<PAGE>
As filed with the Securities and Exchange Commission on April 19, 1999
Registration No. -
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
WATTAGE MONITOR INC.
(Name of Small Business Issuer in Its Charter)
<TABLE>
<S> <C> <C>
Nevada 8999 86-0882633
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
1100 Kietzke Lane
Reno, Nevada 89502
(775) 327-6000
(Address and Telephone Number of Principal Executive Offices)
------------------------------------
Gerald R. Alderson
President
745 California Avenue
Reno, Nevada 89509
(775) 327-6000
(Name, Address and Telephone Number of Agent for Service)
------------------------------------
Copies to:
Daniel I. DeWolf, Esq.
Willie E. Dennis, Esq.
Camhy Karlinsky & Stein LLP
1740 Broadway, 16th Floor
New York, New York 10019-4315
(212) 977-6600
------------------------------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. / /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. /X/
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, 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(d) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier 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. / /
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------
Title Of Each Class Of Securities
To Be Registered Amount To Be Proposed Maximum Proposed Maximum Amount Of
Registered Offering Price Aggregate Offering Registration
Per Share (1) Price (1) Fee
- ------------------------------------- --------------------- -------------------- -------------------- ----------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value (2) 10,082,316 shares $ 10.75 $ 108,384,897 $ 30,131
- -------------------------------------------------------------------------------- -------------------- ----------------
Total $ 108,394,897 $ 30,131
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee under
Rule 457(c) under the Securities Act on the basis of the average of the bid
and asked price of our common stock as quoted on the OTC Electronic
Bulletin Board on April 14, 1999.
(2) Includes: (i) 1,000,000 shares of common stock underlying 1,000,000 shares
of Series A preferred stock, which are convertible at any time between
August 25, 1999 and December 15, 1999, at the option of the holder, into
shares of common stock; and (ii) 874,500 shares of common stock issuable
under our 1999 Stock Option Plan, of which 241,500 are currently
exercisable.
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(A), MAY DETERMINE.
2
<PAGE>
The information contained in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to completion dated April 19, 1999
WATTAGE MONITOR INC.
Shares of Common Stock
This prospectus covers an aggregate of 10,082,316 shares of our common
stock, which will be sold, from time to time, by some of our shareholders. These
shareholders previously received the shares of common stock from us or will
receive these shares of common stock from us by converting their shares of our
preferred stock into shares of our common stock or exercising previously issued
options. We will not receive any money from the shareholders when they sell
their shares of common stock. We have agreed to pay all costs and expenses
relating to the registration of our common stock, but any shareholders who sell
their shares of common stock shall be responsible for any related commissions,
taxes, fees of counsel and related charges in connection with the offer and sale
of the securities. The shareholders may sell all or a portion of our common
stock registered by this registration statement in private transactions or in
the over-the-counter market at prices related to the prevailing prices of our
common stock at the time of negotiation. The shareholders may sell their common
stock through one or more broker-dealers, and such broker-dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from the shareholders.
Our common stock is quoted on the OTC Electronic Bulletin Board under
the symbol "WMON." On April ____, 1999, the price of our common stock as quoted
on the OTC Electronic Bulletin Board was $ ______.
------------------------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A
HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 7.
------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------
April 19, 1999
3
<PAGE>
Wattage Monitor Design Graphic & Table
<PAGE>
You may rely only on the information contained in this prospectus. We
have not authorized anyone to provide information different from that contained
in this prospectus. Neither the delivery of the prospectus nor the sale of
common stock means that information contained in this prospectus is correct
after the date of this prospectus. This prospectus is not an offer to sell or
solicitation of an offer to buy these shares of common stock in any
circumstances under which the offer or solicitation is unlawful.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
SECTION PAGE
------- ----
<S> <C>
AVAILABLE INFORMATION....................................................................................4
PROSPECTUS SUMMARY.......................................................................................5
COMPANY SUMMARY..........................................................................................5
OFFERING SUMMARY.........................................................................................5
SUMMARY FINANCIAL INFORMATION............................................................................6
RISK FACTORS.............................................................................................7
THE COMPANY.............................................................................................11
USE OF PROCEEDS.........................................................................................11
PRICE RANGE OF COMMON STOCK.............................................................................11
DIVIDEND POLICY.........................................................................................12
CAPITALIZATION..........................................................................................12
SELECTED FINANCIAL DATA.................................................................................13
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS.......................14
BUSINESS................................................................................................16
MANAGEMENT..............................................................................................26
EXECUTIVE COMPENSATION AND OTHER INFORMATION............................................................27
STOCK OPTION PLAN.......................................................................................29
CERTAIN TRANSACTIONS....................................................................................30
PRINCIPAL STOCKHOLDERS..................................................................................31
SECURITY HOLDERS........................................................................................32
PLAN OF DISTRIBUTION....................................................................................34
DESCRIPTION OF THE CAPITAL STOCK........................................................................35
SHARES ELIGIBLE FOR FUTURE SALE.........................................................................37
LEGAL MATTERS...........................................................................................37
EXPERTS.................................................................................................37
DISCLOSURE OF COMPANY POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES........................38
INDEX TO FINANCIAL STATEMENTS...........................................................................38
</TABLE>
AVAILABLE INFORMATION
We will file reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied, at the Public Reference Room of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at the
Northeast Regional Office of the Commission located at Seven World Trade Center,
Suite 1300, New York, New York 10048 and at the Midwest Regional Office of the
Commission located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Please call the Commission at 1-800-SEC-0330 for
further information on the public reference rooms. Our Commission filings will
also be available to the public from the Commission's website at
http://www.sec.gov.
We have filed a registration statement with the Commission on Form
SB-2, under the Securities Act of 1933, with respect to the securities described
in this prospectus. This prospectus, filed as part of the registration
statement, does not contain all of the information set forth in the registration
statement and the exhibits and schedules filed with the registration statement.
For further information about us and the common stock described by this
prospectus, reference is made to the registration statement and to the exhibits
and schedules filed with it, copies of which can be inspected at, or obtained
from, the Public Reference Room.
4
<PAGE>
PROSPECTUS SUMMARY
Since this is a summary of the terms of the common stock described in
this prospectus, it does not contain all of the information that may be
important to you. This prospectus contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. We believe
that the forward-looking statements contained in this prospectus are within the
meaning of the safe harbor provided by Section 27A of the Securities Act of
1933, as amended. Forward-looking statements contained in this prospectus
involve known and unknown risks, uncertainties, and other factors that could
cause actual results, financial or operating performance to differ from the
future results, financial or operating performance or achievements expressed or
implied by such forward-looking statements. You should read the following
summary and the "Risk Factors" section, along with the more detailed
information, financial statements and the notes to the financial statements
appearing elsewhere in this prospectus, before you decide whether to purchase
the common stock described in this prospectus.
THE COMPANY
Our goal is to be recognized as the preeminent electric rate and
service information source in the evolving, competitive United States electric
market. To do so, our initial focus is to be seen as the industry standard for
objective information regarding an electric consumer's specific choices. We
receive fees from electric service providers for presenting consumers their
electric service choices. We also receive commissions for sales to such
consumers. In addition, we provide electric marketing research, industry news
and information, and statistical indices reflecting industry performance.
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Shares of common stock
offered by us ................... None
Shares of common stock
which may be sold by our
shareholders .................... Up to 10,082,316 shares of our common stock. (1)
Use of proceeds.................. We will not receive any money from any shareholders when they sell their shares of
common stock.
Risk factors..................... The purchase of our common stock involves a high degree of risk. Prospective
investors should review carefully and consider the information set forth under "Risk
Factors."
OTC Electronic
Bulletin Board symbol............ WMON
</TABLE>
(1) Includes:
8,207,816 shares of our common stock;
1,000,000 shares of our common stock that may be acquired when
1,000,000 shares of Series A preferred stock are
converted into our common stock;
874,500 shares of our common stock that may be acquired when our
stock options are issued and exercised. As of March 31,
1999, there are 241,500 stock options that may be
exercised and converted into 241,500 shares of our
common stock.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial information below is derived from and should be
read in conjunction with the financial statements, including the notes to the
financial statements, appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Cumulative Year Ended July 1, 1997 to
From Inception December 31, 1998 December 31, 1997
-------------- ----------------- -----------------
<S> <C> <C> <C>
Statement of Operations Data (1):
Net sales..................... $ --- $ --- $ ---
Net loss...................... (2,769,334) (2,591,399) (177,935)
Net loss per common share..... (0.39) (0.36) (0.03)
Weighted average number
of common shares
outstanding............... 7,075,000 7,287,500 6,650,000
<CAPTION>
Pro Forma as of As of
December 31, 1998 (2) December 31, 1998
--------------------- -----------------
<S> <C> <C>
Balance Sheet Data:
Working capital/(deficit)........................... $ 2,812,995 $ (687,005)
Total assets........................................ 4,378,455 878,455
Total liabilities................................... 1,253,079 1,753,079
Stockholders' equity/(deficit)...................... 3,125,376 (874,624)
</TABLE>
(1) On February 26, 1999, Wattage Monitor Inc. acquired all of the equity, in
the form of membership units, of WattMonitor LLC. For accounting purposes,
the acquisition has been treated as a recapitalization of WattMonitor LLC
with WattMonitor LLC as the acquirer; a reverse acquisition. Financial
statements prior to the acquisition date are those of WattMonitor LLC. Pro
forma information is not presented since the combination is not a business
combination. The financial statements give retroactive effect to the
conversion of WattMonitor LLC membership interests in Wattage Monitor
common stock to reflect the recapitalization.
(2) Adjusted to reflect the proceeds of and the securities issued in
conjunction with the February 26, 1999 recapitalization.
6
<PAGE>
RISK FACTORS
Investment in the shares of our common stock involves a high degree of
risk. You should give careful consideration to the following factors, among
others, before making an investment decision.
In order to relate the risk factors set forth below to the broad
categories of risk to which they correspond, the risk factors are organized in
three groups:
o Risks in establishing Wattage Monitor as a going concern;
o Risks in growing Wattage Monitor; and
o Risks of Wattage Monitor's common stock by virtue of its
characteristics, such as liquidity and potential dilution.
Risks in Establishing Wattage Monitor
The active participation of suppliers in our information system is
necessary for our business to succeed.
Before we can generate income, we must overcome suppliers' reluctance
to participate in our information system. Initially, we expected that creating a
national electricity information brand would require us to:
o Create the information system itself;
o Demonstrate that consumers found the system useful; and
o Convince competing electricity suppliers to participate in our
system.
We believe we have demonstrated our ability to successfully achieve the
first two of these requirements. However, to date suppliers have been reluctant
to participate. Although this reluctance seems to be disappearing, our marketing
efforts to suppliers continue to be more difficult than originally anticipated.
Insignificant historical revenues do not enable us to evaluate whether
we will ever operate profitably.
Because we have not generated significant revenues since inception on
July 1, 1997, we cannot be sure that we will ever generate the revenue necessary
to be a successful business. Our financial statements reflect that we are a
development stage company. They show that we have incurred losses since
inception. We expect to continue to incur losses for the foreseeable future. Our
ability to achieve a profitable level of operating revenue will depend on the
market's acceptance of our products and services, the rate at which states adopt
electric competition, and the manner in which each state chooses to phase in
competition. For a detailed account of our historical losses, please see the
"Selected Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" sections.
We are uncertain that we will be able to obtain the additional capital
that may be necessary to establish the business.
Our recurring operating losses and growing working capital needs may
well require us to obtain additional capital to operate the business before we
have established that it will generate significant revenue. Although management
believes that we will be able to achieve our plans to begin to generate revenue,
we cannot be sure that those plans will succeed. If additional financing is
required, the terms of the financing may be adverse to the interests of
existing shareholders, including the possibility of substantially diluting their
ownership position.
7
<PAGE>
Risks in Growing Wattage Monitor
We are uncertain that we will grow, or that we will be able to
effectively manage our growth.
Any growth we may experience will result in increased responsibility
for existing and new management personnel. Effective growth management will
depend on the following:
o Our ability to integrate new personnel into our corporate
structure;
o Improving our operational, management and financial systems and
controls; and
o Our capacity to recruit, train, motivate and manage employees.
If we are unable to do so, our business, results of operations and
financial condition may be adversely affected.
We depend on certain key personnel and the loss of them may adversely
affect us.
Our success will be greatly dependent upon the personal efforts of
Gerald R. Alderson, our President and Chief Executive Officer. The loss of
his services, or those of certain other key management or personnel, could have
a material adverse effect on us. Currently, we have an employment agreement with
Mr. Alderson. However, the employment agreement expires in 2000. For a detailed
account of Mr. Alderon's employment agreement, please see the "Executive
Compensation and Other Information" section.
We are uncertain we can obtain the capital to grow the business.
To fully realize our business objectives and potential, we will require
significant additional financing. We are actively seeking such financing. If we
are unable to obtain it, we will be required to substantially curtail our
approach to implementing our business objectives. Additional financing may be
debt, equity or a combination of debt and equity. If equity, it could result in
significant dilution to the net tangible book value per share of our common
stock. One source of financing may be the exercise of warrants to acquire
$3,500,000 million of our Series B preferred stock on or before December 15,
1999. However, we cannot be sure that the warrants will be exercised and the
$3,500,000 million received by us.
The entire competitive electric market is new, so no one knows how the
market will evolve, or how the companies that operate in the market will behave.
All competitive electric suppliers, including those that are
subsidiaries of large enterprises, are new. The start-up nature of all
companies in this market and the formative nature of the market itself mean that
the companies in the market were created by their founders or parent to
implement a specific business plan. Necessarily, we were not a part of that plan
because we did not exist at the time the plan was formulated. These new
organizations generally decide that they must first try to implement their
original plan before they either change direction or add a second approach to
their efforts to obtain customers, such as the one we offer. The time it takes
for these newly formed companies to mature will materially affect the timing of
our growth. There can be no assurance that this will occur in a timely enough
manner to allow us to profitably offer our service.
Our computer-based information system may not be sufficient to satisfy
the requirements of consumers and suppliers.
With the initial release of our nationwide, zip code-based information
system and its subsequent use by tens of thousands of electric consumers, a
number of system problems were identified. Two matters, the structure of how we
access certain data tables and an error in the coding of zip codes served by
more than one regulated electric utility, required more effort to resolve than
the other identified problems. At this point, the system is fully functioning,
albeit a little slower than we believe desirable. Further problems with the
system may occur or the solutions to currently identified problems may be
insufficient.
8
<PAGE>
WM 2.0, targeted for release in September 1999, is expected to
represent the mature website we believe consumers want. WM 2.0 is critical to
our ability to grow with the rapidly deregulating electric market. There can be
no assurance that WM 2.0 will meet its performance standards or that its
development will not experience delays that push it beyond the expected
September release date. Finally, the technology that enables delivery of the
information services we offer, such as computer Internet-based access systems,
are subject to rapid and significant technological change. Competitors may
develop more effective and efficient technology that may render ours obsolete.
If this occurs, we will need to make a substantial investment to upgrade to
remain competitive.
We depend upon our proprietary information and intellectual property
for success.
Our success depends in part on our ability to protect our proprietary
information and trademarks. To do so, we rely on a combination of copyright,
trademark and trade secret laws, nondisclosure and other contractual agreements
with employees and third parties, and technical measures. We cannot be sure that
the steps we have taken will be adequate to protect us. In addition, third
parties may develop equivalent or superior information systems. We have filed
for patents on our service, but no action has yet been taken on our application.
We may be subject to or may initiate proceedings in the United States Patent and
Trademark Office, which may demand significant financial and management
resources. Although we believe our products and information system do not
infringe upon the proprietary rights of others, there can be no assurance that
third parties will not assert infringement claims against us. Litigation may be
necessary to enforce our intellectual property rights or to defend against
claimed infringement by others. Any litigation may result in substantial cost to
us and a diversion of our efforts.
Risks Attributable to Our Common Stock's Characteristics
The three founders may control Wattage Monitor's behavior.
Mr. Lessin, Mr. Alderson and Mr. Klein have voting power over 5,954,112
shares of common stock, which represents 53.1% of all voting common shares
(48.8% when the voting rights of preferred shareholders are included).
Accordingly, they may control or significantly influence the election of a
majority of Wattage Monitor's directors and otherwise determine most matters
requiring approval by the stockholders, including approval of significant
corporate transactions.
We do not expect to pay dividends.
We have not paid dividends on our common stock and do not expect to do
so in the foreseeable future. We are required to pay a quarterly dividend equal
to 6% per annum, payable in cash or in shares of common stock at our option, on
the Series A preferred stock. For a detailed account of our dividend policy,
please see the "Dividend Policy" section.
We can issue preferred stock and dilute the position of the
shareholders of our common stock.
Our certificate of incorporation provides that we may issue up to
5,000,000 shares of preferred stock, from time to time, in one or more series.
We have issued 1,000,000 shares of Series A preferred stock, convertible into
1,000,000 shares of our common stock. We have also issued warrants to acquire
3,500,000 shares of our Series B preferred stock, convertible into 3,500,000
shares of our common stock, which expire on December 15, 1999. The board of
directors is authorized to determine the number of shares, rights, preferences,
privileges and restrictions of any new issuance of preferred stock, without any
vote or action by the holders of our common stock. The board of directors may
issue preferred stock with voting or conversion rights that could adversely
affect the rights of the holders of common stock. The potential issuance of
preferred stock may have the effect of delaying or preventing a change in
control, discourage bids for the common stock at a premium over its market
price, or adversely affect the market price of the common stock.
9
<PAGE>
We are listed on the OTC Electronic Bulletin Board, which can be a
volatile market.
Our common stock is quoted on the OTC Electronic Bulletin Board, a NASD
sponsored and operated quotation system for equity securities. The OTC
Electronic Bulletin Board was introduced as an alternative to the NQB Pink
sheets for trading over-the-counter securities. It is a more limited trading
market than the NASDAQ SmallCap, and timely, accurate quotations of the price of
our common stock may not always be available. You may expect trading volume to
be low in such a market. Consequently, the activity of only a few shares may
affect the market and may result in wide swings in price and in volume.
Our common stock may be subject to the requirements of Rule 15g-9,
promulgated under the Securities Exchange Act of 1934, as amended, if the price
of our common stock falls below $5.00 per share. Under such rule,
broker-dealers who recommend low-priced securities to persons other than
established customers and accredited investors must satisfy special sales
practice requirements, including a requirement that they make an individualized
written suitability determination for the purchaser and receive the purchaser's
consent prior to the transaction. The Securities Enforcement Remedies and Penny
Stock Reform Act of 1990 also requires additional disclosure in connection with
any trades involving a stock defined as a penny stock. Generally, the Commission
defines a penny stock as any equity security not traded on an exchange or quoted
on NASDAQ that has a market price of less than $5.00 per share. The required
penny stock disclosures include the delivery, prior to any transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
with it. Such requirements could severely limit the market liquidity of the
securities and the ability of purchasers to sell their securities in the
secondary market.
We receive no funding from this offering and we will need additional
funding.
The common stock registered in the registration statement will
provide no funds to us. We need to continue to invest significant amounts of
capital to realize our objectives. Based on our current operating plan, we
anticipate that we will require additional financing by year-end 1999.
Historically, we have been largely dependent upon private equity financing when
we required funds. However, additional financing may be in the form of debt,
equity or a combination of both debt and equity. We cannot be sure that we will
be able to secure the financing we will require, or that it will be available on
favorable terms. We may be required to significantly reduce or curtail our
activities.
The exercise of existing warrants and options can dilute our common
stock and sales of the shares may reduce the price.
The existence of options and warrants may make it more difficult for us
to raise capital when necessary, and may depress the market price of our common
stock in any market that may develop for such securities. Future sales of a
substantial number of shares of our common stock in the public market could
adversely affect the market price of the stock. It could also impair our ability
to raise additional capital by selling more of our common stock.
The registration and trading of additional shares may depress the
market for our common stock.
The shares registered by this prospectus have not previously been
registered. Assuming that no existing options are exercised and that the Series
A preferred stock is not converted, there would be a total of 11,207,816 shares
outstanding as of the date of this prospectus. The 8,207,816 shares being
registered, which exclude our options and conversion of the Series A preferred
stock, represent 73.2% of the outstanding shares of our common stock. Mr.
Lessin, Mr. Alderson and Mr. Klein entered into agreements with us under which
they agreed not to sell any of their shares prior to August 26, 1999. The total
number of shares owned by Mr. Lessin, Mr. Alderson and Mr. Klein is 5,954,112,
representing 53.1% of all outstanding shares. Under the agreements, they also
agreed to sell no more than 20% of their shares between August 27, 1999 and
February 26, 2000. Future sales of significant numbers of shares of our common
stock in the public market could have a depressing effect on the prevailing
market price of the common stock, which might also adversely affect our ability
to raise capital through subsequent offerings of securities. If we decide to pay
preferred dividends in shares of our common stock, this too could depress the
market for our common stock if the recipients of those common stock dividends
were to sell those newly issued shares.
10
<PAGE>
We believe we are year 2000 Compliant, but the Y2K problem can still
adversely affect us.
Many existing computer programs use only two digits to identify a year
in the date field. Programmers designed and developed these programs without
considering the impact of the upcoming change in the century. If not corrected,
many computer applications could fail or create erroneous results by, at or
after the year 2000. Year 2000 issues affect virtually all companies and
organizations. All of our systems were designed subsequent to July 1, 1997, well
after the year 2000 compliance problem was identified. Accordingly, all of the
systems we have developed use four digits to identify the year rather than
two digits. Even while our products are Y2K compliant, other aspects of the
information system, such as the supplier's or consumer's computer and operating
system, must also be Y2K compliant in order to function properly. While we
expect that our precautionary measures have reduced or eliminated any
significant impact of year 2000 issues, there is no assurance this will be the
case. In addition, there is no assurance that any Y2K problems that may be
experienced by our customers or suppliers will not have a negative impact on
Wattage Monitor.
THE COMPANY
WattMonitor LLC, the predecessor to Wattage Monitor, was incorporated
under the laws of the State of Delaware on July 1, 1997. On February 26, 1999,
Wattage Monitor Inc., a Nevada corporation, acquired all of the equity, in the
form of membership interests, of WattMonitor LLC. The business of Wattage
Monitor is identical to that of WattMonitor LLC. We maintain our principal
business operations at 1100 Kietzke Lane, Reno, Nevada 89502. Our telephone
number is (775) 327-6000, and our website is http://www.wattagemonitor.com.
USE OF PROCEEDS
We will not receive any part of the proceeds from the sale by our
shareholders of our common stock. However, we will receive monies from our
shareholders upon the exercise of their stock options.
PRICE RANGE OF COMMON STOCK
Our common stock is currently quoted on the OTC Electronic Bulletin
Board under the symbol "WMON." There was no active market for Wattage Monitor's
securities until February 26, 1999 (1). The following table sets forth for the
periods indicated the high and low bid price information for the common stock as
quoted on the OTC Electronic Bulletin Board. The quotations reflect inter-dealer
prices, without retail mark-ups, mark-downs or commissions, and may not
represent actual transactions.
Common Stock
-----------------------
High Bid Low Bid
-------- -------
February 26, 1999 through March 31, 1999 $ 7.25 $ 4.00
On April 14, 1999, the closing bid price as quoted by the OTC
Electronic Bulletin Board for our common stock was $_____. As of April 6, 1999,
there were 38 holders of record of our common stock.
There is no public trading market for any of our preferred stock,
warrants or options.
(1) Prior to the reverse acquisition of WattMonitor LLC by Wattage Monitor,
Wattage Monitor was listed on the OTC Electronic Bulleting Board from
February 18, 1999 through February 25, 1999.
11
<PAGE>
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We
presently intend to retain any earnings for use in the business and do not
anticipate paying cash dividends in the foreseeable future. Any future cash
dividends will be at the discretion of the board of directors and will depend on
our earnings, financial condition, cash flows, capital requirements and other
considerations that the board of directors may consider relevant.
Our Series A preferred stock pays a dividend equal to 6% per annum.
The dividend is payable in cash or by the issuance of common stock at the option
of the board of directors. The number of shares to be issued as a dividend is
determined based on the average closing bid price for a share of common stock as
quoted on the OTC Electronic Bulletin Board for the 20 trading days preceding
the record date for the declaration of the dividend. The number of shares to be
issued as a dividend is equal to the amount of the dividend accrued, divided by
the average closing bid price of the common stock as quoted on the OTC
Electronic Bulletin Board for the 5 trading days preceding the record date for
the declaration of the dividend.
CAPITALIZATION
The following table sets forth our capitalization as of December 31,
1998 and February 26, 1999. This table should be reviewed in conjunction with
our financial statements and related notes appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
Pro Forma as of As of
December 31, 1998 (1) December 31, 1998 (2)
--------------------- ---------------------
<S> <C> <C>
Short-term notes payable (3) ................................. $ 304,000 $ 304,000
Long-term notes payable....................................... 425,000 925,000 (4)
Stockholders' equity .........................................
Series A preferred stock, $0.01 par value................ 10,000 ---
Common stock, $0.01 par value............................ 105,000 75,000
Additional paid-in capital............................... 6,164,710 2,204,710
Unamortized discount on debt............................. --- (385,000)
Deficit accumulated during the development stage......... (3,154,334) (2,769,334)
------------------ ------------------
Total stockholders' equity.................................... $ 3,125,376 $ (874,624)
------------------ ------------------
Total capitalization.......................................... $ 3,854,376 $ 354,376
------------------ ------------------
------------------ ------------------
</TABLE>
(1) Adjusted to reflect the proceeds of, and the securities issued in
conjunction with, the February 26, 1999 recapitalization.
(2) On February 26, 1999, Wattage Monitor Inc. acquired all of the equity, in
the form of membership units, of WattMonitor LLC. For accounting purposes,
the acquisition has been treated as a recapitalization of WattMonitor LLC
with WattMonitor LLC as the acquirer; a reverse merger. Financial
statements prior to the acquisition date are those of WattMonitor LLC.
Pro forma information is not presented, since the combination is not a
business combination. The financial statements give retroactive effect to
the conversion of WattMonitor LLC membership interests into Wattage
Monitor common stock to reflect the recapitalization.
(3) All outstanding short-term notes payable are due directly or beneficially
to the founders of WattMonitor LLC: Gerald R. Alderson, Stephen D. Klein
and Robert H. Lessin through RHL Ventures LLC.
(4) Comprised of $425,000 due to RHL Ventures LLC which remains outstanding at
February 26, 1999, and $500,000 to Verus Capital Corp., which was exchanged
for equity in the February 26, 1999 reverse acquisition of WattMonitor LLC
by Wattage Monitor.
12
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data for the six months from our inception to
December 31, 1997, and for the year ended December 31, 1998, and for the period
from inception through December 31, 1998, are derived from the financial
statements audited by Grant Thornton LLP, independent certified public
accountants. The results for the period that ended December 31, 1998 are not
necessarily indicative of results that may be expected for any other interim
period or for a full year. The selected financial data should be read in
conjunction with, and are qualified by reference to, our financial statements
and notes to the financial statements and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in the
prospectus.
On February 26, 1999, Wattage Monitor acquired all of the equity of
WattMonitor LLC. For accounting purposes, the acquisition has been treated as a
recapitalization of WattMonitor LLC, with WattMonitor LLC as the acquirer;
a reverse acquisition. Financial statements prior to the acquisition date are
those of WattMonitor LLC. Pro forma information is not presented since the
combination is not a business combination. The financial statements give
retroactive effect to the conversion of WattMonitor LLC membership interests in
Wattage Monitor common stock to reflect the recapitalization.
<TABLE>
<CAPTION>
Cumulative from Inception
Inception (July 1, 1997) Year Ended (July 1, 1997) to
to December 31, 1998 December 31, 1998 December 31, 1997
-------------------- ----------------- -----------------
<S> <C> <C> <C>
Statement of Operations Data:
Net sales..................... $ --- $ --- $ ---
Expenses:
Telecommunications........ 349,246 349,246 ---
System development........ 457,993 442,682 15,311
Marketing................. 462,464 462,464 ---
General and
administrative....... 960,490 797,617 162,873
Depreciation and
amortization......... 29,552 28,493 1,059
Operating loss................ (2,259,745) (2,080,502) (179,243)
Interest, financing and other
income and (expense)..... (509,589) (510,897) 1,308
Net loss...................... (2,769,334) (2,591,399) (177,935)
Net loss per common share..... (0.39) (0.36) (0.03)
Common shares outstanding..... 7,075,000 7,287,500 6,650,000
<CAPTION>
Pro Forma as of As of
December 31, 1998 (1) December 31, 1998
--------------------- -----------------
<S> <C> <C>
Balance Sheet Data:
Working capital/(deficit)........................... $ 2,812,995 $ (687,005)
Total assets........................................ 4,378,455 878,455
Long term debt...................................... 425,000 925,000
Total liabilities................................... 1,253,079 1,753,079
Stockholders' equity/(deficit)...................... 3,125,376 (874,624)
</TABLE>
(1) Adjusted to reflect the proceeds of and the securities issued in
conjunction with the February 26, 1999 recapitalization.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
We were formed in July of 1997. In 1997, we focused on determining
whether or not our business could succeed. Accordingly, our expenditures in 1997
were general and administrative expenses required to make such a determination.
No payments were made to the founders who contributed all or part of their time
and efforts in 1997. By the end of 1997, the determination was made that the
business could be successful and should be pursued. As a result, we raised
investment capital and began to implement our plan.
In 1998, we focused primarily on the following:
o Developing and refining the software and systems necessary to
support our information service;
o Testing the efficacy of that system and developing the necessary
related capabilities such as its toll free call center
(1-888-WATTAGE); and
o Introducing our service to consumers and electric suppliers.
Therefore, all categories of expenditure, except for general and administrative
expense, were new in all material respects in 1998.
1999 Operating Plan
During 1999, we expect to operate largely as we did in the second half
of 1998. Principally, this means:
o We expect to maintain current information about electric rates and
services in all states with active competition among suppliers.
o We expect to offer Internet access and telephone service through
our call center for the entire year, the cost of which is included
in the monthly expenditures discussed below. No increase in
staffing is required to do so.
o We expect to begin realizing significant revenue from offering our
service in the fourth quarter of 1999. However, after allowing for
the gap between earning revenues and receiving payment, we do not
expect to receive any significant cash in 1999 from operations.
o We expect to continue to actively market our information to
suppliers through our direct sales force. No addition of sales
personnel is anticipated.
o We expect to release the next version of our information system,
WM 2.0, in September 1999. Much of the work developing and
programming WM 1.0 was contracted to outside third parties, while
WM 2.0 is being completed primarily with internal resources. Thus,
while we intend to add three or four full-time employees to our
system development group, approximately doubling the group's
size, the concurrent reduction in the use of third parties will
leave monthly expenditures at about current levels.
o We expect a modest increase in general and administrative
personnel over the course of the year, none of which are expected
to be senior level employees. They will be required to support our
general increase in activity. Part of their responsibilities will
be to replace the services of outside parties that we currently
use. Accordingly, the overall level of general and administrative
expense is not anticipated to increase materially.
o In sum, we expect monthly expenditures to remain at approximately
our current level of $300,000 to $350,000 per month for at least
the first nine months of the year. Expenditures will continue at
that level in the fourth quarter as well, unless New Jersey
proceeds with competition on its currently announced schedule. All
states that have adopted competition to date have extended their
respective effective dates. If New Jersey stays on schedule, our
incremental expenditures are anticipated to be approximately
$300,000 for 1999.
14
<PAGE>
o We currently have the liquidity required to operate for the year
and accommodate an increase in activity if New Jersey meets its
current implementation targets. However, by the end of the year,
our existing liquidity will have been largely spent and we will be
required to raise additional funds or curtail some of our
activities.
Results of Operations - 1998 vs. 1997
Between 1997 and 1998, system development and support increased
$427,371 from $15,311 to $442,682. However, the percentage increase is not
meaningful because 1997's amount was so low. In 1997, we had taken only
preliminary steps to creating our software system. In contrast, our efforts to
develop our system in 1998 were substantial.
In 1998, telecommunication expenses were $349,246, which included the
cost of establishing and operating our call center. We had no such expenses in
1997. The percentage increase under such circumstances, therefore, is not
meaningful. We began providing our toll-free service to consumers in October
1998.
In 1998, we began incurring marketing expenses in order to attract
electric suppliers to use our system and to inform consumers of our existence.
In 1998, our marketing expenses totaled $462,464. No such amounts were incurred
in 1997. Therefore, the percentage increase is not meaningful.
Between 1997 and 1998, general and administrative expenses increased
$634,744 from $162,873 to $797,617, a 490% increase. This increase was a result
of our efforts to implement our plan and our hiring of new employees to do so.
In contrast, in 1997 we had only three employees. In 1998, the full-time founder
began to be compensated for his services.
Liquidity and Capital Resources - 1998 and 1997
In 1997, all of our activities were financed through equity investments
by our founders. In 1998, we raised $1,000,000 to fund our initial development,
two-thirds of which was also provided by our founders. As we needed additional
financing throughout the year, it was provided by our founders through loans and
advances. Accordingly, the entirety of our liquidity and our use of working
capital throughout 1997 and 1998 were dependent upon our founders' willingness
to fund us. Subsequent to the reverse acquisition on February 26, 1999, the
founders will no longer provide funding.
15
<PAGE>
BUSINESS
Wattage Monitor
Overview. In February 1999, in anticipation of the acquisition of
WattMonitor LLC, Knowledge Networks Inc., a publicly held corporation, changed
its name to "Wattage Monitor Inc." On February 26, 1999, Wattage Monitor Inc.
acquired WattMonitor LLC, a Delaware company. For financial statement purposes,
the transaction has been treated as a recapitalization of WattMonitor LLC, with
WattMonitor LLC as the acquirer, a reverse merger. For tax purposes, the
acquisition was a tax-free exchange of equity securities. Subsequent to the
acquisition, the sole activities of Wattage Monitor have been, and will continue
to be, those previously conducted by WattMonitor LLC. The historical activities
of the acquiring company's predecessor, Knowledge Networks, were limited to
certain immaterial software consulting contracts, all of which were completed
prior to the acquisition. Accordingly, the following discussion of our business
relates to the business previously conducted by WattMonitor LLC.
Our business
Our goal is to be recognized as the preeminent electric rate and
service information source in the evolving, competitive United States electric
market. To do so, our initial focus is to be seen as the industry standard for
objective information regarding an electric consumer's specific choices. We
derive our revenue from fees charged to electric suppliers for presenting
consumers with information about electric rates. In addition, while not an
electric supplier or broker itself, our information system allows consumers to
order electricity from their chosen electric supplier. We also receive
commissions for sales to electric consumers, and provide electric marketing
research, industry news and information, and statistical indices reflecting
industry performance.
The electric utility industry in the United States is vast, fragmented
and just beginning the process of deregulation through the introduction of
competition to a market previously structured as a regulated monopoly. There are
several large electric utilities, but none currently serve more than about 5% of
the national market. Unlike previously deregulated industries, such as
telecommunications or airlines, the electric industry has historically operated
locally, not nationally. Accordingly, there are no national franchises.
There are approximately 100,000,000 households in the United States
using roughly $80,000,000,000 of electricity annually. Commercial consumers use
approximately the same amount of electricity every year. Once these customers
can choose a supplier, they are likely to want an accurate, objective source of
information. Serving that need is our primary focus. Industrial customers
comprise the third category of electric consumers. While they use about the same
volume of electricity as their residential and commercial counterparts, they pay
approximately half as much per unit consumed. Thus, industrial consumers
represent a $40,000,000,000 revenue industry segment. Industrial customers are
not expected to be an important market for our services.
Over 3,000 entities currently provide consumers with electricity. Each
must operate differently in a competitive business environment or disappear. We
intend to provide impartial information to electric consumers and to be a
communication channel to consumers for electric suppliers.
We derive our revenues principally from suppliers seeking customers.
Such revenues result from fixed fees, transaction fees and marketing fees, or a
combination thereof. The marketing fee is designed to be less than the
equivalent cost of the advertising, direct mail, or other marketing programs
required to reach potential customers. In practice, it is structured to be
50-75% of the cost of a direct mail campaign. The transaction fee results from a
customer's decision to choose a particular supplier when using our information
system. The transaction fees are due monthly.
The two market considerations that create the opportunity to build a
national organization offering customers information about their electricity
choices are:
o The electric utility industry is restructuring, which is likely
to result in consumers having the ability to choose their
electric supplier; and
o The competition that will result from a deregulated electricity
market will cause electric suppliers to seek an efficient and
cost-effective means to reach residential and commercial
consumers.
To the extent customers choose a new supplier, they are likely to need
information about their electric options. This information may be available from
traditional sources, such as advertising programs, general media coverage,
political discussion, and word of mouth. However, consumers wanting to exercise
their right to choose an electric supplier may be hard-pressed to find an
established information source that can assist them in making an informed
decision. Our service intends to fill this void.
16
<PAGE>
The Electric Industry
Overview. There are approximately three trillion kilowatt hours used in
this country annually, divided almost equally between residential, commercial
and industrial consumers. Measured by revenue, the residential and commercial
users represent an approximate $160,000,000,000 annual industry. The difference
between commercial and industrial consumers is that industrial customers are
large-scale manufacturing concerns, while commercial users are primarily small
businesses, commercial real estate and retail enterprises. However, the
commercial sector acts like the residential sector and has been subjected to
regulated pricing policies similar to those of residential customers. In
contrast, industrial customers are treated differently. We anticipate that most
of our revenue will be derived from the residential and commercial sectors.
There are several secondary considerations that stand out as important
to the future demand for our services.
o Fragmentation. The electric industry is fragmented. No one
company enjoys name recognition by more than a small percentage
of customers. Even when a name is recognized, that recognition is
concentrated in a confined geographic area. No company accounts
for more than about 5% of total industry revenue. There are
approximately 300 investor-owned utilities, which account for
about three-quarters of the industry's revenue. However, even the
largest of these are generally geographically isolated and have
less than 5% of the national market. Unlike telephones, in the
emerging electricity industry there are few, if any, identifiable
electricity providers. Therefore, electric suppliers will seek to
gain access to a large number of new customers. Being able to
provide or facilitate such access will likely be a valuable
resource to electric suppliers.
o Information Vacuum. The electric consumer's working knowledge of
electricity is limited. Once customers have a choice, some are
likely to exercise it. In many cases they will want information
about more than just their specific choices. We plan to serve
this need as well.
o Predictable Electric Use. The deregulation of telecommunications,
principally telephones, has had a significant influence on
consumer views. This may affect electricity in two ways. First,
consumers are suspicious of a profusion of pricing schemes which,
given the large number of anticipated new entrants, is likely to
occur. Second, consumers perceive electric service as a network
in which they may conveniently and routinely switch suppliers.
Yet, unlike telephone usage, electricity use is consistent and
predictable. This makes quantifying a consumer's choice of
electric suppliers straightforward, enhancing comparison shopping
while eliminating complexity.
Wattage Monitor's Service.
Overview. Our efforts are centered around:
o An information service for individual residential consumers;
o A commercial service; and
o Market research and information.
All information is organized by zip code or sub-zip code. Sub-zip codes
are used if more than one regulated utility serves the area to ensure that the
information is directly relevant to each consumer. The schematic overview on the
facing page summarizes our services.
Competition is new to the electric industry. Most consumers and most
investors are unfamiliar with the industry and the factors that influence
competition. Accordingly, a detailed description of the electric industry and
the most common questions that arise when considering the topic for the first
time are included in this business description.
17
<PAGE>
Residential Consumers. We provide residential consumers with objective,
straightforward comparisons of their electric choices. Our services are
available both through a toll-free telephone service and through the Internet at
www.wattagemonitor.com. Both services are free to consumers.
Commercial Consumers. Commercial electric consumers average
approximately 5 times the electric consumption of the average residential
consumer. Therefore, they need more detailed information than is provided to
residential consumers. Through use of our information system, suppliers can
convey information about themselves, their products and services and their
contractual requirements. Our service is also free to commercial consumers.
Research and Information. We intend to become a leading provider of
analytical information regarding the electrical industry. We provide research on
a fee basis, publish industry indicia, and distribute a newsletter. The latter
activities are free and are designed to assist in building our name brand and
industry recognition. The focus of this information is on competition, pricing,
competitive trends and consumer behavior.
The Wattage Monitor System. Our information system is designed to
integrate a licensed data management and electronic commerce search engine with
a licensed text management search engine to create an efficient information
system. The system was designed to create a recognizable brand and convey
objectivity, simplicity and consumer orientation. The data management capability
of our information system maintains numeric data, including zip codes and
prices. The text management capability provides topical information and text.
Our information system required approximately 16 months and several
million dollars to develop. By the time it was first released commercially in
Pennsylvania in October 1998, all United States zip codes were in the system. If
a consumer is in a state that does not yet have competition, entering that zip
code will inform the consumer of his or her state's status, allow the consumer
to register to receive periodic updates, and permit the consumer to use our
information system to express opinions to governmental authorities regarding
electric competition. If the zip code entered is for a state currently allowing
competition, the specific choices available to each consumer are presented. In
both cases, information and answers to frequently asked questions are available.
Operational Experience. While not the first state to allow its citizens
the option of choosing an electric supplier, Pennsylvania was the first state to
do so and allow consumers significant savings. Accordingly, the first commercial
release of our information system occurred in Pennsylvania on October 19, 1998.
While there has been limited experience gained with our system elsewhere, over
90% of its use to date is by residents of Pennsylvania.
Upon the deregulation of the electric industry in Pennsylvania, about
375,000 households switched suppliers immediately. This implies that over 10% of
those who switched used our system to get their information. We consider this
consumer response to be positive. Due in part to regulatory delays, active
marketing by suppliers to consumers did not develop until October 1998. In our
first week, 10,000 consumers used the service. For three months, the total
number of electric consumers who used our information system exceeded 50,000.
Usage subsequently declined as we expected, because the early market
participants had made their initial choices.
Today's System Status. With the release of WM 1.0 in October 1998, we
experienced occasional performance difficulties. Programming, system design and
hardware configuration problems became apparent once broad-based usage of the
system began. Any difficulties were exacerbated by greater-than-anticipated use
of the system by consumers. Two matters required more effort than the others to
resolve: the structure of how we access certain data tables, and an error in the
coding of zip codes with more than one regulated utility serving it. However,
when viewed from the perspective of launching a system as large and complicated
as this, the release of the system and its overall performance were acceptable.
We have addressed substantially all of our operating problems. We have
identified and implemented all the changes we consider feasible. The limitations
of our system's operating flexibility and its hardware constraints have proven
to be such that we currently support zip code-based pricing information in 5
states, and expect to continue to do so until WM 2.0 is released. As there are
only seven states that allow consumers a choice today, and as there is little or
no supplier activity in three of these states, this limitation does not
materially impact our short-term ability to meet consumer needs. Further, even
when limited to supporting 5 states, the system response time under certain user
conditions exceeds our design targets. While neither is a serious impediment,
they still detract from the efficiency and timeliness of delivering system
information. The remaining system improvements and changes stemming from the
insights gained from the use of our system are being incorporated into WM 2.0.
There can be no assurance that these problems will not reappear, or that
additional systems deficiencies are not subsequently identified.
18
<PAGE>
Wattage Monitor 2.0. Elimination of the constraints of WM 1.0 and an
upgrade of our system is to be achieved with WM 2.0. Surveys of consumer
satisfaction with our system, surveys of consumers who did not use our system,
and the results of numerous focus groups are also incorporated in WM 2.0. It is
scheduled for release in September 1999. Accordingly, we expect to be able to
fully service all consumers in all states with competition upon the release of
WM 2.0. However, we cannot be sure that we can maintain the scheduled release
date or that complications or problems will not arise with WM 2.0.
Proprietary Intellectual Property. We have applied to the Untied States
Patent and Trademark Office for registration of the trademarks "Wattage
Monitor," "WattMonitor," and "Kilowatt Monitor." They are currently pending.
We have also applied for a patent relating to our information system
and services. The law firm of Pennie & Edmonds, LLP acts as patent counsel. No
action has been taken, nor comments received, on the patent application, which
was filed on November 11, 1998. No assurances can be given when or if our patent
application will be approved.
Implementation
Consumer Awareness. We inform electric consumers of the existence of
our information system by using billboards, drive time radio, links to other
websites and public relations. The most cost-effective of these methods has been
print media, particularly newspapers. Through editorial board meetings with over
75% of the Pennsylvania newspapers whose circulation exceeds 20,000, we have
established our credibility. More than 50 major articles were written about us
during a one-month span. Billboards and radio, while somewhat effective, have
proven to be less useful than newspapers in informing consumers of our service.
It is clear that consumer awareness and use of our system is also dependent upon
the advertising programs of suppliers. The more frequently suppliers approach
consumers, the greater the demand for the comparative information available from
our system. Accordingly, use of our system is dependent upon the active,
independent marketing efforts of suppliers.
Finally, we actively solicit commercial customers to use our system.
Informing commercial customers of our service involves out-bound telephone calls
in addition to the awareness programs described above. No such calls are made to
residential consumers. We cannot be certain that making consumers aware of our
service will not be more costly or take longer than is currently anticipated.
Consumer Acceptance. As noted, early consumer acceptance of our
services in Pennsylvania was quite good. Our surveys of customer response have
shown the following:
o High levels of satisfaction with our service;
o Great confusion about the process and consequences of switching
suppliers;
o A lack of information about how electricity is supplied and how
competition is possible;
o Reluctance to tackle the complexities of choosing a supplier,
unfamiliar terms, unfamiliar suppliers, complicated rate
structures and offers; and
o Overwhelming support for competition as "a good thing."
The rate at which consumers become familiar and comfortable with
competition in the electric market will determine when they are willing to
choose a supplier. This may determine when consumers decide to use our system.
At this point, there can be no assurance as to the rate of acceptance of our
service by consumers.
Our system has also found supportive audiences among trade
associations, community-based organizations, church groups and similar
associations. It is anticipated that such groups will help create demand for our
service and influence suppliers to participate.
Supplier Awareness. Supplier participation has been gained through
direct marketing efforts undertaken by us. These efforts are the responsibility
of our direct sales force. We have signed contracts with 3 suppliers, are
engaged in active negotiations with 8 suppliers and have active contracts
with an additional 40 suppliers. While these are significant, we have found
suppliers reluctant to contract with us for our services.
19
<PAGE>
Supplier Acceptance. There are various factors that we believe affect
suppliers' reluctance to participate in our service. Four of the most important
are:
1. Market Immaturity - When Pennsylvania enacted legislation to
create competition, the details of the market structure and the
operating requirements to be met were left to the public
utilities commission. They held hearings and began issuing
regulations. That process is not complete, even today, making it
difficult for suppliers to compete for customers when the exact
rules of engagement are not yet established. The end result was
that nearly 80 companies obtained licenses to compete, but only
about 30 have sought customers. Many of the 30 competing
suppliers are test marketing their product while waiting for the
parameters of the industry to be defined. In such an environment,
the need for our services arises only once the suppliers decide
to proceed actively to attract customers.
2. Consumer Behavior - While 100,000,000 households and 20,000,000
businesses use electricity, virtually none have ever chosen their
electric supplier. Accordingly, there is no confidence as to how
such customers will make those choices. Since our service
represents a novel distribution channel, we are uncertain whether
suppliers will use us before our system demonstrates its
effectiveness. Most suppliers decided to begin their marketing
efforts in Pennsylvania, using traditional marketing channels
only.
3. Organizational Immaturity - Most competing suppliers are newly
created. This start-up nature of the companies in the electric
market indicates that most were created by their founders to
implement a particular approach to this market. Necessarily, we
were not part of those plans because we didn't exist at the time.
Most suppliers conclude they need to try the originally adopted
approach before they either change directions or add a second
approach, such as Wattage Monitor.
4. Wattage Monitor's Credibility - Until we introduced our services
in Pennsylvania, we could demonstrate our system for suppliers
but had no track record and no live consumer experience.
Suppliers were reluctant to contract for our services until we
demonstrated our operational existence. Though the reluctance of
suppliers seems to be slowly disappearing, the marketing of our
service has become more difficult than originally anticipated.
There can be no assurance that a sufficient number of suppliers
can be enrolled to generate sufficient revenue to allow us to
implement our plan.
State-by-State Status
Overview. The following tables summarize the status of state efforts to
allow consumers a choice of electric suppliers.
<TABLE>
<CAPTION>
Number Residential Commercial
Of Electric Electric
Current Status States Consumers Consumers
- -------------------------------------------------------------------------------------------------------------
(millions) (millions)
<S> <C> <C> <C>
Enacted Legislation 17 38 5
Pending Legislation 9 21 3
Policy Development 16 40 5
No Substantial Activity 8 8 1
- -------------------------------------------------------------------------------------------------------------
50 107 14
<CAPTION>
Implementation of 1999 2000 2001 2002 2003
Consumer Choice Res Com Res Com Res Com Res Com Res Com
(millions of consumers) (1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Enacted Legislation 23 3 26 3 28 4 39 5 38 5
Pending Legislation -- -- 4 1 7 1 19 3 21 3
Policy Development 6 1 6 1 17 2 34 4 40 5
No Substantial Activity (2) 8 1 7 1 8 1 8 1 8 1
- ----------------------------------------------------------------------------------------------------------------------
37 5 43 6 60 8 100 13 107 14
</TABLE>
(1) The numbers reflected by this chart are estimates. There are no assurances
that that competition will be implemented by the dates indicated.
(2) Includes states whose policy is to delay implementation until required to
implement it by the federal government
20
<PAGE>
Other Considerations. Many states are actively in the process of
adopting competition for their electric industry. However, the timing of
competition is not the only factor in determining how, and to what degree,
demand for our information system will evolve. Demand for our service stems as
much from how competition is introduced as when it is introduced. States are
enacting legislation well in advance of implementing competition. While such
legislation typically sets a time table for competition, it may also establish
specific requirements of how competition is to be phased in. For instance,
Pennsylvania adopted regulations which meant consumers could realize immediate
savings. By contrast, California structured the phase-in of competition in a
manner that did not permit consumers such savings. By 2004, a California
consumer may see savings considerably greater than those available in
Pennsylvania. Accordingly, the demand for our service will be determined by the
timing of competition that individual states adopt as well as how it is phased
in. There can be no assurance that the state-by-state phase-in plans will be
sufficiently timely or competitive to allow demand for our service to develop.
Detail of the Electric Utility Industry and Competition
Industry Background. The electric utility industry in the United States
was structured as a regulated, local, geographically isolated, integrated
supplier of electricity, which it regulates. Government granted each utility an
exclusive license to serve all electric consumers in its territory. The 2
primary considerations leading to the adoption of the regulated monopoly
structure were the science of transmission at the time the industry was formed
and the critical role that electricity plays in a modern industrial economy.
This first issue, science transmission, is straightforward. At the time
the industry was forming, significant percentages of electricity were lost
transmitting electricity even short distances. Therefore, it was critical to
consume electricity near the location at which it was produced. As a result, the
industry assumed both the local and integrated characteristics it currently
possesses. However, just as science played an important role in how the electric
industry was structured, it plays an important role in making deregulation
possible. Over the course of the 20th century, the science of transmission has
evolved from being a critical structuring determinate to becoming virtually
irrelevant. Today's technology enables electricity to be transmitted 1,000 miles
with less than a 1% loss. Accordingly, the need to consume electricity near
the location at which it is produced no longer exists. This makes a national
competitive industry technically feasible.
The second factor was the important role that electricity played in the
evolution of a modern industrial economy. The nexus between the growth of the
United States economy and the demand for electricity has been largely in
lockstep for the last 80 years. In some cases, electricity sales have continued
to grow even in periods of recession. A comparison with other modern industrial
economies indicates the same relationship between electric production/
consumption and economic growth. Therefore, government policy has long been to
foster a sound electric industry.
The industry came to be viewed as a natural monopoly. As such, it
became regulated, and since it was essentially a local business it came to be
regulated primarily at the local level. However, since huge capital investments
were required, the regulated monopoly structure adopted eliminated much of the
risk to investors of such investments, creating access to the large capital sums
required. The prevailing model became regulation by the individual states, based
on the cost of service plus a return on capital. As the electric industry
approaches deregulation, it is a combination of private, public, cooperative and
federal utilities. Private utilities, which are often investor-owned utilities,
account for approximately 75% of all electric sales. State and local utilities,
otherwise known as MUNI's, and cooperatives account for approximately the
remaining 25%.
Nearly 3,300 electric utilities currently exist, divided between 300
investor-owned companies, 2,000 MUNI's and 1,000 cooperatives. Of these, most do
not produce power. Typically, they purchase the electrical power they distribute
from either a nearby investor-owned utility or through a preferential purchase
right to inexpensive federally produced power.
The federal government's involvement in the electric industry is
primarily as a generator and wholesaler. It produces about 20% of the
electricity in the United States. Virtually all federal power is sold through
one of the 4 federal power marketing agencies. These agencies serve all
states except for those in the Northeast and the Upper Midwest.
Market Today. Approximately three trillion kilowatt hours of
electricity are produced and consumed annually by consumers typically classified
as residential, commercial, and industrial. Residential customers are
self-explanatory. Commercial customers represent small business, retail outlets
and the like. Industrial customers are typically manufacturers. Broadly, each of
these 3 customer classes represents about one-third of United States electricity
consumption, or about one trillion kilowatt hours.
21
<PAGE>
The cost of electricity to residential, commercial and industrial
customers varies across the United States. While you might expect the cost of
producing electricity to be about the same everywhere, regulatory policies have
created enormous regional and inter-regional differences in electricity pricing.
Part of these differences arise because of differing fuel choices; for instance,
coal in the Midwest but not in New England. Failed nuclear programs also account
for much of the regional variability. Finally, state and local government
policies contribute to price variability. Some states have taxes included in
their electricity rates, while others have almost none.
Nationwide residential per kilowatt hour rates range from a low of
approximately $0.05 to a high of nearly $0.15. While the range for industrial
customers is not as dramatic, it ranges from as low as approximately $0.03 a
kilowatt hour to as high as approximately $0.09. Commercial rates tend to mirror
residential rates, but at a slight discount. The national average for
residential rates is $0.08; commercial rates average about $0.075; while
industrial prices are typically below $0.05.
Electric consumption is the other relevant determinate of industry
revenue. As with rates, consumption tends to vary by region, based on weather
conditions and the historical economics of electricity in the area. For
instance, virtually the entire air conditioning load in the United States is
electrical. Therefore, the warmer regions of the country have significant summer
residential peaks, while the Pacific Northwest has little demand for electricity
for air conditioning. For home heating purposes, natural gas or fuel oil is the
heating preference in much of the Northeast and Midwest. Yet, because of
historically low electricity prices in the Pacific Northwest, homes there are
often heated by electricity. While the average residential use is approximately
10,000 kilowatt hours per year, it ranges from about 6,000 to about 14,000
kilowatt hours per year.
Tomorrow's Structure. The electric utility industry has functioned as a
regulated monopoly. While a political consensus in the United States has
determined that this industry will be deregulated, the practical problems that
arise in implementing deregulation, along with the issue of states' rights, mean
the process will proceed more slowly than did deregulation in other industries.
State legislation is usually required to permit competition. However,
federal preemption is a possibility. Congress has bills pending in both the
Senate and the House of Representatives mandating that states adopt legislation
introducing competition.
Economic and technological considerations also contribute to the drive
toward competition. Improvements in generating technologies have made small
power plants efficient and cost-effective. Therefore, an industrial customer has
the option of making its own electricity with the same reliability achieved by
its host electric utility. If the cost of electricity to an industrial customer
exceeds the cost of making its own electricity by a wide enough margin, the
customer is likely to make its own. This has had the effect of shifting costs to
retail customers and lowering industrial rates. This shift occurs because of the
nature of the regulatory compact which allows the regulated utility to recover
all of its costs. When the price paid by an industrial customer is lowered, no
reduction in the utility's cost occurs, so the rate to retail customers is
raised by a like amount. Typically such shifts are politically unpopular.
With competition, at least at the industrial level, occurring as a
result of the technological changes, the shift of existing utility costs from
industrial customers, who have a choice, to retail customers, who do not,
becomes more widespread. Politicians believe that retail customers will be
protected only by allowing retail competition. Furthermore, the federal
government has proposed to preempt state regulation unless the states act
separately and soon. Thus, market forces are driving deregulation.
Electric industry competition traces its roots to 1978 with the passage
of the Public Utilities Regulatory Policy Act. Thus, considerable history exists
upon which to forecast the future. We believe that the future industry structure
is generally predictable. It is only the timing of its implementation that is
unknown. That transition also involves massive financial losses, because many
utilities have old, inefficient or over-valued generating facilities, the costs
of which have not yet been recovered from their customers. Such costs would be
unrecoverable if they were to complete with newer, efficient power plants.
In an open, competitive market for electricity, these plants would
likely be closed or written-down to their market value. In the current
regulatory environment, the costs associated with these over-valued plants are
being recovered from consumers through higher-than-competitive market
electricity prices. The impact of this over-valuation varies greatly by
individual utility. Some have over-valued assets that are several times their
equity and some have no over-valued assets. Moving immediately to open
competition would likely bankrupt a number of existing utilities. Accordingly,
the timing of the transition, which will also determine the rate at which demand
for our service grows, is governed by the management of these overvalued assets
and/or the allocation of those losses among customers, shareholders and
taxpayers all of which occurs through the political process.
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<PAGE>
In the end, we believe that the deregulated electric industry will be
dominated by 3 types of organizations.
o National generating companies that will own and operate
power plants in a number of states and regions of the
country. These enterprises will be much larger than today's
utilities.
o A class of companies will exist that will remain regulated
that will own and operate transmission and distribution
systems and act as the supplier of last resort. These
transmission system owners will be common carriers
accessible to all electric suppliers.
o Electric Suppliers that will provide a variety of
differentiated electricity services, some on a national
basis. These suppliers or companies will function much like
those that exist in the telephone industry today.
The status of the development of each:
1. National Generating Companies -- Active competition to generate
electricity began approximately 15 years ago. It occurred as an
unintended consequence of legislation passed in reaction to the
oil embargoes of the 1970s. The competition permitted certain
electric power stations to be built and to operate free of
regulation. Their electrical output was sold to existing,
regulated electric utilities for distribution to their customers.
These new companies demonstrated that it was possible, even while
creating new technologies, to produce electricity less
expensively than was being accomplished by many regulated
utilities. In response, a consolidation among existing utilities
has begun. Thus, competitive forces are currently creating
national generating companies. Ultimately, these generating
companies will compete based upon low capital cost and operating
efficiencies. They will generate and sell kilowatt hours to the
industrial wholesale market. They also sell electricity under
contract to suppliers.
2. Regulated Common Carriers -- It seems certain that large regional
or national companies will operate the electric grid. The grid is
in place and has ample capacity. Open access, with transmission
rates regulated primarily by the Federal Energy Regulatory
Commission, are very likely. The capital requirements of such
enterprises, and the significant problems relative to the
acquisition of long-distance, high voltage transmission lines,
mean that these enterprises are likely to be created from the
disaggregation of the transmission assets of existing regulated
electric utilities and their subsequent consolidation into
regional nor national firms.
3. Suppliers -- We anticipate that there will be many end-use retail
marketing companies. While numerous at first, only a few are
likely to successfully develop a national presence. The economics
of these national companies will be driven by:
o The operating efficiencies of providing customers with
service;
o The advertising requirements of attracting and retaining
customers, specifically including television advertising;
and
o The creation of differentiated electricity products.
They are likely to be organized around market segments, not
geography. These suppliers are the source of our revenues and the
principal beneficiaries of our service.
The Transmission of Electricity
Overview. Two of the most important considerations in the evolution of
a competitive market for electricity are the legislative and regulatory
requirements for transmission. Concern for transmission is also the first
question generally asked by consumers and investors alike. The answer lies in an
understanding of the physical nature of electricity transmission. Transmitting
electricity is not like the transmission of the products of 2 other well
known, recently deregulated industries: natural gas and telephones. In the case
of natural gas, a physical commodity flows from one point to another along a
predetermined route, known as the pipeline. Competition in this industry treated
the pipeline itself as a regulated common carrier with open, non-discriminatory
access to all that chose to use it, levying transportation charges based on the
distance and other characteristics of the pipeline used. Conditions and fees for
use of these pipelines are set by the Federal Energy Regulatory Commission. In
the case of telephones, the telephone signal itself includes information on its
destination. Coded at the front end of the call, the signal directs itself to
its destination. Unlike natural gas, the telephone call is not a physical
substance that flows, but rather a network energized by light or an electrical
signal. The transmission characteristics of electricity are more like telephones
than natural gas. However, they also have important differences.
23
<PAGE>
Understanding the nature of the transmission of electricity begins with
a recognition that electricity is not a substance like natural gas and it does
not flow from one point to another. Rather, the electric grid is energized and
is in equilibrium. When electricity is drawn out of the system by a user, the
grid is instantaneously re-equalized. Since the entire transmission system is
interconnected, the ongoing equalization of the system is a natural phenomenon
influenced constantly by various inputs to the system and consumer consumption.
Accordingly, it is not possible to transmit electricity from one point to a user
at another point.
Perhaps the best analogy about what occurs physically in the electric
transmission system is to imagine the grid in its energized state as the
equivalent of an ocean of electrons. Individual power plants produce electricity
and dump it into that ocean. They are the equivalent of rivers flowing into the
sea. These rivers are numerous and individually large, but not infinite.
Consumers are quite small in relation to the system, but they are everywhere. In
a sense, their withdrawals from this sea of electricity is akin to evaporation.
Water flowing into the ocean behaves as electricity does flowing into
the grid. Neither retains an individual identity nor flows in a determinable
direction. Consumers drawing electricity are extracting a homogenous,
untraceable commodity. Impedance works as the equivalent of gravity. Just as
gravity acts to keep the water level constant, impedance works to keep the
electrical grid at a constant energy level.
Thus, the physical nature of the transmission of electricity to serve
consumers has 2 important differences from natural gas or telephones. First,
it does not move from one point to another. Second, the distance from the
producer to the consumer is irrelevant. It is just as easy to scoop a cup of
water out of an ocean 200 miles at sea as it is to do near shore. The water
level after the withdrawal is instantly equalized by water from an
unidentifiable source.
Future Regulations. Given these physical properties, the cost of
transmission and access to the grid can be effectively accomplished by:
o Making all suppliers responsible for inputs equal to their sales
to consumers; and
o Charging them a pro-rata fee for the volume, on a percentage
basis, of the cost of the grid.
Electric transmission is not currently regulated in this fashion.
Current regulations pretend that electricity has point-to-point flow. Whether
regulators can make the leap from the current framework to one consistent with
the physics of electricity transmission at once is unlikely. However,
transmission access and economic fairness are 2 overriding characteristics
that may require federal preemption for a truly competitive market to develop.
The experience in Pennsylvania has demonstrated the importance of
transmission to a competitive market. With relatively equal market economics,
consumers in Philadelphia, which is served by a well-developed,
non-discriminatory transmission service, have nearly 5 times as many choices
as those in Pittsburgh, where individually negotiated transmission agreements
are used. In the end, how regulators structure the transmission market will
significantly affect competing suppliers and, in turn, significantly influence
the timing and demand for Wattage Monitor's service.
Electric Competition Precedents
European Experience. Two European countries have begun the process of
deregulating their electric utility industry. This takes the form of
privatization. The most common historical model for the organization of the
electric industry even among western democracies, has been state ownership. The
2 recent examples of the state exiting the electric business and simultaneously
creating a private, competitive industry are the United Kingdom and Holland.
United Kingdom. In the privatization of its electric industry, the
United Kingdom created 2 large power generators and aproximately 12 distribution
companies serving designated geographic areas. While these originally had the
characteristics of generators and distribution companies the law by which they
were privatized did not so restrict their activities. Accordingly, distributors
were afforded the opportunity to become generators in addition to their
distribution activities and the generators were similarly free to pursue
distribution. Cost went down, efficiencies up. Several mergers, both among
themselves and with non-United Kingdom companies, occurred. It is likely that
as more countries deregulate this industry, the creation of international
electric companies will evolve.
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<PAGE>
The Netherlands. Holland developed its electric industry with a
profusion of municipal utilities. Virtually every city in Holland owned its own
electric utility. When the law was changed to allow these local governments to
sell such assets, a widespread consolidation of the industry occurred.
Competition for customers among these newly created, privately owned utilities
was significant. It became common for these companies to offer water, cable and
telecommunication services, in addition to electricity, in an effort to be a
single provider of all the household utility necessities.
Summarizing the experience of both of these countries, several things
are apparent:
* Restructuring the utility industry leads to a period of active
financial restructuring;
* Efficiencies go up and the cost of electricity comes down;
* The industry attracts new entrants;
* Consumers find themselves with a choice of electric suppliers for
the first time; and
* It takes a quite some time for consumers to adjust to the new
environment.
All of these conditions provide fertile ground for our services, but
also control the timing of when those services are required.
Insurance
We maintain property and liability coverage with various insurers. We
believe that such coverage is adequate for our needs and customary for
information service companies of comparable size and maturity.
Employees
As of March 31, 1999, we employed 13 people and 20 contract employees
to staff our toll-free telephone service at 1-888-WATTAGE. We believe that our
relations with our employees are good.
Property
We maintain offices in several locations, including:
o San Rafael, California;
o Reno, Nevada;
o Harrisburg, Pennsylvania; and
o Washington, D.C.
We have short-term Lease Agreements for our offices, covering an
aggregate of approximately 3,500 square feet. Required annual lease payments
are: $36,250 for 1999; $29,350 for 2000; and $9,850 for 2001. In addition, we
have offices provided by our employees in Boston, Massachusetts; Helena,
Montana; and Dallas, Texas. No additional lease expenses are required under
these arrangements with our employees.
Legal Proceedings
Wattage Monitor is not a party to any legal proceedings.
25
<PAGE>
MANAGEMENT
The following table sets forth certain information with respect to our
directors and executive officers:
<TABLE>
<CAPTION>
Name Age Company Position and Offices Held
---- --- ---------------------------------
<S> <C> <C>
Stephen D. Klein 38 Chairman of the Board of Directors
Gerald R. Alderson 52 President, Chief Executive Officer and Director
Joel Dumaresq 34 Director
Alexander Ellis III 48 Vice President - Marketing and Director
Ajmal Khan 38 Director
Daniel I. DeWolf 41 Secretary
Robert E. Forrest 31 Vice President - Operations
John D. Westfield 36 Vice President - Technology
</TABLE>
Stephen D. Klein, age 38, is the Chairman of the Board and a founder of
Wattage Monitor. He is not an employee. For more than the last 5 years, and
continuing today, he has been a Managing Partner and Director of Media and
Interactive Services of Kirshenbaum Bond & Partners, one of the country's most
successful independent advertising agencies. Mr. Klein is one of the advertising
industry's pioneers in the integration of Internet media into brand-building
marketing efforts. Mr. Klein received a B.A. in English from Columbia
University.
Gerald R. Alderson, age 52, is a founder and President of Wattage
Monitor. Between 1981 and the founding of Wattage Monitor in mid-1997, Mr.
Alderson held a variety of positions with Kenetech Corporation, including as its
President and Chief Executive Officer. He received his B.A. from Occidental
College and his M.B.A. from Harvard University Graduate School of Business
Administration.
Joel Dumaresq, age 34, is a director of Wattage Monitor. Mr. Dumaresq
is an experienced business executive and investment banking specialist. For more
than the last 5 years, Mr. Dumaresq has acted as an independent investor and
currently sits on the Board of Directors of a number of public and private
companies. He was formerly President and CEO of Westair Aviation Inc., a full
service, regional airline, and has served in various roles for a large
investment banking firm. He is also a Vice President of Verus Capital Corp.
Alexander Ellis III, age 48, has served as Vice President - Marketing
for Wattage Monitor since its founding. For more than 5 years prior to the
founding of Wattage Monitor in mid-1997, Mr. Ellis held a number of management
positions at Kenetech Corporation, including as its Vice President - Marketing.
Prior to that, he was Vice President Corporate Accounts at Knoll International,
Inc. Mr. Ellis received his B.A. from Colorado College and his Masters in Public
and Private Management from Yale School of Organization & Management.
Ajmal Khan, age 38, is a director of Wattage Monitor. Mr. Khan is
founder and President of Verus Capital Corp., a diversified investment
group. Verus is involved in the ownership of hotels; venture capital financing;
corporate acquisitions; and several joint ventures entailing name brand
franchising and licensing. Mr. Khan also has a joint venture interest in
Barakaat Holdings Ltd., a sports marketing company. Since October of 1998, he
has also served as a director of Advanced Bodymetrics, Inc., a publicly traded
high-tech company dedicated to developing sports wristwatches that are able to
monitor and display various functions of the human body. Since July of 1998, Mr.
Khan has served as a director of iParty Corp., a publicly-traded company
dedicated to providing information and services with respect to coordinating
events.
26
<PAGE>
Daniel I. DeWolf, age 41, is Secretary of Wattage Monitor. Mr. DeWolf
is Of Counsel to the law firm of Camhy Karlinsky & Stein LLP in New York, New
York, and leads the Firm's New Media and E-Law Group. Five years ago, Mr. DeWolf
established the Corporate and Securities practice group at Camhy Karlinsky &
Stein LLP. Mr. DeWolf is a Managing Director of Dawntreader Fund I LP, a venture
capital fund. His law practice specializes in venture capital, mergers and
acquisitions, and securities transactions. Mr. DeWolf is a graduate of the
University of Pennsylvania (cum laude) and the University of Pennsylvania School
of Law.
Robert E. Forrest, age 31, has served as Vice President - Operations
for Wattage Monitor since March of 1998. Between May 1993 and his joining
Wattage Monitor, Mr. Forrest held a variety of finance positions, including cost
control and system development, principally in the food products industry. Since
October 1995, in his most recent position, Mr. Forrest was the finance lead for
all United States trade agreement negotiations for Burns Philp, Inc., a global
food company. Mr. Forrest received his B.A. from the University of California at
Los Angeles (magna cum laude).
John D. Westfield, age 36, has served as Vice President - Technology
for Wattage Monitor since April of 1998. For the 2 years prior to joining
Wattage Monitor, Mr. Westfield was a Director of Special Programs for Computer
Sciences Corporation. For 7 years prior to joining Computer Sciences, he
held a variety of management and information technology positions with American
Airlines including responsibility for the design of the SABRE reservation
system's internet interface. Mr. Westfield received a Bachelor's and Master's
degree from The University of Texas, at Austin.
Involvement in Certain Legal Proceedings
During the last 5 years, none of the directors, executive officers
or control persons of Wattage Monitor have been:
o A party to a bankruptcy proceeding;
o Convicted in a criminal proceeding;
o Subject to any order, judgment or decree permanently or
temporarily enjoining, barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking
activities; or
o Found to have violated a federal or state securities or
commodities law.
Director Compensation
Compensation of Directors consists solely of reimbursement of their
expenses for attending meetings.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary Compensation Table
The following table sets forth all compensation awarded to our Chief
Executive Officer and all of our executive officers who received compensation in
excess of $100,000 for the fiscal years ended December 31, 1997 and December
31, 1998:
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation Awards
Name and Position Year Salary Securities Underlying Options
----------------- ---- ------ -----------------------------
<S> <C> <C> <C>
Gerald R. Alderson.................. 1998 $ 137,500 ---
President and Chief Executive 1997 $ 150,000
Officer
Alexander Ellis, III................ 1998 $ 125,000 75,000
Vice President - Marketing 1997 $ 62,500
John D. Westfield................... 1998 $ 136,215 125,000
Vice President - Technology 1997 $ 195,000
</TABLE>
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<PAGE>
Option Grants in 1998
Set forth below is information on grants of stock options for our
executive officers for the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
Individual Grants (1)
---------------------------------------------------------------
% of Total
Number Options Granted to
of Options Employees in Exercise Expiration
Name Granted (2) Fiscal Year Price per Share Date
------------------------------- ----------- ----------- --------------- ----
<S> <C> <C> <C> <C>
Alexander Ellis, III (2)
Granted Dec. 1998.......... 75,000 11% $ 1.00 1/1/09
John D. Westfield (3)
Granted Mar. 1998.......... 75,000 11% $ 1.00 1/1/08
Granted Dec. 1998.......... 50,000 7% $ 1.00 1/1/09
</TABLE>
(1) Represents contingent membership interests held in WattMonitor LLC, which
were converted into stock options upon the completion of the reverse
merger on February 26, 1999.
(2) The option was granted on December 2,1998 and is exercisable commencing on
January 1, 2000.
(3) The options were granted on March 31,1998 and December 2, 1998 and are
exercisable commencing on January 1, 1999 and January 1, 2000 respectively.
Aggregate Option Exercises in Last Fiscal Year and Year End Option Values
Set forth below is information with respect to the stock options held
by our executive officers.
<TABLE>
<CAPTION>
Number of Value of Unexercised
Shares Unexercised Options In-The-Money Options
Acquired Value at December 31, 1998 at December 31, 1998
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable (1)
---- ----------- -------- ------------------------- -----------------------------
<S> <C> <C> <C> <C>
Alexander Ellis, III........ --- --- 75,000 / 225,000 0
John D. Westfield........... --- --- 0 / 125,000 0
</TABLE>
(1) Calculated on a per share value of $1.00 per share at December 31, 1998
28
<PAGE>
Employment Contracts, Termination of Employment and Change-In-Control
Arrangements
On January 1, 1998, WattMonitor LLC, as our predecessor, entered into
an Employment Agreement with Mr. Alderson. On February 26, 1999, we assumed Mr.
Alderson's employment agreement. Mr. Alderson's initial employment term expires
on December 31, 2000, but will be automatically renewed for an unlimited series
of one-year periods unless either party notifies the other.
Mr. Alderson currently receives a base salary of $150,000 per year,
which is subject to an annual adjustment at the discretion of our board of
directors. Under the terms of the agreement, Mr. Alderson is eligible to receive
a bonus for services rendered, subject to the discretion of our board of
directors. In the event we terminate Mr. Alderson's employment for any reason
other than "for cause" after either achieving annual revenues of $10,000,000 or
more, or receiving capital contributions in the aggregate of $10,000,000 or
more, then Mr. Alderson will be entitled to receive a lump sum termination
payment equal to two years' base salary.
In the event we experience a change in control and Mr. Alderson
resigns, or is terminated, within six months of the change in control Mr.
Alderson will be entitled to receive two years base salary, payable in one lump
sum. He will also be entitled to receive a payment equal to the greater of his
bonuses for the three years prior to the termination or eighteen months base
salary. In no event will this termination payment exceed 2.99 times Mr.
Alderson's average annual cash compensation during the five years prior to his
termination.
We have no other employment contracts.
STOCK OPTION PLAN
On February 26, 1999, upon completion of the reverse acquisition, our
1999 Stock Option Plan became effective. All previously outstanding contingent
membership interests under the WattMonitor LLC plan were previously converted
and re-issued under our 1999 Stock Option Plan.
Our 1999 Stock Option Plan
Under our 1999 Stock Option Plan, key employees, officers, consultants
and directors are given an opportunity to acquire our shares. Our 1999 Stock
Option Plan provides for discretionary option grants, under which key employees,
officers, and consultants may be granted options to purchase our shares of
common stock at an exercise price not less than 85% of the fair market value of
our shares on the grant date. The options granted under our 1999 Stock Option
Plan may be either incentive stock options designed to meet the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended, or non-statutory
options not intended to satisfy such requirements. Options may be granted to
eligible individuals in our employ or service or in the service of any
subsequent corporation.
A total of 1,500,000 shares of common stock are reserved for issuance
over the ten-year term of our 1999 Stock Option Plan. There are 625,500 reserved
shares of our common stock which remain available for issuance, and 874,500
shares of our common stock that are reserved for the exercise of existing
grants.
Options have maximum terms of ten years from the grant date. Options
are not assignable or transferable other than by will or by the laws of
inheritance. The option may be exercised only by the optionee. The optionee will
not have any rights with respect to our shares of common stock underlying the
options until the options are exercised and the option price is paid for the
purchased shares. Our Board of Directors has the authority to cancel outstanding
options in return for the grant of new options for the same or a different
number of shares with an exercise price based on the lower fair market value of
our common stock on the new grant date. However, our Board of Directors may
terminate our 1999 Stock Option Plan at any time. Our 1999 stock Option Plan
terminates on February 26, 2009.
As of March 31, 1999 executive officers and all other employees were
eligible to participate. Three of the four executive officers and all other
employees held options.
If Wattage Monitor is acquired by merger, consolidation or asset sale,
or there is a hostile change in control, each option granted under our 1999
Stock Option Plan may be accelerated, and all unvested shares issued under the
plan may be immediately vested.
29
<PAGE>
CERTAIN TRANSACTIONS
On August 14, 1998, RHL Ventures LLC loaned us $425,000. The loan is
evidenced by a promissory note for $425,000, bearing interest at 12% per annum,
and matures September 1, 2000. Simultaneously, we issued a warrant to RHL
Ventures exercisable through August 1, 2005, to purchase 283,333 shares of our
common stock at an exercise price of $1.50 per share. The warrant is exercisable
immediately but has not yet been exercised. The note balance may be used to
exercise the warrant. RHL Ventures LLC is one of our shareholders. Mr. Lessin,
one of our shareholders, is the President and Chief Executive Officer of RHL
Ventures.
Between October 7, 1998 and January 18, 1999, Verus Capital Corp., on
behalf of investors, advanced us an aggregate of $1,000,000. The right to this
advance was subsequently assigned by the investors to Wattage Monitor Inc. prior
to our merger in exchange for 2,750,000 shares of common stock. Upon the merger
of Wattage Monitor Inc. and WattMonitor LLC, the advance became a payable to
ourselves and was canceled. Mr. Khan is president of Verus and one of our
directors.
On December 29, 1998, RHL Ventures LLC loaned us $150,000, with
interest at 12% per annum. The note was repaid in February of 1999.
Simultaneously, we issued a warrant to RHL Ventures exercisable through December
29, 2005, to purchase 100,000 shares of our common stock at an exercise price of
$1.50 per share. The warrant was exercisable immediately. Mr. Lessin, one of our
shareholders, is the President and Chief Executive Officer of RHL Ventures.
On December 29, 1998, Gerald R. Alderson loaned us $50,000, with
interest at 12% per annum. The note was repaid in March of 1999. Simultaneously,
we issued a warrant to Mr. Alderson exercisable through December 29, 2005, to
purchase 33,333 shares of our common stock at an exercise price of $1.50 per
share. The warrant was exercisable immediately. Mr. Alderson is our President
and Chief Executive Officer, as well as one of our directors.
On December 29,1998, Stephen D. Klein loaned us $50,000, with interest
at 12% per annum. The note was repaid in February of 1999. Simultaneously, we
issued a warrant to Mr. Klein exercisable through December 29, 2005, to purchase
33,333 shares of our common stock at an exercise price of $1.50 per share. The
warrant was exercisable immediately. Mr. Klein is the Chairman of our Board of
Directors and a shareholder.
For the period ended December 31, 1998, we paid approximately $132,000
for software development to Kirshenbaum Bond & Partners. During the same period,
we also purchased approximately $112,000 of equipment from Kirshenbaum. Stephen
D. Klein, a partner of Kirshenbaum, is one of our directors.
30
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of March 31, 1999 as follows:
o By each person who is known by Wattage Monitor to beneficially
own more than 5% of Wattage Monitor's common stock, fully
diluted;
o By each of Wattage Monitor's directors;
o By each officer named under the "Management - Executive
Compensation - Summary Compensation Table"; and
o By all officers and directors as a group.
Except as indicated in the footnotes to this table, the persons named
in the table have sole voting and investment power with respect to all shares
beneficially owned, subject to community property laws where applicable. The
percentages set forth in the table assume 11,207,816 shares of common stock
outstanding as of March 31, 1999.
<TABLE>
<CAPTION>
Number of Shares
of Common Stock Percentage of
Name and Address of Beneficial Owner (1) Beneficially Owned Beneficial Ownership
---------------------------------------- ------------------ --------------------
<S> <C> <C>
Robert H. Lessin (2) 3,164,948(3) 27.3%
c/o Wit Capital
826 Broadway, 6th Floor
New York, NY 10003
Gerald R. Alderson (2) 2,235,243(4) 19.8%
c/o Wattage Monitor
1100 Kietzke Lane
Reno, NV 89502
Stephen D. Klein (2) 1,303,920(5) 11.5%
c/o Kirshenbaum Bond & Partners
145 6th Avenue
New York, NY 10013
Alexander Ellis, III 150,000(6) 1.0%
Ajmal Kahn 0 *
Joel Dumaresq 0 *
Daniel I. DeWolf 12,500(7) *
John D. Westfield 25,000 *
All Officers and Directors (7 persons) 3,726,663 32.8%
</TABLE>
- ---------------------------
* Less than one percent (1%)
(1) Rule 13d-3 under the Securities exchange Act of 1934 provides the
determination of beneficial owners of securities. That rule includes as
beneficial owners of securities, any person who directly or indirectly has,
or shares, voting power and/or investment power with respect to such
securities. Rule 13d-3 also includes as a beneficial owner of a security
any person who has the right to acquire beneficial ownership of such
security within sixty days through means, including, the exercise of any
options, warrant or conversion of a security. Any securities not
outstanding which are subject to such options, warrants or conversion
privileges are deemed to be outstanding for the purpose of computing the
percentage of outstanding securities of the class owned by such person.
Those securities are not deemed to be outstanding for the purpose of
computing the percentage of the class by any other person.
(2) Mr. Lessin, Mr. Alderson and Mr. Klein have entered into agreements with us
under which they have agreed not to sell any of their shares prior to
August 26, 1999 and not to sell more than 20% of their shares between
August 27,1999 and February 26, 2000.
(3) Includes 564,706 shares of common stock beneficially owned through RHL
Ventures LLC, warrants to purchase an aggregate of 383,333 shares of
common stock beneficially owned through RHL Ventures LLC, and 2,216,909
shares of common stock owned directly.
(4) Includes warrants to purchase an aggregate of 33,333 shares of common stock
beneficially owned.
(5) Includes warrants to purchase an aggregate of 33,333 shares of common stock
beneficially owned.
(6) Includes options to purchase 75,000 shares of common stock, which are
immediately exercisable.
(7) Mr. DeWolf is married to Pamela Ehrenkranz DeWolf, who owns 12,500 shares
of common stock. Mr. DeWolf disclaims beneficial ownership of his wife's
shares.
31
<PAGE>
SELLING SHAREHOLDERS
The following table shows for our shareholders the following
information:
o The number of shares of our common stock beneficially owned by
them as of April 1, 1999 and covered by this prospectus; and
o The number of shares of common stock to be retained after this
offering, if any.
<TABLE>
<CAPTION>
Common Stock (1)
-------------------------------------------
Number of Shares
Owned Prior to Number of Shares
and Registered in Beneficially Owned
Name of Selling Shareholder the Offering after the Offering
--------------------------- ------------ ------------------
<S> <C> <C>
Robert H. Lessin (2) 2,781,615(3) 383,333(4)
Gerald R. Alderson (2) 2,201,910 33,333(5)
Stephen D. Klein (2) 1,270,587 33,333(6)
Jonathan Bond 397,059 0
Richard Kirshenbaum 397,059 0
Alexander Ellis (7) 300,000 0
Valiant Growth Fund (8) 250,000 0
Orion Projects Limited (8) 250,000 0
Delta Realty Limited (8) 250,000 0
A.E.L.P. 220,588 0
UTD 5/29/91, for the benefit of 210,294 0
Marc E. Hirschfield, Laura Y. Hirshfield,
and Scott E. Hirschfield
Gail Alderson 132,354 0
Vicki L. Center (9) 125,000 0
Robert E. Forrest (9) 125,000 0
John D. Westfield (9) 125,000 0
Westin Machineries Pension S.A. (10) 108,350 0
Liegemen, S.A. (10) 108,350 0
Kenneth Hattich 105,884 0
Alison Elliott (11) 99,274 0
Marcy Shockey 97,060 0
Nigel Carr 79,412 0
William Oberlander 78,706 0
Anne Alderson (12) 69,274 0
Katherine Alderson 68,824 0
Kory Alderson 68,824 0
John Merrill 52,942 0
Johnathen Cohen 50,000 0
Michael J. Marocco 44,118 0
Rosemarie Ryan 39,706 0
Michael R. Benzian (13) 38,500 0
Dorothy Piekarz 37,030 0
Bennet Finance Ltd. (14) 33,300 0
Dwight Patrick (15) 30,000 0
John Vergoz (15) 30,000 0
Benjamin Marshall (16) 27,000 0
Christine M. Ruppert / Martin E. Karlinsky, 17,648 0
as joint tenants
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Common Stock (1)
-------------------------------------------
Number of Shares
Owned Prior to Number of Shares
and Registered in Beneficially Owned
Name of Selling Security Holder the Offering after the Offering
------------------------------- ------------ ------------------
<S> <C> <C>
Jamey Gessaman (17) 15,450 0
Robert Fitzgerald (18) 15,000 0
Pamela Ehrenkranz DeWolf 12,500 0
Christopher Balthasar (19) 7,650 0
Frederick S. Powell (20) 5,000 0
Caryn Bailey 4,000 0
Deborah Annex 1,148 0
Elaine Connolly 900 0
</TABLE>
(1) We assume no purchase in this offering by any shareholder listed above of
any shares of our common stock.
(2) Mr. Lessin, Mr. Alderson and Mr. Klein have entered into agreements with
us, under which they have agreed not to sell any of their shares prior to
August 26, 1999 and not to sell more than 20% of their shares between
August 27, 1999 and February 26, 2000.
(3) Includes 564,706 shares of common stock beneficially owned through RHL
Ventures and 2,216,909 shares of common stock owned directly.
(4) Represents warrants to purchase an aggregate of 383,333 shares of
common stock.
(5) Represents warrants to purchase an aggregate of 33,333 shares of common
stock beneficially owned.
(6) Represents warrants to purchase an aggregate of 33,333 shares of common
stock beneficially owned.
(7) Includes 300,000 shares of our common stock underlying 300,000 options.
(8) Includes 250,000 shares of our common stock underlying 250,000 shares of
our Series A preferred stock. The holder has the right to convert each of
its shares of our Series A preferred stock into one share of our common
stock at any time.
(9) Includes 125,000 shares of our common stock underlying 125,000 options.
(10) Includes 108,350 shares of common stock underlying 108,350 shares of our
Series A preferred stock. The holder has the right to convert each of its
shares of our Series A preferred stock into one share of our common stock
at any time.
(11) Includes 30,450 shares of our common stock underlying 30,450 options.
(12) Includes 450 shares of our common stock underlying 450 options.
(13) Includes 38,500 shares of our common stock underlying 38,500 options.
(14) Includes 33,300 shares of common stock underlying 33,300 shares of our
Series A preferred stock. The holder has the right to convert each of its
shares of our Series A preferred stock into one share of our common stock
at any time.
(15) Includes 30,000 shares of our common stock underlying 30,000 options.
(16) Includes 27,000 shares of our common stock underlying 27,000 options.
(17) Includes 15,450 shares of our common stock underlying 15,450 options.
(18) Includes 15,000 shares of our common stock underlying 15,000 options.
(19) Includes 7,650 shares of our common stock underlying 7,650 options.
(20) Includes 5,000 shares of our common stock underlying 5,000 options.
33
<PAGE>
PLAN OF DISTRIBUTION
We are registering the shares of our common stock covered by this
prospectus.
We will pay the costs, expenses, and fees of registering the common
stock, but our shareholders will pay any underwriting or brokerage commissions
and similar selling expenses relating to the sale of shares of their common
stock.
Our shareholders may sell our common stock at market prices prevailing
at the time of the sale, at prices related to the prevailing market prices, at
negotiated prices or at fixed prices, which may change. Our shareholders may
sell some or all of their common stock through:
o Ordinary brokers' transactions, which may include long or short
sales;
o Purchases by brokers, dealers or underwriters as principal and
resale by those purchasers for their own accounts under this
prospectus;
o Market makers or into an existing market for the common stock;
o Transactions in options, swaps or other derivatives; or
o Any combination of the selling options described in this
prospectus, or by any other legally available means.
In addition, our shareholders may enter into hedging transactions with
broker-dealers, who may engage in short sales of our common stock in the course
of hedging the positions they assume. Finally, our shareholders may enter into
options or other transactions with broker-dealers that require the delivery of
our common stock to those broker-dealers. Subsequently, the shares may be
resold under this prospectus.
In their selling activities, our shareholders will be subject to
applicable provisions of the Securities Exchange Act of 1934 and its rules and
regulations, including Regulation M, which may limit the timing of purchases and
sales of our common stock by our shareholders.
Those of our shareholders and any broker-dealers involved in the sale
or resale of our common stock may qualify as "underwriters" within the meaning
of Section 2 (11) of the Securities Act of 1933. In addition, the
broker-dealers' commissions, discounts, or concessions may qualify as
underwriters' compensation under the Securities Act of 1933. If any
broker-dealer or any of our shareholders qualify as an "underwriter," they will
be subject to the prospectus delivery requirements of Section 153 of the
Securities Act of 1933.
In conjunction with sales to or through brokers, dealers or agents, our
shareholders may agree to indemnify such brokers, dealers or agents against
liabilities arising under the Securities Act of 1933. We do not know of any
existing arrangements between our shareholders and any other shareholder,
broker, dealer, underwriter or agent relating to the sale or distribution of our
common stock.
In addition to selling their common stock under this prospectus, our
shareholders may:
o Transfer their common stock in other ways not involving market
makers or established trading markets, including by gift,
distribution or other transfer; or
o Sell their common stock under Rule 144 of the Securities Act, if
the transaction meets the requirements of Rule 144.
We have advised our shareholders that, during the time each is engaged
in distribution of their common stock, each must comply with Rule 10b-5 and
Regulation M under the Securities Exchange Act of 1934. They must do all of the
following under those rules:
o Not engage in any stabilization activity in connection with our
common stock;
o Furnish each broker who may be offering our common stock on
behalf of our shareholders the number of copies of this
prospectus required by each broker; and
o Not bid for or purchase any of our common stock or attempt to
induce any person to purchase any of our common stock, other than
as permitted under the Securities Exchange Act of 1934.
34
<PAGE>
Any of our shareholders who may be "affiliated purchasers," as defined
in Regulation M, have been further advised that they must coordinate their sales
under this prospectus with each other and us for the purposes of Regulation M.
To the extent required under the Securities Act, a supplemental
prospectus will be filed, disclosing:
o The name of any such broker-dealers;
o The number of securities involved;
o The price at which such securities are to be sold;
o The commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable;
o That such broker-dealers did not conduct any investigation to
verify the information set out in this Prospectus, as
supplemented; and
o Other facts material to the transaction.
There is no assurance that any of our shareholders will sell any of our
common stock.
We have agreed to keep the registration statement relating to the
offering and sale by our shareholders continuously effective until the earlier
of the sale of all our common stock or 12 months from the date of this
prospectus.
DESCRIPTION OF THE CAPITAL STOCK
The authorized capital stock of Wattage Monitor consists of common
stock, preferred stock and warrants to acquire common stock as set forth below:
Our authorized capital stock consists of 25,000,000 shares of our
common stock, par value $.01 per share, and 5,000,000 shares of our preferred
stock, par value $.01 per share.
Common Stock
Our authorized common stock consists of 25,000,000 shares of common
stock. As of April 6, 1999, we had issued and outstanding 11,207,816 shares of
common stock. As of April 6, 1999, there were approximately 38 holders of
records of our common stock. In addition, we have reserved the following shares
of common stock:
o 1,000,000 shares of our common stock for conversion of our issued
and outstanding Series A Preferred Stock;
o 874,500 shares of our common stock under our 1999 Stock Option
Plan;
o 450,000 shares of our common stock for existing warrants; and
o 3,500,000 shares of our common stock for conversion of our Series
B preferred stock, which shares shall be issued and outstanding
upon the exercise of existing warrants.
The holders of common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of our shareholders. Subject
to preferences that may be applicable to any outstanding shares of our preferred
stock, the holders of our common stock are entitled to receive ratably such
dividends as may be declared by the board of directors out of funds legally
available for such dividends. In the event of our liquidation, dissolution or
winding up, holders of our common stock will be entitled to share ratably in all
assets remaining after payment of liabilities and the liquidation preferences of
any outstanding shares of preferred stock. Holders of common stock have no
preemptive rights and no right to convert their common stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are fully paid and
non-assessable. The rights, preferences and privileges of holders of common
stock are subject to the rights of holders of shares of any series of preferred
stock that we may designate and issue in the future.
35
<PAGE>
Preferred Stock
We are authorized to issue up to 5,000,000 shares of preferred stock,
par value $.01 per share. As of February 26, 1999, 1,000,000 shares of our
Series A 6% preferred stock were issued and outstanding, held by 6 registered
holders. The holders of our Series A 6% preferred stock have voting power equal
to the voting power the preferred stock would provide if the preferred stock
were converted into shares of our common stock, and such other voting power as
is expressly provided under Nevada law. Each share of our Series A preferred
stock is convertible into one share of our common stock. Such conversion may
occur at the option of the holders of Series A preferred stock, however, such
conversion will automatically occur upon the exercise of the warrants to
purchase shares of our Series B preferred stock.
Pursuant to our articles of incorporation, our board of directors has
the authority, without further action by the shareholders, to issue our
preferred stock in one or more series of preferred stock and to fix the
designation, powers, preferences, privileges and relative participating,
optional or special rights of such stock, and the qualifications, limitations or
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption and liquidation preferences, any or all of which may
be greater than the rights of the common stock. Our board of directors, without
shareholder approval, may issue preferred stock with voting, conversion of other
rights that could adversely affect the voting power and other rights of the
holder of common stock. Therefore, our preferred stock may be issued quickly,
with terms that may delay or prevent a change in control or make removal of
management more difficult. Additionally, the issuance of preferred stock may
have the effect of decreasing the market price of the common stock and may
adversely affect the voting and other rights of the holders of common stock.
Warrants
We have issued four warrants to purchase an aggregate of 450,000 shares
of our common stock at an exercise price of $1.50 per share. The warrants expire
on December 29, 2005, and are exercisable at any time. We have also issued one
warrant to purchase 100,000 shares of our common stock at an exercise price of
$1.00 per share. This warrant expires on February 26, 2005, and is exercisable
at any time. The warrants do not confer upon the holders any voting or other
rights of our shareholders.
We also have issued 1,000,000 Series B warrants to purchase and
aggregate of 3,500,000 shares of our Series B preferred stock. The Series B
warrants expire on December 15, 1999 Each Series B warrant allows the owner to
purchase 3.5 shares of Series B preferred stock at a price of $1.00 per share.
Upon issuance, each share of Series B preferred stock will be convertible into
3.5 shares of our common stock. The Series B preferred stock will have no voting
power, except as expressly provided under Nevada Law.
Transfer Agent and Registrar
The Transfer Agent and Registrar for Wattage Monitor's Common Stock is
American Securities Transfer & Trust, Inc., subject to conformation by the board
of directors. As neither the convertible preferred stock, the warrants nor the
options is registered, Wattage Monitor acts as its own Transfer Agent and
Registrar as to such securities.
36
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
We currently have 11,207,816 shares of common stock outstanding. All of
them are freely tradeable without restriction or further registration under the
Securities Act of 1933. In addition, 1,000,000 shares of our common stock
underlying the shares of Series A preferred stock will, upon conversion of the
Series A preferred stock, be freely tradeable without restriction or further
registration. Also, 874,500 shares of our common stock underlying the options
will, upon exercise of the options, be freely tradeable without restriction or
further registration. However, any shares purchased by an affiliate of ours will
be subject to the resale limitations of Rule 144 under the Securities Act of
1933. An affiliate is a person who has a control relationship with us. The
remaining shares of common stock are with us. Rule 144 provides that a person
who has satisfied a one-year holding period for any restricted shares may sell
within any three-month period an amount of restricted shares that does not
exceed the greater of:
o One percent of that class of outstanding shares; or
o The average weekly trading volume of our common stock.
Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about us. In addition, under Rule 144, persons who are not
affiliated with us and who have held their restricted shares for at least 2
years are not subject to the quantity limitations or the manner of sale
restrictions.
Gerald R. Alderson, Stephen D. Klein, Robert H. Lessin and RHL Ventures
LLC have agreed not to sell or otherwise dispose of any of their shares of
common stock until August 26, 1999. From August 27, 1999 through February 26,
2000, they have agreed to sell no more than 20% of their individual holdings.
LEGAL MATTERS
The validity of the common stock offered under this prospectus will be
passed upon for us by our counsel, Camhy Karlinsky & Stein LLP, New York, New
York. A partner of Camhy Karlinsky & Stein LLP owns, as a joint tenant, 17,648
shares of our common stock. Another partner of Camhy Karlinsky & Stein LLP may
be deemed to have beneficial ownership of 1,148 shares of our common stock,
although such beneficial ownership is disclaimed. In addition, two other
attorneys of Camhy Karlinsky & Stein LLP may be deemed to have beneficial
ownership of 12,500 shares and 4,000 shares of our common stock, respectively,
although such beneficial ownership is disclaimed by both attorneys.
EXPERTS
The financial statements of WattMonitor LLC as of December 31, 1998,
and for the period from inception through December 31, 1997, year ended December
31, 1998, and for the period from inception through December 31, 1998, included
in this registration statement, have been included herein in reliance upon the
report of Grant Thornton LLP, independent certified public accountants,
appearing elsewhere in this prospectus, and upon the authority of Grant Thornton
LLP as experts in accounting and auditing.
37
<PAGE>
DISCLOSURE OF COMPANY POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Wattage Monitor's certificate of incorporation and by-laws provide that
Wattage Monitor shall indemnify all directors and officers of Wattage Monitor to
the fullest extent permitted by Nevada law. Under such provisions, any director
or officer, who in his capacity as such is made or threatened to be made, party
to any suit or proceeding, shall be indemnified if it is determined that such
director or officer acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of Wattage Monitor. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and persons controlling Wattage Monitor
pursuant to the foregoing provision, or otherwise, Wattage Monitor 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 of
1933 and is, therefore, unenforceable.
Wattage Monitor maintains directors' and officers' liability insurance
providing aggregate coverage of $5,000,000.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants...... F-1
Balance Sheet........................................... F-2
Statements of Operations................................ F-3
Statements of Stockholders' Equity (Deficit)............ F-4
Statements of Cash Flows................................ F-5
Notes to Financial Statements........................... F-6
38
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
Wattage Monitor Inc.
We have audited the accompanying balance sheet of Wattage Monitor Inc. (a
development stage company) as of December 31, 1998, and the related statements
of operations, stockholders' equity (deficit), and cash flows for the period
from inception (July 1, 1997) through December 31, 1997, for the year ended
December 31, 1998, and for the period from inception (July 1, 1997) 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 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 Wattage Monitor Inc. as of
December 31, 1998, and the results of its operations and its cash flows for the
period from inception (July 1, 1997) to December 31, 1997, for the year ended
December 31, 1998, and for the period from inception (July 1, 1997) to December
31, 1998 in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Reno, Nevada
April 15, 1999
F-1
<PAGE>
Wattage Monitor Inc.
(a development stage company)
BALANCE SHEET
December 31, 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 137,688
Prepaid expenses 3,386
---------------
Total current assets 141,074
---------------
PROPERTY AND EQUIPMENT, net 620,728
---------------
OTHER ASSETS
Software licenses 45,000
Deferred offering costs 48,670
Patents 19,650
Deposits 3,333
---------------
Total other assets 116,653
---------------
$ 878,455
===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 486,190
Accrued liabilities 12,500
Accrued interest 25,389
Notes payable - related parties 304,000
---------------
Total current liabilities 828,079
---------------
NOTES PAYABLE - related parties - long-term 925,000
---------------
COMMITMENTS -
---------------
STOCKHOLDERS' DEFICIT
Common stock, .01 par value, 25,000,000 shares
authorized, 7,500,000 issued and outstanding 75,000
Additional paid-in capital 2,204,710
Deficit accumulated during the development stage (2,769,334)
Unamortized discount on debt (385,000)
---------------
(874,624)
---------------
$ 878,455
===============
The accompanying notes are an integral part of this statement
F-2
<PAGE>
Wattage Monitor Inc.
(a development stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
Inception from Inception
(July 1, 1997) to Year ended (July 1, 1997) to
December 31, 1997 December 31, 1998 December 31, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Operating expenses
Telecommunications $ - $ 349,246 $ 349,246
System development 15,311 442,682 457,993
Marketing - 462,464 462,464
General and administrative 162,873 797,617 960,490
Depreciation and amortization 1,059 28,493 29,552
---------------- ----------------- -----------------
Net loss from operations (179,243) (2,080,502) (2,259,745)
---------------- ----------------- -----------------
Other income (expense)
Interest expense - (520,389) (520,389)
Interest and dividend income 1,308 9,492 10,800
---------------- ----------------- -----------------
1,308 (510,897) (509,589)
---------------- ------------------ ------------------
NET LOSS $ (177,935) $ (2,591,399) $ (2,769,334)
================ ================= =================
Loss per common share $ (0.03) $ (0.36) $ (0.39)
================ ================= =================
Weighted average number of
common shares outstanding 6,650,000 7,287,500 7,075,000
================ ================= =================
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
Wattage Monitor Inc.
(a development stage company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock
Class I Class II .01 Par,
Membership Units Membership Units 25,000,000 Authorized
Units Amount Units Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Inception, July 1, 1997 - $ - - - - -
Issuance of
Membership units 5,000,000 450,000 - - - -
Net loss
- --------------------------------------------------------------------------------------------------------------
Balances,
December 31, 1997 5,000,000 450,000 - - - -
Issuance of membership
units - net of offering costs - - 666,667 949,710 - -
Beneficial conversion
feature on debt - - - - - -
Net loss - - - - - -
Recapitalization (5,000,000) (450,000) (666,667) (949,710) 7,500,000 75,000
- --------------------------------------------------------------------------------------------------------------
Balances,
December 31, 1998 - $ - - $ - 7,500,000 $ 75,000
==============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional Unamortized During the
Paid-In Discount Development
Capital on Debt Stage Total
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inception, July 1, 1997 - - - -
Issuance of
Membership units - - - 450,000
Net loss (177,935) (177,935)
- -----------------------------------------------------------------------------------------
Balances,
December 31, 1997 - - (177,935) 272,065
Issuance of membership
units - net of offering costs - - - 949,710
Beneficial conversion
feature on debt 880,000 (385,000) - 495,000
Net loss - - (2,591,399) (2,591,399)
Recapitalization 1,324,710 - - -
- -----------------------------------------------------------------------------------------
Balances,
December 31, 1998 $ 2,204,710 $ (385,000) $(2,769,334) $ (874,624)
=========================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
Wattage Monitor Inc.
(a development stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
Inception from Inception
(July 1, 1997) to Year ended (July 1, 1997) to
December 31, 1997 December 31, 1998 December 31, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (177,935) $ (2,591,399) $ (2,769,334)
---------------- ---------------- -----------------
Adjustments to reconcile net loss to
net cash used in operating activities:
Write off of software license - 184,875 184,875
Amortization of discount on debt - 495,000 495,000
Depreciation and amortization 1,059 28,493 29,552
Changes in:
Prepaid expenses (65,250) 61,865 (3,385)
Other assets (2,725) (20,258) (22,983)
Accounts payable - 113,059 113,059
Accrued liabilities - 12,500 12,500
Accrued interest - 25,389 25,389
---------------- ---------------- -----------------
Total adjustments (66,916) 900,923 834,007
---------------- ---------------- -----------------
Net cash used in
operating activities (244,851) (1,690,476) (1,935,327)
---------------- ---------------- -----------------
Cash flows from investing activities:
Acquisitions of property and equipment (109,355) (397,670) (507,025)
----------------- ---------------- -----------------
Cash flows from financing activities
Deferred offering costs - (48,670) (48,670)
Issuance of membership units 450,000 949,710 1,399,710
Issuance of notes payable - 1,229,000 1,229,000
---------------- ---------------- -----------------
to related parties
Net cash provided by
financing activities 450,000 2,130,040 2,580,040
---------------- ---------------- -----------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 95,794 41,894 137,688
Cash and cash equivalents -
beginning of period - 95,794 -
---------------- ---------------- -----------------
Cash and cash equivalents -
end of period $ 95,794 $ 137,688 $ 137,688
================ ================ =================
Supplemental disclosure of non-cash
investing and financing activities:
Software license agreement and development
costs included in accounts payable $ 174,968 $ 198,161 $ 373,129
================ ================ =================
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
Wattage Monitor Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE A - SUMMARY OF ACCOUNTING POLICIES AND NATURE OF BUSINESS
1. Organization and Nature of Business
The Company was organized by its members on July 1, 1997 in Delaware. The
Company is a development stage enterprise and provides electrical rate
information to commercial and residential consumers nationwide. Revenue is
anticipated to come primarily from referral fees and commissions charged to
electricity suppliers who offer their products and service through the
Company. On February 26, 1999, Wattage Monitor Inc. (a Nevada corporation)
acquired all of the membership units of the Company. For accounting
purposes, the acquisition is treated as a recapitalization with the Company
as the acquirer (a reverse acquisition). Pro forma information is not
presented since the acquisition is not a business combination. The
financial statements give retroactive effect to the conversion of members'
equity into common stock to reflect the recapitalization.
2. Cash Equivalents
The Company considers all short-term investments with original maturities
of ninety days or less to be cash equivalents.
3. Depreciation and Amortization
Depreciation and amortization sufficient to relate the cost of depreciable
assets to operations over their estimated service lives is provided using
the straight-line method of depreciation.
4. Software License and Development Costs
The Company has entered into several software license agreements to enable
customers to access information and order services provided via the
internet. Some of these agreements require the Company to pay an annual
maintenance fee. Additionally, the Company incurs software development
costs to tailor such software to its specific requirements. Such
customization costs when internally incurred are expensed and when
purchased from third parties are capitalized. License and development costs
are amortized straight-line over three years while maintenance fees are
charged to expense ratably over the contract period. Periodically,
management evaluates the estimated useful life of intangible assets based
on projected future undiscounted cash flows.
F-6
<PAGE>
Wattage Monitor Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE A - SUMMARY OF ACCOUNTING POLICIES AND NATURE OF BUSINESS - Continued
4. Software License and Development Costs - Continued
The Company intends to provide its information services principally over
the internet through both licensed and custom software. Licensee fees paid
were $184,475 and $45,000 in 1997 and 1998, respectively. In addition, the
Company capitalized third party payments for software customization of
$529,479 in 1998.
A major portion of the Company's payables at year end 1998 ($183,000) is to
a licensor of software used to operate one portion of the Company's system.
This licensor has also provided significant customization services. A
dispute exists as to whether or not the services provided by this licensor
meet the agreed-upon specifications and the terms and conditions of the
agreement between the parties. The Company does not believe the capitalized
software license ($184,475) has any future value and, accordingly, has
expensed the unamortized portion of the licensee fee at December 31, 1998.
Management believes this matter will be resolved in 1999 in a manner which
will not materially affect the Company, its financial position or its
operations.
5. Patents
The Company has filed for a patent relating to its computer-based system
and methods for collecting and providing information regarding the electric
power industry and available electric supply options. Patent expense will
be amortized on the straight-line method over ten years.
6. Advertising
The Company expenses advertising costs as incurred. Advertising expense was
$-0- and $67,051 for the periods ended December 31, 1997 and 1998,
respectively.
7. Use of Estimates
In preparing these financial statements in conformity with generally
accepted accounting principles, management is required to make estimates
and assumptions. These affect the carrying value of the Company's assets
and liabilities, revenues and expenses during the reporting period and
disclosures relating to contingent assets and liabilities. Actual results
may differ from these estimates.
F-7
<PAGE>
Wattage Monitor Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE A - SUMMARY OF ACCOUNTING POLICIES AND NATURE OF BUSINESS - Continued
8. Concentration of Credit Risk
Financial instruments which potentially subject the Company to credit risk
consist primarily of cash and cash equivalents. The Company maintains its
cash in bank deposit accounts which, at times, may exceed federally insured
limits. The Company believes it is not exposed to any significant credit
risk related thereto.
9. Income Taxes
The Company, through February 26, 1999, is not subject to income tax.
Income is taxed directly to its members. Accordingly, no provision has been
made for federal income tax. Further, because losses incurred have been
reported by the members, no operating losses are available to offset future
income.
10. Fair Value of Financial Instruments
Management believes the fair value of financial instruments approximates
their carrying amounts. The carrying value of cash and cash equivalents
approximates their estimated fair values. Management believes the fair
values of notes payable can not be determined due to the related party
nature of the transactions.
11. Deferred Offering Costs
Costs associated with the recapitalization are deferred to the period in
which the recapitalization occurs.
12. Discount on Debt
Costs incurred in connection with the issuance of debt are amortized over
the expected life of the debt. The beneficial conversion feature has been
accounted for as additional paid-in capital and associated unamortized
discount on debt recorded as a component of stockholders' equity.
F-8
<PAGE>
Wattage Monitor Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE A - SUMMARY OF ACCOUNTING POLICIES AND NATURE OF BUSINESS - Continued
13. Loss Per Share
Loss per common share is computed based upon the weighted average shares
outstanding given retroactive effect of common shares issued to members of
Watt Monitor LLC upon completion of the recapitalization. Convertible
equity instruments are not considered in the calculation of net loss per
share as their inclusion would be antidilutive.
NOTE B - RELATED PARTY TRANSACTIONS
The Company leased its office space in San Francisco through October 1998
from a company in which the President is a director and has a financial
interest. The total rent expense was $8,724 and $19,750 for the periods
ended December 31, 1997 and 1998.
For the periods ended December 31, 1997 and 1998, the Company paid
approximately $31,000 and $132,000 for software development to
Kirschenbaum, Bond & Partners, the principals of which have a financial
interest in the Company, and one partner is a director of the Company. The
Company also purchased approximately $112,000 of equipment from
Kirschenbaum, Bond & Partners during the year ended December 31, 1998.
The Company purchased office equipment for approximately $12,500 and
$13,000 from a company in which the President is a director and has a
financial interest during the periods ended December 31, 1997 and 1998.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1998:
Lives
-------------
Furniture and equipment $120,801 5-7 years
Software 529,479 3 years
--------------
650,280
Less accumulated depreciation
and amortization (29,552)
--------------
$620,728
==============
F-9
<PAGE>
Wattage Monitor Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE D - NOTES PAYABLE - RELATED PARTIES
Notes payable to related parties are as follows at December 31, 1998:
Note payable, due September 1, 2000, with interest at
12% due semiannually. Interest may be paid in common
stock at $1.00 per share at the option of the lender.
As part of the loan, the related party was issued one
warrant for the purchase of 283,333 shares of common
stock at $1.50 per share. The warrant expires August
2005. $ 425,000
Notes payable, principal and interest at 12%, due upon
recapitalization. The notes were paid February 1999.
As part of the loans, the related parties were issued
three warrants which allow for the purchase of 166,666
shares of common stock at $1.50 a share. The warrants
expire December 2005.
250,000
Advances from related parties, due on demand. 54,000
Note payable, without interest which converts into
500,000 shares of common stock upon completion of the
recapitalization. Conversion into common stock took
place in 1999, and therefore, the note is classified
as a long-term liability. 500,000
------------
1,229,000
Less: Current maturities (304,000)
------------
Notes payable long-term $ 925,000
============
Aggregate maturities of long-term notes payable for the five years
following December 31, 1998, are $304,000 for 1999 and $425,000 for 2000.
F-10
<PAGE>
Wattage Monitor Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE E - STOCKHOLDERS' EQUITY
The Company had two classes of membership interests. There were 10,000,000
authorized units of Class I membership interests, of which 5,000,000 units
were outstanding as of both December 31, 1997 and 1998. There were
10,000,000 authorized units of Class II membership units. No units were
outstanding as of December 31, 1997, and 666,667 were outstanding at
December 31, 1998.
In connection with the recapitalization, all Class I and Class II
membership units were converted into common stock of Wattage Monitor Inc.
Each membership unit received approximately 1.33 shares of common stock.
NOTE F - CONTINGENT MEMBERSHIP INTERESTS/STOCK OPTIONS
Contingent membership interests in an LLC are similar to stock options in a
corporation. Pursuant to a formal plan, the Board granted various employees
and other individuals contributing to the success of the organization,
contingent membership interests. In conjunction with the reverse
acquisition of Wattage Monitor Inc., all such contingent membership
interests were exchanged for stock options under Wattage Monitor Inc.'s
incentive stock option plan. The plan allows for 1,500,000 shares of common
stock to be granted.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, but applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for stock
options.
F-11
<PAGE>
Wattage Monitor Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE F - CONTINGENT MEMBERSHIP INTERESTS - Continued
The fair value of the Company's stock options was estimated as of the grant
date using the Black-Scholes option pricing model with the following
weighted average assumptions for the years ended December 31, 1997 and
1998: dividend yield of 0.0%, expected volatility of 0.0%, risk free
interest rate of 5.80% and 4.91%, respectively and an expected holding
period from three to four years. Based on these assumptions, compensation
expense was immaterial for the periods ended December 31, 1997 and 1998.
Presented below is a summary of the status of the stock options after
giving retroactive effect to the recapitalization.
Weighted
Average
Exercise
Price
---------------
Balance at inception (July 1, 1997) - -
Granted 225,000 1.00
Balance at December 31, 1997 225,000 1.00
Forfeited/expired (450) 1.00
Granted 681,300 1.00
===========
Balance at December 31, 1998 905,850 1.00
===========
Weighted
Range of Options Average Options
Exercise Outstanding at Contractual Excercisable at
Prices December 31, 1998 Life December 31, 1998
- ----------- ------------------- -------------- --------------------
$1.00 905,850 9.89 75,000
===== ======= ==== ======
F-12
<PAGE>
Wattage Monitor Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE G - EMPLOYEE BENEFIT PLANS
The Company adopted a 401(k) retirement plan (the "plan") effective January
1, 1998, which provides for employee salary deferrals limited to 25% of a
participant's compensation and discretionary Company contributions. The
plan year ends on December 31st. The plan covers employees who have
completed one month of service and have attained the minimum age
requirement, as defined in the plan. The Company made no contributions in
the year ended December 31, 1998.
NOTE H - LEASE COMMITMENTS
The Company leases its office space under operating leases, which expire
through 2001. The Company has options to extend the leases for additional
lease periods. The leases require monthly rental payments totaling
approximately $3,100.
The following is a schedule of the future minimum lease payments under the
operating leases, as of December 31, 1998:
Year ending December 31,
1999 $36,250
2000 29,350
2001 9,850
-----------
Net minimum lease payments $75,450
===========
F-13
<PAGE>
Wattage Monitor Inc.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE I - SUBSEQUENT EVENTS
In January 1999, WattMonitor LLC sold 37,931 membership units.
On February 26, 1999, Wattage Monitor Inc. (a Nevada corporation) acquired
all of the equity (membership units) of the Company. For accounting
purposes, the acquisition is treated as a recapitalization with the Company
as the acquirer (a reverse acquisition). Pro forma information is not
presented since the acquisition is not a business combination. The members
exchanged their membership units for 7,550,450 shares of common stock
(approximately 72% of the outstanding common stock) of Wattage Monitor Inc.
In addition, each member, other than the controlling members, was entitled
to acquire such number of shares of common at $1.00 per share as necessary
to maintain the same ownership percentage in Wattage Monitor Inc. as such
member held in the Company. In connection with this right, 657,366 shares
were issued. Also, in connection with the recapitalization, all employees
exchanged their contingent membership interests for stock options to
purchase 918,000 shares of Wattage Monitor Inc. exercisable at $1.00 per
share.
Certain stockholders of Wattage Monitor Inc. advanced approximately
$500,000 in January 1999, which, along with $500,000 advanced in 1998, were
converted into 2,750,000 shares of common stock in 1999.
In connection with its recapitalization, Wattage Monitor Inc. issued
1,000,000 shares of Series A 6% Convertible Preferred Stock for $3,000,000.
The Series A 6% Preferred Stock accrues dividends at 6% per annum, payable
annually, commencing on February 26, 2000. The dividend at the option of
the Company may be paid in common stock. Each share of Series A 6%
Preferred Stock is convertible into one share of common stock. Such shares
convert: (1) upon the exercise of the warrant to purchase Series B
Preferred Stock; (2) upon Wattage Monitor Inc. raising $5,000,000 in an
offering of common stock at $1.00 per share or greater; or (3) at the
option of the holder. In connection with the issuance of the Series A 6%
Preferred Stock, each purchaser received one Series B warrant to purchase
3.5 shares of Series B Preferred Stock at $1.00 per share exercisable 181
days after closing through December 15, 1999 or within 30 days of a notice
of a sale of at least $7,000,000 in equity securities of Wattage Monitor
Inc. for each share of Series A 6% Preferred Stock purchase.
F-14
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The registrant's articles of incorporation eliminate the personal
liability of directors to the registrant or its stockholders for monetary
damages for breach of fiduciary duty to the extent permitted by Nevada law.
The registrant's articles of incorporation and by-laws provide that the
registrant shall indemnify its officers and directors to the extent permitted
by Nevada law, which authorizes a corporation to indemnify directors,
officers, employees or agents of the corporation in non-derivative suits if
such party acted in good faith and in a manner such party reasonably believed
to be in or not opposed to the best interest of the corporation and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. The Nevada General Corporation Act
further provides that indemnification shall be provided if the party in
question is successful on the merits or otherwise.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, payable in
connection with the sale of the common stock being registered hereby. Except
for the Securities and Exchange Commission's registration fee, all expenses
are estimated.
Item Amount
- -------------------------------------- -------
SEC registration fee ................. $30,131
Printing and engraving expenses ...... 8,500
Legal fees and expenses .............. 30,000
Auditors' accounting fees and expenses 20,000
Total ................................ $88,631
In addition, holders of the shares being registered under this
registration statement will be responsible for all selling commissions,
transfer taxes and related charges in connection with the offer and sale of
the shares offered.
Item 26. Recent Sales of Unregistered Securities.
On March 17, 1998, our predecessor, WattMonitor LLC, issued an
aggregate of 5,666,667 membership interests. WattMonitor LLC received
$1,000,000 as a result of the issuance. In connection with our acquisition of
WattMonitor LLC on February 26, 1999, all of the membership interests were
converted into an aggregate of 7,500,450 shares of our common stock. On
February 26, 1999, we issued an additional 50,000 shares of our common stock
to Jonathan Cohen. We received $50,000 as a result of the issuance. In
connection with these transactions, we relied on the statutory exemption
provided by Section 4(2) of the Securities Act of 1933, because the issuances
did not involve public offerings.
On August 14, 1998, RHL Ventures LLC loaned us $425,000. In
consideration for the loan, we issued a promissory note in the aggregate
principal amount of a warrant to purchase 283,333 membership interests at an
exercise price of $1.50 per share. In connection with the reverse acquisition
of WattMonitor LLC, the warrant was converted into a warrant to purchase
283,333 shares of our common stock at an exercise price of $1.50 per share.
The warrant is exercisable at any time and expires on August 14, 2005. In
connection with these transactions, we relied on the statutory exemption
provided by Section 4(2) of the Securities Act of 1933, because the issuance
did not involve a public offering.
On December 29, 1998, Gerald R. Alderson loaned us $50,000. In
consideration for the loan, we issued a promissory note in the aggregate
principal amount of a warrant to purchase 33,333 membership interests at an
exercise price of $1.50 per share. The warrant is exercisable at any time and
expires on December 29, 2005. In connection with the reverse acquisition of
WattMonitor LLC, the warrant was converted into a warrant to purchase 33,333
shares of our common stock at an exercise price of $1.50 per share. In
connection with these transactions, we relied on the statutory exemption
provided by Section 4(2) of the Securities Act of 1933, because the issuance
did not involve a public offering.
Part II - 1
<PAGE>
On December 29, 1998, RHL Ventures LLC loaned us $150,000. In
consideration for the loan, we issued a promissory note in the aggregate
principal amount of a warrant to purchase 100,000 membership interests at an
exercise price of $1.50 per share. In connection with the reverse acquisition
of WattMonitor LLC, the warrant was converted into a warrant to purchase
100,000 shares of our common stock at an exercise price of $1.50 per share.
The warrant is exercisable at any time and expires on December 29, 2005. In
connection with these transactions, we relied on the statutory exemption
provided by Section 4(2) of the Securities Act of 1933, because the issuance
did not involve a public offering.
On December 29, 1998, Stephen D. Klein loaned us $50,000. In
consideration for the loan, we issued a note in the aggregate principal amount
of a warrant to purchase 33,333 membership interests at an exercise price of
$1.50 per share. In connection with the reverse acquisition of WattMonitor
LLC, the warrant was converted into a warrant to purchase 33,333 shares of our
common stock at an exercise price of $1.50 per share. The warrant is
exercisable at any time and expires on December 29, 2005. In connection with
these transactions, we relied on the statutory exemption provided by Section
4(2) of the Securities Act of 1933, because the issuance did not involve a
public offering.
On January 18, 1999, Wattage Monitor issued 980,000 shares of our
common stock. We raised $9,800 from that offering, which was made under Rule
506 of Regulation D, promulgated under the Securities Act of 1933 as a
non-public offering solely to accredited investors.
On February 5, 1999, Wattage Monitor entered into a Stock Purchase
Agreement in connection with the purchase of 2,750,000 shares of our common
stock. We raised $1,000,000 under the agreement, which was made under Rule 504
of Regulation D, promulgated under the Securities Act of 1933 as a non-public
offering to accredited and non-accredited investors.
On February 24, 1999, Wattage Monitor completed an offering of
1,000,000 units, consisting of one share of our Series A preferred stock and
one warrant to purchase our Series B preferred stock at a price of $1.00 per
share. We raised $3,000,000 from that offering, which was made pursuant to
Rule 506 of Regulation D, promulgated under the Securities Act of 1933 a
non-public offering solely to accredited investors.
On February 26, 1999, we completed a reverse acquisition of
WattMonitor LLC. In connection with the merger, we converted all of the
outstanding membership interests in WattMonitor LLC into an aggregate of
7,550,450 shares of our common stock. In addition, each member, other than the
controlling members, was entitled to acquire such number of shares of our
common stock at $1.00 per share as necessary to maintain the same ownership
percentage in Wattage Monitor as such members held in WattMonitor LLC. In
connection with this right, between February 26, 1999 and March 31, 1999,
657,366 shares of our common stock were issued. Also in connection with the
reverse acquisition, all of our employees exchanged their contingent
membership interests for stock options, exercisable at $1.00 per share,
totaling 918,000 shares of our common stock. In connection with these
transactions, we relied on the statutory exemption provided by Section 4(2) of
the Securities Act of 1933, because these issuances did not involve public
offerings.
Part II - 2
<PAGE>
Item 27. Exhibits
The following exhibits are filed as part of this registration
statement:
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------- -----------------------
<S> <C>
2.1 Agreement and Plan of Merger by and between WattMonitor LLC and
Wattage Monitor, dated as of February 26, 1999 (filed without
exhibits or schedules).*
3.1 Amended and Restated Articles of Incorporation of Wattage Monitor as
filed with the Secretary of State of the State of Nevada on
February 24, 1999.*
3.2 Amended and Restated By-Laws of Wattage Monitor, adopted as of
February 19, 1999.*
4.1 Specimen Common Stock certificate.**
4.2 Certificate of Designation of Series A Preferred Stock, as filed with
the Secretary of State of the State of Nevada on February 24, 1999.*
4.3 Certificate of Amendment of Certificate of Designation of Series A
Preferred Stock, as filed with the Secretary of State of the State of
Nevada on February 26, 1999.*
5.1 Opinion of Camhy Karlinsky & Stein LLP.**
10.1 Stock Purchase Agreement by and among Knowledge Networks Acquisitions,
Inc., Intrepid International S.A. and Certain Purchasers, dated
February 5, 1999.*
10.2 Form of Series B Warrant.*
10.3 Registration Rights Agreement by and among Wattage Monitor and Certain
Shareholders, dated as of February 26, 1999.*
10.4 Employment Agreement by and between WattMonitor LLC and Gerald R.
Alderson, dated January 1, 1998, as assumed by Wattage Monitor on
February 26, 1999.*
10.5 Warrant to Stephen D. Klein to purchase 33,333 Class II Membership
Units of WattMonitor LLC, dated December 29, 1998.*
10.6 Warrant to RHL Ventures LLC to purchase 100,000 Class II Membership Units
of WattMonitor LLC, dated December 29, 1998.*
10.7 Warrant to Gerald R. Alderson to purchase 33,333 Class II Membership Units
of WattMonitor LLC, dated December 29, 1998.*
10.8 Warrant to RHL Ventures LLC to purchase 283,333 Class II Membership Units
of WattMonitor LLC, dated August 14, 1998.*
10.9 Form of Lock-Up Agreement, executed by Gerald R. Alderson, Stephen D.
Klein, Robert H. Lessin and RHL Ventures LLC.*
10.10 Wattage Monitor 1999 Incentive and Nonqualified Stock Option Plan.*
</TABLE>
Part II - 3
<PAGE>
<TABLE>
<S> <C>
23.1 Consent of Camhy Karlinsky & Stein LLP.*
23.2 Consent of Grant Thornton LLP.*
</TABLE>
* Filed herewith.
** To be filed by Amendment.
Part II - 4
<PAGE>
Item 28. Undertakings.
1. To file, during any period in which offers or sales of the
securities are being made, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered may be reflected in the form of
prospectus filed with the Commission under Rule 424(b) if, in aggregate, the
changes in the volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any additional or changed material information
on the plan of distribution.
2. That, for the purpose of determining liability under the
Securities Act or 1933, it shall treat each post-effective amendment as a new
registration statement of the securities offered, and treat the offering of
the securities at that time as an initial bona fide offering.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remains unsold at the termination
of the offering.
To the extent that indemnification for liabilities arising under the
Securities Act or 1933 may be permitted to directors, officers and controlling
persons of the company pursuant to the provisions described in Item 15, 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 of 1933 and is, therefore, unenforceable.
In the event a claim for indemnification against such liabilities,
other than the payment by the company of expenses incurred or paid by a
director, officer of 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 shares being registered
hereby, 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 as to whether such indemnification by the company
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
Part II - 5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and has duly caused this
registration statement on its behalf by the undersigned, thereunto duly
authorized, in the City of Reno, State of Nevada, on the 15th day of April,
1999.
WATTAGE MONITOR INC.
By: /s/ Gerald R. Alderson
-------------------------------------
Gerald R. Alderson
President and Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Gerald R. Alderson, as his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any and all amendments, including post-effective amendments
and related registration statements, to this registration statement, and to
file same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agent, full power and authority to do separately and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could so in person, hereby
ratifying and confirming all that said attorneys-in-fact and agent, or their
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------------------- -------------------------------------------------- ----------------
<S> <C> <C>
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Gerald R. Alderson April 15, 1999
- ---------------------------------------
Gerald R. Alderson
Director
/s/ Stephen D. Klein April 15, 1999
- ---------------------------------------
Stephen D. Klein
Director
/s/ Joel Dumaresq April 15, 1999
- ---------------------------------------
Joel Dumaresq
Director
/s/ Alexander Ellis III April 15, 1999
- ---------------------------------------
Alexander Ellis III
Director
/s/ Ajmal Khan April 15, 1999
- ---------------------------------------
Ajmal Khan
</TABLE>
Part II - 6
<PAGE>
Exhibits
- --------
The following exhibits are filed as part of this registration
statement:
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------- -----------------------
<S> <C>
2.1 Agreement and Plan of Merger by and between WattMonitor LLC and
Wattage Monitor, dated as of February 26, 1999 (filed without
exhibits or schedules).*
3.1 Amended and Restated Articles of Incorporation of Wattage Monitor as
filed with the Secretary of State of the State of Nevada on
February 24, 1999.*
3.2 Amended and Restated By-Laws of Wattage Monitor, adopted as of
February 19, 1999.*
4.1 Specimen Common Stock certificate.**
4.2 Certificate of Designation of Series A Preferred Stock, as filed with
the Secretary of State of the State of Nevada on February 24, 1999.*
4.3 Certificate of Amendment of Certificate of Designation of Series A
Preferred Stock, as filed with the Secretary of State of the State of
Nevada on February 26, 1999.*
5.1 Opinion of Camhy Karlinsky & Stein LLP.**
10.1 Stock Purchase Agreement by and among Knowledge Networks Acquisitions,
Inc., Intrepid International S.A. and Certain Purchasers, dated
February 5, 1999.*
10.2 Form of Series B Warrant.*
10.3 Registration Rights Agreement by and among Wattage Monitor and Certain
Shareholders, dated as of February 26, 1999.*
10.4 Employment Agreement by and between WattMonitor LLC and Gerald R.
Alderson, dated January 1, 1998, as assumed by Wattage Monitor on
February 26, 1999.*
10.5 Warrant to Stephen D. Klein to purchase 33,333 Class II Membership
Units of WattMonitor LLC, dated December 29, 1998.*
10.6 Warrant to RHL Ventures LLC to purchase 100,000 Class II Membership Units
of WattMonitor LLC, dated December 29, 1998.*
10.7 Warrant to Gerald R. Alderson to purchase 33,333 Class II Membership Units
of WattMonitor LLC, dated December 29, 1998.*
10.8 Warrant to RHL Ventures LLC to purchase 283,333 Class II Membership Units
of WattMonitor LLC, dated August 14, 1998.*
10.9 Form of Lock-Up Agreement, executed by Gerald R. Alderson, Stephen D.
Klein, Robert H. Lessin and RHL Ventures LLC.*
10.10 Wattage Monitor 1999 Incentive and Nonqualified Stock Option Plan.*
</TABLE>
<PAGE>
23.1 Consent of Camhy Karlinsky & Stein LLP.*
23.2 Consent of Grant Thornton LLP.*
* Filed herewith.
** To be filed by Amendment.
<PAGE>
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
BETWEEN
WATTMONITOR LLC
AND
WATTAGE MONITOR INC.
<PAGE>
AGREEMENT AND PLAN OF MERGER
BETWEEN
WATTMONITOR LLC
AND
WATTAGE MONITOR INC.
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), is dated
as of February 26th , 1999, between WattMonitor LLC, a Delaware limited
liability company, whose address is 1100 Kietzke Street, Reno, Nevada 89502
("WMLLC"), and Wattage Monitor Inc., a Nevada corporation, whose address is
5-3460 Agar Drive, Richmond, British Columbia CANADA V7B 1A3 (the "Company").
The Company shall be the surviving corporation of the proposed merger between
the Company and WMLLC and, in such capacity, the Company shall sometimes be
referred to herein as the "Surviving Corporation." The Company and WMLLC are
collectively referred to herein as the "Constituent Entities."
W I T N E S S E T H:
WHEREAS, the Board of Managers of WMLLC and the Board of
Directors of the Company have determined that it is advisable and in the best
interests of their respective equity owners to consummate the business
combination transaction provided for herein in which WMLLC would merge with and
into the Company (the "Merger"); and
WHEREAS, WMLLC and the Company desire to make certain
agreements in connection with the Merger.
<PAGE>
NOW, THEREFORE, in consideration of the mutual premises,
covenants and agreements set forth in this Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
I. THE MERGER.
Section 1.01 The Merger
At the Effective Time (as defined in Section 1.02), upon the
terms and subject to the conditions of this Agreement, WMLLC shall be merged
with and into the Company in accordance with the Delaware Limited Liability
Company Act (the "DLLCA"), and the Nevada General Corporation Act (the "NGCA").
The Company shall be the surviving corporation in the Merger. As a result of the
Merger, all outstanding units ("Units") of membership interest ("Membership
Interests") of WMLLC shall be converted and cancelled in the manner provided in
Article II.
Section 1.02 Effective Time.
At the Closing (as defined in Section 1.03), two (2)
certificates of merger (the "Certificates of Merger") shall be duly prepared by
the Surviving Corporation and delivered to the Secretaries of State of Delaware
and Nevada for filing as provided in the DLLCA and NGCA, respectively, on, or as
soon as practicable after, the Closing (as defined in Section 1.03). The Merger
shall become effective as soon as the Certificates of Merger have been filed
with the Secretaries of State of Delaware and Nevada (the date and time when
such condition has been satisfied being referred to herein as the "Effective
Time").
2
<PAGE>
Section 1.03 Closing.
The closing of the Merger (the "Closing") shall take place
at the offices of Camhy Karlinsky & Stein LLP, 1740 Broadway, New York, New York
10019-4315 no later than March 1, 1999 (the "Closing Date"). At the Closing,
there shall be delivered to WMLLC and the Company the certificates and other
documents and instruments required to be delivered under Article V. The Closing
will be effective as of the Effective Time.
Section 1.04 Articles of Incorporation.
The Articles of Incorporation of the Company shall be the
Articles of Incorporation of the Surviving Corporation. The form of the Articles
of Incorporation of the Company as in effect as of the Effective Time is
attached hereto as Exhibit 1.04.
Section 1.05 By-Laws.
The By-Laws of the Company shall be the By-Laws of the
Surviving Corporation. The form of the By-Laws of the Company as in effect as
of the Effective Time is attached hereto as Exhibit 1.05.
Section 1.06 Qualification to do Business.
By the Effective Time, and as a condition to the Closing,
the Company shall be duly qualified to conduct business in California, Delaware,
Massachusetts, New York and Pennsylvania.
Section 1.07 Trademarks and Intellectual Property.
At the Closing, and effective as of the Effective Time,
WMLLC shall transfer and assign to the Surviving Corporation all WMLLC
trademarks and other intellectual property of
3
<PAGE>
WMLLC; and where applicable, such assignments shall be filed with the U.S.
Patent and Trademark Office.
Section 1.08 NASD
By the Effective Time, and as a condition to the Closing,
the Company shall have obtained any necessary approvals of the Merger from the
Market Operations Department of the National Association of Securities Dealers
(the "NASD").
II. STATUS AND CONVERSION OF SECURITIES; OTHER AGREEMENTS.
Section 2.01 Membership Interests of WMLLC.
All Membership Interests (both Class I Membership Interests
and Class II Membership Interests) of WMLLC issued and outstanding at the
Effective Time shall, by virtue of the Merger and without any further action on
the part of the holders thereof, be converted into 7,550,450 shares of common
stock, par value $.01 per share, of the Surviving Corporation ("Surviving
Corporation Common Stock"). As of the Closing Date, the former holders of WMLLC
Membership Interests (the "Members") shall effectively own 72% of the
unencumbered outstanding Surviving Corporation Common Stock. Each Member, other
than Robert H. Lessin, Stephen D. Klein and Gerald R. Alderson (the "WMLLC
Controlling Holders"), shall be entitled to acquire (the "Participation Rights")
such number of shares of Surviving Corporation Common Stock, at a purchase price
of $1.00 per share, as necessary to maintain the same percentage of ownership in
the Surviving Corporation as such Members maintained in WMLLC prior to the
Closing; provided, however, that such number of shares of Surviving Corporation
Common Stock to be issued as a
4
<PAGE>
result of the Participation Rights shall not exceed 999,550 shares, and must be
purchased no later than March 30, 1999; provided, further, however, that in the
event any Member, other than Robert H. Lessin, Stephen D. Klein and Gerald R.
Alderson, exercises the Participation Rights, then Valiant Growth Fund, 568127
BC Ltd., Orion Projects Limited, Delta Realty Limited, Goldstar Continental
Limited, Caledonian Business Services Limited, 21st Century Agency Limited,
Essential Trading Limited, Topline Management Services Limited and Citywide
Imports & Exports Limited shall be entitled to acquire in the aggregate an equal
number of shares of Surviving Corporation Common Stock on a pro rata basis, so
long as such shares are purchased prior to April 28, 1999.
Section 2.02 Capital Stock of the Company.
Prior to the Closing, the Company shall have an aggregate of
3,000,000 shares of common stock outstanding, and 1,000,000 shares of Series A
Preferred Stock.
Section 2.03 WMLLC Options.
(a) Schedule 2.03 sets forth a true, correct and complete
list of all outstanding options (the "WMLLC Options") to acquire Units of
Membership Interests of WMLLC. WMLLC shall use its best efforts to obtain and
deliver to the Company, prior to the Effective Time, executed consents (the
"Option Consents") permitting the conversion of the WMLLC Options into options
for Surviving Corporation Common Stock (the "Surviving Corporation Options").
(b) At the Effective Time, each outstanding WMLLC Option
held by WMLLC employees who have executed Option Consents, shall be canceled and
replaced with incentive stock options of the Surviving Corporation, with an
exercise price for such Surviving Corporation Options of $1.00 per share. In
addition, each outstanding WMLLC Option held by non-employees of
5
<PAGE>
WMLLC who have executed Option Consents, shall be canceled and replaced with
non-incentive stock options of the Surviving Corporation, with an exercise price
for such Surviving Corporation Options of $1.00 per share. At or prior to the
Closing, the Surviving Corporation shall adopt a Stock Option Plan (the "Stock
Option Plan") and 1,500,000 shares of Surviving Corporation Common Stock shall
be reserved thereunder. The Surviving Corporation Options shall be issued
pursuant to such Stock Option Plan. The exercise of Surviving Corporation
Options shall dilute all Surviving Corporation shareholders equally on a
pro-rata basis.
Section 2.04 Capital Structure of Surviving Corporation.
(a) As of the Closing Date, and as of the Effective Time,
the Surviving Corporation shall have cash on hand of not less than $3,000,000
and no debt, liabilities, obligations, or contingent obligations of any nature
whatsoever, except as set forth on Schedule 2.04(a).
(b) As of the Closing Date, and as of the Effective Time,
the Surviving Corporation shall have the following capital structure:
(i) Authorized Shares.
(A) 25,000,000 shares of Surviving Corporation
Common Stock.
(B) 5,000,000 shares of blank check preferred
stock ("Surviving Corporation Preferred Stock").
(ii) Issued and Outstanding Shares.
(A) 7,550,450 shares of Surviving Corporation
Common Stock shall be issued to the former WMLLC equity
owners.
6
<PAGE>
(B) 3,000,000 shares of Surviving Corporation
Common Stock shall be held by the current shareholders
(the "Current Shareholders") of the Company.
(C) 1,000,000 shares of Series A Preferred Stock
(the "Series A Preferred Stock").
(iii) Issued and Outstanding Options and Warrants.
(A) Eight hundred and seventy-four thousand, five
hundred (874,500) Surviving Corporation Options shall be
issued to the former holders of WMLLC.
(B) Four (4) warrants of the Surviving Corporation
shall be issued to the former holders of warrants of
WMLLC, representing rights to acquire an aggregate of
450,000 shares of Surviving Corporation Common Stock at
a purchase price of $1.50 per share.
(C) One (1) warrant of the Surviving Corporation
shall be issued to Valiant Growth Fund, representing a
right to acquire 100,000 shares of the Surviving
Corporation Common Stock at a purchase price of $1.00
per share.
(D) Warrants (the "Series B Warrants") of the
Surviving Corporation, which will be issued to the
holders of the Series A Preferred Stock, representing
the rights to acquire an aggregate of 3,500,000 shares
of Series B Preferred Stock of the Surviving
Corporation (the "Series B Preferred Stock").
7
<PAGE>
Section 2.05 Funding Commitments.
(a) On or before March 1, 1999, and as a condition to the
Closing, the Company, pursuant to Rule 506 of the Securities Act of 1933 (the
"Securities Act"), shall raise $3,000,000 in exchange for 1,000,000 units (the
"Units") consisting of one (1) share of Series A Preferred Stock and one (1)
Series B Warrant to purchase 3.5 shares of Series B Preferred Stock at a price
of $1.00 per share. The Units shall be sold at a price of $3.00 per Unit. The
Series A Preferred Stock shall have a dividend of 6% per annum, which dividend
may be payable by the Company in Surviving Corporation Common Stock, and shall
be paid annually. The Series B Warrants shall be exercisable commencing 181 days
after the Closing and terminating on December 15, 1999; provided, however, that
in the event Verus, as agent for the purchasers (the "Purchasers") of the Units,
receives a notice of sale ("Notice of Sale") from the Surviving Corporation
stating that the Surviving Corporation intends to sell equity securities in an
aggregate principal amount of not less than $7,000,000 to a non-affiliate, then
the Purchasers shall have thirty (30) days from the date of the Notice of Sale
to exercise the Series B Warrants, or by their terms such Series B Warrants
shall be extinguished. The forms of the Certificate of Designation of the Series
A Preferred Stock, the Certificate of Designation of the Series B Preferred
Stock and the Series B Warrants are attached hereto as Exhibits 2.05(a)(i),
2.05(a)(ii) and 2.05(a)(iii), respectively.
(b) The Company shall use its best efforts to file a
registration statement with the Securities and Exchange Commission (the "SEC")
relating to (i) the shares of Surviving Corporation Common Stock underlying the
Series A Preferred Stock; (ii) the shares of Surviving
8
<PAGE>
Corporation Common Stock held by the former equity holders of WMLLC; and (iii)
the shares of Surviving Corporation Common Stock underlying the WMLLC Options,
on Form SB-2 within seventy-five (75) days after the Closing; provided, however,
that certain controlling shareholders (the "Controlling Shareholders") of WMLLC
(as mutually agreed upon by the parties hereto) shall not sell their shares for
a six (6) month period after the Closing; provided further, however, that for a
period commencing August 27, 1999 and ending February 26, 2000, the Controlling
Shareholders shall be permitted to transfer no more than twenty percent (20%) of
their individual shares. The Surviving Corporation shall use its best efforts to
have such registration statement declared effective within seventy-five (75)
days after filing with the SEC and shall keep such registration statement
effective for a period of at least one (1) year. In connection with the
registration statement, the Surviving Corporation shall indemnify the holders
(the "Holders") of the securities of the Surviving Corporation that shall be
registered pursuant to this Section 2.05(d) against all losses, claims or
damages resulting from any untrue or allegedly untrue statement of material fact
contained in the registration statement, or any omission or alleged omission of
a material fact required to be stated in the registration statement to make the
statements therein not misleading; provided, however, that such indemnification
shall not extend to any Holder to the extent any such claim for indemnification
is based on information furnished by such Holder to the Surviving Corporation in
writing for use in connection with the registration statement, which information
contains any untrue or allegedly untrue statement of material fact contained in
the registration statement or any omission or alleged omission of a material
fact required to be stated in the registration statement to make the statements
therein not misleading. All expenses incurred in connection with the preparation
and filing of the registration
9
<PAGE>
statement and stock market listing fees shall be paid by the Surviving
Corporation.
Section 2.06 Stockholders Agreement.
[Reserved]
Section 2.07 CEO.
At the Closing, Gerald Alderson's employment agreement (the
"Alderson Employment Agreement") shall be assigned to the Surviving Corporation
and Mr. Alderson shall be the Chief Executive Officer and President of the
Surviving Corporation. The current Alderson Employment Agreement is attached
hereto as Exhibit 2.07.
Section 2.08 Bridge Financing.
Between October 7, 1998 and January 18, 1999, Verus, on
behalf of certain of the Current Shareholders, advanced (the "Advances") an
aggregate of $1,000,000 to WMLLC. The right to repayment of such Advances was
assigned by certain of the Current Shareholders to the Company on February 5,
1999. In the event that the Closing does not occur on or before March 5, 1999,
such Advances shall be converted into equity of WMLLC. Equity in WMLLC shall be
based on the $1.50 price per unit of Class II Membership Interests ("Units")
paid by the last round of investors in WMLLC prior to December 15, 1998.
III. REPRESENTATIONS AND WARRANTIES.
Section 3.01 Representations and Warranties of WMLLC.
WMLLC represents and warrants to the Company as follows:
10
<PAGE>
(a) Organization and Qualification. WMLLC is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Delaware and has full power and authority to conduct
its business as and to the extent now conducted and to own, use and lease its
assets and properties, except for such failures to have such power and authority
which, individually or in the aggregate, do not and are not reasonably expected
to have a Material Adverse Effect (as defined in this Section 3.01(a)) on WMLLC.
WMLLC is duly qualified, licensed or admitted to do business and is in good
standing in each jurisdiction in which the ownership, use or leasing of its
assets and properties, or the conduct or nature of its business makes such
qualification, licensing or admission necessary, except for such failures to be
so qualified, licensed or admitted and in good standing which, individually or
in the aggregate, do not and are not reasonably expected to have a Material
Adverse Effect on WMLLC. As used in this Agreement, a "Material Adverse Effect"
shall mean a material adverse effect on the businesses, properties, assets,
liabilities, condition (financial or otherwise) or results of operations of an
entity (or group of entities taken as a whole). Notwithstanding the foregoing, a
Material Adverse Effect shall not include any change in political or economic
matters of general applicability. WMLLC does not directly or indirectly own any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
(b) Organizational Documents; Capital Stock.
11
<PAGE>
(i) Attached hereto as Exhibit 3.01(b)(i) is a true
and complete copy of the Certificate of Formation and
Limited Liability Company Agreement (the "Operating
Agreement") of WMLLC as in effect on the date hereof.
(ii) Attached as Schedule 3.01(b)(ii) is a true and
complete table of the ownership interests of all Members of
WMLLC and the place of residence of each Member.
(iii) Except as set forth on Schedule 3.01(b)(iii),
there are no outstanding options, warrants, rights or
agreements obligating WMLLC to issue or sell ownership
interests in WMLLC.
(iv) There are no outstanding contractual
obligations of WMLLC to repurchase, redeem or otherwise
acquire any Membership Interests of WMLLC.
(c) Authority Relative to this Agreement. WMLLC has full
power and authority to enter into this Agreement and to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by WMLLC and the consummation by
WMLLC of the Merger and the transactions contemplated hereby have been duly and
validly approved by the Board of Managers of WMLLC and its Members, and no other
proceedings on the part of WMLLC are necessary to authorize the execution,
delivery and performance of this Agreement by WMLLC and the consummation by
WMLLC of the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by WMLLC, constitutes the legal, valid and
binding obligation of WMLLC enforceable against WMLLC in accordance with its
terms.
12
<PAGE>
(d) Non-Contravention; Approvals and Consents.
(i) The execution and delivery of this Agreement by
WMLLC does not, and the performance by WMLLC of its
obligations hereunder and the consummation of the
transactions contemplated hereby will not, conflict with,
result in a violation or breach of, constitute (with or
without notice or lapse of time or both) a default under,
result in or give to any person any right of payment or
reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation or imposition of
any lien, claim, mortgage, encumbrance, pledge, security
interest, equity or charge of any kind (any of the
foregoing, a "Lien") upon any of the assets or properties of
WMLLC under any of the terms, conditions or provisions of
(x) the Certificate of Formation or Operating Agreement of
WMLLC, (y) any statute, law, rule, regulation or ordinance
(collectively, "Laws"), or any judgment, decree, order,
writ, permit or license (collectively, "Orders"), of any
court, tribunal, arbitrator, authority, agency, commission,
official or other instrumentality of the United States, any
foreign country, or any domestic or foreign state, county,
city or other political subdivision (a "Governmental or
Regulatory Authority"), applicable to WMLLC or any of its
assets or properties, or (z) any note, bond, mortgage,
security agreement, indenture, license, franchise, permit,
concession, contract, lease (capital or operating) or other
instrument, obligation or agreement of any kind
(collectively, "Contracts") to which WMLLC is a party or by
which WMLLC or any of its assets or properties is bound,
excluding from the
13
<PAGE>
foregoing clauses (y) and (z) conflicts, violations,
breaches, defaults, terminations, modifications,
accelerations and creations and impositions of Liens which,
individually or in the aggregate, could not be reasonably
expected to have a Material Adverse Effect on WMLLC or on
its ability to consummate the transactions contemplated by
this Agreement.
(ii) Except (x) for the filing of the Certificates of
Merger and other appropriate merger documents required by
the DLLCA with the Secretary of State of Delaware, and by
the NGCA with the Secretary of State of Nevada, and (y) as
otherwise disclosed in Schedule 3.01(d)(ii) hereto, no
consent, approval, or action of, filing with, or notice to
any Governmental or Regulatory Authority or other public or
private third party is necessary or required under any of
the terms, conditions or provisions of any Law or Order of
any Governmental or Regulatory Authority or any Contract to
which WMLLC is a party or by which WMLLC or any of its
assets or properties is bound for the execution and delivery
of this Agreement by WMLLC, the performance by WMLLC of its
obligations hereunder or the consummation of the
transactions contemplated hereby, except for such consents,
approvals, or actions of, filings with or notices to any
Governmental or Regulatory Authority or other public or
private third party the failure of which to make or obtain
could not reasonably be expected to have a Material Adverse
Effect on WMLLC, the Surviving Corporation, or on WMLLC's
ability to consummate the transactions contemplated by this
Agreement.
14
<PAGE>
(e) Patents, Trademarks, Intangibles. WMLLC has all right,
title and interest in, or a valid and binding license to use all patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, franchises, trade secrets, computer programs
(in object or source code form), or other intangible property or asset
(collectively, "Intangibles") which are individually or in the aggregate
material to the conduct of its business. Attached as Exhibit 3.01(e) is a true
and complete list of all Intangibles of WMLLC. WMLLC is not in default (or with
the giving of notice or lapse of time or both, would be in default) in any
material respect under any license to use such Intangibles. To WMLLC's
knowledge, no such Intangibles are being infringed by any third party, and WMLLC
is not infringing any Intangible of any third party, except for such defaults
and infringements which, individually or in the aggregate, do not and are not
reasonably expected to have a Material Adverse Effect on WMLLC or the Surviving
Corporation.
(f) Financial Statements. WMLLC has delivered to the Company
a true, correct and complete copy of the unaudited balance sheet, with
explanatory comments, of WMLLC as of January 31, 1999 (the "WMLLC Balance
Sheet"). The WMLLC Balance Sheet fairly presents the financial condition,
assets, liabilities and shareholders' equity of WMLLC as of its date. A copy of
the WMLLC Balance Sheet, with explanatory comments, is attached hereto as
Exhibit 3.01(f).
(g) Absence of Certain Changes or Events. Except as set
forth in Schedule 3.01(g) hereto, since January 31, 1999, no change, event or
development or combination of changes or developments (including any worsening
of any condition currently existing) has occurred or is reasonably expected to
have, individually or in the aggregate, a Material Adverse Effect on WMLLC.
15
<PAGE>
(h) Absence of Undisclosed Liabilities. Except for matters
reflected or reserved against in the WMLLC Balance Sheet, WMLLC did not have at
such date and has not incurred since that date, any liabilities or obligations
(whether absolute, accrued, contingent, fixed or otherwise, or whether due or to
become due) of any nature, except liabilities or obligations which were incurred
in the ordinary course of business consistent with past practice.
(i) Legal Proceedings. There are no actions, suits,
arbitrations, investigations, audits or proceedings pending or to the knowledge
of WMLLC, threatened against, relating to or affecting, nor to the knowledge of
WMLLC, are there any Governmental or Regulatory Authority investigations or
audits pending or threatened against, relating to or affecting, WMLLC or any of
its assets and properties which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on WMLLC or on the
ability of WMLLC to consummate the transactions contemplated by this Agreement.
WMLLC is not subject to any judgment, decree, court order or writ of any
Governmental or Regulatory Authority.
(j) Information Supplied. Nothing in this Agreement or any
schedule, annex, certificate, document or statement in writing which has been
supplied by or on behalf of WMLLC, in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact, or omits
any statement of a material fact required to be stated or necessary in order to
make the statements contained herein or therein not misleading. There is no fact
known to WMLLC which materially and adversely affects WMLLC, which has not been
set forth in this Agreement or in the schedules, annexes, certificates,
documents or statements in writing furnished by WMLLC in connection with the
transactions contemplated by this Agreement.
16
<PAGE>
(k) Compliance with Laws and Orders. WMLLC holds all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental and Regulatory Authorities necessary for the lawful conduct of its
business (the "WMLLC Permits"), except for failures to hold such permits,
licenses, variances, exemptions, orders and approvals which, individually or in
the aggregate, do not and are not reasonably expected to have a Material Adverse
Effect on WMLLC. WMLLC is in compliance with the terms of the WMLLC Permits,
except failures so to comply which, individually or in the aggregate, do not
have and are not reasonably expected to have a Material Adverse Effect on WMLLC.
WMLLC is not in violation of, or in default under, any Law or Order of any
Governmental or Regulatory Authority, except for violations which, individually
or in the aggregate, do not and are not reasonably expected to have a Material
Adverse Effect on WMLLC.
(l) Compliance with Agreements; Certain Agreements. Neither
WMLLC, nor to the knowledge of WMLLC, any other party thereto, is in breach or
violation of, or in default in the performance or observance of any term or
provision of, and no event has occurred which, with notice or lapse of time or
both, is reasonably expected to result in a default under, (x) the Certificate
of Formation or Operating Agreement of WMLLC or (y) any material Contract to
which WMLLC is a party or by which WMLLC or any of its assets or properties is
bound, except in the case of clause (y) for breaches, violations and defaults
which, individually or in the aggregate, do not and are not reasonably expected
to have a Material Adverse Effect on WMLLC.
(m) Brokers. All negotiations relative to this Agreement and
the transactions contemplated hereby have been carried out by WMLLC and its
affiliates directly with the Company,
17
<PAGE>
without the intervention of any person on behalf of WMLLC and its affiliates in
such manner as to not give rise to any valid claim by any person against WMLLC,
the Company or the Surviving Corporation for a finder's fee, brokerage
commission or similar payment, except as specifically set forth in Schedule
3.01(m).
(n) Consents Without Any Condition. WMLLC has not made any
agreement or reached any understanding not approved by the Company as a
condition for obtaining any consent, authorization, approval, order, license,
certificate or permit required for the consummation of the transactions
contemplated by this Agreement.
(o) Tax Matters.
(i) Except as set forth in Schedule 3.02(o) hereto,
WMLLC has filed all tax returns required to be filed by
applicable law prior to the Closing. All tax returns were
(and, as to tax returns not yet required to be filed as of
the date hereof, will be) true, complete and correct and
filed on a timely basis. WMLLC has withheld and paid over to
the appropriate taxing authority all taxes required to be so
withheld and paid over.
(ii) There are no tax liens upon the assets of WMLLC.
(iii) WMLLC has not requested (and no request has
been made on its behalf) any extension of time within which
to file any material tax return.
(iv) No income tax returns have been examined by any
taxing authorities for any periods.
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(v) No audits or other administrative proceedings
or court proceedings are presently pending with regard to
any taxes or tax returns of WMLLC.
(vi) WMLLC has made available to the Company (or, in
the case of tax returns to be filed on or after the Closing,
will make available) complete and accurate copies of all tax
returns and associated work papers filed by or on behalf of
WMLLC for all taxable years ending on or prior to the
Closing.
(vii) WMLLC has always been taxed as a partnership
for United States federal tax purposes, and will remain so
through the Closing.
Section 3.02 Representations and Warranties of the Company.
The Company represents and warrants to WMLLC as follows:
(a) Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada and has full corporate power and authority to conduct its
business as and to the extent now conducted and to own, use and lease its assets
and properties. As of the Closing date, the Company will be duly qualified,
licensed or admitted to do business and is in good standing in California,
Pennsylvania, Delaware, Massachusetts and New York. The Company does not
directly or indirectly own any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, joint venture or other business
association or entity. The Company has no subsidiaries and owns no interest
either directly or indirectly in any subsidiaries.
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(b) Organizational Documents; Capital Stock.
(i) Attached hereto as Exhibit 3.02(b)(i) is a true
and complete copy of the Articles of Incorporation and
By-Laws of the Company as in effect on the date hereof.
(ii) Attached as Exhibit 3.02(b)(ii) is a true and
complete table of all Stockholders of the Company.
(iii) As of the Closing Date, the authorized capital
stock of the Company will consist solely of 25,000,000
shares of the Company Common Stock and 5,000,000 shares of
Company Preferred Stock. Immediately prior to the Closing,
3,000,000 shares of the Company Common Stock will be issued
and outstanding and 1,000,000 shares of Series A Preferred
Stock will be issued and outstanding. Except as set forth
herein or contemplated hereby, there are no outstanding
options or warrants obligating the Company to issue or sell
any shares of capital stock of the Company, or to grant,
extend or enter into any option with respect thereto. The
shares of the Company Common Stock (which will be Surviving
Corporation Common Stock) issuable to the holders of WMLLC
Membership Interests pursuant to Article II hereof, will be,
when issued in accordance with this Agreement, duly
authorized, validly issued, fully paid and nonassessable.
The outstanding shares of the Company Common Stock are
eligible for quotation on the Over-the-Counter Bulletin
Board (the "OTCBB") of the NASD.
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(iv) There are no outstanding contractual obligations
of the Company to repurchase, redeem or otherwise acquire
any shares of the Company Common Stock.
(v) There are no debt obligations of the Company of
any nature whatsoever, and as of the Closing Date, the
Company will have no debt, liabilities, obligations, or
contingent obligations of any nature whatsoever, except as
set forth on Schedule 2.04(a).
(c) Authority Relative to this Agreement. The Company has
full corporate power and authority to enter into this Agreement and to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement by the Company
and the consummation by the Company of the Merger and the transactions
contemplated hereby have been duly and validly approved by the Board of
Directors of the Company and, prior to the Closing will have been duly and
validly approved by the Stockholders of the Company, and no other corporate
proceedings on the part of the Company are necessary to authorize the execution,
delivery and performance of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by the Company, and constitutes a legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms.
(d) Non-Contravention; Approvals and Consents.
(i) The execution and delivery of this Agreement by
the Company does not, and the performance by the Company of
its obligations hereunder and the
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consummation of the transactions contemplated hereby will
not, conflict with, result in a violation or breach of,
constitute (with or without notice or lapse of time or both)
a default under, result in, or give to any person any right
of payment or reimbursement, termination, cancellation,
modification or acceleration of, or result in the creation
or imposition of any Lien on any of the assets or properties
of the Company under any of the terms, conditions or
provisions of (x) the Certificate of Incorporation or
By-Laws of the Company, (y) any Laws or Orders of any
Governmental or Regulatory Authority applicable to the
Company or any of its assets or properties, or (z) any
Contracts to which the Company is a party or by which the
Company or any of its assets or properties is bound,
excluding from the foregoing clauses (y) and (z) conflicts,
violations, breaches, defaults, terminations, modifications,
accelerations and creations and impositions of Liens, which
individually or in the aggregate, could not be reasonably
expected to have a Material Adverse Effect on the Company or
on its ability to consummate the transactions contemplated
by this Agreement.
(ii) Except (x) for filings with various state
authorities that are required in connection with the
transactions contemplated under this Agreement, (y) for the
filing of the Certificates of Merger and other appropriate
merger documents required by the DLLCA with the Secretary of
State of Delaware and as required by the NGCA with the
Secretary of State of Nevada, and appropriate documents with
the relevant authorities of other states in which the
Constituent Entities are qualified
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<PAGE>
to do business; and (z) as otherwise disclosed in Schedule
3.02(d)(ii), no consent, approval, or action of, filing with
or notice to any Governmental or Regulatory Authority or
other public or private third party is necessary or required
under any of the terms, conditions or provisions of any Law
or Order of any Governmental or Regulatory Authority or any
Contract to which the Company is a party or by which the
Company or any of its assets or properties is bound for the
execution and delivery of this Agreement by the Company, the
performance by the Company of its obligations hereunder or
the consummation of the transactions contemplated hereby,
except for such consents, approvals or actions of, filing
with or notices to any Governmental or Regulatory Authority
or other public or private third party, the failure of which
to make or obtain could not reasonably be expected to have a
Material Adverse Effect on the Company or the Surviving
Corporation or on the Company's ability to consummate the
transactions contemplated by this Agreement.
(e) Financial Statements. The Company has delivered to WMLLC
true, correct and complete copies of the following: the audited balance sheets
of the Company (the "Company Audited Balance Sheets") as of December 31, 1997
and December 31, 1998; the audited statements of operations of the Company as of
December 31, 1997 and December 31, 1998; the audited statements of stockholders'
equity (the "Company Stockholders' Equity Statements") for the period July 30,
1997 to December 31, 1998; and the audited statement of cash flows (the "Company
Cash Flow Statement") for the period July 30, 1997 to December 31, 1998
(together, the "Company Financial Statements"). The Company Financial Statements
were prepared in accordance with
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generally accepted accounting principles ("GAAP") applied on a consistent basis
during the periods involved (except as may be indicated therein or in the notes
thereto and except with respect to unaudited statements), and fairly present in
all material respects the financial condition, assets, liabilities, shareholders
equity and results of operations of the Company for the periods indicated.
(f) NASD Report.
(i) The Company has delivered to WMLLC a true,
correct and complete copy of the Company's information
report filed with the OTCBB pursuant to Rule 6740 (the
"Rule"), as promulgated by the NASD, together with all
amendments thereof and supplements thereto (as such document
has since the time of its filing been amended or
supplemented, the "Company NASD Report"), which is the only
document (other than preliminary material) that the Company
was required to file with the NASD since such date. As of
its date, the Company NASD Report (i) complied as to form in
all material respects with the requirements of the Rule, and
(ii) did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated
therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading. The unaudited financial statements
(including, in each case, the notes, if any, thereto)
included in the Company NASD Report complied as to form in
all material respects with the published rules and
regulations of the NASD with respect thereto.
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<PAGE>
(ii) As of the date hereof, the Company Common Stock
is quoted on the OTCBB and the Company is in compliance with
the NASD Eligibility Rules, as effective on January 4, 1999.
(iii) No quotation is being submitted or published,
directly or indirectly, on behalf of the Company or any
director or officer, or any person, directly or indirectly,
who is the beneficial owner of more than ten percent (10%)
of the outstanding shares of any equity security of the
Company.
(g) Absence of Certain Changes or Events. Except as set
forth in Schedule 3.02(g) hereto, (i) since January 31, 1999, no change, event
or development or combination of changes or developments (including any
worsening of any condition currently existing) has occurred or is reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company, and (ii) between such date and the date hereof the Company has not
conducted any operating business.
(h) Absence of Undisclosed Liabilities. Except for
matters reflected or reserved against in the Company Balance Sheet included in
the Company Financial Statements, or as otherwise set forth on Schedule 2.04(a),
the Company did not have at such date and has not incurred since that date, any
liabilities or obligations (whether absolute, accrued, contingent, fixed or
otherwise, or whether due or to become due) of any nature, except liabilities or
obligations which were incurred in the ordinary course of business consistent
with past practice.
(i) Legal Proceedings. Except as set forth on Schedule
3.02(i), there are no actions, suits, arbitrations or proceedings pending or, to
the knowledge of the Company, threatened
25
<PAGE>
against, relating to or affecting, nor to the knowledge of the Company, are
there any Governmental or Regulatory Authority investigations or audits pending
or threatened against, relating to or affecting, the Company, any of its
officers, directors, assets or properties which, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect on the
Company or on the ability of the Company to consummate the transactions
contemplated by this Agreement. The Company is not subject to any judgment,
decree, court order or writ of any Governmental or Regulatory Authority.
(j) Information Supplied. Nothing in this Agreement or
any schedule, annex, certificate, document or statement in writing which has
been supplied by or on behalf of the Company, in connection with the
transactions contemplated hereby, contains any untrue statement of a material
fact, or omits any statement of a material fact required to be stated or
necessary in order to make the statements contained herein or therein not
misleading. There is no fact known to the Company which materially and adversely
affects the Company, which has not been set forth in this Agreement or in the
schedules, exhibits, annexes, certificates, documents or statements in writing
furnished by the Company in connection with the transactions contemplated by
this Agreement.
(k) Compliance with Laws and Orders. The Company holds
all permits, licenses, variances, exemptions, orders and approvals of all
Governmental and Regulatory Authorities necessary for the lawful conduct of its
business (the "the Company Permits"), except for failures to hold such permits,
licenses, variances, exemptions, orders and approvals which, individually or in
the aggregate, do not and are not reasonably expected to have a Material Adverse
Effect on the Company. The Company is in compliance with the terms of the
Company Permits,
26
<PAGE>
except failures so to comply which, individually or in the aggregate, do not
have and are not reasonably expected to have a Material Adverse Effect on the
Company. The Company is not in violation of, or in default under, any Law or
Order of any Governmental or Regulatory Authority except for violations which,
individually or in the aggregate, do not and are not reasonably expected to have
a Material Adverse Effect on the Company.
(l) Compliance with Agreements; Certain Agreements.
Neither the Company, nor to the knowledge of the Company, any other party
thereto, is in breach or violation of, or in default in the performance or
observance of any term or provision of and no event has occurred which, with
notice or lapse of time or both, is reasonably expected to result in a default
under, (x) the Certificate of Incorporation or By-Laws of the Company or (y) any
material Contract to which the Company is a party or by which the Company or any
of its assets or properties is bound, except in the case of clause (y) for
breaches, violations and defaults which, individually or in the aggregate, do
not and are not reasonably expected to have a Material Adverse Effect on the
Company.
(m) Employee Benefit Plans. The Company does not have or
contribute to any pension, profit-sharing, option, other incentive plan, or any
other type of employee benefit plan, or have any obligation to or customary
arrangement with employees for bonuses, incentive compensation, vacations,
severance pay, sick pay, sick leave, insurance, service award, relocation,
disability, tuition refund or other benefits, whether oral or written.
(n) Patents, Trademarks, Et Cetera. The Company has no
Intangibles.
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<PAGE>
(o) Insurance. The Company has no key-person life
insurance or any directors' and officers' liability or other insurance policies
that insure the business, operations, properties, or assets of the Company.
(p) Labor Matters. The Company has two (2) employees,
neither of which receive any compensation.
(q) Tangible Property and Assets. Other than as
contemplated in Section 2 hereof, the Company has no facilities or assets.
(r) Tax Matters.
(i) Except as set forth in Schedule 3.02(r), the
Company has filed all tax returns to be filed by applicable
law prior to the Closing. All tax returns were (and, as to
tax returns not filed as of the date hereof, will be) true,
complete and correct and filed on a timely basis. The
Company (x) has paid all taxes due, or claimed or asserted
in writing by any taxing authority to be due, for the
periods covered by such tax returns or (y) has duly and
fully provided reserves (in accordance with GAAP adequate to
reflect all such taxes.
(ii) The Company has established (and until the
Closing will maintain) on its books and records reserves
adequate to reflect all material taxes not yet due and
payable. The Company has made available to WMLLC complete
and accurate copies of all work papers associated with the
calculation of the Company's tax reserves.
(iii) There are no tax liens upon the assets of the
Company.
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<PAGE>
(iv) The Company has not requested (and no request
has been made on its behalf) any extension of time within
which to file any material tax return.
(v) (A) No income tax returns have been examined
by any taxing authorities for any periods; and (B) no
deficiency for any material taxes has been suggested,
proposed, asserted, or assessed against the Company that has
not been resolved and paid in full.
(vi) No audits or other administrative proceedings
or court proceedings are presently pending with regard to
any taxes or tax returns of the Company.
(vii) To the extent requested by WMLLC, the Company
has made available to WMLLC (or, in the case of tax returns
to be filed on or before the Closing, will make available)
complete and accurate copies of all tax returns and
associated work papers filed by or on behalf of the Company
for all taxable years ending on or prior to the Closing.
(viii) No agreements relating to allocating or
sharing of any taxes have been entered into by the Company.
(ix) The Company has not entered into any
transactions that could give rise to an understatement of
Federal Income Tax.
(s) Brokers. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried out by the Company
and its affiliates directly with WMLLC, without the intervention of any person
on behalf of the Company and its affiliates in such manner as not to give rise
to any valid claim by any person against the Company, WMLLC or the Surviving
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Corporation for a finder's fee, brokerage commission or similar payment, except
as specifically set forth in Schedule 3.02(s).
(t) Consents Without Any Condition. The Company has not
made any agreement or reached any understanding not approved by WMLLC as a
condition for obtaining any consent, authorization, approval, order, license,
certificate or permit required for the consummation of the transactions
contemplated by this Agreement.
(u) Present Intention Not to Sell. To the best of the
Company's knowledge, none of the Current Shareholders or purchasers of the Units
has a present intention to sell their shares or Units, as the case may be.
IV. COVENANTS.
Section 4.01 Covenants of the Company.
The Company covenants and agrees as follows:
(a) Articles of Incorporation and By-Laws. As of the
Closing Date, the Articles of Incorporation and By-Laws of the Company shall be
substantially in the form of Exhibits 1.04 and 1.05, respectively.
(b) Shares, Options and Warrants. Except as contemplated
hereby, until the earlier of the Effective Time or the Termination of this
Agreement pursuant to Article VI (the "Release Time") without the prior written
consent of WMLLC, no share of capital stock of the Company or any option or
warrant for any such share, right to subscribe to or purchase any such share, or
security convertible into or exchangeable for any such share, shall be issued or
sold by the
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Company, nor shall the Company enter into any agreement or commitment to effect
any such issuance or sale, except as set forth in Schedule 4.01(b) hereto.
(c) Dividends and Purchases of Stock. Until the Release
Time, without the prior written consent of WMLLC, no cash or non-cash dividend
or liquidating or other distribution or stock split shall be authorized,
declared, paid or effected by the Company in respect of the outstanding shares
of the Company Common Stock.
(d) Borrowing of Money; Working Capital. Until the
Release Time, the Company shall not incur indebtedness for borrowed money. Until
the Release Time, the Company shall not guarantee the borrowing of money by any
third party, enter into or modify any capital or operating lease or enter into
any material agreement, which in any case would by its terms require the payment
by the Company of more than $5,000 by the Company in any twelve (12) month
period.
(e) Access. Until the Release Time, the Company will
afford the Members, managers, employees, counsel, agents, investment bankers,
accountants, and other representatives of WMLLC reasonable access to the plants,
properties, books, and records of the Company, will permit them to make extracts
from and copies of such books and records, and will from time to time furnish
WMLLC with such additional financial and operating data and other information as
to the financial condition, results of operations, businesses, properties,
assets, liabilities, or future prospects of the Company as WMLLC from time to
time may reasonably request.
(f) Conduct of Business. Except as otherwise contemplated
or permitted hereby, until the Release Time, the Company shall not take any
action that would or is reasonably likely to result in any of the
representations or warranties of the Company set forth in this Agreement being
31
<PAGE>
untrue at the Closing Date, or in any of the conditions to the Merger set forth
in Article V not being satisfied. Except as otherwise contemplated or permitted
hereby, until the Release Time, the Company will conduct its affairs in all
respects only in the ordinary course.
(g) Advice of Changes. Until the Release Time, the
Company will promptly advise WMLLC in a reasonably detailed written notice of
any fact or occurrence or any pending threatened occurrence of which it obtains
knowledge and which (if existing and known at the date of the execution of this
Agreement) would have been required to be set forth or disclosed in or pursuant
to this Agreement, which (if existing or known at any time prior to or at the
Effective Time) would make the performance by any party of a covenant contained
in this Agreement impossible or make such performance materially more difficult
in the absence of such fact or occurrence, or which (if existing or known at the
time of the Effective Time) would cause a condition to any party's obligations
under this Agreement not to be fully satisfied.
(h) Public Statements. Before the Company releases any
information concerning this Agreement, the Merger, or any other transactions
contemplated by this Agreement which is intended for or is reasonably expected
to result in public dissemination thereof, the Company shall cooperate with
WMLLC, shall furnish drafts of all documents or proposed oral statements to
WMLLC for comments, and shall not release any such information without the prior
consent of WMLLC; provided, however, that the foregoing shall not be deemed to
prevent the Company from releasing any information or making any disclosure to
the extent that the Company reasonably determines that it is required to do so
by law.
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(i) Other Proposals. Until the Release Time, the Company
shall not, and shall not authorize or permit any officer, director, employee,
counsel, agent, investment banker, accountant, or other representative of the
Company, directly or indirectly, to: (i) initiate contact with any person or
entity in an effort to solicit any Company Takeover Proposal (as such term is
defined in this Section 4.01(i)); (ii) cooperate with, or furnish or cause to be
furnished any non-public information concerning the financial condition, results
of operations, businesses, properties, assets, liabilities, or future prospects
of the Company to, any person or entity in connection with any Company Takeover
Proposal; (iii) negotiate with any person or entity with respect to any Company
Takeover Proposal; or (iv) enter into any agreement or understanding with the
intent to effect a Company Takeover Proposal; provided, however, that the
Company shall be entitled to take any action described in the foregoing clauses
(ii)-(iv) if and to the extent that the Board of Directors of the Company
determines in good faith, based on the advice of its counsel, that the failure
to take any such action would violate its fiduciary duties to the Company's
shareholders. The Company will immediately give written notice to WMLLC of the
details of any Company Takeover Proposal of which the Company becomes aware. As
used in this Section 4.01(i), "Company Takeover Proposal" shall mean any
proposal, other than as contemplated by this Agreement, for a merger,
consolidation, reorganization, other business combination, or recapitalization
involving the Company, for the acquisition of a ten percent (10%) or greater
interest in the equity or in any class or series of capital stock of the
Company, for the acquisition of the right to cast ten percent (10%) or more of
the votes on any matter with respect to the Company or any subsidiary of the
Company, or for the acquisition of one of its divisions or of a substantial
portion of any of its respective assets, the effect of which
33
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may be to prohibit, restrict, or delay the consummation of the Merger or any of
the other transactions contemplated by this Agreement, or impair the
contemplated benefits to WMLLC of the Merger or any of the other transactions
contemplated by this Agreement.
(j) Break-up Fee. If this Agreement is terminated (i)
because the Company withdraws or modifies in a material manner its
recommendations to the shareholders of the Company that such shareholders' vote
in favor of the Company Merger Proposal; or (ii) the Company enters into an
agreement or a letter of intent with respect to one or more transactions
pursuant to which one or more third parties agree to acquire, in the aggregate,
all or substantially all of the capital stock or assets of the Company, then in
any such event the Company shall pay to WMLLC as promptly as possible but in no
event later than five (5) days after demand by WMLLC (by wire transfer of
immediately available funds to an account designated by WMLLC for such purpose),
a break-up fee (the "Break-up Fee") equal to $500,000; provided, however, that
no amount shall be paid to WMLLC pursuant to this Section 4.01(j) if WMLLC has
breached this Agreement in any material respect.
(k) Consents Without Any Condition. The Company shall not
make any agreement or reach any understanding, not approved in writing by WMLLC,
as a condition for obtaining any consent, authorization, approval, order,
license, certificate, or permit required for the consummation of the
transactions contemplated by this Agreement.
(l) Transfer Taxes. The Company shall timely prepare and
file any declaration or filing necessary to comply with any transfer tax
statutes that require any such filing before the Effective Time.
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Section 4.02 Covenants of WMLLC.
WMLLC covenants and agrees as follows:
(a) Conduct of Business. Until the Release Time, WMLLC
shall not take any action that would or is reasonably likely to result in any of
the representations or warranties of WMLLC set forth in this Agreement being
untrue at the Closing Date or to any of the conditions to the Merger set forth
in Article V not being satisfied. Until Release Time, WMLLC will use all
reasonable efforts to preserve the business operations of WMLLC intact, to keep
available the services of their present personnel, and to preserve the good will
of its suppliers, customers, and others having business relations with any of
them.
(b) Advice of Changes. Until the Release Time, WMLLC will
promptly advise the Company in a reasonably detailed written notice of any fact
or occurrence or any pending threatened occurrence of which it obtains knowledge
and which (if existing or known at the date of the execution of this Agreement)
would have been required to be set forth or disclosed in or pursuant to this
Agreement, which (if existing and known at any time prior to or at the Effective
Time) would make the performance by any party of a covenant contained in this
Agreement impossible or make such performance materially more difficult than in
the absence of such fact or occurrence, or which (if existing and known at the
time of the Effective Time) would cause a condition to any party's obligations
under this Agreement not to be fully satisfied.
(c) Public Statements. Before WMLLC releases any
information concerning this Agreement, the Merger, or any of the other
transactions contemplated by this Agreement which is intended for or is
reasonably expected to result in public dissemination thereof, WMLLC shall
35
<PAGE>
cooperate with the Company , shall furnish drafts of all documents or proposed
oral statements to the Company for comments, and shall not release any such
information without the prior consent of the Company; provided, however, that
the foregoing shall not be deemed to prevent WMLLC from releasing any
information or making any disclosure to the extent WMLLC reasonably determines
that it is required to do so by law.
Section 4.03 Approval of Board of Managers and Board of Directors.
(a) Prior to the date of this Agreement, the Board of
Managers of WMLLC by written consent approved the terms of this Agreement.
(b) Prior to the date of this Agreement, the Board of
Directors of the Company held a meeting for the purpose of approving this
Agreement, and such approval was thereby obtained.
Section 4.04 Directors' and Officers' Insurance.
(a) The Surviving Corporation shall at its expense, until
the third (3rd) anniversary of the Effective Time, cause to be maintained in
effect, to the extent available, policies of directors' and officers' liability
insurance in a face amount of not less than $5,000,000.
(b) The provisions of this Section 4.04 are intended to
be for the benefit of, and shall be enforceable by, each party entitled to
insurance coverage under Section 4.04(a) above, and his or her heirs and legal
representatives, and shall be in addition to any other rights a Director or
Officer may have under the Certificate of Incorporation or By-Laws of the
Surviving Corporation or under the DGCL, NGCA, or otherwise.
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(c) In the event the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then, in each such case, proper provision
shall be made so that the successors and assigns of the Surviving Corporation,
as the case may be, shall assume the obligations set forth in this Section 4.04.
Section 4.05 NASD Listing. The Company shall cause the shares of
Surviving Corporation Common Stock to be authorized for quotation on the OTCBB
of the NASD.
V. CONDITIONS.
Section 5.01 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger
is subject to the fulfillment, at or prior to the Closing, of each of the
following conditions:
(a) Stockholder and Member Approval. This Agreement and
the Merger shall have been adopted by the requisite vote of (i) the shareholders
of the Company and (ii) the Members of WMLLC.
(b) State Securities Laws. The Company shall have
received all state securities or "Blue Sky" permits and other authorizations
necessary to issue the Company Common Stock pursuant to the Merger.
(c) No Injunctions or Restraints. No court of competent
jurisdiction or other competent Governmental or Regulatory Authority shall have
enacted, issued, promulgated, enforced
37
<PAGE>
or entered any Law or Order (whether temporary, preliminary or permanent) which
is then in effect and has the effect of making illegal or otherwise restricting,
preventing or prohibiting consummation of the Merger or the other transactions
contemplated by this Agreement.
(d) Consents and Approvals. Other than the filings
provided for by Section 1.02, all consents, approvals and actions of, filings
with and notices to any Governmental or Regulatory Authority or any other public
or private third parties required of the Company or WMLLC to consummate the
Merger shall have been obtained, all in form and substance reasonably
satisfactory to the Company and WMLLC, and no such consent, approval or action
shall contain any term or condition which could be reasonably expected to result
in a material diminution of the benefits of the Merger to the shareholders or
Members of the Company and WMLLC.
Section 5.02 Conditions to Obligation of the Company to Effect the
Merger.
The obligation of the Company to effect the Merger is
further subject to the fulfillment, at or prior to the Closing, of each of the
following additional conditions (all or any of which may be waived in whole or
in part by the Company and in its sole discretion):
(a) Representations and Warranties. The representations
and warranties made by WMLLC in this Agreement shall be true and correct in all
material respects as of the Closing Date as though made on and as of the Closing
Date or, in the case of representations and warranties made as of a specified
date earlier than the Closing Date, on and as of such earlier date, and WMLLC
shall have delivered to the Company a certificate, dated the Closing Date and
executed on behalf of WMLLC by a duly authorized officer, to such effect.
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<PAGE>
(b) Performance of Obligations. WMLLC shall have
performed and complied with, in all material respects, each agreement, covenant
and obligation required by this Agreement to be so performed or complied with by
WMLLC at or prior to the Closing, and WMLLC shall have delivered to the Company
a certificate dated the Closing Date and executed on behalf of WMLLC by a duly
authorized officer, to such effect.
(c) Other Closing Documents. WMLLC shall have delivered
to the Company at or prior to the Closing Date such other documents as the
Company may reasonably request in order to enable the Company to determine
whether the conditions to its obligations under this Agreement have been met and
otherwise to carry out the provisions of this Agreement.
(d) Review of Proceedings. All actions, proceedings,
instruments and documents required by the Company to carry out this Agreement or
incidental thereto and all other related legal matters shall be subject to the
reasonable approval of Preston, Gates & Ellis LLP, counsel to the Company, and
WMLLC shall have furnished such documents as such counsel may have reasonably
requested for the purpose of enabling it to pass upon such matters.
(e) Legal Action. There shall not have been instituted or
threatened any legal proceeding relating to, or seeking to prohibit or otherwise
challenge the consummation of, the transactions contemplated by this Agreement,
or to obtain substantial damages with respect thereto.
Section 5.03 Conditions to Obligation of WMLLC to Effect the Merger.
The obligation of WMLLC to effect the Merger is further
subject to the fulfillment, at or prior to the Closing, of each of the following
additional conditions (all or any of which may be waived in whole or in part by
WMLLC in its sole discretion):
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(a) Representations and Warranties. The representations
and warranties made by the Company in this Agreement shall be true and correct
in all material respects as of the Closing Date as though made on and as of the
Closing Date or, in the case of representations and warranties made as of a
specified date earlier than the Closing Date, on and as of such earlier date,
and the Company shall have delivered to WMLLC a certificate, dated the Closing
Date and executed on behalf of the Company by a duly authorized officer, to such
effect.
(b) Performance of Obligations. The Company shall have
performed and complied with in all material respects, each agreement, covenant
and obligation required by this Agreement to be so performed or complied with by
the Company at or prior to the Closing, and the Company shall have delivered to
WMLLC a certificate, dated the Closing Date and executed on behalf of the
Company by a duly authorized officer, to such effect.
(c) Other Closing Documents. The Company shall have
delivered to WMLLC at or prior to the Effective Time such other documents as
WMLLC may reasonably request in order to enable WMLLC to determine whether the
conditions to its obligations under this Agreement have been met and otherwise
to carry out the provisions of this Agreement.
(d) Review of Proceedings. All actions, proceedings,
instruments and documents required by WMLLC to carry out this Agreement or
incidental thereto and all other related legal matters shall be subject to the
reasonable approval of Camhy Karlinsky & Stein LLP, counsel to WMLLC, and the
Company shall have furnished such documents as such counsel may have reasonably
requested for the purpose of enabling it to pass upon such matters.
40
<PAGE>
(e) Legal Action. There shall not have been instituted or
threatened any legal proceeding relating to, or seeking to prohibit or otherwise
challenge the consummation of, the trans actions contemplated by this Agreement,
or to obtain substantial damages with respect thereto.
(f) NASD Bulletin Board Listing. The shares of the
Company Common Stock issued shall remain eligible for quotation on the OTCBB of
the NASD.
(g) Capital. The Company shall be in strict compliance
with Section 2.04.
(h) Registration Rights. As of the Closing Date, the
Company shall have entered into a registration rights agreement with the WMLLC
Controlling Holders substantially in the form attached hereto as Exhibit
5.03(h).
(i) Stockholder Agreement. [Reserved]
(j) Employment Agreement. As of the Closing Date, the
Alderson Employment Agreement shall have been assigned to the Surviving
Corporation.
(k) Stock Option Plan. As of the Closing Date, the Stock
Option Plan shall have been adopted and the Surviving Corporation Options shall
have been granted.
VI. TERMINATION.
Section 6.01 Termination.
This Agreement may be terminated, and the transactions
contemplated hereby may be abandoned at any time prior to the Effective Time,
whether prior to or after the Company stockholders' approval or the WMLLC
Members' approval:
41
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(a) By mutual written agreement of the parties hereto
duly authorized by action taken by or on behalf of their respective Board of
Directors or Board of Managers, as the case may be.
(b) By either WMLLC or the Company upon written
notification to the other party,
if:
(i) the Company's stockholders' approval or the
WMLLC's Members' approval shall not be obtained by reason of
the failure to obtain the requisite vote upon a vote held at
a meeting of such stockholders or Members, as the case may
be; or
(ii) facts exist which render impossible the
satisfaction of one or more of the conditions set forth in
Section 5.01 and such are not waived by the Company and
WMLLC.
(c) By the Company upon written notification to WMLLC,
if:
(i) there has been a material breach of any
representation, warranty, covenant or agreement on the part
of WMLLC set forth in this Agreement which breach has not
been cured within ten (10) business days following receipt
by WMLLC of notice of such breach from the Company or
assurance of such cure reasonably satisfactory to the
Company have not been given by or on behalf of WMLLC within
such ten (10) business day period; or
42
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(ii) facts exist which render impossible the
satisfaction of one or more of the conditions set forth in
Section 5.02 and such are not waived by the Company; or
(iii) the Company or its stockholders receive a
proposal or offer for any Company Takeover Proposal, other
than pursuant to the transactions contemplated by this
Agreement, in connection with which the Board of Directors
of the Company exercises any of its rights specified in
Section 4.01(i) and 4.01(j) (and subject to the Break-up
Fee).
(d) By WMLLC upon written notification to the Company, if:
(i) at any time after March 5, 1999 if the Merger
shall not have been consummated on or prior to such date and
such failure to consummate the Merger is not caused by a
breach of this Agreement by WMLLC; or
(ii) there has been a material breach of any
representation, warranty, covenant or agreement on the part
of the Company set forth in this Agreement which breach has
not been cured with ten (10) business days following receipt
by the Company of notice of such breach from WMLLC or
assurance of such cure reasonably satisfactory to WMLLC
shall not have been given by or on behalf of the Company
within such ten (10) business day period; or
(iii) facts exist which render impossible the
satisfaction of one or more of the conditions set forth in
Section 5.03 and such are not waived by WMLLC.
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Section 6.02 Effect of Termination.
If this Agreement is validly terminated by the Company or
WMLLC pursuant to Section 6.01, this Agreement shall forthwith become null and
void and there shall be no liability or obligation on the part of either the
Company or WMLLC (or any of their respective officers, directors,
representatives, or affiliates), except that (i) the provisions of this Section
6.02, and the Break-Up Fee referred to in Section 4.01(j), will continue to
apply following any such termination, and (ii) nothing contained herein shall
relieve the Company, or WMLLC from liability for wilful or intentional breach of
their respective obligations contained in this Agreement or for fraud.
VII. INDEMNIFICATION.
Section 7.01 Indemnification by the Company.
(a) The Company agrees to indemnify and hold harmless
WMLLC and its Members, managers, directors, employees, counsel and agents
against and in respect of any and all claims as and when incurred, arising out
of or based upon any breach or inaccuracy of any representation, warranty,
covenant or agreement of the Company contained in this Agreement (including the
Exhibits and Schedules attached hereto) or any certificates delivered pursuant
to this Agreement, or arising out of any litigation pending against the Company,
its officers or directors, on the date of this Agreement.
(b) Each indemnified party (an "WMLLC Indemnitee") shall
give the Company prompt notice of any claim asserted or threatened against such
WMLLC Indemnitee on the basis of which such WMLLC Indemnitee intends to seek
indemnification (but the obligations of the
44
<PAGE>
Company shall not be conditioned upon receipt of such notice, except to the
extent that the Company is actually prejudiced by such failure to give notice).
If the claim is a third party claim, demand, action or proceeding, the Company
promptly shall assume the defense of any WMLLC Indemnitee, with counsel
reasonably satisfactory to such WMLLC Indemnitee, and the fees and expenses of
such counsel shall be the sole cost and expense of the Company. Notwithstanding
the foregoing, any Indemnitee shall be entitled, at his or its expense, to
employ counsel separate from counsel for the Company and from any other party in
such action, proceeding or investigation. No Indemnitee may agree to a
settlement of claim without the prior written approval of the Company which
approval shall not be unreasonably withheld. The Company may not agree to a
settlement of a claim involving anything other than the payment of money without
the prior written approval of the WMLLC Indemnitee which shall not be
unreasonably withheld.
Section 7.02 Indemnification by WMLLC.
(a) WMLLC agrees to indemnify and hold harmless the
Company and its officers, directors, counsel and agents against and in respect
of any and all claims as and when incurred, arising out of or based upon any
breach or inaccuracy of any representation, warranty, covenant or agreement of
WMLLC contained in this Agreement (including the Exhibits and Schedules attached
hereto) or any certificates delivered pursuant to this Agreement, or arising out
of any litigation pending against WMLLC, its Members, officers or directors on
the date of this Agreement.
(b) Each indemnified party (an "Indemnitee") shall give
WMLLC prompt notice of any claim asserted or threatened against such Indemnitee
on the basis of which such Indemnitee intends to seek indemnification (but the
obligations of WMLLC shall not be conditioned upon
45
<PAGE>
receipt of such notice, except to the extent that WMLLC is actually prejudiced
by such failure to give notice). If the claim is a third party claim, demand,
action or proceeding, WMLLC promptly shall assume the defense of any Indemnitee,
with counsel reasonably satisfactory to such Indemnitee, and the fees and
expenses of such counsel shall be the sole cost and expense of WMLLC.
Notwithstanding the foregoing, any Indemnitee shall be entitled, at his or its
expense, to employ counsel separate from counsel for WMLLC and from any other
party in such action, proceeding or investigation. No Indemnitee may agree to a
settlement of a claim without the prior written approval of WMLLC, which
approval shall not be unreasonably withheld. WMLLC may not agree to a settlement
of a claim involving anything other than the payment of money without the prior
written approval of the Indemnitee, which shall not be unreasonably withheld.
VIII. MISCELLANEOUS.
Section 8.01 Further Actions.
Each party hereto will execute such further documents and
instruments and take such further actions as may reasonably be requested by the
other party to consummate the Merger, to vest the Surviving Corporation with
full title to all assets, properties, rights, approvals, immunities and
franchises of either of the Constituent Entities or to effect the other purposes
of this Agreement.
Section 8.02 Availability of Equitable Remedies.
Since a breach of the provisions of this Agreement could not
adequately be compensated by money damages, any party shall be entitled, either
before or after the Effective Time, in addition to any other right or remedy
available to it, to an injunction restraining such breach or
46
<PAGE>
threatened breach and to specific performance of any such provision of this
Agreement, and, in either case, no bond or other security shall be required in
connection therewith, and the parties hereby consent to the issuance of such an
injunction and to the ordering of specific performance.
Section 8.03 Survival.
The representations, warranties, covenants and agreements
contained in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Merger for a period of eighteen (18) months after
the Effective Time.
Section 8.04 Modification.
This Agreement may be amended, supplemented or modified by
action taken by or on behalf of the respective Board of Directors and Board of
Managers of the parties hereto at any time prior to the Effective Time. No such
amendment, supplement or modification shall be effective unless set forth in a
written instrument duly executed by or on behalf of each party hereto.
Section 8.05 Notices.
Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested or by Federal Express, express mail, e-mail or similar
overnight delivery or courier service or delivered (in person or by telecopy,
telex or similar telecommunications equipment) against receipt to the party to
which it is to be given at the address of such party set forth in the preamble
to this Agreement (or to such other address as the party shall have furnished in
writing in accordance with the provisions of this Section 8.05) with copies
(which copies shall not constitute notice) as follows:
47
<PAGE>
If to the Company: 5-4360 Agar Drive
Richmond, British Columbia
CANADA V7B 1A3
With a copy to: Preston Gates & Ellis LLP
5000 Columbia Center
701 Fifth Avenue
Seattle, Washington 98104
Attn: Gary J. Kocher
If to WMLLC: 1100 Kietzke Street
Reno, Nevada 89502
Attn: Gerald Alderson
With a copy to: Camhy Karlinsky & Stein LLP
1740 Broadway, 16th Floor
New York, New York 10019
Attn: Daniel I. DeWolf, Esq.
Any notice shall be addressed to the attention of the Chief Executive Officer.
Any notice or other communication given by certified mail shall be deemed given
three (3) business days after certification thereof, except for a notice
changing a party's address which will be deemed given at the time of receipt
thereof. Any notice given by other means permitted by this Section 8.05 shall be
deemed given at the time of receipt hereof.
Section 8.06 Waiver.
Any waiver by any party of a breach of any term of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of that term or of any breach of any other term of this Agreement. The
failure of a party to insist upon strict adherence to any term of this Agreement
on one or more occasions will not be considered a waiver or deprive that party
of the right thereafter to insist upon strict adherence to that term or any
other term of this Agreement. Any
48
<PAGE>
waiver must be in writing and be authorized by a resolution of the Board of
Directors or by an officer of the waiving party.
Section 8.07 Binding Effect.
The provisions of this Agreement shall be binding upon and
inure to the benefit of the Company, WMLLC , and their respective successors and
assigns.
Section 8.08 No Third-Party Beneficiaries.
This Agreement does not create, and shall not be construed
as creating, any rights enforceable by any person not a party to this Agreement,
except as referred to in Sections 4.04(b), 7.01 and 7.02.
Section 8.09 Severability.
If any provision of this Agreement is hereafter held to be
invalid, illegal or unenforceable for any reason, such provision shall be
reformed to the maximum extent permitted so as to preserve the parties' original
intent, failing which, it shall be severed from this Agreement, with the balance
of this Agreement continuing in full force and effect. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable. If any provision is inapplicable to any
person or circumstance, it shall nevertheless remain applicable to all other
persons and circumstances.
Section 8.10 Merger; Assignability.
This Agreement, the other agreements to be delivered
pursuant to this Agreement, and Exhibits and Schedules attached hereto set forth
the entire understanding of the parties with respect to the subject matter
hereof and supersede all existing agreements concerning such subject
49
<PAGE>
matter, including the letter of intent, as amended, between WMLLC and Verus.
This Agreement may not be assigned by any party without the prior written
consent of each other party to this Agreement.
Section 8.11 Headings.
The headings in this Agreement are solely for convenience of
reference and shall be given no effect in the construction or interpretation of
this Agreement.
Sectopm 8.12 Counterparts; Governing Law; Jurisdiction.
This Agreement may be executed in any number of counterparts
(and by facsimile), each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. It shall be governed by,
and construed in accordance with, the laws of the State of Nevada, without
giving effect to the rules governing the conflict of laws. Any action, suit or
proceeding arising out of, based on, or in connection with this Agreement, the
Merger, or the other transactions contemplated hereby, or any document relating
hereto or delivered in connection with the transactions contemplated hereby, may
be brought only and exclusively in the Federal or State Courts located in the
State of New York; and each party covenants and agrees not to assert, by way of
motion, as a defense or otherwise, in any such action, suit or proceeding, any
claim that it is not subject personally to the jurisdiction of such court if it
has been duly served with process, that its property is exempt or immune from
attachment or execution, that the action, suit or proceeding is brought in an
inconvenient forum, that the venue of the action, suit or proceeding is
improper, or that this Agreement or the subject matter hereof may not be
enforced in or by such court.
50
<PAGE>
IN WITNESS WHEREOF, this Merger Agreement has been executed
by duly authorized officers of each of the parties hereto as of the date first
above written.
WATTMONITOR LLC
By:/s/ Gerald R. Alderson
-----------------------------------------
Name: Gerald R. Alderson
Title: President
WATTAGE MONITOR INC.
By:/s/ Ajmal Khan
-----------------------------------------
Name: Ajmal Khan
Title: President
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<PAGE>
o Exhibit 1.04: Amended and Restated Articles of Incorporation of
Wattage Monitor Inc., dated February 23, 1999, as amended on February
24, 1999.
o Exhibit 1.05: Amended and Restated By-Laws of Wattage Monitor Inc.,
as adopted on February 19, 1999.
o Schedule 2.03: List of Outstanding WattMonitor LLC Contingent
Membership Interests.
o Schedule 2.04(a): List of Debts and Liabilities of Wattage Monitor
Inc.
o Exhibit 2.05(a)(i): Certificate of Designation of Series A Preferred
Stock, dated February 24, 1999, as amended on February 26, 1999.
o Schedule 2.05(a)(iii): Form of Series B Warrant.
o Exhibit 2.07: Employment Agreement by and between WattMonitor LLC and
Gerald R. Alderson, dated January 1, 1998, as assumed by Wattage
Monitor Inc. on February 26, 1999.
o Exhibit 3.01(b)(i):
o Certificate of Formation of WattMonitor LLC, dated July 1,
1997.
o Restated and Amended Limited Liability Company Agreement for
WattMonitor LLC, dated March 17, 1998.
o Schedule 3.01(b)(ii): List of WattMonitor LLC Membership Interests.
o Schedule 3.01(b)(iii): Outstanding Options, Warrants, Rights, or
Agreements Obligating WattMonitor LLC to Issue or Sell Ownership
Interests in WattMonitor LLC.
o Schedule 3.01(d)(ii): Consents Required by WattMonitor LLC to Effect
Merger.
o Schedule 3.01(e): List of WattMonitor LLC Intangibles.
o Exhibit 3.01(f): WattMonitor LLC Balance Sheet.
o Schedule 3.01(g): List of Material Changes Affecting WattMonitor LLC.
o Schedule 3.01(m): List of Broker's Fees Owed by WattMonitor LLC.
<PAGE>
o Schedule 3.01(o): Tax Matters Unresolved by WattMonitor LLC Prior to
Closing.
o Schedule 3.02(b)(ii): List of Equity Holders of Wattage Monitor Inc.
o Schedule 3.02(d)(ii): Consents Required by Wattage Monitor Inc.
o Schedule 3.02(g): Material Changes Affecting Wattage Monitor Inc.
o Schedule 3.02(i): Legal Actions Pending Against Wattage Monitor Inc.
o Schedule 3.02(r): Tax Matters Unresolved by Wattage Monitor Inc.
prior to Closing.
o Schedule 3.02(s): Broker's Fees Owed by Wattage Monitor Inc.
o Schedule 4.01(b): Wattage Monitor Inc.'s Obligations to Issue Stock
or Warrants.
o Exhibit 5.03(h): Registration Rights Agreement by and among Wattage
Monitor Inc. and Certain Shareholders, dated as of February 26, 1999.
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
WATTAGE MONITOR INC.
* * * * * * * * * * * * * * *
FIRST. The name of the Corporation is Wattage Monitor Inc.
SECOND. The address of the Corporation's registered office in
the State of Nevada is Corporation Trust Company, City of Reno, County of
Washoe. The name of its registered agent at such address is Corporation Trust
Company.
THIRD. The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the laws of
the State of Nevada.
FOURTH. Authorized Shares.
1. The aggregate number of shares which the Corporation
shall have authority to issue is 30,000,000, of which
25,000,000 shares with par value $.01 per share shall be
designated "Common Shares," and 5,000,000 shares with par
value of $.01 per share shall be designated "Preferred
Shares."
2. Authority is hereby expressly granted to the Board of
Directors from time to time to issue the Preferred
Shares as Preferred Shares of any series and, in
connection with the creation of each such series, to
fix by the resolution or resolutions providing for
the issue of shares thereof, the number of shares of
such series, and the designations, powers,
preferences, and rights, and the qualifications,
limitations, and restrictions, of such series, to the
<PAGE>
full extent now or hereafter permitted by the laws of
the State of Nevada.
FIFTH. The name and mailing address of the incorporator is
Ajmal Kahn, c/o Verus Capital Corp., Suite 2000, 1177 West Hastings Street,
Vancouver, British Columbia, Canada V6E 2K3.
SIXTH. Election of directors need not be by written ballot.
SEVENTH. The affairs of the Corporation shall be governed by a
Board of Directors of not less than three (3) nor more than seven (7) persons.
Election of the Board of Directors need not be by written ballot. The Board of
Directors is authorized to adopt, amend, or repeal Bylaws of the Corporation
(except as and to the extent provided in the Bylaws). The initial directors
shall be Joel Dumaresq, Ajmal Khan, and a third person to be elected by the
directors as soon as practicable. The address of the initial directors is: c/o
Verus Capital Corp., Suite 2000, 1177 West Hastings Street, Vancouver, British
Columbia, Canada V6E 2K3.
EIGHTH. Any person who was or is a party or is threatened to
be made a party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal,
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administrative, or investigative (other than an action by or in the right of the
Corporation) by reason of the fact that the person is or was a director,
officer, incorporator, employee, or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, incorporator,
employee, partner, trustee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise (including an employee benefit plan), shall
be entitled to be indemnified by the Corporation to the full extent then
permitted by law against expenses (including reasonable counsel fees and
disbursements), judgments, fines (including excise taxes assessed on a person
with respect to an employee benefit plan), and amounts paid in settlement
incurred by the person in connection with such action, suit, or proceeding if
the person acted in good faith and in a manner the person reasonably believed to
be in or not opposed to the best interests of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. Such right of indemnification shall inure whether
or not the claim asserted is based on matters which antedate the adoption of
this Article EIGHTH. Such right of indemnification shall continue as to a person
who has ceased to be a director, officer, incorporator, employee, partner,
trustee, or agent and shall inure to the benefit of the heirs and personal
representatives of such a
3
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person. The indemnification provided by this Article EIGHTH shall not be deemed
exclusive of any other rights which may be provided now or in the future under
any provision currently in effect or hereafter adopted of the Bylaws, by any
agreement, by vote of stockholders, by resolution of disinterested directors, by
provision of law, or otherwise.
NINTH. No director of the Corporation shall be liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that this provision does not eliminate or
limit the liability of the director (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Nevada Revised Statutes Section 78.300, or (iv) for any
transaction from which the director derived an improper personal benefit. For
purposes of the prior sentence, the term "damages" shall, to the extent
permitted by law, include without limitation, any judgment, fine, amount paid in
settlement, penalty, punitive damages, excise or other tax assessed with respect
to an employee benefit plan, or expense of any nature (including, without
limitation, reasonable counsel fees and disbursements). Each person who serves
as a director of the corporation while this Article NINTH is in effect shall be
4
<PAGE>
deemed to be doing so in reliance on the provisions of this Article NINTH, and
neither the amendment or repeal of this Article NINTH, nor the adoption of any
provision of this Certificate of Incorporation inconsistent with this Article
NINTH, shall apply to or have any effect on the liability or alleged liability
of any director of the Corporation for, arising out of, based upon, or in
connection with any acts or omissions of such director occurring prior to such
amendment, repeal, or adoption of an inconsistent provision. The provisions of
this Article NINTH are cumulative and shall be in addition to and independent of
any and all other limitations on or eliminations of the liabilities of directors
of the Corporation, as such, whether such limitations or eliminations arise
under or are created by any law, rule, regulation, by-law, agreement, vote of
shareholders or disinterested directors, or otherwise.
5
<PAGE>
STATE OF NEVADA
Secretary of State
CERTIFICATE OF ACCEPTANCE OF APPOINTMENT
BY RESIDENT AGENT
Corporation Trust Company, a Nevada Corporation of the address in the County of
Washoe at One East First Street, Reno, Nevada 89501, does hereby accept
appointment as Resident Agent for the above-named Corporation, all in accordance
with NRS 78.090 and/or applicable provisions of law.
FURTHERMORE, the principal office of the Resident Agent in this State is located
in the County of Washoe at
One East First Street
Reno, NV 89501
In Witness Whereof, I have hereunto set my hand this day: _______, 1999.
Corporation Trust Company
by: _________________________
its ____________________
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED
BYLAWS
of
Wattage Monitor Inc.
As adopted February 19, 1999
<PAGE>
Wattage Monitor Inc.
A Nevada Corporation
BYLAWS
====================
ARTICLE I
STOCKHOLDERS
Section 1.1 Annual Meeting. An annual meeting of stockholders
for the purpose of electing directors and of transacting such other business as
may come before it shall be held each year at such date, time, and place, either
within or without the State of Nevada, as may be specified by the Board of
Directors.
Section 1.2 Special Meetings. Special meetings of stockholders
for any purpose or purposes may be held at any time upon call of the Chairman of
the Board, if any, the President, the Secretary, or a majority of the Board of
Directors, at such time and place either within or without the State of Nevada
as may be stated in the notice. A special meeting of stockholders shall be
called by
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the President or the Secretary upon the written request, stating time, place,
and the purpose or purposes of the meeting, of stockholders who together own of
record a majority of the outstanding stock of all classes entitled to vote at
such meeting.
Section 1.3 Notice of Meetings. Written notice of stockholders
meetings, stating the place, date, and hour thereof, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called, shall
be given by the Chairman of the Board, if any, the President, any Vice
President, the Secretary, or an Assistant Secretary, to each stockholder
entitled to vote thereat at least ten (10) days but not more than sixty (60)
days before the date of the meeting, unless a different period is prescribed by
law.
Section 1.4 Quorum. Except as otherwise provided by law or in
the Articles of Incorporation or these Bylaws, at any meeting of stockholders,
the holders of a majority of the outstanding shares of each class of stock
entitled to vote at the meeting shall be present or represented by proxy in
order to constitute a quorum for the transaction of any business. Action by the
stockholders on a matter other than the election of directors is approved if the
number of votes cast in favor of the action exceeds the number of votes cast in
opposition to the action. In the absence of
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a quorum, a majority of the stockholders present or the chairman of the meeting
may adjourn the meeting from time to time in the manner provided in Section 1.5
of these Bylaws until a quorum shall attend.
Section 1.5 Adjournment. Any meeting of stockholders, annual
or special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
Section 1.6 Organization. The Chairman of the Board, if any,
or in his absence the President, or in their absence any Vice President, shall
call to order meetings of stockholders and shall act as chairman of such
meetings. The Board of Directors or, if the Board fails to act, the stockholders
may appoint any stockholder, director, or officer of the Corporation to act as
chairman of any meeting in the absence of the Chairman of the Board, the
President, and all Vice Presidents.
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The Secretary of the Corporation shall act as secretary of all
meetings of stockholders, but, in the absence of the Secretary, the chairman of
the meeting may appoint any other person to act as secretary of the meeting.
Section 1.7 Voting. Except as otherwise provided by law or in
the Articles of Incorporation or these Bylaws and except for the election of
directors, at any meeting duly called and held at which a quorum is present, a
majority of the votes cast at such meeting upon a given question by the holders
of outstanding shares of stock of all classes of stock of the Corporation
entitled to vote thereon who are present in person or by proxy shall decide such
question. At any meeting duly called and held for the election of directors at
which a quorum is present, directors shall be elected by a plurality of the
votes cast by the holders (acting as such) of shares of stock of the Corporation
entitled to elect such directors.
Section 1.8 Action by Consent in Lieu of a Meeting. Unless
otherwise provided in the Articles of Incorporation, any action required to be
taken at any annual or special meeting of stockholders of the corporation, or
any action which may be taken at any annual or special meeting of stockholders
of such stockholders, may be taken without a meeting, without prior written
notice
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and without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Number and Term of Office. The business, property,
and affairs of the Corporation shall be managed by or under the direction of a
Board of Directors, which shall consist of not less than three (3) members nor
more than seven (7) members, and which number shall be determined by the Board
of Directors by resolution; provided, however, that the Board, by resolution
adopted by vote of a majority of the then authorized number of directors, may
increase or decrease the number of directors. The directors shall be elected by
the holders of shares entitled to vote thereon at the annual meeting of
stockholders, and each shall serve (subject to the provisions of
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Article IV) until the next succeeding annual meeting of stockholders and until
his respective successor has been elected and qualified.
Section 2.2 Chairman of the Board. The directors may elect one
of their members to be Chairman of the Board of Directors. The Chairman shall be
subject to the control of and may be removed by the Board of Directors. He shall
perform such duties as may from time to time be assigned to him by the Board.
Section 2.3 Meetings. The annual meeting of the Board of
Directors, for the election of officers and the transaction of such other
business as may come before the meeting, shall be held without notice at the
same place as, and immediately following, the annual meeting of the
stockholders.
Regular meetings of the Board of Directors may be held without
notice at such time and place as shall from time to time be determined by the
Board.
Special meetings of the Board of Directors shall be held at
such time and place as shall be designated in the notice of the meeting whenever
called by the Chairman of the Board, if any, the President, or by a majority of
the directors then in office.
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Section 2.4 Notice of Special Meetings. The Secretary, or in
his absence any other officer of the Corporation, shall give each director
notice of the time and place of holding of special meetings of the Board of
Directors by mail at least five (5) days before the meeting, or by facsimile,
cable, or telegram, overnight courier, or personal service at least three (3)
days before the meeting. Unless otherwise stated in the notice thereof, any and
all business may be transacted at any meeting without specification of such
business in the notice.
Section 2.5 Quorum and Organization of Meetings. A majority of
the total number of members of the Board of Directors as constituted from time
to time shall constitute a quorum for the transaction of business, but, if at
any meeting of the Board of Directors (whether or not adjourned from a previous
meeting) there shall be less than a quorum present, a majority of those present
may adjourn the meeting to another time and place, and the meeting may be held
as adjourned without further notice or waiver. Except as otherwise provided by
law or in the Articles of Incorporation or these Bylaws, a majority of the
directors present at any meeting at which a quorum is present may decide any
question brought before such meeting. Meetings shall be presided over by the
Chairman of the Board, if any, or in his absence by the President, or in the
absence of both by such other person
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as the directors may select. The Secretary of the Corporation shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 2.6 Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one (1) or more
committees, each committee to consist of one (1) or more of the directors of the
Corporation. The Board may designate one (1) or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member of
a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business, property, and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have
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power or authority in reference to: (i) approving or adopting, or recommending
to the stockholders, any action or matter expressly required by the laws of the
State of Nevada to be submitted to stockholders for approval or (ii) adopting,
amending or repealing any by-law of the corporation. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the Board of Directors. Each committee which may be
established by the Board of Directors pursuant to these Bylaws may fix its own
rules and procedures. Notice of meetings of committees, other than of regular
meetings provided for by the rules, shall be given to committee members. All
action taken by committees shall be recorded in minutes of the meetings.
Section 2.7 Action Without Meeting. Nothing contained in these
Bylaws shall be deemed to restrict the power of members of the Board of
Directors or any committee designated by the Board to take any action required
or permitted to be taken by them without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing.
Section 2.8 Telephone Meetings. Nothing contained in these
Bylaws shall be deemed to restrict the power of members of the Board of
Directors, or any committee designated by
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the Board, to participate in a meeting of the Board, or committee, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other.
Section 2.9 Board Compensation. The Board shall have the
authority to fix the compensation of directors.
ARTICLE III
OFFICERS
Section 3.1 Executive Officers. The executive officers of the
Corporation shall be a President, (one or more vice Presidents,) a Treasurer,
and a Secretary, each of whom shall be elected by the Board of Directors. The
Board of Directors may elect or appoint such other officers (including a
Controller and one or more Assistant Treasurers and Assistant Secretaries) as it
may deem necessary or desirable. Each officer shall hold office for such term as
may be prescribed by the Board of Directors from time to time. Any person may
hold at one time two (2) or more offices.
Section 3.2 Powers and Duties. The Chairman of the Board, if
any, or, in his absence, the President, shall preside at all meetings of the
stockholders and of the Board of Directors.
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In the absence of the President, a Vice President appointed by the President or,
if the President fails to make such appointment, by the Board, shall perform all
the duties of the President. The officers and agents of the Corporation shall
each have such powers and authority and shall perform such duties in the
management of the business, property, and affairs of the Corporation as
generally pertain to their respective offices, as well as such powers and
authorities and such duties as from time to time may be prescribed by the Board
of Directors.
ARTICLE IV
RESIGNATIONS, REMOVALS, AND VACANCIES
Section 4.1 Resignations. Any director or officer of the
Corporation, or any member of any committee, may resign at any time by giving
written notice to the Board of Directors, the President, or the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein or, if the time be not specified therein, then upon receipt thereof. The
acceptance of such resignation shall not be necessary to make it effective.
Section 4.2 Removals. The Board of Directors, by a vote of not
less than a majority of the entire Board, at any meeting thereof, or by written
consent, at any time, may, to the extent
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permitted by law, remove with or without cause from office or terminate the
employment of any officer or member of any committee and may, with or without
cause, disband any committee.
Any director or the entire Board of Directors may be removed,
with or without cause, by the holders of two thirds of the shares entitled at
the time to vote at an election of directors.
Section 4.3 Vacancies. Any vacancy in the office of any
director or officer through death, resignation, removal, disqualification, or
other cause, and any additional directorship resulting from increase in the
number of directors, may be filled at any time by a majority of the directors
then in office (even though less than a quorum remains) or, in the case of any
vacancy in the office of any director, by the stockholders, and, subject to the
provisions of this Article IV, the person so chosen shall hold office until his
successor shall have been elected and qualified; or, if the person so chosen is
a director elected to fill a vacancy, he shall (subject to the provisions of
this Article IV) hold office for the unexpired term of his predecessor.
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ARTICLE V
CAPITAL STOCK
Section 5.1 Stock Certificates. The certificates for shares of
the capital stock of the Corporation shall be in such form as shall be
prescribed by law and approved, from time to time, by the Board of Directors.
Section 5.2 Transfer of Shares. Shares of the capital stock of
the Corporation may be transferred on the books of the Corporation only by the
holder of such shares or by his duly authorized attorney, upon the surrender to
the Corporation or its transfer agent of the certificate representing such stock
properly endorsed.
Section 5.3 Fixing Record Date. In order that the Corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof (or to express consent to corporate
action in writing without a meeting), or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion, or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which, unless otherwise
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provided by law, shall not be more than sixty (60) nor less than ten (10) days
before the date of such meeting, nor more than sixty (60) days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
Section 5.4 Lost Certificates. The Board of Directors or any
transfer agent of the Corporation may direct a new certificate or certificates
representing stock of the Corporation to be issued in place of any certificate
or certificates theretofore issued by the Corporation, alleged to have been
lost, stolen, or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors (or any transfer agent of the Corporation authorized to do so by a
resolution of the Board of Directors) may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen, or
destroyed certificate or certificates, or his legal representative, to give the
Corporation a bond in such sum as the Board of Directors (or any transfer agent
so authorized) shall direct to indemnify the Corporation against any claim that
may
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be made against the Corporation with respect to the certificate alleged to have
been lost, stolen, or destroyed or the issuance of such new certificates, and
such requirement may be general or confined to specific instances.
Section 5.5 Regulations. The Board of Directors shall have
power and authority to make all such rules and regulations as it may deem
expedient concerning the issue, transfer, registration, cancellation, and
replacement of certificates representing stock of the Corporation.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Corporate Seal. The corporate seal shall have
inscribed thereon the name of the Corporation and shall be in such form as may
be approved from time to time by the Board of Directors.
Section 6.2 Fiscal Year. The fiscal year of the Corporation
shall end on December 31st.
Section 6.3 Notices and Waivers Thereof. Whenever any notice
whatever is required by law, the Articles of Incorporation, or these Bylaws to
be given to any stockholder, director, or
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officer, such notice, except as otherwise provided by law, may be given
personally, or by mail, or, in the case of directors or officers, by facsimile,
telegram, or cable, addressed to such address as appears on the books of the
Corporation. Any notice given by facsimile, telegram, cable or e-mail, shall be
deemed to have been given when transmission is confirmed and any notice given by
mail shall be deemed to have been given when it shall have been deposited in the
United States mail with postage thereon prepaid.
Whenever any notice is required to be given by law, the
Articles of Incorporation, or these Bylaws, a written waiver thereof, signed by
the person entitled to such notice, whether before or after the meeting or the
time stated therein, shall be deemed equivalent in all respects to such notice
to the full extent permitted by law.
Section 6.4 Stock of Other Corporations or Other Interests.
Unless otherwise ordered by the Board of Directors, the President, the
Secretary, and such attorneys or agents of the Corporation as may be from time
to time authorized by the Board of Directors or the President, shall have full
power and authority on behalf of this Corporation to attend and to act and vote
in person or by proxy at any meeting of the holders of securities of any
corporation or other entity in which this
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Corporation may own or hold shares or other securities, and at such meetings
shall possess and may exercise all the rights and powers incident to the
ownership of such shares or other securities which this Corporation, as the
owner or holder thereof, might have possessed and exercised if present. The
President, the Secretary, or such attorneys or agents, may also execute and
deliver on behalf of this Corporation powers of attorney, proxies, consents,
waivers, and other instruments relating to the shares or securities owned or
held by this Corporation.
ARTICLE VII
AMENDMENTS
The holders of shares entitled at the time to vote for the
election of directors shall have power to adopt, amend, or repeal the Bylaws of
the Corporation by vote of not less than a majority of such shares, and except
as otherwise provided by law, the Board of Directors shall have power equal in
all respects to that of the stockholders to adopt, amend, or repeal the Bylaws
by vote of not less than a majority of the entire Board. However, any By-Law
adopted by the Board may be amended or repealed by vote of the holders of a
majority of the shares entitled at the time to vote for the election of
directors. Such power to adopt, amend or repeal the Bylaws conferred upon the
Board
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of Directors shall not divest or limit the power of the stockholders to adopt,
amend and repeal the Bylaws.
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Exhibit 4.2
CERTIFICATE OF DESIGNATION,
POWERS, PREFERENCES AND RIGHTS OF
SERIES A 6% PREFERRED STOCK
PAR VALUE $.01 PER SHARE
OF
WATTAGE MONITOR INC.
-------------------
Pursuant to Section 78.1955 of the General
Corporation Law of the State of Nevada
-------------------
IT IS HEREBY CERTIFIED that:
1. The name of the company (hereinafter called the "Company") is
Wattage Monitor Inc., a corporation organized and existing under the General
Corporation Law of the State of Nevada.
2. The articles of incorporation of the Company (the "Articles of
Incorporation") authorizes the issuance of Five Million (5,000,000) shares of
preferred stock, $.01 par value per share (the "Preferred Stock"), and expressly
vests in the Board of Directors of the Company the authority provided therein to
issue any or all of said shares in one (1) or more series and by resolution or
resolutions to establish the designation and number and to fix the relative
rights and preferences of each series to be issued.
3. The Board of Directors of the Company, pursuant to the authority
expressly vested in it as aforesaid, and pursuant to the provisions of Section
78.1955 of the General Corporation Law of the State of Nevada, has adopted the
resolutions set forth below creating a Series A issue of Preferred Stock:
RESOLVED, that One Million (1,000,000) shares of the Five Million
(5,000,000) authorized shares of Preferred Stock of the Company shall be
designated Series A Preferred Stock, $.01 par value per share, and shall possess
the rights and preferences set forth below:
Section 1. Designation and Amount. The shares of such series shall have
a par value of $.01 per share, and shall be designated as Series A 6% Preferred
Stock (the "Series A Preferred Stock"). The number of shares constituting the
Series A Preferred Stock shall be One Million (1,000,000). The Series A
Preferred Stock shall be issued or offered at a purchase price of Three Dollars
($3.00) per share (the "Original Issue Price").
<PAGE>
Section 2. Dividends.
(a) The holders of the Series A Preferred Stock shall be
entitled to receive, out of the assets of the Company legally available
therefor, cumulative dividends (the "Dividend") of 6% per share per annum,
payable annually, commencing on February 26, 2000 (the "Dividend Rate"). The
Company may pay the Dividend in common stock, par value $.01 per share of the
Company (the "Common Stock").
(b) Dividends payable pursuant to paragraph (a) of this
Section 2 shall begin to accrue and be cumulative from the date of issuance,
whether or not earned or declared. The amount of Dividends so payable shall be
determined on the basis of twelve (12) thirty (30)-day months and a 360-day
year. Accrued but unpaid Dividends shall not bear interest. Dividends paid in an
amount less than the total amount of the Dividend at the time accrued and
payable shall be allocated pro rata on a share-by-share basis. The Board of
Directors of the Company may fix a record date for the determination of holders
of Series A Preferred Stock entitled to receive payment of a Dividend declared
hereon, which record date shall be no more than sixty (60) days prior to the
date fixed for the payment thereof.
(c) The holders of shares of Series A Preferred Stock shall
not be entitled to receive any dividends or other distributions except as
provided herein.
Section 3. Rank. The Series A Preferred Stock shall rank: (i) junior to
any other class or series of capital stock of the Company hereafter created
specifically ranking by its terms senior to the Series A Preferred Stock (the
"Senior Securities"); (ii) prior to all of the Common Stock; (iii) prior to any
class or series of capital stock of the Company hereafter created not
specifically ranking by its terms senior to or on parity with any Series A
Preferred Stock of whatever subdivision (collectively, with the Common Stock,
the "Junior Securities"); and (iv) on parity with any class or series of capital
stock of the Company hereafter created specifically ranking by its terms on
parity with the Series A Preferred Stock ("Parity Securities") in each case as
to distribution of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary (all such distributions being referred
to collectively as "Distributions").
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up
of the Company, either voluntary or involuntary, the Holders of shares of Series
A Preferred Stock shall be entitled to receive, immediately after any
distributions to Senior Securities required by the Company's Articles of
Incorporation or any certificate of designation, and prior in preference to any
distribution to Junior Securities but in parity with any distribution to Parity
Securities, an amount per share equal to the sum of the Original Issue Price and
(ii) an amount equal to any accrued but unpaid Dividends. If upon the occurrence
of such event, and after payment in full of the preferential amounts with
respect to the Senior Securities, the assets and funds available to be
distributed among the Holders of the Series A Preferred Stock and Parity
Securities shall be
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insufficient to permit the payment to such Holders of the full preferential
amounts due to the Holders of the Series A Preferred Stock and the Parity
Securities, respectively, then the entire assets and funds of the Company
legally available for distribution shall be distributed among the Holders of the
Series A Preferred Stock and the Parity Securities, pro rata, based on the
respective liquidation amounts to which each such series of stock is entitled by
the Company's Articles of Incorporation and any certificate(s) of designation
relating thereto.
(b) Upon the completion of the distribution required by
Section 4(a), if assets remain in the Company, they shall be distributed to
holders of Junior Securities in accordance with the Company's Articles of
Incorporation, including any duly adopted certificate(s) of designation.
(c) At each Holder's option, a sale, conveyance or disposition
of all or substantially all the assets of the Company to a private entity, the
common stock of which is not publicly traded, shall be deemed to be a
liquidation, dissolution or winding up within the meaning of this Section 4;
provided, however, that an event described in the prior clause that the Holder
does not elect to treat as a liquidation and a consolidation, merger,
acquisition, or other business combination of the Company with or into any other
company or companies shall not be treated as a liquidation, dissolution or
winding up within the meaning of this Section 4, but instead shall be treated
pursuant to Section 5(d) hereof (a Holder who elects to have the transaction
treated as a liquidation is herein referred to as a "Liquidating Holder").
(d) Prior to the closing of a transaction described in Section
4(c) which would constitute a liquidation event, the Company shall either (i)
make all cash distributions it is required to make to the Liquidating Holders
pursuant to the first sentence of Section 4(a), (ii) set aside sufficient funds
from which the cash distributions required to be made to the Liquidating Holders
can be made, or (iii) establish an escrow or other similar arrangement with a
third party pursuant to which the proceeds payable to the Company from a sale of
all or substantially all the assets of the Company will be used to make the
liquidating payments to the Liquidating Holders immediately after the
consummation of such sale. In the event that the Company has not fully complied
with any of the foregoing alternatives, the Company shall either: (x) cause such
closing to be postponed until such cash distributions have been made, or (y)
cancel such transaction, in which event the rights of the Holders or other
arrangements shall be the same as existing immediately prior to such proposed
transaction.
Section 5. Conversion of Series A Preferred Stock. The record Holders
of the Series A Preferred Stock shall have conversion rights as follows:
(a) Right to Convert. Each record Holder of Series A Preferred
Stock shall be entitled to convert whole shares of Series A Preferred Stock for
the Common Stock issuable upon conversion of the Series A Preferred Stock, as
follows: each outstanding share of Series A Preferred Stock is convertible into
one fully-paid and non-assessable share of Common Stock, subject to adjustment
as provided in Section 5(d) hereof. The number of shares of Common
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Stock issuable upon conversion of one share of Series A Preferred Stock is
hereafter referred to as the "Conversion Rate."
(b) Mechanics of Conversion. In order to convert Series A
Preferred Stock into full shares of Common Stock, the Holder shall (i) fax a
copy of a fully executed notice of conversion ("Notice of Conversion") to the
Company at the office of the Company or to the Company's designated transfer
agent (the "Transfer Agent") for the Series A Preferred Stock, stating that the
Holder elects to convert, which notice shall specify the date of conversion, the
number of shares of Series A Preferred Stock to be converted, the Conversion
Rate and a calculation of the number of shares of Common Stock issuable upon
such conversion (together with a copy of the front page of each certificate to
be converted) and (ii) surrender to a common courier for either overnight or two
(2) day delivery to the office of the Company or the Transfer Agent, the
original certificates representing the Series A Preferred Stock being converted
(the "Preferred Stock Certificates"), duly endorsed for transfer; provided,
however, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion, unless
either the Preferred Stock Certificates are delivered to the Company or the
Transfer Agent as provided above, or the Holder notifies the Company or its
Transfer Agent that such certificates have been lost, stolen or destroyed
(subject to the requirements of subsection 5(b)(i) below).
(i) Lost or Stolen Certificates. Upon receipt by the
Company of evidence of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing shares of Series A Preferred Stock,
and (in the case of loss, theft or destruction) of indemnity or security
reasonably satisfactory to the Company, and upon surrender and cancellation of
the Preferred Stock Certificates, if mutilated, the Company shall execute and
deliver new Preferred Stock Certificates of like tenor and date. However, the
Company shall not be obligated to re-issue such lost or stolen Preferred Stock
Certificates if Holder contemporaneously requests the Company to convert such
Series A Preferred Stock into Common Stock.
(ii) Delivery of Common Stock Upon Conversion. The
Company no later than 6:00 p.m. (New York City time) on the third (3rd) business
day after receipt by the Company or its Transfer Agent of all necessary
documentation duly executed and in proper form required for conversion,
including the original Preferred Stock Certificates to be converted (or after
provision for security or indemnification in the case of lost, stolen or
destroyed certificates, if required), shall issue and surrender to a common
courier for either overnight or (if delivery is outside the United States) two
(2) day delivery to the Holder as shown on the stock records of the Company a
certificate for the number of shares of Common Stock to which the Holder shall
be entitled as aforesaid.
(iii) Date of Conversion. The date on which
conversion occurs (the "Date of Conversion") shall be deemed to be the date such
Notice of Conversion is faxed to the Company or the Transfer Agent, as the case
may be, provided that the advance copy of the Notice
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of Conversion is faxed to the Company on or prior to 6:00 p.m., New York City
time, on the Date of Conversion. The original Preferred Stock Certificates
representing the shares of Series A Preferred Stock to be converted shall be
surrendered by depositing such certificates with a common courier for either
overnight or two (2) day delivery, as soon as practicable following the Date of
Conversion. The person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
Holder or Holders of such shares of Common Stock on the Date of Conversion.
(c) Mandatory Conversion. In the event (i) the Company raises
$5,000,000 in an offering of Common Stock at a price of $1.00 per share or
greater (the "Offering") or (ii) Verus Capital Corp. ("Verus"), its designees,
successors or assigns, exercises in part or in whole, a Series B Warrant (the
"Series B Warrant") to purchase up to 3,500,000 shares of Series B Preferred
Stock of the Company issued in accordance with the terms of a commitment
agreement to be executed by Verus and the Company, each share of Series A
Preferred Stock outstanding on such date shall be automatically converted into
shares of Common Stock, without the need for any conversion election by the
holder(s) thereof, and shall be effective as of the closing date of the Offering
or the exercise of the Series B Warrant, as the case may be, at the Conversion
Rate then in effect (calculated in accordance with the formula set forth in
Section 5(a) hereof).
(d) Adjustment to Conversion Rate.
(i) Adjustment to the Conversion Rate due to Stock
Split, Stock Dividend or Other Similar Event. If, prior to the conversion of all
the Series A Preferred Stock, the number of outstanding shares of Common Stock
is increased by a stock split, stock dividend or other similar event, the
Conversion Rate shall be proportionately reduced, or if the number of
outstanding shares of Common Stock is decreased by a combination or
reclassification of shares, or other similar event, the Conversion Rate shall be
proportionately increased.
(ii) Adjustment Due to Consolidation, Merger,
Exchange of Shares, Recapitalization, Reorganization or Other Similar Event. If,
prior to the conversion of all the Series A Preferred Stock, there shall be any
merger, consolidation, exchange of shares, recapitalization, reorganization or
other similar event, as a result of which shares of Common Stock of the Company
shall be changed into the same or a different number of shares of the same or
another class or classes of stock or securities of the Company or another entity
or there is a sale of all or substantially all of the Company's assets that is
not deemed to be a liquidation pursuant to Section 4(c), then the Holders of
Series A Preferred Stock thereafter shall have the right to receive upon
conversion of Series A Preferred Stock, upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such stock, securities and/or
other assets which the Holder would have been entitled to receive in such
transaction had the Series A Preferred Stock been converted immediately prior to
such transaction, and in any such case appropriate provisions shall be made with
respect to the rights and interests of the Holders of the Series A Preferred
Stock to the end that the provisions hereof (including, without limitation,
provisions for the
5
<PAGE>
adjustment of the Conversion Rate and of the number of shares issuable upon
conversion of the Series A Preferred Stock) shall thereafter be applicable, as
nearly as may be practicable in relation to any securities thereafter
deliverable upon the exercise hereof. The Company shall not effect any
transaction described in this subsection 5(d)(ii) unless (a) it first gives
thirty (30) calendar days prior notice of such merger, consolidation, exchange
of shares, recapitalization, reorganization or other similar event (during which
time the Holder shall be entitled to convert its shares of Series A Preferred
Stock into Common Stock to the extent permitted hereby) and (b) the resulting
successor or acquiring entity (if not the Company) assumes by written instrument
the obligation of the Company under this Certificate of Designation, including
the obligation of this subsection 5(d)(ii).
(iii) No Fractional Shares. If any adjustment under
this Section 5(d) would create a fractional share of Common Stock or a right to
acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon conversion
shall be the next higher number of shares of Series A Preferred Stock.
Section 6. Voting Rights. The Holders of the Series A Preferred Stock
shall have no voting power whatsoever except to the extent otherwise expressly
provided by the General Corporation Law of Nevada, and no Holder of Series A
Preferred Stock shall vote or otherwise participate in any proceeding in which
actions shall be taken by the Company or the stockholders thereof or be entitled
to notification as to any meeting of the stockholders.
Section 7. Protective Provision. So long as shares of Series A
Preferred Stock are outstanding, the Company shall not without first obtaining
the approval (by vote or written consent, as provided by the General Corporation
Law of Nevada) of the Holders of at least a majority of the then-outstanding
shares of Series A Preferred Stock:
(a) alter or change the rights, preferences or privileges of
the Series A Preferred Stock so as to affect adversely the Series A Preferred
Stock, including, but not limited to, the creation or authorization of any
Senior Securities; provided, however, in the event that the Company has not
completed the sale of 1 million shares of Series A Preferred Stock on or before
April 4, 1999, then the Company shall be permitted to authorize and issue
without the consent f the holders of the Series A Preferred Stock;
(b) increase the size of the authorized number of Series A
Preferred Stock; or
(c) do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of the Holders of
shares of the Series A Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code as hereafter from time to time amended).
6
<PAGE>
In the event Holders of a majority of the then-outstanding shares of
Series A Preferred Stock agree to allow the Company to alter or change the
rights, preferences or privileges of the shares of Series A Preferred Stock,
pursuant to subsection (a) above, so as to affect adversely the Series A
Preferred Stock, then the Company will deliver notice of such approved
alteration or change to the Holders of the Series A Preferred Stock that did not
agree to such alteration or change (the "Dissenting Holders") and the Dissenting
Holders shall have the right for a period of thirty (30) days to convert
pursuant to the terms of this Certificate of Designation as they exist prior to
such alteration or change or continue to hold their shares of Series A Preferred
Stock subject to the approved alteration or change of the rights, preferences or
privileges of the Series A Preferred Stock.
Section 8. Status of Converted Stock. In the event any shares of Series
A Preferred Stock shall be converted pursuant to Section 5 hereof, the shares so
converted shall be canceled, shall return to the status of authorized but
unissued preferred stock of no designated series, and shall not be issuable by
the Company as Series A Preferred Stock.
Section 9. Preference Rights. Nothing contained herein shall be
construed to prevent the Board of Directors of the Company from issuing one (1)
or more series of preferred stock with dividend and/or liquidation preferences
junior to the dividend and liquidation preferences of the Series A Preferred
Stock.
[SIGNATURE PAGE TO FOLLOW]
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designation to be duly executed on its behalf by its President this ____ day of
______, 1999.
WATTAGE MONITOR INC.
By: ____________________________________
Name: Ajmal Khan
Title: President and Chief Executive
Officer
<PAGE>
Exhibit 4.3
CERTIFICATE OF AMENDMENT
SERIES A PREFERRED STOCK
OF
Wattage Monitor Inc.
Pursuant to NRS Section 78.1955(2).
We the Undersigned, Officers of Wattage Monitor Inc. (the
"Corporation") hereby certify:
The Board of Directors of the Corporation, acting pursuant to NRS
78.315 by unanimous written consent, on February 26, 1999 resolved to adopt the
following amendment to the Certificate of Designation of Powers, Preferences and
Rights of Series A 6% Preferred Stock (the "Designation") adopted by the Board
on February 19, 1999 and filed with the Secretary of State on February 24, 1999.
1. The class and series of stock being amended is Series A 6% Preferred Stock.
2. No shares of Series A Preferred Stock have been issued as of the present
date.
3. The Designation is amended as follows:
(a) In Section 5(c)(i), the number "5,000,000" is stricken and
replaced with "7,000,000."
(b) Section 6 is stricken in its entirety and replaced with
the following:
Section 1. Voting Rights. The Holders of the Series A
Preferred Stock shall have voting power equal to the voting
power that the Preferred Stock would provide as and if
converted into Common Stock of the Company at the applicable
Conversion Rate and such other voting as is expressly provided
by the General Corporation Law of Nevada.
Pursuant to NRS 78.1955(2), this matter has not been and will not be
submitted to a shareholder vote, the action of the Board being sufficient to act
thereunder.
- ------------------------------------- -----------------------------------
Ajmal Khan Joel Dumaresq
President and Chief Executive Officer Senior Vice President and Secretary
<PAGE>
[INSERT NEW YORK NOTARY CERTIFICATE]
STATE OF NEW YORK )
) Section
COUNTY OF ______ )
I certify that I know or have satisfactory evidence that Ajmal Khan and
Joel Dumaresq are the persons who signed this instrument and acknowledged it to
be their free and voluntary act for the uses and purposes mentioned in this
instrument.
Dated: ____________________________
_______________________________________
Notary Public
[Seal or Stamp]
_______________________________________
[Printed Name]
My appointment expires: _______________
<PAGE>
Exhibit 10.1
STOCK PURCHASE AGREEMENT
BY AND AMONG
KNOWLEDGE NETWORKS ACQUISITIONS, INC.
INTREPID INTERNATIONAL S.A.
AND
CERTAIN PURCHASERS IDENTIFIED HEREIN
Dated February 5, 1999
<PAGE>
<TABLE>
TABLE OF CONTENTS
<S> <C>
ARTICLE I THE PURCHASE AND SALE.......................................................................1
1.1 Purchase and Sale of Shares.................................................................1
1.2 Closing.....................................................................................1
1.3 Consideration...............................................................................1
1.4 Resignation of Directors and Officers of the Company........................................2
1.5 Delivery of Certificate.....................................................................2
1.6 Rescission Right............................................................................2
ARTICLE II REPRESENTATIONS AND WARRANTIES............................................................ 2
2.1 Representations and Warranties of the Company and the Shareholder......................... 2
2.1.1 Organization, Standing and Power................................................ 2
2.1.2 Company Capital Structure and Ownership......................................... 3
2.1.3 Authority....................................................................... 3
2.1.4 Compliance with Laws and Other Instruments...................................... 3
2.1.5 Technology and Intellectual Property............................................ 4
2.1.6 Financial Statements............................................................ 4
2.1.7 Taxes........................................................................... 4
2.1.8 Absence of Certain Changes and Events........................................... 5
2.1.9 Guarantees and Suretyships...................................................... 5
2.1.10 Leases in Effect................................................................ 6
2.1.11 Certain Transactions............................................................ 6
2.1.12 Litigation and Other Proceedings................................................ 6
2.1.13 Major Contracts................................................................. 6
2.1.14 Employees....................................................................... 7
2.1.15 Employee Benefit Plans.......................................................... 7
2.1.16 Certain Agreements.............................................................. 7
2.1.17 Brokers and Finders............................................................. 8
2.1.18 Environmental Matters........................................................... 8
2.1.19 NASD and SEC Matters............................................................ 9
2.1.20 Absence of Activities Since Reorganization...................................... 9
2.1.21 Disclosure...................................................................... 9
2.1.22 Reliance........................................................................ 9
2.2 Representations and Warranties of the Purchasers.......................................... 10
2.2.1 Organization; Standing and Power................................................ 10
2.2.2 Authority....................................................................... 10
2.2.3 Compliance with Laws and Other Instruments...................................... 10
2.2.4 Investment Representations...................................................... 10
2.2.5 Reliance......................................................................... 10
ARTICLE III COVENANTS OF THE COMPANY AND THE SHAREHOLDER............................................... 11
3.1 Conduct of Business........................................................................ 11
3.2 Dividends, Issuance of or Changes in Securities............................................ 11
3.3 Governing Documents........................................................................ 12
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
3.4 Exclusivity; Acquisition Proposals......................................................... 12
3.5 No Acquisitions............................................................................ 12
3.6 Indebtedness............................................................................... 12
3.7 Compensation............................................................................... 12
3.9 Claims..................................................................................... 12
3.10 Access to Properties and Records........................................................... 12
3.11 Breach of Representation and Warranties.................................................... 12
3.12 Tax Returns................................................................................ 13
3.13 Notice of Events........................................................................... 13
3.14 Reasonable Efforts......................................................................... 13
ARTICLE IV COVENANTS OF the purchasers................................................................ 13
4.1 Breach of Representations and Warranties................................................... 13
4.2 Reasonable Efforts......................................................................... 13
4.3 Counterpart Signature Pages................................................................ 13
ARTICLE V ADDITIONAL AGREEMENTS...................................................................... 14
5.1 Legal Conditions........................................................................... 14
5.2 Expenses................................................................................... 14
5.4 Additional Agreements...................................................................... 14
ARTICLE VI CONDITIONS PRECEDENT....................................................................... 14
6.1 Conditions to Each Party's Obligations..................................................... 14
6.1.1 No Restraints.................................................................... 14
6.2 Conditions of Obligations of the Purchasers................................................ 14
6.2.1 Representations and Warranties of the Company and the Shareholder................ 14
6.2.2 Performance of Obligations of the Company and the Shareholder.................... 15
6.2.3 The Reverse Split, Warrant Repurchase, Amendment to Form D....................... 15
6.2.4 Legal Action..................................................................... 15
6.3 Conditions of Obligation of the Company and the Shareholder................................ 15
6.3.1 Representations and Warranties of the Purchasers................................. 15
6.3.2 Performance of Obligations of the Purchasers..................................... 15
ARTICLE VII INDEMNIFICATION............................................................................ 15
7.1 Indemnification Relating to Agreement...................................................... 15
7.2 Third Party Claims......................................................................... 16
7.3 Other Remedies............................................................................. 16
7.4 Binding Effect............................................................................. 17
ARTICLE VIII TERMINATION................................................................................ 17
8.1 Mutual Agreement........................................................................... 17
8.2 Termination by the Purchasers.............................................................. 17
8.3 Termination by the Company................................................................. 17
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
8.4 Outside Date............................................................................. 17
8.5 Effect of Termination.................................................................... 17
ARTICLE IX MISCELLANEOUS............................................................................ 17
9.1 Entire Agreement......................................................................... 17
9.2 Governing Law............................................................................ 17
9.3 Headings................................................................................. 18
9.4 Notices.................................................................................. 18
9.5 Severability............................................................................. 19
9.6 Survival of Representations and Warranties............................................... 19
9.7 Assignment............................................................................... 19
9.8 Counterparts............................................................................. 19
9.9 Amendment................................................................................ 19
9.10 Extension, Waiver........................................................................ 19
9.11 Interpretation........................................................................... 20
9.12 Time of Essence.......................................................................... 20
</TABLE>
iii
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT, is made and entered into this 5th day of
February, 1999 (this "Agreement"), by and among Knowledge Networks Acquisitions,
Inc., a Nevada corporation (the "Company"), Intrepid International, S.A. (the
"Shareholder"), and the undersigned Purchasers (the "Purchasers"). Verus Capital
Corp., a British Columbia corporation ("Verus"), is joined solely as agent on
behalf of the Purchasers.
INTENDING TO BE LEGALLY BOUND, and in consideration of the premises and
the mutual representations, warranties, covenants and agreements contained
herein, the parties hereby agree as follows:
ARTICLE I
THE PURCHASE AND SALE
1.1 Purchase and Sale of Shares. Subject to the terms and conditions of
this Agreement, the Company agrees to sell to each Purchaser and each Purchaser
agrees to purchase from the Company the number of shares of common stock, par
value $0.001 per share (the "Common Stock") of the Company as set forth on
Schedule 1.3 in exchange for payment of the Consideration (as defined in Section
1.3). The total number of shares of Common Stock to be issued to the Purchasers
pursuant to this Section 1.1 is 2,750,000 shares of Common Stock (the "Shares").
The Shares are being issued by the Company pursuant to an exemption from
registration under the Securities Act of 1933, as amended (the "Act"), pursuant
to Rule 504 thereunder.
1.2 Closing. The closing of the transactions contemplated by Section
1.1 (the "Closing") will take place at 10:00 a.m., local time (the "Effective
Time") on the date (the "Closing Date") as soon as practicable after
satisfaction or waiver of the last to be fulfilled of the conditions set forth
in Article VI, that by their terms are to occur at or prior to the Closing, at
the offices of Preston Gates & Ellis LLP, Seattle, Washington, unless another
time, date or place is agreed to in writing by the parties hereto.
1.3 Consideration. Each Purchaser has loaned funds (collectively, the
"Loans") to Wattage Monitor LLC, a Delaware limited liability company (the
"LLC") in the amount reflected on Schedule 1.3, representing an aggregate amount
of $1,000,000. Subject to the terms and conditions of this Agreement, the Shares
(as defined in Section 1.1) shall, as of the Effective Time, be issued to each
Purchaser in exchange for the assignment by each Purchaser of the right to
repayment of the Loan held by each such Purchaser from the LLC (the
"Consideration") which rights are hereby assigned by the Purchasers to the
Company effective upon the Closing. In addition in the event the LLC is merged
with and into the Company (the "Merger"), and if as a condition to closing of
the Merger, the Purchasers are required to place a portion of the Shares in
escrow subject to forfeiture in the event the Purchasers (or their designees) do
not invest or cause to be invested additional capital into the Company, the
Purchasers agree to place up to 1,000,000 of the Shares in an escrow arrangement
which shares will be subject to forfeiture in
<PAGE>
the event that the Purchasers (or their designees) do not satisfy any such
additional funding obligations specified in the agreement providing for the
terms and conditions of the Merger.
1.4 Resignation of Directors and Officers of the Company. Effective as
of the Effective Time, each of the directors and officers of the Company shall
resign and the Purchasers shall appoint new officers and directors for the
Company.
1.5 Delivery of Certificates. Prior to Closing, the Company shall use
its best efforts to cause each holder of a certificate or certificates
representing Common Stock outstanding prior to the Closing to surrender such
certificates to the Company or a designated exchange agent, together with such
duly executed documentation as may be reasonably required by the Purchasers to
effect a the Reverse Split (as defined in Section 3.2) and the Company shall
deliver or cause to be delivered to each shareholder so surrendering its
certificate a replacement certificate representing such shareholder's ownership
of Common Stock after giving effect to the Reverse Split.
1.6 Rescission Right. In the event that the Merger is not effected on
or prior to March 31, 1999, at the election or either the Company, on the one
hand, or the Purchasers (acting by a majority in interest of the Shares held by
them), the issuance of the Shares and assignment of the Loans contemplated in
this Article I shall be rescinded, cancelled and of no further force or effect
and the parties shall take all reasonable and appropriate action necessary to
implement such action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of the Company and the Shareholder.
Except as disclosed in a disclosure schedule attached hereto referring
specifically to the representations and warranties in this Agreement which
identifies by section number the section and subsection to which such disclosure
relates (the "Disclosure Schedule"), the Company and the Shareholder, jointly
and severally, represent and warrant as follows:
2.1.1 Organization, Standing and Power. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of Nevada, has all requisite power and authority to own, lease and operate its
properties and to carry on its businesses as now being conducted, and is duly
qualified and in good standing to do business in each jurisdiction in which a
failure to so qualify would have a material adverse effect on the business
condition of the Company or would prevent the Company from performing any of its
obligations under this Agreement. In this Agreement, a "Subsidiary" of any
corporation or other entity means a corporation, partnership or other entity of
which such corporation or entity directly or indirectly owns or controls voting
securities or other interests which are sufficient to elect a majority of the
Board of Directors or other managers of such corporation, partnership or other
entity. The Company does not have any Subsidiary. The Company has delivered to
the Purchasers complete and correct copies of the articles, certificate, bylaws,
and/or other primary charter and
-2-
<PAGE>
organizational documents ("Charter Documents") of the Company, in each case, as
amended to the date hereof. The minute books and stock records of the Company
contain correct and complete records of all material proceedings and actions
taken at all meetings of, or effected by written consent of, the Shareholder of
the Company and its Board of Directors, and all original issuances and
subsequent transfers, repurchases, and cancellations of the Company's capital
stock.
2.1.2 Company Capital Structure and Ownership. The authorized
capital stock of the Company consists of 100,000,000 shares of Common Stock of
which 9,000,000 shares are issued and outstanding on the date hereof. As of the
date hereof, 3,020,000 shares of Common Stock may be issued upon the exercise of
outstanding warrants (the "Company Warrants"). All outstanding the shares of
Common Stock are validly issued, fully paid, nonassessable and not subject to
any preemptive rights, or to any agreement to which the Company is a party or by
which the Company may be bound. Except for the shares described above issuable
pursuant to the Company Warrants, there are not any options, warrants, calls,
conversion rights, commitments, agreements, contracts, understandings,
restrictions, arrangements or rights of any character to which the Company is a
party or by which the Company may be bound obligating the Company to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
the capital stock of the Company, or obligating the Company to grant, extend or
enter into any such option, warrant, call, conversion right, commitment,
agreement, contract, understanding, restriction, arrangement or right. The
Company does not have outstanding any bonds, debentures, notes or other
indebtedness the holders of which have the right to vote (or convertible or
exercisable into securities having the right to vote) with holders of the Common
Stock on any matter (the "Company Voting Debt").
2.1.3 Authority. The execution, delivery, and performance of
this Agreement by the Company has been duly authorized by all necessary
corporate action of the Board of Directors of the Company and the Shareholder.
Certified copies of the resolutions adopted by the Board of Directors of the
Company and the Shareholder approving this Agreement have been provided to the
Purchasers. Each of the Company and the Shareholder has duly and validly
executed and delivered this Agreement, and this Agreement constitutes a valid,
binding, and enforceable obligation of each of the Company and the Shareholder
in accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles.
2.1.4 Compliance with Laws and Other Instruments. The Company
holds, and at all times has held, all licenses, permits, and authorizations
(collectively, "Permits") from all Governmental Entities (as defined below)
necessary for the lawful conduct of its business pursuant to all applicable
statutes, laws, ordinances, rules, and regulations of all such authorities
having jurisdiction over it or any part of its operations, excepting, however,
when such failure to hold would not have a material adverse effect on the
Company's business condition. There are no violations or claimed violations
known by the Company or the Shareholder of any such license, permit, or
authorization or any such statute, law, ordinance, rule or regulation. Neither
the execution and delivery of this Agreement by the Company and the Shareholder
nor the
-3-
<PAGE>
performance by the Company and the Shareholder of their obligations under this
Agreement will violate any provision of laws, will conflict with, result in the
breach of any of the terms or conditions of, constitute a breach of any of the
terms or conditions of, constitute a default under, permit any party to
accelerate any right under, renegotiate, or terminate, require consent,
approval, or waiver by any party under, or result in the creation of any lien,
charge, encumbrance, or restriction upon any of the properties, assets, or the
Common Stock pursuant to, any of the Charter Documents or any agreement
(including government contracts), indenture, mortgage, franchise, license,
permit, lease or other instrument of any kind or which the Company is a party or
by which the Company or any of its assets is bound or affected other than such
violations, conflicts, breaches, defaults or rights which, singly or in the
aggregate, would not have a material adverse effect on the Company's business
condition or would not prevent the Company from performing any of its
obligations under this Agreement. No consent, approval, order or authorization
of or registration, declaration or filing with or exemption (collectively
"Consents") by, any court, administrative agency or commission or other
governmental authority or instrumentality, whether domestic or foreign (each a
"Governmental Entity") is required by or with respect to the Company in
connection with the execution and delivery of this Agreement by the Company or
the consummation by the Company of the transactions contemplated hereby, except
for such other Consents, which if not obtained or made would not have a material
adverse effect on the Company's Business Condition or would not prevent the
Company from performing any of its obligations under this Agreement.
2.1.5 Technology and Intellectual Property. The Company is
not, nor as a result of the execution or delivery of this Agreement, or
performance of the Company's obligations hereunder, will the Company be, in
violation of any license, sublicense or other agreement to which the Company is
a party or otherwise bound. The Company is not obligated to provide any
consideration (whether financial or otherwise) to any third party, nor is any
third party otherwise entitled to any consideration, with respect to any
exercise of rights by the Company in any patent, trademark, license, software or
other form of intellectual property (collectively, "Intellectual Property").
2.1.6 Financial Statements. The Company has delivered to the
Purchasers audited (an unaudited with respect to 1998) balance sheets as of
December 31, 1997 and 1998, and the related audited statement of income for the
years ended December 31, 1997 and 1998 (such balance sheets and statements of
income are collectively referred to as the "Financial Statements"). Such
Financial Statements: (i) are in accordance with the books and records of the
Company; (ii) present fairly, in all material respects, the financial position
of the Company as of the date indicated and the results of their operations for
each of the periods indicated; and (iii) have been prepared in accordance with
United States generally accepted accounting principles consistently applied.
There are no off-balance sheet liabilities, claims or obligations of any nature,
whether accrued, absolute, contingent, anticipated, or otherwise, whether due or
to become due, that are not shown or provided for either in the Financial
Statements.
2.1.7 Taxes. All tax returns, reports, and forms of the
Company required to be filed under the laws of any jurisdiction, domestic or
foreign, have been filed, which returns, reports and statements are true,
correct and complete in all material respects, and all taxes, fees,
-4-
<PAGE>
and other governmental charges of any nature whatsoever which were required to
be paid have been paid. Complete and correct copies of all federal, state, local
and foreign income tax returns filed in connection with 1997 and each year
thereafter have previously been delivered to the Purchasers by the Company. With
respect to any taxable year: (i) the Company has not been notified that there is
any assessment or proposed assessment of deficiency or additional tax or other
governmental charge with respect to the Company, and (ii) there is no completed,
pending, or, to the best knowledge of any of the Company or the Shareholder,
threatened tax audit or investigation with respect to the Company. The amounts
reflected for taxes on the balance sheet included in the Financial Statements
are and will be sufficient for the payment of all unpaid federal, local, and
foreign taxes, assessments, and deficiencies for all periods prior to and
including the periods covered in the Financial Statements. For the purposes of
this Agreement, the terms "tax" and "taxes" shall include all federal, state,
local and foreign taxes, assessments, duties, tariffs, registration fees, and
other governmental charges including without limitation all income, franchise,
property, production, goods and services tax, state sales tax, use, payroll,
license, windfall profits, severance, withholding, excise, gross receipts and
other taxes, as well as any interest, additions or penalties relating thereto
and any interest in respect of such additions or penalties.
2.1.8 Absence of Certain Changes and Events. Except for the
transactions contemplated by this Agreement and as otherwise set forth in the
Company Disclosure Schedule, since the Reorganization Date (as defined in
Section 2.1.20) there has not been:
(a) Any transaction entered into by the Company or
any change (or any development or combination of developments of which the
Company or the Shareholder has knowledge which is reasonably likely to result in
such a change) in the Company's business condition;
(b) Any declaration, payment, or setting aside of any
dividend or other distribution to or for the holders of any the Common Stock
other than the Reverse Split;
(c) Any increase or decrease in the rates of
compensation payable or to become payable by the Company to any director,
officer, employee, independent contractor, or any of the current the Shareholder
of the Company or any bonus, percentage compensation, service award, or other
benefit granted, made, or accrued to or to the credit of any such person, or any
welfare, pension, retirement, or similar payment or arrangement made or agreed
to by the Company; or
(d) any liability for any cost, charge or other
obligation to pay money, whether accrued or conditional, incurred by or on
behalf of the Company.
2.1.9 Guarantees and Suretyships. The Company has no powers of
attorney outstanding, the Company has no obligations or liabilities (absolute or
contingent) as guarantor, surety, cosigner, endorser, co-maker, indemnitor, or
otherwise respecting the obligations or liabilities of any person, corporation,
partnership, joint venture, association, organization, or other entity.
-5-
<PAGE>
2.1.10 Leases in Effect. The Company is not a party to or
bound by or subject to any real property leases and subleases (each a "Lease"
and collectively, the "Leases"), and there are no existing defaults under any
Lease to which the Company was at any time bound or subject to, nor is there any
event that with notice or lapse of time, or both, would constitute a material
default by the Company thereunder.
2.1.11 Certain Transactions. Except as disclosed in the
Company Disclosure Schedule, none of the directors or officers of the Company,
or any shareholder of the Company or any member of any of their families, is
presently a party to, or was a party to during the year preceding the date of
this Agreement, any transaction with the Company, including, without limitation,
any contract, agreement, or other arrangement (i) providing for the furnishing
of services to or by, (ii) providing for rental of real or personal property to
or from, or (iii) otherwise requiring payments to or from, any such person or
any corporation, partnership, trust, or other entity in which any such person
has or had a 5%-or-more interest (as a shareholder, partner, beneficiary, or
otherwise) or is or was a director, officer, employee, or trustee.
2.1.12 Litigation and Other Proceedings. Neither the Company
nor any of its officers, directors, or employees is a party to any pending or
threatened action, suit, labor dispute (including any union representation
proceeding), proceeding, investigation or discrimination claim in or by any
court or governmental board, commission, agency, department, or officer, or any
arbitrator. The Company is not subject to any order, writ, judgment, decree, or
injunction.
2.1.13 Major Contracts. The Company is not a party to or
subject to:
(a) Any union contract, or any employment contract or
arrangement providing for future compensation, written or oral, with any
officer, consultant, director or employee;
(b) Any plan or contract or arrangement, written or
oral, providing for bonuses, pensions, deferred compensation, retirement
payments, profit-sharing, or the like;
(c) Any joint venture contract or similar
arrangement;
(d) Any lease for real or personal property;
(f) Any material agreement, license, franchise,
permit, indenture or authorization which has not been terminated or performed in
its entirety and not renewed;
(g) any instrument evidencing or related in any way
to indebtedness incurred in the acquisition of companies or other entities or
indebtedness for borrowed money by way of direct loan, sale of debt securities,
purchase money obligation, conditional sale, guarantee, or otherwise;
(h) Any material license agreement, either as
licensor or licensee; or
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(i) Any contract containing covenants purporting to
limit the Company's freedom to compete in any line of business in any geographic
area.
2.1.14 Employees. Except as otherwise disclosed in the Company
Disclosure Schedule:
(a) the Company has no employees and no written
employment agreements with any of its employees;
(b) the Company is not a part to any collective
bargaining agreements;
(c) there are no outstanding, pending, or to the
knowledge of the Shareholder, threatened actions, claims, grievances or
proceedings pertaining to the Company pursuant to any taxation, health,
employment or other law relating to employees or dependent or independent
contractors;
(d) the Company has made or paid all payments,
premiums, assessments, penalties and/or remittances in a timely fashion in
respect of its employees;
(e) all vacation pay for employees of the Company is
properly reflected and accrued in the books and accounts of the Company; and
(i) the Company is conducting its business in
compliance with all applicable taxation, health, labor and employment laws,
rules, regulations, notices, and orders, including, without limiting the
generality thereof, those pertaining to occupational health and safety, pay
equity, employment equity, employment standards and workers' compensation and is
not in breach of any such laws, rules, regulations, notices or orders.
2.1.15 Employee Benefit Plans. The Company has no bonus,
deferred compensation, incentive compensation, share purchase, share option,
stock appreciation, phantom stock, savings, profit sharing, severance or
termination pay, health or other medical, life, disability or other insurance
(whether insured or self-insured), supplementary unemployment benefit, pension,
retirement, supplementary retirement and every other benefit plan, program,
agreement or arrangement (whether written or unwritten), maintained or
contributed to by the Company at any time for the benefit of any of its
employees or dependant or independent contractors, or their respective
dependants or beneficiaries (the "Benefit Plans");
2.1.16 Certain Agreements. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated hereby
will (i) result in any payment by the Company (including, without limitation,
severance, unemployment compensation, parachute payment, bonus or otherwise)
becoming due to any director, employee or independent contractor of the Company
under any plan, agreement or otherwise.
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2.1.17 Brokers and Finders. Neither the Company nor the
Shareholder has retained any broker, finder, or investment banker in connection
with this Agreement or any of the transactions contemplated by this Agreement,
nor does or will the Company owe any fee or other amount to any broker, finder,
or investment banker in connection with this Agreement or the transactions
contemplated by this Agreement.
2.1.18 Environmental Matters.
(a) There has not been a discharge or release on any
real property owned or leased at any time by the Company (the "Real Property")
of any Hazardous Material (as defined below) in violation of any federal,
provincial or local statute, regulation, rule or order applicable to health,
safety and the environment, including without limitation, contamination of soil,
groundwater or the environment, generation, handling, storage, transportation or
disposal of Hazardous Materials or exposure to Hazardous Materials;
(b) No Hazardous Material has been used by the
Company in the operation of the Company's business;
(c) The Company has not received from any
Governmental Entity or third party any request for information, notice of claim,
demand letter or other notification, notice or information that the Company is
or may be potentially subject to or responsible for any investigation or
clean-up or other remediation of Hazardous Material present on any Real
Property;
(d) There have been no environmental investigations,
studies, audits, tests, reviews or other analyses, the purpose of which was to
discover, identify or otherwise characterize the condition of the soil,
groundwater, air, or presence of asbestos at any of the Real Property sites;
(e) No asbestos has been removed from any Real
Property while such Real Property was owned or operated by the Company; and
(f) There are no underground storage tanks on, in or
under any of the Real Property and no underground storage tanks have been closed
or removed from any Real Property which have been in the ownership of the
Company.
"Hazardous Material" means any substance (i) that is a "hazardous
waste" or "hazardous substance" under any federal, provincial or local statute,
regulation, rule or order, or (ii) that is toxic, explosive, corrosive,
flammable, infectious, radioactive, or otherwise hazardous and is regulated by
any Governmental Entity, or (iii) the presence of which on any of the Real
Property causes or threatens to cause a nuisance on any of the Real Property or
to adjacent properties or poses or threatens to pose a hazard to the health or
safety of persons on or about any of the Real Property, or (iv) the presence of
which on adjacent properties could constitute a trespass by the Company or then
current owner(s) of any of the Real Property.
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"Environmental Laws" means all statutes, regulations, municipal
by-laws, codes, ordinances, decrees, rules, protocols, orders, judicial or
administrative or ministerial regulatory judgments, orders, decisions and
rulings, guidelines and policies applicable to the Company, and the Real
Property relating to the protection of the natural environment, health and
safety matters or conditions, Hazardous Material, including but not limited to
storage, transportation, treatment and disposal of Hazardous Material, employee
and product safety, releases of pollutants, contaminants, chemical or
industrial, toxic or Hazardous Material into the environment or any building or
structure or otherwise relating to the manufacture, processing, distributing,
using, treating, storing, transporting or handling of Hazardous Material.
2.1.19 NASD and SEC Matters. The Company has delivered to the
Purchasers a true, correct, and complete copy of the Company's information
report filed with the Over-the-Counter Bulletin Board of the NASD (the "Bulletin
Board") pursuant to NASD Rule 6740, together with all amendments thereof and
supplements thereto (the "Company NASD Report"), which, as of the date hereof,
is the only document that the Company was required to file with the NASD. As of
its date, the Company NASD Report (i) complied as to form in all material
respects with the requirements of the NASD rules and (ii) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. The
financial statements (including the notes thereto) included in the Company NASD
Report complied as to form in all material respects with the published rules and
regulations of the NASD. On January 4, 1999 the Common Stock was and on the date
hereof the Common Stock is quoted on the Bulletin Board. The Company is in full
compliance will all applicable requirements of the NASD and the SEC.
2.1.20 Absence of Activities Since Reorganization.. On
December 16, 1998 (the "Reorganization Date") the Company effected a
reorganization (the "Reorganization") pursuant to which it distributed to all
shareholders of record on the Reorganization Date all of the stock of a newly
formed Subsidiary which owned all of the assets and obligations of the Company
prior to the Reorganization Date. Since the Reorganization Date, the Company has
not conducted any business operation or activity other then in connection with
the negotiation and execution of this Agreement.
2.1.21 Disclosure. Neither the representations or warranties
made by the Company or the Shareholder in this Agreement, nor the Company
Disclosure Schedule or any other certificate executed and delivered by the
Company or the Shareholder pursuant to this Agreement, when taken together,
contains any untrue statement of a material fact, or omits to state a material
fact necessary to make the statements or facts contained herein or therein not
misleading in light of the circumstances under which they were made or
furnished.
2.1.22 Reliance. The foregoing representations and warranties
are made by the Company and the Shareholder with the knowledge and expectation
that the Purchasers are placing reliance thereon.
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2.2 Representations and Warranties of the Purchasers. Each Purchaser,
severally with respect to itself, represents and warrants as follows:
2.2.1 Organization, Standing and Power. The Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its formation, has all requisite power and authority to
own, lease and operate its properties and to carry on its businesses as now
being conducted.
2.2.2 Authority. The execution, delivery, and performance of
this Agreement by the Purchaser has been duly authorized by all necessary action
of the Board of Directors or other governing body of the Purchaser. The
Purchaser has duly and validly executed and delivered this Agreement, and this
Agreement constitutes a valid, binding, and enforceable obligation of the
Purchaser in accordance with its terms.
2.2.3 Compliance with Laws and Other Instruments. Neither the
execution and delivery of this Agreement by the Purchaser nor the performance by
the Purchaser of its obligations under this Agreement will violate any provision
of law or will conflict with, result in the breach of any of the terms and
conditions of, constitute a default under, permit any party to accelerate any
right under, renegotiate or terminate, require consent, approval, or waiver by
any party under, or result in the creation of any lien, charge, or encumbrance
upon any of the properties, assets, or shares of capital stock of the Purchaser
pursuant to any charter document of the Purchaser or any agreement, indenture,
mortgage, franchise, license, permit, lease, or other instrument of any kind to
which the Purchaser is a party or by which the Purchaser or any of its assets
are bound or affected other than such violations, conflicts, breaches, defaults
or rights which, singly or in the aggregate, would not have a material adverse
effect on the Purchaser's business condition or would not prevent the Purchaser
from performing any of its obligations under this Agreement. No Consent is
required by or with respect to the Purchaser in connection with the execution
and delivery of this Agreement by the Purchaser or the consummation by the
Purchaser of the transactions contemplated hereby or thereby, except for such
consents, authorizations, filings, approvals and registrations which if not
obtained or made would not have a material adverse effect on the Purchaser's
business condition or would not prevent the Purchaser from performing any of its
obligations under this Agreement.
2.2.4 Investment Representations. The Purchaser (i) is an
"accredited investor" (as defined in Rule 501(a) under the Securities Act of
1933, as amended (the "Act")), (ii) has the capacity to protect his, her or its
interests in connection with the transactions contemplated hereby, and (iii) is
capable of evaluating the merits and risks of the transactions contemplated
hereby.
2.2.5 Reliance. The foregoing representations and warranties
are made by the Purchaser with the knowledge and expectation that the Company
and the Shareholder are placing reliance thereon.
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ARTICLE III
COVENANTS OF THE COMPANY AND THE SHAREHOLDER
During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time, the
Company and the Shareholder, jointly and severally, agree (except as expressly
contemplated by this Agreement):
3.1 Conduct of Business. The Company shall not carry on any business.
The Company shall promptly notify the Purchasers of any event or occurrence or
emergency which is material and adverse to the Company's business condition. The
Company shall not, except as approved in writing by the Purchasers:
(a) enter into any commitment or transaction;
(b) grant any severance or termination pay to any officer,
director, independent contractor or employee of the Company;
(c) enter into or amend any agreement;
(d) commence a lawsuit; or
(e) issue, accelerate the vesting or otherwise modify any
option, warrant, convertible security, or other right or agreement with respect
to any equity security of the Company.
3.2 Reverse Split, Dividends, Issuance of or Changes in Securities. As
soon as practicable following the date hereof, the Company shall cause a
One-for-Thirty Six (1-for-36) reverse split (the "Reverse Split") of its Common
Stock to be effected so that following the Reverse Split, a total of 250,000
shares of Common Stock shall be issued and outstanding. Other than in connection
with the Reverse Split, the Company shall not: (i) declare or pay any dividends
on or make other distributions (whether in cash, shares or property), (ii)
issue, deliver, or sell, or authorize, propose or agree to, or commit to the
issuance, delivery, or sale of any shares of its capital stock of any class, any
the Company Voting Debt or any securities convertible into its capital stock,
any options, warrants, calls, conversion rights, commitments, agreements,
contracts, understandings, restrictions, arrangements or rights of any character
obligating the Company to issue any such shares, the Company Voting Debt or
other convertible securities, (iii) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of capital stock of the
Company, (iv) repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock or (iv) propose any of the foregoing.
Notwithstanding the preceding sentence, prior to the Effective Time, the Company
shall (i) effect the repurchase of the Company Warrants for a cash purchase
price not to exceed $3,020 in the aggregate and (ii) file with the Securities
and Exchange Commission (the "SEC") and the States of Louisiana and Texas an
amendment to the Form D of the Company filed with the SEC on January 19, 1999
(the "Form D") which amends the offering exemption reflected therefor from Rule
504 to Rule 506 under the Act. In
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addition, at or prior to Closing the Company shall cause to be delivered to the
Purchasers (and also addressed to the LLC) an opinion of counsel to the effect
that the offering of Common Stock referred to in the Form D complied with all
applicable requirements of Rule 506 under the Act.
3.3 Governing Documents. The Company shall not amend its Charter
Documents except with the prior written consent of the Purchasers.
3.4 Exclusivity; Acquisition Proposals. Unless and until this Agreement
shall have been terminated pursuant to Article VIII hereof and thereafter
subject to Section 8.5, neither the Company nor the Shareholder shall take or
cause or permit any person to take, directly or indirectly, any of the following
actions with any party other than the Purchasers and its designees: (i) solicit,
encourage, initiate or participate in any negotiations, inquiries or discussions
with respect to any offer or proposal to acquire all or any significant part of
its business, assets or capital shares whether by original issuance, merger,
consolidation, other business combination, purchase of assets, tender or
exchange offer or otherwise (each of the foregoing, an "Acquisition
Transaction"); or (ii) enter into or execute any agreement relating to an
Acquisition Transaction.
3.5 No Acquisitions. The Company shall not acquire or agree to acquire
by merging or consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire or agree to make any such acquisition.
3.6 Indebtedness. Except as contemplated hereby, the Company shall not
incur any indebtedness for borrowed money by way of direct loan, sale of debt
securities, purchase money obligation, conditional sale, guarantee, or
otherwise.
3.7 Compensation. The Company shall not adopt any benefit plan or pay
any pension or retirement allowance. The Company shall not enter into any
employment contracts, increase the salaries, wage rates or fringe benefits of
its officers, directors or employees or pay bonuses or other remuneration.
3.9 Claims. The Company shall not settle any claim, action or
proceeding.
3.10 Access to Properties and Records. Throughout the period between
the date of this Agreement and the Closing, the Company shall give the
Purchasers and their representatives full access to its contracts, commitments,
books, records, and affairs, and shall provide the Purchasers with such
financial and operating data and other information pertaining to its business as
the Purchasers may request.
3.11 Breach of Representation and Warranties. Neither the Company nor
the Shareholder will take any action that would cause or constitute a breach of
any of the representations and warranties set forth in Section 2.1 or that would
cause any of such representations and warranties to be inaccurate in any
material respect. In the event of, and promptly after becoming aware of, the
occurrence of or the pending or threatened occurrence of
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any event that would cause or constitute such a breach or inaccuracy, the
Company will give detailed notice thereof to the Purchasers and will use
commercially reasonable efforts to prevent or promptly remedy such breach or
inaccuracy.
3.12 Tax Returns. The Company shall promptly provide the Purchasers
with copies of all tax returns, reports and information statements that have
been filed or are filed prior to or after the Closing Date. The Shareholder will
fully indemnify, defend and hold the Purchasers harmless from any and all taxes
(i) attributable to the Company for all periods ended on or before the Closing
Date; and (ii) which may be or become payable by the Shareholder, including
without limitation, any taxes resulting from or arising as a consequence of the
sale by the Shareholder of the Common Stock.
3.13 Notice of Events. Throughout the period between the date of this
Agreement and the Closing, the Company shall promptly advise the Purchasers of
any and all material events and developments concerning its financial position,
results of operations, assets, liabilities, or business or any of the items or
matters concerning the Company covered by the representations, warranties, and
covenants of the Company and the Shareholder contained in this Agreement.
3.14 Reasonable Efforts. the Company and the Shareholder will use
commercially reasonable efforts to effectuate the transactions contemplated
hereby and to fulfill and cause to be fulfilled the conditions to Closing under
this Agreement.
ARTICLE IV
COVENANTS OF THE PURCHASERS
During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time, each of
the Purchasers severally with respect to itself agrees that:
4.1 Breach of Representations and Warranties. The Purchaser will not
take any action which would cause or constitute a breach of any of the
representations and warranties set forth in Section 2.2 or which would cause any
of such representations and warranties to be inaccurate in any material respect.
In the event of, and promptly after becoming aware of, the occurrence of or the
pending or threatened occurrence of any event which would cause or constitute
such a breach or inaccuracy, the Purchasers will give detailed notice thereof to
the Company and will use its best efforts to prevent or promptly remedy such
breach or inaccuracy.
4.2 Reasonable Efforts. The Purchaser will use commercially reasonable
efforts to effectuate the transactions contemplated hereby and to fulfill and
cause to be fulfilled the conditions to Closing under this Agreement.
4.3 Counterpart Signature Pages. At or prior to Closing, each Purchaser
shall have executed and delivered to the Company a counterpart signature page to
this Agreement. Execution of the signature page by each Purchaser shall evidence
such Purchaser's acceptance
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and confirmation of Verus' authority as agent on behalf of such Purchaser and
all terms and conditions set forth herein.
ARTICLE V
ADDITIONAL AGREEMENTS
In addition to the foregoing, the Purchasers, the Company and the
Shareholder each agree to take the following actions after the execution of this
Agreement.
5.1 Legal Conditions. Each of the Purchasers, the Company, and the
Shareholder will take all commercially reasonable actions to obtain (and to
cooperate with the other parties in obtaining) any consent required to be
obtained or made by any such party in connection with the taking of any action
contemplated by this Agreement.
5.2 Expenses. Whether or not the transactions contemplated by this
Agreement are consummated, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby and thereby shall be
paid by the party incurring such expense.
5.3 Additional Agreements. In case at any time after the Effective Time
any further action is reasonably necessary or desirable to carry out the
purposes or intent of this Agreement or the representations, warranties or
covenants contained herein, the Shareholder and the proper officers and
directors of each corporation which is a party to this Agreement shall take all
such necessary action as reasonably requested by the Purchasers.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligations. The respective obligation
of each party to effect the transaction contemplated by Section 1 shall be
subject to the satisfaction prior to the Closing Date of the following
conditions:
6.1.1 No Restraints. No statute, rule, regulation, executive
order, decree or injunction shall have been enacted, entered, promulgated or
enforced by any court or Governmental Entity of competent jurisdiction which
enjoins or prohibits the consummation of the transactions contemplated by this
Agreement shall be in effect.
6.2 Conditions of Obligations of the Purchasers. The obligations of the
Purchasers to effect the transactions contemplated by Section 1 are subject to
the satisfaction of the following conditions unless waived by the Purchasers:
6.2.1 Representations and Warranties of the Company and the
Shareholder. The representations and warranties of the Company and the
Shareholder set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date, except as otherwise contemplated by
this Agreement. The Purchasers shall have received a certificate
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signed by or on behalf of each Shareholder and by the chief executive officer of
the Company to such effect on the Closing Date.
6.2.2 Performance of Obligations of the Company and the
Shareholder. The Company, and the Shareholder shall have performed in all
material respects all agreements and covenants required to be performed by them
under this Agreement prior to the Closing Date, and the Purchasers shall have
received a certificate signed by or on behalf of the Shareholder and the chief
executive officer of the Company to such effect on the Closing Date.
6.2.3 The Reverse Split, Warrant Repurchase, Amendment to Form
D. The Reverse Split and repurchase of all outstanding Warrants shall have been
effected on terms and conditions acceptable to the Purchasers. The Company shall
have also filed an amendment to the Form D with the SEC and States of Louisiana
and Texas as contemplated by Section 3.2.
6.2.4 Legal Action. There shall not be overtly threatened or
pending any action, proceeding or other application before any court or
Government Entity brought by any person or Governmental Entity challenging or
seeking to restrain or prohibit the consummation of the transactions
contemplated by this Agreement, or seeking to obtain any material damages caused
by such transaction.
6.3 Conditions of Obligation of the Company and the Shareholder. The
obligation of the Company and the Shareholder to effect the transactions
contemplated by Section 1 is subject to the satisfaction of the following
conditions unless waived by the Company and the Shareholder:
6.3.1 Representations and Warranties of the Purchasers. The
representations and warranties of the Purchasers set forth in this Agreement
shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date as though made on and as of the Closing
Date.
6.3.2 Performance of Obligations of the Purchasers. The
Purchasers shall have performed in all material respects all agreements and
covenants required to be performed by them under this Agreement prior to the
Closing Date.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification Relating to Agreement. The Shareholder agrees to
defend, indemnify, and hold each Purchaser harmless from and against, and to
reimburse each Purchaser with respect to, any and all losses, damages,
liabilities, claims, judgments, settlements, fines, costs, and expenses
(including attorneys' fees) ("Indemnifiable Amounts") of every nature whatsoever
incurred by the Purchaser by reason of or arising out of or in connection with
(i) any breach, or any claim (including claims by parties other than the
Purchasers) that if true, would constitute a breach, by the Company or the
Shareholder of any representation or warranty of the Company or the Shareholder
contained in this Agreement or in any certificate or other document
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delivered to the Purchaser pursuant to the provisions of this Agreement, (ii)
the failure, partial or total, of the Company or the Shareholder to perform any
agreement or covenant required by this Agreement to be performed by it, (iii)
claims by third parties relating to any action or omission prior to Closing by
the Company or the Shareholder, their affiliates, agents or representatives and
(iv) claims by third parties relating to the business conducted the Company or
the Shareholder prior to the Effective Time or with respect to services
performed or products supplied to customers of the Company before the Effective
Time or any other third party claims or liabilities in any way arising from the
Company prior to Closing. The obligations of the Shareholder to indemnify the
Purchasers shall be determined without regard to any right to indemnification to
which the Shareholder may have in his or her capacity as an officer, director,
employee, agent or any other capacity of the Company and the Shareholder shall
not be entitled to any indemnification or contribution from the Company for
amounts paid hereunder or in any way arising out of this Agreement. As used in
this Article VII, the term "Purchaser" shall include any officer, director,
employee or agent of a Purchaser and any person or entity controlling,
controlled by or under common control with a Purchaser.
7.2 Third Party Claims. With respect to any claims or demands by third
parties, whenever any Purchaser shall have received a written notice that such a
claim or demand has been asserted or threatened, the Purchasers shall notify the
Shareholder of such claim or demand and of the facts within the Purchasers'
knowledge that relate thereto within a reasonable time after receiving such
written notice. The Shareholder shall then have the right to contest, negotiate
or settle any such claim or demand through counsel of their own selection,
satisfactory to the Purchasers and solely at their own cost, risk, and expense,
provided that the Shareholder has acknowledged in writing its unqualified
obligation to indemnify the Purchasers with respect to the matter so notified by
the Purchaser. Notwithstanding the preceding sentence, the Shareholder shall not
settle, compromise, or offer to settle or compromise any such claim or demand
without the prior written consent of the Purchasers, which consent shall not be
unreasonably withheld. If the Shareholder fails to give written notice to the
Purchasers of its intention to contest or settle any such claim or demand within
thirty (30) calendar days after the Purchasers have notified the Shareholder
that any such claim or demand has been made in writing and received by the
Purchasers, or if any such notice is given but any such claim or demand is not
promptly contested by the Shareholder, the Purchasers shall have the right to
satisfy and discharge the same by payment, compromise, or otherwise, and the
Shareholder shall be entirely liable therefor to the Purchasers under this
indemnity. The Purchasers may also, if they so elect and entirely within their
own discretion, defend any such claim or demand if the Shareholder fails to give
notice of its intention to contest or settle any such claim or demand, in which
event the Shareholder shall be required to indemnify the Purchasers and their
affiliates for any and all costs, losses, liabilities, and expenses whatsoever,
including without limitation reasonable attorneys' and other professional fees,
that the Purchasers may sustain, suffer, incur, or become subject to as a result
of the Purchasers' decision to defend any such claim or demand.
7.3 Other Remedies. Nothing contained in this Article VII shall be in
lieu of, or constitute a waiver of, any remedies at law or in equity that any
Purchaser may otherwise have against the Shareholder for wrongful action by the
Shareholder.
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7.4 Binding Effect. The indemnification obligations of the Shareholder
contained in this Article VII are an integral part of this Agreement in the
absence of which the Purchasers would not have entered into this Agreement.
ARTICLE VIII
TERMINATION
8.1 Mutual Agreement. This Agreement may be terminated at any time
prior to the Effective Time by the written consent of the parties.
8.2 Termination by the Purchasers. This Agreement may be terminated by
the Purchasers alone, by means of written notice to the Company if there has
been a material breach by the Company or the Shareholder of any representation,
warranty, covenant or agreement set forth in the Agreement or other ancillary
agreements.
8.3 Termination by the Company. This Agreement may be terminated by the
Company alone, by means of written notice to the Purchasers, if there has been a
material breach by the Purchaser of any representation, warranty, covenant or
agreement set forth in the Agreement or other ancillary agreements.
8.4 Outside Date. This Agreement may be terminated by the Purchasers
alone or by the Company alone by means of written notice if the Effective Time
does not occur on or prior to March 31, 1999.
8.5 Effect of Termination. In the event of termination of this
Agreement by either the Company or the Purchasers as provided in this Article,
this Agreement shall forthwith become void and have no effect, and there shall
be no liability or obligation on the part of the Purchasers, the Company, or
their respective officers or directors or the Shareholder, except that (i) the
provisions of Section 9.2 shall survive any such termination and abandonment,
and (ii) no party shall be released or relieved from any liability arising from
the willful breach by such party of any of its representations, warranties,
covenants or agreements as set forth in this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 Entire Agreement. This Agreement, including the exhibits and
schedules delivered pursuant to this Agreement, contain all of the terms and
conditions agreed upon by the parties relating to the subject matter of this
Agreement and supersede all prior agreements, negotiations, correspondence,
undertakings, and communications of the parties, whether oral or written,
respecting that subject matter, except to the extent that the Shareholder or
certain of them may enter into one or more agreements among themselves and/or
with the Shareholder.
9.2 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Washington as applied to agreements
entered into and entirely to be performed within that State. The parties hereby
agree that any dispute or
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controversy arising out of or related to this Agreement or the transactions
contemplated by this Agreement may be held in the federal and state courts
located in King County, Washington, United States, and irrevocably consent to
the non-exclusive jurisdiction of such courts with respect to any such dispute
or controversy.
9.3 Headings. The headings contained in this Agreement are intended
principally for convenience and shall not, by themselves, determine the rights
of the parties to this Agreement.
9.4 Notices. All notices, requests, demands, and other communications
made in connection with this Agreement shall be in writing and shall be deemed
to have been duly given on the date of delivery, if delivered to the persons
identified below, or upon receipt if (a) mailed by certified or registered mail,
postage prepaid, return receipt requested, (ii) upon receipt if sent by express
courier service, or (iii) sent by facsimile upon written confirmation of receipt
by the recipient of such notice:
If to any Purchaser: At the contact information set forth
below such Purchaser's name
on the signature page to this Agreement
With a copy to: Preston Gates & Ellis LLP
5000 Columbia Center
701 Fifth Avenue
Seattle, WA 98104-7078
Attention: Gary J. Kocher
Telephone No.: (206) 623-7580
Facsimile No.: (206) 623-7022
If to the Company: Knowledge Networks Acquisition, Inc.
24843 Del Prado
Suite 318
Dana Point, CA 92629
Attention: Mr. Kirt W. James
Telephone No.(949) 248-1765
Facsimile No.:
With a copy to: William Stocker
34700 Pacific coast Highway
Suite 303
Capistrano Beach, CA 92624
Telephone: (949) 248-9561
Facsimile No: (949) 248-1699
-18-
<PAGE>
If to the Shareholder: Intrepid International S.A.
P.O. Box 8807
Panama 5, Panama
Attention:
Telephone No.:
Facsimile No.:
With a copy to: Karl E. Rodriguez
34700 Pacific Coast Highway
Suite 303
Capistrano Beach, CA 92624
Telephone: (949) 248-9561
Facsimile No: (949) 248-1688
Such addresses may be changed, from time to time, by means of a notice
given in the manner provided in this Section 9.4.
9.5 Severability. If any provision of this Agreement is held to be
unenforceable for any reason, it shall be modified rather than voided, if
possible, in order to achieve the intent of the parties to this Agreement to the
extent possible. In any event, all other provisions of this Agreement shall be
deemed valid and enforceable to the full extent.
9.6 Survival of Representations and Warranties. Except as otherwise
expressly provided herein, all representations, warranties and covenants
contained in this Agreement, including the exhibits and schedules delivered
pursuant to this Agreement, shall survive the Effective Time.
9.7 Assignment. No party may assign, by operation of law or otherwise,
all or any portion of its rights, obligations, or liabilities under this
Agreement without the prior written consent of the other parties to this
Agreement, which consent may be withheld in the absolute discretion of the party
asked to grant such consent. Any attempted assignment in violation of this
Section 9.7 shall be void and of no force or effect.
9.8 Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures to each counterpart were
upon a single instrument. All counterparts shall be deemed an original of this
Agreement.
9.9 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties whose rights or
obligations hereunder are affected by such amendment.
9.10 Extension, Waiver. At any time prior to the Effective Time, any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other party hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered
-19-
<PAGE>
pursuant hereto and (iii) waive compliance with any of the agreements, covenants
or conditions for the benefit of such party contained herein. Any agreement on
the part of a party hereto to any such extension or waiver shall be valid only
if set forth in an instrument in writing signed on behalf of such party.
9.11 Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section, Exhibit
or Schedule to this Agreement unless otherwise indicated. The words "include,"
"includes," and "including" when used therein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
9.12 Time of Essence. Time is of the essence of each provision of this
Agreement.
[Remainder of page intentionally blank]
-20-
<PAGE>
IN WITNESS WHEREOF, the Purchasers, the Company and the Shareholder
have executed this Agreement as of the date first written above.
KNOWLEDGE NETWORKS ACQUISITIONS, INC. INTREPID INTERNATIONAL S.A.
By ______________________________ By ______________________________
Name: Kirt W. James Name: Kirt W. James
Title: President Title: President
VERUS CAPITAL CORP.
As Agent of the Several Purchasers:
By ______________________________
Name:
Title:
<PAGE>
Counterpart signature page to Stock Purchase Agreement dated February 5, 1999:
THE PURCHASERS:
VALIANT GROWTH FUND 568127 BC LTD.
By: ________________________________ By: _______________________________
Name: Name:
Title: Title:
Address: Box 599, Caribbean Place Address: 568127 BC Ltd.
Providinciales Turks & Caicos 4230 Nautilus Close
Islands, BWI Vancouver BC, V6R 4L6
Phone: Phone:
Fax: Fax:
ORION PROJECTS LIMITED DELTA REALTY LIMITED
____________________________________ ___________________________________
Address: 26 Ailesbury Road Address: 3 Charlesville
Ballsbridge, Dublin 4 Lower Churchtown Road
Phone: Dublin 14
Fax: Phone:
Fax:
GOLDSTAR CONTINENTAL LIMITED CALEDONIAN BUSINESS SERVICES LIMITED
____________________________________ ___________________________________
Address: 66 Lower Baggot Sreet Address: 15 Herbert Street
Dublin 2 Dublin 2
Phone: Phone:
Fax: Fax:
21ST CENTURY AGENCY LIMITED ESSENTIAL TRADING LIMITED
____________________________________ ___________________________________
Address: 17 Castlecourt Address: 8 Glencalm Drive
Booterstown Blackrock The Gallops
Co Dublin Leopardstown, Dublin 18
Phone: Phone:
Fax: Fax:
<PAGE>
TOPLINE MANAGEMENT SERVICES LIMITED CITYWIDE IMPORTS & EXPORTS LIMITED
____________________________________ ___________________________________
Address: 77 Abbeyfield Address: Citywide Imports & Exports
Milltown, Dublin 6 Limited
Phone: 183 Beaumont
Fax: Beaumont, Dublin 9
Phone:
Fax:
<PAGE>
SCHEDULE 1.3
PURCHASER LOAN AMOUNT SHARES PURCHASED
- --------- ----------- ----------------
Valiant Growth Fund $108,364 298,000
568127 BC Ltd. 101,091 278,000
Orion Projects Limited 97,091 267,000
Delta Realty Limited 95,273 262,000
Goldstar Continental Limited 105,454 290,000
Caledonian Business Services Limited 102,545 282,000
21st Century Agency Limited 100,727 277,000
Essential Trading Limited 98,545 271,000
Topline Management Services Limited 97,092 267,000
Citywide Imports & Exports Limited 93,818 258,000
----------- ----------
Total: $1,000,000 2,750,000
<PAGE>
INDEX OF DEFINED TERMS
Term Page Defined
Acquisition Transaction.......................12
Act............................................1
Agreement......................................1
Benefit Plans..................................7
Bulletin Board.................................9
Charter Documents..............................3
Closing........................................1
Closing Date...................................1
Common Stock...................................1
Company........................................1
Company NASD Report............................9
Company Voting Debt............................3
Company Warrants...............................3
Consents.......................................4
Consideration..................................1
Disclosure Schedule............................2
Effective Time.................................1
Environmental Laws.............................9
Financial Statements...........................4
Form D........................................11
Governmental Entity............................4
Hazardous Material.............................8
Indemnifiable Amounts.........................15
Intellectual Property..........................4
Lease..........................................6
Leases.........................................6
LLC............................................1
Loans..........................................1
Merger.........................................1
Permits........................................3
Purchasers.....................................1
Real Property..................................8
Reorganization.................................9
Reorganization Date............................9
Reverse Split.................................11
Term Page Defined
SEC...........................................11
Shareholder....................................1
Shares.........................................1
Subsidiary.....................................2
tax............................................5
taxes..........................................5
Verus..........................................1
<PAGE>
Exhibit 10.2
THIS WARRANT AND ANY SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), NOR UNDER ANY
STATE SECURITIES LAW AND SUCH SECURITIES MAY NOT BE PLEDGED, SOLD, ASSIGNED,
HYPOTHECATED, OR OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT WITH
RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES
LAW OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR COUNSEL
TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE PLEDGED, SOLD,
ASSIGNED, HYPOTHECATED, OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS.
THE TRANSFER OF THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE HEREOF
ARE RESTRICTED AS DESCRIBED HEREIN.
WATTAGE MONITOR INC.
Warrant to purchase _________ shares of Series B Preferred Stock,
$.01 par value per share
No. ___ February ___, 1999
<PAGE>
THIS CERTIFIES that, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, ________________ ("_______" or
the "Holder"), is entitled to subscribe for and purchase from Wattage Monitor
Inc., a Nevada corporation (the "Company"), upon the terms and conditions set
forth herein, at any time or from time to time, during the period commencing 181
days after the date (the "Trigger Date") of the closing of the merger of
WattMonitor LLC into the Company, pursuant to the terms of an Agreement and Plan
of Merger (the "Merger Agreement"), dated as of February 26, 1999, by and
between WattMonitor LLC and the Company, and expiring at 5:00 p.m. on December
15, 1999 (the "Exercise Period"), ____________ shares of the Company's Series B
Preferred Stock, $.01 par value per share (the "Series B Preferred Stock"), at
an exercise price (the "Exercise Price") per share equal to $1.00. The
designation of the rights and preferences (the "Series B Designation") of the
Series B Preferred Stock shall be as set forth in Exhibit 2.05(a)(ii) of the
Merger Agreement. As used herein, the term "this Warrant" shall mean and include
this Warrant and any Warrant or Warrants hereafter issued as a consequence of
the exercise or transfer of this Warrant in whole or in part. As used herein,
the term "Holder" shall include any transferee to whom this Warrant has been
transferred in accordance with the terms hereof.
The number of shares of Series B Preferred Stock issuable upon exercise
of this Warrant (the "Warrant Shares") and the Exercise Price may be adjusted
from time to time as hereinafter set forth.
1. Subject to the provisions of Section 2, this Warrant may be
exercised during the Exercise Period, as to the whole or any lesser number of
whole Warrant Shares, by transmission by telecopy of the Election to Exercise,
followed within three (3) business days by the surrender of this Warrant (with
the Election to Exercise attached hereto duly executed) to the Company at its
office at 1100 Kietzke Street, Reno, Nevada 89502, or at such other place as is
designated in writing by the Company, together with a certified or bank
cashier's check payable to the order of the Company in an amount equal to the
product of the Exercise Price and the number of Warrant Shares for which this
Warrant is being exercised (the "Aggregate Exercise Price").
2. Upon each exercise of the Holder's rights to purchase Warrant
Shares, the Holder shall be deemed to be the holder of record of the Warrant
Shares issuable upon such exercise, notwithstanding that the transfer books of
the Company shall then be closed or certificates representing such Warrant
Shares shall not then have been actually delivered to the Holder. Within five
(5) business days after each such exercise of this Warrant and receipt by the
Company of this Warrant, the Election to Exercise and the Aggregate Exercise
Price, the Company shall issue and deliver to the Holder a certificate or
certificates for the Warrant Shares issuable upon such exercise, registered in
the name of the Holder or its designee. 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 Warrant Shares (or portions thereof) subject to purchase
hereunder.
3. Any Warrants issued upon the transfer or exercise in part of this
Warrant shall be numbered and shall be registered in a Warrant register (the
"Warrant Register") as they are issued.
2
<PAGE>
The Company shall be entitled to treat the registered holder of any Warrant on
the Warrant Register as the owner in fact thereof for all purposes and shall not
be bound to recognize any equitable or other claim to or interest in such
Warrant on the part of any other person, and shall not be liable for any
registration of transfer of Warrants which are registered or to be registered in
the name of a fiduciary or the nominee of a fiduciary unless made with the
actual knowledge of the general counsel of the Company that a fiduciary or
nominee is committing a breach of trust in requesting such registration of
transfer. In all cases of transfer by an attorney, executor, administrator,
guardian, or other legal representative, duly authenticated evidence of his or
its authority shall be produced. Upon any registration of transfer, the Company
shall deliver a new Warrant or Warrants to the person entitled thereto. This
Warrant may be exchanged, at the Warrant of the Holder thereof, for another
Warrant, or other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of Warrant
Shares (or portions thereof), upon surrender to the Company or its duly
authorized agent. Notwithstanding anything contained herein to the contrary, the
Company shall have no obligation to cause Warrants to be transferred on its
books to any person if, in the opinion of counsel to the Company, such transfer
does not comply with the provisions of the Act and the rules and regulations
thereunder.
4. On or prior to the Trigger Date, the Company will take all necessary
actions to authorize and adopt the Series B Designation, and at all times
thereafter until the expiration or termination of this Warrant, shall reserve
and keep available out of its authorized and unissued preferred stock, solely
for the purpose of providing for the exercise of the rights to purchase all
Warrant Shares granted pursuant to this Warrant and all other Series B Warrants,
such number of shares of preferred stock as shall, from time to time, be
sufficient therefor. The Company covenants that all shares of preferred stock
issuable upon exercise of this Warrant, upon receipt by the Company of the full
Exercise Price therefor, shall be validly issued, fully paid, nonassessable, and
free of preemptive rights.
5. The issuance of any Warrant, Warrant Shares or other securities upon
the exercise of this Warrant, and the delivery of certificates or other
instruments representing such Warrant Shares or other securities, except as
otherwise required by law, shall be made without charge to the Holder for any
tax or other charge in respect of such issuance, other than applicable transfer
taxes. Notwithstanding anything contained herein, all applicable transfer taxes
shall be borne by the Holder.
6. The Company shall use its best efforts to register the shares of
Common Stock underlying the Series B Preferred Stock with the Securities and
Exchange Commission as soon as reasonably practicable after the issuance of the
Series B Preferred Stock (but, in any event, within 75 days thereafter). The
Company shall use its best efforts to have such registration declared effective
as soon as reasonably practicable after filing with the SEC and shall keep such
registration statement effective for a period of at least one (1) year. In
connection with the registration statement, the Company shall indemnify the
Holders against all losses, claims or damages resulting from any untrue or
allegedly untrue statement of material fact contained in the registration
statement, or any omission or alleged omission of a material fact required to be
stated in the registration statement to
3
<PAGE>
make the statements therein not misleading; provided, however, that such
indemnification shall not extend to any Holder to the extent any such claim for
indemnification is based on information furnished by such Holder to the Company
in writing for use in connection with the registration statement, which
information contains any untrue or allegedly untrue statement of material fact
contained in the registration statement or any omission or alleged omission of a
material fact required to be stated in the registration statement to make the
statements therein not misleading. All expenses incurred in connection with the
preparation and filing of the registration statement and stock market listing
fees shall be paid by the Company.
7. Unless registered, the Warrant Shares issued upon exercise of the
Warrants shall be subject to a stop transfer order and the certificate or
certificates evidencing such Warrant Shares shall bear the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 (THE "ACT"), NOR UNDER ANY STATE SECURITIES LAW AND SUCH
SECURITIES MAY NOT BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED, OR
OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT WITH RESPECT
THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES
LAW OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY
OR COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION
ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY
BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED, OR TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS."
8. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of any Warrant (and upon surrender of any
Warrant if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses and, if reasonably requested, an indemnity reasonably
acceptable to the Company, the Company shall execute and deliver to the Holder
thereof a new Warrant of like date, tenor, and denomination.
9. The Holder of any Warrant shall not have, solely on account of such
status, any rights of a stockholder of the Company, either at law or in equity,
or to any notice of meetings of stockholders or of any other proceedings of the
Company, except as provided in this Warrant.
10. This Warrant shall be extinguished and any and all rights granted
herein shall be null and void in the event (i) that the Trigger Date does not
occur on or before March 2, 1999, or (ii) Verus Capital Corp., as agent for the
Holder, receives a notice of sale (the "Notice of Sale") from
4
<PAGE>
the Company stating that the Company intends to sell equity securities in an
aggregate principal amount of not less than $7,000,000 to a non-affiliate, and
the Holder fails to exercise this Warrant within thirty (30) days from the date
of the Notice of Sale.
11. This Warrant shall be governed by and construed in accordance with
the laws of the State of Nevada, without giving effect to the rules governing
the conflicts of laws.
12. The parties hereby irrevocably consent to the jurisdiction of the
courts of the State of New York and of any federal court located in such State
in connection with any action or proceeding arising out of or relating to this
Warrant, any document or instrument delivered pursuant to, in connection with,
or simultaneously with this Warrant, or a breach of this Warrant.
5
<PAGE>
[Warrant to Purchase Series B Preferred Stock Signature Page]
Dated: February 25, 1999
WATTAGE MONITOR INC.
By: __________________________
Name: Ajmal Khan
Title: President
6
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, ________________________________________ hereby
sells, assigns, and transfers unto __________________ a Warrant to purchase
__________ shares of Series B Preferred Stock, $.01 par value per share, of
Wattage Monitor Inc. (the "Company"), together with all right, title, and
interest therein, and does hereby irrevocably constitute and appoint _________
attorney to transfer such Warrant on the books of the Company, with full power
of substitution.
Dated: ________________
Signature ________________________
Signature Guaranteed:
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Warrant in every particular, without alteration
or enlargement or any change whatsoever.
To: Wattage Monitor Inc.
7
<PAGE>
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase _______
Warrant Shares covered by the within Warrant and tenders payment herewith [in
the amount of $_________] in accordance with the terms thereof, certifies that
he owns this Warrant free and clear of any and all claims, liens and/or
encumbrances and requests that certificates for such securities be issued in the
name of, and delivered to:
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant, that a new Warrant for the balance of the Warrant
Shares covered by the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below.
Dated: _____________ Name: __________________________________
(Print)
Address: _______________________________________________________________________
_____________________________________
(Signature)
8
<PAGE>
Exhibit 10.3
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
and entered into as of the 26th day of February, 1999, by and between Wattage
Monitor Inc., a Nevada corporation (the "Company"), and each of the other
individuals and entities listed on the signature pages hereof (the
"Shareholders").
R E C I T A L S
WHEREAS, each of the Shareholders has acquired shares (the
"Shares") of common stock (the "Common Stock"), par value $.01 per share of the
Company, pursuant to the terms of an Agreement and Plan of Merger, dated as of
February 26th, 1999 (the "Merger Agreement"), by and among the Company and
WattMonitor LLC ("WMLLC"); and
WHEREAS, pursuant to the terms of the Merger Agreement, the
Company has agreed to enter into this Agreement with the Shareholders.
NOW, THEREFORE, in consideration of the mutual premises,
representations, warranties and conditions set forth in this Agreement, the
parties hereto, intending to be legally bound hereby, agree as follows:
1. Definitions and References. For purposes of this Agreement,
in addition to the definitions set forth above and elsewhere herein, the
following terms shall have the following meanings:
(a) The term "Commission" shall mean the Securities and
Exchange Commission and any successor agency.
(b) The terms "register," "registered" and "registration"
shall refer to a registration effected by preparing and filing
a registration statement or similar document in compliance
with the 1933 Act (as herein defined) and the declaration or
ordering of effectiveness of such registration statement or
document.
(c) For purposes of this Agreement, the term "Registrable
Stock" shall mean the Shares. For purposes of this Agreement,
any Registrable Stock shall cease to be Registrable Stock when
(w) a registration statement covering such Registrable Stock
has been declared effective and such Registrable Stock has
been disposed of pursuant to such effective registration
statement, (x) such Registrable Stock is sold pursuant to Rule
144 (or any similar provision then in force) under the 1933
Act, (y) such Registrable Stock has been otherwise
transferred, no stop transfer order affecting such stock is in
effect
<PAGE>
and the Company has delivered new certificates or other
evidences of ownership for such Registrable Stock not bearing
any legend indicating that such shares have not been
registered under the 1933 Act, or (z) such Registrable Stock
is sold by a person in a transaction in which the rights under
the provisions of this Agreement are not assigned.
(d) The term "Holder" shall mean the Shareholders or any
permitted transferee or assignee thereof to whom the rights
under this Agreement are assigned in accordance with Section
10 hereof, provided that the Shareholders or such transferee
or assignee shall then own the Registrable Stock.
(e) The term "1933 Act" shall mean the Securities Act
of 1933, as amended.
(f) An "affiliate of such Holder" shall mean a person who
controls, is controlled by or is under common control with
such Holder, or the spouse or children (or a trust exclusively
for the benefit of the spouse and/or children) of such Holder,
or, in the case of a Holder that is a partnership, its
partners.
(g) The term "Person" shall mean an individual,
corporation, partnership, trust, limited liability company,
unincorporated organization or association or other entity,
including any governmental entity.
(h) The term "Requesting Holders" shall mean a Holder of
or Holders of in the aggregate at least 25% of the
Registrable Stock.
(i) References in this Agreement to any rules, regulations
or forms promulgated by the Commission shall include rules,
regulations and forms succeeding to the functions thereof,
whether or not bearing the same designation.
-2-
<PAGE>
2. Demand Registration.
(a) Commencing one (1) year after the closing of the
merger of WMLLC into the Company, any Requesting Holders may
make a written request on two (2) occasions to the Company
(specifying that it is being made pursuant to this Section 2)
that the Company file a registration statement under the 1933
Act (or a similar document pursuant to any other statute then
in effect corresponding to the 1933 Act) covering the
registration of all or any portion of Registrable Stock. In
such event, the Company shall (x) within ten (10) days
thereafter notify in writing all other Holders of Registrable
Stock of such request, and (y) use its best efforts to cause
to be registered under the 1933 Act all Registrable Stock
covered by the written request of the Requesting Holders,
within thirty (30) days after the Company has been given such
notice.
(b) If the Requesting Holders intend to distribute the
Registrable Stock covered by their request by means of an
underwritten offering, they shall so advise the Company as a
part of their request pursuant to Section 2(a) above, and the
Company shall include such information in the written notice
referred to in clause (x) of Section 2(a) above. In such
event, the Holder's right to include its Registrable Stock in
such registration shall be conditioned upon such Holder's
participation in such underwritten offering and the inclusion
of such Holder's Registrable Stock in the underwritten
offering to the extent provided in this Section 2. All Holders
proposing to distribute Registrable Stock through such
underwritten offering shall enter into an underwriting
agreement in customary form with the underwriter or
underwriters. Such underwriter or underwriters shall be
selected by a majority in interest of the Requesting Holders
and shall be approved by the Company, which approval shall not
be unreasonably withheld; provided, that all of the
representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such
Holders and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting
agreement shall be conditions precedent to the obligations of
such Holders; and provided further, that no Holder shall be
required to make any representations or warranties to or
agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such
Holder, the Registrable Stock of such Holder and such Holder's
intended method of distribution and any other representation
required by law or reasonably required by the underwriter.
(c) Notwithstanding any other provision of this Section
2 to the contrary, if the managing underwriter of an
underwritten offering of the Registrable Stock requested to be
registered pursuant to this Section 2 advises the Requesting
Holders in writing that in its opinion marketing factors
require a limitation of the number of shares of Registrable
Stock to be underwritten, the Requesting Holders shall so
advise all Holders of Registrable Stock that would otherwise
be underwritten pursuant hereto, and the number of shares of
Registrable Stock that may be included in such underwritten
offering shall be allocated among all such Holders, including
the Requesting Holders, in proportion (as nearly as
practicable) to the number of shares of Registrable Stock
requested to be included in such registration by each Holder
at the time of filing the registration statement; provided,
that in the event of such limitation of the number of shares
of Registrable Stock to be underwritten, the Holders shall be
entitled to an additional demand registration pursuant to this
Section 2. If any Holder of Registrable Stock
-3-
<PAGE>
disapproves of the terms of the underwriting, such Holder may
elect to withdraw by written notice to the Company, the
managing underwriter and the Requesting Holders. The
securities so withdrawn also shall be withdrawn from
registration.
(d) Notwithstanding any provision of this Agreement to
the contrary, the Company shall not be required to effect a
registration pursuant to this Section 2 during the period
starting with the fourteenth (14th) day immediately preceding
the date of an anticipated filing by the Company of, and
ending on a date ninety (90) days following the effective date
of, a registration statement pertaining to a public offering
of securities for the account of the Company; provided, that
the Company shall actively employ in good faith all reasonable
efforts to cause such registration statement to become
effective; and provided further, that the Company's estimate
of the date of filing such registration statement shall be
made in good faith.
(e) The Company shall be obligated to effect and pay
for a total of only two (2) registrations pursuant to this
Section 2, unless increased pursuant to Section 2(c) hereof;
provided, that a registration requested pursuant to this
Section 2 shall not be deemed to have been effected for
purposes of this Section 2(e), unless (i) it has been declared
effective by the Commission, (ii) if it is a shelf
registration, it has remained effective for the period set
forth in Section 4(b), (iii) the offering of Registrable Stock
pursuant to such registration is not subject to any stop
order, injunction or other order or requirement of the
Commission (other than any such action prompted by any act or
omission of the Holders), and (iv) no limitation of the number
of shares of Registrable Stock to be underwritten has been
required pursuant to Section 2(c) hereof.
3. Piggyback Rights. Until such time as all the Registrable
Stock is registered under the 1933 Act or not restricted as to sale pursuant
Rule 144 under the 1933 Act, then in the event the Company intends to file a
registration statement or statements for the public sale of securities for cash
(other than a Form S-8, S-4 or comparable registration statement), it will
notify the Holders of such intent, and if so requested, register the Registrable
Stock issued to the Holders at the expense of the Company (including reasonable
fees and expenses of their counsel, but excluding any underwriting or selling
commissions).
4. Obligations of the Company. Whenever required under Section
2 to use its best efforts to effect the registration of any Registrable Stock,
the Company shall, as expeditiously as possible:
(a) prepare and file with the Commission, not later
than ninety (90) days after receipt of a request to file a
registration statement with respect to such Registrable Stock,
a registration statement on any form for which the Company
then qualifies or which counsel for the Company shall deem
appropriate and which form shall be available for the sale of
such issue of Registrable Stock in accordance with the
intended method of distribution thereof, and use its best
efforts to cause such registration statement to become
effective within 75 days after filing with the Commission;
provided that before filing a registration statement or
prospectus or any amendments or supplements thereto, the
Company will (i) furnish to one counsel selected by the
Requesting Holders copies of all such documents proposed to be
filed, and (ii) notify each such Holder of any stop order
issued or threatened by the
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Commission and take all reasonable actions required to prevent
the entry of such stop order or to remove it if entered;
(b) prepare and file with the Commission such
amendments and supplements to such registration statement (and
any prospectus used in connection therewith) as may be
necessary to keep such registration statement effective for a
period of not less than one hundred twenty (120) days or such
shorter period which will terminate when all Registrable Stock
covered by such registration statement has been sold (but not
before the expiration of the forty (40) or ninety (90) day
period referred to in Section 4(3) of the 1933 Act and Rule
174 thereunder, if applicable), and comply with the provisions
of the 1933 Act with respect to the disposition of all
securities covered by such registration statement during such
period in accordance with the intended methods of disposition
by the sellers thereof set forth in such registration
statement;
(c) furnish to each Holder and any underwriter of
Registrable Stock to be included in a registration statement
copies of such registration statement as filed and each
amendment and supplement thereto (in each case including all
exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus)
and such other documents as such Holder may reasonably request
in order to facilitate the disposition of the Registrable
Stock owned by such Holder;
(d) use its best efforts to register or qualify such
Registrable Stock under such other securities or blue sky laws
of such jurisdictions as any selling Holder or any underwriter
of Registrable Stock reasonably requests, and do any and all
other acts which may be reasonably necessary or advisable to
enable such Holder to consummate the disposition in such
jurisdictions of the Registrable Stock owned by such Holder;
provided that the Company will not be required to (i) qualify
generally to do business in any jurisdiction where it would
not otherwise be required to qualify but for this Section
3(d), (ii) subject itself to taxation in any such
jurisdiction, or (iii) consent to general service of process
in any such jurisdiction;
(e) use its best efforts to cause the Registrable Stock
covered by such registration statement to be registered with
or approved by such other governmental agencies or other
authorities as may be necessary by virtue of the business and
operations of the Company to enable the selling Holders
thereof to consummate the disposition of such Registrable
Stock;
(f) notify each selling Holder of such Registrable stock
and any underwriter thereof, at any time when a prospectus
relating thereto is required to be delivered under the 1933
Act (even if such time is after the period referred to in
Section 4(b)), of the happening of any event as a result of
which the prospectus included in such registration statement
contains an 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 being made not misleading, and prepare a
supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable
Stock, such prospectus will not contain an untrue statement of
a material fact or omit to state any material fact required to
be
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stated therein or necessary to make the statements therein in
light of the circumstances being made not misleading;
(g) make available for inspection by any selling Holder,
any underwriter participating in any disposition pursuant to
such registration statement, and any attorney, accountant or
other agent retained by any such seller or underwriter
(collectively, the "Inspectors"), all financial and other
records, pertinent corporate documents and properties of the
Company (collectively, the "Records"), and cause the Company's
officers, directors and employees to supply all information
reasonably requested by any such Inspector, as shall be
reasonably necessary to enable them to exercise their due
diligence responsibility, in connection with such registration
statement. Records or other information which the Company
determines, in good faith, to be confidential and which it
notifies the Inspectors are confidential shall not be
disclosed by the Inspectors unless (i) the disclosure of such
Records or other information is necessary to avoid or correct
a misstatement or omission in the registration statement, or
(ii) the release of such Records or other information is
ordered pursuant to a subpoena or other order from a court of
competent jurisdiction. Each selling Holder shall, upon
learning that disclosure of such Records or other information
is sought in a court of competent jurisdiction, give notice to
the Company and allow the Company, at the Company's expense,
to undertake appropriate action to prevent disclosure of the
Records or other information deemed confidential;
(h) furnish, at the request of any Requesting Holder, on
the date that such Registrable Stock is delivered to the
underwriters for sale pursuant to such registration or, if
such Registrable Stock is not being sold through underwriters,
on the date that the registration statement with respect to
such shares of Registrable Stock becomes effective, (1) a
signed opinion, dated such date, of the legal counsel
representing the Company for the purposes of such
registration, addressed to the underwriters, if any, and if
such Registrable Stock is not being sold through underwriters
then to the Requesting Holders as to such matters as such
underwriters or the Requesting Holders, as the case may be,
may reasonably request and as would be customary in such a
transaction; and (2) a letter dated such date, from the
independent certified public accountants of the Company,
addressed to the underwriters, if any, and if such Registrable
Stock is not being sold through underwriters then to the
Requesting Holders and if such accountants refuse to deliver
such letter to such Holder, then to the Company (i) stating
that they are independent certified public accountants within
the meaning of the 1933 Act and that, in the opinion of such
accountants, the financial statements and other financial data
of the Company included in the registration statement or the
prospectus, or any amendment or supplement thereto, comply as
to form in all material respects with the applicable
accounting requirements of the 1933 Act, and (ii) covering
such other financial matters (including information as to the
period ending not more than five (5) business days prior to
the date of such letter) with respect to the registration in
respect of which such letter is being given as the Requesting
Holders may reasonably request and as would be customary in
such a transaction;
(i) enter into customary agreements (including if the
method of distribution is by means of an underwriting, an
underwriting agreement in customary form) and take such other
actions as are
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reasonably required in order to expedite or facilitate the
disposition of the Registrable Stock to be so included in the
registration statement;
(j) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably
practicable, but not later than eighteen (18) months after the
effective date of the registration statement, an earnings
statement covering the period of at least twelve (12) months
beginning with the first full month after the effective date
of such registration statement; and
(k) use its best efforts to cause all such Registrable
Stock to be listed on the New York Stock Exchange and/or any
other securities exchange on which similar securities issued
by the Company are then listed or traded, if such listing or
trading is then permitted under the rules of such exchange or
system, respectively.
The Company may require each selling Holder of Registrable
Stock as to which any registration is being effected to furnish to the Company
such information regarding the distribution of such Registrable Stock as the
Company may from time to time reasonably request in writing.
Each Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 4(f)
hereof, such Holder will forthwith discontinue disposition of Registrable Stock
pursuant to the registration statement covering such Registrable Stock until
such Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 4(f) hereof, and, if so directed by the Company, such
Holder will deliver to the Company (at the Company's expense) all copies, other
than permanent file copies then in such Holder's possession, of the prospectus
covering such Registrable Stock current at the time of receipt of such notice.
In the event the Company shall give any such notice, the Company shall extend
the period during which such registration statement shall be maintained
effective pursuant to this Agreement (including the period referred to in
Section 4(b)) by the number of days during the period from and including the
date of the giving of such notice pursuant to Section 4(f) hereof to and
including the date when each selling Holder of Registrable Stock covered by such
registration statement shall have received the copies of the supplemented or
amended prospectus contemplated by Section 4(f) hereof.
5. Incidental Registration. At any time hereafter, if the
Company determines that it shall file a registration statement under the 1933
Act (other than a registration statement on a Form S-4 or S-8 or filed in
connection with an exchange offer or an offering of securities solely to the
Company's existing stockholders) on any form that also would permit the
registration of the Registrable Stock and such filing is to be on its behalf
and/or on behalf of selling holders of its securities for the general
registration of its Common Stock to be sold for cash, at each such time the
Company shall promptly give each Holder written notice of such determination
setting forth the date on which the Company proposes to file such registration
statement, which date shall be no earlier than forty (40) days from the date of
such notice, and advising each Holder of its right to have Registrable Stock
included in such registration. Upon the written request of any Holder received
by the Company no later than twenty (20) days after the date of the Company's
notice, the Company shall use its best efforts to cause to be registered under
the 1933 Act all of the Registrable Stock that each such Holder has so requested
to be registered. If, in the written opinion of the managing underwriter or
underwriters (or, in the case of a non-underwritten offering, in the written
opinion of the placement agent, or if there is none, the Company), the total
amount
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of such securities to be so registered, including such Registrable Stock,
will exceed the maximum amount of the Company's securities which can be marketed
(i) at a price reasonably related to the then current market value of such
securities, or (ii) without otherwise materially and adversely affecting the
entire offering, then the amount of Registrable Stock to be offered for the
accounts of Holders shall be reduced pro rata to the extent necessary to reduce
the total amount of securities to be included in such offering to the
recommended amount; provided, that if securities are being offered for the
account of other Persons as well as the Company, such reduction shall not
represent a greater fraction of the number of securities intended to be offered
by Holders than the fraction of similar reductions imposed on such other Persons
other than the Company over the amount of securities they intended to offer.
6. Holdback Agreement.
(a) Restrictions on Public Sale by Holder. To the
extent not inconsistent with applicable law, each Holder whose
Registrable Stock is included in a registration statement
agrees not to effect any public sale or distribution of the
issue being registered or a similar security of the Company,
or any securities convertible into or exchangeable or
exercisable for such securities, including a sale pursuant to
Rule 144 under the 1933 Act, during the fourteen (14) days
prior to, and during the ninety (90) day period beginning on,
the effective date of such registration statement (except as
part of the registration), if and to the extent requested by
the Company in the case of a non-underwritten public offering
or if and to the extent requested by the managing underwriter
or underwriters in the case of an underwritten public
offering.
(b) Restrictions on Public Sale by the Company and
Others. The Company agrees (i) not to effect any public sale
or distribution of any securities similar to those being
registered, or any securities convertible into or exchangeable
or exercisable for such securities, during the fourteen (14)
days prior to, and during the ninety (90) day period beginning
on, the effective date of any registration statement in which
Holders are participating (except as part of such
registration), if and to the extent requested by the Holders
in the case of a non-underwritten public offering or if and to
the extent requested by the managing underwriter or
underwriters in the case of an underwritten public offering;
and (ii) that any agreement entered into after the date of
this Agreement pursuant to which the Company issues or agrees
to issue any securities convertible into or exchangeable or
exercisable for such securities (other than pursuant to an
effective registration statement) shall contain a provision
under which holders of such securities agree not to effect any
public sale or distribution of any such securities during the
periods described in (i) above, in each case including a sale
pursuant to Rule 144 under the 1933 Act.
7. Expenses of Registration. All expenses incurred in
connection with each registration pursuant to Sections 2 and 4 of this
Agreement, excluding underwriters' discounts and commissions, but including,
without limitation, all registration, filing and qualification fees, word
processing, duplicating, printers' and accounting fees (including the expenses
of any special audits or "cold comfort" letters required by or incident to such
performance and compliance), exchange listing fees or National Association of
Securities Dealers fees, messenger and delivery expenses, all fees and expenses
of complying with securities or blue sky laws, fees and disbursements of counsel
for the Company, and the reasonable fees and disbursements of one (1) counsel
for the selling Holders shall be paid by the Company. The
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selling Holders shall bear and pay the underwriting commissions and discounts
applicable to the Registrable Stock offered for their account in connection with
any registrations, filings and qualifications made pursuant to this Agreement.
8. Indemnification and Contribution.
(a) Indemnification by the Company. The Company agrees
to indemnify, to the full extent permitted by law, each
Holder, its officers, directors and agents and each Person who
controls such Holder (within the meaning of the 1933 Act)
against all losses, claims, damages, liabilities and expenses
caused by any untrue or alleged untrue statement of material
fact contained in any registration statement, prospectus or
preliminary prospectus or any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statement therein (in case of a
prospectus or preliminary prospectus, in the light of the
circumstances under which they were made) not misleading. The
Company will also indemnify any underwriters of the
Registrable Stock, their officers and directors and each
Person who controls such underwriters (within the meaning of
the 1933 Act) to the same extent as provided above with
respect to the indemnification of the selling Holders.
(b) Indemnification by Holders. In connection with any
registration statement in which a Holder is participating,
each such Holder will furnish to the Company in writing such
information with respect to such Holder as the Company
reasonably requests for use in connection with any such
registration statement or prospectus and agrees to indemnify,
to the extent permitted by law, the Company, its directors and
officers and each Person who controls the Company (within the
meaning of the 1933 Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue or alleged
untrue statement of material fact or any omission or alleged
omission of a material fact required to be stated in the
registration statement, prospectus or preliminary prospectus
or any amendment thereof or supplement thereto or necessary to
make the statements therein (in the case of a prospectus or
preliminary prospectus, in the light of the circumstances
under which they were made) not misleading, to the extent, but
only to the extent, that such untrue statement or omission is
contained in any information with respect to such Holder so
furnished in writing by such Holder. Notwithstanding the
foregoing, the liability of each such Holder under this
Section 8(b) shall be limited to an amount equal to the
initial public offering price of the Registrable Stock sold by
such Holder, unless such liability arises out of or is based
on willful misconduct of such Holder.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder agrees to give prompt
written notice to the indemnifying party after the receipt by
such Person of any written notice of the commencement of any
action, suit, proceeding or investigation or threat thereof
made in writing for which such Person will claim
indemnification or contribution pursuant to this Agreement
and, unless in the reasonable judgment of such indemnified
party, a conflict of interest may exist between such
indemnified party and the indemnifying party with respect to
such claim, permit the indemnifying party to assume the
defense of such claims with counsel reasonably satisfactory to
such indemnified party. Whether or not such defense is assumed
by the indemnifying party, the indemnifying party will not be
subject to any liability for any settlement made without its
consent (but such consent will not be unreasonably withheld).
Failure by such Person to
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provide said notice to the indemnifying party shall itself not
create liability except to the extent of any injury caused
thereby. No indemnifying party will consent to entry of any
judgment or enter into any settlement which does not include
as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation. If the
indemnifying party is not entitled to, or elects not to,
assume the defense of a claim, it will not be obligated to pay
the fees and expenses of more than one (1) counsel with
respect to such claim, unless in the reasonable judgment of
any indemnified party a conflict of interest may exist between
such indemnified party and any other such indemnified parties
with respect to such claim, in which event the indemnifying
party shall be obligated to pay the fees and expenses of such
additional counsel or counsels.
(d) Contribution. If for any reason the indemnity provided for
in this Section 8 is unavailable to, or is insufficient to
hold harmless, an indemnified party, then the indemnifying
party shall contribute to the amount paid or payable by the
indemnified party as a result of such losses, claims, damages,
liabilities or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party
on the other, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, or provides a lesser
sum to the indemnified party than the amount hereinafter
calculated, in such proportion as is appropriate to reflect
not only the relative benefits received by the indemnifying
party on the one hand and the indemnified party on the other
but also the relative fault of the indemnifying party and the
indemnified party as well as any other relevant equitable
considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to,
among other things, whether any action in question, including
any untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such
indemnifying party or indemnified parties; and the parties'
relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in
Section 8(c), any legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or
proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 8(d) were
determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable
considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any Person who was not guilty of
such fraudulent misrepresentation.
If indemnification is available under this Section 8,
the indemnifying parties shall indemnify each indemnified
party to the full extent provided in Sections 8(a) and (b)
without regard to the relative fault of said indemnifying
party or indemnified party or any other equitable
consideration provided for in this Section 8.
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9. Participation in Underwritten Registrations. No Holder may
participate in any underwritten registration hereunder unless such Holder (a)
agrees to sell such Holder's securities on the basis provided in any
underwriting arrangements approved by the Holders entitled hereunder to approve
such arrangements, and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
10. Rule 144. The Company covenants that it will file the
reports required to be filed by it under the 1933 Act and the Securities
Exchange Act of 1934, as amended, and the rules and regulations adopted by the
Commission thereunder; and it will take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Registrable Stock without registration under the 1933 Act within
the limitation of the exemptions provided by (a) Rule 144 under the 1933 Act, as
such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission. Upon the request of any Holder,
the Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
11. Transfer of Registration Rights. The registration rights
of any Holder under this Agreement with respect to any Registrable Stock may be
transferred to any transferee of such Registrable Stock; provided that such
transfer may otherwise be effected in accordance with applicable securities
laws; provided further, that the transferring Holder shall give the Company
written notice at or prior to the time of such transfer stating the name and
address of the transferee and identifying the securities with respect to which
the rights under this Agreement are being transferred; provided further, that
such transferee shall agree in writing, in form and substance satisfactory to
the Company, to be bound as a Holder by the provisions of this Agreement; and
provided further, that such assignment shall be effective only if immediately
following such transfer the further disposition of such securities by such
transferee is restricted under the 1933 Act. Except as set forth in this Section
10, no transfer of Registrable Stock shall cause such Registrable Stock to lose
such status.
12. Mergers, Etc. The Company shall not, directly or
indirectly, enter into any merger, consolidation or reorganization in which the
Company shall not be the surviving Company unless the proposed surviving Company
shall, prior to such merger, consolidation or reorganization, agree in writing
to assume the obligations of the Company under this Agreement, and for that
purpose references hereunder to "Registrable Stock" shall be deemed to be
references to the securities which the Holders would be entitled to receive in
exchange for Registrable Stock under any such merger, consolidation or
reorganization; provided, however, that the provisions of this Section 12 shall
not apply in the event of any merger, consolidation or reorganization in which
the Company is not the surviving corporation if each Holder is entitled to
receive in exchange for its Registrable Stock consideration consisting solely of
(i) cash, (ii) securities of the acquiring corporation which may be immediately
sold to the public without registration under the 1933 Act, or (iii) securities
of the acquiring corporation which the acquiring corporation has agreed to
register within ninety (90) days of completion of the transaction for resale to
the public pursuant to the 1933 Act.
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13. Miscellaneous.
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(a) No Inconsistent Agreements. The Company will not
hereafter enter into any agreement with respect to its
securities which is inconsistent with the rights granted to
the Holders in this Agreement.
(b) Remedies. Each Holder, in addition to being
entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance
of its rights under this Agreement. The Company agrees that
monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of
this Agreement and hereby agrees to waive (to the extent
permitted by law) the defense in any action for specific
performance that a remedy of law would be adequate.
(c) Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or
consents to departures from the provisions hereof may not be
given unless the Company has obtained the written consent of
the Holders of at least a majority of the Registrable Stock
then outstanding affected by such amendment, modification,
supplement, waiver or departure.
(d) Successors and Assigns. Except as otherwise expressly
provided herein, the terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the
respective successors and assigns of the parties hereto.
Nothing in this Agreement, express or implied, is intended to
confer upon any Person other than the parties hereto or their
respective successors and assigns any rights, remedies,
obligations or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
(e) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of
New York applicable to contracts made and to be performed
wholly within that state, without regard to the conflict of
law rules thereof.
(f) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same
instrument.
(g) Headings. The headings in this Agreement are used for
convenience of reference only and are not to be considered in
construing or interpreting this Agreement.
(h) Notices. Any notice required or permitted under this
Agreement shall be given in writing and shall be delivered in
person or by telecopy or by overnight courier guaranteeing no
later than second business day delivery, directed to (i) the
Company at the address set forth below its signature hereof or
(ii) to a Holder at the address therefor as set forth in the
Company's records. Any party may change its address for notice
by giving ten (10) days' advance written notice to the other
parties. Every notice or other communication hereunder shall
be deemed to have been duly given or served on the date
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on which personally delivered, or on the date actually
received, if sent by telecopy or overnight courier service,
with receipt acknowledged.
(i) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in
any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect
and of the remaining provisions contained herein shall not be
in any way impaired thereby, it being intended that all of the
rights and privileges of the Holders shall be enforceable to
the fullest extent permitted by law.
(j) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended
to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises,
warranties or undertakings other than those set forth or
referred to herein. This Agreement supersedes all prior
agreements and understandings among the parties with respect
to such subject matter.
(k) Enforceability. This Agreement shall remain in full force
and effect notwithstanding any breach or purported breach of,
or relating to, the Merger Agreement.
(l) Recitals. The recitals are hereby incorporated in this
Agreement as if fully set forth herein.
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IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement as of the date first above written.
WATTAGE MONITOR INC.
By: /s/ Ajmal Khan
---------------------------
Name: Ajmal Khan
Title: President
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IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement as of the date first above written.
/s/ Gerald R. Alderson
-----------------------------
GERALD R. ALDERSON
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IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement as of the date first above written.
/s/ Robert H. Lessin
-----------------------------
ROBERT H. LESSIN
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IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement as of the date first above written.
/s/ Stephen D. Klein
-----------------------------
STEPHEN D. KLEIN
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IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement as of the date first above written.
RHL VENTURES LLC
By: /s/ Robert H. Lessin
--------------------------
Name: Robert H. Lessin
Title:
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Exhibit 10.4
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is entered into as of the 1st day
of January, 1998 by and between WATTMONITOR LLC, a Delaware limited liability
company with its principal place of business at 745 California Avenue, Reno,
Nevada 89509 (the ("Company") and Gerald R. Alderson, an individual currently
employed by the Company ("Employee" or "you").
1. Employment Period. The Company shall employ you for an
initial period of three years beginning January 1, 1998 and continuing until
December 31, 2000. The employment period shall be renewed upon mutual agreement
of the Company and you for an unlimited series of one year renewable periods.
Each renewable period shall run from January 1 of a year to the last day of
December of that year with the first such renewable period beginning January 1,
2001. Such renewal(s) shall be automatic unless either the Company or you notify
the other in writing prior to September 1 of any year that such party is not
renewing for an additional year. The initial term and any renewals are referred
to herein as the "Employment Period".
2. Employment Duties. The Company will employ you as its
President. In your role as President, you will report to the Board of Managers,
and you shall be subject to the directions of the Board of Managers. You agree
to continue in such employment for the duration of the Employment Period and to
perform in good faith and to the best of your ability all services which may be
required of you in your executive position and to be available to render such
services at all reasonable times and places in accordance with reasonable
directives and assignments issued by the Board of Managers. During your
Employment Period, you will devote that time and effort to the business and
affairs of the Company as required within the scope of your executive office.
Your principal place of employment will be 745 California Avenue, Reno, Nevada
or such other location in Reno, Nevada to which the parties jointly agree.
3. Compensation. The Employee shall receive a base annual
salary ("Base Salary") at the rate of $150,000 per year. Base annual salary
shall exclude all bonuses, and incentive payments. Your annual rate of Base
Salary will be subject to an annual adjustment (at the discretion of the Board
of Managers) but in no circumstances will it be decreased from its then current
level. The Base Salary shall be accrued until such time as the Company has
received equity contributions equal to or greater than $1,000,000 (the "Trigger
Investment") at which time such accrued salary shall be paid as a lump sum.
A. Except during the accrual period noted above, your
Base Salary will be paid at periodic intervals in accordance with the Company's
payroll for salaried employees.
<PAGE>
B. You will be entitled to such bonuses (if any) for
service rendered during the Employment Period as the Board of Managers may
determine in its sole discretion.
C. The Company will deduct and withhold, from the
compensation payable to you hereunder, any and all Federal, State and local
income and employment withholding taxes and any other amounts required to be
deducted or withheld by the Company under the applicable statute or regulation.
4. Expense Reimbursement. You will be entitled to
reimbursement from the Company for all customary, ordinary and necessary
business expenses incurred by you in the performance of your duties hereunder in
accordance with Company policy.
5. Fringe Benefits. During the Employment Period, you will be
eligible to participate in any group life insurance plan, group medical and/or
dental insurance plan, accidental death and dismemberment plan, short-term
disability program and other employee benefit plans, including profit sharing
plans, cafeteria benefit programs, and equity options or similar plans, which
are made available to other Company executives and for which you qualify.
6. Vacation. You will accrue paid vacation benefits during the
Employment Period in accordance with the Company policy in effect for other
Company executive officers.
7. Death. Upon your death during the Employment Period, the
employment relationship created pursuant to this Agreement will immediately
terminate, and no further compensation will become payable to you pursuant to
Paragraph 3. In connection with such termination by your death after the Trigger
Investment, the Company will be required to pay you (or your estate) any unpaid
compensation earned under Paragraph 3 for services rendered through the date of
your death, plus six months Base Salary at the then applicable Base Salary rate.
8. Disability. Upon your disability during the Employment
Period, the employment relationship created will terminate. You will be deemed
disabled if you are, in the Company's reasonable opinion, unable by reason of
any permanent physical and/or mental injury or illness, to perform substantially
the services required of you hereunder either for a period in excess of one
hundred eighty (180) consecutive days or for a period of one hundred eighty
(180) days in the aggregate during any three-hundred sixty (360)-day period. In
such event, you will be deemed disabled as of such three hundred sixtieth (360)
day.
9. Restrictive Covenant/Non-Competition.
A. The Employee agrees that he will not (i) during the
period he is employed by the Company engage in, or otherwise directly or
indirectly be employed by, or act as
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<PAGE>
a consultant or lender to, or be a director, officer, employee, owner, or
partner of, any other business or organization that is or shall then be
competing with the Company in the United States, and (ii) for a period of one
year after he ceases to be employed by the Company under this Agreement,
directly or indirectly compete with or be engaged in the same business as the
Company in the United States, or be employed by, or act as consultant or lender
to, or be a director, officer, employee, owner, or partner of, any business or
organization which, at the time of such cessation, competes with or is engaged
in the same business as the Company in the United States.
B. You will have the right to perform incidental
services as are necessary in connection with (i) your private passive
investments, (ii) your charitable or community activities, and (iii) your
participation in trade or professional organizations, but only to the extent
such incidental services do not interfere with the performance of your services
hereunder.
10. Patents; Copyrights. Any interest in patents, patent
applications, inventions, copyrights, developments, and processes ("Such
Inventions") which the Employee now or hereafter during the period he is
employed by the Company under this Agreement may own or develop relating to the
fields in which the Company may then be engaged shall belong to the Company; and
forthwith upon request of the Company, the Employee shall execute all such
assignments and other documents and take all such other action as the Company
may reasonably request in order to vest in the Company all his right, title, and
interest in and to Such Inventions, free and clear of all liens, charges, and
encumbrances.
11. Confidential Information. All confidential information
which the Employee may now possess, may obtain during the Employment Term, or
may create prior to the end of the period he is employed by the Company under
this Agreement, relating to the business of the Company or of any customer or
supplier of the Company shall not be published, disclosed, or made accessible by
him to any other person, firm, or corporation during the Employment Term except
as required in the ordinary course of business of the Company, or any time
thereafter without the prior written consent of the Company. The Employee shall
return all tangible evidence of such confidential information to the Company
prior to or at the termination of his employment.
12. Severance Benefits.
A. In the event that the Company has (i) annual revenues
of $10 million or greater or (ii) the Company has received as capital
contributions an aggregate sum of $10 million or greater (each such criteria, a
"Benchmark Event"), and if the Company terminates you after a Benchmark Event
for any reason (other than a termination for cause, described below), including
non-renewal of the Employment Period as provided in Paragraph 2 above, the
Company shall pay to you an amount equal to twenty four (24) months Base Salary,
payable in one lump sum on the date of termination. In addition, (if after a
Benchmark Event) you and your eligible dependents will
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<PAGE>
continue to receive the Company's health care coverage and life insurance (on
the same terms as you had while an employee) for two (2) years after the date of
termination.
B. Notwithstanding anything therein contained, if on or
after the date hereof and prior to the end of the Employment Period, the
Employee is terminated "for cause" (as defined below), then the Company shall
have the right to give notice of termination of Employee's services hereunder as
of a date specified in such notice, and this Agreement shall terminate on the
date so specified. Termination "for cause" shall mean that the Employee shall
(i) be convicted of a felony crime, (ii) commit an act or omit to take any
action in bad faith and to the detriment of the Company, (iii) commit an act of
fraud against the Company, or (iv) materially breach any term of this Agreement
and fail to correct such breach within five (5) days after written notice from
the Board of Managers of commission thereof.
13. Change in Control Benefits.
A. For purposes of this Agreement the following
definition shall apply:
A Change in Control means:
(i) a merger or acquisition in which the Company is
not the surviving entity, except for a transaction, the
principal purpose of which, is to change the State of the
Company's incorporation, or to change from a Limited Liability
Company to a Corporation;
(ii) the sale, transfer or other disposition of all
or substantially all of the assets of the Company in a
liquidation or dissolution of the Company;
(iii) a reverse merger in which the Company is the
surviving entity but in which fifty percent (50%) or more
of the Company's membership interests are transferred to
holders different from those who held such interests
immediately prior to such merger;
(iv) the acquisition of more than fifty percent (50%)
of the Company's membership interests pursuant to a tender
or exchange offer made by a person or related group of
persons;
(v) a change in the composition of the Managers
such that the individuals elected as Managers at the last
meeting of the members at which there is not a contested
election subsequently cease to comprise a majority of the
Managers.
-4-
<PAGE>
B. Should there occur a Change in Control after the
Trigger Investment, and you are subsequently involuntarily terminated or you
resign, in either case, within six months of the Change in Control, you will
become entitled to the special change in control benefits specified below:
(i) you will receive all of the benefits provided
in Section 12(A) above; and
(ii) you will receive a lump sum payment equal to
the greater of (a) your bonuses for the three years prior to
the termination or (b) eighteen months Base Salary as a
retroactive bonus for such prior years service.
C. Notwithstanding the foregoing, the compensation
referred to in Section 13(B) above shall not exceed 2.99 times Employee's
average annual cash compensation hereunder over the course of the previous five
years (or such period he is employed by the Company if such term of employment
is less than five years).
14. Indemnification. The indemnification provisions for
Officers and Directors under the Company's Operating Agreement, as amended, will
(to the maximum extent permitted by law) be extended to you, during the period
following your termination irrespective of a Change in Control, with respect to
any and all matters, events or transactions occurring or effected during your
Employment Period.
15. Conversion to a Corporation. If the Company's legal form
is converted from a Limited Liability Company to a Corporation all of the terms
associated herein shall be changed to conform with their meaning contained
herein but as applied to a traditional corporate form. For example, references
to Managers become references to members of a Board of Directors, references to
members or membership interests become references to stockholders or voting
capital stock, etc. Upon the occurrence of such a conversion, the parties hereto
will cooperate in good faith in executing a revised employment agreement.
16. Miscellaneous. The provisions of this Agreement will be
binding upon the Company, its successors and assigns (including, without
limitation, the surviving entity or successor party resulting from a Change in
Control) and will be construed and interpreted under the laws of the State of
Delaware. This agreement incorporates the entire agreement between you and the
Company relating to the terms of your employment and the subject of severance
benefits and supersedes all prior agreements and understandings with respect to
such subject matter. This agreement may only be amended by written instrument
signed by you and an authorized manager of the Company.
-5-
<PAGE>
17. Arbitration. Any controversy which may arise between you
and the Company with respect to the construction, interpretation or application
of any of the terms, provisions, covenants or conditions of this agreement or
any claim arising from or relating to this agreement will be submitted to final
and binding arbitration in either San Francisco, California or Washington, D.C.
in accordance with the rules of the American Arbitration Association then in
effect.
Please indicate your acceptance of the foregoing provisions of
this employment agreement by signing the enclosed copy of this agreement and
returning it to the Company.
Very truly yours,
WATTMONITOR LLC
By:
-----------------------------
Name: Daniel I. DeWolf
Title: Secretary
ACCEPTED AND AGREED
Signature:
---------------------------
Gerald R. Alderson
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<PAGE>
ASSIGNMENT AND ASSUMPTION OF EMPLOYMENT AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION OF EMPLOYMENT AGREEMENT (the
"Assignment") is made as of this ____ day of February, 1999, by and between
WattMonitor LLC, a Delaware limited liability company (the "Assignor"), and
Wattage Monitor Inc., a Nevada corporation (the "Assignee").
The Assignor hereby assigns to the Assignee all of the duties
and obligations of the Assignor under the Employment Agreement between the
Assignor and Gerald R. Alderson, dated as of January 1, 1998 (the "Agreement"),
as attached hereto as Exhibit A.
The Assignee hereby assumes all of the duties and obligation
of the Assignor under the Agreement, for the term defined by the Agreement.
IN WITNESS WHEREOF, the undersigned have executed this
Assignment and Assumption of Employment Agreement on the date first above
written.
WATTMONITOR LLC
By:
--------------------------
Name: Stephen D. Klein
Title:
WATTAGE MONITOR INC.
By:
--------------------------
Name:
Title:
<PAGE>
Exhibit 10.5
THIS WARRANT AND ANY UNITS OR SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), NOR UNDER ANY STATE SECURITIES LAW AND SUCH SECURITIES MAY NOT BE
PLEDGED, SOLD, ASSIGNED, HYPOTHECATED, OR OTHERWISE TRANSFERRED UNTIL (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR (2) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE COMPANY OR COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH
COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
SECURITIES MAY BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED, OR TRANSFERRED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS.
THE TRANSFER OF THIS WARRANT AND THE UNITS OR SHARES ISSUABLE UPON THE EXERCISE
HEREOF IS RESTRICTED AS DESCRIBED HEREIN.
No. W-4 WARRANT TO PURCHASE 33,333 CLASS II
MEMBERSHIP UNITS OF COMMON STOCK
WARRANT CERTIFICATE TO PURCHASE 33,333 CLASS II MEMBERSHIP UNITS
WATTMONITOR LLC
THIS CERTIFIES THAT, FOR VALUE RECEIVED STEPHEN KLEIN or his registered assigns
(the "Registered Holder") is the owner of one Warrant (the "Warrant") which
shall initially entitle the Registered Holder to purchase, subject to the terms
and conditions set forth in this Warrant Certificate, 33,333 Class II Membership
Units (each, a "Unit" and collectively, the "Warrant Shares"), of WattMonitor
LLC, a Delaware limited liability company (the "Company"), at any time from
December 29, 1998, until 5:00 p.m., New York time on December 29, 2005 (the
"Expiration Date").
1. (a) The Warrant is exercisable upon the presentation and
surrender of this Warrant Certificate with the Form of Election attached hereto
duly executed, at the offices of the Company, accompanied by payment of $1.50
per Unit subject to adjustment (the "Purchase Price"), in lawful money of the
United States of America in cash or by check made payable to the Company or in
accordance with Section 1(b) hereof.
<PAGE>
(b) In addition to the method of payment set forth in
Section 1(a) and in lieu of any cash payment required thereunder, the Registered
Holder of the Warrant shall have the right at any time and from time to time to
exercise the Warrant in full or in part by surrendering this Warrant Certificate
in the manner specified in Section1(a) in exchange for the number of Warrant
Shares equal to the product of (x) the number of Warrant Shares as to which the
Warrant is being exercised, multiplied by (y) a fraction, the numerator of which
is the Market Price (as defined in Section 1(c) hereof) of the Warrant Shares
minus the Purchase Price of the Warrant Shares and the denominator of which is
the Market Price. Solely for the purposes of this Section 1(b), Market Price
shall be calculated either (i) on the date on which the Form of Election
attached hereto is deemed to have been presented and surrendered to the Company
pursuant to 1(a) hereof ("Exercise Date") or (ii) as the average of the Market
Price for each of the five trading days immediately proceeding the Exercise
Date, whichever of (i) or (ii) results in a greater Market Price.
(c) (i) As used herein, the phrase "Market Price" of the
Warrant Shares, at any date shall be deemed to be the last reported sale price,
or, in case no such reported sale takes place on such day, the average of the
last reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the Warrant
Shares are listed or admitted to trading or by the Nasdaq National Market
("Nasdaq/NM") or the Nasdaq Small Cap Market ("Nasdaq Small Cap"), or, if the
Warrant Shares are not listed or admitted to trading on any national securities
exchange or quoted by the National Association of Securities Dealers Automated
Quotation System ("Nasdaq"), the average closing bid price as furnished by the
National Association of Securities Dealers, Inc. ("NASD") through Nasdaq or
similar organization if Nasdaq is no longer reporting such information.
(ii) If the Market Price of the Warrant Shares cannot
be determined pursuant to Section 1(c)(i) above, the Market Price of the Warrant
Shares shall be determined in good faith (using customary valuation methods) by
resolution of the members of the Board of Directors of the Company, based on the
best information available to it.
(d) If the Company converts from a limited liability company
to a corporate form, the rights granted hereunder shall automatically convert to
the right to acquire Common Stock of the Company, in conformance with the
Reorganization Plan established by the Company's Board of Managers pursuant to
Article XII of the Company's Limited Liability Company Agreement.
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<PAGE>
2. In the event of certain contingencies provided for herein,
the Purchase Price and the number of Units subject to purchase upon the exercise
of the Warrant represented hereby are subject to modification or adjustment.
3. The Warrant represented hereby is exercisable at the option
of the Registered Holder, but no fractional Units will be issued. In the case of
the exercise as to less than all of the Warrant Shares, the Company shall cancel
this Warrant Certificate upon the surrender hereof and shall execute and deliver
a new Warrant Certificate or Warrant Certificates of like tenor, for the balance
of the Warrant Shares.
4. The Company shall not be obligated to deliver any
securities pursuant to the exercise of the Warrant unless a registration
statement under the Securities Act of 1933, as amended (the "Act"), with respect
to such securities is effective or an exemption thereunder is available.
5. This Warrant Certificate is exchangeable, upon the
surrender hereof by the Registered Holder at the corporate office of the
Company, for a new Warrant Certificate or Warrant Certificates of like tenor
representing an equal aggregate number of Warrant Shares covered by the Warrant,
each of such new Warrant Certificates to represent such number of Warrant Shares
covered by the Warrant as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrant Shares
covered by the Warrant will be issued to the transferee in exchange therefor.
6. Prior to the exercise of the Warrant represented hereby,
the Registered Holder shall not be entitled to any rights of a stockholder or
member of the Company by virtue of this Warrant, including, without limitation,
the right to vote or to receive dividends or other distributions, and shall not
be entitled to receive any notice of any proceedings of the Company, except as
provided herein.
7. The Company shall at all times reserve and keep available
out of its authorized and unissued Units, solely for the purpose of providing
for the exercise of the rights to purchase all Warrants Shares granted pursuant
to the Warrant, such number of Units as shall then be issuable upon the exercise
of the Warrant. The Company covenants that all Units issuable upon exercise of
the Warrant, upon receipt by the Company of the full
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<PAGE>
Exercise Price therefor, shall be validly issued, fully paid, nonassessable, and
free of preemptive rights.
8. The Exercise Price in effect at any time and the number and
kind of securities purchasable upon the exercise of the Warrant shall be subject
to adjustment from time to time upon the happening of certain events, as
follows:
(a) In case the Company shall (i) declare a dividend
or make a distribution on its outstanding Units or Common Shares, (ii) subdivide
or reclassify its outstanding Units or Common Shares into a greater number of
shares, or (iii) combine or reclassify its outstanding Units or Common Shares
into a smaller number of shares, the Exercise Price in effect at the time of the
record date for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted so that it shall
equal the price determined by multiplying the Exercise Price by a fraction, the
denominator of which shall be the number of Units or Common Shares outstanding
after giving effect to such action (as the case may be), and the numerator of
which shall be the number of Units or Common Shares (as the case may be)
outstanding immediately prior to such action. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) Upon each adjustment of the Exercise Price pursuant
to the provisions of this Section 8, the number of Warrant Shares issuable upon
the exercise at the adjusted Exercise Price of the Warrant shall be adjusted to
the nearest number of whole Units or Common Shares (as the case may be) by
multiplying a number equal to the Exercise Price in effect immediately prior to
such adjustment by the number of Warrant Shares issuable upon exercise of the
Warrant immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
(c) In case of any consolidation of the Company with,
or merger of the Company into, another corporation (other than a consolidation
or merger which does not result in any reclassification or change of the
outstanding Common Shares), the corporation formed by such consolidation or
merger shall execute and deliver to the Holder a supplemental warrant agreement
providing that the Holder of the Warrant shall have the right thereafter (until
the expiration of such Warrant) to receive, upon exercise of such Warrant, the
kind and amount of shares of stock and other securities and property receivable
upon such consolidation or merger by a holder of the number of Units or Common
Shares for which such Warrant might have been exercised immediately prior to
such consolidation, merger, sale or transfer. Such supplemental warrant
agreement shall provide for adjustments
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<PAGE>
which shall be identical to the adjustments provided in this Section 8. The
above provision of this paragraph shall similarly apply to successive
consolidations or mergers.
(d) No adjustment in the number of Warrant Shares shall
be required if such adjustment is less than one; provided, however, that any
adjustments which by reason of this paragraph are not required to be made shall
be carried forward and taken into account in any subsequent adjustment. All
calculations under this Section 8 shall be made to the nearest one-thousandth of
a share.
(e) In any case in which this Section 8 shall require
that an adjustment in the number of Warrant Shares be made effective as of a
record date for a specified event, the Company may elect to defer, until the
occurrence of such event, issuing to the Holder, if the Holder exercised the
Warrant after the record date, the Warrant Shares, if any, issuable upon such
exercise over and above the Warrant Shares, if any, issuable upon such exercise
prior to such adjustment; provided, however, that the Company shall deliver to
the Holder a due bill or other appropriate instrument evidencing the Holder's
right to receive such additional Warrant Shares upon the occurrence of the event
requiring such adjustment.
(f) Whenever there shall be an adjustment as provided
in this Section 8, the Company shall promptly cause written notice thereof to be
sent by certified mail, postage prepaid, to the Holder, at its address as it
shall appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares issuable upon
the exercise of the Warrant if such Warrant were exercisable on the date of such
notice, and setting forth a brief statement of the facts requiring such
adjustment and the computation thereof, which officer's certificate shall be
conclusive evidence of the correctness of any such adjustment absent manifest
error.
9. In case at any time the Company shall propose
(a) to pay any dividend or make any distribution on
Units or Common Shares in Units or Common Shares or make any other distribution
(other than regularly scheduled cash dividends which are not in a greater amount
per share than the most recent such cash dividend) to all holders of Units or
Common Shares; or
(b) to issue any rights, warrants, or other securities
to all holders of Common Shares entitling them to purchase any additional Units
or Common Shares or any other rights, warrants, or other securities; or
-5-
<PAGE>
(c) to effect any reclassification or change of
outstanding Common Shares, or any consolidation or merger as described in
Section 8; or
(d) to effect any liquidation, dissolution, or
winding-up of the Company, then, and in any one or more of such cases, the
Company shall give written notice thereof, by registered mail, postage prepaid,
to the Holder at the Holder's address as it shall appear in the Warrant
Register, mailed at least 15 days prior to (i) the date as of which the holders
of record of Units or Common Shares to be entitled to receive any such dividend,
distribution, rights, warrants, or other securities are to be determined, or
(ii) the date on which any such reclassification, change of outstanding Units or
Common Shares, consolidation, merger, liquidation, dissolution, or winding-up is
expected to become effective, and the date as of which it is expected that
holders of record of Units or Common Shares shall be entitled to exchange their
shares for securities or other property, if any, deliverable upon such
reclassification, change of outstanding shares, consolidation, merger, sale,
lease, conveyance of property, liquidation, dissolution, or winding-up.
10. The issuance of any Units, shares or other securities upon
the exercise of the Warrant, and the delivery of certificates or other
instruments representing such shares or other securities, shall be made without
charge to the Holder for any tax or other charge in respect of such issuance,
other than applicable transfer taxes. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of any certificate in a name other than that of the
Holder, and the Company shall not be required to issue or deliver any such
certificate unless and until the person or persons requesting the issue thereof
shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid.
11. Prior to due presentment for registration of transfer
hereof, the Company may deem and treat the Registered Holder as the absolute
owner hereof and of the Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company) for all purposes and shall not be affected by
any notice to the contrary.
12. This Warrant Certificate shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to conflicts of laws.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by one of its officers
thereunto duly authorized and a facsimile of its corporate seal to be imprinted
hereon.
Dated: December 29, 1998
WATTMONITOR LLC
[SEAL]
By: /s/ Gerald Alderson
------------------------------
Name: Gerald Alderson
Title: President
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<PAGE>
FORM OF ELECTION
To Be Executed by the Registered Holder
in Order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to
purchase _________ Units of Class II Membership Interests subject to the Warrant
represented by this Warrant Certificate, and requests that certificates for such
securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
--------------------------------
--------------------------------
--------------------------------
--------------------------------
(please print or type name and address)
and be delivered to
--------------------------------
--------------------------------
--------------------------------
(please print or type name and address)
and if such number of Units shall not be all the Units covered by the Warrant,
that a new Warrant Certificate for the balance of the Units covered by the
Warrant be registered in the name of, and delivered to, the Registered Holder at
the address stated below.
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<PAGE>
Exhibit 10.6
THIS WARRANT AND ANY UNITS OR SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), NOR UNDER ANY STATE SECURITIES LAW AND SUCH SECURITIES MAY NOT BE
PLEDGED, SOLD, ASSIGNED, HYPOTHECATED, OR OTHERWISE TRANSFERRED UNTIL (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR (2) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE COMPANY OR COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH
COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
SECURITIES MAY BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED, OR TRANSFERRED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS.
THE TRANSFER OF THIS WARRANT AND THE UNITS OR SHARES ISSUABLE UPON THE EXERCISE
HEREOF IS RESTRICTED AS DESCRIBED HEREIN.
No. W-3 WARRANT TO PURCHASE 100,000 CLASS II
MEMBERSHIP UNITS OF COMMON STOCK
WARRANT CERTIFICATE TO PURCHASE 100,000 CLASS II MEMBERSHIP UNITS
WATTMONITOR LLC
THIS CERTIFIES THAT, FOR VALUE RECEIVED RHL VENTURES LLC, a Delaware limited
liability company or its registered assigns (the "Registered Holder") is the
owner of one Warrant (the "Warrant") which shall initially entitle the
Registered Holder to purchase, subject to the terms and conditions set forth in
this Warrant Certificate, 100,000 Class II Membership Units (each, a "Unit" and
collectively, the "Warrant Shares"), of WattMonitor LLC, a Delaware limited
liability company (the "Company"), at any time from December 29, 1998, until
5:00 p.m., New York time on December 29, 2005 (the "Expiration Date").
1. (a) The Warrant is exercisable upon the presentation and
surrender of this Warrant Certificate with the Form of Election attached hereto
duly executed, at the offices of the Company, accompanied by payment of $1.50
per Unit subject to adjustment (the
<PAGE>
"Purchase Price"), in lawful money of the United States of America in cash or by
check made payable to the Company or in accordance with Section 1(b) hereof.
(b) In addition to the method of payment set forth in
Section 1(a) and in lieu of any cash payment required thereunder, the Registered
Holder of the Warrant shall have the right at any time and from time to time to
exercise the Warrant in full or in part by surrendering this Warrant Certificate
in the manner specified in Section1(a) in exchange for the number of Warrant
Shares equal to the product of (x) the number of Warrant Shares as to which the
Warrant is being exercised, multiplied by (y) a fraction, the numerator of which
is the Market Price (as defined in Section 1(c) hereof) of the Warrant Shares
minus the Purchase Price of the Warrant Shares and the denominator of which is
the Market Price. Solely for the purposes of this Section 1(b), Market Price
shall be calculated either (i) on the date on which the Form of Election
attached hereto is deemed to have been presented and surrendered to the Company
pursuant to 1(a) hereof ("Exercise Date") or (ii) as the average of the Market
Price for each of the five trading days immediately proceeding the Exercise
Date, whichever of (i) or (ii) results in a greater Market Price.
(c) (i) As used herein, the phrase "Market Price" of the
Warrant Shares, at any date shall be deemed to be the last reported sale price,
or, in case no such reported sale takes place on such day, the average of the
last reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the Warrant
Shares are listed or admitted to trading or by the Nasdaq National Market
("Nasdaq/NM") or the Nasdaq Small Cap Market ("Nasdaq Small Cap"), or, if the
Warrant Shares are not listed or admitted to trading on any national securities
exchange or quoted by the National Association of Securities Dealers Automated
Quotation System ("Nasdaq"), the average closing bid price as furnished by the
National Association of Securities Dealers, Inc. ("NASD") through Nasdaq or
similar organization if Nasdaq is no longer reporting such information.
(ii) If the Market Price of the Warrant Shares cannot
be determined pursuant to Section 1(c)(i) above, the Market Price of the Warrant
Shares shall be determined in good faith (using customary valuation methods) by
resolution of the members of the Board of Directors of the Company, based on the
best information available to it.
(d) If the Company converts from a limited liability company
to a corporate form, the rights granted hereunder shall automatically convert to
the right to acquire Common Stock of the Company, in conformance with the
Reorganization Plan established
-2-
<PAGE>
by the Company's Board of Managers pursuant to Article XII of the Company's
Limited Liability Company Agreement.
2. In the event of certain contingencies provided for herein,
the Purchase Price and the number of Units subject to purchase upon the exercise
of the Warrant represented hereby are subject to modification or adjustment.
3. The Warrant represented hereby is exercisable at the option
of the Registered Holder, but no fractional Units will be issued. In the case of
the exercise as to less than all of the Warrant Shares, the Company shall cancel
this Warrant Certificate upon the surrender hereof and shall execute and deliver
a new Warrant Certificate or Warrant Certificates of like tenor, for the balance
of the Warrant Shares.
4. The Company shall not be obligated to deliver any
securities pursuant to the exercise of the Warrant unless a registration
statement under the Securities Act of 1933, as amended (the "Act"), with respect
to such securities is effective or an exemption thereunder is available.
5. This Warrant Certificate is exchangeable, upon the
surrender hereof by the Registered Holder at the corporate office of the
Company, for a new Warrant Certificate or Warrant Certificates of like tenor
representing an equal aggregate number of Warrant Shares covered by the Warrant,
each of such new Warrant Certificates to represent such number of Warrant Shares
covered by the Warrant as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrant Shares
covered by the Warrant will be issued to the transferee in exchange therefor.
6. Prior to the exercise of the Warrant represented hereby,
the Registered Holder shall not be entitled to any rights of a stockholder or
member of the Company by virtue of this Warrant, including, without limitation,
the right to vote or to receive dividends or other distributions, and shall not
be entitled to receive any notice of any proceedings of the Company, except as
provided herein.
7. The Company shall at all times reserve and keep available
out of its authorized and unissued Units, solely for the purpose of providing
for the exercise of the rights to purchase all Warrants Shares granted pursuant
to the Warrant, such number of
-3-
<PAGE>
Units as shall then be issuable upon the exercise of the Warrant. The Company
covenants that all Units issuable upon exercise of the Warrant, upon receipt by
the Company of the full Exercise Price therefor, shall be validly issued, fully
paid, nonassessable, and free of preemptive rights.
8. The Exercise Price in effect at any time and the number and
kind of securities purchasable upon the exercise of the Warrant shall be subject
to adjustment from time to time upon the happening of certain events, as
follows:
(a) In case the Company shall (i) declare a dividend
or make a distribution on its outstanding Units or Common Shares, (ii) subdivide
or reclassify its outstanding Units or Common Shares into a greater number of
shares, or (iii) combine or reclassify its outstanding Units or Common Shares
into a smaller number of shares, the Exercise Price in effect at the time of the
record date for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted so that it shall
equal the price determined by multiplying the Exercise Price by a fraction, the
denominator of which shall be the number of Units or Common Shares outstanding
after giving effect to such action (as the case may be), and the numerator of
which shall be the number of Units or Common Shares (as the case may be)
outstanding immediately prior to such action. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) Upon each adjustment of the Exercise Price pursuant
to the provisions of this Section 8, the number of Warrant Shares issuable upon
the exercise at the adjusted Exercise Price of the Warrant shall be adjusted to
the nearest number of whole Units or Common Shares (as the case may be) by
multiplying a number equal to the Exercise Price in effect immediately prior to
such adjustment by the number of Warrant Shares issuable upon exercise of the
Warrant immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
(c) In case of any consolidation of the Company with,
or merger of the Company into, another corporation (other than a consolidation
or merger which does not result in any reclassification or change of the
outstanding Common Shares), the corporation formed by such consolidation or
merger shall execute and deliver to the Holder a supplemental warrant agreement
providing that the Holder of the Warrant shall have the right thereafter (until
the expiration of such Warrant) to receive, upon exercise of such Warrant, the
kind and amount of shares of stock and other securities and property receivable
upon such consolidation or merger by a holder of the number of Units or Common
Shares
-4-
<PAGE>
for which such Warrant might have been exercised immediately prior to such
consolidation, merger, sale or transfer. Such supplemental warrant agreement
shall provide for adjustments which shall be identical to the adjustments
provided in this Section 8. The above provision of this paragraph shall
similarly apply to successive consolidations or mergers.
(d) No adjustment in the number of Warrant Shares shall
be required if such adjustment is less than one; provided, however, that any
adjustments which by reason of this paragraph are not required to be made shall
be carried forward and taken into account in any subsequent adjustment. All
calculations under this Section 8 shall be made to the nearest one-thousandth of
a share.
(e) In any case in which this Section 8 shall require
that an adjustment in the number of Warrant Shares be made effective as of a
record date for a specified event, the Company may elect to defer, until the
occurrence of such event, issuing to the Holder, if the Holder exercised the
Warrant after the record date, the Warrant Shares, if any, issuable upon such
exercise over and above the Warrant Shares, if any, issuable upon such exercise
prior to such adjustment; provided, however, that the Company shall deliver to
the Holder a due bill or other appropriate instrument evidencing the Holder's
right to receive such additional Warrant Shares upon the occurrence of the event
requiring such adjustment.
(f) Whenever there shall be an adjustment as provided
in this Section 8, the Company shall promptly cause written notice thereof to be
sent by certified mail, postage prepaid, to the Holder, at its address as it
shall appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares issuable upon
the exercise of the Warrant if such Warrant were exercisable on the date of such
notice, and setting forth a brief statement of the facts requiring such
adjustment and the computation thereof, which officer's certificate shall be
conclusive evidence of the correctness of any such adjustment absent manifest
error.
9. In case at any time the Company shall propose
(a) to pay any dividend or make any distribution on
Units or Common Shares in Units or Common Shares or make any other distribution
(other than regularly scheduled cash dividends which are not in a greater amount
per share than the most recent such cash dividend) to all holders of Units or
Common Shares; or
-5-
<PAGE>
(b) to issue any rights, warrants, or other securities
to all holders of Common Shares entitling them to purchase any additional Units
or Common Shares or any other rights, warrants, or other securities; or
(c) to effect any reclassification or change of
outstanding Common Shares, or any consolidation or merger as described in
Section 8; or
(d) to effect any liquidation, dissolution, or
winding-up of the Company, then, and in any one or more of such cases, the
Company shall give written notice thereof, by registered mail, postage prepaid,
to the Holder at the Holder's address as it shall appear in the Warrant
Register, mailed at least 15 days prior to (i) the date as of which the holders
of record of Units or Common Shares to be entitled to receive any such dividend,
distribution, rights, warrants, or other securities are to be determined, or
(ii) the date on which any such reclassification, change of outstanding Units or
Common Shares, consolidation, merger, liquidation, dissolution, or winding-up is
expected to become effective, and the date as of which it is expected that
holders of record of Units or Common Shares shall be entitled to exchange their
shares for securities or other property, if any, deliverable upon such
reclassification, change of outstanding shares, consolidation, merger, sale,
lease, conveyance of property, liquidation, dissolution, or winding-up.
10. The issuance of any Units, shares or other securities upon
the exercise of the Warrant, and the delivery of certificates or other
instruments representing such shares or other securities, shall be made without
charge to the Holder for any tax or other charge in respect of such issuance,
other than applicable transfer taxes. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of any certificate in a name other than that of the
Holder, and the Company shall not be required to issue or deliver any such
certificate unless and until the person or persons requesting the issue thereof
shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid.
11. Prior to due presentment for registration of transfer
hereof, the Company may deem and treat the Registered Holder as the absolute
owner hereof and of the Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company) for all purposes and shall not be affected by
any notice to the contrary.
-6-
<PAGE>
12. This Warrant Certificate shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to conflicts of laws.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by one of its officers
thereunto duly authorized and a facsimile of its corporate seal to be imprinted
hereon.
Dated: December 29, 1998
WATTMONITOR LLC
[SEAL]
By: /s/ Gerald Alderson
----------------------------
Name: Gerald Alderson
Title: President
-7-
<PAGE>
FORM OF ELECTION
To Be Executed by the Registered Holder
in Order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to
purchase _________ Units of Class II Membership Interests subject to the Warrant
represented by this Warrant Certificate, and requests that certificates for such
securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
-------------------------------
-------------------------------
-------------------------------
-------------------------------
(please print or type name and address)
and be delivered to
-------------------------------
-------------------------------
-------------------------------
(please print or type name and address)
and if such number of Units shall not be all the Units covered by the Warrant,
that a new Warrant Certificate for the balance of the Units covered by the
Warrant be registered in the name of, and delivered to, the Registered Holder at
the address stated below.
-8-
<PAGE>
Exhibit 10.7
THIS WARRANT AND ANY UNITS OR SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), NOR UNDER ANY STATE SECURITIES LAW AND SUCH SECURITIES MAY NOT BE
PLEDGED, SOLD, ASSIGNED, HYPOTHECATED, OR OTHERWISE TRANSFERRED UNTIL (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR (2) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE COMPANY OR COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH
COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
SECURITIES MAY BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED, OR TRANSFERRED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS.
THE TRANSFER OF THIS WARRANT AND THE UNITS OR SHARES ISSUABLE UPON THE EXERCISE
HEREOF IS RESTRICTED AS DESCRIBED HEREIN.
No. W-5 WARRANT TO PURCHASE 33,333 CLASS II
MEMBERSHIP UNITS OF COMMON STOCK
WARRANT CERTIFICATE TO PURCHASE 33,333 CLASS II MEMBERSHIP UNITS
WATTMONITOR LLC
THIS CERTIFIES THAT, FOR VALUE RECEIVED GERALD ALDERSON or his registered
assigns (the "Registered Holder") is the owner of one Warrant (the "Warrant")
which shall initially entitle the Registered Holder to purchase, subject to the
terms and conditions set forth in this Warrant Certificate, 33,333 Class II
Membership Units (each, a "Unit" and collectively, the "Warrant Shares"), of
WattMonitor LLC, a Delaware limited liability company (the "Company"), at any
time from December 29, 1998, until 5:00 p.m., New York time on December 29, 2005
(the "Expiration Date").
1. (a) The Warrant is exercisable upon the presentation and
surrender of this Warrant Certificate with the Form of Election attached hereto
duly executed, at the offices of the Company, accompanied by payment of $1.50
per Unit subject to adjustment (the "Purchase Price"), in lawful money of the
United States of America in cash or by check made payable to the Company or in
accordance with Section 1(b) hereof.
<PAGE>
(b) In addition to the method of payment set forth in
Section 1(a) and in lieu of any cash payment required thereunder, the Registered
Holder of the Warrant shall have the right at any time and from time to time to
exercise the Warrant in full or in part by surrendering this Warrant Certificate
in the manner specified in Section1(a) in exchange for the number of Warrant
Shares equal to the product of (x) the number of Warrant Shares as to which the
Warrant is being exercised, multiplied by (y) a fraction, the numerator of which
is the Market Price (as defined in Section 1(c) hereof) of the Warrant Shares
minus the Purchase Price of the Warrant Shares and the denominator of which is
the Market Price. Solely for the purposes of this Section 1(b), Market Price
shall be calculated either (i) on the date on which the Form of Election
attached hereto is deemed to have been presented and surrendered to the Company
pursuant to 1(a) hereof ("Exercise Date") or (ii) as the average of the Market
Price for each of the five trading days immediately proceeding the Exercise
Date, whichever of (i) or (ii) results in a greater Market Price.
(c) (i) As used herein, the phrase "Market Price" of the
Warrant Shares, at any date shall be deemed to be the last reported sale price,
or, in case no such reported sale takes place on such day, the average of the
last reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the Warrant
Shares are listed or admitted to trading or by the Nasdaq National Market
("Nasdaq/NM") or the Nasdaq Small Cap Market ("Nasdaq Small Cap"), or, if the
Warrant Shares are not listed or admitted to trading on any national securities
exchange or quoted by the National Association of Securities Dealers Automated
Quotation System ("Nasdaq"), the average closing bid price as furnished by the
National Association of Securities Dealers, Inc. ("NASD") through Nasdaq or
similar organization if Nasdaq is no longer reporting such information.
(ii) If the Market Price of the Warrant Shares
cannot be determined pursuant to Section 1(c)(i) above, the Market Price of the
Warrant Shares shall be determined in good faith (using customary valuation
methods) by resolution of the members of the Board of Directors of the Company,
based on the best information available to it.
(d) If the Company converts from a limited liability company
to a corporate form, the rights granted hereunder shall automatically convert to
the right to acquire Common Stock of the Company, in conformance with the
Reorganization Plan established by the Company's Board of Managers pursuant to
Article XII of the Company's Limited Liability Company Agreement.
-2-
<PAGE>
2. In the event of certain contingencies provided for herein,
the Purchase Price and the number of Units subject to purchase upon the exercise
of the Warrant represented hereby are subject to modification or adjustment.
3. The Warrant represented hereby is exercisable at the option
of the Registered Holder, but no fractional Units will be issued. In the case of
the exercise as to less than all of the Warrant Shares, the Company shall cancel
this Warrant Certificate upon the surrender hereof and shall execute and deliver
a new Warrant Certificate or Warrant Certificates of like tenor, for the balance
of the Warrant Shares.
4. The Company shall not be obligated to deliver any
securities pursuant to the exercise of the Warrant unless a registration
statement under the Securities Act of 1933, as amended (the "Act"), with respect
to such securities is effective or an exemption thereunder is available.
5. This Warrant Certificate is exchangeable, upon the
surrender hereof by the Registered Holder at the corporate office of the
Company, for a new Warrant Certificate or Warrant Certificates of like tenor
representing an equal aggregate number of Warrant Shares covered by the Warrant,
each of such new Warrant Certificates to represent such number of Warrant Shares
covered by the Warrant as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrant Shares
covered by the Warrant will be issued to the transferee in exchange therefor.
6. Prior to the exercise of the Warrant represented hereby,
the Registered Holder shall not be entitled to any rights of a stockholder or
member of the Company by virtue of this Warrant, including, without limitation,
the right to vote or to receive dividends or other distributions, and shall not
be entitled to receive any notice of any proceedings of the Company, except as
provided herein.
7. The Company shall at all times reserve and keep available
out of its authorized and unissued Units, solely for the purpose of providing
for the exercise of the rights to purchase all Warrants Shares granted pursuant
to the Warrant, such number of Units as shall then be issuable upon the exercise
of the Warrant. The Company covenants that all Units issuable upon exercise of
the Warrant, upon receipt by the Company of the full
-3-
<PAGE>
Exercise Price therefor, shall be validly issued, fully paid, nonassessable, and
free of preemptive rights.
8. The Exercise Price in effect at any time and the number and
kind of securities purchasable upon the exercise of the Warrant shall be subject
to adjustment from time to time upon the happening of certain events, as
follows:
(a) In case the Company shall (i) declare a dividend
or make a distribution on its outstanding Units or Common Shares, (ii) subdivide
or reclassify its outstanding Units or Common Shares into a greater number of
shares, or (iii) combine or reclassify its outstanding Units or Common Shares
into a smaller number of shares, the Exercise Price in effect at the time of the
record date for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted so that it shall
equal the price determined by multiplying the Exercise Price by a fraction, the
denominator of which shall be the number of Units or Common Shares outstanding
after giving effect to such action (as the case may be), and the numerator of
which shall be the number of Units or Common Shares (as the case may be)
outstanding immediately prior to such action. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) Upon each adjustment of the Exercise Price pursuant
to the provisions of this Section 8, the number of Warrant Shares issuable upon
the exercise at the adjusted Exercise Price of the Warrant shall be adjusted to
the nearest number of whole Units or Common Shares (as the case may be) by
multiplying a number equal to the Exercise Price in effect immediately prior to
such adjustment by the number of Warrant Shares issuable upon exercise of the
Warrant immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
(c) In case of any consolidation of the Company with,
or merger of the Company into, another corporation (other than a consolidation
or merger which does not result in any reclassification or change of the
outstanding Common Shares), the corporation formed by such consolidation or
merger shall execute and deliver to the Holder a supplemental warrant agreement
providing that the Holder of the Warrant shall have the right thereafter (until
the expiration of such Warrant) to receive, upon exercise of such Warrant, the
kind and amount of shares of stock and other securities and property receivable
upon such consolidation or merger by a holder of the number of Units or Common
Shares for which such Warrant might have been exercised immediately prior to
such consolidation, merger, sale or transfer. Such supplemental warrant
agreement shall provide for adjustments
-4-
<PAGE>
which shall be identical to the adjustments provided in this Section 8. The
above provision of this paragraph shall similarly apply to successive
consolidations or mergers.
(d) No adjustment in the number of Warrant Shares shall
be required if such adjustment is less than one; provided, however, that any
adjustments which by reason of this paragraph are not required to be made shall
be carried forward and taken into account in any subsequent adjustment. All
calculations under this Section 8 shall be made to the nearest one-thousandth of
a share.
(e) In any case in which this Section 8 shall require
that an adjustment in the number of Warrant Shares be made effective as of a
record date for a specified event, the Company may elect to defer, until the
occurrence of such event, issuing to the Holder, if the Holder exercised the
Warrant after the record date, the Warrant Shares, if any, issuable upon such
exercise over and above the Warrant Shares, if any, issuable upon such exercise
prior to such adjustment; provided, however, that the Company shall deliver to
the Holder a due bill or other appropriate instrument evidencing the Holder's
right to receive such additional Warrant Shares upon the occurrence of the event
requiring such adjustment.
(f) Whenever there shall be an adjustment as provided
in this Section 8, the Company shall promptly cause written notice thereof to be
sent by certified mail, postage prepaid, to the Holder, at its address as it
shall appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares issuable upon
the exercise of the Warrant if such Warrant were exercisable on the date of such
notice, and setting forth a brief statement of the facts requiring such
adjustment and the computation thereof, which officer's certificate shall be
conclusive evidence of the correctness of any such adjustment absent manifest
error.
9. In case at any time the Company shall propose
(a) to pay any dividend or make any distribution on
Units or Common Shares in Units or Common Shares or make any other distribution
(other than regularly scheduled cash dividends which are not in a greater amount
per share than the most recent such cash dividend) to all holders of Units or
Common Shares; or
(b) to issue any rights, warrants, or other securities
to all holders of Common Shares entitling them to purchase any additional Units
or Common Shares or any other rights, warrants, or other securities; or
-5-
<PAGE>
(c) to effect any reclassification or change of
outstanding Common Shares, or any consolidation or merger as described in
Section 8; or
(d) to effect any liquidation, dissolution, or
winding-up of the Company, then, and in any one or more of such cases, the
Company shall give written notice thereof, by registered mail, postage prepaid,
to the Holder at the Holder's address as it shall appear in the Warrant
Register, mailed at least 15 days prior to (i) the date as of which the holders
of record of Units or Common Shares to be entitled to receive any such dividend,
distribution, rights, warrants, or other securities are to be determined, or
(ii) the date on which any such reclassification, change of outstanding Units or
Common Shares, consolidation, merger, liquidation, dissolution, or winding-up is
expected to become effective, and the date as of which it is expected that
holders of record of Units or Common Shares shall be entitled to exchange their
shares for securities or other property, if any, deliverable upon such
reclassification, change of outstanding shares, consolidation, merger, sale,
lease, conveyance of property, liquidation, dissolution, or winding-up.
10. The issuance of any Units, shares or other securities upon
the exercise of the Warrant, and the delivery of certificates or other
instruments representing such shares or other securities, shall be made without
charge to the Holder for any tax or other charge in respect of such issuance,
other than applicable transfer taxes. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of any certificate in a name other than that of the
Holder, and the Company shall not be required to issue or deliver any such
certificate unless and until the person or persons requesting the issue thereof
shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid.
11. Prior to due presentment for registration of transfer
hereof, the Company may deem and treat the Registered Holder as the absolute
owner hereof and of the Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company) for all purposes and shall not be affected by
any notice to the contrary.
12. This Warrant Certificate shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to conflicts of laws.
-6-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by one of its officers
thereunto duly authorized and a facsimile of its corporate seal to be imprinted
hereon.
Dated: December 29, 1998
WATTMONITOR LLC
[SEAL]
By: /s/ Gerald Alderson
----------------------
Name: Gerald Alderson
Title: President
-7-
<PAGE>
FORM OF ELECTION
To Be Executed by the Registered Holder
in Order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to
purchase _________ Units of Class II Membership Interests subject to the Warrant
represented by this Warrant Certificate, and requests that certificates for such
securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
-------------------------------
-------------------------------
-------------------------------
-------------------------------
(please print or type name and address)
and be delivered to
-------------------------------
-------------------------------
-------------------------------
(please print or type name and address)
and if such number of Units shall not be all the Units covered by the Warrant,
that a new Warrant Certificate for the balance of the Units covered by the
Warrant be registered in the name of, and delivered to, the Registered Holder at
the address stated below.
-8-
<PAGE>
Exhibit 10.8
THIS WARRANT AND ANY UNITS OR SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), NOR UNDER ANY STATE SECURITIES LAW AND SUCH SECURITIES MAY NOT BE
PLEDGED, SOLD, ASSIGNED, HYPOTHECATED, OR OTHERWISE TRANSFERRED UNTIL (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR (2) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE COMPANY OR COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH
COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
SECURITIES MAY BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED, OR TRANSFERRED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS.
THE TRANSFER OF THIS WARRANT AND THE UNITS OR SHARES ISSUABLE UPON THE EXERCISE
HEREOF IS RESTRICTED AS DESCRIBED HEREIN.
No. W-2 WARRANT TO PURCHASE 283,333 CLASS II
MEMBERSHIP UNITS OF COMMON STOCK
WARRANT CERTIFICATE TO PURCHASE 283,333 CLASS II MEMBERSHIP UNITS
WATT MONITOR, LLC
THIS CERTIFIES THAT, FOR VALUE RECEIVED RHL VENTURES LLC, a Delaware limited
liability company or its registered assigns (the "Registered Holder") is the
owner of one Warrant (the "Warrant") which shall initially entitle the
Registered Holder to purchase, subject to the terms and conditions set forth in
this Warrant Certificate, 283,333 Class II Membership Units (each, a "Unit" and
collectively, the "Warrant Shares"), of Watt Monitor LLC, a Delaware limited
liability company (the "Company"), at any time from August 1, 1998, until 5:00
p.m., New York time on August 1, 2005 (the "Expiration Date").
1. (a) The Warrant is exercisable upon the presentation and
surrender of this Warrant Certificate with the Form of Election attached hereto
duly executed, at the offices of the Company, accompanied by payment of $1.50
per Unit subject to adjustment (the "Purchase Price"), in lawful money of the
United States of America in cash or by check made payable to the Company or in
accordance with Section 1(b) hereof.
<PAGE>
(b) In addition to the method of payment set forth in
Section 1(a) and in lieu of any cash payment required thereunder, the Registered
Holder of the Warrant shall have the right at any time and from time to time to
exercise the Warrant in full or in part by surrendering this Warrant Certificate
in the manner specified in Section1(a) in exchange for the number of Warrant
Shares equal to the product of (x) the number of Warrant Shares as to which the
Warrant is being exercised, multiplied by (y) a fraction, the numerator of which
is the Market Price (as defined in Section 1(c) hereof) of the Warrant Shares
minus the Purchase Price of the Warrant Shares and the denominator of which is
the Market Price. Solely for the purposes of this Section 1(b), Market Price
shall be calculated either (i) on the date on which the Form of Election
attached hereto is deemed to have been presented and surrendered to the Company
pursuant to 1(a) hereof ("Exercise Date") or (ii) as the average of the Market
Price for each of the five trading days immediately proceeding the Exercise
Date, whichever of (i) or (ii) results in a greater Market Price.
(c) (i) As used herein, the phrase "Market Price" of the
Warrant Shares, at any date shall be deemed to be the last reported sale price,
or, in case no such reported sale takes place on such day, the average of the
last reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the Warrant
Shares are listed or admitted to trading or by the Nasdaq National Market
("Nasdaq/NM") or the Nasdaq Small Cap Market ("Nasdaq Small Cap"), or, if the
Warrant Shares are not listed or admitted to trading on any national securities
exchange or quoted by the National Association of Securities Dealers Automated
Quotation System ("Nasdaq"), the average closing bid price as furnished by the
National Association of Securities Dealers, Inc. ("NASD") through Nasdaq or
similar organization if Nasdaq is no longer reporting such information.
(ii) If the Market Price of the Warrant Shares cannot
be determined pursuant to Section 1(c)(i) above, the Market Price of the Warrant
Shares shall be determined in good faith (using customary valuation methods) by
resolution of the members of the Board of Directors of the Company, based on the
best information available to it.
(d) If the Company converts from a limited liability company
to a corporate form, the rights granted hereunder shall automatically convert to
the right to acquire Common Stock of the Company, in conformance with the
Reorganization Plan established by the Company's Board of Managers pursuant to
Article XII of the Company's Limited Liability Company Agreement.
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<PAGE>
2. In the event of certain contingencies provided for herein,
the Purchase Price and the number of Units subject to purchase upon the exercise
of the Warrant represented hereby are subject to modification or adjustment.
3. The Warrant represented hereby is exercisable at the option
of the Registered Holder, but no fractional Units will be issued. In the case of
the exercise as to less than all of the Warrant Shares, the Company shall cancel
this Warrant Certificate upon the surrender hereof and shall execute and deliver
a new Warrant Certificate or Warrant Certificates of like tenor, for the balance
of the Warrant Shares.
4. The Company shall not be obligated to deliver any
securities pursuant to the exercise of the Warrant unless a registration
statement under the Securities Act of 1933, as amended (the "Act"), with respect
to such securities is effective or an exemption thereunder is available.
5. This Warrant Certificate is exchangeable, upon the
surrender hereof by the Registered Holder at the corporate office of the
Company, for a new Warrant Certificate or Warrant Certificates of like tenor
representing an equal aggregate number of Warrant Shares covered by the Warrant,
each of such new Warrant Certificates to represent such number of Warrant Shares
covered by the Warrant as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrant Shares
covered by the Warrant will be issued to the transferee in exchange therefor.
6. Prior to the exercise of the Warrant represented hereby,
the Registered Holder shall not be entitled to any rights of a stockholder or
member of the Company by virtue of this Warrant, including, without limitation,
the right to vote or to receive dividends or other distributions, and shall not
be entitled to receive any notice of any proceedings of the Company, except as
provided herein.
7. The Company shall at all times reserve and keep available
out of its authorized and unissued Units, solely for the purpose of providing
for the exercise of the rights to purchase all Warrants Shares granted pursuant
to the Warrant, such number of Units as shall then be issuable upon the exercise
of the Warrant. The Company covenants that all Units issuable upon exercise of
the Warrant, upon receipt by the Company of the full
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<PAGE>
Exercise Price therefor, shall be validly issued, fully paid, nonassessable, and
free of preemptive rights.
8. The Exercise Price in effect at any time and the number and
kind of securities purchasable upon the exercise of the Warrant shall be subject
to adjustment from time to time upon the happening of certain events, as
follows:
(a) In case the Company shall (i) declare a dividend
or make a distribution on its outstanding Units or Common Shares, (ii) subdivide
or reclassify its outstanding Units or Common Shares into a greater number of
shares, or (iii) combine or reclassify its outstanding Units or Common Shares
into a smaller number of shares, the Exercise Price in effect at the time of the
record date for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted so that it shall
equal the price determined by multiplying the Exercise Price by a fraction, the
denominator of which shall be the number of Units or Common Shares outstanding
after giving effect to such action (as the case may be), and the numerator of
which shall be the number of Units or Common Shares (as the case may be)
outstanding immediately prior to such action. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) Upon each adjustment of the Exercise Price pursuant
to the provisions of this Section 8, the number of Warrant Shares issuable upon
the exercise at the adjusted Exercise Price of the Warrant shall be adjusted to
the nearest number of whole Units or Common Shares (as the case may be) by
multiplying a number equal to the Exercise Price in effect immediately prior to
such adjustment by the number of Warrant Shares issuable upon exercise of the
Warrant immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
(c) In case of any consolidation of the Company with,
or merger of the Company into, another corporation (other than a consolidation
or merger which does not result in any reclassification or change of the
outstanding Common Shares), the corporation formed by such consolidation or
merger shall execute and deliver to the Holder a supplemental warrant agreement
providing that the Holder of the Warrant shall have the right thereafter (until
the expiration of such Warrant) to receive, upon exercise of such Warrant, the
kind and amount of shares of stock and other securities and property receivable
upon such consolidation or merger by a holder of the number of Units or Common
Shares for which such Warrant might have been exercised immediately prior to
such consolidation, merger, sale or transfer. Such supplemental warrant
agreement shall provide for adjustments
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<PAGE>
which shall be identical to the adjustments provided in this Section 8. The
above provision of this paragraph shall similarly apply to successive
consolidations or mergers.
(d) No adjustment in the number of Warrant Shares shall
be required if such adjustment is less than one; provided, however, that any
adjustments which by reason of this paragraph are not required to be made shall
be carried forward and taken into account in any subsequent adjustment. All
calculations under this Section 8 shall be made to the nearest one-thousandth of
a share.
(e) In any case in which this Section 8 shall require
that an adjustment in the number of Warrant Shares be made effective as of a
record date for a specified event, the Company may elect to defer, until the
occurrence of such event, issuing to the Holder, if the Holder exercised the
Warrant after the record date, the Warrant Shares, if any, issuable upon such
exercise over and above the Warrant Shares, if any, issuable upon such exercise
prior to such adjustment; provided, however, that the Company shall deliver to
the Holder a due bill or other appropriate instrument evidencing the Holder's
right to receive such additional Warrant Shares upon the occurrence of the event
requiring such adjustment.
(f) Whenever there shall be an adjustment as provided
in this Section 8, the Company shall promptly cause written notice thereof to be
sent by certified mail, postage prepaid, to the Holder, at its address as it
shall appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares issuable upon
the exercise of the Warrant if such Warrant were exercisable on the date of such
notice, and setting forth a brief statement of the facts requiring such
adjustment and the computation thereof, which officer's certificate shall be
conclusive evidence of the correctness of any such adjustment absent manifest
error.
9. In case at any time the Company shall propose
(a) to pay any dividend or make any distribution on
Units or Common Shares in Units or Common Shares or make any other distribution
(other than regularly scheduled cash dividends which are not in a greater amount
per share than the most recent such cash dividend) to all holders of Units or
Common Shares; or
(b) to issue any rights, warrants, or other securities
to all holders of Common Shares entitling them to purchase any additional Units
or Common Shares or any other rights, warrants, or other securities; or
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<PAGE>
(c) to effect any reclassification or change of
outstanding Common Shares, or any consolidation or merger as described in
Section 8; or
(d) to effect any liquidation, dissolution, or
winding-up of the Company, then, and in any one or more of such cases, the
Company shall give written notice thereof, by registered mail, postage prepaid,
to the Holder at the Holder's address as it shall appear in the Warrant
Register, mailed at least 15 days prior to (i) the date as of which the holders
of record of Units or Common Shares to be entitled to receive any such dividend,
distribution, rights, warrants, or other securities are to be determined, or
(ii) the date on which any such reclassification, change of outstanding Units or
Common Shares, consolidation, merger, liquidation, dissolution, or winding-up is
expected to become effective, and the date as of which it is expected that
holders of record of Units or Common Shares shall be entitled to exchange their
shares for securities or other property, if any, deliverable upon such
reclassification, change of outstanding shares, consolidation, merger, sale,
lease, conveyance of property, liquidation, dissolution, or winding-up.
10. The issuance of any Units, shares or other securities upon
the exercise of the Warrant, and the delivery of certificates or other
instruments representing such shares or other securities, shall be made without
charge to the Holder for any tax or other charge in respect of such issuance,
other than applicable transfer taxes. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of any certificate in a name other than that of the
Holder, and the Company shall not be required to issue or deliver any such
certificate unless and until the person or persons requesting the issue thereof
shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid.
11. Prior to due presentment for registration of transfer
hereof, the Company may deem and treat the Registered Holder as the absolute
owner hereof and of the Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company) for all purposes and shall not be affected by
any notice to the contrary.
12. This Warrant Certificate shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to conflicts of laws.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by one of its officers
thereunto duly authorized and a facsimile of its corporate seal to be imprinted
hereon.
Dated: August 14, 1998
WATT MONITOR LLC
[SEAL]
By: /s/ Gerald Alderson
----------------------
Name: Gerald Alderson
Title: President
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<PAGE>
FORM OF ELECTION
To Be Executed by the Registered Holder
in Order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to
purchase _________ Units of Class II Membership Interests subject to the Warrant
represented by this Warrant Certificate, and requests that certificates for such
securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
-------------------------------
-------------------------------
-------------------------------
-------------------------------
(please print or type name and address)
and be delivered to
-------------------------------
-------------------------------
-------------------------------
(please print or type name and address)
and if such number of Units shall not be all the Units covered by the Warrant,
that a new Warrant Certificate for the balance of the Units covered by the
Warrant be registered in the name of, and delivered to, the Registered Holder at
the address stated below.
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<PAGE>
Exhibit 10.9
WATTAGE MONITOR INC.
LOCK-UP AGREEMENT
February 26, 1999
Wattage Monitor Inc.
5-3460 Agar Drive
Richmond, British Columbia
CANADA V7B 1A3
Ladies and Gentlemen:
Pursuant to the terms of an Agreement and Plan of Merger (the
"Merger Agreement"), between WattMonitor LLC, a Delaware limited liability
company ("WMLLC"), and Wattage Monitor Inc., a Nevada corporation (the
"Company"), dated as of February 26th, 1999, the undersigned has acquired
certain shares of Common Stock of the Company (the "Common Stock").
In consideration of the Company's obligations under the Merger
Agreement, and of other good and valuable consideration, the receipt of which is
hereby acknowledged, the undersigned agrees that the undersigned will not, for
the period commencing February 26, 1999 and ending August 26, 1999, directly or
indirectly, sell, offer to sell, contract to sell, make short sales of, loan,
grant any option for the sale of, transfer, or otherwise dispose of any shares
of Common Stock, or other securities convertible into or exercisable or
exchangeable for Common Stock now owned or hereafter acquired by the undersigned
(collectively, the "Securities"), other than (i) as a gift or gifts, or to
trusts for the benefit of family members of the undersigned, provided the
transferee thereof agrees in writing to be bound by this agreement, or by will
or the laws of descent and distribution, provided that prior to such transfer of
the Securities the transferee agrees in writing to be bound by this agreement,
or (ii) with the prior written consent of the Company (collectively, the
"Permitted Exceptions"). (Any transaction covered by the foregoing restriction
is referred to as a "Transfer.") The undersigned further agrees that other than
with respect to (i) twenty percent (20%) of the Securities owned by the
undersigned, and (ii) the Permitted Exceptions, that the undersigned will not
for the period commencing August 27, 1999 and ending February 26, 2000 Transfer
any Securities. This agreement shall not apply to or restrict a Transfer of any
of the Securities from the undersigned to a third party in a non-public
transaction, provided that the Transfer otherwise complies with applicable
securities laws, that such third party agrees in writing to be bound by all of
<PAGE>
the provisions of this agreement, and that such third party receives the
approval of the Company's Board of Directors for such Transfer.
The undersigned hereby acknowledges that this agreement is
valid and binding, notwithstanding any prior agreements relating to this matter,
and further agrees and consents to the entry of the stop-transfer instructions
with the Company's transfer agent against the transfer of shares of Common Stock
held by the undersigned except in compliance with this agreement.
The undersigned agrees to execute such agreements as the
Company requests relating to the subject matter of this agreement that is
consistent in all material respects with the terms of this agreement.
Very truly yours,
---------------------------------
Name:
Title:
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<PAGE>
Exhibit 10.10
WATTAGE MONITOR INC.
1999 INCENTIVE AND NONQUALIFIED
STOCK OPTION PLAN
---------------------------------------
1. Purpose
The purpose of this Stock Option Plan (the "Plan") is to encourage and
enable key employees (which term, as used herein, shall include officers), and
directors, of Wattage Monitor Inc. or a parent (if any) or subsidiary thereof
(collectively, unless the context otherwise requires, the "Company"),
consultants, and advisors to the Company, and other persons or entities
providing goods or services to the Company to acquire a proprietary interest in
the Company through the ownership of common stock of the Company. As used
herein, the term "parent" or "subsidiary" shall mean any present or future
corporation which is or would be a "parent corporation" or "subsidiary
corporation" of the Company as the term is defined in section 424 of the
Internal Revenue Code of 1986, as amended (the "Code") (determined as if the
Company were the employer corporation). Such directors, consultants, advisors,
and other persons or entities providing goods or services to the Company and
entitled to receive options hereunder are hereinafter collectively referred to
as the "Associates," and the relationship of the Associates to the Company is
hereinafter referred to as an "association with" the Company. An employee or
Associate to whom an option has been granted is referred to as a "Grantee." Such
ownership will provide such Grantees with a more direct stake in the future
welfare of the Company and encourage them to remain employed by or associated
with the Company. It is also expected that the Plan will encourage qualified
persons to seek and accept employment or association with the Company.
2. Administration
(a) The Plan shall be administered by the Board of Directors
(the "Board").
(b) As it applies to the administration of the Plan, a
majority of the members of the Board shall constitute a quorum, and the action
of a majority of the members of the Board present at a meeting at which a quorum
is present, as well as actions taken pursuant to the unanimous written consent
of all the members of the Board without holding a meeting, shall be deemed to be
actions of the Board. All actions of the Board and all interpretations and
decisions made by the Board with respect to any question arising under the Plan
shall be final and conclusive and shall be binding upon the Company and all
other interested parties.
<PAGE>
(c) Subject to the terms and conditions of the Plan, the Board
shall be responsible for the overall management and administration of the Plan
and shall have such authority as shall be necessary or appropriate in order to
carry out its responsibilities, including, without limitation, the authority to
(i) interpret and construe the Plan and to determine the terms of all options
granted pursuant to the Plan, including, but not limited to, the persons to
whom, and the time or times at which grants shall be made, the number of options
to be included in the grants, the number of options which shall be treated as
incentive stock options (in the case of options granted to employees) as
described in section 422 of the Code, the number of options which do not qualify
as incentive stock options ("nonqualified options"), and the terms and
conditions thereof; (ii) to adopt rules and regulations and to prescribe forms
for the operation and administration of the Plan; and (iii) to take any other
action not inconsistent with the provisions of the Plan that it may deem
necessary or appropriate.
3. Eligibility and Participation
(a) Key employees and Associates of the Company are eligible
to receive options. Each option shall be granted, and the number of shares and
the vesting schedule of such shares subject thereto shall be determined by the
Board.
(b) Options shall be evidenced by written agreements which
shall, among other things (i) designate the option as either an incentive stock
option or a nonqualified stock option, (ii) specify the number of shares covered
by the option; (iii) specify the exercise price, determined in accordance with
paragraph 7 hereof, for the shares subject to the option; (iv) specify the
option period determined in accordance with paragraph 6 hereof; (v) set forth
specifically or incorporate by refer ence the applicable provisions of the Plan;
and (vi) contain such other terms and conditions consistent with the Plan as the
Board may, in its discretion, prescribe.
(c) Without limiting the generality of subsection (c) of this
paragraph 3, the Board may, in its sole discretion and on such terms as it deems
appropriate, require as a condition to the grant of an option to an employee or
Associate that the employee or Associate surrender for cancellation some or all
of the unexercised options that have been previously granted to him or her under
the Plan or otherwise. An option, the grant of which is condition upon such
surrender, may have an option price lower (or higher) than the exercise price of
such surrendered option, may cover the same (or lesser or greater) number of
shares as such surrendered option, may contain such other terms as the Board
deems appropriate, and shall be exercisable in accordance with its terms,
without regard to the number of shares, prices, exercise period or any other
term or condition of such surrendered option.
4. Shares Subject to the Plan
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<PAGE>
The stock to be offered and delivered under the Plan, pursuant
to the exercise of an option, shall be shares of the Company's authorized Common
Stock, par value $.01 per share (the "Common Stock"), and may be unissued shares
or reacquired shares, as the Board may from time to time determine. Subject to
adjustment as provided in paragraph 13 hereof, the aggregate number of shares to
be delivered under the Plan shall not exceed one million, five hundred thousand
(1,500,000) shares. If an option expires or terminates for any reason during the
term of the Plan prior to the exercise thereof in full, the shares subject to
but not delivered under such option shall be available for options thereafter
granted.
5. Incentive Stock Options
(a) An option designated by the Board as an "incentive stock
option" is intended to qualify as an "incentive stock option" within the meaning
of section 422 of the Code. An incentive stock option shall be granted only to
an employee of the Company.
(b) No incentive stock option shall provide any person with a
right to purchase shares to the extent that such right first becomes exercisable
during a prescribed calendar year and the sum of (i) the fair market value
(determined as of the date of grant) of the shares subject to such incentive
stock option which first become available for purchase during such calendar
year, plus (ii) the fair market value (determined as of the date of grant) of
all shares subject to incentive stock options previously granted to such person
under all plans of the Company first become available for purchase during such
calendar year exceeds $100,000.
(c) Without prior written notice to the Board, a Grantee may
not dispose of shares acquired pursuant to the exercise of an incentive stock
option until after the later of (i) the second anniversary of the date on which
the incentive stock option was granted, or (ii) the first anniversary of the
date on which the shares were acquired; provided, however, that a transfer to a
trustee, receiver, or other fiduciary in any insolvency proceeding, as described
in section 422(c)(3) of the Code, shall not be deemed to be such a disposition.
The optionee shall make appropriate arrange ments with the Company for any taxes
which the Company is obligated to collect in connection with any disposition of
shares acquired pursuant to the exercise of an incentive stock option, including
any Federal, state or local withholding taxes.
(d) Should Section 422 of the Code be amended during the term
of the Plan, the Board may modify the Plan consistently with such amendment.
6. Term of Option Period
The term during which options may be granted under the Plan shall
expire on February ___, 2009 and the option period during which each option may
be exercised shall, subject to the
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<PAGE>
provisions of paragraph 12 hereof, be during such period, expiring not later
than the tenth anniversary (the fifth anniversary in the case of incentive stock
options granted to a person who owns (within the meaning of section 424(d) of
the Code) more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company at the time such option is granted) of the date
the option is granted, as may be determined by the Board.
7. Option Price
The price at which shares may be purchased upon exercise of a
particular option shall be such price as may be fixed by the Board but in no
event less than the minimum required in order to comply with any applicable law,
rule or regulation and, in the case of incentive stock options, shall not be
less than one-hundred percent (100%), or in the case of incentive stock options
granted to an optionee who is a ten percent (10%) stockholder (within the
meaning of paragraph 6 hereof), shall not be less than one-hundred and ten
percent (110%), of the fair market value (as defined in paragraph 8) of such
shares on the date such option is granted.
8. Stock as Form of Exercise Payment
(a) At the discretion of the Board, a Grantee who owns shares
of Common Stock may elect to use such shares, with the value thereof to be
determined as the "fair market value" of such shares on the day prior to the
date of exercise of the option, to pay all or part of the option price required
under the Plan.
(b) As used herein, "fair market value" shall be deemed to be
the closing price of the Common Stock on such day, if the Common Stock is then
traded on a national securities exchange, or the closing bid price of the Common
Stock on such day, if such stock is traded on the NASDAQ National Market System
or Small-Cap Market System or, if not so traded, the average of the closing bid
and asked prices thereof on such day.
(c) If the "fair market value" of such shares cannot be
determined pursuant to Section 8(b) above, the "fair market value" of such
shares shall be determined in good faith (using customary valuation methods) by
resolution of the members of the Board, based on the best information available
to the Board.
9. Exercise of Options
(a) Each option granted shall be exercisable in whole or in
part at any time, or from time to time, during the option period as the Board
may provide in the terms of such option; provided
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<PAGE>
that the election to exercise an option shall be made in accordance with
applicable federal and state laws and regulations.
(b) No option may at any time be exercised with respect to a
fractional share.
(c) No shares shall be delivered pursuant to the exercise of
any option, in whole or in part, until (i) such shares are qualified for
delivery under such securities laws and regulations as may be deemed by the
Board to be applicable thereto, (ii) such shares are listed on each securities
exchange on which the Common Stock may then be listed, (iii) payment in full of
the option price is received by the Company in cash or stock as provided in
paragraph 8, and (iv) until payment in cash of any applicable withholding taxes
is received by the Company. Unless prior to the exercise of the option the
shares of the Common Stock issuable upon such exercise have been registered with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
as amended (the "Act"), the notice of exercise shall be accompanied by a
representation or agreement of the individual exercising the option to the
Company to the effect that such shares are being acquired for investment and not
with a view to the resale or distribution thereof or such other documentation as
may be required by the Company unless in the opinion of counsel to the Company
such representation, agreement, or documentation is not necessary to comply with
the Act. No holder of an option, or such holder's legal representative, legatee,
or distributee shall be or be deemed to be a holder of any shares subject to
such option unless and until a certificate or certificates therefor is issued in
his name.
10. Acceleration of Vesting
(a) An option shall automatically be vested and immediately
exercisable in full upon the occurrence of any of the following events:
(i) Any person within the meaning of
Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the "1934 Act"), other than the Company, has
become the beneficial owner, within the meaning of Rule 13d-3
under the 1934 Act, of thirty percent (30%) or more of the
combined voting power of the Company's then outstanding voting
securities, unless such ownership by such person has been
approved by the Board immediately prior to the acquisition of
such securities by such person;
(ii) The first day on which shares of the
Common Stock are purchased pursuant to a tender offer or
exchange offer, unless such offer is made by the Company or
unless such offer has been approved or not opposed by the
Board;
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<PAGE>
(iii) The stockholders of the Company have
approved an agreement to merge or consolidate with or into
another corporation and (A) the Company is not the survivor of
such merger or consolidation, or (B) an agreement to sell or
otherwise dispose of all or substantially all of the Company's
assets (including a plan of liquidation), unless the Board has
resolved that options shall not automatically vest; or
(iv) During any period of two consecutive
years, individuals who at the beginning of such period
constitute the Board cease for any reason to constitute at
least a majority thereof, unless the election or the
nomination for the election by the Company's stockholders of
each new director was approved by a vote of at least a
majority of the directors then still in office who were
directors at the beginning of the period.
(b) Other than upon the occurrence of any of the events
described in paragraph 10(a), the Board shall have the authority at any time or
from time to time to accelerate the vesting of any individual option and to
permit any stock option not theretofore exercisable to become immediately
exercisable.
11. Transfer of Options
Options granted under the Plan may not be transferred except
(i) with the prior written consent of the Company, (ii) by will or the laws of
descent and distribution, (iii) pursuant to a domestic relations order, as
defined by the Code or (iv) pursuant to Title I of the Employee Retirement
Income Securities Act or the Rules thereunder. During the lifetime of the
Grantee, options may be exercised only by such Grantee or by such Grantee's
guardian or legal representative.
12. Termination of Employment
(a) Except as specifically provided in this paragraph 12, if
the Grantee's employment or association with the Company shall terminate for any
reason before the option has vested in full, then the unvested portion of the
option shall automatically terminate on the date of termination of employment or
association and all rights and interests of the Grantee in and to such unvested
portion shall thereupon terminate.
(b) After the date on which an incentive stock option vests,
if the Grantee's employment by the Company is terminated for any reason, the
incentive stock option shall be exercisable for the lesser of (i) three (3)
months from the date of such termination of employment or (ii) the balance of
such incentive stock option's term; provided, however, that in the event that
the termination is as a result of the death or disability (within the meaning of
section 22(e)(3) of the
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<PAGE>
Code) of the Grantee, the incentive stock options held by such Grantee which
were otherwise exercisable on the date of his termination of employment shall
expire unless exercised by such Grantee, or, in the case of the death of a
Grantee, by his heirs, legatees, or personal representatives, within a period of
twelve (12) months after the date of termination of employment. In no event,
however, shall any incentive stock option be exercisable after ten years from
the date it was granted. Nothing in the Plan or in any option shall confer upon
any Grantee the right to continue in the employ of the Company or interfere in
any way with the right of the Company to terminate the employment of a Grantee
at any time. The Board's determination that a Grantee's employment has
terminated and the date thereof shall be final and conclusive on all persons
affected thereby.
(c) The Board may, if it determines that to do so would be in
the Company's best interests, provide in a specific case or cases for the
exercise of options which would otherwise terminate upon termination of
employment with the Company for any reason, upon such terms and conditions as
the Board determines to be appropriate.
(d) In the case of a Grantee on an approved leave of absence,
the Board may, if it determines that to do so would be in the best interests of
the Company, provide in a specific case for continuation of options during such
leave of absence, such continuation to be on such terms and conditions as the
Board determines to be appropriate. Leaves of absence for such period and
purposes conforming to the personnel policy of the Company as may be approved by
the Board shall not be deemed terminations or interruptions of employment.
13. Adjustments Upon Changes in Capitalization
(a) If the Company's outstanding common stock is hereafter
changed by reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split, combination, or exchange of shares or the like,
or dividends payable in shares of Common Stock, an appropriate adjustment shall
be made by the Board in the aggregate number of shares available under the Plan
and in the number of shares and price per share subject to outstanding options.
If the Company shall be reorganized, consolidated, or merged with another
corporation, or if all or substantially all of the assets of the Company shall
be sold or exchanged, the holder of an option shall, after the occurrence of
such a corporate event, be entitled to receive upon the exercise of his option
the same number and kind of shares of stock or the same amount of property,
cash, or securities as he would have been entitled to receive upon the happening
of any such corporate event as if he had exercised such option and had been,
immediately prior to such event, the holder of the number of shares covered by
such option. All adjustments made pursuant to this paragraph to the terms or
conditions of an incentive stock option shall be subject to the requirements of
section 424 of the Code.
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<PAGE>
(b) Any adjustment in the number of shares shall apply
proportionately to only the unexercised portion of any option granted hereunder.
If fractions of a share would result from any such adjustment, the adjustment
shall be revised to the next higher whole number of shares.
14. Termination, Modification, and Amendment
(a) The Plan shall terminate on February ___, 2009, which is
ten (10) years from the earlier of the date of its adoption by the Board or the
date on which the Plan is approved by the stockholders of the Company and no
option shall be granted after termination of the Plan.
(b) The Plan may from time to time be terminated, modified, or
amended by the affirmative vote of a majority of the votes cast at a duly held
stockholders' meeting at which a quorum representing a majority of all
outstanding voting stock is, either in person or by proxy, present and voting on
the plan, or pursuant to any other procedure allowed under applicable state law.
(c) The Board may at any time terminate the Plan or from time
to time make such modifications or amendments of the Plan as it may deem
advisable including, without limitation, modifications to reflect changes in
applicable law; provided, however, that the Board shall not (i) modify or amend
the Plan in any way that would disqualify any incentive stock option issued
pursuant to the Plan as an incentive stock option as defined in section 422 of
the Code or (ii) without approval by the affirmative vote of a majority of the
votes cast at a duly held stockholders' meeting at which a quorum representing a
majority of all outstanding voting stock is, either in person or by proxy,
present and voting on the Plan, or pursuant to any other procedure allowed under
applicable state law, increase (except as provided by paragraph 14) the maximum
number of shares as to which options may be granted under the Plan.
(d) No termination, modification, or amendment of the Plan,
may, without the consent of the Grantee, adversely affect the rights conferred
by such option.
15. Effective Date
The Plan became effective on February___, 1999 upon the
adoption by the Board subject to the approval by the affirmative vote of the
holders of a majority of the outstanding shares of the Company which occurred on
February ___,1999. All options granted prior to the date of such stockholder
approval shall be subject to such approval.
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<PAGE>
We hereby consent to the filing of our opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Registration Statement. In so doing, we do not admit that we are
in the category of persons whose consent is required under Section 7 of the Act
or under the Rules.
Very truly yours,
/s/ Camhy Karlinsky & Stein LLP
--------------------------------
Camhy Karlinsky & Stein LLP
WED:dg
Enclosure
<PAGE>
We have issued our report dated April 15, 1999, accompanying the financial
statements of Wattage Monitor Inc. contained in the Registration Statement and
Prospectus. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus, and to the use of our name as it appears
under the caption "Experts."
Grant Thornton LLP
Reno, Nevada
April 16, 1999
