (iv) any combination of the above. A certificate
or certificates for the Common Shares of the Company purchased through the
exercise of an option shall be issued in regular course after the exercise of
the option and payment therefore.
<PAGE>
(d) EXERCISE OF OPTION FOLLOWING TERMINATION OF SERVICE. In the event
of termination of a Optionee's continuous service as a director for any reason
other than disability or death, such Optionee may, but only within three (3)
months after the date of such termination (but in no event later than the
expiration date of the term of such option as set forth SECTION 2(a)), exercise
his or her option to the extent that the Optionee was entitled to exercise it at
the date of such termination or to such other extent as may be determined by the
Committee. If the Optionee should die within three (3) months after the date of
such termination, the Optionee's estate or the person who acquired the right to
exercise the option by bequest or inheritance may exercise the option to the
extent that the Optionee was entitled to exercise it at the date of such
termination within twelve (12) months of the Optionee's date of death, but in no
event later than the expiration date set forth in SECTION 2(a).
(e) DISABILITY OF OPTIONEE. In the event of termination of an
Optionee's continuous service as a director as a result of disability, such
Optionee may, within 12 months of the date of such termination (but in no event
later than the expiration date of the term of such option as set forth in
SECTION 2(a)), exercise an option to the extent that the Optionee was entitled
to exercise it at the date of such termination. To the extent that the Optionee
is not entitled to exercise the option at the date of termination, or if the
Optionee does not exercise the option to the extent so entitled within the time
specified herein, the option shall terminate. For purposes hereof, "disability"
means that an Optionee is unable to serve as a director by reason of any
medically determinable physical or mental impairment. An Optionee will not be
considered to have incurred a disability unless he or she furnishes proof of
such condition sufficient to satisfy the Committee in its sole discretion.
(f) DEATH OF OPTIONEE. In the event of death of an Optionee, an option
may be exercised at any time within 12 months following the date of death (but
in no event later than the expiration date of the term of such option as set
forth in SECTION 2(a), by the Optionee's estate or by a person who acquired the
right to exercise the option by bequest or inheritance, but only to the extent
that the Optionee was entitled to exercise it at the date of death. If, at the
time of death, the Optionee was not entitled to exercise the entire option, the
shares covered by the unexercisable portion of the option shall immediately
revert to the Plan. If, after death, the Optionee's estate or a person who
acquired the right to exercise the option by bequest or inheritance does not
exercise the option within the time specified herein, the option shall
terminate.
(g) NON-TRANSFERABILITY. Each option and all rights thereunder shall be
exercisable during the Optionee's lifetime only by the Optionee and shall be
non-assignable and non-transferable by the Optionee except, in the event of the
Optionee's death, by will or by the laws of descent and distribution; provided,
however, that such option may be gifted to a family member or a trust for the
benefit of a family member. For purposes of this Section, "family member" means
a spouse, parent, child, grandchild, step-child or step-grandchild. In the event
the death of an Optionee occurs, the representative or representatives of his
estate, or the person or persons who acquired (by bequest or inheritance) the
rights to exercise his options may exercise such options in whole or in part
prior to the expiration of the applicable exercise period, as specified in
SECTION 2(d) or 2(f) above.
<PAGE>
(h) CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of
outstanding options shall not affect in any way the right or ability of the
Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Common Shares or the rights hereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business or substantially all of the outstanding stock of the Company,
or any other corporate act or proceeding, whether of a similar character or
otherwise.
If the Company shall effect a subdivision, consolidation or
reclassification of shares or other capital readjustment or recapitalization,
the payment of a stock dividend, or other increase or reduction of the number of
shares of the voting shares outstanding, without receiving compensation therefor
in money, services or property, then the number, class, and per share price of
Common Shares shall be appropriately adjusted in such a manner as to entitle an
Optionee to receive upon exercise of an option, for the same aggregate cash
consideration, the same total number and class of shares as he would have
received as a result of the event requiring the adjustment.
If the Company is merged into or consolidated with another corporation,
regardless of whether or not the Company is the surviving corporation, or if the
Company is liquidated, or sells or otherwise disposes of substantially all of
its assets or substantially all of the stock of the Company while this option
remains outstanding, unless the Board determines otherwise, all outstanding
options shall expire as of the effective date of any such merger, consolidation,
liquidation, sale, or other disposition, provided that (x) notice of such
merger, consolidation, liquidation, sale or other disposition shall be given to
such Optionee at least 30 days prior to the effective date of such merger,
consolidation, liquidation, sale or other disposition and (y) an Optionee shall
have the right to exercise an option to the extent that the same is then
exercisable during the 30 day period preceding the effective date of such
merger, consolidation, liquidation, sale or other disposition.
Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, for cash or property, or for labor or services,
either upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company convertible
into such shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number or price of Common
Shares then subject to outstanding options.
(i) MODIFICATION OR CANCELLATION OF OPTION. The Committee shall have
the authority to effect, at any time and from time to time, with the consent of
the affected Optionee or Optionees, the modification of the terms of any option
agreement (subject to the limitations hereof), including the acceleration of the
exercisability of any option for any reason including a change in the control or
ownership of the Company, or the cancellation of any or all outstanding options
granted under this Plan. In substitution for canceled options, the Committee may
grant new
<PAGE>
options (subject to the limitations hereof) covering the same or different
numbers of Common Shares at an option price per share in all events not less
than fair market value on the date of the new grant.
(j) NO RIGHTS AS STOCKHOLDER. The Optionee shall have no rights as a
stockholder with respect to any Common Shares subject to this option prior to
the date of issuance to him of a certificate or certificates for such shares.
(k) COMPLIANCE WITH LAW AND REGULATIONS. This option and the obligation
of the Company to sell and deliver shares hereunder shall be subject to all
applicable federal and state laws, rules and regulations and to such approvals
by any government or regulatory agency as may be required. The Company shall not
be required to issue or deliver any certificates for shares of Common Shares
prior to (i) the listing of such shares on any stock exchange on which the
Common Shares may then be listed, and (ii) the completion of any registration or
qualification of such shares under any federal or state law, or any rule or
regulation of any government body which the Company shall, in its sole
discretion, determine to be necessary or advisable. Moreover, this option may
not be exercised if its exercise, or the receipt of Common Shares pursuant
thereto, would be contrary to applicable law.
3. OPTIONEE BOUND BY PLAN. The Optionee hereby agrees to be bound by all the
terms and provisions of the Plan, a copy of which is available upon request to
the Committee.
4. WITHHOLDING TAXES. Optionee acknowledges and agrees that the Company and its
subsidiaries have the right to deduct from payments of any kind otherwise due to
Optionee any federal, state or local taxes of any kind required by law to be
withheld with respect to the exercise of this option hereunder.
5. NOTICES. Any notice hereunder to the Company shall be addressed to it at its
principal business office, 1720 Route 34, Wall, New Jersey 07719; Attention:
Board of Directors, and any notice hereunder to the Optionee shall be sent to
the address reflected on the records of the Company, subject to the right of
either party to designate at any time hereafter in writing some other address.
6. DELAWARE LAW TO GOVERN. This Agreement shall be construed and administered in
accordance with and governed by the laws of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Optionee has executed this
Agreement as of the date above written.
BiznessOnline.com, Inc.
By:
----------------------------------------
Title: President
----------------------------------------
[Optionee]
<PAGE>
Exhibit 11.1
BiznessOnline.com, Inc.
Calculation of Earnings Per Share
A reconciliation of shares used in the calculation of basic and loss per share
follows:
<TABLE>
<CAPTION>
1998
----
<S> <C>
Net loss $(125,434)
Reconciliation of weighted average shares:
Shares outstanding 3,147,186
---------
Shares used in computing basic
and diluted loss per share 3,147,186
---------
---------
Net loss per common share - basic $ (.04)
Net loss per common share - diluted $ (.04)
</TABLE>
Options have been excluded, as their exercise price is equal to or greater than
the estimated fair value of the common shares.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
---------------------------
1. Global 2000 Communications, Inc., a New York corporation.
2. InSite Internet II Acquisition Co., Inc., a New York corporation to be
known as Borg Internet Services, Inc. upon the consummation of the
Company's initial public offering of common stock for which this
Registration Statement has been filed.
3. InSite Internet III Acquisition Co., Inc., a New York corporation.
4. InSite Internet IV Acquisition Co., Inc., a New York corporation to be
known as Ulsternet, Inc. upon the consummation of the Company's initial
public offering of common stock for which this Registration Statement has
been filed.
5. InSite Internet V Acquisition Co., Inc., a Connecticut corporation to be
known as Caravela Software, Inc. dba Connix upon the consummation of the
Company's initial public offering of common stock for which this
Registration Statement has been filed.
<PAGE>
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
BiznessOnline.com, Inc.:
We consent to the inclusion of our report dated February 12, 1999, with
respect to the balance sheet of BiznessOnline.com, Inc. as of December 31, 1998
and the related statements of operations, stockholders' equity, and cash flows
for the period from July 1, 1998 (date of inception) through December 31, 1998
included herein and to the reference to our firm under the heading "Experts".
/s/ KPMG LLP
Providence, Rhode Island
February 25, 1999
<PAGE>
EXHIBIT 23.2
ACCOUNTANTS' CONSENT
The Board of Directors
AlbanyNet, Inc.:
We consent to the inclusion of our report dated January 29, 1999, with
respect to the balance sheet of AlbanyNet, Inc. as of December 31, 1998 and the
related statements of income, stockholders' equity, and cash flows for each of
the years in the two-year period ended December 31, 1998 included herein and to
the reference to our firm under the heading "Experts" included in the
Registration Statement (Form SB-2) and related prospectus of BiznessOnline.com,
Inc.
/s/ KPMG LLP
Providence, Rhode Island
February 25, 1999
<PAGE>
EXHIBIT 23.3
ACCOUNTANTS' CONSENT
The Board of Directors
Borg Internet Services, Inc.:
We consent to the inclusion of our report dated January 22, 1999, with
respect to the balance sheet of Borg Internet Services, Inc. as of December 31,
1998 and the related statements of operations, stockholders' equity (deficit),
and cash flows for each of the years in the two-year period ended December 31,
1998 included herein and to the reference to our firm under the heading
"Experts" included in the Registration Statement (Form SB-2) and related
prospectus of BiznessOnline.com, Inc.
/s/ KPMG LLP
Providence, Rhode Island
February 25, 1999
<PAGE>
EXHIBIT 23.4
ACCOUNTANTS' CONSENT
The Board of Directors
Caravela Software, Inc.:
We consent to the inclusion of our report dated February 2, 1999, with
respect to the balance sheet of Caravela Software, Inc. as of December 31, 1998
and the related statements of operations, stockholders' equity, and cash flows
for each of the years in the two-year period ended December 31, 1998 included
herein and to the reference to our firm under the heading "Experts" included in
the Registration Statement (Form SB-2) and related prospectus of
BiznessOnline.com, Inc.
/s/ KPMG LLP
Providence, Rhode Island
February 25, 1999
<PAGE>
EXHIBIT 23.5
ACCOUNTANTS' CONSENT
The Board of Directors
Global 2000 Communications, Inc.:
We consent to the inclusion of our report dated January 31, 1999, with
respect to the balance sheet of Global 2000 Communications, Inc. as of December
31, 1998 and the related statements of income, stockholders' equity, and cash
flows for each of the years in the two-year period ended December 31, 1998
included herein and to the reference to our firm under the heading "Experts"
included in the Registration Statement (Form SB-2) and related prospectus of
BiznessOnline.com, Inc.
/s/ KPMG LLP
Providence, Rhode Island
February 25, 1999
<PAGE>
EXHIBIT 23.6
ACCOUNTANTS' CONSENT
The Board of Directors
Ulsternet, Inc.:
We consent to the inclusion of our report dated January 25, 1999, with
respect to the balance sheet of Ulsternet, Inc. as of December 31, 1998 and the
related statements of operations, stockholders' equity (deficit), and cash flows
for each of the years in the two-year period ended December 31, 1998 included
herein and to the reference to our firm under the heading "Experts" included in
the Registration Statement (Form SB-2) and related prospectus of
BiznessOnline.com, Inc.
/s/ KPMG LLP
Providence, Rhode Island
February 25, 1999
<PAGE>
EXHIBIT 23.8
CONSENT OF DIRECTOR NOMINEE
I hereby consent to being identified in the Registration Statement on Form
SB-2 of BiznessOnline.com, Inc. (the "Company") as a nominee for election as a
director of the Company.
<TABLE>
<S> <C> <C>
Dated: February 23, 1999 /s/ JOHN B. FRASER
---------------------------------
John B. Fraser
</TABLE>
<PAGE>
EXHIBIT 23.9
CONSENT OF DIRECTOR NOMINEE
I hereby consent to being identified in the Registration Statement on Form
SB-2 of BiznessOnline.com, Inc. (the "Company") as a nominee for election as a
director of the Company.
<TABLE>
<S> <C> <C>
Dated: February 23, 1999 /s/ JOSEPH LUCIANO
---------------------------------
Joseph Luciano
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001079406
<NAME> BIZNESSONLINE.COM, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 147,736
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 147,736
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 256,214
<CURRENT-LIABILITIES> 98,614
<BONDS> 0
0
0
<COMMON> 31,472
<OTHER-SE> 26,094
<TOTAL-LIABILITY-AND-EQUITY> 256,214
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 125,434
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (125,434)
<INCOME-TAX> 0
<INCOME-CONTINUING> (125,434)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (125,434)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
