<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 3, 1999
REGISTRATION NO. 333-73067
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
BIZNESSONLINE.COM, INC.
(Name of small business issuer in its charter)
------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7375 06-1519132
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
MARK E. MUNRO
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
BIZNESSONLINE.COM, INC.
1720 ROUTE 34
P.O. BOX 1347
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)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
MICHAEL F. SWEENEY, ESQ. RUBI FINKELSTEIN, ESQ. WILLIAM M. PRIFTI, ESQ.
ROBERT D. EMERSON, ESQ. ORRICK, HERRINGTON & SUTCLIFFE LLP FIVE MARKET SQUARE
DUFFY & SWEENEY, LLP 30 ROCKEFELLER PLAZA SUITE 109
300 TURKS HEAD BUILDING NEW YORK, NY 10112 AMESBURY, MA 01913
PROVIDENCE, RI 02903 (212) 506-5000 (978) 388-4942
(401) 455-0700 (212) 506-3730 (FAX) (978) 388-4945 (FAX)
(401) 455-0701 (FAX)
</TABLE>
--------------------------
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. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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................................................... 3,335,000 $33,350,000 $9,271.30
Underwriters' Warrants......................................... 290,000 $290 $.08
Common Stock underlying Underwriters' Warrants................. 290,000 $4,785,000 $1,330.23
Total Registration Fee(2)...................................... $10,601.61
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457 under the Securities Act.
(2) A fee of: $4,096.35 is due at this time, as $6,505.26 was paid on February
26, 1999 in connection with the initial filing of this Registration
Statement.
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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 MAY 3, 1999
[LOGO]
2,900,000 SHARES OF COMMON STOCK
This is our initial public offering of common stock. We have applied to list
our common stock on the Nasdaq National Market under the symbol "BIZZ". No
public market currently exists for the shares of common stock.
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 7.
------------------------
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
- -------------------------------------------------------------------------------------------
Public offering price................................................. $ 10 $29,000,000
Underwriting discounts and commissions................................ $ $
Proceeds, before expenses, to BiznessOnline........................... $ $
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
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 435,000
additional shares to cover any over-allotments.
------------------------
JOSEPH STEVENS & COMPANY, INC.
SCHNEIDER SECURITIES, INC.
NEIDIGER, TUCKER, BRUNER, INC.
ROYCE INVESTMENT GROUP, INC.
, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Prospectus Summary........................... 3
Risk Factors................................. 7
Forward-Looking Statements................... 8
Use of Proceeds.............................. 9
Dividend Policy.............................. 9
Capitalization............................... 10
Dilution..................................... 11
Selected Pro Forma Financial Data............ 12
Selected Historical Financial Data for
BiznessOnline and Our Internet Service
Providers.................................. 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 17
<CAPTION>
PAGE
---
<S> <C>
Business..................................... 28
Management................................... 37
Certain Transactions......................... 45
Principal Stockholders....................... 46
Description of Securities.................... 47
Shares Available for Future Sale............. 50
Underwriting................................. 51
Legal Matters................................ 53
Experts...................................... 53
How to Get More Information.................. 53
Index to Financial Statements................ F-1
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
BIZNESSONLINE.COM, INC.
We are a new company formed to acquire and operate businesses that provide
Internet access and related services to customers outside of large metropolitan
areas in the northeastern United States. In January, 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. We have entered agreements to acquire, and upon the completion of
this offering we will acquire, four additional Internet service providers
serving Connecticut and northeastern New York with approximately 16,000
individual and business subscribers.
Our executive offices are located at 1720 Route 34, P.O. Box 1347, 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.
SUMMARY OF THE OFFERING
The share numbers in the following table assume that we have issued all the
shares of our common stock included in the purchase price for the Internet
service providers we will acquire at the closing of this offering. See
"Business--The acquisitions." Following the offering, we will also have
outstanding warrants and options to purchase 290,000 shares at $16.50 per share
and 52,500 shares at the initial public offering price. We will also have a
total of 497,500 shares of common stock reserved for issuance under our stock
option plans.
<TABLE>
<S> <C>
common stock offered by BiznessOnline.com 2,900,000 shares
common stock outstanding after this offering 6,890,436 shares, assuming the underwriters
do not exercise their over-allotment option;
or
7,325,436 shares, assuming the underwriters
exercise their over-allotment option in full
use of proceeds - $5,730,000 for payment of the cash portion
of the purchase price to the stockholders of
the former Internet service providers we
will acquire at the closing of this
offering;
- $580,000 for repayment of promissory notes
due to the former stockholders of Global 2000
Communications;
- $900,000 for costs to integrate the
operating systems of the Internet service
providers we will own at the close of this
offering;
- approximately $17,000,000 for possible
future acquisitions of Internet service
providers; and
- $790,000 for general working capital
</TABLE>
3
<PAGE>
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following table provides summary pro forma consolidated financial
information for BiznessOnline, Global 2000 Communications, Inc., and the four
Internet service providers we will acquire 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 statement 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.
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
DECEMBER 31,
1998
----------------
<S> <C>
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.................................................................................. 2,703,866
----------------
Total costs and expenses.................................................................. 8,767,494
----------------
Loss from operations............................................................................ (2,571,800)
Other income (expense), net................................................................... (81,025)
Interest expense.............................................................................. (59,752)
----------------
Loss before income taxes........................................................................ (2,712,577)
Income taxes.................................................................................. --
----------------
Net loss........................................................................................ $ (2,712,577)
----------------
----------------
Net loss per share--basic and diluted........................................................... $ (.39)
Weighted average shares outstanding............................................................. 6,890,436
OTHER OPERATING DATA:
Approximate number of subscribers at year end................................................... 20,000
Earnings before interest, taxes, depreciation and amortization.................................. $ 536,510
</TABLE>
<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 $ (6,241,018) $ 18,867,460
Total assets............................................................ 256,214 15,916,265 34,606,265
Total liabilities....................................................... 198,648 7,996,699 1,686,699
Stockholders' equity.................................................... 57,566 7,919,566 32,919,566
</TABLE>
4
<PAGE>
The consolidated statement of operations data:
- reflects an aggregate change in compensation and increases in expenses
associated with corporate management under contractual arrangements of
$368,000.
- 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 $2,682,000 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 pro forma balance sheet data reflects the use of :
- $6,310,000, including $580,000 for repayment of notes payable to the
former stockholders of Global 2000 Communications, representing the cash
or promissory note 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, which may be adjusted
based on the financial condition of our Internet service providers as of
the closing date of this offering.
5
<PAGE>
SUMMARY HISTORICAL INDIVIDUAL INTERNET SERVICE PROVIDER DATA
The following table presents 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 BiznessOnline and
Our Internet Service Providers" beginning on page 13 below.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
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>
6
<PAGE>
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.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, WE MAY NOT BE ABLE TO SUCCESSFULLY
MANAGE OUR BUSINESS OR ACHIEVE PROFITABILITY.
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.
IF WE DO NOT COMPLETE THE ACQUISITIONS OF ALL FOUR OF THE INTERNET SERVICE
PROVIDERS WE PLAN TO ACQUIRE AT THE CLOSING OF THIS OFFERING, OUR RESULTS OF
OPERATIONS MAY SUFFER.
Although our agreements with the Internet service providers we will acquire
at the closing of this offering contain standard closing conditions which the
stockholders of the companies do not have control over, we cannot be certain
that one or more of these persons will not breach their agreements. If we are
unable to close one or more of these acquisitions, we would be forced to seek an
injunction from a court to enforce the agreement as written or negotiate a
settlement. In either case, the delay or the inability to complete the
transaction could have a negative impact on our projected results of operations.
COMPETING BIDS FOR INTERNET SERVICE PROVIDERS MAY DRIVE UP PURCHASE PRICES AND
LIMIT OUR ABILITY TO CARRY OUT OUR GROWTH STRATEGY.
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. We believe that competition from other companies which
seek to acquire and consolidate Internet service companies is significant and
that acquisition prices will rise with the growth in demand for these companies
in the future. We may not have sufficient financial resources to afford these
higher prices. The potential increase in acquisition prices could increase the
amount of goodwill and other intangibles allocated from the purchase price for
these companies which could adversely affect our financial condition and
operating results.
OUR SUCCESS DEPENDS ON OUR ABILITY TO RETAIN MARK MUNRO AND OTHER KEY PERSONNEL.
We believe that the telecommunications and related management, sales and
marketing experience of Mark E. Munro, our president and chief executive officer
is critical to our success in the Internet business and in our growth by
acquisitions strategy and the loss of his 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 these personnel. We may
also be unable to retain or integrate the personnel of acquired Internet service
providers into our operations.
BECAUSE WE WILL DEPEND ON OTHER COMPANIES FOR TELECOMMUNICATIONS PRODUCTS AND
SERVICES, WE MAY EXPERIENCE DELAYS AND INCREASED COSTS IF DEMAND FOR THESE
ITEMS CONTINUES TO INCREASE.
We will depend on major companies such as UUNET, MCI Worldcom and Sprint to
provide connectivity and equipment capacity to us. We will also depend on
third-party suppliers of hardware components. As we and other Internet service
providers grow, our suppliers will face significant
7
<PAGE>
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.
THE INTERNET SERVICE MARKET CHANGES RAPIDLY AND WE MAY NOT BE SUCCESSFUL IN
ADAPTING TO NEW
TECHNOLOGIES OR ALTERNATIVE INTERNET ACCESS SYSTEMS.
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 this 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.
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 risks, uncertainties and assumptions.
Actual future results may differ significantly from the results discussed in the
forward-looking statements. Some, but not all, of the factors that may cause
these differences include those discussed in the Risk Factors section beginning
on page 8 of this prospectus. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this prospectus.
8
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of the 2.9 million shares of common stock
after deducting underwriting fees and our estimated offering expenses will be
approximately $25 million. If the underwriters' over allotment is exercised in
full, our net proceeds are estimated to be approximately $29 million.
We intend to use the net proceeds as described in the following table:
<TABLE>
<CAPTION>
CATEGORY AMOUNT OF NET PROCEEDS PERCENTAGE
- ------------------------------------------------------------------------------ ---------------------- -------------
<S> <C> <C>
Payment of the cash portion of the purchase price due to the stockholders of
the four Internet service providers we have contracted to acquire at the
closing of this offering.................................................... $ 5,730,000 22.9%
Repayment of promissory notes due to the stockholders of Global 2000
Communications, Inc., acquired in January, 1999............................. $ 580,000 2.3%
Costs to integrate operating systems of the Internet service providers we will
own at the closing of this offering......................................... $ 900,000 3.6%
Possible future acquisitions of Internet service providers.................... $ 17,000,000 68.0%
General working capital....................................................... $ 790,000 3.2%
------------ ---
Totals........................................................................ $ 25,000,000 100%
</TABLE>
We have complete discretion over how to use a significant portion of the net
proceeds of this offering. We cannot assure investors that our use of the net
proceeds will not vary substantially due to unforeseen factors. If we do not
complete an acquisition, the proceeds of this offering that otherwise would have
been used to complete that acquisition will be applied to working capital or
other possible acquisitions.
The assets that we acquired from the stockholders of Global 2000
Communications, Inc. and the assets that we will acquire from the four
additional Internet service providers to be acquired at the closing of this
offering, for a total purchase price of $14,130,000, include approximately:
- $1,018,000 in current assets, primarily cash and accounts receivable;
- $804,000 in property and equipment including computer equipment,
telecommunications equipment, and furniture and fixtures; and
- the remaining amount will be allocated to goodwill and other intangible
assets.
These Internet service providers were not affiliates of BiznessOnline at or
prior to entering into acquisition agreements with us.
Other than our agreements to acquire four Internet service providers at the
closing of this offering, we have no current agreements or commitments to
acquire any new companies and we are not currently negotiating with any
acquisition candidates. Prior to applying the net proceeds of this offering as
illustrated in the preceding table, the proceeds 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, based on our earnings, capital requirements, financial position, general
economic conditions, and other pertinent factors.
9
<PAGE>
CAPITALIZATION
The following table describes:
- the actual capitalization as of December 31, 1998;
- pro forma consolidated capitalization as of December 31, 1998 to reflect
the issuance and conversion of 70,000 shares of Class A preferred stock
into 61,250 shares of common stock at the consummation of this offering
and the issuance of 782,000 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 December 31, 1998 to reflect
the issuance of 2,900,000 shares of common stock in this offering at an
initial public offering price of $10.00 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; 3,990,436 shares outstanding pro forma
consolidated and 6,890,436 shares outstanding, as adjusted......... 31,472 39,904 68,904
Additional paid-in capital........................................... 151,528 7,922,096 32,893,096
Accumulated deficit.................................................. (125,434) (42,434) (42,434)
----------- ------------ -------------
Total stockholders' equity............................................. 57,566 7,919,566 32,919,566
----------- ------------ -------------
Total capitalization................................................... $ 157,566 $8,130,721 $ 33,130,721
----------- ------------ -------------
----------- ------------ -------------
</TABLE>
The preceding table excludes:
- 435,000 shares issuable upon exercise of the underwriters' over allotment
option;
- 290,000 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 22,500 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.
10
<PAGE>
DILUTION
At December 31, 1998, BiznessOnline had a pro forma consolidated net
tangible book value (deficit) of $(5,535,163) or $(1.39) per share based on
3,990,436 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 $10.00, the pro forma as adjusted net tangible book value of our common stock
at December 31, 1998 would have been $19,464,837 or $2.82 per share. This
represents an immediate increase in net tangible book value of $4.21 to existing
holders of common stock, and an immediate dilution of $7.18 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.................... $ 10.00
Pro forma consolidated net tangible book value (deficit) per
share before offering..................................... $ (1.39)
Increase in net tangible book value per share attributed to
the estimated net proceeds of the offering................ 4.21
---------
Pro forma as adjusted net tangible book value per share
after the offering........................................ 2.82
Dilution of net tangible book value per share of common
stock to investors in the offering........................ $ 7.18
</TABLE>
The following table summarizes on a pro forma basis as of December 31, 1998,
after giving effect to:
- the automatic conversion of 70,000 shares of preferred stock into 61,250
shares of common stock at the consummation of this offering;
- the issuance of 782,000 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................................. 2,900,000 42.1% $ 29,000,000 77.7% $ 10.00
Internet service providers.................... 782,000 11.3% $ 7,820,000 20.9% $ 10.00
Preferred stockholders........................ 61,250 .9% $ 350,000 .9% $ 5.71
Original investors............................ 3,147,186 45.7% $ 183,000 .5% $ .06
---------- ----------- ------------- -----------
6,890,436 100.0% $ 37,353,000 100.0%
---------- ----------- ------------- -----------
---------- ----------- ------------- -----------
</TABLE>
11
<PAGE>
SELECTED PRO FORMA FINANCIAL DATA
We present below selected 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 preferred stock
into 61,250 shares of common stock at the consummation of this offering, and the
issuance of 782,000 shares of common stock issued to the stockholders of our
Internet service providers as described in "Business--The acquisitions" and pro
forma as adjusted for this offering. The pro forma consolidated statement 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.................................................................. 2,703,866
-----------------
Total costs and expenses................................................................. 8,767,494
-----------------
Loss from operations......................................................................... (2,571,800)
Other income (expense):
Other income (expense), net.................................................................. (81,025)
Interest expense............................................................................. (59,752)
-----------------
Net loss before income taxes............................................................. (2,712,577)
Income taxes................................................................................... --
-----------------
Net loss................................................................................. $ (2,712,577)
-----------------
-----------------
Net loss per share basic and diluted..................................................... $ (.39)
Weighted average shares outstanding...................................................... 6,890,436
OTHER OPERATING DATA:
Approximate number of subscribers at year end................................................ 20,000
Earnings before interest, taxes, depreciation, and amortization.............................. $ 536,510
</TABLE>
<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 $ (6,241,018) $ 18,867,460
Total assets............................................................ 256,214 15,916,265 34,606,265
Total liabilities....................................................... 198,648 7,996,699 1,686,699
Stockholders' equity.................................................... 57,566 7,919,566 32,919,566
</TABLE>
12
<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 accompanying explanatory notes of our
Internet service providers included elsewhere in this prospectus.
The following selected financial data of BiznessOnline and the Internet
service providers should be read in conjunction with the historical financial
statements and accompanying explanatory notes 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>
13
<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 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>
14
<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>
15
<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)......................................................................... $ (192,274)
Total assets...................................................................................... $ 348,614
Long term debt, less current portion.............................................................. $ 78,608
Total stockholders' equity (deficit).............................................................. $ (30,283)
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>
16
<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 Pro Forma Financial Data" on page 18 above for the basis of the
pro forma presentation for BiznessOnline.
OVERVIEW
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 per
month among our Internet service providers and by the billing plans for a
particular Internet service provider. The subscription rates vary among Internet
service providers due to competitive and economic factors. 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 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 users of customer service and
technical support.
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.
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 to support our growth,
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
17
<PAGE>
networks to support new and existing subscribers and as we build a centralized
billing and financial reporting system.
PRO FORMA RESULTS OF OPERATIONS
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--either s
corporations or c corporations--during the periods presented, however, we
used c corporation structure to present pro forma results; with regard to
s corporation and c corporation tax structures of our Internet service
providers, our Internet service provider Global 2000 Communications, Inc.
converted to a c corporation on January 31, 1999, the date we acquired
this company. Ulsternet, Inc. and AlbanyNet, Inc. will convert to c
corporation status when we acquire these companies at the closing of this
offering. The conversion to c corporation status of Ulsternet, Global 2000
Communications and AlbanyNet will not have a material effect on our
financial condition or pro forma results of operations;
- 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 accompanying explanatory notes 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 23.3
Depreciation................................................................................ 404,444 6.5
Amortization of intangibles................................................................. 2,703,866 43.6
----------- ---------
Total costs and expenses.................................................................... 8,767,494 141.5
----------- ---------
Loss from operations........................................................................ (2,571,800) (41.5)
Other income (expense) net.................................................................. (81,025) (1.3)
Interest expense............................................................................ (59,752) (1.0)
----------- ---------
Loss before taxes........................................................................... (2,712,577) (43.8)
----------- ---------
----------- ---------
Approximate total subscribers at year end................................................... 20,000
</TABLE>
18
<PAGE>
RESULTS OF OPERATIONS
The following tables set forth significant historical financial data and
this 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.
19
<PAGE>
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.
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
1,328,076 to 1,520,192. The increase was primarily a result of the increase in
the number of subscribers.
20
<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%.
21
<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%.
22
<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.
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%.
23
<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.
24
<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. As a result, 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.
We currently have commitments under employment agreements for our executive
officers and the managers of Global 2000 Communications, Inc. in the aggregate
amount of $540,000 per year.
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 and repayment of the promissory notes in the aggregate amount
of $580,000 issued to the stockholders of Global 2000 Communications, Inc., we
will have approximately $19 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 $23 million of cash on hand. After
completing the four acquisitions of our Internet service providers at the
closing of this offering, our commitments under employment agreements with our
executive officers and the managers of our Internet service providers we will
own after the closing of the offering will increase to $1,055,000 per year in
the aggregate for the next three years.
On a pro forma 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 the year ended December 31, 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
25
<PAGE>
in their businesses to be Year 2000 compliant. They have also verbally advised
us that they do not expect any significant Year 2000 problems in their networks.
Additionally, some of our Internet service providers have contacted their major
vendors to assess their Year 2000 readiness. 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.
We are continuing to assess 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.
Based upon the information currently available to us, we do not anticipate
costs associated with the Year 2000 issue to have a material financial impact on
us. However, we may experience interruptions or other limitations of the
functioning of our financial and operating systems, and we may incur additional
costs to avoid these interruptions or limitations should they occur. Our
expectations about future costs associated with the Year 2000 issue are limited
by uncertainties that could cause actual results to have a greater financial
impact than currently anticipated. Factors that could influence the amount and
timing of future costs include:
- our success in identifying systems and programs that contain two-digit
year codes;
- the nature and amount of programming required to upgrade or replace each
of the affected programs;
- the rate and magnitude of related labor and consulting costs; and
- our success in addressing Year 2000 issues with third-parties with which
we do business.
We have not developed a contingency plan to address situations that may
result if we are unable to achieve Year 2000 compliance. If we believe it
becomes necessary, we will develop a contingency plan. The costs of developing
and implementing a contingency 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." Statement 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.
Statement 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 Statement 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."
Statement 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. Statement 98-5 is effective for financial statements for
fiscal years beginning after December 15, 1998. We have implemented Statement
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 No. 131 "Disclosure About Segments of an
Enterprise and Related Information." Statement 131 supersedes Statement 14,
"Financial Reporting for Segments of a Business Enterprise", and is effective
for years beginning after December 31, 1997. Statement 131 establishes standards
for the way that public business enterprises report selected information about
operating segments in financial reports. Statement 131 also establishes
standards for related disclosures about products and services,
26
<PAGE>
geographic areas, and major customers. We have not yet determined the impact of
the adoption of Statement 131.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." Statement 133 changes the previous accounting
definition of "derivative" which focused on freestanding contracts like options
and forwards, including futures and swaps, expanding it to include embedded
derivatives and many commodity contracts. Under Statement 133, every derivative
is recorded in the balance sheet as either an asset or liability measured at its
fair value. Statement 133 requires that changes in the derivative fair value be
recognized currently in earnings unless specified hedge accounting criteria are
met. Statement 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 Statement 133 will have a material
impact on our financial position or results of operations.
27
<PAGE>
BUSINESS
INTRODUCTION
We were formed as a Delaware corporation on June 11, 1998 using the name
InSite Telecom, Inc. We subsequently changed our name to InSite Internet, Inc.
on December 4, 1998 and again to BiznessOnline.com, Inc. on February 10, 1999.
In this section of the prospectus regarding our business, 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.
OUR OPERATIONS
We provide dial-up and private Internet access, design customized web sites,
host customer web sites on our computer networks, and offer related e-commerce
services to individual and business subscribers outside of large metropolitan
areas in the northeastern United States. We offer subscribers comprehensive
technical assistance, large modem banks providing rapid access to the Internet,
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. In June, 1998,
eMarketer reported that the United States market in 1998 contained 47 million
Internet users, and projected this market to grow to 85 million Internet users
by 2002. eMarketer also estimated that the worldwide market would grow to 228
million Internet users by the end of 2002. eMarketer is an industry group
dedicated to producing research and related reports on the Internet industry.
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 MARKET
We market our Internet service providers as premium Internet access
providers, particularly to small to medium sized businesses. In the eMarketer
report cited above, eMarketer notes that only 9% of small companies have web
sites, as compared to 86% of large companies. They also reported that only 4% of
small companies are engaged in online sales as compared to 33% of large
companies. eMarketer expects these differences between small and large companies
to narrow rapidly as the Internet allows small firms to compete less expensively
and more efficiently with large firms. We believe that the northeastern United
States will participate in the growth of this market niche and that we are well
positioned to take advantage of this growth.
OUR STRATEGY
Our strategy is to rapidly build a base of Internet subscribers through
acquisitions and internal growth. The following are the key elements of our
acquisition strategy and the steps we will take to integrate the businesses into
a regionally focused Internet company servicing the northeastern United States.
28
<PAGE>
- ACQUIRE ADDITIONAL INTERNET SERVICE PROVIDERS. We will use our newly
acquired management teams to assist us in identifying local competitors
and other Internet companies as potential acquisitions.
- INCREASE OUR CUSTOMER SUPPORT. We plan to implement a new customer billing
and technical support system. This new system will allow us to more
efficiently monitor customer financial data by eliminating redundant
operations and to better service our customer technical support needs. We
also plan to establish a service management team that will be responsible
for reassuring customer satisfaction levels.
- EXPAND INTERNET CONNECTIVITY CAPACITY. We will set up a regional data
center in Albany, New York over the next three to six months. We estimate
the cost of setting up this data center and integrating the Internet
service providers will be approximately $900,000. We will connect our
Internet service providers to the new data center with high speed private
access lines. We will then eliminate the individual Internet service
providers' connections to the Internet and connect them all through this
data center instead. Our new data center will have upgraded hardware and
software capabilities and will have greater overall Internet capacity than
the individual Internet service providers had previously.
- UTILIZE A NEW FINANCIAL SYSTEM. We plan to implement a new financial
reporting system which will allow us to collect, analyze and report our
financial results in a more timely and cost efficient manner.
- 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.
- INCREASE SALES AND MARKETING STAFF. It is our belief that one of the
fastest growing segments of the Internet access market is small to
medium-sized businesses based on the eMarketer report of June 1998
mentioned above. Each business represents an opportunity to sell private
rapid Internet access, to design and host customer web sites on our
computers and to expand e-commerce activities. We intend to hire
knowledgeable sales personnel to market our products and services to this
target market.
Our success as an Internet service provider in the northeastern United
States will depend on our ability to integrate the operations and management of
the four Internet service providers we will acquire at the closing of this
offering and the additional Internet service providers we may acquire in the
future. If we are unable to efficiently transition the operations of these
companies into our system, our financial condition and operating results will
suffer. The factors which may hinder the integration process include:
- 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;
- risks of entering markets in which we have little or no direct prior
experience; and
- possible accumulation of substantial debt.
Our strategy is also to continue to focus our efforts on building a larger
base of both individual subscribers and business customers through internal
growth.
29
<PAGE>
We will continue to target individual customers by continuing to provide the
following:
- prompt and courteous customer service;
- large modem banks providing rapid access to the Internet;
- 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.
- 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 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;
- capacity constraints;
- lack of availability of cost-effective, high speed connectivity 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; and
- costs of investing in new technology.
If the demand for Internet services by our target market fails to grow, we
will not be able to fully implement our plans for internal growth and our
business, financial condition and results of operations will suffer.
THE ACQUISITIONS
BACKGROUND. The following is a chronological outline of the steps that led
to our acquisitions.
- We developed our Internet service provider acquisition plan.
- We established our acquisition criteria which included a geographic
location in the northeastern United States, an established subscriber
base, annual revenue growth, and experienced management.
30
<PAGE>
- We identified potential acquisition candidates through various means,
contacted the owners and made an initial assessment as to their
suitability.
- We established working relationships with our acquisition candidates.
- Our management performed business, legal, and accounting due diligence on
the candidates.
- The candidates performed business, legal, and accounting due diligence on
us.
- Based on our due diligence results, we negotiated a purchase price with
the owners of the acquisition candidates which satisfied our acquisition
criteria.
- We signed letters of intent to purchase our candidates.
- We negotiated definitive merger or stock purchase agreements with each
candidate.
- We completed the acquisition of Global 2000 on January 31, 1999.
- We executed definitive agreements with AlbanyNet, Borg, Caravela Software
and Ulsternet by the beginning of February 1999.
We formed the following acquisition companies to acquire the Internet
service providers we will own at the completion of this offering, except for
AlbanyNet, Inc., in which BiznessOnline will directly acquire the outstanding
stock:
<TABLE>
<CAPTION>
INTERNET SERVICE PROVIDER TO BE
STATE AND DATE OF ACQUIRED BY THE INDICATED
NAME OF ACQUISITION COMPANY INCORPORATION ACQUISITION COMPANY
- ------------------------------------- ---------------------------- --------------------------------------------
<S> <C> <C>
Insite Internet I Acquisition Co., New York; 1/19/99 Global 2000 Communications, Inc., which we
Inc. (now known as Global 2000 acquired on January 31, 1999.
Communications, Inc.)
Insite Internet II Acquisition Co., New York; 1/26/99 Borg Internet Services, Inc.
Inc.
Insite Internet III Acquisition Co., New York; 1/27/99 We originally formed this company to acquire
Inc. AlbanyNet and we may use it for future
acquisitions.
Insite Internet IV Acquisition Co., New York; 1/27/99 Ulsternet, Inc.
Inc.
Insite Internet V Acquisition Co., Connecticut; 2/1/99 Caravela Software, Inc.
Inc.
</TABLE>
SUMMARY OF THE ACQUISITION AGREEMENTS. The table below summarizes
significant 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. Whenever we provide information
relating to our outstanding shares of common stock in
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<PAGE>
this prospectus after this offering, we assume that 782,000 shares of common
stock have been issued to the shareholders of our Internet service providers as
summarized below.
<TABLE>
<CAPTION>
PURCHASE
1998 1998 PURCHASE PRICE: TOTAL SHARES TOTAL
INTERNET SERVICE PROVIDERS SUBSCRIBERS REVENUES PRICE: CASH STOCK @$10/SHARE PRICE
- --------------------------------------------- ------------- --------- ----------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Global 2000 Communications, Inc.............. 4,000 $1,738,613 $ 580,000 $2,720,000 272,000 $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 $1,500,000 150,000 $2,000,000
Caravela Software, Inc....................... 5,000 $1,879,410 $2,180,000 $2,800,000 280,000 $4,980,000
Ulsternet, Inc............................... 3,800 $ 604,419 $ 650,000 800,000 80,000 $1,450,000
------ --------- ----------- ----------- ------------- ----------
Totals....................................... 20,000 $6,195,694 $6,310,000 $7,820,000 782,000 $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 excess of the
purchase price for each company over the fair value of that company's net
tangible assets--approximately $13,411,000 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 $2,682,000 for each year during the five years following
consummation of this offering.
PURCHASE PRICES NOT BASED ON APPRAISALS. 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
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.
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 $2,720,000 in shares of our common stock
valued at the initial public offering price in this offering and $580,000 in
promissory notes payable at the consummation of this offering. We issued 272,000
shares of our common stock to the Global stockholders on January 31, 1999. 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 this 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 in the "Management" section of
this prospectus 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 negotiated an all-cash purchase price
for AlbanyNet, in contrast to a combination of cash and stock as the
shareholders of AlbanyNet were unwilling to negotiate a transaction which
included restricted stock or any consideration other than all cash. We may
adjust the purchase price within 45 days after consummation of this offering
based on AlbanyNet's shareholders' equity on the closing date in the
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<PAGE>
same way 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 in the
same way as described above for Global 2000 Communications using 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 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 Caravela's shareholders' equity on the closing date in the same way as
described above for Global 2000 Communications using a 60% to 40% stock to cash
ratio. Caravela 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 Caravela 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.
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 in the same way as described above for
Global 2000 Communications using 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 services is extremely
competitive. We expect competition 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. 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. We cannot
assure you of our survival in this intensely competitive and rapidly evolving
Internet services market. Our competitors in the markets in which we operate
include:
- national and regional commercial Internet service providers such as Verio,
Earthlink and Mindspring;
- established on-line commercial information providers such as AOL, Prodigy
and MSN;
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<PAGE>
- local Internet service providers in Connecticut and northeastern New York
state who provide products and services that are similar to ours to small
to medium sized businesses;
- 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 such as Bell Atlantic, SBC and
Citizens Telephone Company.
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 cannot assure you of our survival in this
intensely competitive environment. 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 market and sell customized
combinations of products and services within our market, and our capacity to
offer a diverse Internet product line. We also believe that our ability to be
flexible and to respond quickly in providing solutions to our customer's
Internet needs will be an advantage over some of our competitors.
GOVERNMENT REGULATION AND POTENTIAL LIABILITY
OVERVIEW. 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 elect in the
future to regulate Internet service providers as basic providers of
telecommunication services. These regulations could change how we pay to connect
to the local telephone network.
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. 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." Our costs for doing business
would increase if we are required to pay interstate access charges.
UNIVERSAL SERVICE FUND. The Federal Communications Commission has to date
determined 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 telecommunications providers, Internet access providers do
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, an April 1998 report to Congress by the
Commission suggested that Internet companies that provide "telephone"
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service through computers connected by the Internet 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 as "telephone" service through computers begins to compete
with traditional telephone service, 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 contribute to the universal service
fund.
POTENTIAL LIABILITY. The law relating to liability of 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 this liability, which may require the expenditure of
substantial resources or the discontinuation of some product or service
offerings, any of which could be detrimental to our business, financial
condition and results of operation. The following examples illustrate the
unsettled law in these areas:
- - 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.
- - A growing number of courts have ruled that the 1996 Telecommunications Act
immunizes Internet service providers from liability for defamatory material
carried on their facilities. However, we cannot assure investors that other
courts will take a similar approach.
- - Some courts have held that Internet service providers may 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.
NEW AND EVOLVING LAWS. 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. These 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 operations.
SECURITY RISKS
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
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temporary or prolonged delays in providing Internet-related service.
Unauthorized access could also jeopardize confidential information of our
customers stored in our, or our customers computer systems, 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.
SYSTEM FAILURE
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 like 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.
PERSONNEL
As of December 31, 1998, on a pro forma basis, we employed 61 persons,
including:
- 8 sales and marketing personnel;
- 42 connectivity and operations employees; and
- 11 administrative personnel.
The following table illustrates the breakdown of our employees by employer:
<TABLE>
<CAPTION>
NAME OF EMPLOYER NUMBER OF EMPLOYEES
- --------------------------------------------------------------------------------------------- -------------------------
<S> <C>
BiznessOnline.com, Inc....................................................................... 3
AlbanyNet, Inc............................................................................... 10
Borg Internet Services, Inc.................................................................. 13
Caravela Software, Inc....................................................................... 14
Global 2000 Communications, Inc.............................................................. 15
Ulsternet, Inc............................................................................... 6
</TABLE>
None of our employees is represented by a labor union, and we are not
governed by any collective bargaining agreement. We have a satisfactory
relationship with our employees.
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 also lease space in
their markets for their administrative offices and equipment. 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, all of whom will serve in such
capacities until their successors are duly elected and qualified in accordance
with our bylaws, are:
<TABLE>
<CAPTION>
NAME AGE POSITION PERIOD OF SERVICE
- ------------------------------------ --- --------------------------------- ---------------------------------
<S> <C> <C> <C>
Mark E. Munro....................... 36 Chairman of the Board, President, since July 1, 1998
Chief Executive Officer,
Treasurer and Director
S. Keith London..................... 32 Executive Vice President and since July 1, 1998
Director
Robert A. Byrne..................... 71 Director Nominee
David Conboy........................ 42 Director since February 24, 1999
John B. Fraser...................... 64 Director Nominee --
Joseph Luciano...................... 51 Director Nominee --
Daniel J. Sullivan.................. 41 Chief Financial Officer and Vice since January 25, 1999
President
</TABLE>
MARK E. MUNRO, chairman of the board, president, chief executive officer and
treasurer, 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., 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 September, 1997 to June, 1998,
Mr. Munro was not employed and concentrated on the management of his personal
investments.
S. KEITH LONDON, executive vice president and director, has been employed by
BiznessOnline since June, 1998. From October, 1996 until August, 1997, Mr.
London was director of business development for Eastern Telecom, Inc. From
March, 1994 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, 1992 until December, 1993, Mr. London attended Columbia University
Graduate School of Business. From August, 1997 to June, 1998, Mr. London was not
employed and assisted Mr. Munro in reviewing prospective investment
opportunities.
ROBERT A. BYRNE, director nominee, was senior vice president of the
corporate trust division of Manufacturers Hanover Trust Company, now known as
Chase Manhattan Bank, from 1975 until his retirement in 1990. Mr. Byrne served
on the board of directors of Manufacturers Hanover Trust Company of California
and Atlantic Gulf and Petroleum Company, an oil company which has since been
acquired by Mobil Corporation, from 1980 until 1990, and on the board of
directors of Manufacturers Hanover Trust Company of Florida from 1975 until
1990. Mr. Byrne also served as treasurer of the American Society of Corporate
Secretaries from 1980 until 1990.
DAVID CONBOY, a director, is also the chief executive officer of Global 2000
Communications which he founded 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, 1999. Prior to joining Geneva, from
July, 1987 to June, 1994, Mr. Fraser was a managing director for
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Citibank. 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., 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 and vice
president 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. 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 on the American Stock
Exchange prior to its acquisition by Dover Corporation in 1997.
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 incentive plan as described below. They will also be reimbursed
for their travel, lodging, and other out-of-pocket expenses incurred in
attending board meetings.
BOARD COMMITTEES
We intend to appoint both a compensation committee and an audit committee
composed of members of our board of directors after the consummation of this
offering. We have not determined who will serve as the members of these
committees, although we expect to appoint non-employee directors to serve as
members of the compensation committee which will administer our stock option
plans.
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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
-------------
<S> <C> <C>
NAME AND PRINCIPAL POSITION YEAR SALARY
- ----------------------------------------------------------------------- --------- -------------
Mark E. Munro.......................................................... 1998 $ 7,692
Chairman, President, Treasurer 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 years commencing January 1, 1999 at an initial
annual base salary of $125,000 plus an annual performance bonus to be determined
by the our compensation committee. Mr. Munro's employment agreement also
contains termination provisions that require us to pay Mr. Munro 1.5 times his
annual base salary in the event he is terminated without cause during the term
of the agreement, or
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two times his annual base salary in the event he is terminated in connection
with a change-of-control during the term of the agreement. 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 either one year after 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 year commencing December 1, 1998 at an initial annual
base salary of $80,000. Mr. London's employment agreement contains termination
provisions that require us to pay Mr. London an amount equal to his annual base
salary in the event he is terminated without cause during the term of the
agreement, or 1.5 times his annual base salary in the event he is terminated in
connection with a change-of-control during the term of the agreement. 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 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 months or the remainder of his initial one-year
employment term. Mr. Sullivan's employment agreement also contains health
insurance benefits and a non-competition covenant that runs for a two year
period following termination.
We have also entered into employment agreements with three employees of
Global 2000 Communications, Inc. and we will enter into employment agreements
with eight 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;
- provide for annual salaries of up to $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;
- provide for bonuses in the aggregate 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
- provide for bonuses 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.
We cannot guarantee that any of the non-competition provisions contained in
the employment agreements discussed in this section will be enforced by a state
court. However, these persons must also comply with non-competition provisions
in their acquisition agreements which generally prohibit them from competing
with us in the northeastern United States for a period of two years after the
closing of this offering. We believe that in the context of a sale of a
business, there is a good chance that the non-competition provisions in the
acquisition agreements will be enforced by a state court.
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1999 STOCK INCENTIVE PLAN
PURPOSE. We believe it is in our best interest to provide incentives for
the continued services of key and valuable employees, directors 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 these persons.
AWARDS AND ELIGIBILITY. The compensation committee of our board of
directors that will administer the stock incentive plan may award:
- incentive stock options within the meaning of Section 422 of the Internal
Revenue Code; or
- 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 stock
incentive plan, all or any portion of which may be granted in the form of
incentive stock options. Shares of common stock covered by expired or terminated
options generally will be available for subsequent awards.
EXERCISE PRICE. The option price per share for any option granted under the
plan will be determined by the committee. 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 the grant. In the case of a
non-qualified option, the option price per share will not be less than 85% of
the fair market value of our common stock at the time of the grant. In the case
of any option granted prior to the effective date of this offering, the option
price per share will equal the initial public offering price.
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 these options will become exercisable or
"vest" in installments after the completion of a specified service requirement
by the holder.
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 of our stock at the time of the grant. In addition,
incentive stock options to 10% stockholders may not be exercised after five
years from the date of the grant.
GRANT LIMITATION. The aggregate fair market value of common stock covered
by incentive stock options that are exercisable for the first time by any
employee during any calendar year is determined at the time the incentive stock
option is granted and will 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 will
immediately terminate. Any remaining options will terminate if not exercised
before the earlier of the expiration of the option term or the following
periods:
- thirty days following termination of employment, if termination was not a
result of retirement on or after age 55, or of death, or of disability
within the meaning of Section 22(e)(3) of the Internal Revenue Code;
- three months following termination of employment because of retirement on
or after age 55;
- one year following date of death or commencement of disability, if the
option holder was employed at the time of death or the commencement of
disability; or
- immediately upon a "for cause" termination.
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DISPOSITION OF SHARES. Shares of common stock acquired upon exercise of
incentive stock options may not be transferred, other than by will or by the
laws of descent and distribution, within two years of the date the option was
granted or within one year after the receipt of the shares upon exercise of the
option in order for these options to qualify as incentive stock options under
the Internal Revenue Code.
1999 NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN
PURPOSE. We believe it is in our best interest to provide compensation and
other incentives for the continued services of our non-employee directors and
for attracting able individuals to directorships with us.
ELIGIBILITY. A non-employee director will automatically participate in the
non-employee director stock incentive plan as of the later of:
- the closing date of this offering of common stock; or
- the date of his or her initial election to our board of directors.
A director who is a regular employee or officer is not eligible to
participate in the non-employee director stock incentive plan. A director will
cease to participate in this plan as of the date he or she fails to be
re-elected to our board, or becomes a regular employee of BiznessOnline.
AWARDS. Our non-employee directors 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 of the grant date; and
- 33 1/3% on the second anniversary of the 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 the additional
option.
We have reserved 50,000 shares of our common stock for issuance under the
non-employee director stock incentive plan. Shares of common stock covered by
expired or terminated options generally will be available for subsequent awards.
EXERCISE PRICE. In each case, the exercise price per share of an option
granted under this plan will be equal to 100% of the fair market value of our
common stock on the date of the grant.
OPTION TERM. All options under this plan will have an eight year term and
will vest as set forth above.
TERMINATION OF OPTION. In the event of termination for reason other than
disability or death, the director may, for a period of 3 months after the date
of termination but in no event later than the expiration date of the option,
exercise his option to the extent that the director was entitled to exercise it
at the date of the termination or as may be determined by the administering
committee.
GENERAL TERMS APPLICABLE TO 1999 STOCK INCENTIVE PLAN AND 1999 NON-EMPLOYEE
DIRECTOR STOCK INCENTIVE PLAN
ADMINISTRATION. A disinterested committee of our board will administer each
of our stock plans.
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METHOD OF EXERCISE. An option granted under either plan may be exercised by
written notice to the committee, stating the number of shares of common stock
being exercised under the option. The notice shall either be accompanied by the
payment of the full option price for the shares or it will fix a date, of not
more than 10 business days from the date of the notice, for payment 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;
- with 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.
We will issue a certificate or certificates for the shares of our common
stock purchased through the exercise of an option after we receive notice of and
payment for the exercised option. During the option period no person entitled to
exercise any option granted under either plan shall have any of the rights or
privileges of a stockholder with respect to any shares issuable upon exercise of
the option until certificates representing the shares shall have been issued and
delivered.
MODIFICATION OR CANCELLATION OF OPTION. The administering committee may
amend the terms of any option with the consent of the option holder, including
the acceleration of any vesting schedule in connection with a change in control
or ownership, or the outright cancellation of any outstanding options. In
substitution for canceled options, the committee may grant new options, under
the 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.
CHANGES IN OUR CAPITAL STRUCTURE. The existence of outstanding options will
not prevent us from changing our capital structure, merging or consolidating our
operations with another company, issuing additional preferred stock with rights
senior to our common stock, selling substantially all of our assets, selling
additional securities, dissolving or liquidating our business, or carrying out
any other act authorized under Delaware law, our charter or our bylaws.
If we subdivide, consolidate, reclassify or carry out any other capital
readjustment or recapitalization, pay a stock dividend, or otherwise increase or
reduce the number of shares of our common stock outstanding without receiving
compensation in money, services or property, then the number, class, and per
share price of our common stock will be adjusted so that an option holder will
receive, upon exercise of an option, for the same aggregate consideration, the
same total number and class of shares as he or she would have received as a
result of the event requiring the adjustment.
If we merge or consolidate with another corporation, if we are liquidated,
or if we 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 will expire as of the
effective date of the merger, consolidation, liquidation, sale, or other
disposition. In these situations:
- we must provide notice of the merger, consolidation, liquidation, sale or
other disposition event at least 30 days prior to the effective date of
the event; and
- an option holder will have the right to exercise his or her option during
the 30 day period preceding the effective date of the merger,
consolidation, liquidation, sale or other disposition event.
In general, our issuance of shares of stock of any class, for cash,
property, labor or services, either upon direct sale or upon the exercise of
rights or warrants or upon conversion of convertible securities, will not result
in an adjustment to the number of shares or the price of our common stock
covered by outstanding options at that time.
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AMENDMENT OR TERMINATION. The administering committee may amend, suspend or
terminate either plan. We will obtain stockholder approval of any amendment if
necessary to comply with applicable laws, including federal securities laws,
state corporate and securities laws, the Internal Revenue Code and any stock
exchange regulations. If either plan is terminated, any unexercised option shall
continue to be exercisable according to its terms except as provided above with
respect to changes in our capital structure.
DURATION OF PLANS. Each of our stock plans will terminate in the year 2009.
COMPLIANCE WITH SECURITIES LAWS. Options granted and shares issued by us
upon exercise of the options will 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. As a
result, the committee may impose such conditions on transfer, restrictions and
limitations as it may deem necessary and appropriate to assure compliance with
these securities laws. If either plan is terminated, any unexercised option
shall continue to be exercisable according to its terms except as provided above
with respect to changes in our capital structure.
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.
LIMITATION ON LIABILITY OF AND INDEMNIFICATION OF DIRECTORS AND OFFICERS.
OVERVIEW. Under our charter and Delaware law, our directors are not liable
for monetary damages for breach of fiduciary duties except in special situations
as described below. In addition, under our charter and Delaware law, we are
required to indemnify our directors and officers against all losses to the
fullest extent permitted by Delaware law under a variety of situations as
described below. Finally, under Delaware law, we are entitled to obtain
insurance on behalf of our directors and officers to protect them against
liabilities they may occur in their official capacities even in situations where
we may not have the power to indemnify these individuals, and we intend to
obtain such insurance at the closing of this offering, as described below.
LIMITATIONS ON LIABILITY OF DIRECTORS. Under Delaware law, a corporation
may adopt a charter provision eliminating or limiting the personal liability of
its directors to the corporation or its stockholders for breach of fiduciary
duties except 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.
We have adopted a charter provision eliminating the personal liability of
our directors to the fullest extent permitted under Delaware law except under
the four provisions noted above. We have also included a provision in our
charter which would extend the benefits of any change in Delaware law that
further limits the personal liability of directors to a corporation or its
stockholders.
INDEMNIFICATION FOR DIRECTORS AND OFFICERS. Under Delaware law, a
corporation may indemnify its present and former directors and officers in a
variety of court or administrative proceedings. We have adopted a charter
provision which requires us to indemnify and hold harmless any person involved
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, because that person is or was a director or officer of
BiznessOnline, against all expense, liability and loss. This
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<PAGE>
charter provision does not, however, require us to indemnify an officer or
director in a proceeding they initiate without the authorization of our
directors. This indemnification right includes the right to be paid expenses
incurred in defending any proceeding in advance of its final disposition, but
only if the indemnified person agrees to repay all amounts advanced if required
under Delaware law and if it shall be ultimately determined that the director or
officer is not entitled to be indemnified under our charter or Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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.
INSURANCE FOR DIRECTORS AND OFFICERS. Under Delaware law, a corporation may
obtain insurance on behalf of its directors and officers against liabilities
incurred by them in those capacities. We have adopted a charter provision which
permits us to 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 these persons against their expenses, liabilities or losses under
Delaware law. We have consulted with several insurance providers and we intend
to have in place at or promptly after the closing of this offering a directors'
and officers' liability and company reimbursement liability insurance policy
that will:
- insure directors and officers against losses, above a deductible amount,
arising from claims made against them resulting from their actions as
directors or officers;
- insure us against losses, above a deductible amount, arising from claims
against our officers and directors for their actions in their official
capacities, but only if we are required or permitted to indemnify these
directors or officers for their losses under Delaware law or under our
charter or bylaws.
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CERTAIN TRANSACTIONS
In connection with our organization and initial capitalization, on July 1,
1998 Mark E. Munro, our president, chairman of the board and chief executive
officer, and his wife Susan Munro each contributed $42.50 for 42.5 shares of our
common stock, which, as a result of a subsequent 10,000 for one stock split and
the 3.147186 for one stock split that we intend to effect prior to the closing
of this offering, will represent a total of 2,675,108 shares in the aggregate or
38.8% of our outstanding common stock after this offering. Mr. Munro also
contributed an additional $142,900 during 1998 to fund operating expenses and
deferred offering costs.
In connection with our organization and initial capitalization, on July 1,
1998, S. Keith London, our executive vice president and a director, contributed
$13.00 for 13 shares of our common stock, which, as a result of a subsequent
10,000 for one stock split and the 3.147186 for one stock split that we intend
to effect prior to the closing of this offering, will represent a total of
409,134 shares in the aggregate or 5.9% of our outstanding common stock after
this offering. Mr. London also contributed an additional $40,000 during 1998 to
fund operating expenses and deferred offering costs.
In connection with our acquisition of Global 2000 Communications on January
31, 1999, we issued a total of 204,000 shares of common stock to David Conboy, a
director, and his wife Lorin Beller, and promissory notes in the aggregate
principal amount of $435,000. Their notes will be repaid at the closing of this
offering.
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 although we may terminate
this lease at any time upon thirty days prior notice without further liability.
All future transactions with our officers, directors or stockholders owning
5% or more of our outstanding common stock, and their respective affiliates,
will be on terms no less favorable than could be obtained from unaffiliated
third parties and will be approved by a majority of our independent,
disinterested directors with access to independent counsel.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following stockholder information about the beneficial ownership of our
common stock, as of the date of this prospectus assumes:
- the acquisitions of our Internet service providers have been completed;
- an initial public offering price of $10.00 per share;
- the conversion of 70,000 shares of preferred stock into 61,250 shares of
common stock; and
- the completion of a 3.147186 for 1 stock split.
The information in this table below provides the ownership information for:
- each person known by BiznessOnline to beneficially own more than 5% of
the common stock;
- each of our directors and director nominees;
- each of our executive officers named in the summary compensation
table; and
- our current executive officers, directors and director nominees as a
group.
The common stock is the only class of our equity securities which will be
outstanding after the offering. We currently have 29 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 67.0% 38.8%
1720 Route 34 Treasurer &
P.O. Box 1347 Director
Wall, NJ 07719
S. Keith London..................... Executive Vice 409,134 10.3% 5.9%
1720 Route 34 President &
P.O. Box 1347 Director
Wall, NJ 07719
Susan Munro......................... -- 2,675,108 67.0% 38.8%
1720 Route 34
P.O. Box 1347
Wall, NJ 07719
David Conboy........................ Director 204,000 5.1% 3.0%
1840 Western Avenue
Albany, NY 12203
Lorin Beller........................ -- 204,000 5.1% 3.0%
1840 Western Avenue
Albany, NY 12203
Joseph Luciano...................... Director Nominee 2,500 0 Less than 1%
548 West Shore Trail
Sparta, NJ 07871
John Fraser......................... Director Nominee 2,500 0 Less than 1%
1172 Park Avenue
New York, NY 10128
Robert Byrne........................ Director Nominee 2,500 0 Less than 1%
3810 Quail Ridge Drive
Boynton Beach, FL 33436
All current directors, director 3,295,742 82.6% 47.8%
nominees and executive officers 7
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.
- Mr. Conboy's shares include 102,000 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 102,000 shares of common stock owned by Ms.
Beller's husband, David Conboy, as to which Ms. Beller disclaims
beneficial ownership.
- The shares owned by the director nominees represent shares acquirable upon
exercise of stock options to be granted at the closing of this offering
which are exercisable within 60 days of the effective date of this
prospectus.
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<PAGE>
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. The following is a description of our capital stock.
COMMON STOCK
Each stockholder of record is 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. Holders of common stock
participate with the holders of preferred stock in any dividend declared by our
board of directors out of funds legally available for this purpose. After the
payment of liquidation preferences to all holders of preferred stock, holders of
common stock will 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 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.
Whenever we provide information relating to our outstanding shares of common
stock in this prospectus, we assume that we have completed a 3.147186 for 1
stock split that we intend to effect prior to the closing of this offering.
Prior to this offering there has been no public market for our common stock.
There is no guaranty 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 the initial offering price may not be indicative of the prices
that will prevail in the public market in the future. 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 these companies.
Because we are an Internet company, our common stock may be particularly
vulnerable to fluctuations in the future. Also, 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.
PREFERRED STOCK
Our board of directors is 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 of these shares,
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. These shares may have rights senior
to our common stock. 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.
On February 15, 1999, we issued 70,000 shares of Class A preferred stock 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 preferred stock had been converted to common on a one-for-one
basis.
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Upon consummation of this offering, these shares automatically convert 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. Whenever we provide information relating to our
outstanding shares of common stock in this prospectus, we assume that the 70,000
shares of preferred stock currently outstanding have already been converted to
61,250 shares of common stock.
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, directors and non-employees
who perform services for BiznessOnline. Under this 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.
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.
Our 1999 non-employee director stock incentive plan enables us to issue
non-qualified stock options to non-employee directors. Under this plan, we have
reserved 50,000 shares of our authorized common stock for option grants. We
believe that our non-employee director stock incentive plan will provide
incentives for the continued service of these directors and for attracting new
directors to our board.
We have agreed to issue non-qualified stock options under our non-employee
director stock incentive plan to purchase a total of 22,500 shares of common
stock to the three director nominees identified in the "Management" section of
this prospectus exercisable at the initial public offering price promptly after
the closing of this offering.
UNDERWRITERS' WARRANTS
In connection with this offering, we have agreed to sell to representatives
of the underwriters, for nominal consideration, warrants for the purchase of
that number of shares of our common stock equal to 10% of the total number of
shares sold in this offering exercisable at a price per share equal to 165% of
the initial public offering price.
ANTI-TAKEOVER PROVISIONS UNDER DELAWARE LAW, OUR CHARTER AND OUR BYLAWS.
OVERVIEW. Under our charter and our bylaws, we have included specific
anti-takeover provisions which may deprive our stockholders of some
opportunities to sell their shares at above-market prices to persons attempting
to acquire our company and which may discourage potential acquirers from
attempting to change our board of directors or our management. 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. An "interested stockholder" is
defined as a person owning 15% or more of our outstanding voting stock,
and a "business combination" is defined
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<PAGE>
to include a variety of transactions including a merger, a consolidation
or sale of 10% or more of our assets.
- 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 a 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.
SECTION 203. Section 203 prevents an interested stockholder from engaging
in a business combination with a publicly-held Delaware corporation for three
years following the date the person became an interested stockholder unless:
- before the 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;
- 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 under the plan will be tendered in a tender or exchange offer;
or
- following the transaction in which the person became an interested
stockholder, the business combination is approved by the board of
directors and authorized at a meeting of the stockholders by affirmative
vote, and not by written consent, of the holders of two-thirds of the
outstanding voting stock not owned by the interested stockholder.
ADVANCE NOTICE FOR STOCKHOLDER PROPOSALS AND NOMINATIONS OF
DIRECTORS. Under our bylaws, we have established an advance notice procedure
for nomination, other than by our directors, of candidates for election as
directors and for other specific matters to be brought before an annual meeting
of our stockholders. This nomination procedure requires a stockholder to provide
our corporate secretary with prior written notice, in proper form as detailed in
the bylaws, of a planned nomination for our board of directors. If the annual
meeting election inspectors determine that a person was not nominated in
accordance with this nomination procedure, the person will not be eligible for
election as a director. With regard to other business 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 as detailed in the
bylaws, to our corporate secretary. If the chairman or other officer presiding
at a meeting determines that other business was not properly brought before the
meeting in accordance with this procedure, the business will not be conducted at
that meeting. Although our bylaws 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 bylaws:
- 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
- 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 solicitation or the attempt to obtain
control might be beneficial to us and our stockholders.
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<PAGE>
TRANSFER AGENT. We have appointed Continental Stock Transfer & Trust
Company as the transfer agent for our common stock.
SHARES AVAILABLE FOR FUTURE SALE
Upon completion of this offering and issuance of the shares representing the
stock portion of the purchase prices of our Internet service provider
acquisitions, we will have 7,325,436 shares of common stock outstanding assuming
the initial public offering price of $10.00 per share and assuming the
underwriters' over-allotment option is exercised in full. The 3,335,000 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 3,990,436 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 the
person's 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 3,990,436 restricted securities
- the holders of 3,145,492 shares, represented by the 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
converts 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 this 14 month period, these holders would be
eligible to resell their shares if they comply with the volume limitations
and other conditions of Rule 144.
- the holders of 782,000 shares--the former stockholders of the five
Internet service providers we will own as of the closing of this
offering--have agreed not to sell 391,000 shares for a period of two years
from the date of our final prospectus for this offering, after which these
shares could be resold under Rule 144 by non-affiliates without any volume
limitations. Of the remaining 391,000 shares owned by these stockholders,
255,000 shares would be available for resale under Rule 144 commencing one
year from the closing date of this offering, and 136,000 would be
available for resale under Rule 144 commencing January 31, 2000.
- the holders of 62,944 shares may sell their shares commencing 90 days
after the date of this prospectus if they comply with 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.
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<PAGE>
UNDERWRITING
Each of the underwriters named below through their representatives, Joseph
Stevens & Company, Inc., Schneider Securities, Inc., Neidiger, Tucker, Bruner,
Inc. and Royce Investment Group, Inc. has 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 set forth on the cover
page of this prospectus and less a non-accountable expense allowance. Delivery
of the shares will be made on [ ] in New York, New York against payment in
immediately available funds.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Joseph Stevens & Company, Inc.................................................... --
Schneider Securities, Inc........................................................ --
Neidiger, Tucker, Bruner, Inc.................................................... --
Royce Investment Group, Inc......................................................
----------
Total...................................................................... 2,900,000
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
depend on various conditions. The underwriters are 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 price set forth on the
cover of this prospectus. The underwriters have also advised us that they may
allow to some 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 those dealers to other dealers. After the initial offering
has been completed, 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 included in this offering.
We have agreed to pay to Joseph Stevens & Company and Schneider Securities 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 final date of the prospectus, to purchase up to 435,000
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 this option
only to satisfy over-allotments in the sale of the shares. If the underwriters
exercise this option, each of the underwriters will become obligated 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 to sell these shares to
the underwriters to the extent the option is exercised. If any additional shares
of common stock are purchased, the underwriters will offer these additional
shares on the same terms.
The following tables show the per share and total underwriting discounts and
commissions to be paid to the underwriters by BiznessOnline. Such amounts are
shown assuming both no exercise and full exercise of the underwriters'
over-allotment option to purchase additional shares.
<TABLE>
<CAPTION>
PAID BY BIZNESSONLINE
-------------------------
<S> <C> <C>
FULL
NO EXERCISE EXERCISE
----------- ------------
per share.............................................................................. $ $
total.................................................................................. $ $
</TABLE>
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We have also agreed to sell to the representatives of the underwriters, for
nominal consideration, 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 165% 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 demand and "piggyback" registration rights with respect to the
common stock issuable upon the exercise of the underwriters' warrants. The
underwriters' warrants will be restricted from sale, transfer, assignment, or
hypothecation for a period of one year from the effective date of the offering
except to officers or partners of the underwriters and members of the selling
group and/or their officers or partners. The exercise price and the number of
shares issuable upon exercise may, under some circumstances, be adjusted to
prevent dilution.
Our principal stockholders and BiznessOnline have agreed with the
underwriters that, for a period of 14 months from the date of this prospectus,
without the consent of Joseph Stevens & Company and Schneider Securities, they
will not sell any securities of BiznessOnline. We may, however, issue securities
without consent of the underwriters:
- upon the exercise of any outstanding stock options or warrants granted and
issued on or prior to the date of this prospectus;
- upon the exercise of stock options that may be granted under our 1999
stock incentive plan and our 1999 non-employee director stock incentive
plan so long as these stock options were issued at a price equal to or
greater than the fair market value at time of grant; and
- in connection with acquisitions so long as the price is equal to or
greater than the fair market value per share of our common stock on the
date of issuance or sale.
The underwriting agreement provides for reciprocal indemnification between
us and the underwriters against 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 preferred stock which closed in February, 1999.
In connection with this offering, some 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 underwriters may
also cover all or a portion of their short position, up to 435,000 shares, by
exercising their over-allotment option described above and on the cover of this
prospectus.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time.
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<PAGE>
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 we
are offering was determined by negotiations between us and the representatives
of the underwriters and is 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. Orrick, Herrington &
Sutcliffe LLP is acting as counsel for the underwriters in connection with the
offering.
EXPERTS
The financial statements of BiznessOnline as of December 31, 1998 and for
the period from July 1, 1998, the date of inception, through December 31, 1998
have been included in this prospectus in reliance upon the report of KPMG LLP,
independent certified public accountants, appearing elsewhere in this
prospectus, and upon the authority of KPMG LLP 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 years in the two-year period
then ended have been included in this prospectus in reliance upon the reports of
KPMG LLP, independent certified public accountants, appearing elsewhere in this
prospectus, and upon the authority of KPMG LLP as experts in accounting and
auditing.
HOW TO GET MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2 under the Securities Act with respect to this offering.
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 accompanying exhibits and schedules. Statements
contained in this prospectus as to the contents of any contract or other
document summarize only the material provisions of such document and are not
necessarily complete, and in each instance reference is made to the copy of the
contract or other document filed as an exhibit to the registration statement,
with each statement being qualified in all respects by their reference. The
registration statement and accompanying exhibits and schedules 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,
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<PAGE>
Chicago, Illinois 60661. Copies of these 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 among
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. After this offering, we intend to furnish to
our stockholders annual reports, which will include financial statements audited
by independent accountants, and other periodic reports as we may determine to
provide or as may be required by law.
54
<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............ F-3
Unaudited Pro Forma Consolidated Balance Sheet................................... F-4
Unaudited Pro Forma Consolidated Statement of Operations......................... F-5
Notes to Unaudited Pro Forma Consolidated Financial Statements................... F-6
BIZNESSONLINE.COM, INC.
Report of KPMG LLP, Independent Auditors......................................... F-9
Balance Sheet.................................................................... F-10
Statement of Operations.......................................................... F-11
Statement of Stockholders' Equity................................................ F-12
Statement of Cash Flows.......................................................... F-13
Notes to Financial Statements.................................................... F-14
ALBANYNET, INC.
Report of KPMG LLP, Independent Auditors......................................... F-17
Balance Sheet.................................................................... F-18
Statements of Income............................................................. F-19
Statements of Stockholders' Equity............................................... F-20
Statements of Cash Flows......................................................... F-21
Notes to Financial Statements.................................................... F-22
BORG INTERNET SERVICES, INC.
Report of KPMG LLP, Independent Auditors......................................... F-25
Balance Sheet.................................................................... F-26
Statements of Operations......................................................... F-27
Statements of Stockholders' Equity (Deficit)..................................... F-28
Statements of Cash Flows......................................................... F-29
Notes to Financial Statements.................................................... F-30
CARAVELA SOFTWARE, INC.
Report of KPMG LLP, Independent Auditors......................................... F-34
Balance Sheet.................................................................... F-35
Statements of Operations......................................................... F-36
Statements of Stockholders' Equity............................................... F-37
Statements of Cash Flows......................................................... F-38
Notes to Financial Statements.................................................... F-39
GLOBAL 2000 COMMUNICATIONS, INC.
Report of KPMG LLP, Independent Auditors......................................... F-43
Balance Sheet.................................................................... F-44
Statements of Income............................................................. F-45
Statements of Stockholders' Equity............................................... F-46
Statements of Cash Flows......................................................... F-47
Notes to Financial Statements.................................................... F-48
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
ULSTERNET, INC.
Report of KPMG LLP, Independent Auditors......................................... F-51
Balance Sheet.................................................................... F-52
Statements of Operations......................................................... F-53
Statements of Stockholders' Equity (Deficit)..................................... F-54
Statements of Cash Flows......................................................... F-55
Notes to Financial Statements.................................................... F-56
</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 reflects 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................................ 13,658 94,745
--------- ----------- --------- --------- --------- ---------
Total current assets................................ 147,736 207,785 108,015 315,148 375,083 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 $ 348,614 $ 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.............................. 24,799 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 65,785 300,289 475,291 334,017 155,514
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 (30,583) 67,021 164,523 (102,702)
--------- ----------- --------- --------- --------- ---------
Total stockholders' equity (deficit)................ 57,566 190,079 (30,283) 68,021 192,023 (92,502)
--------- ----------- --------- --------- --------- ---------
Total liabilities and stockholders' equity
(deficit)....................................... $ 256,214 $ 259,894 $ 348,614 $ 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 1$8,798,478 1$9,663,331
Accounts receivable, net.......................... 433,950 433,950
Other current assets.............................. 8,320 8,320
Deferred tax asset................................ 129,000 237,403 237,403
----------- ------------ ----------- -----------
Total current assets................................ 379,000 1,544,526 18,798,478 20,343,004
Property and equipment, net....................... 804,057 804,057
Goodwill and intangibles, net..................... 13,411,662 13,454,729 13,454,729
Deferred costs.................................... 108,478 (108,478) --
Other assets...................................... 4,475 4,475
----------- ------------ ----------- -----------
Total assets.................................... 1$3,790,662 $15,916,265 1$8,690,000 3$4,606,265
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
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.............................. 32,724 32,724
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 7,785,544 (6,310,000) 1,475,544
Long term debt, net of current portion............ 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...................................... (30,469) 39,904 29,000 68,904
Additional paid in capital........................ 7,770,269 7,922,096 24,971,000 32,893,096
Retained earnings (deficit)....................... (205,138) (42,434) (42,434)
----------- ------------ ----------- -----------
Total stockholders' equity (deficit)................ 7,534,662 7,919,566 25,000,000 32,919,566
----------- ------------ ----------- -----------
Total liabilities and stockholders' equity
(deficit)....................................... 1$3,790,662 $15,916,265 1$8,690,000 3$4,606,265
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
</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
----------- ------------ ---------- ------------ ------------ ----------
----------- ------------ ---------- ------------ ------------ ----------
Net loss per share, basic and diluted......
Weighted average shares outstanding........
<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...... 459,566 1,441,048
Depreciation............................. 404,444
Amortization of intangibles.............. (2,682,332) 2,703,866
------------- -------------
Total costs and expenses................... 3,050,456 8,767,494
------------- -------------
Income (loss) from operations.............. (3,050,456) (2,571,800)
Other income (expense)
Other income (expense), net.............. (81,025)
Interest expense......................... (59,752)
------------- -------------
Income before income tax provision......... (3,050,456) (2,712,577)
Income tax provision (benefit)............. 13,654 --
------------- -------------
Net income (loss).......................... $ (3,064,110) $ (2,712,577)
------------- -------------
------------- -------------
Net loss per share, basic and diluted...... $ (.39)
Weighted average shares outstanding........ 6,890,436
</TABLE>
See notes to the Unaudited Pro Forma Consolidated Financial Statements.
F-5
<PAGE>
BIZNESSONLINE.COM, INC.
NOTES TO THE UNAUDITED PRO FORMA 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 $10.00 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.................................................... 500,000 150,000 1,500,000 2,000,000
Connix.................................................. 2,180,000 280,000 2,800,000 4,980,000
Global.................................................. 580,000 272,000 2,720,000 3,300,000
Ulsternet............................................... 650,000 80,000 800,000 1,450,000
</TABLE>
F-6
<PAGE>
NOTE 3--UNAUDITED PRO FORMA 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 $25,108,478
Accounts receivable, net.......................
Other current assets...........................
Deferred tax asset............................. 129,000 129,000
----------- --------- ---------- ----------- ------------ ----------
Total current assets............................. -- 129,000 -- 250,000 379,000 25,108,478
Property and equipment, net....................
Goodwill and intangibles, net.................. 13,411,662 13,411,662
Deferred costs................................. (108,478)
Other assets
----------- --------- ---------- ----------- ------------ ----------
Total assets................................... $ -- $ 129,000 $13,411,662 $ 250,000 $13,790,662 $25,000,000
----------- --------- ---------- ----------- ------------ ----------
----------- --------- ---------- ----------- ------------ ----------
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................................... (31,082) 613 (30,469) 29,000
Additional paid in capital..................... (6,310,000) 13,730,882 349,387 7,770,269 24,971,000
Retained earnings (deficit).................... 83,000 (288,138) (205,138) --
----------- --------- ---------- ----------- ------------ ----------
Total stockholders' equity (deficit)............. (6,310,000) 83,000 13,411,662 350,000 7,534,662 25,000,000
----------- --------- ---------- ----------- ------------ ----------
Total liabilities and Stockholders' equity
(deficit).................................. $ -- $ 129,000 $13,411,662 $ 250,000 $13,790,662 $25,000,000
----------- --------- ---------- ----------- ------------ ----------
----------- --------- ---------- ----------- ------------ ----------
<CAPTION>
(F) ADJUSTMENTS
---------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................... $(6,310,000) 1$8,798,478
Accounts receivable, net.......................
Other current assets...........................
Deferred tax asset.............................
---------- -----------
Total current assets............................. (6,310,000) 18,798,478
Property and equipment, net....................
Goodwill and intangibles, net..................
Deferred costs................................. (108,478)
Other assets
---------- -----------
Total assets................................... $(6,310,000) 1$8,690,000
---------- -----------
---------- -----------
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................................... 29,000
Additional paid in capital..................... 24,971,000
Retained earnings (deficit).................... --
---------- -----------
Total stockholders' equity (deficit)............. -- 25,000,000
---------- -----------
Total liabilities and Stockholders' equity
(deficit).................................. $(6,310,000) 1$8,690,000
---------- -----------
---------- -----------
</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 782,000 shares of common stock. For purposes
of computing the estimated purchase price for accounting purposes the value
of the shares is determined using an estimated fair value of $9.50 per
share, which represents a discount of 5% from the assumed initial public
offering price of $10.00 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 61,250 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 PRO FORMA 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........ 459,566 459,556
Depreciation...............................
Amortization............................... 2,682,332 2,682,332
---------- ----------- ------------- ---------- -------------
Total costs and expenses..................... (91,442) 459,566 2,682,332 -- 3,050,456
---------- ----------- ------------- ---------- -------------
Income (loss) from operations................ 91,442 (459,566) (2,682,332) -- (3,050,456)
Other Income (expense).......................
Other income (expense), net................
Interest expense...........................
---------- ----------- ------------- ---------- -------------
Income before income tax provision........... 91,442 (459,566) (2,682,332) -- (3,050,456)
Income tax provision......................... 13,654 13,654
---------- ----------- ------------- ---------- -------------
Net income (loss)............................ $ 91,442 $ (459,566) $ (2,682,332) $ (13,654) $ (3,064,110)
---------- ----------- ------------- ---------- -------------
---------- ----------- ------------- ---------- -------------
</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>
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
Effect of 10,000 for 1 stock split (note 4)........ -- 9,999 (9,999) -- --
Effect of 3.147186 for 1 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.
On December 20, 1998, the Company effected a 10,000 for one stock split of
its issued and outstanding common stock to 1,000,000 shares. In February 1999,
the Company increased the number of authorized common shares from 9,000,000 to
39,000,000 shares. 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. The Company issued 272,000 shares
of common stock. The number of shares of common stock issued is subject to
adjustment based on the initial public offering price per share. The total
purchase price is $3,300,000.
(7) SUBSEQUENT EVENT
(a) In connection with the proposed IPO, the Company effected a 3.147186 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>
(7) SUBSEQUENT EVENT (CONTINUED)
(b) STOCK OPTION PLANS
The Company has adopted a 1999 Stock Incentive Plan and a 1999 Non-Employee
Director Stock Incentive Plan. The Stock Incentive Plan has reserved 500,000
shares of common stock for option grants, of which the Company has agreed to
issue options to purchase 30,000 shares of common stock to the Company's chief
financial officer at the initial public offering price. The Non-Employee
Director Stock Incentive Plan has reserved 50,000 shares of common stock for
option grants, of which the Company has agreed to issue options to purchase
22,500 shares of common stock to director nominees at the initial public
offering price.
F-16
<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-17
<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-18
<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-19
<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-20
<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-21
<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-22
<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-23
<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-24
<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-25
<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.............................................................. 13,658
Other current assets............................................................ 3,349
---------
Total current assets........................................................ 108,015
---------
Property and equipment, net (notes 3 and 4)....................................... 197,532
Goodwill, net of amortization of $64,601.......................................... 43,067
---------
Total assets................................................................ $ 348,614
---------
---------
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 taxes payable............................................................ 24,799
Accrued expenses................................................................ 57,654
Deferred revenue................................................................ 119,095
---------
Total current liabilities................................................... 300,289
Long-term liabilities:
Obligations under capital leases, excluding current installments (note 4)....... 78,608
---------
Total liabilities........................................................... 378,897
---------
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............................................................. (30,583)
---------
Total stockholders' equity (deficit)........................................ (30,283)
---------
Total liabilities and stockholders' equity (deficit)........................ $ 348,614
---------
---------
</TABLE>
See accompanying notes to financial statements.
F-26
<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-27
<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 (20,198) (19,898)
Net income.................................................. -- -- 18,572 18,572
----- --- ------------- ------------
Balance at December 31, 1997.................................. 1 299 (1,626) (1,326)
Net loss.................................................... -- -- (28,957) (28,957)
----- --- ------------- ------------
Balance at December 31, 1998.................................. $ 1 299 (30,583) (30,283)
----- --- ------------- ------------
----- --- ------------- ------------
</TABLE>
See accompanying notes to financial statements.
F-28
<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) 917
Increase (decrease) in accounts payable............................................. 34,646 (37,053)
Increase (decrease) in income taxes payable......................................... 23,090 (1,349)
Increase in deferred taxes, net..................................................... (10,707) (10,707)
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-29
<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-30
<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-31
<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..................................................... $ 17,287 (8,000) 9,287
State....................................................... 5,803 (2,707) 3,096
--------- --------- ---------
$ 23,090 (10,707) 12,383
--------- --------- ---------
--------- --------- ---------
1998:
Federal..................................................... $ (1,000) (8,000) (9,000)
State....................................................... (349) (2,707) (3,056)
--------- --------- ---------
$ (1,349) (10,707) (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-32
<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................ 2,403 (2,017)
Other................................................................ (185) 3,905
--------- ---------
$ 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
--------- ---------
Gross deferred tax asset........................................... 4,000 13,658
--------- ---------
Deferred tax liability:
Goodwill............................................................... (1,049) --
--------- ---------
Gross deferred tax liabilities..................................... (1,049) --
--------- ---------
Net deferred tax asset............................................. $ 2,951 13,658
--------- ---------
--------- ---------
</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-33
<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 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-34
<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-35
<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-36
<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-37
<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-38
<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-39
<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-40
<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-41
<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-42
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Global 2000 Communications, Inc.:
We have audited the accompanying balance sheet 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 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-43
<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-44
<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-45
<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-46
<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-47
<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-48
<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-49
<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-50
<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-51
<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-52
<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-53
<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-54
<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-55
<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-56
<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-57
<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-58
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO PROVIDE
ANY INFORMATION OR MAKE ANY REPRESENTATIONS ABOUT BIZNESSONLINE EXCEPT THE
INFORMATION OR REPRESENTATIONS CONTAINED IN THIS PROSPECTUS. YOU SHOULD NOT RELY
ON ANY ADDITIONAL INFORMATION OR REPRESENTATIONS IF MADE.
This prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy any securities:
- except the common stock offered by this prospectus;
- in any jurisdiction in which the offer or solicitation is not authorized;
- in any jurisdiction where the dealer or other salesperson is not qualified
to make the offer or solicitation;
- to any person to whom it is unlawful to make the offer or solicitation; or
- to any person who is not a United States resident or who is outside the
jurisdiction of the United States.
The delivery of this prospectus or any accompanying sale does not imply
that:
- there have been no changes in the affairs of BiznessOnline after the date
of this prospectus; or
- the information contained in this prospectus is correct after the date of
this prospectus.
------------------------
Until , 1999, 25 calendar days after the date of this
prospectus, all dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
2,900,000 SHARES
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
JOSEPH STEVENS & COMPANY, INC.
SCHNEIDER SECURITIES, INC.
NEIDIGER, TUCKER, BRUNER, INC.
ROYCE INVESTMENT GROUP, INC.
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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.
II-1
<PAGE>
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 7 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.
<TABLE>
<CAPTION>
ITEM AMOUNT
- -------------------------------------------------------------------------------- ------------
<S> <C>
SEC registration fee............................................................ $ 10,602
NASD filing fee................................................................. $ 4,314
NASDAQ National Market System listing application fee........................... $ 66,875
Blue Sky fees and expenses...................................................... $ 35,000
Printing and engraving expenses (including Edgar filing service charges)........ $ 100,000
Accounting fees and expenses.................................................... $ 350,000
Legal fees and expenses......................................................... $ 450,000
Transfer agent and registrar fee................................................ $ 5,000
Miscellaneous................................................................... $ 78,209
Total..................................................................... $ 1,100,000
</TABLE>
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 December 20, 1998 and a 3.147186 for one stock split 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 issued (1)
1,337,554 shares of our common stock $.01 par value per share, to Mark E. Munro,
(2) 1,337,554 shares of our common stock to Susan Munro, (3) 409,134 shares of
our common stock to S. Keith London, and (4) 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 issuances 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.
(c) On February 15, 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
II-2
<PAGE>
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 782,000 shares
(assuming a $10.00 per share price in this offering) of our common stock to the
stockholders of our Internet service providers we will own at the consummation
of this offering (including 272,000 shares issued to the stockholders of Global
2000 Communications on January 31, 1999) as a portion of the aggregate
consideration to be paid to such persons under definitive acquisition
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.
The issuances of common stock described in paragraphs (b) and (d) above were
or will be made in connection with acquisition transactions not involving a
public offering to an aggregate of thirteen sophisticated and/or accredited
individuals who were stockholders of Global 2000 Communications and three of the
four internet service providers we will acquire upon completion of this
offering. All thirteen individuals received copies of the Company's business
plan and financial projections and had numerous meetings and discussions with
management. Each individual acknowledged and represented to the Company in
writing that he or she understands and agrees that the shares of common stock
issued or to be issued have not been registered under the Securities Act of
1933; are being acquired solely for their own account without any present
intention for resale or distribution; will not be resold without registration
under the Securities Act of 1933 or in compliance with an available exemption
from registration; that such individual was able to bear the economic risk of an
investment in the common stock and afford a complete loss of such investment;
and that such individual had the opportunity to ask questions of and receive
answers from the Company's management concerning any and all matters related to
the acquisition of the common stock.
Further, each individual has agreed to lock up 50% of the shares received
for a period of two years following the date of issuance. Each certificate
representing the above shares contains a legend indicating that such shares are
restricted and may not be sold without registration under the Securities Act of
1933 or pursuant to an available exemption from such registration requirements
and are subject to the lock up agreement described above.
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.
<TABLE>
<C> <S>
1.1 Form of Amended Underwriting Agreement
1.2 Form of Underwriters' Warrant, as amended
+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
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
+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.)
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)
23.10 Consent of Robert A. Byrne (Director Nominee)
+27 Financial Data Schedules
</TABLE>
+ Previously filed
II-4
<PAGE>
ITEM 28. UNDERTAKINGS.
The Company will provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in such
names as required by the Underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The Company hereby undertakes that, if relying on Rule 430A under the
Securities Act:
(1) for determining any liability under the Securities Act, the information
omitted from the form of Prospectus filed as a part of this Registration
Statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the Company under Rule 424(b)(1) or (4), or 497(h) under the
Securities Act shall be treated as part of this Registration Statement as of
the time the Commission declared it effective.
(2) for determining any liability under the Securities Act, each post-effective
amendment that contains a form of prospectus shall be treated as a new
registration statement for the securities offered in this Registration
Statement and that offering of the securities at that time shall be treated
as the initial bona fide offering of those securities.
II-5
<PAGE>
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 May 3, 1999.
BiznessOnline.com, inc.
By: /s/ MARK E. MUNRO
-----------------------------------------
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.
Dated: May 3, 1999 By: /s/ S. KEITH LONDON
-----------------------------------------
Executive Vice President
and Director
Dated: May 3, 1999 By: /s/ DANIEL J. SULLIVAN
-----------------------------------------
Chief Financial and Principal Accounting
Officer
Dated: May 3, 1999 By: /s/ DAVID CONBOY
-----------------------------------------
Director
II-6
<PAGE>
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.
<TABLE>
<CAPTION>
EXHIBITS
- ---------
<C> <S>
1.1 Form of amended Underwriting Agreement
1.2 Form of Underwriters' Warrant, as amended
+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>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
- ---------
<C> <S>
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)
23.10 Consent of Robert A. Byrne (Director Nominee)
+27 Financial Data Schedules
</TABLE>
+ Previously filed
<PAGE>
Exhibit 1.1
BIZNESSONLINE.COM, INC.
2,900,000 SHARES
OF
COMMON STOCK
UNDERWRITING AGREEMENT
Joseph Stevens & Company, Inc.
Schneider Securities, Inc.
Neidiger, Tucker, Bruner, Inc.
Royce Investment Group, Inc.
as Representatives of the
Several Underwriters
c/o Joseph Stevens & Company, Inc.
33 Maiden Lane
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, who are acting severally and not jointly (the "Underwriters"), two
million nine hundred thousand shares of Common Stock of the Company (the
"Initial Securities"). As used herein, the term Company includes
BiznessOnline.com, Inc. and its wholly-owned subsidiary, Global 2000
Communications, Inc. Simultaneous with the closing with respect to the
purchase of the Initial Securities by the Underwriters, the Company will
acquire each of AlbanyNet, Inc., Borg Internet Services, Inc., Caravela
Software, Inc. and Ulsternet, Inc. (the "Acquisitions"), the consideration
for which will be a combination of cash and shares of the Company's Common
Stock as described in the Registration Statement (as defined below).
The Company hereby confirms the agreement made by it with respect to the
purchase of the Initial Securities by the Underwriters, which Initial
Securities are more fully described in the Registration Statement. Joseph
Stevens & Company, Inc., Schneider Securities, Inc., Neidiger, Tucker,
Bruner, Inc. and Royce Investment Group, Inc. will act as the representatives
of the several Underwriters and are referred to herein as the "Representatives."
You have advised the Company that the Underwriters desire to act on a firm
commitment basis to publicly offer and sell the Initial 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
<PAGE>
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. 33-73067) with respect to the
Securities (as defined below) has been carefully and accurately prepared by the
Company in conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and the published rules and regulations (the "Rules and
Regulations") thereunder and has been filed with the Securities and Exchange
Commission (the "Commission") and such other states that the Representatives
deem necessary in their 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 and all other documents
filed as a part thereof or incorporated therein, 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 430A of the Rules and
Regulations with any changes contained in any prospectus filed with the
Commission by the Company with the Representatives' consent after the effective
date of the Registration Statement, is herein referred to as the "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 underwriting expense allowances, an
aggregate of 2,900,000 shares of Common Stock on a firm commitment basis in the
amounts set forth in Schedule I which is a part of this Underwriting Agreement.
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.
The Underwriters may enter into one or more agreements as the Underwriters in
their sole discretion deem advisable with one or more broker-dealers who shall
act as dealers in connection with the offering.
(b) 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 435,000 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 solely
to cover overallotments. The Initial Securities and Option Securities are
sometimes hereinafter collectively referred to as the "Securities." 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
2
<PAGE>
Agreement if the Company has elected to rely upon Rule 430A under the Rules and
Regulations, upon written notice by the Representatives setting forth the number
of Option Securities as to which the Representatives are 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 Representatives 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 (the "Option Closing Date(s)"). Nothing herein shall
obligate the Underwriters to make any overallotment.
(c) Delivery of the Initial 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 Joseph Stevens & Company, Inc. at New York City, within three (3)
business days after the Initial Securities are first traded (or such other place
as may be designated by the Representatives) 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 Initial Securities being herein called
the "Initial Closing Date." In addition, in the event that any or all of the
Option Securities are purchased by the Underwriters, payment for the purchase
price for, and delivery of the certificates for such Option Securities shall be
made at the above mentioned office or at such other place as shall be agreed
upon by the Representatives and the Company.
The Company will make the certificates for the shares of Common Stock to be
purchased by the Representatives hereunder available to the Representatives for
inspection and packaging at least two (2) full business days prior to the
Initial Closing Date or the relevant Option Closing Date, as the case may be.
The certificates shall be in such names and denominations as the Representatives
may request to the Company in writing at least two (2) full business days prior
to any Closing Date.
(d) When the Registration Statement becomes effective and at all times
subsequent thereto up to the Initial Closing Date and each Option Closing Date,
if any, and during such longer period as the Prospectus may be required to be
delivered in connection with sales by the Underwriters or a dealer, the
Registration Statement and the Prospectus will contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and will conform to the requirements of the Act and the Rules and
Regulations; and, at and through such dates, neither the Registration Statement
nor the Prospectus, nor any amendment or supplement thereto, will contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading; PROVIDED, HOWEVER,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in conformity with written information
furnished to the Company with respect to any Underwriter by or on behalf of such
Underwriter expressly for use in the Preliminary Prospectus, Registration
Statement or the Prospectus or any amendment thereof or supplement thereto.
(e) The information set forth under "Underwriting" in any Preliminary
Prospectus and Prospectus relating to the Securities (insofar as such
information relates to the Underwriters) constitutes the only information
furnished by the Underwriters to the Company for inclusion therein, and you
represent and warrant to the Company that the statements made therein are
correct.
3
<PAGE>
(f) On the Initial Closing Date, the Company shall issue and sell to the
Representatives warrants (the "Representatives' Warrants") at a purchase
price of $.001 per Representatives' Warrant, which shall entitle the holders
thereof to purchase an aggregate of 290,000 shares of Common Stock. The
Representatives' Warrants and the shares of common stock issuable upon the
exercise of the Representatives' Warrants are sometimes hereinafter referred
to as the "Representatives' Securities." The Representatives' 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 sixty-five percent (165%) of the initial public offering price of the
Securities. The form of Representatives' Warrant Certificate shall be
substantially in the form filed as an Exhibit to the Registration Statement.
Payment for the Representatives' Warrants shall be made on the Initial
Closing Date.
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. 33 - 73067), including any related Preliminary Prospectus for the
registration of the Securities and the Representatives' 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
Representatives and will not file any other amendment thereto to which the
Representatives shall have objected verbally or in writing after having been
furnished with a copy thereof.
(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,
Registration Statement 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. The Company has filed all reports, forms or other documents
required to be filed under the Act and the Exchange Act and the respective Rules
and Regulations thereunder, and all such reports, forms or other documents when
so filed or as subsequently amended, complied in all material respects with the
Act and the Exchange Act
4
<PAGE>
and the respective Rules and Regulations thereunder.
(iii) The Company and each of the entities referred to above that will
be acquired by the Company upon consummation of the Acquisitions ("Acquisition
Companies") has been duly organized and is validly existing as a corporation in
good standing under the laws of each jurisdiction of its incorporation. Each of
the Company and the Acquisition Companies is duly qualified and licensed and in
good standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of any properties or the character of its operations
require such qualification or licensing. Except as set forth in the Prospectus,
the Company and each of the Acquisition Companies do not own, directly or
indirectly, an interest in any corporation, partnership, trust, joint venture or
other business entity. The Company and each of the Acquisition Companies have
all requisite power and authority (corporate and other), and have obtained any
and all authorizations, approvals, orders, licenses, certificates, franchises
and permits of and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over environmental or
similar matters), necessary and material to the owning or leasing its properties
and conducting its business as described in the Prospectus; each of the Company
and the Acquisition Companies is and has been doing business in compliance with
all such authorizations, approvals, orders, licenses, certificates, franchises
and permits and with all federal, state, local and foreign laws, rules and
regulations to which it is subject; and each of the Company and the Acquisition
Companies has not received any notice of proceedings relating to the revocation
or modification of any such authorization, approval, order, license,
certificate, franchise or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the condition, financial or otherwise, or the earnings,
prospects, stockholders' equity, value, operations, properties, business or
results of operations of the Company and the Acquisition Companies as a whole.
The disclosure in the Registration Statement concerning the effects of federal,
state, local and foreign laws, rules and regulations on the Company's and the
Acquisition Companies' business as currently conducted and as contemplated is
correct in all material respects and does not omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading.
(iv) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities and the Representatives'
Securities and to enter into this Agreement, the Representatives' Warrant
Agreement (the "Representatives' Warrant Agreement"), and to consummate the
transactions provided for in such agreements; each such agreement has been duly
and properly authorized, executed and delivered by the Company. This Agreement
and the Representatives' Warrant Agreement constitute valid and binding
agreements of the Company, enforceable in accordance with their respective terms
(except as the enforceability thereof may be limited by bankruptcy or other
similar laws 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, each of the Company and the
Acquisition Companies is not in violation of its certificate 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,
5
<PAGE>
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 or the Acquisition Companies 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 Representatives' Warrant Agreement, and the consummation of
the transactions contemplated herein and 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 or
the Acquisition Companies 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 or the Acquisition Companies is a party nor will
such action result in the material violation by the Company or any of the
Acquisition Companies of any of the provisions of its respective certificate 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 and the Acquisition Companies taken as a
whole.
(vi) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Initial Closing Date and the Option Closing Date, if any, based
upon the assumptions set forth therein, and the Company is not a party to or
bound by any instrument, agreement or other arrangement providing for it to
issue any capital stock, rights, warrants, options or other securities, except
for this Agreement and the Representatives' Warrant Agreement and as described
in the Prospectus. The Securities and the Representatives' Securities and all
other securities issued or issuable by the Company on or prior to the Initial
Closing Date and each Option Closing Date, if any, conform or, when issued and
paid for, will conform, in all respects to the descriptions thereof contained in
the Registration Statement and the Prospectus. All issued and outstanding
securities of the Company have been duly authorized and validly issued and are
fully paid and non-assessable; the holders thereof have no rights of rescission
with respect thereto and are not subject to personal liability by reason of
being such holders; and none of such securities were issued in violation of the
preemptive rights of any holder of any security of the Company or any similar
contractual right granted by the Company. The Securities to be sold by the
Company hereunder and pursuant to the Representatives' Warrant Agreement are not
and will not be subject to any preemptive or other similar rights of any
stockholder, have been duly authorized and, when issued, paid for and delivered
in accordance with the terms hereof and thereof, will be validly issued, fully
paid and non-assessable and conform to the descriptions thereof contained in the
Prospectus; the holders thereof will not be subject to any liability solely as
such holders; all corporate action required to be taken for the authorization,
issue and sale of the Securities and Representatives' Securities has been duly
and validly taken; and the certificates representing the securities, when
delivered by the Company, will be in due and proper form. Upon the issuance and
delivery pursuant to the terms hereof and the Representatives' Warrant Agreement
of the securities to be sold by the Company hereunder and
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thereunder to the Representatives' or the Underwriters, as the case may be, the
Representatives or the Underwriters, as the case may be, will acquire good and
marketable title to such securities, free and clear of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction or equity of
any kind whatsoever asserted against the Company, any of the Acquisition
Companies, or any affiliate (within the meaning of the Rules and Regulations) of
the Company.
(vii) The outstanding shares of capital stock of each of the
Acquisition Companies have been duly authorized and validly issued, and are
fully paid and non-assessable. As of the Initial Closing Date, after giving
effect to the Acquisitions, all of the outstanding shares of capital stock of
each of the Acquisition Companies will be owned by the Company free and clear of
all liens, encumbrances, equities, and claims; and except as described in the
Registration Statement, no options, warrants or other rights to purchase,
agreements, or other obligations to issue or other rights to convert any
obligations into shares of capital stock or ownership interests in the
Acquisition Companies will be outstanding.
(viii) Each of the Company and the Acquisition Companies 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 each of the Company and
the Acquisition Companies holds properties or assets as lessee or sublessee as
described in the Prospectus are in full force and effect, and the Company and
each of the Acquisition Companies 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 or any of the Acquisition
Companies' rights as lessor, sublessor, lessee or sublessee under any of the
leases or subleases mentioned above or affecting or questioning the Company's or
any of the Acquisition Companies' right to the continued possession of the
leased or subleased premises or assets under any such lease or sublease; and the
Company and each of the Acquisition Companies 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 of the Company and the separate
financial statements of each of the Acquisition Companies, in each case together
with the related notes thereto, included in the Registration Statement, each
Preliminary Prospectus and the Prospectus fairly present the financial position,
income, changes in stockholders' equity and the results of operations of the
Company and each of the Acquisition Companies, respectively, at the respective
dates and for the respective periods to which they apply and the pro forma
financial information included in the Registration Statement and Prospectus
presents fairly, on a basis consistent with that of the audited financial
statements therein, what the Company's and the Acquisition Companies' (taken as
a whole) pro forma capitalization and balance sheet data would have been for the
respective periods and as of the respective dates to which they apply after
giving effect to the adjustments described therein. Such financial statements
have been prepared in conformity with generally accepted accounting principles
and the Rules and Regulations, consistently applied throughout the periods
involved.
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There has been no material adverse change or development involving a
prospective change in the condition, financial or otherwise, or in the earnings,
prospects, stockholders' equity, value, operations, 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; and the outstanding debt, the
property, both tangible and intangible, and the business of the Company and the
Acquisition Companies conforms in all material respects to the descriptions
thereof contained in the Registration Statement and the Prospectus. The
financial information set forth in the Prospectus under the headings "Selected
Historical Financial Data for our Internet Service Providers," "Capitalization,"
"Selected Pro Forma Financial Data," and "Management's Discussion and Analysis
of Financial Condition and Results of Operation" fairly presents, on the basis
stated in the Prospectus, the information set forth therein and such financial
information has been derived from or compiled on a basis consistent with that of
the audited financial statements included in 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, each of the Company and the Acquisition Companies
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 and the Acquisition Companies 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 of the Acquisition Companies or any issuance of
options, warrants or rights to purchase the capital stock of the Company or any
of the Acquisition Companies or declaration or payment of any dividend on the
capital stock of the Company or any of the Acquisition Companies or material
adverse change in the condition (financial or otherwise), net worth or results
of operations of the Company and the Acquisition Companies as a whole and each
of the Company and the Acquisition Companies 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, inquiry, arbitration, investigation or proceeding to
which the Company or any of the Acquisition Companies 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 and the Acquisition Companies as a whole or might materially and
adversely affect the properties or assets of the Company and the Acquisition
Companies as a whole nor are there any actions, suits or proceedings against the
Company or any of the Acquisition Companies 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 and the
Acquisition Companies as a whole; and no labor disturbance by the employees of
the Company or the Acquisition Companies 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 and the Acquisition Companies as a whole.
(xii) Except as may be disclosed in the Prospectus, each of the
Company and the Acquisition Companies has properly prepared and filed all
necessary federal, state, local and foreign income and
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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) Each of the Company and the Acquisition Companies 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 each of the
Company and the Acquisition Companies 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 and Acquisition Companies' operations. To its knowledge,
none of the activities or businesses of the Company or any of the Acquisition
Companies is in material violation of, or cause the Company or any of the
Acquisition Companies 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) Each of the Company and the Acquisition Companies 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.
(xv) Except as set forth in the Prospectus the Company knows of no
outstanding claims, payments, issuances, understandings, whether oral or written
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 Underwriters' compensation as determined by
the National Association of Securities Dealers, Inc. ("NASD") except as
otherwise disclosed in the Prospectus or known by the Representatives.
(xvi) The Company and each of the Acquisition Companies maintains
insurance policies, including, but not limited to, general liability, property,
personal and product liability insurance, and surety bonds which insure the
Company, the Acquisition Companies, and each of its employees against such
losses and risks generally insured against by comparable businesses. Each of the
Company and the Acquisition Companies (i) has not failed to give notice or
present any insurance claim with respect to any insurable matter under the
appropriate insurance policy or surety bond in a due and timely manner, (ii)
does not have any disputes or claims against any underwriter of such insurance
policies or surety bonds, nor has failed to pay any premiums due and payable
thereunder, or (iii) has not failed to comply with all conditions contained in
such insurance policies and surety bonds. There are no facts or circumstances
under any such insurance policy or surety bond which would relieve any insurer
of its obligation to satisfy in full any valid claim of the Company or any of
the Acquisition Companies.
(xvii) The Representatives' Warrants herein described are duly and
validly authorized and upon delivery to the Representatives 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
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enforcement of indemnification provisions may be limited by federal or state
securities laws. The Common Stock issuable upon exercise of any of the
Representatives' 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 and each of
the Acquisition Companies may be bound or to which the property or assets
(tangible or intangible) of the Company and each of the Acquisition Companies is
subject or affected.
(xix) Each of the Company and the Acquisition Companies 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. There are no pending investigations involving the Company or
any of the Acquisition Companies 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. There is no unfair labor practice charge
or complaint against the Company or any of the Acquisition Companies 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 of the Acquisition Companies, or any predecessor
entity, and none has ever occurred. No representation question is pending
respecting the employees of the Company and the Acquisition Companies, and no
collective bargaining agreement or modification thereof is currently being
negotiated by the Company or any of the Acquisition Companies. No grievance or
arbitration proceeding is pending or to its knowledge threatened under any
expired or existing collective bargaining agreements of the Company or any of
the Acquisition Companies. No labor dispute with the employees of the Company or
any of its Acquisition Companies 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 and the
Acquisition Companies.
(xx) Except as may be set forth in the Registration Statement, each of
the Company and the Acquisition Companies do 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(1) and 3(37), respectively, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA Plans").
The Company and each of the Acquisition Companies do not maintain or contribute,
now or at any time previously, to a defined benefit plan, as defined in Section
3(35) of ERISA.
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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 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 and each of the Acquisition Companies has
never completely or partially withdrawn from a "multiemployer plan."
(xxi) None of the Company or the Acquisition Companies, or any of
their 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, the Representatives' 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 or any of the Acquisition Companies, 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 and each of
the Acquisition Companies (i) except as disclosed in the Prospectus owns or has
the right to use free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or equities of any
kind whatsoever, all patents, trademarks, service marks, trade names and
copyrights, technology and licenses and rights with respect to the foregoing,
used in the conduct of its business as now conducted or proposed to be conducted
without infringing upon or otherwise acting adversely to the right or claimed
right of any person, corporation or other entity under or with respect to any of
the foregoing, and except as set forth in the Prospectus or otherwise disclosed
to the Representatives in writing, to the best knowledge of the Company's
management is (ii) 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.
There is no suit, proceeding, inquiry, arbitration, investigation,
litigation or governmental or other proceeding, domestic or foreign, pending or,
to the best of the Company's knowledge, threatened (or circumstances that may
give rise to the same) against the Company or the Acquisition Companies which
challenges the rights of the Company or any of the Acquisition Companies with
respect to any trademarks, trade names, service marks, service names,
copyrights, patents, patent applications or licenses or rights to the foregoing
used in the conduct of its business.
(xxiii) Except as disclosed in the Prospectus, the Company and each of
the Acquisition Companies
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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 and the
Acquisition Companies, free and clear of and without violating any right, lien
or claim of others, including without limitation, former employers of its
employees. The Company is not aware of any such development of similar or
identical trade secrets or technical information by others. The Company and each
of the Acquisition Companies 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 caused to be duly executed agreements ("Lock-up
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
Common Stock options and their underlying shares and holders of any 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 to 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. The Company has caused to be duly executed agreements pursuant
to which the stockholders in Global 2000 Communications, Inc., AlbanyNet, Inc.,
Borg Internet Services, Inc., Caravela Software, Inc. and Ulsternet, Inc.
("Acquisition Lock-up Agreements") have agreed not to, directly or indirectly,
sell, assign, transfer, or otherwise dispose of more than 50% of the shares of
Common Stock received by them in the acquisitions by the Company (either
pursuant to Rule 144 of the Rules and Regulations or otherwise) for a period of
two years following the closing date of such acquisitions. The Company will
cause the Transfer Agent, as defined below, to mark an appropriate legend on the
face of stock certificates representing all of such securities and to place
"stop transfer" orders on the Company's stock ledgers.
The Company has not taken and will not take action to release any
stockholder(s) from the lock-up period (as described above) in the
Acquisition Lock-Up Agreements or to modify, amend or waive any provision of
the Acquisition Lock-Up Agreements.
(xxvi) The Registered Securities have been approved for listing on the
Nasdaq National Market.
(xxvii) Except as set forth in the Prospectus or disclosed in writing
to each of the Representatives (which
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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 any of the Acquisition
Companies, or (B) purchases from or sells or furnishes to the Company or the
Acquisition Companies any goods or services, or (ii) a beneficiary interest in
any contract or agreement to which the Company and the Acquisition Companies 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
Representatives (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 Underwriters or to the Underwriters' counsel (as defined
herein) shall be deemed a representation and warranty by the Company to the
Representatives as to the matters covered thereby.
(xxix) Each of the minute books of the Company and the Acquisition
companies has been made available to the Underwriters 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) Except and only to the extent described in the Prospectus or
disclosed in writing to the Representatives (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 Representatives' Warrant
Agreement (including the warrants issuable thereunder).
(xxxi) The Company has not entered into any employment agreements with
its executive officers, except as disclosed in the Prospectus.
(xxxii) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Securities and the Representatives'
Securities pursuant to the Prospectus and the Registration Statement, the
issuance of the Representatives' Warrants, the performance of this Agreement,
the Representatives' 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 and the Representatives' Securities, except such
as have been or may be obtained under the Act,
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otherwise or may be required under state securities or blue sky laws in
connection with the Representatives' purchase and distribution of the Securities
and the Representatives' Securities and the Representatives' Warrants to be sold
by the Company hereunder or may be required by the Rules of the National
Association of Securities Dealer, Inc. ("NASD").
(xxxiii) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as exhibits to
the Registration Statement to which the Company or any of the Acquisition
Companies 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 the Acquisition Companies, as the case
may be, constitute the legal, valid and binding agreements of the Company and
the Acquisition Companies, enforceable against the Company and the Acquisition
Companies 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.
(xxxiv) Within the past five (5) years, none of the Company's nor the
Acquisition Companies' 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.
(xxxv) The Company and each of the Acquisition Companies (i) has paid
all federal, state, local and foreign taxes for which it is liable and which are
required to have been paid, including, but not limited to, withholding taxes and
amounts payable under Chapters 21 through 24 of the Internal Revenue Code of
1986, as amended (the "Code"), and has furnished all information returns it is
required to furnish pursuant to the Code, (ii) has established adequate reserves
for such taxes which are not due and payable, and (iii) does not have any tax
deficiency or claims outstanding, proposed or assessed against it.
(xxxvi) No transfer tax, stamp duty or other similar tax is payable by
or on behalf of the Underwriters in connection with (i) the issuance by the
Company of the Securities, (ii) the purchase by the Underwriters of the
Securities from the Company and the purchase by the Representatives of the
Representatives' Warrants from the Company, (iii) the consummation by the
Company of any of its obligations under this Agreement or the Representatives'
Warrant Agreement, or (iv) resales of the Initial Securities or the Option
Securities in connection with the distribution contemplated hereby.
(xxxvii) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those pertaining to environmental or similar matters), domestic or
foreign, pending or, to the best knowledge of the Company, threatened against
(or circumstances that may give rise to the same), or involving the properties
or business of, the Company or any of the Acquisition Companies which (i)
questions the validity of the capital stock of the Company, this Agreement or
the Representatives' Warrant Agreement or of any
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action taken or to be taken by the Company pursuant to or in connection with
this Agreement or the Representatives' Warrant Agreement, (ii) is required to be
disclosed in the Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement are accurately
summarized in all material respects), or (iii) might materially and adversely
affect the condition, financial or otherwise, or the earnings, prospects,
stockholders' equity, value, operations, properties, business or results of
operations of the Company and the Acquisition Companies as a whole.
(xxxviii) Subsequent to the respective dates as of which information
is set forth in the Registration Statement and the Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company and each
of the Acquisition Companies has not (i) issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed money, (ii) entered
into any transaction other than in the ordinary course of business, or (iii)
declared or paid any dividend or made any other distribution on or in respect of
any class of its capital stock; and, subsequent to such dates, and except as may
be otherwise disclosed in the Prospectus, there has not been any change in the
capital stock, debt (long or short term) or liabilities or any material change
in the condition, financial or otherwise, or the earnings, prospects,
stockholders' equity, value, operations, properties, business or results of
operations of the Company and the Acquisition Companies.
(xxxix) Neither the Company nor any of its respective directors,
officers, stockholders, employees, agents or any other person acting on behalf
of the Company has, directly or indirectly, given or agreed to give any money,
gift or similar benefit (other than legal price concessions to customers in the
ordinary course of business) to any customer, supplier, employee or agent of a
customer or supplier, or any official or employee of any governmental agency or
instrumentality of any government (domestic or foreign) or instrumentality of
any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or any other person who was, is or may be in a
position to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) which (i) might subject the
Company, or any other such person to any damage or penalty in any civil,
criminal or governmental litigation or proceeding (domestic or foreign), (ii) if
not given in the past, might have had a material and adverse effect on the
condition, financial or otherwise, or the earnings, business affairs, prospects,
stockholders' equity, value, operations, properties, business or results of
operations of the Company, or (iii) if not continued in the future, might
materially and adversely affect the condition, financial or otherwise, or the
earnings, business affairs, prospects, stockholders' equity, value, operations,
properties, business or results of operations of the Company. The Company's
internal accounting controls are sufficient to cause the Company to comply with
the Foreign Corrupt Practices Act of 1977, as amended.
(xl) Neither the Company nor any of the Acquisition Companies is
required to register as an "investment company" within the meaning of such term
under the Investment Company Act of 1940, as amended, and the rules and
regulations of the Commission thereunder.
(xli) The Company and each of the Acquisition Companies maintains a
system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in
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accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xlii) The Company has provided the Representatives true and correct
copies of the material agreements entered into in connection with the
Acquisitions (the "Acquisition Agreements"); the Company expects that the
Acquisitions will close on or about the Initial Closing Date in accordance with
the terms of the Acquisition Agreements.
(xliii) The Company has filed a Form 8-A with the Commission providing
for the registration under the Exchange Act of the Securities and such Form 8-A
has been declared effective by the Commission.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees with you that:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective
date, file any amendment to or supplement to the Registration Statement or
supplement to the Prospectus or file any document under the Act or Exchange Act
before the termination of the offering of Securities to the public by the
Underwriters of which you shall not previously have been advised and furnished
with a copy or to which you or your counsel shall have objected or which is not
in material compliance with the Act, the Exchange Act and the Rules and
Regulations or applicable state law.
(b) 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 post-effective 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 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.
(c) 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 and the Representatives' Securities for such
period as
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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
Securities and will use its best efforts to cause the same to become effective
as promptly as possible.
(d) The Company shall file the Prospectus (in form and substance
satisfactory to the Representatives) 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.
(e) 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 and the Representatives' Securities of any event
of which the Company has knowledge and which materially affects the Company or
the Acquisition Companies, 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, each such amended Prospectus or
supplement to be satisfactory to you and your counsel, 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.
(f) 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 and the Representatives Securities under the
Act, the Rules and Regulations, and applicable state securities laws.
(g) The Company will cooperate to qualify the Initial Securities and the
Option Securities and the Representatives' Securities for initial sale under the
securities laws of such jurisdictions as you may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution contemplated hereby 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 Representatives may reasonably request.
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(h) So long as any of the Initial Securities, the Option Securities or the
Representatives' Securities remain outstanding in the hands of the public, the
Company, at its expense, will annually furnish to its stockholders a report of
its operations to include financial statements audited by independent public
accountants, and will furnish to the Representatives 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, stockholders'
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.
(i) The Company 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.
(j) The Company will apply the net proceeds from the sale of the 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
Representatives.
(k) As soon as it is practicable, but in any event not later than the first
(1st) 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 Representatives 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.
(l) Non-Accountable Expense Allowance and other Costs and Expenses.
The Company shall pay to the Representatives at each closing date,
and to be deducted from the purchase price for the Securities an amount equal
to three percent (3%) of the gross proceeds received by the Company from the
sale of the Securities at such closing date less, in the case of the Initial
Closing Date, the sum of $50,000 previously paid by the Company to Schneider
Securities, Inc. If the sale of the Securities by the Representatives is not
consummated for any reason not attributable to the Representatives, including
if this Agreement is terminated by the Underwriters in accordance with the
provisions of SECTION 5 or SECTION 9(a), 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
Representatives, 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 Representatives, then the
Company shall reimburse the Representatives for its out of
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pocket expenses including without limitation, its legal fees and disbursements
all on a non-accountable basis.
COSTS AND EXPENSES. Subject to the provisions above, the Company will pay
all costs and expenses incident to the performance of this Agreement and the
Representatives' Warrant 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 Initial Closing Date or the relevant
Option Closing Date, as the case may be, 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 this Agreement and related Underwriting documents, the cost of three
Representatives' 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 and
the fees and expenses of a transfer and warrant agent and registrar for the
Securities. 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.
(m) During a date five years after the date hereof, the Company will make
available to its stockholders, as soon as practicable, and deliver to the
Representatives:
(1) as soon as they are available, copies of all reports (financial or
other) mailed to stockholders;
(2) Unaudited quarterly reports of earnings as certified by the
Company's principal financial and accounting officer; concurrently with
furnishing annual reports to its stockholders, a balance sheet of the
Company as at the end of the preceding fiscal year, together with
statements of operations, stockholders' equity and cash flows of the
Company for such fiscal year, accompanied by a copy of the report thereon
of the Company's independent certified public accountants;
(3) 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;
(4) 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
(5) any additional information of a public nature concerning the
Company (and any future subsidiaries) or its businesses which the
Representatives 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
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Company and its subsidiaries are consolidated, and will be accompanied by
similar financial statements for any significant subsidiary which is not so
consolidated.
(n) 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.
(o) The Company will furnish to the Representatives or on the
Representatives' order, without charge, at such place as the Representatives may
designate, copies of each Preliminary Prospectus, the 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 Representatives may request.
(p) 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.
(q) 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.
(r) The Company shall cause the Securities to be listed on the Nasdaq
National Market, or another 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.
(s) 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 or Nasdaq National Market. 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 after market
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.
(t) Until the completion of the distribution of the Securities, the Company
shall not without the prior written consent of the Underwriters and their
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.
(u) 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
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form) for the registration under the Act of the Representatives' Securities.
(v) On or before the effective date of the Registration Statement, the
Company shall provide the Representatives with originally executed copies of
duly executed, legally binding and enforceable Lock-up Agreements, which are in
form and substance satisfactory to the Representatives. On or before the Closing
Date, the Company shall deliver instructions to its transfer agent authorizing
such transfer agent to place appropriate legends on the certificates
representing the securities of the Company subject to the Lock-up Agreements and
Acquisition Lock-up Agreements and to place appropriate stop transfer orders on
the Company's ledgers.
(w) The Company agrees that for a period of fourteen (14) months
following the effective date of the Registration Statement, it, the
Acquisition Companies and any future subsidiaries will not, without the prior
written consent of the Representatives (i) issue, sell, contract or offer to
sell, grant an option for the purchase or sale of, assign, transfer, pledge,
hypothecate, distribute or otherwise dispose of, directly or indirectly, any
shares of capital stock or any option, right or warrant with respect to any
shares of capital stock, provided that the Company may, without the consent
of the Representatives, issue securities (i) upon the exercise of any
outstanding stock options or warrants granted and issued on or prior to the
date hereof, (ii) upon the exercise of stock options that may be granted
pursuant to the Company's 1999 stock incentive plan and the Company's 1999
non-employee director stock incentive plan so long as such stock options were
issued at a price equal to or greater than the fair market value at the time
of grant, and (iii) in connection with an acquisition or acquisitions so long
as the exercise price is equal to or greater than the fair market value per
share of Common Stock on the date of grant or sale.
(x) The Company agrees not take any action to release any stockholder(s)
from the lock-up period (as described above) in the Acquisition Lock-up
Agreements.
(y) The Company shall furnish to the Representatives as early as
practicable prior to each of the date hereof, the Initial Closing Date and each
Option Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date hereof, the Initial Closing Date or the relevant Option
Closing Date, as the case may be) which have been read by the Company's
independent public accountants, as stated in their letters to be furnished
pursuant to SECTION 5(b)(iv) hereof.
(z) For a period of three (3) years from the Initial Closing Date, the
Company shall at the request of the Representatives, furnish or cause to be
furnished to the Representatives and at the Company's sole expense, (i) daily
consolidated transfer sheets relating to the Common Stock and (ii) a list of
holders of all of the Company's securities.
(aa) For a period of three (3) years from the Initial Closing Date, the
Company shall, at the Company's sole expense, (i) promptly provide the
Representatives, upon any and all requests of the Representatives, with a "blue
sky trading survey" for secondary sales of the Company's securities, prepared by
counsel to the Company, and (ii) take all necessary and appropriate actions to
further qualify the Company's securities in all jurisdictions of the United
States in order to permit secondary sales of such securities pursuant to the
"blue sky" laws of those jurisdictions, provided that such jurisdictions do not
require the Company to qualify as a foreign corporation.
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(bb) For the duration of the Acquisition lock-up period (as described
above), the Company shall not restate, amend or alter any term of any written
employment, consulting or similar agreement entered into between the Company and
any officer, director or key employee as of the effective date of the
Registration Statement in a manner which is more favorable to such officer,
director or key employee, without the prior written consent of the
Representatives.
(cc) The Company (i) will use its reasonable best efforts to close the
Acquisitions in accordance with the terms of the Acquisition Agreements and (ii)
will promptly notify the Representatives of the occurrence of any event which
may result in the non-consummation of or material change in the terms of any of
the Acquisitions on the Initial Closing Date.
(dd) The Company shall not invest or otherwise use the proceeds received by
the company from its sale of Securities in such a manner as would require the
Company or any of the Acquisition Companies to register as an investment company
under the Investment Act of 1940.
(ee) The Company will use its best efforts to maintain the effectiveness of
the Registration Statement for a period of five (5) years after the date hereof.
5. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligation of the
Underwriters to offer and sell the 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, the accuracy on and as of the closing dates
of the statements of officers of the Company made pursuant to the provisions
hereof, the performance by the Company on and as of the closing dates of its
covenants 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
Registration Statement shall have been issued and no proceedings for that or
similar purpose shall have been instituted or shall be 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
Underwriters; 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. If the Company has elected to rely upon Rule 430A of
the Rules and Regulations, the price of the Securities and any price-related
information previously omitted from the effective Registration Statement
pursuant to such Rule 430A shall have been transmitted to the Commission for
filing pursuant to Rule 424(b) of the Rules and Regulations within the
prescribed time period, and prior to the Initial Closing Date the Company shall
have provided evidence satisfactory to the Representatives of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
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The Representatives shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representatives' opinion, is material, or omits to state a
fact which, in the Representatives' opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances in which they were made not misleading, or that the Prospectus, or
any supplement thereto, contains an untrue statement of fact which, in the
Representatives' opinion, is material, or omits to state a fact which, in the
Representatives' opinion, is material and is required to be stated therein or is
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading.
(b) On any closing date and, with respect to the letter referred to in
subparagraph (iv), 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 Orrick, Herrington & Sutcliffe LLP, counsel
to the Underwriters, dated each such closing date, to the effect that:
(A) the Company (A) has been duly organized and is validly
existing as a corporation in good standing under the laws of its
jurisdiction, (B) is duly qualified and licensed and in good standing as a
foreign corporation in each jurisdiction in which its ownership or leasing
of any properties or the character of its operations requires such
qualification or licensing, and (C) has all requisite corporate power and
authority, and has obtained any and all necessary authorizations,
approvals, orders, licenses, certificates, franchises and permits of and
from all governmental or regulatory officials and bodies (including,
without limitation, those having jurisdiction over environmental or similar
matters), to own or lease its properties and conduct its business as
described in the Prospectus; the Company is and has been doing business in
compliance with all such authorizations, approvals, orders, licenses,
certificates, franchises and permits and all federal, state and local laws,
rules and regulations; and, the Company has not received any notice of
proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would materially adversely affect the
business, operations, condition, financial or otherwise, or the earnings,
business affairs, position, prospects, value, operation, properties,
business or results of operations of the Company. The disclosures in the
Registration Statement concerning the effects of federal, state and local
laws, rules and regulations on the Company's business as currently
conducted and as contemplated are correct in all material respects and do
not omit to state a fact required to be stated therein or necessary to make
the statements contained therein not misleading in light of the
circumstances in which they were made;
(B) upon consummation of the Acquisitions pursuant to the
Acquisition Agreements, the outstanding shares of capital stock of each of
the Acquisition Companies will be owned of record by the Company; and to
such counsel's knowledge, upon consummation of the Acquisitions, the
outstanding shares of capital stock of each of the Acquisition Companies
will be owned free and clear of all liens, encumbrances and equities and
claims, and no options, warrants or other rights
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to purchase, agreements or other obligations to issue or other rights to
convert any obligations into any shares of capital stock or of membership
interests in the Acquisition Companies will be outstanding except as
described in the Prospectus.
(C) each of the Acquisition Agreements has been duly authorized,
executed and delivered by the Company. Assuming due authorization,
execution and delivery by the other parties thereto, each Acquisition
Agreement constitutes a valid and binding obligation of the Company, except
to the extent that enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and by general
principles of equity regardless of whether enforceability is considered in
a proceeding in equity or law.
(D) except as described in the Prospectus, the Company does not
own an interest in any other corporation, partnership, joint venture, trust
or other business entity;
(E) the Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities and the Representatives'
Securities. The Company has the full corporate power and authority to enter
into this Agreement, the Representatives' Warrant Agreement and to
consummate the transactions provided for herein and therein and each such
agreement has been duly and validly authorized, executed and delivered by
the Company. Each of this Agreement and the Representatives' 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. Except as disclosed in the Prospectus, the Company
is not in violation of its respective certificate 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 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. None of the Company's
execution or delivery of this Agreement, or the Representatives' 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
certificate of incorporation or bylaws 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,
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any statute, judgment, decree, order, rule or regulation applicable to the
Company, whether domestic or foreign.
(F) the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or
supplement thereto, under "Capitalization" and "Description of Securities,"
and the Company is not a party to or bound by any instrument, agreement or
other arrangement providing for it to issue, sell, transfer, purchase or
redeem any capital stock, rights, warrants, options or other securities,
except for this Agreement and the Representatives' Warrant Agreement and as
described in the Prospectus. The Securities, Representatives' Securities
and all other securities issued or issuable by the Company conform in all
material respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and outstanding
securities of the Company have been duly authorized and validly issued and
are fully paid and non-assessable; the holders thereof have no rights of
rescission with respect thereto, and are not subject to personal liability
by reason of being such holders; and none of such securities were issued in
violation of the preemptive rights of any holders of any security of the
Company or any similar rights granted by the Company. The Securities to be
sold by the Company hereunder and under the Representatives' Warrant
Agreement are not and will not be subject to any preemptive or other
similar rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable and conform to the
description thereof contained in the Prospectus; the holders thereof will
not be subject to any liability solely as such holders; all corporate
action required to be taken for the authorization, issue and sale of the
Securities has been duly and validly taken; and the certificates
representing the Securities are in due and proper form. The
Representatives' Warrants constitute valid and binding obligations of the
Company to issue and sell, upon exercise thereof and payment therefor, the
number and type of securities of the Company called for thereby. Upon the
issuance and delivery pursuant to this Agreement of the Securities and the
Representatives' Securities to be sold by the Company, the Underwriters and
the Representatives, respectively, will acquire good and marketable title
to the Securities and the Representatives' Securities free and clear of any
pledge, lien, charge, claim, encumbrance, pledge, security interest, or
other restriction or equity of any kind whatsoever. No transfer tax is
payable by or on behalf of the Underwriters in connection with (A) the
issuance by the Company of the Securities, (B) the purchase by the
Underwriters of the Firm Securities and the Option Securities from the
Company, and the purchase by the Representatives of the Representatives'
Warrants or the Representatives' Securities from the Company, (C) the
consummation by the Company of any of its obligations under this Agreement
or the Representatives' Warrant Agreement, or (D) resales of the Firm
Securities and the Option Securities in connection with the distribution
contemplated hereby.
(G) When issued in accordance with the terms of this Agreement
and the Acquisitions Agreements, respectively, the shares of Common Stock
to be issued in connection with the Acquisitions will be duly authorized,
validly issued, fully paid and non-assessable when issued and paid for as
contemplated by this Agreement or the Acquisition Agreements, as the case
may be; and no holder of outstanding securities has any statutory
preemptive rights under Delaware General Corporation Law, the certificate
of incorporation or bylaws of the Company, or to the knowledge of such
counsel, any contractual right to subscribe for any of the Securities or
the shares of
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Common Stock to be issued in connection with the Acquisitions.
(H) the Registration Statement is effective under the Act, and,
if applicable, filing of all pricing information has been timely made in
the appropriate form under Rule 430A, and no stop order suspending the use
of the Preliminary Prospectus, the Registration Statement or Prospectus or
any part of any thereof or suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or, to the best of such counsel's knowledge,
threatened or contemplated under the Act;
(I) each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or supplements thereto
(other than the financial statements and other financial and statistical
data included therein, as to which no opinion need be rendered) comply as
to form in all material respects with the requirements of the Act and the
Rules and Regulations;
(J) to the best of such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act to be
described in the Registration Statement and the Prospectus and filed as
exhibits to the Registration Statement other than those described in the
Registration Statement (or required to be filed under the Exchange Act if
upon such filing they would be incorporated, in whole or in part, by
reference therein) and the Prospectus and filed as exhibits thereto, and
the exhibits which have been filed are correct copies of the documents of
which they purport to be copies; (B) the descriptions in the Registration
Statement and the Prospectus and any supplement or amendment thereto of
contracts and other documents to which the Company or each of the
Acquisition Companies 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 and fairly represent the information
required to be shown by Form SB-2; (C) there is not pending or threatened
against the Company or any of the Acquisition Companies any action,
arbitration, suit, proceeding, inquiry, investigation, litigation,
governmental or other proceeding (including, without limitation, those
having jurisdiction over environmental or similar matters), domestic or
foreign, pending or threatened against (or circumstances that may give rise
to the same), or involving the properties or business of the Company which
(x) is required to be disclosed in the Registration Statement which is not
so disclosed (and such proceedings as are summarized in the Registration
Statement are accurately summarized in all respects), (y) questions the
validity of the capital stock of the Company or any of the Acquisition
Companies or this Agreement or the Representatives' Warrant Agreement, or
of any action taken or to be taken by the Company or any of the Acquisition
Companies pursuant to or in connection with any of the foregoing; (D) no
statute or regulation or legal or governmental proceeding required to be
described in the Prospectus is not described as required; and (E) there is
no action, suit or proceeding pending, or threatened, against or affecting
the Company before any court or arbitrator or governmental body, agency or
official (or any basis thereof known to such counsel) in which there is a
reasonable possibility of a decision which may result in a material adverse
change in the condition, financial or otherwise, or the earnings, position,
prospects, stockholders' equity, value, operation, properties, business or
results of operations of the Company and the Acquisition Companies as a
whole, which could adversely affect the present or prospective ability of
the Company to perform its obligations under this Agreement or the
Representatives' Warrant
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Agreement or which in any manner draws into question the validity or
enforceability of this Agreement or the Representatives' Warrant Agreement;
(K) the properties and business of the Company and the
Acquisition Companies conform in all material respects to the description
thereof contained in the Registration Statement and the Prospectus;
(L) the Company and each of the Acquisition Companies are not in
breach of, or in default under, any term or provision of any license,
contract, collective bargaining agreement, indenture, mortgage, installment
sale agreement, deed of trust, lease, voting trust agreement, stockholders'
agreement, partnership agreement, note, loan or credit agreement or any
other agreement or instrument evidencing an obligation for borrowed money,
or any other agreement or instrument to which the Company or the
Acquisition Companies are a party or by which the Company or the
Acquisition Companies may be bound or to which the properties or assets
(tangible or intangible) of the Company or the Acquisition Companies are
subject or affected; and each of the Company and the Acquisition Companies
is not in violation of any term or provision of its articles of
incorporation or bylaws or in violation of any franchise, license, permit,
judgment, decree, order, statute, rule or regulation;
(M) the statements in the Prospectus under "RISK FACTORS,"
"PROSPECTUS SUMMARY," "BUSINESS," "MANAGEMENT," "PRINCIPAL STOCKHOLDERS,"
"CERTAIN TRANSACTIONS," "DESCRIPTION OF CAPITAL STOCK," 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;
(N) the Securities have been accepted for quotation on Nasdaq
National Market;
(O) the persons listed under the caption "PRINCIPAL STOCKHOLDERS"
in the Prospectus are the respective "beneficial owners" (as such phrase is
defined in regulation 13d-3 under the Exchange Act) of the securities set
forth opposite their respective names thereunder as and to the extent set
forth therein;
(P) none of the Company, nor any of its officers, stockholders,
employees or agents, nor any other person acting on behalf of the Company
has, directly or indirectly, given or agreed to give any money, gift or
similar benefit (other than legal price concessions to customers in the
ordinary course of business) to any customer, supplier, employee or agent
of a customer or supplier, or official or employee of any governmental
agency or instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other
person who is or may be in a position to help or hinder the business of the
Company (or assist it in connection with any actual or proposed
transaction) which (A) might subject the Company to any damage or penalty
in any civil, criminal or governmental litigation or proceeding, (B) if not
given in the past, might have had an adverse effect on the assets, business
or operations of the Company, as reflected in any of the financial
statements contained in the Registration Statement, or (C) if not continued
in the future, might adversely affect the assets, business, operations or
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prospects of the Company;
(Q) no person, corporation, trust, partnership, association or
other entity has the right to include and/or register any securities of the
Company in the Registration Statement, require the Company to file any
registration statement or, if filed, to include any security in such
registration statement;
(R) except as described in the Prospectus, there are no claims,
payments, issuances, arrangements or understandings for services in the
nature of a finder's or origination fee with respect to the sale of the
Securities hereunder or financial consulting arrangements or any other
arrangements, agreements, understandings, payments or issuances that may
affect the Underwriters' compensation, as determined by the NASD;
(S) assuming due execution by the parties thereto other than the
Company, the lock-up agreements described in SECTION __ are legal, valid
and binding obligations of the parties thereto, enforceable against the
party and any subsequent holder of the securities subject thereto in
accordance with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of general application relating to or affecting enforcement of creditors'
rights and the application of equitable principles in any action, legal or
equitable, and except as rights to indemnity or contribution may be limited
by applicable law);
(T) except as described in the Prospectus, the Company and the
Acquisition Companies do not (A) maintain, sponsor or contribute to any
ERISA Plans, (B) maintain or contribute, now or at any time previously, to
a defined benefit plan, as defined in Section 3(35) of ERISA, and (C) has
ever completely or partially withdrawn from a "multiemployer plan";
(U) none of the Company or any of its affiliates shall be subject
to the requirements of or shall be deemed an "Investment Company," pursuant
to and as defined under the Investment Company Act;
(V) to the best knowledge of such counsel and except as described
in the Prospectus, the Company and each of the Acquisition Companies owns
or possesses, free and clear of all liens or encumbrances and rights
thereto or therein by third parties, the requisite licenses or other rights
to use all trademarks, service marks, copyrights, service names, trade
names, patents, patent applications and licenses necessary to conduct its
business (including, without limitation, any such licenses or rights
described in the Prospectus as being owned or possessed by the Company and
the Acquisition Companies), and there is no claim or action by any person
pertaining to, or proceeding, pending or threatened, which challenges the
exclusive rights of the Company and the Acquisition Companies with respect
to any trademarks, service marks, copyrights, service names, trade names,
patents, patent applications and licenses used in the conduct of the
Company's business (including, without limitation, any such licenses or
rights described in the Prospectus as being owned or possessed by the
Company and the Acquisition Companies); and the Company's and Acquisition
Companies' current products, services and processes do not and will not
infringe on the patents currently held by third parties;
(W) to the best of our knowledge, after due inquiry, except as
described in the Prospectus, the
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Company and each of the Acquisition Companies are not under any obligation
to pay royalties or fees to any third party, with respect to any technology
or intellectual properties developed, employed, licensed or used by the
Company;
(X) 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 pursuant to the Prospectus and the Registration Statement
or the Representatives' Securities, the performance of this Agreement and
the Representatives' Warrant Agreement, and the transactions contemplated
hereby and thereby.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, the Underwriters, 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 Initial Closing Date and on any later date on which Option
Securities 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 Initial Closing Date or any later date on which the Option Securities
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 Representatives 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, provided that copies of any such
certificates shall be delivered to Underwriters' counsel; (b) as to matters
involving the application of laws other than the United States and jurisdictions
in which they are admitted, to the extent such counsel deems proper and to the
extent specified in such opinion, if at all, upon an opinion or opinions (in
form and substance satisfactory to Underwriters' counsel) of other counsel
acceptable to Underwriters' counsel, familiar with applicable laws.
The opinion of such counsel for the Company shall state that the
opinion of any
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such other counsel is in form satisfactory to such counsel and that the
Underwriters and they are justified in relying thereon. Such opinion shall not
state that it is to be governed or qualified by, or that it is including without
limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991)
or any comparable state accord. Such opinion shall state that it may be relied
upon by Orrick, Herrington & Sutcliffe LLP, counsel to the Underwriters.
(ii) Prior to the Closing Date and each Option Closing Date, if any,
(i) there shall have been no material adverse change or development involving a
prospective adverse change in the condition, financial or otherwise, or the
earnings, stockholders' equity, value, operations, properties, business or
results of operations of the Company or the Acquisition Companies, whether or
not in the ordinary course of business, from the latest dates as of which such
matters are set forth in the Registration Statement and the Prospectus; (ii)
there shall have been no transaction, not in the ordinary course of business,
entered into by the Company or the Acquisition Companies from the latest date as
of which the financial condition of the Company is set forth in the Registration
Statement and the Prospectus; (iii) each of the Company and the Acquisition
Companies shall not be in default under any provision of any instrument relating
to any outstanding indebtedness; (iv) each of the Company and the Acquisition
Companies shall not have issued any securities (other than the Securities) or
declared or paid any dividend or made any distribution in respect of its capital
stock of any class and there shall not have been any change in the capital
stock, debt (long or short term) or liabilities or obligations of the Company or
the Acquisition Companies (contingent or otherwise) from the latest dates as of
which such matters are set forth in the Registration Statement and the
Prospectus; (v) no material amount of the assets of the Company or the
Acquisition Companies shall have been pledged or mortgaged, except as set forth
in the Registration Statement and the Prospectus; (vi) no action, suit,
proceeding, inquiry, arbitration, investigation, litigation or governmental or
other proceeding, domestic or foreign, shall be pending or threatened (or
circumstances giving rise to same) against the Company or the Acquisition
Companies or affecting any of its properties or business before or by any court
or federal, state or foreign commission, board or other administrative agency
wherein an unfavorable decision, ruling or finding may materially and adversely
affect the condition, financial or otherwise, or the earnings, stockholders'
equity, value, operations, properties, business or results of operations of the
Company and the Acquisition Companies taken as a whole, except as set forth in
the Registration Statement and Prospectus; and (vii) no stop order shall have
been issued under the Act with respect to the Registration Statement and no
proceedings therefor shall have been initiated, threatened or contemplated by
the Commission.
(iii) a certificate of the Company signed by the principal executive
officer and by the chief financial officer of the Company to the effect that
each of such persons has carefully examined the Registration Statement, the
Prospectus and this Agreement, and that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the
Closing Date or the Option Closing Date, as the case may be,
and the Company has complied with all agreements and covenants
and satisfied all conditions contained in this Agreement on
its part to be performed or satisfied at or prior to such
Closing Date or Option Closing Date, as the case may be;
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(ii) No stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued, and no
proceedings for that purpose have been instituted or are
pending or, to the best of each of such person's knowledge,
are contemplated or threatened under the Act;
(iii) The Registration Statement and the Prospectus and, if any,
each amendment and each supplement thereto contain all
statements and information required to be included therein,
and none of the Registration Statement, the Prospectus or any
amendment or supplement thereto includes any untrue statement
of a material fact or omits to state any material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which
they were made, not misleading and neither the Preliminary
Prospectus nor any supplement thereto included any untrue
statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which
they were made, not misleading; and
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (A)
each of the Company and the Acquisition Companies has not
incurred any material liabilities or obligations, direct or
contingent; (B) each of the Company and the Acquisition
Companies has not paid or declared any dividends or other
distributions on its capital stock; (C) each of the Company
and the Acquisition Companies has not entered into any
transactions not in the ordinary course of business; (D) there
has not been any change in the capital stock or long-term debt
or any increase in the short-term borrowings (other than any
increase in short-term borrowings in the ordinary course of
business) of the Company or the Acquisition Companies (E) each
of the Company and the Acquisition Companies has not sustained
any material loss or damage to its property or assets, whether
or not insured; (F) there is no litigation which is pending or
threatened (or circumstances giving rise to same) against the
Company or Acquisition Companies or any affiliate (within the
meaning of the Rules and Regulations) of the foregoing which
is required to be set forth in an amended or supplemented
Prospectus which has not been set forth; and (G) there has
occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this SECTION
5(b(iii) are to such documents as amended and supplemented at the date of such
certificate.
(v) a letter, addressed to the Underwriters and in form and substance
satisfactory to the Underwriters in all respects (including the nonmaterial
nature of the changes or decreases, if any, referred to in clause (C) below),
from KPMG LLP dated as of the effective date of the Registration Statement:
(A) confirming that they are independent public accountants with
respect to the Company and its
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consolidated subsidiaries (which includes the Acquisition Companies), 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 (which includes the Acquisition Companies), 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 and that the
Underwriters may rely upon the opinion of KPMG LLP with respect to such
financial statements, related notes and schedules included in the
Registration Statement.
(C) stating that, on the basis of a limited review which included
a reading of the latest available unaudited interim financial statements of
the Company and its consolidated subsidiaries (which includes the
Acquisition Companies), a reading of the latest available minutes of the
stockholders and board of directors and the various committees of the board
of directors of the Company and its consolidated subsidiaries (which
includes the Acquisition Companies), consultations with officers and other
employees of the Company responsible for financial and accounting matters
and other specified procedures and inquiries, nothing has come to their
attention which would lead them to believe that (A) the unaudited financial
statements and supporting schedules of the Company and its subsidiaries
(which includes the Acquisition Companies) included in the Registration
Statement do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and Regulations
or are not fairly presented in conformity with generally accepted
accounting principles applied on a basis substantially consistent with that
of the audited financial statements of the Company and its consolidated
subsidiaries (which includes the Acquisition Companies) included in the
Registration Statement, or (B) at a specified date not more than five (5)
days prior to the effective date of the Registration Statement, there has
been any change in the capital stock or long-term debt of the Company and
its consolidated subsidiaries (which includes the Acquisition Companies),
or any decrease in the stockholders' equity or net current assets or net
assets of the Company and its consolidated subsidiaries (which includes the
Acquisition Companies) as compared with amounts shown in the December 31,
1998 balance sheet included in the Registration Statement, other than as
set forth in or contemplated by the Registration Statement, or, if there
was any change or decrease, setting forth the amount of such change or
decrease, and (C) during the period from December 31, 1998 to a specified
date not more than five (5) days prior to the effective date of the
Registration Statement, there was any decrease in net revenues, net
earnings or increase in net earnings per common share of any of the Company
or the consolidated subsidiaries (which includes the Acquisition
Companies), in each case as compared with the corresponding period
beginning December 31, 1997, other than as set forth in or contemplated by
the Registration Statement, or, if there was any such decrease, setting
forth the amount of such decrease;
(D) setting forth, at a date not later than five (5) days prior
to the date of the Registration Statement, the amount of liabilities of the
Company and the subsidiaries taken as a whole (including a break-down of
commercial paper and notes payable to banks);
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(E) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and
other financial information pertaining to the Company and the consolidated
subsidiaries (which includes the Acquisition Companies) set forth in the
Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the general
accounting records, including work sheets, of the Company and the
consolidated subsidiaries and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries and other appropriate
procedures (which procedures do not constitute an examination in accordance
with generally accepted auditing standards) set forth in the letter and
found them to be in agreement;
(F) statements as to such other matters incident to the
transaction contemplated hereby as the Representatives may request;
At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from KPMG LLP a letter, dated as of the Closing
Date or the Option Closing Date, as the case may be, to the effect that they
reaffirm the statements made in the letter furnished pursuant to SUBSECTION
(b(iv)) of this SECTION, except that the specified date referred to shall be a
date not more than five (5) days prior to the Closing Date or the Option Closing
Date, as the case may be, and, if the Company has elected to rely on Rule 430A
of the Rules and Regulations, to the further effect that KPMG LLP has carried
out procedures as specified in clause (E) of SUBSECTION (b(iv)) of this SECTION
with respect to certain amounts, percentages and financial information as
specified by the Representatives and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records specified in such
clause (b(iv)).
(c) On or prior to the Closing Date, the Representatives shall have
received from Underwriters' counsel such opinion or opinions with respect to the
organization of the Company, the validity of the Securities, the Registration
Statement, the Prospectus and such other related matters as the Representatives
may request and Underwriters' counsel shall have received such papers and
information as they may request in order to enable them to pass upon such
matters.
(d) On or prior to each of the Closing Date and each Option Closing Date,
if any, Underwriters' counsel shall have been furnished with such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in SECTION 5(c)
hereof, or in order to evidence the accuracy, completeness or satisfaction of
any of the representations, warranties or conditions of the Company herein
contained.
(e) On each Closing Date, there shall have been duly tendered to the
Representatives the appropriate number of Securities.
(f) No order suspending the sale of the Securities in any jurisdiction
designated by the Representatives shall have been issued on the Closing Date and
no proceedings for that purpose shall have been instituted or shall be
contemplated.
(g) On or before the effective date, the Company shall have executed and
delivered to the
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Underwriters the Representatives' Warrant Agreement substantially in the form
filed as an Exhibit to the Registration Statement in final form and substance
satisfactory to the Representatives. On or before the Initial Closing Date, the
Company shall have executed and delivered to the Representatives' Warrants in
such denominations and to such designees as shall have been provided to the
Company.
(h) On or before the Initial Closing Date, the Securities shall have been
duly approved for listing on Nasdaq National Market.
(i) By the Closing Date, the Representatives will have received clearance
from the NASD as to the amount of compensation allowable or payable to the
Underwriters, as described in the Registration Statement.
(j) At least two (2) full business days prior to the date hereof, the
Closing Date and each Option Closing Date, if any, the Company shall have
delivered to the Representatives the unaudited interim financial statements
required to be so delivered pursuant to Section ___ of this Agreement.
If any condition to the Representatives' obligations hereunder to be
fulfilled prior to or at the Initial Closing Date or the relevant Option Closing
Date, as the case may be, is not so fulfilled, the Representatives may terminate
this Agreement or, if the Representatives 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 9.
(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 Representatives in accord with SECTION 2
hereof.
7. INDEMNIFICATION. The Company agrees to indemnify and hold harmless each of
the Underwriters (for purposes of this SECTION 7, "Underwriters" shall include
the officers, directors, partners, employees, agents and counsel of the
Underwriters, and each person, if any, who controls the Underwriters
("controlling person") within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, from and against any and all losses, claims, damages,
expenses or liabilities, joint or several (and actions, proceedings,
investigations, inquiries and suits in respect thereof), whatsoever (including
but not limited to any and all costs and expenses whatsoever reasonably incurred
in investigating, preparing or defending against such action, proceeding,
investigation, inquiry or suit commenced or threatened, or any claim
whatsoever), as such are incurred, to which the Underwriters or such controlling
person may become subject under the Act, the Exchange Act or any other statute
or at common law or otherwise or under the laws of foreign countries, arising
out of or based upon (A) any untrue statement or alleged untrue
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statement of a material fact contained (i) in the Registration Statement, any
Preliminary Prospectus, or the Prospectus (as from time to time amended and
supplemented); (ii) in any post-effective amendment or amendments or any new
registration statement and prospectus in which is included securities of the
Company issued or issuable upon exercise of the Securities; or (iii) in any
application or other document or written communication (in this SECTION 7,
collectively referred to as "applications") executed by the Company or based
upon written information furnished by the Company filed, delivered or used in
any jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
the NASD, Nasdaq or any securities exchange; (B) the omission or alleged
omission therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading (in the case of the Prospectus, in
light of the circumstances in which they were made); or (C) any breach of any
representation, warranty, covenant or agreement of the Company contained herein
or in any certificate by or on behalf of the Company or any of its officers
delivered pursuant hereto, unless, in the case of clause (A) or (B) above, such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company with respect to any Underwriter by or on
behalf of such Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or any Prospectus, or any amendment thereof or supplement
thereto, or in any application, as the case may be. The indemnity agreement in
this SECTION 7(a) shall be in addition to any liability which the Company may
have at common law or otherwise.
(b) Each of the Underwriters agree, severally but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of the Act, to the same extent as the
foregoing indemnity from the Company to the Underwriters but only with respect
to statements or omissions, if any, made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any amendment thereof or supplement
thereto or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to any
Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or the Prospectus directly relating to
the transactions effected by the Underwriters in connection with the offering
contemplated hereby. The Company acknowledges that the statements with respect
to the public offering of the Securities set forth under the heading
"Underwriting" have been furnished by the Underwriters expressly for use therein
and constitute the only information furnished in writing by or on behalf of the
Underwriters for inclusion in any Preliminary Prospectus, the Registration
Statement or the Prospectus. The indemnity agreement in this SECTION 7(b) shall
be in addition to any liability which the Underwriters may have at common law or
otherwise.
(c) Promptly after receipt by an indemnified party under this SECTION
7 of notice of the commencement of any action, such indemnified party shall, if
a claim in respect thereof is to be made against one or more indemnifying
parties under this SECTION 7, notify each party against whom indemnification is
to be sought in writing of the commencement thereof (but
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<PAGE>
the failure to so notify an indemnifying party shall not relieve it from any
liability which it may have under this SECTION 7 (except to the extent that it
has been prejudiced in any material respect by such failure) or from any
liability which it may have otherwise). In case any such action, investigation,
inquiry, suit or proceeding is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it or they may elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified party,
to assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, an indemnified party shall
have the right to employ its own counsel in any such case but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the employment of such counsel shall have been authorized in writing
by the indemnifying parties in connection with the defense of such action at the
expense of the indemnifying party, (ii) the indemnifying parties shall not have
employed counsel reasonably satisfactory to such indemnified party to have
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party shall have
reasonably concluded that there may be defenses available to it which are
different from or additional to those available to one or all of the
indemnifying parties (in which event the indemnifying parties shall not have the
right to direct the defense of such action, investigation, inquiry, suit or
proceeding on behalf of the indemnified party or parties), in any of which
events such fees and expenses of one additional counsel shall be borne by the
indemnifying parties. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action, investigation, inquiry, suit or proceeding or separate but
similar or related actions, investigations, inquiries, suits or proceedings in
the same jurisdiction arising out of the same general allegations or
circumstances. An indemnifying party will not, without the prior written consent
of the indemnified parties, settle, compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action), unless such settlement, compromise or consent
(i) includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party. Anything in this SECTION 7 to
the contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its written consent;
PROVIDED, HOWEVER, that such consent may not be unreasonably withheld.
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes a claim for indemnification
pursuant to this SECTION 7, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this SECTION 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities
36
<PAGE>
(or actions, investigations, inquiries, suits or proceedings in respect thereof)
(A) in such proportion as is appropriate to reflect the relative benefits
received by each of the contributing parties, on the one hand, and the party to
be indemnified, on the other hand, from the offering of the Securities or (B) if
the allocation provided by clause (A) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (A) above but also the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified, on the
other hand, in connection with the statements or omissions that resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is a contributing party
and the Underwriters are the indemnified party, the relative benefits received
by the Company, on the one hand, and the Underwriters, on the other, shall be
deemed to be in the same proportion as the total net proceeds from the offering
of the Securities (before deducting expenses) bear to the total underwriting
discounts received by the Underwriters hereunder, in each case as set forth in
the table on the cover page of the Prospectus. Relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the
Underwriters, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid by an indemnified party as a result of the losses, claims, damages,
expenses or liabilities (or actions, investigations, inquiries, suits or
proceedings in respect thereof) referred to in the first (1st) sentence of this
SECTION 7(d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action, claim, investigation, inquiry suit or proceeding.
Notwithstanding the provisions of this SECTION 7(d), the Underwriters shall not
be required to contribute any amount in excess of the underwriting discount
applicable to the Securities purchased by the Underwriters hereunder. No person
guilty of fraudulent misrepresentation (within the meaning of Section 12(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this SECTION 7(d), each
person, if any, who controls the Company or the Underwriters within the meaning
of the Act, each officer of the Company who has signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company or the Underwriters, as the case may be, subject in
each case to this SECTION 7(d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit, inquiry,
investigation or proceeding, against such party in respect to which a claim for
contribution may be made against another party or parties under this SECTION
7(d), notify such party or parties from whom contribution may be sought, but the
omission to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have hereunder or otherwise than under this Section 7(d), or to the extent that
such party or parties were not adversely affected by such omission.
Notwithstanding anything in this SECTION 7 to the contrary, no party will be
liable for contribution with respect to the settlement of any action or claim
effected without its written consent. The contribution agreement set forth above
shall be in addition to any liabilities which any indemnifying party may have at
common law or otherwise.
8. 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
37
<PAGE>
after the effective date of the Registration Statement 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,
and 10 shall be effective.
9. TERMINATION.
(a) Subject to SECTION 9(b) hereof, the Underwriters shall have the
right to terminate this Agreement: (i) if trading generally shall
have been suspended or materially limited on or by, as the case may be, any
of the New York Stock Exchange, the American Stock Exchange, the NASD, the
Boston Stock Exchange, the Commission or any governmental authority having
jurisdiction over such matters; or (ii) if trading of any of the securities
of the Company shall have been suspended, or if any of the securities of the
Company shall have been delisted, on any exchange or in any over-the-counter
market; or (iii) if the United States shall have become involved in a war or
major hostilities, or if there shall have been an escalation in an existing
war or major hostilities, or a national emergency shall have been declared in
the United States; or (iv) if a banking moratorium shall have been declared
by any state or federal authority; or (v) if the Company shall have
sustained a material or substantial loss by fire, flood, accident, hurricane,
earthquake, theft, sabotage or other calamity or malicious act which, whether
or not such loss shall have been insured, will, in the Underwriter's opinion,
make it inadvisable to proceed with the delivery of the Securities; or (vi)
if there shall have occurred any outbreak or escalation of hostilities or any
calamity or crisis or there shall have been such a material adverse change in
the conditions or prospects of the Company, or if there shall have been such
a material adverse change in the general market, political or economic
conditions, in the United States or elsewhere, as in the Underwriters'
judgment would make it inadvisable to proceed with the offering, sale and/or
delivery of the Securities; or (vii) if Mr. Mark E. Munro shall no longer serve
the Company in his present capacity.
(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of SECTION 5 or SECTION 9(a) hereof the
Company shall promptly reimburse and indemnify the Underwriters for all its
actual out-of-pocket expenses, including the fees and disbursements of
Underwriters' Counsel, less amounts previously paid. In addition, the Company
shall remain liable for all "blue sky" counsel fees and expenses and "blue
sky" filing fees. Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to SECTIONS 5 and 9(a) hereof), and
whether or not this Agreement is otherwise carried out, the provisions of
SECTION 5 and Section 7 shall not be in any way be affected by such election
or termination or failure to carry out the terms of this Agreement or any
part hereof.
10. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company (or its officers) and the Underwriters set forth in or
made pursuant to this Agreement including certificates of officers of the
Company submitted pursuant hereto, will remain in full force and effect,
regardless of any
38
<PAGE>
investigation made by or on behalf of the Underwriters, the Company, or any of
their officers or directors and will survive termination of this Agreement or
the delivery of and payment for the Securities.
11. DEFAULT BY THE COMPANY. If the Company shall fail at the Closing Date or any
Option Closing Date, as applicable, to sell and deliver the number of Securities
which it is obligated to sell hereunder on such date, then this Agreement shall
terminate (or, if such default shall occur with respect to any Option Securities
to be purchased on an Option Closing Date, the Underwriters may, at the
Representatives' option, by notice from the Representatives to the Company,
terminate the Underwriters' obligation to purchase Option Securities from the
Company on such date) without any liability on the part of any non-defaulting
party other than pursuant to SECTION 7 and SECTION 8 hereof. No action taken
pursuant to this SECTION 11 shall relieve the Company from liability, if any, in
respect of such default.
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 Joseph
Stevens & Company, Inc., 33 Maiden Lane, 8th Floor, New York, NY 10038,
Attention: Joseph Sorbara, with a copy to Orrick, Herrington & Sutcliffe LLP, 30
Rockefeller Plaza, 40th Floor, New York, NY 10112, Attn: Rubi Finkelstein; and
to the Company to Mark E. Munro, 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
Underwriters 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 of New York, 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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<PAGE>
If the foregoing correctly sets forth the understanding between the Company and
you, as Underwriters 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. Munro, President
Accepted as of the date first above written:
Joseph Stevens & Company, Inc.
Schneider Securities, Inc.
Neidiger, Tucker, Bruner, Inc.
Royce Investment Group, Inc.
Acting on behalf of themselves and the
Representatives of the several Underwriters
Named in Schedule I hereof
By: Joseph Stevens & Company, Inc.
By:
-------------------------------------------
(Authorized Officer)
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<PAGE>
EXHIBIT A
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
Shares of
Underwriter Common Stock
<S> <C>
Joseph Stevens & Company, Inc.
Schneider Securities, Inc.
Neidiger, Tucker, Bruner, Inc.
Royce Investment Group, Inc.
TOTAL 2,900,000
</TABLE>
<PAGE>
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 165% 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 290,000 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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<PAGE>
(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.
4
<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
5
<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.
6
<PAGE>
(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).
7
<PAGE>
(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
8
<PAGE>
(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
Joseph Stevens & Company, Inc., 33 Maiden Lane, New York, NY 10038 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
<PAGE>
BiznessOnline.com,Inc.
By
------------------------------
Mark E. Munro, President
Date:
-----------------------------
Attest:
-----------------------------
, Secretary
10
<PAGE>
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
<PAGE>
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
<PAGE>
[LETTERHEAD OF DUFFEY & SWEENEY, LLP]
EXHIBIT 5.1
May 3, 1998
BiznessOnline.com, Inc.
1720 Route 34
P.O. Box 1347
Wall, NJ 07719
Re: Registration Statement on Form SB-2 (Registration No. 333-73067)
In our capacity as counsel to BiznessOnline.com, Inc., a Delaware
corporation (the "Company"), we have been asked to render this opinion in
connection with a Registration Statement on Form SB-2 (the "Registration
Statement") originally filed by the Company on February 26, 1999 with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Act"), for registration under the Act of an aggregate of (i)
3,335,000 shares of the Company's Common Stock, par value $.01 per share
("Common Stock") inclusive of an over-allotment option granted by the Company
to the Underwriters to purchase up to 435,000 additional shares of the
Company's Common Stock (the "Shares") to be sold to the representatives of
the Underwriters as described in the Registration Statement for resale to the
public; and (ii) up to 290,000 shares of Common Stock issuable upon exercise
of warrants (the "Underwriters' Warrants") to be sold to the representatives
of the Underwriters. The Shares are to be offered and sold to the public by
the Underwriters pursuant to the Registration Statement. Capitalized terms
used herein and not otherwise defined herein shall have the meanings set
forth in the Registration Statement.
In connection with this opinion, we have examined the Company's
Certificate of Incorporation, the By-Laws of the Company, the Registration
Statement, including the exhibits thereto, corporate proceedings of the Company
relating to the issuance of the Shares and the Underwriters' Warrants, and such
other instruments and documents as we have deemed relevant under the
circumstances. In addition, we have examined and relied upon such other
certificates, documents and materials and have made such other inquiries of fact
or law as we have deemed necessary or appropriate in connection with this
opinion.
In making the aforesaid examination, we have assumed the genuineness of
all signatures and the conformity to original documents of all copies furnished
to us as original or photostatic copies. We have also assumed that the corporate
records furnished
<PAGE>
BiznessOnline.com, Inc.
May 3, 1999
Page 2
to us by the Company include all corporate proceedings regarding the issuance of
the Shares and the Underwriters' Warrants taken by the Company to date.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Shares have been duly authorized and, when issued and
delivered pursuant to the Registration Statement against payment therefor,
will be legally and validly issued, fully paid and non-assessable.
2. The maximum of 290,000 shares of Common Stock issuable upon
exercise of the Underwriters Warrants will, when issued in accordance with
the terms and conditions of the Underwriters' Warrants to be granted by the
Company to the Underwriters, a form of which is filed as an exhibit to the
Registration Statement, be legally and validly issued, fully paid and
non-assessable.
We hereby consent to the use of our opinion as herein set forth as
Exhibit 5.1 to the Registration Statement and further consent to the
reference to our firm under the caption "Legal Matters" in the Prospectus
forming a part of the Registration Statement. By giving the foregoing
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Act or the rules and regulations
of the Commission thereunder.
This opinion letter is based as to matters of law solely on the
General Corporation Law of the State of Delaware. We express no opinion
herein as to any other laws, statutes, regulations, or ordinances.
We assume no obligation to advise you of any changes in the
foregoing subsequent to the delivery of this opinion letter. This opinion
letter has been prepared solely for your use in connection with the filing of
the Registration Statement on the date of this opinion letter and should not
be quoted in whole or in part or otherwise be referred to, nor filed with or
furnished to any governmental agency or other person or entity, without the
prior written consent of this firm.
Very Truly Yours,
/s/ Duffy & Sweeney, LLP
Duffy & Sweeney
<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
April 30, 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
April 30, 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
April 30, 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
April 30, 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
April 30, 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
April 30, 1999
<PAGE>
EXHIBIT 23.10
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>
/s/ ROBERT A. BYRNE
---------------------------------------------
Robert A. Byrne
</TABLE>
Dated: April 30, 1999
<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
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0
0
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</TABLE>
